U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
-----------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-18834
Klever Marketing, Inc.
(Exact name of small business issuer as
specified in its charter)
Delaware 36-3688583
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
350 West 30 South, Suite 201, Salt Lake City, Utah 84101
(Address of principal executive offices)
(801) 322-1221
Issuer's telephone number
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: June 30, 1999 10,944,792
Transitional Small Business Disclosure Format (check one). Yes ; No X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
KLEVER MARKETING, INC.
BALANCE SHEETS
(Unaudited)
June 30, December 31,
----------- -----------
ASSETS 1999 1998
- ------ ----------- -----------
Current Assets
Cash ................................... $ 15,479 $ 45,371
Shareholder Receivables ................ 28,550 136,821
----------- -----------
Total Current Assets ................ 44,029 182,192
----------- -----------
Fixed Assets
Equipment .............................. 86,085 64,269
Leasehold Improvements ................. -- 2,550
Less Accumulated Depreciation .......... (52,384) (47,301)
----------- -----------
Net Fixed Assets .................... 33,701 19,518
----------- -----------
Other Assets
Patents ................................ 2,201,398 2,198,110
Less Accumulated Amortization .......... (1,161,594) (1,058,244)
----------- -----------
Net Other Assets .................... 1,039,804 1,139,866
----------- -----------
Total Assets ........................ $ 1,117,534 $ 1,341,576
=========== ===========
3
<PAGE>
KLEVER MARKETING, INC.
BALANCE SHEETS
(Continued)
(Unaudited)
June 30, December 31,
----------- -----------
1999 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts Payable, Trade ........................ $ 249,417 $ 613,081
Accrued Liabilities ............................ 60,281 65,058
Related Party Payables ......................... 271,850 347,100
Lease Obligation ............................... 13,716 --
----------- -----------
Total Current Liabilities ................... 595,264 1,025,239
----------- -----------
Total Liabilities ........................... 595,264 1,025,239
----------- -----------
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 .................
10,944,792 shares issued and out-
standing June 30, 1999 and
10,394,819 Shares issued and out-
standing December 31, 1998 ................... 109,448 103,948
Common Stock to be issued ...................... 4,589 4,589
Paid in Capital in Excess of Par
Value ........................................ 7,540,127 6,625,919
Retained Deficit ............................... (7,131,894) (6,418,119)
----------- -----------
Total Stockholders' Equity .................. 522,270 316,337
----------- -----------
Total Liabilities and Stockholders' Equity .. $ 1,117,534 $ 1,341,576
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
KLEVER MARKETING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue .................... $ -- $ 229,000 $ -- $ 229,000
------------ ------------ ------------ ------------
Expenses
General and Administrative 248,255 159,740 480,820 287,077
Research and Development . 111,894 64,007 218,484 184,790
------------ ------------ ------------ ------------
Total Expenses ........ 360,149 223,747 699,304 471,867
------------ ------------ ------------ ------------
Other Income (Expense)
Interest Income .......... 58 926 539 926
Interest Expense ......... (8,069) (647) (15,010) (663)
Sale of Investments ...... -- 1,428 -- 1,234
------------ ------------ ------------ ------------
Total Other Expense .... (8,011) 1,707 (14,471) 1,497
------------ ------------ ------------ ------------
Loss Before Taxes .......... (368,160) 6,960 (713,775) (241,370)
Income Taxes ............... -- -- -- --
------------ ------------ ------------ ------------
Net Loss After Taxes ....... $ (368,160) $ 6,960 $ (713,775) $ (241,370)
============ ============ ============ ============
Weighted Average Shares
Outstanding ................ 10,671,294 10,039,029 10,725,557 10,037,221
============ ============ ============ ============
Net Loss Per Share ......... $ (0.03) $ -- $ (0.07) $ (0.02)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
--------------------------
1999 1998
--------- ---------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss ..................................... $(713,775) $(241,370)
Adjustments used to reconcile
net loss to net cash provided
by (used in) operating activities:
Non cash general and
administrative ............................ 6,218 32,988
(Increase) decrease in:
shareholder receivable ................... 108,271 17,600
Increase (decrease) in:
accounts payable .......................... (363,664) (33,070)
accrued liabilities ....................... (4,778) 325
deferred income ........................... -- (229,000)
lease obligation .......................... 15,404 --
related party payables .................... (75,250) 42,902
Sale of Investments .......................... -- (1,234)
Depreciation and Amortization ................ 110,984 88,105
--------- ---------
Net cash used in operating
activities ................................ $(916,590) $(322,754)
--------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of equipment ..................... $ (21,816) $ (3,006)
Sale of investments ......................... -- 13,609
Acquisition of patents ....................... (3,288) (22,982)
--------- ---------
Net cash used by investing
activities ................................ (25,104) (12,379)
--------- ---------
6
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(Continued)
(Unaudited)
For the Six Months
Ended June 30,
--------------------------
1999 1998
--------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds From Capital Stock .................. 913,490 365,449
Principle Payments on Lease
Obligations ............................... (1,688) (862)
--------- ---------
Net Cash Provided by
Financing Activities ..................... 911,802 364,587
--------- ---------
Net Increase (Decrease) in
Cash and Cash Equivalents ................ (29,892) 29,454
Cash and Cash Equivalents at
Beginning of the Period ................... 45,371 10,536
--------- ---------
Cash and Cash Equivalents at
End of the Period ......................... $ 15,479 $ 39,990
========= =========
SUPPLEMENTAL
DISCLOSURE OF CASH
FLOW INFORMATION:
Interest ..................................... $ 7,052 $ 663
Income Taxes ................................. $ 100 --
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED June 30, 1999
(Unaudited)
1. Interim Reporting
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles and with Form 10-QSB requirements.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the three month period
ended June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
Item 2. Management's Discussion and Analysis or Plan of Operation.
General - This discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's annual report on Form 10-KSB for the year ended December 31, 1998.
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), which it has acquired. The commercialization process is divided
into five phases as follows:
Phase I: System Development and Product Movement Test.
The product movement test was completed during third quarter 1997. The test took
place in a Smith's Food and Drug store located in Salt Lake City, Utah.
Information Resources, Inc., an independent company audited the results of the
test and reported an average 46.84% incremental product movement.
Phase II: Cost Reduction & Enhancement.
In January 1998, the Company commenced development of the Phase II functional
specification that will encompass cost reduction and system enhancements.
Improvements that are in the process of design and development of the
Klever-Kart(R) system include: a significantly smaller and more sleek design in
the appearance and size of the display unit, smaller trigger units with improved
sensitivity, more durable plastics, and improved sound fidelity.
8
<PAGE>
Phase III: Installation of Stores.
During 1999 the Company plans to place Klever-Kart(R) units in stores in
targeted retail chains. Target stores include major national and regional
chains.
Phase IV: Electronic Coupon Integration.
Definition of the Electronic Coupon system is scheduled to commence during
fourth quarter 1999. This process consists of working with retailers and
Point-of-Sale transaction processing system manufacturers 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 year 2000, including a minimum three month in-store test of system
operation.
Phase V: Future Development.
The Klever-KardTM frequent shopper program is scheduled for introduction in
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..
Liquidity and Capital Resources - The Company requires working capital
principally to fund its current research and development and operating expenses
for which the Company has relied on short-term borrowings and the issuance of
restricted common stock. There are no formal commitments from banks or other
lending sources for lines of credit or similar short-term borrowings, but the
Company has been able to borrow any additional working capital that has been
required. From time to time in the past, required short-term borrowings have
been obtained from a principal shareholder or other related entities.
Cash flows. Operating activities used cash of $917,000 and $323,000 for the six
months ended June 30, 1999 and 1998, respectively.
Investing activities have used cash of $25,000 and $12,000 for the six months
ended June 30, 1999 and 1998, 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 $912,000 and $365,000 for the six months
ended June 30, 1999 and 1998, respectively. Financing activities primarily
represent sales of the Company's common stock.
9
<PAGE>
The Company may be required to supplement its available cash and other liquid
assets with proceeds from borrowing, the sale of additional securities, or other
sources. There can be no assurance that any such required additional funding
will be available or, if available, that it can be obtained on terms favorable
to the Company.
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 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 months ended June 30, 1999, 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 party 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 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.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
The Company sold 274,190 shares of common stock during the three months ended
June 30, 1999 to individuals and an employee for $1.95 to $2.50 per share. The
stock was not sold through an underwriter and was not sold through a public
offer. These sales are exempt under Regulation D Rule 506 of the Securities Act
of 1933
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Klever Marketing, Inc.
(Registrant)
DATE: August 9, 1999
By: /s/ Paul G. Begum
Paul G. Begum
Chief Executive officer & Director
(Principal financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF KLEVER MARKETING, INC. AS OF JUNE 30, 1999 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE SIX MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 15
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 44
<PP&E> 86
<DEPRECIATION> 52
<TOTAL-ASSETS> 1118
<CURRENT-LIABILITIES> 595
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 413
<TOTAL-LIABILITY-AND-EQUITY> 1118
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> (718)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (718)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
