U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM To
------------------------------------------------
COMMISSION FILE NUMBER 0-18834
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KLEVER MARKETING, INC.
(Name of small business issuer in its charter)
DELAWARE 36-3688583
- ------------------------------ ---------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
350 WEST 300 SOUTH, SUITE 201, SALT LAKE CITY, UTAH 84101
(Address of principal executive offices) (zip code)
ISSUER'S TELEPHONE NUMBER (801) 322-1221
---------------
Securities registered under Section 12(b) of the Act: NONE Securities registered
under Section 12(g) of the Act:
COMMON STOCK PAR VALUE $0.01
----------------------------
(Title of class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
TOTAL PAGES: 15
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EXHIBIT INDEX PAGE: 14
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Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [X]
STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR. $ -0-
-----
As of March 16, 2000, there were 11,985,566 shares of the Registrant's
common stock, par value $0.01, issued and outstanding. The aggregate market
value of the Registrant's voting stock held by non-affiliates of the Registrant
was approximately $29,711,528 computed at the closing price as of March 16,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"):
NONE
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES ; NO X
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2
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TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE
PART I
Item 1. Description of Business 4
Item 2. Description of Property 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 5
Item 6. Management's Discussion and Analysis or Plan of Operations 7
Item 7. Financial Statements 9
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 9
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 9
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial Owners and Management 12
Item 12. Certain Relationships and Related Transactions 13
Item 13. Exhibits and Reports on Form 8-K 14
3
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
GENERAL
The Company was formed for the purpose of creating a vehicle to obtain
capital, to file and acquire patents, to seek out, investigate, develop,
manufacture and market electronic in-store advertising, directory and coupon
services which have potential for profit. The Company is currently IN THE
PROCESS OF THE COMMERCIALIZATION OF THE PATENTED PROCESS, KLEVER-KART(R), it has
acquired.
HISTORY
The company began as a part of Information Resources, Inc. ("IRI") in
1987, was incorporated as a subsidiary of IRI under the laws of the State of
Delaware on December 8, 1989, and was fully distributed to stockholders of IRI
in a spinoff on October 31, 1990. At the time of the spinoff a portion of the
business and assets of the Company included a software operation in Australia,
which was sold in March, 1993. The Company (VideOCart, Inc.) filed petitions for
relief under Chapter 11 bankruptcy in December 1993. The Company was inactive
until July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse
merger and changed its name to Klever Marketing, Inc. The Company was in the
development stage during the period from July 5, 1996 to June 30, 1998.
ITEM 2 DESCRIPTION OF PROPERTY
On June 1, 1994 the Company entered into a six year commercial lease of
office space with Tree of Stars, Inc./P.D.O. (major shareholders of the
Company). The office space is used as the Corporate headquarters and is located
at 350 West 300 South, Suite 201, Salt Lake City, Utah. The lease provides for
rental payments of $22,428 for two years, increasing to $25,726 for an
additional two years with a provision for the review of the rental payment
requirements every two years thereafter.
In January 1998 the parties agreed to modify the June 1, 1994 lease.
The Company's lease commitments for office space with Tree of Stars, Inc./P.D.O.
consist of two leases with payments of $26,743 and $10,496 per year. Both lease
commitments expired December 31, 1998 and have continued on a month to month
basis since that time.
4
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ITEM 3 LEGAL PROCEEDINGS
NONE
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during 1999
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The stock is traded OTCBB with the trading symbol KLMK.
The following table set forth the high and low bid of the Company's
Common Stock for each quarter within the past two years. The information below
was provided by S & P Comstock and reflects inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions:
1998: High Low
First Quarter $ 3.63 $ 2.38
Second Quarter $ 3.50 $ 2.38
Third Quarter $ 3.38 $ 1.75
Fourth Quarter $ 2.88 $ 1.56
1999:
First Quarter $ 2.88 $ 1.50
Second Quarter $ 2.38 $ 1.50
Third Quarter $ 4.44 $ 2.00
Fourth Quarter $ 4.13 $ 1.50
5
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The number of shareholders of record of the Company's common stock as
of March 10, 2000 was 820.
The Company has not paid any cash dividends to date and does not
anticipate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Company's business.
RECENT SALES OF UNREGISTERED SECURITIES.
The Company sold 880,302 shares of common stock during 1999. 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. (See Item &. Financial Statements, Statement of Stockholders' Equity,
pages F - 7 through F - 9)
On February 7, 2000 the Board of Directors authorized and established
"Class A Voting 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
Share 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.
6
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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.
ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
PLAN OF OPERATIONS - The Company was formed for the purpose of creating a
vehicle to obtain capital, to file and acquire patents, to seek out, investigate
develop, manufacture and market electronic in-store advertising, directory and
electronic coupon services which have potential for profit. The Company is
currently in the process of the commercialization of the patented process,
KLEVER-KART(R) it has acquired. The commercialization process is divided into
five phases as follows:
Phase I: System Development and Product Movement Test.
The product movement test was completed during third quarter 1997. The
test took place in a Smith's Food and Drug store located in Salt Lake City,
Utah. Information Resources, Inc., an independent company audited the results of
the test and reported an average 46.84% incremental product movement.
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 2000 THE COMPANY PLANS TO PLACE KLEVER-KART(R) units in 115
stores in targeted retail chains. Target stores include major national and
regional chains.
Phase IV: Electronic Coupon Integration.
Final definition of the Electronic Coupon system is scheduled to begin
the fourth quarter of 2000. 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
7
<PAGE>
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 during 2001.
Phase V: Future Development.
THE KLEVER-KARDTM frequent shopper program is scheduled for
introduction in early 2001. THIS DYNAMIC MICRO-MARKETING CAPABILITY WILL BE
ADDED TO THE KLEVER-KART(R) system, allowing targeted promotions to individual
customers according to demographics and personal buying history.
In order to satisfy its cash requirements, the company will have to
raise additional funds through the sale of restricted stock, joint ventures or
short term borrowings..
RESULTS OF OPERATIONS - The Company was inactive until July 5, 1996 when the
Company merged with Klever Kart, Inc. in a reverse merger and changed its name
to Klever Marketing, Inc. The Company was in the development stage until June
30, 1998.
LIQUIDITY AND CAPITAL RESOURCES - The Company requires working capital
principally to fund its current research and development and operating expenses
for which the Company has relied on short-term borrowings and the issuance of
restricted common stock. There are no formal commitments from banks or other
lending sources for lines of credit or similar short-term borrowings, but the
Company has been able to borrow any additional working capital that has been
required. From time to time in the past, required short-term borrowings have
been obtained from a principal shareholder or other related entities.
Cash flows. Operating activities used cash of $1,176,891 and $574,000
for 1999 and 1998 respectively. The increase in the use of cash is due primarily
to an increase in general and administrative costs.
Investing activities have used cash of $470,530 and $34,000 for 1999
and 1998, respectively. Investing activities primarily represent purchases of
phase 2 equipment, patents relating to the electronic in-store advertising,
directory and coupon devices, and purchases of office equipment.
Financing activities provided cash of $1,805,282 and $643,000 for 1999
and 1998, respectively. Financing activities primarily represent sales of the
Company's restricted stock, and short term borrowings.
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:
8
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The foregoing statements are based upon management's current
assumptions.
ITEM 7 FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are
included beginning immediately following the signature page to this report. See
Item 13 for a list of the financial statements and financial statement schedules
included.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company
and its accountants on any matter of accounting principles, practices or
financial statements disclosure.
PART III
ITEM 9 DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age, and position of each
executive officer and director of the Company:
DIRECTOR'S NAME AGE OFFICE TERM EXPIRES
Paul G. Begum 61 CEO Next annual shareholder meeting
William Bailey 65 Director Next annual shareholder meeting
Gerard C. Coelsch 56 President/COO Until July, 1999
Michael L Mills 37 Director Next annual shareholder meeting
Abel T. Porter 41 Director Next annual shareholder meeting
9
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Paul G. Begum, age 61, has been the President/CEO of Klever Marketing,
Inc. for the past five years through the merger date, and is now the CEO of the
Company after the merger. Mr. Begum was also the President/CEO of Hi, Tiger
International from February 14, 1995 through October 1996, and the President of
Tree of Stars, Inc., a private company, PSF, Inc., a private company, and
Maktoob Inc., a private company, for all of the past five years to the present
William Bailey, age 65, has been a Director of Klever Marketing, Inc.
for the past five years through the merger date, and is now a Director of the
Company after the merger. Mr. Bailey has also been the President/CEO of Mount
Olympus Water, a private company, during all of the past five years to present.
Michael L. Mills, age 37, has been a Director of Klever Marketing, Inc.
since November 1998. For the past five years prior to November 1998, Mr. Mills
was President/COO of Olson Farms, a private company. On November 1998, Mr. Mills
became Chairman/CEO of Olson Farms.
Abel T. Porter, age 41, has served on the board since September 1999.
Mr. Porter has held many executive positions including Senior Vice President of
Operations, Vice President of Sales and Merchandising, District Manager and
Store Director in both the Intermountain and Southwest regions.
ITEM 10 EXECUTIVE COMPENSATION
Summary Compensation
The following table set forth, for the last three fiscal years, the
annual and long term compensation earned by, awarded to, or paid to the
individuals who were chief executive officer and chief operations officer at any
time during the last fiscal year.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
(A) (B) (C) (D) (E) (F) (G) (H) (I)
---- --- --- --- --- --- --- --- ---
OTHER SECURITIES
YEAR ANNUAL RESTRICTED UNDERLYING ALL OTHER
---- ------ ---------- ---------- ---------
ENDED COMPEN- STOCK OPTIONS/ LTIP COMPEN-
----- ------- ----- -------- ---- -------
NAME AND DEC. SALARY BONUS SATION AWARD(S) SAR'S PAYOUTS SATION
-------- ---- ------ ----- ------ -------- ----- ------- ------
PRINCIPAL POSITION 31 ($)(1) ($) ($) ($) (NO.) ($) ($)
------------------ -- ------ --- --- --- ----- --- ---
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PAUL G. BEGUM 1999 $ 77,700 - - - - - -
CEO 1998 $ 77,700 - - - - - -
1997 $ 72,000 - - - - - -
- - - - - -
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GERARD C. COELSCH 1999 $ 126,661 - - - - - -
Former President/COO 1998 $ 109,000 - - - - - -
</TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
THE FOLLOWING TABLE SETS FORTH INFORMATION RESPECTING ALL INDIVIDUAL
GRANTS OF OPTIONS AND SARS MADE DURING THE LAST COMPLETED FISCAL YEAR BY THE
CHIEF EXECUTIVE OFFICER AND CHIEF OPERATIONS OFFICER OF THE COMPANY.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SAR'S EMPLOYEES DURING EXERCISE OF BASE
NAME GRANTED (NO.) FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul G. Begum 237,000 18% $2.75 August 2, 2004
CEO
</TABLE>
Aggregate Option/SAR Exercises in the Last Fiscal Year and year End Option/SAR
Values
The following table sets forth information respecting the exercise of
options and SARs during the last completed fiscal year by the chief executive
officer and the chief operations officer of the Company and the fiscal year end
valued of unexercised options and SARs.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options/SARs at FY
Options/SARs at End ($)
FY End (no.)
Shares Acquired Exercisable/ Exercisable/
Name On Exercise (no.) Value Realized ($) Unexercised Unexercised
<S> <C> <C> <C> <C>
Paul G. Begum -- -- 850,564 $ 2,976,974(1)
CEO
Gerard C. Coelsch -- -- 200,000 $ 700,000(1)
Former President/COO
</TABLE>
11
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(1) Based on the closing price of the Company's stock on March 16, 2000 at
$3.50 per share.
Executive Compensation and Benefits
The Company provides to all of its full time employees, including
executive officers and directors, health insurance and miscellaneous other
benefits.
On July 7, 1992, the board of directors approved a resolution that the
Company will obtain an automobile for Paul G. Begum once the Company has
received $2,000,000 in financing from investors introduced to the company by Mr.
Begum, the Company will incur monthly lease/payment costs of approximately $500
for an automobile for Mr. Begum. On May 20, 1998 the Company leased an
automobile for Mr. Begum at $621 per month. In addition PSF, Inc. (As Mr.
Begum's assign) will receive cash of $50,000 in consideration for the assignment
of the electronic coupon patent. In 1999 the Company paid $35,500 towards the
electronic coupon patent. In 1998 the Company paid $10,000 towards the
electronic coupon patent.
ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The table below sets forth information as to each person owning of
record or who was known by the Company to own beneficially more than 5% of the
11,985,566 shares of issued and outstanding Common Stock, including options to
acquire stock of the Company as of March 10, 2000 and information as to the
ownership of the Company's Stock by each of its directors and executive officers
and by the directors and executive officers as a group. Except as otherwise
indicated, all shares are owned directly, and the persons named in the table
have sole voting and investment power with respect to shares shown as
beneficially owned by them.
# OF
NAME AND ADDRESS NATURE OF SHARES
OF BENEFICIAL OWNERS OWNERSHIP OWNED PERCENT
DIRECTORS
PRINCIPAL SHAREHOLDERS
Tree of Stars, Inc. Direct 2,542,967 21.21%
PSF Direct 639,585 5.34%
Peter D. Olson, Trust Direct(1) 2,006,627 16.74%
12
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C. Terry Warner Direct 1,062,111 8.86%
DIRECTORS AND EXECUTIVE OFFICERS
Paul G. Begum Direct(2) 3,314,386 27.65%
OPTIONS(2) 270,979 2.26%
---------- ------
TOTAL 3,585,365 29.91%
========== ======
William Bailey Direct 43,193 .36%
OPTIONS 36,786 .31%
---------- ------
TOTAL 79,979 2.46%
========== ======
Michael L. Mills Direct 113,979 .95%
OPTIONS 12,000 .10%
---------- ------
TOTAL 125,979 1.05%
---------- ======
Abel T. Porter Direct 25,000 .21%
ALL EXECUTIVE OFFICERS AND
DIRECTORS AS A GROUP (3
PERSONS) Direct 3,496,558 29.17%
OPTIONS 319,765 2.67%
---------- ------
TOTAL 3,816,323 31.84%
========== ======
(1) The Olson Trust ownership includes 759,765 shares held by Olson Farms,
28,979 shares held by the Mills Family Trust, 452,132 shares held in
care of Linda Olson, 20,000 shares held by the Olson Family Trust,
150,000 shares held by the Olson Foundation, 311,834 shares held by the
Peter D. Olson Trust, 168,000 shares held by the Estate of Peter D.
Olson, 115,917 shares held by Peter D. Olson IRA.
(2) Mr. Begum's ownership includes 2,542,967 shares held by Tree of Stars,
Inc., a corporation of which Mr. Begum is a director, officer, and
principal shareholder, 639,0585 shares held by PSF, Inc., a private
company, of which Mr. Begum is President and principal shareholder, and
100,000 shares held by the Reed H. Bradford Center for Christian
Living, a 509(a)(1) publicly supported organization.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 various officers and directors loaned the Company $347,100.
The notes are
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payable within one year plus interest at 10% and 12% per annum. During 1999 and
1998 principle payments of $155,850 and $12,500 were paid toward these loans.
The balance due as of December 31, 1999 is $191,250.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. FINANCIAL STATEMENTS PAGE
----
Report of Robison, Hill & Co., Independent Certified Public Accountants.....F-1
Balance Sheets
December 31, 1999, and 1998...............................................F-2
Statements of Loss
For the Years Ended December 31, 1999, and 1998...........................F-3
Statement of Stockholders' Equity
For the Years Ended December 31, 1999, and 1998...........................F-4
Statements of Cash Flows
For the Years Ended December 31, 1999, and 1998..........................F-10
Notes to Financial Statements
December 31, 1999 and 1998...............................................F-12
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
3. EXHIBITS
The following exhibits are included as part of this report:
Exhibit
Number Title of Document
3.01 ARTICLES OF INCORPORATION OF KLEVER MARKETING, INC. A DELAWARE
CORPORATION(1)
3.02 BYLAWS(1)
10.01 EMPLOYMENT AGREEMENT FOR GERARD C. COELSCH(1)
23.01 CONSENT OF ACCOUNTANTS(1)
(1) Incorporated by Reference
(b) No reports on Form 8-K were filed.
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SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.
KLEVER MARKETING, INC.
DATED: MARCH 21, 2000 BY /S/ PAUL G. BEGUM
-------------------------
Paul G. Begum
C.E.O., Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 21st day of March 2000.
Signatures Title
/S/ PAUL G. BEGUM
Paul G. Begum C.E.O., Director
(Principal Executive, Financial
and Accounting Officer)
/S/ WILLIAM C. BAILEY
William C. Bailey Director
/S/ MICHAEL L. MILLS
Michael L. Mills Director
/S/ ABEL T. PORTER
Abel T. Porter Director
15
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INDEPENDENT AUDITOR'S REPORT
Board of Directors
Klever Marketing, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Klever Marketing,
Inc. as of December 31, 1999 and 1998, and the related statements of operations,
changes in stockholders' equity and cash flows for the two years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Klever Marketing,
Inc., as of December 31, 1999 and 1998, and the results of its operations and
its cash flows for the two years then ended in conformity with generally
accepted accounting principles.
Respectfully submitted,
/S/ ROBISON, HILL & CO.
Certified Public Accountants
Salt Lake City, Utah
February 26, 2000
F - 1
<PAGE>
KLEVER MARKETING, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
ASSETS ....................................................... 1999 1998
- ------ ----------- -----------
Current Assets
<S> <C> <C>
Cash .................................................... $ 203,232 $ 45,371
Shareholder Receivables ................................. 34,892 136,821
----------- -----------
Total Current Assets ............................... 238,124 182,192
----------- -----------
Fixed Assets
Office Equipment ........................................ 77,279 64,269
Phase 2 Equipment ....................................... 445,330 2,550
Less Accumulated Depreciation ........................... (56,798) (47,301)
----------- -----------
Net Fixed Assets ................................... 465,811 19,518
----------- -----------
Other Assets
Patents ................................................. 2,212,850 2,198,110
Less Accumulated Amortization ........................... (1,266,201) (1,058,244)
----------- -----------
Net Other Assets ................................... 946,649 1,139,866
----------- -----------
Total Assets ....................................... $ 1,650,584 $ 1,341,576
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts Payable, Trade ................................. $ 401,708 $ 613,080
Accrued Liabilities ..................................... 458,563 65,058
Related Party Payables .................................. 191,250 347,100
Short-term Notes Payable ................................ 259,115 --
----------- -----------
Total Current Liabilities .......................... 1,310,636 1,025,238
----------- -----------
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. 11,275,121 shares issued and outstanding
December 31, 1999 and 10,394,819 shares issued and
outstanding December 31, 1998 ...................... 112,751 103,948
Common Stock to be issued ............................... 4,589 4,589
Paid in Capital in Excess of Par Value .................. 8,375,350 6,625,919
Retained Deficit ........................................ (8,152,742) (6,418,119)
----------- -----------
Total Stockholders' Equity ......................... 339,948 316,337
----------- -----------
Total Liabilities and Stockholders' Equity ......... $ 1,650,584 $ 1,341,576
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF LOSS
For the Year Ended
December 31,
-----------------------------
1999 1998
------------ ------------
Revenue ...................................... $ -- $ 229,000
------------ ------------
Expenses
General and administrative ................. 1,015,700 866,106
Research and development ................... 689,558 854,786
------------ ------------
Total Expenses .......................... 1,705,258 1,720,892
------------ ------------
Other income (expense)
Interest income ............................ 1,276 1,182
Interest expense ........................... (30,541) (7,350)
Capital gain on sale of investment ......... -- 1,234
------------ ------------
Total Other Income (Expense) ............ (29,265) (4,934)
------------ ------------
Income (Loss) Before Taxes ................... (1,734,523) (1,496,826)
Income Taxes ................................. 100 100
------------ ------------
Net Income (Loss) After Taxes ................ $ (1,734,623) $ (1,496,926)
============ ============
Weighted Average Shares
Outstanding ................................ 11,361,021 10,156,672
============ ============
Loss Per Share ............................... $ (0.15) $ (0.15)
============ ============
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
-------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 ........ -- $ -- 9,795,314 $ 97,953 490,282 $ 4,903 $ 5,292,308 $(4,921,193)
January 1998 shares issued to
individuals for cash at
$1.50 per share ................ -- -- 86,666 867 (10,000) (100) 114,232 --
January 1998 shares issued for
1,500 shares of Avtel stock at
$3.00 per share ................ -- -- 4,125 41 -- -- 12,334 --
January 1998 shares issued to
companies for services at
$2.82 - $7.80 per share ........ -- -- 2,930 29 -- -- 13,848 --
February 1998 shares issued to
company for research and
development contract ........... -- -- 46,366 464 (46,364) (464) -- --
February 1998 shares issued to
individual for cash at
$2.50 per share ................ -- -- 100,000 1,000 -- -- 249,000 --
April 1998 shares issued to
employee for compensation at
$2.63 per share ................ -- -- 1,426 14 -- -- 3,736 --
April 1998 shares issued to
company for legal services at
$3.00 per share ................ -- -- 1,620 16 -- -- 4,844 --
</TABLE>
F - 4
<PAGE>
KLEVER MARKETING, INC,
STATEMENT OF STOCKHOLDER'S EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
-------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 1998 to individual for
consulting services at
$2.79 per share ................ -- $ -- 3,763 $ 38 -- $ -- $ 10,462 $ --
June 1998 reduction of stock price
on employee's stock ............ -- -- -- -- -- -- (1,250) --
July 1998 shares issued to officer
for patent purchase at
$2.94 per share ................ -- -- 150,000 1,500 25,000 250 512,313 --
July 1998 shares issued for
receivables at $1.50 per share . -- -- 25,000 250 -- -- 37,250 --
July 1998 shares issued to
employee for compensation at
$3.06 per share ................ -- -- 1,225 12 -- -- 3,736 --
July 1998 shares issued for
cash at $2.50-$3.00 per share .. -- -- 33,000 330 -- -- 89,670 --
September 1998 shares issued to
company for accounts receivable -- -- 86,937 870 -- -- 136,396 --
September 1998 for shares issued
for cash at $2.00 - $2.25 per
share .......................... -- -- 30,900 309 -- -- 62,341 --
</TABLE>
F - 5
<PAGE>
KLEVER MARKETING, INC,
STATEMENT OF STOCKHOLDER'S EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
-------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 1998 shares issued to
individual for consulting services
at $3.00 per share ............. -- $ -- 3,818 $ 38 -- $ -- $ 11,416 $ --
September 1998 shares issued to
individuals for accounts receivable
at $2.00 per share ............. -- -- 7,500 75 -- -- 14,925 --
October 1998 shares issued to
individuals for cash at
$2.00 per share ................ -- -- 1,000 10 -- -- 1,990 --
October 1998 shares issued to
employees for accounts
receivable at $2.12 per share .. -- -- 10,000 100 -- -- 21,100 --
October 1998 shares issued to
company for legal services at
$2.00 per share ................ -- -- 1,517 15 -- -- 3,020 --
December 1998 shares returned at
$1.58 per share ................ -- -- (42,493) (425) -- -- (66,667) --
December 1998 shares issued to
individuals for cash at
$2.25 per share ................ -- -- 42,493 425 -- -- 95,183 --
</TABLE>
F - 6
<PAGE>
KLEVER MARKETING, INC,
STATEMENT OF STOCKHOLDER'S EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
-------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 1998 shares issued to
employee for compensation at
$2.19 per share ............... -- $ -- 1,712 $ 17 -- $ -- $ 3,732 $ --
Net Loss ......................... -- -- -- -- -- -- -- (1,496,926)
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 ..... -- -- 10,394,819 103,948 458,918 4,589 6,625,919 (6,418,119)
January 1999 shares returned at
$.67 to $1.58 per share ....... -- -- (62,489) (624) -- -- (107,047) --
January & February 1999 issued
shares to individuals for cash at
$2.00 per share ............... -- -- 112,500 1,125 -- -- 223,875 --
January & February 1999 issued
shares to individuals for cash at
$2.25 per share ............... -- -- 224,444 2,244 -- -- 502,755 --
January 1999 shares issued to
employee for compensation at
$2.34 per share ............... -- -- 1,328 13 -- -- 3,094 --
</TABLE>
F - 7
<PAGE>
KLEVER MARKETING, INC,
STATEMENT OF STOCKHOLDER'S EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
-------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April & June 1999 issued shares
to individuals for cash at
$2.25 to $2.50 per share ...... -- -- 40,689 407 -- -- 91,344 --
April 1999 shares issued to
employee for compensation at
$1.95 per share ................ -- -- 1,667 17 -- -- 3,093 --
June 1999 shares issued for
exercise of option at $.86
per share ...................... -- -- 231,834 2,318 -- -- 197,059 --
July 1999 shares issued to
for cash at $2.25 per share .... -- -- 72,500 725 -- -- 162,400 --
July & August 1999 shares issued
to individuals for cash at $2 50
per share ...................... -- -- 78,500 785 -- -- 195,465 --
July 1999 issued shares to
employee for cash at $1.96
per share ..................... -- -- 1,285 13 -- -- 2,506 --
August 1999 issued shares to
individuals for cash at $3.00 per
share .......................... -- -- 5,607 56 -- -- 16,764 --
</TABLE>
F - 8
<PAGE>
KLEVER MARKETING, INC,
STATEMENT OF STOCKHOLDER'S EQUITY
(Continued)
<TABLE>
<CAPTION>
Paid in
Common Stock Capital in
Preferred Stock Common Stock to be issued Excess of Retained
-------------- ------------------------ -------------------------
Shares Amount Shares Amount Shares Amount Par Value Deficit
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 1999 shares issued to
an individual exercise of option
at $.52 per share .............. -- -- 6,437 $ 64 -- $ -- $ 3,283 $ --
September 1999 shares issued to
an individual for cash at $2.75
per share ...................... -- -- 6,000 60 -- -- 16,440 --
October & November 1999 shares
issued to individuals for cash at
$2.75 per share ................ -- -- 160,000 1,600 -- -- 438,400 --
Net Loss .......................... -- -- -- -- -- -- -- (1,734,623)
------ ------ ----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 ......... -- $ -- 11,275,121 $ 112,751 458,918 $ 4,589 $ 8,375,350 $(8,152,742)
====== ====== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 9
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year ended
December 31,
-------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss .................................................. $(1,734,623) $(1,496,926)
Adjustments used to reconcile net loss to net cash provided
by (used in) operating activities:
Non cash general and administrative .................. 49,999 48,529
Compensation expense from stock options .............. 6,218 11,247
Stock issued for interest expense .................... -- --
(Increase) decrease in shareholder receivable ........ 101,928 --
Increase (decrease) in accounts payable .............. (211,372) 515,613
Increase (decrease) in accrued liabilities ........... 393,505 30,237
Increase (decrease) in related party payables ........ -- 332,069
Deferred income ...................................... -- (229,000)
Gain on sale of stock investment ..................... -- (1,234)
Depreciation and amortization ........................ 217,454 215,317
----------- -----------
Net Cash Used in Operating Activities ..................... (1,176,891) (574,148)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition/Sale of equipment, net ........................ $ (455,790) $ (9,270)
Acquisition of patents .................................... (14,740) (37,952)
Acquisition/Sale of stock investment, net ................. -- 13,609
----------- -----------
Net Cash Used by Investing Activities ..................... (470,530) (33,613)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds From capital stock issued ........................ 1,702,017 655,958
Proceeds from loans ....................................... 265,328 --
Principle payments on lease obligations ................... (6,213) (862)
Cash payments on notes payable ............................ (155,850) (12,500)
----------- -----------
Net Cash Provided by Financing Activities ................. 1,805,282 642,596
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ...... 157,861 34,835
Cash and Cash Equivalents at Beginning of the Year ........ 45,371 10,536
----------- -----------
Cash and Cash Equivalents at End of the Year .............. $ 203,232 $ 45,371
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest .................................................. $ 7,119 $ 5,351
Income Taxes .............................................. $ 100 $ 7,350
</TABLE>
F - 10
<PAGE>
KLEVER MARKETING, INC.
STATEMENT OF CASH FLOWS
(Continued)
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
o On January 28, 1998 the Company issued 4,125 shares of stock in
exchange for 1,500 shares of Avtel stock.
o On January 28, 1998 the Company issued 2,930 shares of stock in
exchange for legal and consulting services of $13,878.
o On February 23, 1998 the Company issued 46,366 shares of stock as final
payment on a contract.
o On April 1, 1998 the Company issued 1,426 shares of stock for employee
compensation of $3,750.
o On April 30, 1998 the Company issued 1,620 shares of stock for legal
services of $4,860.
o On June 3, 1998 the Company issued 3,763 shares of stock for consulting
services of $10,500.
o On July 1, 1998 the Company issued 150,000 shares of stock and 25,000
shares of stock to be issued for patent of $514,063.
o On July 1, 1998 the Company issued 25,000 shares of stock for an
accounts receivable of $37,500.
o On July 7, 1998 the Company issued 1,225 shares of stock for employee
compensation of $3,748.
o On September 17, 1998 the Company issued 86,937 shares of stock for
accounts receivable of $137,265.
o On September 18, 1998 the Company issued 3,818 shares of stock for
consulting services of $11,454.
o On September 28, 1998 the Company issued 7,500 shares of stock for
accounts receivable of $15,000.
o On October 28, 1998 the Company issued 10,000 shares of stock for
accounts receivable from employees of $21,200.
o On October 22, 1998 the Company issued 1,517 shares of stock for legal
services of $3,035.
o On December 3, 1998 20,271 shares of stock were returned to the
Company.
o On December 8, 1998 22,222 shares of stock were returned to the
Company.
o On December 16, 1998 1,712 shares of stock were issued for employee
compensation of $3,749.
o During January 1999, the Company issued 22,222 shares in exchange for
accounts payable of $49,999.
o During and February 1999, the Company issued 2,995 shares for employee
compensation of $6,218.
The accompanying notes are an integral part of these financial statements.
F - 11
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Klever Marketing, Inc. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
ORGANIZATION AND BASIS OF PRESENTATION
The Company was organized under the laws of the State of Delaware in
December 1989. The Company was in the Development stage from 1989 to 1991. The
Company was an operating company from 1992 to December 8, 1993 when it filed
petitions for relief under Chapter 11 bankruptcy. The Company was inactive until
July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse merger
and changed its name to Klever Marketing, Inc. The company was in the
development stage until June 30, 1998.
NATURE OF BUSINESS
The Company was formed for the purpose of creating a vehicle to obtain
capital, to file and acquire patents, to seek out, investigate, develop,
manufacture and market electronic in-store advertising, directory and coupon
services which have potential for profit. The Company is currently in the
process of the commercialization of the patented process it has acquired.
CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F - 12
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(CONTINUED):
- --------------------------------------------------------------------
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 financial
statements to conform with the 1999 presentation.
LOSS PER SHARE
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
Per-Share
LOSS SHARES AMOUNT
FOR THE YEAR ENDED DECEMBER 31, 1998
Basic Earnings per Share
Income available to common shareholders $(1,496,926) 10,156,672 $ (0.15)
=========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 1999
Basic Earnings per Share
Income available to common shareholders $(1,734,623) 11,361,021 $ (0.15)
=========== =========== ===========
Basic earnings per common share were computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
year. Diluted earnings per common share for the years ended December 31, 1999
and 1998 are not presented as it would be anti-dilutive.
F - 13
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(CONTINUED):
- --------------------------------------------------------------------
FIXED ASSETS
Fixed assets are stated at cost. Depreciation and amortization are
computed using the straight- line method over the estimated economic useful
lives of the related assets as follows:
Computer equipment 3 years
Office furniture and fixtures 5-10 years
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.
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.
F - 14
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
(Continued)
NOTE 4 - RESEARCH AND DEVELOPMENT
Research and development of the Klever-Kart System began with the sole
purpose of reducing thefts of shopping carts. A voice-activated alarm system was
envisioned. As time and technology progressed, the present embodiment of the
Klever-Kart System evolved into a "product specific" point-of-purchase
advertising system consisting of an easily readable electronic display that
attaches to any shopping cart, a shelf mounted message sending unit that
automatically sends featured products' ad-message to the display and a host
computer using proprietary software.
During the years ended December 31, 1999 and 1998, the Company expended
$689,558 and $854,786, respectively for research and development of the
technology involved with its patents.
On February 1, 1997 the Company entered into an agreement with ETC and
Digital Radio Communications Corp. ("DRCC")where by the Company exchanged
electronic components for a promissory note of $97,093 together with interest at
eight percent calculated on the basis of the actual number of days elapsed but
computed on a 360 day year. The principal balance, together with interest
thereon will be amortized over 18 monthly installments, commencing on the day
the "cost reduction and manufacturing" ("Commercial Service Agreement") contract
is executed and the first payment is made by the Company to ETC/DRCC and
continuing on the last day of each month thereafter until paid in full.
On February 13, 1998 the Company entered into the Commercial Service
Agreement (see above) with World Wireless Communications ("WWC") where WWC
agrees to provide consulting and engineering services related to the development
of a wireless shopping data display system. WWC may also offer alternative
approaches to design, construct and performance of the product.
The Company is required to pay a $10,000 deposit in connection with the
agreement, retained by WWC, which will be credited during final billing received
from WWC. The Company has agreed to provide WWC a bonus of $2,000 if the project
is completed by March 31, 1998. If the project duration is beyond April 15,
1998, WWC will be required to pay the Company a penalty of $2,000.
On February 13, 1998 the Company entered into a settlement agreement
with WWC (formerly Electronic Technology Corp.) pursuant to which the company
paid $30,000 and issued 46,364 shares of common stock to WWC in satisfaction of
any and all claims in connection with the September 26, 1994 contract. The
agreement also provides for 10,000 shares of WWC restricted common stock in
exchange for a promissory note in the amount of $97,093.
F - 15
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
(Continued)
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 1998 principle payments of $155,850 and $12,500 were paid toward these
loans. The balance due as of December 31, 1999 is $191,250.
NOTE 6- STOCK OPTIONS
The shareholders approved, by a majority vote, the adoption of the 1998
Stock Incentive Plan (the "Plan"). Under the Plan, 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. The following is a summary of transactions:
Shares Under Option
-----------------------
December 31,
-----------------------
1999 1998
---------- ----------
Outstanding, beginning of year ....................... 1,675,355 1,172,355
Granted during the year .............................. 1,284,641 542,500
Canceled during the year ............................. -- (29,500)
Exercised during the year ............................ (61,937) (10,000)
---------- ----------
Outstanding, end of year (at prices
ranging from $.86 to $3.61 per share) ................ 2,898,059 1,675,355
========== ==========
Eligible, end of year for exercise currently (at prices
ranging from $.86 to $3.61 per share) ................ 2,898,059 1,400,355
========== ==========
F - 16
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
(Continued)
NOTE 7 - CONTINGENCIES
On May 24, 1996, in consideration of the assignment in September 1993
to the company, certain technologies and patents relating to the electronic
couponing ("Electronic Coupon Patent") by Mr. Paul G. Begum, President/CEO and
Mr. Mark Geiger, V.P. Operations, the Board of Directors agreed to pay Mr. Begum
and Mr. Geiger 200,000 and 25,000 shares, respectively at a price of $.01 per
share for the electronic coupon patent. $132,750 was capitalized in 1996 as
patents. The shares are valued at $.60 per share as this was the value the
Company's stock was selling for when the assignment was made in September 1993.
As additional consideration for the Electronic Coupon Patent, the Board of
Directors has agreed to pay PSF, Inc.(as Mr. Begum's assign) and Mr. Geiger
$50,000 and $10,000, respectively upon receipt by the Company of $2,000,000 in
equity funding and when the Company has the necessary financing to conduct its
operations.
On February 25, 1997 Mr. Begum and Mr. Geiger received 200,000 and
25,000 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 December 31, 1999 the Company owes Mr. Begum and Mr. Geiger
$12,500 and $0, respectively.
NOTE 8 - PREFERRED STOCK
On February 7, 2000 the Board of Directors authorized and established
"Class A Voting 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
F - 17
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
(Continued)
NOTE 8 - PREFERRED STOCK (CONTINUED)
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 January 17, 2000 the former President of the Company used a cashless
exercise to receive 74,608 common shares in exchange for options of 125,392
shares.
On February 17, 2000 the Company sold 2,885 shares of Class A Preferred
Stock Series 1 for cash at $26 per share.
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.
On February 15, 2000 the Company sold 1,346 shares of Class A Preferred
Stock Series 1 for cash at $26 per share.
On February 14, 2000 the Company sold 1,538 shares of Class A Preferred
Stock Series 1 for cash at $26 per share.
F - 18
<PAGE>
KLEVER MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND1998
(Continued)
NOTE 9 - SUBSEQUENT EVENTS (CONTINUED)
On February 15, 2000 a short-term note payable in the amount of
$250,000 was converted to 9,615 shares of Class A Preferred Stock Series 1 at
$26 per share and 100,000 shares of common stock was converted to 10,576 shares
of Class A Preferred Stock Series 1 at $26 per share.
On February 15, 2000 the Company sold 21,285 shares of Class A
Preferred Stock Series 1 for cash at $26 per share less commission of $48,038.
On February 14, 2000 the Company issued 20,000 shares in connection
with the exercise of options at $1.5 per share by an investor.
On February 17, 2000 the Company sold 28,979 shares of restricted
common stock for cash at $1.07 per share.
On February 25, 2000 the Company sold 10,909 shares of restricted
common stock for cash at $2.75 per share.
F - 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF KLEVER MARKETING, INC. AS OF DECEMBER 31, 1999 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 203
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 238
<PP&E> 523
<DEPRECIATION> 57
<TOTAL-ASSETS> 1651
<CURRENT-LIABILITIES> 1311
<BONDS> 0
0
0
<COMMON> 113
<OTHER-SE> 227
<TOTAL-LIABILITY-AND-EQUITY> 1651
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> (1735)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1735)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
