[As adopted in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2003
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
-------------------- -----------------------
Commission file number 0-18834
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Klever Marketing, Inc.
--------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 36-3688583
--------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
350 West 300 South, Suite 201, Salt Lake City, Utah 84101
(Address of principal executive offices)
(801) 322-1221
Issuer's telephone number
(Former name, former address and former fiscal year, if changed since
last report.)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: September 30, 2003 18,145,578
Transitional Small Business Disclosure Format (check one).
Yes ; No X
---- -----
PART I
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
Klever Marketing, Inc.
(A Development Stage Company)
We have reviewed the accompanying balance sheets of Klever Marketing,
Inc. (a development stage company) as of September 30, 2003, and the related
statements of operations for the three and nine months ended September 30, 2003
and 2002, and cash flows for the nine months ended September 30, 2003 and 2002.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards
generally accepted in the United States of America, the balance sheet of Klever
Marketing, Inc.(a development stage company) as of December 31, 2002, and the
related statements of operations, cash flows, and stockholders' equity for the
year then ended (not presented herein); and in our report dated April 25, 2003,
we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying balance sheet as of
December 31, 2002, is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
3
Note 1 of the Company's audited financial statements as of December 31,
2002, and for the year then ended discloses that the Company has suffered
recurring losses from operations and has no established source of revenue at
December 31, 2002. Our auditors' report on those financial statements includes
an explanatory paragraph referring to the matter in Note 1 of those financial
statements and indicating that these matters raised substantial doubt about the
Company's ability to continue as a going concern. As indicated in Note 1 of the
Company's unaudited interim financial statements as of September 30, 2003, and
for the three months then ended, the Company has continued to suffer recurring
losses from operations and still has no established source of revenue at
September 30, 2003. The accompanying interim 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
November 25, 2003
4
KLEVER MARKETING, INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, December 31,
------------------ -----------------
ASSETS 2003 2002
------------------ -----------------
Current Assets
Cash $ 228 $ 3,424
Loan Receivable 15,000 -
------------------ -----------------
Total Current Assets 15,228 3,424
------------------ -----------------
Fixed Assets
Office Equipment 148,067 148,067
Phase 2 Equipment 57,750 57,750
Less Accumulated Depreciation (128,108) (120,105)
------------------ -----------------
Net Fixed Assets 77,709 85,712
------------------ -----------------
Other Assets
Patents 2,354,972 2,339,006
Less Accumulated Amortization (2,081,270) (1,915,172)
------------------ -----------------
Net Other Assets 273,702 423,834
------------------ -----------------
Total Assets $ 366,639 $ 512,970
================== =================
5
KLEVER MARKETING, INC.
(A Development Stage Company)
BALANCE SHEETS
(Continued)
September 30, December 31,
------------------- ------------------
2003 2002
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade $ 446,266 $ 435,928
Accrued Liabilities 1,143,341 878,142
Related Party Payables 2,214,689 2,551,298
Short-term Notes Payable 635 2,207
------------------- ------------------
Total Current Liabilities 3,804,931 3,867,575
------------------- ------------------
Stockholders' Equity
Preferred stock (Par Value $.01),
2,000,000 shares authorized. 168,434 shares issued
and outstanding September 30, 2003 and December 31, 2002 1,684 1,684
Common Stock (Par Value $.01),
20,000,000 shares authorized. 18,145,578 shares issued
and outstanding at September 30, 2003 and 12,370,578 at
December 31, 2002 181,456 123,706
Common Stock to be issued, 12,274,872 shares at
September 30, 2003 and 768,917 at December 31, 2002 122,749 7,689
Treasury Stock, 1,000 shares at September 30, 2003 and
December 31, 2002 (1,000) (1,000)
Paid in Capital in Excess of Par Value 12,808,648 12,100,583
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During Development Stage (13,218,044) (12,253,482)
------------------- ------------------
Total Stockholders' Equity (3,438,292) (3,354,605)
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 366,639 $ 512,970
=================== ==================
See accompanying notes and accountants' report.
6
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
From
July 5, 1996
For the Three Months For the Nine Months Inception of
Ended September 30, Ended September 30, Development
----------------------------- -----------------------------
2003 2002 2003 2002 Stage
------------ ------------ ------------ ------------ ------------
Revenue $ -- $ -- $ -- $ -- $ 256,000
------------ ------------ ------------ ------------ ------------
Expenses
Sales and Marketing -- -- -- 117,546
General and Administrative 418,418 111,032 768,119 380,245 8,172,626
Research and Development -- -- -- -- 4,459,891
------------ ------------ ------------ ------------ ------------
Total Expenses 418,418 111,032 768,119 380,245 12,750,063
------------ ------------ ------------ ------------ ------------
Other Income (Expense)
Interest Income -- -- -- -- 18,902
Interest Expense (24,248) (73,129) (196,443) (214,388) (920,440)
Loss on sale of assets -- -- -- (3,998) (13,235)
Capital gain on sale of investments -- -- -- -- 191,492
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (24,248) (73,129) (196,443) (218,386) (723,281)
------------ ------------ ------------ ------------ ------------
Loss Before Taxes (442,666) (184,161) (964,562) (598,631) (13,217,344)
Income Taxes -- -- -- -- 700
------------ ------------ ------------ ------------ ------------
Net Loss After Taxes $ (442,666) $ (184,161) $ (964,562) $ (598,631) $(13,218,044)
============ ============ ============ ============ ============
Loss per Common Share $ (0.03) $ (0.01) $ (0.07) $ (0.05)
============ ============ ============ ============
See accompanying notes and accountants' report.
7
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
From
July 5, 1996
For the Nine Months Inception of
Ended September 30, Development
-------------------------------------
2003 2002 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (964,562) $ (598,631) $ (13,218,044)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Stock issued for general and administrative 28,635 - 900,115
Stock issued for research and development - - 15,000
Stock returned for services not rendered - (200,790) (200,790)
Write-off of assets - - 526,718
Compensation expense from stock options - - 26,247
Stock issued for interest expense 95,416 - 119,701
Stock issued for accounts payable 235,800 - 260,953
Deferred income - (214,000)
Depreciation and amortization 174,101 178,019 1,661,722
(Increase) decrease in accounts receivable - - (413)
(Increase) decrease in shareholder receivable - - 37,694
(Increase) decrease in other assets & prepaids - 205,566 114,238
Increase (decrease) in accounts payable 10,338 (9,767) 360,562
Increase (decrease) in accrued liabilities 265,199 261,353 1,101,691
----------------- ------------------ ------------------
Net cash used in operating activities (155,073) (164,250) (8,508,606)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net - 13,038 (590,129)
Acquisition of patents (15,966) (18,395) (263,015)
Acquisition/Sale of stock, net - - 12,375
----------------- ------------------ ------------------
Net cash used by investing activities (15,966) (5,357) (840,769)
----------------- ------------------ ------------------
8
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Continued)
Cumulative
From
July 5, 1996
For the Nine Months Inception of
Ended September 30, Development
-------------------------------------
2003 2002 2001
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from capital stock $ 65,000 $ - $ 6,172,927
Proceeds from shareholder loans 119,415 175,365 3,421,723
Principal payments on lease obligations (1,572) (4,155) (18,592)
Loan Receivable (15,000) - (15,000)
Cash payments on notes payable - - (236,129)
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 167,843 171,210 9,324,929
----------------- ------------------ ------------------
Net Increase (Decrease) in
Cash and Cash Equivalents (3,196) 1,603 (24,446)
Cash and Cash Equivalents at
Beginning of the Period 3,424 - 24,674
----------------- ------------------ ------------------
Cash and Cash Equivalents at
End of the Period $ 228 $ 1,603 $ 228
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ - $ -
Income Taxes $ - $ - $ 700
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
During September 2003, the Company converted $456,023 in notes payable
into 9,195,460 shares of common stock.
See accompanying notes and accountants' report.
9
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
This summary of accounting policies for Klever Marketing, Inc. (a
development stage company) 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.
The unaudited financial statements as of September 30, 2003 and for the
three and nine months then ended reflect, in the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
fairly state the financial position and results of operations for the three and
nine months. Operating results for interim periods are not necessarily
indicative of the results which can be expected for full years.
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 $443,000 for the three months ended September 30, 2003, net losses
of approximately $184,000 for the three months ended September 30, 2002, and net
losses of approximately $16,500,000 since the inception of the development stage
on July 5, 1996. The Company also 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.
10
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
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.
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
11
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
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 2002 financial
statements to conform with the 2003 presentation.
Loss per Share
The reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:
Per-Share
Loss Shares Amount
For the three months ended September 30, 2003
Basic Loss per Share
Loss available to common shareholders $ (442,666) 14,529,545 $ (0.03)
================= ================== ==================
For the three months ended September 30, 2002
Basic Loss per Share
Loss available to common shareholders $ (184,161) 12,535,920 $ (0.01)
================= ================== ==================
For the nine months ended September 30, 2003
Basic Loss per Share
Loss available to common shareholders $ (964,562) 13,514,441 $ (0.07)
================= ================== ==================
For the nine months ended September 30, 2002
Basic Loss per Share
Loss available to common shareholders $ (598,631) 12,628,003 $ (0.05)
================= ================== ==================
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 three months ended September 30,
2003 and 2002 are not presented as it would be anti- dilutive.
12
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
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 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.
13
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
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.
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 three months ended September 30, 2003 and 2002, the Company
expended $0 and $0, respectively for research and development of the technology
involved with its patents.
14
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
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.
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.
15
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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. On September 11, 2003, the
outstanding loan of $28,750 and accrued interest of $17,679 were converted to
928,580 shares of common stock valued at $.05 per share.
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 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 1, 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. On September 11, 2003, the outstanding loan of $50,706 and accrued
interest of $7,887 were converted to 1,171,850 shares of common stock valued at
$.05 per share.
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. On September
11, 2003, the remaining loan balance of $100,000 and accrued interest of $50,006
were converted to 3,000,113 shares of common stock valued at $.05 per share.
16
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
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. During the
three months ended September 30, 2003, Mr. Trout loaned the Company an
additional $839. 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.
On September 11, 2003, the outstanding loan balance of $1,967 and accrued
interest of $65 were converted to 40,645 shares of common stock valued at $.05
per share.
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
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
07/30/03 $15,000.00 8.00% 07/30/05 25,000 $1.00
------------- --------------
Total $73,717.04 122,862
============= ==============
On September 11, 2003, the outstanding loan of $73,717 and accrued
interest of $7,137 were converted to 1,617,074 shares of common stock valued at
$.05 per share.
17
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
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, Mr. Warner received common stock options
for each note at a ratio of 1.667 common shares for each dollar loaned to the
Company. On September 11, 2003, the outstanding loan of $67,648 and accrued
interest of $3,992 were converted to 1,432,791 shares of common stock valued at
$.05 per share.
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
07/18/03 $7,500.00 8.00% 07/18/05 12,500 $1.00
08/18/03 $5,000.00 8.00% 08/18/05 8,333 $1.00
------------- --------------
Total $88,235.05 147,058
============= ==============
On September 11, 2003, the outstanding loan $88,235 and accrued
interest of $5,215 were converted to 1,868,997 shares of common stock valued at
$.05 per share.
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
18
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 6 - RELATED PARTY TRANSACTIONS (continued)
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.
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 September 30, 2003 is $65,372.
NOTE 7- STOCK OPTIONS
The shareholders approved, by a majority vote, the adoption of the 1998
Stock Incentive Plan (the "Plan"). As amended on August 11, 2003, the Plan
reserves 20,000,000 shares of common stock 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 non-qualified and qualified incentive stock options.
19
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 7- STOCK OPTIONS (continued)
As of September 30, 2003, 5,200,082 options had been granted under the
Plan, and another 1,732,175 options had been granted outside of the Plan.
Compensation expense charged to operations in 2003 and 2002 is $0 and $0. The
following is a summary of transactions:
Shares Under Option
--------------------------------------
September 30, December 31,
--------------------------------------
2003 2002
------------------ ------------------
Outstanding, beginning of year 4,227,373 2,124,392
Granted during the year 4,726,386 2,215,113
Canceled during the year (2,021,502) (292,500)
Exercised during the year - -
------------------ ------------------
Outstanding, end of year (at prices
ranging from $.01 to $3.00 per share) 6,932,257 4,047,005
================== ==================
Eligible, end of year for exercise currently (at prices
ranging from $.01 to $3.00 per share) 6,732,257 3,213,672
================== ==================
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
20
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 8 - PREFERRED STOCK (continued)
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.
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
21
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 8 - PREFERRED STOCK (continued)
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 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.
22
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 8 - PREFERRED STOCK (continued)
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 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
23
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 8 - PREFERRED STOCK (continued)
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 (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.
24
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 8 - PREFERRED STOCK (continued)
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.
NOTE 9 - LITIGATION
On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC., filed
against the Company in the Third Judicial District Court of Utah under the
provisions of the Utah Foreign Judgement Act a judgement from the Superior Court
of California, in and for the County of San Francisco Jurisdiction. Pursuant to
the Judgement Information Statement, also filed on October 27, 2003, the amount
of the above judgement is $81,124. The relief sought is collection from the
Company in Utah of the amount of said judgement. The Company intends to file an
action to dismiss said Utah judgement on the grounds that the Superior Court of
California did not have jurisdiction over the Company when the original
judgement was granted. This judgment has been included in the financial
statements as part of accrued liabilities at September 30, 2003 and December 31,
2002.
NOTE 10 - STOCK TRANSACTIONS
During January 2003, the Company received $65,000 for 866,667 shares of
common stock. These shares were issued during the three months ended June 30,
2003.
On September 8, 2003, the Company issued 3,200,000 shares of common
stock valued at $.04 per share for $128,000 of accounts payable.
On September 11, 2003, the Company converted $544,239 of notes payable,
accrued interest, and accounts payable to 10,884,786 shares of common stock
valued at $.05 per share. As of September 30, 2003, these shares have not been
issued.
On September 8, 2003, the Company converted $15,000 of notes payable to
375,000 shares of common stock valued at $.04 per share.
25
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(continued)
NOTE 10 - STOCK TRANSACTIONS (continued)
On September 11, 2003, the Company authorized issuance of 954,502
shares of common stock for payment of expenses of $28,635.
On September 25, 2003, the Company issued 1,000,000 shares of common
stock valued at $.10 per share for $100,000 of accounts payable.
NOTE 11 - PURCHASE AGREEMENT
On July 29, 2003, the Company entered into an agreement to purchase 80%
of the issued and outstanding shares of S&C Medical, Inc. (S&C). The Company has
agreed to issue 3,000,000 restricted shares of the Company's common voting stock
to acquire the S&C shares. As of September 30, 2003, this agreement is pending.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General - This discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's annual report on Form 10-KSB for the year ended December 31, 2002.
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
26
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.
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.
Liquidity and Capital Resources - The Company requires working capital
principally to fund its current 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 limited additional working capital that has been
required. 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 $37,000 and $59,000 for the three
months ended September 30, 2003 and 2002, respectively.
Investing activities used cash of $9,000 and $4,000 for the three months ended
September 30, 2003 and 2002, respectively. Investing activities primarily
represent purchases of patents relating to the electronic in-store advertising,
directory and coupon devices, and purchases or disposal of office equipment.
Financing activities provided cash of $46,000 and $63,000 for the three months
ended September 30, 2003 and 2002, respectively. Financing activities primarily
represent sales of the Company's common and preferred stock, and loans from
shareholders.
The Company will be required to supplement its available cash and other liquid
assets with proceeds from borrowing, the sale of additional securities, or other
sources. There can be no assurance that any such required additional funding
will be available or, if available, that it can be obtained on terms favorable
to the Company.
Item 3. Controls and Procedures
27
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 Quarterly Report on Form 10- QSB, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary to evaluate whether:
(i) this Quarterly Report on Form 10-QSB contains any untrue statement
of a material 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 Quarterly Report on Form 10-QSB, and
(ii) the financial statements, and other financial information included
in this Quarterly Report on Form 10-QSB, 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 Quarterly
Report on Form 10-QSB.
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 regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC., filed
against the Company in the Third Judicial District Court of Utah under the
provisions of the Utah Foreign Judgement Act a judgement from the Superior Court
of California, in and for the County of San Francisco Jurisdiction. Pursuant to
the Judgement Information Statement, also filed on October 27, 2003, the amount
of the above judgement is $81,124. The relief sought is collection from the
Company in Utah of the amount of said judgement. The Company intends to file an
action to dismiss said Utah judgement on the grounds that the Superior Court of
California did not have jurisdiction over the Company when the original
judgement was granted. This judgment has been included in the financial
statements as part of accrued liabilities at September 30, 2003 and December 31,
2002.
Item 2. Changes in Securities
During January 2003, the Company received $65,000 for 866,667 shares of
common stock. These shares were issued during the three months ended June 30,
2003.
On September 8, 2003, the Company issued 3,200,000 shares of common
stock valued at $.04 per share for $128,000 of accounts payable.
28
On September 11, 2003, the Company converted $544,239 of notes payable,
accrued interest, and accounts payable to 10,884,786 shares of common stock
valued at $.05 per share. As of September 30, 2003, these shares have not been
issued.
On September 8, 2003, the Company converted $15,000 of notes payable to
375,000 shares of common stock valued at $.04 per share.
On September 11, 2003, the Company authorized issuance of 954,502
shares of common stock for payment of expenses of $28,635.
On September 25, 2003, the Company issued 1,000,000 shares of common
stock valued at $.10 per share for $100,000 of accounts payable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
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
29
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)
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)
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification 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 10KSB,
dated May 15, 2002.
(5) Incorporated herein by reference from Registrant's Form 10QSB,
dated August 19, 2002.
(b) Reports on Form 8-K filed.
On August 12, 2003, the Company filed a report on 8-K reporting a Stock
Acquisition Agreement whereby the Company will acquire 80% of the issued and
outstanding shares of S&C Medical, Inc. in exchange for 3,000,000 restricted
shares of the Company's common voting stock under Item 2.
30
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Klever Marketing, Inc.
(Registrant)
DATE: November 26, 2003
By: /s/ Richard J. Trout
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Richard J. Trout
President & Director
By: /s/ D. Paul Smith
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D. Paul Smith
C.F.O., Secretary, Treasurer, Chairman
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