U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: DECEMBER 31, 2004
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from To
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Commission file number 0-18834
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KLEVER MARKETING, INC.
(Name of small business issuer in its charter)
Delaware 36-3688583
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
350 West 300 South, Suite 201, Salt Lake City, Utah 84101
(Address of principal executive offices) (zip code)
Issuer's telephone number (801) 322-1221
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Securities registered under Section 12(b) of the Act: NONE Securities registered
under Section 12(g) of the Act:
Common Stock Par Value $0.01
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $0
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As of January 31, 2005 there were 36,740,613 (1 vote per share) Common,
1,086,705 Class A, 551,876 Class B, and 742,430 Class C Convertible Preferred,
for a preferred and common share total of 39,121,624 votes All shares have a par
value of $0.01. The aggregate market value of the Registrant's voting stock held
by non- affiliates of the Registrant was approximately $1,002,432 computed at
the closing price as of January 31, 2005. The number of preferred and common
shares held by non-affiliates of the Registrants totals 20,048,638 votes.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"):
NONE
Transitional Small Business Disclosure Format (check one): Yes ; No X
2
TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Description of Business 4
Item 2. Description of Property 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis or Plan of Operations 7
Item 7. Financial Statements 8
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 8
Item 8A. Controls and Procedures 9
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 9
Item 10. Executive Compensation 12
Item 11. Security Ownership of Certain Beneficial Owners and Management 13
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 21
Item 14. Principal Accountant Fees & Services 23
3
PART I
ITEM 1 DESCRIPTION OF BUSINESS
GENERAL
The Company was formed for the purpose of creating a vehicle to obtain
capital, to file and acquire patents, to seek out, investigate, develop,
manufacture and market electronic in-store advertising, directory and coupon
services which have potential for profit. The Company is currently in the
process of the development of the patented process, Klever-Kart(R).
HISTORY
The Company began as a part of Information Resources, Inc. ("IRI") in
1987, was incorporated as a subsidiary of IRI under the laws of the State of
Delaware on December 8, 1989, and was fully distributed to stockholders of IRI
in a spinoff on October 31, 1990. At the time of the spinoff a portion of the
business and assets of the Company included a software operation in Australia,
which was sold in March, 1993. The Company (VideOCart, Inc.) filed petitions for
relief under Chapter 11 bankruptcy in December 1993. The Company was inactive
until July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse
merger and changed its name to Klever Marketing, Inc. During the period from
July 5, 1996 to December 31, 2003, 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.
In February 2004, the Company signed an exclusive partnership contract
with Fujitsu Transaction Solutions (Fujitsu). Under this contract, Fujitsu will
manufacture the hardware of Klever-Kart System and provide the technical
installations, IT implementation, and support for all retail locations. The
Company and Fujitsu will jointly share responsibility for marketing into
Fujitsu's current retail client base for the initial nationwide sales effort.
The Company will be responsible for providing the advertising and promotions
space sales to both retailers and manufactures.
ITEM 2 DESCRIPTION OF PROPERTY
The Company currently leases 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. The office space is used as the
Corporate headquarters. It is located at 350 West 300 South, Suite 203, Salt
Lake City, Utah.
4
ITEM 3 LEGAL PROCEEDINGS
On 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 Judgment Act a judgment from the Superior Court
of California, in and for the County of San Francisco Jurisdiction. The
judgement is in relation to a consulting agreement between eiKart, LLC. and the
Company. Pursuant to the judgment Information Statement, also filed on October
27, 2003, the amount of the above judgment is $81,124. The relief sought is
collection from the Company in Utah of the amount of said judgment. The Company
has filed an action to dismiss said Utah judgment on the grounds that the
Superior Court of California did not have jurisdiction over the Company when the
original judgment was granted.
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. The
judgment was in relation to parts purchased by the Company.
A Confession of Judgment Statement of Klever Marketing, Inc. dated
November 28, 2003 was filed in the amount of $16,135.81 in favor of Boult Wade
Tennant. The judgment was in relation to legal matters regarding the Company's
intellectual property. On May 7, 2004, ,the Company paid $16,135.81 to settle
this judgment.
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during 2004.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The stock is traded on the OTC Bulletin Board with the trading symbol
KLMK.
The following table set forth the high and low bid of the Company's
Common Stock for each quarter within the past two years. The information below
was provided by S & P Comstock and
5
reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions:
2004: HIGH LOW
First Quarter $ 0.29 $ 0.12
Second Quarter $ 0.15 $ 0.04
Third Quarter $ 0.12 $ 0.04
Fourth Quarter $ 0.12 $ 0.03
2003: HIGH LOW
First Quarter $ 0.09 $ 0.05
Second Quarter $ 0.09 $ 0.01
Third Quarter $ 0.15 $ 0.04
Fourth Quarter $ 0.65 $ 0.11
The number of shareholders of record of the Company's common stock as
of April 1, 2005 was approximately 853.
The Company has not paid any cash dividends to date and does not
anticipate paying cash dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.
RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued 3,230,256 shares of common stock during 2004. The
stock was not sold through an underwriter and was not sold through a public
offer. These sales are exempt under Regulation D Rule 506 of the Securities Act
of 1933. (See Item &. Financial Statements, Statement of Stockholders' Equity,
pages F - 7 through F - 9)
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission reports regarding
initial ownership and changes in ownership. Directors, executive officers, and
greater than 10% stockholders are required by the Commission to furnish the
Company with copies of all Section 16(a) forms they file.
To the best of the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, during the fiscal year ending December 31, 2004,
the Company believes that all reporting persons complied with all Section 16(a)
filing requirements, except that; Olsen Foundation filed a late Form 5, Olsen
Legacy Trust missed a Form 5 filing, Presidio missed a Form 5 filing, Michael
Mills filed a late Form 5, C. Terry Warner filed a late Form 5, D. Paul Smith
filed a late Form 5, William J. Dupre filed a late Form 5 William C. Bailey
filed a late Form 5, Paul G. Begum filed a late Form 5.
6
ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
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, now being sold under the Fujitsu internal brand, U-SCAN
Shopper, to other retail outlets including superstores, discount toy and
warehouse stores.
BUSINESS DEVELOPMENT, NEXT 12 MONTHS
As a result of the current financial condition of the Company, the plan of the
Company for the next twelve months is to obtain sufficient financing to permit
the Company to commence active business operations. Absent obtaining such
financing, the Company's plan is to continue to obtain sufficient smaller
financing to permit the Company to continue to prevent the loss or wasting of
its assets and to continue to seek such operation's financing. Currently, the
Company has sufficient liquid assets to permit current restricted operations to
continue for one month. If such smaller interim financing is not obtained, it is
likely that the Company will cease being a going concern at the end of such
period.
In the event such operational funding is obtained, then the Company plans to
work with Fujitsu Transaction Solutions to: 1) sign up two pilot store retail
chains to test the U-SCAN Shopper system for an initial 60-90 days; 2) begin
expanding the installed base within the pilot store retailer to approximately
200 store in the fourth quarter of 2005; 3) Develop additional revenue
generating products including electronic couponing; 4) Continue defense of the
Klever patent portfolio where violations are evident.
Absent such financing, the Company has no plans to employ additional employees
or to purchase additional equipment. If such financing is obtained, there would
be additional employees employed and additional equipment purchased. The number
of each is dependent upon the amount of such financing.
RESULTS OF OPERATIONS - The Company was inactive until July 5, 1996 when the
Company merged with Klever-Kart, Inc. in a reverse merger and changed its name
to Klever Marketing, Inc. The Company is in the development stage. For the years
ended December 31, 2004 and 2003, the Company had net losses of $632,293 and
$1,361,639, respectively. This decrease in the loss is primarily due to a
decrease in operations.
7
LIQUIDITY AND CAPITAL RESOURCES - The Company requires working capital
principally to fund its proposed research and development and operating expenses
for which the Company has relied on short-term borrowings and the issuance of
restricted common stock. There are no formal commitments from banks or other
lending sources for lines of credit or similar short-term borrowings, but the
Company has been able to borrow minimal additional working capital that has been
required to prevent the assets from wasting away. From time to time in the past,
required short- term borrowings have been obtained from a principal shareholder
or other related entities.
Cash flows. Operating activities used cash of $349,000 and $262,000 for
2004 and 2003 respectively. The increase in the use of cash is due primarily to
an increase in payments of accounts payable.
Investing activities have provided cash of $314,000 for 2004, and used
cash of $19,000 for 2003, respectively. For 2004, the cash provided is due to
the sale of some of the Company's patents. For 2003, the cash used relates
primarily to the purchase of patents.
Financing activities provided cash of $56,000 and $279,000 for 2004 and
2003, respectively. Financing activities primarily represent sales of the
Company's restricted stock, and short term borrowings.
FACTORS THAT MAY AFFECT FUTURE RESULTS - Management's Discussion and Analysis
contains information based on management's beliefs and forward-looking
statements that involved a number of risks, uncertainties, and assumptions.
There can be no assurance that actual results will not differ materially for the
forward-looking statements as a result of various factors, including but not
limited to the following:
The foregoing statements are based upon management's current
assumptions.
ITEM 7 FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are
included beginning immediately preceding the signature page to this report. See
Item 13 for a list of the financial statements and financial statement schedules
included.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company
and its accountants
8
on any matter of accounting principles, practices or financial statements
disclosure.
ITEM 8A CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining disclosure controls and procedures
for the Company.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's President, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 13a-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Based upon the
evaluation, the Company's President concluded that, as of the end of
the period, the Company's disclosure controls and procedures were
effective in timely alerting him to material information relating to
the Company required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.
(b) Changes in Internal Controls
Based on his evaluation as of December 31, 2004, there were no
significant changes in the Company's internal controls over financial reporting
or in any other areas that could significantly affect the Company's internal
controls subsequent to the date of his most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART III
ITEM 9 DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age, and position of each
executive officer and director of the Company:
DIRECTOR'S NAME AGE OFFICE TERM EXPIRES
William J. Dupre 51 COO/
President Next annual shareholder meeting
9
D. Paul Smith 58 Exec Vice-President/
CFO/Secretary/
Treasurer/Chairman Next annual shareholder
meeting
Daniel L. Warner 32 Exec Vice-President-
Business Development Next annual shareholder
meeting
Richard J. Trout* 48 Director Next annual shareholder meeting
William C. Bailey 70 Director Next annual shareholder meeting
Michael L. Mills 42 Director Next annual shareholder meeting
C. Terry Warner 68 Director Next annual shareholder meeting
* Richard J. Trout resigned as director effective July 2, 2004.
William J. Dupre, age 51, joined the Company as Chief Operating Officer
and Executive Vice-President in November 2002. Mr. Dupre was appointed President
and COO in December 2003. Mr. Dupre joins the Company with over fifteen years of
proven executive level retail product development and in-store marketing
experience including four years at Smart Media/SnapShopper, four years at
VideOcart, and seven years at Information Resources (IRI). During his tenure at
IRI, Mr. Dupre successfully developed and launched various retail and consumer
products to market, negotiated participation in IRI's Qscan program in over
25,000 retail stores representing 70 of the top 100 grocery chains in the United
States and contributed to the growth of chain specific consumer packaged goods
manufacturer revenues. Mr. Dupre also has participated in venture capital fund
raising at several start-up companies. Mr. Dupre will lead the Company in the
execution of its strategic initiatives as it sets to deploy its proprietary
in-store media known as Klever-Kart(R), which provides retailers and consumer
goods companies one-on-one communications with shoppers by utilizing its LCD
display mounted on the handle of shopping carts.
D. Paul Smith, age 58, became Chairman of the Board in January 2001,
and CFO, Vice- President, and Secretary in October 2001, and has served as
director of the Company since November 2000. Mr. Smith has been an ongoing
financial advisor to the Company for the past seven years and has played an
active part in the development of the Company's business plan. Mr. Smith is
Chief Financial Officer for the Arbinger Institute. On November 18, 2002, Mr.
Smith resigned his position as Vice-President when William J. Dupre assumed the
role of Executive Vice- President. Upon Mr. Dupre's appointment to President/COO
in December 2003, Mr. Smith reassumed the role of Executive Vice-President, in
addition to his other positions.
Daniel L. Warner, age 32, joined the Company as Executive
Vice-President of Business Development in February 2004. Mr. Warner comes to the
Company with over seven years of experience in operations, strategy, and
business development. Prior to joining the Company, Mr. Warner worked as
Vice-President of Operations and Sales for PerfectPerfect.MD., an internet-based
medical software firm, General Manager of Operations for Meyer & Leichty, a
design and advertising firm, as well as Director of Business Development for
Freeport.com, an internet-based permission marketing company. Mr. Warner also
served as a strategy consultant for Monitor Company, working with clients such
as Coca-Cola, Navistar, Union Bank of California, and several other Fortune 500
companies, covering a wide range of industries.
10
William C. Bailey, age 70, was elected as a director of the Company in
June 1994. Mr. Bailey is President and owner of Mount Olympus Waters, Inc. and
founder of Water and Power Technologies. Mr. Bailey served on the Board of
Directors for the American Bottled Water Association and the International
Bottled Water Association from 1975 to 1996, and was the Association's President
in 1978 and again in 1990. He received the industry's first award of Excellence
from IWBA in 1987 and was elected to the Beverage World Water Hall of Fame in
1989. He serves as a member of the Board of Trustees for the Utah Food Industry
Associations Insurance Trust. He is a lifetime member of the Board of Trustees
for the Utah Symphony Opera, having served as Chairman from 1999-2002. He has
been a member of the Board of Directors for KUED 1990- 1996, University of Utah
Alumni Board 1990-1994, and a member of the University of Utah's Fine Art's
Advisory Board. He is also a member of the Salt Lake Rotary and served as
Secretary 1999-2000.
Michael L. Mills, age 42, was elected as a director of the Company in
December 1998. Mr. Mills is President/CEO of Olson Holdings, Inc. (formerly
known as Olson Farms, Inc.). Olson Holdings, Inc. is a diversified agricultural
and real estate holding company with operations throughout the western United
States, dealing primarily in the distribution of eggs, with headquarters in
Riverside, California. Mr. Mills has been with that company since 1989. Mr.
Mills began his career with Deloitte & Touche in Los Angeles after graduating
from the University of Utah SUMMA CUM LAUDE in accounting and mathematics.
C. Terry Warner, Ph.D., age 68, became a member of the Company's Board
in September 2001. Mr. Warner is a longtime shareholder in the Company. Mr.
Warner is the founder of The Arbinger Institute. He received his Ph.D. in
philosophy from Yale University, and has been a senior member of Linacre
College, Oxford University. He taught at the university level for over thirty
years and has been Dean of the College of General Studies at Brigham Young
University. Mr. Warner has served as a consultant and advisor to executives and
managers of about fifty companies, and has served on boards in the steel,
petrochemical, thrift, and health care industries.
AUDIT COMMITTEE
As of December 31, 2004, the Company had one active board committee,
the Audit and Compliance Committee. D. Paul Smith and Michael L. Mills are on
this committee. The committee meets annually to determine auditors and scope of
the audit, as well as reviews of the 10KSB and all audited financials.
AUDIT COMMITTEE FINANCIAL EXPERT
The Company's board of directors does not have an "audit committee
financial expert," within the meaning of such phrase under applicable
regulations of the Securities and Exchange Commission, serving on its audit
committee. The board of directors believes that all members of its audit
committee are financially literate and experienced in business matters, and that
one or more members of the audit committee are capable of (i) understanding
generally accepted accounting
11
principles ("GAAP") and financial statements, (ii) assessing the general
application of GAAP principles in connection with our accounting for estimates,
accruals and reserves, (iii) analyzing and evaluating our financial statements,
(iv) understanding our internal controls and procedures for financial reporting;
and (v) understanding audit committee functions, all of which are attributes of
an audit committee financial expert. However, the board of directors believes
that there is not any audit committee member who has obtained these attributes
through the experience specified in the SEC's definition of "audit committee
financial expert." Further, like many small companies, it is difficult for the
Company to attract and retain board members who qualify as "audit committee
financial experts," and competition for these individuals is significant. The
board believes that its current audit committee is able to fulfill its role
under SEC regulations despite not having a designated "audit committee financial
expert."
ITEM 10 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table set forth, for the last three fiscal years, the
annual and long term compensation earned by, awarded to, or paid to the
individuals who were chief executive officer and chief operations officer at any
time during the last fiscal year.
Long Term Compensation
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Annual Compensation Awards Payouts
--------------------- ---------------------- ------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Year Annual Restricted Underlying All Other
Ended Compen- Stock Options/ LTIP Compen-
Name and Dec. Salary Bonus sation Award(s) SAR's Payouts sation
Principal Position 31 ($)(1) ($) ($) ($) (no.) ($) ($)
-------------------------------------------------------------------------------------------------------------------
Richard J. Trout 2004 - - - - - - -
- - - - - - -
Former President
2003 - (1) - - - 1,027,616(4) - -
2002 - (1) - - - 100,661(3) - -
D. Paul Smith 2004 - - - - - - -
Chairman/CFO/ 2003 - - - - 1,168,333 - -
Sec/Treasurer 2002 - - - - 192,892(4) - -
Exec Vice-President
William J. Dupre 2004 122,250 - - - - - -
President/COO 2003 50,000 (2) - - - 400,000 - -
2002 12,500 (2) - - - 400,000(5) - -
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(1) Richard J. Trout was named President in October 2001. Mr. Trout
resigned as President on December 3, 2003.
(2) William J. Dupre joined the Company in November 2002 as Chief Operating
Officer and Executive Vice-President. Mr. Dupre's options vest
quarterly with the initial vest beginning on day 1 of employment. On
December 3, 2003, Mr. Dupre was named President of the Company.
(3) Options canceled on September 9, 2003.
(4) 100,000 options canceled on September 9, 2003.
(5) 200,000 options canceled on September 9, 2003, and 200,000 options
authorized to convert to 200,000 shares of common stock. As of March
16, 2004, these 200,000 shares have not been issued.
Executive Compensation and Benefits
The Company provides to three of its full time employees, including the
Chief Operating Officer, health insurance and miscellaneous other benefits.
The Company adopted a stock incentive plan for its employees, executive
officers, directors, and consultants.
ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The table below sets forth information as to each person owning of
record or who was known by the Company to own beneficially shares of stock that
have more than 5% of the 39,121,624 votes as of January 31, 2005, including
options to acquire stock of the Company that are currently exercisable or will
be within the next 60 days, and information as to the ownership of the Company's
Stock by each of its directors and executive officers and by the directors and
executive officers as a group. Except as otherwise indicated, all shares are
owned directly, and the persons named in the table have sole voting and
investment power with respect to shares shown as beneficially owned by them.
# OF
NAME AND ADDRESS NATURE OF SHARES
OF BENEFICIAL OWNERS OWNERSHIP OWNED PERCENT
DIRECTORS
PRINCIPAL SHAREHOLDERS
Paul G. Begum Direct (2) 3,158,807
P.O. Box 58045 Preferred Shares (2) 31,536
Salt Lake City, UT 84158 Options/Warrants 237,000
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Total 3,427,343 8.71%
========= =======
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Olson Foundation Direct (1) 4,101,838
2220 Eastridge Ave Preferred Shares (1) 1,196,253
Suite B Options/Warrants (1) 648,152
Riverside, CA 92507 Convertible Debt (1) 4,161,267
-----------
Total 10,107,510 23.01%
========== =======
C. Terry Warner Direct (3) 2,526,574
1278 Locust Lane Options (3) 646,494
Provo, UT 84604 Convertible Debt (3) 11,493
------------
Total 3,184,561 8.01%
========== =======
Presidio Investments LLC Direct (4) 1,266,708
3200 North Central Ave Preferred Shares (4) 86,723
Suite 1560 Convertible Debt (1)(4) 3,559,089
---------
Phoenix, AZ 85012 Total 4,912,521 11.51%
=========== =======
Olson Legacy Trust Direct (4) 1,266,708
3200 North Central Ave Preferred Shares (4) 86,723
Suite 1560 Convertible Debt (4) 3,559,089
---------
Phoenix, AZ 85012 Total 4,912,521 11.51%
=========== =======
Olson Holdings Direct (1) 759,765
2220 Eastridge Ave. Preferred Shares (1) 930,664
Suite B Convertible Debt (1) 219,339
----------
Riverside, CA 92507 Total 1,909,768 4.85%
========== =======
Seabury Investors III Preferred Shares 1,153,216
540 Madison Avenue Options/Warrants 106,061
New York, NY 10022 Convertible Debt (5) 633,700
----------
Total 1,892,977 4.75%
========= =======
Primavera Direct 3,252,771 8.31%
=======
1278 Locust Lane
Provo, UT 84604
Arbinger Direct 3,490,756
Gateway Park Tower Options/Warrants 67,495
563 W 500 S Convertible Debt 45,971
-----------
Suite 200 Total 3,604,222 9.19%
========== =======
Woods Cross, UT 84010
14
William Bailey Direct 3,244,914
3889 E. Brockbank Dr. Options/Warrants 520,000
----------
Salt Lake City, UT 84124 Total 3,764,914 9.50%
========= =======
D. Paul Smith Direct (6) 1,041,301
747 W. Sheringham Ct. Options/Warrants (6) 1,269,973
Farmington, UT 84025 Convertible Debt (6) 14,303
-----------
Total 2,325,557 5.76%
========= =======
DIRECTORS AND EXECUTIVE OFFICERS
William Bailey Direct 3,244,914
3889 E. Brockbank Dr. Options/Warrants 520,000
----------
Salt Lake City, UT 84124 Total 3,764,914 9.50%
========= =======
C. Terry Warner Direct (3) 2,526,574
1278 Locust Lane Options (3) 646,494
Provo, UT 84604 Convertible Debt (3) 11,493
------------
Total 3,184,561 8.01%
========== =======
D. Paul Smith Direct (6) 1,041,301
747 W. Sheringham Ct. Options/Warrants (6) 1,269,973
Farmington, UT 84025 Convertible Debt (6) 14,303
-----------
Total 2,325,557 5.76%
========= =======
ALL EXECUTIVE OFFICERS AND
DIRECTORS AS A GROUP (7
PERSONS) Direct 5,703,622
Options/Warrants 3,670,091
Convertible Debt 13,188
-----------
Total 9,386,901 20.07%
========= ======
(1) Michael Mills is president of Olson Holdings, Inc., executor of the Estate
of Peter Dean Olson, trustee of the Olson Foundation, he has voting and
investment control but disclaims any pecuniary interest. For The Olson
Foundation, Mr. Mills is one of four trustees and does not have voting or
investment power because of a majority-vote rule relation to the Foundation. The
Olson ownership includes 759,765 Shares held by Olson Holdings, 1,123,603 Shares
held by the Olson Foundation, 928,580 Shares held by the Estate of Peter D.
Olson, 1,266,708 Shares held by Presidio, and 23,182 Shares held by Mr. Mills.
The Olson ownership also includes Preferred Stock that, as of April 1, 2005,
would convert 1,196,253 votes held by Presidio (86,723 votes), Olson Holdings
15
(930,664 votes) and Olson Foundation (178,866 votes). Ownership includes
warrants covering 136,152 Shares held by Olson Foundation, options, and options
covering 512,000 Shares held by Mr. Mills. Convertible debt held by Olson
Foundation and affiliates in the amount of 4,161,267 shares may also be
converted as of April 1, 2005 into 382,839 Shares held by Olson Foundation,
219,339 Shares held by Olsen Holdings and 3,559,089 shares held by Presidio.
(2) Mr. Begum's ownership includes 31,834 Shares held in a brokerage account and
77,142 shares held privately by Mr. Begum; 115,878 shares which are held in a
brokerage account and 2,427,089 shares held by Tree of Stars, Inc., a
corporation of which Mr. Begum is a director, officer and principal shareholder;
94,914 shares which are in a brokerage account, and 411,950 shares held by PSF,
Inc., a private company of which Mr. Begum is President and principal
shareholder. Mr. Begum's ownership also includes Class A Convertible Preferred
Shares that would convert to 159,426 Shares as of April 1, 2005
(3) Mr. Warner's ownership includes 12,500 Shares held by C. Terry Warner;
1,626,385 Shares held by Primavera, Ltd., a limited partnership of which Mr.
Warner is a passive member owning one (1) percent and Susan Warner, his spouse,
who owns forty-nine (49) percent; 15,000 shares by Susan Warner, his spouse and
872,689 shares held by the Arbinger Institute, a private corporation of which
Mr. Warner is a director and twenty-five (25) percent shareholder; options
covering 612,742 shares under Terry Warner and 33,748 under Arbinger and
convertible debt held by Arbinger that may be converted into 11,493 shares as of
April 1, 2005.
(4) Presidio Investments, of which William J. Howard is the single member, and
Olson Legacy Trust, of which William J. Howard is the sole trustee, ownership
includes 94,858 Shares held by Presidio Investments LLC.; 86,723 Shares should
the Class A Convertible Preferred Shares held by Presidio Investments LLC. be
converted as of April 1, 2005; Olson Legacy Trust, of which William J. Howard is
the sole trustee, 1,171,850 common shares held by Olson Legacy Trust,. In
addition to the total Presidio and Olson Legacy Trust ownership, convertible
debt held by Presidio Investments may be converted into 3,559,089 Shares as of
April 1, 2005.
(5) In addition to the total Seabury ownership, convertible debt held by Seabury
Investors III, Limited Partnership could be converted into 633,700 Shares as of
April 1, 2005.
(6) Mr. Smith's ownership includes 168,612 shares held by D. Paul Smith; 872,689
shares held by the Arbinger Institute, a private corporation of which Mr. Smith
is a director, officer and twenty- five (25) percent shareholder; options
covering 1,236,225 shares and 33,748 Options held under Arbinger and convertible
debt held by Mr. Smith that may be converted into 2,810 shares as of April 1,
2005.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
16
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.
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.
17
PRESIDIO INVESTMENTS, LLC LOAN TO THE COMPANY
Presidio Investments, LLC has loaned the Company $1,000,000, which loan
is secured by a blanket lien on the assets of the Company. The sole trustee of
Presidio Investments, LLC is William J. Howard, trustee of the Olson Legacy
Trust, whose residual beneficiary is the Olson Foundation. The Olson Foundation
was the guarantor for funds borrowed from Northern Trust Bank which funds were
used to make the loan to the Company. This note was amended on March 22, 2001
with an additional $500,000 loaned to the Company between January 1, 2001 and
March 22, 2001. An Interest rate of 8% applies until March 31, 2001 and
increases to 10% on April 1, 2001. Principal and all due and unpaid interest are
to be paid on October 1, 2001. This note is convertible to Class C convertible
preferred shares at the option of the note holder.
OLSON LEGACY TRUST LOAN TO THE COMPANY
Olson Legacy Trust made unsecured loans to the Company on October 19,
2001 and November 15, 2001 in the amounts of $20,706 and $30,000, respectively.
The notes are payable within two years plus interest at 8% per annum. In
conjunction with the notes, Olson Foundation received common stock options for
each note at a ratio of 1.667 common shares for each dollar loaned to the
Company. On September 11, 2003, the outstanding loan of $50,706 and accrued
interest of $7,887 were converted to 1,171,850 shares of common stock valued at
$.05 per share.
DIRECTOR LOAN TO THE COMPANY
On October 20, 1998, the Company borrowed $150,000 from 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
18
until January 5, 2002. Principal and all due and unpaid interest are to be paid
on January 5, 2002, or the interest rate increases to 15% compounded daily.
Warrants were issued in conjunction with this loan for 18,182 common shares at a
strike price of $0.01 and an expiration date of July 5, 2006. This note is
convertible to Class C convertible preferred shares or to Class D convertible
preferred shares at the option of the note holder.
The Seabury Group loaned the Company $190,000 on August 22, 2001, of
which is secured by a blanket lien on the assets of the Company. An interest
rate of 10% compounded monthly applies until February 22, 2002. Principal and
all due and unpaid interest are to be paid on February 22, 2002, or the interest
rate increases to 15% compounded daily. Warrants were issued in conjunction with
this loan for 57,576 common shares at a strike price of $0.01 and an expiration
date of August 22, 2006. This note is convertible to Class C convertible
preferred shares or to Class D convertible preferred shares at the option of the
note holder.
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 Maturity Option Option Strike
DATE Principal Interest Rate 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.
The loans listed below were made to the Company by The Arbinger
Institute after September 11, 2003.
19
Common
Stock
Annual Maturity Option Option Strike
DATE Principal Interest Rate 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
10/01/03 $79.00 8.00% 10/01/05 132 $1.00
11/01/03 $79.00 8.00% 11/01/05 132 $1.00
11/26/03 $10,000.00 8.00% 11/26/05 16,667 $1.00
12/02/03 $79.00 8.00% 12/02/05 132 $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 $41,079.68 68,467
============= ==============
The Arbinger Institute has also made additional loans to the Company to
pay for storage space. The total amount of these loans is $1,595 plus accrued
interest of $113. These loans were converted to common stock on September 11,
2003. As of January 31, 2005, 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:
Common
Stock
Annual Maturity Option Option Strike
DATE Principal Interest Rate 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
20
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.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE
Report of Robison, Hill & Co., Independent Certified Public Accountants......F-1
Balance Sheets
December 31, 2004, and 2003................................................F-2
Statements of Loss
For the Years Ended December 31, 2004, and 2003............................F-4
Statement of Stockholders' Equity
For the Years Ended December 31, 2004, and 2003............................F-5
Statements of Cash Flows
For the Years Ended December 31, 2004, and 2003...........................F-13
Notes to Financial Statements
December 31, 2004, and 2003...............................................F-15
21
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. EXHIBITS
The following exhibits are included as part of this
report:
Exhibit
Number Title of Document
3.01 Restated Certificate of Incorporation of Klever Marketing, Inc. a
Delaware corporation (1)
3.02 Certificate of Designation of Rights, Privileges and Preferences:
Rights of A Class Voting Preferred Stock, Series 1, of Klever
Marketing, Inc., dated February 7, 2000 (2)
3.03 Bylaws, as amended (2)
4.01 Amended Certificate of Designation of Rights, Privileges and
Preferences: Rights of A Class of Voting Preferred Stock, Series 1, of
Klever Marketing, Inc., Dated February 7, 2000 (3)
4.02 Certificate of Designation of Rights, Privileges and Preferences of
Class B Voting Preferred Stock, of Klever Marketing, Inc., dated
September 24, 2000 (3)
4.03 Certificate of Designation of Rights, Privileges and Preferences of
Class C Voting Preferred Stock, of Klever Marketing, Inc., dated
January 2, 2001 (3)
4.04 Certificate of Designation of Rights, Privileges and Preferences of
Class D Voting Preferred Stock, of Klever Marketing, Inc., dated June
14, 2002 (5)
4.05 Amendment to the Certificates of Designation of Rights, Privileges and
Preferences of Class A, B, and C Voting Preferred Stock, of Klever
Marketing, Inc., dated June 12, 2002 (5)
10.01 Separation Agreement between Paul G. Begum and the Registrant Dated
January 8, 2001 (2)
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)
22
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, dated August 27, 2004 (6)
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 10QSB, dated May 15, 2002. (5) Incorporated herein by
reference from Registrant's Form 10QSB, dated August 19,
2002.
(6) Incorporated herein by reference from Registrant's Form 10QSB,
dated November 19, 2004.
(b) REPORTS FILED ON FORM 8-K
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES
The following is a summary of the fees billed to us by Robison, Hill &
Company for professional services rendered for the years ended December 31, 2004
and 2003:
Service 2004 2003
------------------------------ ------------------ ------------------
Audit Fees $ 20,375 $ 23,364
Audit-Related Fees - -
Tax Fees 150 287
All Other Fees - -
------------------ ------------------
Total $ 20,525 $ 23,651
================== ==================
AUDIT FEES. Consists of fees billed for professional services rendered for the
audits of our consolidated financial statements, reviews of our interim
consolidated financial statements included in quarterly reports, services
performed in connection with filings with the Securities & Exchange Commission
and related comfort letters and other services that are normally provided by
Robison, Hill & Company in connection with statutory and regulatory filings or
engagements.
23
TAX FEES. Consists of fees billed for professional services for tax compliance,
tax advice and tax planning. These services include assistance regarding
federal, state and local tax compliance and consultation in connection with
various transactions and acquisitions.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
The Audit Committee, is to pre-approve all audit and non-audit services
provided by the independent auditors. These services may include audit services,
audit-related services, tax services and other services as allowed by law or
regulation. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specifically approved amount. The independent
auditors and management are required to periodically report to the Audit
Committee regarding the extent of services provided by the independent auditors
in accordance with this pre-approval and the fees incurred to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.
The Audit Committee pre-approved 100% of the Company's 2003 audit fees,
audit-related fees, tax fees, and all other fees to the extent the services
occurred after May 6, 2003, the effective date of the Securities and Exchange
Commission's final pre-approval rules.
24
KLEVER MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
TABLE OF CONTENTS
Page
Independent Auditor's Report....................................................................................F-1
Balance Sheets
December 31, 2004 and 2003...................................................................................F-2
Statements of Operations
For the Years Ended December 31, 2004 and 2003
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2004.........................................................................................F-4
Statement of Stockholders' Equity
From July 5, 1996 (inception of development stage) to December 31, 2004 .....................................F-5
Statements of Cash Flows
For the Years Ended December 31, 2004 and 2003
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2004........................................................................................F-13
Notes to the Financial Statements
December 31, 2004 and 2003..................................................................................F-15
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Klever Marketing, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have audited the accompanying balance sheets of Klever Marketing,
Inc. (a development stage company) as of December 31, 2004 and 2003, and the
related statements of operations and cash flows for the two years ended December
31, 2004, and the cumulative period from July 5, 1996 (inception of development
stage) to December 31, 2004, and the statement of stockholders' equity from July
5, 1996 (inception of development stage) to December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Klever Marketing,
Inc. (a development stage company), as of December 31, 2004 and 2003, and the
results of its operations and its cash flows for the two years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Respectfully submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
April 14, 2005
F - 1
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
December 31,
--------------------------------------
ASSETS 2004 2003
------
------------------ ------------------
Current Assets
Cash $ 23,174 $ 1,916
Prepaid Expense 750 2,512
Other Receivable 25,865 -
------------------ ------------------
Total Current Assets 49,789 4,428
------------------ ------------------
Fixed Assets
Office Equipment 92,964 105,727
Less Accumulated Depreciation (89,319) (98,913)
------------------ ------------------
Net Fixed Assets 3,645 6,814
------------------ ------------------
Other Assets
Patents 755,089 2,358,342
Less Accumulated Amortization (727,938) (2,137,679)
------------------ ------------------
Net Other Assets 27,151 220,663
------------------ ------------------
Total Assets $ 80,585 $ 231,905
================== ==================
F - 2
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
(Continued)
December 31,
--------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003
------------------------------------
------------------ ------------------
Current Liabilities
Accounts Payable, Trade $ 343,765 $ 446,855
Accrued Liabilities 1,624,295 1,247,524
Related Party Payables 2,127,564 2,172,880
Notes Payable 45,000 45,000
Short-term Notes Payable 458 458
------------------ ------------------
Total Current Liabilities 4,141,082 3,912,717
------------------ ------------------
Stockholders' Equity
Preferred stock (par value $.01), 2,000,000 shares authorized 168,434
issued and outstanding December 31, 2004
and December 31, 2003 1,684 1,684
Common Stock (Par Value $.01), 20,000,000 shares
authorized 36,640,620 shares issued and outstanding
at December 31, 2004 and 33,410,364 shares issued
and outstanding at December 31, 2003 366,406 334,104
Common Stock to be issued, 469,752 shares at
December 31, 2004 and 1,395,657 shares at
December 31, 2003 4,698 13,957
Treasury Stock, 1,000 shares at December 31, 2004
and December 31, 2003 (1,000) (1,000)
Paid in Capital in Excess of Par Value 13,164,028 12,934,463
Shareholder Receivable (15,000) (15,000)
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During Development Stage (14,247,528) (13,615,235)
------------------ ------------------
Total Stockholders' Equity (4,060,497) (3,680,812)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 80,585 $ 231,905
================== ==================
The accompanying notes are an integral part of these financial statements
F - 3
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF OPERATIONS
Cumulative
From
July 5, 1996
For the Year Ended Inception of
December 31, Development
--------------------------------------
2004 2003 Stage
------------------ ------------------ ------------------
Revenue $ - $ - $ 256,000
------------------ ------------------ ------------------
Expenses
Sales and marketing - - 117,546
General and administrative 686,776 849,098 8,940,381
Research and development 69,765 - 4,529,656
------------------ ------------------ ------------------
Total Expenses 756,541 849,098 13,587,583
------------------ ------------------ ------------------
Other income (expense)
Other income 278,635 - 278,635
Interest income - - 18,902
Interest expense (415,425) (291,599) (1,431,021)
Gain (Loss) on disposal of assets 261,138 (220,956) 26,947
Capital gain on sale of investments - - 191,492
------------------ ------------------ ------------------
Total Other Income (Expense) 124,348 (512,555) (915,045)
------------------ ------------------ ------------------
Income (Loss) Before Taxes (632,193) (1,361,653) (14,246,628)
Income Taxes 100 100 900
------------------ ------------------ ------------------
Net Income (Loss) After Taxes $ (632,293) $ (1,361,753) $ (14,247,528)
================== ================== ==================
Weighted Average Shares
Outstanding 34,899,606 19,420,052
================== ==================
Loss Per Share $ (0.02) $ (0.07)
================== ==================
The accompanying notes are an integral part of these financial statements.
F - 4
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Balance December 31, 1995 247,100 $ 2,471 12,210,949 $ 122,109 $ -- $ -- $74,022,028 $(103,351,248) $ --
January 1996 shares issued
in connection with merger (247,100) (2,471) (3,784,905) (37,849) -- 5,059 (70,257,358) 100,017,463 --
Shares issued for cash at
$0.50 - 3.00 per share -- -- 314,287 3,143 -- -- 507,932 -- --
Shares issued in exercise of
options at $1.00 - $1.25
per share -- -- 130,000 1,300 -- -- 136,200 -- --
Shares issued for services at
$1.25 per share -- -- 14,282 143 -- -- 17,710 -- --
Shares issued for receivable
at $1.00 - 3.00 per share -- -- -- -- -- 407 101,543 -- --
Shares issued to officer and
employee for patents -- -- -- -- -- 2,250 130,500 -- --
Net Loss -- -- -- -- -- -- -- -- (831,814)
-------- -------- ---------- ---------- ------- ------- ---------- -------- ----------
Balance December 31, 1996 -- -- 8,884,613 88,846 -- 7,716 4,658,555 (3,333,785) (831,814)
F - 5
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares issued for cash at
$0.01 - 3.00 per share -- $ -- 228,150 $ 2,282 $ -- $ 49 $ 449,976 $ -- $ --
Shares issued to officers for
loans at $0.08 - 1.82
per share -- -- 249,444 2,494 -- -- 74,287 -- --
Shares issued for services at
$0.50 - 2.59 per share -- -- 10,398 104 -- -- 7,391 -- --
Shares issued to officers for
patents -- -- 260,813 2,608 -- (2,250) 1,892 -- --
Shares issued for cash and
receivables at $1.75 - 2.00
per share -- -- 58,286 583 -- (100) 85,267 -- --
Shares issued to VideOcart
creditors -- -- 97,610 976 -- (976) -- -- --
Shares issued for research &
development at par -- -- -- -- -- 464 -- -- --
Shares issued for employee
compensation at $2.50
per share -- -- 6,000 60 -- -- 14,940 -- --
Net Loss -- -- -- -- -- -- -- -- (755,594)
-------- -------- ---------- ---------- -------- -------- ---------- -------- ----------
Balance December 31, 1997 -- -- 9,795,314 97,953 -- 4,903 5,292,308 (3,333,785)(1,587,408)
F - 6
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares issued for cash at
$1.50 - 3.00 per share -- $ -- 294,059 $ 2,941 $ -- $ (100) $ 612,416 -- --
Shares issued for services at
$2.00 - 7.80 per share -- -- 13,648 136 -- -- 43,590 -- --
Shares issued for employee
compensation at $2.19 -
3.06 per share -- -- 4,363 44 -- -- 9,954 -- --
Shares issued for accounts
receivable at $1.50 - 2.12
per share -- -- 129,437 1,294 -- -- 209,671 -- --
Shares issued for 1,500
shares of Avtel stock at
$3.00 per share -- -- 4,125 41 -- -- 12,334 -- --
Shares issued for research &
development contract -- -- 46,366 464 -- (464) -- -- --
Shares issued to officer for
patent at $2.94 per share -- -- 150,000 1,500 -- 250 512,313 -- --
Shares returned at $1.58
per share -- -- (42,493) (425) -- -- (66,667) -- --
Net Loss -- -- -- -- -- -- -- -- (1,496,926)
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Balance December 31, 1998 -- -- 10,394,819 103,948 -- 4,589 6,625,919 (3,333,785)(3,084,334)
F - 7
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares issued for cash at
$1.96 - 3.00 per share -- $ -- 701,525 $ 7,015 $ -- $ -- $1,649,949 $ -- $ --
Shares issued for employee
compensation at $1.95 -
2.34 per share -- -- 2,995 30 -- -- 6,187 -- --
Shares issued for exercise of
options at $0.52 - .86
per share -- -- 238,271 2,383 -- -- 200,342 -- --
Shares returned at $0.67-1.58
per share -- -- (62,489) (625) -- -- (107,047) -- --
Net Loss -- -- -- -- -- -- -- -- (1,734,623)
-------- -------- ---------- ---------- -------- -------- ---------- -------- ----------
Balance December 31, 1999 -- -- 11,275,121 112,751 -- 4,589 8,375,350 (3,333,785)(4,818,957)
Shares issued for cash at
$1.07 - 2.75 per share -- -- 279,742 2,798 -- -- 532,754 -- --
Preferred shares issued for
cash at $17 - 26 per share 84,576 846 -- -- -- -- 1,827,529 -- --
Shares issued for employee
compensation at $3.99
per share -- -- 74,608 746 -- -- 296,939 -- --
F - 8
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares issued for exercise of
stock options at $0.86 -
1.07 per share -- $ -- 597,778 $ 5,978 $ -- $ -- $ 511,931 $ -- $ --
Shares issued for accounts
payable at $2.75 - 3.00
per share -- -- 9,488 95 -- -- 26,649 -- --
Paid-in capital from treasury
stock transaction -- -- -- -- -- -- 16,180 -- --
Shares canceled & converted
to preferred shares at
$2.75 per share -- -- (100,000) (1,000) -- -- (274,000) -- --
Conversion of note payable
to preferred shares at
$26 per share 9,615 96 -- -- -- -- 249,904 -- --
Shares issued that were paid
for in 1997 -- -- 23,334 233 -- (233) -- -- --
Shares issued for services at
$0.89 per share -- -- 2,697 27 -- -- 2,373 -- --
Shares returned at $1.73 -
2.12 per share -- -- (10,000) (100) -- -- (19,150) -- --
Net Loss -- -- -- -- -- -- -- -- (4,066,283)
-------- -------- ---------- ---------- -------- -------- ---------- -------- ----------
Balance December 31, 2000 94,191 942 12,152,768 121,528 -- 4,356 11,546,459 (3,333,785)(8,885,240)
F - 9
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares issued for cash at
$0.82 per share -- $ -- 4,685 $ 47 $ -- $ -- $ 3,795 $ -- $ --
Preferred shares issued for
cash at $6.60 per share 6,061 60 -- -- -- -- 39,940 -- --
Preferred shares issued for
payment of note payable
at $6.60 per share 68,182 682 -- -- -- -- 449,318 -- --
Shares canceled for
nonpayment -- -- (4,694) (47) -- -- (9,903) -- --
Shares issued for research &
development expenses at
$1.00 per share -- -- 15,000 150 -- -- 14,850 -- --
Shares issued for general &
administrative expenses at
$0.66 per share -- -- 507,048 5,070 -- -- 329,581 -- --
Shares returned to Company
for accounts receivable of
$ 98,375 -- -- -- -- (1,000) -- (97,375) -- --
Net Loss -- -- -- -- -- -- -- -- (2,342,405)
-------- -------- ---------- ---------- -------- -------- ---------- -------- ----------
Balance December 31, 2001 168,434 1,684 12,674,807 126,748 (1,000) 4,356 12,276,665 (3,333,785)(11,227,645)
F - 10
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Shares canceled for services
not rendered -- $ -- (304,229) $ (3,042) $ -- $ -- $ (197,749) $ -- $ --
Cash received for shares that
have not yet been issued -- -- -- -- -- 3,333 21,667 -- --
Net Loss -- -- -- -- -- -- -- -- (1,025,837)
------- ------- ---------- ---------- -------- -------- ---------- -------- ----------
Balance December 31, 2002 168,434 1,684 12,370,578 123,706 (1,000) 7,689 12,100,583 (3,333,785)(12,253,482)
Shares issued for cash at
$0.05 - 0.75 per share -- -- 2,580,000 25,800 -- (3,333) 151,033 -- --
Shares issued for S&C
Medical at $0.05 per share -- -- 3,000,000 30,000 -- -- 120,000 -- --
Shares issued for notes
payable at $.04-.05/share -- -- 11,259,786 112,598 -- -- 446,642 -- --
Shares issued for accounts
payable at $.01-.10/share -- -- 4,200,000 42,000 -- -- 96,000 -- --
Shares authorized for expense
at $.03 per share - not
issued -- -- -- -- -- 9,545 19,090 -- --
Shares authorized for
payment of accounts
payable at $.21 per share -
not issued -- -- -- -- -- 56 1,115 -- --
F - 11
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(continued)
Deficit
Accumulated
From
Common Paid in July 5, 1996
Stock Capital in Inception of
Preferred Stock Common Stock Treasury to be Excess of Retained Development
------------------- ---------------------
Shares Amount Shares Amount Stock Issued Par Value Deficit Stage
-------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Loss -- $ -- -- $ -- $ -- $ -- $ -- $ -- $(1,361,753)
-------- -------- ---------- ---------- -------- -------- ---------- -------- ----------
Balance December 31, 2003 168,434 1,684 33,410,364 334,104 (1,000) 13,957 12,934,463 (3,333,785)(13,615,235)
Shares issued for cash at --
$.036 - .15 per share -- -- 770,000 7,700 -- -- 57,420 -- --
Shares issued for accounts
payable at $.05-.23/share -- -- 391,939 3,919 -- -- 27,306 -- --
Shares issued for expenses
at $.04 - .23 per share -- -- 1,910,604 19,106 -- (9,203) 108,325 -- --
Authorized shares issued -- -- 5,571 56 -- (56) -- -- --
Shares issued for
settlement of liabilities -- -- 152,142 1,521 -- -- 36,514 -- --
Net Loss -- -- -- -- -- -- -- -- (632,293)
-------- -------- ---------- ---------- -------- -------- ---------- -------- ----------
Balance December 31, 2004 168,434 $ 1,684 36,640,620 $ 366,406 $ (1,000) $ 4,698 $13,164,028 $(3,333,785) $(14,247,528)
======== ======== ========== ========== ======== ======== =======+=== =====++=== ===++=======
The accompanying notes are an integral part of these financial statements.
F - 12
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
From
July 5, 1996
For the Year ended Inception of
December 31, Development
-------------------------------------
2004 2003 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (632,293) $ (1,361,753) $ (14,247,528)
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 (261,138) 220,956 486,536
Compensation expense from stock options - - 26,247
Stock issued for interest expense - 95,416 119,701
Stock issued for accounts payable 36,350 146,970 208,473
Deferred income - - (214,000)
Depreciation and amortization 144,062 230,448 1,862,131
(Increase) decrease in accounts receivable - - (413)
(Increase) decrease in shareholder receivable - - 37,694
(Increase) decrease in other assets & prepaids (24,103) (2,512) 87,623
Increase (decrease) in accounts payable (103,090) 10,927 258,061
Increase (decrease) in accrued liabilities 379,823 369,383 1,585,698
----------------- ------------------ ------------------
Net Cash Used in Operating Activities (348,994) (261,530) (8,964,057)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net 2,328 - (587,801)
Acquisition/Sale of patents 311,430 (19,336) 45,045
Acquisition/Sale of stock, net - - 12,375
----------------- ------------------ ------------------
Net Cash Used by Investing Activities 313,758 (19,336) (530,381)
----------------- ------------------ ------------------
F - 13
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
(continued)
Cumulative
From
July 5, 1996
For the Year ended Inception of
December 31, Development
-------------------------------------
2004 2003 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds capital stock issued 65,120 173,500 6,346,547
Proceeds from loans 2,374 150,506 3,455,188
Loan receivables - (15,000) (15,000)
Principal payments on lease obligations - (1,749) (18,769)
Cash payments on notes payable (11,000) (27,899) (275,028)
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 56,494 279,358 9,492,938
----------------- ------------------ ------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 21,258 (1,508) (1,500)
Cash and Cash Equivalents at Beginning of the
Year 1,916 3,424 24,674
----------------- ------------------ ------------------
Cash and Cash Equivalents at End of the Year $ 23,174 $ 1,916 $23,174
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ - $ -
Income Taxes $ 100 $ 100 $ 900
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During September 2003, 3,000,000 shares of common stock were issued to acquire
80% of S&C Medical. The Company is in the process of cancelling these shares.
During September 2003, 11,259,786 shares of common stock were issued for notes
payable.
The accompanying notes are an integral part of these financial statements.
F - 14
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
Several conditions and events cast doubt about the Company's ability to
continue as a "going concern". The Company has incurred net losses of
approximately $632,000 for the year ended December 31, 2004, losses of
approximately $1,362,000 for the year ended December 31, 2003 and losses of
approximately $17,581,000 since inception. The Company has a liquidity problem
and requires additional financing in order to finance its business activities on
an ongoing basis. The Company is actively pursuing alternative financing and has
had discussions with various third parties, although no firm commitments have
been obtained.
The Company's future capital requirements will depend on numerous
factors including, but not limited to, continued progress in developing its
products, and market penetration.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported revenues and expenses, and the
balance sheet classifications used.
Organization and Basis of Presentation
The Company was organized under the laws of the State of Delaware in
December 1989. The Company was in the Development stage from 1989 to 1991. The
Company was an operating company from 1992 to December 8, 1993 when it filed
petitions for relief under Chapter 11 bankruptcy. The Company was inactive until
July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse merger
and changed its name to Klever Marketing, Inc. During the period from July 5,
1996 to December 31, 2002, the Company has been in the development stage, except
for an approximate 2-month period in 2000 when the Company generated revenue
from installations of their Klever-Kart system in stores.
F - 15
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
Nature of Business
The Company was formed for the purpose of creating a vehicle to obtain
capital, to file and acquire patents, to seek out, investigate, develop,
manufacture and market electronic in-store advertising, directory and coupon
services which have potential for profit. The Company is currently in the
process of the commercialization of the patented process it has acquired.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Klever Marketing, Inc. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made in the 2003 financial
statements to conform with the 2004 presentation.
Loss per Share
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
F - 16
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Per-Share
Loss Shares Amount
For the year ended December 31, 2004
BASIC LOSS PER SHARE
Loss available to common shareholders $ (632,293) 34,899,606 $ (0.02)
================= ================== ==================
For the year ended December 31, 2003
BASIC LOSS PER SHARE
Loss available to common shareholders $ (1,361,753) 19,420,052 $ (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 years ended December 31, 2004 and
2003 are not presented as it would be anti-dilutive. At December 31, 2004 and
2003, the total number of potentially dilutive common stock equivalents was
9,242,589 and 17,319,281, respectively.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight- line method over the estimated economic useful
lives of the related assets as follows:
Computer equipment 3 years
Office furniture and fixtures 5-10 years
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their estimated economic useful lives.
Depreciation expense was $1,785 and $7,941 for the years ended December
31, 2004 and 2003, respectively.
F - 17
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Intangibles
Intangibles associated with certain technology agreements are amortized
over 10 -14 years.
Amortization expense was $142,277 and $222,507 for the years ended
December 31, 2004 and 2003, respectively.
NOTE 3 - INCOME TAXES
The Company has accumulated tax losses estimated at $17,500,000
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 leased approximately 1,620 square feet of office space from
Four Cabo's Enterprises, Ltd. on a month to month basis. The lease payments were
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.
The minimum future lease payments under these leases for the next five
years are:
Year Ended December 31,
-------------------------------------------
2005 $ 1,320
2006 880
2007 -
2008 -
2009 -
--------------
Total minimum future lease payments $ 2,200
==============
F - 18
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 5 - RESEARCH AND DEVELOPMENT
Research and development of the Klever-Kart System began with the sole
purpose of reducing thefts of shopping carts. A voice-activated alarm system was
envisioned. As time and technology progressed, the present embodiment of the
Klever-Kart System evolved into a "product specific" point-of-purchase
advertising system consisting of an easily readable electronic display that
attaches to any shopping cart, a shelf mounted message sending unit that
automatically sends featured products' ad-message to the display and a host
computer using proprietary software.
During the years ended December 31, 2004 and 2003, the Company expended
$69,765 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). At December 31, 2004,
the total amount due on this note was $224,290.
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. At
December 31, 2004, the total amount due on this note was $2,310.
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. At December 31, 2004, the total amount due on this note was $97,205.
F - 19
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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. At December 31, 2004, the total amount due on this note was $144,987.
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. At December 31, 2004, the total amount due on these loans was $22,296.
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. At December 31, 2004,
the total amount due on these loans was $0.
PRESIDIO INVESTMENTS, LLC LOAN TO THE COMPANY
Presidio Investments, LLC has loaned the Company $1,000,000, which loan
is secured by a blanket lien on the assets of the Company. The sole trustee of
Presidio Investments, LLC is William J. Howard, trustee of the Olson Legacy
Trust, whose residual beneficiary is the Olson Foundation. The Olson Foundation
was the guarantor for funds borrowed from Northern Trust Bank which funds were
used to make the loan to the Company. This note was amended on March 22, 2001
with an additional $500,000 loaned to the Company between January 1, 2001 and
March 22, 2001. An Interest rate of 8% applies until March 31, 2001 and
increases to 10% on April 1, 2001. Principal and all due and unpaid interest are
to be paid on October 1, 2001. This note is convertible to Class C convertible
preferred shares at the option of the note holder. At December 31, 2004, the
total amount due on these loans was $2,351,303.
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
F - 20
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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. At December 31, 2004,
the total amount due on these loans was $0.
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. At
December 31, 2004, the total amount due on this loan was $0.
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. At December 31, 2004, the total amount due on these loans was $0.
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. At December 31, 2004, the total amount due on this loan was $102,029.
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
F - 21
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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. At December 31, 2004, the total amount due on this loan was $316,889.
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. At December 31, 2004, the total amount due on these loans was
$0.
The loans listed below were made to the Company by The Arbinger
Institute after September 11, 2003.
F - 22
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
------------ ---------------------------------------------------------------------------------
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
10/01/03 $79.00 8.00% 10/01/05 132 $1.00
11/01/03 $79.00 8.00% 11/01/05 132 $1.00
11/26/03 $10,000.00 8.00% 11/26/05 16,667 $1.00
12/02/03 $79.00 8.00% 12/02/05 132 $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 $41,079.68 68,467
============= ==============
During 2004, the Arbinger Institute loaned the Company an additional
$2,260 to pay general and administrative expenses. At December 31, 2004, the
total amount due on these loans is $45,715.
The Arbinger Institute has also made additional loans to the Company to
pay for storage space. The total amount of these loans is $1,595 plus accrued
interest of $113. These loans were converted to common stock on September 11,
2003. As of December 31, 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. At December 31, 2004, the total amount due on these loans was
$0.
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:
F - 23
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. At December 31, 2004, the total amount due on these loans was
$0.
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. At December 31, 2004, the total amount due on this
loan was $2,813.
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.
F - 24
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 7 - NOTES PAYABLE
During 2002, the Company received loans of $45,000 from third parties.
The loans are demand loans and carry an interest rate of 8% per annum. At
December 31, 2004, the total amount due on these loans is $57,013.
NOTE 8- 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 December 31, 2004, 6,861,584 options were outstanding.
Compensation expense charged to operations in 2004 and 2003 is $0 and $0.
The following table sets forth the options and warrants outstanding as
of December 31, 2003.
Weighted
Option / Average Weighted
Warrants Exercise Average
Shares Price Fair Value
------------------ ----------------- ----------------
Options & warrants outstanding,
December 31, 2002 3,774,505 $ 1.22
Granted, Exercise price more than fair value 5,365,476 0.23 0.06
Granted, Exercise price less than fair value - - -
Expired (2,057,352) 1.10
Exercised - -
------------------
Options & warrants outstanding,
December 31, 2003 7,082,629 $ 0.73
================== =================
F - 25
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8- STOCK OPTIONS (continued)
The following table sets forth the options and warrants outstanding as
of December 31, 2004.
Weighted
Option / Average Weighted
Warrants Exercise Average
Shares Price Fair Value
------------------ ----------------- ----------------
Options & warrants outstanding,
December 31, 2003 7,082,629 $ 0.73
Granted, Exercise price more than fair value 900,132 2.15 0.07
Granted, Exercise price less than fair value - - -
Expired (1,121,177) 0.24
Exercised - -
------------------
Options & warrants outstanding,
December 31, 2004 6,861,584 $ 0.77
================== =================
Exercise prices for optioned shares and warrants outstanding as of
December 31, 2004 ranged from $0.01 to $2.77. A summary of these options by
range of exercise prices is shown as follows:
Weighted- Weighted-
Weighted- Shares/ Average Average
Shares / Average Warrants Exercise Price Contractual
Exercise Warrants Exercise Currently Currently Remaining
Price Outstanding Price Exercisable Exercisable Life
------------------ ------------------ --------------- ------------------ --------------------- -----------------
$ 0.01 121,213 $ 0.01 121,213 $ 0.01 2 years
0.05 350,000 0.05 350,000 0.05 4 years
0.06 3,167,000 0.06 3,167,000 0.06 3 years
0.065 400,000 0.065 400,000 0.065 4 years
0.23 200,000 0.23 100,000 0.23 4 years
0.50 100,000 0.50 100,000 0.50 11 months
0.54 60,000 0.54 60,000 0.54 6 years
0.66 30,303 0.66 30,303 0.66 1 year
1.00 991,192 1.00 991,192 1.00 1 - 3 years
2.50 198,000 2.50 198,000 2.50 2 months
2.56 146,483 2.56 146,483 2.56 1 month
2.75 937,000 2.75 937,000 2.75 2 years
2.77 160,393 2.77 160,393 2.77 1 month
F - 26
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK
On February 7, 2000 the Board of Directors authorized and established
"Class A Voting Preferred Stock" ("Class A Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class A Shares consisted of
1,000,000, 125,000 shares thereof were designated as Series 1 shares. On May 20,
2002, the Board of Directors amended the number of authorized shares of Class A
voting preferred stock to 55,000 shares.
Class A Shares are convertible into Common Stock at an initial
conversion price of $2.60 (subject to adjustment).
Holders of Class A Shares shall be entitled to receive when and as
declared by the Board of Directors of the Company out of any funds at the time
legally available therefor dividends at the rate of $2.20 per share per annum,
payable semi-annually on the first day of January and July of each year. Such
dividends shall accrue on each such share from the date of its original issuance
and shall accrue from day to day, whether or not earned or declared. Such
dividend shall be cumulative and may be paid in cash or in kind through the
distribution of .0425 Class A Shares, Series 1, for each outstanding Class A
Share, on each dividend payment date. In addition, each holder of Class A Shares
shall be entitled to receive, when and as declared, a dividend equal to each
dividend declared and paid on the shares of Common Stock, on a share for share
basis. If there is a split or dividend on the Common Stock, then the Class A
Share dividends shall be adjusted as if a similar split or dividend had occurred
with respect to the Class A Shares.
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.
F - 27
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
Class B Shares are convertible into Common Stock at an initial
conversion price of $1.70 (subject to adjustment).
Holders of Class B Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class B Shares,
of the same Series for which the dividend is accrued, for each outstanding Class
B Share, on each dividend payment date; provided, that if such dividends in
respect of any period shall not have been paid or declared and set apart for
payment for all outstanding Class B Shares by each payment date, then until all
unpaid dividends thereon shall be paid or set apart for payment to the holders
of such shares, the Corporation may not pay, declare or set apart any dividend
or other distribution on its shares of Common Stock or other shares junior to
the Class B Shares, nor may any other distributions, redemptions or other
payments be made with respect to the shares of Common Stock or other junior
shares. In addition to the foregoing, each 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.
F - 28
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
On January 2, 2001 the Board of Directors authorized and established
"Class C Voting Preferred Stock" ("Class C Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class C Shares consisted of
500,000, 125,000 shares thereof were designated as Series 1 shares and 125,000
shares thereof were designated as Series 2 shares. On May 20, 2002, the Board of
Directors amended the number of authorized shares of Class C voting preferred
stock to 150,000 shares.
Class C Shares are convertible into Common Stock at an initial
conversion price of $.66 (subject to adjustment).
Holders of Class C Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or 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.
F - 29
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
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).
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.
F - 30
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
Class D Shares shall carry a liquidation preference of $10.50 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class D Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after May 14, 2007. The redemption price shall be $10.50
per share together with accrued but unpaid dividends on such shares, if any.
NOTE 10 - LITIGATION
On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC., filed
against the Company in the Third Judicial District Court of Utah under the
provisions of the Utah Foreign Judgement Act a judgement from the Superior Court
of California, in and for the County of San Francisco Jurisdiction. Pursuant to
the Judgement Information Statement, also filed on October 27, 2003, the amount
of the above judgement is $81,124. The relief sought is collection from the
Company in Utah of the amount of said judgement. The Company 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, 2004 and 2003.
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, 2004 and 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 11 - STOCK TRANSACTIONS
During January 2003, the Company received $65,000 for 866,667 shares of
common stock. These shares were issued during the three months ended June 30,
2003.
On September 8, 2003, the Company issued 3,200,000 shares of common
stock valued at $.04 per share for $128,000 of accounts payable.
On September 11, 2003, the Company converted $544,239 of notes payable,
accrued interest, and accounts payable to 10,884,786 shares of common stock
valued at $.05 per share.
F - 31
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS (continued)
On September 8, 2003, the Company converted $15,000 of notes payable to
375,000 shares of common stock valued at $.04 per share.
On September 11, 2003, the Company authorized issuance of 954,502
shares of common stock for payment of expenses of $28,635. As of December 31,
2003 these shares have not been issued.
On September 25, 2003, the Company issued 1,000,000 shares of common
stock valued at $.10 per share for $100,000 of accounts payable.
On October 10, 2003, the Company received $56,000 for 1,120,000 shares
of common stock.
On October 22, 2003, the Company received $50,000 for 250,000 shares of
common stock.
On November 12, 2003, the Company received $2,500 for 10,000 shares of
common stock.
On December 29, 2003, the Company authorized issuance of 5,571 shares
of common stock for payment of $1,170 in accounts payable. As of December 31,
2003, these shares have not been issued.
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.
F - 32
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS (continued)
On February 19, 2004, the Company issued 24,435 shares of common stock
for payment of accounts payable of $5,125.
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.
F - 33
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS (continued)
On November 18, 2004, the Company issued 151,000 shares of common stock
at $.05 per share for accounts payable of $7,550.
On December 10, 2004, the Company issued 82,000 shares of common stock
at $.05 per share for accounts payable of $4,100.
NOTE 12 - 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 13 - LICENSE AGREEMENT
On May 11, 2004, Media Cart, Inc. acquired from the Company a limited
exclusive license to use the Company's United States 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 14 - 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.
F - 34
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
KLEVER MARKETING, INC.
Dated: April 15, 2005 By /S/ William J. Dupre
--------------------------------------------------
William J. Dupre
President, COO
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 15th day of April 2005.
Signatures Title
/S/ William J. Dupre
------------------------------------------------------------
William J. Dupre President, COO
(Principal Executive Officer)
/S/ D. Paul Smith
-------------------------------------------------------------
D. Paul Smith C.F.O.,
Secretary, Treasurer,
Chairman and Executive
Vice-President (Principal
Financial Officer)
/S/ Michael L. Mills
-----------------------------------------------------------
Michael L. Mills Director
/S/ C. Terry Warner
-----------------------------------------------------------
C. Terry Warner Director
/S/ William C. Bailey
-------------------------------------------------------------
William C. Bailey Director