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, 1998
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)
<PAGE>
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: 19
Exhibit Index Page: 17
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. $ 229,000
----------
As of March 26, 1999, there were 10,670,602 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 $14,406,169 computed at the average bid and asked price as of
March 26, 1999.
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 .... 9
Item 7 Financial Statements .......................................... 12
Item 8 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 12
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 13
Item 10 Executive Compensation ........................................ 14
Item 11 Security Ownership of Certain Beneficial Owners and Management 15
Item 12 Certain Relationships and Related Transactions ................ 17
Item 13 Exhibits and Reports on Form 8-K .............................. 17
3
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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 (VideOCart, Inc.) filed petitions for
relief under Chapter 11 bankruptcy in December 1993. The Company was inactive
until July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse
merger and changed its name to Klever Marketing, Inc. The Company was in the
development stage during the period from July 5, 1996 to June 30, 1998.
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.
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.
4
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ITEM 3 LEGAL PROCEEDINGS
NONE
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
The annual Shareholder's meeting was held November 13, 1998. 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 elected, by majority vote, to serve on the
board:
<TABLE>
<CAPTION>
Director's Name Votes Office Term Expires
<S> <C> <C> <C>
Paul G. Begum for 8,357,931 CEO Next annual shareholder meeting
against 1
abstain 833
William Bailey for 8,337,925 Director Next annual shareholder meeting
against 20,007
abstain 833
Peter D. Olsen for 8,357,932 Chairman Next annual shareholder meeting
against 1 (Deceased)
abstain 833
Gerard C. Coelsch for 8,357,932 President/COO Next annual shareholder meeting
against 1
abstain 833
</TABLE>
5
<PAGE>
2. 1998 Stock Incentive Plan.
On November 13, 1998, the shareholders approved, by a majority vote of
8,301,854 to 28,886, the adoption of the 1998 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.
6
<PAGE>
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The stock is traded OTCBB 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:
1997: High Low
First Quarter $ 0.01 $ 0.01
Second Quarter $ 2.50 $ 2.25
Third Quarter $ 3.75 $ 3.00
Fourth Quarter $ 3.50 $ 3.00
1998:
First Quarter $ 3.63 $ 2.38
Second Quarter $ 3.50 $ 2.38
Third Quarter $ 3.38 $ 1.75
Fourth Quarter $ 2.88 $ 1.56
The number of shareholders of record of the Company's common stock as of
March 26, 1999 was 803.
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 sold 666,998 shares of common stock during 1998. The stock was
not sold through an underwriter and was not sold through a public offer. A
summary of the transactions follows:
Common Stock
Shares Amount
January 1998 shares issued to
individuals for cash at
$1.50 per share 86,666 $114,999
7
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January 1998 shares issued for
1,500 shares of Avtel stock at
$3.00 per share 4,125 12,375
January 1998 shares issued to
companies for services at
$2.82 - $7.80 per share 2,930 13,878
February 1998 shares issued to
company for research and
development contract 46,366 0
February 1998 shares issued to
individual for cash at
$2.50 per share 100,000 250,000
April 1998 shares issued to
employee for compensation at
$2.63 per share 1,426 3,750
April 1998 shares issued to
company for legal services at
$3.00 per share 1,620 4,860
June 1998 to individual for
consulting services at
$2.79 per share 3,763 10,500
July 1998 shares issued to officer
for patent purchase at
$2.94 per share 175,000 513,813
July 1998 shares issued for accounts
receivable at $1.50 per share 25,000 37,500
July 1998 shares issued to employee
for compensation at
$3.06 per share 1,225 3,748
July 1998 shares issued to individuals
for cash at $2.50-$3.00 per share 33,000 90,000
September 1998 shares issued to
company for accounts receivable 86,937 137,265
September 1998 for shares issued to
individuals for cash at
$2.00 - $2.25 per share 30,900 62,650
September 1998 shares issued to
individual for consulting services
at $3.00 per share 3,818 11,454
September 1998 shares issued to
individuals for accounts receivable
at $2.00 per share 7,500 15,000
8
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October 1998 shares issued to
individuals for cash at
$2.00 per share 1,000 2,000
October 1998 shares issued to
employees for accounts
receivable at $2.12 per share 10,000 21,200
October 1998 shares issued to
company for legal services at
$2.00 per share 1,517 3,035
December 1998 shares issued to
individuals for cash at
$2.25 per share 42,493 95,609
December 1998 shares issued to
employee for compensation at
$2.19 per share 1,712 3,749
---------- ----------
Total 666,998 $1,407,385
========== ==========
These sales are exempt under Regulation D Rule 506 of the Securities Act of
1933.
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.
9
<PAGE>
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 115 Stores.
During 1999 the Company plans to place Klever-Kart(R) units in 115 stores
in targeted retail chains. 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
fourth quarter of 1999. 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 scheduled for completion during
the second quarter of 2000, with a minimum three month in-store test of system
operation to take place in the third quarter of 2000.
Phase V: Future Development.
The Klever-KardTM frequent shopper program is scheduled for introduction in
early 2000. 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..
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 was in the development stage until June
30, 1998.
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.
10
<PAGE>
Cash flows. Operating activities used cash of $574,000 and $593,000 for
1998 and 1997, 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 $34,000 and $28,000 for 1998 and
1997, 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 $643,000 and $602,000 for 1998 and
1997, respectively. Financing activities primarily represent sales of the
Company's restricted stock.
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:
Year 2000 Date Conversion - In general, the Year 2000 issue relates to computers
and other systems being unable to distinguish between the years 1900 and 2000
because they use two digits, rather than four, to define the applicable year.
Systems that fail to properly recognize such information will likely generate
erroneous data or cause a system to fail to properly recognize such information
will likely generate erroneous data or cause a system to fail possibly resulting
in a disruption of operations. The Company's products do incorporate such date
coding but the Company believes all of its product systems are Year 2000
compliant. The Company has also undertaken efforts to address the Year 2000
issue in the following three areas: (i) the Company's information technology
("IT") systems; (ii) the Company's non-IT systems (i.e., machinery, equipment
and devices which utilize technology which is "built in" such as embedded
microcontrollers); and (iii) third-party suppliers.
The Company is currently working to resolve the potential impact of the
Year 2000 issue on the processing of date-sensitive data by the Company's
computerized information systems. Specifically, the Company is analyzing all of
its accounting and financial software to ensure no interruption in the Company's
financial systems. The Company is analyzing all other IT and non-IT systems to
determine if any other modification or upgrades are necessary to be Year 2000
compliant. The Company believes it will be Year 2000 compliant. The amount
charged to expense during the three and nine months ended September 30, 1998, as
well as the amounts anticipated to be charged to expense related to the Year
2000 computer modifications, have not been and are not expected to be material
to the Company's financial position, results of operations or cash flows.
The Company is also evaluating and taking steps to resolve Year 2000
compliance issues that may be created by suppliers and financial institutions
with whom the Company does business. The Company is examining third part
suppliers and may send out confirmation letters of Year 2000 compliance if the
Company determines such action is necessary. In the event the Company determines
that any third party presents a risk arising from failure to be Year 2000
compliant, then the Company will seek to replace such third party. The Company
cannot, however, guarantee that
11
<PAGE>
the systems of other entities will be converted on a timely basis. Failure of
such third party entities to be Year 2000 compliant may cause interruptions in
the Company's operations.
The foregoing statements are based upon management's current assumptions.
ITEM 7 FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are included
beginning immediately following the signature page to this report. See Item 13
for a list of the financial statements and financial statement schedules
included.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company and
its accountants on any matter of accounting principles, practices or financial
statements disclosure.
12
<PAGE>
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 60 CEO Next annual shareholder meeting
William Bailey 64 Director Next annual shareholder meeting
Gerard C. Coelsch 55 President/COO Next annual shareholder meeting
Michael L Mills 36 Director Next annual shareholder meeting
Paul G. Begum, age 60, has been the President/CEO of Klever Marketing, Inc.
for the past five years through the merger date, and is now the 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 64, has been a Director of Klever Marketing, 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.
Gerard C, Coelsch, age 55, began as President/COO, Director of Klever
Marketing, Inc. in July, 1998. Mr. Coelsch was the President/COO of National
Xpress Systems, Inc for four years prior to July 1998.
Michael L. Mills, age 36, has been a Director of Klever Marketing, Inc.
since November 1998. For the past five years prior to November 1998, Mr. Mills
was President/COO of Olson Farms, a private company. On November 1998, Mr. Mills
became Chairman/CEO of Olson Farms.
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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 individuals who
were chief executive officer and chief operations 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
-------- ---- ------ ----- ------ -------- ----- ------- ------
Principal Position 31 ($)(1) ($) ($) ($) (no.) ($) ($)
------------------ -- ------ --- --- --- ----- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul G. Begum 1998 $77,700 - - - - - -
CEO 1997 $72,000 - - - - - -
1996 $72,000 - - - - - -
Gerard C. Coelsch 1998 $109,000 - - - - - -
President/COO
</TABLE>
Options/SAR Grants in Last Fiscal Year
The following table sets forth information respecting all individual grants
of options and SARs made during the last completed fiscal year by the chief
executive officer and chief operations officer of the Company.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SAR's Employees During Exercise of Base
Name Granted (no.) Fiscal Year Price ($/share) Expiration Date
<S> <C> <C> <C> <C>
Paul G. Begum None -- -- --
CEO
Gerard C. Coelsch 400,000 90% $3.12 July 6, 2003
President/COO
</TABLE>
Aggregate Option/SAR Exercises in the Last Fiscal Year and year End Option/SAR
Values
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The following table sets forth information respecting the exercise of
options and SARs during the last completed fiscal year by the chief executive
officer and the chief operations officer of the Company and the fiscal year end
valued of unexercised options and SARs.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options/SARs at FY
Options/SARs at End ($)
FY End (no.)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise (no.) Value Realized ($) Unexercised Unexercised
<S> <C> <C> <C> <C>
Paul G. Begum -- -- 613,564 $ 1,457,000(1)
CEO
Gerard C. Coelsch -- -- 400,000 $ 950,000(1)
President/COO
(1) Based on recent sales of the company's stock at $2.375 per share.
</TABLE>
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. On May 20, 1998 the Company leased an
automobile for Mr. Begum at $621 per month. 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. In 1998 the Company paid $10,000 towards 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
10,670,602 shares of issued and outstanding Common Stock, including options to
acquire stock of the Company as of March 26 1999
15
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and information as to the ownership of the Company's Stock by each of its
directors and executive officers and by the directors and executive officers as
a group. Except as otherwise indicated, all shares are owned directly, and the
persons named in the table have sole voting and investment power with respect to
shares shown as beneficially owned by them.
# of
Name and Address Nature of Shares
of Beneficial Owners Ownership Owned Percent
Directors
Principal Shareholders
Tree of Stars, Inc. Direct 2,582,058 25.42%
Peter D. Olson, Trust Direct(1) 1,529,897 15.06%
Options 265,813 2.62%
---------- -----
Total 1,795,710 17.68%
========= =====
C. Terry Warner Direct 1,007,051 09.91%
Directors and Executive Officers
Paul G. Begum Direct(2) 2,673,892 26.33%
Options(2) 613,564 6.04%
---------- -----
Total 3,287,456 32.37%
========== =====
William Bailey Direct(3) 215,822 2.12%
Options 33,979 .33%
---------- -----
Total 249,801 2.46%
========== ======
Gerard C. Coelsch Options 400,000 3.94%
========== =====
Michael L. Mills Direct 98,182 .97%
========== =====
All Executive Officers and
Directors as a Group (3
persons) Direct 2,987,896 29.42%
Options 1,047,543 10.31%
--------- -----
Total 4,035,440 39.73%
========= =====
(1) The Olson Trust ownership includes 749,765 shares held by Olson
Farms, Inc., a family owned corporation, and 150,000 shares held by
the Olson Foundaton.
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(2) Mr. Begum's ownership includes 2,582,058 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 and 1997 various officers and directors have loaned the Company
$347,100 and $56,500, respectively. The notes are payable within one year plus
interest at 10% and 12% per annum. During 1998 and 1997 principle payments of
$12,500 and $21,738 were paid toward these loans. The balance due as of December
31, 1998 is $291,250.
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, 1998, and 1997................................................F-2
Statements of Loss
For the Years Ended December 31, 1998, and 1997............................F-4
Statement of Stockholders' Equity
For the Years Ended December 31, 1998, and 1997............................F-5
Statements of Cash Flows
For the Years Ended December 31, 1998, and 1997...........................F-10
Notes to Financial Statements
December 31, 1998 and 1997................................................F-14
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2. Financial Statement Schedules
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number Title of Document
3.01 Articles of Incorporation of Klever Marketing, Inc. a Delaware
Corporation(1)
3.02 Bylaws(1)
10.01 Employment Agreement for Gerard C. Coelsch
23.01 Consent of Accountants(1)
(1) Incorporated by Reference
(b) No reports on Form 8-K were filed.
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<PAGE>
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 31, 1999 By /S/ Paul G. Begum
----------------------------------
Paul G. Begum
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 31th day of March 1999.
Signatures Title
/S/ Paul G. Begum
Paul G. Begum C.E.O., Director
(Principal Executive, Financial
and Accounting Officer)
/S/ William C. Bailey
William C. Bailey Director
/S/ Michael L. Mills
Michael L. Mills Director
/S/ Gerard C. Coelsch
Gerard C. Coelsch President, C.O.O., Director
19
<PAGE>
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.
(formerly a development stage company) as of December 31, 1998 and 1997, 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.,
(formerly a development stage company), as of December 31, 1998 and 1997, 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
March 15, 1999
F-1
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
BALANCE SHEET
DECEMBER 31,
----------------------------
ASSETS 1998 1997
- ------ ----------- -----------
Current Assets
Cash ....................................... $ 45,371 $ 10,536
Shareholder Receivables ..................... 136,821 27,200
----------- -----------
Total Current Assets .................... 182,192 37,736
----------- -----------
Fixed Assets
Equipment .................................. 64,269 57,549
Leasehold Improvements ..................... 2,550 --
Less Accumulated Depreciation .............. (47,301) (38,469)
----------- -----------
Net Fixed Assets ........................ 19,518 19,080
----------- -----------
Other Assets
Patents .................................... 2,198,110 1,646,097
Organization Costs ......................... 152,662 152,662
Less Accumulated Amortization .............. (1,210,906) (1,004,422)
----------- -----------
Net Other Assets ........................ 1,139,866 794,337
----------- -----------
Total Assets ............................ $ 1,341,576 $ 851,153
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade .................... $ 613,080 $ 97,467
Accrued Liabilities ......................... 65,058 34,822
Related Party Payables ...................... 347,100 15,031
Lease Obligation ........................... -- 862
----------- -----------
Total Current Liabilities ............... 1,025,238 148,182
----------- -----------
Other Liabilities
Deferred Income ............................ -- 229,000
----------- -----------
Total Liabilities ....................... 1,025,238 377,182
----------- -----------
F-2
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
BALANCE SHEET
(Continued)
DECEMBER 31,
--------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- ------------------------------------ ----------- ------------
(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 .................
10,394,819 shares issued and
outstanding December 31, 1998
and 9,795,314 shares issued and
outstanding December 31, 1997 ................ 103,948 97,953
Common Stock to be issued ....................... 4,589 4,903
Paid in Capital in Excess of Par
Value ........................................ 6,625,919 5,292,308
Retained Deficit ................................ (6,418,119) (4,921,193)
----------- -----------
Total Stockholders' Equity .................. 316,337 473,971
----------- -----------
Total Liabilities and Stockholders' Equity .. $ 1,341,576 $ 851,153
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
STATEMENT OF LOSS
For the Year Ended
December 31,
1998 1997
------------ ------------
Revenue .................................... $ 229,000 $ --
------------ ------------
Expenses
General and administrative ............... 866,106 433,220
Research and development ................. 854,786 317,403
------------ ------------
Total Expenses ........................ 1,720,892 750,623
------------ ------------
Other income (expense)
Interest income .......................... 1,182 76
Interest expense ......................... (7,350) (5,351)
Sale of assets ........................... -- 404
Capital gain on sale of investment ....... 1,234 --
------------ ------------
Total Other Income (Expense) .......... (4,934) (4,871)
------------ ------------
Income (Loss) Before Taxes ................. (1,496,826) (755,494)
Income Taxes ............................... 100 100
------------ ------------
Net Income (Loss) After Taxes .............. $ (1,496,926) $ (755,594)
============ ============
Weighted Average Shares
Outstanding .............................. 10,156,672 9,446,981
============ ============
Loss Per Share ............................. $ (.15) $ (.08)
============ ============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ -------- --------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 ......... - $ -- 8,884,613 $ 88,846 771,673 $ 7,716 $ 4,658,555 $(4,165,599)
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-5
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ -------- --------- ----------- ---------- ----------- ----------- ------------
<S> <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 at
$1.50 - $2.00 per share ..... - -- 55,000 550 28,084 281 139,070 --
December 1997 shares issued
to officers for loan payment
$0.86 - $1.02 per share ..... - -- 53,444 534 -- -- 51,094 --
December 1997 shares issued
to a company for services at
$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)
------ ------- ---------- ---------- --------- ---------- ----------- -----------
</TABLE>
F-6
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ -------- --------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 ...... -- $ -- 9,795,314 $ 97,953 490,282 $ 4,903 $ 5,292,308 $(4,921,193)
January 1998 shares
issued to individuals
for cash at $1.50 per
share .................. -- -- 86,666 867 (10,000) (100) 114,232 --
January 1998 shares
issued for 1,500 shares
of Avtel stock at $3.00
per share .............. -- -- 4,125 41 -- -- 12,334 --
January 1998 shares
issued to companies
for services at $2.82
- - $7.80 per share ...... -- -- 2,930 29 -- -- 13,848 --
February 1998 shares
issued to company for
research and development
contract ............... -- -- 46,366 464 (46,364) (464) -- --
February 1998 shares
issued to individual
for cash at $2.50 per
share .................. -- -- 100,000 1,000 -- -- 249,000 --
April 1998 shares
issued to employee
for compensation at
$2.63 per share ........ -- -- 1,426 14 -- -- 3,736 --
April 1998 shares
issued to company for
legal services at
$3.00 per share ........ -- -- 1,620 16 -- -- 4,844 --
June 1998 to
individual for
consulting services
at $2.79 per share ..... -- -- 3,763 38 -- -- 10,462 --
June 1998 reduction
of stock price on
employee's stock ....... -- -- -- -- -- -- (1,250) --
</TABLE>
F-7
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ -------- --------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 1998 shares
issued to officer
for patent purchase at
$2.94 per share ........... -- $ -- 150,000 $ 1,500 25,000 $ 250 $ 512,313 $ --
July 1998 shares
issued for accounts
receivable at $1.50
per share ................. -- -- 25,000 250 -- -- 37,250 --
July 1998 shares
issued to employee
for compensation at
$3.06 per share ........... -- -- 1,225 12 -- -- 3,736 --
July 1998 shares
issued to individuals
for cash at $2.50-$3.00
per share ................. -- -- 33,000 330 -- -- 89,670 --
September 1998 shares
issued to company for
accounts receivable ....... -- -- 86,937 870 -- -- 136,396 --
September 1998 shares
issued to individuals
for cash at $2.00
- - $2.25 per share ......... -- -- 30,900 309 -- -- 62,341 --
September 1998 shares
issued to individual
for consulting services
at $3.00 per share ........ -- -- 3,818 38 -- -- 11,416 --
September 1998 shares
issued to individuals
for accounts receivable
at $2.00 per share ........ -- -- 7,500 75 -- -- 14,925 --
October 1998 shares
issued to individuals
for cash at $2.00 per
share ..................... -- -- 1,000 10 -- -- 1,990 --
October 1998 shares
issued to employees
for accounts receivable
at $2.12 per share ........ -- -- 10,000 100 -- -- 21,100 --
</TABLE>
F-8
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ -------- --------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
October 1998 shares
issued to company
for legal services
at $2.00 per share ......... -- $ -- 1,517 $ 15 -- $ -- $ 3,020 $ --
December 1998 shares
returned at $1.58
per share .................. -- -- (42,493) (425) -- -- (66,667) --
December 1998 shares
issued to individuals
for cash at $2.25 per
share ...................... -- -- 42,493 425 -- -- 95,183 --
December 1998 shares
issued to employee
for compensation at
$2.19 per share ............ -- -- 1,712 17 -- -- 3,732 --
Net Loss ................... -- -- -- -- -- -- -- (1,496,926)
------ ------- ---------- ---------- --------- ---------- ----------- -----------
Balance at December 31, 1998 -- $ -- 10,394,819 $ 103,948 458,918 $ 4,589 $ 6,625,919 $(6,418,119)
====== ======= ========== ========== ========= ========== =========== ===========
</TABLE>
F-9
<PAGE>
KLEVER MARKETING, INC.
(Formerly A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Year ended
December 31,
--------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ......................................... $(1,496,926) $ (755,594)
----------- -----------
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Non cash general and administrative .......... 48,529 7,495
Compensation expense from stock options ...... 11,247 15,000
Stock issued for interest expense ........... -- 3,885
Increase (decrease) in accounts payable ...... 515,613 (4,132)
Increase (decrease) in accrued liabilities ... 30,237 622
Increase (decrease) in related party payables 332,069 (35,135)
Deferred income .............................. (229,000) --
Gain on sale of stock investment ............ (1,234) --
Depreciation and amortization ................ 215,317 175,024
----------- -----------
Net Adjustment ................................... 936,104 162,759
----------- -----------
Net Cash Used in Operating Activities ............ (574,148) (592,835)
=========== ===========
F-10
<PAGE>
KLEVER MARKETING, INC.
(Formerly A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Year ended
December 31,
----------------------
1998 1997
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition/Sale of equipment, net ................... $ (9,270) $ (5,287)
Acquisition of patents ............................... (37,952) (22,711)
Acquisition/Sale of stock investment, net ............ 13,609 --
--------- ---------
Net Cash Used by Investing Activities ................ (33,613) (27,998)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From capital stock issued ................... 655,958 570,772
Proceeds from loans .................................. -- 56,500
Principle payments on lease obligations .............. (862) (3,617)
Cash payments on notes payable ....................... (12,500) (21,738)
--------- ---------
Net Cash Provided by Financing Activities ............ 642,596 601,917
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents . 34,835 (18,916)
Cash and Cash Equivalents at Beginning of the Year ... $ 10,536 $ 29,452
--------- ---------
Cash and Cash Equivalents at End of the Year ......... $ 45,371 $ 10,536
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest ............................................. $ 7,350 $ 5,351
Income Taxes ......................................... $ 100 $ 100
F-11
<PAGE>
KLEVER MARKETING, INC.
(Formerly A Development Stage Company)
STATEMENT OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On January 15, 1997 the Company issued 6,000 shares in exchange for payment on a
loan payable of $10,930.
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 7)
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.
On January 28, 1998 the Company issued 4,125 shares of stock in exchange for
1,500 shares of Avtel stock.
On January 28, 1998 the Company issued 2,930 shares of stock in exchange for
legal and consulting services of $13,878.
On February 23, 1998 the Company issued 46,366 shares of stock as final payment
on a contract.
On April 1, 1998 the Company issued 1,426 shares of stock for employee
compensation of $3,750.
On April 30, 1998 the Company issued 1,620 shares of stock for legal services of
$4,860.
On June 3, 1998 the Company issued 3,763 shares of stock for consulting services
of $10,500.
F-12
<PAGE>
KLEVER MARKETING, INC.
(Formerly A Development Stage Company)
STATEMENT OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On July 1, 1998 the Company issued 150,000 shares of stock and 25,000 shares of
stock to be issued for patent of $514,063.
On July 1, 1998 the Company issued 25,000 shares of stock for an accounts
receivable of $37,500.
On July 7, 1998 the Company issued 1,225 shares of stock for employee
compensation of $3,748.
On September 17, 1998 the Company issued 86,937 shares of stock for accounts
receivable of $137,265.
On September 18, 1998 the Company issued 3,818 shares of stock for consulting
services of $11,454.
On September 28, 1998 the Company issued 7,500 shares of stock for accounts
receivable of $15,000.
On October 28, 1998 the Company issued 10,000 shares of stock for accounts
receivable from employees of $21,200.
On October 22, 1998 the Company issued 1,517 shares of stock for legal services
of $3,035.
On December 3, 1998 20,271 shares of stock were returned to the Company.
On December 8, 1998 22,222 shares of stock were returned to the Company.
On December 16, 1998 1,712 shares of stock were issued for employee compensation
of $3,749.
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND 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.
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. The company was in the
development stage until June 30, 1998.
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.
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.
F-14
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued):
Reclassifications
Certain reclassifications have been made in the 1997 financial statements
to conform with the 1998 presentation.
Loss per Share
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
Per-Share
Loss Shares Amount
For the year ended December 31, 1997
Basic Earnings per Share
Income available to common shareholders .... $(755,594) 9,446,981 $ (.08)
========= ========= =======
For the year ended December 31, 1998
Basic Earnings per Share
Income available to common shareholders ... $(1,496,926) 10,156,672 $ (.15)
=========== ========== =======
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, 1998 and 1997
are not presented as it would be anti-dilutive.
F-15
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued):
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
Leasehold Improvements 40 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
Intangibles associated with certain technology agreements are amortized
over 10-14 years.
NOTE 2 - INCOME TAXES
The Company has accumulated tax losses estimated at $6,500,000 expiring in
years 2007 through 2013. 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 - LEASE COMMITMENT
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 expired December 31, 1998.
F-16
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
NOTE 4 - RESEARCH AND DEVELOPMENT
Research and development of the Klever-Kart System began with the sole
purpose of reducing thefts of shopping carts. A voice-activated alarm system was
envisioned. As time and technology progressed, the present embodiment of the
Klever-Kart System evolved into a "product specific" point-of-purchase
advertising system consisting of an easily readable electronic display that
attaches to any shopping cart, a shelf mounted message sending unit that
automatically sends featured products' ad-message to the display and a host
computer using proprietary software.
During the years ended December 31, 1998 and 1997, the Company expended
$854,786 and $317,403, respectively for research and development of the
technology involved with its patents.
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.
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.
F-17
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
NOTE 5- RELATED PARTY TRANSACTIONS
During 1998, and 1997 various shareholders have loaned the Company
$347,100, and $56,500, respectively. The notes are payable within one year plus
interest at 10% and 12% per annum. During 1998 and 1997 principle payments of
$12,500 and $21,738 were paid toward these loans. The balance due as of December
31, 1998 is $291,250.
NOTE 6- STOCK OPTIONS
The shareholders approved, by a majority vote, the adoption of the 1998
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, 1998, no options have been
granted under the Plan. Compensation expense charged to operations in 1998 is
$11,247. The following is a summary of transactions:
Shares Under Option
December 31,
1998 1997
--------- ---------
Outstanding, beginning of year 1,172,355 1,328,500
Granted during the year 542,500 140,500
Canceled during the year (29,500) (59,000)
Exercised during the year (10,000) (365,000)
Adjustment for stock split - 127,355
--------- ---------
Outstanding, end of year (at prices
ranging from $.86 to $3.12 per share) 1,675,355 1,172,355
========= =========
Eligible, end of year for exercise currently (at prices
ranging from $.86 to $3.12 per share) 1,400,355 1,172,355
========= =========
F-18
<PAGE>
KLEVER MARKETING, INC.
(Formerly a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
NOTE 7 - CONTINGENCIES
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 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. As of
December 31, 1998 the Company owes Mr. Begum and Mr. Geiger $40,000 and $8,000,
respectively.
F-19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made as of this 26th day of June, 1998, by and
between KLEVER MARKETING, INC., a Delaware corporation (the "Employer"), and
GERARD C.
COELSCH ("Employee");
W I T N E S S E T H
WHEREAS, the Employer conducts business from its principal office located at 350
West 300 South, Suite 201, Salt Lake City, Utah; and
WHEREAS, the Employer desires to engage Employee as its President and Chief
Operating Officer upon the terms and conditions set forth herein, and Employee
desires to become so engaged;
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants,
terms and agreements hereinafter set forth, the parties hereto agree as follows:
1 . Employment. The Employer hereby employs Employee, and Employee hereby
accepts such employment, upon the terms and subject to the conditions set forth
in this Agreement.
2. Term. ' The initial term of employment shall begin on July .6, 1998, and
shall end on July .8, 1999 (the "First Contract Year"); provided, however, that
if the Employer obtains (i) a binding commitment to raise capital, or does in
fact raise capital, in an amount of at least Five Million Dollars ($5,000,000),
through a private or public offering, or (ii) the Board of Directors approves
any other funding method (e.g. a joint venture, etc.), during the First Contract
Year, the term of this employment contract shall be automatically extended for a
two (2) year period (the "Extension Period"). The Extension Period shall
commence on the date that the Employer first obtains such binding commitment for
capital or first raises such capital, whichever occurs first, or the date the
Board of Directors approves such other funding method, provided such funding
transaction is ultimately consummated. The Extension Period shall not be
extended by any unexpired portion of the First Contract Year. For example, if
the Extension Period commences on December 22, 1998, the initial term of
employment hereunder shall last through December 21, 2000. Employee's term of
employment hereunder shall be automatically renewed for additional one-year
terms unless, at least sixty (60) days prior to the expiration of the current
term, either party to this Agreement provides written notice to the other party
hereto that such party is terminating the employment of Employee effective as of
the end of the current term. The foregoing provisions of this section 2
notwithstanding, the employment of Employee may be sooner terminated at any time
in accordance with the other provisions of this Agreement.
3. Position, Duties and Loyalty. Employee shall assume the office of President
and Chief Operating 0 ffi c Employer. Employee shall report directly to
Employer' and Employee shall faithfully and industriously perform all duties in
accordance with the instructions of Employer. Employee shall owe the Employer
his highest loyalty and Employee will use his best efforts to promote the
interests of Employer.
4. Compensation: Base Salary. In consideration of the faithful performance of
his duties, Employer agrees to pay Employee an annual base salary of Two Hundred
Thousand Dollars ($200,000.00). Unless Employer and Employee mutually agree in
writing to adjust Employee's annual base salary for any succeeding contract
period, Employer shall continue to pay Employee the same annual base salary paid
during the immediately preceding contract year. The annual base salary shall be
payable on a twenty-four (24) period payroll cycle, and all compensation
hereunder shall be subject to the customary withholding tax and other employment
taxes as required with respect to compensation paid by a corporation to an
employee. Until this agreement is terminated, Employer shall continue to pay the
base salary to Employee notwithstanding Employee's absence due to illness or
injury; provided, however, such obligation shall expire after Employee is absent
from work for a period of three (3) continuous months. Employee represents to
Employer that as of the date of execution of this Agreement, Employee is not
aware of any serious medical condition which could be reasonably expected to
hinder or impair Employee with respect to the performance of his duties
hereunder.
5. Compensation: Cash Performance Bonus. In addition to the base salary and any
other compensation payable to Employee under this Agreement, Employer shall pay
Employee a cash performance bonus as set forth in this Section 5. At the end of
each fiscal year of Employer, Employer shall pay a cash bonus to Employee based
on the following formula:
Current Base Salary x Plan Fraction.
The Plan Fraction is 25% plus .555 times the Excess Percentage. The Excess
Percentage is the percentage by which the actual revenue of the Employer for the
fiscal year, divided by the revenue set forth in the Employer's business plan
duly adopted by the Employer's board of directors for such fiscal year, exceeds
55%. If such actual revenue divided by such plan revenue is less than 55%, then
the Plan Fraction shall equal zero. In no event shall the Plan Fraction exceed
fifty percent (50%) notwithstanding the fact that actual revenue exceeds plan
revenue.
Examples. Assume the Current Base Salary is $200,000, and the plan revenue
is $ 1,000,000.
If the actual revenue is $700,000, then the bonus is:
$200,000 x (25% + (70%-55%)x.555)) = $66,650
If the actual revenue is $1,000,000, then the bonus is:
$200,000 x (25% + (100%-55%)x.555)) = $99,950
If the actual revenue is $550,000, then the bonus is:
$200,000 x (25% + (55%-55%)x.555)) = $50,000
If the actual revenue is $1,500,000, then the bonus is:
$200,000 x 50%, or $100,000
If the actual revenue is $500,000, then the bonus is:
$200,000 x 0%, or nothing.
6. Expenses. During the term of Employee's employment, the Employer shall
promptly reimburse Employee for all properly documented, reasonable expenses
incurred by Employee in the performance of his services and duties hereunder to
the extent such expenses are in accordance with the policies of Employer, or
Employer approved of such expenses in advance.
In addition, Employer shall pay or reimburse
Employee for the following expenses:
a) Moving Expense. Employer shall pay for all reasonable moving expenses
incurred in order for Employee to move his family, household belongings and
automobiles from Jacksonville, Florida, to the Salt Lake City area; provided,
however, that all such reimbursements or payments by Employer shall not exceed
Fifteen Thousand Dollars ($15,000.00) except to the extent Employer agrees to
make a reasonable accommodation for any overage.
b) Rent Payments. During the first twelve months of this contract, Employer
shall directly make payments for Employee's rent and utility expenses with
respect to Employee's housing and living costs; provided, however, that all such
payments by Employer shall not exceed Eighteen Thousand Dollars ($18,000.00).
c) Travel Allowance. During each of the first two months of this contract,
Employer shall reimburse Employee for two round-trip air
fares from Jacksonville, Florida to Salt Lake City, Utah; provided, however,
that such reimbursement shall not exceed the cost of tickets which are purchased
at least 14 days in advance, with a Saturday night stayover.
Employee shall properly document the foregoing expenses in accordance with the
policies of Employer. As necessary, Employer shall report all payments and
reimbursements hereunder as required under applicable tax laws.
7. Vacation. After the first twelve (12) month period of employment, Employee
shall be entitled to two weeks (2) weeks' paid vacation. After the second twelve
(12) month period of employment, Employee shall be entitled to three (3) weeks'
paid vacation. After the third twelve (12) month period of employment, Employee
shall be entitled to three (3) weeks' paid vacation. After the fourth twelve
month
employment, and after each succeeding twelve month period of Employee shall be
entitled to four (4) weeks' paid vacation. Employer and Employee shall mutually
agree upon any planned absence from work in advance to the extent reasonably
possible. Unless previously approved by the Employer's chief executive officer,
any unused, accrued vacation benefits shall expire at the end of the applicable
twelve month period and shall not carry over to any succeeding twelve month
period.
8. Fringe Benefits. Employee shall be entitled to participate in or receive
benefits under all of the Employer's benefit plans and other fringe benefit
arrangements, if any. Except for the stock option rights set forth in Section 9
below, the Employer, however, has complete discretion to determine the type and
amount of benefits, if any, that it shall provide to its employees, including
any applicable vesting schedules and the variation of benefits among different
employees or groups of employees. Except as the parties may otherwise agree,
nothing paid to or on behalf of Employee under any fringe benefit plan or
arrangement shall be deemed to be in lieu of compensation to Employee as
outlined in Sections 4 and 5 above, or any other provision of this agreement.
The foregoing notwithstanding, during the term of Employee's employment
hereunder, the Employer in any case agrees to provide standard medical and
dental insurance coverage to Employee and Employee's dependents under a policy
that waives any pre-existing conditions, with coverage to begin no later than
July 1, 1998.
9. Stock Options. Employer represents to Employee that the board of directors
and shareholders of Employer have duly adopted the " Klever Marketing, Inc. 1997
Stock Incentive Plan" (the "Plan"), which provides for the grant of "incentive
stock options" (intended to qualify under ss.422 of the Internal Revenue Code)
and it nonqualified options" with respect to the stock of Employer. Employer
hereby agrees to grant Employee certain options under the Plan as more fully
described herein as a material inducement to Employee for executing and
delivering this employment
- - 4 -
agreement. Employer agrees that the grant of options pursuant to this Agreement
constitute a substantial and material part of the compensation payable to
Employee under this agreement, and that such compensation is addition to the
compensation payable to Employee under Sections 4 and 5 above, or any other
provisions of this Agreement. The grant of options described herein shall be
further documented in a separate instrument, and the options set forth in such
separate instrument shall be a counterpart to the applicable provisions of this
Agreement, and shall not be construed to double the Shares subject to such
option(s) from 400,000 or 500,000 to 800,000 or 1,000,000. Nothing herein shall
preclude the grant of options in addition to those described herein by the
Employer in its absolute discretion.
a) Grant of Option. Employer hereby agrees to grant Employee on July 6, 1998, an
option (the "Option") to purchase Four Hundred Thousand (400,000) shares of the
common stock of Employer, $.01 par value (the "Shares"). In addition, if the
Employer obtains a binding commitment to raise capital, or does in fact raise
capital, in an amount of at least Five Million Dollars ($5,000,000), through a
private or public offering, then Employer agrees to grant Employee an additional
option (the "Additional Option") as follows: (i) if the price per Share in such
private or public offering is at least $4.00 per Share, the Additional Option
shall be for Fifty Thousand (50,000) Shares (for an aggregate of 450,000 Shares
subject to the Option and Additional Option); and (ii) if the price per Share in
such private or public offering is at least $4.50 per Share, an additional Fifty
Thousand (50,000) Shares shall be subject to the Additional Option (for an
aggregate of 500,000 Shares subject to the Option and Additional Option).
Employer shall immediately grant the Additional Option to Employee as of the
date the right to the Additional Option arises.
b) Vesting of Exercise Rights. Employer hereby agrees that the Option shall
vest, and provide Employee with rights of exercise, as follows:
Employee may first exercise the Option to purchase the first One Hundred
Thousand (100,000) Shares beginning on July 6, 1998.
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on October 6, 1998 (for an outstanding total
of 125,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on January 6, 1999 (for an outstanding total
of 150,000 Shares).
- - 5 -
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on April 6, 1999 (for an outstanding total
of 175,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,ODO) Shares, beginning on July 6, 1999 (for an outstanding total of
200,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on October 6, 1999 (for an outstanding total
of 225,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on January 6, 2000 (for an outstanding total
of 250,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on April 6, 2000 (for an outstanding total
of 275,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on July 6, 2000 (for an outstanding total of
300,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on October 6, 2000 (for an outstanding total
of 325,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on January 6, 2001 (for an outstanding total
of 350,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on April 6, 2001 (for an outstanding total
of 375,000 Shares).
Employee may first exercise the Option to purchase an additional Twenty Five
Thousand (25,000) Shares, beginning on July 6, 2001 (for an outstanding total of
400,000 Shares).
Employer hereby agrees that the Additional Option shall vest, and provide
Employee with rights of exercise, as follows:
- - 6 -
Employee may exercise the Additional Option to purchase twentyfive percent (25%)
of the Shares subject to the Additional Option beginning on the date the
Additional Option arises.
Employee may exercise the Additional Option to purchase an additional
twenty-five percent (25%) of the Shares subject to the Additional Option
beginning on the later of June 22, 1999 or the date the Additional Option arises
(for an aggregate of fifty percent of the Shares subject to the Additional
Option).
Employee may exercise the Additional Option to purchase an additional
twenty-five percent (25%) of the Shares subject to the Additional Option
beginning on the later of June 22, 2000 or the date the Additional Option arises
(for an aggregate of seventy-five percent of the Shares subject to the
Additional Option).
Employee may exercise the Additional Option to purchase an additional
twenty-five percent (25%) of the Shares subject to the Additional Option
beginning on the later of June 22, 2001 or the date the Additional Option arises
(for an aggregate of one hundred percent of the Shares subject to the Additional
Option).
The foregoing notwithstanding: (i) in the event of a " of the Employer (as
defined in the Plan), or, (ii) in tha event of as in the event the employment of
Employee is terminated for any reason other than Cause (as hereinafter defined)
or other than Employee's voluntary decision to leave the employ of Employer,
then in any such case all outstanding options (i.e. all rights of purchase under
the Option and the Additional Option, if any), shall immediately vest and
Employee (or the representatives of Employee) shall have the immediate and
continuing right (in accordance with the other terms hereof) to purchase all of
the Shares subject to such options.
c) Restrictions on Stock. The option agreement may provide that any Shares
purchased by Employee pursuant to the Option or Additional Option are subject to
a right of first refusal by the Employer for a period not to exceed three (3)
years after Employee first purchases such Shares. Such right of refusal shall
state that if Employee desires to sell all or a part of the Shares, then
Employee shall first offer to sell such Shares to Employer at the same price and
on the same terms and conditions as the proposed sale. Employee shall deliver to
Employer a complete and accurate written statement of the terms and conditions
of
- - 7 -
the proposed sale, and shall either (i) identify a confirmed buyer who is ready,
willing and able to purchase Employee's shares, or (ii) state that Employee has
arranged to sell such Shares publicly through a broker. If Employer desires to
purchase such Shares of Employee, then Employer shall notify Employee of such
decision in writing within three (3) full business days after the receipt by
Employer of the aforesaid written statement. The parties shall then complete
such sale and purchase of the subject Shares within fifteen (15) days following
the receipt by Employee of such written notice of purchase by Employer (but only
if such notice is timely). If Employer does not notify Employee of its decision
to purchase the Shares within said three (3) day period, or provides Employee
with written notice that Employer does not elect to purchase such Shares, then
Employee may sell such Shares, but only pursuant to the terms and conditions of
the proposed sale previously communicated to Employer, and only within the
thirty (30) day period following the expiration of the three (3) day Employer
decision period. Any such right of refusal shall further provide that
notwithstanding the foregoing, no rights of first refusal of any nature shall
exist with respect to any of the Shares if the stock of Employer (of the same
class) has previously been the subject of a completed public offering.
d) Character of Options. Employer agrees that all options granted to Employee as
specified herein shall, to the maximum extent permissible under applicable law,
be "Incentive Stock Options" as defined in the Plan which qualify under ss.422
of the Internal Revenue Code.
e) Strike Price. Employer agrees that the purchase price of the Shares subject
to the Option shall b the average of the mean closing "bid" and "ask" price for
such stock for the five trading days previous to the date of grant, or July 6,
1998. Employer agrees that the Price of the Shares subject to the Additional
Option shall be the average of the mean closing "bid" and "ask" price for such
stock for the five trading days previous to the date of grant
f) Term of Options. Employer agrees that the term of the options granted
hereunder shall be 0) years from the date of grant, unless such option sooner
expires in accordance with the following:
(i) Death or Disability. In the event the employment of Employee terminates as
the result of death or Disability (as hereinafter defined), Employee or his
representatives may exercise all outstanding vested options
- - 8 -
for a period of one (1) year after the date Employee's employment terminates.
(ii) Cause. In the event the Employer elects to terminate the employment of
Employee for Cause, as hereinafter defined, all options which have not yet
vested shall expire as of the date of such termination; provided, however, that
the Employee may exercise all outstanding vested options for a period of ninety
(90) days after the date Employee's employment terminates.
(iii) Other Reasons. In the event the employment of Employee terminates for any
reason other than death, Disability, Cause or retirement, all outstanding
options shall immediately vest and Employee or his representatives may exercise
all of the granted options for a period of ninety (90) days after the date
Employee's employment terminates; provided, however, that if Employee
unilaterally and voluntarily terminates his employment hereunder (other than for
retirement at normal retirement age as set forth in the Plan), then all
outstanding options which have not vested shall expire, and Employee or his
representatives may exercise all of the theretofore vested options for a period
of ninety (90) days after the date Employee's employment terminates.
g) Adjustment of Shares. Employer agrees that all options granted to Employee
shall contain adequate provisions to protect against any change in the
outstanding stock of Employer through any stock dividend or split,
reorganization, recapitalization, merger, consolidation or other similar form of
corporate transaction which affects the capital structure of Employer, so that
the number and type of Shares subject to such option are appropriately adjusted
by the Board of Directors to reflect such change. the event of any Transaction
which (as defined in the Plan) or the liquidation of the Employer or the sale of
substantially all of the assets of the Employer, such options shall provide
that: (i) outstanding options shall remain in effect in accordance with their
terms; (ii) outstanding options shall be converted into options to purchase
securities issued by the surviving or acquiring company; or (iii) the Board of
Directors shall provide a 30 day period prior to the consummation of such
transaction during which all outstanding options vest and may be exercised
whereby such exercise is contingent upon and concurrent with the actual
consummation of the transaction.
- - 9 -
h) Compensation Adjustment. Employer agrees that all options granted to Employee
shall contain a provision to reimburse Employee, and Employer hereby agrees to
reimburse Employee, against the effect of "golden parachute taxes" as follows:
Compensation Adjustment. The Company shall pay to the Participant an amount
equal to the excise tax under Internal Revenue Code Section 4999 (as amended),
if any, incurred by Participant by reason of any excess parachute payment under
this Agreement as a result of the acceleration of option vesting hereunder
because of a Change of Control as defined herein. In addition, the Company shall
pay the Participant an amount equal to all excise taxes and federal, state and
local income taxes incurred by the Participant as -6. a result of any payment
made Attached to this Agreement as Exhibit [_] I " is an example. of the
computation of such payments. Such payments shall be made no later than the date
the Participant is required to pay the excise tax under Code Section 4999 or is
required to remit amounts for withholding applicable to such excise tax. All
determinations of amounts required to be paid under this paragraph 12 shall be
made by the Company's independent accounting firm which shall provide detailed
supporting calculations to the Company and the Participant. In computing taxes,
the accounting firm shall use the highest marginal federal, state and local
income tax rates applicable to the Participant.
An example of the foregoing calculation is attached hereto as Exhibit "A."
10. Termination. In addition to the termination of Employee's employment upon
expiration of the current term, the employment of Employee may sooner terminate
as follows:
a) Death of Employee. The employment of Employee hereunder shall terminate
immediately upon his death.
b) Disability of Employee. The Employer may terminate the employment of Employee
hereunder if the Employee has suffered a Disability (as hereinafter defined) for
a period of at least three (3) continuous months. The term "Disability" shall
mean the inability of the Employee to perform his normal duties and functions by
reason of a physical or mental condition.
- - 10 -
c) Early Termination for Cause. Any provision in this Agreement to the contrary
notwithstanding, Employer shall have the option to terminate Employee's
employment hereunder for Cause immediately and at any time. "Cause" as used
herein shall mean the following: (i) Employee engages in any business that is
competitive with that of the Employer while an employee; (ii) Employee commits
any material act of dishonesty, including but not necessarily limited to theft
or embezzlement of funds or property of the Employer, or perpetrating a fraud on
or affecting the Employer; (iii) Employee engages in any gross negligence or
willful misconduct with respect to his duties and responsibilities as an
employee or Employee acts in any other way that has a direct, substantial and
adverse effect on the Employer's reputation, including but not limited to
willful or grossly negligent disregard for the Employer's obligation to comply
with laws, regulations and the like applicable to Employer, its properties,
assets or business; (iv) Employee's conviction of a felony; (v) Employee
repeatedly fails to follow the instructions or directions of the Board of
Directors as set forth in duly adopted resolutions of such Board; or (vi)
Employee repeatedly fails to follow the instructions or directions of the Chief
Executive Officer, provided such instructions or directions do not contravene
any applicable laws or governmental regulations, any policies or resolutions of
the Board of Directors, or sound business practice or policy (as determined by
the Board of Directors).
11. Compensation Upon Termination. If the employment of Employee is terminated
for any reason, Employer shall owe Employee all base salary as set forth in
Section 4 of this Agreement which has accrued through the date of such
termination, all fringe benefits which have accrued through the date of such
termination, if any, and all properly incurred expenses which have not yet been
reimbursed. If the employment of Employee is terminated for any reason other
than cause, Employer shall owe Employee a pro rated portion of the cash
performance bonus as set forth in Section 5, based on the number of calendar
months in the current fiscal year, including the full calendar month which
includes the date of termination. For purposes of calculating such bonus,
revenues through the end of the calendar month during which termination occurred
shall be annualized. If the employment of Employee is terminated for any reason
other than death, disability, cause or Employee's voluntary decision to
terminate his employment hereunder, then Employee, in addition to the foregoing,
shall be entitled to all base salary from the date of termination through the
end of the then current term of employment. For example, if the current
employment term is two years, and such termination occured in the sixth month
thereof, the remaining 18 months of base salary shall be payable to Employee. In
addition, Employee shall be entitled to exercise stock options in accordance
with the provisions of Section 9 above.
- - 11 -
12. Notices. All notices, consents, approvals or other communications which are
required to be made in writing hereunder shall be deemed to have been duly
given, made or served upon delivery if delivered in person or by overnight
courier, or upon the first to occur of actual receipt or the third business day
after mailing, if mailed by registered or certified mail, first class postage
prepaid, receipt requested, to the parties at the following address:
If to Employer: Klever Marketing, Inc.
350 West 300 South, Suite 201
Salt Lake City, Utah 84101
Attention: Paul G. Begum
With a copy to: Parsons Behle & Latimer
Utah Center
One 201 South Main Street, Suite 1800
Salt Lake City, Utah 84145-0898
Attention: J. Gordon Hansen
If to Employee: Gerard Coelsch
1305 Biggin Church Road S.
Jacksonville, Florida 32224-7686
With a copy to: Korn & Zehmer P.A.
6620 Southpoint Drive South
Suite 200
Jacksonville, Florida 32216
Attention: John Zehmer
Notice of a change in address shall be made in writing as provided herein, and
effective only upon actual receipt.
13. Entire Agreement. This Agreement embodies the entire Agreement between
Employer and Employee, and there are no agreements, representations or
warranties, oral or written, between Employer and Employee other than those set
forth or provided for in this Agreement. This Agreement may not be modified or
changed, in whole or part, except by a supplemental agreement signed by the
Employer and Employee.
14. Assignment, Rights and Obligations of Successors. This Agreement is personal
in its nature and neither of the parties hereto shall assign or transfer this
Agreement or any rights or obligations hereunder. The foregoing shall not be
construed to prohibit Employer from engaging in any reorganization,
recapitalization,
- - 12 -
merger, consolidation, exchange of shares, sale of substantially all of the
assets, or other similar types of corporate transactions.
15. Disputes.
a) The provisions of this paragraph 15 shall be the sole and exclusive remedy
for any default under or breach by any party of any term or provision of this
Agreement, and no claim may be brought under this Agreement except in accordance
with and pursuant to the terms of this paragraph 15. In the event there is a
dispute under this Agreement, the parties shall meet with one another and
diligently attempt to resolve their disagreements. If they are unable to do so,
then upon the request of any party to the dispute, they will mediate the
dispute, utilizing an impartial mediator pursuant to the rules of the American
Arbitration Association ("AAA") or any other reputable organization that
sponsors mediation upon which the parties shall mutually agree. If, after thirty
(30) days, the mediation is not successful, then any party to the dispute may
institute an arbitration proceeding in accordance with this paragraph 15 to
resolve the dispute, but only if such party makes a written demand to do so
within twelve 0 2) months of the date the above-ref erenced thirty day mediation
period expires.
b) If negotiations and mediation are unsuccessful and a party makes a timely
written demand for arbitration, the arbitration shall occur before a single
arbitrator in Salt Lake City, Utah, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA") and chosen by
the AAA. Such rules notwithstanding, the arbitrator shall be an attorney at law
who has experience in employment law issues. The arbitrator shall base his
decision on applicable principles of law and equity, taking into account all
relevant statutes, case law and other relevant legal authority. The parties
agree that the interpretation, legal effect and enforcement of this Agreement
shall be governed by the laws of the State of Utah. Upon the request of any
party, the arbitrator will include in his award findings of fact and conclusions
of law upon which the award is based. The arbitrator may grant such legal or
equitable relief as he deems appropriate, including money damages, specific
performance and injunctive relief.
c) Questions of whether a dispute is subject to arbitration shall also be
decided by the arbitrator. Within ten (10) days after the appointment of the
arbitrator, each party to the dispute shall present to the arbitrator a written
statement of the issues in dispute. Within five (5) days thereafter, the
arbitrator shall give notice to the parties of a
- - 13 -
preliminary hearing to discuss the issues and discuss timetables for discovery,
which hearing shall be held as soon as reasonably possible. Each party shall be
entitled to perform discovery in accordance with the applicable rules of civil
procedure for civil actions in the state courts located in the State of Utah.
The arbitrator shall set reasonable time periods for the taking of discovery,
with the goal of expediting and completing such process in a timely and prompt
fashion. The final arbitration hearing shall occur within forty-five (45) days
after the closing of all discovery, but in no event more than one-hundred eighty
(180) days after the date of the preliminary hearing.
d) Any party may request and obtain from a court of competent jurisdiction
provisional or ancillary remedies for relief, such as an injunction, but the
institution of a judicial proceeding will not constitute a waiver of the right
of a party to submit a dispute to arbitration. A court of competent jurisdiction
may enter a judgment upon an arbitration award. Subject to the award of the
arbitrators, each party shall pay an equal share of the arbitrator's fees,
except that the arbitrators shall have the power to determine and award all
expenses (but not including attorneys' fees) to the prevailing party. The
parties shall maintain all matters relative to the arbitration, including the
result thereof, as confidential.
16. Headings; References to Sections. The headings of the sections, paragraphs
and subparagraphs of this Agreement are solely for convenience and reference and
shall not limit or otherwise affect the meaning of any of the terms or
provisions of this Agreement.
17. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but which together constitute one and the
same instrument.
18. Severability. In the event that any one or more of the provisions contained
in this Agreement shall, for any reason, be judicially declared to be invalid,
illegal, unenforceable or void in any respect, such declaration shall not have
the effect of invalidating or voiding the remainder of this Agreement and the
parties hereto hereby agree that the part or parts of this Agreement so held to
be invalid, illegal, unenforceable or void will be deemed to have been stricken
herefrom and the remaining provisions of this Agreement will have the same force
and effect as if such part had never been included herein.
19. Delay or Omission. No delay or omission of a party to exercise any right,
power or remedy under this Agreement or accruing upon any default hereunder
shall
- - 14 -
exhaust or impair any such right, power or remedy, or shall be construed to
waive any such default or to constitute acquiescence therein. Every right, power
and remedy of a party hereunder may be exercised from time to time and as often
as may be deemed expedient by such party.
20. Waiver of Breach. No waiver of any default hereunder shall extend to or
affect any subsequent default or another default then existing or impair any
rights, powers or remedies consequent thereon.
21. Cumulative Rights. No right or remedy conferred upon or reserved to any
party herein is intended to be exclusive of any other right or remedy available
to such party at law, in equity or otherwise. Each and every right and remedy is
cumulative.
22. Survival. Except as otherwise specifically provided herein, the
representations, warranties and other undertakings of the Employer and Employee
contained herein, which are to be observed or performed subsequent to the
termination of Employee's employment or the termination of this Agreement, shall
survive such termination.
23. Construction of Agreement. The parties agree that in the event any court or
other tribunal construes or interprets any provision hereof, that such court or
other tribunal shall not strictly construe any such provision or any ambiguity
therein in favor
[THE REST OF THIS PAGE IS INTENTIONALLY BLANK]
- - 5 -
of or against either party hereto based upon any rule that one party has drafted
such provision or that one party has superior bargaining power or knowledge.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the 26
th day of June, 1998.
EMPLOYER:
KLEVER MARKETING, INC.
Witness
Witness
.
Witness
'Witness
COELSCH\COELEA.4
By:
Chief Executive Off
EMPLOYEE:
CC. COELSCH
- - 16 -
EXHIBIT A
COMPUTATION OF COMPENSATION ADJUSTMENT TO EMPLOYEE
1. Excess Parachute Payment Subject to Excise Tax $50,000
2. Excise Tax on Item 1 @ 20% $10,000
3. Total Additional Payments Due $22,292*
4. Verification of Payments Due
a) Excise Tax on new $22,292 @ 20% $4,458
b) State Income Tax on $22,292 @ 6% 1,338
c) Federal Income Tax on $22,292:
(i) Additional Income $22,292 (ii) State Tax Deduction ( 1,338) (iii)
Net Additional Income $20.954 (iv) Federal Income Tax @ 31 % 6,496
d) Total Taxes on Payments Due $12,292
e) Net Amount Available to Optionee
to pay excise tax (see no. 2 above) $10,000
f) Total Amount Paid to Employee $22,292
The formula used to compute the amounts due to Employee is to divide the excise
tax amount on the excess parachute payment by a percentage equal to 100% less
the sum of the excise tax percentage plus the federal and state income tax
percentage less a percentage determined by multiplying the federal tax
percentage times the state tax percentage (if applicable). Thus, in the example
above, the following percentages would be subtracted from 100 %:
1 ) Excise Tax Percentage 20%
2) State Tax Percentage 6%
3) Federal Tax Percentage 31%
Total 75%
Less 31 % times 6% 1.86%
55.14%
The resulting percentage of 44.86% is divided into 10,000 = $22,292
- -17 -
RIDER "A" TO
EMPLOYMENT AGREEMENT
There shall be no adjustment in the Exercise Price, and no adjustment in the
number of Shares which may be received by the Employee upon exercise of the
Option, as a result of the sale or issuance by the Employer of additional shares
of its capital stock to a third party for a consideration that is greater or
less then the purchase price of the Option. For example, (i) if the Employer
were to issue additional shares of common stock through a stock divided at the
rate of two shares for each issued and outstanding share of common stock, then
the Exercise Price shall be decreased by 2/3's and the number of shares subject
to the Option shall be increased by three times; and (ii) if the Employer were
to sell 10,000 shares of common stock to XYZ Company for $20,000 (i.e., $2 per
share), and the Exercise Price hereunder is $4.00 per share, there shall be no
adjustment hereunder.
<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, 1998 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 45
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 182
<PP&E> 67
<DEPRECIATION> 47
<TOTAL-ASSETS> 1342
<CURRENT-LIABILITIES> 1025
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 212
<TOTAL-LIABILITY-AND-EQUITY> 1342
<SALES> 229
<TOTAL-REVENUES> 229
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (1497)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1497)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
