[As adopted in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 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: March 31, 1999 10,688,647
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)
March 31, December 31,
----------- -----------
ASSETS 1999 1998
- ------ ----------- -----------
Current Assets
Cash ....................................... $ 7,932 $ 45,371
Shareholder Receivables .................... 67,076 136,821
----------- -----------
Total Current Assets .................... 75,008 182,192
----------- -----------
Fixed Assets
Equipment .................................. 70,794 64,269
Leasehold Improvements ..................... 5,715 2,550
Less Accumulated Depreciation .............. (49,281) (47,301)
----------- -----------
Net Fixed Assets ........................ 27,228 19,518
----------- -----------
Other Assets
Patents .................................... 2,199,182 2,198,110
Organization Costs ......................... 152,662 152,662
Less Accumulated Amortization .............. (1,262,553) (1,210,906)
----------- -----------
Net Other Assets ........................ 1,089,291 1,139,866
----------- -----------
Total Assets ............................ $ 1,191,527 $ 1,341,576
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable, Trade .................... $ 277,833 $ 613,081
Accrued Liabilities ........................ 51,937 65,058
Related Party Payables ..................... 228,100 347,100
----------- -----------
Total Current Liabilities ............... 557,870 1,025,239
----------- -----------
Total Liabilities ....................... 557,870 1,025,239
----------- -----------
3
<PAGE>
KLEVER MARKETING, INC.
BALANCE SHEETS
(Continued)
(Unaudited)
March 31, December 31,
----------- ------------
1999 1998
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(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 .................
10,688,647 shares issued and out-
standing March 31, 1999 and
10,394,819 Shares issued and out-
standing December 31, 1998 ................... 106,886 103,948
Common Stock to be issued ...................... 4,589 4,589
Paid in Capital in Excess of Par
Value ........................................ 7,285,915 6,625,919
Retained Deficit ............................... (6,763,733) (6,418,119)
----------- -----------
Total Stockholders' Equity .................. 633,657 316,337
----------- -----------
Total Liabilities and Stockholders' Equity .. $ 1,191,527 $ 1,341,576
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
KLEVER MARKETING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months
Ended March 31,
------------------------------
1999 1998
------------ -------------
Revenue .................................... $ -- $ --
------------ ------------
Expenses
General and Administrative ............... 232,565 127,337
Research and Development ................. 106,590 120,783
------------ ------------
Total Expenses ........................ 339,155 248,120
------------ ------------
Other Income (Expense)
Interest Income .......................... 481 --
Interest Expense ......................... (6,941) (16)
Capital Gain on Sale of Investment ....... -- (194)
------------ ------------
Total Other Income (Expense) ........... (6,460) (210)
------------ ------------
Loss Before Taxes .......................... (345,615) (248,330)
Income Taxes ............................... -- --
------------ ------------
Net Loss After Taxes ....................... $ (345,615) $ (248,330)
============ ============
Weighted Average Shares Outstanding ........ 10,562,946 9,937,682
============ ============
Net Loss Per Share ......................... $ (.03) $ (.03)
============ ============
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31,
----------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ............................................. $(345,615) $(248,330)
--------- ---------
Adjustments used to reconcile
net loss to net cash provided
by (used in) operating activities:
Non cash general and administrative .............. 3,108 21,338
(Increase) decrease in shareholder receivable .... 69,744 (166)
Increase (decrease) in accounts payable .......... (335,247) (55,185)
Increase (decrease) in accrued liabilities ....... (13,121) 353
Increase (decrease) in related party payables .... (119,000) 53,354
Loss on Sale of Stock Investment ................. -- 194
Depreciation and Amortization .................... 53,628 43,991
--------- ---------
Net Adjustment ....................................... (340,888) 63,879
--------- ---------
Net cash used in operating activities ................ $(686,503) $(184,451)
--------- ---------
6
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(Continued)
(Unaudited)
For the Three Months
Ended March 31,
------------------------
1999 1998
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition/sale of equipment, net ............... $ (9,690) $ (3,006)
Acquisition/sale of stock investments, net ....... -- 3,931
Acquisition of patents ........................... (1,072) (21,772)
--------- ---------
Net cash used by investing activities ............ (10,762) (20,847)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From Capital Stock Issued ............... 659,826 365,449
Principle Payments on Lease Obligations ......... -- (644)
--------- ---------
Net Cash Provided by Financing Activities ....... 659,826 364,805
--------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents ............................... (37,439) 159,507
Cash and Cash Equivalents at
Beginning of the Year .......................... 45,371 10,536
--------- ---------
Cash and Cash Equivalents at
End of the Year ................................ $ 7,932 $ 170,043
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest ......................................... $ 6,941 $ 16
Income Taxes ..................................... -- --
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 MARCH 31, 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 March 31, 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) it has acquired. The commercialization process is divided into
five phases as follows:
Phase I: System Development and Product Movement Test.
The product movement test was completed during third quarter 1997. The test took
place in a Smith's Food and Drug store located in Salt Lake City, Utah.
Information Resources, Inc., an independent company audited the results of the
test and reported an average 46.84% incremental product movement.
Phase II: Cost Reduction & Enhancement.
In January 1998, the Company commenced development of the Phase II functional
specification that will encompass cost reduction and system enhancements.
Improvements that are in the process of design and development of the
Klever-Kart(R) system include: a significantly smaller and more sleek design in
the appearance and size of the display unit, smaller trigger units with improved
sensitivity, more durable plastics, and improved sound fidelity.
Phase III: Installation of 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.
8
<PAGE>
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..
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 $687,000 and $184,000 for the
three months ended March 31, 1999 and 1998, respectively.
Investing activities have used cash of $11,000 and $21,000 for the three months
ended March 31, 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 $660,000 and $365,000 for the three months
ended March 31, 1999 and 1998, respectively. Financing activities primarily
represent sales of the Company's common stock.
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.
9
<PAGE>
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 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 338,272 shares of common stock during the three months ended
March 31, 1999. 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 1999 shares issued to
individuals for cash at
$2.00 - $2.25 per share ................... 119,444 $249,999
January 1999 shares issued to
employee for compensation at
$2.34 per share ........................... 1,328 3,108
February 1999 shares issued to
individuals for cash at
$2.00 - $2.25 per share ................... 217,500 480,000
--------- --------
Total ............... 338,272 $733,107
========= ========
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: May 3, 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 MARCH 31, 1999 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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