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, 2006
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____To_____
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
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 December 31, 2006, there were 38,190,620 (1 vote per share)
Common and 168,434 Convertible Preferred, for a preferred (converted to common)
and common share total of 39,874,960. All shares have a par value of $0.01. The
aggregate market value of the Registrant's voting stock held by non-affiliates
of the Registrant was approximately $1,072,144 computed at the closing price as
of December 31, 2006. The number of preferred and common shares held by
non-affiliates of the Registrant total 21,442,878 votes.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"):
NONE
Transitional Small Business Disclosure Format (check one): Yes [ ] ; No [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.
[ ] Yes [ X ] No
TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Description of Business 1
Item 2. Description of Property 2
Item 3. Legal Proceedings 2
Item 4. Submission of Matters to a Vote of Security Holders 3
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 3
Item 6. Management's Discussion and Analysis or Plan of Operations 5
Item 7. Financial Statements 7
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 7
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 8
Item 10. Executive Compensation 11
Item 11. Security Ownership of Certain Beneficial Owners and Management 13
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 18
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 evaluating tangible go-to-market partnerships and models, assessing
next-stage development protocols and monetizing the existing patent portfolio
through licensing Agreements in order to establish a near-term presence with
shopping cart-affixed, promotion and advertising devises in-store.
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 August 2004, the Company signed a partnership contract with Fujitsu
Transaction Solutions (FTXS). Under this contract, Fujitsu committed to
manufacture and develop the hardware for a cart-based, advertising and
promotional device offering, to develop relevant and required software and
applications to support said device, to act as sales lead for the solution &
hardware sell-in process and to provide for technical installations, IT
implementation, and support for all retail locations. The Company and Fujitsu
agreed to jointly share responsibility for marketing into Fujitsu's current
retail client base for the initial nationwide sales effort. The Company likewise
agreed to act as sales lead for the participant sell-in of advertising and
promotion space to both retailers and manufacturers.
In 2007, as the Company continues to assess and reconcile progress with
the as yet unrealized benefits of the Fujitsu (FTXS) relationship, the Company
is assessing alternative go-to-market models, partners and relationships which
can be actualized near-term. This necessarily places a heavy emphasis on the
monetization of the existing and robust Patent portfolio which maintains a
meaningful duration in-market. The Company is also evaluating its potential,
evolution and future role as an Advanced Analytics, Data Mining and Information
Management entity in support of the aforementioned shopping-cart deployed and
centric technologies.
1
ITEM 2 DESCRIPTION OF PROPERTY
The Company currently leases approximately 700 square feet of office
space from Poulton & Associates.. The rent payments are approximately $800 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.
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 and 2006. This
situation remains dormant as of December 31, 2006.
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 and 2006. This
litigation was settled out-of court, resulting in a favorable depreciation of
the Judgment entered, and full and complete resolution in this matter.
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. This situation remains unresolved, however, suffice to say, that
subsequent Court dates have come and passed without further prosecution of the
original claim against the Company, while our counter-claim and position remain
in-tact.
During 2006, Arthur Portugal, a former officer of the Company, filed a
formal claim asserted for approximately $125,000 for alleged past due executive
compensation including stock options. The Company disputes the claim. The
claimant previously filed a formal administrative wage claim in California which
is inactive but pending. As of December 31, 2006, the Company has accrued
compensation of $96,700 for Mr. Portugal as part of his employment agreement
through June 30, 2006. The Company also has accrued notes payable of $9,710 due
to Mr. Portugal.
2
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of shareholders during 2006.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The stock is traded on the "Pink Sheets" with the trading symbol
KLMK.PK
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:
2006: HIGH LOW
First Quarter $0.10 $0.05
Second Quarter $0.17 $0.07
Third Quarter $0.13 $0.06
Fourth Quarter $0.08 $0.04
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
The number of shareholders of record of the Company's common stock as
of December 31, 2006 was approximately 861.
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.
During the year ended December 31, 2006, the Company issued 586,000
shares of common stock for cash of $146,500. The shares were sold for $.25 per
share.
3
In December 2006, the Company issued 2,788 shares of common stock for
general and administrative expenses of $697. The shares were valued at $.25 per
share.
In October 2006, the Company issued 24,000 shares of common stock for
accounts payable of $6,000. The shares were valued at $.25 per share.
In December 2006, the Company issued 47,956 shares of common stock for
accounts payable of $11,989. The shares were valued at $.25 per share.
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.
BENEFICIAL OWNERSHIP COMPLIANCE REPORTING
The company is aware of the following share and option transactions for
the reporting period ending December 31, 2006 for which Form 4 or Form 5 were
not filed.
--------------------- --------- -------- ---------- -------- --------- ---------- --------- -------------- -------
Officer Stock Number Number Date Term
or or of Share Total of Strike of in
Name Board Option Shares Price Cost Options Price Issue years
--------------------- --------- -------- ---------- -------- --------- ---------- --------- -------------- -------
John T. Zaccheo B & O O 5,000 0.50 1/10/2006 3
John T. Zaccheo B & O O 5,000 1.00 1/10/2006 3
John Zaccheo B & O O 14,000 0.50 1/10/2006 3
John Zaccheo B & O O 14,000 1.00 1/10/2006 3
Paul Begum B O 10,000 1.00 1/10/2006 3
Paul Begum B O 10,000 0.50 1/10/2006 3
William C. Bailey B & O O 20,000 0.50 5/9/2006 2
William C. Bailey B & O O 20,000 1.00 5/9/2006 2
Paul Begum B O 6,000 0.50 5/22/2006 3
Paul Begum B O 6,000 1.00 5/22/2006 3
Willam C. Bailey B & O O 3,000 0.50 5/22/2006 2
Willam C. Bailey B & O O 3,000 1.00 5/22/2006 2
Paul Begum B O 10,000 0.50 6/1/2006 3
Paul Begum B O 10,000 1.00 6/1/2006 3
4
Paul Begum B O 35,000 0.50 6/1/2006 2
Paul Begum B O 35,000 1.00 6/1/2006 2
Paul Begum B O 4,000 0.50 6/9/2006 3
Paul Begum B O 40,000 1.00 6/9/2006 3
Paul Begum B O 40,000 0.50 7/27/2006 3
Paul Begum B O 40,000 1.00 7/27/2006 3
Paul Begum B O 3,000 0.50 8/8/2006 3
Paul Begum B O 3,000 1.00 8/8/2006 3
Paul Begum B O 20,000 0.50 9/18/2006 3
Paul Begum B O 20,000 1.00 9/18/2006 3
William C. Bailey B & O O 10,000 0.50 9/18/2006 2
William C. Bailey B & O O 10,000 1.00 9/18/2006 2
Paul Begum B O 2,400 0.50 9/22/2006 3
Paul Begum B O 2,400 1.00 9/22/2006 3
Paul Begum B O 10,000 0.50 9/29/2006 3
Paul Begum B O 10,000 1.00 9/29/2006 3
John Zaccheo B & O S 10,000 0.25 2,500 1/10/2006
Paul Begum B S 10,000 0.25 2,500 1/10/2006
Paul Begum B S 20,000 0.25 5,000 3/31/2006
Bill Bailey B & O S 40,000 0.25 10,000 5/12/2006
John Zaccheo B & O S 28,000 0.25 7,000 5/12/2006
Paul Begum B & O S 6,000 0.25 1,500 9/1/2006
Bill Bailey B & O S 20,000 0.25 5,000 9/18/2006
Paul Begum B & O S 48,000 0.25 12,000 12/31/2006
ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
The Company's plan of operations is subject to obtaining substantive
financing. The Company's goal is to become the leading supplier of in-store
delivered promotions and advertising technology and applications for grocery and
other mass-merchandise retailers. Alternatively, the Company is also looking to
exploit and monetize its existing US Patent Portfolio, while supporting other
in-market platforms and partners through an effective transformation into an
Advanced Analytics, Data Mining and Information Management entity. Through this
evolved positioning, the Company will support other partner-centric in-store,
cart-based solutions and initiatives. To accomplish this goal, the Company
intends to expand the usage and leverage of its Patents, while also evolving and
embracing an Informational and Consultative Based Management Service, which
reinforces our core strategy.
5
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: 1) work with its existing business Partners to reconcile and exploit
current relationships and opportunities 2) evolve current business model to
expand through new Partner affiliation 3) concentrate efforts to exploit
information rich collection and analysis of data, derived from in-store,
point-of-selection and point-of purchase sources 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 and the
in-sourcing vs. outsourcing requirements and opportunities associated with
subsequent go-to-market models. .
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 remains in the development stage. For the
years ended December 31, 2006, and 2005, the Company had net losses of $850,440
and $736,913, respectively. This increase in the loss is primarily due to
interest charges.
LIQUIDITY AND CAPITAL RESOURCES - The Company requires working capital
principally to fund its proposed research and development and operating expenses
for which the Company has relied on short-term borrowings and the issuance of
restricted common stock. There are no formal commitments from banks or other
lending sources for lines of credit or similar short-term borrowings, but the
Company has been able to borrow minimal additional working capital that has been
required to prevent the assets from wasting away. From time to time in the past,
required short-term borrowings have been obtained from a principal shareholder
or other related entities.
Cash flows. Operating activities used cash of approximately $150,000
and $280,000 for 2006 and 2005 respectively. The decrease in the use of cash is
due primarily to a decrease in operations.
6
Investing activities have used cash of approximately $7,000 and $13,000
for 2006 and 2005, respectively. Investing activities primarily represent
purchases of patents relating to the electronic in-store advertising.
Financing activities provided cash of approximately $159,000 and
$274,000 for 2006 and 2005, 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.
(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.
7
(b) Changes in Internal Controls
Based on this evaluation as of December 31, 2006, 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
William C. Bailey 70 Chairman Next annual shareholder meeting
John L. Hastings III 43 Interim Pres./CEO 3-31-07
Bernadette Suckel 50 Interim COO 3-31-07
Michael L. Mills 42 Director Next annual shareholder meeting
John T. Zaccheo 79 V-Chair/CFO Next annual shareholder meeting
-----------------------------------------------------------------------------------------
John L. Hastings III, age 43, joined the Company in November 2006 as
Interim President and CEO of Klever Marketing, He brings with him more than 20
years experience in the roles of Sales, Marketing & Brand Management,
Consultative Practice Leader and Executive General Management within Consumer
Packaged Goods, Global Information Services and Global Retail/CPG Research &
Analytics industries with a strong emphasis in strategic thought leadership, B2C
and B2B sales and marketing. Most recently John served as Senior Vice President
and General Manager of Global Business Intelligence for VNU-ACNielsen ("The
Nielsen Companies"), the Global Leader in Market Research for Retail & Consumer
Packaged Goods. Formerly, John was SVP/GM of the US Centers of Excellence, the
market leading Advanced Analytics division of ACNielsen US, which he managed and
grew for several years. Prior to ACNielsen, John is most well-known for his
global consulting management as the Managing Director of Retail & CPG Decision
Support, Large Systems and Data Warehousing initiatives with Unisys and
NCR-Teradata, serving in 30 countries. Prior to that, John served in Sales and
Brand Management roles within Kraft-All American Gourmet and Nestle-Stouffer's.
8
Bernadette Suckel, age 50, joined the Company in November 2006 as
Interim Chief Operating Officer of Klever Marketing. She brings with her more
than 25 years experience in in the roles of Senior Sales, Marketing, Business
Development and Consultative Sales Management within Global Research, Global
Information Management, Large Systems and Retail Technologies industries.
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
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.
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
CHANGES TO EXECUTIVE OFFICERS AND DIRECTORS
DIRECTOR'S NAME AGE OFFICE DATE OF CHANGE
Arthur Portugal 64 President Released as of 6-30-06
Daniel Warner 33 EVP Business Resigned as of 3-31-06
Development
D. Paul Smith 59 CFO Resigned 6-1-06
C. Terry Warner 68 Director Released as of 3-24-06
Dick King 53 Director Resigned as of 1-15-06
AUDIT COMMITTEE
As of December 31, 2006, the Company had one active board committee,
the Audit and Compliance Committee. D. Paul Smith and Michael L. Mills serve 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 be lieves that its current audit committee
is able to fulfill its role under SEC regulations despite not having a
designated "audit committee financial expert."
10
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.
(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) ($) ($) ($) (no.) ($) ($)
D. PAUL SMITH 2006 - - - - - - -
Chairman/CFO/ 2005 - - - - - (1) - -
Sec/Treasurer 2004 - - - - 200,000 - -
Exec Vice-President
WILLIAM J. DUPRE 2006 - - - - - - -
President/COO 2005 $62,000 - - - - - -
2004 $122,250 - - - (2) - -
ART PORTUGAL 2006 $96,700 - - - (3) - -
President through 6/30/06 2005 $23,822 - - - 195,288 - -
JOHN HASTINGS 2006 $60,000 - - - (4) - -
Interim Pres/CEO 11/06
BERNADETTE SUCKEL 2006 $10,000 - - - (5) - -
Interim COO 11/06
11
(1). 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. On
May 19, 2006, Mr. Smith resigned as Chief Financial Officer, Corporate Secretary
and Treasurer.
(2) 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
(3) Arthur Portugal joined the company as President in November 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 $0.50. Mr.
Portugal was released as of June 30, 2006.
(4) John Hastings joined the Company on November 16, 2006, under terms of a
contract, as Interim President and Chief Executive Officer and as a member of
the board.
(5) Bernadette Suckel joined the Company on November 16, 2006, under terms of a
contract, as Interim Chief Operating Officer and as a member of the board.
AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND YEAR END OPTION/SAR
VALUES
The following table sets forth information respecting all individual
grants of options and SARs made during the last completed fiscal year to the
chief executive officer, chief financial officer, and directors of the Company.
--------------------------- ---------------- -------------- ----------------------------------- -----------------------------------
Name Shares Value Number of Securities Underlying Value of Unexercised in-the-money
Acquired on Realized ($) Unexercised Options options ($) (a)
exercise
--------------------------- ---------------- -------------- ----------------------------------- -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ---------------- ------------- --------------- ------------------- --------------- -------------------
John Zaccheo 0 $0 38,000 - $1,900 $0
--------------------------- ---------------- ------------- --------------- ------------------- --------------- -------------------
William Bailey 0 $0 66,000 - $3,300 $0
--------------------------- ---------------- ------------- --------------- ------------------- --------------- -------------------
(a) Based on the closing price of the Company's Common Stock on December
31, 2006 at $.05 per share
Executive Compensation and Benefits
The Company provides no health insurance to any full or part-time
employees.
The Company adopted a stock incentive plan for its employees, executive
officers, directors, and consultants.
12
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 46,970,383 votes as of December 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.
# OF
NAME AND ADDRESS NATURE OF SHARES
OF BENEFICIAL OWNERS OWNERSHIP OWNED PERCENT
DIRECTORS AND
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 208,800
----------
Total 3,493,909 7.41%
Olson Foundation Direct (1) 4,101,838
2220 Eastridge Ave Preferred Shares (1) 3,946,953
Options 572,000
Riverside, CA 92507 Convertible Debt (1) 9,935,933
----------
Total 18,556,724 32.28%
C. Terry Warner Direct (3) 2,610,880
1278 Locust Lane Options (3) 500,000
Provo, UT 84604 Convertible Debt (3) 13,111
----------
Total 3,123,991 6.58%
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) 8,651,244
----------
Total 10,265,284 18.46%
13
Olson Legacy Trust Direct (1)(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) 8,651,244
----------
Total 10,265,284 18.46%
Olson Holdings Direct (1) 759,765
2220 Eastridge Ave. Preferred Shares (1) 2,999,684
Suite B Options/Warrants (1) 256,895
Riverside, CA 92507 ----------
Total 4,016,344 8.50%
Seabury Investors III Preferred Shares 4,036,552
540 Madison Avenue Warrants 0
New York, NY 10022 Convertible Debt (5) 1,701,189
----------
Total 5,737,741 11.79%
Zedeka. LLC Direct 3,421,383
(formerly Primavera)
1278 Locust Lane ----------
Provo, UT 84604 Total 3,421,383 7.28%
Arbinger Direct 3,490,756
Gateway Park Tower Options/Warrants 0
563 W 500 S Convertible Debt 52,446
Suite 200 ---------
Woods Cross, UT 84087 Total 3,543,202 7.54%
William Bailey Direct 3,244,914
3889 E. Brockbank Dr. Options/Warrants 586,000
Salt Lake City, UT 84124 ---------
Total 3,830,914 8.06%
DIRECTORS AND EXECUTIVE OFFICERS
William Bailey Direct 3,244,914
3889 E. Brockbank Dr. Options/Warrants 586,000
Salt Lake City, UT 84124 ---------
Total 3,830,914 8.06%
Michael L. Mills Direct 951,762
3889 E. Brockbank Dr. Options/Warrants 512,000
Salt Lake City, UT 84124 ----------
Total 1,463,762 3.08%
14
ALL EXECUTIVE OFFICERS AND
DIRECTORS AS A GROUP (5
PERSONS) Direct 4,196,676
Options/Warrants 1,098,000
Convertible Debt 0
------------
Total 5,294,676 11.14%
(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 December 31, 2006 would convert 3,946,953 votes held by
Presidio (347,332 votes), Olson Holdings (2,999,684 votes) and Olson
Foundation (3,946,933 votes). Ownership includes warrants covering
572,000 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 18,587,177 shares may also be converted as
of December 31, 2006 into 9,935,933 Shares held by Olson Foundation and
8,651,244 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 December 31, 2006
(3) 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 13,111 shares as of December 31 2006.
(4) Presidio Investments, of which William J. Howard is the single member,
and Olson Legacy Trust, of which William J. Howard is the sole trustee,
ownership includes 94,858 Shares held by Presidio Investments LLC.;
347,332 Shares should the Class A Convertible Preferred Shares held by
Presidio Investments LLC. be converted as of December 31, 2006; 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
8,651,244 Shares as of December 31, 2006.
(5) In addition to the total Seabury ownership, convertible debt held by
Seabury Investors III, Limited Partnership could be converted into
1,701,189 shares as of December 31, 2006
15
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.
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
16
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.
DATE PRINCIPAL ANNUAL INTEREST MATURITY DATE COMMON OPTION
STOCK
OPTION #
RATE SHARES STRIKE PRICE
---------------------------------------------------------------------------------------------
09/12/03 $10,040.00 8.00% 09/12/05 16,733 $1.00
09/17/03 $471.73 8.00% 09/17/05 786 $1.00
09/25/03 $4,500.00 8.00% 09/25/05 7,500 $1.00
09/26/03 $80.95 8.00% 09/26/05 135 $1.00
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
============= ===============
17
During 2004, the Arbinger Institute loaned the Company an additional
$2,260 to pay general and administrative expenses.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE
Report of Independent Registered Public Accountants....................................F-1
Balance Sheets
December 31, 2006 and 2005..........................................................F-3
Statements of Operations
For the Years Ended December 31, 2006 and 2005
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2006................................................................F-5
Statement of Stockholders' Equity
From July 5, 1996 (inception of development stage) to December 31, 2006 ............F-6
Statements of Cash Flows
For the Years Ended December 31, 2006 and 2005
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2006...............................................................F-15
Notes to the Financial Statements.....................................................F-17
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)
18
3.02 Certificate of Designation of Rights, Privileges and Preferences:
Rights of A Class Voting Preferred Stock, Series 1, of Klever
Marketing, Inc., dated February 7, 2000 (2)
3.03 Bylaws, as amended (2)
4.01 Amended Certificate of Designation of Rights, Privileges and
Preferences: Rights of A Class of Voting Preferred Stock, Series 1, of
Klever Marketing, Inc., Dated February 7, 2000 (3)
4.02 Certificate of Designation of Rights, Privileges and Preferences of
Class B Voting Preferred Stock, of Klever Marketing, Inc., dated
September 24, 2000 (3)
4.03 Certificate of Designation of Rights, Privileges and Preferences of
Class C Voting Preferred Stock, of Klever Marketing, Inc., dated
January 2, 2001 (3)
4.04 Certificate of Designation of Rights, Privileges and Preferences of
Class D Voting Preferred Stock, of Klever Marketing, Inc., dated June
14, 2002 (5)
4.05 Amendment to the Certificates of Designation of Rights, Privileges and
Preferences of Class A, B, and C Voting Preferred Stock, of Klever
Marketing, Inc., dated June 12, 2002 (5)
10.01 Separation Agreement between Paul G. Begum and the Registrant Dated
January 8, 2001 (2)
10.02 Stock Incentive Plan, effective June 1, 1998 (2)
10.03 Amended and Restated Promissory Note (Secured) of the Registrant
payable to Presidio Investments, LLC, dated June 27, 2000, with
Financing Statement and Exhibit "A" (2)
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.
19
(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 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..
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.
On May 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, and Item 8.01, Other Events, announcing that D. Paul
Smith had resigned as CFO and Secretary Treasurer, effective May 19, 2006.
On September 15, 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 Craig
Poulton had been appointed to the board, effective September 11, 2006.
On November 16, 2006 the Company filed a Form 8-K under the Item 5.02
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers, and Item 8.01, Other Events, announcing that John L.
Hastings III had been appointed Part-time, Interim President and CEO and
appointed to the Board, and announcing that Bernadette Suckel had been appointed
Part-time, Interim COO and appointed to the Board.
On March 30, 2007, the Company filed a Form 8-K under Item 9.01,
Regulation FD Disclosure, announcing that Paul G. Begum had been appointed to
the board, effective February 10, 2006.
On May 19, 2006, the Company filed a Form 8-K under Item 9.01,
Regulation FD Disclosure, announcing that Richard King had resigned as a board
member , effective January 15, 2006.
20
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, 2006
and 2005:
Service 2006 2005
Audit Fees $25,109 $16,475
Audit-Related Fees - -
Tax Fees 224 192
All Other Fees - -
Total $25,333 $16,667
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
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.
21
KLEVER MARKETING, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
REPORT
DECEMBER 31, 2006 AND 2005
TABLE OF CONTENTS
Page
Report of Independent Registered Public Accountants.....................................F-1
Balance Sheets
December 31, 2006 and 2005...........................................................F-3
Statements of Operations
For the Years Ended December 31, 2006 and 2005
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2006.................................................................F-5
Statement of Stockholders' Equity
From July 5, 1996 (inception of development stage) to December 31, 2006 .............F-6
Statements of Cash Flows
For the Years Ended December 31, 2006 and 2005
And for the Cumulative Period from July 5, 1996 (inception of development stage)
To December 31, 2006................................................................F-15
Notes to the Financial Statements......................................................F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
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, 2006 and 2005, and the
related statements of operations and cash flows for the two years ended December
31, 2006, and the cumulative period from July 5, 1996 (inception of development
stage) to December 31, 2006, and the statement of stockholders' equity from July
5, 1996 (inception of development stage) to December 31, 2006. 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. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, 2006 and 2005, 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.
F - 1
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.
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
April 2, 2007
F - 2
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
December 31,
ASSETS 2006 2005
------
------------------ ------------------
Current Assets
Cash $ 3,172 $ 3,892
Prepaid Expense 3,850 750
Other Receivable 25,865 25,865
------------------ ------------------
Total Current Assets 32,887 30,507
------------------ ------------------
Fixed Assets
Office Equipment 92,964 92,964
Less Accumulated Depreciation (92,964) (92,964)
------------------ ------------------
Net Fixed Assets - -
------------------ ------------------
Other Assets
Patents 775,045 767,830
Less Accumulated Amortization (775,045) (767,830)
------------------ ------------------
Net Other Assets - -
------------------ ------------------
Total Assets $ 32,887 $ 30,507
================== ==================
F - 3
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
(Continued)
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2006 2005
------------------------------------
------------------ ------------------
Current Liabilities
Accounts Payable, Trade $ 379,491 $ 307,591
Accrued Liabilities 2,608,007 2,063,182
Related Party Payables 2,128,648 2,116,393
Notes Payable 45,000 45,000
------------------ ------------------
Total Current Liabilities 5,161,146 4,532,166
------------------ ------------------
Stockholders' Equity
Preferred stock (par value $.01), 2,000,000 shares authorized
168,434 issued and outstanding December 31, 2006
and December 31, 2005 1,684 1,684
Common Stock (Par Value $.01), 50,000,000 shares
authorized 39,183,864 shares issued and outstanding
at December 31, 2006 and 38,523,120 shares issued
and outstanding at December 31, 2005 391,839 385,231
Common Stock to be issued, 469,752 shares at
December 31, 2006 and 2005 4,698 4,698
Treasury Stock, 1,000 shares at December 31, 2006 and 2005 (1,000) (1,000)
Paid in Capital in Excess of Par Value 13,643,186 13,440,954
Shareholder Receivable - (15,000)
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During Development Stage (15,834,881) (14,984,441)
------------------ ------------------
Total Stockholders' Equity (5,128,259) (4,501,659)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 32,887 $ 30,507
================== ==================
The accompanying notes are an integral part of these financial statements
F - 4
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF OPERATIONS
Cumulative
From
July 5, 1996
For the Year Ended Inception of
December 31, Development
2006 2005 Stage
------------------ ------------------ ------------------
Revenue $ - $ - $ 256,000
------------------ ------------------ ------------------
Expenses
Sales and marketing 8,098 37,662 163,306
General and administrative 400,080 461,066 9,801,527
Research and development - - 4,529,656
------------------ ------------------ ------------------
Total Expenses 408,178 498,728 14,494,489
------------------ ------------------ ------------------
Other income (expense)
Other income - 150,082 428,717
Interest income - - 18,902
Interest expense (442,162) (388,167) (2,261,350)
Gain (Loss) on disposal of assets - - 26,947
Capital gain on sale of investments - - 191,492
------------------ ------------------ ------------------
Total Other Income (Expense) (442,162) (238,085) (1,595,292)
------------------ ------------------ ------------------
Income (Loss) Before Taxes (850,340) (736,813) (15,833,781)
Income Taxes 100 100 1,100
------------------ ------------------ ------------------
Net Income (Loss) After Taxes $ (850,440) $ (736,913) $ (15,834,881)
================== ================== ==================
Weighted Average Shares
Outstanding 38,718,472 37,672,182
================== ==================
Loss Per Share $ (0.02) $ (0.02)
================== ==================
The accompanying notes are an integral part of these financial statements.
F - 5
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 - 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
$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 - 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
$1.50 - 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 - 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 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 - 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 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 - 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 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 - 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
------- ------- ---------- --------- -------- ------ ----------- ----------- ---------------
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 - 12
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)
F - 13
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 general and
administrative expenses
at $.25 per share - - 2,788 29 - - 669 - -
Shares issued for cash
at $.25 per share - - 586,000 5,860 - - 140,640 - -
Shares issued for accounts
payable at $.25 per share - - 71,956 719 - - 17,270 - -
Compensation expense from
issuance of stock options - - - - - - 43,653 - -
Net Loss - - - - - - - - (850,440)
-------- ------- ----------- --------- -------- --------- ------------ ------------ ------------
Balance December 31, 2006 168,434 $ 1,684 39,183,864 $ 391,839 $ (1,000) $ 4,698 $ 13,643,186 $ (3,333,785) $(15,834,881)
======== ======= =========== ========= ======== ========= ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F - 14
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
2006 2005 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (850,440) $ (736,913) $ (15,834,881)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Sock issued for general and administrative 697 23,125 987,482
Stock issued for research and development - - 62,850
Stock returned for services not rendered - - (200,790)
(Gain) loss on sale/disposal of assets - - 486,536
Compensation expense from stock options 43,653 - 69,900
Stock issued for interest expense - - 119,701
Stock issued for accounts payable 17,989 - 226,462
Deferred income - - (214,000)
Depreciation and amortization 7,215 43,537 1,912,883
Write-off of bad debts 15,000 - 15,000
(Increase) decrease in accounts receivable - - (413)
(Increase) decrease in shareholder receivable - - 37,694
(Increase) decrease in other assets & prepaids (3,100) - 84,523
Increase (decrease) in accounts payable 71,899 (36,174) 293,786
Increase (decrease) in accrued liabilities 544,826 426,152 2,556,676
----------------- ------------------ ------------------
Net Cash Used in Operating Activities (152,261) (280,273) (9,396,591)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net - - (587,801)
Acquisition/Sale of patents (7,215) (12,741) 25,089
Acquisition/Sale of stock, net - - 12,375
----------------- ------------------ ------------------
Net Cash Used by Investing Activities (7,215) (12,741) (550,337)
----------------- ------------------ ------------------
F - 15
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
2006 2005 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds capital stock issued 146,500 272,626 6,765,673
Proceeds from loans 16,500 1,564 3,473,252
Loan receivables - - (15,000)
Principal payments on lease obligations - - (18,769)
Cash payments on notes payable (4,244) (458) (279,730)
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 158,756 273,732 9,925,426
----------------- ------------------ ------------------
Net Increase (Decrease) in Cash and Cash
Equivalents (720) (19,282) (21,502)
Cash and Cash Equivalents at Beginning of the
Year 3,892 23,174 24,674
----------------- ------------------ ------------------
Cash and Cash Equivalents at End of the Year $ 3,172 $ 3,892 $3,172
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ - $ -
Income Taxes $ 100 $ 100 $ 1,100
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
None.
The accompanying notes are an integral part of these financial statements.
F - 16
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 $850,440
and $736,913 for the years ended December 31, 2006 and 2005, respectively, and
losses of $19,168,666 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 - 17
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 2005 financial
statements to conform with the 2006 presentation.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including
accounts payable and accrued liabilities at December 31, 2006 and 2005
approximates their fair values due to the short-term nature of these financial
instruments.
F - 18
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
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, 2006 and
2005 are not presented as it would be anti-dilutive. At December 31, 2006 and
2005, the total number of potentially dilutive common stock equivalents was
6,425,467 and 8,109,807, respectively.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight- line method over the estimated economic useful
lives of the related assets as follows:
Computer equipment 3 years
Office furniture and fixtures 5-10 years
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their estimated economic useful lives.
Depreciation expense was $0 and $3,644 for the years ended December 31,
2006 and 2005, respectively.
Intangibles
Intangibles associated with certain technology agreements are amortized
over 10 - 14 years.
Amortization expense was $7,215 and $39,892 for the years ended
December 31, 2006 and 2005, respectively.
F - 19
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Stock Options
Effective January 1, 2006, the company adopted the provisions of SFAS
No. 123(R). SFAS No. 123(R) requires employee equity awards to be accounted for
under the fair value method. Accordingly, share-based compensation is measured
at grant date, based on the fair value of the award. Prior to January 1, 2006,
the company accounted for awards granted to employees under its equity incentive
plans under the intrinsic value method prescribed by Accounting Principles Board
(APB) Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and
related interpretations, and provided the required pro forma disclosures
prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS No.
123), as amended.
Under the modified prospective method of adoption for SFAS No. 123(R),
the compensation cost recognized by the company beginning on January 1, 2006
includes (a) compensation cost for all equity incentive awards granted prior to,
but not yet vested as of January 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions of SFAS No. 123, and (b)
compensation cost for all equity incentive awards granted subsequent to January
1, 2006, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123(R). The company uses the straight-line attribution
method to recognize share-based compensation costs over the service period of
the award. Upon exercise, cancellation, forfeiture, or expiration of stock
options, or upon vesting or forfeiture of restricted stock units, deferred tax
assets for options and restricted stock units with multiple vesting dates are
eliminated for each vesting period on a first-in, first-out basis as if each
vesting period was a separate award. To calculate the excess tax benefits
available for use in offsetting future tax shortfalls as of the date of
implementation, the company followed the alternative transition method discussed
in FASB Staff Position No. 123(R)-3.
During the year ended December 31, 2006, the Company granted 312,800
stock options to officers and directors, and granted 290,000 stock options to
non-employees. Accordingly, stock- based compensation expense of $43,653 was
recognized in the Statement of Operations at December 31, 2006. The
Black-Scholes option pricing model was used to calculate to estimate fair value
of the options granted. The following assumptions were made: risk-free rate was
4.50%; expected life of option was 2 or 3 years; expected volatility of stock
for the two and three year options was 215.6% and 238.3%, respectively. During
the year ended December 31, 2005, the Company valued stock options using the
intrinsic value method prescribed by APB 25. Since the exercise price of stock
options previously issued was greater than or equal to the market price on grant
date, no compensation expense was recognized.
F - 20
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3 - INCOME TAXES
As of December 31, 2006, the Company had a net operating loss carry
forward for income tax reporting purposes of approximately $19,068,236 that may
be offset against future taxable income through 2026. Current tax laws limit the
amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount available to
offset future taxable income may be limited. No tax benefit has been reported in
the financial statements, because the Company believes there is a 50% or greater
chance the carry-forwards will expire unused. Accordingly, the potential tax
benefits of the loss carry-forwards are offset by a valuation allowance of the
same amount.
2006 2005
Net Operating Losses $ 2,860,236 2,740,329
Valuation Allowance (2,860,236) (2,740,329)
$ - $ -
================== ==================
The provision for income taxes differs from the amount computed using
the federal US statutory income tax rate as follows:
2006 2005
Provision (Benefit) at US Statutory Rate $ 119,907 $ 110,207
Increase (Decrease) in Valuation Allowance (119,907) (110,207)
$ - $ -
============= ==================
The Company evaluates its valuation allowance requirements based on
projected future operations. When circumstances change and causes a change in
management's judgment about the recoverability of deferred tax assets, the
impact of the change on the valuation is reflected in current income.
NOTE 4 - LEASE COMMITMENT
The Company currently leases approximately 700 square feet of office
space from Poulton & Associates on a month to month basis. The rent payments are
approximately $800 per month. The office space is used as the corporate
headquarters. It is located at 3785 S 700 E, 2nd Floor, Salt Lake City, UT
84106.
F - 21
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 4 - LEASE COMMITMENT (continued)
The minimum future lease payments under these leases for the next five
years are:
Year Ended December 31,
-------------------------------------------
2007 $ -
2008 -
2009 -
2010 -
2011 -
--------------
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 years ended December 31, 2006 and 2005, the Company expended
$0 and $0 respectively for research and development of the technology involved
with its patents.
NOTE 6- RELATED PARTY TRANSACTIONS
OLSON HOLDINGS, INC. LOANS TO THE COMPANY
Olson Holdings, Inc. made a $150,000.00 unsecured loan to the Company
on February 26, 2001. This note has a six-month term at 10% annual interest
maturing on August 26, 2001. The maker of the note may give written notice
within 10-days of maturity, to the Company, to convert the principal and
interest into common stock with a convertible price of $1.05 (10-day weighted
average from February 26, 2001 and the nine days prior).
Olson Holdings made an unsecured loan to the Company on January 7, 2002
for $1,835.84. This note has an annual interest rate of 8% and matures on
January 7, 2004. An option was granted in connection with this note for 3,060
shares at a strike price of $1.00 and an expiration date of January 7, 2005.
At December 31, 2006 and 2005, the total amount due on these notes was
$336,139 and $288,183, respectively.
F - 22
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
OLSON FOUNDATION LOANS TO THE COMPANY
Olson Foundation loaned the Company $60,000 on July 16, 2001, of which
is secured by a blanket lien on the assets of the Company. An interest rate of
10% compounded monthly applies until January 15, 2002. Principal and all due and
unpaid interest are to be paid on January 16, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 18,182 common shares at a strike price of $0.01 and an expiration date
of July 16, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation loaned the Company $90,000 on July 30, 2001, of which
is secured by a blanket lien on the assets of the Company. An interest rate of
10% compounded monthly applies until January 30, 2002. Principal and all due and
unpaid interest are to be paid on January 30, 2002, or the interest rate
increases to 15% compounded daily. Warrants were issued in conjunction with this
loan for 27,273 common shares at a strike price of $0.01 and an expiration date
of July 30, 2006. This note is convertible to Class C convertible preferred
shares or to Class D convertible preferred shares at the option of the note
holder.
Olson Foundation made unsecured loans to the Company on May 3, 2002,
August 16, 2002, and October 29, 2002 for $7,359, $10,000, and $1,059.37,
respectively. These notes are payable within two years plus interest at 8% per
annum. In conjunction with the notes, Olson Foundation also received common
stock options for each note at a ratio of 1.667 common shares for each dollar
loaned.
At December 31, 2006 and 2005, the total amount due on these loans was
$289,927 and $265,010, respectively.
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.
F - 23
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
At December 31, 2006 and 2005, the total amount due on these loans was
$2,798,188 and $2,542,713, respectively.
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, 2006 and 2005, the total amount due on these loans was
$540,658 and $464,601, respectively.
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 - 24
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
Common
Annual Stock Option
Interest Option # Strike
DATE Principal 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, 2006 and
2005, the total amount due on these loans was $53,373 and $49,095, respectively.
DIRECTOR AND OFFICER LOANS TO THE COMPANY
During the year ended December 31, 2006, two former officers and
directors loaned the Company $16,500. The loans are due on demand and carry an
interest rate of 8% per annum. At December 31, 2006, the total due on these
loans was $17,545.
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, 2006 and 2005, the total amount due on these loans was $65,137 and
$60,175, respectively.
F - 25
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
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, 2006, 5,070,088 options were outstanding. The
Company granted 602,800 options during 2006, of which 426,000 expire in two
years, and 176,800 expire in three years. Compensation expense charged to
operations for the years ended December 31, 2006 and 2005 was $43,653 and $0,
respectively.
The following table sets forth the options and warrants outstanding as
of December 31, 2005.
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
================= ==================
The following table sets forth the options and warrants outstanding as of
December 31, 2006.
Weighted
Option / Average Weighted
Warrants Exercise Average
Shares Price Fair Value
----------------- ------------------ -----------------
Options & warrants outstanding,
December 31, 2005 7,326,053 $ 0.77
Granted, Exercise price more than fair value 602,800 0.75 0.06
Granted, Exercise price less than fair value - - -
Expired (2,858,765) 0.08
Exercised - -
-----------------
Options & warrants outstanding,
December 31, 2006 5,070,088 $ 0.25
================= ==================
F - 26
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8- STOCK OPTIONS (continued)
Exercise price for optioned shares and warrants outstanding as of
December 31, 2006 range from $0.06 to $1.00. 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
------------------ ------------------ --------------- ------------------ --------------------- -----------------
$ 0.06 2,557,000 $ 0.06 2,557,000 $ 0.06 8 months
..07 400,000 0.07 400,000 0.07 2 months
..08 100,000 0.08 100,000 0.08 26 months
..10 125,000 0.10 125,000 0.10 24 months
..23 200,000 0.23 200,000 0.23 13 months
..50 1,396,688 0.50 1,396,688 0.50 29 months
1.00 291,400 1.00 291,400 1.00 23 months
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.
F - 27
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
Class A Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class A Shares could then be converted, and shall
have voting rights and powers equal to that of a holder of Common Stock. The
Holders of Class A Shares shall vote with the holders of Common Stock and not as
a separate class.
Class A Shares carry a liquidation preference of $26 per share plus any
accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class A Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after July 1, 2002. The redemption price shall be $26
per share together with accrued but unpaid dividends on such shares, if any.
On September 24, 2000 the Board of Directors authorized and established
"Class B Voting Preferred Stock" ("Class B Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class B Shares consisted of
250,000, 125,000 shares thereof were designated as Series 1 shares. On May 20,
2002, the Board of Directors amended the number of authorized shares of Class B
voting preferred stock to 42,000 shares.
Class B Shares are convertible into Common Stock at an initial
conversion price of $1.70 (subject to adjustment).
Holders of Class B Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class B Shares,
of the same Series for which the dividend is accrued, for each outstanding Class
B Share, on each dividend payment date; provided, that if such dividends in
respect of any period shall not have been paid or declared and set apart for
payment for all 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
F - 28
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
of the Class B Shares shall be entitled to participate equally on a share for
share basis with the holders of the shares of Common Stock. If there is a share
split or dividend on the Common Stock, then the Class B Share dividends shall be
adjusted as if a similar split or dividend had occurred with respect to the
Class B Shares.
Class B Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class B Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class B Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class B Shares shall carry a liquidation preference of $17 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class B Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after March 24, 2004 for Series 1, and such date as
determined by the Board of Directors for each additional Series. The redemption
price shall be $17.00 per share together with accrued but unpaid dividends on
such shares, if any.
On January 2, 2001 the Board of Directors authorized and established
"Class C Voting Preferred Stock" ("Class C Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class C Shares consisted of
500,000, 125,000 shares thereof were designated as Series 1 shares and 125,000
shares thereof were designated as Series 2 shares. On May 20, 2002, the Board of
Directors amended the number of authorized shares of Class C voting preferred
stock to 150,000 shares.
Class C Shares are convertible into Common Stock at an initial
conversion price of $.66 (subject to adjustment).
Holders of Class C Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually 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
F - 29
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
outstanding Class C Shares by each payment date, then until all unpaid dividends
thereon shall be paid or set apart for payment to the holders of such shares,
the Corporation may not pay, declare or set apart any dividend or other
distribution on its shares of Common Stock or other shares junior to the Class C
Shares, nor may any other distributions, redemptions or other payments be made
with respect to the shares of Common Stock or other junior shares. In addition
to the foregoing, each holder of a Class C Share shall be entitled to receive,
when and as declared, a dividend equal to each dividend declared and paid on the
shares of Common Stock, on a share for share basis, so the holders of the Class
C Shares shall be entitled to participate equally on a share for share basis
with the holders of the shares of Common Stock. If there is a share split or
dividend on the Common Stock, then the Class C Share dividends shall be adjusted
as if a similar split or dividend had occurred with respect to the Class C
Shares.
Class C Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class C Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class C Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class C Shares shall carry a liquidation preference of $6.60 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class C Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after July 2, 2004 for Series 1, and such date as
determined by the Board of Directors for each additional Series. The redemption
price shall be $6.60 per share together with accrued but unpaid dividends on
such shares, if any.
On May 20, 2002, the Board of Directors authorized and established
"Class D Voting Preferred Stock" ("Class D Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class D Shares consist of
500,000 shares thereof are designated as "Class D Voting Preferred Stock" (the
"Class D Shares").
Class D Shares are convertible into Common Stock at an initial
conversion price of $1.05 (subject to adjustment).
F - 30
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
Holders of Class D Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class D Shares
for each outstanding Class D Share, on each dividend payment date; provided,
that if such dividends in respect of any period shall not have been paid or
declared and set apart for payment for all outstanding Class D Shares by each
payment date, then until all unpaid dividends thereon shall be paid or set apart
for payment to the holders of such shares, the Corporation may not pay, declare
or set apart any dividend or other distribution on its shares of Common Stock or
other shares junior to the Class D Shares, nor may any other distributions,
redemptions or other payments be made with respect to the shares of Common Stock
or other junior shares. In addition to the foregoing, each holder of a Class D
Share shall be entitled to receive, when and as declared, a dividend equal to
each dividend declared and paid on the shares of Common Stock, on a share for
share basis, so the holders of the Class D Shares shall be entitled to
participate equally on a share for share basis with the holders of the shares of
Common Stock. If there is a share split or dividend on the Common Stock, then
the Class D Share dividends shall be adjusted as if a similar split or dividend
had occurred with respect to the Class D Shares.
Class D Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class D Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class D Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class D Shares shall carry a liquidation preference of $10.50 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class D Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after May 14, 2007. The redemption price shall be $10.50
per share together with accrued but unpaid dividends on such shares, if any.
F - 31
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
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, 2006 and 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. During
2006, this judgment was paid in full.
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.
During 2006, Arthur Portugal, a former officer of the Company, filed a
formal claim asserted for approximately $125,000 for alleged past due executive
compensation including stock options. The Company disputes the claim. The
claimant previously filed a formal administrative wage claim in California which
is inactive but pending. As of December 31, 2006, the Company has accrued
compensation of $96,700 for Mr. Portugal as part of his employment agreement
through June 30, 2006. The Company also has accrued notes payable of $9,710 due
to Mr. Portugal.
NOTE 11 - STOCK TRANSACTIONS
On January 20, 2005, the Company issued 50,000 shares of common stock
at $.048 for cash of $2,400.
On February 3, 2005, the Company issued 50,000 shares of common stock
at $.034 for cash of $1,700.
On February 11, 2005, the Company issued 100,000 shares of common stock
at $.036 for cash of $3,600.
On April 5, 2005, the Company issued 350,000 shares of common stock at
$.028 for cash of $10,106.
F - 32
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS (continued)
On April 12, 2005, the Company issued 100,000 shares of common stock at
$.03 for cash of $3,000.
On April 22, 2005, the Company issued 150,000 shares of common stock at
$.028 for cash of $4,320.
During 2005, the Company issued 990,000 shares of common stock at $.25
for cash of $247,500.
On December 31, 2005, the Company issued 92,500 shares of common stock
for expenses of $23,125. The shares were valued at $.25 per share.
During the year ended December 31, 2006, the Company issued 586,000
shares of common stock for cash of $146,500. The shares were sold for $.25 per
share.
In December 2006, the Company issued 2,788 shares of common stock for
general and administrative expenses of $697. The shares were valued at $.25 per
share.
In October 2006, the Company issued 24,000 shares of common stock for
accounts payable of $6,000. The shares were valued at $.25 per share.
In December 2006, the Company issued 47,956 shares of common stock for
accounts payable of $11,989. The shares were valued at $.25 per share.
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. During 2006, the receivable was written-off and the $15,000
expensed.
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 ModStream
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 - 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 employment agreement was
concluded on June 30, 2006 and was not renewed.
NOTE 15 - 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. At December 31, 2006 and 2005, the Company was still
owed $25,000 relating to this sale.
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 2, 2007 By /S/ William C. Bailey
---------------------------------
William C. Bailey
Chairman
(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 2nd day of April 2007.
Signatures Title
/S/ William C. Bailey
--------------------------------------------------------------
William C. Bailey Chairman
(Principal Executive Officer)
/S/ John L. Hastings III
John L. Hastings III Interim President & CEO, as of
11/10/06
/S/ Craig Poulton
Craig Poulton Director
/S/ Michael L. Mills
-----------------------------------------------------------
Michael L. Mills Director
/S/ Bernadette Suckel
Bernadette Suckel Interim COO, as of 11/10/06
/S/ John T. Zaccheo
John T. Zaccheo Vice Chairman & CFO,
---------------
Acting President & CEO 7/01/06
through 11/10/06
/S/ Paul G. Begum
Paul G. Begum Director and interim CFO, as of
-------------
22