[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, 2004
-------------------------------------------------
[ ] 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 ----- 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, 2004 36,407,620
Transitional Small Business Disclosure Format (check one).
Yes ; No X
---- -----
PART I
ITEM 1. FINANCIAL STATEMENTS
KLEVER MARKETING, INC.
(A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, December 31,
2004 2003
------------------ -----------------
ASSETS
Current Assets
Cash $ 220,880 $ 1,916
Prepaid Expense 750 2,512
Othe r Receivables 26,097 -
------------------ -----------------
Total Current Assets 247,727 4,428
------------------ -----------------
Fixed Assets
Office Equipment 93,410 105,727
Less Accumulated Depreciation (90,983) (98,913)
------------------ -----------------
Net Fixed Assets 2,427 6,814
------------------ -----------------
Other Assets
Patents 737,631 2,358,342
Less Accumulated Amortization (712,393) (2,137,679)
------------------ -----------------
Net Other Assets 25,238 220,663
------------------ -----------------
Total Assets $ 275,392 $ 231,905
================== =================
3
KLEVER MARKETING, INC.
(A Development Stage Company)
BALANCE SHEETS
(Continued)
(Unaudited)
September 30, December 31,
2004 2003
------------------ ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade $ 430,315 $ 446,855
Accrued Liabilities 1,603,706 1,247,524
Related Party Payables 2,126,739 2,172,880
Notes Payable 45,000 45,000
Short-term Notes Payable 458 458
------------------ ------------------
Total Current Liabilities 4,206,218 3,912,717
------------------ ------------------
Stockholders' Equity
Preferred stock (Par Value $.01),
2,000,000 shares authorized. 168,434 shares issued and
outstanding at September 30, 2004 and December 31, 2003 1,684 1,684
Common Stock (Par Value $.01),
50,000,000 shares authorized. 36,407,620 shares issued
and outstanding at September 30, 2004 and 33,410,364 at
December 31, 2003 364,076 334,104
Common Stock to be issued, 478,752 shares at
September 30, 2004 and 1,395,657 shares at
December 31, 2003 4,698 13,957
Treasury Stock, 1,000 shares at September 30, 2004 and
December 31, 2003 (1,000) (1,000)
Paid in Capital in Excess of Par Value 13,154,708 12,934,463
Shareholder Receivable (15,000) (15,000)
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During Development Stage (14,106,207) (13,615,235)
------------------ ------------------
Total Stockholders' Equity (3,930,826) (3,680,812)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 275,392 $ 231,905
================== ==================
See accompanying notes.
4
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
From
(Unaudited) (Unaudited) July 5, 1996
For the Three Months For the Nine Months Inception of
Ended September 30, Ended September 30, Development
-------------------------- --------------------------
2004 2003 2004 2003 Stage
----------- ----------- ----------- ----------- -----------
Revenue $ -- $ -- $ -- $ -- $ 256,000
----------- ----------- ----------- ----------- -----------
Expenses
Sales and Marketing -- -- -- -- 117,546
General and Administrative 153,101 418,418 567,868 768,119 8,821,473
Research and Development 48,563 -- 93,127 -- 4,553,018
----------- ----------- ----------- ----------- -----------
Total Expenses 201,664 418,418 660,995 768,119 13,492,037
----------- ----------- ----------- ----------- -----------
Other Income (Expense)
Other Income 585 -- 234,987 -- 234,987
Interest Income -- -- -- -- 18,902
Interest Expense (48,620) (24,248) (326,210) (196,443) (1,341,806)
Gain (Loss) on sale of assets 261,046 -- 261,246 -- 27,055
Capital gain on sale of investments -- -- -- -- 191,492
----------- ----------- ----------- ----------- -----------
Total Other Income (Expense) 213,011 (24,248) 170,023 (196,443) (869,370)
----------- ----------- ----------- ----------- -----------
Loss Before Taxes 11,347 (442,666) (490,972) (964,562) (14,105,407)
Income Taxes -- -- -- -- 800
----------- ----------- ----------- ----------- -----------
Net Loss After Taxes $ 11,347 $ (442,666) $ (490,972) $ (964,562) $(14,106,207)
=========== =========== =========== =========== ===========
Loss per Common Share $ -- $ (0.03) $ (0.01) $ (0.07)
=========== =========== =========== ===========
See accompanying notes.
5
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
From
(Unaudited) July 5, 1996
For the Nine Months Inception of
Ended September 30, Development
-------------------------------------
2004 2003 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (490,972) $ (964,562) $ (14,106,207)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Stock issued for general and administrative 63,545 28,635 963,660
Stock issued for research and development 47,850 - 62,850
Stock returned for services not rendered - - (200,790)
(Gain)/Loss on sale/disposal of assets (261,246) - 486,428
Compensation expense from stock options - - 26,247
Stock issued for interest expense - 95,416 119,701
Stock issued for accounts payable 24,700 235,800 196,823
Deferred income - - (214,000)
Depreciation and amortization 129,877 174,101 1,847,946
(Increase) decrease in accounts receivable - - (413)
(Increase) decrease in shareholder receivable - - 37,694
(Increase) decrease in other assets & prepaids (24,335) - 87,391
Increase (decrease) in accounts payable (16,540) 10,338 344,611
Increase (decrease) in accrued liabilities 358,410 265,199 1,564,285
----------------- ------------------ ------------------
Net cash used in operating activities (168,711) (155,073) (8,783,774)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net 2,293 - (587,836)
Acquisition/Sale of patents, net 328,888 (15,966) 62,503
Acquisition/Sale of stock, net - - 12,375
----------------- ------------------ ------------------
Net cash used by investing activities 331,181 (15,966) (512,958)
----------------- ------------------ ------------------
6
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Continued)
Cumulative
From
(Unaudited) July 5, 1996
For the Nine Months Inception of
Ended September 30, Development
-------------------------------------
2004 2003 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from capital stock $ 65,120 $ 65,000 $ 6,346,547
Proceeds from shareholder loans 2,374 119,415 3,455,188
Principal payments on lease obligations - (1,572) (18,769)
Loan Receivable - (15,000) (15,000)
Cash payments on notes payable (11,000) - (275,028)
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 56,494 167,843 9,492,938
----------------- ------------------ ------------------
Net Increase (Decrease) in
Cash and Cash Equivalents 218,964 (3,196) 196,206
Cash and Cash Equivalents at
Beginning of the Period 1,916 3,424 24,674
----------------- ------------------ ------------------
Cash and Cash Equivalents at
End of the Period $ 220,880 $ 228 $ 220,880
================= ================== ==================
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 September 30, 2004 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 $491,000 for the nine months ended September 30, 2004 and losses
of approximately $965,000 for the nine months ended September 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:
Per-Share
Loss Shares Amount
For the three months ended September 30, 2004
BASIC LOSS PER SHARE
Loss available to common shareholders $ 11,347 34,980,523 $ -
================= ================== ==================
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 nine months ended September 30, 2004
BASIC LOSS PER SHARE
Loss available to common shareholders $ (490,972) 34,359,643 $ (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)
================= ================== ==================
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 nine months ended
September 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 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 $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 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. This lease was abandoned as of September 30,
2004.
On October 1, 2004, the Company began leasing approximately 144 square
feet of office space from Four Cabo's Enterprises, Ltd. on a month to month
basis. The lease payments are approximately $125 per month.
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 nine months ended September 30, 2004 and 2003, the Company
expended $93,127 and $0, respectively for research and development of the
technology involved with its patents.
NOTE 6- RELATED PARTY TRANSACTIONS
OLSON HOLDINGS, INC. LOANS TO THE COMPANY
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 LOANS TO THE COMPANY
Olson Foundation loaned the Company $60,000 on July 16, 2001, of which
is secured by a blanket lien on the assets of the Company. An interest rate of
10% compounded monthly applies until January 15, 2002. Principal and all due and
unpaid interest are to be paid on January 16, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 16, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation loaned the Company $90,000 on July 30, 2001, of which
is secured by a blanket lien on the assets of the Company. An interest rate of
10% compounded monthly applies until January 30, 2002. Principal and all due and
unpaid interest are to be paid on January 30, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 27,273 common shares at a strike price of $0.01 and an expiration date
of July 30, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation made unsecured loans to the Company on May 3, 2002,
August 16, 2002, and October 29, 2002 for $7,359, $10,000, and $1,059.37,
respectively. These notes are payable within two years plus interest at 8% per
annum. In conjunction with the notes, Olson Foundation also received common
stock options for each note at a ratio of 1.667 common shares for each dollar
loaned.
ESTATE OF PETER D. OLSON
Peter D. Olson loaned the Company $12,500, $12,500, and $3,750 on
September 1, 1998, September 17, 1998, and September 22, 1998, respectively.
These notes bear an interest rate of 10% per annum. 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.
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 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 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.
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.
THE SEABURY GROUP LOAN TO THE COMPANY
The Seabury Group loaned the Company $60,000 on July 5, 2001, of which
is secured by a blanket lien on the assets of the Company. An interest rate of
10% compounded monthly applies until January 5, 2002. Principal and all due and
unpaid interest are to be paid on January 5, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 5, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
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.
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.
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.
Common
Stock
Annual Option # Option Strike
DATE Principal Interest Rate Maturity Date Shares 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.
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:
16
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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.
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.
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. 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 September 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
--------------------------------------
September 30, December 31,
2004 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.
On July 15, 2004, the Company issued 200,000 shares of common stock for
cash of $7,200.
On July 27, 2004, the Company issued 20,000 shares of common stock for
cash of $720.
On August 27, 2004, the Company issued 100,000 shares of common stock
for cash of $3,600.
On September 1, 2004, the Company issued 1,154,502 shares of common
stock at $.04 per share for general and administrative expenses of $23,090.
On September 8, 2004, the Company issued 100,000 shares of common stock
for cash of $3,600.
On September 23, 2004, the Company issued 531,667 shares of common
stock at $.09 per share for consulting expense of $47,850.
24
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
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.
NOTE 13 - SALE OF PATENTS
On August 27, 2004, the Company sold all of its international patents
for $350,000. The international patents comprised approximately 69% of the total
patents the Company owned.
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.
BUSINESS DEVELOPMENT, NEXT 12 MONTHS
As a result of the current financial condition of the Company, the plan
of the Company for
25
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 from a principal shareholder or other related entities.
Cash flows. Operating activities used cash of approximately $169,000 and
$155,000 for the nine months ended September 30, 2004 and 2003, respectively.
Investing activities provided cash of approximately $331,000 for the nine months
ended September 30, 2004, and used cash of approximately $16,000 for the nine
months ended September 30, 2003, respectively. Investing activities primarily
represent purchases or disposal 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 $56,000 and $168,000 for the
nine months ended September 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.
26
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this 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 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.
ITEM 2. CHANGES IN SECURITIES
27
On July 15, 2004, the Company issued 200,000 shares of common stock for
cash of $7,200.
On July 27, 2004, the Company issued 20,000 shares of common stock for
cash of $720.
On August 27, 2004, the Company issued 100,000 shares of common stock
for cash of $3,600.
On September 1, 2004, the Company issued 1,154,502 shares of common
stock at $.04 per share for general and administrative expenses of $23,090.
On September 8, 2004, the Company issued 100,000 shares of common stock
for cash of $3,600.
On September 23, 2004, the Company issued 531,667 shares of common
stock at $.09 per share for consulting expense of $47,850.
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 Preferred Stock, of Klever Marketing, Inc., dated
September 24, 2000 (3)
28
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)
10.05 Asset Purchase Agreement by and between Fujitsu Transaction Solutions,
Inc. and the Registrant, dated August 27, 2004
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 September 2, 2004, the Company filed on Form 8-K under Item 9,
Regulation FD Disclosure.
29
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 19, 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
30