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EX-31 - EXHIBIT 31 - GROW CAPITAL, INC.ex31.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
X
   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2013
or
   
 
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________
 
CALIBRUS, INC.
(Exact name of registrant as specified in its charter)
 
NEVADA
000-53548
86-0970023
(State or other jurisdiction
(Commission
(I.R.S. Employer
of incorporation)
File Number)
Identification No.)
 
1225 W. Washington Street, Suite 213, Tempe AZ  85281
(Address of principal executive offices) (Zip Code)
 
(602) 778-7516
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)
———————
 
     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 preceding 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.
 
[X]
  Yes
[  ]
  No
    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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such reports.
 
[X]
  Yes
[  ]
  No
     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 the 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
[   ]
   
Smaller reporting company
[X]
 
   
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
[  ]
  Yes
[X]
  No
   
     The number of shares of the issuer’s Common Stock outstanding as of November 15, 2013 is 14,911,080.
 

 
 

 


   
   
 
   
 
   
 
   
 
   
   
   
   
PART II – OTHER INFORMATION
 
   
   
   
   
   
   


 
Item 1.
Financial Statements.
 
CALIBRUS, INC.
CONDENSED BALANCE SHEETS
               
ASSETS
 
     
September 30, 2013
   
December 31, 2012
 
Current Assets
   
(Unaudited)
       
   Cash and cash equivalents
  $ 57,616     $ 24,692  
   Accounts receivable - trade
    11,013       423,319  
   Prepaid expenses
      1,594       4,811  
                   
 
Total Current Assets
    70,223       452,822  
                   
Property and equipment, net
    657       9,138  
Deposits
      818       935  
Assets held for sale
      -       15,241  
                   
 
Total Assets
  $ 71,698     $ 478,136  
                   
                   
                   
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
                   
Current Liabilities
                 
   Convertible related party note payable
    -       15,000  
   Notes payable - current portion
    50,000       450,000  
   Related party notes payable and short term cash advances
    474,900       559,900  
   Due to factor
      -       253,595  
   Accounts payable - trade
    297,972       833,987  
   Accrued liabilities
      140,109       360,796  
                   
 
Total Liabilities
    962,981       2,473,278  
                   
                   
Stockholders' Equity (Deficit)
               
   Preferred stock, $.001 par value, 5,000,000 shares authorized,
               
     none issued or outstanding
    -       -  
   Common stock, $.001 par value, 45,000,000 shares authorized,
               
     14,911,080 and 13,871,080 shares issued and outstanding
    14,911       13,871  
   Additional paid-in capital
    9,641,916       9,297,446  
   Accumulated deficit
      (10,548,110 )     (11,306,459 )
                   
 
Total Stockholders' Equity (Deficit)
    (891,283 )     (1,995,142 )
                   
 
Total Liabilities and Stockholders' Equity (Deficit)
  $ 71,698     $ 478,136  


The Accompanying Notes are an integral part of these Condensed Financial Statements


CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the Three Months Ended September 30, 2013
   
For the Three Months Ended September 30, 2012
   
For the Nine Months Ended September 30, 2013
   
For the Nine Months Ended September 30, 2012
 
                         
Revenues
  $ -     $ -     $ -     $ -  
                                 
Cost of revenues
    -       -       -       -  
                                 
Gross profit
    -       -       -       -  
                                 
Research and development expenses
    -       470,915       -       1,291,696  
Impairment Expense
    -       108,457       -       108,457  
General and administrative expenses
    101,603       287,601       483,177       734,574  
                                 
      (101,603 )     (866,973 )     (483,177 )     (2,134,727 )
                                 
Other Income (Expense):
                               
   Gain on settlment of debt
    57,980       -       57,980       -  
   Interest income
    -       -       -       1  
   Interest expense
    (74,825 )     (78,277 )     (247,753 )     (204,755 )
                                 
      (16,845 )     (78,277 )     (189,773 )     (204,754 )
                                 
Loss from continued operations
    (118,448 )     (945,250 )     (672,950 )     (2,339,481 )
                                 
Income from discontinued operations
    989,783       364,515       1,431,299       1,122,892  
                                 
Loss before income taxes
    871,335       (580,735 )     758,349       (1,216,589 )
                                 
Income taxes
    -       -       -       -  
                                 
Net income (loss)
  $ 871,335     $ (580,735 )   $ 758,349     $ (1,216,589 )
                                 
Income (loss) per common share from continued operations
                               
   Basic and diluted
  $ (0.01 )   $ (0.07 )   $ (0.05 )   $ (0.17 )
                                 
Income per common share from discontinued operations
                               
   Basic and diluted
  $ 0.07     $ 0.03     $ 0.10     $ 0.08  
                                 
Net income (loss) per common share
                               
   Basic and diluted
  $ 0.06     $ (0.04 )   $ 0.05     $ (0.09 )
                                 
Weighted average common shares; basic and diluted
    14,244,123       13,859,129       13,996,794       13,826,529  

The Accompanying Notes are an integral part of these Condensed Financial Statements


CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the Nine Months Ended September 30, 2013
   
For the Nine Months Ended September 30, 2012
 
             
Increase (decrease) in cash and cash equivalents:
           
             
Cash flows from operating activities:
           
Net income (loss)
  $ 758,349     $ (1,216,589 )
                 
     Adjustments to reconcile net income (loss) to net cash flows from
               
     operating activities:
               
Depreciation and amortization
    7,764       15,232  
Bad debt expense
    (49,999 )     -  
Amortization of deferred financing fees
    -       500  
Amortization of debt discount
    -       18,750  
Impairment expense
    -       108,457  
Stock issued for services
    260,000       -  
Warrant extension
    85,510       -  
Gain on sale of TPV Business
    (991,462 )     -  
Gain on settlement of debt, net
    (57,980 )     -  
     Changes in assets and liabilities:
               
Accounts receivable - trade
    462,305       44,912  
Prepaid expenses
    2,056       (74,076 )
Deposits
    117       115  
Accounts payable - trade
    (536,015 )     369,910  
Accrued liabilities
    (151,890 )     94,794  
                 
Net cash used by operating activities
    (211,245 )     (637,995 )
                 
Cash flows from investing activities:
               
Purchase of fixed assets
    (2,236 )     (1,501 )
Proceeds from sale of TPV Business
    1,000,000       -  
                 
Net cash provided (used) by investing activities
    997,764       (1,501 )
                 
Cash flows from financing activities:
               
Proceeds from exercise of warrants
    -       20,314  
Proceeds from issuance of debt
    -       605,000  
Repayment of debt
    (500,000 )     (42,000 )
Proceeds from factoring line
    902,459       1,913,098  
Repayment of factoring line
    (1,156,054 )     (1,861,564 )
                 
Net cash provided (used) by financing activities
    (753,595 )     634,848  
                 
Net change in cash and cash equivalents
    32,924       (4,648 )
                 
Cash and cash equivalents at beginning of period
    24,692       11,065  
                 
Cash and cash equivalents at end of period
  $ 57,616     $ 6,417  

The Accompanying Notes are an integral part of these Condensed Financial Statements.


CALIBRUS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the Nine Months Ended September 30, 2013
   
For the Nine Months Ended September 30, 2012
 
             
Supplemental disclosure of cash flow information:
           
             
Cash paid during the period for:
           
   Interest
  $ 122,125     $ 128,188  
   Income taxes
  $ 50     $ 50  


 
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
 
1. Summary of Significant Accounting Policies and Use of Estimates:
 
Presentation of Interim Information:
 
The condensed financial statements included herein have been prepared by Calibrus, Inc. (“we”, “us”, “our” or “Company”) without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements as of December 31, 2012.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, as permitted by the SEC, although we believe the disclosures, which are made, are adequate to make the information presented not misleading. Further, the condensed financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at September 30, 2013, and the results of our operations and cash flows for the periods presented. The December 31, 2012 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
 
Interim results are subject to significant seasonal variations and the results of operations for the nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.
 
Nature of Corporation:
 
Calibrus, Inc. (the “Company”) was incorporated on October 22, 1999, in the State of Nevada.  The Company’s principal business purpose had been to operate a customer contact center for a variety of clients located throughout the United States. The Company provided customer contact support services for various companies wishing to outsource these functions.   On June 15, 2012, the Company entered into a purchase agreement to sell substantially all of the assets related to the Company’s Third Party Verification business to Calibrus Hosted Business Solutions, LLC.  The Company made this decision to focus on its Social Networking operations which currently include Fanatic Fans, a mobile smartphone application centered around live sporting and entertainment events, and JabberMonkey, a social expression website centered around gathering public opinion on current events.
 
On June 30, 2013, the Company entered into an asset purchase agreement and closed the transaction contemplated by that agreement.  Pursuant to the agreement, the Company sold all assets related to its call center services business which provides third party verifications to other businesses.  The assets were purchased by Calibrus Call Center Services, LLC, (“CCCS”) an Arizona limited liability company (the “Purchaser”).  There is no material relationship between the Purchaser and the Company or any of the Company’s affiliates, or any director or officer of the Company or any associate of any such director of officer.  Consideration for the assets was cash in the amount of $1,200,000 of which $1,000,000 was due immediately and of which $200,000 is due in 12 months subject to certain adjustments.  The transaction closed on July 2, 2013.  The Company has presented assets related to its TPV Business as held-for-sale and has presented the TPV Business statements of operations as discontinued operations.

Additionally, during the period ended September 30, 2013 the Company settled the claims relating to the $150,000 advance promissory Calibrus Hosted Business Solution Note (“CHBS”), $250,000 CHBS Individual Note and related accrued interest in the amount of $450,000.  The Company also settled a liability with a Company’s vendor, MeoMyo, LLC, which included payment in cash and shares of Company’s common stock. Refer to notes below for further discussion.

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. These estimates include, but are not limited to, the allowance for doubtful accounts, the valuation/classification of assets held for sale and the valuation of stock options and warrants.  Actual results could differ from those estimate
 


CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

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, accounts payable, accrued liabilities, due to factor and notes payable approximate fair value given their short term nature or effective interest rates, which represent level 3 inputs.
 
Earnings(Loss) per Share:
 
Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity.    The Company calculates diluted earnings per share using the treasury stock method for options and warrants and the if-converted method for convertible debt.  For the three and nine month periods ended September 30, 2013 and 2012 all potentially dilutive securities are anti-dilutive due to the Company’s losses from continued operations.

   
Three Months Ended September 30, 2013
   
Three Months Ended September 30, 2012
   
Nine Months Ended September 30, 2013
   
Nine Months Ended September 30, 2012
 
                         
Loss available to common stockholders
  $ 871,335     $ (580,735 )   $ 758,349     $ (1,216,589 )
                                 
Weighted average number of common shares
                               
   used in basic earnings per share
    14,244,123       13,859,129       13,996,794       13,826,529  
                                 
Effect of dilutive securities:
                               
  Stock options
    -       -       -       -  
  Stock warrants
    -       -       -       -  
  Convertible debt
    -       -       -       -  
                                 
Weighted average number of common shares
                               
  and potential dilutive comon stock used in
                               
  diluted earnings per share
    14,244,123       13,859,129       13,996,794       13,826,529  

All dilutive common stock equivalents are reflected in our earnings (loss) per share calculations. Anti-dilutive common stock equivalents are not included in our earnings (loss) per share calculations.  As of September 30, 2013 and 2012 the Company had outstanding options to purchase 2,260,000 and 2,598,334 shares of common stock at a per share weighted average exercise prices of $.83 and $.86, respectively, which were not included in the earnings per share calculation as they were anti-dilutive.  As of September 30, 2013 and 2012 the Company had outstanding warrants to purchase 943,088 and 959,088 shares of common stock at a per share weighted average exercise price of $.36 and $.38, respectively, which were not included in the earnings per share calculation as they were anti-dilutive.  As of September 30, 2012 the Company had $15,000 principal balance of convertible debentures along with $4,516 in accrued interest which would have been convertible into 13,011 shares of the Company’s common stock, if converted, which were deemed to be anti-dilutive.
 



CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
 
Revenue Recognition:
 
Revenue for inbound calls is recorded on a per-call or per-minute basis in accordance with the rates established in the respective contracts. Revenue for outbound calls is on a commission basis, with revenue being recognized as the commission is earned.  As the Company’s customers are primarily well established, creditworthy institutions, management believes collectability is reasonably assured at the time of performance. The Company from time to time executes outbound sales campaigns for customers, primarily for the sale of telecommunications services.  This revenue source has historically been immaterial. The Company recognizes the commissions earned on these campaigns on a net basis in accordance with FASB ASC 605-45, Principal Agent Considerations.
 
Stock-Based Compensation:
 
The Company has stock-based compensation plans. Stock-based compensation expense for all stock-based compensation awards 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 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 the Company’s common stock, which is 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.
 
Income Taxes:
 
The Company estimates the annual tax rate based on projected taxable income for the full year and records a quarterly income tax provision in accordance with the anticipated annual rate. As the year progresses, we refine the estimates of the year’s taxable income as new information becomes available, including year-to-date financial results. This continual estimation process can result in a change to the expected effective tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual tax rate. Significant judgment may be required in determining the Company’s effective tax rate and in evaluating our tax positions.
 
The effective income tax rate of 0% for the nine months ended September 30, 2013 and 2012 differed from the statutory rate, due primarily to the full reserve of net operating losses incurred by the Company in past and/or respective periods.  For the nine month period ended September 30, 2013 a tax liability of approximately $296,000 would have been generated.  For the nine month period ended September 30, 2012 a tax benefit of approximately $475,000 would have been generated.  However, all benefits have been fully offset through an allowance account due to the uncertainty of the utilization of the net operating losses.  As of September 30, 2013 the Company had net operating losses of approximately $7,230,000 resulting in a deferred tax asset of approximately $2,820,000.  The Company has established a valuation allowance in the full amount of the deferred tax asset due to the uncertainty of the utilization of operating losses in future periods.
 


CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
 
Recent Accounting Pronouncements:
 
There have been no recent accounting pronouncements issued which are expected to have a material effect on the Company’s financial statements.
 
2.   Related Party Transactions
 
As of September 30, 2013 the Company owed a total of $132,400 in short-term advances to its CEO and an additional $50,000 through a bridge loan.  The short-term advances are non-interest bearing and the bridge loan accrues interest at the stated rate of 12% per annum and is due December 31, 2013.  The short-term advances do not have a set maturity date, and are due on demand.  During the quarter ended September 30, 2013 the Company repaid a total of $20,000 of the short-term advances.
 
As of September 30, 2013 the Company owed a total of $267,500 in principal balance in the form of bridge loans.  The bridge loan accrues interest at the stated rate of 12% per annum and is due December 31, 2013.  The short-term advances do not have a set maturity date, and are due on demand.  During the quarter ended September 30, 2013 the Company repaid a total of $20,000 in short-term advances to its President.

During the quarter ended September 30, 2013 the Company repaid a total of $45,000 in short-term advances and an additional $15,000 in principal balance convertible debentures and accrued interest of $5,862 to the mother of the Company’s CEO and President.
 
As of September 30, 2013 the Company owed a total of $25,000 in bridge loans to one of its former Directors or entities controlled by this former director.  The notes accrue interest at the stated interest rate of 12% per annum.  The notes matured on July 2, 2013, with the closing of the sale of the TPV Business and remain unpaid.
 
3.   Convertible Notes Payable
 
As of June 30, 2013 the Company had $15,000 in convertible debentures outstanding to the Mother of the CEO and President as discussed above, which are convertible at $1.50 per share. In July 2013, the Company repaid $15,000 in principal balance convertible debentures along with $5,862 in accrued interest related to the debenture.  As of September 30, 2013 the Company has no additional convertible debentures outstanding.
 
4.   Notes Payable
 
On April 26, 2012, the Company issued an unsecured multiple advance promissory note (“the “CHBS Note”)  to Calibrus Hosted Business Solutions, LLC (“CHBS”) in the amount of $250,000 to a note agreement ( the “Note Agreement”).  The CHBS Note called for two advances in the separate amounts of $150,000, due on execution, and a second advance of $100,000, due 30 days from execution.  The CHBS Note is non-interest bearing and is due on July 26, 2012.  If the principal balance is not paid in full by the due date interest will accrue retroactively at the rate of 18% per annum.  On June 15, 2012, in conjunction with the signing of the asset purchase agreement between Calibrus, Inc. and  CHBS (the “Asset Purchase Agreement”), the CHBS Note was amended and restated thereby adjusting the principal balance to the $150,000 received by the Company and extending the due date to September 1, 2012 or the closing date of the Asset Purchase Agreement, whichever occurs later.  If for any reason the transaction was cancelled or the closing did not occur, all principal and interest became immediately due.
 


CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)
 
On September 7, 2012, CHBS terminated the Asset Purchase Agreement.  As such, all amounts became due and payable under the Note Agreement as to the CHBS Note.  The Company has retroactively accrued interest on the $150,000 CHBS Note at 18%  per annum through September 15, 2012.  The Company has also accrued interest at the 30% default interest rate per the note agreement from September 16, 2012 through June 30, 2013.  On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the Note Agreement.  The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $6,879 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default.  At June 30, 2013 the Company had accrued a total of $36,616 of interest related to the note.
 
On June 15, 2012, in conjunction with the signing of the Asset Purchase Agreement between Calibrus, Inc. and CHBS, the Company issued an unsecured multiple advance promissory note to an individual (the “Individual Note”) in the amount of $250,000.  The Individual Note called for two advances in separate amounts totaling $100,000, due on execution, and a second advance of $150,000 which was due on June 28, 2012.  The Individual Note is non-interest bearing and is due on September 1, 2012 or the closing date of the Asset Purchase Agreement, whichever occurs later.  If the principal balance is not paid in full by the due date, interest will accrue retroactively at the rate of 18% per annum.  If for any reason the transaction is cancelled or the closing does not occur, all principal and interest became immediately due.
 
On September 7, 2012, CHBS terminated the Asset Purchase Agreement.  As such, all amounts became due and payable under the Note Agreement as to the Individual Note.  The Company has retroactively accrued interest on the $250,000 principal balance of the Individual Note at 18% per annum through September 15, 2012.  The Company has also accrued interest at the 30% default interest rate per the Note Agreement  from September 16, 2012 through June 30, 2013.  On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by the individual for breach of contract of the Note Agreemement.  The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default.  At June 30, 2013 the Company has accrued a total of $78,953 of interest related to the note.
 
In July 2013, the Company settled the two outstanding notes explained above for a total of $450,000.  The Company recognized a gain on the settlement of debt in the amount of $65,570 for the quarter ended September 30, 2013.  The related complaints have been cancelled.  The Company also negotiated miscellaneous other small liabilities resulting in an additional gain on settlement of debt of $9,452.
 
The Company also has a $50,000 principal amount bridge loan outstanding to a non-related party.  The note accrues interest at the rate of 12% per annum and the maturity date of the note was extended to December 31, 2013.  Accrued interest related to this note totaled $15,732 as of September 30, 2013.
 
5.   Due to Factor
 
Upon the closing of the transaction with CCCS, all outstanding principal and interest due under the Company’s Factoring Agreement with Factors Southwest, LLC was paid in full.
 
6.   Common Stock
 
On August 28, 2013 the Company issued 1,040,000 shares of its common stock to MeoMyo, LLC as part of a settlement of its outstanding obligations to MeoMyo.  The common stock issued had a market price of $.25 on the date of issuance for a total value of $260,000.  In addition the Company paid MeoMyo a cash payment of $155,000.  The Company recognized settlement expense of $17,042 as the total value of consideration exceeded the outstanding balance due MeoMyo at the time of settlement. This amount is included in the Gain on settlement of debt in the accompanying financial statements for the three and nine month periods ended September 30, 2013.
 


 
CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

On June 26, 2012 the Company issued 50,000 shares of its common stock in relation to the exercise of warrants.  The Company received $16,250 in proceeds from the issuance.

On September 26, 2012 the Company issued 12,500 shares of its common stock in relation to the exercise of warrants.  The Company received $4,064 in proceeds from the issuance.

7.   TPV Business Sale and Held-for-Sale Disclosures and Financial Statement Presentation
 
The Company classifies operations as held for sale when the sale is probable within one year and the operation is available for sale in its present condition.  On June 30, 2013, the Company entered into an asset purchase agreement and closed the transaction contemplated by that agreement.  Pursuant to the agreement, the Company sold all assets related to its call center services business which provides third party verifications to other businesses.  The assets were purchased by Calibrus Call Center Services, LLC, (“CCCS”) an Arizona limited liability company (the “Purchaser”).  There is no material relationship between the Purchaser and the Company or any of the Company’s affiliates, or any director or officer of the Company or any associate of any such director of officer.  Consideration for the assets was cash in the amount of $1,200,000 of which $1,000,000 was due immediately and of which $200,000 is due in 12 months subject to certain adjustments.  The transaction closed on July 2, 2013.
 
The assets classified as held-for-sale are as follows:
   
September 30, 2013
   
December 31, 2012
 
   
(Unaudited)
       
             
Property and equipment, net
  $ -     $ 15,241  
Total assets held-for-sale
  $ -     $ 15,241  
 
The table below represents the assets and liabilities transferred in the sale of the TPV Business and the resulting gain on sale:


   
September 30, 2013
 
   
(Unaudited)
 
       
Sales Price:
  $ 1,000,000  
         
Prepaids
  $ (1,161 )
Property and equipment, net
    (18,194 )
Accrued liabilities
    10,817  
  Total
    (8,538 )
         
Gain on sale of assets
  $ 991,462  
 


 
CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

The Company has presented the TPV business statements of operations as discontinued operations.  The table below shows the results of discontinued operations related to the TPV business and are included in the accompanying statement of operations for the three and nine month periods ended September 30, 2013 and 2012.
 
   
Three Months Ended September 30, 2013
   
Three Months Ended September 30, 2012
   
Nine Months Ended September 30, 2013
   
Nine Months Ended September 30, 2012
 
                         
Revenue
  $ -     $ 828,461     $ 1,435,573     $ 2,591,260  
                                 
Cost of revenue
    -       303,930       588,975       988,911  
                                 
Gross profit
    -       524,531       846,598       1,602,349  
                                 
Operating expenses
    (1,679 )     160,016       (406,761 )     (479,457 )
                                 
Gain on sale
    991,462       -       991,462       -  
                                 
Income from discontinued operations
  $ 989,783     $ 364,515     $ 1,431,299     $ 1,122,892  

8.   Warrants
 
During the nine months ended September 30, 2013, the Company extended a total of 177,500 warrants that originally expired on March 31, 2013 for a period of six months.  All terms other than the expiration date remained unchanged.  The warrant extension was valued at $8,106 using the black-scholes method of valuation and was recorded as interest expense.  These options were extended again on September 30, 2013 for a period of one year.  All terms other than the expiration date remained unchanged.  The additional warrant extension was valued at $56,505 using the black-scholes method of valuation and was recorded as interest expense.
 
During the nine months ended September 30, 2013, the Company extended a total of 125,000 warrants that expired on May 31, 2013 for a period of one year.  All terms other than the expiration date remained unchanged.  The warrant extension was valued at $8,283 using the black-scholes method of valuation and was recorded as interest expense.
 
During the nine months ended September 30, 2013, the Company extended a total of 100,000 warrants that expired on June 30, 2013 for a period of one year.  All terms other than the expiration date remained unchanged.  The warrant extension was valued at $6,626 using the black-scholes method of valuation and was recorded as interest expense.
 
During the nine months ended September 30, 2013, the Company extended a total of 67,500 warrants that expired on July 31, 2013 for a period of one year.  All terms other than the expiration date remained unchanged.  The warrant extension was valued at $5,990 using the black-scholes method of valuation and was recorded as interest expense.
 

 
CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

9.   Asset Impairment
 
On September 12, 2012 the Company terminated its time and materials contract with MeoMyo, LLC for the continued development of its Fanatic Fans mobile application.  The Company had prepaid several months of rent amounts for the development office in Dubai.  Following the termination of the agreement and non-payment of several invoices to MeoMyo, LLC the development office was abandoned.  The Company expensed prepaid rent in the amount of $80,858 as a result of this as management estimates that these amounts would not be recoverable.  This amount is included in the asset impairment expense on the statement of operations.

During the quarter ended September 30, 2012 the Company expensed its $27,599 security deposit on its office space in Tempe, Arizona.  During the quarter, the Company was notified that because the office building in which it was located was placed into foreclosure the security deposit was not recoverable.  This amount is included in the asset impairment expense on the statement of operations.

10.   Liquidity and Going Concern Consideration
 
Following the Sale of the Company’s TPV Business the Company has divested itself of its only revenue generating source.  As such, the Company has no additional incoming cash-flow to fund its ongoing operations.  The Company will have to rely on the ability to raise additional capital, either through an additional convertible debenture offering or equity offering, however there can be no assurance that the Company will be able to raise such capital or do so on favorable terms.  If the Company is unable to raise additional capital it may be forced to cease operations.  Until such time additional capital can be raised, the Company has suspended further development expenditures related to its social media initiatives.  However, there will be some ongoing maintenance expenses related to support of the social media projects.
 
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred significant cumulative net losses from operations in recent years. As reported in the financial statements, the Company has an accumulated deficit of $10,548,110. At September 30, 2013, the Company had total current assets of $70,223 and liabilities totaling $962,981 and a working capital deficit of $892,758.  These factors raise considerable doubt as to the Company’s ability to continue as a going concern.
 
The ability of the Company to continue as a going concern is dependent on its ability to raise adequate capital to fund operating losses until it is able to engage in profitable business operations. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing its services and meeting its obligations. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements. To this end, the Company has discontinued the furthered development and expenditures related its social networking operations.   Management intends to work with its existing debt holders and vendors to negotiate payment terms and settlements.  The accompanying financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.  As a result, the Company’s independent registered public accounting firm issued a going concern opinion on the consolidated financial statements of the Company for the year ended December 31, 2012.

11.  Litigation
 
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the CHBS Note.  The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $6,879 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default.  The complaint was cancelled upon settlement of the claim.
 


 
CALIBRUS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (Continued)

On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by the individual for breach of contract of Individual Note.  The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default.  The complaint was cancelled upon settlement of the claim.
 
12.  Subsequent Events
 
The Company has reviewed events through the date of this filing and determined that no material subsequent events exist.
 
 
The following is management’s discussion and analysis of certain significant factors affecting the Company’s financial position and operating results during the periods included in the accompanying condensed financial statements. Except for the historical information contained herein, the matters set forth in this discussion are forward-looking statements.
 
Overview
 
On June 15, 2012, the Company entered into a an asset purchase agreement (the “Asset Purchase Agreement”) to sell substantially all of the assets related to the Company’s Third Party Verification (“TPV”) business to Calibrus Hosted Business Solutions, LLC (“CHBS”).  The Company made this decision in order to focus on its social networking operations which currently includes Fanatic Fans, a mobile smartphone application centered around live sporting and entertainment events, and JabberMonkey, a social expression website centered around gathering public opinion on current events.   The Company continued to invest large amounts of capital into improvements of Fanatic Fans.  However, when the Asset Purchase Agreement between the Company and CHBS was cancelled the Company was forced to discontinue funding of the development of Fanatic Fans.  On September 12, 2012, the Company cancelled its development contract with MeoMyo.  The Company will need to raise significant additional capital in order to execute the business plans related to Fanatic Fans and JabberMonkey.  Operating results related to the Company’s TPV business have been classified as discontinued operations.  On September 7, 2012 the Company received notice that CHBS terminated the Asset Purchase Agreement and the sale transaction did not occur.
 
On June 30, 2013, the Company entered into an asset purchase agreement and closed the transaction contemplated by that agreement.  Pursuant to the agreement, the Company sold all assets related to its call center services business which provides third party verifications to other businesses.  The assets were purchased by Calibrus Call Center Services, LLC, (“CCCS”) an Arizona limited liability company (the “Purchaser”).  There is no material relationship between the Purchaser and the Company or any of the Company’s affiliates, or any director or officer of the Company or any associate of any such director of officer.  Consideration for the assets was cash in the amount of $1,200,000 of which $1,000,000 was due immediately and of which $200,000 is due in 12 months subject to certain adjustments.  The transaction closed on July 2, 2013.

The Company has used the proceeds from the sale of its TPV Business to settle and pay existing obligations and continue the development of its Fanatic Fans social media initiative.
 
Results of Operations
 
The following table sets forth certain items derived from our Condensed Statements of Operations for the periods indicated:

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2013
   
2012
   
2013
   
2012
 
    (Unaudited)     (Unaudited)  
Revenue
  $ -     $ -     $ -     $ -  
Cost of Goods Sold
    -       -       -       -  
Gross Profit
    -       -       -       -  
Research and Development
    -       (470,915 )     -       (1,291,696 )
Impairment Expense
    -       (108,457 )     -       (108,457 )
General and Administrative Expenses
    (101,603 )     (287,601 )     (483,177 )     (734,574 )
Gain on settlement of Debt
    57,980       -       57,980       -  
Interest Income
    -       -       -       1  
Interest Expense
    (74,825 )     (78,277 )     (247,753 )     (204,755 )
Loss from Continued Operations
    (118,448 )     (945,250 )     (672,950 )     (2,339,481 )
Income from Discontinued Operations
    989,783       364,515       1,431,299       1,122,892  
Net Income (Loss)
  $ 871,335     $ (580,735 )   $ 758,349     $ (1,216,589 )




Three Months Ended September 30, 2013 compared to Three Months Ended September 30, 2012
 
Revenue – The Company had no revenues related to its social networking business for the three months ended September 30, 2013 or 2012.
 
Cost of Revenue – The Company had no cost of revenues related to its social networking business for the three months ended September 30, 2013 or 2012.
 
Gross Profit – The Company had no gross profit related to its social networking business for the three months ended September 30, 2013 or 2012.
 
Research and Development – Research and development expenses decreased to $0 in the third quarter 2013 from $470,915 in the third quarter 2012.  The decrease was the result of the Company discontinuing development on its Fanatic Fans application during the final quarter of 2012 due to cash flow constraints.
 
Impairment Expense – Impairment expense for the third quarter 2013 was $0 compared to $108,457 for the same period 2012.  The impairment in 2012 related to the expensing of $80,858 in prepaid rent paid to the Company’s developer for its development office in Dubai and the expensing of a $27,599 security deposit on the Company’s office building in Tempe, Arizona.
 
General and Administrative Expenses – General and administrative expense decreased 64.7% to $101,603 in the third quarter 2013 from $287,601 in the third quarter 2012. The decrease was primarily the result of reduced legal fees as compared to 2012.   General and administrative expenses for the third quarter 2013 were made up primarily of salaries related to the four remaining employees following the sale.
 
Gain on Settlement of Debt – The Company recognized a gain on the settlement of debt in the third quarter 2013 of $57,980.  This amount was made up a $65,570 gain related to the settlement of the notes related to the failed sale of the TPV Business, a $9,452 gain on the settlement of other small miscellaneous payables and was offset by a settlement expense of $17,042 related to the settlement of the amounts due MeoMyo.
 
Interest Expense – Interest expense decreased by $3,452 for the third quarter 2013 from $78,277 in the third quarter 2012.  The decrease in interest expense was related to the Company not incurring default interest on the notes related to the Company’s attempted sale of the TPV Business and the elimination of factoring fees.  However, this was offset by expenses related to the extension of expiring warrants.
 
Loss from Continued Operations – The Company generated a loss from continued operations of ($118,448) for the third quarter 2013 compared to a loss from continued operations of ($945,250) in the third quarter 2012, a difference of $(826,802).  The decrease in loss from continued operations is primarily attributable to the discontinuation of expenses related to the operation and development of the Company’s Fanatic Fans application due to limited cash flows.
 
Income from Discontinued Operations – The Company generated income from discontinued operations of $989,783 in the third quarter 2013 compared to income from discontinued operations of $364,515 for the third quarter 2012.  The increase was attributable to the gain on sale recognized as a result of the sale of the Company’s TPV Business.
 
Nine Months Ended September 30, 2013 compared to Nine Months Ended September 30, 2012
 
Revenue – The Company had no revenues related to its social networking business for the nine months ended September 30, 2013 or 2012.
 
Cost of Revenue – The Company had no cost of revenues related to its social networking business for the nine months ended September 30, 2013 or 2012.
 


Gross Profit – The Company had no gross profit related to its social networking business for the nine months ended September 30, 2013 or 2012.
 
Research and Development – Research and development expenses decreased to $0 for the nine months ended September 30, 2013 from $1,291,696 for the nine months ended September 30, 2012.  The decrease was the result of the Company discontinuing development on its Fanatic Fans application during the final quarter of 2012 due to cash flow constraints.
 
Impairment Expense – Impairment expense for the nine months ended September 30, 2013 was $0 compared to $108,457 for the same period 2012.  The impairment in 2012 related to the expensing of $80,858 in prepaid rent paid to the Company’s developer for its development office in Dubai and the expensing of a $27,599 security deposit on the Company’s office building in Tempe, Arizona.
 
General and Administrative Expenses – General and administrative expense decreased 34.2% to $483,177 for the nine months ended September 30, 2013 from $734,574 for the same period 2012.  The decrease was a result of decreased legal fees which had been incurred during the failed sale of the Company’s TPV business in the nine months ended September 30, 2012.  However, this was offset by the partial reinstatement of salaries for Company executives who had taken pay reductions in 2010 through September 2012.
 
Gain on Settlement of Debt – The Company recognized a gain on the settlement of debt in the third quarter 2013 of $57,980.  This amount was made up a $65,570 gain related to the settlement of the notes related to the failed sale of the TPV Business, a $9,452 gain on the settlement of other small miscellaneous payables and was offset by a settlement expense of $17,042 related to the settlement of the amounts due MeoMyo.
 
Interest Expense – Interest expense increased to $247,753 for the nine months ended September 30, 2013 from $204,755 for the same period 2012, an increase of 21%.  The increase in interest expense was related to the Company incurring default interest on the notes related to the Company’s attempted sale of the TPV Business in the first half of the year and expenses related to the extension of expiring warrants.  However this was partially offset by the elimination of factoring expense in the third quarter due to the sale of the Company’s TPV Business.
 
Loss from Continued Operations – The Company generated a loss from continued operations of ($672,950) for the nine months ended September 30, 2013 compared to a loss from continued operations of ($2,339,481) for the same period 2012, a difference of ($1,666,531).   The decrease in loss from continued operations is primarily attributable to the discontinuation of expenses related to the operation and development of the Company’s Fanatic Fans application due to limited cash flows, reduced legal fees incurred as a result of the failed sale of the TPV Business during 2012 and impairment expense recognized during the nine months ended September 30, 2012 as discussed above.
 
Income from Discontinued Operations – The Company generated income from discontinued operations of $1,431,299 for the nine months ended September 30, 2013 compared to income from discontinued operations of $1,122,892 for the same period 2012, an increase of 27.5%. The increase was primarily made up of the gain on sale recognized as a result of the sale of the Company’s TPV Business in July 2013.  However this was offset by decreased call volumes in the TPV business and the partial reinstatement of salaries for Company executives who had taken pay reductions in 2010 through September 2012.
 
Liquidity and Capital Resources
 
As of September 30, 2013 we had cash on hand of $57,616 and negative working capital of $892,758.  Historically, the Company had been able to fund operations through the generation of positive cash flow from its TPV business operations.   Through October 31, 2011, the Company sold 315 units, at $5,000 per unit, consisting of $5,000 in Convertible Debentures (“the Debentures”) of Calibrus and 2,500 common stock purchase warrants (the “Units”) for total proceeds of $1,575,000.  The remaining $15,000 convertible debenture outstanding as of June 30, 2013 has been paid.  As of September 30, 2013 the Company has no additional outstanding debentures.




On June 15, 2012, the Company entered into an Asset Purchase Agreement with CHBS under which CHBS was to purchase substantially all of the assets of the Company’s TPV Business for $3,000,000 in cash, subject to adjustment. The closing date of the transaction was to be on or before August 31, 2012.  The initial purchase price consideration due upon closing was $2,000,000 less the $400,000 already advanced in the form of short-term notes payable pursuant to the Note Agreements.  This $400,000 was to reduce the initial payment due to the Company upon closing to $1,600,000.

On September 7, 2012 the Company received notice that CHBS terminated the Asset Purchase Agreement and the sale did not occur.

On September 7, 2012, when CHBS terminated the asset purchase agreement, the $400,000 in short-term notes payable became immediately due.  As such, all amounts became due and payable.  The Company has retroactively accrued interest on the $400,000 in notes at 18% interest per annum through September 15, 2012.  The Company has also accrued interest at the 30% default interest rate per the notes from September 16, 2012 through June 30, 2013.  Accrued interest related to these notes at June 30, 2013 amounted to $115,570.
 
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the note agreement.  The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $6,879 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default.
 
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by an individual for breach of contract of the note agreement.  The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default.
 
In July 2013 the Company settled the above two notes for a total of $450,000 and the corresponding complaints have been cancelled.
 
As of September 30, 2013, the Company owed a total of $524,900 in principal balance notes and advances along with an additional $101,281 in accrued interest.
 
Other than the $25,000 principal balance due under note agreements to a former director of the Company, the Company has received verbal extensions for all other outstanding notes to December 31, 2013.
 
On June 30, 2013, the Company entered into an asset purchase agreement and closed the transaction contemplated by that agreement.  Pursuant to the agreement, the Company sold all assets related to its call center services business which provides third party verifications to other businesses.  The assets were purchased by Calibrus Call Center Services, LLC, (“CCCS”) an Arizona limited liability company (the “Purchaser”).  There is no material relationship between the Purchaser and the Company or any of the Company’s affiliates, or any director or officer of the Company or any associate of any such director of officer.  Consideration for the assets was cash in the amount of $1,200,000 of which $1,000,000 was due immediately and of which $200,000 is due in 12 months subject to certain adjustments.  The transaction closed on July 2, 2013.

The Company intended to satisfy as much of its outstanding debt obligations out of the proceeds from the sale of its TPV Business.  However, the proceeds from the sale did not provide sufficient capital to do so in its entirety.  Further, upon sale of the TPV Business the Company divested itself of its only revenue generating source.  We can offer no assuarance when or if our social networking offerings will be successful.  As such, the Company will have no incoming cash-flow to fund its ongoing operations.  The Company will have to rely on its ability to raise additional capital, either through additional debt or equity offerings or alliances with third parties; however there can be no assurance that the Company will be able to raise such capital or create such alliances or do so on favorable terms.   If the Company is unable to raise additional capital it may be forced to cease operations.
 


We estimate we will need an additional $1,000,000 in capital, after satisfying our debt obligations, to cover our ongoing expenses and to successfully market our new product offerings.  This is only an estimate and may change as we receive feedback from customers and have a better feel of the demand and revenues from our new products.  Both of these factors may change and we may not be able to raise the necessary capital and if we are able to, that it may not be at favorable rates.
 
Given the current state of Calibrus, we do not believe bank financing will be feasible and if we need additional capital it will be in the form of an equity or debt offering.  To this end, management has made the decision to position Calibrus to be more attractive to investors, particularly angel investors.

The Company has incurred significant cumulative net losses from operations in recent years. As reported in the financial statements, the Company has an accumulated deficit of $10,548,110. At September 30, 2013, the Company had total assets of $71,698 and liabilities totaling $962,981 and a working capital deficit of $892,758.  These factors raise considerable doubt as to the Company’s ability to continue as a going concern.
 
The ability of the Company to continue as a going concern is dependent on its ability to raise adequate capital to fund operating losses until it is able to engage in profitable business operations. To the extent financing is not available, the Company may not be able to, or may be delayed in, developing its services and meeting its obligations. The Company will continue to evaluate its projected expenditures relative to its available cash and to evaluate additional means of financing in order to satisfy its working capital and other cash requirements. To this end, the Company has discontinued the furthered development and the majority of expenditures related its social networking operations.  Management intends to work with its existing debt holders and creditors to negotiate payment terms and/or settlements.  The accompanying financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.  As a result, the Company’s independent registered public accounting firm issued a going concern opinion on the consolidated financial statements of the Company for the year ended December 31, 2012.
 
Forward-Looking Statements
 
We have made forward-looking statements, within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, in this quarterly report on Form 10-Q, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are based on our beliefs and assumptions and on information currently available to us.  Forward-looking statements include the information concerning our possible or assumed search for new business opportunities and future costs of operations.  Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or  similar expressions.
 
Forward-looking statements involve risks, uncertainties and assumptions.  Actual results may differ materially from those expressed in the forward-looking statements.  You should understand that many important factors could cause our results to differ materially from those expressed in the forward-looking statements.  These factors include, without limitation, the difficulty in locating new business opportunities, our regulatory environment, our limited operating history, our ability to implement our growth strategy, our obligations to pay professional fees, and other economic conditions and increases in corporate maintenance and reporting costs.  Unless legally required, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
Off Balance Sheet Arrangements
 
None.
 
Quantitative and Qualitative Disclosures About Market Risk.
 
Not required.
 



 
Controls and Procedures.
 
An evaluation as of the end of the period covered by this report was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the United States Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission’s rules and forms.
 
Changes in Internal Control Over Financial Reporting
 
In addition, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
 
 
Legal Proceedings.
 
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015263 by CHBS for breach of contract of the CHBS Note.  The complaint seeks repayment of the $150,000 principal balance, interest in the amount of $6,879 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees CHBS incurs as a result of failure to pay by the maturity date and event of default.
 
On October 26, 2012 the Company received notice of a complaint filed in the Superior Court of Maricopa County, Case No. CV2012-015308 by the individual for breach of contract of Individual Note.  The complaint seeks repayment of the $250,000 principal balance, interest in the amount of $11,343 calculated at the rate of 18% from April 26, 2012 through September 15, 2012, and default interest calculated at the rate of 30% from September 16, 2012 through the date of payment and all costs and attorneys fees the individual incurs as a result of failure to pay by the maturity date and event of default.
 
During the quarter ended September 30, 2013 the Company settled the above claims for a total cash payment of $450,000.  Upon payment of the settlement, the complaints have been cancelled.
 

 
 
Risk Factors.
 
In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, and in our definitive proxy statement for the special meeting of shareholders as filed with the Securities and Exchange Commission on July 31, 2012, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and in our proxy statement are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There are no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 or in our proxy statement during the three months ended September 30, 2013.
 
Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Defaults Upon Senior Securities.
 
None.
 
Mine Safety Disclosures.
 
       None.
 
Other Information.
 
None.
 
Exhibits.
 
Exhibit
 
Description
31
 
Certificate of Jeff W. Holmes and Kevin J. Asher pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934, as amended.
32
 
Certificate of Jeff W. Holmes and Kevin J. Asher pursuant to Rule 13a-14(b) under the Securities and Exchange Act of 1934, as amended.
101
 
Interactive Data Files.


 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
 
 
Calibrus, Inc.
 
 
By:  Jeff W. Holmes                          
Jeff W. Holmes, CEO
 
 
 
 
Date:  November 19, 2013
 
 
By:  Kevin J. Asher                          
Kevin J. Asher, CFO
Date:  November 19, 2013