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EX-10.12 - EXHIBIT 10.12 FORM OF WARRANT - GROW CAPITAL, INC.ex1012.htm
EX-31.2 - EXHIBIT 31.2 - GROW CAPITAL, INC.calibrusexh31-2.htm
EX-31.1 - EXHIBIT 31.1 - GROW CAPITAL, INC.calibrusexh31-1.htm
EX-32.1 - EXHIBIT 32.1 - GROW CAPITAL, INC.calibrusexh32-1.htm
EX-10.11 - EXHIBIT 10.11 FORM OF CONVERTIBLE DEBENTURE - GROW CAPITAL, INC.ex1011.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K
        (Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended       December 31, 2010

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission File Number:                000-53408

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

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

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 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 o    No  o
 
 
 
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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

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 ¨   Accelerated filer ¨
 Non-accelerated filer    ¨ (Do not check if a smaller reporting company)   Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
                Yes o   No 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:  Currently, the average of the bid and ask price is $.30 per share giving the shares held by non-affiliates a value of $1,052,380.  Since the Registrant does not have an active trading market this numbers may not be reliable indication of the share price.

As of March 21, 2010, the Registrant had 6,794,600 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

 
 
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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 two business units that leverage our technology capabilities.  We have provided Hosted Business Solutions for ten years and now plan to expand our offerings to offer a social networking site called JabberMonkey (Jabbermonkey.com) and development of a location based social networking application for smart phones called Fanatic Fans.

Through our Hosted Business Solutions, we provide Third Party Verification (TPV) Services, Hosted Call Recording Services and Interactive Voice Response/Voice Recognition Unit (IVR/VRU) Services to some telecom, cable and insurance companies.  We estimate that we have processed over 50 million live agent calls/recordings and 5 million IVR calls/recordings to date serving these companies.  With over 70 employees, the latest equipment and in-house designed software and solutions, we are the hosted solution company that companies can trust with their data.
 
Our technology provides us with the ability to provide fully-integrated live voice, data, and automated services and combinations of services out of a unified platform.  Our system’s processes and functionality allow our IT staff to easily design and build systems that satisfy clients’ process requirements.  Using our technology has allowed us to develop and build customized web-based solutions incorporating call recording, “click to call” and voice message broadcast functionality.

Calibrus has leveraged our technology capabilities to expand into the growing market of social expression websites.  Leveraging the software development experience we have obtained over the last 10 years, we created the site JabberMonkey.com which just completed the beta phase of development.  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.

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.


 
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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:
 


 
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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:
   °   Less Back Room Clean-up Expense
  °   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 98.8% of the Company’s total revenue.  For 2010, 89% of our TPV revenue was derived from Live Operator services and 11% 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.


 
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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 2010, 1.2% of our total revenue was derived from Call Recording services.

 
 
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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:

·  
Retail Sales Alerts
·  
Thank You Messages
·  
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
·  
Fundraising
·  
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:

·  
Call Tracking
·  
Lead Generation
·  
Save Sales on Cancellations
·  
Online Phone Surveys
·  
Real Estate Listings

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.

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  
 
 
 
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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.

 
 
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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.


 
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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.

 
 
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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.  Currently nearly eighty percent of our revenues are still derived from these two customers.  For the years ended December 31, 2010 and 2009, AT&T Communications accounted for 68% and 55% and Cox Communications 17%  and 25%, respectively, of our revenues.  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 two 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.  The Company also signed a contract extension with Qwest Communications during the year ended December 31, 2010 with new pricing terms.  For the year ended December 31, 2009 the Company signed a new contract with Cox Communications to provide TPV services via IVR with a Live Opt-Out option with new pricing terms.
 
New Calibrus Products and Services - JabberMonkey.com and Fanatic Fans

Fanatic Fans

In the second half of 2010 we commenced development of a location based social networking application for smart phones called Fanatic Fans.

Fanatic Fans aim is to inform 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 will be able to browse a calendar of upcoming events which can be segmented by region and artist.  From here users can get detailed information on the event and discuss the event with other fans.  While at an event users will be able to share their experiences with social networks Facebook and Twitter, and communicate with other people at the event.  Users will be able to 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 event tickets in the application award section.
 
 
 
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Fanatic Fans will reward fans for their support of their favorite sports team, music artist or band.  National and local businesses will be able to market to fans that attend the events by listing promotions (goods and services) on our application.  Businesses will 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 will also hold contests and provide recognition to the most Fanatic Fans.

Functionality

When a user is at an event the app will automatically determine the event their attending using the phones GPS.  The user will be able to view information on the show including a list of the artists performing at the show.  There will also be a string of comments from other users allowing fans to interact with one another while at the show.  From here the user will be prompted to check in, while checking in they will be prompted to leave a comment and post their comment to Twitter and Facebook.  By checking in the user will unlock a virtual award which can also be published to Facebook and Twitter.  Users will 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 a user is not at a show they can use Fanatic Fans to locate upcoming shows.  They can browse a calendar of all upcoming shows and sort by location and artists that they follow.  Users can then get information on the show including; time, location, and performing artists.  Users can also view tips created by other members and add tips of their own.  Finally users can confirm that they are going to attend an event and tell their friends by publishing to Facebook and Twitter.

Fanatic will feature a profile page which will allow users to view their past activity within the app and receive news updates on their favorite artists.  They can view all the awards that they have unlocked, and all the shows that they have attended.  They can also receive the latest news posts of some of their favorite music artist.  Finally, users can adjust their personal settings from their profile including which artists they wish to follow, their home town, and their Facebook and twitter account information.
 
Basic Functionality (at launch of Fanatic Fans)

Check into an Event
Get information on the event
Communicate with other fans at the event using a messaging board
Post messages 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 currency for goods
Vendor/Business can list promotions for users to redeem Fanatic Fan virtual points.
Buy Tickets to live events through a third party

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.

Marketing

Our initial marketing will be aimed at attracting consumers through the respective application stores such as The AppStore on Itunes, attendance at live events and links to the application download from participating vendors.    However, to attract these users we first must establish JabberMonkey as a unique interactive experience that differs from the other social networking sites.

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 which we think will take most of 2011 to achieve.  If we are not able to attract sufficient users, we will not be able to engage in any advertisement.
 
 
 
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The Company also intends on generating revenue from monthly fees for businesses listing promotions inside of the application.

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 is currently developing the application and intends to submit the application for approval with Apple in the second quarter of 2011.

JabberMonkey.com
 
JabberMonkey is a social expression site that features questions on issues and topics that are current and relevant to its members.  JabberMonkey questions will be on pertinent issues that in many instances will evoke an emotional response from its members.  Many of the questions on JabberMonkey will provide the individuals voting with a voice to cause an action or affect a result.

There are many emotional issues or events that occur around the world that JabberMonkey will post 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.

 
 
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· 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?”  Which 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 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 there 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 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, they 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.
 
JabberMonkey questions will 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 could range from Entertainment to Music and Business, etc.   Each category will also contain 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 has focused on designing a site that is easy to use and is video intensive with user friendly software for video attachment and conferencing.

JabberMonkey completed its alpha testing and moved into beta testing in December 2009.  The Beta testing ran through the end of November 2010 and the first official non-beta version of the website was released in December 2010.  We do not have the capital required to commence our marketing plan related to the website and thus do not anticipate any revenue from JabberMonkey until late in 2011, if we obtain sufficient capital.

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.

 
 
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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 efforts 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 a 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 will be 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 which we think will take most of 2011 to achieve.  If we are not able to attract sufficient users, we will not be able to engage in any advertisement.

Once the site is up and running, 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 essentially 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 enhancements to the functionality of the website.

 
 
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Even after completing  the beta phase, we could still have software and hardware development problems once the full launch of the site 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.

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”.

Research and Development Costs During the Last Two Fiscal Years

For the years ended December 31, 2010 and 2009 the Company incurred Research and Development Costs of  $232,327 and $545,485, respectively.  Research and Development expense related to the continued development of the Company’s JabberMonkey website and its additional project Fanatic Fans.  We expect as we expand into new markets we will continue to incur additional research and development costs.

ITEM 1A.  RISK FACTORS

Calibrus’ operations are subject to a number of risks including:
 
Management focus will be on development of  JabberMonkey and Fanatic Fans, both of which are new businesses and we do not know if consumers will like the sites or that we will be able to monetize the sites 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, 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.

 
 
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Both Fanatic Fans and JabberMonkey, will be 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 even 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 continue development and launch the site and application.

We have only just completed the Beta Phase of development of  JabberMonkey and have not commenced the beta phase of Fanatic Fans and do not know if the they will work at full functionality or be a site consumers will want to use.

Calibrus has completed the beta phase of development for JabbeMonkey which was an initial deployment of the software and site and limited testing by a small group of users. Beta phase has not yet been reached on Fanatic Fans.   At this time, we cannot say with certainty if either will work on a larger scale or that unknown problems will not arise.  There is no assurance we could raise additional capital to launch and market the offerings or if we could raise additional capital at what cost.  Additional capital would most likely result in substantial dilution to current stockholders.  Accordingly, stockholders of Calibrus will be backing an unproven product which may not function as described and could result in Calibrus having financial difficulties in the future.

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 development until such revenue can be generated.

 
 
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Since a certain level of consumers must become users of Fanatic Fans and JabberMonkey before they can be monetized to produce revenue, management is of the belief that it will have to raise substantial more capital to reach profitability.     We just finished the beta phase of development of JabberMonkey in November 2010 and have not commenced a beta phase for Fantic Fans.  With a lack of capital to execute on the marketing plan of the website it is unknown when and if the website will be able to attract the required number of users to successfully monetize the website.  It is likely stockholders will suffer further dilution as we raise additional capital and if management cannot raise additional capital stockholders would likely lose most of their investment.  There is no guarantee that we could raise such future capital.

Our existing management team has no experience in operating a social networking site 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 and we do not have the funds to repay our convertible debentures outstanding.

We have issued $1,085,000 principal amount of convertible subordinated debentures as of March 23, 2011.  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.  As such, we do not have the funds to repay the outstanding debentures and are dependent on additional capital coming in to repay the debentures.  We cannot project when the new product offerings will be successful and if we are unable to return to profitability, we may not be able to repay the Debenture.  Additionally, it would be difficult to convince new investors to contribute money that was going to be used to repay existing debts.
 
We currently have losses from operations and will need additional capital to execute our business plan.

We had losses from operations with a loss from operations of $27,426 and a net loss of $128,263 for the year ended December 31, 2010, and we have had to rely on existing capital to cover the losses.  For the year ended December 31, 2010, our current assets have been reduced to $400,642.  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 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 $3,745,000 in 2010.  There was a reduction of approximately $500,000 from TPV revenues in 2009 to 2010.  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 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 entered the full operational phase 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 business at a small operating profit.  Certainly not at a sufficient amount to repay our existing debt obligations.

 
 
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With our expansion into new business areas, our ability to raise additional capital may be key to our success and without additional capital, we may not be able to stay in business.

We have been losing money and need to expand into new business areas as our TPV business, which has been our primary operations, has declining revenue and only small operating profits.  Even if we leverage our current technology and infrastructure, without additional capital it will be difficult for us to enter into new business markets.  With the current credit crisis in the United States, it may be difficult to raise capital and we do not think traditional forms of financing, such as bank loans, will be available for us.  Given the current economic times, we would anticipate it being difficult to raise any capital and believe the terms we could obtain may not be very favorable, possibly resulting in substantial dilution to current shareholders.  There can be no assurance that we will be able to raise the required capital.

Our inability to adequately retain or protect our employees, customer relationships and proprietary technology could harm our ability to compete.

Our future success and ability to compete depends in part upon our employees and their customer relationships, as well as our proprietary technology.  Despite our efforts, we may not prevent third parties from soliciting our employees or customers or infringing upon or misappropriating our intellectual property. Our employees, customer relationships and intellectual property may not provide us with a competitive advantage adequate to prevent the competitors from entering the markets for our products and services. Additionally, our competitors, which are larger and better financed, could independently develop non-infringing technologies that are competitive with, and equivalent or superior to our technology.

We face numerous competitors and as a result, we may not get the business we seek.

We have many competitors with comparable technology and capabilities that compete for the same group of customers. Our competitors are competent and experienced and are continuously working to take projects away from us. Many of our competitors have greater financial, technical, marketing and other resources than we do. Our ability to compete effectively may be adversely affected by the ability of these competitors to devote greater resources to the sale and marketing of their products and services.
 
We currently depend upon a single customer segment, the telecommunication market, for the majority of revenues and a decrease in its demand for our services or pricing modifications in this segment would have a material adverse effect on our business, operations, and financial condition.

Currently, a substantial part of our revenue sources come from our TPV business related to telecommunications.  As the telecommunication business has consolidated, we have already 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 85% of our revenues are derived from two customers and the loss of either customer would have a material adverse effect on our business, operations and financial condition.

Currently, almost 85% of our revenues are derived from AT&T Communications and Cox Communications.  For the year ended December 31, 2010 AT&T Communications accounted for 68% of our revenue and Cox Communications accounted for 17% of our revenues.  AT&T Communications accounted for 55% of our revenue in 2009 and Cox Communications accounted for 25% of our revenues in 2009.    It is unlikely we could replace either client 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.

 
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We may not be able to adapt quickly enough to changing customer requirements and industry standards.
 
We are in an industry dependent on technology and the ability to adapt this technology to changing market needs.   We may not be able to adapt quickly enough to changing customer requirements and preferences and industry standards. Competitors are continually introducing new products and services with new technologies. These changes and the emergence of new industry standards and practices could render our existing products obsolete and will require us to spend funds on research and development to stay competitive.
 
Efforts to expand will place a significant strain on our management, operational, financial and other resources.
 
We plan to expand our operations by introducing JabberMonkey and Fanatic Fans and aggressively marketing them, 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 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 $128,263 and $408,842 for the years ended December 31, 2010 and 2009, respectively. These losses are the result of consolidation in the telecommunication business and our continuing research and development expenses related to new business lines.  We are actively diversifying our product offerings to adjust to changes in our customers and the telecommunications’ industry.  We had negative working capital of $1,692,763 at December 31, 2010. 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.
 
Your ability to sell shares may be limited if the price of our stock is below $5.00 per share because of special sales practice requirements applicable to "designated securities" or "penny stock."

If the bid price for our common stock is below $5.00 per share, our common stock would be subject to special sales practice requirements applicable to “designated securities” on “penny stocks” which is stock that trades below $5.00 per share and whose underlying companies do not meet certain minimum asset requirements. No assurance can be given that the bid price for our common stock will be above $5.00 per share. If such $5.00 minimum bid price is not maintained and another exemption is not available, our common stock would be subject to additional sales practice requirements imposed on broker-dealers who sell the common stock 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 these rules, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written agreement to the transaction prior to the sale. These limitations make it difficult for broker dealers to sell penny stocks and most will not recommend a penny stock or sell a penny stock except to long term customers who are accredited investors. Because of these limitations many brokers do not follow penny stocks or recommend them to clients. Consequently, the penny stock rules may affect the ability of broker-dealers to sell our common stock and also may affect the ability of persons acquiring our common stock to resell such securities in any trading market that may develop. If brokers do not recommend Calibrus to their clients, it may be difficult to establish a market for the securities or to develop a wide spread shareholder base. Therefore, an investor trying to resell our shares may have difficulty because there may be little demand for our shares and even small share sales may result in a reduction in our share price.


 
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Current management and our founders own over fifty percent of our outstanding shares and will control Calibrus leaving other shareholders of Calibrus dependent on management’s ability and making it difficult to change management or our direction if an investor should become dissatisfied with management or our business model.

Calibrus management and founders currently own 50.74% of our issued and outstanding shares of common stock.  As a result, management will most likely be in a position to elect at least a majority of the Board of Directors, to dissolve, merge or sell the assets, and to direct our business affairs without shareholder input or consent.  As such, outside shareholders will not have the ability to change management or the direction of the Company and will be subject to the judgment and decisions of current management for the foreseeable future.
 
Management is reviewing the recently enacted legislation related to healthcare and its impact on Company results.

Calibrus management is currently reviewing the recently enacted healthcare package and its effect on future financial results of the Company.  At this time it has not been determined whether this will have a material effect on financial results.  It is possible it may have a material effect on financial results.
 
Employees

As of March 31, 2011, we had 50 full-time employees and 22 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 $138,500, or $11,538 per month.  Management believes our current lease will serve current and future expansion plans through its term.


 
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ITEM 2. PROPERTIES

Our offices are located at 1225 West Washington, 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 $138,500 or $11,538 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 does not itemize the specific legal claims, b ut 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.  The court entered a scheduling order on March 15, 2011, setting a discovery schedule.  The Company intends to vigourously defend this matter.  The suit is currently in the discovery phase and as such, the likelihood of any outcome is indeterminable.  As such, the accompanying financial statements have not been adjusted to reflect any possible outcome.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

     None.
 
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, under the symbol “CALB.” Our common stock is traded on the OTCBB but has had limited trading activity.  Our stock was 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
 December 2009   *  *
 March 31, 2010  *  *
 June 30, 2010   $1.01  $0.45
 September 30, 2010  $0.75   $0.51
 December 31, 2010   $0.54  $0.30
 
(*) The Company’s stock did not commence trading until April 2010.  As such, no historical data is available for the Company’s common stock prior to that date.
 
 
 
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At March 23, 2011, the bid and asked price for the Company's Common Stock was $0.28 and $0.38. 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, 2010, we had approximately 120 shareholders of record.  As of December 31, 2010, Calibrus had 6,794,600 shares of our common stock issued and outstanding. At March 31, 2011, Calibrus had 6,794,600 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 500 shares of Calibrus’ common stock issued in 2006, all of Calibrus issued 6,794,600 shares have been outstanding for several years with the majority of the shares issued in 1999 and 2000.    Accordingly, all of the shares of common stock outstanding 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 web site www.sec.gov.

Recent Sales of Unregistered Securities
 
We issued options to our executive officers and directors during the year ended December 31, 2010.  Options issued were only to executive officers and directors and, accordingly, we believe all issuances are exempt from the registration provisions of the Securities Act of 1933.   We issued a total of 1,494,167 options in 2010.  No shares of our common stock were issued in 2010 and 2009.

From October 2009 through July 31, 2010, we sold 200 units, at $5,000 per unit, consisting of five thousand dollars ($5,000)  in principal amount Convertible Debentures (“the Debentures”) and twenty five hundred (2,500) common stock purchase warrants (the “Units”) for total offering proceeds of $1,000,000.  Each convertible debenture is 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 (“the Warrants”) 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.  In October 2010 we commenced an additional private placement offering of 100 units for proceeds of $500,000 with the same terms as the offering above.  As of March 23, 2011, we had completed the sale of an additional 17 Units for total proceeds of $85,000.
Securities Authorized for Issuance under Equity Compensation Plans

 
 
 
Plan Category
 
Number of Securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)
 
(a)
(b)
(c)
Equity compensation plans approved by security holders
2,512,499
$1.08
2,337,501
Total
2,512,499
$1.08
2,337,501

 
 
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ITEM 6. SELECTED FINANCIAL DATA
 
Summary of Financial Information
We had revenues of $3,745,876 and a net loss of ($128,263) for the year ended December 31, 2010.  At December 31, 2010, we had cash and cash equivalents of $21,519 and negative working capital of ($1,692,763), which represented a decrease in working capital of $1,629,756 from the amount reported at December 31, 2009, of ($63,007).

The following table shows selected summarized financial data for Calibrus at the dates and for the periods indicated.  The data should be read in conjunction with the financial statements and notes included herein beginning on page F-1.
 
STATEMENT OF OPERATIONS DATA:

   
For the Year
Ended
December 31, 2010
   
For the Year
Ended
December 31, 2009
 
Revenues
  $ 3,745,876     $ 4,245,144  
Cost of Revenues
    1,334,272       1,768,922  
Research and Development
    232,327       545,485  
General and Administrative Expenses
     2,206,703        2,337,788  
Net Loss
    (128,263 )     (408,842 )
Basic and Diluted Loss per Share
    (0.02 )     (0.06 )
Basic and Diluted Weighted Average Number of Shares Outstanding
    6,794,600       6,794,600  
 
BALANCE SHEET DATA:
               
   
December 31, 2010
   
December 31, 2009
 
Total Current Assets
  $ 400,642     $ 847,528  
Total Assets
    3,152,453       1,972,900  
Total Current Liabilities
    2,093,405       910,535  
Working Capital
    (1,692,763 )     (63,007 )
Stockholders’ Equity
    1,059,048       1,062,366  

 
 
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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, including the launch of Fanatic Fans and JabberMonkey; our ability to repay the Debentures; 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, 2010.  Calibrus believes that the following addresses 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.

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.


 
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Stock-Based Compensation.  The Company has stock-based compensation plans. Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant date fair value estimated in accordance with the Black Scholes Pricing Model. The value of the compensation cost is amortized on a straight-line basis over the requisite service periods of the award (the option vesting term).

Assumptions used in the Black Scholes Pricing Model to estimate compensation expense are determined as follows:

·  
Expected term is determined using an average of the contractual term and vesting period of the award;

·  
Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of similar industry indices, which are publicly traded, over the expected term of the award;

·  
Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and,

·  
Forfeitures are based on the history of cancellations of awards granted by the Company and   management's analysis of potential forfeitures.

We account for income taxes in accordance with FASB ASC 740 (formerly SFAS No. 109).  Under this guidance, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets will be reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized.

The Company capitalizes certain software costs in accordance with FASB ASC 985-20 Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.  The product was under development through November 2010 and reached availability for general commercial use in December 2010.  Upon completion of the project the 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, 2010 was $76,430.

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 two years SBC communications acquired AT&T and Bellsouth Communications.  Adelphia Communications and MCI are no longer in business.  The remaining players are Verizon, AT&T, and Sprint.  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.


 
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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.

On April 8, 2010 the Company signed a new contract with its largest customer AT&T.  The contract provides that Calibrus continue to provide AT&T with TPV services.  The service is an IVR based service with a Live Agent Opt-Out.  The new contract provides for higher margins based on revised pricing and the switch from a Live Agent only program to an IVR based solution with Live-Agent Opt-Out.  The Company also executed a contract extension with Qwest Communications during the year ended December 31, 2010.  The extension provides for increased pricing terms.

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.

Over the next twelve (12) months Calibrus intends to continue to offer and develop customized solutions on a client by client basis in call recording, IVR/VRU, Voice Message Broadcast and “Click-To-Call” services.  We will market these types of Automated Hosted Business Solutions through print, radio and online advertising.

The Company did generate positive cash flow from the TPV and hosted call recording services for the year ended December 31, 2010.
 
 
 
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We also intend to develop, internally or through outsourcing, products and services that can be marketed directly to businesses or consumers.  Calibrus hopes to build upon and leverage our existing technology and infrastructure.  Calibrus is currently researching and developing existing technologies and platforms some of which are already developed, such as our Call Recording and “Click-To-Call” services.  Calibrus has several projects that are currently in the idea stage that would utilize our current telephony infrastructure and “Click-To-Call” and Call Recording functionality.  Our plan is to further develop, implement, market and sell these services in the next twelve (12) months, given sufficient capital.

It is anticipated that additional hardware and software may be required, as well as additional employees, particularly software programmers and web developers, may be needed in order to complete certain products and services.  We believe within the next twelve (12) months in order to further develop, implement, market and sell Automated Hosted Business services we will need to raise additional capital.   We currently anticipate it will cost an additional $1,000,000 to successfully market our new product.  This is only an estimate and may change substantially as we move forward with our new products.  Additionally, with the current economic conditions facing the country, we may have to raise more funds if we are not able to generate sufficient revenues from the new and existing product lines.  There can be no assurance that we will be able to raise any funds or that the funds raised will be sufficient to cover ongoing expenses.
 
We have just completed the beta phase of development of our JabberMonkey website at the end of November 2010 and plan to commence the beta phase of Fanatic Fans in 2011.  With the launch of JabberMonkey and Fanatic Fans we will begin to focus more time and capital on the social networking side of our operations and ancillary offerings related to software development and marketing related to social networking.  We believe this will take an increasing amount of our management time and financial resources, but believe it offers long term opportunities that the Hosted Business Solutions does not offer.

The Company has no acquisition plans at this time.

Results of Operations

December 31, 2010

For the year ended December 31, 2010, we had revenues of $3,745,876 compared to revenues of $4,245,144 for the year ended December 31, 2009.  The reduction in revenues is the result of less third party verification work available as the telecommunication industry continued to consolidate and overall call volumes continue to decline.  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.

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 such, we have reduced our cost of revenues, as a percentage of sales, for the year ended December 31, 2010 to 36% vs. 42% for 2009.  We have also kept our general and administrative expenses flat although we will see a large reduction in the next year as we have reduced our rent expense from approximately $30,000 per month to $11,500 per month.  This rent reduction occurred in November of 2010 and as such we were only able to receive the benefit for 2 months in year ended December 31, 2010.   However interest expense related to our convertible debentures will be higher as a result of the Company issuing additional debentures through the end of 2010 and additional debentures issued in 2011.

The Company generated cash-flow from operations of approximately $844,000 for the year ended December 31, 2010. With the exception of research and development expenses and capitalized costs related to the JabberMonkey website and its location based social networking smart phone application Fanatic Fans, the Company would have generated net income for the year ended December 31, 2010 of approximately $104,000 (unaudited) and generated positive cashflow of approximately $1,820,000 (unaudited).  This further reflects the Company’s success in stabilizing the TPV business even given the downturn in revenues.  The Company is in a position to dramatically reduce or eliminate its R&D expenses and cash flows attributable to the capitalization of its JabberMonkey project at any time, if needed.


 
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Seasonality and Cyclicality
 
We do not believe our business is cyclical.

Liquidity and Capital Resources

As of December 31, 2010 we had cash on hand of $21,519  and negative working capital of $1,692,763 with current assets of $400,642 and current liabilities of $2,093,405.

Our working capital as of December 31, 2010, was down from negative working capital of $63,007 at December 31, 2009, as we continued to invest resources into the development of our social networking product offerings and increased the amount of convertible debentures in the Company.   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 which is reflected, in part, in the reduction of our working capital.  The Company has raised an additional $75,000 through the issuance of the Debentures from the end of 2010 through March 31, 2011.  The Company has also raised an additional $125,000 in bridge loans.
 
The Company believes it is in a position to dramatically reduce or eliminate expenditures related the development of its Jabbermonkey website.  Additional capital will be required in 2011 for the continued development of Fanatic Fans.  Research and development expense related to the projects for the year ended December 31, 2010 totalled $232,327 and capitalized costs related to the project totaled $1,737,164.  With the exception of these items the Company would have generated  positive proforma cash flow of approximately $1,820,000 (unaudited) and earnings of approximately $102,000 (unaudited).

Although we have been expanding our product offerings, which have increased our need for capital, we have also reduced our long term expenses by reducing the amount of rentable square feet in our current location.  We were also able to reduce expenses through a reduction in our workforce.  We are hopeful these changes along with our new product offerings, which are not as labor intensive, will allow us to return to profitability in the near future, but can offer no assurances in this regard.
 
As we try to expand our product offerings, we will need to seek additional capital.  As of March 31, 2011, 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 to our social networking projects.  Management intends to raise additional capital to help expand our marketing efforts and to be able to aggressively market our new product offerings, including JabberMonkey and Fanatic Fans.  We have estimated our capital needs based on the potential revenues from existing clients and our current burn rate over the previous months as we continue 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 March 31, 2011.  We have been able to fund these negative amounts through cash flows from our existing core business and through the financing of $1,010,000 via the issuance of Debentures through December 31, 2010.  The Company has raised an additional $75,000 through the issuance of the new convertible Debentures from the end of 2010 through March 31, 2011.  We anticipate that expenditures related to the development of JabberMonkey will be further reduced and focus more on maintenance and improvements to the developed product.  However we will need tofund the development of Fanatic Fans and increase expenditures in marketing to successfully launch both products.   Our revenue figures may not come to fruition given the current economic conditions in the United States and the world in general.  If we have revenue short falls, we may have to reevaluate our ability to survive unless we have additional revenue sources on line.  This may cause us to curtail or cease development and marketing expenditures related to our social networking projects. There can be no guarantee our new products will increase revenues or that we can achieve profitability before our assets are depleted.

We estimate we will need an additional $1,000,000 in capital to cover our ongoing expenses and to successfully market our new product offerings.  This is only an estimate and may change as we receive feedback from customers and have a better feel of the demand and revenues from our new products.  Our estimates assume that prior discussions with interested potential customers will lead to sales and that we will be able to maintain current revenue figures and gross profit margins, although we can offer no assurances in this regard.  With the current economic conditions, both of these factors may change and we may not be able to raise the capital and if we are able to, that it will be at favorable rates.

 
 
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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.

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 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, 2010 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 generally accepted accounting principles. 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.
 
 
 
30

 
 
 
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, 2010 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, 2010, 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, 2010, our internal control over financial reporting was effective.

Changes in internal control over financial reporting

There have been no changes that are likely to materially affect internal control over financial reporting.

ITEM 9B.  OTHER INFORMATION

None.


 
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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  57  CEO, Director
 Greg Holmes  47  President
 Kirk Blosch   56  Director
 Charles House   70  Director
 Christian J. Hoffmann, III  63  Director
 Michael Myers  42  Director
 Kevin Asher   35  CFO
 Tom Harker   37  CTO
 
Jeff W. Holmes – Chairman and C.E.O.  Jeff Holmes is a founder of Calibrus and has been active in the roles of President, C.E.O. and Chairman of the Board of Directors since Calibrus’ inception in 1999.  For the past 25 years Mr. Holmes has been active in developing technologies that improve the efficiencies of business processes in the Healthcare, Internet, Computer (hardware and software) and Telecommunications industries.  He graduated in 1976 with a B.S. in Marketing and Management from the University of Utah.  The Company believes that because of Mr. Holmes’ role as a founder and his experience with microcap public companies he is qualified to be a director.

Greg W. Holmes – President.  Greg Holmes is a founder of Calibrus and has served in several positions during his Calibrus tenure which began in 1999.  Most recently, Mr. Holmes served as Director of Business Development, working on developing new business opportunities and strategic relationships. In 2003, Mr. Holmes served as Production Manager over Calibrus’ Papago Facility, managing activities related to client call volumes, staffing levels, scheduling and Quality Assurance issues for Fortune 1000 clients at Calibrus Corporate headquarters in Tempe, AZ.  From January 2001 to February 2003, Mr. Holmes was the Director of Human Resources for Calibrus.  He was also responsible for managing accounts receivable, accounts payable and invoicing.  From 1996 to 1999, Mr. Holmes was head of Internet Business Development & Research for J.W. Holmes & Associates and The Scottsdale Equity Growth Fund.  Responsibilities included conducting research and analysis for existing portfolio companies and companies seeking investment capital.  From 1995 to 1996, Mr. Holmes was Director of Finance & Director of Human Resources for Pro Tour Tennis in which he handled the accounts payable, payroll, budget forecasting, financial statements and human resource duties.  He earned his Bachelors degree in Geography and a minor in Finance from the University of Utah in 1995.

 
 
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Kirk Blosch – Director.  Mr. Blosch is a general partner and founder of Blosch and Holmes LLC, a business consulting and private venture funding general partnership established in 1984.  Mr. Blosch is and has been, since October 1999, a member of the board of directors of Calibrus, Inc.  From the first quarter of 1997 through the second quarter of 2000, Mr. Blosch was a director of Zevex International, a medical product company specializing in medical devices and ultrasound technology.  Zevex (ZVXI) was traded on NASDAQ prior to its sale.  Mr. Blosch also served on the board of directors of OCIS, Inc. from 2003 through July 2007.  Mr. Blosch graduated from the University of Utah in 1977 with a B.S. degree in Speech Communications.  The Company believes that because of Mr. Blosch’s role as a founder and his experience with microcap public companies he is qualified to be a director.

Christian J. Hoffmann, III – Director.  Mr. Hoffmann, Director is a lawyer specializing in corporate, securities, mergers and acquisitions and venture capital.  He has been a Director at Calibrus since 2001.  He has been a partner with Quarles & Brady, LLP and its predecessor in Phoenix, Arizona since November 1995. He graduated magna cum laude from Georgetown University with Bachelors of Science in Business Administration in 1969 and from the Georgetown University Law Center with a juris doctorate in 1973.  The Company believes that Mr. Hoffmann’s extensive experience as a securities attorney gives him the qualifications and skills to serve as a director.

Charles House – Director.  Mr. House has been 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 since 2006.  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, a past President of ACM, and chair for many years of the Information Council for CSSP in Washington D.C.  He holds numerous technology awards for his work, including the Computer Hall of Fame, the Entrepreneur’s Hall of Fame, and the Smithsonian “Wizards of Computing”.  The Company believes that Mr. House’s broad technical expertise and experience qualify him to serve as a director
 
Michael Myers – Director.  Mr. Myers, 42, 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.


 
33

 
 
 
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.
 
 
 
34

 


Board of Directors Independence

The Board of Directors is currently comprised of four members, two of which are independent and two that are not.  Christian J. Hoffmann and Charles House 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

During 2010, the board of directors of Calibrus met two times.  Additionally, the Compensation Committee met once and the Audit Committee met four times.  All members of the 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 2010 and all members were present.  The Audit Committee of the Board’s responsibility is to oversee management’s conduct of the corporation’s financial reporting process, the financial reports and other financial information provided by the corporation to the Securities and Exchange Commission and the public, the Corporation’s system of internal accounting and financial controls, and the annual independent audit of the Corporation’s financial statements.   Members of the Committee are reelected annually.

Compensation Committee

The Compensation Committee of the Board of Director’s is made up of Christian J. Hoffmann and Kirk Blosch, who is Chairman of the Committee.  Members are reelected on an annual basis by the Board.  The Committee reviews annually compensation related to key employees and Officers of the Company.  The Compensation Committee met two times in 2010 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.

 
 
35

 
 
 
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.

 
 
36

 
 
 
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, 2010 (collectively referred to as the "Named Executives").  No other executive officer serving during 2010 received compensation greater than $100,000.

SUMMARY COMPENSATION TABLE
Name and Principal Position
 
Year
 
Salary
   
Bonus
   
Stock Awards
   
Option Awards
   
Non-Equity Incentive Plan Compensation
   
Nonqualified 
Deferred Compensation
   
All Other Compensation
   
Total
 
(a)
 
(b)
 
(c)
   
(d)
   
(e)
   
(f) (1)
   
(g)
   
(h)
   
(i) (2)
   
(j)
 
Jeff W. Holmes,
 
12/31/2010
  $ 194,593     $ 0     $ 0     $ 27,000     $ 0     $ 0     $ 4,054     $ 225,647  
CEO   
12/31/2009
  $ 204,417     $ 0     $ 0     $ 0     $ 0     $ 0     $ 4,283     $ 208,700  
Greg W. Holmes,
 
12/31/2010
  $ 131,201     $ 0     $ 0     $ 20,250     $ 0     $ 0     $ 4,120     $ 155,571  
President   
12/31/2009
  $ 139,375     $ 0     $ 0     $ 0     $ 0     $ 0     $ 3,790     $ 143,165  
Thomas Harker,
 
12/31/2010
  $ 123,290     $ 0     $ 0     $ 7,125     $ 0     $ 0     $ 4,123     $ 134,538  
CTO   
12/31/2009
  $ 130,084     $ 0     $ 0     $ 0     $ 0     $ 0     $ 3,794     $ 133,878  
Kevin J. Asher,
 
12/31/2010
  $ 126,250     $ 0     $ 0     $ 13,500     $ 0     $ 0     $ 4,120     $ 143,870  
CFO   
12/31/2009
  $ 130,000     $ 0     $ 0     $ 0     $ 0     $ 0     $ 4,109     $ 134,109  
 
(1)
 
 
 
 
 
 
The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options.  Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 1,050,000 as of March 31, 2011, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,462,499 as of March 31, 2010, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years and they vest at various times according to the Option Agreements.  All forfeited and expired options are added back into the plan and become immediately available for issuance.
(2) The amounts shown include Company-paid portion of health insurance for the fiscal years ended 2010 and 2009.

 
 
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Outstanding Equity Awards At Fiscal Year-End

   
Stock Awards
 
Stock Awards
 
 
 
 
 
 
 
 
Name
 
 
 
 
Number of securities underlying unexercised Options (#) Exercisable
   
 
 
 
Number of Securities Underlying Unexercised Options (#) Unexercisable
   
 
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned
Options (#)
   
 
 
 
 
 
 
Option Exercise Price ($)
 
 
 
 
 
 
 
Option Expiration Date
 
 
 
 
 
Number of Shares or Units of Stock That Have Not Vested (#)
   
 
 
 
 
Market Value of Shares or
Units of Stock That Have Not Vested ($)
   
 
Equity
Incentive Plan Awards: Number
of Unearned
Shares Units
or Other Rights
That Have Not Vested (#)
   
 
Equity Incentive Plan Awards Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
 
Jeff W. Holmes,
    20,833       -       -     $ 1.52  
12/11/2011
    -       -       -       -  
CEO     70,000       -       -     $ 1.00  
12/17/2013
    -       -       -       -  
      300,000       -       -     $ 1.00  
9/10/2015
    -       -       -       -  
Greg W. Holmes,
    20,833       -       -     $ 1.52  
12/11/2011
    -       -       -       -  
President     50,000       -       -     $ 1.00  
12/17/2013
    -       -       -       -  
      225,000       -       -     $ 1.00  
9/10/2015
    -       -       -       -  
Thomas Harker,
    20,833       -       -     $ 1.52  
12/11/2011
    -       -       -       -  
CTO     50,000       -       -     $ 1.00  
12/17/2013
    -       -       -       -  
      79,167       -       -     $ 1.00  
9/10/2015
    -       -       -       -  
Kevin J. Asher,
    50,000       -       -     $ 1.00  
11/18/2013
    -       -       -       -  
CFO     25,000       -       -     $ 1.00  
12/17/2013
                               
      150,000       -       -     $ 1.00  
9/10/2015
    -       -       -       -  
 
Compensation of Directors
 
Name
 
Year
 
Fees Earned or Paid in Cash ($)
   
Stock
 Awards ($)
   
Option Awards ($)(1)
   
Non-Equity Incentive Plan Compensation ($)
   
Nonqualified Deferred Compensation Earnings ($)
   
All Other Compensation ($)
   
Total ($)
 
(a)
 
(b)
 
(c)
   
(d)
   
(e)
   
(f)
   
(g)
   
(h)
   
(i)
 
Kirk Blosch (2)
 
12/31/2010
    -       -     $ 13,050       -       -       -     $ 13,050  
   
12/31/2009
    -       -     $ 0       -       -       -     $ 0  
Charles House (2)
 
12/31/2010
    -       -     $ 13,050       -       -       -     $ 13,050  
   
12/31/2009
    -       -     $ 0       -       -       -     $ 0  
Christian J.
 
12/31/2010
    -       -     $ 17,550       -       -       -     $ 17,550  
Hoffmann, III (2)  
12/31/2009
    -       -     $ 0       -       -       -     $ 0  
Michael Myers (2)
 
12/31/2010
    -       -     $ 2,250       -       -       -     $ 2,250  
   
12/31/2009
    -       -     $ 0       -       -       -     $ 0  
 
(1)
 
 
 
 
 
 
 
 
 
This column represents the aggregate grant date fair value of the awards granted in 2010 and 2009, 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 11 included in Item 8.
(2)
 
As of December 31, 2010, Kirk Blosch had 325,000 options outstanding, Charles House had 325,000 options outstanding, Christian J. Hoffmann, III had 375,000 options outstanding and Michael Myers had 25,000 options outstanding.  No director had any stock awards outstanding.

 
 
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Option/SAR Grants in Last Fiscal Year

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. In fiscal 2009, no options were granted.

The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options.  Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 1,050,000 as of March 31, 2011, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,462,499 as of March 31, 2011, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years and they vest at various times according to the Option Agreements.  All forfeited and expired options are added back into the plan and become immediately available for issuance.

Stock Option Exercise

In fiscal 2010, 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 2010 or 2009.
 
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.  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.  Directors received no compensation for the year ended December 31, 2009.  No other compensation arrangements exist between Calibrus and our Directors.

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

Calibrus has employment contracts with all officers and those employees identified herein as key employees.   All of our employment 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 a 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
 
End Date
 
Annual Salary
 
Renewal Term
Jeff W. Holmes
 
1/1/2005
 
12/31/2010
  $ 220,000  
(3) one year extensions
Greg W. Holmes
 
1/1/2005
 
12/31/2010
  $ 150,000  
(3) one year extensions
Kevin J. Asher
 
2/5/2008
 
2/4/2010
  $ 130,000  
(2) one year extensions
Tom Harker
 
1/10/2007
 
1/9/2011
  $ 140,000  
(3) one year extensions
Michael Brande
 
1/10/2007
 
1/9/2011
  $ 105,000  
(3) one year extensions
Michael Rae
 
1/10/2007
 
1/9/2011
  $ 90,000  
(3) one year extensions
Kelly Robinson
 
6/28/2004
 
6/28/2010
  $ 90,000  
(2) one year extensions

 
 
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During the year ended December 31, 2010 each of the employees listed above took salary decreases due to limited cash flow in the Company.  Each of the employees has agreed to waive the unpaid amounts per their respective employment agreements.

The Company has agreed to indemnify its officers and directors for certain events or occurrences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

Report on Repricing of Options/SARs

We have not adjusted or amended the exercise price of stock options or SARs previously awarded to any executive officers.

Report on Executive Compensation

The Compensation Committee of the Board of Directors determines the compensation of Calibrus’ executive officer and president and sets policies for and reviews with the chief executive officer and president the compensation awarded to the other principal executives, if any.   The board of directors has two committees, the audit and compensation committee which are made up of non-employee directors.  Our Compensation Committee is composed of Kirk Blosch and Charles House.  Our Audit Committee is composed of Kirk Blosch, Charles House and Christian J. Hoffmann, III.

The compensation policies utilized by the Board of Directors are intended to enable Calibrus to attract, retain and motivate executive officers to meet our goals using appropriate combinations of base salary and incentive compensation in the form of stock options. Generally, compensation decisions are based on contractual commitments, if any, as well as corporate performance, the level of individual responsibility of the particular executive and individual performance. During the fiscal year ended December 31, 2010, 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 year ended December 31, 2010 each of the Company’s executives took salary decreases due to limited cash flow in the Company.  Each of the employees has agreed to waive the unpaid amounts per their respective employment agreements.
 
Option Plans

Calibrus has 4,850,000 shares reserved for issuance under stock option plans with 2,512,499 stock options issued and outstanding.  The board of directors has the authority to issue the options at their sole discretion.

The Company has adopted two Stock Option Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2010 the Company increased the number of options available for grant under the 2001 Incentive Stock Option Plan by 550,000 options.  Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 1,050,000 as of March 31, 2011, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 2,000,000 shares of common stock and has granted 1,462,499 as of March 31, 2011, at exercise prices ranging from $1.00 to $1.52. The maximum term of the options is five years and they vest at various times according to the Option Agreements.

 
40

 
 
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of March 30, 2011, with respect to the beneficial ownership of Calibrus’ Common Stock by each director of Calibrus and each person known by Calibrus to be the beneficial owner of more than 5% of Calibrus’ outstanding shares of Common Stock.  At December 31, 2010 and March 23, 2011, there were 6,794,600 shares of common stock outstanding.
 
For purposes of this table, information as to the beneficial ownership of shares of common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes general voting power and/or investment power with respect to securities. Except as otherwise indicated, all shares of our common stock are beneficially owned, and sole investment and voting power is held, by the person named. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock, which such person has the right to acquire within 60 days after the date hereof. The inclusion herein of such shares listed as beneficially owned does not constitute an admission of beneficial ownership.

All percentages are calculated based upon a total number of 6,794,600 shares of common stock outstanding as of March 23, 2011, plus, in the case of the individual or entity for which the calculation is made, that number of options or warrants owned by such individual or entity that are currently exercisable or exercisable within 60 days.
 
Title of Class
 
Name of Beneficial Owner
 
Number of Shares Owned
 
Percent of Class
 
 Principal Shareholders
   
Common
Jeff W. Holmes
1225 West Washington Street
Suite 213
Tempe, Arizona 85281
1,983,667
27.23%
       
Common
Kirk Blosch
2081 S. Lakeline Drive
Salt Lake City, Utah 84109
1,720,334
24.16%
       
Common
Christian J. Hoffmann, III (4)
1225 W. Washington Street
Suite 213
Tempe, Arizona 85281
475,000
 
6.60%
 
 
       
  Directors    
Common Jeff W. Holmes (1)  -----See above-----  
Common Kirk Blosch (2)  -----See above-----  
Common
Charles House (3)
325,000
4.56%
Common
Christian J. Hoffmann, III (4)
 -----See above-----
 
Common Michael Myers (5)   25,000 0.37%
Common
All Officers and Director as a Group (five  persons)
4,529,001
54.19%
 
(1) Shares include 390,833 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 47,500 warrants issued to Scottsdale Equity Growth Fund, LLC in which Mr. Holmes is the Managing Member, which are exercisable now at $1.95 per share.   Mr. Holmes owns 1,495,334 shares exclusive of the options.  In calculating Mr. Holmes’ percentage, the 488,333 shares, issuable upon exercise of the options and warrants have been added to the 6,794,600 shares currently outstanding.

(2) Shares include 325,000 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 325,000 shares issuable upon exercise of options have been added to the 6,794,600 shares currently outstanding.

(3) Shares include 325,000 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 325,000 shares issuable upon exercise of options have been added to the 6,794,600 shares currently outstanding.

 
41

 
 
 
(4) Shares include 375,000 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 400,000 shares issuable upon exercise of the options and warrants have been added to the 6,794,600 shares currently outstanding.

(5) Shares include 25,000 stock options which are exercisable now at $1.00.  Mr. Myers owns no shares.  The shares shown are the options he can exercise.  In calculating Mr. Myers’ percentage, the 25,000 shares issuable upon exercise of the options have been added to the 6,794,600 shares currently outstanding.

Control by Existing Shareholders

Given the large percentage of stock owned by current management, they most likely will be able to control any shareholder vote.  As a result, the persons currently in control of Calibrus will most likely continue to be in a position to elect at least a majority of the Board of Directors of Calibrus, to dissolve, merge or sell the assets of Calibrus, and generally, to direct the affairs of Calibrus.

Dividends

We have not declared any cash dividends with respect to our common stock, and do not intend to declare dividends in the foreseeable future. Our future dividend policy cannot be ascertained with any certainty. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our securities.

Securities Authorized for Issuance under Equity Compensation Plans

 
 
 
Plan Category
 
Number of Securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a)
 
(a)
(b)
(c)
Equity compensation plans approved by security holders
2,512,499
$1.08
2,337,501
Total
2,512,499
$1.08
2,337,501
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We believe that all purchases from or transactions with affiliated parties were on terms and at prices substantially similar to those available from unaffiliated third parties.
 
Other than listed below, there were no material transactions, or series of similar transactions, during our Company’s last fiscal year, or any currently proposed transactions, or series of similar transactions, to which our Company was or is to be a party, in which the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years and in which any director, executive officer or any security holder who is known to us to own of record or beneficially hold more than five percent of any class of our common stock, or any member of the immediate family of any of the foregoing persons, had an interest.


 
42

 
 
 
The father of the CFO of the Company holds $10,000 principal amount of convertible debentures in the Company.

The mother of the CEO of the Company holds $300,000 principal amount of convertible debentures in the Company.

An entity that is controlled by the CEO of the Company holds $95,000 principal amount of convertible debentures in the Company.
 
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 January 31, 2011, the Company issued a promissory note in the principal amount $50,000 to evidence a loan made to the Company by Jeff W. Holmes, the Company’s CEO and a beneficial owner.  The terms of the note are 1 year with interest at 12% per annum, with interest due monthly.  The loan also included warrants to purchase 50,000 shares of the Company’s common stock with an exercise price of $.50 per share.  The warrants have a 3 year term.
 
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 $40,000 and $35,000 for each of the years ending December 31, 2010 and 2009.
2) Audit-Related Fees. $0 and $0.
3) Tax Fees. $2,800 and $2,800.
4) Form 10 Registration Statement. $0 and $15,000.
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 2010 and 2009 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:


 
43

 

 
December 31, 2010 and 2009
Report of Independent Registered Public Accounting Firm
Balance Sheets - December 31, 2010 and December 31, 2009
Statements of Operations - Years ended December 31, 2010 and 2009
Statements of Changes in Stockholders' Equity – Years ended December 31, 2010 and 2009
Statements of Cash Flows – Years ended December 31, 2010 and 2009
Notes to Financial Statements – Years ended December 31, 2010 and 2009

 (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
Requested
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
 
10.10
 
MeoMyo, LLC Development Contract
 
Incorporated by
Reference*
10    10.11
Form of Convertible Debenture
 
This Filing
10  10.12 Form of Warrant
This Filing
 
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. 000-53408.  
 

 
44

 


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.
  Calibrus, Inc.    
         
 
By:
/s/ Jeff W. Holmes   Date: April 13, 2011
    Jeff W. Holmes, CEO    
         
 
By:
/s/ Kevin J. Asher   Date: April 13, 2011
    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 13, 2011
Jeff W. Holmes
       
         
/s/ Kirk Blosch
 
Director
 
April 13, 2011
Kirk Blosch
       
         
/s/ Christian Hoffmann, III
 
Director
 
April 13, 2011
Christian Hoffmann, III
       
         
/s/ Charles House   Director  
April 13, 2011
Charles House        
         
/s/ Michael Myers   Director  
April 13, 2011
Michael Myers        
 

 
45

 
 
 
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, 2010 and 2009 and the related statements of operations, changes in stockholders’ equity, 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, 2010 and 2009, and the results of its operations, changes in stockholders' equity and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 
/s/ Semple, Marchal & Cooper, LLP
Certified Public Accountants

Phoenix, Arizona

April 13, 2011

 
 
 

 
 

CALIBRUS, INC.
BALANCE SHEETS
December 31, 2010 and 2009

ASSETS
 
     
2010
   
2009
 
Current Assets
             
   Cash and cash equivalents
  $ 21,519     $ 174,428  
   Accounts receivable - trade, net
    372,990       580,487  
   Prepaid expenses
      6,133       92,613  
                   
Total Current Assets
400,642       847,528  
                   
Property and equipment, net
    47,357       80,008  
Software development
    2,675,062       1,014,328  
Deposits
      29,392       29,869  
Intangible assets, net
      -       1,167  
                   
Total Assets
  $ 3,152,453     $ 1,972,900  
                   
                   
                   
LIABILITIES AND STOCKHOLDERS' EQUITY
                   
Current Liabilities
                 
   Convertible notes payable, net of discount - current portion
  $ 605,000     $ 371,474  
   Convertible related party notes payable - current portion
    405,000       -  
   Due to factor
      132,729       -  
   Accounts payable - trade
    684,570       254,678  
   Accrued liabilities
      266,106       284,383  
                   
Total Current Liabilities
    2,093,405       910,535  
                 
Total Liabilities
    2,093,405       910,535  
                   
                   
Stockholders' Equity
                 
   Preferred stock, $.001 par value, 5,000,000 shares authorized,
               
      none issued or outstanding
    -       -  
   Common stock, $.001 par value, 45,000,000 shares authorized,
               
      6,794,600  shares issued and outstanding
    6,795       6,795  
   Additional paid-in capital
    4,765,758       4,640,812  
   Accumulated deficit
    (3,713,505 )     (3,585,242 )
                   
Total Stockholders' Equity
    1,059,048       1,062,365  
                   
Total Liabilities and Stockholders' Equity
  $ 3,152,453     $ 1,972,900  
 
The Accompanying Notes are an Integral
Part of the Financial Statements
 

 
F-1

 
 
 
CALIBRUS, INC.
STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2010 and 2009
   
2010
   
2009
 
             
Revenues
  $ 3,745,876     $ 4,245,144  
 
               
Cost of revenues
    1,334,272       1,768,922  
 
               
Gross profit
    2,411,604       2,476,222  
                 
General and administrative expenses
    2,206,703       2,337,788  
Research and development
    232,327       545,485  
                 
Loss from Operations
    (27,426 )     (407,051 )
                 
Other Income (Expense):
               
   Interest income
    591       2,649  
   Interest expense
    (101,428 )     (4,440 )
                 
      (100,837 )     (1,791 )
                 
Loss before income taxes
    (128,263 )     (408,842 )
                 
Income tax benefit (expense) - deferred
    -       -  
                 
Net Loss
  $ (128,263 )   $ (408,842 )
                 
Loss per Common Share:
               
   Basic and Diluted
  $ (0.02 )   $ (0.06 )
                 
                 
Weighted Average Common Shares Outstanding:
               
   Basic and Diluted
    6,794,600       6,794,600  
 
The Accompanying Notes are an Integral
Part of the Financial Statements

 
 
F-2

 

 
CALIBRUS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For The Years Ended December 31, 2010 and 2009
 
               
Additional
         
Total
 
   
Common Stock
         
Paid-In
   
Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity
 
                               
Balance at December 31, 2008
    6,794,600     $ 6,795     $ 4,631,544     $ (3,176,400 )   $ 1,461,939  
                                         
Warrants issued with convertible
                                       
   debt at relative fair value
    -       -       9,268       -       9,268  
                                         
Net loss for the year ended
                                       
   December 31, 2009
    -       -       -       (408,842 )     (408,842 )
                                         
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  
 
The Accompanying Notes are an Integral
Part of the Financial Statements
 

 
F-3

 

 
CALIBRUS, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2010 and 2009

     
2010
   
2009
 
               
Increase (decrease) in cash and cash equivalents:
           
               
Cash flows from operating activities:
           
 
Net Loss
  $ (128,263 )   $ (408,842 )
                   
Adjustments to reconcile net loss to net cash (used) provided by
         
     operating activities:
               
 
Depreciation and amortization
    132,388       117,502  
 
Warrants issued for services
    426       -  
 
Stock based compensation expense
    124,520       -  
 
Amortization of debt discount
    8,526       742  
     Changes in assets and liabilities:
               
 
Accounts receivable - trade
    207,497       218,824  
 
Prepaid expenses
    86,480       31,579  
 
Deposits
    477       4,513  
 
Accounts payable - trade
    429,892       (46,719 )
 
Accrued liabilities
    (18,277 )     67,141  
 
Net cash provided (used) by operating activities
    843,666       (15,260 )
 
                 
Cash flows from investing activities:
               
 
Purchase of fixed assets
    (22,140 )     (30,143 )
 
Capitalized software development
    (1,737,164 )     (1,014,328 )
 
Net cash used by investing activities
    (1,759,304 )     (1,044,471 )
 
                 
Cash flows from financing activities:
               
 
Proceeds from issuance of debt
    630,000       380,000  
 
Proceeds from factoring line
    403,025       -  
 
Repayments of factoring line
    (270,296 )     -  
 
Net cash provided by financing activities
    762,729       380,000  
                   
Net decrease in cash and cash equivalents
    (152,909 )     (679,731 )
 
                 
Cash and cash equivalents at beginning of year
    174,428       854,159  
                   
Cash and cash equivalents at end of year
  $ 21,519     $ 174,428  
                   
Supplemental disclosure of cash flow information:
               
                   
Cash paid during the year for:
               
   Interest
    $ -     $ -  
   Income taxes
  $ 50     $ 50  
 
The Accompanying Notes are an Integral
Part of the Financial Statements

 
 
F-4

 


CALIBRUS, INC.
NOTES TO FINANCIAL STATEMENTS

Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates

 
Operations

Calibrus, Inc. (the “Company”) was incorporated on October 22, 1999, in the State of Nevada.  The Company’s principal business purpose is 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 – Concentrations of Risk).

Calibrus provides Third Party Verification (TPV) Services, Hosted Call Recording Services and Interactive Voice Response/Voice Recognition Unit (IVR/VRU) Services to some telecom, cable and insurance companies.

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.

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

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.

 
 
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Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)

 
Our Automated IVR/VRU Features include:

·  
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 technology provides us with the ability to provide fully-integrated live voice, data, and automated services and combinations of services out of a unified platform.  Our system’s processes and functionality allow our IT staff to easily design and build systems that satisfy client’s process requirements.  Using our technology has allowed us to develop and build customized web-based solutions incorporating call recording, “click to call” and voice message broadcast functionality.

JabberMonkey.com

JabberMonkey is a social expression site that features questions on issues and topics that are current and relevant to its members. JabberMonkey questions will be on pertinent issues that in many instances may evoke an emotional response from its members.  Many of the questions on JabberMonkey will provide the individuals voting with a voice to cause an action or affect a result.

In addition to being able to conduct polls and questions, JabberMonkey offers a unique user experience by being able to offer interactive communication and high definition video.  While most social networking sites offer only a static page for the user, JabberMonkey offers video communications between multiple users at once, the ability to quickly load video, and the ability to set up groups or companies into secure sites.  JabberMonkey also takes advantage of other companies’ storage by allowing links to other web sites such as YouTube or Google.

Calibrus’ focus with JabberMonkey has been to try and distinguish it from the other social networking sites which are very static and rely only on instant messaging and fixed web pages.  Calibrus has focused on designing a site that is easy to use and is video intensive with user friendly software for video attachment and conferencing.
 
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. The Company does not currently have the capital required to commence its marketing plan related to the website.
 
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, they 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 could include Entertainment, Music, Business, etc.   Each category will also contain subcategories to encompass a wide range of topics and interests.
 
 
 
F-6

 
 
 

Note 1
Summary 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, and depreciable lives of long lived assets.

Cash and Cash Equivalents

For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments purchased with an initial maturity of three (3) months or less.

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.  As of December 31, 2010 and 2009, 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.

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, 2010 and 2009, depreciation expense was $54,791 and $115,556 respectively.

Software Development

The Company capitalizes certain software costs in accordance with FASB ASC 985-20 Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.  The product 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, 2010 was $76,430.

Intangible Assets

The intangible assets is 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 of December 31, 2010 the amount related to the Company’s branding cost and company website have been fully amortized.  Amortization expense for the years ended December 31, 2010 and 2009 was $1,167 and $1,946, respectively.

 
 
F-7

 
 
 

Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)

 
Advertising

We expense advertising and marketing costs as incurred.  Advertising costs include trade show fees, online advertising, etc.  Advertising expenses were approximately $22,000 and $28,000 for the years ended December 31, 2010 and 2009, respectively.

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 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-lived assets at least annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Income Taxes

The Company adopted the provisions of ASC 740-10 (formerly FASB interpretation No. 48), Accounting for Uncertainty in Income Taxes, on January 1, 2007, with no material impact on the accompanying financial statements.

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-8

 
 
 

Note 1
Summary 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.  Currently there are no interest or penalties.

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, accrued liabilities approximate fair value given their short term nature or effective interest rates.

Research and Development

Research and development expenses include third-party development and programming costs, localization costs incurred to translate software for international markets, the amortization of purchased software code and services content, and in-process research and development. During the years ended December 31, 2010 and 2009, Research and Development Expense totaled $232,327 and $545,485, respectively.  All Research and Development Expense was related to the ongoing development of the Company’s social expression website, JabberMonkey, and its location based social networking smart phone application, Fanatic Fans.  The Company has entered into a time and materials agreement with MeoMyo, LLC to develop the JabberMonkey website and Fanatic Fans application.  Contract work is performed as authorized and the contract is cancellable on 30 days written notice.

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.

The following data 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-9

 
 
 

Note 1
Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates (Continued)

 
   
Year Ended December 31,
 
   
2010
   
2009
 
             
             
Loss available to common stockholders
  $ (128,263 )   $ (408,842 )
                 
Weighted average number of common shares
               
used in basic earnings per share
    6,794,600       6,794,600  
                 
Effect of dilutive securities:
               
      Stock options
    -       -  
      Stock warrants
    -       -  
                 
Weighted average number of common shares
               
and dilutive potential comon stock used in
               
diluted earnings per share
    6,794,600       6,794,600  
 
All dilutive common stock equivalents are reflected in our earnings per share calculations. Anti-dilutive common stock equivalents are not included in our earnings per share calculations.  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.  For the year ended December 31, 2009, the Company had outstanding options to purchase 1,383,332 shares of common stock at a per share weighted average exercise price of $1.29 and outstanding warrants to purchase 190,000 shares of common stock at a weighted average exercise price of $1.95 per share.  Neither amounts were included in the earnings per share calculation as they were anti-dilutive.  As of December 31, 2010, the Company had $1,010,000 of principal value of convertible debentures which are convertible into 673,333 shares of the Company’s common stock, which were also antidilutive.  As of December 31, 2009, the Company had $380,000 of convertible debentures which are convertible into 253,333 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 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: