[As adopted in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2007
------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ___________ to ____________
Commission file number 0-18834
--------------------------------------------------------
Klever Marketing, Inc.
--------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 36-3688583
--------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3785 S 700 E Salt Lake City, UT 84106
----------------------------------------------------------------
(Address of principal executive offices)
(801) 263-0404
Issuer's telephone number
--------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes X No -----
-----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: June 30, 2007 39,878,626
Transitional Small Business Disclosure Format (check one).
Yes ; No X
---- -----
PART I
ITEM 1. FINANCIAL STATEMENTS
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 2007 2006
------------------ ------------------
Current Assets
Cash $ 4,588 $ 3,172
Prepaid Expense 727 3,850
Other Receivable 25,865 25,865
------------------ ------------------
Total Current Assets 31,180 32,887
------------------ ------------------
Fixed Assets
Office Equipment 92,964 92,964
Less Accumulated Depreciation (92,964) (92,964)
------------------ ------------------
Net Fixed Assets - -
------------------ ------------------
Other Assets
Patents 775,045 775,045
Less Accumulated Amortization (775,045) (775,045)
------------------ ------------------
Net Other Assets - -
------------------ ------------------
Total Assets $ 31,180 $ 32,887
================== ==================
3
KLEVER MARKETING, INC.
(a Development Stage Company)
BALANCE SHEETS
(Continued)
(Unaudited)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2007 2006
------------------ -------------------
Current Liabilities
Accounts Payable, Trade $ 349,115 $ 379,491
Accrued Liabilities 2,741,899 2,608,007
Line of Credit 23,799 -
Related Party Payables 2,128,648 2,128,648
Notes Payable 45,000 45,000
------------------ -------------------
Total Current Liabilities 5,288,461 5,161,146
------------------ -------------------
Stockholders' Equity
Preferred stock (par value $.01), 2,000,000 shares authorized
168,434 issued and outstanding June 30, 2007
and December 31, 2006 1,684 1,684
Common Stock (Par Value $.01), 50,000,000 shares
authorized 39,878,626 shares issued and outstanding
at June 30, 2007 and 39,183,864 and December 31, 2006 398,786 391,839
Common Stock to be issued, 469,752 shares at
June 30, 2007 and December 31, 2006 4,698 4,698
Treasury Stock, 1,000 shares at June 30, 2007
and December 31, 2006 (1,000) (1,000)
Paid in Capital in Excess of Par Value 13,809,928 13,643,186
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During Development Stage (16,137,592) (15,834,881)
------------------ -------------------
Total Stockholders' Equity (5,257,281) (5,128,259)
------------------ -------------------
Total Liabilities and Stockholders' Equity $ 31,180 $ 32,887
================== ===================
The accompanying notes are an integral part of these financial statements
4
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
From
(Unaudited) (Unaudited) July 5, 1996
For the Three Months For the Six Months Inception of
Ended June 30, Ended June 30, Development
2007 2006 2007 2006 Stage
-------------- ----------------- ------------------ ------------------ ------------------
Revenue $ - $ - $ - $ - $ 256,000
-------------- ----------------- ------------------ ------------------ ------------------
Expenses
Sales and Marketing - - - 7,386 163,306
General and Administrative 90,058 19,837 158,946 120,381 9,960,473
Research and Development - - - - 4,529,656
-------------- ----------------- ------------------ ------------------ ------------------
Total Expenses 90,058 19,837 158,946 127,767 14,653,435
-------------- ----------------- ------------------ ------------------ ------------------
Other Income (Expense)
Other Income - - - - 428,717
Interest Income 126 - 126 - 19,028
Interest Expense (114,362) (84,936) (224,339) (168,146) (2,485,689)
Forgiveness of debt 80,448 - 80,448 - 80,448
Gain (Loss) on sale of assets - - - - 26,947
Capital gain on sale of investments - - - - 191,492
-------------- ----------------- ------------------ ------------------ ------------------
Total Other Income (Expense) (33,788) (84,936) (143,765) (168,146) (1,739,057)
-------------- ----------------- ------------------ ------------------ ------------------
Loss Before Taxes (123,846) (104,773) (302,711) (295,913) (16,136,492)
Income Taxes - - - - 1,100
-------------- ----------------- ------------------ ------------------ ------------------
Net Loss After Taxes $ (123,846) $ (104,773) $ (302,711) $ (295,913) $ 16,137,592
============== ================= ================== ================== ==================
Weighted Average Shares Outstanding 39,628,202 38,591,777 39,402,620 38,567,606
============== ================= ================== ==================
Loss per Common Share $ - $ - $ (0.01) $ (0.01)
============== ================= ================== ==================
The accompanying notes are an integral part of these financial statements
5
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
From
(Unaudited) July 5, 1996
For the Six Months Ended Inception of
June 30, Development
2007 2006 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $ (302,711) $ (295,913) $ (16,137,592)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Stock issued for general and administrative - - 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 - - 69,900
Stock issued for interest expense - - 119,701
Stock issued for accounts payable 8,689 - 235,151
Deferred income - - (214,000)
Depreciation and amortization - 2,862 1,912,883
Write-off bad debts - - 15,000
(Increase) decrease in accounts receivable - - (413)
(Increase) decrease in shareholder receivable - - 37,694
(Increase) decrease in other assets & prepaids 3,123 - 87,646
Increase (decrease) in accounts payable (30,376) 8,192 263,410
Increase (decrease) in accrued liabilities 133,892 251,092 2,690,568
----------------- ------------------ ------------------
Net Cash Used in Operating Activities (187,383) (33,767) (9,583,974)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition/Sale of equipment, net - - (587,801)
Acquisition/Sale of patents - (2,862) 25,089
Acquisition/Sale of stock, net - - 12,375
----------------- ------------------ ------------------
Net Cash Used by Investing Activities - (2,862) (550,337)
----------------- ------------------ ------------------
6
KLEVER MARKETING, INC.
(a Development Stage Company)
STATEMENT OF CASH FLOWS
(continued)
Cumulative
From
(Unaudited) July 5, 1996
For the Six Months Ended Inception of
June 30, Development
2007 2006 Stage
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds capital stock issued 165,000 34,500 6,930,673
Proceeds from loans - - 3,473,252
Proceeds from line of credit 23,799 - 23,799
Loan receivables - - (15,000)
Principal payments on lease obligations - - (18,769)
Cash payments on notes payable - - (279,730)
----------------- ------------------ ------------------
Net Cash Provided by Financing Activities 188,799 34,500 10,114,225
----------------- ------------------ ------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 1,416 (2,129) (20,086)
Cash and Cash Equivalents at Beginning of the
Year 3,172 3,892 24,674
----------------- ------------------ ------------------
Cash and Cash Equivalents at End of the Year $ 4,588 $ 1,763 $ 4,588
================= ================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ - $ -
Income Taxes $ - $ - $ 1,100
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
None.
The accompanying notes are an integral part of these financial statements
7
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 $123,846
and $302,711 for the three and six months ended June 30, 2007, losses of
$104,773 and $295,913 for the three and six months ended June 30,2006, and
losses of $16,137,592 since inception of the development stage. 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.
8
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.
The unaudited financial statements as of June 30, 2007, and for the
three and six month periods then ended, reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
fairly state the financial position and results of operations for the three and
six months. Operating results for interim periods are not necessarily indicative
of the results which can be expected for full years.
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 2006 financial
statements to conform with the 2007 presentation.
9
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, including
accounts payable and accrued liabilities at June 30, 2007 and December 31, 2006
approximates their fair values due to the short-term nature of these financial
instruments.
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 three months ended March 31, 2007
and 2006 are not presented as it would be anti-dilutive. At June 30, 2007 and
2006, 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 $0 for the six months ended June 30,
2007 and 2006, respectively.
10
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Intangibles
Intangibles associated with certain technology agreements are amortized
over 10 - 14 years.
Amortization expense was $ 0 and $ 0 for the six months ended June 30,
2007 and 2006, respectively.
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 six months ended June 30, 2007, no options were issued.
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
11
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Stock Options (continued)
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.
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.
12
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
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 955 N 400 W, Suite 8, North Salt Lake, UT 84054.
The minimum future lease payments under these leases for the next five
years are:
Year Ended December 31,
-------------------------------------------
2006 $ -
2007 -
2008 -
2009 -
2010 -
--------------
Total minimum future lease payments $ -
==============
NOTE 5 - RESEARCH AND DEVELOPMENT
Research and development of the Klever-Kart System began with the sole
purpose of reducing thefts of shopping carts. A voice-activated alarm system was
envisioned. As time and technology progressed, the present embodiment of the
Klever-Kart System evolved into a "product specific" point-of-purchase
advertising system consisting of an easily readable electronic display that
attaches to any shopping cart, a shelf mounted message sending unit that
automatically sends featured products' ad-message to the display and a host
computer using proprietary software.
During the six months ended June 30, 2007 and 2006, the Company
expended $0 and $0 respectively for research and development of the technology
involved with its patents.
13
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS
OLSON HOLDINGS, INC. LOANS TO THE COMPANY
Olson Holdings, Inc. made a $150,000.00 unsecured loan to the Company
on February 26, 2001. This note has a six-month term at 10% annual interest
maturing on August 26, 2001. The maker of the note may give written notice
within 10-days of maturity, to the Company, to convert the principal and
interest into common stock with a convertible price of $1.05 (10-day weighted
average from February 26, 2001 and the nine days prior).
Olson Holdings made an unsecured loan to the Company on January 7, 2002
for $1,835.84. This note has an annual interest rate of 8% and matures on
January 7, 2004. An option was granted in connection with this note for 3,060
shares at a strike price of $1.00 and an expiration date of January 7, 2005.
At June 30, 2007 and December 31, 2006 the total amount due on these
notes was $360,832 and $336,139.
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.
14
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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 June 30, 2007 and December 31, 2006 the total amount due on these
loans was $303,226 and $289,927.
PRESIDIO INVESTMENTS, LLC LOAN TO THE COMPANY
Presidio Investments, LLC has loaned the Company $1,000,000, which loan
is secured by a blanket lien on the assets of the Company. The sole trustee of
Presidio Investments, LLC is William J. Howard, trustee of the Olson Legacy
Trust, whose residual beneficiary is the Olson Foundation. The Olson Foundation
was the guarantor for funds borrowed from Northern Trust Bank which funds were
used to make the loan to the Company. This note was amended on March 22, 2001
with an additional $500,000 loaned to the Company between January 1, 2001 and
March 22, 2001. An Interest rate of 8% applies until March 31, 2001 and
increases to 10% on April 1, 2001. Principal and all due and unpaid interest are
to be paid on October 1, 2001. This note is convertible to Class C convertible
preferred shares at the option of the note holder.
At June 30, 2007 and December 31, 2006, the total amount due on these
loans was $2,934,562 and $2,798,188.
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
15
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
The Seabury Group loaned the Company $190,000 on August 22, 2001, of
which is secured by a blanket lien on the assets of the Company. An interest
rate of 10% compounded monthly applies until February 22, 2002. Principal and
all due and unpaid interest are to be paid on February 22, 2002, or the interest
rate increases to 15% compounded daily. Warrants were issued in conjunction with
this loan for 57,576 common shares at a strike price of $0.01 and an expiration
date of August 22, 2006. This note is convertible to Class C convertible
preferred shares or to Class D convertible preferred shares at the option of the
note holder.
At June 30, 2007 and December 31, 2006 the total amount due on these
loans was $582,822 and $540,658.
ARBINGER LOANS TO THE COMPANY
The loans listed below were made to the Company by The Arbinger
Institute. The Arbinger Institute is controlled by four equal partners, of which
C. Terry Warner and D. Paul Smith are each a partner.
Common
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 June 30, 2007 and December
31, 2006, the total amount due on these loans is $55,519 and $53,373,
respectively.
16
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
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 June 30, 2007 and December 31, 2006, the total
due on these loans was $18,173 and $17,545, respectively.
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 June
30, 2007 and December 31, 2006, the total amount due on these loans is $67,747
and $65,137, respectively.
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 March 31, 2007, 5,070,088 options were outstanding. The Company
granted 602,800 options during the first three months of 2007, of which 426,000
expire in two years, and 176,800 expire in three years. Compensation expense
charged to operations for the three months ended March 31, 2007 and 2006 is
$43,653 and $0.
17
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8- STOCK OPTIONS (continued)
The following table sets forth the options and warrants outstanding as
of December 31, 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 (2,858,465) 0.08
Exercised - -
-----------------
Options & warrants outstanding,
December 31, 2006 5,070,388 $ 0.25
================= ==================
The following table sets forth the options and warrants outstanding as
of June 30, 2007.
Weighted
Option / Average Weighted
Warrants Exercise Average
Shares Price Fair Value
----------------- ------------------ -----------------
Options & warrants outstanding,
December 31, 2006 5,070,388 $ 0.25
Granted, Exercise price more than fair value - - -
Granted, Exercise price less than fair value - - -
Expired - -
Exercised - -
-----------------
Options & warrants outstanding,
June 30, 2007 5,070,388 $ 0.25
================= ==================
Exercise prices for optioned shares and warrants outstanding as of June
30, 2007 ranged from $0.06 to $1.00. A summary of these options by range of
exercise prices is shown as follows:
18
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 8- STOCK OPTIONS (continued)
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
0.07 400,000 0.07 400,000 0.07 2 months
0.08 100,000 0.08 100,000 0.08 26 months
0.10 125,000 0.10 125,000 0.10 24 months
0.23 200,000 0.23 200,000 0.23 13 months
0.50 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
19
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
Shares shall be entitled to receive, when and as declared, a dividend equal to
each dividend declared and paid on the shares of Common Stock, on a share for
share basis. If there is a split or dividend on the Common Stock, then the Class
A Share dividends shall be adjusted as if a similar split or dividend had
occurred with respect to the Class A Shares.
Class A Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class A Shares could then be converted, and shall
have voting rights and powers equal to that of a holder of Common Stock. The
Holders of Class A Shares shall vote with the holders of Common Stock and not as
a separate class.
Class A Shares carry a liquidation preference of $26 per share plus any
accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class A Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after July 1, 2002. The redemption price shall be $26
per share together with accrued but unpaid dividends on such shares, if any.
On September 24, 2000 the Board of Directors authorized and established
"Class B Voting Preferred Stock" ("Class B Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class B Shares consisted of
250,000, 125,000 shares thereof were designated as Series 1 shares. On May 20,
2002, the Board of Directors amended the number of authorized shares of Class B
voting preferred stock to 42,000 shares.
Class B Shares are convertible into Common Stock at an initial conversion price
of $1.70 (subject to adjustment).
Holders of Class B Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class B Shares,
of the same Series for which the dividend is accrued, for each outstanding Class
B Share, on each dividend payment date; provided, that if such dividends in
respect of any period shall not have been paid or declared and set apart for
payment for all
20
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
outstanding Class B Shares by each payment date, then until all unpaid dividends
thereon shall be paid or set apart for payment to the holders of such shares,
the Corporation may not pay, declare or set apart any dividend or other
distribution on its shares of Common Stock or other shares junior to the Class B
Shares, nor may any other distributions, redemptions or other payments be made
with respect to the shares of Common Stock or other junior shares. In addition
to the foregoing, each holder of a Class B Share shall be entitled to receive,
when and as declared, a dividend equal to each dividend declared and paid on the
shares of Common Stock, on a share for share basis, so the holders of the Class
B Shares shall be entitled to participate equally on a share for share basis
with the holders of the shares of Common Stock. If there is a share split or
dividend on the Common Stock, then the Class B Share dividends shall be adjusted
as if a similar split or dividend had occurred with respect to the Class B
Shares.
Class B Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class B Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class B Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class B Shares shall carry a liquidation preference of $17 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class B Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after March 24, 2004 for Series 1, and such date as
determined by the Board of Directors for each additional Series. The redemption
price shall be $17.00 per share together with accrued but unpaid dividends on
such shares, if any.
On January 2, 2001 the Board of Directors authorized and established
"Class C Voting Preferred Stock" ("Class C Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class C Shares consisted of
500,000, 125,000 shares thereof were designated as Series 1 shares and 125,000
shares thereof were designated as Series 2 shares. On May 20, 2002, the Board of
Directors amended the number of authorized shares of Class C voting preferred
stock to 150,000 shares.
Class C Shares are convertible into Common Stock at an initial
conversion price of $.66 (subject to adjustment).
21
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
Holders of Class C Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class C Shares,
of the same Series for which the dividend is accrued, for each outstanding Class
C Share, on each dividend payment date; provided, that if such dividends in
respect of any period shall not have been paid or declared and set apart for
payment for all outstanding Class C Shares by each payment date, then until all
unpaid dividends thereon shall be paid or set apart for payment to the holders
of such shares, the Corporation may not pay, declare or set apart any dividend
or other distribution on its shares of Common Stock or other shares junior to
the Class C Shares, nor may any other distributions, redemptions or other
payments be made with respect to the shares of Common Stock or other junior
shares. In addition to the foregoing, each holder of a Class C Share shall be
entitled to receive, when and as declared, a dividend equal to each dividend
declared and paid on the shares of Common Stock, on a share for share basis, so
the holders of the Class C Shares shall be entitled to participate equally on a
share for share basis with the holders of the shares of Common Stock. If there
is a share split or dividend on the Common Stock, then the Class C Share
dividends shall be adjusted as if a similar split or dividend had occurred with
respect to the Class C Shares.
Class C Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class C Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class C Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
Class C Shares shall carry a liquidation preference of $6.60 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
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.
22
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
On May 20, 2002, the Board of Directors authorized and established
"Class D Voting Preferred Stock" ("Class D Shares") as a class of its $.01 par
value, 2,000,000 shares authorized, preferred stock. Class D Shares consist of
500,000 shares thereof are designated as "Class D Voting Preferred Stock" (the
"Class D Shares").
Class D Shares are convertible into Common Stock at an initial
conversion price of $1.05 (subject to adjustment).
Holders of Class D Shares shall be entitled to receive when and as
declared by the Board of Directors of the Corporation out of any funds at the
time legally available therefore dividends at the rate of the Original Issue
Price divided by 11.8181818 per share per annum, payable semi-annually on the
first day of January and July of each year. Such dividends shall accrue on each
such share from the date of its original issuance and shall accrue from day to
day, whether or not earned or declared. Such dividends shall be cumulative and
may be paid in cash or in kind through the distribution of .0425 Class D Shares
for each outstanding Class D Share, on each dividend payment date; provided,
that if such dividends in respect of any period shall not have been paid or
declared and set apart for payment for all outstanding Class D Shares by each
payment date, then until all unpaid dividends thereon shall be paid or set apart
for payment to the holders of such shares, the Corporation may not pay, declare
or set apart any dividend or other distribution on its shares of Common Stock or
other shares junior to the Class D Shares, nor may any other distributions,
redemptions or other payments be made with respect to the shares of Common Stock
or other junior shares. In addition to the foregoing, each holder of a Class D
Share shall be entitled to receive, when and as declared, a dividend equal to
each dividend declared and paid on the shares of Common Stock, on a share for
share basis, so the holders of the Class D Shares shall be entitled to
participate equally on a share for share basis with the holders of the shares of
Common Stock. If there is a share split or dividend on the Common Stock, then
the Class D Share dividends shall be adjusted as if a similar split or dividend
had occurred with respect to the Class D Shares.
Class D Shareholders shall be entitled to one vote for each share of
Common Stock into which such Class D Shares could then be converted and shall
have voting rights and powers equal to the voting rights and powers of a holder
of shares of Common Stock. The holders of Class D Shares shall vote with the
holders of shares of Common Stock and not as a separate class.
23
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 9 - PREFERRED STOCK (continued)
Class D Shares shall carry a liquidation preference of $10.50 per share
plus any accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class D Shares shall be redeemable by the Company, in whole or in
part, at the option of the Board of Directors of the Company, at any time and
from time to time on or after May 14, 2007. The redemption price shall be $10.50
per share together with accrued but unpaid dividends on such shares, if any.
NOTE 10 - LITIGATION
On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC., filed
against the Company in the Third Judicial District Court of Utah under the
provisions of the Utah Foreign Judgment Act a judgment from the Superior Court
of California, in and for the County of San Francisco Jurisdiction. Pursuant to
the Judgment Information Statement, also filed on October 27, 2003, the amount
of the above judgment is $81,124. The relief sought is collection from the
Company in Utah of the amount of said judgment. The Company has filed an action
to dismiss said Utah judgment on the grounds that the Superior Court of
California did not have jurisdiction over the Company when the original judgment
was granted. In June 2007, this judgment was settled in full by a cash payment
of $10,000 and the remainder of the liability of $80,448 was included in the
statement of operations as forgiveness of debt.
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.
24
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 11 - STOCK TRANSACTIONS
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.
On February 20, 2007, the company issued 200,000 shares of commons
stock for cash of $5000. The shares were valued at $.25 per share.
On March 6, 2007 the company issued 40,000 shares of commons stock for
cash of $10,000. The shares were valued at $.25 per share.
On April 16, 2007, the Company issued 200,000 shares of common stock
for cash of $50,000. The shares were valued at $.25 per share.
On June 1, 2007, the Company issued 60,000 shares of common stock for
cash of $15,000. The shares were valued at $.25 per share.
On June 1, 2007, the Company issued 40,000 shares of common stock for
cash of $10,000. The shares were valued at $.25 per share.
On June 28, 2007, the Company issued 120,000 shares of common stock for
cash of $30,000. The shares were valued at $.25 per share.
On June 30, 2007, the Company issued 34,764 shares of common stock for
payment of service in the amount of $8,691. The shares were valued at $.25 per
share.
25
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
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.
On February 15, 2005 ModStream Digital Messaging Products, LLC acquired
from the Company limited non-exclusive licensees to use the Company's United
States patent portfolio for electronic display devices specific to ModStreams
product design. This product design is limited to a 80 character dot-matrix
LCD-type screen with limited alerts, and does not include full motion video or
product scanning. Under the license agreement, ModStream paid the Company
$150,000 and will pay ongoing royalties for all ModStream products that utilize
the specific components of the Company's licensed technology.
NOTE 14 - 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 June 30, 2007 and December 31, 2006, the Company
was still owed $25,000 relating to this sale.
26
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 16 - UNCERTAIN TAX POSITIONS
Effective January 1, 2007, the company adopted the provisions of FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes a
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken or expected to be taken in a
tax return. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities. The
adoption of the provisions of FIN 48 did not have a material impact on the
company's condensed consolidated financial position and results of operations.
At January 1, 2007, the company had no liability for unrecognized tax benefits
and no accrual for the payment of related interest.
Interest costs related to unrecognized tax benefits are classified as
"Interest expense, net" in the accompanying consolidated statements of
operations. Penalties, if any, would be recognized as a component of "Selling,
general and administrative expenses". The Company recognized $0 of interest
expense related to unrecognized tax benefits for the six months ended June 30,
2007. In many cases the company's uncertain tax positions are related to tax
years that remain subject to examination by relevant tax authorities. With few
exceptions, the company is generally no longer subject to U.S. federal, state,
local or non-U.S. income tax examinations by tax authorities for years before
2003. The following describes the open tax years, by major tax jurisdiction, as
of January 1, 2007:
United States (a) 2003 - Present
(a) Includes federal as well as state or similar local
jurisdictions, as applicable.
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
PLAN OF OPERATION - The Company's plan of operations is subject to obtaining
financing. The Company's goal is to become the leading supplier of in-store
promotions and advertising technology for grocery and other mass-merchandise
retailers. To accomplish this goal, the Company intends to expand its product
offerings to include: (i) electronic couponing to eliminate the need for and
reduce the costs related to paper coupons (including fraud, mis-redemption and
mal-redemption); (ii) the establishment of targeted Internet-type content to
enhance customer loyalty; (iii) capturing Point-of- Selection data in the
aggregate for providing data warehousing and mining services to various
interested parties; (iv) certain other in-store services. Additionally, the
Company intends to expand the Klever-Kart system, now being sold under the
Fujitsu internal brand, U-SCAN Shopper, to other retail outlets including
superstores, discount toy and warehouse stores.
BUSINESS DEVELOPMENT, NEXT 12 MONTHS
As a result of the current financial condition of the Company, the plan
of the Company for the next twelve months is to obtain sufficient financing to
permit the Company to commence active business operations. Absent obtaining such
financing, the Company's plan is to continue to obtain sufficient smaller
financing to permit the Company to continue to prevent the loss or wasting of
its assets and to continue to seek such operation's financing. Currently, the
Company has sufficient liquid assets to permit current restricted operations to
continue for six months. If such smaller interim financing is not obtained, it
is likely that the Company will cease being a going concern at the end of such
period.
In the event such operational funding is obtained, then the Company
plans to work with Fujitsu Transaction Solutions to: 1) sign up two pilot store
retail chains to test the U-SCAN Shopper system for an initial 60-90 days; 2)
begin expanding the installed base within the pilot store retailer; 3) Develop
additional revenue generating products including electronic couponing; 4)
Continue defense of the Klever patent portfolio where violations are evident.
Absent such financing, the Company has no plans to employ additional
employees or to purchase additional equipment. If such financing is obtained,
there would be additional employees employed and additional equipment purchased.
The number of each is dependent upon the amount of such financing.
RESULTS OF OPERATIONS - The Company was inactive until July 5, 1996 when the
Company merged with Klever-Kart, Inc. in a reverse merger and changed its name
to Klever Marketing, Inc. The Company is in the development stage. For the three
and six months ended June 30, 2007, the Company had net losses of $123,846 and
$302,711, respectively. For the three and six months ended June 30, 2006, the
Company had net losses of $104,773 and $295,913, respectively.
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
28
borrowings have been obtained from a principal shareholder or other related
entities.
Cash flows. Operating activities for the six months ended June 30, 2007 and 2006
used cash of approximately $187,000 and $34,000 respectively.
Investing activities for the six months ended June 30, 2007 and 2006 have used
cash of approximately $0 and $2,900, respectively. Investing activities
primarily represent purchases of Phase III equipment, patents relating to the
electronic in-store advertising, directory and coupon devices, and purchases of
office equipment.
Financing activities for the six months ended June 30, 2007 and 2006 provided
cash of approximately $189,000 and $34,500, 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 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining disclosure controls and procedures
for the Company.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's President, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Based upon the evaluation, the Company's President
concluded that, as of the end of the period, the Company's disclosure controls
and procedures were effective in timely alerting him to material information
relating to the Company required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.
(b) Changes in Internal Controls
Based on his evaluation as of June 30, 2007, there were no significant
changes in the Company's internal controls over financial reporting or in any
other areas that could significantly affect the Company's internal controls
subsequent to the date of his most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
29
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC., filed
against the Company in the Third Judicial District Court of Utah under the
provisions of the Utah Foreign 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. In June 2007, this judgment was settled in full by a cash payment
of $10,000 and the remainder of the liability of $80,448 was included in the
statement of operations as forgiveness of debt.
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.
ITEM 2. CHANGES IN SECURITIES
On February 20, 2007, the company issued 200,000 shares of commons
stock for cash of $5000. The shares were valued at $.25 per share.
On March 6, 2007 the company issued 40,000 shares of commons stock for
cash of $10,000. The shares were valued at $.25 per share.
On April 16, 2007, the Company issued 200,000 shares of common stock
for cash of $50,000. The shares were valued at $.25 per share.
On June 1, 2007, the Company issued 60,000 shares of common stock for
cash of $15,000. The shares were valued at $.25 per share.
On June 1, 2007, the Company issued 40,000 shares of common stock for
cash of $10,000.
30
The shares were valued at $.25 per share.
On June 28, 2007, the Company issued 120,000 shares of common stock for
cash of $30,000. The shares were valued at $.25 per share.
On June 30, 2007, the Company issued 34,764 shares of common stock for
payment of service in the amount of $8,691. The shares were valued at $.25 per
share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Title of Document
3.01 Restated Certificate of Incorporation of Klever Marketing, Inc. a
Delaware corporation (1)
3.02 Certificate of Designation of Rights, Privileges and Preferences:
Rights of A Class Voting Preferred Stock, Series 1, of Klever
Marketing, Inc., dated February 7, 2000 (2)
3.03 Bylaws, as amended (2)
4.01 Amended Certificate of Designation of Rights, Privileges and
Preferences: Rights of A Class of Voting Preferred Stock, Series 1, of
Klever Marketing, Inc., Dated February 7, 2000 (3)
4.02 Certificate of Designation of Rights, Privileges and Preferences of
Class B Voting Preferred Stock, of Klever Marketing, Inc., dated
September 24, 2000 (3)
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)
31
4.05 Amendment to the Certificates of Designation of Rights, Privileges and
Preferences of Class A, B, and C Voting Preferred Stock, of Klever
Marketing, Inc., dated June 12, 2002 (5)
10.01 Separation Agreement between Paul G. Begum and the Registrant Dated
January 8, 2001 (2)
10.02 Stock Incentive Plan, effective June 1, 1998 (2)
10.03 Amended and Restated Promissory Note (Secured) of the Registrant
payable to Presidio Investments, LLC, dated June 27, 2000, with
Financing Statement and Exhibit "A" (2)
10.04 Intercreditor Agreement between Seabury Investors III, Limited
Partnership, The Olson Foundation, Presidio Investments, LLC, and the
Registrant dated August 27, 2001 (4)
10.05 Asset Purchase Agreement, dated August 27, 2004 (6)
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(1) Incorporated herein by reference from Registrant's Form 10KSB,
dated June 20, 1997.
(2) Incorporated herein by reference from Registrant's Form 10KSB,
dated March 29, 2001
(3) Incorporated herein by reference from Registrant's Form 10QSB,
dated May 15, 2001.
(4) Incorporated herein by reference from Registrant's Form 10QSB,
dated May 15, 2002.
(5) Incorporated herein by reference from Registrant's Form 10QSB,
dated August 19, 2002.
(6) Incorporated herein by reference from Registrant's Form 10QSB,
dated November 19, 2004.
(b) Reports on Form 8-K filed.
On July 19, 2007, the Company filed a Form 8-K under Item 7, Regulation
FD Disclosure.
32
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Klever Marketing, Inc.
(Registrant)
DATE: August 14, 2007
----------------------------
By: /s/ William C. Bailey
----------------------------
Chairman
(Principal Executive Officer)
By: /s/ Jeremiah Cox
----------------------------
Jeremiah Cox
Chief Financial Officer
(Principal Financial Officer)
33