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, 1997
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.)
350 West 300 South, Suite 201, Salt Lake City, Utah 84101
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Issuer's telephone number (801) 322-1221
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)
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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
Total pages: 21
Exhibit Index Page: 19
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. [X]
State issuer's revenues for its most recent fiscal year. $ -0-
As of February 27, 1998, there were 10,035,401 shares of the Registrant's
common stock, par value $0.01, issued and outstanding. The aggregate market
value of the Registrant's voting stock held by non-affiliates of the Registrant
was approximately $14,330,461 computed at the average bid and asked price as of
February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"): NONE
Transitional Small Business Disclosure Format (check one): Yes ; NO X
2
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TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Description of Business ...........................................4
Item 2. Description of Property ...........................................4
Item 3. Legal Proceedings .................................................5
Item 4. Submission of Matters to a Vote of Security Holders ...............5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ..........7
Item 6. Management's Discussion and Analysis or Plan of Operations .......12
Item 7. Financial Statements .............................................14
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure .............................................14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ................15
Item 10. Executive Compensation ............................................16
Item 11. Security Ownership of Certain Beneficial Owners and Management ....17
Item 12. Certain Relationships and Related Transactions ....................19
Item 13. Exhibits and Reports on Form 8-K ..................................19
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
General
The Company was formed for the purpose of creating a vehicle to obtain
capital, to file and acquire patents, to seek out, investigate, develop,
manufacture and market electronic in-store advertising, directory and coupon
services which have potential for profit. The Company is currently in the
process of the commercialization of the patented process, Klever-Kart(R), it has
acquired.
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 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. The Company is in the development
stage as of December 31, 1997, and has not commenced planned principal
operations.
ITEM 2 DESCRIPTION OF PROPERTY
On June 1, 1994 the Company entered into a six year commercial lease of
office space with Tree of Stars, Inc./P.D.O. (major shareholders of the
Company). The office space is used as the Corporate headquarters and is located
at 350 West 300 South, Suite 201, Salt Lake City, Utah. The lease provides for
rental payments of $22,428 for two years, increasing to $25,726 for an
additional two years with a provision for the review of the rental payment
requirements every two years thereafter.
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In January 1998 the parties agreed to modify the June 1, 1994 lease. The
Company's lease commitments for office space with Tree of Stars, Inc./P.D.O.
consist of two leases with payments of $26,743 and $10,496 per year. Both lease
commitments expire December 31, 1998.
As of December 31, 1997 $13,431 is payable to Tree of Stars, Inc./P.D.O.
for 1996 and 1997 rent.
ITEM 3 LEGAL PROCEEDINGS
NONE
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
The annual Shareholder's meeting was held December 12, 1997. The matters
submitted to a vote of shareholders and the results of the vote are as follows:
1. Election of Directors.
The following directors were re-elected, by majority vote, to serve on the
board:
Director's Name Votes Office Term Expires
Paul G. Begum 7,948,019 to 1 President/CEO Next annual shareholder
meeting
William Bailey 7,947,970 to 50 Director Next annual shareholder
meeting
Peter D. Olsen 7,947,970 to 50 Chairman Next annual shareholder
meeting
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2. 1997 Stock Incentive Plan.
The shareholders approved, by a majority vote of 7,749,461 to 87,736, the
adoption of the 1997 Stock Incentive Plan (the "Plan"). Under the Plan,
1,000,000 shares of common stock are reserved 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.
Under the Plan, an additional 500,000 shares of common stock are reserved for
issuance in the form of restricted stock grants.
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PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The stock is traded OTC with the trading symbol KLMK.
The following table set forth the high and low bid of the Company's Common
Stock for each quarter within the past two years. The information below was
provided by S & P Comstock and reflects inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions:
1996: High Low
First quarter (To managements knowledge, there was no trading
Second Quarter during the first three quarters of 1996)
Third Quarter
Fourth Quarter $ .01 $ .01
1997:
First Quarter $ .01 $ .01
Second Quarter $ 2.50 $ 2.25
Third Quarter $ 3.75 $ 3.00
Fourth Quarter $ 3.50 $ 3.00
The number of shareholders of record of the Company's common stock as of
February 27, 1998 was 755.
The Company has not paid any cash dividends to date and does not anticipate
paying dividends in the foreseeable future. It is the present intention of
management to utilize all available funds for the development of the Company's
business.
Recent Sales of Unregistered Securities.
The Company over the past three years has sold 2,249,401 shares of common
stock. The stock was not sold through an underwriter and was not sold through a
public offer. A summary of the transactions follows:
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Common Stock
Shares Amount
January 15, 1995 shares issued
to an individual for cash at
$1.50 per share $ 10,000 $ 15,000
February 1995 shares issued
to an individual for cash at
$1.25 per share 18,000 22,500
March 15, 1995 shares issued
to individuals for cash at
$1.25 per share 120,000 150,000
April 25, 1995 shares issued
to a corporation for cash at
$1.00 per share 125,000 125,000
May 10, 1995 shares issued
to an individual for cash at
$1.00 per share 50,000 50,000
June, 1995 shares issued
to individuals for cash and
services at $1.25 per share 66,000 82,500
June 30, 1995 shares issued
to an individual for services
at $1.50 per share 1,400 2,100
July 12, 1995 shares issued
to a corporation for cash at
$2.00 per share 30,000 60,000
July 20, 1995 shares issued
to a corporation for cash at
$2.00 per share 14,000 21,000
August 15, 1995 shares issued
to an individual for cash at
$1.25 per share 40,000 50,000
September, 1995 shares issued
to individuals for cash at
$1.25 per share 44,667 82,000
October, 1995 shares issued
to individuals for cash at
$1.50 - $3.00 per share 19,333 44,000
November, 1995 shares issued
to individuals for cash at
$.83 - $1.50 per share 13,000 16,165
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Common Stock
Shares Amount
December, 1995 shares issued
to individuals for cash and
services at $1.25 - $3.00
per share 63,153 $124,230
January 1996 shares issued
to individuals for cash at
$2.50 - 3.00 per share 3,500 8,000
March 1996 shares issued
to an individual and
a company for cash
at $2.00 - $3.00 per share 21,240 43,479
April 1996 shares issued
to individuals for cash
at $.50 - 2.04 per share 63,000 74,000
May 1996 shares issued to
individuals for cash
at $3.00 per share 9,000 27,000
May 1996 shares issued to
individuals for legal
services at $3.00 per share 1,463 4,389
June 1996 shares issued to a
company in exercise of
an option at $1.00 per share 100,000 100,000
June 1996 shares issued to a
related company (Maktoob, Inc.)
for cash at $1.25 per share 30,000 37,500
June 1996 shares issued to an
individual for cash at
$3.00 per share 5,000 15,000
November 15, 1996, shares
issued to individuals
for cash at $1.29 - 2.59
per share 40,569 67,500
November 27, 1996, shares
issued to officer for
cash at $2.94 per share 2,891 8,499
December 13, 1996, shares
issued to individuals
for cash and receivables
at $1.00 - 3.00 per share 107,624 $188,208
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Common Stock
Shares Amount
December 13, 1996, shares
issued to a company for
services at $1.25 per share 14,282 17,853
December 19, 1996, shares
issued to individual to
exercise option at $1.25
per share 30,000 37,500
December 19, 1996, shares
issued to individual for
cash at $1.25 per share 30,000 37,500
December 31, 1996, shares
issued to individual
for receivable at
$1.00 - 3.00 per share 40,679 101,950
December 31, 1996, shares
issued to officer and
employee for patents 225,000 132,750
January 1997, shares
issued to officer as
payment on loan at
$1.82 per share 6,000 10,903
February 1997, shares
issued to officers for
Electronic Coupon
Patent at $0.01 per share 260,813 2,250
February 1997, shares
issued to individuals for
cash at $1.00 - 1.25 per share 58,979 38,249
February 1997, shares
issued to officers as
loan payment at
$0.08 per share 190,000 14,250
April 1997, shares
issued to individuals for
cash at $3.00 per share 20,795 45,000
May 1997, shares
issued to individual and
officer for cash at
$1.75 - $3.00 per share 64,375 118,907
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Common Stock
Shares Amount
May 1997, shares
issued to individuals for
services at $2.59 per share 732 1,895
June 1997, shares
issued to indivudials for
cash at $1.75 - 3.00 per share 15,000 70,250
July 1997, shares
issued to emplyees and
individuals for cash and
receivables at $1.75 - $2.00
per share 58,286 85,750
August 1997, shares
issued to individual for
cash at $2.75 - $3.00 per share 10,000 28,000
October 1997, shares
issued to individual for
cash at $3.00 per share 4,000 12,000
October 1997, shares
issued to VideOcart creditors
pursuant to reorganization 97,610 --
November 1997, shares
issued to individual for
services at $0.95 per share 1,666 1,575
December 1997, shares
issued to individual for
cash at $1.50 - 2.00 per share 55,000 139,339
December 1997, shares
issued to a Companyl for
services at $0.50 per share 8,000 3,945
December 1997, shares
issued to offocers for loan
payment at $0.86 - 1.02 per share 53,344 51,628
December 1997, shares
issued to employee for
compensation at $2.50 per share 6,000 15,000
Total $2,249,401 $2,384,564
========== ==========
These sales are exempt under Regulation D Rule 506 of the Securities Act of
1933.
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ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
Plan of Operations - 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
electronic coupon services which have potential for profit. The Company is
currently in the process of the commercialization of the patented process,
Klever-Kart(R) it has acquired. The commercialization process is divided into
five phases as follows:
Phase I: System Development and Product Movement Test.
The product movement test was completed during third quarter 1997. The test
took place in a Smith's Food and Drug store located in Salt Lake City, Utah.
Information Resources, Inc., an independent company audited the results of the
test and reported an average 46.84% incremental product movement.
Phase II: Cost Reduction & Enhancement.
In January 1998, the Company commenced development of the Phase II
functional specification that will encompass cost reduction and system
enhancements. Improvements that are in the process of design and development of
the Klever-Kart(R) system include: a significantly smaller and more sleek design
in the appearance and size of the display unit, smaller trigger units with
improved sensitivity, more durable plastics, and improved sound fidelity.
Phase III: Installation of 25 Stores.
During the fourth quarter of 1998 the Company plans to place Klever-Kart(R)
units in 25 stores in targeted retail chains, and 85 stores during 1999. Target
stores include major national and regional chains.
Phase IV: Electronic Coupon Integration.
Final definition of the Electronic Coupon system is scheduled to begin the
first quarter of 1998. This process consists of working with retailers and
Point-of-Sale transaction processing system manufactures to ensure the
appropriate degree of interface and integration necessary to implement the
Electronic Coupon system. Because the Klever-Kart(R) system was designed with
the eventual implementation of Electronic Coupons in mind, the Company does not
expect significant hardware modifications will be necessary. The Electronic
Coupon system design and initial manufacture is
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scheduled for completion during the third quarter of 1998, with a minimum three
month in-store test of system operation to take place in the fourth quarter.
Phase V: Future Development.
The Klever-KardTM frequent shopper program is scheduled for introduction in
late 1999. This dynamic micro-marketing capability will be added to the
Klever-Kart(R) system, allowing targeted promotions to individual customers
according to demographics and personal buying history.
In order to satisfy its cash requirements, the company will have to raise
additional funds through the sale of restricted stock, joint ventures or short
term borrowings..
The company estimated that it may need to hire 5 or 6 additional employees
during the next 12 months.
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 as of December
31, 1997, and has not commenced planned principal operations, which are
scheduled to begin fourth quarter 1998 or first quarter 1999.
Liquidity and Capital Resources - The Company requires working capital
principally to fund its current research and development and operating expenses
for which the Company has relied on short-term borrowings and the issuance of
restricted common stock. There are no formal commitments from banks or other
lending sources for lines of credit or similar short-term borrowings, but the
Company has been able to borrow any additional working capital that has been
required. From time to time in the past, required short-term borrowings have
been obtained from a principal shareholder or other related entities.
Cash flows. Operating activities used cash of $593,000 and $617,000 for
1997 and 1996, respectively. The decrease in the use of cash is due primarily to
a reduction in general and administrative costs.
Investing activities have used cash of $28,000 and $50,000 for 1997 and
1996, respectively. Investing activities primarily represent purchases of
patents relating to the electronic in-store advertising, directory and coupon
devices, and purchases of office equipment.
Financing activities provided cash of $602,000 and $672,000 for 1997 and
1996, respectively. Financing activities primarily represent sales of the
Company's restricted stock.
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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.
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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
Paul G. Begum 59 President/CEO Next annual shareholder meeting
William Bailey 63 Director Next annual shareholder meeting
Peter D. Olsen 59 Chairman Next annual shareholder meeting
Paul G. Begum, age 59, has been the President/CEO of Klever Kart, Inc. for
the past five years through the merger date, and is now the President/CEO of the
Company after the merger. Mr. Begum was also the President/CEO of Hi, Tiger
International from February 14, 1995 through October 1996, and the President of
Tree of Stars, Inc., a private company, PSF, Inc., a private company, and
Maktoob Inc., a private company, for all of the past five years to the present
William Bailey, age 63, has been a Director of Klever Kart, Inc. for the
past five years through the merger date, and is now a Director of the Company
after the merger. Mr. Bailey has also been the President/CEO of Mount Olympus
Water, a private company, during all of the past five years to present.
Peter D. Olson, age 59, has been a Director of Klever Kart, Inc. for the
past five years through the merger date, and is now a Director of the Company
after the merger. Mr. Olson has also been the President/CEO of Olson Farms, a
private company, during all of the past five years to present.
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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 person who was
chief executive officer at any time during the last fiscal year.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
----------------------- ------------------------ -------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
---- --- --- --- --- --- --- --- ---
Other Securities
Year Annual Restricted Underlying All Other
Ended Compen- Stock Options/ LTIP Compen-
Name and Dec. Salary Bonus sation Award(s) SAR's Payouts sation
-------- ---- ------ ----- ------ -------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Position 31 ($)(1) ($) ($) ($) (no.) ($) ($)
- ------------------ -- ------ --- --- --- ----- --- ---
Paul G. Begum 1997 $72,000 - - - - - -
- ------------- ---- ------- - - - - - -
President/CEO
- -------------
1996 $72,000 - - - - - -
---- ------- - - - - - -
1995 $48,000 - - - - - -
---- -------- - - - - - -
</TABLE>
Options/SAR Grants in Last Fiscal Year
The following table sets forth information respecting all individual grants
of options and SARs made during the last completed fiscal year by the chief
executive officer of the Company.
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SAR's Employees During Exercise of Base
Name Granted (no.) Fiscal Year Price ($/share) Expiration Date
Paul G. Begum None -- -- --
President/CEO
Aggregate Option/SAR Exercises in the Last Fiscal Year and year End Option/SAR
Values
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The following table sets forth information respecting the exercise of
options and SARs during the last completed fiscal year by the chief executive
officer of the Company and the fiscal year end valued of unexercised options and
SARs.
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Securities In-the-Money
Underlying Options/SARs
Unexercised at FY
Options/SARs at End ($)
FY End (no.)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise (no.) Value Realized ($) Unexercised Unexercised
Paul G. Begum 231,834 $ 120,000 530,000 $ 1,590,000(1)
President/CEO
(1) Based on recent sales of the company's stock at $3.00 per share.
Executive Compensation and Benefits
The Company provides to all of its full time employees, including executive
officers and directors, health insurance and miscellaneous other benefits.
On July 7, 1992, the board of directors approved a resolution that the
Company will obtain an automobile for Paul G. Begum once the Company has
received $2,000,000 in financing from investors introduced to the company by Mr.
Begum, the Company will incur monthly lease/payment costs of approximately $500
for an automobile for Mr. Begum. In addition PSF, Inc. (As Mr. Begum's assign)
will receive cash of $50,000 in consideration for the assignment of the
electronic coupon patent.
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 more than 5% of the
10,035,401 shares of issued and outstanding Common Stock, including options to
acquire stock of the Company as of February 27, 1998 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.
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# of
Name and Address Nature of Shares
of Beneficial Owners Ownership Owned Percent
Directors
Principal Shareholders
Tree of Stars, Inc. Direct 2,686,390 26.77%
Peter D. Olson Direct(1) 1,505,814 15.01%
Option 230,000 2.29%
------------ -----
Total 1,735,814 17.30%
============ =====
C. Terry Warner Direct 917,885 09.15%
Directors and Executive Officers
Paul G. Begum Direct(2) 2,746,390 27.37%
Option 530,000 5.28%
------------ -----
Total 3,276,390 32.65%
============ =====
William Bailey Direct(3) 190,822 1.90%
Option 30,000 .30%
------------ -----
Total 220,822 2.20%
============ =====
Peter D. Olson -------------- See Above --------------------------
All Executive Officers and
Directors as a Group (3
persons) Direct 4,443,026 44.27%
Option 790,000 7.87%
------------ -----
Total 5,233,026 52.15%
============ =====
(1) Mr. Olson's ownership includes 749,765 shares held by Olson Farms,
Inc., a family owned corporation, and 20,000 shares held by Peter D.
Olson, Trustee of The Olson Family Trust.
(2) Mr. Begum's ownership includes 2,686,390 shares held by Tree of
Stars, Inc., a corporation of which Mr. Begum is a director, officer,
and principal shareholder, and 60,000 shares held by PSF, Inc., a
private company, of which Mr. Begum is President and principal
shareholder.
(3) Mr. Bailey's ownership includes 20,285 shares held by William C.
Bailey Family Partnership.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 and 1996 various officers and directors have loaned the Company
$56,500 and $33,500, respectively. The notes are payable on demand plus interest
at 10% per annum. During 1997 and 1996 principle payments of $21,738 and $46,041
were paid toward these loans. The balance due as of December 31, 1997 is $-0-.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements Page
Report of Robison, Hill & Co., Independent Certified Public Accountants......F-1
Balance Sheets
December 31, 1997, and 1996................................................F-2
Statements of Loss
For the Years Ended December 31, 1997, and 1996............................F-4
Statement of Stockholders' Equity
For the Years Ended December 31, 1997, and 1996............................F-5
Statements of Cash Flows
For the Years Ended December 31, 1997, and 1996............................F-9
Notes to Financial Statements
December 31, 1997 and 1996................................................F-12
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.
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3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number Title of Document
3.01 Articles of Incorporation of
Klever Marketing, Inc. a Delaware Corporation(1)
3.02 Bylaws(1)
23.01 Consent of Accountants
(1) Incorporated by Reference
(b) No reports on Form 8-K were filed.
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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 it behalf by the undersigned, thereunto duly authorized.
KLEVER MARKETING, INC.
Dated: March 6, 1998 By /S/ Paul G. Begum
-------------------------
Paul G. Begum
President, C.E.O., Director
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 6th day of March 1998.
Signatures Title
/S/ Paul G. Begum
Paul G. Begum President, C.E.O., Director
(Principal Executive, Financial
and Accounting Officer)
/S/ William C. Bailey
William C. Bailey Director
/S/ Peter D. Olson
Peter D. Olson Chairman, Director
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
Klever Marketing, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Klever Marketing, Inc.,
(a development stage company) as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for the
two years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Klever Marketing, Inc. , (a
development stage company), as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for the two years then ended in conformity
with generally accepted accounting principles.
Respectfully submitted,
/s/ Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
February 16, 1998
F - 1
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KLEVER MARKETING, INC.
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31
ASSETS 1997 1996
- ------ ----------- -----------
Current Assets
Cash $ 10,536 $ 29,452
Shareholder Receivables 27,200 57,500
----------- -----------
Total Current Assets 37,736 86,952
----------- -----------
Fixed Assets
Equipment 57,549 52,262
Less Accumulated Depreciation (38,469) (29,225)
----------- -----------
Net Fixed Assets 19,080 23,037
----------- -----------
Other Assets
Patents 1,646,097 1,623,386
Organization Costs 152,662 152,662
Less Accumulated Amortization (1,004,422) (839,812)
----------- -----------
Net Other Assets 794,337 936,236
----------- -----------
Total Assets $ 851,153 $ 1,046,225
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade $ 97,467 $ 111,714
Accrued Liabilities 34,822 34,200
Related Party Payables 15,031 50,166
Lease Obligation 862 4,479
----------- -----------
Total Current Liabilities 148,182 200,559
----------- -----------
Other
Deferred Income 229,000 229,000
Notes Payable - Related Party -- 27,148
----------- -----------
Total Other Liabilities 229,000 256,148
----------- -----------
Total Liabilities 377,182 456,707
----------- -----------
F - 2
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
BALANCE SHEET
(Continued)
DECEMBER 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ------------------------------------ --------- ---------
(Continued)
Stockholders' Equity
Preferred stock (par value $.01),
2,000,000 shares authorized.
-0- issued and outstanding $ -- $ --
Common Stock (Par Value $.01),
20,000,000 shares authorized
9,795,314 shares issued and
outstanding December 31, 1997
and 8,884,613 shares issued
and out standing December 31, 1996 97,953 88,846
Common Stock to be issued 4,903 7,716
Paid in Capital in Excess of Par
Value 5,292,308 4,658,555
Retained Deficit (3,333,785) (3,333,785)
Deficit Accumulated During the
Development Stage (1,587,408) (831,814)
----------- -----------
Total Stockholders' Equity 473,971 589,518
----------- -----------
Total Liabilities and Stockholders' Equity $ 851,153 $ 1,046,225
=========== ===========
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF LOSS
Cumulative
For the Year Ended During
December 31, Development
1997 1996 Stage
----------- ----------- -----------
Revenue $ -- $ -- $ --
----------- ----------- -----------
Expenses
General and Administrative 433,220 541,377 974,597
Research and Development 317,403 280,837 598,240
----------- ----------- -----------
Total Expenses 750,623 822,214 1,572,837
----------- ----------- -----------
Other Income (Expense)
Interest Income 76 -- 76
Interest Expense (5,351) (9,500) (14,851)
Sale of Assets 404 -- 404
----------- ----------- -----------
(4,871) (9,500) (14,371)
----------- ----------- -----------
Income (Loss) Before Taxes (755,494) (831,714) (1,587,208)
Income Taxes 100 100 200
----------- ----------- -----------
Net Income (Loss) After Taxes $ (755,594) $ (831,814) $(1,587,408)
=========== =========== ===========
Weighted Average Shares
Outstanding 9,446,981 8,575,154
=========== ===========
Loss Per Share $ (.08) $ (.10)
=========== ===========
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
<TABLE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<CAPTION>
Deficit
Paid in Accumulated
Common Stock Capital in During the
Preferred Stock Common Stock to be issued Excess of Retained Development
Shares Amount Shares Amount Shares Amount Par Value Deficit Stage
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 1996 247,100 $ 2,471 12,210,949 $ 122,109 -- $ -- $ 74,022,028 $(103,351,248)$ --
January 1996 shares issued in
connection with merger (see
Note 8) (247,100) (2,471) (3,784,905) (37,849) 505,994 5,059 (70,257,358) 100,017,463 --
January 1996 (pre-merger)
Shares issued to individuals
for cash at $2.50 - 3.00
per share -- -- 3,500 35 -- -- 7,965 -- --
March 1996 (pre-
merger) shares issued
to an individual and
a company for cash
at $2.00 - $3.00 per
share -- -- 21,240 212 -- -- 43,267 -- --
April 1996(pre-
merger) shares issued
to individuals for
cash at $.50 - 2.04
per share -- -- 63,000 630 -- -- 73,370 -- --
May 1996 (pre mermer)
shares issued to
individuals for cash
at $3.00 per share -- -- 9,000 90 -- -- 26,910 -- --
May 1996 (Pre merger)
shares issued to
individuals for legal
services at $3.00 per
share -- -- 1,463 15 -- -- 4,374 -- --
June 1996 (pre merger)
shares issued to a
company in exercise of
an option at $1.00 per
share -- -- 100,000 1,000 -- -- 99,000 -- --
</TABLE>
F - 5
<PAGE>
<TABLE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
<CAPTION>
Deficit
Paid in Accumulated
Common Stock Capital in During the
Preferred Stock Common Stock to be issued Excess of Retained Development
Shares Amount Shares Amount Shares Amount Par Value Deficit Stage
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 1996 (pre merger)
shares issued to a
related company for cash at
$1.25 per share -- -- 30,000 $ 300 -- $ -- $ 37,200 $ -- $ --
June 1996 (pre merger)
shares issued to an
individual for cash at
$3.00 per share -- -- 5,000 50 -- -- 14,950 -- --
November 15, 1996, shares
issued to individuals
for cash @ $1.29 - 2.59
per share -- -- 40,569 406 -- -- 67,094 -- --
November 27, 1996, shares
issued to officer for
cash @ $2.94 per share -- -- 2,891 29 -- -- 8,470 -- --
December 13, 1996, shares
issued to individuals
for cash and receivables
@ $1.00 - 3.00 per share - -- 107,624 1,076 -- -- 187,132 -- --
December 13, 1996, shares
issued to a company for
services @ $1.25 per
share -- -- 14,282 143 -- -- 17,710 -- --
December 19, 1996, shares
issued to individual to
exercise option @ $1.25
per share -- -- 30,000 300 -- -- 37,200 -- --
December 19, 1996, shares
issued to individual for
cash at $1.25 per share -- -- 30,000 300 -- -- 37,200 -- --
December 31, 1996, shares
issued to individual
for receivable at
$1.00 - 3.00 per share -- -- -- -- 40,679 407 101,543 -- --
December 31, 1996, shares
issued to officer and
employee for patents -- -- -- -- 225,000 2,250 130,500 -- --
</TABLE>
F - 6
<PAGE>
<TABLE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(CONTINUED)
<CAPTION>
Deficit
Paid in Accumulated
Common Stock Capital in During the
Preferred Stock Common Stock to be issued Excess of Retained Development
Shares Amount Shares Amount Shares Amount Par Value Deficit Stage
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net loss -- $ -- -- $ -- -- $ -- $ -- $ -- $(831,814)
-------- ------- ----------- --------------- ------- ------ -------- ----------- --------
Balance at
December 31, 1996 -- -- 8,884,613 88,846 771,673 7,716 4,658,555 (3,333,785) (831,814)
January 1997 shares issued
to individuals for cash at
par -- -- 1 -- -- -- -- -- --
January 1997 shares issued
to an officer as payment
on loan at $1.82 per share -- -- 6,000 60 -- -- 10,843 -- --
February 1997 shares issued
to officers for Electronic
Coupon patent -- -- 260,813 2,608 (225,000)(2,250) 1,892 -- --
February 1997 shares issued
to individuals for cash at
$1.00 - 1.25 per share -- -- 58,979 590 (28,229) (282) 37,941 -- --
February 1997 shares issued
to officers for payment
on loan at $0.08 per share -- -- 190,000 1,900 -- -- 12,350 -- --
April 1997 shares issued
to individuals for cash at
$3.00 per share -- -- 20,795 208 (5,000) (50) 44,842 -- --
May 1997 shares issued to
an individual and an officer
for cash at $1.75 - $3.00
per share -- -- 64,375 644 -- -- 118,263 -- --
May 1997 shares issued to
individuals for services at
$2.59 per share -- -- 732 7 -- -- 1,888 -- --
June 1997 shares issued to
individuals for cash at
$1.75 - 3.00 per share -- -- 15,000 150 10,000 100 70,000 -- --
July 1997 shares issued to
employees and individuals
for cash and receivables at
$1.75 - 2.00 -- -- 58,286 583 (10,000) (100) 85,267 -- --
</TABLE>
F - 7
<PAGE>
<TABLE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(CONTINUED)
<CAPTION>
Deficit
Paid in Accumulated
Common Stock Capital in During the
Preferred Stock Common Stock to be issued Excess of Retained Development
Shares Amount Shares Amount Shares Amount Par Value Deficit Stage
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
August 1997 shares issued
to individuals for cash at
$2.75 - 3.00 per share -- $ -- 10,000 $ 100 -- $ -- $ 27,900 $ -- $ --
October 1997 shares issued
to an individual for cash
at $3.00 per share -- -- 4,000 40 -- -- 11,960 -- --
October 1997 shares issued
to VideOcart creditors
(see Note 8) -- -- 97,610 976 (97,610) (976) -- -- --
November 1997 shares issued
to individuals for services
for $0.95 per share -- -- 1,666 17 -- -- 1,558 -- --
December 1997 shares issued
To individual for cash
@ $1.50 - 2.00 per share -- -- 55,000 550 28,084 281 139,070 -- --
December 1997 shares issued
To officers for loan pay-
ment $0.86 - 1.02 per share -- -- 53,444 534 -- -- 51,094 -- --
December 1997 shares issued
To a company for services
@ $0.50 per share -- -- 8,000 80 -- -- 3,945 -- --
December 1997 shares issued
To a company for research
and development at par -- -- -- -- 46,364 464 -- -- --
December 1997 shares issued
to employee for compensation
at $2.50 per share -- -- 6,000 60 -- -- 14,940 -- --
----- ----- ------- ------ ------ ------ -------- ----------- --------
Net Loss -- -- -- -- -- -- -- -- (755,594)
----- ----- ------- ------ ------ ------ -------- ----------- --------
Balance at December 31, 1997 -- $ -- 9,795,314 $ 97,953 490,282 $4,903 $5,292,308$(3,333,785) $(1,587,408)
===== ====== ========= ======= ======= ====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 8
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Cumulative
For the Year Ended During
December 31, Development
1997 1996 Stage
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(755,594) $(831,814) $(1,587,408)
--------- --------- -----------
Adjustments used to reconcile
net loss to net cash provided
by (used in)operating activities:
Increase (decrease) in
accounts receivable and
prepaid expenses -- -- --
Non cash general and administrative 7,495 22,242 29,737
Compensation Expense from
Stock Options 15,000 -- 15,000
Stock issued for Interest Expense 3,885 -- 3,885
Increase (decrease) in accounts
payable (4,132) 15,894 11,762
Increase (decrease) in accrued
Liabilities 622 739 1,361
Increase (decrease) in
related party payables (35,135) -- (35,135)
Deferred income -- 15,000 15,000
Depreciation and Amortization 175,024 160,619 335,643
--------- --------- -----------
Net Adjustment 162,759 214,494 377,253
--------- --------- -----------
Net cash used in operating activities (592,835) (617,320) (1,210,155)
--------- --------- -----------
F - 9
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Continued)
Cumulative
For the Year Ended During
December 31, Development
1997 1996 Stage
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition/sale of equipment, net $ (5,287) $ (4,800) $ (10,087)
Acquisition of patents (22,711) (45,490) (68,201)
--------- --------- -----------
Net cash used by investing activities (27,998) (50,290) (78,288)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Capital Stock Issued 570,772 688,636 1,259,408
Proceeds From Loans 56,500 33,500 90,000
Principle Payments on Lease Obligations (3,617) (3,707) (7,324)
Cash payments on notes payable (21,738) (46,041) (67,779)
--------- --------- -----------
Net Cash Provided by Financing Activities 601,917 672,388 1,274,305
--------- --------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents (18,916) 4,778 (14,138)
Cash and Cash Equivalents at
Beginning of the Year 29,452 24,674 24,674
--------- --------- -----------
Cash and Cash Equivalents at
End of the Year $ 10,536 $ 29,452 $ 10,536
========= ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ 5,351 $ 8,147 $ 13,498
Income Taxes $ 100 $ 100 $ 200
F - 10
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
On May 13, 1996 the Company issued 1,463 shares of stock in exchange for legal
services of $4,398.
On December 13, 1996 the Company issued 14,282 shares of stock in exchange for
consulting services of $17,853.
On December 13, 1996 the company issued 9,416 shares for receivable of $20,000.
On January 14, 1997 $20,000 was received.
On December 24, 1996 the Company issued 30,000 shares of stock in exchange for
receivable of $37,500. On March 7, 1997 $37,500 was received.
On January 15, 1997 the Company issued 6,000 shares in exchange for payment on a
loan payable of $10,903.
On February 26, 1997 the Company issued 190,000 shares in exchange for payment
on a loan payable of $14,250.
On May 27, 1997 the Company issued 732 shares for legal services of $1,895.
On July 9, 1997 the Company issued 15,000 shares for notes receivable of
$27,500.
On October 30, 1997 the Company issued 97,610 shares to Videocart creditors,
(see note 8)
On November 12, 1997 the Company issued 1,666 shares for consulting services of
$1,575.
On December 4, 1997 the Company issued 6,000 for employee compensation of
$15,000.
On December 8, 1997 the Company issued 8,000 shares for services amounting to
$4,025.
On December 16, 1997 the Company issued 50,625 shares for payment on loans
payable of $49,821.
On December 22, 1997 the Company issued 2,819 shares for interest on loans of
$1,807.
The accompanying notes are an integral part of these financial statements.
F - 11
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Klever Market, 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.
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. (See note 8 - Merger). The
company is in the development stage as of December 31, 1997, and has not
commenced planned principal operations.
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.
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.
F - 12
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued):
Loss per Share
The following data show the amounts used in computing loss per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock.
Per-Share
Income Shares Amount
For the year ended December 31, 1996
Net Loss
(831,814)
Basic Earnings per Share
Income available to common shareholders (831,814) 8,575,154 $ (.10)
-----------
For the year ended December 31, 1997
Net Loss (755,594)
Basic Earnings per Share
Income available to common shareholders (755,594) 9,446,981 $ (.08)
-----------
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per common share for the years ended December 31, 1997 and 1996
are not presented as it would be anti-dilutive. In 1997, the Company adopted
SFAS No. 128, "Earnings per Share," effective December 15, 1997. As a result,
the Company's reported earnings per share for 1996 were restated. The effect of
this accounting change on previously reported earnings per share (EPS) data was
as follows:
F - 13
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued):
Loss per Share (Continued)
Per share amounts 1996
Primary EPS as reported $ (.10)
Effect of SFAS No. 128 -
-------------
Basic EPS as restated $ (.10)
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.
Intangibles
Organization costs and intangibles associated with certain technology
agreements are amortized over 10 years.
F - 14
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 2 - INCOME TAXES
The Company has accumulated tax losses estimated at $5,000,000 expiring in
years 2006 through 2012. Current tax laws limit the amount of loss available to
be offset against future taxable income when a substantial change in ownership
occurs. The amount of net operating loss carryforward available to offset future
taxable income may be limited if there is a substantial change in ownership.
NOTE 3 - DEVELOPMENT STAGE COMPANY
The Company has not yet begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage.
NOTE 4 - LEASE COMMITMENT
On June 1, 1994 the Company entered into a six year commercial lease of
office space with Tree of Stars, Inc./P.D.O. (major shareholders of the
Company). The lease provides for rental payments of $22,428 for two years,
increasing to $25,726 for an additional two years with a provision for the
review of the rental payment requirements every two years thereafter.
In January 1998 the parties agreed to modify the June 1, 1994 lease. The
Company's lease commitments for office space with Tree of Stars, Inc./P.D.O.
consist of two leases with payments of $26,743 and $10,496 per year. Both lease
commitments expire December 31, 1998.
As of December 31, 1997 $13,431 is payable to Tree of Stars, Inc./P.D.O.
for 1996 and 1997 rent.
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.
F - 15
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 5 - RESEARCH AND DEVELOPMENT (Continued)
During the years ended December 31, 1997 and 1996, the Company expended
$317,403 and $280,837, respectively for research and development of the
technology involved with its patents.
On September 26, 1994 the company entered into a technology development
agreement with Electronic Technology Corp. ("ETC") for the further defining of
the requisite componentry and assembly for commercialization of the Company's
Patented Technology. The agreement also provides for Electronic Technology Corp.
to manufacture and assemble up to 250 sets of display units and accompanying
requisite equipment for use in a product movement test which has been scheduled
for mid-1996. The agreement provides for the following payment schedule:
09/26/94 $ 30,000 Paid September 1994
10/31/94 30,000 Paid October 1994
11/26/94 90,000 Paid November 1994
01/06/95 80,000 Paid February 1996
02/04/95 100,000 Paid March & April 1996
03/04/95 100,000 Paid April & September 1996
04/04/95 100,000 Paid September, October & November 1996
05/04/95 90,000 Paid $60,000 November & December 1996
-------- Paid $30, 000 February 13, 1998
$620,000
As additional consideration the Company will issue common stock to Electronic
Technology Corp. as follows:
Issued 12/07/94 10,000 shares - upon delivery of written system design
27,500 shares - upon delivery of working prototype
12,500 shares - upon beta test site performance
------
50,000 shares
======
On February 1, 1997 the Company entered into an agreement with ETC and
Digital Radio Communications Corp. ("DRCC")where by the Company exchanged
electronic components for a promissory note of $97,093 together with interest at
eight percent calculated on the basis of the actual number of days elapsed but
computed on a 360 day year. The principal balance, together with interest
thereon will be amortized over 18 monthly installments, commencing on the day
the "cost reduction and manufacturing" ("Commercial Service Agreement") contract
is executed and the first payment is made by the Company to ETC/DRCC and
continuing on the last day of each month thereafter until paid in full.
F - 16
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 5 - RESEARCH AND DEVELOPMENT (Continued)
On February 13, 1998 the Company entered into the Commercial Service
Agreement (see above) with World Wireless Communications ("WWC") where WWC
agrees to provide consulting and engineering services related to the development
of a wireless shopping data display system. WWC may also offer alternative
approaches to design, construct and performance of the product.
The Company is required to pay a $10,000 deposit in connection with the
agreement, retained by WWC, which will be credited during final billing received
from WWC. The Company has agreed to provide WWC a bonus of $2,000 if the project
is completed by March 31, 1998. If the project duration is beyond April 15,
1998, WWC will be required to pay the Company a penalty of $2,000.
On February 13, 1998 the Company entered into a settlement agreement with
WWC (formerly Electronic Technology Corp.) pursuant to which the company paid
$30,000 and issued 46,364 shares of common stock to WWC in satisfaction of any
and all claims in connection with the September 26, 1994 contract. The agreement
also provides for 10,000 shares of WWC restricted common stock in exchange for a
promissory note in the amount of $97,093 (see above).
NOTE 6 - RELATED PARTY TRANSACTIONS
During 1997, and 1996 various shareholders have loaned the Company $56,500,
and $33,500, respectively. The notes are payable on demand plus interest at 10%
per annum. During 1997 and 1996 principle payments of $21,738 and $46,041 were
paid toward these loans. The balance due as of December 31, 1997 is $-0-.
F - 17
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 7 - STOCK OPTIONS
During 1992 the Company adopted stock option plans for specified directors
and employees. Compensation expense charged to operations in 1997 is $15,000.
The following is a summary of transactions:
Shares Under Option
December 31,
1997 1996
---------- ----------
Outstanding, beginning of year 1,328,500 988,500
Granted during the year 140,500 478,500
Canceled during the year (59,000) (32,000)
Exercised during the year (365,000) (106,500)
---------- ----------
Outstanding, end of year
(at prices ranging from $.01
to $3.00 per share) 1,045,000 1,328,500
========== ==========
Eligible, end of year for
exercise currently (at prices
ranging from $.01 to $3.00
per share) 1,045,000 1,328,500
========== ==========
1997 STOCK INCENTIVE PLAN
On December 12, 1997, the shareholders approved, by a majority vote, the
adoption of the 1997 Stock Incentive Plan (the "Plan"). Under the Plan,
1,000,000 shares of common stock are reserved 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.
Under the Plan, an additional 500,000 shares of common stock are reserved for
issuance in the form of restricted stock grants. As of December 31, 1997, no
options have been granted under the Plan.
F - 18
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 8 - MERGER
On July 5, 1996, pursuant to the plan of reorganization, the Company merged
with Klever Kart, Inc. in a reverse merger. The reorganized company is obligated
to pay up to $150,000 in administrative and priority claims of the former
VideOcart, Inc. The Reorganized Company issued shares of common stock pursuant
to the plan as follows:
* Current shareholders of Klever-Kart received 7,999,866 shares.
* Creditors of the Company (as specified in the second
amended plan of reorganization) will receive 900,000 shares
pro rata or $100 if elected by creditor. As of December 31,
1996 560,000 shares have been issued. The remaining 340,000
shares have been reserved, and will be issued when the
creditors entitled to them are identified.
* On October 30, 1997 an additional 97,610 shares were issued
to creditors. As of December 31, 1997 657,610 shares have
been issued. The remaining 242,390 shares have been
reserved.
* Series B preferred stock holders will receive 66,000 shares
common. As of December 31, 1997 no shares have been issued.
The remaining 66,000 shares have been reserved, and will be
issued when the shareholders entitled to them are
identified.
* Series D preferred stock holders will receive 99,994 shares
common. As of December 31, 1997 no shares have been issued.
The remaining 99,994 shares have been reserved, and will be
issued when the shareholders entitled to them are
identified.
* Common stock holders received 99,381 shares.
NOTE 9 - CONTINGENCIES
Mr. Paul G. Begum, President/CEO will be entitled to the use of a leased
vehicle to be paid for by the Company up to $500 monthly lease payments upon the
receipt by the Company of $2,000,000 in financing from investors introduced to
the Company by Mr. Begum.
On May 24, 1996, in consideration of the assignment in September 1993 to
the company, certain technologies and patents relating to the electronic
couponing ("Electronic Coupon Patent") by Mr. Paul G. Begum, President/CEO and
Mr. Mark Geiger, V.P. Operations, the Board of Directors agreed to pay Mr. Begum
and Mr. Geiger 200,000 and 25,000 shares, respectively at a
F - 19
<PAGE>
KLEVER MARKETING, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
NOTE 9 - CONTINGENCIES (Continued)
price of $.01 per share for the electronic coupon patent. $132,750 was
capitalized in 1996 as patents. The shares are valued at $.60 per share as this
was the value the Company's stock was selling for when the assignment was made
in September 1993. As additional consideration for the Electronic Coupon Patent,
the Board of Directors has agreed to pay PSF, Inc.(as Mr. Begum's assign) and
Mr. Geiger $50,000 and $10,000, respectively upon receipt by the Company of
$2,000,000 in equity funding and when the Company has the necessary financing to
conduct its operations.
On February 25, 1997 Mr. Begum and Mr. Geiger received 200,000 and 25,000
respectively. On December 22, 1997 pursuant to the merger, Mr. Begum and Mr.
Geiger received an additional 31,834 and 3,979 shares respectively.
F - 20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF KLEVER MARKETING, INC. AS OF DECEMBER 31, 1997 AND THE RELATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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