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: September 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 300 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: September 30, 1999 11,115,121
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)
September 30, December 31,
----------- -----------
ASSETS 1999 1998
- ------
----------- -----------
Current Assets
Cash ................................... $ 44,362 $ 45,371
Shareholder Receivables ................ 28,250 136,821
----------- -----------
Total Current Assets ................ 72,612 182,192
----------- -----------
Fixed Assets
Equipment .............................. 160,649 64,269
Leasehold Improvements ................. -- 2,550
Less Accumulated Depreciation .......... (53,613) (47,301)
----------- -----------
Net Fixed Assets .................... 107,036 19,518
----------- -----------
Other Assets
Patents ................................ 2,210,729 2,198,110
Less Accumulated Amortization .......... (1,213,470) (1,058,244)
----------- -----------
Net Other Assets .................... 997,259 1,139,866
----------- -----------
Total Assets ........................ $ 1,176,907 $ 1,341,576
=========== ===========
<PAGE>
KLEVER MARKETING, INC.
BALANCE SHEETS
(Continued)
(Unaudited)
September 30, December 31,
----------- -----------
1999 1998
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade ........................ $ 247,094 $ 613,081
Accrued Liabilities ............................ 69,361 65,058
Related Party Payables ......................... 239,250 347,100
Lease Obligation ............................... 11,102 --
----------- -----------
Total Current Liabilities ................... 566,807 1,025,239
----------- -----------
Total Liabilities ........................... 566,807 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 .................
11,115,121 shares issued and out-
standing September 30, 1999 and
10,394,819 Shares issued and out-
standing December 31, 1998 ................... 111,151 103,948
Common Stock to be issued ...................... 4,589 4,589
Paid in Capital in Excess of Par
Value ........................................ 7,937,352 6,625,919
Retained Deficit ............................... (7,442,992) (6,418,119)
----------- -----------
Total Stockholders' Equity .................. 610,100 316,337
----------- -----------
Total Liabilities and Stockholders' Equity .. $ 1,176,907 $ 1,341,576
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
KLEVER MARKETING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue .............................. $ -- $ -- $ -- $ 229,000
------------ ------------ ------------ ------------
Expenses
General and Administrative ......... 99,800 218,253 580,620 505,330
Research and Development ........... 205,636 56,594 424,120 241,384
------------ ------------ ------------ ------------
Total Expenses .................. 305,436 274,847 1,004,740 746,714
------------ ------------ ------------ ------------
Other Income (Expense)
Interest Income .................... 472 128 1,011 1,055
Interest Expense ................... (6,135) (111) (21,145) (775)
Sale of Investments ................ -- -- -- 1,234
------------ ------------ ------------ ------------
Total Other Expense .............. (5,663) 17 (20,134) 1,514
------------ ------------ ------------ ------------
Loss Before Taxes and Extraordinary
Item ................................. (311,099) (274,830) (1,024,874) (516,200)
Income Taxes ......................... -- -- -- --
Extraordinary Item - Litigation
Settlement ........................... (100,000) -- (100,000)
------------ ------------ ------------ ------------
Net Loss After Taxes and
Extraordinary Item ................... $ $ $ (1,024,874) $ (616,200)
(311,099) (374,830)
============ ============ ============ ============
Weighted Average Shares Outstanding
11,060,826 10,244,671 10,922,645 10,109,945
============ ============ ============ ============
Loss per Common Share ................ $ (.03) $ (.03) $ (.09) $ (.05)
Loss per Share Before Extraordinary
Item ................................. $ (.01) $ (.01)
------------ ------------ ------------ ------------
Net Loss Per Share - Basic and Diluted
$ (.03) $ (.04) $ (.09) $ (.06)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended September 30,
----------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ..................................... $(1,024,874) $ (616,200)
Adjustments used to reconcile
net loss to net cash provided
by (used in) operating activities:
Non cash general and
administrative ............................ 11,788 48,190
(Increase) decrease in:
shareholder receivable ................... 108,571 18,477
prepaid expense .......................... (6,205)
Increase (decrease) in:
accounts payable .......................... (365,987) (7,519)
accrued liabilities ....................... 4,302 3,511
deferred income ........................... -- (229,000)
lease obligation .......................... 15,404 --
related party payables .................... (107,850) 94,569
Loss on Extraordinary Item ................... 100,000
Sale of Investments .......................... -- (1,234)
Depreciation and Amortization ................ 164,089 132,553
----------- -----------
Net cash used in operating
activities ................................ (1,198,859) (462,858)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment ..................... (96,379) (6,720)
Sale of investments ......................... -- 13,609
Acquisition of patents ....................... (12,619) (31,470)
----------- -----------
Net cash used by investing
activities ................................ (108,998) (24,581)
----------- -----------
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(Continued)
(Unaudited)
For the Nine Months
Ended September 30,
------------------------------
1999 1998
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Capital Stock .............. 1,306,848 518,249
Principle Payments on Lease
Obligations ........................... (4,302) (862)
----------- -----------
Net Cash Provided by
Financing Activities ................. 1,306,848 517,387
----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents ............ (1,009) 29,948
Cash and Cash Equivalents at
Beginning of the Period ............... 45,371 10,536
----------- -----------
Cash and Cash Equivalents at
End of the Period ..................... $ 44,362 $ 40,484
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest ................................. $ 1,716 $ 775
Income Taxes ............................. $ 100 $ --
The accompanying notes are an integral part of these financial statements.
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED September, 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 September 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, 1999.
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 system,
Klever-Kart(R).
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 which concluded an average 46.8% incremental product movement.
Phase II: Cost Reduction & Enhancement.
In January 1998, the Company commenced development of the Phase II functional
specification that encompassed cost reductions and system enhancements.
Improvements on the Klever-Kart(R) system included: 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. Upon completion of the Phase II functional specification, the
Company began phase II engineering design and development. In September 1999,
the Company began parts procurement and other manufacturing processes.
<PAGE>
Phase III: Installation of Stores.
In December 1999, the Company plans to commence installation of the
Klever-Kart(R) units in Ralph's Grocery Company stores in Southern California.
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, followed by a minimum three month in-store test of system
operation.
Phase V: Future Development.
The Klever-KardTM frequent shopper program enhancement 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 $1,199,000 and $ 463,000 for the
six months ended September 30, 1999 and 1998, respectively.
Investing activities have used cash of $ 109,000 and $ 25,000 for the six months
ended September 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 $ 1,307,000 and $517,000 for the six
months ended September 30, 1999 and 1998, respectively. Financing activities
primarily represent sales of the Company's common stock.
<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 has undertaken efforts to address the Year 2000 issue, which include
the following:
* Awareness - Creating and maintaining awareness of the Company's year
2000 effort at all levels of the organization.
* Assessment - Determining which computers, operating systems,
applications and facilities need to be upgraded, repaired or replaced
and prioritizing remediation efforts.
* Remediation - After assessment has been completed, any mission
critical item not Year 2000 compliant will seek a Year 2000 remedy.
* Validation - The testing of our mission-critical systems.
* Implementation - All remediated fixes put into operation.
* Contingency Plan - Where remediation is not possible, a plan of action
to lessen and/or prevent the possible affects of year 2000 problems.
Awareness & Assessment: The Company's Awareness and Assessment phase, with
respect to Year 2000 issues pertaining to current Critical Third Party Vendors,
IT and Non-IT systems, was completed June 30, 1999. Awareness and Assessment
continues with respect to any prospective purchase of IT and Non-IT Systems, as
well as any prospective Critical Third Party Vendor the Company considers
utilizing. This Awareness and Assessment phase was conducted as follows:
* Company Information Technology (IT) Systems: Includes PCs, operating
systems and software applications the Company maintains in order to do
business.
* Non-IT Systems: Includes office equipment such as copiers, fax
machines, postage meters (i.e. machinery, equipment and devices with
"built-in" technology, such as embedded microcontrollers).
* Critical Third Party Vendors: Vendors considered to be critical to the
<PAGE>
company's successful implementation of day to day business. Any vendor
identified as a Critical Third Party Vendor during the Awareness &
Assessment Phase was issued a letter requesting a statement regarding
their Year 2000 readiness and/or contingency plans. This letter went
out July 1999 and to date 88% of the identified Critical Third Party
Vendors have responded and are Year 2000 compliant and/or have
contingency plans in place.
Remediation
* Critical Third Party Vendors: The remaining vendors that have been
unresponsive, and/or are not Year 2000 compliant, have been contacted
through the Company's follow-up efforts and the Company feels that
these efforts will be completed during the first part of the fourth
quarter of 1999.
Validation
* IT & Non-IT Systems: The Company's products do incorporate date coding
and the Company believes all of its product systems are Year 2000
compliant. The Company has also completed testing of its IT and Non-IT
Systems and believes them to be Year 2000 compliant. Dates tested
include: September 9, 1999, December 31, 1999, January 1, 2000 and
February 29, 2000.
Implementation & Contingency Plans: In the event the Company determines that any
Critical Third Party Vendors presents a risk arising from failure to be Year
2000 compliant, or response/confirmation is not received, then the Company will
seek to replace such critical third party vendor, where applicable and possible.
The Company cannot, however, guarantee that the systems, or suppliers, of the
Critical Third Party Vendors will be converted on a timely basis. Failure of
such Critical Third Party Vendors to be Year 2000 compliant may cause
interruptions in the Company's operations.
Year 2000 Financial Expenditures: The amount charged to expense during the three
months ended September 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.
Financial expenditures in regard to Year 2000 problems arising have been
recognized as possible, however, it is impossible to extrapolate a figure in
this regard. These types of expenditures relate primarily to paying premium
prices, or changing suppliers and/or products, in order to obtain components
used in the manufacturing of the Company's product, in the event the Company's
manufacturing vendor's suppliers experience problems relating to Year 2000
compliance. Additional engineering development costs and delays may also be
incurred by the Company, as a result of required component changes. The Company
does not anticipate these types of expenditures to be material to the Company's
financial position, results of operations, or cash flows.
The foregoing statements are based upon management's current assumptions.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
The Company sold 170,329 shares of common stock during the three months ended
September 30, 1999 to individuals and an employee for $ .52 to $3.00 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.
<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: November 12, 1999
By: /s/ Paul G. Begum
Paul G. Begum
Chief Executive officer & Director
(Principal financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF KLEVER MARKETING, INC. AS OF SEPTEMBER 30, 1999 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE NINE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 44
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73
<PP&E> 161
<DEPRECIATION> 54
<TOTAL-ASSETS> 1177
<CURRENT-LIABILITIES> 567
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 499
<TOTAL-LIABILITY-AND-EQUITY> 1177
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1005
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<INTEREST-EXPENSE> 21
<INCOME-PRETAX> (1025)
<INCOME-TAX> 0
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<EPS-BASIC> (.09)
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</TABLE>
