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, 2005
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
KLEVER MARKETING, INC.
(Name of small business issuer in its charter)
Delaware 36-3688583
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
3785 South 700 E Second Floor Salt Lake City, UT 84106
(Address of principal executive offices) (zip code)
Issuer's telephone number (801) 263-0404
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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
---
As of March 31, 2006, there were 38,190,620 (1 vote per share) Common,
3,931,920 Class A, 21,996,372 Class B, and 1,397,761 Class C Convertible
Preferred, for a preferred and common share total of 46,300,427 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
$3,244,764 computed at the closing price as of March 31, 2006. The number of
preferred and common shares held by non-affiliates of the Registrant total
28,389,585votes.
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]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. [ X ] Yes [ ] No
TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Description of Business 1
Item 2. Description of Property 1
Item 3. Legal Proceedings 2
Item 4. Submission of Matters to a Vote of Security Holders 2
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 2
Item 6. Management's Discussion and Analysis or Plan of Operations 4
Item 7. Financial Statements 6
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 6
Item 8A. Controls and Procedures 7
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 7
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial Owners and Management 12
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 13
Item 14. Principal Accountant Fees & Services 21
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 Klever-Kart software
technology and upgrades, as well as advertising and promotion space sales to
both retailers and manufacturers. The Company needs to raise funds to perform
its obligations under the Fujitsu agreement.
ITEM 2 DESCRIPTION OF PROPERTY
The Company currently leases approximately 700 square feet of office
space from Poulton & Associates.. The rent payments are approximately $200 per
month. The office space is used as the corporate headquarters. It is located at
3785 S 700 2nd Floor East Salt Lake City, UT 84106.
1
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 judgment
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. This judgment has been included in the financial
statements as part of accrued liabilities at December 31, 2005.
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. This judgment has
been included in accounts payable as of December 31, 2005.
On December 12, 2005 Klever Marketing was summoned, and a complaint was
filed in the Third District Court of the State of Utah, by Dennis Shepard, one
of the partners of S&C Medical. The complaint contested Klever Marketing's
cancellation of an attempted deal with S&C medical in December of 2001. On
January 13, 2006, Klever Marketing answered there complaint and filed a counter
claim against S&C Medical. This matter is still in the process of being
resolved.
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during 2005.
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.
2
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 reflects inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions:
2005: HIGH LOW
First Quarter $0.12 $0.04
Second Quarter $0.15 $0.04
Third Quarter $0.19 $0.04
Fourth Quarter $0.12 $0.06
2004: HIGH LOW
First Quarter $0.30 $0.10
Second Quarter $0.15 $0.04
Third Quarter $0.13 $0.04
Fourth Quarter $0.15 $0.06
The number of shareholders of record of the Company's common stock as
of March 31, 2006 was approximately 847.
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.
On January 20, 2005, the Company issued 50,000 shares of common stock
for cash of $2,400.
On February 3, 2005, the Company issued 50,000 shares of common stock
for cash of $1,700.
On February 11, 2005, the Company issued 100,000 shares of common stock
for cash of $3,600.
On April 5, 2005, the Company issued 350,000 shares of common stock for
cash of $10,106.
On April 12, 2005, the Company issued 100,000 shares of common stock
for cash of $3,000.
On April 22, 2005, the Company issued 150,000 shares of common stock
for cash of $4,320.
On June 6, 2005, the Company issued 200,000 shares of common stock for
cash of $50,000.
3
On June 7, 2005, the Company issued 200,000 shares of common stock for
cash of $50,000.
On July 2, 2005, the Company issued 200,000 shares of common stock for
cash of $50,000.
On July, 5, 2005, the Company issued 50,000 shares of common stock for
cash of $12,500.
On August 4, 2005, the Company issued 100,000 shares of common stock
for cash of $25,000.
On August 26, 2005, the Company issued 200,000 shares of common stock
for cash of $50,000.
On December 28, 2005, the Company issued 40,000 shares of common stock
for cash of $10,000.
On December 31, 2005, the Company issued 92,500 shares of common stock
for expenses of $23,125.
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, 2005,
the Company believes that all reporting persons complied with all Section 16(a)
filing requirements, except that: Olson Foundation missed and a Form 5; Olsen
Legacy Trust missed a Form 5 filing; Presidio
8
9
missed one a Form 5; Michael L. Mills missed a Form 5; C. Terry Warner missed a
Form 5; D. Paul Smith missed a Form 5; William C. Bailey missed a Form 5;; and
Seabury missed a Form 5, Danny Warner missed a Form 4 and a Form 5, Richard King
missed a Form 3 and a From 5, Arthur Portugal missed a Form 3, a Form 4 for two
transactions and a Form 5, Paul Begum missed a form 4 filing for two
transactions and missed s Form 5,
ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
4
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 35
store in the fourth quarter of 2006; 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, 2005 and 2004, the Company had net losses of $736,913 and
$632,293, respectively. This increase in the loss is primarily due to a
write-off of assets.
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
5
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 approximately $280,000
and $349,000 for 2005 and 2004 respectively. The decrease in the use of cash is
due primarily to a decrease in operations.
Investing activities have used cash of approximately $13,000 for 2005,
and provided cash of approximately $314,000 for 2004. Investing activities
primarily represent purchases of Phase III equipment, patents relating to the
electronic in-store advertising, directory and coupon devices, and purchases of
office equipment. The cash provided in 2004 was primarily due to the sale of the
Company's patents.
Financing activities provided cash of approximately $274,000 and
$56,000 for 2005 and 2004, 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 following the signature page to this report. See
Item 13 for a list of the financial statements and financial statement schedules
included.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company
and its accountants on any matter of accounting principles, practices or
financial statements disclosure.
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.
6
(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 covered by this report, 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 this evaluation as of December 31, 2005, there were no changes
in the Company's internal controls over financial reporting or in any other
areas that occurred during the fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
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
Arthur Portugal 64 President Next annual shareholder meeting
Daniel Warner 33 EVP Business (resigned as of 3-31-06)
Development Next annual shareholders meeting
D. Paul Smith 59 CFO/Secretary/
Treasurer Next annual shareholder meeting
7
William C. Bailey 70 Chairman Next annual shareholder meeting
Michael L. Mills 42 Director Next annual shareholder meeting
C. Terry Warner 68 Director Released on 3-24-06
Dick King 53 Director Next annual shareholder meeting
John T. Zaccheo 79 Director Next annual shareholder meeting
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Arthur Portugal, age 64, joined the company in November 2005 as President of
Klever Marketing, He brings with him more then 20 years experience in the retail
merchandising and marketing industries with a strong emphasis in sales, customer
management and operations. Most recently Art served as Vice President of
Business Development for Storecast Merchandising Corp., a retail merchandising
company, responsible for expanding the companies business, targeting potential
acquisitions, securing new merchandising assignments and developing new vendor
relationships. Art also served for three year as President of Fieldflex USA, a
third party in-store merchandising and reset organization and two years as
President and CEO of One-Source Industries, LLC, a company specializing in point
of purchase design, point of sale displays and custom packaging. He also spent
fourteen years Executive Vice President of Client Services for PIA Merchandising
Company. Art is a current advisor and former President of The Illuminators, a
grocery industry trade association affiliated with the Western Association of
Food Chains and the California Grocers Association. Art also serves on a number
of other retail, merchandising and trade associations.
D. Paul Smith, age 59, served as a director of the company from
November 2000 until July 2005 , he served as Chairman of the board from January
2001 until July 2005. Smith continues to serve as served as CFO, Secretary and
Treasurer and has since October 2001. On November 18, 2002, Mr. Smith resigned
his position as Vice-President when William J. Dupre assumed the role of
Executive Vice-President.
Daniel L. Warner, age 33, joined the Company as Executive
Vice-President of Business Development in February 2004. From July of 2005,
until November 2005, Warner served as Interim President. On March 31, 2006
Warner resigned as Executive Vice-President of Business Development.
William J. Dupre, age 53, joined the Company as Chief Operating Officer
and Executive Vice-President in November 2002. Mr. Dupre was appointed President
and COO in December 2003, and in May 2005 resigned.
William C. Bailey, age 70, was elected as a director of the Company in
June 1994. Since July of 2005, Mr. Bailey has been serving as Chairman of the
Board. Mr. Bailey is also 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
8
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 and was release from the board on March 31, 2006. 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.
Richard L. King joined Klever's Board of Directors in July of 2005,
bringing with him extensive experience in the retail food industry, including
36-years at Albertsons, where he last served as the grocery retailer's President
and COO. As President, King was responsible for a $16 billion operation, nearly
1,000 stores and 100,000 employees. King has also served as President of
Associated Retail Stores, as well as President and CEO of Labor Ready, a leading
provider of dependable temporary manual labor to light industry and small
business markets. King has served on the Board of Directors for Albertsons, TJ
International, and Deluxe Ice Cream, and is currently on the Board of Directors
for Western Association of Food Chains, and the Associated Retail Stores.
JOHN T. ZACCHEO JOINTED THE BOARD OF DIRECTORS IN MARCH, 2006. HE
CURRENTLY SERVES AS President of the Equity Capital Management, Inc., an
investment company managing trust holdings. John also owns Mr. Z's restaurant in
Salt Lake City. For 22 years he was corporate manager of engineering for a
division of Tenneco, with responsibility for managing a team of engineers and a
yearly expansion program ranging from $56 million to $61 million per year. He
has also been a land developer in Aspen, CO. John participated in extensive
management development courses and training while at Tenneco. John has also been
a member of Rotary International for 40 years.
9
AUDIT COMMITTEE
As of December 31, 2005, the Company had one active board committee,
the Audit and Compliance Committee. D. Paul Smith, Michael L. Mills and Terry
Warner 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 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.
10
(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 2003 - - - - 1,027,616 1 - -
Former President 2004 200,000
D. PAUL SMITH 2005 - - - - - - -
Chairman/CFO/ 2004 - - - - 200,000 2 - -
Sec/Treasurer 2003 - - - - 1,168,333 - -
Exec Vice-President
WILLIAM J. DUPRE 2005 $ 62,000 3 - - - - - -
President/COO 2004 $ 122,250 - - - - - -
2003 $ 50,000 - - - 400,000 - -
ARTHUR PORTUGAL 2005 - - - $23,822 195,288 4 - -
President
(1) Richard J. Trout was named President in October 2001. Mr. Trout resigned as
President on December 3, 2003.
(2) D. Paul Smith joined the Company in October 2001 as Chief Financial Officer,
Vice-President, Corporate Secretary, and Treasurer. Mr. Smith resigned as
Vice-President when William J. Dupre assumed that position in November 2002. Mr
Smith served as Chairman of the Board from January 2001 until July 2005.
(3) William Dupre joined the Company in November 2002 as Chief Operating Officer
and Executive Vice-President, on December 3, 2003 was named President of the
Company. On May 1, 2005, Mr Dupre resigned from the Company.
(4) Arthur Portugal joined the company as President in Novemeber 2005. The
$23,822 worth of restricted stock that Portugal received in 2005, equates to
195,288 in Klever restricted stock, which was granted in place of the payroll
that he had accrued from November 14, 2005 until December 31, 2005 at a share
price of $0.25. As part of the same transaction, Portugal also received the same
amount of options for a three year period and a strike price of $0.50.
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND YEAR END OPTION/SAR
VALUES
The following table sets forth information respecting all individual
grants of options and SARs made during the last completed fiscal year to the
chief executive officer, chief financial officer, and directors of the Company.
11
--------------------------- ---------------- -------------- ----------------------------------- -----------------------------------
Name Shares Value Number of Securities Underlying Value of Unexercised in-the-money
Acquired on Realized ($) Unexercised Options options ($) (a)
exercise
--------------------------- ---------------- -------------- ----------------------------------- -----------------------------------
--------------------------- ---------------- -------------- --------------- ------------------- --------------- -------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ---------------- -------------- --------------- ------------------- --------------- -------------------
Arthur Portugal 0 $0 150,288 75,000 $4,000 $0
--------------------------- ---------------- -------------- --------------- ------------------- --------------- -------------------
Richard King 0 $0 225,000 - $4,000 $0
--------------------------- ---------------- -------------- --------------- ------------------- --------------- -------------------
(a) Based on the closing price of the Company's Common Stock on March 31,
2006 at $.16 per share
Executive Compensation and Benefits
The Company provides to three of its full time employees, including the
Chief Operating Officer, health insurance and miscellaneous other benefits.
The Company adopted a stock incentive plan for its employees, executive
officers, directors, and consultants.
ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
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 46,722,144 votes as of March 31, 2006, 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.
12
# OF
NAME AND ADDRESS NATURE OF SHARES
OF BENEFICIAL OWNERS OWNERSHIP OWNED PERCENT
DIRECTOR
PRINCIPAL SHAREHOLDERS
----------------------
Paul G. Begum Direct (2) 3,158,807
P.O. Box 58045 Preferred Shares (2) 126,302
Salt Lake City, UT 84158 Options/Warrants 257,000
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Total 3,542,109 7.61%
==============================
Olson Foundation Direct (1) 4,101,838
2220 Eastridge Ave Preferred Shares (1) 3,946,953
Riverside, CA 92507 Convertible Debt (1) 9,242,163
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Total 17,908,409 31,89%
================================
C. Terry Warner Direct (3) 2,526,574
1278 Locust Lane Options (3) 575,033
Provo, UT 84604 Convertible Debt (3) 12,373
----------
Total 3,114,980 6.64%
===============================
Presidio Investments LLC Direct (4) 1,266,708
3200 North Central Ave Preferred Shares (4) 347,332
Suite 1560 Options/Warrants (4) 0
Phoenix, AZ 85012 Convertible Debt (1)(4) 8,083,344
----------
Total 9,697,384 17.83%
===============================
Olson Legacy Trust Direct (4) 1,266,708
3200 North Central Ave Preferred Shares (4) 347,332
Suite 1560 Options/Warrants (1)(4) 0
Phoenix, AZ 85012 Convertible Debt (4) 8,083,344
----------
Total 9,697,384 17.83%
===============================
Olson Holdings Direct (1) 759,765
2220 Eastridge Ave. Preferred Shares (1) 2,999,684
Suite B Options/Warrants (1) 239,613
-----------
Riverside, CA 92507 Total 3,999,062 8.59%
================================
Seabury Investors III Preferred Shares 4,036,552
540 Madison Avenue Warrants 106,061
New York, NY 10022 Convertible Debt (5) 1,521,487
-----------
Total 5,664,100 11.82%
================================
13
# OF
NAME AND ADDRESS NATURE OF SHARES
OF BENEFICIAL OWNERS OWNERSHIP OWNED PERCENT
DIRECTOR
PRINCIPAL SHAREHOLDERS
----------------------
Zedeka. LLC Direct 3,252,771
(formerly Primavera) 7.03%
1278 Locust Lane ================================
Provo, UT 84604
Arbinger Direct 3,490,756
Gateway Park Tower Options/Warrants 47,733
563 W 500 S Convertible Debt 49,491
Suite 200 -----------
Woods Cross, UT 84087 Total 3,587,980 7.73%
================================
William Bailey Direct 3,244,914
3889 E. Brockbank Dr. Options/Warrants 520,000
Salt Lake City, UT 84124 -----------
Salt Lake City, UT 84124 Total 3,764,914 8.04%
================================
D. Paul Smith Direct (6) 1,041,301
747 W. Sheringham Ct. Options/Warrants (6) 1,183,867
Farmington, UT 84025 Convertible Debt (6) 15,398
-----------
Total 2,240,566 4.72%
================================
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 8.04%
===============================
C. Terry Warner Direct (3) 2,526,574
1278 Locust Lane Options (3) 575,533
Provo, UT 84604 Convertible Debt (3) 12,373
----------
Total 3,114,980 6.64%
===============================
D. Paul Smith Direct (6) 1,041,301
747 W. Sheringham Ct. Options/Warrants (6) 1,183,867
Farmington, UT 84025 Convertible Debt (6) 15,398
---------
Total 2,240,566 4.72%
===============================
Richard King Direct 0
2688 W. Primeland Dr. Options/Warrants 225,000
N. Salt Lake City, UT 84054 Total 425,000 0.50%
===============================
14
# OF
NAME AND ADDRESS NATURE OF SHARES
OF BENEFICIAL OWNERS OWNERSHIP OWNED PERCENT
DIRECTOR
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Arthur Portugal Direct 0
515 Vista Montana Options/Warrants 235,288
---------
Salt Lake City, UT 84124 Total 370,576 0.51%
===============================
ALL EXECUTIVE OFFICERS AND
DIRECTORS AS A GROUP (5
PERSONS) Direct 6,812,789
Options/Warrants 2,739,688
Convertible Debt 27,771
---------
Total 9,580,248 20.41%
===============================
(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, and 23,182 Shares
held by Mr. Mills. The Olson ownership also includes Preferred Stock
that, as of March 31, 2005 would convert 3,946,953 votes held by
Presidio (347,332 votes), Olson Holdings (2,999,684 votes) and Olson
Foundation (598,937 votes). Ownership includes warrants covering
105,455 Shares held by Olson Foundation, and options covering 512,000
Shares held by Mr. Mills. Convertible debt held by Olson Foundation and
affiliates in the amount of 9,242,163 shares may also be converted as
of March 31 2005 into 1,152,819 Shares held by Olson Foundation and
8,083,344 shares held by Presidio.
(2) Mr. Begum's ownership includes 2,427,089 shares held by Tree of Stars,
Inc., a corporation of which Mr. Begum is a director, officer and
principal shareholder; and 506,864 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 126,302 Shares as of March 31, 2006
(1) Mr. Warner's ownership includes 12,500 Shares held by C. Terry Warner;
3,252,771 Shares held by Primavera, Ltd, (now called Zedeka, LLC), 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 576,033 shares and convertible debt held by Mr. Warner that
may be converted into 12,373 shares as of March 31 2005.
(2) 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.;
347,332 Shares should the Class A Convertible Preferred Shares held by
15
Presidio Investments LLC. be converted as of March 31, 2005; Olson
Legacy Trust, of which William J. Howard is the sole trustee,. In
addition to the total Presidio and Olson Legacy Trust ownership,
convertible debt held by Presidio Investments may be converted into
8,083,344 Shares as of March 31, 2005.
(3) In addition to the total Seabury ownership, convertible debt held by
Seabury Investors III, Limited Partnership could be converted into
1,521,487Shares as of March 31, 2005
(4) 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 1,183,867 shares and convertible debt
held by Mr. Smith that may be converted into 15,398 shares as of March
31,2005.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OLSON HOLDINGS, INC. LOANS TO THE COMPANY
Olson Holdings, Inc. made a $150,000.00 unsecured loan to the Company
on February 26, 2001. This note has a six-month term at 10% annual interest
maturing on August 26, 2001. The maker of the note may give written notice
within 10-days of maturity, to the Company, to convert the principal and
interest into common stock with a convertible price of $1.05 (10-day weighted
average from February 26, 2001 and the nine days prior).
Olson Holdings made an unsecured loan to the Company on January 7, 2002
for $1,835.84. This note has an annual interest rate of 8% and matures on
January 7, 2004. An option was granted in connection with this note for 3,060
shares at a strike price of $1.00 and an expiration date of January 7, 2005.
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.
16
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.
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.
THE SEABURY GROUP LOAN TO THE COMPANY
The Seabury Group loaned the Company $60,000 on July 5, 2001, of which
is secured by a blanket lien on the assets of the Company. An interest rate of
10% compounded monthly applies until January 5, 2002. Principal and all due and
unpaid interest are to be paid on January 5, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 5, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder
The Seabury Group loaned the Company $190,000 on August 22, 2001, of
which is secured by a blanket lien on the assets of the Company. An interest
rate of 10% compounded monthly applies until February 22, 2002. Principal and
all due and unpaid interest are to be paid on February 22, 2002, or the interest
rate increases to 15% compounded daily. Warrants were issued in conjunction with
this loan for 57,576 common shares at a strike price of $0.01 and an expiration
date of August 22, 2006. This note is convertible to Class C convertible
preferred shares or to Class D convertible preferred shares at the option of the
note holder.
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.
17
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.
DIRECTOR AND OFFICER LOANS TO THE COMPANY
On October 8, 2003, D. Paul Smith, a member of the Board of Directors,
loaned to the Company $2,500 In conjunction with this loan, 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.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE
Independent Auditor's Report..............................................................F-1
Balance Sheets
December 31, 2005 and 2004.............................................................F-2
Statements of Operations
For the Years Ended December 31, 2005 and 2004
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2005...................................................................F-4
18
Statement of Stockholders' Equity
From July 5, 1996 (inception of development stage) to December 31, 2005 ...............F-5
Statements of Cash Flows
For the Years Ended December 31, 2005 and 2004
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2005..................................................................F-13
Notes to the Financial Statements........................................................F-15
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)
19
4.05 Amendment to the Certificates of Designation of Rights, Privileges and
Preferences of Class A, B, and C Voting Preferred Stock, of Klever
Marketing, Inc., dated June 12, 2002 (5)
10.01 Separation Agreement between Paul G. Begum and the Registrant Dated
January 8, 2001 (2)
10.02 Stock Incentive Plan, effective June 1, 1998 (2)
10.03 Amended and Restated Promissory Note (Secured) of the Registrant
payable to Presidio Investments, LLC, dated June 27, 2000, with
Financing Statement and Exhibit "A" (2)
10.04 Intercreditor Agreement between Seabury Investors III, Limited
Partnership, The Olson Foundation, Presidio Investments, LLC, and the
Registrant dated August 27, 2001 (4)
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(1) Incorporated herein by reference from Registrant's Form 10KSB,
dated June 20, 1997.
(2) Incorporated herein by reference from Registrant's Form 10KSB,
dated March 29, 2001
(3) Incorporated herein by reference from Registrant's Form 10QSB,
dated May 15, 2001.
(4) Incorporated herein by reference from Registrant's Form 10QSB,
dated May 15, 2002.
(5) Incorporated herein by reference from Registrant's Form 10QSB,
dated August 19, 2002.
(b) REPORTS FILED ON FORM 8-K
On July 27, 2005, the Company filed a Form 8-K under Item 5.02,
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers. The 8-K reported that Paul Smith was stepping down as
Chairman and as a director, Bill Dupre had resigned as President, Richard King
was appointed to the board, .and Danny Warner was appointed as Interim-President
On December 19, 2005, the Company filed a Form 8-K under Item 8.01,
Other Events. The 8-K announced that Klever Marketing received notice that they
were named in a lawsuit filed by Dennis Shepherd, one of two individual
shareholders of S&C Medical
On January 6, 2006, the Company filed a Form 8-K under Item 5.02,
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers, announcing that Arthur Portugal had been appointed as
President of the Company, replacing Danny Warner who has been serving as
Interm-President and will continue on as EVP of Business Development. It was
also announced that Ted File has been appointed to the board.
20
On January 25, 2006, the Company filed a Form 8-K under Item 5.02,
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers, announcing that they have moved their office, and that
Ted File had not yet accepted the board position..
On April 5, 2006, the Company filed a Form 8-K under Item 5.02,
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers, and Item 8.01, Other Events, announcing that Terry Warner
had been released from the board of Directors, and John Zaccheo had been
appointed to the board. As of March 31, 2006 Danny Warner resigned as Executive
Vice President of Business Development. They also announced that Klever had
moved their corporate headquarters.
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, 2005
and 2004:
Service 2005 2004
Audit Fees $16,475 $20,375
Audit-Related Fees - -
Tax Fees 192 150
All Other Fees - -
Total $16,667 $20,525
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.
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
21
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.
22
KLEVER MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
TABLE OF CONTENTS
Page
Independent Auditor's Report...................................................................F-1
Balance Sheets
December 31, 2005 and 2004..................................................................F-2
Statements of Operations
For the Years Ended December 31, 2005 and 2004
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2005........................................................................F-4
Statement of Stockholders' Equity
From July 5, 1996 (inception of development stage) to December 31, 2005 ....................F-5
Statements of Cash Flows
For the Years Ended December 31, 2005 and 2004
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2005.......................................................................F-13
Notes to the Financial Statements.............................................................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, 2005 and 2004, and the
related statements of operations and cash flows for the two years ended December
31, 2005, and the cumulative period from July 5, 1996 (inception of development
stage) to December 31, 2005, and the statement of stockholders' equity from July
5, 1996 (inception of development stage) to December 31, 2005. 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, 2005 and 2004, 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 28, 2006
F - 1
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
December 31,
ASSETS 2005 2004
------
------------------ ------------------
Current Assets
Cash $ 3,892 $ 23,174
Prepaid Expense 750 750
Other Receivable 25,865 25,865
------------------ ------------------
Total Current Assets 30,507 49,789
------------------ ------------------
Fixed Assets
Office Equipment 92,964 92,964
Less Accumulated Depreciation (92,964) (89,319)
------------------ ------------------
Net Fixed Assets - 3,645
------------------ ------------------
Other Assets
Patents 767,830 755,089
Less Accumulated Amortization (767,830) (727,938)
------------------ ------------------
Net Other Assets - 27,151
------------------ ------------------
Total Assets $ 30,507 $ 80,585
================== ==================
F - 2
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
(Continued)
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2005 2004
------------------------------------
------------------ ------------------
Current Liabilities
Accounts Payable, Trade $ 307,591 $ 343,765
Accrued Liabilities 2,050,447 1,624,295
Related Party Payables 2,129,128 2,127,564
Notes Payable 45,000 45,000
Short-term Notes Payable - 458
------------------ ------------------
Total Current Liabilities 4,532,166 4,141,082
------------------ ------------------
Stockholders' Equity
Preferred stock (par value $.01), 2,000,000 shares authorized
168,434 issued and outstanding December 31, 2005
and December 31, 2004 1,684 1,684
Common Stock (Par Value $.01), 20,000,000 shares
authorized 38,523,120 shares issued and outstanding
at December 31, 2005 and 36,640,620 shares issued
and outstanding at December 31, 2004 385,231 366,406
Common Stock to be issued, 469,752 shares at
December 31, 2005 and 2004 4,698 4,698
Treasury Stock, 1,000 shares at December 31, 2005 and 2004 (1,000) (1,000)
Paid in Capital in Excess of Par Value 13,440,954 13,164,028
Shareholder Receivable (15,000) (15,000)
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During Development Stage (14,984,441) (14,247,528)
------------------ ------------------
Total Stockholders' Equity (4,501,659) (4,060,497)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 30,507 $ 80,585
================== ==================
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
2005 2004 Stage
------------------ ------------------ ------------------
Revenue $ - $ - $ 256,000
------------------ ------------------ ------------------
Expenses
Sales and marketing 37,662 - 155,208
General and administrative 461,066 686,776 9,401,447
Research and development - 69,765 4,529,656
------------------ ------------------ ------------------
Total Expenses 498,728 756,541 14,086,311
------------------ ------------------ ------------------
Other income (expense)
Other income 150,082 278,635 428,717
Interest income - - 18,902
Interest expense (388,167) (415,425) (1,819,188)
Gain (Loss) on disposal of assets - 261,138 26,947
Capital gain on sale of investments - - 191,492
------------------ ------------------ ------------------
Total Other Income (Expense) (238,085) 124,348 (1,153,130)
------------------ ------------------ ------------------
Income (Loss) Before Taxes (736,813) (632,193) (14,983,441)
Income Taxes 100 100 1,000
------------------ ------------------ ------------------
Net Income (Loss) After Taxes $ (736,913) $ (632,293) $ (14,984,441)
================== ================== ==================
Weighted Average Shares
Outstanding 37,672,182 34,899,606
================== ==================
Loss Per Share $ (0.02) $ (0.02)
================== ==================
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
-49,3186.60 per share 68,182 682
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)
Shares issued for cash at
$.028 - .25 per share - - 1,790,000 17,900 - - 254,726 - -
Shares issued for expenses
at $.25 per share - - 92,500 925 - - 22,200 - -
Net Loss - - - - - - - - (736,913)
--------- ------ ---------- --------- -------- ------- ------------ ------------ ----------------
Balance December 31, 2005 168,434 $1,684 38,523,120 $ 385,231 $ (1,000)$ 4,698 $ 13,440,954 $ (3,333,785)$ (14,984,441)
========= ====== ========== ========= ======== ======= ============ ============ ================
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
2005 2004 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (736,913) $ (632,293) $ (14,984,441)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Stock issued for general and administrative 23,125 63,545 986,785
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) 486,536
Compensation expense from stock options - - 26,247
Stock issued for interest expense - - 119,701
Stock issued for accounts payable - 36,350 208,473
Deferred income - - (214,000)
Depreciation and amortization 43,537 144,062 1,905,668
(Increase) decrease in accounts receivable - - (413)
(Increase) decrease in shareholder receivable - - 37,694
(Increase) decrease in other assets & prepaids - (24,103) 87,623
Increase (decrease) in accounts payable (36,174) (103,090) 221,887
Increase (decrease) in accrued liabilities 426,152 379,823 2,011,850
----------------- ------------------ ------------------
Net Cash Used in Operating Activities (280,273) (348,994) (9,244,330)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net - 2,328 (587,801)
Acquisition/Sale of patents (12,741) 311,430 32,304
Acquisition/Sale of stock, net - - 12,375
----------------- ------------------ ------------------
Net Cash Used by Investing Activities (12,741) 313,758 (543,122)
----------------- ------------------ ------------------
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
2005 2004 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds capital stock issued 272,626 65,120 6,619,173
Proceeds from loans 1,564 2,374 3,456,752
Loan receivables - - (15,000)
Principal payments on lease obligations - - (18,769)
Cash payments on notes payable (458) (11,000) (275,486)
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 273,732 56,494 9,766,670
----------------- ------------------ ------------------
Net Increase (Decrease) in Cash and Cash
Equivalents (19,282) 21,258 (20,782)
Cash and Cash Equivalents at Beginning of the
Year 23,174 1,916 24,674
----------------- ------------------ ------------------
Cash and Cash Equivalents at End of the Year $ 3,892 $ 23,174 $ 3,892
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ - $ -
Income Taxes $ 100 $ 100 $ 1,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
o 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.
o 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 $736,913
for the year ended December 31, 2005, losses of $632,293 for the year ended
December 31, 2004, and losses of $18,318,226 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 2004 financial
statements to conform with the 2005 presentation.
Loss per Share
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, 2005 and
2004 are not presented as it would be anti-dilutive. At December 31, 2005 and
2004, the total number of potentially dilutive common stock equivalents was
8,109,807 and 9,242,589, respectively.
F - 16
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight- line method over the estimated economic useful
lives of the related assets as follows:
Computer equipment 3 years
Office furniture and fixtures 5-10 years
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their estimated economic useful lives.
Depreciation expense was $3,644 and $1,785 for the year ended December
31, 2005 and 2004, respectively.
Intangibles
Intangibles associated with certain technology agreements are amortized
over 10 - 14 years.
Amortization expense was $39,892 and $142,275 for the year ended
December 31, 2005 and 2004, respectively.
NOTE 3 - INCOME TAXES
The Company has accumulated tax losses estimated at $18,300,000
expiring in years 2007 through 2025. 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.
F - 17
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
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 were approximately $225 per month. This lease was
cancelled as of September 30, 2005.
On November 1, 2005 the Company entered into a 12 month lease agreement
with SJD,LLC at a rate of $1,500 per month. On March 1, 2006 the Company was
able to cancel the remainder of the lease agreement.
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. During the third quarter
of 2005, the Company settled this lease and is no longer making payments.
The minimum future lease payments under these leases for the next five
years are:
Year Ended December 31,
-------------------------------------------
2006 $ -
2007 -
2008 -
2009 -
2010 -
--------------
Total minimum future lease payments $ -
==============
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 year ended December 31, 2005 and 2004, the Company expended
$0 and $69,765 respectively for research and development of the technology
involved with its patents.
F - 18
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS
OLSON HOLDINGS, INC. LOANS TO THE COMPANY
Olson Holdings, Inc. made a $150,000.00 unsecured loan to the Company
on February 26, 2001. This note has a six-month term at 10% annual interest
maturing on August 26, 2001. The maker of the note may give written notice
within 10-days of maturity, to the Company, to convert the principal and
interest into common stock with a convertible price of $1.05 (10-day weighted
average from February 26, 2001 and the nine days prior).
Olson Holdings made an unsecured loan to the Company on January 7, 2002
for $1,835.84. This note has an annual interest rate of 8% and matures on
January 7, 2004. An option was granted in connection with this note for 3,060
shares at a strike price of $1.00 and an expiration date of January 7, 2005.
At December 31, 2005, the total amount due on these notes was $288,183.
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.
At December 31, 2005 the total amount due on these loans was $265,010.
F - 19
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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, 2005 the
total amount due on these loans was $2,542,713.
THE SEABURY GROUP LOAN TO THE COMPANY
The Seabury Group loaned the Company $60,000 on July 5, 2001, of which
is secured by a blanket lien on the assets of the Company. An interest rate of
10% compounded monthly applies until January 5, 2002. Principal and all due and
unpaid interest are to be paid on January 5, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 5, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder
The Seabury Group loaned the Company $190,000 on August 22, 2001, of
which is secured by a blanket lien on the assets of the Company. An interest
rate of 10% compounded monthly applies until February 22, 2002. Principal and
all due and unpaid interest are to be paid on February 22, 2002, or the interest
rate increases to 15% compounded daily. Warrants were issued in conjunction with
this loan for 57,576 common shares at a strike price of $0.01 and an expiration
date of August 22, 2006. This note is convertible to Class C convertible
preferred shares or to Class D convertible preferred shares at the option of the
note holder.
At December 31, 2005 the total amount due on these loans was $464,601.
ARBINGER LOANS TO THE COMPANY
The loans listed below were made to the Company by The Arbinger
Institute. The Arbinger Institute is controlled by four equal partners, of which
C. Terry Warner and D. Paul Smith are each a partner.
F - 20
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, 2005, the
total amount due on these loans is $49,095.
DIRECTOR AND OFFICER LOANS TO THE COMPANY
On October 8, 2003, D. Paul Smith, a member of the Board of Directors,
loaned to the Company $2,500 In conjunction with this loan, 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, 2005, the total amount due on this advance was $2,969.
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.
F - 21
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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 was $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.
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, 2005, the total amount due on these loans is $60,175
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, 2005, 7,326,053 options were outstanding.
Compensation expense charged to operations in 2005 and 2004 is $0 and $0.
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
================== =================
F - 22
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, 2004 6,861,584 $ 0.77
Granted, Exercise price more than fair value 1,310,288 0.43 0.08
Granted, Exercise price less than fair value - - -
Expired (845,819) 0.06
Exercised - -
------------------
Options & warrants outstanding,
December 31, 2005 7,326,053 $ 0.54
================== =================
Exercise prices for optioned shares and warrants outstanding as of
December 31, 2005 ranged from $0.01 to $2.75. 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 8 months
0.06 3,867,000 0.06 3,867,000 0.06 1.75 years
0.07 400,000 0.07 400,000 0.07 2.1 years
0.08 100,000 0.08 100,000 0.08 2.9 years
0.10 125,000 0.10 50,000 0.10 2.75 years
0.23 200,000 0.23 200,000 0.23 2 years
0.50 985,288 0.50 985,288 0.50 2.25 years
0.54 60,000 0.54 60,000 0.54 4.2 years
0.66 30,303 0.66 30,303 0.66 5 months
1.00 500,249 1.00 500,249 1.00 7 months
2.75 937,000 2.75 937,000 2.75 1 year
F - 23
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 - 24
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 - 25
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 - 27
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 - 28
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 Judgment Act a judgment from the Superior Court
of California, in and for the County of San Francisco Jurisdiction. 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. This judgment has been included in the financial statements as part
of accrued liabilities at December 31, 2005 and 2004.
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, 2005 and 2004.
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. This amount has been included in accounts payable as of December 31,
2003. On May 7, 2004, the Company paid $16,135.81 to settle this judgment.
On December 12, 2005 Klever Marketing was summoned, and a complaint was
filed in the Third District Court of the State of Utah, by Dennis Shepard, one
of the partners of S&C Medical. The complaint contested Klever Marketing's
cancellation of an attempted deal with S&C medical in December of 2001. On
January 13, 2006, Klever Marketing answered their complaint and filed a counter
claim against S&C Medical. This matter is still in the process of being
resolved.
F - 29
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
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.
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.
F - 30
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS (continued)
On February 2, 2004, the Company issued 6,739 shares of common stock
for payment of accounts payable of $1,550.
On February 6, 2004, the Company issued 200,000 shares of common stock
for $28,000 in cash.
On February 9, 2004, the Company issued 152,142 shares of common stock
for settlement of shareholder payables of $38,036.
On February 10, 2004, the Company issued 100,000 shares of common stock
for $15,000 in cash.
On February 19, 2004, the Company issued 24,435 shares of common stock
for payment of accounts payable of $5,125.
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.
F - 31
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS (continued)
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.
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.
On January 20, 2005, the Company issued 50,000 shares of common stock
for cash of $2,400.
On February 3, 2005, the Company issued 50,000 shares of common stock
for cash of $1,700.
On February 11, 2005, the Company issued 100,000 shares of common stock
for cash of $3,600.
On April 5, 2005, the Company issued 350,000 shares of common stock for
cash of $10,106.
On April 12, 2005, the Company issued 100,000 shares of common stock
for cash of $3,000.
On April 22, 2005, the Company issued 150,000 shares of common stock
for cash of $4,320.
On June 6, 2005, the Company issued 200,000 shares of common stock for
cash of $50,000.
F - 32
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS (continued)
On June 7, 2005, the Company issued 200,000 shares of common stock for
cash of $50,000.
On July 2, 2005, the Company issued 200,000 shares of common stock for
cash of $50,000.
On July, 5, 2005, the Company issued 50,000 shares of common stock for
cash of $12,500.
On August 4, 2005, the Company issued 100,000 shares of common stock
for cash of $25,000.
On August 26, 2005, the Company issued 200,000 shares of common stock
for cash of $50,000.
On December 28, 2005, the Company issued 40,000 shares of common stock
for cash of $10,000.
On December 31, 2005, the Company issued 92,500 shares of common stock
for expenses of $23,125.
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.
F - 33
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 13 - LICENSE AGREEMENT (continued)
On February 15, 2005 ModStream Digital Messaging Products, LLC acquired
from the Company limited non-exclusive licensees to use the Company's United
States patent portfolio for electronic display devices specific to ModStreams
product design. This product design is limited to a 80 character dot-matrix
LCD-type screen with limited alerts, and does not include full motion video or
product scanning. Under the license agreement, ModStream paid the Company
$150,000 and will pay ongoing royalties for all ModStream products that utilize
the specific components of 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.
NOTE 15 - EMPLOYMENT AGREEMENT
On November 14, 2005, the Company entered into an employment agreement
with Arthur Portugal. Under the terms of the agreement, Mr. Portugal will
receive a base salary of $185,000 per year. The agreement has a term of one
year.
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 28, 2006 By /S/ Arthur Portugal
--------------------------------------------
Arthur Portugal
President
(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 28th day of April 2006.
Signatures Title
/S/ Arthur Portugal
-----------------------------------------------------------
Arthur Portugal President, COO
(Principal Executive Officer)
/S/ D. Paul Smith
-----------------------------------------------------------
D. Paul Smith C.F.O., Secretary, Treasurer
(Principal Financial Officer)
/S/ William C. Bailey
-----------------------------------------------------------
William C. Bailey Chairman
/S/ Michael L. Mills
-----------------------------------------------------------
Michael L. Mills Director
/S/ Richard King
-----------------------------------------------------------
Richard King Director
/S/ John T. Zaccheo
-----------------------------------------------------------
John T. Zaccheo Director
23