As filed with the Securities and Exchange Commission on January 6, 2009 Registration No. _____________



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10



GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS


Under Section 12(b) or (g) of the Securities Exchange Act of 1934



Calibrus, Inc.

(Name of Small Business Issuer in its Charter)



                                                Nevada

                                                                                                                                     86-0970023

                           (State or other jurisdiction of                                                                  (I.R.S. Employer

                            incorporation or organization)                                                                Identification No.)


              1225 West Washington Street, Suite 213, Tempe, AZ

                                                          85281

                        (Address of principal executive offices)                                                       (Zip Code)


                                                                   Issuer's telephone number: (602) 778-7500


                                                       Securities to be registered under Section 12(b) of the Act:


                               Title of each class                                                         Name of each exchange on which

                              to be so registered                                                            each class is to be registered

                                        None

                                                                              None

                                                     Securities to be registered under Section 12(g) of the Act:


                                                              Common Stock, par value $0.001 per share

                                                                                     (Title of Class)


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.  (Check One):

Large Accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer     ¨  (Do not check if a smaller reporting company)

Smaller reporting company x




Calibrus, Inc., Inc.

 

FORM 10

                                

TABLE OF CONTENTS


 

 

Page

 

 

 

Item 1

Business

3

Item 2

Financial Information

13

Item 3

Properties

18

Item 4

Security Ownership of Certain Beneficial Owners and Management

18

Item 5

Directors and Executive Officers

20

Item 6

Executive Compensation

23

Item 7

Certain Relationships and Related Transactions, and Directors Independence

27

Item 8

Legal Proceedings

27

Item 9

Market Price of and Dividends on the Registrant's

              Common Equity and Related Stockholder Matters

27

Item 10

Recent Sales of Unregistered Securities

28

Item 11

Description of Registrant’s Securities to be Registered

28

Item 12

Indemnification of Directors and Officers

29

Item 13

Financial Statements and Supplementary Data

29

Item 14

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

30

Item 15

Financial Statements and Exhibits

30

 

 

 






SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Form 10 contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 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 Form 10 that are not historical facts are hereby identified as “forward-looking statements.”


Item 1.  DESCRIPTION OF BUSINESS


Calibrus, Inc. is a technology based Hosted Business Solutions provider established in 1999.  Calibrus provides Third Party Verification Services, Hosted Call Recording Services and Interactive Voice Response/Voice Recognition Unit (IVR/VRU) Services to some of the largest telecom, cable and insurance companies in the nation.  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 160 employees and cutting edge PBXs, ACD, network equipment, data storage arrays and servers, we are the hosted solution company that these Fortune 100/50 companies 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 are completely controlled by object-oriented code means allowing 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.


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.  Live Operator TPV to date, 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) 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, (TPV) 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, such as Calibrus, that will read a pre-determined script to which the customer will answer yes or no.  


The Federal Communications Commission, FCC, in 1996 enacted the Telecommunications Act which forced the Regional Bell Operating Companies to open their lines to competition.  Accordingly, telecom companies were required to allow competitors to lease their lines and provide service to customers at a rate set by each individual State’s Utility Commission.  This was to promote competition and help new competitors compete with the larger telecom companies on a level playing field.  Unfortunately, this led to another phenomena called slamming, customers being switched from one company to another without their approval, and sometimes without any knowledge whatsoever until they received their bill.  


In response to slamming, legislation was enacted that required companies that were changing a customer’s dial tone or long distance to their services would have to first obtain the customer’s approval in one of three ways:


·

A written and signed Letter of Authorization indicating that customer agrees to the change.


·

An automated or live agent independent third party that the customer is transferred to for the verification.


·

An electronic Signature on an electronic Letter of Authorization, usually done on websites.

 


 

-3-





Calibrus fulfills the second requirement, providing both automated IVR/VRU and Live Agent Third party Verifications 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 .wav 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:


[CALIBRUSFORM10FINALDEC18001.JPG]


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:


·

Provides better Customer Experience

·

Superior Universal Language Coverage (i.e. Spanish, Chinese, Japanese, Korean, etc.)

·

Documented Higher Success Rates (success rates average over 96%)

·

Higher Success Rates Mean:

o

Less Back Room Clean-up Expense

o

Fewer Lost Sales due to Non-Verified TPV’s

·

Close to Real-Time Call Record and .wav File Retrieval and Posting

·

Cost Competitive Live Operator Answering Service

 


 

-4-





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.


[CALIBRUSFORM10FINALDEC18002.JPG]




Our Live Operator Third Party Verification solution helps our customers meet compliance requirements and improve their overall business processes.   TPV revenue accounted for 94.5% of the company's total revenue.  For 2007, 99% of our TPV revenue was derived from Live Operator services and 1% was derived IVR/VRU services.  Our TPV services are priced on per transaction or per minute usage.



VOIP Verifications


Calibrus Live Agent VOIP Verifications provide a solution for customers that want to provide live interactions with the ultimate flexibility.  Automated IVR Verifications is a low-cost alternative to a live voice agent that still complies with both FCC and State PUC third party verification requirements.  Intuitive scripting ensures the correct questions are automatically asked.  Customers can easily opt-out to a live agent at any time if they require personal attention.  


Hosted Call Recording


Calibrus’ Call Recording service is easy to use and cost-effective and offers a number of features necessary for a superior call recording solution.  Calibrus’ Hosted Call Recording solutions are an alternative for companies that do not wish to invest in expensive hardware, maintenance and support of a state-of-the-art call recording system.


Our Hosted Call Recording Features include:


·

All Inclusive Pay-As-You-Go Pricing Model by the Minute or by the Transaction/Call

·

No Maintenance, Upgrade, Programming, Site/Seat Licensing or Change Fees

·

Call Record & .wav 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.  



-5-

 



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 .wav 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 QA (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 2007, 5.5% of our total revenue was derived from Call Recording services.


Voice Message Broadcasting (VMB)


Our web-based voice message broadcasting solution has the ability to contact hundreds to thousands of people in seconds.  Create dialing parameters based upon dialing lists, 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, change and record your 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


-6-





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, 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 Fortune 500 companies as well as 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


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

 


-7-





SpeechTrack users use our service for a myriad of purposes.  Below is a partial list of just some of the type of independent professionals/small business owners that may utilize Speechtrack.


Attorneys

Accountants

Contractors/Vendors

Doctors

Executive Coaching

Service Providers

Sales Professionals

Private Investigators

Project Manager/Coordinators

Insurance Agents

Mortgage/Financial Brokers

Conference Calls

Market Researchers


Technology


Using software based PBX (public exchange system – best known as a telephone switch), ACD (automated call distribution), network equipment, data storage arrays, and servers; we have developed object oriented software application building blocks and relational databases. Because we record every verification conversation digitally, our system allows clients to be actively involved in monitoring and managing our services through secure Internet sites, VPN (virtual private networks), and dedicated point-to-point connectivity. By allowing near real time review of data and verification conversations, this infrastructure allows our clients to actively participate in the management of their programs.  We virtually eliminate data errors because the majority of the data is transferred electronically.  


Redundancy and Safeguards


Calibrus has worked diligently to provide the necessary redundancy and disaster recovery requirements to our clients.  We offer a number of safeguards for our clients including separate power generation units in the event of a failure by the utility; we have UPS’s (uninterrupted power supply) for all network and telecom equipment; we have UPS on every agent station and our system up-time was over 99.9%.  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 ride self-healing SONET rings to ensure uptime and eliminate the worry of fiber cuts.  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 PBX’s, including fail over switches and trunk groups; we utilize multiple firewalls, routers and networks; and have automated tape back-up guards against data loss and corruption.  


Calibrus uses both PRI's and Dedicated Long Distance T1s for inbound calls and is capable of receiving and interpreting ANI (automatic number identification) information.  Calibrus can then use this information in conjunction with our CTI (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.   



-8-

 



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 IPs (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 client.  All PBX’s are centralized in our server databases and therefore, we can easily relate PBX data with call data.  As a result, we can custom build reports to the specifications of our clients and provide the data in any format to the client:  Excel, fixed length and comma delimited, and deliver it in multiple ways, such as through a website, Web Service, e-mail, connect direct or FTP (file transfer protocol).  We build all return files to client specifications and can deliver them at the times the client requests.


Regulations


One of Calibrus’ main services is providing both Live Operator and IVR/VRU Third Party Verification (TPV).  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.


The Federal Communications Commission, FCC, in 1996 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.  


 

-9-

 


Even though Calibrus acts as a Third Party Verification provider, Calibrus is not directly subject under any regulations.  The service or process that we provide for our clients does have several defined rules and regulations that must be followed.   For example, scripts that are implemented and used in both our Live Operator and IVR/VRU TPV services must be read verbatim to the customer.  There are certain pre-defined questions that must be asked to the customer and certain types of information must be gathered from the customer in order for the TPV to be verified.  The FCC and each State PUC has varying requirements in regards to the information that must be communicated to the customer and the information that must be captured.   In addition, there are record keeping requirements for both data and voice for each Third Party Verification transaction.  Whether the TPV is conducted by a Live Operator or IVR/VRU TPV there must be a voice recording of the customer responding to the script and the data that was captured during the transaction must also be recorded.  The voice recordings and associated data must be archived and made available for up to thirty six (36) months.  



Competitors


Calibrus faces numerous competitors both within and outside the United States.  Many of Calibrus’ competitors are much larger and better financed.  The only barrier to entry in Calibrus markets is sufficient start up capital to buy initial equipment and such costs are not substantial.


Some of Calibrus’ competitors include VoiceLog, now owned and operated by BSG Group, 3PV and Data Exchange.  Calibrus competes with these competitors for business by offering superior quality of service that is reliable and low cost in the market.


Concentration of Customers


Currently over eighty percent of our revenue comes from two customers, AT&T Communications and Cox Communications.  This revenue is derived from our TPV 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.  If we were to lose one of these customers before our other business starts generating more revenue, it could have a detrimental effect on our ability to stay in business.


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 do not have any patents.  We have one trademark covering our name “Calibrus.”


Research and Development Costs During the Last Two Fiscal Years


From January 1, 2006, to December 31, 2007, we did not incur research and development costs.  We expect as we expand into new markets we may start incurring more research and development costs.


Risks Related to Calibrus

 

Calibrus’ operations are subject to a number of risks including:


We currently have losses from operations and will need additional capital to execute our business plan.


Currently we have losses from operations and we have had to rely on profits from prior years to fund current losses.    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 may 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.

 


-10-

 


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.  If these expansion efforts do not prove successful, our ability to stay in operation is questionable.  We are already trying to reduce our expenses related to TPV to be able to make a profit at anticipated revenue levels.  With long term rent commitments, we were only able to reduce expenses in the last couple of quarters. Even with the reduced expenses, we still operate at a loss and will have to continue to reduce expenses to be able to make a profit at anticipated TPV revenue levels.  Our future success will depend to a great extent on our ability to expand into new revenue areas.  Since we are only beginning expansion into these revenue areas, 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 not be able to stay in business with only TPV sales.


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.  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.  We may explore raising capital through the sale of debt or equity securities but at this point have not evaluated the nature of any such sales.  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 the new business areas we pursue will be successful and if they are not, it is likely we would be forced to terminate operations.


We have only begun to expand our product offering and to date have not had significant sales outside of our TPV operations.  Accordingly, it will be difficult to evaluate the potential for success of the new product offerings.  If the new products and services do not prove successful, it will be unlikely we will have the capital to pursue new business directions.  


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 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 customer segment might harm our operating results.     


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.  Additionally, two customers, AT&T Communications and Cox Communications, account for over  80% of our business and the loss of either could make it difficult for us to stay in business.

 


-11-

 

 


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 new products and aggressively marketing existing products  placing 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 recently been experiencing losses in our business as we move to expand our product offerings and adjust to changes in our customers.  Currently, our working capital is limited and 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 may incur substantial and immediate dilution.


We may issue more stock without shareholder input or consent which could dilute the book value of your investment.


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.


There is no current market for Calibrus’ stock. Should a market not develop, you may not be able to sell the stock.


At the present time, there is no public market for shares of Calibrus’ common stock, and we do not know if a public market will develop.  Calibrus is seeking a securities broker-dealer, called a market maker, willing to apply for a trading symbol and trade our stock. We do not know if such a market maker will continue acting for us, or that an active market will be developed or maintained. Even if a market develops, the future market price may be volatile and significant volume may not result in our stock, making it difficult to sell our stock if purchased.  If no market develops, or if the future market price is low, you may be unable to sell your shares or may only be able to sell at a loss.


You will not receive dividend payments.

Calibrus has not paid and does not plan to pay dividends in the foreseeable future even if our operations are profitable. Earnings, if any, will be used to expand our operations, hire additional staff, pay operating expenses and salaries, rather than to make distributions to shareholders. Future value of an investment will be tied to an increase in Calibrus enterprise value and/or market price of our common stock, if trading on an exchange or market.



-12-





Your ability to sell shares may be limited if the price of our stock, once listed, is below $5.00 per share because of special sales practice requirements applicable to "designated securities" or "penny stock."

Upon successful listing of the common stock on the OTC Bulletin Board, 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 are stock which trade 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.


Employees


As of October 1, 2008, we had 98 full-time employees and 64 part-time employees.


Offices


Our offices are located at 1225 West Washington, Tempe, Arizona 85281 where we lease approximately 13,295 square feet.  Our lease runs through October 31, 2010 at a lease rate of approximately $27 per square foot, including common area charges, for an annual lease amount of $361,296, or $30,108 per month.  Management believes our current lease will serve current and future expansion plans through its term.


Item 2.  Financial Information


Summary of Financial Information


We had revenues of $4,219,491 and a net loss of $845,266 for the nine-month period ended September 30, 2008.  At September 30, 2008, we had cash and cash equivalents of $745,274 and working capital of approximately $1,426,950, which represented a decrease in working capital of $748,164 from the amount reported at December 31, 2007, of $2,175,114.  

 


-13-

 



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, 2007

For the Year Ended

December 31, 2006

For the Nine Months

Ended

September 30, 2008

(Unaudited)

For the Nine Months

Ended

September 30, 2007

(Unaudited)

Revenues

$    6,558,142

$    7,597,889

     $      4,219,491

$     5,094,241

Cost of Revenues

3,358,832

3,772,785

2,107,179

2,601,770

General and Administrative Expenses


3,731,117


3,584,163


2,971,555


2,802,306

Net Income (Loss)

(1,043,638)

381,296

(845,266)

(834,160)

Basic Income (Loss) per Share

(0.15)

0.06

(0.12)

(0.12)

Diluted Income (Loss) per Share

(0.15)

0.05

(0.12)

(0.12)

Basic Weighted Average Number of Shares Outstanding


6,794,600


6,794,348


6,794,600


6,794,600

Diluted Weighted Average Number of Shares Outstanding


6,794,600


7,164,396


6,794,600


6,794,600


BALANCE SHEET DATA :

 

 

 

 

 

December 31, 2007

December 31, 2006

September 30, 2008 (Unaudited)

 

Total Current Assets

$     2,541,686

$     3,614,160

1,813,961

 

Total Assets

2,872,286

4,200,179

2,047,459

 

Total Current Liabilities

366,572

651,391

387,011

 

Working Capital

2,175,114

2,962,769

1,426,950

 

Shareholders’ Equity

2,505,714

3,531,031

1,660,448

 



Management’s Discussion and Analysis or Plan of Operations


Certain statements in this Report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; 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.

 


-14-

 


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 Satements and unaudited Condensed Financial Statements and accompanying notes.  Management bases its estimates on historical experience and on various other assumptions that 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 during the year ended December 31, 2007.  Calibrus believes that the following addresses Calibrus’ most critical accounting policies.


We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”).  Under SAB 104, 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 allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments.  If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required.


Stock-Based Compensation. The Company has stock-based compensation plans. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), using the modified prospective transition method. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted during the year, or granted in a prior year if not fully vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"). 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 provisions of SFAS 123R. 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).


·

The Company estimates fair value using the Black-Scholes valuation model. Assumptions used 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.


Prior to the adoption of SFAS 123R, the Company recognized stock-based compensation expense in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").


We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109).  Under SFAS No. 109, 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.

 


-15-

 



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.   


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.


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.  


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 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.  


In the next twelve (12) months we will also be looking to grow our business through acquisition, although we have not identified any potential targets.  Given sufficient capital, we believe there will be opportunities to acquire companies that are providing similar Automated Hosted Business services.             

 


-16-

 


Results of Operations


September 30, 2008 (Unaudited)


For the nine months ended September 30, 2008, we had revenue of $4,219,491 which was a decrease of $874,750 for the same period in 2007.  Our net loss before taxes for the nine months ended September 30, 2008 was $845,266 compared to a loss of $273,160 in 2007.  The increase loss was the result of a reduction in our third party verification services revenue.  Additionally, our general and administrative expenses increased over $169,000 to $2,971,555 as we worked on expanding our product offerings.  We are hopeful these changes will increase revenues, but can offer no assurances in this regard.  Additionally, we have made changes to reduce ongoing expenses. These changes include consolidating our operations at one location and closing one of our call centers.  We have also been able to reduce our workforce as a result of the consolidation and focus on products which are less labor intensive and rely more on automation.  Previously, our cost of revenues was approximately fifty-one percent.  We are hopeful as we expand into less labor intensive products that we will be able to reduce our cost of revenues, although no assurances can be offered in this regard.  


December 31, 2007


For the year ended December 31, 2007, we had revenues of $6,558,142 compared to revenues of $7,597,889 for the year ended December 31, 2006.  The reduction in revenues is the result of less third party verification work available as the telecommunication industry continued to consolidate.  Since we currently represent most of the large 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 reduced expenses to better match our current revenue stream.  As part of this reduction, we elected to terminate the lease on one of our facilities and we consolidated operations into one location.  Unfortunately, we had to wait until the early termination period was effective to do so.  As such our cost of revenues continued to be approximately fifty to fifty-four percent.  Additionally, as we sought to expand our product offerings, our general and administrative expenses increased resulting in a net loss before taxes of $482,638 for the year ended December 31, 2007 compared to Net Income of $255,346 before taxes for the year ended December 31, 2006.


Seasonality and Cyclicality


We do not believe our business is cyclical.


Liquidity and Capital Resources


As of September 30, 2008 (unaudited), we had working capital of $1,426,950 with current assets of $1,813,961 and current liabilities of $387,011.  Our working capital as of September 30, 2008, was down from working capital of $2,175,114  at December 31, 2007, as we continued to incur losses as we deal with a slowing economy and a reduction in third party verifications resulting from the consolidation in the telecommunications industry.  We have been working to reduce our dependence on third party verification revenues by expanding our product offerings. This expansion has increased our usage of capital which is reflected, in part, in the reduction of our working capital.


Although we have been expanding our product offerings, which have increased our need for capital, we have also reduced our long term expenses by closing one of our call centers and centralizing our operations to reflect our business focus going forward.  With the closing of one of our call centers 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.  

 


-17-

 


As we try to expand our product offerings, we will need to seek additional capital.  We have enough capital to last at least 12 months based on our current burn rate, but management believes it will need to raise additional capital to help expand our marketing efforts and to be able to aggressively launch our new product offerings.  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 probalably 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.  Management believes as a public company with a trading market, Calibrus may be able to attract additional investors that otherwise would not be interested in a private company. Even as a public company, there is no guarantee Calibrus will be able to raise additional capital.  Calibrus has not had to raise capital for over five years and it is uncertain, particularly given current economic conditions, that we will be able to raise additional capital.  Management is hopeful that even without additional capital, the changes made over the last few months, including consolidating operations in one location and reducing staffing will help conserve capital until new product offerings can start producing revenues although no assurances can be offered in this regard.


Off-Balance Sheet Arrangements


We have no off balance sheet arrangements.


ITEM 3.  PROPERTIES


Our offices are located at 1225 West Washington, Tempe, Arizona 85281 where we lease approximately 13,295 square feet.  Our lease runs through October 31, 2010, at a lease rate of approximately $27 per square foot, including common area charges, for an annual lease amount of $361,296 or $30,108 per month.  Management believes our current lease will serve current and future expansion plans through the term of our lease.


ITEM 4.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The following table sets forth certain information as of December 31, 2007, 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, 2007, 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 October 1, 2008, 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.

 


-18-

 




Title of Class


Name of Beneficial Owner

Number of Shares Owned


Percent of Class

 

 Principal Shareholders

 

 

Common

Jeff W. Holmes

225 West Washington Street

Suite 213

Tempe, Arizona 85281

1,658,667

23.84%

Common

Kirk Blosch

2081 S. Lakeline Drive

Salt Lake City, Utah 84109

1,620,334

23.08%

 

 Director(s)

 

 

Common

Jeff W. Holmes (1)                           --------------See above--------------

Common

Kirk Blosch (2)                                 --------------See above--------------

Common

Charles House (3)

185,000

2.65%

Common

Christian J. Hoffmann, III (4)

300,000

4.27%

Common

All Officers and Director as a Group (four  persons)

3,764,001

49.57%


(1) Shares include 163,333 stock options which are exercisable now at prices ranging from $1.50 to $1.52.  Mr. Holmes owns 1,495,334 shares exclusive of the options.  In calculating Mr. Holmes’ percentage, the 163,333 shares have been added to the 6,794,600 shares currently outstanding.


(2) Shares include 225,000 stock options which are exercisable now at prices ranging from $1.50 to $1.52.  Mr. Blosch owns 1,395,334 shares exclusive of the options.  In calculating Mr. Blosch’s percentage, the 225,000 shares have been added to the 6,794,600 shares currently outstanding.


(3) Shares include 185,000 stock options which are exercisable now at prices ranging from $1.50 to $1.52.  Mr. House owns no shares.  The shares shown are the options he can exercise.  In calculating Mr. House’s percentage, the 185,000 shares have been added to the 6,794,600 shares currently outstanding.


(4) Shares include 225,000 stock options which are exercisable now at prices ranging from $1.50 to $1.52.  Mr. Hoffmann owns 75,000 shares exclusive of the options.  In calculating Mr. Hoffmann’s percentage, the 225,000 shares 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.



-19-

 


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

1,349,999

1.51

2,950,001

Equity compensation plans not approved by security holders

65,000

1.50

0

Total

1,414,999

1.51

2,950,001



ITEM 5.  DIRECTORS AND EXECUTIVE OFFICERS


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

55

CEO, Director

Greg Holmes

45

President

Kirk Blosch

54

Director

Charles House

68

Director

Christian J. Hoffmann, III

61

Director

Kevin Asher

32

CFO

Tom Harker

35

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.


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 minor in Finance from the University of Utah in 1995.  

 


-20-

 



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.


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 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.


Charles House – Director .   Mr. House, 68, 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 Entrapreneur’s Hall of Fame, and the Smithsonian “Wizards of Computing”.


Kevin J. Asher - Chief Financial Officer .  Mr. Asher, prior to joining Calibrus, from March 2006 to February 2008, Mr. Asher was the Principal, General Manager and CFO of Medical Aesthetics, LLC, 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 day to day decision making. From February 2005 through March 2006, Mr. Asher was Vice President of Finance for AirLink Mobile, Inc., an industry leading  MVNO and provider of prepaid wireless telephone service where he was responsible for all aspects of accounting and finance including financial reporting, treasury management, financial analysis, financial projections, payroll, regulatory reporting and daily accounting. From September 2003 to February 2005, Mr. Asher was a director of MCA Financial Group Ltd. of Phoenix, Arizona which provides advisory services to businesses, financial institutions and investor groups in the areas of financial restructuring, mergers and acquisitions, business oversight, and corporate and capital formation. His responsibilities included representation of debtors and creditors in the areas of business turnarounds, financial restructuring, chapter 11 business reorganizations, divestures, mergers and acquisitions, business valuations, financial management, and performance improvement. He advised clients in a variety of industries including aviation, aerospace and defense, retail, homebuilding, construction and manufacturing. Prior to his position at MCA Financial, Mr. Asher worked in the public accounting industry primarily as an audit manager. Mr. Asher has a Bachelor of Science degree in accountancy from Northern Arizona University at Flagstaff, Arizona and is a Certified Public Accountant.


Tom Harker – Chief Technology Officer .  Mr. Harker has served as Director of Software Development and CTO at Calibrus since 2000.  Tom’s responsibilities are to oversee all aspects of design and implementation of IT systems.  Prior to coming to Calibrus, Tom served as Division Software Manager at ACS (Affiliated Computer Services) for 2 years. Mr. Harker has been involved deeply in the Third Party Verification (TPV) process for the past 9 years with an understanding of the TPV process and FCC requirements.


Key Employees:


Michael J. Brande, MCSE - Vice President of Network Operations .  For the past 6 years, Michael Brande has served as the Director of Network Operations and Facilities at Calibrus.  His team is responsible for all aspects of the data and telecom networks at Calibrus - from cabling to wiring, and switches and routers, to the servers, PBX’s and PC workstations.  Mr. Brande directs and cultivates many key business relationships for Calibrus and its Vendor Partners.  His responsibilities range from procurement, to services, to facilities and equipment maintenance.  Prior to his employment with Calibrus, Michael was employed by ACS (Affiliated Computer Services) TeleSolutions as the Division Network Manager and was part of a team that designed a new and better process for Third Party Verification.  He has over 12 years experience in the call center industry.

 


-21-

 


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 as 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.  To date, client order entry web sites have successfully completed over 40 million TPV transactions.  Mike Rae accepted the position of Vice President of Software Development in 2006. 


James Stockert – Vice President of Marketing and Sales .  Mr. Stockert oversees all aspects of the negotiations of establishing clients and helping clients through the process of setup and implementation.  Mr. Stockert joined the Calibrus team in 2005 after working for SBC in their Marketing department since 1999.  Mr. Stockert oversaw the implementation and processes of Calibrus as SBC’s Third Party Verification provider and managed the relationship for over four years.  Mr. Stockhert graduated with a BBA in Marketing from Texas State in 1994 and before working with SBC worked with Montgomery Ward in their Merchandising department at their headquarters in Chicago.


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.

 

 

-22-

 



ITEM 6. 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, 2007 (collectively referred to as the "Named Executives").  No other executive officer serving during 2007 received compensation greater than $100,000.


SUMMARY COMPENSATION TABLE


Name and Principal Position

Year

Salary

Bonus

Stock Awards

Option Awards

Non-Equity Incentive Plan Compensation

Nonqualified  Deferred Compensation

All Other Compensation

Total

(a)

(b)

(c)

(d)

(e)

(f) (1)

(g)

(h)

(i) (2)

(j)

Jeff W. Holmes, CEO

12/31/2007

$220,000

$500

$0

$0

$0

$0

$2,591

$223,091

12/31/2006

$220,000

$4,000

$0

$1,458

$0

$0

$0

$225,458

12/31/2005

$180,000

$7,000

$0

$8,250

$0

$0

$0

$195,250

Greg W. Holmes, President

12/31/2007

$150,000

$500

$0

$0

$0

$0

$4,392

$154,892

12/31/2006

$150,000

$4,000

$0

$1,458

$0

$0

$5,357

$160,815

12/31/2005

$105,000

$7,000

$0

$8,250

$0

$0

$4,570

$124,820

Thomas Harker, CTO

12/31/2007

$140,000

$500

$0

$0

$0

$0

$4,706

$145,206

12/31/2006

$140,000

$4,000

$0

$1,458

$0

$0

$6,197

$151,665

12/31/2005

$120,000

$7,000

$0

$16,500

$0

$0

$5,370

$148,870

Kevin J. Asher, CFO

12/31/2007

$0

$0

$0

$0

$0

$0

$0

$0

12/31/2006

$0

$0

$0

$0

$0

$0

$0

$0

12/31/2005

$0

$0

$0

$0

$0

$0

$0

$0



 (1) This column represents the aggregate dollar amount of the awards granted in 2007, 2006 and 2005, respectively. Therefore, the values shown here are not representative of the amounts that may eventually be realized by an executive. 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 Statement of Financial Accounting Standards No. 123(R), “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 and expected term. The risk-free interest rate is based on the yield at the date of grant of a U.S. Treasury security with a maturity period equal to or approximating the option’s expected term. The dividend yield assumption is based on our historical dividend payouts, which is zero. The volatility assumption is based on the historical volatility of an industry sector over a period equal to the option’s expected term or trading stock’s trading history which ever is shorter. The expected term of options granted is based on expectations about future exercises and represents the period of time that options granted are expected to be outstanding.


(2) The amounts shown include Company-paid portion of health insurance for the fiscal years ended 2007, 2006 and 2005.

 



-23-

 



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, CEO

  45,000 

  -     

  -     

$1.50

12/13/2008

  -     

  -     

  -     

  -     

  45,000 

  -     

  -     

$1.50

5/9/2009

  -     

  -     

  -     

  -     

  27,500 

  -     

  -     

$1.52

12/29/2009

  -     

  -     

  -     

  -     

  25,000 

  -     

  -     

$1.52

12/15/2010

  -     

  -     

  -     

  -     

  20,833 

  -     

  -     

$1.52

12/11/2011

  -     

  -     

  -     

  -     

Greg W. Holmes, President

  25,000 

  -     

  -     

$1.50

12/13/2008

  -     

  -     

  -     

  -     

  25,000 

  -     

  -     

$1.52

12/29/2009

  -     

  -     

  -     

  -     

  25,000 

  -     

  -     

$1.52

12/15/2010

  -     

  -     

  -     

  -     

  20,833 

  -     

  -     

$1.52

12/11/2011

  -     

  -     

  -     

  -     

Thomas Harker, CTO

  25,000 

  -     

  -     

$1.50

12/13/2008

  -     

  -     

  -     

  -     

  25,000 

  -     

  -     

$1.52

12/29/2009

  -     

  -     

  -     

  -     

  50,000 

  -     

  -     

$1.52

12/15/2010

  -     

  -     

  -     

  -     

  20,833 

  -     

  -     

$1.52

12/11/2011

  -     

  -     

  -     

  -     

Kevin J. Asher, CFO

  -     

  -     

  -     

  -     

  -     

  -     

  -     

  -     

  -     


Compensation of Directors


Name

Year

Fees Earned or Paid in Cash ($)

Stock Awards ($)

Option Awards ($)

Non-Equity Incentive Plan Compensation ($)

Nonqualified Deferred Compensation Earnings ($)

All Other Compensation ($)

Total ($)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

Kirk Blosch

12/31/2007

  -     

  -     

$3,150

  -     

  -     

  -     

$3,150

12/31/2006

  -     

  -     

$3,150

  -     

  -     

  -     

$3,150

12/31/2005

  -     

  -     

$14,850

  -     

  -     

  -     

$14,850

Charles House

12/31/2007

  -     

  -     

$3,150

  -     

  -     

  -     

$3,150

12/31/2006

  -     

  -     

$3,150

  -     

  -     

  -     

$3,150

12/31/2005

  -     

  -     

$14,850

  -     

  -     

  -     

$14,850

Christian J. Hoffmann, III

12/31/2007

  -     

  -     

$3,150

  -     

  -     

  -     

$3,150

12/31/2006

  -     

  -     

$3,150

  -     

  -     

  -     

$3,150

12/31/2005

  -     

  -     

$14,850

  -     

  -     

  -     

$14,850

 



-24-

 



Option/SAR Grants in Last Fiscal Year


In fiscal 2007, no options were granted out of Calibrus’ Incentive Option Plan and 135,000 options were granted out of the Non-Qualified Option Plan.


The Company has adopted two Stock Options Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2007 the Company increased the number of options available for grant under the 2001 Non-Qualified Stock Option Plan and Incentive Stock Option Plan by 1,425,000 and 725,000 options, respectively.  Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 725,000 as of November 15, 2008, at exercise prices ranging from $1.50 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 1,450,000 shares of common stock and has granted 624,999 as of November 15, 2008, at exercise prices ranging from $1.50 to $1.52. The maximum term of the options is five years and they vest at various times according to the Option Agreements.


Stock Option Exercise


In fiscal 2007, 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 2007, 2006, or 2005 under a long-term incentive plan.


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 prior years with the non-employee directors receiving 45,000 options each with an exercise price of $1.52 for 2007, 45,000 options each with an exercise price of $1.52 for 2006 and 45,000 options each with an exercise price of $1.52 for 2005.


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 and 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.


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.

 


-25-

 


Report on Executive Compensation


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, 2007, Calibrus’ chief executive officer was Jeff W. Holmes and Greg W. Holmes, President.  Kevin J. Asher, CFO, was retained as CFO in February of 2008.


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 2007, the board of directors of Calibrus met one time.  Additionally, the Compensation Committee  and the Audit Committee each met once.  All members of the board of directors were either present in person or by proxy at all the meetings.  


Code of Ethics


We have adopted a Code of Ethics that applies to all of our directors and executive officers serving in any capacity for our Company, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions.


Board of Directors Interlocks and Insider Participation in Compensation Decisions


No such interlocks existed or such decisions were made during fiscal year 2007.  Jeff Holmes and Kirk Blosch are business partners in other matters including owning a consulting company together.


Option Plans


Calibrus has 4,300,000 shares reserved for issuance under stock option plans with 1,349,999 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 Options Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2007 the Company increased the number of options available for grant under the 2001 Non-Qualified Stock Option Plan and Incentive Stock Option Plan by 1,425,000 and 725,000 options, respectively.  Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock and has granted 725,000 as of November 15, 2008, at exercise prices ranging from $1.50 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 1,450,000 shares of common stock and has granted 624,999 as of November 15, 2008, at exercise prices ranging from $1.50 to $1.52. The maximum term of the options is five years and they vest at various times according to the Option Agreements.

 


-26-


 


ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS 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.


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 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.


There were no material transactions, or series of similar transactions, during our Company’s last five fiscal years, or any currently proposed transactions, or series of similar transactions, to which we or any of our subsidiaries 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 promoter or founder of ours or any member of the immediate family of any of the foregoing persons, had an interest.


One of our directors, Christian J. Hoffmann, III, is a partner with Quarles & Brady, LLP, which has provided certain legal services for Calibrus.  Quarles & Brady, LLP is not currently providing any legal services to the Company. During 2006 and 2007, we paid Quarles & Brady, LLP $39,310 and $4,047, respectively.


ITEM 8.   LEGAL PROCEEDINGS


Calibrus is not involved in any legal proceedings.


ITEM 9.  MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS’ COMMON EQUITY AND RELATED                              SHAREHOLDERS MATTERS


Calibrus’ common stock is not quoted on any market or exchange.  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, 2007, we had approximately 125 shareholders of record.  As of December 31, 2007, Calibrus had 6,794,600 shares of our 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 the share 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


Upon the effectiveness of this Form 10, Calibrus will be required to file annual and quarterly reports with the Securities and Exchange Commission.  These report will be available over the internet at the Securities and Exchange Commission web site www.sec.gov.  


-27-


 

ITEM 10.  RECENT SALES OF UNREGISTERED SECURITIES


Calibrus has not sold any securities during the last three years except for 500 shares issued to an employee in 2006 related to an option exercise.


ITEM 11.  DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED


DESCRIPTION OF SECURITIES


Calibrus' amended articles of incorporation authorize Calibrus to issue 50,000,000 shares of capital stock, par value $0.001 per share, with 45,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share.  


Common Stock


The holders of Common Stock are entitled to one vote per share on each matter submitted to a vote at any meeting of shareholders.  Shares of Common Stock do not carry cumulative voting rights and, therefore, a majority of the shares of outstanding Common Stock will be able to elect the entire board of directors and, if they do so, minority shareholders would not be able to elect any person to the board of directors. Calibrus’ bylaws provide that a majority of the issued and outstanding shares of Calibrus constitutes a quorum for shareholders’ meetings, except with respect to certain matters for which a greater percentage quorum is required by statute or the bylaws.


Shareholders of Calibrus have no preemptive rights to acquire additional shares of Common Stock or other securities.  The Common Stock is not subject to redemption and carries no subscription or conversion rights.  In the event of liquidation of Calibrus, the shares of Common Stock are entitled to share equally in corporate assets after satisfaction of all liabilities.


Holders of Common Stock are entitled to receive such dividends, as the board of directors may from time to time declare out of funds legally available for the payment of dividends.  Calibrus seeks growth and expansion of its business through the reinvestment of profits, if any, and does not anticipate that it will pay dividends in the foreseeable future.


Preferred Stock


Shares of Preferred Stock may be issued in one or more series or classes, with each series or class having the rights and privileges respecting voting rights, preferences as to dividends and liquidation, conversion rights, and other rights of such series as determined by the board of directors at the time of issuance.  There are several possible uses for shares of Preferred Stock, including expediting financing and minimizing the impact of a hostile takeover attempt.   Calibrus currently has no shares of Preferred Stock outstanding.  


Authority to Issue Stock


The board of directors has the authority to issue the authorized but unissued shares of Common Stock without action by the shareholders.  The issuance of such shares would reduce the percentage ownership held by current shareholders.


Purchases of Equity Securities by Us and Affiliated Purchasers


There were no purchases of our equity securities by us or any of our affiliates during the year ended December 31, 2007, nor have there been any purchase through October 21, 2008.


Transfer Agent


Calibrus’ transfer agent is Colonial Stock Transfer Company, 66 Exchange Place, Salt Lake City, Utah 84111, Telephone (801) 355-5740 and Facsimile (801) 355-6505



-28-

 



ITEM 12.  INDEMNIFICATION OF DIRECTORS AND OFFICERS


Section 145 of the Nevada Corporation Law provides in relevant parts as follows:


(1)  A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or on a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.


(2)  A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine on application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.


(3)  To the extent that a director, officer, employee, or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in (1) or (2) of this subsection, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.


(4)  The indemnification provided by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.


The foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference to the above discussed sections of the Nevada Corporation Law.

  

Calibrus' certificate of incorporation and bylaws provide that the Registrant “may indemnify” to the full extent of its power to do so, all directors, officers, employees, and/or agents. It is anticipated that Calibrus will indemnify its officer and director to the full extent permitted by the above-quoted statute.


Insofar as indemnification by Calibrus for liabilities arising under the Securities Act may be permitted to officers and directors of Calibrus pursuant to the foregoing provisions or otherwise, Calibrus is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.



ITEM 13.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


The financial statements, notes thereto, and the related independent registered public accounting firm’s report of Calibrus are set forth immediately following the signature page to this Form 10 and are herein incorporated by this reference.

 


-29-

 



ITEM 14.  CHANGES IN AND DISAGAREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None.


ITEM 15 .  FINANCIAL STATEMENTS AND EXHIBITS.


The following financial statements, notes thereto, and the related independent registered public accounting firm’s report contained on page F-1 to our financial statements are herein incorporated:

December 31, 2007 and 2006

Report of Independent Registered Public Accounting Firm         

Balance Sheets - December 31, 2007 and December 31, 2006
Statements of Operations - Years ended December 31, 2007 and 2006

Statements of Changes in Stockholders' Equity – Years ended December 31, 2007 and 2006

Statements of Cash Flows – Years ended December 31, 2007 and 2006

Notes to Financial Statements – Years ended December 31, 2007 and 2006

September 30, 2008

Balance Sheets – September 30, 2008 (unaudited) and December 31, 2006
Condensed Statements of Operations (unaudited) – For the Nine Months Ended September 30, 2008 and 2007

Condensed Statements of Cash Flows (unaudited) – For the Nine Months Ended September 30, 2008 and 2007

Notes to Condensed Financial Statements (unaudited) – For the Nine Months Ended September 30, 2008

 


-30-

 


PART III


ITEM 1. INDEX TO EXHIBITS


Copies of the following documents are included as exhibits to this Form 10 pursuant to item 601 of regulation S-K.


SEC

Exhibit

Reference

No.

No.

Title of Document

Location


3(i)

3.01

Articles of Incorporation of Calibrus

This Filing


3(ii)

3.02

Amendment to Articles of Incorporation Calibrus-Name Change

This Filing


3(iii)

3.03

Bylaws of Calibrus

This Filing


4

4.01

Specimen Stock Certificate

This Filing


10

10.01

Lease Agreement – Paragon

This Filing


10

10.02

AT&T Services, Inc.-Agreement

This Filing

 

10

10.03

Magnet Warrant

This Filing


10

10.04

Employment Agreement-Jeff Holmes

This Filing


10

10.05

Employment Agreement-Greg Holmes

This Filing


10

10.06

Employment Agreement-Kevin Asher

This Filing


10

10.07

Incentive Stock Option Plan

This Filing


10

10.08

Non-Qualified Stock Option Plan

This Filing


10

10.09

Form of Options

This Filing


14

14.01

Code of Ethics

This Filing



-31-





SIGNATURES

In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this registration statement to be signed on its behalf by the undersigned, thereunder duly authorized.


Calibrus, Inc.


By: /s/ Jeff W. Holmes ____________________________

      Jeff W. Holmes, CEO


By: /s/ Kevin J. Asher ____________________________

      Kevin J. Asher, CFO  


In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this registration statement to be signed on its behalf by the undersigned in the capacities and on the dates stated.


Signature

Title

Date

       




_ /s/ _ Jeff W. Holmes ________

Director, CEO

December 24, 2008

Jeff W. Holmes



_ /s/ _ Kirk Blosch ___________

Director

December 24, 2008

Kirk Blosch



_ /s/ _ Christan J. Hoffman _____

Director

December 24, 2008

Christian J. Hoffmann, III



_ /s/ _ Charles House _________

Director

December 24, 2008

Charles House


 


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, 2007 and 2006 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 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 and schedules.  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, 2007 and 2006, 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

Phoenix, Arizona

August 11, 2008


 

F-1





CALIBRUS, INC.

BALANCE SHEETS

December 31, 2007 and 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

2007

 

2006

Current Assets

 

 

 

 

 

 

 

   Cash and cash equivalents

 

 

 

 

 $ 1,591,704 

 

 $ 1,914,049 

   Accounts receivable - trade, net

 

 

 

 

  791,560 

 

  1,043,921 

   Prepaid expenses

 

 

 

 

  158,422 

 

  157,190 

   Deferred tax asset - current portion

 

 

 

 

  -   

 

  499,000 

 

 

 

 

 

 

 

 

          Total Current Assets

 

 

 

 

   2,541,686 

 

  3,614,160  

 

 

 

 

 

 

 

 

Property and equipment, net  

 

 

 

 

  292,396 

 

  443,138 

Deferred tax asset - long-term portion

 

 

 

 

  -   

 

  62,000 

Deposits

 

 

 

 

  34,382 

 

  31,195 

Intangible asset, net

 

 

 

 

  3,822 

 

  49,686 

 

 

 

 

 

 

 

 

          Total Assets

 

 

 

 

  $ 2,872,286 

 

 $ 4,200,179  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

   Notes payable - current portion

 

 

 

 

 $ 16,981 

 

 $ 176,215 

   Accounts payable - trade

 

 

 

 

  68,162 

 

  200,337 

   Accrued liabilities

 

 

 

 

  281,429 

 

  274,839 

 

 

 

 

 

 

 

 

          Total Current Liabilities

 

 

 

 

   366,572 

 

  651,391  

 

 

 

 

 

 

 

 

Notes payable - long-term portion

 

 

 

 

  -   

 

  17,757 

 

 

 

 

 

 

 

 

          Total Liabilities

 

 

 

 

   366,572 

 

  669,148  

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

  -    

 

  -    

 

 

 

 

 

 

 

 

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 at December 31, 2007 and

   2006

 

 

 

 

  6,795 

 

  6,795 

   Additional paid-in capital

 

 

 

 

  4,461,321 

 

  4,443,000 

   Accumulated deficit

 

 

 

 

  (1,962,402)

 

  (918,764)

 

 

 

 

 

 

 

 

          Total Stockholders' Equity

 

 

 

 

   2,505,714 

 

  3,531,031  

 

 

 

 

 

 

 

 

          Total Liabilities and Stockholders' Equity

 

 

 

 

 $ 2,872,286 

 

 $ 4,200,179  

 

 


 

The Accompanying Notes are an Integral

Part of the Financial Statements

F-2





CALIBRUS, INC.

STATEMENTS OF OPERATIONS

For The Years Ended December 31, 2007 and 2006


 

 

 

 

 

 

 

 

 

 

2007

 

2006

 

 

 

 

 

 

 

 

Revenues

 

 

 $ 6,558,142 

 

 $ 7,597,889 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

  3,358,832 

 

  3,772,785 

 

 

 

 

 

 

 

 

Gross profit

 

 

   3,199,310 

 

  3,825,104  

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

  3,731,117 

 

  3,584,163 

 

 

 

 

 

 

 

 

Income (Loss) from Operations

 

 

   (531,807)

 

  240,941  

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

   Interest income

 

 

  55,060 

 

  53,067 

 

   Interest expense

 

 

  (5,891)

 

  (38,662)

 

 

 

 

 

 

 

 

 

 

 

  49,169 

 

  14,405 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

  (482,638)

 

  255,346 

 

 

 

 

 

 

 

 

Income tax benefit (expense) - deferred

 

 

  (561,000)

 

  125,950 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

 

 $ (1,043,638)

 

 $ 381,296  

 

 

 

 

 

 

 

 

Income (Loss) per Common Share: (Note 1)

 

 

 

 

 

 

   Basic

 

 

 $ (0.15)

 

 $ 0.06 

 

   Diluted

 

 

 $ (0.15)

 

 $ 0.05 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding:

 

 

 

 

 

 

   Basic

 

 

  6,794,600 

 

  6,794,348 

 

   Diluted

 

 

  6,794,600 

 

  7,164,396 

 









The Accompanying Notes are an Integral

Part of the Financial Statements

F-3






CALIBRUS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For The Years Ended December 31, 2007 and 2006


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Total

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

Capital

 

Deficit

 

Equity

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2005

 

  6,794,100 

 

 $ 6,795 

 

 $ 4,439,281 

 

 $ (1,300,060)

 

 $ 3,146,016 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

  500 

 

  -    

 

  750 

 

  -    

 

  750 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

  -    

 

  -    

 

  2,969 

 

  -    

 

  2,969 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended  December 31, 2006

 

  -    

 

  -    

 

  -    

 

  381,296

 

  381,296 

 

 

 

 

 

 

 

 

 

 

 

 

 

  6,794,600 

 

  6,795 

 

  4,443,000 

 

  (918,764)

 

  3,531,031 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

  -    

 

  -    

 

  18,321 

 

  -    

 

  18,321 

 

 

 

 

 

 

 

 

 

 

 

Net Loss for the year ended December 31, 2007

 

  -    

 

  -    

 

  -    

 

  (1,043,638)

 

  (1,043,638)

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2007

 

  6,794,600 

 

 $ 6,795 

 

 $ 4,461,321 

 

 $ (1,962,402)

 

 $ 2,505,714 

 

 

 

 

 

 

 

 

 

 

 







The Accompanying Notes are an Integral

Part of the Financial Statements

F-4







CALIBRUS, INC.

STATEMENTS OF CASH FLOWS

For The Years Ended December 31, 2007 and 2006


 

 

 

2007

 

2006

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

          Net Income (Loss)

 

 

 $ (1,043,638)

 

 $ 381,296 

 

 

 

 

 

 

     Adjustments to reconcile net income (loss) to net cash from

 

 

 

 

 

     operating activities:

 

 

 

 

 

          Depreciation and amortization

 

 

  364,368 

 

  433,478 

          Allowance for doubtful accounts

 

 

  12,000 

 

  -    

          Stock based compensation expense

 

 

  18,321 

 

  2,969 

          Deferred income tax

 

 

  561,000 

 

  (126,000)

     Changes in assets and liabilities:

 

 

 

 

 

          Accounts receivable - trade

 

 

  240,361 

 

  82,779 

          Prepaid expenses

 

 

  (1,232)

 

  94,124 

          Deposits

 

 

  (3,187)

 

  7,573 

          Accounts payable - trade

 

 

  (132,175)

 

  (44,460)

          Accrued liabilities

 

 

  6,590 

 

  32,264 

          Net cash provided by operating activities

 

 

 

   22,408 

 

  864,023  

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

          Purchase of fixed assets

 

 

  (167,762)

 

  (266,685)

          Net cash used by investing activities

 

 

  (167,762)

 

  (266,685)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

          Repayment of debt

 

 

  (176,991)

 

  (370,669)

          Exercise of options

 

 

  -    

 

  750 

          Net cash used by financing activities

 

 

  (176,991)

 

  (369,919)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

  (322,345)

 

  227,419  

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

  1,914,049 

 

  1,686,630 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

 

 $ 1,591,704 

 

 $ 1,914,049  

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

   Interest

 

 

 $ 5,891 

 

 $ 38,662 

   Income Taxes

 

 

 $ 50 

 

 $ 50 

 

 

 

 

 

 







The Accompanying Notes are an Integral

Part of the Financial Statements

F-5





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).


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 revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates include, but are not limited to, calculation of the allowance for doubtful accounts, income taxes 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, Net


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, 2007 and 2006, a provision for uncollectible trade accounts receivable has been established in the amounts of $61,000 and $49,000, respectively. The Company does not accrue interest charges 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, 2007 and 2006, depreciation expense was $318,504 and $387,614, respectively.


Intangible Asset


The intangible asset is comprised of branding costs. The intangible asset is being amortized on the straight-line method over its estimated economic life, which is estimated to be seven (7) years, at a cost of $45,864 per year.




F-6

 



Note 1

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


Capitalized Software Costs


The Company capitalizes software acquired from outside vendors and amortizes it over its expected useful life of three (3) years.


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.


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 FASB interpretation No. 48, Accounting for Uncertainty in Income Taxes, on July 1, 2007, with no material impact on the accompanying financial statements.


The Company’s tax position taken in prior years for deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes.  We provide valuation allowances against the deferred tax assets for amounts when the realization is uncertain.  Management reviews these items regularly in light of changes in tax laws and court rulings at both federal and state levels.


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, or non-U.S. income tax examinations by tax authorities for approximately the past three years, or in some instances longer periods.  The Company’s policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.  


Deferred income taxes are provided on 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. 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 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 of the date of enactment.

 


F-7

 

 

Note 1

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

 

Income Taxes (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 as described above 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.


Fair Value

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, and notes payable approximate fair value given their short term nature or with regards to long term notes payable based on borrowing rates currently available to the Company for loans with similar terms and maturities.


Earnings per Share


Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders 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.

 



F-8

 



Note 1

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

 

Earnings per Share (Continued)


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.

 

 

 

 

 

 

 

 

Year Ended December, 31

 

 

Year Ended December, 31

 

 

2007

 

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) available to common stockholders

 

 $ (1,043,638)

 

 

 $ 381,296 

 

 

 

 

 

 

Weighted average number of common shares

 

 

 

 

 

used in basic earnings per share

 

6,794,600

 

 

6,794,348

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

      Stock options

 

  -    

 

 

133,618

      Stock warrants

 

  -    

 

 

236,430

 

 

 

 

 

 

Weighted average number of common shares

 

 

 

 

 

and dilutive potential comon stock used in

 

 

 

 

 

diluted earnings per share

 

                      6,794,600 

 

 

                     7,164,396 

 

 

 

 

 

 


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. At December 31, 2007 and 2006, the Company had outstanding options to purchase 1,574,999 shares of common stock at a per share weighted average exercise price of $1.48, which were not included in the earnings per share calculation as they were anti-dilutive.  In addition, the Company did not include warrants to purchase 691,104 shares of common stock at a price of $1.00 per share in the earnings per share calculation as they were anti-dilutive.  


Stock-Based Compensation


The Company has stock-based compensation plans. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), using the modified prospective transition method. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted during the year, or granted in a prior year if not fully vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"). 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 provisions of SFAS 123R. 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).

 


F-9

 

 

Note 1

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


Stock-Based Compensation (Continued)


·

The Company estimates fair value using the Black-Scholes valuation model. Assumptions used 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.



Pending Accounting Pronouncements


In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS No. 141R, which replaces SFAS No. 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will apply prospectively to business combinations completed on or after that date. The Company does not expect SFAS No. 141R to have a material impact on its financial statements.

 

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” or SFAS No. 160. SFAS No. 160 clarifies that a noncontrolling or minority interest in a subsidiary is considered an ownership interest and, accordingly, requires all entities to report such interests in subsidiaries as equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect SFAS No. 160 to have a material impact on its financial statements.


In March 2008, the FASB issued SFAS No. 161, “ Disclosures about Derivative Instruments and Hedging Activities,” or SFAS No. 161 . SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect SFAS No. 161 to have a material impact on its financial statements.

 


F-10

 

 

Note 1

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


Pending Accounting Pronouncements (Continued)


In April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of FSP 142-3 on its financial position and results of operations.


In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The implementation of this standard will not have a material impact on our financial position and results of operations.

 

Note 2

Concentrations of Risk


During the year ended December 31, 2007, the Company rendered a substantial portion of its services to its two largest customers representing 61% and 22% of total revenues.  As of December 31, 2007, the amounts due from the customers were $499,114 and $173,222, respectively.


During the year ended December 31, 2006, the Company rendered a substantial portion of its services to its largest three customers representing 41%, 24% and 18% of total revenues. As of December 31, 2006, the amounts due from the customers were $612,457, $181,877, and $110,713, respectively.


The Company maintains cash and cash equivalents at various financial institutions. Deposits not to exceed $100,000 at each financial institution are insured by the Federal Deposit Insurance Corporation.  At December 31, 2007 and 2006, the Company had uninsured cash and cash equivalents in the approximate amounts of $1,404,000 and $1,384,000, respectively.

 

Note 3

Property and Equipment


Property and equipment as of December 31, 2007 and 2006 consist of the following:


 

 

 

2007

 

2006

 

 

 

 

 

 

Computer hardware

 

 

 $ 2,065,072 

 

 $ 1,975,704 

Furniture and fixtures

 

 

  229,728 

 

  189,728 

Leashold improvements

 

 

  165,377 

 

  165,377 

Software costs

 

 

  1,192,615 

 

  1,154,221 

 

 

 

  3,652,792 

 

  3,485,030 

Less: accumulated depreciation

 

 

  (3,360,396)

 

  (3,041,892)

 

 

 

 

 

 

 

 

 

 $ 292,396 

 

 $ 443,138 

 

 

 

 

 

 


F-11

 

 

Note 4

Intangible Asset


At December 31, 2007 and 2006, the intangible asset consists of:


 

 

 

 

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

Branding costs

 

 

 $ 321,343 

 

 $ 321,343 

 

 

Less: accumulated amortization

 

 

  (317,521)

 

  (271,657)

 

 

 

 

 

 

 

 

 

 

 

 

 

 $ 3,822 

 

 $ 49,686  

 

 

 

 

 

 

 

 


Amortization expense for the years ended December 31, 2007 and 2006 was $45,864 per year.


On an annual basis, the Company reviews the valuation of branding costs. As part of this review, the Company estimates the net realizable value of branding costs and assesses whether the unamortized balance can be recovered through expected future cash flows over the remaining life of the asset. As of December 31, 2007, the Company believes the value of branding costs is not impaired.

 

Note 5

Notes Payable


As of December 31, 2007 and 2006 notes payable were comprised of the following:


 

 

 

 

 

2007

 

2006

 

 

 

 

 

 

 

 

$1,000,000 note payable, due to Biltmore Bank of Arizona, interest

 

 

 

 

 

 

 

at the rate of prime plus 2% principal payments of $27,778  plus

 

 

 

 

 

 

 

interest due monthly, due in full May 28, 2007; collateralized by

 

 

 

 

 

 

 

all assets of the Company.

 

 

 

 

 $ -   

 

 $ 138,882 

 

 

 

 

 

 

 

 

Note payable to Biltmore Bank of Arizona, interest at prime plus

 

 

 

 

 

 

 

2%, (9.50% at December 31, 2007), principal payments of $3,111

 

 

 

 

 

 

 

plus interest due monthly, due in full June, 2008; collateralized by

 

 

 

 

 

 

 

equipment.

 

 

 

 

  16,981 

 

  55,090 

 

 

 

 

 

  16,981 

 

  193,972 

 

 

 

 

 

 

 

 

Less: current portion

 

 

 

 

  (16,981)

 

  (176,215)

 

 

 

 

 

 

 

 

 

 

 

 

 

 $ -    

 

 $ 17,757 

 

 

 

 

 

 

 

 

A schedule of future minimum payments due on the notes payable is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ending December 31,

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

$16,981 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$16,981 

 

 

 

 

 

 

 

 

 

 

 


F-12

 

 

Note 5

Notes Payable (Continued)


In addition, as of December 31, 2007, the Company has an available $600,000 line of credit at Biltmore Bank of Arizona. Interest only payments at the rate of prime plus 1.5% (8.75%) at December 31, 2007) are due monthly. Principal is due in full on June 1, 2008. The line of credit is collateralized by assets of the Company.

 

Note 6

Accrued Liabilities


Accrued liabilities as of December 31, 2007 and 2006 consist of:

 

 

 

 

 

 

 

 

 

 

2007

 

2006

 

 

 

 

 

 

 

          Payroll and related taxes

 

 

 

 $ 162,085 

 

 $ 171,004 

          Deferred rent

 

 

 

  49,555 

 

  45,044 

          Accrued vacation

 

 

 

  40,981 

 

  28,359 

          Other accrued expenses

 

 

 

  28,808 

 

  30,432 

 

 

 

 

 

 

 

 

 

 

 

 $ 281,429 

 

 $ 274,839 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Note 7

Income Taxes


At December 31, 2007 and 2006, deferred tax assets (liabilities) consist of the following:

 

 

 

 

 

 

2007

 

2006

Current portion:

 

 

 

 

 

 

 

 

        Operating loss carryforwards

 

 

 

 

 

 $ 666,549 

 

 $ 486,400 

        Allowance for doubtful accounts

 

 

 

 

 

  23,796 

 

  19,100 

        Accrued vacation

 

 

 

 

 

  15,987 

 

  11,100 

        Deferred rent expense

 

 

 

 

 

  (19,332)

 

  (17,600)

 

 

 

 

 

 

  687,000 

 

  499,000 

         Less: valuation allowance

 

 

 

 

 

  (687,000)

 

  -   

 

 

 

 

 

 

 

 

 

Deferred tax asset-current portion

 

 

 

 

 

 $ -   

 

 $ 499,000 

 

 

 

 

 

 

 

 

 

Long-term portion:

 

 

 

 

 

 

 

 

         Depreciation and amortization

 

 

 

 

 

 $ 60,000 

 

 $ 62,000 

         Less: valuation allowance

 

 

 

 

 

  (60,000)

 

  -   

 

 

 

 

 

 

 

 

 

Deferred tax asset-long term portion

 

 

 

 

 

 $ -   

 

 $ 62,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, uncertainties exist that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. As of December 31, 2007, the Company has net federal operating loss carryforwards of approximately $1,630,000. The net operating loss forwards may be applied against future taxable income. The net operating loss carryforwards expire through December 31, 2022 for federal income tax purposes and December 31, 2012 for state income tax purposes.

F-13

 

 

Note 7

Income Taxes (Continued)


During the year ended December 31, 2007, the Company determined that it was more likely than not that some portion or all of the deferred tax assets will not be realized.  The Company has established a valuation allowance as of December 31, 2007 in the approximate amount of $747,000. The valuation allowance is equal to the full amount of the deferred tax asset due to the uncertainty of the utilization of operating losses in future periods.


During the year ended December 31, 2006, the Company determined that it was more likely than not, that they would utilize the deferred tax assets. Therefore, a benefit in the approximate amount of $126,000 was recognized for the year ended December 31, 2006, which was net of the year’s expense of approximately $104,000.


The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state statutory income tax rates to pretax income from continuing operations for the years ended December 31, 2007 and 2006 due to the following:  


 

 

2007

 

2006

 

 

 

 

 

Federal Tax Benefit (Expense) at Statutory Rates

 

 $               165,000

 

$              (87,000) 

State Tax Benefit (Expense) at Statutory Rates

 

  24,000 

 

  (13,000) 

Meals and Entertainment

 

  (3,000) 

 

  (4,000) 

Benefit of Net Operating Losses

 

-  

 

103,950

Valuation Allowance Adjustment

 

  (747,000) 

 

126,000

 

 

 

 

 

Net Deferred Tax Benefit (Expense)

 

 $         (561,000)   

 

$               125,950

 

 

 

 

 



Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations.  Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years.

 


F-14

 



Note 8

Commitments and Contingencies


Operating Leases


The Company leases office space in Tempe, Arizona, under two five (5) year operating lease agreements expiring in 2010, at a combined current rate of approximately $59,000 per month.  Subsequent to December 31, 2007 the Company cancelled one of its office locations effective November 2008.  As a result of this cancellation the Company incurred a one time termination fee in the amount of $193,688.  This amount is included in the schedule below.


The Company leases office equipment under various operating lease agreements expiring through June 2011, at rates ranging from $753 to $2,620 per month.


Total rent expense under the aforementioned operating leases was approximately $712,021 and $692,123 for the years ended December 31, 2007 and 2006, respectively.

 

A schedule of future minimum lease payments is as follows:

 

 

 

 

 

 

Year Ending

 

 

 

 

 

December 31,

 

 

 

 

Amount

2008

 

 

 

 

  931,292 

2009

 

 

 

 

  381,428 

2010

 

 

 

 

  313,351 

2011

 

 

 

 

  3,768 

 

 

 

 

 

 

 

 

 

 

 

 $ 1,629,839  

 

 

 

 

 

 


Employment Agreements


Calibrus has employment contracts with all officers and key employees of the Company.  All of our employment agreements contain language assigning all inventions over to Calibrus and 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.  A summary of the officers employment contract are below:


Employee

 

Beginning Date

 

End Date

 

Annual Salary

 

Renewal Term

Jeff W. Holmes

 

1/1/2005

 

12/31/2009

 

 $ 220,000 

 

(4) one year      extensions

Greg W. Holmes

 

1/1/2005

 

12/31/2009

 

 $ 150,000 

 

(4) one year extensions

Kevin J. Asher

 

2/5/2008

 

2/4/2010

 

 $ 130,000 

 

(2) one year extensions

Tom Harker

 

1/1/2007

 

12/31/2010

 

 $ 140,000 

 

(3) one year extensions

Michael Brande

 

1/1/2007

 

12/31/2010

 

 $ 105,000 

 

(3) one year extensions

Michael Rae

 

1/1/2007

 

12/31/2010

 

 $ 90,000 

 

(3) one year extensions

Jim Stockert

 

9/26/2005

 

9/25/2009

 

 $ 80,000 

 

(4) one year extensions

Kelly Robinson

 

6/28/2004

 

6/28/2008

 

 $ 90,000 

 

(4) one year extensions


Indemnification agreements

The Company has agreed to indemnify its officers and directors for certain events or occurences arising as a result of the officer or director serving in such capacity. The term of the indemnification period is for the officer's or director's lifetime. The maximum potential amount of future payments the company could be required to make under these indemnification agreements is unlimited. As a result of no current or expected litigation, the Company believes the estimated fair value of these indemnification agreements is minimal and has no liabilities recorded for these agreements as of December 31, 2007 and 2006.


 

F-15

 

 

Note 9

Stockholders’ Equity


Warrants


As of December 31, 2007, the Company had 691,104 warrants to purchase common stock outstanding. All of the warrants are convertible into one share of common stock at a price of $1.00 per share. The warrants carry an exercise term of seven (7) years. All of the warrants are vested and exercisable as of December 31, 2007. The following table summarizes warrant activity:


 

 

 

 

 

 

Weighted Average

 

Aggregate

 

 

Number of

 

Weighted Average

 

Remaining

 

Intrinsic

 

 

Warrants

 

Exercise Price

 

Contractual Term

 

Value

Outstanding at December 31, 2005

 

  691,104 

 

 $ 1.00 

 

 

 

 

Granted

 

  -    

 

  -    

 

 

 

 

Exercised

 

  -    

 

  -    

 

 

 

 

Forfeited

 

  -    

 

  -    

 

 

 

 

Outstanding at December 31, 2006

 

  691,104 

 

 $ 1.00 

 

 

 

 

Granted

 

  -    

 

  -    

 

 

 

 

Exercised

 

  -    

 

  -    

 

 

 

 

Forfeited

 

  -    

 

  -    

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2007

 

  691,104 

 

 $ 1.00 

 

1.64

 

 $ -   

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2007

 

  691,104 

 

 $ 1.00 

 

1.64

 

 $ -   

 

 

 

 

 

 

 

 

 


The fair value of each warrant granted is estimated on the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions:

 

         Prior Years

         Expected volatility                         0%

         Risk-free interest rate               2.25%

         Expected dividends                       -

         Expected life                            7 years

         Fair value                                 $   -

 

 

            


Options


As of December 31, 2007 and 2006, the Company has adopted two Stock Options Plans, the 2001 Non-Qualified Stock Option Plan and the 2001 Incentive Stock Option Plan. During the year ended December 31, 2007 the Company increased the number of options available for grant under the 2001 Non-Qualified Stock Option Plan and Incentive Stock Option Plan by 1,425,000 and 725,000 options, respectively.  Under the 2001 Non-Qualified Plan, the Company may grant options for up to 2,850,000 shares of common stock. The maximum term of the options is five years, and they vest at various times according to the Option Agreements. Under the 2001 Incentive Stock Option Plan, the Company may grant options for up to 1,450,000 shares of common stock. The maximum term of the options is five years and they vest at various times according to the Option Agreements.


The following is a table of activity for all options granted under these Plans, as well as 65,000 options granted outside the Plan:

 


F-16

 

 

Note 9

Stockholders’Equity (Continued)


Options (Continued)

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Weighted

 

Remaining

 

Aggregate

 

 

Number of

 

Average

 

Contractual

 

Intrinsic

 

 

Options

 

Exercise Price

 

Term (in years)

 

Value

 

 

 

 

 

 

 

 

 

Options outstanding at December 31, 2005

 

  1,512,500 

 

 $ 1.42 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Granted

 

  272,499 

 

  1.52 

 

 

 

 

   Exercised

 

  (500)

 

  1.50 

 

 

 

 

   Forfeited

 

  (244,500)

 

  1.09 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding at December 31, 2006

 

  1,539,999 

 

  1.42 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Granted

 

  135,000 

 

  1.52 

 

 

 

 

   Exercised

 

  -    

 

  -   

 

 

 

 

   Forfeited

 

  (100,000)

 

  1.00 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding at December 31, 2007

 

  1,574,999 

 

 $ 1.48 

 

2.25

 

 $ -   

 

 

 

 

 

 

 

 

 

Options exercisable at December 31, 2007

 

  1,574,999 

 

 $ 1.48 

 

2.25

 

 $ -   

 

 

 

 

 

 

 

 

 


The intrinsic value of the options exercised during the year ended December 31, 2006 was $10. The total fair value of the options vested during the year ended December 31, 2007 was $26,847


A summary of the status of the Entity’s nonvested options as of December 31, 2007 and changes during the year ended December 31, 2007 is presented below:

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant-Date

 

 

 

 

 

Options

 

Fair Value

Nonvested at January 1, 2007

 

 

 

 

  44,998 

 

 $ 0.33 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

  135,000 

 

 $ 0.07 

 

 

 

 

 

 

 

 

Vested

 

 

 

 

  (179,998)

 

 $ 0.15 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

  -   

 

  -   

 

 

 

 

 

 

 

 

Nonvested at December 31, 2007

 

 

 

 

  -   

 

  -   

 

 

 

 

 

 

 

 


F-17

 

 

Note 9

Stockholders’Equity (Continued)


Options (Continued)


The fair value of each option granted is estimated on the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions:


 

 

 

 

 

2007

 

2006

 

Expected Volatility

 

 

 

15%

 

15%

 

Risk-free interest rate

 

 

 

5.03%

 

4.63%

 

Expected dividends

 

 

 

  -   

 

  -   

 

Expected life

 

 

 

5 years

 

5 years

 

Value per option

 

 

 

$0.07 

 

$0.07 



 

F-18

 

 



CALIBRUS, INC.

CONDENSED BALANCE SHEETS


ASSETS

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

2008

 

2007

 

 

 

 

 

(Unaudited)

 

 

Current Assets

 

 

 

 

 

 

 

   Cash and cash equivalents  

 

 

 

 

 $ 745,274 

 

 $ 1,591,704 

   Accounts receivable - trade, net

 

 

 

 

  1,026,617 

 

  791,560 

   Prepaid expenses

 

 

 

 

  42,070 

 

  158,422 

 

 

 

 

 

 

 

 

          Total Current Assets

 

 

 

 

   1,813,961 

 

  2,541,686  

 

 

 

 

 

 

 

 

Property and equipment, net  

 

 

 

 

  199,116 

 

  292,396 

Deposits

 

 

 

 

  34,382 

 

  34,382 

Intangible asset, net

 

 

 

 

  -   

 

  3,822 

 

 

 

 

 

 

 

 

          Total Assets

 

 

 

 

 $ 2,047,459 

 

 $ 2,872,286  

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

   Notes payable - current portion

 

 

 

 

 $ -   

 

 $ 16,981 

   Accounts payable - trade

 

 

 

 

  130,339 

 

  68,162 

   Accrued liabilities

 

 

 

 

  256,672 

 

  281,429 

 

 

 

 

 

 

 

 

          Total Liabilities

 

 

 

 

  387,011 

 

  366,572  

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

  -    

 

  -    

 

 

 

 

 

 

 

 

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 at September 30, 2008 and December

       31, 2007

 

 

 

 

  6,795 

 

  6,795 

   Additional paid-in capital

 

 

 

 

  4,461,321 

 

  4,461,321 

   Accumulated deficit

 

 

 

 

  (2,807,668)

 

  (1,962,402)

 

 

 

 

 

 

 

 

         Total Stockholders' Equity

 

 

 

 

  1,660,448 

 

  2,505,714  

 

 

 

 

 

 

 

 

          Total Liabilities and Stockholders' Equity

 

 

 

 

 $ 2,047,459 

 

 $ 2,872,286  

 

 

 

 

 

 

 

 



The Accompanying Notes are an Integral

Part of these Condensed Financial Statements

 

F-19

 



CALIBRUS, INC.

CONDENSED STATEMENTS OF OPERATIONS

( Unaudited)

 

 

For the Nine Months Ended September 30, 2008

 

For the Nine Months Ended September 30, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 $ 4,219,491 

 

 $ 5,094,241 

 

 

 

 

 

 

 

Cost of revenues

 

  2,107,179 

 

  2,601,770 

 

 

 

 

 

 

 

Gross profit

 

  2,112,312 

 

  2,492,471 

 

 

 

 

 

 

 

General and administrative expenses

 

  2,971,555 

 

  2,802,306 

 

 

 

 

 

 

 

Loss from Operations

 

  (859,243)

 

  (309,835)

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

   Interest income

 

  18,178 

 

  41,954 

 

   Interest expense

 

  (4,201)

 

  (5,279)

 

 

 

 

 

 

 

 

 

  13,977 

 

  36,675 

 

 

 

 

 

 

 

Loss before income taxes

 

  (845,266)

 

  (273,160)

 

 

 

 

 

 

 

Income tax expense - deferred

 

  -   

 

  (561,000)

 

Net Loss

 

  (845,266)

 

  (834,160)

 

 

 

 

 

 

 

Net Loss per Common Share:

 

 

 

 

 

   Basic and Diluted

 

 $ (0.12)

 

 $ (0.12)

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding

 

  6,794,600 

 

  6,794,600 

 

 

 

 

 

 

 


 


The Accompanying Notes are an Integral

Part of these Condensed Financial Statement


F-20

 


CALIBRUS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

 

For the Nine Months Ended September 30, 2008

 

For the Nine Months Ended September 30, 2007

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

          Net Loss

 

 

 $ (845,266)

 

 $ (834,160)

 

 

 

 

 

 

     Adjustments to reconcile net loss to net cash flows from

 

 

 

 

 

     operating activities:

 

 

 

 

 

          Depreciation and amortization

 

 

  133,966 

 

  267,434 

          Allowance for doubtful accounts

 

 

  -   

 

  12,000 

          Stock based compensation expense

 

 

  -   

 

  18,321 

          Deferred income tax

 

 

  -   

 

  561,000 

     Changes in assets and liabilities:

 

 

 

 

 

          Accounts receivable - trade

 

 

  (235,057)

 

  158,186 

          Prepaid expenses

 

 

  116,352 

 

  75,438 

          Deposits

 

 

  -    

 

  (3,187)

          Accounts payable - trade

 

 

  62,177 

 

  (168,346)

          Accrued liabilities

 

 

  (24,757)

 

  18,497 

 

 

 

 

 

 

          Net cash provided by (used in) operating activities

 

 

  (792,585)

 

  105,183  

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

          Purchase of fixed assets

 

 

  (36,864)

 

  (55,469)

 

 

 

 

 

 

          Net cash used by investing activities

 

 

  (36,864)

 

  (55,469)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

          Repayment of debt

 

 

  (16,981)

 

  (167,657)

 

 

 

 

 

 

          Net cash used by financing activities

 

 

  (16,981)

 

  (167,657)

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

   (846,430)

 

  (117,943)

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

  1,591,704 

 

  1,914,049 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

 

  $ 745,274 

 

 $ 1,796,106  

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

   Interest

 

 

 $ 4,201 

 

 $ 5,279 

   Income Taxes

 

 

 $ -    

 

 $ -    

 

 

 

 

 

 



The Accompanying Notes are an Integral

Part of these Condensed Financial Statements


F-21

 


CALIBRUS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS


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, 2007.  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, 2008, and the results of our operations and cash flows for the periods presented. The December 31, 2007 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, 2008 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 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.  


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, calculation of the allowance for doubtful accounts, income taxes and deprsiable lives of long lived assets.

    

Earnings per Share:


 

Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”) provides for the calculation of Basic and Diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common shareholders 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.



 

 

Nine Months Ended September 30, 2008

 

Nine Months Ended September 30, 2007

 

 

 

 

 

Loss available to common stockholders

 

 $ (845,266)

 

 $ (834,160)

 

 

 

 

 

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 

 

 

 

 

 



F-22


 

CALIBRUS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)


Anti-dilutive common stock equivalents are not included in our earnings per share calculations.  At September 30, 2008 and 2007 the Company had outstanding options to purchase 1,414,999 and 1,624,999 shares of common stock at a per share weighted average exercise price of $1.51 and $1.48, which were not included in the earnings per share calculation as they were anti-dilutive.  In addition, the Company did not include in either period warrants to purchase 691,104 shares of common stock at a price of $1.00 per share in the earnings per share calculation as they were anti-dilutive.  


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.


Stock-Based Compensation:


The Company has stock-based compensation plans. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), using the modified prospective transition method. Under this transition method, stock-based compensation expense for the year ended December 31, 2006 includes compensation expense for all stock-based compensation awards granted during the year, or granted in a prior year if not fully vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"). 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 provisions of SFAS 123R. 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).


The Company estimates fair value using the Black-Scholes valuation model. Assumptions used 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 monthly 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.


Prior to the adoption of SFAS 123R, the Company recognized stock-based compensation expense in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").

 


F-23

 



CALIBRUS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)


Income Taxes:


The Company files income tax returns in the U.S. federal jurisdiction and the State of Arizona.  With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2004.


The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on July 1, 2007.  


Included in the balance at September 30, 2008 and December 31, 2007, are $0 of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.  Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.


Interests and penalties associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statement of operations. During the nine month periods ended September 30, 2008 and 2007, the Company did not recognize any interest or penalties. 


Pending Accounting Pronouncements:


In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS No. 141R, which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will apply prospectively to business combinations completed on or after that date. The Company does not expect SFAS No. 141R to have a material impact on its financial statements.

 

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” or SFAS No. 160. SFAS No. 160 clarifies that a noncontrolling or minority interest in a subsidiary is considered an ownership interest and, accordingly, requires all entities to report such interests in subsidiaries as equity in the consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect SFAS No. 160 to have a material impact on its financial statements.


In March 2008, the FASB issued SFAS No. 161, “ Disclosures about Derivative Instruments and Hedging Activities,” or SFAS No. 161 . SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect SFAS No. 161 to have a material impact on its financial statements.


In April, 2008, FASB issued FSP SFAS 142-3 "Determination of the Useful Life of Intangible Assets" ("SFAS 142-3"). SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. generally accepted accounting principles (GAAP). SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company does not expect FSP SFAS 142-3 to have a material impact on its financial statements.



F-24

 



CALIBRUS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)


In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The implementation of this standard will not have a material impact on the Company’s financial position and results of operations.


Subsequent Events:


Subsequent to the quarter ended September 30, 2008, the Company cancelled one of its office locations effective November 2008.  As a result of the lease cancellation the Company incurred a one time termination fee in the amount of $193,688.  Payment of the cancellation fee took place in September and is included in general and administrative expenses.  


Subsequent to September 30, 2008, the Company issued 50,000 options to Kevin J. Asher, CFO in accordance with the terms of his employment agreement.  The options have a 5-year term and have an exercise price of $1.00.  All 50,000 options vested on the date of grant.


 

F-25





ARTICLES OF INCORPORATION

OF

ALLCITYBRANDS.COM, INC.



The undersigned incorporator, being a natural person more than eighteen (18) years of age and acting as the sole incorporator of the above-named corporation (hereinafter referred to as the "Corporation") hereby adopts the following Articles of Incorporation for the Corporation.


ARTICLE I

NAME


The name of the Corporation shall be:  Allcitybrands.com, Inc.


ARTICLE II

PERIOD OF DURATION


The Corporation shall continue in existence perpetually unless sooner dissolved according to law.


ARTICLE III

PURPOSES


The Corporation is organized for the purpose conducting any lawful business for which a corporation may be organized under the laws of the State of Nevada.


ARTICLE IV

AUTHORIZED SHARES


The Corporation is authorized to issue a total of 50,000,000 shares, consisting of 5,000,000 shares of preferred stock having a par value of $0.001 per share (hereinafter referred to as "Preferred Stock") and 45,000,000 shares of common stock having a par value $0.001 per share (hereinafter referred to as "Common Stock"). Shares of any class of stock may be issued, without shareholder action, from time to time in one or more series as may from time to time be determined by the board of directors.  The board of directors of this Corporation is hereby expressly granted authority, without shareholder action, and within the limits set forth in the Nevada Revised Statutes, to:


(a)

designate in whole or in part, the powers, preferences, limitations, and relative rights, of any class of shares before the issuance of any shares of that class;


(b)

create one or more series within a class of shares, fix the number of shares of each such series, and designate, in whole or part, the powers, preferences, limitations, and relative rights of the series, all before the issuance of any shares of that series;


(c)

alter or revoke the powers, preferences, limitations, and relative rights granted to or imposed upon any wholly unissued class of shares or any wholly unissued series of any class of shares; or

 

(d)

increase or decrease the number of shares constituting any series, the number of shares of which was originally fixed by the board of directors, either before or after the issuance of shares of the series; provided that, the number may not be decreased below the number of shares of the series then outstanding, or increased above the total number of authorized shares of the applicable class of shares available for designation as a part of the series.


The allocation between the classes, or among the series of each class, of unlimited voting rights and the right to receive the net assets of the Corporation upon dissolution, shall be as designated by the board of directors.  All rights accruing to the outstanding shares of the Corporation not expressly provided for to the contrary herein or in the Corporation's bylaws or in any amendment hereto or thereto shall be vested in the Common Stock.  Accordingly, unless and until otherwise designated by the board of directors of the Corporation, and subject to any superior rights as so designated, the Common Stock shall have unlimited voting rights and be entitled to receive the net assets of the Corporation upon dissolution.

 

ARTICLE V

NON-ACCESSIBILITY FOR DEBTS OF CORPORATION


After the amount of the subscription price, the purchase price, or the par value of the stock of any class or series is paid into the Corporation, owners or holders of shares of any stock in the Corporation may never be assessed to pay the debts of the Corporation.


ARTICLE VI

NO CUMULATIVE VOTING


Except as may otherwise be required by law, these articles of incorporation, or the provisions of the resolution or resolutions as may be adopted by the board of directors pursuant to Article IV of these articles of incorporation, in all matters as to which the vote or consent of stockholders of the Corporation shall be required to be taken, the holders of Common Stock shall have one vote per share of Common Stock held.   Cumulative Voting on the election of directors or on any other matter submitted to the stockholders shall not be permitted.


ARTICLE VII

NO PREEMPTIVE RIGHTS


No holder of any of the shares of any class or series of stock or of options, warrants, or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series of any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures, or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any rights to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock, or securities convertible into or exchangeable for stock carrying any right to purchase stock may be issued and disposed of pursuant to an appropriate resolution of the board of directors to such persons, firms, corporations, or associations and on such terms as may be deemed advisable by the board of directors in the exercise of its sole discretion.


ARTICLE VIII

TRANSACTIONS WITH OFFICERS AND DIRECTORS

 

No contract or other transaction between the Corporation and one or more or its directors or officers, or between the Corporation and any corporation, firm or association in which one or more of its directors or officers are directors or officers or are financially interested, is void or voidable solely for this reason or solely because any such director or officer is present at the meeting of the board of directors or a committee thereof which authorizes or approves the contract or transaction, or because the vote or votes of common or interested directors are counted for that purpose, if the circumstances specified in any of the following paragraphs exist:


(a)

The fact of the common directorship, office or financial interest is disclosed or known to the board of directors or committee and noted in the minutes, and the board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient for the purpose without counting the vote or votes of the common or interested director or directors;


(b)

The fact of the common directorship, office or financial interest is disclosed or known to the stockholders, and they approve or ratify the contract or transaction in good faith by a majority vote of stockholders holding a majority of the voting power.  The votes of the common or interested directors or officers must be counted in any such vote of stockholders; or


(c)

The contract or transaction is fair as to the Corporation at the time it is authorized or approved.



ARTICLE IX

INDEMNIFICATION OF OFFICERS, DIRECTORS, AND OTHERS


(a)

The Corporation shall indemnify each director and officer of the Corporation and their respective heirs, administrators, and executors against all liabilities and expenses reasonably incurred in connection with any action, suit, or proceeding to which he may be made a party by reason of the fact that he is or was a director or officer of the Corporation, to the full extent permitted by the laws of the state of Nevada now existing or as such laws may hereafter be amended.  The expenses of officers and directors incurred in defending a civil or criminal action, suit, or proceeding shall be paid by the Corporation as they are incurred and in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Corporation.


(b)

The Corporation may indemnify each director, officer, employee, or agent of the Corporation and their respective heirs, administrators, and executors against all liabilities and expenses reasonably incurred in connection with any action, suit, or proceeding to which such person may be made a party by reason of such person being, or having been, a director, officer, employee, or agent of the Corporation, to the full extent permitted by the laws of the state of Nevada now existing or as such laws may hereafter be amended.


ARTICLE X

LIMITATION ON DIRECTORS LIABILITY

 

To the full extent permitted by the Nevada Revised Statutes, directors and officers of the Corporation shall have no personal liability to the Corporation or its stockholders for damages for breach of their fiduciary duty as a director or officer, except for damages resulting from (a) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law; (b) the payment of distribution in violation of section 78.300 of the Nevada Revised Statutes, as it may be amended from time to time, or any successor statute thereto.


ARTICLE XI

NO LIMITATIONS ON VOTING RIGHTS


To the extent permissible under the applicable law of any jurisdiction to which the Corporation may become subject by reason of the conduct of business, the ownership of assets, the residence of shareholders, the location of offices or facilities, or any other item, the Corporation elects not to be governed by the provisions of any statute that (i) limits, restricts, modifies, suspends, terminates, or otherwise effects the rights of any shareholder to cast one vote for each share of Common Stock registered in the name of such shareholder on the books of the Corporation, without regard to whether such shares were acquired directly from the Corporation or from any other person and without regard to whether such shareholder has the power to exercise or direct the exercise of voting power over any specific fraction of the shares of Common Stock of the Corporation issued and outstanding or (ii) grants to any shareholder the right to have his or her stock redeemed or purchased by the Corporation or any other shareholder of the Corporation.  Without limiting the generality of the foregoing, the Corporation expressly elects not to be governed by or be subject to the provisions of sections 78.378 through 78.3793 of the Nevada Revised Statutes or any similar or successor statutes adopted by any state which may be deemed to apply to the Corporation from time to time.


ARTICLE X II

PRINCIPAL OFFICE AND RESIDENT AGENT


The address of the Corporation in the State of Nevada is 600 Highway 50, Pinewild at Marla Bay, Unit 101.  The name and address of the Corporation's initial resident agent is:


Jeff Holmes

 600 Highway 50, Pinewild at Marla Bay, Unit 101

 Zephyr Cove, Nevada 89448


Either the principal office or the resident agent may be changed in the manner provided by law.


ARTICLE XI II

AMENDMENTS


The Corporation reserves the right to amend, alter, change, or repeal all or any portion of the provisions contained in these articles of incorporation from time to time in accordance with the laws of the state of Nevada; and all rights conferred herein on stockholders are granted subject to this reservation.

 


ARTICLE XI V

ADOPTION AND AMENDMENT OF BYLAWS


The initial bylaws of the Corporation shall be adopted by the board of directors.  The power to alter, amend, or repeal the bylaws or adopt new bylaws shall be vested in the board of directors.  The bylaws may contain any provisions for the regulation or management of the affairs of the Corporation not inconsistent with these articles of incorporation and the laws of the state of Nevada now or hereafter existing.


ARTICLE X V

GOVERNING BOARD


The governing board of the Corporation shall be known as the "board of directors."  The board of directors must have at least one director or as otherwise specified in its bylaws or director’s resolutions.


The first board of directors shall consist of one person.  The name and address of the person who is to serve as the initial director until the first annual meeting of the stockholders and until such person's successor is elected and shall qualify is as follows:


NAME

ADDRESS


Jeff Holmes

600 Highway 50, Pinewild at Marla Bay, Unit 101, Zephyr Cove, Nevada 89448


ARTICLE XV I

POWERS OF GOVERNING BOARD


The governing board of the Corporation is specifically granted by these articles of incorporation all powers permitted to be vested in the governing board of a corporation by the applicable provisions of the laws of the state of Nevada now or hereafter existing.


ARTICLE XV II

INCORPORATOR


The name and mailing address of the incorporator signing these articles of incorporation is as follows:


NAME

ADDRESS


Jeff Holmes

600 Highway 50, Pinewild at Marla Bay, Unit 101, Zephyr Cove, Nevada 89448







The undersigned, being the sole incorporator of the Corporation herein before named, hereby makes and files these articles of incorporation, declaring and certifying that the facts contained herein are true.


DATED this _____ day of October 1999.




_ /s/ Jeff_Holmes ______________________

Jeff Holmes


STATE OF __________

)

:  ss

COUNTY OF ____________

)



On this _____ day of October 1999, before me, a Notary Public, personally appeared Jeff Holmes who, upon being first duly sworn, declared to me that he is the sole incorporator of Allcitybrands.com, Inc., and acknowledged to me that he executed the foregoing articles of incorporation as his free act and deed.




___________________________________

Notary Public







SIGNATURE OF ACCEPTANCE OF INITIAL RESIDENT AGENT


On this _________ (___) day of October, 1999, I, Jeff Holmes, hereby accept appointment as resident agent for Allcitybrands.com, Inc. as named in the foregoing Articles of Organization.


_ /s/ Jeff Holmes ______________________

                                                                        Jeff Holmes, Resident Agent







ARTICLES OF AMENDMENT

TO THE ARTICLES OF INCORPORATION

OF

ALLCITYBRANDS.COM, INC.


Pursuant to the provisions of Section 78.385, et. seq., of the Nevada Revised Statutes, Allcitybrands.com, Inc., a Nevada corporation, hereinafter referred to as the “Corporation,” hereby  adopts the following Articles of Amendment to its Articles of Incorporation:


FIRST:

The name of the Corporation is Allcitybrands.com, Inc.


SECOND:

Article I of the Articles of Incorporation shall be amended to read as follows:


Article I


The name of the corporation is Calibrus, Inc.


THIRD:

By executing these Articles of Amendment to the Articles of Incorporation, the president and secretary of the Corporation do hereby certify that on January 19, 2000, the foregoing amendment to the Articles of Incorporation of Allcitybrands.com, Inc., was authorized and approved pursuant to Section 78.390 of the Nevada Revised Statutes by the consent of the majority of the Corporation’s shareholders.  The number of issued and outstanding shares entitled to vote on the foregoing amendment to the Articles of Incorporation was 5,000,000 of which 5,000,000 shares voted for, no shares voted against and no shares abstained from the foregoing amendment to the Articles of Incorporation.  No other class of shares was entitled to vote thereon as a class.


DATED this 19 th day of January, 2000


_ /s/ Jeff Holmes_ ____________

Jeff Holmes, President


_ /s/ Greg Holmes ____________

Greg Holmes, Secretary


State of Arizona

)

:

County of __________

)


On this ___ day of January, 2000, personally appeared before me, the undersigned, a notary public, Jeff Holmes and Greg Holmes, who being by me first duly sworn, declared that they are the president and secretary, respectively, of the above-named corporation, that they signed the foregoing Articles of Amendment to the Articles of Incorporation and that the statements contained therein are true.


WITNESS MY HAND AND OFFICIAL SEAL.


__________________________________

Notary Public

















BYLAWS





OF





ALLCITYBRANDS.COM, INC.




A NEVADA CORPORATION






TABLE OF CONTENTS


ARTICLE

PAGE


ARTICLE I

OFFICES

1

Section

1.1

Business Office

1

Section

1.2

Registered Office

1

Section

1.3

Principal Office

1


ARTICLE II

SHAREHOLDERS

1

Section

2.1

Annual Shareholder Meeting

1

Section

2.2

Special Shareholder Meetings

1

Section

2.3

Place of Shareholder Meetings

1

Section

2.4

Notice of Shareholder Meetings

2

Section

2.5

Meetings by Telecommunications

3

Section

2.6

Fixing of Record Date

3

Section

2.7

Shareholder List

3

Section

2.8

Shareholder Quorum and Voting Requirements

4

Section

2.9

Increasing Either Quorum or Voting Requirements

4

Section

2.10

Proxies

4

Section

2.11

Voting of Shares

4

Section

2.12

Corporation's Acceptance of Votes

5

Section

2.13

Inspectors of Election

6

Section

2.14

Shareholder Action Without Meeting

6

Section

2.15

Election of Directors

6

Section

2.16

Business at Annual Meeting

6

Section

2.17

Conduct of Meeting

7

Section

2.18

Shareholder's Rights to Inspect Corporate Records

7

Section

2.19

Financial Statements Shall be Furnished to the Shareholders

8

Section

2.20

Dissenters' Rights

8


ARTICLE III

BOARD OF DIRECTORS

8

Section

3.1

General Powers

8

Section

3.2

Number, Tenure, and Qualification of Directors

8

Section

3.3

Regular Meetings of the Board of Directors

9

Section

3.4

Special Meetings of the Board of Directors

9

Section

3.5

Notice of, and Waiver of Notice for, Special Director Meetings

9

Section

3.6

Director Quorum

9

Section

3.7

Directors, Manner of Acting

9

Section

3.8

Establishing a "Supermajority" Quorum or Voting Requirement for the

Board of Directors

9

Section

3.9

Director Action Without a Meeting

10

Section

3.10

Removal of Directors

10

Section

3.11

Board of Director Vacancies

10



i



ARTICLE

PAGE


Section

3.12

Director Compensation

11

Section

3.13

Director Committees

11


ARTICLE IV

OFFICERS

12

Section

4.1

Number of Officers

12

Section

4.2

Appointment and Term of Office

12

Section

4.3

Removal of Officers

12

Section

4.4

President

12

Section

4.5

Vice-Presidents

12

Section

4.6

Secretary

12

 Section

4.7

Treasurer

13

Section

4.8

Assistant Secretaries and Assistant Treasurers

13

Section

4.9

Salaries

13


ARTICLE V

INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS,

AND EMPLOYEES

13

Section

5.1

Indemnification of Directors

13

Section

5.2

Advance Expenses for Directors

13

Section

5.3

Indemnification of Officers, Agents, and Employees Who are not Directors

14


ARTICLE VI

CERTIFICATES FOR SHARES AND THEIR TRANSFER

14

Section

6.1

Certificates for Shares

14

Section

6.2

Shares Without Certificates

14

Section

6.3

Registration of the Transfer of Shares

15

Section

6.4

Restrictions on Transfer of Shares Permitted

15

Section

6.5

Acquisition of Shares

16


ARTICLE VII

DISTRIBUTIONS

16


ARTICLE VIII

CORPORATE SEAL

17


ARTICLE IX

DIRECTORS CONFLICTING INTEREST TRANSACTIONS

17


ARTICLE X

AMENDMENTS

17


ARTICLE XI

FISCAL YEAR

17


CERTIFICATE OF SECRETARY

18



ii





BYLAWS

OF

ALLCITYBRANDS.COM, INC.



ARTICLE I

OFFICES


Section 1.01

Registered Office .  The registered office shall be in the city of ________, __________, State of Nevada.


Section 1.02

Location of Offices .  The corporation may maintain such offices within or without the state of Nevada as the board of directors may from time to time designate or require.


Section 1.03

Principal Office .  The address of the principal office of the corporation shall be at the address of the Registered office of the corporation as so designated in the office of the Secretary of State of the state of incorporation, or at such other address as the board of directors shall from time to time determine.



ARTICLE II

SHAREHOLDERS


Section 2.1

Annual Shareholder Meeting .  The annual meeting of the shareholders shall be held within 150 days of the close of the corporation's fiscal year, at a time and date as is determined by the corporation's board of directors, for the purpose of electing directors and for the transaction of such other business as may come before the meeting.  If the day fixed for the annual meeting shall be a legal holiday in the state of Nevada, such meeting shall be held on the next succeeding business day.


If the election of directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any subsequent continuation after adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as convenient.  The failure to hold an annual or special meeting does not affect the validity of any corporate action or work a forfeiture or dissolution of the corporation.


Section 2.2

Special Shareholder Meetings .  Special meetings of the shareholders, for any purpose or purposes described in the meeting notice, may be called by the president or by the board of directors and shall be called by the president at the request of the holders of not less than one- tenth of all outstanding votes of the corporation entitled to be cast on any issue at the meeting.


Section 2.3

Place of Shareholder Meetings .  The board of directors may designate any place, either within or without the state of Nevada, as the place of meeting for any annual or any special meeting of the shareholders, unless by written consents, which may be in the form of waivers of notice or otherwise, a majority of shareholders entitled to vote at the meeting may designate a different place, either within or without the state of Nevada, as the place for the holding of such meeting.  If no designation is made by either the directors or majority action of the voting shareholders, the place of meeting shall be the principal office of the corporation.

 

1


Section 2.4

Notice of Shareholder Meetings .


(a)

Required Notice .  Written notice stating the place, day, and time of any annual or special shareholder meeting shall be delivered not less than 10 nor more than 60 days before the date of the meeting, either in person, by any form of electronic communication, by mail, by private carrier, or by any other manner provided for in the Act, by or at the direction of the president, the board of directors, or other persons calling the meeting, to each shareholder of record, entitled to vote at such meeting and to any other shareholder entitled by the Act or the articles of incorporation to receive notice of the meeting.  Notice shall be deemed to be effective at the earlier of:  (1) when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid; (2) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee; (3) when received; or (4) five days after deposit in the United States mail, if mailed postpaid and correctly addressed to an address other than that shown in the corporation's current record of shareholders.


(b)

Adjourned Meeting .  If any shareholder meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time, and place, if the new date, time, and place is announced at the meeting before adjournment.  If a new record date for the adjourned meeting is, or must be fixed (see section 2.5 of this Article II) or if the adjournment is for more than 30 days, then notice must be given pursuant to the requirements of paragraph (a) of this section 2.4, to those persons who are shareholders as of the new record date.


(c)

Waiver of Notice .  The shareholder may waive notice of the meeting (or any notice required by the Act, articles of incorporation, or bylaws), by a writing signed by the shareholder entitled to the notice, which is delivered to the corporation (either before or after the date and time stated in the notice) for inclusion in the minutes or filing with the corporate records.


(d)

Shareholder Attendance .  A shareholder's attendance at a meeting:


(1)

waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and


(2)

waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.


(e)

Contents of Notice .  The notice of each special shareholder meeting shall include a description of the purpose or purposes for which the meeting is called.  Except as provided in this section 2.4(e), the articles of incorporation, or otherwise in the Act, the notice of an annual shareholder meeting need not include a description of the purpose or purposes for which the meeting is called.


If a purpose of any shareholder meeting is to consider either:  (1) a proposed amendment to the articles of incorporation (including any restated articles requiring shareholder approval); (2) a plan of merger or share exchange; (3) the sale, lease, exchange, or other disposition of all, or substantially all of the corporation's property; (4) the dissolution of the corporation; or (5) the removal of a director, the notice must so state and, to the extent applicable, be accompanied by a copy or summary of the:  (1) articles of amendment; (2) plan of merger or share exchange; (3) agreement for the disposition of all or substantially all of the corporation's property; or (4) the terms of the dissolution.  If the proposed corporate action creates dissenters' rights, the notice must state that shareholders are, or may be entitled to assert dissenters' rights, and must be accompanied by a copy of the provisions of the Act governing such rights.

 

2


Section 2.5

Meetings by Telecommunications .  Any or all of the shareholders may participate in an annual or special meeting of shareholders by, or the meeting may be conducted through the use of, any means of communication by which all persons participating in the meeting can hear each other during the meeting.  A shareholder participating in a meeting by this means is considered to be present in person at the meeting.


Section 2.6

Fixing of Record Date .  For the purpose of determining shareholders of any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any distribution or dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date.  Such record date shall not be more than 70 days prior to the meeting of shareholders or the payment of any distribution or dividend.  If no record date is so fixed by the board of directors for the determination of shareholders entitled to notice of, or to vote at a meeting of shareholders, or shareholders entitled to receive a share dividend or distribution, or in order to make a determination of shareholders for any other proper purpose, the record date for determination of such shareholders shall be at the close of business on:


(a)

With respect to an annual shareholder meeting or any special shareholder meeting called by the board of directors or any person specifically authorized by the board of directors or these bylaws to call a meeting, the day before the first notice is delivered to shareholders;


(b)

With respect to a special shareholders' meeting demanded by the shareholders, the date the first shareholder signs the demand;


(c)

With respect to the payment of a share dividend, the date the board of directors authorizes the share dividend;


(d)

With respect to actions taken in writing without a meeting (pursuant to Article II, section 2.12), the date the first shareholder signs a consent; and


(e)

With respect to a distribution to shareholders (other than one involving a repurchase or reacquisition of shares), the date the board authorizes the distribution.


When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section 2.6, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date.  A new record date must be fixed if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.


Section 2.7

Shareholder List .  The officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete record of the shareholders entitled to vote at each meeting of shareholders, arranged in alphabetical order with the address of and the number of shares held by each.  The list must be arranged by voting group (if such exists, see Article II, section 2.8) and within each voting group by class or series of shares.  The shareholder list must be available for inspection by any shareholder, beginning on the earlier of ten days before the meeting for which the list was prepared or two business days after notice of the meeting is given for which the list was prepared and continuing through the meeting.  The list shall be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held.  A shareholder, or his agent or attorney, is entitled, on written demand, to inspect and, subject to the requirements of section 2.18 of this Article II and sections 16-10a-1602 and 16-10a-1603 of the Act, or any sections of like tenor as from time to time amended, to inspect and copy the list during regular business hours, at his expense, during the period it is available for inspection.  The corporation shall maintain the shareholder list in written form or in another form capable of conversion into written form within a reasonable time.

 

3


Section 2.8

Shareholder Quorum and Voting Requirements .  If the articles of incorporation or the Act provides for voting by a single voting group on a matter, action on that matter is taken when voted upon by that voting group.


Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter.  Unless the articles of incorporation, a bylaw adopted pursuant to section 2.9 of this Article II, or the Act provides otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.


If the articles of incorporation or the Act provides for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately.  Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter.


Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.


If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation, a bylaw adopted pursuant to section 2.9 of this Article II, or the Act require a greater number of affirmative votes.


Section 2.9

Increasing Either Quorum or Voting Requirements .  For purposes of this section 2.9, a "supermajority" quorum is a requirement that more than a majority of the votes of the voting group be present to constitute a quorum; and a "supermajority" voting requirement is any requirement that requires the vote of more than a majority of the affirmative votes of a voting group at a meeting.


The shareholders, but only if specifically authorized to do so by the articles of incorporation, may adopt, amend, or delete a bylaw which fixes a "supermajority" quorum or "supermajority" voting requirement.


The adoption or amendment of a bylaw that adds, changes, or deletes a "supermajority" quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.


A bylaw that fixes a supermajority quorum or voting requirement for shareholders may not be adopted, amended, or repealed by the board of directors.


Section 2.10

Proxies .  At all meetings of shareholders, a shareholder may vote in person, or vote by proxy, executed in writing by the shareholder or by his duly authorized attorney-in-fact.  Such proxy shall be filed with the secretary of the corporation or other person authorized to tabulate votes before or at the time of the meeting.  No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy.


Section 2.11

Voting of Shares .  Unless otherwise provided in the articles of incorporation, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders.


Except as provided by specific court order, no shares held by another corporation, if a majority of the shares entitled to vote for the election of directors of such other corporation are held by the corporation, shall be voted at any meeting or counted in determining the total number of outstanding

 

4


shares at any given time for purposes of any meeting; provided, however, the prior sentence shall not limit the power of the corporation to vote any shares, including its own shares, held by it in a fiduciary capacity.


Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company, or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares.


Section 2.12

Corporation's Acceptance of Votes .


(a)

If the name signed on a vote, consent, waiver, or proxy appointment or revocation corresponds to the name of a shareholder, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment or revocation and give it effect as the act of the shareholder.


(b)

If the name signed on a vote, consent, waiver, or proxy appointment or revocation does not correspond to the name of its shareholder, the corporation, if acting in good faith, is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment or revocation and give it effect as the act of the shareholder if:


(1)

the shareholder is an entity as defined in the Act and the name signed purports to be that of an officer or agent of the entity;


(2)

the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment or revocation;


(3)

the name signed purports to be that of  receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment or revocation;


(4)

the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment or revocation; and


(5)

two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all the co-owners.


(c)

The corporation is entitled to reject a vote, consent, waiver, or proxy appointment or revocation if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature or about the signatory's authority to sign for the shareholder.


(d)

The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment or revocation in good faith and in accordance with the standards of this section are not liable in damages to the shareholder for the consequences of the acceptance or rejection.

 

5


(e)

Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment or revocation under this section 2.12 is valid unless a court of competent jurisdiction determines otherwise.


Section 2.13

Inspectors of Election .  There shall be appointed at least one inspector of the vote.  Such inspector shall first take and subscribe an oath or affirmation faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.  Unless appointed in advance of any such meeting by the board of directors, such inspector shall be appointed for the meeting by the presiding officer.  In the absence of any such appointment, the secretary of the corporation shall act as the inspector.  No candidate for the office of director (whether or not then a director) shall be appointed as such inspector.  Such inspector shall be responsible for tallying and certifying each vote, whether made in person or by proxy.


Section 2.14

Shareholder Action Without Meeting .  Any action required or permitted to be taken at a meeting of the shareholders, except for the election of directors as set forth in section 2.15 of this Article II, may be taken without a meeting and without prior notice if one or more consents in writing, setting forth the action so taken, shall be signed by shareholders having not less than the minimum number of votes that would be necessary to authorize or take the action at a meeting at which all shares entitled to vote with respect to the subject matter thereof are present.  Directors may be elected without a meeting of shareholders by the written consent of the shareholders holding all of the shares entitled to vote for the election of directors.  Unless the written consents of all shareholders entitled to vote have been obtained, notice of any shareholder approval without a meeting shall be given at least ten days before the consummation of the action authorized by the approval to (i) those shareholders entitled to vote who have not consented in writing, and (ii) those shareholders not entitled to vote and to whom the Act requires that notice of the proposed action be given.  If the act to be taken requires that notice be given to nonvoting shareholders, the corporation shall give the nonvoting shareholders written notice of the proposed action at least ten days before the action is taken.  The notice shall contain or be accompanied by the same material that would have been required if a formal meeting had been called to consider the action.  A consent signed under this section 2.14 has the effect of a meeting vote and may be described as such in any document.  The written consents are only effective if received by the corporation within a 60 day period and not revoked prior to the receipt of the written consent of that number of shareholders necessary to effectuate such action.  Action taken pursuant to a written consent is effective as of the date the last written consent necessary to effect the action is received by the corporation, unless all of the written consents necessary to effect the action specify a later date as the effective date of the action, in which case the later date shall be the effective date of the action.  If the corporation has received written consents signed by all shareholders entitled to vote with respect to the action, the effective date of the action may be any date that is specified in all the written consents as the effective date of the action.  Such consents may be executed in any number of counterparts or evidenced by any number of instruments of substantially similar tenor.


Section 2.15

Election of Directors .  At all meetings of the shareholders at which directors are to be elected, except as otherwise set forth in any stock designation with respect to the right of the holders of any class or series of stock to elect additional directors under specified circumstances, directors shall be elected by a plurality of the votes cast at the meeting.  The election need not be by ballot unless any shareholder so demands before the voting begins.  Except as otherwise provided by law, the articles of incorporation, any preferred stock designation, or these bylaws, all matters other than the election of directors submitted to the shareholders at any meeting shall be decided by a majority of the votes cast with respect thereto.


Section 2.16

Business at Annual Meeting .  At any annual meeting of the shareholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the board of directors or (b) by any shareholder of record of the corporation who is entitled to vote with respect thereto.  Notwithstanding anything in these bylaws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this section.  The

 

6


officer of the corporation or other person presiding at the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with such provisions, and if such presiding officer should so determine  and declare to the meeting that business was not properly brought before the meeting in accordance with such provisions and if such presiding officer should so determine, such presiding officer shall so declare to the meeting, and any such business so determined to be not properly brought before the meeting shall not be transacted.


Section 2.17

Conduct of Meeting .  The board of directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate, or convenient.  Subject to such rules and regulations of the board of directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations, and procedures and do all such acts as, in the judgment of such chairman, are necessary, appropriate, or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting, and the safety of those present, limitations on participation in such meeting to shareholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot, unless, and to the extent, determined by the board of directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure.


Section 2.18

Shareholder's Rights to Inspect Corporate Records .


(a)

Minutes and Accounting Records .  The corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation.  The corporation shall maintain appropriate accounting records.


(b)

Absolute Inspection Rights of Records Required at Principal Office .  If a shareholder gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, such shareholder (or his agent or attorney) has the right to inspect and copy, during regular business hours, any of the following records, all of which the corporation is required to keep at its principal office:


(1)

its articles or restated articles of incorporation and all amendments to the articles of incorporation currently in effect;


(2)

its bylaws or restated bylaws and all amendments to the bylaws currently in effect;


(3)

the minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting, for the past three years;


(4)

all written communications to shareholders within the past three years;


(5)

a list of the names and business addresses of its current directors and officers;


(6)

the most recent annual report of the corporation delivered to the Nevada Division of Corporations and Commercial Code; and

 

7


(7)

all financial statements prepared for periods ending during the last three years that a shareholder could request under section 2.19.


(c)

Conditional Inspection Right .  In addition, if a shareholder gives the corporation a written demand made in good faith and for a proper purpose at least five business days before the date on which such shareholder wishes to inspect and copy, such shareholder describes with reasonable particularity his purpose and the records he desires to inspect, and the records are directly connected with his purpose, such shareholder of the corporation (or his agent or attorney) is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation:


(1)

excerpts from minutes of any meeting of the board of directors, records of any action of a committee of the board of directors acting on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting, to the extent not subject to inspection under paragraph (b) of this section 2.18;


(2)

accounting records of the corporation; and


(3)

the record of shareholders (compiled no earlier than the date of the shareholder's demand).


(d)

Copy Costs .  The right to copy records includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means.  The corporation may impose a reasonable charge, covering the costs of labor and material (including third-party costs) for copies of any documents provided to the shareholder.  The charge may not exceed the estimated cost of production or reproduction of the records.


(e)

Shareholder Includes Beneficial Owner .  For purposes of this section 2.18, the term "shareholder" shall include a beneficial owner whose shares are held in a voting trust or by a nominee on his behalf.


Section 2.19

Financial Statements Shall be Furnished to the Shareholders .  Upon written request of any shareholder, the corporation shall mail to such shareholder its most recent annual or quarterly financial statements showing in reasonable detail its assets and liabilities and the results of its operations.


Section 2.20

Dissenters' Rights .  Each shareholder shall have the right to dissent from and obtain payment for such shareholder's shares when so authorized by the Act, the articles of incorporation, these bylaws, or in a resolution of the board of directors.



ARTICLE III

BOARD OF DIRECTORS


Section 3.1

General Powers .  Unless the articles of incorporation have dispensed with or limited the authority of the board of directors, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors.


Section 3.2

Number, Tenure, and Qualification of Directors .  Unless permitted by the Act, the authorized number of directors shall be not less than three.  The current number of directors shall be as determined (or as amended from time to time) by resolution adopted from time to time by either the shareholders or directors.  Each director shall hold office until the next annual meeting of shareholders or until removed.  However, if his term expires, he shall continue to serve until his successor shall have



8


been elected and qualified, or until there is a decrease in the number of directors.  A decrease in the number of directors does not shorten an incumbent director's term.  Unless required by the articles of incorporation, directors do not need to be residents of Nevada or shareholders of the corporation.


Section 3.3

Regular Meetings of the Board of Directors .  A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders.  The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution.


Section 3.4

Special Meetings of the Board of Directors .  Special meetings of the board of directors may be called by or at the request of the president or any one director.  The person authorized to call special meetings of the board of directors may fix any place as the place for holding any special meeting of the board of directors.


Section 3.5

Notice of, and Waiver of Notice for, Special Director Meetings .  Unless the articles of incorporation provide for a longer or shorter period, notice of any special director meeting shall be given at least two days prior thereto either orally, in person, by telephone, by any form of electronic communication, by mail, by private carrier, or by any other manner provided for in the Act.  Any director may waive notice of any meeting.  Except as provided in the next sentence, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records.  The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business and at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting.  Unless required by the articles of incorporation or the Act, neither the business to be transacted at, nor the purpose of, any special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.


Section 3.6

Director Quorum .  A majority of the number of directors in office immediately before the meeting begins shall constitute a quorum for the transaction of business at any meeting of the board of directors, unless the articles of incorporation require a greater number.


Any amendment to this quorum requirement is subject to the provisions of section 3.8 of this Article III.


Section 3.7

Directors, Manner of Acting .  The act of the majority of the directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the board of directors unless the articles of incorporation require a greater percentage.  Any amendment which changes the number of directors needed to take action, is subject to the provisions of section 3.8 of this Article III.


Unless the articles of incorporation provide otherwise, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting.  A director participating in a meeting by this means is deemed to be present in person at the meeting.


A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless:  (1) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; or (2) his dissent or abstention from the action taken is requested by such director to be entered in the minutes of the meeting; or (3) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting.  The right of dissent or abstention is not available to a director who votes in favor of the action taken.

 

9


Section 3.8

Establishing a "Supermajority" Quorum or Voting Requirement for the Board of Directors .  For purposes of this section 3.8, a "supermajority" quorum is a requirement that requires more than a majority of the directors in office to constitute a quorum; and a "supermajority" voting requirement is any requirement that requires the vote of more than a majority of those directors present at a meeting at which a quorum is present to be the act of the directors.


A bylaw that fixes a supermajority quorum or supermajority voting requirement may be amended or repealed:


(1)

if originally adopted by the shareholders, only by the shareholders (unless otherwise provided by the shareholders); or


(2)

if originally adopted by the board of directors, either by the shareholders or by the board of directors.


A bylaw adopted or amended by the shareholders that fixes a supermajority quorum or supermajority voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors.


Subject to the provisions of the preceding paragraph, action by the board of directors to adopt, amend, or repeal a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater.


Section 3.9

Director Action Without a Meeting .  Unless the articles of incorporation provide otherwise, any action required or permitted to be taken by the board of directors at a meeting may be taken without a meeting if all the directors sign a written consent describing the action taken, and such consent is filed with the records of the corporation.  Action taken by consent is effective when the last director signs the consent, unless the consent specifies a different effective date.  A signed consent has the effect of a meeting vote and may be described as such in any document.  Such consent may be executed in any number of counterparts, or evidenced by any number of instruments of substantially similar tenor.


Section 3.10

Removal of Directors .  The shareholders may remove one or more directors at a meeting called for that purpose if notice has been given that the purpose of the meeting is such removal.  The removal may be with or without cause unless the articles of incorporation provide that directors may only be removed with cause.  If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him.  If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal.  If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast against such removal.


Section 3.11

Board of Director Vacancies .  Unless the articles of incorporation provide otherwise, if a vacancy occurs on the board of directors, including a vacancy resulting from an increase in the number of directors, the shareholders may fill the vacancy.  During such time that the shareholders fail or are unable to fill such vacancies, then and until the shareholders act:


(1)

the board of directors may fill the vacancy; or


(2)

if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.

 

10


If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders.  If two or more directors are elected by the same voting group, only remaining directors elected by such voting group are entitled to vote to fill the vacancy of a director elected by the voting group if it is filled by directors.


A vacancy that will occur at a specific later date (by reason of resignation effective at a later date) may be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.


The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected.  However, if his term expires, he shall continue to serve until his successor is elected and qualified or until there is a decrease in the number of directors.


Section 3.12

Director Compensation .  Unless otherwise provided in the articles of incorporation, by resolution of the board of directors, 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 of directors or both.  No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.


Section 3.13

Director Committees .


(a)

Creation of Committees .  Unless the articles of incorporation provide otherwise, the board of directors may create one or more committees and appoint members of the board of directors to serve on them.  Each committee must have two or more members, who serve at the pleasure of the board of directors.


(b)

Selection of Members .  The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the articles of incorporation to take such action (or if not specified in the articles of incorporation, the number required by section 3.7 of this Article III to take action).


(c)

Required Procedures .  Sections 3.4, 3.5, 3.6, 3.7, 3.8, and 3.9 of this Article III, which govern meetings, action without meetings, notice and waiver of notice, quorum and voting requirements of the board of directors, apply to committees and their members.


(d)

Authority .  Unless limited by the articles of incorporation, each committee may exercise those aspects of the authority of the board of directors which the board of directors confers upon such committee in the resolution creating the committee; provided, however, a committee may not:


(1)

authorize distributions to shareholders;


(2)

approve, or propose to shareholders, action that the Act requires be approved by shareholders;


(3)

fill vacancies on the board of directors or on any of its committees;


(4)

amend the articles of incorporation pursuant to the authority of directors to do so granted by section 16-10a-1002 of the Act or any section of like tenor as from time to time amended;


(5)

adopt, amend, or repeal bylaws;



11

 


(6)

approve a plan of merger not requiring shareholder approval;


(7)

authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or


(8)

authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors.



ARTICLE IV

OFFICERS


Section 4.1

Number of Officers .  The officers of the corporation shall be a president and a secretary, both of whom shall be appointed by the board of directors.  Such other officers and assistant officers as may be deemed necessary, including any vice-presidents, may be appointed by the board of directors.  If specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers.  The same individual may simultaneously hold more than one office in the corporation.


Section 4.2

Appointment and Term of Office .  The officers of the corporation shall be appointed by the board of directors for a term as determined by the board of directors.  If no term is specified, such term shall continue until the first meeting of the directors held after the next annual meeting of shareholders.  If the appointment of officers shall not be made at such meeting, such appointment shall be made as soon thereafter as is convenient.  Each officer shall hold office until his successor shall have been duly appointed and shall have qualified, until his death, or until he shall resign or shall have been removed in the manner provided in section 4.3 of this Article IV.


Section 4.3

Removal of Officers .  Any officer or agent may be removed by the board of directors or an officer authorized to do so by the board of directors at any time either before or after the expiration of the designated term, with or without cause.  Such removal shall be without prejudice to the contract rights, if any, of the person so removed.  Neither the appointment of an officer nor the designation of a specified term shall create any contract rights.


Section 4.4

President .  The president shall be the principal executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation.  The president shall, when present, preside at all meetings of the shareholders and of the board of directors, if the chairman of the board is not present.  The president may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the board of directors, certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments arising in the normal course of business of the corporation and such other instruments as may be authorized by the board of directors, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time.


Section 4.5

Vice-Presidents .  If appointed, in the event of the president's death or inability to act, the vice-president (or in the event there be more than one vice-president, the executive vice-president or, in the absence of any designation, the senior vice-president in the order of their appointment) shall

 

12


perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president.  A vice-president, if any, may sign, with the secretary or an assistant secretary, certificates for shares of the corporation the issuance of which has been authorized by resolution of the board of directors; and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors.


Section 4.6

Secretary .  The secretary shall:  (a) keep the minutes of the proceedings of the shareholders and of the board of directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of any seal of the corporation and, if there is a seal of the corporation, see that it is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) when requested or required, authenticate any records of the corporation; (e) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholders; (f) sign with the president, or a vice-president, certificates for shares of the corporation, the issuance of which has been authorized by resolution of the board of directors; (g) have general charge of the stock transfer books of the corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors.


Section 4.7

Treasurer .  The treasurer, if any, and in the absence thereof of the secretary, shall:  (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies, or other depositories as shall be selected by the board of directors; and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors.  If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine.


Section 4.8

Assistant Secretaries and Assistant Treasurers .  Any assistant secretary, when authorized by the board of directors, may sign with the president or a vice-president certificates for shares of the corporation the issuance of which has been authorized by a resolution of the board of directors.  Any assistant treasurer shall, if required by the board of directors, give bonds for the faithful discharge of his duties in such sums and with such sureties as the board of directors shall determine.  Any assistant secretary or assistant treasurer, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the board of directors.


Section 4.9

Salaries .  The salaries of the officers shall be fixed from time to time by the board of directors or by a duly authorized officer.



ARTICLE V

INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES


Section 5.1

Indemnification of Directors .  The corporation shall indemnify any individual made a party to a proceeding because such individual was a director of the corporation to the extent permitted by and in accordance with section 16-10a-901, et seq. of the Act or any amendments of successor sections of like tenor.


Section 5.2

Advance Expenses for Directors .  To the extent permitted by section 16-10a-904 of the Act or any section of like tenor as amended from time to time, the corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding, if:

 

13


(a)

the director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in the Act;


(b)

the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay advances if it is ultimately determined that he did not meet the standard of conduct (which undertaking must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment); and


(c)

a determination is made that the facts then known to those making the determination would not preclude indemnification under section 5.1 of this Article V or section 16-10a-901 through section 16-10a-909 of the Act or similar sections of like tenor as from time to time amended.


Section 5.3

Indemnification of Officers, Agents, and Employees Who are not Directors .  Unless otherwise provided in the articles of incorporation, the board of directors may authorize the corporation to indemnify and advance expenses to any officer, employee, or agent of the corporation who is not a director of the corporation, to the extent permitted by the Act.



ARTICLE VI

CERTIFICATES FOR SHARES AND THEIR TRANSFER


Section 6.1

Certificates for Shares .


(a)

Content .  Certificates representing shares of the corporation shall at minimum, state on their face the name of the issuing corporation and that it is formed under the laws of the state of Nevada; the name of the person to whom issued; and the number and class of shares and the designation of the series, if any, the certificate represents; and be in such form as determined by the board of directors.  Such certificates shall be signed (either manually or by facsimile) by the president or a vice-president and by the secretary or an assistant secretary and may be sealed with a corporate seal or a facsimile thereof.  Each certificate for shares shall be consecutively numbered or otherwise identified.


(b)

Legend as to Class or Series .  If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variations in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate.  Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information without charge on request in writing.


(c)

Shareholder List .  The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation.


(d)

Transferring Shares .  All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe.


Section 6.2

Shares Without Certificates .

 

14


(a)

Issuing Shares Without Certificates .  Unless the articles of incorporation provide otherwise, the board of directors may authorize the issuance of some or all the shares of any or all of its classes or series without certificates.  The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.


(b)

Written Statement Required .  Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a written statement containing at minimum:


(1)

the name of the issuing corporation and that it is organized under the laws of the state of Nevada;


(2)

the name of the person to whom issued; and


(3)

the number and class of shares and the designation of the series, if any, of the issued shares.


If the corporation is authorized to issue different classes of shares or different series within a class, the written statement shall describe the designations, relative rights, preferences, and limitations applicable to each class and the variation in rights, preferences, and limitations determined for each series (and the authority of the board of directors to determine variations for future series).  Alternatively, each written statement may state conspicuously that the corporation will furnish the shareholder this information without charge on request in writing.


Section 6.3

Registration of the Transfer of Shares .  Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation.  In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective.  Unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the record owner of such shares on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes.


Section 6.4

Restrictions on Transfer of Shares Permitted .  The board of directors (or shareholders) may impose restrictions on the transfer or registration of transfer of shares (including any security convertible into, or carrying a right to subscribe for or acquire, shares).  A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.


A restriction on the transfer or registration of transfer of shares is authorized:


(a)

to maintain the corporation's status when it is dependent on the number or identity of its shareholders;


(b)

to preserve entitlements, benefits, or exemptions under federal, state, or local law; and


(c)

for any other reasonable purpose.


A restriction on the transfer or registration of transfer of shares may:


(a)

obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares;

 

15


(b)

obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares;


(c)

require the corporation, the holders of any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable; and


(d)

prohibit the transfer of the restricted shares to designated persons or classes of persons, if the prohibition is not manifestly unreasonable.


A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section 6.4 and such person has knowledge of the restriction or its existence is noted conspicuously on the front or back of the certificate or is contained in the written statement required by section 6.2 of this Article VI with regard to shares issued without certificates.  Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.


Section 6.5

Acquisition of Shares .  The corporation may acquire its own shares and unless otherwise provided in the articles of incorporation, the shares so acquired constitute authorized but unissued shares.


If the articles of incorporation prohibit the reissuance of acquired shares, the number of authorized shares is reduced by the number of shares acquired by the corporation, effective upon amendment of the articles of incorporation, which amendment may be adopted by the shareholders or the board of directors without shareholder action.  The articles of amendment must be delivered to the Nevada Division of Corporations and Commercial Code for filing and must set forth:


(a)

the name of the corporation;


(b)

the reduction in the number of authorized shares, itemized by class and series;


(c)

the total number of authorized shares, itemized by class and series, remaining after reduction of the shares; and


(d)

if applicable, a statement that the amendment was adopted by the board of directors without shareholder action and that shareholder action was not required.



ARTICLE VII

DISTRIBUTIONS


The corporation may make distributions (including dividends on its outstanding shares) as authorized by the board of directors and in the manner and upon the terms and conditions provided by law and in the corporation's articles o