UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20112012
oTRANSITION[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number: 000-53548
Calibrus, Inc.
(Exact name of registrant as specified in charter)
| Nevada | | 86-0970023 |
| State or other jurisdiction of | | (I.R.S. Employer I.D. No.) |
| incorporation or organization | | |
| | |
| 1225 West Washington Street, Suite 213, Tempe, AZ | | 85281 |
| (Address of principal executive offices) | | (Zip Code) |
Issuer's telephone number, including area code: (602) 778-7500
Securities registered pursuant to section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered |
| None | N/A |
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities 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
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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes xdays.Yes [X] No o[ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).
Yes x[X] No o[ ]
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'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[X ]
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.
| Large Accelerated filer | o | | Accelerated filer | o |
| Non-accelerated filer | o | (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes 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 prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: The Company’s stock last traded on April 13, 20111, 2013 at $.15$.20 per share giving the shares held by non-affiliates a value of $1,512,723.$2,029,464. Since the Registrant does not have an active trading market these numbers may not be a reliable indication of the share price.
As of April 4, 2012,1, 2013, the Registrant had 13,808,58013,871,080 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: NONE
PART I
ITEM 1. BUSINESS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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.”
Overview
Calibrus, Inc. is a technology based company established in 1999. We have had two business units that leverage our technology capabilities. We have provided Hosted Business Solutions for tentwelve years and now plan to expandhave expanded 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 ourOn June 15, 2012, the Company entered into a purchase agreement to sell substantially all of the assets related to the Company’s Third Party Verification business to Calibrus Hosted Business Solutions, we provideLLC (“CHBS”). The Company made this decision to focus on its Social Networking operations which currently include Fanatic Fans, a mobile smartphone application centered around live sporting and entertainment events, and JabberMonkey, a social expression website centered around gathering public opinion on current events. However, the sale of the Third Party Verification (TPV) Services, Hosted Call Recording ServicesBusiness did not close. The Company fully intends to still divest itself of the Third Party Verification Business and Interactive Voice Response/Voice Recognition Unit (IVR/VRU) Services to some telecom, cablefocus on its Social Networking operations. As a result, the operations of the Company’s Third Party Verification business have been classified as assets held for sale in the balance sheet presentation 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,as discontinued operations in the latest equipment and in-house designed software and solutions, we arepresentation of the hosted solution company that companies can trust with their data.statements of operations.
Our technology provides usThe sale of the Company’s assets to CHBS required that the Company receive shareholder approval for the divestiture. On August 22, 2012 the Company held a special shareholder’s meeting to approve the sale along with changing the abilityname of the Company from Calibrus, Inc. to provide fully-integrated live voice, data,Fanatic Fans and automated servicesapproval of the 2012 Stock Option and combinationsRestricted Stock Plan. All three of services outthese measures received approval by the shareholders. When the sale of a unified platform. Our system’s processesthe TPV Business to CHBS was cancelled the Board of Directors decided not to adopt the name change; however, the 2012 Stock Option 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.Restricted Stock Plan is in effect.
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 scripting to automatically ensure 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. This process protects 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.
In response 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 or as a stand alone service. Customers that select 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 agent 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% of 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 support 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, 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 sent 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
The following descriptions of Fanatic Fans and Jabber Monkey assume that we will obtain the capital required to continue the development of these social medial/social networking products and that they are in operation, which is not the case. Due to our lack of capital and inability to sell our Hosted Business Solutions business we have suspended the development of both of these projects.
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 hashad been live on the Apple App StoreAppStore and Android Marketplace since April 2011, however due to a lack of 2011. operating system upgrades, the applications have recently become unavailable on the AppStore and Android Marketplace.
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. 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 choosechooses 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 can 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 can get information on the show including;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 of the shows that they have attended. They also receive the latest news posts of some of their favorite music artist.artists. 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 FandFans 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 into 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 has 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’ssign-ups 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 eventsevents. |
| · | 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. |
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 Company has suspended any marketing and public relations related to Fanatic Fans until it has sufficient capital to commence these activities.
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. Fanatic Fans was positioned in front of the college football target audiences by participation in various media advertisements.
Additionally, Fanatic Fans has developed a Fanatic Fans website and Facebook application whereby individuals can access the website 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. However due to a lack of operating system upgrades, the applications have recently become unavailable on the AppStore and Android Marketplace.
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 enhancements to both our iphone and Android apps and website and maintenance to theits Fanatic Fans applications.project, but intends to commence development following the sale of the Company’s Third Party Verification business. The Company is currently spending minimal expenditures in maintaining the project until the sale can be completed.
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 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 members 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 support the website or 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. website.
Competition
JabberMonkey will be entering into one of the fastest growing segments of the internet and as such will face intense competition from sites such as MySpace and Facebook. Although Calibrus 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 be 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.
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.
We also are analyzing charging consumers for certain features of our site but at this time, we believe it is more important to drive consumers to our site and will make everything available for free and focus on advertising revenues. Once we obtain a certain level 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
The Company closed the alpha testing phase of development during December 2009. The site reached the beta testing phase in the first part 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.
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.
Even after completing the beta phase, we could still have software and hardware development problems once the full launch of the siteCurrently, JabberMonkey 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.
Currently, JabbeMonkey is not in operation or engaged in new development but we do have several developers that maintaindevelopment. The Company is spending only the JabberMonkey website.minimal in maintenance to keep the website live.
Intellectual 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.
We will be dependent in many ways, on our ability to launch our site and attract consumers before our competitors can develop features which would be a direct competitor to the features in our site. At this time, our ability to be able to attract consumers is unknown as we have only just completed the beta phase of development and released the website for general use and are not certain of the acceptance of our web site and interactive features.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration
We protect some of our technology as trade secrets and, where appropriate, we use trademarks or register trademarks in connection with products and our core name. We currently 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”.
Research and Development Costs During the Last Two Fiscal Years
For the years ended December 31, 20112012 and 20102011 the Company incurred Research and Development Costs of $1,472,113$1,382,100 and $232,327,$1,472,113, respectively. Research and Development expenses related primarily 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:
Our independent registered public accounting firm in its audit report related to our financial statements for the years ended December 31, 2012 and 2011, express substantial doubt about our ability to continue as a going concern.
As a result of our recurring losses from operations and our net capital deficiency our independent registered accounting firm has included an explanatory paragraph in its report on our financial statements for the years ended December 31, 2012 and 2011, expressing substantial doubt as to our ability to continue as a going concern. The inclusion of a going concern explanatory paragraph in the report of our independent registered public accounting firm may make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing we might obtain.
When the closing of the sale of the TPV Business did not occur, we did not receive sales proceeds and we incurred additional expense related to the the proposed sale of the TPV Business.
We have incurred substantial expenses in connection with the sale of the TPV Business. These expenses could have a material adverse impact on our financial condition and results of operations. In addition, the market price of our common stock could decline in the event that a sale of the TPV Business is not consummated because it may reflect an assumption that such sale will be completed.
If a sale of the TPV Business is not completed, we may have to revise our business strategy.
During the past several months, our management has been focused on, and has devoted significant resources to, the sale of the TPV Business. This focus is continuing and we have not pursued certain business opportunities which may have been beneficial to us. If the sale of the TPV Business is not completed and we do not raise additional capital to pursue our social media/networking projects, we will have to revisit our business strategy in an effort to determine what changes may be required in order for us to continue our operations. Further, we may need to consider raising additional capital or financing in order to continue as a going concern even if we do not pursue such projects or if the sale of the TPV Business is not completed. No assurance can be given whether we would be able to successfully raise capital or financing in such circumstances or, if so, under what terms.
The termination of the Asset Purchase Agreement could negatively impact the Company.
We may suffer various consequences due to the termination of the Asset Purchase Agreement. Our business may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the sale of the TPV Business, without realizing any of the anticipated benefits of completing the sale of the TPV Business, or
the market price of the Company's common stock could decline to the extent that the current market price reflects a market assumption that the sale of the TPV Business will be completed. When the Asset Purchase Agreement was terminated and as the Company's Board of Directors seek another transaction or business combination, the Company's stockholders cannot be certain that the Company will be able to find a party willing to pay an equivalent or more attractive price than the price CHBS had agreed to pay in the sale of the TPV Business.
The Company may not have adequate liquidity to maintain its operations while a sale of the TPV Business is pending.
We require substantial liquidity to maintain our production facilities, meet scheduled debt and lease obligations and run our normal business operations. While the sale of the TPV Business is pending and we continue to operate at, or close to, the minimum cash levels necessary to support our normal business operations, our need for cash might continue to intensify and we may be unable to make payments to our suppliers. If we are unable to meet our cash flow needs through operating revenue, there is no guarantee that we will be able to obtain such working capital on terms acceptable to us or at all.
By completing a sale of the TPV Business, we will become less diversified.
By selling our TPV Business, we will be divesting ourselves of our only business segment that is generating revenue and cash flow. We will become a pure social media company focused on the development and commercialization of Fanatic Fans. We may also invest in or acquire other social media businesses or technologies in the future if an attractive opportunity presents itself and if we have sufficient capital to explore them, but we have no current opportunities or specific plans to do so at this time. The sale of our TPV Business increases our business risk because we will be less diversified than before such sale and because we do expect that Fanatic Fans, our remaining business, will generate any revenue in the immediate future.
After a sale of the TPV Business, we will become a pure social networking company in a highly competitive field with high investment costs and high risks.
After the sale, we will be a social media company, provided that we are able to obtain additional financing to pursue our Fanatic Fans project. We must achieve a certain level of users of Fanatic Fans before it can be monetized and produce revenue for us. We will have to raise substantial additional capital to drive users and merchants to Fanatic Fans and eventually generate revenues and reach profitability, if ever. We will be dependent upon selling advertisements and finding other ways to monetize our users by selling add-on services from merchants and third party service providers. For a social application or site to be able to sell advertisements, it must first attract a sufficient number of users to gain the interest of advertisers in buying ads and offering products on the site or the application. It will take time, management effort and capital to attract users to Fanatic Fans. There can be no assurance that any users will come. These timeframes, along with the general state of development create additional uncertainty as to the potential success of Fanatic Fans. The application may not continue to work as we plan and even if it does, there can be no assurance that an economically viable level of users will come, that advertisers will want to advertise or that we can monetize it. Therefore, it will be costly to maintain the application and market it to attract users and advertisers.
We will need additional capital to operate Fanatic Fans.
We will require capital in addition to the proceeds received from a sale of the TPV Business to accomplish our business plan for Fanatic Fans. Traditional forms of financing, such as bank loans, are not available to us. We anticipate that it will be difficult to raise capital from other sources and the terms upon which we may be able to do so may not be favorable. This may result in substantial dilution to current stockholders. There can be no assurance that we will be able to raise the required capital to develop and commercialize Fanatic Fans.
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 application 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, given sufficient financing, we will face competition from well established and funded 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.
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.
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.capital or raise it on terms favorable to us.
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 continued operations of $3,316,838$2,699,613 and a net loss of $6,331,971$1,260,983 for the year ended December 31, 2011,2012, and we have had to rely on new and existing capital to cover the losses. For the year ended December 31, 2011,2012, our current assets have increaseddecreased to $551,072.$452,822. 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,We think 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 wouldWe 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.
WeGiven sufficient capital, 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$1,260,983 and $128,263$6,331,971 for the years ended December 31, 20112012 and 2010,2011, 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$2,020,456 at December 31, 2011.2012. 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 13,808,58013,871,080 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 that 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,April 1, 2013, we had 6146 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. PROPERTIES
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 the term of our lease.
ITEM 3. LEGAL PROCEEDINGS
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.
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the CHBS Note. The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $6,879 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default.
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by the individual for breach of contract of Individual Note. The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default.
Both of the above legal proceedings related to the breach of contract on the notes have been suspended by agreement of the parties until further notice.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Calibrus’ common stock is quoted on OTC Bulletin Board (“OTCBB”), under the symbol “CALB.” Our common stock is traded on the OTCBB but has had limited trading activity. Since ourOur stock was initially included in the 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 | 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 | $0.45 | $0.30 |
| June 30, 2011 | | $0.55 | | $0.30 | $0.55 | $0.30 |
| September 30, 2011 | | $0.32 | | $0.20 | $0.32 | $0.20 |
| December 31, 2011 | | $0.45 | | $0.15 | $0.45 | $0.15 |
| March 31, 2012 | | $0.30 | $0.14 |
| June 30, 2012 | | $0.25 | $0.15 |
| September 30, 2012 | | $0.65 | $0.25 |
| December 31, 2012 | | $0.25 | $0.15 |
At April 4, 2012,1, 2013, the bid and asked price for the Company's Common Stock was $0.15$0.20 and $0.20,$0.25, respectively. 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, Calibrus has not paid any dividends on shares of common stock, and Calibrus does not anticipate that it will pay dividends in the foreseeable future. At December 31, 2011,2012, we had approximately 140150 shareholders of record. As of December 31, 2011,2012, Calibrus had 13,808,58013,871,080 shares of our common stock issued and outstanding. At April 4, 2011,1, 2013, Calibrus had 13,808,58013,871,080 shares of its common stock issued and outstanding.
Possible Sale of Common Stock Pursuant 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 1,200,00062,500 shares of Calibrus’ common stock issued in 2011,2012, all of Calibrus issued 13,808,58013,871,080 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 effect on any market that may develop for Calibrus’ common stock.
Reports to Shareholders
This report will be available over the internet at the Securities and Exchange Commission website www.sec.gov.
Recent Sales of Unregistered Securities
We issued options to our advisory board members during the year ended December 31, 2011 and, accordingly, we believe all issuances are exempt from the registration provisions of the Securities Act of 1933. We issued a total of 500,000 options in 2011.
On January 31, 2011,June 26, 2012, 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 anrelated to the exercise price of $.50 per share.a common stock purchase warrant for total proceeds of $16,250.
On September 26, 2012 the Company issued 12,500 shares of its common stock in relation to the exercise of warrants. The warrants have a 3 year term.Company received $4,064 in proceeds from the issuance.
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) | 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) | (a) | (b) | (c) |
| Equity compensation plans approved by security holders | 2,244,167 | | $1.03 | | 2,605,833 | 2,098,334 | $1.00 | 3,000,000 |
| Total | 2,244,167 | | $1.03 | | 2,605,833 | 2,098,334 | $1.00 | 3,000,000 |
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. SELECTED FINANCIAL DATA
Summary of Financial Information
We had revenues of $3,563,265 andNot Applicable. The Company is 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.“smaller reporting company.”
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'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; 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 or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; our ability to repay our debt obligations; changes in government regulations; availability of management and other key personnel; our ability to raise additional capital and the availability and terms of such capital, if available; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words "believe", "expect", "anticipate", "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
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, 2011.2012 other than the presentation of assets-held-for sale and discontinued operations related to the Company’s planned divestiture of its Third Party Verification Business. 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 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, 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.product.
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 forDuring the year ended December 31, 2011.
It is anticipated that additional hardware2012 the decision was made by management to divest of the Third Party Verification business and software may be required, as well as additional employees, particularly software programmersfocus on the Social Networking operations. The Company began the process of seeking a buyer and web developers, may be neededon June 15, 2012, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) to sell substantially all of the assets related to the Company’s Third Party Verification (“TPV”) business to Calibrus Hosted Business Solutions, LLC ( “CHBS”). The Company made this decision in order to complete certain productsfocus on its social networking operations which currently includes Fanatic Fans, a mobile smartphone application centered around live sporting and services. We believe withinentertainment events, and JabberMonkey, a social expression website centered around gathering public opinion on current events. The Company continued to invest large amounts of capital into improvements of Fanatic Fans. On September 7, 2012 the next twelve (12) months in orderCompany received notice that CHBS terminated the Asset Purchase Agreement and the sale transaction did not occur. When the Asset Purchase Agreement between the Company and CHBS was terminated by CHBS the Company was forced to discontinue the funding of the further develop, implement, market and sell Automated Hosted Business services wedevelopment of Fanatic Fans. On September 12, 2012, the Company cancelled its development contract with MeoMyo, LLC. The Company will need to raise significant additional capital. We currently anticipatecapital in order to execute the business plans related to Fanatic Fans and JabberMonkey. Operating results related to the Company’s TPV business have been classified as discontinued operations. On September 7, 2012 the Company received notice that CHBS terminated the Asset Purchase Agreement and the sale transaction did not occur.
The Company is in the process of seeking an alternative buyer of the TPV Business. As such the operating results of the Third Party Verification business have been presented as discontinued operations and the assets related to the Third Party Verification business have been listed as assets held-for-sale in the accompanying balance sheets. If the Company is successful in this regard, it will cost an additional $1,000,000plans to successfully market our new product. This is only an estimate and may change substantially as we move forward with our new products. Additionally, withuse the current economic conditions facing the country, we may have to raise more funds if we are not able to generate sufficient revenuesproceeds from the new and existing product lines. There can be no assurance that we will be ablesale of its TPV Business to raise any funds or thatcontinue the funds raised will be sufficient to cover ongoing expenses.
With the launchdevelopment of JabberMonkey in 2010 andits Fanatic Fans in 2011 wesocial media initiative and pay off outstanding debt obligations. It will beginneed substantial additional funds to focus more timefinance the development of Fanatic Fans and capitalJabber Monkey
While the Company seeks a new buyer for the TPV Business, the Company has ceased continued development on its Social Networking projects and is operating 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 HostedTPV Business Solutions does not offer.as usual.
The Company has no acquisition plans at this time.
Results of Continuing Operations
December 31, 20112012
For the yearyears ended December 31, 2012 and 2011, we had no revenues attributable to continuing operations. Until such time that a buyer for the Company’s TPV Business can be found we do not anticipate that the Company will generate any revenues from its Social Networking operations. As such, the Company incurred no cost of $3,563,265 compared to revenues for the years ended December 31, 2012 or 2011.
The Company’s general and administrative expenses decreased from the prior year with expenses of $3,745,876$922,886 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 continued2012 compared 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 some of the largest telecommunication companies, we do not believe we will see a significant increase in revenues from 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.
Over 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 pricing as discussed 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$1,739,759 for the year ended December 31, 20112011. The reduction was $1,472,113primarily made up of a decrease in amortization expense related to the Company’s JabberMonkey website as compareda result of the Company’s write-off of capitalized costs associated with the project. This was offset by significantly higher legal and accounting expenses related to $232,327 forthe Company’s failed sale transaction in 2012.
The Company incurred impairment expense of $108,458 during the year ended December 31, 2010. This increase was the result of2012. On September 12, 2012 the Company capitalizing costs related toterminated its time and materials contract with MeoMyo, LLC for the continued development of its JabberMonkey.com website through November of 2010. Substantially, all research and development expenses in 2011 related directly to the Fanatic Fans mobile application. GeneralThe Company had prepaid several months of rent for the development office in Dubai. Following the termination of the agreement and administrative expenses for 2011 remained largely flat when comparednon-payment of several invoices to 2010. On December 31, 2011MeoMyo, LLC the development office was abandoned. The Company wrote-off prepaid rent in the amount of $80,859 as a result of this as management estimates that these amounts would not be recoverable. This amount is included in impairment expense as noted above.
During the quarter ended September 30, 2012 the Company reviewedexpensed its $27,599 security deposit on its office space in Tempe, Arizona. During 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 thatquarter, the Company currently lacks sufficient funds to actively marketwas notified that because the product. Givenoffice building in which it was located was placed into foreclosure the lead time necessary to market the product, develop a client base and generate a revenue stream, it couldsecurity deposit was 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 recordedrecoverable. This amount is included in impairment expense of $1,757,898 related to this impairment. as noted above.
Interest expense for the year was significantly higher,reduced over the prior year primarily due to increaseda decrease in interest related to the Company’s convertible debentures over the prior year and the inclusion of $2,735,189 in conversion expense related to the conversion of the debentures. debentures in 2011. However this decrease was offset slightly by the default interest incurred on the notes related to the failed sale of the TPV Business.
The Company will likely see large reductions in interest expensehad income from discontinued operations of $1,438,630 for the year ended December 31, 2012 as the Company reduced its debt as a result of the conversion of $1,540,000 of debtcompared to equity.
The Company had negative cash-flowincome from discontinued operations of approximately $1,033,172 for$1,652,932. This income reflects the year ended December 31, 2011. With the exceptionresults 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, 2011Company’s Third Party Verification business. The reduction was the result of approximately $439,000 (unaudited). This is indicativelower call volumes for one 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.largest customers.
Seasonality and Cyclicality
We do not believe our business is cyclical.
Liquidity and Capital Resources
As of December 31, 20112012 we had cash on hand of $11,065$24,692 and negative working capital of $824,196 with current assets$2,020,456. Historically, the Company had been able to fund operations through the generation of $551,072positive cash flow from its TPV business operations. The Company has been, and current liabilities of $1,375,268.
Our working capitalcontinues, to use cash in its operations as of Decemberit focuses on its social networking business, which to date has generated no revenues or cash flows. Through October 31, 2011, decreased from negative working capitalthe Company sold 315 units, at $5,000 per unit, consisting of $1,692,763$5,000 in Convertible Debentures (“the Debentures”) of Calibrus and 2,500 common stock purchase warrants (the “Units”) for total proceeds of $1,575,000, of which $15,000 in principal balance remains outstanding at December 31, 2010, largely as a result of conversion of existing debt to equity. However, the2012. 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 hasalso received an additional $45,000$140,000 in short-termshort 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 forduring the year ended December 31, 2011 totaled $1,472,113. 2012 from its CEO. The Company has also received an additional $65,000 in the form of a bridge loan from its President. In addition, the Company has received $400,000 in short-term financing from the proposed buyers of its TPV business which is discussed below.
On June 15, 2012, the Company entered into an Asset Purchase Agreement with CHBS under which CHBS was to purchase substantially all of the assets of the Company’s TPV Business for $3,000,000 in cash, subject to adjustment. The closing date of the transaction was to be on or before August 31, 2012. The initial purchase price consideration due upon closing was $2,000,000 less the $400,000 already advanced in the form of short-term notes payable pursuant to the Note Agreements. This $400,000 was to reduce the initial payment due to the Company upon closing to $1,600,000.
On September 7, 2012 the Company received notice that CHBS terminated the Asset Purchase Agreement and the sale did not occur. The Company is in the process of seeking an alternative buyer of the TPV Business.
On September 7, 2012, when CHBS terminated the asset purchase agreement, the $400,000 in short-term notes payable became immediately due. As such, all amounts became due and payable. The Company has retroactively accrued interest on the $400,000 in notes at 18% interest per annum through September 15, 2012. The Company has also accrued interest at the 30% default interest rate per the notes from September 16, 2012 through December 31, 2012. Accrued interest related to these notes at December 31, 2012 amounted to $56,063.
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the note agreement. The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $6,879 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default. The Company believes that CHBS breached the asset purchase agreement by refusing to close the transaction. Accordingly, the Company believes it has defenses and counterclaims against CHBS. The parties have agreed to suspend the litigation at this point.
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by an individual for breach of contract of the note agreement. The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default. The Company believes that Calibrus Hosted Business Solutions breached the asset purchase agreement by refusing to close the transaction. Accordingly, the Company believes it has defenses and counterclaims against such party based on the breach of CHBS. The parties have agreed to suspend the litigation at this point.
With the exception this expense,of the $400,000 in short-term loans discussed above, the Company would have generated positive proforma cash flowhas received verbal extensions on all of approximately $439,000 (unaudited).its outstanding debt through June 30, 2013.
Although we have been expanding our product offerings, which have increased our need for capital, we have also reduced our long term expenses by reducingAs of December 31, 2012, the amountCompany owed a total of rentable square feet$1,024,900 in our current location. We were also able to reduce expenses through a reduction in our workforce. We are hopeful these changesprincipal balance notes and advances along with our new product offerings, which are notan additional $127,077 in accrued interest.
On September 12, 2012 the Company terminated its time and materials contract with MeoMyo, LLC as labor intensive,a result of the termination of the asset purchase agreement and the Company’s inability to fund the ongoing development of its social networking operations. The Company intends to restart development upon the sale of its TPV Business. However, it is unknown when this will allow usoccur, if ever. As of December 31, 2012, the Company owed a total of $454,959 to returnMeoMyo, LLC.
The Company is operating the TPV Business at a small cash-flow positive state and will have to profitability, butbegin paying down its obligations out of this cash-flow until a sale can be completed. Until such time a buyer is found for the TPV Business, the Company has suspended further development expenditures related to its social media initiatives. However, there will be some ongoing maintenance expenses related to support of the social media projects.
The Company intends to satisfy its outstanding debt obligations out of the proceeds from the eventual sale of its TPV Business. However, the Company can provide no assurance that this sale will occur or, if it does occur, that the net proceeds will be sufficient to satisfy the Company’s outstanding debt obligations. Further, upon sale of the TPV Business the Company will be divesting itself of its only revenue generating source. We 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 based on our current cashflow from operations and management’s expectation of its ability to raise additional capital and reduce expenses related toassuarance when or if our social networking projects. Management intendsofferings will be successful. As such the Company will have no incoming cash-flow to fund its ongoing operations. The Company will have to rely on its ability to raise additional capital, either through an additional debt or equity offerings or debt placement to help expand our marketing efforts and toalliances with third parties; however there can be no assurance that the Company will be able to aggressively market our new product offerings, including JabberMonkey and Fanatic Fans. We have estimated ourraise such capital needs basedor create such alliances or do so on favorable terms. If the potential revenues from existing clients and our current burn rate over the previous months as we continueCompany is unable to investment money 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 ableraise additional capital it may be forced 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.operations.
We estimate we will need an additional $1,000,000 in capital, after satisfying our debt obligations, 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, bothBoth 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.
The Company has incurred significant cumulative net losses from operations in recent years. As reported in the financial statements, the Company has an accumulated deficit of $11,306,459. At December 31, 2012, the Company had total assets of $478,136 and liabilities totaling $2,473,278, and a working capital deficit of $2,020,456. These factors raise considerable doubt as to the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on its ability to raise adequate capital to fund operating losses until it is able to engage in profitable business operations. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing its services and meeting its obligations. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements. To this end, the Company has discontinued the furthered development and expenditures related its social networking operations and is currently operating its TPV Business at a small cash flow positive state however not at sufficient amounts to timely satisfy its current debt obligations. Management intends to work with its existing debt holders to negotiate payment terms. The accompanying financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.
Off-Balance Sheet Arrangements
We have no off balance sheet arrangements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENATRY 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, 20112012 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, 20112012 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, 2011,2012, 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, 2011,2012, 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 | 59 | CEO, Director |
| Greg Holmes | | 48 | 49 | President |
| Kirk Blosch | | 57 | 58 | Director |
| Charles House | | 71 | | Director |
Christian J. Hoffmann, III | | 64 | 72 | Director |
| Michael Myers | | 43 | 44 | Director |
| Kevin Asher | | 36 | 37 | CFO |
| Tom Harker | 39 | 38CTO |
| | 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 2526 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 hasis currently Executive Director of InnovaScapes Institute located in Menlo Park, CA. Prior to joining Innova Scapes, Mr. . House served as Chancellor of Cogswell College in Sunnyvale, CA since July 2011.until August 2012. 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 directordirector.
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, MCSE - 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 fivefour members, threetwo 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 BoardDuring 2012, the board of Directors is currently compriseddirectors of five members, two of which are independentCalibrus met four times. Additionally, the Compensation Committee met once and two that are not. Christian J. Hoffmann, Charles House and Michael Myers are considered independentthe Audit Committee met three times. All members of the Board and Kirk Blosch and Jeff Holmes are not considered independent.
board of directors were either present in person or by proxy at all the meetings.
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 currently made up of Christian J. Hoffmann and Kirk Blosch, who is Chairman of the Committee. Prior to April 22, 2013, Christian J. Hoffmann III was also a member 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 20112012 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, 20112012 (collectively referred to as the "Named Executives"). No other executive officer serving during 20112012 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 | | 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) | | (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 | | 12/31/2012 | $96,875 | $0 | $0 | $0 | $0 | $4,659 | $101,534 |
| | | 12/31/2010 | | $ | 194,593 | | | $ | 0 | | | $ | 0 | | | $ | 27,000 | | | $ | 0 | | | $ | 0 | | | $ | 4,054 | | | $ | 225,647 | | 12/31/2011 | $79,250 | $0 | $0 | $0 | $0 | $4,363 | $83,613 |
| Greg W. Holmes, President | | 12/31/2011 | | $ | 54,163 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,393 | | | $ | 58,556 | | 12/31/2012 | $74,792 | $0 | $0 | $0 | $0 | $4,729 | $79,521 |
| | | 12/31/2010 | | $ | 131,201 | | | $ | 0 | | | $ | 0 | | | $ | 20,250 | | | $ | 0 | | | $ | 0 | | | $ | 4,120 | | | $ | 155,571 | | 12/31/2011 | $54,163 | $0 | $0 | $0 | $0 | $4,393 | $58,556 |
| Thomas Harker, CTO | | 12/31/2011 | | $ | 102,400 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,460 | | | $ | 106,860 | | 12/31/2012 | $105,833 | $0 | $0 | $0 | $0 | $4,659 | $110,492 |
| | | 12/31/2010 | | $ | 123,290 | | | $ | 0 | | | $ | 0 | | | $ | 7,125 | | | $ | 0 | | | $ | 0 | | | $ | 4,123 | | | $ | 134,538 | | 12/31/2011 | $102,400 | $0 | $0 | $0 | $0 | $4,460 | $106,860 |
| Kevin J. Asher, CFO | | 12/31/2011 | | $ | 100,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 4,372 | | | $ | 104,372 | | 12/31/2012 | $108,750 | $0 | $0 | $0 | $0 | $4,660 | $113,410 |
| | | 12/31/2010 | | $ | 126,250 | | | $ | 0 | | | $ | 0 | | | $ | 13,500 | | | $ | 0 | | | $ | 0 | | | $ | 4,120 | | | $ | 143,870 | | 12/31/2011 | $100,000 | $0 | $0 | $0 | $0 | $4,372 | $104,372 |
(1) The Company hashad adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan.Plan, both of which have expired. 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 915,000780,000 options that are outstanding as of April 4, 2012, at1, 2013, all with an exercise prices ranging from $1.00 to $1.52.price of $1.00. The maximum term of the options iswas five years, and they vestvested at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may granthave granted options for up to 2,000,000 shares of common stock and has granted 1,329,1671,318,334 as of April 4, 2012,1, 2013, all with an exercise price of $1.00. The maximum term of the options iswas five years and they vestvested at various times according to the Option Agreements. All forfeited and expired options arewere added back into the plan and becomebecame immediately available for issuance. Both of the above stock option plans have expired and no further options are available for grant under the expired plans.
(2) The amounts shown include Company-paid portion of health insurance for the fiscal years ended 20112012 and 2010.2011.
Outstanding Equity Awards At Fiscal Year-End
| | | Stock Awards | | | | Stock Awards | | Stock Awards | | | | Stock Awards | |
| Name | | Number of securities underlying unexercised Options (#) Exercisable | | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | Option Exercise Price ($) | | 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 ($) | | | Equity Incentive Plan Awards: Number of Unearned Shares Units or Other Rights That Have Not Vested (#) | | | Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | Number of securities underlying unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | 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 | | | - | | | | - | | | | - | | | | - | | 70,000 | - | $1.00 | 12/17/2013 | - | - |
| CEO | | | 300,000 | | | | - | | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | | 300,000 | - | $1.00 | 9/10/2015 | - | - |
| Greg W. Holmes | | | 50,000 | | | | - | | | | - | | | $ | 1.00 | | 12/17/2013 | | | - | | | | - | | | | - | | | | - | | 50,000 | - | $1.00 | 12/17/2013 | - | - |
| President | | | 225,000 | | | | - | | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | | 225,000 | - | $1.00 | 9/10/2015 | - | - |
| Tom Harker | | | 50,000 | | | | - | | | | - | | | $ | 1.00 | | 12/17/2013 | | | - | | | | - | | | | - | | | | - | | 50,000 | - | $1.00 | 12/17/2013 | - | - |
| CTO | | | 79,167 | | | | - | �� | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | | 79,167 | - | $1.00 | 9/10/2015 | - | - |
| Kevin Asher | | | 50,000 | | | | - | | | | - | | | $ | 1.00 | | 11/18/2013 | | | - | | | | - | | | | - | | | | - | | 50,000 | - | $1.00 | 11/18/2013 | - | - |
| CFO | | | 25,000 | | | | - | | | | - | | | $ | 1.00 | | 12/17/2013 | | | - | | | | - | | | | - | | | | - | | 25,000 | - | $1.00 | 12/17/2013 | - | - |
| | | | 150,000 | | | | - | | | | - | | | $ | 1.00 | | 9/10/2015 | | | - | | | | - | | | | - | | | | - | | 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) | 12/31/2012 | - | - | $0 | - | - | - | - |
| 12/31/2011 | - | - | $0 | - | - | - | - |
| Charles House (2) | 12/31/2012 | - | - | $0 | - | - | - | - |
| 12/31/2011 | - | - | $0 | - | - | - | - |
| Christian J. Hoffmann, III (2) | 12/31/2012 | - | - | $0 | - | - | - | - |
| 12/31/2011 | - | - | $0 | - | - | - | - |
| Michael Myers (2) | 12/31/2012 | - | - | $0 | - | - | - | - |
| 12/31/2011 | - | - | $0 | - | - | - | - |
| Name | | Year | | Fees Earned or Paid in Cash ($) | | | 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 20112012 and 2010,2011, 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 1211 included in Item 8 of this Form 10-K.
(2) As of December 31, 2011,2012, Kirk Blosch had 280,000235,000 options outstanding, Charles House had 280,000235,000 options outstanding, Christian J. Hoffmann, III had 330,000285,000 options outstanding and Michael Myers had 25,000 options outstanding. No director had any stock awards outstanding. Mr. Hoffman resigned as a director effective April 22, 2013
Option/SAR Grants in Last Fiscal Year
In fiscal 2012 and 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 hashad adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan.Plan, both of which have expired. 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 915,000780,000 options that are outstanding as of April 4, 2012, at1, 2013, all with an exercise prices ranging from $1.00 to $1.52.price of $1.00. The maximum term of the options iswas five years, and they vestvested at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may granthave granted options for up to 2,000,000 shares of common stock and has granted 1,329,1671,318,334 as of April 4, 2012,1, 2013, all with an exercise price of $1.00. The maximum term of the options iswas five years and they vestvested at various times according to the Option Agreements. All forfeited and expired options arewere added back into the plan and becomebecame immediately available for issuance. Both of the above stock option plans have expired and no further options are available for grant under the expired plans.
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 2011,2012, 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 2011years 2012 or 2010.2011.
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 2012 and 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 | |
| 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 | |
| Kelly Robinson | 6/28/2004 | | $ | 90,000 | |
During the years ended December 31, 20112012 and 2010,2011, 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 and forgive the unpaid amounts per their respective employment agreements. In September 2012, the Company reinstated a portion of the salary decreases to the executives.
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, 2011,2012, 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.
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 yearyears ended December 31, 2012 and 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. In September 2012, the Company reinstated a portion of the salary decreases to the executives.
Option Plans
Calibrus hashad 4,850,000 shares reserved for issuance under stock option plans with 2,244,1672,098,334 stock options issued and outstanding. Both of the Company’s prior stock option plans have expired. The board of directors hashad the authority to issue the options at their sole discretion.
The Company hashad adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan.Plan, both of which have expired. 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 915,000780,000 options that are outstanding as of April 4, 2012, at1, 2013, all with an exercise prices ranging from $1.00 to $1.52.price of $1.00. The maximum term of the options iswas five years, and they vestvested at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may granthave granted options for up to 2,000,000 shares of common stock and has granted 1,329,1671,318,334 as of April 4, 2012,1, 2013, all with an exercise price of $1.00. The maximum term of the options iswas five years and they vestvested at various times according to the Option Agreements. All forfeited and expired options arewere added back into the plan and becomebecame immediately available for issuance. Both of the above stock option plans have expired and no further options are available for grant under the expired plans. 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.
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 toregarding the beneficial ownership of Calibrus’ Common Stock by each director of Calibrus andour common stock at April 1, 2013 with respect to (i) each person or group known by Calibrus to be the beneficial owner ofus to beneficially own more than 5% of Calibrus’the outstanding shares of Common Stock. At December 31, 2011our common stock; (ii) each of our directors; (iii) each of our executive officers; and April 12, 2012, there were 13,808,580 shares(iv) all of common stock outstanding.our directors and all of our executive officers as a group.
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 13,808,58013,871,080 shares of common stock outstanding as of April 4, 2012,1, 2013, 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.
.
| | | Shares Beneficially Owned (1) (2) |
| Name | | Number | | | Percent |
Jeff W. Holmes (3) | | | 2,407,064 | | | | 16.78% |
Kirk Blosch (4) 2081 S. Lakeline Drive Salt Lake City, UT 84109 | | | 1,630,334 | | | | 11.56% |
Greg Holmes (5) | | | 806,060 | | | | 5.49% |
Kevin Asher (6) | | | 225,000 | | | | 1.60% |
Charles House (7) | | | 235,000 | | | | 1.67% |
Michael Myers (8) | | | 25,000 | | | | * |
Tom Harker (9) | | | 129,167 | | | | * |
All directors and executive officers as a group (9 persons) (10) | | | 5,457,625 | | | | 35.28% |
| 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.
| (1) | For purposes of this table, "beneficial ownership" is determined in accordance with the rules of the Securities and Exchange Commission ("SEC") and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares which may be acquired by a person upon exercise of stock options or any other right within 60 days of the date of the table are deemed beneficially owned by such person. Except as indicated by footnote, and subject to community property laws where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. |
| (2) | The address of these stockholders is c/o Calibrus, Inc., 1225 West Washington, Suite 213, Tempe, AZ 85281. |
| (3) | Includes 370,000 stock options which are exercisable now at $1.00 per share. Shares also include 50,000 warrants issued to Mr. Holmes which are now exercisable at $0.50 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 $0.325 per share. |
(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.
| (4) | Includes 235,000 stock options which are exercisable now at a price of $1.00 per share. Mr. Blosch owns 1,395,334 shares, exclusive of the options. |
(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.
| (5) | Includes 275,000 stock options which are exercisable currently at $1.00 per share. Mr. Greg Holmes owns 531,060 shares, exclusive of the options. |
(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.
| (6) | Includes 225,000 stock options which are exercisable currently at $1.00 per share. Mr. Asher owns no shares. The shares shown are the options he can exercise. |
(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.
| (7) | Shares include 235,000 stock options which are exercisable currently at $1.00 per share. Mr. House owns no shares. The shares shown are options he can exercise. |
| (8) | Includes 25,000 stock options which are exercisable currently at $1.00 per share. Mr. Myers owns no shares, The shares shown are options he can exercise. |
| (9) | Includes 129,167 stock options which are exercisable currently at $1.00 per share. Mr. Harker owns no shares. The shares shown are the options he can exercise. |
| (10) | Includes 1,908,804 shares directors and executive officers have a right to acquire upon exercise of stock options and 129,637 shares exercisable upon exercise of warrants. |
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) | | 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) | | (a) | | | (b) | | | (c) | |
| Equity compensation plans approved by security holders | | 2,244,167 | | $1.03 | | 2,605,883 | | | 2,098,334 | | | $ | 1.00 | | | | 3,000,000 | |
| Total | | 2,244,167 | | $1.03 | | 2,605,883 | | | 2,098,334 | | | $ | 1.00 | | | | 3,000,000 | |
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.
parties other than the short term, non-interest bearing cash advances received from the CEO, President and Mother of the CEO and President as discussed below.
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 JanuaryAs of December 31, 2011,2012 the Company issuedowed a promissory notetotal of $152,400 in short term advances from its CEO and an additional $50,000 principal balance in the principal amount $50,000 to evidenceform of 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.bridge loan.
As of December 31, 20112012 the Company had receivedowed a $32,400 short term advance from its CEO.
Astotal of December 31, 2011 the Company had received a $57,000$45,000 in short-term advanceadvances from the mother of the CEO and President.President and an additional $15,000 principal balance in the form of a convertible debenture.
As of December 31, 20112012 the Company had receivedowed a total of $20,000 in short-term advanceadvances from its President.President and an additional $267,500 principal balance in the form of bridge loans.
As of December 31, 2012 the Company owed a total of $25,000 in principal balance notes to Christian J. Hoffmann, III, or entities controlled by Mr. Hoffmann. Mr. Hoffmann was a Director of the Company in 2012 and resigned as a director effective April 22, 2013.
As of December 31, 2012 the Company owed $187,701 in accrued and unpaid legal fees to Quarles & Brady, LLP. Chrisitian J. Hoffmann III, a Director of the Company, is a partner at Quarles & Brady, LLP. Mr. Hoffman resigned as a director effective April, 22, 2013.
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$56,800 and $40,000$55,000 for each of the years ending December 31, 20112012 and 2010.2011.
2) Audit-Related Fees. $0 and $0.
3) Tax Fees. $2,800$3,200 and $2,800.
4) Other. $0Other 14C Related. $16,800 and $0$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 20112012 and 20102011 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, 20112012 and 2010
2011
Report of Independent Registered Public Accounting Firm
Balance Sheets - December 31, 20112012 and December 31, 20102011
Statements of Operations - Years ended December 31, 20112012 and 20102011
Statements of Changes in Stockholders' Equity – Years ended December 31, 20112012 and 20102011
Statements of Cash Flows – Years ended December 31, 20112012 and 20102011
Notes to Financial Statements – Years ended December 31, 20112012 and 20102011
(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. |
| | | SEC | | | | |
| Exhibit | | Reference | | | | |
| No. | | No. | | Title of Document | | Location |
| | | | | | | |
| 3(i) | | 3.01 | | Articles of Incorporation of Calibrus | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 3(ii) | | 3.02 | | Amendment to Articles of Incorporation Calibrus-Name Change | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 3(iii) | | 3.03 | | Bylaws of Calibrus | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 4 | | 4.01 | | Specimen Stock Certificate | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.01 | | Lease Agreement – Paragon | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.02 | | AT&T Services, Inc.-Agreement | | Confidentiality |
| | | | | | | Requested |
| | | | | | | |
| 10 | | 10.03 | | Magnet Warrant | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.04 | | Employment Agreement-Jeff Holmes | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.05 | | Employment Agreement-Greg Holmes | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.06 | | Employment Agreement-Kevin Asher | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.07 | | Incentive Stock Option Plan | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.08 | | Non-Qualified Stock Option Plan | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.09 | | Form of Options | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.10 | | MeoMyo, LLC Development Contract | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.11 | | Form of Convertible Debenture | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.12 | | Form of Warrant | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 10 | | 10.13 | | 2012 Stock Option and Restricted Stock Plan | | Incorporated by |
| | | | | | | Reference2 |
| | | | | | | |
| 14 | | 14.01 | | Code of Ethics | | Incorporated by |
| | | | | | | Reference1 |
| | | | | | | |
| 31 | | 31.01 | | CEO certification | | This Filing |
| | | | | | | |
| 31 | | 31.02 | | CFO certification | | This Filing |
| | | | | | | |
| 32 | | 32.01 | | CEO and CFO certification | | This Filing |
| | | |
1 Filed as an exhibit to the Company's registration statement on Form 10 filed with the Commission, SEC file no. 000-53548. 2 Filed as an exhibit to the Company’s definitive proxy statement on Form DEF 14A 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 NameCalibrus, Inc. | | |
| | | | | |
| | By: | /s/ Jeff W. Holmes | | Date: April 16, 201224, 2013 |
| | | Jeff W. Holmes, CEO | | |
| | | | | |
| | By: | /s/ Kevin J. Asher | | Date: April 16, 201224, 2013 |
| | | 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/Jeff W. Holmes | | Director, CEO | | April 16, 201224, 2013 |
| Jeff W. Holmes | | | | |
| | | | | |
/s/Kirk Blosch | | Director | | April 16, 201224, 2013 |
| Kirk Blosch | | | | |
| | | | | |
| /s/ Charles House | | Director | | April 16, 2012 |
Christian Hoffmann, III | | | | |
| | | | |
/s/ | | Director | | April 16, 201224, 2013 |
| Charles House | | | | |
| | | | | |
| /s/ Michael Myers | | Director | | April 16, 201224, 2013 |
| Michael Myers | | | | |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Calibrus, Inc.
We have audited the accompanying balance sheets of Calibrus, Inc. as of December 31, 20112012 and 20102011 and the related statements of operations, changes in stockholders’ equity (deficit),deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Calibrus, Inc. at December 31, 20112012 and 2010,2011, and the results of its operations, changes in stockholders' equity (deficit)deficit and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The 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, 201224, 2013
CALIBRUS, INC.
BALANCE SHEETS
December 31, 20112012 and 20102011
| | | | | | | | | |
| ASSETS | ASSETS | ASSETS | | | | | | |
| | | 2011 | | | 2010 | | | | 2012 | | | 2011 | |
| Current Assets | | | | | | | Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 11,065 | | | $ | 21,519 | | Cash and cash equivalents | | $ | 24,692 | | | $ | 11,065 | |
| Accounts receivable - trade, net | | | 526,413 | | | | 372,990 | | Accounts receivable - trade, net | | | 423,319 | | | | 526,413 | |
| Prepaid expenses | | | 13,094 | | | | 6,133 | | Prepaid expenses | | | 4,811 | | | | 13,094 | |
| Deferred financing fees | | | 500 | | | | - | | Deferred financing fees | | | - | | | | 500 | |
| | | | | | | | | | | | | | | | | | |
| Total Current Assets | | | 551,072 | | | | 400,642 | | |
| | | Total Current Assets | | | 452,822 | | | | 551,072 | |
| | | | | | | | | | | | | | | | | | |
| Property and equipment, net | | | 41,065 | | | | 47,357 | | Property and equipment, net | | | 9,138 | | | | 10,303 | |
| Software development, net | | | - | | | | 2,675,062 | | |
| Deposits | | | 28,649 | | | | 29,392 | | | | | 935 | | | | 1,050 | |
| Assets held for sale | | Assets held for sale | | | 15,241 | | | | 58,361 | |
| | | | | | | | | | | | | | | | | | |
| Total Assets | | $ | 620,786 | | | $ | 3,152,453 | | |
| | | Total Assets | | $ | 478,136 | | | $ | 620,786 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Current Liabilities | | | | | | | | | Current Liabilities | | | | | | | | |
| Convertible notes payable - current portion | | $ | 10,000 | | | $ | 605,000 | | Convertible notes payable - current portion | | $ | - | | | $ | 10,000 | |
| Convertible related party notes payable - current portion | | | 15,000 | | | | 405,000 | | Convertible related party notes payable - current portion | | | 15,000 | | | | 15,000 | |
| Note payable - current portion | | | 50,000 | | | | - | | |
| Related party note payable, net of discount - current portion | | | 367,733 | | | | - | | |
| Note payables - current portion | | Note payables - current portion | | | 450,000 | | | | 50,000 | |
| Related party notes payable and short term cash advances, | | Related party notes payable and short term cash advances, | | | | | | | | |
| net of unamortized discount of $0 and $16,667 - current portion | | net of unamortized discount of $0 and $16,667 - current portion | | | 559,900 | | | | 367,733 | |
| Due to factor | | | 238,966 | | | | 132,729 | | Due to factor | | | 253,595 | | | | 238,966 | |
| Accounts payable - trade | | | 476,699 | | | | 684,570 | | Accounts payable - trade | | | 833,987 | | | | 476,699 | |
| Accrued liabilities | | | 216,870 | | | | 266,106 | | Accrued liabilities | | | 360,796 | | | | 216,870 | |
| | | | | | | | | | | | | | | | | | |
| Total Current Liabilities | | | 1,375,268 | | | | 2,093,405 | | |
| | | | | | | | | | Total Liabilities | | | 2,473,278 | | | | 1,375,268 | |
| Total Liabilities | | | 1,375,268 | | | | 2,093,405 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Stockholders' Equity (Deficit) | | | | | | | | | Stockholders' Equity (Deficit) | | | | | | | | |
| Preferred stock, $.001 par value, 5,000,000 shares authorized, | | | | | | | | | Preferred stock, $.001 par value, 5,000,000 shares authorized, | | | | | | | | |
| none issued or outstanding | | | - | | | | - | | none issued or outstanding | | | - | | | | - | |
| Common stock, $.001 par value, 45,000,000 shares authorized, | | | | | | | | | 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 | | |
| 13,871,080 and 13,808,580 shares issued and outstanding | | 13,871,080 and 13,808,580 shares issued and outstanding | | | 13,871 | | | | 13,809 | |
| Additional paid-in capital | | | 9,277,185 | | | | 4,765,758 | | Additional paid-in capital | | | 9,297,446 | | | | 9,277,185 | |
| Accumulated deficit | | | (10,045,476 | ) | | | (3,713,505 | ) | Accumulated deficit | | | (11,306,459 | ) | | | (10,045,476 | ) |
| | | | | | | | | | | | | | | | | | |
| Total Stockholders' Equity (Deficit) | | | (754,482 | ) | | | 1,059,048 | | |
| | | | | | | | | | Total Stockholders' Equity (Deficit) | | | (1,995,142 | ) | | | (754,482 | ) |
| Total Liabilities and Stockholders' Equity (Deficit) | | $ | 620,786 | | | $ | 3,152,453 | | |
| | | | | | | | | | | |
| | | Total Liabilities and Stockholders' Equity (Deficit) | | $ | 478,136 | | | $ | 620,786 | |
The Accompanying Notes are an Integral
Part of the Financial Statements
F-1
CALIBRUS, INC.
STATEMENTS OF OPERATIONS
For The Years Ended December 31, 20112012 and 20102011
| | | | | | | | |
| | | 2011 | | | 2010 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | |
| 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 | | | | 922,886 | | | | 1,739,759 | |
| Impairment expense | | | 1,757,898 | | | | - | | | | 108,458 | | | | 1,757,898 | |
| Research and development | | | 1,472,113 | | | | 232,327 | | | | 1,382,100 | | | | 1,472,113 | |
| | | | | | | | | | | | | | | | | |
| Loss from Operations | | | (3,316,838 | ) | | | (15,746 | ) | |
| | | | | (2,413,444 | ) | | | (4,969,770 | ) |
| | | | | | | | | | | | | | | | | |
| Other Income (Expense): | | | | | | | | | | | | | | | | |
| Interest income | | | 23 | | | | 591 | | | | 2 | | | | 23 | |
| Interest expense | | | (3,015,156 | ) | | | (113,108 | ) | | | (286,171 | ) | | | (3,015,156 | ) |
| | | | | | | | | | | | | | | | | |
| | | | (3,015,133 | ) | | | (112,517 | ) | | | (286,169 | ) | | | (3,015,133 | ) |
| | | | | | | | | | | | | | | | | |
| Loss from continued operations | | | | (2,699,613 | ) | | | (7,984,903 | ) |
| | | | | | | | | | |
| Income from discontinued operations | | | | 1,438,630 | | | | 1,652,932 | |
| | | | | | | | | | |
| Loss before income taxes | | | (6,331,971 | ) | | | (128,263 | ) | | | (1,260,983 | ) | | | (6,331,971 | ) |
| | | | | | | | | | | | | | | | | |
| Income tax benefit (expense) - deferred | | | - | | | | - | | |
| Income taxes | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Net Loss | | $ | (6,331,971 | ) | | $ | (128,263 | ) | | $ | (1,260,983 | ) | | $ | (6,331,971 | ) |
| | | | | | | | | | | | | | | | | |
| Loss per Common Share: | | | | | | | | | |
| Basic and Diluted | | $ | (0.79 | ) | | $ | (0.02 | ) | |
| Loss per common share from continued operations | | | | | | | | | |
| Basic and diluted | | | $ | (0.20 | ) | | $ | (1.00 | ) |
| | | | | | | | | | | | | | | | | |
| Income per common share from discontinued operations | | | | | | | | | |
| Basic and diluted | | | | 0.10 | | | | 0.21 | |
| | | | | | | | | | | | | | | | | |
| Weighted Average Common Shares Outstanding: | | | | | | | | | |
| Basic and Diluted | | | 7,978,820 | | | | 6,794,600 | | |
| Net loss per common share | | | | | | | | | |
| Basic and diluted | | | $ | (0.10 | ) | | $ | (0.79 | ) |
| | | | | | | | | | |
| Weighted average common shares; basic and diluted | | | | 13,837,758 | | | | 7,978,820 | |
The Accompanying Notes are an Integral
Part of the Financial Statements
F-2
CALIBRUS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For The Years Ended December 31, 20112012 and 20102011
| | | | | | Additional | | | | | | Total | | | | | | | | | Additional | | | | | | Total | |
| | | Common Stock | | | Paid-In | | | Accumulated | | | Stockholders' | | | Common Stock | | | | | | Paid-In | | | Accumulated | | | Stockholders' | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity (Deficit) | | | 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 | | | | 6,794,600 | | | $ | 6,795 | | | $ | 4,765,758 | | | $ | (3,713,505 | ) | | $ | 1,059,048 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Warrants issued with bridge loans | | | - | | | | - | | | | 3,316 | | | | - | | | | 3,316 | | | | - | | | | - | | | | 3,316 | | | | - | | | | 3,316 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible debt warrants | | | - | | | | - | | | | 104,821 | | | | - | | | | 104,821 | | | | - | | | | - | | | | 104,821 | | | | - | | | | 104,821 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Warrants issued with debt conversion | | | - | | | | - | | | | 14,191 | | | | - | | | | 14,191 | | | | - | | | | - | | | | 14,191 | | | | - | | | | 14,191 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock issued upon conversion of debt and interest | | | 6,976,480 | | | | 6,976 | | | | 1,737,144 | | | | - | | | | 1,744,120 | | |
| Stock issued upon conversion of debt | | | | | | | | | | | | | | | | | | | | | |
| and interest | | | | 6,976,480 | | | | 6,976 | | | | 1,737,144 | | | | - | | | | 1,744,120 | |
| | | | | | | | | | | | | | | | | | | | | | |
| 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 Financial Statements
F-3
CALIBRUS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
For The Years Ended December 31, 20112012 and 20102011
| | | | | | | | | 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 | ) |
| | | | | | | | | Additional | | | | | | Total | |
| | | Common Stock | | | Paid-In | | | Accumulated | | | Stockholders' | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | |
| | | | | | | | | | | | | | | | |
| Balance at December 31, 2011 | | | 13,808,580 | | | $ | 13,809 | | | $ | 9,277,185 | | | $ | (10,045,476 | ) | | $ | (754,482 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Warrants extended | | | - | | | | - | | | | 10 | | | | - | | | | 10 | |
| | | | | | | | | | | | | | | | | | | | | |
| Warrants exercised | | | 62,500 | | | | 62 | | | | 20,251 | | | | - | | | | 20,313 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | - | | | | - | | | | - | | | | (1,260,983 | ) | | | (1,260,983 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2012 | | | 13,871,080 | | | | 13,871 | | | | 9,297,446 | | | | (11,306,459 | ) | | | (1,995,142 | ) |
The Accompanying Notes are an Integral
Part of the Financial Statements
F-4
CALIBRUS, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2012 and 2011
| | | 2012 | | | 2011 | |
| | | | | | | |
| Increase (decrease) in cash and cash equivalents: | | | | | | |
| | | | | | | |
| Cash flows from operating activities: | | | | | | |
| Net Loss | | $ | (1,260,983 | ) | | $ | (6,331,971 | ) |
| | | | | | | | | |
| Adjustments to reconcile net loss to net cash (used) provided by | | | | | | | | |
| operating activities: | | | | | | | | |
| Depreciation and amortization | | | 19,104 | | | | 946,375 | |
| Amortization of financing costs | | | 500 | | | | 2,816 | |
| Amortization of debt discount | | | 19,167 | | | | 33,333 | |
| Options expense | | | - | | | | 20,816 | |
| Conversion expense | | | - | | | | 2,735,189 | |
| Interest converted to equity | | | - | | | | 204,120 | |
| Stock issued for services | | | - | | | | 15,000 | |
| Warrants issued | | | 10 | | | | - | |
| Impairment expense | | | 108,458 | | | | 1,757,898 | |
| Changes in assets and liabilities: | | | | | | | | |
| Accounts receivable - trade | | | 103,094 | | | | (153,423 | ) |
| Prepaid expenses | | | (72,576 | ) | | | (6,961 | ) |
| Deposits | | | 115 | | | | 743 | |
| Accounts payable - trade | | | 357,288 | | | | (207,871 | ) |
| Accrued liabilities | | | 143,926 | | | | (49,236 | ) |
| Net cash (used) provided by operating activities | | | (581,897 | ) | | | (1,033,172 | ) |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Purchase of fixed assets | | | (2,418 | ) | | | (22,919 | ) |
| Net cash used by investing activities | | | (2,418 | ) | | | (22,919 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from warrant exercises | | | 20,313 | | | | - | |
| Proceeds from issuance of debt and short term advances | | | 605,000 | | | | 1,320,400 | |
| Repayment of debt and short term advances | | | (42,000 | ) | | | (381,000 | ) |
| Proceeds from factoring line | | | 2,498,307 | | | | 2,590,867 | |
| Repayments of factoring line | | | (2,483,678 | ) | | | (2,484,630 | ) |
| Net cash provided by financing activities | | | 597,942 | | | | 1,045,637 | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 13,627 | | | | (10,454 | ) |
| | | | | | | | | |
| Cash and cash equivalents at beginning of year | | | 11,065 | | | | 21,519 | |
| | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 24,692 | | | $ | 11,065 | |
| | | | | | | | | |
| 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 | |
| | | | | | | | | |
The Accompanying Notes are an Integral
Part of the Financial Statements
F-5
CALIBRUS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
For The Years Ended December 31, 2012 and 2011
| | | 2012 | | | 2011 | |
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| | | | | | | |
| Cash paid during the year for: | | | | | | |
| Interest | | $ | 164,214 | | | $ | 112,417 | |
| Income taxes | | $ | 50 | | | $ | 50 | |
The Accompanying Notes are an Integral
Part of the Financial Statements
F-6
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, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
Operations
Customer Contact Support Services
Calibrus, Inc. (“Calibrus” or the(the “Company”) was incorporated on October 22, 1999, in the State of Nevada. The Company’s principal business purpose ishas been to operate a customer contact center for a variety of clients, who are located throughout the United States. The Company provides customer contact support services for various companies wishing to outsource these functions. (See Note 2 – ConcentrationsOn June 15, 2012, the Company entered into a purchase agreement to sell substantially all of Risk).
Calibrus providesthe assets related to the Company’s Third Party Verification (TPV) Services,business to Calibrus Hosted Call Recording ServicesBusiness Solutions, LLC (Note 8). The Company made this decision to focus on its Social Networking operations which currently include Fanatic Fans, a mobile smartphone application centered around live sporting and Interactive Voice Response/Voice Recognition Unit (IVR/VRU) Services to certain telecom, cableentertainment events, and insurance companies.
JabberMonkey, a social expression website centered around gathering public opinion on current events. On September 7, 2012, Calibrus Hosted Business Solutions terminated the asset purchase agreement. The Company is currently seeking a new buyer for its TPV Business. The Company has also in the past conducted outbound sales and customer service campaigns. Although the Company does not have any current outbound calling campaign contracts it may again in the future.
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 their service, from fraud and slamming and/or cramming of products onto their lines. Once a sale has been made the customer is transferred to an independent third party verification source such as Calibrus that will read a pre-determined script to which the customer will answer yes or no to verify their acceptance of the service. This service has typically been performed for telecommunications providers.
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 relevantpresented assets related to its members. JabberMonkey questions will be on pertinent issues that in many instances may evoke an emotional response from its members. ManyTPV Business as held-for-sale and has presented the TPV Business statements 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 suchoperations 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.discontinued operations.
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
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 ApplicationJabberMonkey.com
WhenJabberMonkey is a user is atsocial 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 eventemotional response from its members. Many of the app automatically determinesquestions on JabberMonkey will provide the event the user is attending using the phones GPS capability. The user isindividuals voting with a voice to cause an action or effect a result.
In addition to being able to view information onconduct 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 show including a listuser. 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 the artists performing at the show. There is a forum that users can make comments about upcoming events which also allows fansother companies’ storage by allowing links 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.other web sites such as YouTube or Google.
When users are not atCategories include Entertainment, Music, Business, etc. Each category will also contain subcategories to encompass a show they use Fanatic Fans to locate upcoming shows. They browse a calendarwide range of all upcoming showstopics 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. interests.
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 prior year balances in the accompanying financial statements were reclassified to conform to the current year’s presentation. The reclassifications have had no effect on the net income or the totals of assets and liabilities previously reported.
F-7
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
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. Significant estimates include, but are not limited to, the estimate of the allowance for doubtful accounts, income taxes, recoverability of software development, the estimated fair value of stock based compensation, warrants, and depreciable lives of long lived assets.assets, and allocation of assets and liabilities held for sale.
Cash and Cash Equivalents
For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments purchased with an initial maturity of three (3) months or less.less at the time of purchase.
Accounts Receivable
The Company provides for potentially uncollectible accounts receivable by use of the allowance method. The allowance is provided based upon a review of the individual accounts outstanding, and the Company's prior history of uncollectible accounts receivable. The Compnay charges off uncollectible accounts receivable when all reasonable collection efforts have been exhausted. As of December 31, 20112012 and 2010,2011, 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 accounts are generally unsecured.
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method over the estimated useful lives 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 the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. For the years ended December 31, 20112012 and 2010,2011, depreciation expense was $29,211$19,104 and $54,791,$29,211, respectively.
Software Development
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 yearyears ended December 31, 2012 and 2011 was $0 and 2010 was $917,164, and $76,430, respectively.
Intangible Assets
The intangible assets are comprised 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 ofOn December 31, 20102011 the amountCompany 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 the Company’s branding cost and company website have been fully amortized. Amortization expense for the year ended December 31, 2010 was $1,167.this impairment.
Advertising
We expense advertising and marketing costs as incurred. Advertising costs include trade show fees, online advertising, etc. Advertising expenses were approximately $68,100$5,090 and $22,000$68,100 for the years ended December 31, 2012 and 2011, respectively.
F-8
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies, Nature of Operations and 2010, respectively.Use of Estimates (Continued)
Revenue Recognition
Revenue for inbound calls is recorded on a per-call or per-minute basis in accordance with the rates established in the respective contracts. Revenue for outbound calls is on a commission basis, with revenue being recognized as 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, primarily for the sale of telecommunications services. Although this revenue source has been historically 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.
Impairment of Long-Lived Assets
The Company reviews the carrying value of its long-livedevaluates assets at leastwith definite lives for recoverability when events or changes in circumstances indicate that these assets might be impaired. Assets with indefinite lives are tested for impairment annually or whenevermore frequently if events or changes in circumstances indicate that the assets might be impaired. The Company has the option to perform a qualitative analysis before comparing their respective carrying amountvalues to estimates of an asset may not be recoverable. Recoverabilitythe sum of the undiscounted future net cash flows expected to result from the assets, to be held and used is measured by a comparison ofin determining whether assets are impaired. If the carrying amount of an asset to futureexceeds the sum of the undiscounted net cash flows expected to be generated byfrom that asset, the asset. If such assets are considered to be impaired, theCompany recognizes an impairment to be recognized is measured byloss based on the amount by which the carrying amount of the assetsvalue exceeds the fair value of the assets.asset.
On September 12, 2012 the Company terminated its time and materials contract with MeoMyo, LLC for the continued development of its Fanatic Fans mobile application. The Company had prepaid several months of rent amounts for the development office in Dubai. Following the termination of the agreement and non-payment of several invoices to MeoMyo, LLC the development office was abandoned. The Company wrote-off prepaid rent in the amount of $80,859 as a result, management estimates that these amounts would not be recoverable. This amount is included in the asset impairment expense on the statement of operations for the year ended December 31, 2012.
During the year ended December 31, 2012 the Company expensed its $27,599 security deposit on its office space in Tempe, Arizona. During the quarter, the Company was notified that because the office building in which it was located was placed into foreclosure the security deposit was not recoverable. This amount is included in the asset impairment expense on the statement of operations for the year ended December 31, 2012.
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 thisthat 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)
impairment during the year ended December 31, 2011.
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.
F-9
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
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, 20112012 and 20102011 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 2009, 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
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 accounts receivable, notes payable, accounts payable, and accrued liabilities approximate fair value given their short term nature or effective interest rates.rates which represent Level 3 inputs.
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, 20112012 and 2010,2011, Research and Development Expense totaled $1,472,113$1,382,100 and $232,327,$1,472,113, 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 hashad entered into a time and materials agreement with MeoMyo, LLC to develop the JabberMonkey website and Fanatic Fans application. Contract work iswas performed as authorized and the contract iswas cancellable on 30-days written notice. On September 12, 2012 the Company terminated its time and materials contract with MeoMyo, LLC for the continued development of its Fanatic Fans mobile application.
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 diluted earnings per share and the effect on income and the weighted average number of shares of potentially dilutive common stock.
F-10
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | |
| Loss available to common stockholders | | $ | (6,331,971 | ) | | $ | (128,263 | ) | |
| Net loss | | | $ | (1,260,983 | ) | | $ | (6,331,971 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted average number of common shares | | | | | | | | | | | | | | | | |
| used in basic earnings per share | | | 7,978,820 | | | | 6,794,600 | | | | 13,837,758 | | | | 7,978,820 | |
| | | | | | | | | | | | | | | | | |
| 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 | | |
| diluted loss per share | | | | 13,837,758 | | | | 7,978,820 | |
All dilutive common stock equivalents are reflected in our earningsloss per share calculations. Anti-dilutive common stock equivalents are not included in our earningsloss per share calculations. For the year ended December 31, 2012, the Company had outstanding options to purchase 2,598,334 shares of common stock at a per share weighted average exercise price of $.86 and outstanding warrants to purchase 959,088 shares of common stock at a weighted average exercise price of $.39. For the year ended December 31, 2011, the Company had outstanding options to purchase 2,744,167 shares of common stock at a per share weighted average exercise price of $.89 and outstanding warrants to purchase 1,026,588 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 $1.95$.39 per share. Neither amounts were included in the earningsloss per share calculation as they were anti-dilutive. As of December 31, 2012, the Company had $15,000 of principal value of convertible debentures which are convertible into 10,000 shares of the Company’s common stock, which were also antidilutive. 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.
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, 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. |
F-11
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)
Pending Accounting Pronouncements
There have been no accounting pronouncements or changes in accounting principles during the year ended December 31, 20112012 that are of significance, or potential significance, to us.
Going Concern Considerations
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 has incurred significant cumulative net losses from operations in recent years. As reported in the financial statements, the Company has an accumulated deficit of $11,306,459. At December 31, 2012, the Company had total assets of $478,136 and liabilities totaling $2,473,278, and a working capital deficit of $2,020,456. These factors raise considerable doubt as to the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on its ability to raise adequate capital to fund operating losses until it is able to engage in profitable business operations. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing its services and meeting its obligations. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements. To this end, the Company has discontinued the furthered development of its social networking operations and is currently operating its TPV Business at a small cash positive state however not at sufficient amounts to satisfy its current debt obligations. The accompanying financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.
Note 2
Concentrations of Risk
During the year ended December 31, 2012, the Company rendered a substantial portion of its services to its three largest customers representing 42%, 22% and 14% of total revenues. As of December 31, 2011, the amounts due from these customers were $210,808, $110,416 and $68,716, respectively.
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, 20112012 and 2010,2011, the Company had no uninsured cash and cash equivalents.
F-12
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3Property and Equipment
Property and equipment as of December 31, 20112012 and 20102011 consist of the following:
| | | 2011 | | | 2010 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | |
| Computer hardware | | $ | 2,142,455 | | | $ | 2,120,537 | | | $ | 2,144,873 | | | $ | 2,142,455 | |
| Furniture and fixtures | | | 244,785 | | | | 243,785 | | | | 244,785 | | | | 244,785 | |
| Leashold improvements | | | 156,144 | | | | 156,144 | | | | 156,144 | | | | 156,144 | |
| Software costs | | | 1,195,761 | | | | 1,195,761 | | | | 1,195,761 | | | | 1,195,761 | |
| | | | 3,739,145 | | | | 3,716,227 | | | | 3,741,563 | | | | 3,739,145 | |
| Less: accumulated depreciation | | | (3,698,080 | ) | | | (3,668,870 | ) | | | (3,717,184 | ) | | | (3,698,080 | ) |
| Less: assets held for sale, net | | | | (15,241 | ) | | | (30,762 | ) |
| | | | | | | | | | | $ | 9,138 | | | $ | 10,303 | |
| | | $ | 41,065 | | | $ | 47,357 | | |
Note 4Software Development
At December 31, 20112012 and 2010,2011, 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)
| | | 2012 | | | 2011 | |
| | | | | | | |
| JabberMonkey website development | | $ | - | | | $ | 2,751,492 | |
| Less: accumulated amortization | | | - | | | | (993,594 | ) |
| Less: impairment | | | - | | | | (1,757,898 | ) |
| | | | | | | | | |
| | | $ | - | | | $ | - | |
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 willwere to 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$0 and $76,430$917,164 for the years ended December 31, 20112012 and 2010,2011, respectively.
On December 31, 2011 the Company reviewed the carrying value of its capitalized software development costs 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.
F-13
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
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 ofAt 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)
In January 2012, the Company paid off the $10,000 debenture along with accrued interest. As of December 31, 2012 the Company has $15,000 in principal balance convertible debentures remaining at a conversion price of $1.50 per share which can be converted into 10,000 shares of common stock.
As of December 31, 2012 and 2011 and 2010convertible notes payable were comprised of the following:
| | | 2012 | | | 2011 | |
| | | | | | | |
| | | | | | | |
| Note payable to convertible debentureholder, interest rate of 12% accrued monthly | | | | | | |
| principal and interest due November 16, 2010, unsecured | | $ | - | | | $ | 10,000 | |
| | | | | | | | | |
| Note payable to related party convertible debenture holder, interest rate | | | | | | | | |
| of 12% accrued monthly, principal and interest due November 16, 2010, unsecured | | | 15,000 | | | | 15,000 | |
| | | | 15,000 | | | | 25,000 | |
| | | | | | | | | |
| Less: current portion | | | (15,000 | ) | | | (25,000 | ) |
| | | | | | | | | |
| | | $ | - | | | $ | - | |
| | | 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, 2012.2013.
Interest expense related to the debentures for the years ended December 31, 2012 and 2011 was $1,805 and 2010 was $114,284, and $92,901, respectively. Accrued interest related to the debentures at December 31, 2012 and 2011 was $4,969 and 2010 was $5,564, and $96,600, respectively.
F-14
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
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 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 maturity has been extended to the earlier of the sale of the TPV Business or August 1, 2013. 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. Mr. Hoffman resigned as a director effective April 22, 2013.
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 warrantsmaturity has been extended to purchase 10,000 sharesthe earlier 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 termsale of the note isTPV Business or August 1, year with interest at 12% per annum, with interest due monthly.2013. The 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. Mr. Hoffman resigned as a director effective April 22, 2013.
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 maturity has been extended to the earlier of the sale of the TPV Business or August 1, 2013. The 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. Mr. Hoffman resigned as a director effective April 22, 2013.
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.
On April 4, 2012, the Company issued a promissory note in the principal amount of $67,500 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 with interest due monthly. The Company received gross proceeds from the note of $65,000 with $2,500 being retained by Mr. Holmes as an origination fee. The $2,500 note discount is being amortized over the life of the loan or at the rate of $417 per month.
The Company has received a written extensionverbal extensions on the non-related party $50,000 note throughaforementioned notes until June 30, 2012 and verbal extensions through June 30, 2012 from the remaining related party debt holders.2013 unless otherwise specified.
On April 26, 2012, the Company issued an unsecured multiple advance promissory note (“the “CHBS Note”) to Calibrus Hosted Business Solutions, LLC (“CHBS”) in the amount of $250,000 ( the “Note Agreement”). The CHBS Note called for two advances in the separate amounts of $150,000, due on execution, and a second advance of $100,000, due 30 days from execution. The CHBS Note is non-interest bearing and was due on July 26, 2012. If the principal balance is not paid in full by the due date interest will accrue retroactively at the rate of 18% per annum. On June 15, 2012, in conjunction with the signing of the asset purchase agreement between Calibrus, Inc. and CHBS (the “Asset Purchase Agreement”), the CHBS Note was amended and restated thereby adjusting the principal balance to the $150,000 received by the Company and extending the due date to September 1, 2012 or the closing date of the Asset Purchase Agreement, whichever occurs later. If for any reason the transaction was cancelled or the closing did not occur, all principal and interest become immediately due.
F-15
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 Notes Payable (Continued)
On September 7, 2012, CHBS terminated the Asset Purchase Agreement. As such, all amounts became due and payable under the Note Agreement as to the CHBS Note. The Company has retroactively accrued interest on the $150,000 CHBS Note at 18% per annum through September 15, 2012. The Company has also accrued interest at the 30% default interest rate per the note agreement from September 16, 2012 through December 31, 2012. At December 31, 2012, accrued interest on the CHBS Note totaled $23,696. On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the Note Agreement. The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $6,879 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default.
On June 15, 2012, in conjunction with the signing of the Asset Purchase Agreement between Calibrus, Inc. and CHBS, the Company issued an unsecured multiple advance promissory note to an individual (the “Individual Note”) in the amount of $250,000. The Individual Note called for two advances in separate amounts totaling $100,000, due on execution, and a second advance of $150,000 which was due on June 28, 2012. The Individual Note is non-interest bearing and was due on September 1, 2012 or the closing date of the Asset Purchase Agreement, whichever occurs later. If the principal balance is not paid in full by the due date, interest will accrue retroactively at the rate of 18% per annum. If for any reason the transaction is cancelled or the closing does not occur, all principal and interest will become immediately due.
On September 7, 2012, CHBS terminated the Asset Purchase Agreement. As such, all amounts became due and payable under the Individual Note. The Company has retroactively accrued interest on the $250,000 principal balance of the Individual Note at 18% per annum through September 15, 2012. The Company has also accrued interest at the 30% default interest rate per the Note Agreement from September 16, 2012 through December 31, 2012. At December 31, 2012, accrued interest on the Individual Note totaled $32,367. On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by the individual for breach of contract of the Note Agreemement. The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default.
As of December 31, 2012 the Company owed a total of $152,400 in short-term, non-interest bearing advances to the CEO of the Company.
As of December 31, 2012 the Company owed a total of $45,000 in short-term, non-interest bearing advances to the Mother of the CEO and President of the Company.
As of December 31, 2012 the Company owed a total of $20,000 in short-term, non-interest bearing advances to the President of the Company.
F-16
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6 Notes Payable (Continued)
At December 31, 20112012 and 20102011 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 | ) | | | - | |
| | | | | | | | | |
| | | $ | - | | | $ | - | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| Convertible note payable to related party, interest rate of 12% accrued monthly, | | | | | | |
| principal and accrued interest due March 31, 2011 extended to June 30, 2013 | | $ | 15,000 | | | $ | 25,000 | |
| | | | | | | | | |
| Note payable to related party, interest rate of 12% accrued monthly, | | | | | | | | |
| principal and accrued interest due January 31, 2012 extended to June 30, 2013 | | | 50,000 | | | | 50,000 | |
| | | | | | | | | |
| Note payable, interest rate of 12% accrued monthly, | | | | | | | | |
| principal and accrued interest due January 31, 2012 extended to June 30, 2013 | | | 50,000 | | | | 50,000 | |
| | | | | | | | | |
| Notes payable to related party, interest rate of 12% accrued monthly, | | | | | | | | |
| principal and accrued interest due January 31, 2012 extended to June 30, 2013 | | | 25,000 | | | | 25,000 | |
| | | | | | | | | |
| Note payable to related party, interest rate of 12% accrued monthly, | | | | | | | | |
| principal and accrued interest due January 31, 2012 extended to June 30, 2013 | | | 200,000 | | | | 200,000 | |
| | | | | | | | | |
| Note payable to related party, interest rate of 12% accrued monthly, | | | | | | | | |
| principal and accrued interest due October 13, 2012, extended to June 30, 2013 | | | 67,500 | | | | - | |
| | | | | | | | | |
| Note payable, interest rate of 18% accrued monthly, principal and accrued interest, | | | | | | | | |
| due September 15, 2012, in default and accruing interest at 30% per annum | | | 150,000 | | | | - | |
| | | | | | | | | |
| Note payable, interest rate of 18% accrued monthly, principal and accrued interest | | | | | | | | |
| due September 15, 2012, in default and accruing interest at 30% per annum | | | 100,000 | | | | - | |
| | | | | | | | | |
| Note payable, interest rate of 18% accrued monthly, principal and accrued interest | | | | | | | | |
| due September 15, 2012, in default and accruing interest at 30% per annum | | | 150,000 | | | | - | |
| | | | | | | | | |
| | | | | | | | | |
| Various short-term, due on demand, non-interest bearing advances from related parties | | | 217,400 | | | | 109,400 | |
| | | | 1,024,900 | | | | 459,400 | |
| | | | | | | | | |
| Less: discount | | | - | | | | (16,667 | ) |
| | | | | | | | | |
| Less: current portion | | | (1,024,900 | ) | | | (442,733 | ) |
| | | | | | | | | |
| | | $ | - | | | $ | - | |
As of December 31, 2012 and 2011, accrued interest on the above notes was $127,077 and $24,296, respectively and includes accrued interest from the convertible debentures as mentioned above.
F-17
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
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, 2012, FSW advanced a total of $2,498,307 of which $2,483,678 was repaid. Included in this amount is $115,000 in the form of an over-advance made to the Company by FSW of which $20,000 has been repaid at December 31, 2012. Interest on the over-advance is 5% per 30-day period outstanding. 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, 2012 and 2011 and 2010 was $253,595and $238,966, and $132,729, respectively. Factoring expense for the years ended December 31, 2012 and 2011 was $164,206 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 8Accrued Liabilities
| Accrued liabilities as of December 31, 2012 and 2011 consist of: | | | | | | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| Payroll and related taxes | | $ | 72,058 | | | $ | 62,889 | |
| Deferred rent | | | 5,465 | | | | 3,947 | |
| Accrued vacation | | | 93,290 | | | | 86,900 | |
| Accrued interest | | | 127,077 | | | | 24,296 | |
| Other accrued expenses | | | 62,906 | | | | 38,838 | |
| | | | | | | | | |
| | | $ | 360,796 | | | $ | 216,870 | |
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, 20112012 and 2010,2011, deferred tax assets (liabilities) consist of the following:
| | | 2011 | | | 2010 | | | 2012 | | | 2011 | |
| Current portion: | | | | | | | | | | | | |
| Operating loss carryforwards | | $ | 2,605,000 | | | $ | 2,282,000 | | | $ | 3,098,000 | | | $ | 2,605,000 | |
| Allowance for doubtful accounts | | | 19,000 | | | | 19,000 | | | | 19,000 | | | | 19,000 | |
| Accrued vacation | | | 34,000 | | | | 28,000 | | | | 36,000 | | | | 34,000 | |
| Deferred rent expense | | | (2,000 | ) | | | - | | | | (2,000 | ) | | | (2,000 | ) |
| Software development | | | - | | | | (1,043,000 | ) | |
| | | | | | | | | | | | | | | | | |
| | | | 2,656,000 | | | | 1,286,000 | | | | 3,151,000 | | | | 2,656,000 | |
| Less: valuation allowance | | | (2,656,000 | ) | | | (1,286,000 | ) | | | (3,151,000 | ) | | | (2,656,000 | ) |
| | | | | | | | | | | | | | | | | |
| Deferred tax asset-current portion | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Long-term portion: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | (14,000 | ) | | $ | 31,000 | | | $ | (7,000 | ) | | $ | (14,000 | ) |
| Less: valuation allowance | | | 14,000 | | | | (31,000 | ) | | | 7,000 | | | | 14,000 | |
| | | | | | | | | | | | | | | | | |
| Deferred tax asset-long term portion | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
F-18
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 9Income Taxes (Continued)
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, 2011,2012, the Company has net federal operating loss carryforwards of approximately $6.7$7.95 million and state net operating loss carryforwards of approximately $5.5$6.33 million.
Note 9
Below are the federal and state net operating loss carryforwards as of December 31, 2011.2012.
| Expiration Date | | Federal NOL Carryforwards | | Expiration Date | | State NOL Carryforwards | | | Federal NOL Carryforwards | | Expiration Date | | State NOL Carryforwards | |
| 12/31/2021 | | $ | 734,000 | | 12/31/2012 | | $ | 436,000 | | | $ | 734,000 | | 12/31/2013 | | | 1,120,000 | |
| 12/31/2022 | | | 443,000 | | 12/31/2013 | | | 1,120,000 | | | | 443,000 | | 12/31/2014 | | | 1,428,000 | |
| 12/31/2023 | | | - | | 12/31/2014 | | | 1,428,000 | | | | - | | 12/31/2015 | | | 1,605,000 | |
| 12/31/2024 | | | - | | 12/31/2015 | | | 1,605,000 | | | | - | | 12/31/2016 | | | 928,000 | |
| 12/31/2025 | | | - | | 12/31/2016 | | | 928,000 | | | | - | | 12/31/2017 | | | 1,250,000 | |
| 12/31/2026 | �� | | - | | | | $ | 5,517,000 | | | | - | | | | $ | 6,331,000 | |
| 12/31/2027 | | | 436,000 | | | | | | | | | 436,000 | | | | | | |
| 12/31/2028 | | | 1,120,000 | | | | | | | | | 1,120,000 | | | | | | |
| 12/31/2029 | | | 1,428,000 | | | | | | | | | 1,428,000 | | | | | | |
| 12/31/2030 | | | 1,605,000 | | | | | | | | | 1,605,000 | | | | | | |
| 12/31/2031 | | | 928,000 | | | | | | | | | 928,000 | | | | | | |
| 12/31/2032 | | | | 1,250,000 | | | | | | |
| | | $ | 6,694,000 | | | | | | | | $ | 7,944,000 | | | | | | |
During the year ended December 31, 2011,2012, 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, 20112012 in the approximate amount of $3,691,000.$3,144,000. 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.
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, 20112012 and 20102011 due to the following:
| | | 2011 | | | 2010 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | |
| Federal Tax Benefit (Expense) at Statutory Rates | | $ | 2,150,000 | | | $ | 45,000 | | | $ | 430,000 | | | $ | 2,150,000 | |
| State Tax Benefit (Expense) at Statutory Rates | | | 317,000 | | | | 8,000 | | | | 65,000 | | | | 317,000 | |
| Meals and Entertainment | | | (1,000 | ) | | | (4,000 | ) | | | 7,000 | | | | (1,000 | ) |
| Induced Conversion | | | (1,070,000 | ) | | | - | | |
| Induced Conversion of Debt | | | | - | | | | (1,141,000 | ) |
| Valuation Allowance Adjustment | | | (1,396,000 | ) | | | (49,000 | ) | | | (502,000 | ) | | | (1,325,000 | ) |
| | | | | | | | | | | | | | | | | |
| Net Deferred Tax Benefit (Expense) | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | |
F-19
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 10Commitments and Contingencies
Operating Leases
The Company 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 the 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.
Note 10
Commitments 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$411 per month, expiring in July of 2016.
The Company also leases, on a month to month basis, other various office equipment.
Total rent expense under the aforementioned operating leases was approximately $155,061$156,847 and $304,000$155,061 for the years ended December 31, 2012 and 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| Year Ending | | | |
| December 31, | | Amount | |
| 2013 | | | 147,337 | |
| 2014 | | | 149,159 | |
| 2015 | | | 126,387 | |
| 2016 | | | 2,880 | |
| | | | | |
| | | $ | 425,763 | |
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 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:
F-20
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 10Commitments and Contingencies (Continued)
| 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, 20112012 and 2010,2011, 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. In September of 2012, the Company reinstated a portion of the salary decreases of the above individuals.
Indemnification 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. 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, 20112012 and 2010.2011.
Note 11
Stockholders’ Equity
Warrants
At December 31, 20112012 and 2010,2011, the Company had 1,026,588959,088 and 514,500,1,026,588, respectively, warrants to purchase common stock. The warrants are convertible into one share of common stock at a prices ranging between $.325 and $1.95 per share. As of December 31, 2012, 951,588 of the 959,088 were exercisable. As of December 31, 2011, 1,014,088 of the 1,026,588 were exercisable. As of
During the year ended December 31, 2010, 9,500 of the 514,500 warrants were exercisable.
In conjunction with the conversion price adjustment and subsequent conversion of $1,540,000 of convertible debentures into common shares of2012, the Company extended the exercise pricematurity dates of the125,000 warrants, for those debenture holders who converted,which were adjustedset to $.325 per share from the previous exercise price of $1.95 per shareexpire on November 12, 2012, to May 31, 2013, and became immediately exercisable.42,500 warrants, which were set to expire on December 31, 2012, to June 30, 2013. The Company recorded conversionrecognized a total of $10 of expense related to the price adjustment of $104,821.extension.
In addition, for those debenture holders who converted, 1 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 hadOn June 25, 2012, a three year term.
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’sformer convertible debenture offering. Theholder exercised 50,000 warrants have a three year term andat an exercise price of $1.95$.325 per share. No expense was recorded
On September 26, 2012, a former convertible debenture holder exercised 12,500 warrants at the timean exercise price of issuance as the warrants were deemed to have minimal value.$.325 per share.
| | | | | | | | | Weighted Average | | | Aggregate | | | | | | | | Weighted Average | | Aggregate |
| | | Number of | | | Weighted Average | | | Remaining | | | Intrinsic | | | Number of | | | Weighted Average | | Remaining | | Intrinsic |
| | | Warrants | | | Exercise Price | | | Contractual Term | | | Value | | | 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 | | | | | | | | | | 514,500 | | | $ | 0.40 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Granted | | | 517,088 | | | | 0.39 | | | | | | | | | | 517,088 | | | | 0.39 | | | | |
| Exercised | | | - | | | | - | | | | | | | | | | - | | | | - | | | | |
| Forfeited | | | (5,000 | ) | | | 1.95 | | | | | | | | | | (5,000 | ) | | | 1.95 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding at December 31, 2011 | | | 1,026,588 | | | $ | 0.39 | | | | 1.90 | | | $ | - | | | | 1,026,588 | | | | 0.39 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2011 | | | 1,014,088 | | | $ | 0.37 | | | | 1.89 | | | $ | - | | |
| Granted | | | | 167,500 | | | | 0.33 | | | | |
| Exercised | | | | (62,500 | ) | | | 0.33 | | | | |
| Forfeited | | | | (172,500 | ) | | | 0.37 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding at December 31, 2012 | | | | 959,088 | | | $ | 0.39 | | 0.95 | | $ | - |
| | | | | | | | | | | | | |
| Exercisable at December 31, 2012 | | | | 951,588 | | | $ | 0.38 | | 0.94 | | $ | - |
F-21
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 11Stockholders’ Equity (Continued)
The fair value of each warrant valued during the yearyears ended December 31, 20112012 and 20102011 is estimated on the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions:
| | | 2011 | | 2010 | | 2012 | | | 2011 | |
| Expected Volatitlity | 24.85% - 24.90% | | 40.17% - 29.11% | |
| Expected Volatility | | | | 12.11% - 14.74% | | | | 24.85% - 24.90% | |
| Risk-free interest rate | Risk-free interest rate | 0.89% - 0.25% | | 0.89% | | | 0.11% - 0.13% | | | | 0.89% - 0.25% | |
| Expected dividends | Expected dividends | - | | - | | | - | | | | - | |
| Expected life | Expected life | 2 - 3 Years | | 2 years | | 6 months | | | 2 - 3 Years | |
| Fair value | | $0.00 - $0.15 | | $0.05 | | $ | 0.00 - $0.00 | | | $ | 0.00 - $0.15 | |
A summary of the status of the Company’s non-exercisable warrants as of December 31, 20112012 and 20102011 and changes during the years ended December 31, 20112012 and 20102011 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 | |
| | | | | | | | Weighted | | |
| | | | | | | | Average | | |
| | | | | | Weighted-Average | | Remaining | | Aggregate |
| | | | | | Grant-Date | | Contractual | | Intrinsic |
| | | Warrants | | | Fair Value | | Term (in years) | | Value |
| 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 | | | | |
| | | | | | | | | | | | |
| Granted | | | - | | | | - | | | | |
| | | | | | | | | | | | |
| Exercisable | | | - | | | | - | | | | |
| | | | | | | | | | | | |
| Forfeited | | | (5,000 | ) | | | 0.05 | | | | |
| | | | | | | | | | | | |
| Non-exercisable at December 31, 2012 | | | 7,500 | | | $ | 0.05 | | 0.94 | | $ | - |
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 hashad 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 granthave granted 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 granthave granted 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.
F-22
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 11Stockholders’ Equity (Continued)
The following is a table of activity for all options granted under these Plans as of during the years ended December 31, 20112012 and 2010:
| | | | | | | | 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 | | |
| | | | | | | | | | | | |
| | | | | | | | Weighted | |
| | | | | | | | Average | |
| | | | | | Weighted | | Remaining | Aggregate |
| | | Number of | | | Average | | Contractual | Intrinsic |
| | | Options | | | Exercise Price | | Term (in years) | Value |
| | | | | | | | | |
| 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 | | | |
| | | | | | | | | | | |
| Granted | | | - | | | | - | | | |
| Exercised | | | - | | | | - | | | |
| Forfeited | | | (145,833 | ) | | | 1.41 | | | |
| | | | | | | | | | | |
| Options outstanding at December 31, 2012 | | | 2,598,334 | | | $ | 0.86 | | 2.15 | $ - |
| | | | | | | | | | | |
| Options exercisable at December 31, 2012 | | | 2,598,334 | | | $ | 0.86 | | 2.15 | $ - |
During the year ended December 31, 2011 the Company issued 500,000 options to members of its Advisory Board. The total fair value of options vested during the year ended December 31, 2011 was $20,816 and included $4,319 of expense related to 50,000 options granted in 2010 that became vested during the year.2011.
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, 20112012 and 2010:
2011:
| | | 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 | |
| | 2012 | | 2011 |
| Expected Volatility | - | | 26.65% |
| Risk-free interest rate | - | | 0.36% |
| Expected dividends | - | | - |
| Expected life | - | | 3 years |
| Value per option | - | | $0.03 |
F-23
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
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, 2011On October 26, 2012 the Company received an over-advance on its factoring line from Factors Southwest, LLCnotice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the CHBS Note. The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $115,000. Interest on$6,879 calculated at the over-advance is 5% per 30-day period. Asrate of 18% from April 13,26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default. The suit has been suspended by the plaintiff while the Company seeks an alternative buyer for its TPV Business.
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by the individual for breach of contract of Individual Note. The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default. The suit has paid downbeen suspended by the over-advance by $20,000plaintiff while the Company seeks an alternative buyer for its TPV Business.
Note 13Held-for-Sale Disclosures and Financial Statement Presentation
The Company classifies operations as held for sale when the sale is probable within one year and the operation is available for sale in its present condition. In connection with the remaining $95,000 still outstanding.signing of the Asset Purchase Agreement between Calibrus, Inc. and Calibrus Hosted Business Solutions, LLC on June 15, 2012, which was scheduled to close on August 31, 2012 and would have resulted in the disposition of all of its assets related to the Third Party Verification (“TPV”) Business, the Company has classified those assets as held-for-sale and has made the following disclosures and classifications in the presentation of its financial statements. On September 7, 2012 the Company received notice that Calibrus Hosted Business Solutions terminated the asset purchase agreement and the sale transaction did not close. The Company is in the process of seeking alternative buyers for the TPV Business. The Company is currently in discussions with an interested party and believes that a sale of the TPV Business will occur within one year.
The assets classified as held-for-sale are as follows:
| | | December 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| | | | | | | |
| Property and equipment, net | | $ | 15,241 | | | $ | 30,762 | |
| Deposits | | | - | | | | 27,599 | |
| Total assets held-for-sale | | $ | 15,241 | | | $ | 58,361 | |
F-24
CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 13Held-for-Sale Disclosures and Financial Statement Presentation
The Company has presented the TPV business statements of operations as discontinued operations. The results of discontinued operations related to the TPV business included in the accompanying statement of operations for the years ended December 31, 2012 and 2011, respectively.
| | | For the Year Ended December 31, 2012 | | | For the Year Ended December 31, 2011 | |
| | | | | | | |
| Revenue | | $ | 3,415,147 | | | $ | 3,563,265 | |
| | | | | | | | | |
| Cost of revenue | | | 1,315,683 | | | | 1,293,801 | |
| | | | | | | | | |
| Gross profit | | | 2,099,464 | | | | 2,269,464 | |
| | | | | | | | | |
| Operating expenses | | | 660,834 | | | | 616,532 | |
| | | | | | | | | |
| Income from discontinued operations | | $ | 1,438,630 | | | $ | 1,652,932 | |
As of December 31, 2012 the Company owed a total of approximately $15,900 to officers of the company related to unpaid Company expenses. These are in addition to the amounts owed at December 31, 2012 and 2011 discussed in Notes 5 and 6.
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued, and determined there are no additional events that require disclosure other than listed below.
Effective April 22, 2013, Christian J. Hoffmann III resigned as a member of the Board of Directors of the Company.
F-25
Note 14
Subsequent Events (Continued)
Subsequent to December 31, 2011 the Company received an additional $45,000 short-term advance from its CEO.
