[As adopted in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
(Mark One)
For the quarterly period ended: June 30, 2004
For the transition period from __________ to __________
Commission file number 0-18834
Klever Marketing,
Inc.
(Exact name of small business issuer as specified in its charter)
| Delaware |
36-3688583 | |
|---|---|---|
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer 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 BANKRUPTCYPROCEEDING
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 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: June 30, 2004 34,301,451
Transitional Small Business Disclosure Format (check one). Yes ; No X
KLEVER MARKETING,
INC.
(A Development Stage
Company)
BALANCE SHEETS
| June 30, 2004 |
December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 5,778 | $ | 1,916 | ||||
| Prepaid Expense | 1,650 | 2,512 | ||||||
| Other Receivables | 23,858 | -- | ||||||
| Total Current Assets | 31,286 | 4,428 | ||||||
| Fixed Assets | ||||||||
| Office Equipment | 105,028 | 105,727 | ||||||
| Less Accumulated Depreciation | (100,577 | ) | (98,913 | ) | ||||
| Net Fixed Assets | 4,451 | 6,814 | ||||||
| Other Assets | ||||||||
| Patents | 2,371,097 | 2,358,342 | ||||||
| Less Accumulated Amortization | (2,249,302 | ) | (2,137,679 | ) | ||||
| Net Other Assets | 121,795 | 220,663 | ||||||
| Total Assets | $ | 157,532 | $ | 231,905 | ||||
3
KLEVER MARKETING,
INC.
(A Development Stage
Company)
BALANCE SHEETS
(Continued)
| June 30, 2004 |
December 31, 2003 | |||||||
|---|---|---|---|---|---|---|---|---|
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable, Trade | $ | 452,262 | $ | 446,855 | ||||
| Accrued Liabilities | 1,550,565 | 1,247,524 | ||||||
| Related Party Payables | 2,125,935 | 2,172,880 | ||||||
| Notes Payable | 45,000 | 45,000 | ||||||
| Short-term Notes Payable | 458 | 458 | ||||||
| Total Current Liabilities | 4,174,220 | 3,912,717 | ||||||
| Stockholders' Equity | ||||||||
| Preferred stock (Par Value $.01), | ||||||||
| 2,000,000 shares authorized. 168,434 shares issued | ||||||||
| and outstanding at June 30, 2004 and December 31, 2003 | 1,684 | 1,684 | ||||||
| Common Stock (Par Value $.01), | ||||||||
| 50,000,000 shares authorized. 34,301,451 shares issued | ||||||||
| and outstanding at June 30, 2004 and 33,410,364 at | ||||||||
| December 31, 2003 | 343,014 | 334,104 | ||||||
| Common Stock to be issued, 1,395,657 shares at | ||||||||
| June 30, 2004 and December 31, 2003 | 16,243 | 13,957 | ||||||
| Treasury Stock, 1,000 shares at June 30, 2004 and | ||||||||
| December 31, 2003 | (1,000 | ) | (1,000 | ) | ||||
| Paid in Capital in Excess of Par Value | 13,089,710 | 12,934,463 | ||||||
| Shareholder Receivable | (15,000 | ) | (15,000 | ) | ||||
| Retained Deficit | (3,333,785 | ) | (3,333,785 | ) | ||||
| Deficit Accumulated During Development Stage | (14,117,554 | ) | (13,615,235 | ) | ||||
| Total Stockholders' Equity | (4,016,688 | ) | (3,680,812 | ) | ||||
| Total Liabilities and Stockholders' Equity | $ | 157,532 | $ | 231,905 | ||||
See accompanying notes.
4
KLEVER MARKETING,
INC.
(A Development Stage
Company)
STATEMENTS OF
OPERATIONS
| For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
Cumulative From July 5, 1996 Inception of Development | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
2004 |
2003 |
Stage | |||||||||||||
| Revenue | $ | -- | $ | -- | $ | -- | $ | -- | $ | 256,000 | |||||||
| Expenses | |||||||||||||||||
| Sales and Marketing | -- | -- | -- | -- | 117,546 | ||||||||||||
| General and Administrative | 180,382 | 176,806 | 414,767 | 349,701 | 8,668,372 | ||||||||||||
| Research and Development | 27,459 | -- | 44,564 | -- | 4,504,455 | ||||||||||||
| Total Expenses | 207,841 | 176,806 | 459,331 | 349,701 | 13,290,373 | ||||||||||||
| Other Income (Expense) | |||||||||||||||||
| Other Income | 234,402 | -- | 234,402 | -- | 234,402 | ||||||||||||
| Interest Income | -- | -- | -- | -- | 18,902 | ||||||||||||
| Interest Expense | (183,484 | ) | (85,936 | ) | (277,590 | ) | (172,195 | ) | (1,293,186 | ) | |||||||
| Gain (Loss) on sale of assets | -- | 200 | -- | (233,991 | ) | ||||||||||||
| Capital gain on sale of investments | -- | -- | -- | -- | 191,492 | ||||||||||||
| Total Other Income (Expense) | 50,918 | (85,936 | ) | (42,988 | ) | (172,195 | ) | (1,082,381 | ) | ||||||||
| Loss Before Taxes | (156,923 | ) | (262,742 | ) | (502,319 | ) | (521,896 | ) | (14,116,754 | ) | |||||||
| Income Taxes | -- | -- | -- | -- | 800 | ||||||||||||
| Net Loss After Taxes | $ | (156,923 | ) | $ | (262,742 | ) | $ | (502,319 | ) | $ | (521,896 | ) | $ | (14,117,554 | ) | ||
| Loss per Common Share | $ | -- | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | ||||||
See accompanying notes.
5
KLEVER MARKETING,
INC.
(A Development Stage
Company)
STATEMENTS OF CASH
FLOWS
| For the Six Months Ended June 30, |
Cumulative From July 5, 1996 Inception of Development | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
Stage | |||||||||
| CASH FLOWS FROM OPERATING | |||||||||||
| ACTIVITIES: | |||||||||||
| Net Loss | $ | (502,319 | ) | $ | (521,896 | ) | $ | (14,117,554 | ) | ||
| Adjustments used to reconcile net loss to net | |||||||||||
| cash provided by (used in) operating activities: | |||||||||||
| Stock issued for general and administrative | 52,000 | -- | 952,115 | ||||||||
| Stock issued for research and development | -- | -- | 15,000 | ||||||||
| Stock returned for services not rendered | -- | -- | (200,790 | ) | |||||||
| Write-off of assets | -- | -- | 747,674 | ||||||||
| Compensation expense from stock options | -- | -- | 26,247 | ||||||||
| Stock issued for interest expense | -- | -- | 119,701 | ||||||||
| Stock issued for accounts payable | 24,700 | -- | 196,823 | ||||||||
| Deferred income | -- | -- | (214,000 | ) | |||||||
| Depreciation and amortization | 113,287 | 116,126 | 1,831,356 | ||||||||
| (Increase) decrease in accounts receivable | -- | -- | (413 | ) | |||||||
| (Increase) decrease in shareholder receivable | -- | -- | 37,694 | ||||||||
| (Increase) decrease in other assets & prepaids | (22,996 | ) | -- | 88,730 | |||||||
| Increase (decrease) in accounts payable | 5,407 | 9,732 | 366,558 | ||||||||
| Increase (decrease) in accrued liabilities | 304,465 | 277,981 | 1,510,340 | ||||||||
| Net cash used in operating activities | (25,456 | ) | (118,057 | ) | (8,640,519 | ) | |||||
| CASH FLOWS FROM INVESTING | |||||||||||
| ACTIVITIES: | |||||||||||
| Acquisition/Sale of equipment, net | 699 | -- | (589,430 | ) | |||||||
| Acquisition of patents | (12,755 | ) | (7,027 | ) | (279,140 | ) | |||||
| Acquisition/Sale of stock, net | -- | -- | 12,375 | ||||||||
| Net cash used by investing activities | (12,056 | ) | (7,027 | ) | (856,195 | ) | |||||
6
KLEVER MARKETING,
INC.
(A Development Stage
Company)
STATEMENTS OF CASH
FLOWS
(Continued)
| For the Six Months Ended June 30, |
Cumulative From July 5, 1996 Inception of Development | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 |
2003 |
Stage | |||||||||
| CASH FLOWS FROM FINANCING | |||||||||||
| ACTIVITIES: | |||||||||||
| Proceeds from capital stock | $ | 50,000 | $ | 65,000 | $ | 6,331,427 | |||||
| Proceeds from shareholder loans | 2,374 | 57,973 | 3,455,188 | ||||||||
| Principal payments on lease obligations | -- | (1,216 | ) | (18,769 | ) | ||||||
| Loan Receivable | -- | -- | (15,000 | ) | |||||||
| Cash payments on notes payable | (11,000 | ) | -- | (275,028 | ) | ||||||
| Net Cash Provided by Financing Activities | 41,374 | 121,757 | 9,477,818 | ||||||||
| Net Increase (Decrease) in | |||||||||||
| Cash and Cash Equivalents | 3,862 | (3,327 | ) | (18,896 | ) | ||||||
| Cash and Cash Equivalents at | |||||||||||
| Beginning of the Period | 1,916 | 3,424 | 24,674 | ||||||||
| Cash and Cash Equivalents at | |||||||||||
| End of the Period | $ | 5,778 | $ | 97 | $ | 5,778 | |||||
| SUPPLEMENTAL DISCLOSURE OF CASH | |||||||||||
| FLOW INFORMATION: | |||||||||||
| Interest | $ | -- | $ | -- | $ | -- | |||||
| Income Taxes | $ | -- | $ | -- | $ | 800 | |||||
SUPPLEMENTAL DISCLOSURE
OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
NONE
See accompanying notes.
7
KLEVER MARKETING,
INC.
(A Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
NOTE 1 — NATURE OF OPERATIONS AND GOING CONCERN
The unaudited financial statements as of June 30, 2004 and for the three and six 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 six 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 $502,000 for the six months ended June 30, 2004 and losses of approximately $522,000 for the six months ended June 30, 2003, and net losses of approximately $17,000,000 since the inception. 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.
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. Since July 5, 1996
8
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 1 — NATURE OF OPERATIONS AND GOING CONCERN (continued)
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 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 2003 financial statements to conform with the 2004 presentation.
9
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(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:
| Loss |
Shares |
Per-Share Amount | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| For the three months ended June 30, 2004 | |||||||||||
| BASIC LOSS PER SHARE | |||||||||||
| Loss available to common shareholders | $ | (156,923 | ) | 34,041,326 | $ | -- | |||||
| For the three months ended June 30, 2003 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| BASIC LOSS PER SHARE | |||||||||||
| Loss available to common shareholders | $ | (262,742 | ) | 12,717,245 | $ | (0.02 | ) | ||||
| For the six months ended June 30, 2004 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| BASIC LOSS PER SHARE | |||||||||||
| Loss available to common shareholders | $ | (502,319 | ) | 33,902,139 | $ | (0.01 | ) | ||||
| For the six months ended June 30, 2003 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| BASIC LOSS PER SHARE | |||||||||||
| Loss available to common shareholders | $ | (521,896 | ) | 12,542,954 | $ | (0.04 | ) | ||||
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 and six months ended June 30, 2004 and 2003 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:
10
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 2 — SUMMARY OF ACCOUNTING POLICIES (continued)
| Computer equipment Office furniture and fixtures |
3 years 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 $17,000,000 expiring in years 2007 through 2024. 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 lease expires in May 2004. The total monthly lease payments due on the above leases is approximately $90.
In August 2000, the Company entered into a lease agreement for the rental of a postage meter. The lease expires in August 2006. The monthly lease payments due on the above lease is approximately $110.
11
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 4 — LEASE COMMITMENT (continued)
The minimum future lease payments under these leases for the next five years are:
| Year Ended December 31, |
|||||
|---|---|---|---|---|---|
| 2004 | $ | 1,770 | |||
| 2005 | 1,320 | ||||
| 2006 | 880 | ||||
| 2007 | -- | ||||
| 2008 | -- | ||||
| Total minimum future lease payments | $ | 3,970 | |||
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 six months ended June 30, 2004 and 2003, the Company expended $44,564 and $0, respectively for research and development of the technology involved with its patents.
NOTE 6- RELATED PARTY TRANSACTIONS
Olson Holdings, 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 Holdings 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.
12
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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.
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 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.
13
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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 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.
On October 20, 1998, the Company borrowed $150,000 from William C. Bailey 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.
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.
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.
14
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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.
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.
| DATE |
Principal |
Annual Interest Rate |
Maturity Date |
Common Stock Option # Shares |
Option Strike 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.
15
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
The loans listed below were made to the Company by The Arbinger Institute after September 11, 2003.
| DATE |
Principal |
Annual Interest Rate |
Maturity Date |
Common Stock Option # Shares |
Option Strike Price | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 09/12/03 | $ | 10,040.00 | 8.00 | % | 09/12/05 | 16,733 | $ | 1.00 | |||||||||
| 09/17/03 | $ | 471.73 | 8.00 | % | 09/17/05 | 786 | $ | 1.00 | |||||||||
| 09/25/03 | $ | 4,500.00 | 8.00 | % | 09/25/05 | 7,500 | $ | 1.00 | |||||||||
| 09/26/03 | $ | 80.95 | 8.00 | % | 09/26/05 | 135 | $ | 1.00 | |||||||||
| 11/26/03 | $ | 10,000.00 | 8.00 | % | 11/26/05 | 16,667 | $ | 1.00 | |||||||||
| 12/15/03 | $ | 13,000.00 | 8.00 | % | 12/15/05 | 21,667 | $ | 1.00 | |||||||||
| 12/24/03 | $ | 2,750.00 | 8.00 | % | 12/24/05 | 4,583 | $ | 1.00 | |||||||||
| Total | $ | 40,842.68 | 68,071 | ||||||||||||||
The Arbinger Institute has also made additional loans to the Company to pay for storage space. The total amount of these loans is $1,835 plus accrued interest of $199. These loans were converted to common stock on September 11, 2003. As of March 16, 2004, the stock has not been issued due to administrative reasons.
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.
The loans listed below were made to the Company by D. Paul Smith, a member of the Board of Directors:
16
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
| DATE |
Principal |
Annual Interest Rate |
Maturity Date |
Common Stock Option # Shares |
Option Strike 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.
On October 8, 2003, Mr. Smith loaned the Company $2,500. This note is payable within two years plus interest at 8% per annum. In conjunction with the note, Mr. Smith received a common stock option at a ratio of 1.667 common shares for each dollar loaned to the Company. The option has a strike price of $1.00 and a 3-year expiration date.
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. During 2003, the Company paid $27,899 towards these liabilities. The total amount of these liabilities remaining at December 31, 2003 is $38,035.
In February 2004, the remaining liabilities $38,035 due to Mr. Begum were settled in exchange for 152,142 shares of the Company’s free-trading common stock valued at $.25 per share.
17
KLEVER MARKETING,
INC.
(a Development Stage
Company)
>NOTES TO FINANCIAL
STATEMENTS
(continued)
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 qualified and non-qualified incentive stock options. On August 18, 2003, the Company registered its “Amended Stock Incentive Plan of Klever Marketing, Inc.” on Form S-8.
As of June 30, 2004, 6,962,761 options were outstanding. Compensation expense charged to operations in 2004 and 2003 is $0 and $0. The following is a summary of transactions:
| Shares Under Option | ||||||||
|---|---|---|---|---|---|---|---|---|
| June 30, 2004 |
December 31, 2003 | |||||||
| Outstanding, beginning of year | 7,082,629 | 4,047,005 | ||||||
| Granted during the year | 200,132 | 5,057,126 | ||||||
| Canceled during the year | (320,000 | ) | (2,021,502 | ) | ||||
| Exercised during the year | -- | -- | ||||||
| Outstanding, end of year (at prices | ||||||||
| ranging from $.01 to $2.77 per share) | 6,962,761 | 7,082,629 | ||||||
| Eligible, end of year for exercise currently (at prices | ||||||||
| ranging from $.01 to $2.77 per share) | 6,862,761 | 6,882,629 | ||||||
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
18
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 8 — PREFERRED STOCK (continued)
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.
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
19
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 8 — PREFERRED STOCK (continued)
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.
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
20
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 8 — PREFERRED STOCK (continued)
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 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).
21
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 8 — PREFERRED STOCK (continued)
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.
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
22
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 9 — LITIGATION (continued)
Company in Utah of the amount of said judgement. The Company has filed 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 December 31, 2003 and 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, 2003.
A Confession of Judgement Statement of Klever Marketing, Inc. dated November 28, 2003 was filed in the amount of $16,135.81 in favor of Boult Wade Tennant. This amount has been included in accounts payable as of December 31, 2003. On May 7, 2004, the Company paid $16,135.81 to settle this judgment.
NOTE 10 — STOCK TRANSACTIONS
On January 7, 2004, the Company issued 19,000 shares of common stock for payment of accounts payable of $3,800.
On January 23, 2004, the Company issued 50,000 shares of common stock for $7,000 in cash.
On January 27, 2004, the Company issued 7,046 shares of common stock for payment of accounts payable of $1,550.
On February 2, 2004, the Company issued 6,739 shares of common stock for payment of accounts payable of $1,550.
On February 6, 2004, the Company issued 200,000 shares of common stock for $28,000 in cash.
On February 9, 2004, the Company issued 152,142 shares of common stock for settlement of shareholder payables of $38,036.
On February 10, 2004, the Company issued 100,000 shares of common stock for $15,000 in cash.
On February 19, 2004, the Company issued 24,435 shares of common stock for payment of accounts payable of $5,125.
23
KLEVER MARKETING,
INC.
(a Development Stage
Company)
NOTES TO FINANCIAL
STATEMENTS
(Continued)
NOTE 10 — STOCK TRANSACTIONS (continued)
On February 20, 2004, the Company issued 200,000 shares of common stock for general and administrative expenses of $46,000.
On February 27, 2004, the Company issued 20,588 shares of common stock for payment of accounts payable of $3,500.
On March 17, 2004, the Company issued 7,619 shares of common stock for payment of accounts payable of $1,600.
On March 25, 2004, the Company issued 8,214 shares of common stock for payment of accounts payable of $1,150.
On May 5, 2004, the Company issued 14,375 shares of common stock for payment of accounts payable of $1,150.
On May 17, 2004, the Company issued 55,358 shares of common stock for payment of accounts payable of $3,875.
On June 14, 2004, the Company issued 20,000 shares of common stock for payment of accounts payable of $1,400.
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 agreed to issue 3,000,000 restricted shares of the Company’s common voting stock to acquire the S&C shares. The Company also sent S&C $15,000 in cash. As of December 31, 2003, the Company cancelled the agreement. The 3,000,000 shares have not yet been returned to the Company. The Company is in the process of cancelling these shares. The $15,000 has been recorded as a shareholder receivable.
NOTE 12 — LICENSE AGREEMENT
On May 11, 2004, Media Cart, Inc. acquired from the Company a limited exclusive license to use the Company’s patent portfolio for electronic display devices specific to Media Cart’s product design. Under the license agreement, Media Cart paid the Company $200,000 and will pay ongoing royalties for all Media Cart products that utilize the Company’s licensed technology.
24
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, 2003.
Plan of Operation — 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.
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 work jointly with Fujitsu Transactions Solutions to: 1) develop and implement electronic couponing, and the Klever-Kard enhancement to existing frequent shopping programs; 2) install two beta stores; 3) begin production of the next generation Klever-Kart with full color display, audio, video, and scanning capabilities; 4) commence general installations; and 5) 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
25
from a principal shareholder or other related entities.
Cash flows. Operating activities used cash of approximately $25,000 and $118,000 for the six months ended June 30, 2004 and 2003, respectively.
Investing activities used cash of approximately $12,000 and $7,000 for the six months ended June 30, 2004 and 2003, 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 approximately $41,000 and $122,000 for the six months ended June 30, 2004 and 2003, 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.
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.
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
26
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 has filed 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 December 31, 2003 and 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, 2003.
A Confession of Judgement Statement of Klever Marketing, Inc. dated November 28, 2003 was filed in the amount of $16,135.81 in favor of Boult Wade Tennant. This amount has been included in accounts payable as of December 31, 2003. On May 7, 2004, the Company paid $16,135.81 to settle this judgment.
On May 5, 2004, the Company issued 14,375 shares of common stock for payment of accounts payable of $1,150.
On May 17, 2004, the Company issued 55,358 shares of common stock for payment of accounts payable of $3,875.
On June 14, 2004, the Company issued 20,000 shares of common stock for payment of accounts payable of $1,400.
None.
None.
None.
27
| Exhibit Number |
Title of Document |
|---|---|
| 3.01 3.02 3.03 4.01 4.02 4.03 4.04 4.05 10.01 10.02 10.03 10.04 31.1 31.2 32.1 32.2 |
Restated Certificate of Incorporation of Klever Marketing, Inc. a Delaware corporation (1) 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) Bylaws, as amended (2) 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) Certificate of Designation of Rights, Privileges and Preferences of Class B Voting Preferred Stock, of Klever Marketing, Inc., dated September 24, 2000 (3) Certificate of Designation of Rights, Privileges and Preferences of Class C Voting Preferred Stock, of Klever Marketing, Inc., dated January 2, 2001 (3) Certificate of Designation of Rights, Privileges and Preferences of Class D Voting Preferred Stock, of Klever Marketing, Inc., dated June 14, 2002 (5) 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) Separation Agreement between Paul G. Begum and the Registrant Dated January 8, 2001 (2) Stock Incentive Plan, effective June 1, 1998 (2) 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) Intercreditor Agreement between Seabury Investors III, Limited Partnership, The Olson Foundation, Presidio Investments, LLC, and the Registrant dated August 27, 2001 (4) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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(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. |
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(b) Reports on Form 8-K filed.
On July 9, 2004, the Company filed on Form 8-K under Item 9, Regulation FD Disclosure.
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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: August 16, 2004
By: /s/ William J. Dupre
William J. Dupre
President & COO
By: /s/ D. Paul Smith
D. Paul Smith
C.F.O., Secretary, Treasurer, Chairman, Executive Vice-President
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