U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from To
Commission file number 0-18834
KLEVER MARKETING, INC.
(Name of small business issuer in its charter)
Delaware 36-3688583
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
350 West 300 South, Suite 201, Salt Lake City, Utah 84101
(Address of principal executive offices) (zip code)
Issuer's telephone number (801) 322-1221
Securities registered under Section 12(b) of the Act: NONE Securities registered
under Section 12(g) of the Act:
Common Stock Par Value $0.01
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Total pages: 29
Exhibit Index Page: 21
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $0
As of May 13, 2003, there were 12,370,578 (1 vote per share) Common,
4,409,393 Class A, 2,239,283 Class B, and 1,567,498 Class C Convertible
Preferred, for a total of 20,586,785 votes. All shares have a par value of
$0.01. The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant was approximately $473,863 computed at the
closing price as of May 13, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"):
NONE
Transitional Small Business Disclosure Format (check one): Yes ; No X
2
TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Description of Business 4
Item 2. Description of Property 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis or Plan of Operations 8
Item 7. Financial Statements 9
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 10
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 10
Item 10. Executive Compensation 12
Item 11. Security Ownership of Certain Beneficial Owners and Management 14
Item 12. Certain Relationships and Related Transactions 17
Item 13. Exhibits and Reports on Form 8-K 21
Item 14. Controls and Procedures 23
3
PART I
ITEM 1 DESCRIPTION OF BUSINESS
GENERAL
The Company was formed for the purpose of creating a vehicle to obtain
capital, to file and acquire patents, to seek out, investigate, develop,
manufacture and market electronic in-store advertising, directory and coupon
services which have potential for profit. The Company is currently in the
process of the development of the patented process, Klever-Kart(R).
HISTORY
The Company began as a part of Information Resources, Inc. ("IRI") in
1987, was incorporated as a subsidiary of IRI under the laws of the State of
Delaware on December 8, 1989, and was fully distributed to stockholders of IRI
in a spinoff on October 31, 1990. At the time of the spinoff a portion of the
business and assets of the Company included a software operation in Australia,
which was sold in March, 1993. The Company (VideOCart, Inc.) filed petitions for
relief under Chapter 11 bankruptcy in December 1993. The Company was inactive
until July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse
merger and changed its name to Klever Marketing, Inc. During the period from
July 5, 1996 to December 31, 2002, the Company has been in the development
stage, except for an approximate 2-month period in 2000 when the Company
generated revenue from installations of their Klever-Kart system in stores.
ITEM 2 DESCRIPTION OF PROPERTY
The Company currently leases approximately 1,620 square feet of office
space from Four Cabo's Enterprises, Ltd. on a month to month basis. The lease
payments are approximately $2,042 per month. The office space is used as the
Corporate headquarters. It is located at 350 West 300 South, Suite 203, Salt
Lake City, Utah.
4
ITEM 3 LEGAL PROCEEDINGS
On September 18, 2001, a Complaint was filed in Superior Court of the
State of California, County of San Francisco, by eiKart, L.L.C. ("eiKart")
against the Company. The Complaint arises out of a written agreement between the
Company and eiKart dated May 11, 2001. On December 12, 2002, a judgment in
California was made against the Company whereby the Company is required to pay
$75,804 plus daily interest of $19.25 per day after December 3, 2002. This
judgment has been included in the financial statements as part of accrued
liabilities at December 31, 2002. This California judgment was obtained without
an active defense by the Company which the Company believes it has. Because of
this fact, the Company intends to actively oppose any collection activity
outside of California.
On October 18, 2002, a default judgment was entered against the Company
by Avnet, Inc. The total judgment was for $6,676.85 with interest on the total
judgment at 4.28% per annum until
paid. The total judgment of $6,676.85 and interest of $105.56 was paid on
February 4, 2003. This judgment has been included in accounts payable as of
December 31, 2002.
On September 6, 2002, an entry of judgment was entered against the
Company by Micropower Direct, LLC. The total judgment was for $17,167.18. This
judgment has been included in accounts payable as of December 31, 2002.
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The stock is traded on the OTCBB with the trading symbol KLMK.
The following table set forth the high and low bid of the Company's
Common Stock for each quarter within the past two years. The information below
was provided by S & P Comstock and
5
reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions:
2001: High Low
First Quarter $ 1.12 $ 0.37
Second Quarter $ 1.01 $ 0.60
Third Quarter $ 0.85 $ 0.16
Fourth Quarter $ 0.35 $ 0.11
2002:
First Quarter $ 0.65 $ 0.10
Second Quarter $ 0.65 $ 0.25
Third Quarter $ 0.35 $ 0.06
Fourth Quarter $ 0.12 $ 0.04
The number of shareholders of record of the Company's common stock as
of April 28, 2003 was approximately 825.
The Company has not paid any cash dividends to date and does not
anticipate paying cash dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.
RECENT SALES OF UNREGISTERED SECURITIES.
The Company sold 333,333 shares of common stock during 2002. As of
December 31, 2002, these shares had not been issued due to administrative
reasons. The shares have since been issued. The stock was not sold through an
underwriter and was not sold through a public offer. These sales are exempt
under Regulation D Rule 506 of the Securities Act of 1933. (See Item &.
Financial Statements, Statement of Stockholders' Equity, pages F - 7 through F -
9)
On May 20, 2002, the Board of Directors amended the number of
authorized shares of Class A voting preferred stock to 55,000 shares.
On May 20, 2002, the Board of Directors amended the number of
authorized shares of Class B voting preferred stock to 42,000 shares.
On May 20, 2002, the Board of Directors amended the number of
authorized shares of Class C voting preferred stock to 150,000 shares.
On May 20, 2002, the Board of Directors authorized and established
"Class D Voting Preferred Stock" ("Class D Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class D Shares consist of
500,000 shares thereof are designated as "Class D Voting Preferred Stock" (the
"Class D Shares").
6
Class D Shares are convertible into Common Stock at an initial
conversion price of $1.05 (subject to adjustment if stock is subsequently issued
or subsequently issuable at a lower price).
Holders of Class D Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class D Shares
for each outstanding Class D Share, on each dividend payment date; provided,
that if such dividends in respect of any period shall not have been paid or
declared and set apart for payment for all outstanding Class D Shares by each
payment date, then until all unpaid dividends thereon shall be paid or set apart
for payment to the holders of such shares, the Corporation may not pay, declare
or set apart any dividend or other distribution on its shares of Common Stock or
other shares junior to the Class D Shares, nor may any other distributions,
redemptions or other payments be made with respect to the shares of Common Stock
or other junior shares. In addition to the foregoing, each holder of a Class D
Share shall be entitled to receive, when and as declared, a dividend equal to
each dividend declared and paid on the shares of Common Stock, on a share for
share basis, so the holders of the Class D Shares shall be entitled to
participate equally on a share for share basis with the holders of the shares of
Common Stock. If there is a share split or dividend on the Common Stock, then
the Class D Share dividends shall be adjusted as if a similar split or dividend
had occurred with respect to the Class D Shares.
Class D Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class D Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class D Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class D Shares shall carry a liquidation preference of $10.50 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class D Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after May 14, 2007. The redemption price shall be $10.50
per share together with accrued but unpaid dividends on such shares, if any.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission reports regarding
initial ownership and changes in ownership. Directors, executive officers, and
greater than 10% stockholders are required by the Commission to furnish the
Company with copies of all Section 16(a) forms they file.
7
To the best of the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, during the fiscal year ending December 31, 2002,
the Company believes that all reporting persons complied with all Section 16(a)
filing requirements, except that: Olson Foundation missed three filings for
three transactions, Michael L. Mills filed a late Form 5 on March 6, 2003 which
included one late transaction from 2002, C. Terry Warner missed two filings for
three transactions from 2002, D. Paul Smith missed six filings for six
transactions from 2002, William J. Dupre filed one late Form 5 on March 13, 2003
which included one late transaction from 2002, William C. Bailey missed one
filing for one transaction in 2002, Richard J. Trout missed two filings for two
transactions from 2002, and Olson Farms missed one filing for one transaction
from 2002.
ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
PLAN OF OPERATIONS - The Company has no current operations. The Company's plan
of operations is subject to obtaining financing. The Company's goal is to become
the leading supplier of in-store promotions and advertising technology for
grocery and other mass-merchandise retailers. To accomplish this goal, the
Company intends to expand its product offerings to include: (i) electronic
couponing to eliminate the need for and reduce the costs related to paper
coupons (including fraud, mis-redemption and mal-redemption); (ii) the
establishment of targeted Internet-type content to enhance customer loyalty;
(iii) capturing Point-of-Selection data in the aggregate for providing data
warehousing and mining services to various interested parties; (iv) certain
other in-store services. Additionally, the Company intends to expand the
Klever-Kart System's application to other retailers including superstores,
discount stores, toy stores and warehouse stores.
BUSINESS DEVELOPMENT, NEXT 12 MONTHS
As a result of the current financial condition of the Company, the plan of the
Company for the next twelve months is to obtain sufficient financing to permit
the Company to commence active business operations. Absent obtaining such
financing, the Company's plan is to continue to obtain sufficient smaller
financing to permit the Company to continue to prevent the loss or wasting of
its assets and to continue to seek such operation's financing. Currently, the
Company has sufficient liquid assets to permit current restricted operations to
continue for one month. If such smaller interim financing is not obtained, it is
likely that the Company will cease being a going concern at the end of such
period.
In the event such operational funding is obtained, then the Company has plans
during the next twelve months to: 1) develop and implement its electronic
coupons, the Klever-Kard* enhancement to existing frequent shopping programs and
electronic couponing feature, and 2) expand the Klever- Kart System's
orientation to other store formats including superstores, discount stores, toy
stores, do-it-yourself stores and warehouse stores.
8
Absent such financing, the Company has no plans to employ additional employees
or to purchase additional equipment. If such financing is obtained, there would
be additional employees employed and additional equipment purchased. The number
of each is dependent upon the amount of such financing.
RESULTS OF OPERATIONS - The Company was inactive until July 5, 1996 when the
Company merged with Klever-Kart, Inc. in a reverse merger and changed its name
to Klever Marketing, Inc. The Company is in the development stage. For the years
ended December 31, 2002 and 2001, the Company had net losses of $1,025,837 and
$2,342,405, respectively. This decrease in the loss is primarily due to a
cessation of operations, while attempting to keep assets from wasting away.
LIQUIDITY AND CAPITAL RESOURCES - The Company requires working capital
principally to fund its proposed research and development and operating expenses
for which the Company has relied on short-term borrowings and the issuance of
restricted common stock. There are no formal commitments from banks or other
lending sources for lines of credit or similar short-term borrowings, but the
Company has been able to borrow minimal additional working capital that has been
required to prevent the assets from wasting away. From time to time in the past,
required short- term borrowings have been obtained from a principal shareholder
or other related entities.
Cash flows. Operating activities used cash of $210,000 and $1,464,000
for 2002 and 2001 respectively. The decrease in the use of cash is due primarily
to a decrease in operations.
Investing activities have used cash of $23,000 and $122,000 for 2002
and 2001, respectively. Investing activities primarily represent purchases of
Phase III equipment, patents relating to the electronic in-store advertising,
directory and coupon devices, and purchases of office equipment.
Financing activities provided cash of $236,000 and $1,584,000 for 2002
and 2001, respectively. Financing activities primarily represent sales of the
Company's restricted stock, and short term borrowings.
FACTORS THAT MAY AFFECT FUTURE RESULTS - Management's Discussion and Analysis
contains information based on management's beliefs and forward-looking
statements that involved a number of risks, uncertainties, and assumptions.
There can be no assurance that actual results will not differ materially for the
forward-looking statements as a result of various factors, including but not
limited to the following:
The foregoing statements are based upon management's current
assumptions.
ITEM 7 FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are
included beginning
9
immediately following the signature page to this report. See Item 13 for a list
of the financial statements and financial statement schedules included.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company
and its accountants on any matter of accounting principles, practices or
financial statements disclosure.
PART III
ITEM 9 DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age, and position of each
executive officer and director of the Company:
DIRECTOR'S NAME AGE OFFICE TERM EXPIRES
Richard J. Trout 46 President/Director Next annual shareholder meeting
D. Paul Smith 56 CFO/Secretary/
Treasurer/Chairman Next annual shareholder meeting
William J. Dupre 49 COO/
Exec Vice-President Next annual shareholder meeting
William C. Bailey 68 Director Next annual shareholder meeting
Michael L. Mills 40 Director Next annual shareholder meeting
C. Terry Warner 66 Director Next annual shareholder meeting
Richard J. Trout, age 46, became the Company's President in October
2001 and a director in September 2000. In the capacity of the Company's
President, Mr. Trout will work side-by-side with Mr. Smith to facilitate the
Company's plans for funding, M & A activity, strategic positioning and various
other financial planning and reporting functions. Mr. Trout comes to Klever
Marketing with a strong financial background working for Western Financial Bank
in California as a vice president for 12 years. For the past three years he has
been the CFO and an active board member for
10
Olson Farms Inc.
D. Paul Smith, age 56, became Chairman of the Board in January 2001,
and CFO, Vice- President, and Secretary in October 2001, and has served as
director of the Company since November 2000. Mr. Smith has been an ongoing
financial advisor to the Company for the past seven years and has played an
active part in the development of the Company's business plan. Mr. Smith is
Chief Financial Officer for the Arbinger Institute. On November 18, 2002, Mr.
Smith resigned his position as Vice-President when William J. Dupre assumed the
role of Executive Vice- President.
William J. Dupre, age 49, joined the Company as Chief Operating Officer
and Executive Vice-President in November 2002. Mr. Dupre joins the Company with
over fifteen years of proven executive level retail product development and
in-store marketing experience including four years at Smart Media/SnapShopper,
four years at VideOcart, and seven years at Information Resources (IRI). During
his tenure at IRI, Mr. Dupre successfully developed and launched various retail
and consumer products to market, negotiated participation in IRI's Qscan program
in over 25,000 retail stores representing 70 of the top 100 grocery chains in
the United States and contributed to the growth of chain specific consumer
packaged goods manufacturer revenues. Mr. Dupre also has participated in venture
capital fund raising at several start-up companies. Mr. Dupre will lead the
Company in the execution of its strategic initiatives as it sets to deploy its
proprietary in-store media known as Klever-Kart(R), which provides retailers and
consumer goods companies one-on-one communications with shoppers by utilizing
its LCD display mounted on the handle of shopping carts.
William C. Bailey, age 68, was elected as a director of the Company in
June 1994. Mr. Bailey is President and owner of Mount Olympus Waters, Inc. and
founder of Water and Power Technologies. Mr. Bailey served on the Board of
Directors for the American Bottled Water Association and the International
Bottled Water Association from 1975 to 1996, and was the Association's President
in 1978 and again in 1990. He received the industry's first award of Excellence
from IWBA in 1987 and was elected to the Beverage World Water Hall of Fame in
1989. He serves as a member of the Board of Trustees for the Utah Food Industry
Associations Insurance Trust. He is a member of the Board of Trustees for the
Utah Opera, currently serving as Chairman of the Board. He has been a member of
the Board of Directors for KUED 1990- 1996, University of Utah Alumni Board
1990-1994, and a member of the University of Utah's Fine Art's Advisory Board.
He is also a member of the Salt Lake Rotary and served as Secretary 1999-2000.
Michael L. Mills, age 40, was elected as a director of the Company in
December 1998. Mr. Mills is President/CEO of Olson Farms, Inc., a diversified
agricultural and real estate holding company with operations throughout the
western United States. That company deals primarily in the production,
processing, and distribution of eggs, with headquarters in Ontario, California.
Mr. Mills has been with that company since 1989. Mr. Mills began his career with
Deloitte & Touche in Los Angeles after graduating from the University of Utah
summa cum laude in accounting and math.
11
C. Terry Warner, Ph.D., age 66, became a member of the Company's Board
in September 2001. Mr. Warner is a longtime shareholder in the Company. Mr.
Warner is the founder of The Arbinger Institute. He received his Ph.D. in
philosophy from Yale University, and has been a senior teacher at Oxford
University. He has taught at the university level for over twenty-five years and
has been Dean of the College of General Studies at Brigham Young University. His
area of focus is moral and social philosophy, and his ideas and writings about
human relationships have been adopted and propagated by business consultants,
family therapists, social psychologists, counselors and doctors of medicine all
over the world. He has been a consultant, advisor and teacher to executives of
many Fortune 500 companies for over fifteen years.
As of December 31, 2002, the Company had one active board committee,
the Audit and Compliance Committee. D. Paul Smith, William C. Bailey, and
Michael L. Mills are on this committee.
ITEM 10 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table set forth, for the last three fiscal years, the
annual and long term compensation earned by, awarded to, or paid to the
individuals who were chief executive officer and chief operations officer at any
time during the last fiscal year.
Long Term Compensation
pensation
Annual Compensation Awards Payouts
--------------------------------- ---------------------- ------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Year Annual RestrictedUnderlying All Other
Ended Compen- Stock Options/ LTIP Compen-
Name and Dec. Salary Bonus sation Award(s) SAR's Payouts sation
Principal Position 31 ($)(1) ($) ($) ($) (no.) ($) ($)
-------------------------------------------------------------------------------------------------------------------
Corey A. Hamilton ) 2002 - - - - - - -
Former President/
Former CEO
2001 112,500 (1) - - - 400,000(3) - -
2000 126,875 - - - - - -
Richard J. Trout 2002 - - - - 100,661 - -
President
2001 - (2) - - - 125,000 - -
2000 - - - - - -
12
Long Term Compensation
pensation
Annual Compensation Awards Payouts
--------------------------------- ---------------------- ------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Year Annual RestrictedUnderlying All Other
Ended Compen- Stock Options/ LTIP Compen-
Name and Dec. Salary Bonus sation Award(s) SAR's Payouts sation
Principal Position 31 ($)(1) ($) ($) ($) (no.) ($) ($)
-------------------------------------------------------------------------------------------------------------------
D. Paul Smith 2002 - - - - 192,892 - -
Chairman/CFO/ 2001 - (5) - - - 100,000 - -
Sec/Treasurer 2000 - - - - - - -
William J. Dupre 2002 12,500 (4) - - - 400,000 - -
COO/EVP 2001 - - - - - - -
2000 - - - - - - -
(1)Corey A. Hamilton resigned from the Company as President and CEO effective
September 30, 2001.
(2)Richard J. Trout was named President in October 2001.
(3)As of December 31, 2002, all stock options granted to Corey A. Hamilton have
expired.
(4)William J. Dupre joined the Company in November 2002 as Chief Operating
Officer and Executive Vice-President. Mr. Dupre's options vest quarterly with
the initial vest beginning on day 1 of employment.
(5)D. Paul Smith joined the Company in October 2001 as Chief Financial Officer,
Vice-President, Corporate Secretary, and Treasurer. Mr. Smith resigned as
Vice-President when William J. Dupre assumed that position in November 2002.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information respecting all individual
grants of options and SARs made during the last completed fiscal year to the
chief executive officer and chief financial officer of the Company.
Number of % of Total Exercise Expiration Potential Realizable
Securities Option Price ($) Date Value at assumed
Underlying Granted to annual rates of
Common Employees stock price
Stock appreciation for
Options option term ($)
Granted
-------------------------- ---------------- --------------- --------------- ---------------- --------------------------
5% 10%
--------------------------------------------------------------------------------------------- ------------- -------------
Richard J. Trout 100,000 8.2% 1.05 05/08/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
Richard J. Trout 661 .05% 1.00 09/16/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
D. Paul Smith 100,000 8.2% 1.05 05/08/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
D. Paul Smith 25,000 2.1% 1.00 04/10/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
D. Paul Smith 617 0.05% 1.00 08/30/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
D. Paul Smith 608 0.05% 1.00 11/01/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
13
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
D. Paul Smith 25,000 2.1% 1.00 11/04/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
D. Paul Smith 41,667 3.4% 1.00 12/31/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
William J. Dupre 400,000 32.8% 1.05 11/18/2005 0 0
-------------------------- ---------------- --------------- --------------- ---------------- ------------- -------------
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND YEAR END OPTION/SAR
VALUES
The following table sets forth information respecting all individual
grants of options and SARs made during the last completed fiscal year to the
chief executive officer, chief financial officer, and directors of the Company.
At Fiscal Year End
------------------------ ------------------ -------------- -------------------------------------------------------------------------
Shares Value Number of Securities Value of Unexercised in-
Acquired on Realized Underlying Unexercised the-money options ($) (a)
exercise ($) Options
------------------------ ------------------ -------------- ------------------------------------- -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------ ------------------ -------------- ----------------- -------------------- ----------------- ----------------
Richard J. Trout 0 $0 125,661 100,000 $0 $0
------------------------ ------------------ -------------- ----------------- -------------------- ----------------- ----------------
Michael L. Mills 0 $0 112,000 100,000 $0 $0
------------------------ ------------------ -------------- ----------------- -------------------- ----------------- ----------------
D. Paul Smith 0 $0 202,892 100,000 $0 $0
------------------------ ------------------ -------------- ----------------- -------------------- ----------------- ----------------
William C. Bailey 0 $0 120,000 100,000 $0 $0
------------------------ ------------------ -------------- ----------------- -------------------- ----------------- ----------------
C. Terry Warner 0 $0 160,580 100,000 $0 $0
------------------------ ------------------ -------------- ----------------- -------------------- ----------------- ----------------
William J. Dupre 0 $0 33,333 366,667 $0 $0
------------------------ ------------------ -------------- ----------------- -------------------- ----------------- ----------------
(a) Based on the closing price of the Company's Common Stock on April 24,
2003 at $.07 per share
Executive Compensation and Benefits
The Company provides to three of its full time employees, including the
Chief Operating Officer, health insurance and miscellaneous other benefits.
The Company adopted a stock incentive plan for its employees, executive
officers, directors, and consultants.
ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
14
The table below sets forth information as to each person owning of
record or who was known by the Company to own beneficially more than 5% of the
20,586,752 votes as of May 13, 2003, including options to acquire stock of the
Company that are currently exercisable or will be within the next 60 days, and
information as to the ownership of the Company's Stock by each of its directors
and executive officers and by the directors and executive officers as a group.
Except as otherwise indicated, all shares are owned directly, and the persons
named in the table have sole voting and investment power with respect to shares
shown as beneficially owned by them.
# OF
NAME AND ADDRESS NATURE OF SHARES
OF BENEFICIAL OWNERS OWNERSHIP OWNED PERCENT
DIRECTORS
PRINCIPAL SHAREHOLDERS
Paul G. Begum Direct(2) 3,113,660 15.13%
P.O. Box 58045 Preferred Shares(3) 127,959 0.62%
Salt Lake City, UT 84158 Total 3,241,619 15.75%
Michael L. Mills Direct(1) 1,906,550 9.10%
601 S. Milliken Ave Preferred Shares(1)(4) 3,646,833 17.42%
Ste K-100 Options/Warrants 351,212 1.68%
Ontario, CA 91761 Total(1) 5,904,495 28.20%
C. Terry Warner Direct(6) 902,540 4.32%
1278 Locust Lane Options 312,747 1.50%
Provo, UT 84604 Total 1,215,287 5.82%
Presidio Investments LLC Direct(7) 94,858 0.46%
3200 North Central Ave Preferred Shares(7) 351,887 1.70%
Suite 1560 Options/Warrants(7) 84,510 0.41%
Phoenix, AZ 85012 Total(7) 531,255 2.57%
Lee Brukman Direct 1,200,000 5.83%
P.O. Box 105
La Jolla, CA 92038
Seabury Investors III Preferred Shares(5) 4,089,495 19.47%
540 Madison Avenue Warrants 412,936 1.97%
New York, NY 10022 Total(8) 4,502,431 21.44%
15
DIRECTORS AND EXECUTIVE OFFICERS
Michael L. Mills Direct(1) 1,906,550 9.10%
601 S. Milliken Ave Preferred Shares(1)(4) 3,646,833 17.42%
Ste K-100 Options/Warrants 351,212 1.68%
Ontario, CA 91761 Total(1) 5,904,495 28.20%
C. Terry Warner Direct(6) 902,540 4.32%
1278 Locust Lane Options 312,747 1.50%
Provo, UT 84604 Total 1,215,287 5.82%
ALL EXECUTIVE OFFICERS AND
DIRECTORS AS A GROUP (6
PERSONS) Direct 3,247,503 14.47%
Preferred Shares(4) 3,646,833 16.26%
Options 1,845,845 8.23%
Total(9) 8,740,181 38.96%
(1) Because Mr. Mills is president of Olson Farms, executor of the Estate
of Peter Dean Olson, trustee of the Olson Foundation, he has voting and
investment control but disclaims any pecuniary interest. For The Olson
Foundation, Mr. Mills is one of four trustees and does not have voting
or investment power because of a majority-vote rule relation to the
Foundation. The Olson ownership includes 759,765 Shares held by Olson
Farms, 150,000 Shares held by the Olson Foundation, 895,945 Shares held
by the Estate of Peter D. Olson, 23,182 Shares held by Mr. Mills, and
77,658 Shares held in a brokerage account of Estate of Peter D. Olson.
The Olson ownership also includes Preferred Stock that, as of May 13,
2003, would convert 3,646,833 votes held by Olson Farms (3,039,027
votes) and Olson Foundation (607,806 votes). Ownership includes an
option covering 3,060 Shares held by Olson Farms, Inc., warrants
covering 105,455 Shares held by Olson Foundation, options covering
30,697 Shares held by Olson Foundation, and options covering 212,000
Shares held by Mr. Mills. In addition to the total Mills ownership in
the table above, convertible debt held by Olson Farms may also be
converted as of May 13, 2003 into 183,810 Shares and convertible debt
held by Olson Foundation may be converted as of May 13, 2003 into
288,644 Shares.
(2) Mr. Begum's ownership includes 31,834 Shares held by Mr. Begum in a
brokerage account, 2,542,967 Shares held by Tree of Stars, Inc., a
corporation of which Mr. Begum is a director, officer, and principal
shareholder, 443,945 Shares held by PSF, Inc., a private company, of
which Mr. Begum is President and principal shareholder, and 94,914
Shares held in a brokerage account of PSF, Inc., a private company, of
which Mr. Begum is President and principal shareholder. Mr. Begum's
ownership also includes Class A Convertible Preferred Shares that would
convert to 127,959 Shares as of May 13, 2003 and are held by Tree of
Stars.
(3) This represents the number of Shares that the Class A Convertible
Preferred Shares would convert to as of May 13, 2003.
16
(4) This represents the number of Shares that the Convertible Preferred
Shares would convert to as of May 13, 2003. This number includes
479,846 votes from Class A Convertible Preferred Shares, 2,239,284
votes from Class B Convertible Preferred Shares, and 927,703 votes from
Class C Convertible Preferred
(5) This represents the number of Shares that the Convertible Preferred
Shares would convert to as of May 13, 2003. This number includes
3,449,699 votes from Class A Convertible Preferred Shares and 639,795
votes from Class C Convertible Preferred
(6) Mr. Warner's ownership includes 12,500 Shares held by C. Terry Warner;
819,980 Shares held by Primavera, Ltd., a limited partnership of which
Mr. Warner is the managing partner; 55,060 Shares held by Alice Warner,
Mr. Warner's daughter; and 15,000 Shares held by Susan Warner, Mr.
Warner's spouse.
(7) Presidio Investments, of which William J. Howard is the single member,
ownership includes 94,858 Shares held by Presidio Investments LLC.;
351,887 Shares should the Class A Convertible Preferred Shares held by
Presidio Investments LLC. be converted as of May 13, 2003; Olson Legacy
Trust, of which William J. Howard is the sole trustee, option covering
84,510 Shares. In addition to the total Presidio ownership in the above
table, convertible debt held by Presidio Investments may be converted
into 1,849,762 Shares as of May 13, 2003 and convertible debt held by
Olson Legacy Trust may be converted as of May 13, 2003 into 57,001
Shares.
(8) In addition to the total Seabury ownership in the above table,
convertible debt held by Seabury Investors III, Limited Partnership
could be converted into 477,816 Shares as of May 13, 2003.
(9) In addition to the total ownership in the above table, convertible debt
held by Olson Farms may also be converted as of May 13, 2003 into
183,810 Shares and convertible debt held by Olson Foundation may be
converted as of May 13, 2003 into 288,644 Shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OLSON FARMS, INC. LOANS TO THE COMPANY.
Olson Farms, Inc. made a $150,000.00 unsecured loan to the Company on
February 26, 2001. This note has a six-month term at 10% annual interest
maturing on August 26, 2001. The maker of the note may give written notice
within 10-days of maturity, to the Company, to convert the principal and
interest into common stock with a convertible price of $1.05 (10-day weighted
average from
17
February 26, 2001 and the nine days prior).
Olson Farms made an unsecured loan to the Company on January 7, 2002
for $1,835.84. This note has an annual interest rate of 8% and matures on
January 7, 2004. An option was granted in connection with this note for 3,060
shares at a strike price of $1.00 and an expiration date of January 7, 2005.
OLSON FOUNDATION LOANS TO THE COMPANY
Olson Foundation loaned the Company $60,000 on July 16, 2001, of which
is secured by a blanket lien on the assets of the Company. An Interest rate of
10% compounded monthly applies until January 15, 2002. Principal and all due and
unpaid interest are to be paid on January 16, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 16, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation loaned the Company $90,000 on July 30, 2001, of which
is secured by a blanket lien on the assets of the Company. An Interest rate of
10% compounded monthly applies until January 30, 2002. Principal and all due and
unpaid interest are to be paid on January 30, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 27,273 common shares at a strike price of $0.01 and an expiration date
of July 30, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation made unsecured loans to the Company on May 3, 2002,
August 16, 2002, and October 29, 2002 for $7,359, $10,000, and $1,059.37,
respectively. These notes are payable within two years plus interest at 8% per
annum. In conjunction with the notes, Olson Foundation also received common
stock options for each note at a ratio of 1.667 common shares for each dollar
loaned.
ESTATE OF PETER D. OLSON
Peter D. Olson loaned the Company $12,500, $12,500, and $3,750 on
September 1, 1998, September 17, 1998, and September 22, 1998, respectively.
These notes bear an interest rate of 10% per annum.
PRESIDIO INVESTMENTS, LLC LOAN TO THE COMPANY
Presidio Investments, LLC has loaned the Company $1,000,000, which loan
is secured by a blanket lien on the assets of the Company. The sole trustee of
Presidio Investments, LLC is William J. Howard, trustee of the Olson Legacy
Trust, whose residual beneficiary is the Olson Foundation. The Olson Foundation
was the guarantor for funds borrowed from Northern Trust Bank
18
which funds were used to make the loan to the Company. This note was amended on
March 22, 2001 with an additional $500,000 loaned to the Company between January
1, 2001 and March 22, 2001. An Interest rate of 8% applies until March 31, 2001
and increases to 10% on April 1st, 2001. Principal and all due and unpaid
interest are to be paid on October 1, 2001. This note is convertible to Class C
convertible preferred shares at the option of the note holder.
OLSON LEGACY TRUST LOAN TO THE COMPANY
Olson Legacy Trust made unsecured loans to the Company on October 19,
2001 and November 15, 2001 in the amounts of $20,706 and $30,000, respectively.
The notes are payable within two years plus interest at 8% per annum. In
conjunction with the notes, Olson Foundation received common stock options for
each note at a ratio of 1.667 common shares for each dollar loaned to the
Company.
DIRECTOR LOAN TO THE COMPANY
On October 20, 1998, the Company borrowed $150,000 from Mount Olympus
Waters, Inc. at an annual interest rate of 12% and a maturity date of April 30,
1999. The Company made a payment of $50,000 on February 26, 1999.
DIRECTOR LOAN TO THE COMPANY
On February 20, 2001, the Company borrowed $50,000 from Leonard D.
Southwick, a member of the Board of Directors. This loan was repaid on February
26, 2001. The interest rate on the note was 9% and matured on March 19, 2001.
DIRECTOR AND OFFICER LOAN TO THE COMPANY
Richard J. Trout loaned the Company $396.85, $163.00 and $568.08 on
September 16, 2002, March 19, 2003, and April 28, 2003, respectively. These
notes are payable within two years plus interest at 8% per annum. In conjunction
with the notes, Mr. Trout received common stock options at a ratio of 1.667
common shares for each dollar loaned to the Company.
ARBINGER LOANS TO THE COMPANY
The loans listed below were made to the Company by The Arbinger
Institute. The Arbinger Institute is controlled by four equal partners, of which
C. Terry Warner and D. Paul Smith are each a partner.
Common
Stock
Annual Option # Option Strike
DATE Principal Interest Rate Maturity Date Shares Price
------------ ---------------------------------------------------------------------------------
10/19/01 $10,000.00 8.00% 10/19/02 16,667 $1.00
19
12/31/01 $6,617.04 8.00% 12/31/02 11,028 $1.00
01/30/02 $15,000.00 8.00% 01/30/04 25,000 $1.00
02/18/02 $4,000.00 8.00% 02/18/03 6,667 $1.00
07/02/02 $7,700.00 8.00% 07/02/03 12,833 $1.00
08/30/02 $200.00 8.00% 08/30/04 333 $1.00
09/18/02 $8,500.00 8.00% 09/18/04 14,167 $1.00
11/19/02 $5,500.00 8.00% 11/19/04 9,167 $1.00
04/08/03 $1,200.00 8.00% 04/08/05 2,000 $1.00
------------- --------------
Total $58,717.04 97,862
============= ==============
DIRECTOR LOANS TO THE COMPANY
C. Terry Warner made unsecured loans to the Company on September 27,
2002, August 12, 2002, April 16, 2003, May 2, 2003, May 5, 2003, and May 8, 2003
in the amounts of $15,000, $21,348, $10,000, $1,500, $800, and $19,000,
respectively. These notes are payable within two years plus interest at 8% per
annum. In conjunction with the notes, Olson Foundation received common stock
options for each note at a ratio of 1.667 common shares for each dollar loaned
to the Company.
DIRECTOR AND OFFICER LOANS TO THE COMPANY
The loans listed below were made to the Company by D. Paul Smith, a
member of the Board of Directors:
Common
Stock
Annual Option # Option Strike
DATE Principal Interest Rate Maturity Date Shares Price
------------ ------------- -------------------------------------------------------------------
12/31/02 $25,000.00 8.00% 12/31/04 41,667 $1.00
02/21/03 $5,000.00 8.00% 02/21/05 8,333 $1.00
03/31/03 $15,000.00 8.00% 03/31/05 25,000 $1.00
04/10/02 $15,000.00 8.00% 04/10/03 25,000 $1.00
08/30/02 $370.23 8.00% 08/30/04 617 $1.00
11/01/02 $364.82 8.00% 11/01/04 608 $1.00
11/04/02 $15,000.00 8.00% 11/04/04 25,000 $1.00
------------- --------------
Total $75,735.05 126,225
============= ==============
THE SEABURY GROUP LOAN TO THE COMPANY
The Seabury Group loaned the Company $60,000 on July 5, 2001, of which
is secured by a blanket lien on the assets of the Company. An Interest rate of
10% compounded monthly applies until January 5, 2002. Principal and all due and
unpaid interest are to be paid on January 5, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 5, 2006.
20
This note is convertible to Class C convertible preferred shares or to Class D
convertible preferred shares at the option of the note holder.
The Seabury Group loaned the Company $190,000 on August 22, 2001, of
which is secured by a blanket lien on the assets of the Company. An Interest
rate of 10% compounded monthly applies until February 22, 2002. Principal and
all due and unpaid interest are to be paid on February 22, 2002, or the interest
rate increases to 15% compounded daily. Warrants were issued in conjunction with
this loan for 57,576 common shares at a strike price of $0.01 and an expiration
date of August 22, 2006. This note is convertible to Class C convertible
preferred shares or to Class D convertible preferred shares at the option of the
note holder.
PAUL G. BEGUM
On February 1, 2000 an accrued liability owed to Paul G. Begum in the
amount of $306,666.64 was converted to common shares by exercise of options for
the purchase of 579,585 shares at $.86 per share and a note receivable in the
amount of $191,776.46. The note is payable in thirty-six equal installments with
interest at the rate of eight percent. The note is collateralized by 100,000
shares of the Company's common shares. As of July 31, 2001, the total balance on
the note receivable was $98,375. On July 31, 2001, the Company forgave the
remaining amount owed on the receivable in exchange for 100,000 shares of common
stock that were returned to the Company.
During the year ended December 31, 2001, the Company accrued additional
liabilities from a separation agreement with Paul G. Begum. The total amount of
these liabilities at December 31, 2002 and 2001 is $60,717 and $73,330,
respectively.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE
Report of Robison, Hill & Co., Independent Certified Public Accountants.........................................F-1
Balance Sheets
December 31, 2002, and 2001...................................................................................F-2
Statements of Loss
For the Years Ended December 31, 2002, and 2001...............................................................F-4
Statement of Stockholders' Equity
For the Years Ended December 31, 2002, and 2001...............................................................F-5
Statements of Cash Flows
For the Years Ended December 31, 2002, and 2001..............................................................F-23
21
Notes to Financial Statements
December 31, 2002, and 2001..................................................................................F-25
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. EXHIBITS
The following exhibits are included as part of this
report:
Exhibit
Number Title of Document
3.01 Restated Certificate of Incorporation of Klever Marketing, Inc. a
Delaware corporation (1)
3.02 Certificate of Designation of Rights, Privileges and Preferences:
Rights of A Class Voting Preferred Stock, Series 1, of Klever
Marketing, Inc., dated February 7, 2000 (2)
3.03 Bylaws, as amended (2)
4.01 Amended Certificate of Designation of Rights, Privileges and
Preferences: Rights of A Class of Voting Preferred Stock, Series 1, of
Klever Marketing, Inc., Dated February 7, 2000 (3)
4.02 Certificate of Designation of Rights, Privileges and Preferences of
Class B Voting Preferred Stock, of Klever Marketing, Inc., dated
September 24, 2000 (3)
4.03 Certificate of Designation of Rights, Privileges and Preferences of
Class C Voting Preferred Stock, of Klever Marketing, Inc., dated
January 2, 2001 (3)
4.04 Certificate of Designation of Rights, Privileges and Preferences of
Class D Voting Preferred Stock, of Klever Marketing, Inc., dated June
14, 2002 (5)
4.05 Amendment to the Certificates of Designation of Rights, Privileges and
Preferences of Class A, B, and C Voting Preferred Stock, of Klever
Marketing, Inc., dated June 12, 2002 (5)
10.01 Separation Agreement between Paul G. Begum and the Registrant Dated
January 8, 2001 (2)
22
10.02 Stock Incentive Plan, effective June 1, 1998 (2)
10.03 Amended and Restated Promissory Note (Secured) of the Registrant
payable to Presidio Investments, LLC, dated June 27, 2000, with
Financing Statement and Exhibit "A" (2)
10.04 Intercreditor Agreement between Seabury Investors III, Limited
Partnership, The Olson Foundation, Presidio Investments, LLC, and the
Registrant dated August 27, 2001 (4)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Incorporated herein by reference from Registrant's Form 10KSB,
dated June 20, 1997. (2) Incorporated herein by reference from
Registrant's Form 10KSB, dated March 29,
2001
(3) Incorporated herein by reference from Registrant's Form 10QSB,
dated May 15, 2001. (4) Incorporated herein by reference from
Registrant's Form 10QSB, dated May 15, 2002. (5) Incorporated herein by
reference from Registrant's Form 10QSB, dated August 19,
2002.
(b) On November 19, 2002, the Company filed a Form 8-K under Item 7,
Financial Statements and Exhibits, and Item 9, Regulation FD
Disclosure. The 8-K included the Certifications of the Company's CEO
and CFO for the quarter ended September 30, 2002, in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002.
On November 19, 2002, the Company filed a report on 8K reporting the
appointment of William J. Dupre as the Company's Executive Vice President and
Chief Operating Officer, under Item 9.
ITEM 14. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this annual report on Form 10-KSB, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary whether:
(i) this annual report on Form 10-KSB contains any untrue
statement of a material
23
fact or omits to state a material fact necessary to make the
statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this annual report on Form 10- KSB, and
(ii) the financial statements, and other financial information
included in this annual report on Form 10-KSB, fairly present
in all material respects the financial condition, results of
operations and cash flows of the Company as of, and for, the
periods presented in this annual report on Form 10-KSB.
There have been no significant changes in the Company's internal
controls or in other factors since the date of the Chief Executive Officer's and
Chief Financial Officer's evaluation that could significantly affect these
internal controls, including any corrective actions with regards to significant
deficiencies and material weaknesses.
24
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
KLEVER MARKETING, INC.
Dated: May 20, 2003 By /S/ Richard J. Trout
Richard J. Trout
President, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 20th day of May 2003.
Signatures Title
/S/ Richard J. Trout
Richard J. Trout President, Director
/S/ D. Paul Smith
D. Paul Smith C.F.O., Secretary,
Treasurer, Chairman
/S/ Michael L. Mills
Michael L. Mills Director
/S/ C. Terry Warner
C. Terry Warner Director
25
I, Richard J. Trout, certify that:
1. I have reviewed this annual report on form 10-KSB of Klever Marketing,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in exchange act rules 13a-14 and 15d-14) for the registrant and
have:
A) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "evaluation date");
and
C) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
26
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 20, 2003
/s/ Richard J. Trout
Richard J. Trout, President
(Principal Executive Officer)
27
I, D. Paul Smith, certify that:
1. I have reviewed this annual report on form 10-KSB of Klever Marketing,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in exchange act rules 13a-14 and 15d-14) for the registrant and
have:
A) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "evaluation date");
and
C) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
28
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 20, 2003
/s/ D. Paul Smith
D. Paul Smith, Secretary/Treasurer (Principal Financial Officer)
29
KLEVER MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
TABLE OF CONTENTS
Page
Independent Auditor's Report....................................................................................F-1
Balance Sheets
December 31, 2002 and 2001...................................................................................F-2
Statements of Loss
For the Years Ended December 31, 2002 and 2001...............................................................F-4
Statement of Stockholders' Equity
From July 5, 1996 (inception of development stage) to December 31, 2002 .....................................F-5
Statements of Cash flows
For the Years Ended December 31, 2002 and 2001..............................................................F-23
Notes to the Financial Statements
December 31, 2002 and 2001..................................................................................F-25
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Klever Marketing, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying balance sheets of Klever Marketing,
Inc. (a development stage company) as of December 31, 2002 and 2001, and the
related statements of operations and cash flows for the tow years then ended,
and the statement of in stockholders' equity from July 5, 1996 (inception of
development stage) to December 31, 2002. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. 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 Klever Marketing,
Inc. (a development stage company), as of December 31, 2002 and 2001, and the
results of its operations and its cash flows for the two years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Respectfully submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
April 25, 2003
F - 1
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEET
December 31,
--------------------------------------
ASSETS 2002 2001
------------------ ------------------
Current Assets
Cash $ 3,424 $ -
Prepaid Expense - 226,272
Shareholder Receivables - 7,964
------------------ ------------------
Total Current Assets 3,424 234,236
------------------ ------------------
Fixed Assets
Office Equipment 148,067 155,876
Phase 2 Equipment 57,750 66,690
Less Accumulated Depreciation (120,105) (105,145)
------------------ ------------------
Net Fixed Assets 85,712 117,421
------------------ ------------------
Other Assets
Patents 2,339,006 2,303,380
Less Accumulated Amortization (1,915,172) (1,694,599)
------------------ ------------------
Net Other Assets 423,834 608,781
------------------ ------------------
Total Assets $ 512,970 $ 960,438
================== ==================
F - 2
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEET
(Continued)
December 31,
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
------------------ ------------------
Current Liabilities
Accounts Payable, Trade $ 435,928 $ 420,945
Liability for Overdrawn Cash - 3,903
Accrued Liabilities 878,142 346,011
Related Party Payables 2,551,298 2,331,482
Short-term Notes Payable 2,207 4,828
------------------ ------------------
Total Current Liabilities 3,867,575 3,107,169
Non-Current Liabilities
Lease Obligation Payable - 6,246
------------------ ------------------
Total Liabilities 3,867,575 3,113,415
------------------ ------------------
Stockholders' Equity
Preferred stock (par value $.01), 2,000,000 shares authorized
168,434 issued and outstanding December 31, 2002
and December 31, 2001 1,684 1,684
Common Stock (Par Value $.01), 20,000,000 shares
authorized. 12,370,578 shares issued and outstanding
at December 31, 2002 and 12,674,807 shares issued
and outstanding at December 31, 2001 123,706 126,748
Common Stock to be issued, 768,917 shares at
December 31, 2002 and 435,584 shares at
December 31, 2001 7,689 4,356
Treasury Stock, 1,000 shares at December 31, 2002
and December 31, 2001 (1,000) (1,000)
Paid in Capital in Excess of Par Value 12,100,583 12,276,665
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During Development Stage (12,253,482) (11,227,645)
------------------ ------------------
Total Stockholders' Equity (3,354,605) (2,152,977)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 512,970 $ 960,438
================== ==================
The accompanying notes are an integral part of these financial statements
F - 3
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF LOSS
Cumulative
From
July 5, 1996
For the Year Ended Inception of
December 31, Development
--------------------------------------
2002 2001 Stage
------------------ ------------------ ------------------
Revenue $ - $ - $ 256,000
------------------ ------------------ ------------------
Expenses
Sales and marketing - 33,929 117,546
General and administrative 627,287 1,607,942 7,404,507
Research and development - 486,958 4,459,891
------------------ ------------------ ------------------
Total Expenses 627,287 2,128,829 11,981,944
------------------ ------------------ ------------------
Other income (expense)
Interest income 100 4,504 18,902
Interest expense (394,452) (217,939) (723,997)
Loss on sale of assets (4,098) (41) (13,235)
Capital gain on sale of investments - - 191,492
------------------ ------------------ ------------------
Total Other Income (Expense) (398,450) (213,476) (526,838)
------------------ ------------------ ------------------
Income (Loss) Before Taxes (1,025,737) (2,342,305) (12,252,782)
Income Taxes 100 100 700
------------------ ------------------ ------------------
Net Income (Loss) After Taxes $ (1,025,837) $ (2,342,405) $ (12,253,482)
================== ================== ==================
Weighted Average Shares
Outstanding 12,563,951 12,557,378
================== ==================
Loss Per Share $ (0.08) $ (0.19)
================== ==================
The accompanying notes are an integral part of these financial statements.
F - 4
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 1995 247,100 $2,471 12,210,949 $122,109 $ -- $ -- $74,022,028 $(103,351,248) $ --
January 1996 shares issued
in connection with merger (247,100) (2,471) (3,784,905) (37,849) -- 5,059 (70,257,358) 100,017,463
January 1996 shares issued
to individuals for cash at
$2.50 - 3.00 per share -- -- 3,500 35 -- -- 7,965 -- --
March 1996 shares issued
to an individual and a
company for cash at
$2.00 - 3.00 per share -- -- 21,240 212 -- -- 43,267 -- --
April 1996 shares issued to
individuals for cash at
$0.50 - 2.04 per share -- -- 63,000 630 -- -- 73,370 -- --
May 1996 shares issued to
individuals for cash at
$3.00 per share -- -- 9,000 90 -- -- 26,910 -- --
May 1996 shares issued to
individuals for legal
services at $3.00 per share -- -- 1,463 15 -- -- 4,374 -- --
June 1996 shares issued to a
company in exercise of an
option at $1.00 per share -- -- 100,000 1,000 -- -- 99,000 -- --
F - 5
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
June 1996 shares issued to a
related company for cash at
$1.25 per share -- $ -- 30,000 $ 300 $ -- $ -- $ 37,200 $ -- $ --
June 1996 shares issued to an
individual for cash at $3.00
per share -- -- 5,000 50 -- -- 14,950 -- --
November 15, 1996 shares
issued to individuals for
cash at $1.29-2.59 per share -- -- 40,569 406 -- -- 67,094 -- --
November 27, 1996 shares
issued to officer for cash at
$2.94 per share -- -- 2,891 29 -- -- 8,470 -- --
December 13, 1996 shares
issued to individuals for
cash and receivables at
$1.00-3.00 per share -- -- 107,624 1,076 -- -- 187,132 -- --
December 13, 1996 shares
issued to a company for
services at $1.25 per share -- -- 14,282 143 -- -- 17,710 -- --
F - 6
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
December 19, 1996 shares
issued to individual in
exercise of option at
$1.25 per share -- $ -- 30,000 $ 300 $ -- $ -- $ 37,200 $ -- $ --
December 19, 1996 shares
issued to individual for
cash at $1.25 per share -- -- 30,000 300 -- -- 37,200 -- --
December 31, 1996 shares
issued to individual for
receivable at $1.00-3.00
per share -- -- -- -- -- 407 101,543 -- --
December 31, 1996 shares
issued to officer and
employee for patents -- -- -- -- -- 2,250 130,500 -- --
Net Loss -- -- -- -- -- -- -- -- (831,814)
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 1996 -- -- 8,884,613 88,846 -- 7,716 4,658,555 (3,333,785) (831,814)
F - 7
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
January 1997 shares issued
to individuals for cash at
par -- $ -- 1 $ -- $ -- $ -- $ -- $ -- $ --
January 1997 shares issued
to an officer as payment on
loan at $1.82 per share -- -- 6,000 60 -- -- 10,843 -- --
February 1997 shares issued
to officers for patent -- -- 260,813 2,608 -- (2,250) 1,892 -- --
February 1997 shares issued
to individuals for cash at
$1.00-1.25 per share -- -- 58,979 590 -- (282) 37,941 -- --
February 1997 shares issued
to officers for payment on
loan at $0.08 per share -- -- 190,000 1,900 -- -- 12,350 -- --
April 1997 shares issued to
individuals for cash at
$3.00 per share -- -- 20,795 208 -- (50) 44,842 -- --
May 1997 shares issued to an
individual and an officer for
cash at $1.75-3.00 per share -- -- 64,375 644 -- -- 118,263 -- --
F - 8
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
May 1997 shares issued to
individuals for services at
$2.59 per share -- $ -- 732 $ 7 $ -- $ -- $ 1,888 $ -- $ --
June 1997 shares issued to
individuals for cash at
$1.75-3.00 per share -- -- 15,000 150 -- 100 70,000 -- --
July 1997 shares issued to
employees and individuals
for cash and receivables at
$1.75-2.00 per share -- -- 58,286 583 -- (100) 85,267 -- --
August 1997 shares issued
to individuals for cash at
$2.75-3.00 per share -- -- 10,000 100 -- -- 27,900 -- --
October 1997 shares issued to
an individual for cash at
$3.00 per share -- -- 4,000 40 -- -- 11,960 -- --
October 1997 shares issued to
VideOcart creditors -- -- 97,610 976 -- (976) -- -- --
November 1997 shares issued
to individuals for services
at $0.95 per share -- -- 1,666 17 -- -- 1,558 -- --
F - 9
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
December 1997 shares issued
to individual for cash at
$1.50-2.00 per share -- $ -- 55,000 $ 550 $ -- $ 281 $ 139,070 $ -- $ --
December 1997 shares issued
to officers for loan payment
at $0.86-1.02 per share -- -- 53,444 534 -- -- 51,094 -- --
December 1997 shares issued
to a company for services
at $0.50 per share -- -- 8,000 80 -- -- 3,945 -- --
December 1997 shares issued
to a company for research
and development at par -- -- -- -- -- 464 -- -- --
December 1997 shares issued
for employee compensation
at $2.50 per share -- -- 6,000 60 -- -- 14,940 -- --
Net Loss -- -- -- -- -- -- -- -- (755,594)
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 1997 -- -- 9,795,314 97,953 -- 4,903 5,292,308 (3,333,785) (1,587,408)
F - 10
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
January 1998 shares issued to
individuals for cash at
$1.50 per share -- $ -- 86,666 $ 867 $ -- $ (100) $ 114,232 $ -- $ --
January 1998 shares issued
for 1,500 shares of Avtel
stock at $3.00 per share -- -- 4,125 41 -- -- 12,334 -- --
January 1998 shares issued to
companies for services at
$2.82-7.80 per share -- -- 2,930 29 -- -- 13,848 -- --
February 1998 shares issued
to company for research
and development contract -- -- 46,366 464 -- (464) -- -- --
February 1998 shares issued
to individual for cash at
$2.50 per share -- -- 100,000 1,000 -- -- 249,000 -- --
April 1998 shares issued to
employee for compensation
at $2.63 per share -- -- 1,426 14 -- -- 3,736 -- --
April 1998 shares issued to
company for legal services
at $3.00 per share -- -- 1,620 16 -- -- 4,844 -- --
F - 11
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
June 1998 shares issued to
individual for consulting
services at $2.79 per share -- $ -- 3,763 $ 38 $ -- $ -- $ 10,462 $ -- $ --
June 1998 reduction of stock
price on employee's stock -- -- -- -- -- -- (1,250) -- --
July 1998 shares issued to
officer for patent purchase
at $2.94 per share -- -- 150,000 1,500 -- 250 512,313 -- --
July 1998 shares issued for
accounts receivable at
$1.50 per share -- -- 25,000 250 -- -- 37,250 -- --
July 1998 shares issued to
employee for compensation
at $3.06 per share -- -- 1,225 12 -- -- 3,736 -- --
July 1998 shares issued to
individuals for cash at
$2.50-3.00 per share -- -- 33,000 330 -- -- 89,670 -- --
September 1998 shares
issued to company for
accounts receivable -- -- 86,937 870 -- -- 136,396 -- --
F - 12
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
September 1998 shares
issued to individuals for
cash at $2.00-2.25 per share -- $ -- 30,900 $ 309 $ -- $ -- $ 62,341 $ -- $ --
September 1998 shares
issued to individual for
consulting services at
$3.00 per share -- -- 3,818 38 -- -- 11,416 -- --
September 1998 shares
issued to individuals for
accounts receivable at
$2.00 per share -- -- 7,500 75 -- -- 14,925 -- --
October 1998 shares issued
to individuals for cash at
$2.00 per share -- -- 1,000 10 -- -- 1,990 -- --
October 1998 shares issued to
employees for accounts
receivable $2.12 per share -- -- 10,000 100 -- -- 21,100 -- --
October 1998 shares issued to
company for legal services
at $2.00 per share -- -- 1,517 15 -- -- 3,020 -- --
F - 13
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
December 1998 shares
returned at $1.58 per share -- -- (42,493) $ (425) $ -- $ -- $ (66,667) $ -- $ --
December 1998 shares issued
to individuals for cash at
$2.25 per share -- -- 42,493 425 -- -- 95,183 -- --
December 1998 shares issued
for employee compensation
at $2.19 per share -- -- 1,712 17 -- -- 3,732 -- --
Net Loss -- -- -- -- -- -- -- -- (1,496,926)
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 1998 -- -- 10,394,819 103,948 -- 4,589 6,625,919 (3,333,785) (3,084,334)
January 1999 shares returned
at $0.67-1.58 per share -- -- (62,489) (624) -- -- (107,047) -- --
January & February 1999
shares issued to individuals
for cash at $2.00 per share -- -- 112,500 1,125 -- -- 223,875 -- --
January & February 1999
shares issued to individuals
for cash at $2.25 per share -- -- 224,444 2,244 -- -- 502,755 -- --
F - 14
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
January 1999 shares issued
for employee compensation
at $2.34 per share -- -- 1,328 $ 13 $ -- $ -- $ 3,094 $ -- $ --
April & June 1999 shares
issued to individuals for
cash at $2.25-2.50 per share -- -- 40,689 407 -- -- 91,344 -- --
April 1999 shares issued to
employee for compensation
at $1.95 per share -- -- 1,667 17 -- -- 3,093 -- --
June 1999 shares issued for
exercise of option at $0.86
per share -- -- 231,834 2,318 -- -- 197,059 -- --
July 1999 shares issued to
individuals for cash at
$2.25 per share -- -- 72,500 725 -- -- 162,400 -- --
July & August 1999 shares
issued to individuals for
cash at $2.50 per share -- -- 78,500 785 -- -- 195,465 -- --
July 1999 shares issued to
employee for cash at
$1.96 per share -- -- 1,285 13 -- -- 2,506 -- --
F - 15
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
August 1999 shares issued to
individuals for cash at
$3.00 per share -- $ -- 5,607 $ 56 $ -- $ -- $ 16,764 $ -- $ --
September 1999 shares
issued to individual for
exercise of option at
$0.52 per share -- -- 6,437 64 -- -- 3,283 -- --
September 1999 shares
issued to individual for
cash at $2.75 per share -- -- 6,000 60 -- -- 16,440 -- --
October & November 1999
shares issued to individuals
for cash at $2.75 per share -- -- 160,000 1,600 -- -- 438,400 -- --
Net Loss -- -- -- -- -- -- -- -- (1,734,623)
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 1999 -- -- 11,275,121 112,751 -- 4,589 8,375,350 (3,333,785) (4,818,957)
January 2000 shares issued to
company for cash at
$2.75 per share -- -- 27,273 273 -- -- 74,727 -- --
F - 16
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
February 2000 shares issued
for employee compensation
at $3.99 per share -- -- 74,608 $ 746 $ -- $ -- $ 296,939 $ -- $ --
February 2000 exercise of
stock option for cash and
note receivable at $0.86
per share -- -- 579,585 5,796 -- -- 492,646 -- --
February 2000 shares issued
to individual for cash at
$1.07 per share -- -- 28,979 290 -- -- 30,718 -- --
February 2000 shares
canceled and converted to
preferred shares at $2.75
per share -- -- (100,000) (1,000) -- -- (274,000) -- --
January & February 2000
shares issued to companies
for cash at $26 per share 5,769 57 -- -- -- -- 149,943 -- --
February 2000 shares
converted from common
shares at $26 per share 10,576 106 -- -- -- -- 274,894 -- --
F - 17
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
February 2000 conversion of
note payable to preferred
shares at $26 per share 9,615 $ 96 -- $ -- $ -- $ -- $ 249,904 $ -- $ --
February 2000 shares issued
to company for cash at
$26 per share 21,285 213 -- -- -- -- 553,162 -- --
March 2000 shares issued to
company for accounts
payable at $3.00 per share -- -- 2,603 26 -- -- 7,783 -- --
March 2000 shares issued to
individual for cash at $2.75
per share -- -- 10,909 109 -- -- 29,891 -- --
April 2000 exercise of stock
option by individual for
cash at $1.07 per share -- -- 18,193 182 -- -- 19,285 -- --
April 2000 shares issued to
company for cash at $2.50
per share -- -- 40,312 403 -- -- 100,377 -- --
May 2000 shares issued to
company for cash at $2.75
per share -- -- 54,546 546 -- -- 149,455 -- --
F - 18
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
May 2000 shares issued to
companies for accounts
payable at $2.75 per share -- -- $ 6,885 $ 69 $ -- $ -- $ 18,866 $ -- $ --
May 2000 paid-in capital
from treasury stock
transaction -- -- -- -- -- -- 5,980 -- --
May 2000 shares issued to
individual that were paid
for in 1997 -- -- 23,334 233 -- (233) -- -- --
May 2000 shares issued to
company for cash at $26
per share 5,769 58 -- -- -- -- 149,942 -- --
July 2000 shares issued to
individuals for cash at
$1.07 per share -- -- 68,744 687 -- -- 72,869 -- --
July 2000 paid-in capital
from treasury stock
transaction -- -- -- -- -- -- 10,200 -- --
September 2000 stock issued
to company for cash at
$17 per share 41,177 412 -- -- -- -- 699,588 -- --
F - 19
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
November & December 2000
shares issued to individuals
for cash at $1.50-1.56 per
share -- -- $ 48,979 $ 490 $ -- $ -- $ 74,717 $ -- $ --
December 2000 shares issued
to individual for legal
services at $0.89 per share -- -- 2,697 27 -- -- 2,373 -- --
December 2000 shares
returned at $1.73-2.12
per share -- -- (10,000) (100) -- -- (19,150) -- --
Net Loss -- -- -- -- -- -- -- -- (4,066,283)
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 2000 94,191 942 12,152,768 121,528 -- 4,356 11,546,459 (3,333,785) (8,885,240)
January 2001 shares issued
for payment of note payable
at $6.60 per share 37,879 379 -- -- -- -- 249,621 -- --
January 2001 shares canceled
for nonpayment -- -- (4,694) (47) -- -- (9,903) -- --
F - 20
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
March 2001 shares issued for
payment of note payable at
$6.60 per share 6,061 $ 60 -- $ -- -- $ -- $ 39,940 $ -- $ --
March 2001 shares issued for
research and development
expenses at $1.00 per share -- -- 15,000 150 -- -- 14,850 -- --
May 2001 shares issued to
company for cash at $6.60
per share 30,303 303 -- -- -- -- 199,697 -- --
June 2001 shares issued to
company for cash at $0.82
per share -- -- 1,219 12 -- -- 988 -- --
August 2001 shares issued to
company for cash at $0.82
per share -- -- 3,466 35 -- -- 2,807 -- --
August 2001 shares issued
for general and
administrative expenses at
$0.66 per share -- -- 507,048 5,070 -- -- 329,581 -- --
F - 21
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
---------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
September 2001 shares
returned to Company for
accounts receivable of
$98,375 -- -- -- $ -- $(1,000) $ -- $ (97,375) $ -- $ --
Net Loss -- -- -- -- -- -- -- -- (2,342,405)
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 2001 168,434 1,684 12,674,807 126,748 (1,000) 4,356 12,276,665 (3,333,785) (11,227,645)
August 2002 shares canceled
for services not rendered -- -- (304,229) (3,042) -- -- (197,749) -- --
November 2002 cash
received for shares that
have not yet been issued -- -- -- -- -- 3,333 21,667 -- --
Net Loss -- -- -- -- -- -- -- -- (1,025,837)
-------- ------ ----------- -------- ------ ------ ----------- ------------- -----------
Balance December 31, 2002 168,434 $1,684 12,370,578 $123,706 $(1,000) $7,689 $12,100,583 $ (3,333,785)$(12,253,482)
======== ====== =========== ======== ====== ====== =========== ============= ===========
The accompanying notes are an integral part of these financial statements.
F - 22
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
From
July 5, 1996
For the Year ended Inception of
December 31, Development
-------------------------------------
2002 2001 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (1,025,837) $ (2,342,405) $ (12,253,482)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Stock issued for general and administrative - 139,438 871,480
Stock issued for research and development - 15,000 15,000
Stock returned for services not rendered (200,790) - (200,790)
Write-off of assets - 81,388 526,718
Compensation expense from stock options - - 26,247
Stock issued for interest expense - - 24,285
Stock issued for accounts payable - - 25,153
Deferred income - - (214,000)
Depreciation and amortization 239,245 246,558 1,487,621
(Increase) decrease in accounts receivable - 8,218 (413)
(Increase) decrease in shareholder receivable 7,964 (2,486) 37,694
(Increase) decrease in other assets & prepaid
expenses 226,272 (14,695) 114,238
Increase (decrease) in accounts payable 14,983 228,435 350,224
Increase (decrease) in accrued liabilities 528,228 176,283 836,492
----------------- ------------------ ------------------
Net Cash Used in Operating Activities (209,935) (1,464,266) (8,353,533)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net 13,038 (66,190) (590,129)
Acquisition of patents (35,626) (56,227) (247,049)
Acquisition/Sale of stock, net - - 12,375
----------------- ------------------ ------------------
Net Cash Used by Investing Activities (22,588) (122,417) (824,803)
----------------- ------------------ ------------------
F - 23
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
(continued)
Cumulative
From
July 5, 1996
For the Year ended Inception of
December 31, Development
-------------------------------------
2002 2001 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds capital stock issued 25,000 483,892 6,107,927
Proceeds from loans 228,634 1,392,732 3,302,308
Principal payments on lease obligations (8,867) (2,811) (17,020)
Cash payments on notes payable (8,820) (290,000) (236,129)
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 235,947 1,583,813 9,157,086
----------------- ------------------ ------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 3,424 (2,870) (21,250)
Cash and Cash Equivalents at Beginning of the
Year - 2,870 24,674
----------------- ------------------ ------------------
Cash and Cash Equivalents at End of the Year $ 3,424 $ $ 3,424
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ 10,142 -
Income Taxes $ 100 $ 100 $ 700
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
o During January 2001, 4,694 shares of common stock were canceled.
o During January 2001, 37,879 shares of preferred stock were issued for
payment of a note payable.
o During March 2001, 6,061 shares of preferred stock were issued for
payment of a note payable.
o During March 2001, the Company issued 15,000 shares of common stock in
exchange for research and development expenses.
o During July 2001, 100,000 shares of common stock were returned to the
Company.
o During August 2001, 507,048 shares of common stock were issued in
advance for services of $334,652.
o During August 2002, 304,229 shares of common stock were canceled.
The accompanying notes are an integral part of these financial statements.
F - 24
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of
approximately $1,026,000 for the year ended December 31, 2002 and losses of
approximately $2,342,000 for the year ended December 31, 2001, has a liquidity
problem, and requires additional financing in order to finance its business
activities on an ongoing basis. The Company is actively pursuing alternative
financing and has had discussions with various third parties, although no firm
commitments have been obtained.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, continued progress in developing its
products, and market penetration.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported revenues and expenses, and the
balance sheet classifications used.
Organization and Basis of Presentation
The Company was organized under the laws of the State of Delaware in
December 1989. The Company was in the Development stage from 1989 to 1991. The
Company was an operating company from 1992 to December 8, 1993 when it filed
petitions for relief under Chapter 11 bankruptcy. The Company was inactive until
July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse merger
and changed its name to Klever Marketing, Inc. During the period from July 5,
1996 to December 31, 2002, the Company has been in the development stage, except
for an approximate 2-month period in 2000 when the Company generated revenue
from installations of their Klever-Kart system in stores.
F - 25
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
Nature of Business
The Company was formed for the purpose of creating a vehicle to obtain
capital, to file and acquire patents, to seek out, investigate, develop,
manufacture and market electronic in-store advertising, directory and coupon
services which have potential for profit. The Company is currently in the
process of the commercialization of the patented process it has acquired.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Klever Marketing, Inc. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Reclassifications
Certain reclassifications have been made in the 2001 financial
statements to conform with the 2002 presentation.
F - 26
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Loss per Share
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
Per-Share
Loss Shares Amount
For the year ended December 31, 2002
BASIC LOSS PER SHARE
Loss available to common shareholders $ (1,025,837) 12,563,951 $ (0.08)
================= ================== ==================
For the year ended December 31, 2001
BASIC LOSS PER SHARE
Loss available to common shareholders $ (2,342,405) 12,557,378 $ (0.19)
================= ================== ==================
Basic earnings per common share were computed by dividing net loss by
the weighted average number of shares of common stock outstanding during the
year. Diluted loss per common share for the years ended December 31, 2002 and
2001 are not presented as it would be anti-dilutive.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight- line method over the estimated economic useful
lives of the related assets as follows:
Computer equipment 3 years
Office furniture and fixtures 5-10 years
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the
F - 27
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their estimated economic useful lives.
Intangibles
Intangibles associated with certain technology agreements are amortized
over 10 -14 years.
NOTE 3 - INCOME TAXES
The Company has accumulated tax losses estimated at $16,000,000
expiring in years 2007 through 2022. Current tax laws limit the amount of loss
available to be offset against future taxable income when a substantial change
in ownership occurs. The amount of net operating loss carryforward available to
offset future taxable income may be limited if there is a substantial change in
ownership.
NOTE 4 - LEASE COMMITMENT
The Company currently leases approximately 1,620 square feet of office
space from Four Cabo's Enterprises, Ltd. on a month to month basis. The lease
payments are approximately $2,042 per month.
The Company has also entered into lease agreements for the rental of
computer equipment. These leases expire between September 2003 and May 2004. The
total monthly lease payments due on the above leases is approximately $210.
During 2000, the Company entered into a financing agreement for the
purchase of a laser printer. The payments on this agreement are $312 per month
for a term of 36 months. During 2002, the remainder of the obligation on the
laser printer was paid.
F - 28
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 4 - LEASE COMMITMENT (continued)
The minimum future lease payments under these leases for the next five
years are:
Year Ended December 31,
-------------------------------------------
2003 $ 4,254
2004 445
2005 -
2006 -
2007 -
--------------
Total minimum future lease payments $ 4,699
==============
NOTE 5 - RESEARCH AND DEVELOPMENT
Research and development of the Klever-Kart System began with the sole
purpose of reducing thefts of shopping carts. A voice-activated alarm system was
envisioned. As time and technology progressed, the present embodiment of the
Klever-Kart System evolved into a "product specific" point-of-purchase
advertising system consisting of an easily readable electronic display that
attaches to any shopping cart, a shelf mounted message sending unit that
automatically sends featured products' ad-message to the display and a host
computer using proprietary software.
During the years ended December 31, 2002 and 2001, the Company expended
$0 and $486,958, respectively for research and development of the technology
involved with its patents.
NOTE 6- RELATED PARTY TRANSACTIONS
OLSON FARMS, INC. LOANS TO THE COMPANY.
Olson Farms, Inc. made a $150,000.00 unsecured loan to the Company on
February 26, 2001. This note has a six-month term at 10% annual interest
maturing on August 26, 2001. The maker of the note may give written notice
within 10-days of maturity, to the Company, to convert the principal and
interest into common stock with a convertible price of $1.05 (10-day weighted
average from February 26, 2001 and the nine days prior).
Olson Farms made an unsecured loan to the Company on January 7, 2002
for $1,835.84. This note has an annual interest rate of 8% and matures on
January 7, 2004. An option was granted in connection with this note for 3,060
shares at a strike price of $1.00 and an expiration date of January 7, 2005.
F - 29
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
OLSON FOUNDATION LOANS TO THE COMPANY.
Olson Foundation loaned the Company $60,000 on July 16, 2001, of which
is secured by a blanket lien on the assets of the Company. An Interest rate of
10% compounded monthly applies until January 15, 2002. Principal and all due and
unpaid interest are to be paid on January 16, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 16, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation loaned the Company $90,000 on July 30, 2001, of which
is secured by a blanket lien on the assets of the Company. An Interest rate of
10% compounded monthly applies until January 30, 2002. Principal and all due and
unpaid interest are to be paid on January 30, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 27,273 common shares at a strike price of $0.01 and an expiration date
of July 30, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation made unsecured loans to the Company on May 3, 2002,
August 16, 2002, and October 29, 2002 for $7,359, $10,000, and $1,059.37,
respectively. These notes are payable within two years plus interest at 8% per
annum. In conjunction with the notes, Olson Foundation also received common
stock options for each note at a ratio of 1.667 common shares for each dollar
loaned.
ESTATE OF PETER D. OLSON.
Peter D. Olson loaned the Company $12,500, $12,500, and $3,750 on
September 1, 1998, September 17, 1998, and September 22, 1998, respectively.
These notes bear an interest rate of 10% per annum.
PRESIDIO INVESTMENTS, LLC LOAN TO THE COMPANY.
Presidio Investments, LLC has loaned the Company $1,000,000, which loan
is secured by a blanket lien on the assets of the Company. The sole trustee of
Presidio Investments, LLC is William J. Howard, trustee of the Olson Legacy
Trust, whose residual beneficiary is the Olson Foundation. The Olson Foundation
was the guarantor for funds borrowed from Northern Trust Bank which funds were
used to make the loan to the Company. This note was amended on March22, 2001
F - 30
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
with an additional $500,000 loaned to the Company between January 1, 2001 and
March 22, 2001. An Interest rate of 8% applies until March 31, 2001 and
increases to 10% on April 1st, 2001. Principal and all due and unpaid interest
are to be paid on October 1, 2001. This note is convertible to Class C
convertible preferred shares at the option of the note holder.
OLSON LEGACY TRUST LOAN TO THE COMPANY
Olson Legacy Trust made unsecured loans to the Company on October 19,
2001 and November 15, 2001 in the amounts of $20,706 and $30,000, respectively.
The notes are payable within two years plus interest at 8% per annum. In
conjunction with the notes, Olson Foundation received common stock options for
each note at a ratio of 1.667 common shares for each dollar loaned to the
Company.
DIRECTOR LOAN TO THE COMPANY
On October 20, 1998, the Company borrowed $150,000 from Mount Olympus
Waters, Inc. at an annual interest rate of 12% and a maturity date of April 30,
1999. The Company made a payment of $50,000 on February 26, 1999.
DIRECTOR LOAN TO THE COMPANY
On February 20, 2001, the Company borrowed $50,000 from Leonard D.
Southwick, a member of the Board of Directors. This loan was repaid on February
26, 2001. The interest rate on the note was 9% and matured on March 19, 2001.
DIRECTOR AND OFFICER LOAN TO THE COMPANY
Richard J. Trout loaned the Company $396.85, $163.00 and $568.08 on
September 16, 2002, March 19, 2003, and April 28, 2003, respectively. These
notes are payable within two years plus interest at 8% per annum. In conjunction
with the notes, Mr. Trout received common stock options at a ratio of 1.667
common shares for each dollar loaned to the Company.
ARBINGER LOANS TO THE COMPANY
The loans listed below were made to the Company by The Arbinger
Institute. The Arbinger Institute is controlled by four equal partners, of which
C. Terry Warner and D. Paul Smith are each a partner.
F - 31
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
Common
Stock
Annual Option # Option Strike
DATE Principal Interest Rate Maturity Date Shares Price
------------ ---------------------------------------------------------------------------------
10/19/01 $10,000.00 8.00% 10/19/02 16,667 $1.00
12/31/01 $6,617.04 8.00% 12/31/02 11,028 $1.00
01/30/02 $15,000.00 8.00% 01/30/04 25,000 $1.00
02/18/02 $4,000.00 8.00% 02/18/03 6,667 $1.00
07/02/02 $7,700.00 8.00% 07/02/03 12,833 $1.00
08/30/02 $200.00 8.00% 08/30/04 333 $1.00
09/18/02 $8,500.00 8.00% 09/18/04 14,167 $1.00
11/19/02 $5,500.00 8.00% 11/19/04 9,167 $1.00
04/08/03 $1,200.00 8.00% 04/08/05 2,000 $1.00
------------- --------------
Total $58,717.04 97,862
============= ==============
DIRECTOR LOANS TO THE COMPANY
C. Terry Warner made unsecured loans to the Company on September 27,
2002, August 12, 2002, April 16, 2003, May 2, 2003, May 5, 2003, and May 8, 2003
in the amounts of $15,000, $21,348, $10,000, $1,500, $800, and $19,000,
respectively. These notes are payable within two years plus interest at 8% per
annum. In conjunction with the notes, Olson Foundation received common stock
options for each note at a ratio of 1.667 common shares for each dollar loaned
to the Company.
F - 32
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
DIRECTOR AND OFFICER LOANS TO THE COMPANY
The loans listed below were made to the Company by D. Paul Smith, a
member of the Board of Directors:
Common
Stock
Annual Option # Option Strike
DATE Principal Interest Rate Maturity Date Shares Price
------------ ------------- -------------------------------------------------------------------
12/31/02 $25,000.00 8.00% 12/31/04 41,667 $1.00
02/21/03 $5,000.00 8.00% 02/21/05 8,333 $1.00
03/31/03 $15,000.00 8.00% 03/31/05 25,000 $1.00
04/10/02 $15,000.00 8.00% 04/10/03 25,000 $1.00
08/30/02 $370.23 8.00% 08/30/04 617 $1.00
11/01/02 $364.82 8.00% 11/01/04 608 $1.00
11/04/02 $15,000.00 8.00% 11/04/04 25,000 $1.00
------------- --------------
Total $75,735.05 126,225
============= ==============
THE SEABURY GROUP LOAN TO THE COMPANY
The Seabury Group loaned the Company $60,000 on July 5, 2001, of which
is secured by a blanket lien on the assets of the Company. An Interest rate of
10% compounded monthly applies until January 5, 2002. Principal and all due and
unpaid interest are to be paid on January 5, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 5, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
The Seabury Group loaned the Company $190,000 on August 22, 2001, of
which is secured by a blanket lien on the assets of the Company. An Interest
rate of 10% compounded monthly applies until February 22, 2002. Principal and
all due and unpaid interest are to be paid on February 22, 2002, or the interest
rate increases to 15% compounded daily. Warrants were issued in conjunction with
this loan for 57,576 common shares at a strike price of $0.01 and an expiration
date of August 22, 2006. This note is convertible to Class C convertible
preferred shares or to Class D convertible preferred shares at the option of the
note holder.
F - 33
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
PAUL G. BEGUM
On February 1, 2000 an accrued liability owed to Paul G. Begum in the
amount of $306,666.64 was converted to common shares by exercise of options for
the purchase of 579,585 shares at $.86 per share and a note receivable in the
amount of $191,776.46. The note is payable in thirty-six equal installments with
interest at the rate of eight percent. The note is collateralized by 100,000
shares of the Company's common shares. As of July 31, 2001, the total balance on
the note receivable was $98,375. On July 31, 2001, the Company forgave the
remaining amount owed on the receivable in exchange for 100,000 shares of common
stock that were returned to the Company.
During the year ended December 31, 2001, the Company accrued additional
liabilities from a separation agreement with Paul G. Begum. The total amount of
these liabilities at December 31, 2002 and 2001 is $60,717 and $73,330,
respectively.
NOTE 7- STOCK OPTIONS
The shareholders approved, by a majority vote, the adoption of the 1998
Stock Incentive Plan (the "Plan"). Under the Plan, 3,500,000 shares of common
stock are reserved for issuance upon the exercise of options which may be
granted from time-to-time to officers, directors and certain employees and
consultants of the Company or its subsidiaries. The Plan permits the award of
both qualified and non-qualified incentive stock options. Under the Plan, an
additional 500,000 shares of common stock are reserved for issuance in the form
of restricted stock grants. As of December 31, 2002, 2,978,985 options had been
granted under the Plan, and another 1,068,020 options had been granted outside
of the Plan. Compensation expense charged to operations in 2002 and 2001 is $0
and $0. The following is a summary of transactions:
F - 34
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 7- STOCK OPTIONS (continued)
Shares Under Option
--------------------------------------
December 31,
--------------------------------------
2002 2001
------------------ ------------------
Outstanding, beginning of year 2,124,392 2,685,049
Granted during the year 2,215,113 2,299,367
Canceled during the year (292,500) (2,860,024)
Exercised during the year - -
------------------ ------------------
Outstanding, end of year (at prices
ranging from $.01 to $3.00 per share) 4,047,005 2,124,392
================== ==================
Eligible, end of year for exercise currently (at prices
ranging from $.01 to $3.00 per share) 3,213,672 1,458,500
================== ==================
NOTE 8 - PREFERRED STOCK
On February 7, 2000 the Board of Directors authorized and established
"Class A Voting Preferred Stock" ("Class A Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class A Shares consisted of
1,000,000, 125,000 shares thereof were designated as Series 1 shares. On May 20,
2002, the Board of Directors amended the number of authorized shares of Class A
voting preferred stock to 55,000 shares.
Class A Shares are convertible into Common Stock at an initial
conversion price of $2.60 (subject to adjustment).
Holders of Class A Shares shall be entitled to receive when and as
declared by the Board of Directors of the Company out of any funds at the time
legally available therefor dividends at the rate of $2.20 per share per annum,
payable semi-annually on the first day of January and July of each year. Such
dividends shall accrue on each such share from the date of its original issuance
and shall accrue from day to day, whether or not earned or declared. Such
dividend shall be cumulative and may be paid in cash or in kind through the
distribution of .0425 Class A Shares, Series 1, for each outstanding Class A
Share, on each dividend payment date. In addition, each holder of Class A Shares
shall be entitled to receive, when and as declared, a dividend equal to each
dividend declared and paid on the shares of Common Stock, on a share for share
basis. If there is a split or dividend on the Common Stock, then the Class A
Share dividends shall be adjusted as if a similar split or dividend had occurred
with respect to the Class A Shares.
F - 35
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 8 - PREFERRED STOCK (continued)
Class A Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class A Shares could then be converted, and shall
have voting rights and powers equal to that of a holder of Common Stock. The
Holders of Class A Shares shall vote with the holders of Common Stock and not as
a separate class.
Class A Shares carry a liquidation preference of $26 per share plus any
accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class A Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after July 1, 2002. The redemption price shall be $26
per share together with accrued but unpaid dividends on such shares, if any.
On September 24, 2000 the Board of Directors authorized and established
"Class B Voting Preferred Stock" ("Class B Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class B Shares consisted of
250,000, 125,000 shares thereof were designated as Series 1 shares. On May 20,
2002, the Board of Directors amended the number of authorized shares of Class B
voting preferred stock to 42,000 shares.
Class B Shares are convertible into Common Stock at an initial
conversion price of $1.70 (subject to adjustment).
Holders of Class B Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class B Shares,
of the same Series for which the dividend is accrued, for each outstanding Class
B Share, on each dividend payment date; provided, that if such dividends in
respect of any period shall not have been paid or declared and set apart for
payment for all outstanding Class B Shares by each payment date, then until all
unpaid dividends thereon shall be paid or set apart for payment to the holders
of such shares, the Corporation may not pay, declare or set apart any dividend
or other distribution on its shares of Common Stock or other shares junior to
the Class B Shares, nor may any other distributions, redemptions or other
payments be made with respect to the shares of Common Stock or other junior
shares. In addition to the foregoing, each
F - 36
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 8 - PREFERRED STOCK (continued)
holder of a Class B Share shall be entitled to receive, when and as declared, a
dividend equal to each dividend declared and paid on the shares of Common Stock,
on a share for share basis, so the holders of the Class B Shares shall be
entitled to participate equally on a share for share basis with the holders of
the shares of Common Stock. If there is a share split or dividend on the Common
Stock, then the Class B Share dividends shall be adjusted as if a similar split
or dividend had occurred with respect to the Class B Shares.
Class B Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class B Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class B Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class B Shares shall carry a liquidation preference of $17 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class B Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after March 24, 2004 for Series 1, and such date as
determined by the Board of Directors for each additional Series. The redemption
price shall be $17.00 per share together with accrued but unpaid dividends on
such shares, if any.
On January 2, 2001 the Board of Directors authorized and established
"Class C Voting Preferred Stock" ("Class C Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class C Shares consisted of
500,000, 125,000 shares thereof were designated as Series 1 shares and 125,000
shares thereof were designated as Series 2 shares. On May 20, 2002, the Board of
Directors amended the number of authorized shares of Class C voting preferred
stock to 150,000 shares.
Class C Shares are convertible into Common Stock at an initial
conversion price of $.66 (subject to adjustment).
Holders of Class C Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or
F - 37
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 8 - PREFERRED STOCK (continued)
declared. Such dividends shall be cumulative and may be paid in cash or in kind
through the distribution of .0425 Class C Shares, of the same Series for which
the dividend is accrued, for each outstanding Class C Share, on each dividend
payment date; provided, that if such dividends in respect of any period shall
not have been paid or declared and set apart for payment for all outstanding
Class C Shares by each payment date, then until all unpaid dividends thereon
shall be paid or set apart for payment to the holders of such shares, the
Corporation may not pay, declare or set apart any dividend or other distribution
on its shares of Common Stock or other shares junior to the Class C Shares, nor
may any other distributions, redemptions or other payments be made with respect
to the shares of Common Stock or other junior shares. In addition to the
foregoing, each holder of a Class C Share shall be entitled to receive, when and
as declared, a dividend equal to each dividend declared and paid on the shares
of Common Stock, on a share for share basis, so the holders of the Class C
Shares shall be entitled to participate equally on a share for share basis with
the holders of the shares of Common Stock. If there is a share split or dividend
on the Common Stock, then the Class C Share dividends shall be adjusted as if a
similar split or dividend had occurred with respect to the Class C Shares.
Class C Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class C Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class C Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class C Shares shall carry a liquidation preference of $6.60 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class C Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after July 2, 2004 for Series 1, and such date as
determined by the Board of Directors for each additional Series. The redemption
price shall be $6.60 per share together with accrued but unpaid dividends on
such shares, if any.
On May 20, 2002, the Board of Directors authorized and established
"Class D Voting Preferred Stock" ("Class D Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class D Shares consist of
500,000 shares thereof are designated as "Class D Voting Preferred Stock" (the
"Class D Shares").
Class D Shares are convertible into Common Stock at an initial
conversion price of $1.05
F - 38
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 8 - PREFERRED STOCK (continued)
(subject to adjustment).
Holders of Class D Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class D Shares
for each outstanding Class D Share, on each dividend payment date; provided,
that if such dividends in respect of any period shall not have been paid or
declared and set apart for payment for all outstanding Class D Shares by each
payment date, then until all unpaid dividends thereon shall be paid or set apart
for payment to the holders of such shares, the Corporation may not pay, declare
or set apart any dividend or other distribution on its shares of Common Stock or
other shares junior to the Class D Shares, nor may any other distributions,
redemptions or other payments be made with respect to the shares of Common Stock
or other junior shares. In addition to the foregoing, each holder of a Class D
Share shall be entitled to receive, when and as declared, a dividend equal to
each dividend declared and paid on the shares of Common Stock, on a share for
share basis, so the holders of the Class D Shares shall be entitled to
participate equally on a share for share basis with the holders of the shares of
Common Stock. If there is a share split or dividend on the Common Stock, then
the Class D Share dividends shall be adjusted as if a similar split or dividend
had occurred with respect to the Class D Shares.
Class D Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class D Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class D Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class D Shares shall carry a liquidation preference of $10.50 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class D Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after May 14, 2007. The redemption price shall be $10.50
per share together with accrued but unpaid dividends on such shares, if any.
F - 39
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
(Continued)
NOTE 9 - LITIGATION
On September 18, 2001, a Complaint was filed in Superior Court of the
State of California, County of San Francisco, by eiKart, L.L.C. ("eiKart")
against the Company. The Complaint arises out of a written agreement between the
Company and eiKart dated May 11, 2001. On December 12, 2002, a judgment in
California was made against the Company whereby the Company is required to pay
$75,804 plus daily interest of $19.25 per day after December 3, 2002. This
judgment has been included in the financial statements as part of accrued
liabilities at December 31, 2002. This California judgment was obtained without
an active defense by the Company which the Company believes it has. Because of
this fact, the Company intends to actively oppose any collection activity
outside of California.
On October 18, 2002, a default judgment was entered against the Company
by Avnet, Inc. The total judgment was for $6,676.85 with interest on the total
judgment at 4.28% per annum until
paid. The total judgment of $6,676.85 and interest of $105.56 was paid on
February 4, 2003. This judgment has been included in accounts payable as of
December 31, 2002.
On September 6, 2002, an entry of judgment was entered against the
Company by Micropower Direct, LLC. The total judgment was for $17,167.18. This
judgment has been included in accounts payable as of December 31, 2002.
NOTE 10 - STOCK TRANSACTIONS
During August 2001, the Company issued 507,048 shares of common stock
as a prepayment for services to be rendered over the next twelve months. This
resulted in a prepaid asset of $195,213 and expenses of $139,438. Approximately
40% of the agreement was completed. On August 20, 2002, the Company received a
refund of 304,229 shares of stock for services that were never rendered. These
shares have been canceled and are no longer outstanding.
During November 2002, the Company received $25,000 for 333,333 shares
of common stock. As of December 31, 2002, these shares have not been issued.
NOTE 11 - SUBSEQUENT EVENTS
During January 2003, the Company received $65,000 for 866,667 shares of
common stock.
F - 40