[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: September 30, 2000
---------------------------
[ ] 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, 2000 12,131,092
-----------------------------
Transitional Small Business Disclosure Format (check one). Yes ; No X
<PAGE>
PART I
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
Klever Marketing, Inc.
We have reviewed the accompanying balance sheets of Klever Marketing, Inc.
as of September 30, 2000 and December 31, 1999, and the related statements of
operations for the three and nine months, and cash flows for the nine month
periods ended September 30, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statement taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Respectfully submitted
/s/ ROBISON, HILL & CO.
Certified Public Accountants
Salt Lake City, Utah
November 13, 2000
3
<PAGE>
KLEVER MARKETING, INC.
BALANCE SHEETS
(Unaudited
September 30, December 31,
----------- -----------
ASSETS 2000 1999
------
Current Assets ----------- -----------
Cash .................................... $ 399,684 $ 203,232
Shareholder Receivables .................. 138,921 34,892
Accounts Receivable ...................... 19,696 --
Inventory ................................ 80,975 --
----------- -----------
Total Current Assets .................. 639,276 238,124
----------- -----------
Fixed Assets
Office Equipment ......................... 168,293 77,279
Phase 2 Equipment ........................ 1,259,738 445,330
Less Accumulated Depreciation ............ (73,421) (56,798)
----------- -----------
Net Fixed Assets ...................... 1,354,610 465,811
----------- -----------
Other Assets
Patents .................................. 2,244,389 2,212,850
Less Accumulated Amortization ............ (1,423,303) (1,266,201)
----------- -----------
Net Other Assets ...................... 821,086 946,649
----------- -----------
Total Assets .......................... $ 2,814,972 $ 1,650,584
=========== ===========
4
<PAGE>
KLEVER MARKETING, INC.
BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
------------ -----------
2000 1999
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
<S> <C> <C>
Accounts Payable, Trade ............................... $ 182,483 $ 401,708
Accrued Liabilities ................................... 100,081 458,563
Related Party Payables ................................ 1,143,750 191,250
Short-term Notes Payable .............................. 8,264 259,115
------------ -----------
Total Current Liabilities .......................... 1,434,578 1,310,636
------------ -----------
Total Liabilities .................................. 1,434,578 1,310,636
------------ -----------
Stockholders' Equity
Preferred stock (Par Value $.01),
2,000,000 shares authorized. 94,191 shares issued
and outstanding September 30, 2000 and -0- issued and
outstanding December 31, 1999 ....................... 942 --
Paid in Capital in Excess of Par Value ................ 2,077,433 --
Common Stock (Par Value $.01), 20,000,000 shares
authorized. 12,131,092 shares issued and outstanding
September 30, 2000 and 11,275,121 shares issued and
outstanding
December 31, 1999 ................................... 121,311 112,751
Common Stock to be issued ............................. 4,356 4,589
Paid in Capital in Excess of Par Value ................ 9,440,886 8,375,350
Retained Deficit ...................................... (10,264,534) (8,152,742)
------------ -----------
Total Stockholders' Equity ......................... 1,380,394 339,948
------------ -----------
Total Liabilities and Stockholders' Equity ......... $ 2,814,972 $ 1,650,584
============ ===========
</TABLE>
See accompanying notes and accountants' report.
5
<PAGE>
KLEVER MARKETING, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue ........................ $ 20,495 $ -- $ 20,495 $ --
------------ ------------ ------------ ------------
Expenses
General and Administrative ... 587,537 99,800 2,077,036 580,620
Research and Development ..... 45,542 205,636 216,438 424,120
------------ ------------ ------------ ------------
Total Expenses ............ 633,079 305,436 2,293,474 1,004,740
------------ ------------ ------------ ------------
Other Income (Expense)
Interest Income .............. 7,883 472 8,074 1,011
Interest Expense ............. (19,462) (6,135) (41,005) (21,145)
Gain/Loss .................... -- -- 193,677 --
Sale of Investments .......... -- -- -- --
------------ ------------ ------------ ------------
Total Other Income (Expense) (11,579) (5,663) 160,746 (20,134)
------------ ------------ ------------ ------------
Loss Before Taxes .............. (624,163) (311,099) (2,112,233) (1,024,874)
Income Taxes ................... -- -- -- --
------------ ------------ ------------ ------------
Net Loss After Taxes ........... $ (624,163) $ (311,099) $ (2,112,233) $ (1,024,874)
============ ============ ============ ============
Weighted Average Shares
Outstanding .................... 12,070,086 11,060,826 12,662,170 10,922,645
============ ============ ============ ============
Loss per Common Share .......... $ (0.05) $ (0.03) $ (0.17) $ (0.09)
============ ============ ============ ============
</TABLE>
See accompanying notes and accountants' report.
6
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended September 30,
-----------------------------
2000 1999
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss ................................... $(2,112,233) $(1,024,874)
Adjustments used to reconcile net loss to
net cash provided by (used in)
operating activities:
Non cash general and
administrative .......................... 604,283 11,788
(Increase) decrease in:
shareholder receivable ................. (104,029) 108,571
accounts receivable .................... (19,696) --
inventory .............................. (80,975) --
Increase (decrease) in:
accounts payable ........................ (200,290) (365,987)
accrued liabilities ..................... (339,015) 4,302
deferred income ......................... -- --
lease obligation ........................ (851) 15,404
related party payables .................. 952,500 (107,850)
Loss on Extraordinary Item ................. -- --
Sale of Investments ........................ -- --
Depreciation and Amortization .............. 174,116 164,089
----------- -----------
Net cash used in operating
activities .............................. (1,126,190) (1,194,557)
----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of equipment ................... (905,422) (96,379)
Non cash equipment ......................... 13,789 --
Acquisition of patents ..................... (31,538) (12,619)
----------- -----------
Net cash used by investing
activities .............................. (923,171) (108,998)
----------- -----------
7
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Continued)
For the Nine Months
Ended September 30,
-----------------------------
2000 1999
----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds From Capital Stock ................ $ 2,534,215 $ 1,306,848
Principle Payments on Lease
Obligations ............................. -- (4,302)
Non Cash Capital Stock ..................... (288,402) --
----------- -----------
Net Cash Provided by
Financing Activities ................... 2,245,813 1,302,546
----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents .............. 196,452 (1,009)
Cash and Cash Equivalents at
Beginning of the Period ................. 203,232 45,371
----------- -----------
Cash and Cash Equivalents at
End of the Period ....................... $ 399,684 $ 44,362
=========== ===========
SUPPLEMENTAL
DISCLOSURE OF CASH
FLOW INFORMATION:
Interest ................................... $ 41,005 $ 17,716
Income Taxes ............................... $ -- $ 100
See accompanying notes and accountants' report.
8
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
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.
The unaudited financial statements as of September 30, 2000 and for the
nine months then ended reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for the three and nine months.
Operating results for interim periods are not necessarily indicative of the
results which can be expected for full years.
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
9
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued):
--------------------------------------------------------------------
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.
Reclassifications
Certain reclassifications have been made in the 1999 financial statements
to conform with the 2000 presentation.
Loss per Share
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
<TABLE>
<CAPTION>
Per-Share
Loss Shares Amount
For the three months ended September 30, 2000
---------------------------------------------
Basic Earnings per Share
<S> <C> <C> <C>
Income available to common shareholders $ (624,163) 12,070,086 $ (0.05)
============== ============== ===========
For the nine months ended September 30, 2000
--------------------------------------------
Basic Earnings per Share
Income available to common shareholders $ (2,112,233) 12,662,170 $ (0.17)
============== ============== ===========
For the three months ended September 30, 1999
---------------------------------------------
Basic Earnings per Share
Income available to common shareholders $ (311,099) 11,060,826 $ (0.03)
============== ============== ===========
For the nine months ended September 30, 1999
--------------------------------------------
Basic Earnings per Share
Income available to common shareholders $ (1,024,874) 10,922,645 $ (0.09)
============== ============== ===========
</TABLE>
10
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued):
--------------------------------------------------------------------
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per common share for the nine months ended September 30, 2000
and 1999 are not presented as it would be anti-dilutive.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements.
Fixed Assets
Fixed assets are stated at cost. Depreciation and amortization are computed
using the straight- line method over the estimated economic useful lives of the
related assets as follows:
Computer equipment 3 years
Office furniture and fixtures 5-10 years
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their estimated economic useful lives.
Intangibles
Intangibles associated with certain technology agreements are amortized
over 10 -14 years.
NOTE 2 - INCOME TAXES
The Company has accumulated tax losses estimated at $8,000,000 expiring in
years 2007 through 2014. 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.
11
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
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 and have continued on a month
to month basis since that time.
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 nine months ended September 30, 2000 and 1999, the Company
expended $216,438 and $424,120, 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
12
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
NOTE 4 - RESEARCH AND DEVELOPMENT (continued):
(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.
On March 29, 2000 the Company entered into a settlement agreement with WWC
pursuant to which WWC is to transfer 7,000 common shares of the Company's stock
back to the Company by April 14, 2000 in satisfaction of any and all claims in
connection with the Klever Kart project.
NOTE 5- RELATED PARTY TRANSACTIONS
During 1998 various shareholders loaned the Company $347,100. The notes are
payable within one year plus interest at 10% and 12% per annum. During 1999 and
the nine months ended September 30, 2000 principle payments of $155,850 and
$62,500 were paid toward these loans. During the nine months ended September 30,
2000, various shareholders loaned the Company $1,015,000. The notes are payable
within one year plus interest at 8%, 10% and 12% per annum. The total balance
due as of June 30, 2000 is $1,143,750.
On February 1, 2000 an accrued liability in the amount of $306,666.64 was
converted to common shares by exercise of options for the purchase of 579,585
shares at $.86 per share and a note receivable in the amount of $191,776.46. The
note is payable in thirty-six equal installments with interest at the rate of
eight percent. The note is collateralized by 100,000 shares of the Company's
common shares.
NOTE 6- STOCK OPTIONS
The shareholders approved, by a majority vote, the adoption of the 1998
Stock Incentive Plan (the "Plan"). Under the Plan, 3,500,000 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 had been granted
under the Plan. Compensation expense charged to operations in 1999 and 1998 is
$24,010 and $11,247. Compensation expense charged to operations for the nine
months ending September 30,2000 is $297,686. The following is a summary of
transactions:
13
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
NOTE 6- STOCK OPTIONS (continued):
Shares Under Option
-----------------------------
September 30, December 31,
-----------------------------
2000 1999
---------- ----------
Outstanding, beginning of year ................. 2,898,059 1,675,355
Granted during the year ........................ 745,172 1,284,641
Canceled during the year ....................... (290,892) --
Exercised during the year ...................... (161,545) (61,937)
---------- ----------
Outstanding, end of year (at prices
ranging from $.86 to $3.61 per share) .......... 3,190,794 2,898,059
========== ==========
Eligible, end of year for exercise
currently (at prices ranging from
$.86 to $3.61 per share) ....................... 3,190,794 2,898,059
========== ==========
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
shares 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
June 30, 2000 the Company has fulfilled its obligation to Mr. Begum and Mr.
Geiger, respectively.
NOTE 8 - PREFERRED STOCK
On February 7, 2000 the Board of Directors authorized and established
"Class A Voting
14
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
NOTE 8 - PREFERRED STOCK (continued):
Preferred Stock Series 1. " ("Class A Shares") as a class of its $.01 par value,
2,000,000 shares authorized, preferred stock. Class A Shares consist of
1,000,000 shares, 125,000 shares thereof are designated as Series 1 shares.
Class A Shares are convertible into Common Stock at an initial conversion
price of $2.60 (subject to adjustment).
Holders of Class A Shares shall be entitled to receive when and as declared
by the Board of Directors of the Company out of any funds at the time legally
available therefor dividends at the rate of $2.20 per share per annum, payable
semi-annually on the first day of January and July of each year. Such dividends
shall accrue on each such share from the date of its original issuance and shall
accrue from day to day, whether or not earned or declared. Such dividend shall
be cumulative and may be paid in cash or in kind through the distribution of
.0425 Class A Shares, Series 1, for each outstanding Class A Share, on each
dividend payment date. In addition, each holder of Class A Shares shall be
entitled to receive, when and as declared, a dividend equal to each dividend
declared and paid on the shares of Common Stock, on a share for share basis. If
there is a split or dividend on the Common Stock, then the Class A Shares
dividends shall be adjusted as if a similar split or dividend had occurred with
respect to the Class A Shares.
Class A Shareholders shall be entitled to one vote for each share of Common
Stock into which such Class A Shares could then be converted, and shall have
voting rights and powers equal to that of a holder of Common Stock. The Holders
of Class A Shares shall vote with the holders of Common Stock and not as a
separate class.
Class A Shares carry a liquidation preference of $26 per share plus any
accrued but unpaid dividends on such shares, if any, and adjusted for
combinations, splits, dividends or distributions of shares of stock with respect
to such shares.
The Class A Shares shall be redeemable by the Company, in whole or in part,
at the option of the Board of Directors of the Company, at any time and from
time to time on or after July 1, 2002. The redemption price shall be $26 per
share together with accrued but unpaid dividends on such shares, if any.
NOTE 9 - SUBSEQUENT EVENTS
On October 30, 2000 the Company sold 28,979 shares of common stock for
$1.56 per share.
15
<PAGE>
KLEVER MARKETING, INC
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Continued)
NOTE 9 - SUBSEQUENT EVENTS (continued):
On October 30, 2000, the Company repaid a note payable of $15,000.
16
<PAGE>
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's goal is to become the leading supplier of
in-store promotions and advertising technology for grocery and other
mass-merchandise retailers. To accomplish this goal, the Company intends to
expand its product offerings to include: (i) electronic couponing (2001) to
eliminate the need for and reduce the costs related to paper coupons (including
fraud, mis- redemption and mal-redemption); (ii) the establishment of targeted
Internet links to enhance customer loyalty with frequent shopper programs and
personal shopping programs; (iii) capturing Point-of-Selection data in the
aggregate for providing data warehousing and mining services to various
interested parties; (iv) the introduction of an electronic locking mechanism to
prevent pilferage of shopping carts; and (v) certain other in-store services.
Additionally, the Company intends to expand the Klever-Kart System's application
to other retailers including superstores, discount stores, toy stores and
warehouse stores. Following is a description of the Company's growth strategy,
which is dependent upon the Company securing additional financing after this
offering:
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.
Future Business Development
1. Technological Innovation and Expanded Product Offerings
The Company is in the process of developing various product enhancements for its
retail grocer and consumer goods manufacturer clients and expects to offer these
enhancements throughout the years 2001 and 2002. These product enhancements
include electronic coupons, the Klever-Kard*
17
<PAGE>
enhancement to existing frequent shopping programs ("Klever-Kard Program") and
the Kart-Lock* grocery cart pilferage reduction program ("Kart-Lock Program").
Electronic Couponing
The Company expects to complete the development and testing of the electronic
coupon feature of the Klever-Kart System in early 2001. The Company expects the
electronic coupon feature to be well received by the consumer goods companies,
retailers and consumers because it (i) reduces handling costs for both the
retailer and consumer goods manufacturer; (ii) virtually eliminates mis-
redemption, mal-redemption and fraud associated with paper coupons; and (iii)
makes coupon use convenient for the consumer. In addition, this feature is
expected to permit the consumer goods manufacturer or retailer to electronically
alter the face value of coupon to rapidly customize it for competitive
situations, seasonal trends or to alter its value or expiration based upon
predetermined redemption rates.
Industry sources indicate the number of coupons redeemed annually in the U.S. is
approximately 5.3 billion with coupon fraud accounting for more than $300
million in losses to the consumer goods companies. The Company believes the
electronic coupon feature of the Klever-Kart System will be superior to
competitor product offerings due to the virtual elimination of mis-redemption,
mal- redemption and fraud associated with paper coupons.
Klever-Kard Program
The Company expects to introduce the Klever-Kard Program in 2001. The
Klever-Kard Program is a frequent shopper program enhancement that is expected
to permit consumer goods companies and retailers to target specific promotional
campaigns to individual consumers based upon demographics and personal buying
history. Further development of the Klever-Kard Program is expected to include
targeted Internet tie-ins, direct mail, rebates, download of shopping
lists/recipes, product sampling and electronic contest entry. Information from
individual consumer card usage is expected to produce individual customer
profiles and track specific marketing and purchasing trends. Using this
precedent in conjunction with the Klever-Kart System, the Company expects to
sell customer profile information to consumer research companies, consumer goods
companies and retailers.
Kart-Lock Program
The Company is investigating strategic alliances for the shopping cart and
expects to introduce this product to retailers in 2001. The electronic locking
system is expected to reduce the pilferage of shopping carts by electronically
locking the shopping cart's wheel when it is moved beyond the vicinity of the
retailer.
2. Expand Retailer Base
The Company expects to expand the Klever-Kart System's orientation to other
retailers, including superstores, discount stores, toy stores, do-it-yourself
(DIY) stores and warehouse stores. The
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Company plans to install the Klever-Kart System in a pilot store at two or more
key retailers across the U.S. The Company believes that the existing Klever-Kart
System can be easily adapted to meet the requirements of retailers operating in
a variety of environments.
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 $ 1,126,000 and $ 1,195,000 for
the nine months ended September 30, 2000 and 1999, respectively.
Investing activities have used cash of $ 923,000 and $ 109,000 for the nine
months ended September 30, 2000 and 1999, 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 $ 2,246,000 and $ 1,303,000 for the nine
months ended September 30, 2000 and 1999, respectively. Financing activities
primarily represent sales of the Company's common and preferred 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
The Company sold 68,744 shares of common stock during the three months ended
September 30, 2000 to individuals for $ .86 to $3.99 per share. The Company also
sold 41,177 shares of preferred stock during the three months ended September
30, 2000 to other companies for $26 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.
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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 13, 2000
------------------------
By: /s/ Paul G. Begum
Paul G. Begum
Chief Executive Officer & Director
(Principal financial and Accounting Officer)
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