KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying financial statements have been prepared on the basis of accounting principles applicable to a “going concern”, which assume that the Company will continue in operation for at least one year and will be able to realize its assets and discharge its liabilities in the normal course of operations.
Several conditions and events cast doubt about the Company’s ability to continue as a “going concern”. The Company has net income of $95,916 for the year ended December 31, 2008, due to other income of $164,991 as a result of forgiveness of debt. For the year ended December 31, 2007, the Company had net income of $1,563,899, due to extraordinary gain of $2,271,394 as a result of restructuring debt. The Company had a loss before extraordinary items of $707,494 for the year ended December 31, 2007. The Company has losses of $14,175,066 since inception. At December 31, 2008 and 2007, the company had working capital deficits in the amounts of $1,043,778 and $1,151,692 respectively.
The Company has a liquidity problem and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained.
The Company’s future capital requirements will depend on numerous factors including, but not limited to, continued progress in developing its products, and market penetration.
These financial statements do not reflect adjustments that would be necessary if the Company were unable to continue as a “going concern”. While management believes that the actions already taken or planned, will mitigate the adverse conditions and events which raise doubt about the validity of the “going concern” assumption used in preparing these financial statements, there can be no assurance that these actions will be successful.
If the Company were unable to continue as a “going concern”, then substantial adjustments would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported revenues and expenses, and the balance sheet classifications used.
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 has been in the development stage since this time.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
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, market and distribute electronic shopping cart based and in-store advertising, promotion and media content and retail shopper services, which have potential for profit. The Company is currently in the development stage and seeking new business opportunities.
NOTE 2 - 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.
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.
Use 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.
Reclassifications
Certain reclassifications have been made in the 2007 financial statements to conform with the 2008 presentation. These reclassifications are deemed immaterial to the financial statements taken as a whole.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
Effective January 1, 2007, the company adopted the provisions of SFAS No. 157, Fair Value Measurements. SFAS No. 157 provides a framework for the recognition, valuation and measurement of fair value of balance sheet items that would equal the price received to sell an asset or that would be paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The carrying value of the Company's financial instruments, including intangible assets, accounts payable and accrued liabilities at December 31, 2008 and 2007 approximates their fair values due to the short-term nature of these financial instruments. Management assigns no value to intangible assets because there is no market participant interest in the purchase of these assets or liabilities.
Earnings (Loss) Per Share
The computation of net earnings (loss) per share of common stock is based on the weighted average number of shares outstanding during each period presented. The Company utilizes the treasury stock method to calculate diluted earnings (loss) per share, which considers potentially issuable shares on common stock equivalents. In accordance with SFAS No. 128, "Earnings per Share," common stock options have a dilutive effect when the average market price of the common stock during the period exceeds the exercise price of the options.
Common stock equivalents for the company derive from two sources. Options, granted with the issue of common stock, that when exercised are converted to common stock and the potential common stock that may result from the application of an anti-dilutive rights clause contained in the designation of rights for preferred shares. The preferred share right allows an anti-dilution formula to calculate the number of common shares that the Company would be obligated to issue should the preferred share holders elect to convert their preferred shares to common shares.
The average market price of the Company's common stock during the years ended December 31, 2008 and 2007 was $0.03 and $0.02, respectively. As such, potentially issuable commons shares related to options were excluded from the calculation of diluted loss per share for the period ended December 31, 2008 and 2007 because their effect was anti-dilutive
At December 31, 2008 and 2007, the total number of potentially dilutive common stock equivalents is presented below:
| | 2008 | 2007 |
| Potential Common stock equivalents from stock options: | - | - |
| Potential Common stock equivalents from Preferred share rights: | 9,808,935 | 8,109,807 |
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
| | | Year ended | |
| | | December 31, | |
| Statement of Operations Summary Information: | | 2008 | | | 2007 | |
| | | | | | | |
| Numerator: | | | | | | |
| Income (loss) before extraordinary items | | $ | 95,916 | | | $ | (707,495 | ) |
| Income from extraordinary items, net of tax | | | - | | | | 2,271,394 | |
| Net income | | $ | 95,916 | | | $ | 1,563,899 | |
| | | | | | | | | |
| Denominator: | | | | | | | | |
| Weighted-average common shares outstanding | | | | | | | | |
| Basic | | | 46,530,769 | | | | 41,193,978 | |
| Conversion of preferred rights | | | 9,808,935 | | | | 8,109,807 | |
| Diluted | | | 56,339,704 | | | | 49,303,785 | |
| | | | | | | | | |
| EARNINGS (LOSS) PER SHARE: | | | | | | | | |
| Basic | | | | | | | | |
| Income (loss) before extraordinary items | | $ | 0.00 | | | $ | (0.02 | ) |
| Income from extraordinary items, net of tax | | | - | | | | 0.06 | |
| Net income | | $ | 0.00 | | | $ | 0.04 | |
| | | | | | | | | |
| Diluted | | | | | | | | |
| Income (loss) before extraordinary items | | $ | 0.00 | | | $ | (0.01 | ) |
| Income from extraordinary items, net of tax | | | - | | | $ | 0.05 | |
| Net income | | $ | 0.00 | | | $ | 0.04 | |
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. The Company is currently under the development stage and did not generate revenues from the operations during 2008 and 2007. As of December 31, 2008 and 2007 there were $0 accounts receivable and accordingly, no provision for allowance of doubtful accounts was recorded.
Fixed Assets
Fixed assets are stated at cost. Fixed asset have been fully depreciated and have a book value of $0. 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.
Depreciation expense was $0 and $0 for the years ended December 31, 2008 and 2007, respectively.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Intangibles
Intangibles associated with certain technology agreements are amortized over 10 - 14 years.
Amortization expense was $0 and $0 for the years ended December 31, 2008 and 2007, respectively. The intangibles are fully amortized and have a book value of $0 at December 31, 2008 and 2007.
Stock Options
Effective January 1, 2006, the company adopted the provisions of SFAS No. 123(R). SFAS No. 123(R) requires employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award. Prior to January 1, 2006, the company accounted for awards granted to employees under its equity incentive plans under the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), as amended.
Under the modified prospective method of adoption for SFAS No. 123(R), the compensation cost recognized by the company beginning on January 1, 2006 includes (a) compensation cost for all equity incentive awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all equity incentive awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The company uses the straight-line attribution method to recognize share-based compensation costs over the service period of the award. Upon exercise, cancellation, forfeiture, or expiration of stock options, or upon vesting or forfeiture of restricted stock units, deferred tax assets for options and restricted stock units with multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each vesting period was a separate award. To calculate the excess tax benefits available for use in offsetting future tax shortfalls as of the date of implementation, the company followed the alternative transition method discussed in FASB Staff Position No. 123(R)-3.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
During the year ended December 31, 2008, the Company granted no stock options. During the prior year ended December 31, 2007 the Company granted 520,000 stock options to officers and directors, and granted 25,000 stock options to non-employees. Accordingly, stock-based compensation expense of $19,891 was recognized in the Statement of Operations at December 31, 2007. The Black-Scholes option pricing model was used to calculate to estimate fair value of the options granted. The following assumptions were made: risk-free rate was between 3.15% and 4.98%; expected life of the options was 3 years; expected volatility of stock for the three year options was between 213.7% and 237%, respectively.
NOTE 3 - INCOME TAXES
As of December 31, 2008, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $17,508,849 that may be offset against future taxable income through 2028. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset by a valuation allowance of the same amount.
| | | 2008 | | | 2007 | |
| Net Operating Losses | | $ | 2,608,279 | | | $ | 2,622,667 | |
| Valuation Allowance | | | (2,608,279 | ) | | | (2,622,667 | ) |
| | | $ | - | | | $ | - | |
The provision for income taxes differs from the amount computed using the federal US statutory income tax rate as follows:
| | | 2008 | | | 2007 | |
| Provision (Benefit) at US Statutory Rate | | $ | (14,388 | ) | | $ | (237,569 | ) |
| Increase (Decrease) in Valuation Allowance | | | 14,388 | | | | (237,569 | ) |
| | | $ | - | | | $ | - | |
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - INCOME TAXES (continued)
The Company evaluates its valuation allowance requirements based on projected future operations. When circumstances change and causes a change in management's judgment about the recoverability of deferred tax assets, the impact of the change on the valuation is reflected in current income.
NOTE 4 - LEASE COMMITMENT
During the month of June, 2007, the Company terminated a month to month lease of approximately 700 square feet of office space from Poulton & Associates. The rent payments, under the terms of the terminated lease were approximately $800 per month.
During the period starting July, 2007 and ending December 2008, the Company was located in a facility of approximately 1,000 square feet, provided at no charge by a board member.
During the month of January, 2009, the Company began a month to month lease of approximately 800 square feet of office space from Eagle Mortgage. The rent payments, under the terms of the lease are $400 per month.
NOTE 5 - 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 year ended December 31, 2008 and 2007, the Company expended $0 and $0 respectively for research and development of the technology involved with its patents.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6- RELATED PARTY TRANSACTIONS
Olson Holdings, Inc. loans to the Company
Michael Mills, a board member as of December 31, 2008, previously served as an officer of Olson Holdings. As of January 9, 2009, Mr. Mills resigned as a board member with an effective date of December 31, 2008 and is now longer considered a related party. Olson Holdings, Inc. made a $150,000 unsecured loan to the Company on February 26, 2001. This note has a six-month term at 10% annual interest maturing on August 26, 2001. The maker of the note may give written notice within 10-days of maturity, to the Company, to convert the principal and interest into common stock with a convertible price of $1.05 (10-day weighted average from February 26, 2001 and the nine days prior).
Olson Holdings made an unsecured loan to the Company on January 7, 2002 for $1,836. This note has an annual interest rate of 8% and matures on January 7, 2004. An option was granted in connection with this note for 3,060 shares at a strike price of $1.00 and an expiration date of January 7, 2005.
On September 30, 2007, the principal balance due on the loans of $151,836 was converted to 607,343 shares of common restricted stock at $.25 per share and the accrued interest totaling $139,551 was forgiven and included in extraordinary gain from troubled debt restructuring. At December 31, 2008 and 2007, the total amount due on these notes was $0 and $0.
Olson Foundation loans to the Company
Michael Mills, a board member as of December 31, 2008, previously served as an officer of Olson Foundation. As of January 9, 2009, Mr. Mills resigned as a board member with an effective date of December 31, 2008 and is no longer considered a related party. Olson Foundation loaned the Company $60,000 on July 16, 2001, of which is secured by a blanket lien on the assets of the Company. An interest rate of 10% compounded monthly applies until January 15, 2002. Principal and all due and unpaid interest are to be paid on January 16, 2002, or the interest rate increases to 15% compounded daily. Warrants were issued in conjunction with this loan for 18,182 common shares at a strike price of $0.01 and an expiration date of July 16, 2006. This note is convertible to Class C convertible preferred shares or to Class D convertible preferred shares at the option of the note holder.
Olson Foundation loaned the Company $90,000 on July 30, 2001, of which is secured by a blanket lien on the assets of the Company. An interest rate of 10% compounded monthly applies until January 30, 2002. Principal and all due and unpaid interest are to be paid on January 30, 2002, or the interest rate increases to 15% compounded daily. Warrants were issued in conjunction with this loan for 27,273 common shares at a strike price of $0.01 and an expiration date of July 30, 2006. This note is convertible to Class C convertible preferred shares or to Class D convertible preferred shares at the option of the note holder.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
Olson Foundation made unsecured loans to the Company on May 3, 2002, August 16, 2002, and October 29, 2002 for $7,359, $10,000, and $1,059, respectively. These notes are payable within two years plus interest at 8% per annum. In conjunction with the notes, Olson Foundation also received common stock options for each note at a ratio of 1.667 common shares for each dollar loaned.
On September 30, 2007, the principal balance due on the loans of $168,418 was converted to 673,673 shares of common restricted stock at $.25 per share and the accrued interest totaling $220,375 was forgiven and included in extraordinary gain from troubled debt restructuring. At December 31, 2008 and 2007, the total amount due on these notes was $0 and $0.
Presidio Investments, LLC loan to the Company
Presidio InvestmentsLLC, a preferred shareholder, has loaned the Company $1,000,000, which loan is secured by a blanket lien on the assets of the Company. The sole trustee of Presidio Investments, LLC is William J. Howard, trustee of the Olson Legacy Trust, whose residual beneficiary is the Olson Foundation. The Olson Foundation, defined as a related party, was the guarantor for funds borrowed from Northern Trust Bank which funds were used to make the loan to the Company. This note was amended on March 22, 2001 with an additional $500,000 loaned to the Company between January 1, 2001 and March 22, 2001. An Interest rate of 8% applies until March 31, 2001 and increases to 10% on April 1, 2001. Principal and all due and unpaid interest are to be paid on October 1, 2001. This note is convertible to Class C convertible preferred shares at the option of the note holder.
On September 30, 2007, the principal balance due on the loans of $1,500,000 was converted to 6,000,000 shares of common restricted stock at $.25 per share and the accrued interest totaling $1,483,019 was forgiven and included in extraordinary gain from troubled debt restructuring. At December 31, 2008 and 2007, the total amount due on these notes was $0 and $0.
On December 31, 2008, the preferred shares held by Presidio Investments were sold to a private investment group and Presidio Investments is no longer considered a related party.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6- RELATED PARTY TRANSACTIONS (continued)
The Seabury Group, a preferred shareholder, loaned the Company $190,000 on August 22, 2001, of which is secured by a blanket lien on the assets of the Company. An interest rate of 10% compounded monthly applies until February 22, 2002. Principal and all due and unpaid interest are to be paid on February 22, 2002, or the interest rate increases to 15% compounded daily. Warrants were issued in conjunction with this loan for 57,576 common shares at a strike price of $0.01 and an expiration date of August 22, 2006. This note is convertible to Class C convertible preferred shares or to Class D convertible preferred shares at the option of the note holder.
On September 30, 2007, the principal balance due on the loans of $150,000 was converted to 1,000,000 shares of common restricted stock at $.25 per share and the accrued interest totaling $348,000 was forgiven and included in extraordinary gain from troubled debt restructuring. At December 31, 2008 and 2007, the total amount due on these notes was $0 and $0.
On December 31, 2008, the preferred shares held by Seabury Investments were sold to a private investment group and Seabury Investments is no longer considered a related party.
Arbinger Loans to the Company
D Paul Smith previously served on the Board of Directors of the Company and is also an officer and shareholder in the Arbinger Institute. Mr. Smith is no longer considered a related party since his resignation as the board of director in 2008. The Arbinger Institute has made $41,893 in loans to the Company. As part of a restructure process, the accrued interest of $14,749 was converted to 58,996 shares of common restricted shares at the rate of .25 cents per share. The 68,467 associated options have expired.
At December 31, 2008 and 2007, the total amount due on these loans is $41,893 and $41,893, respectively.
Director and Officer Loans to the Company
During the year ended December 31, 2006, two former officers and directors loaned the Company $16,500. The loans are due on demand and carry an interest rate of 8% per annum. On September 30, 2007, $776 of interest was converted to 3,105 common restricted stock at $.25 per share. At December 31, 2008 and 2007, the total due on these loans was $17,797 and $17,797, respectively. Due to their resignation they are no longer considered as related parties in 2008.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7- LINE OF CREDIT
During the year ended December 31, 2006, a former officer and director established, in his name, a credit card line of credit and authorized the Company to use this card for Company purchases and overdraft protection. The total line of credit is $25,000 dollars. Under terms of the card agreement, interest is charged at 9% for purchases, 21.99% for cash advances and 21.99% for overdrafts. At December 31, 2008 and 2007, the total due on this credit card was $20,423 and $23,023, respectively.
NOTE 8 - NOTES PAYABLE
During 2002, the Company received loans of $45,000 from third parties. The loans are demand loans and carry an interest rate of 8% per annum. At December 31, 2008 and 2007, the total amount of principal and accrued interest are presented below:
| | | 2008 | | | 2007 | |
| Principal | | $ | 45,000 | | | $ | 45,000 | |
| Accrued Interest | | | 31,336 | | | | 24,124 | |
| Total | | $ | 76,336 | | | $ | 69,124 | |
NOTE 9 - STOCK OPTIONS
The shareholders approved, by a majority vote, the adoption of the 1998 Stock Incentive Plan (the “Plan”). As amended on August 11, 2003, the Plan reserves 20,000,000 shares of common stock 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. On August 18, 2003, the Company registered its “Amended Stock Incentive Plan of Klever Marketing, Inc.” on Form S-8.
As of December 31, 2008, 748,800 options were outstanding. The Company granted no options in 2008. The Company granted 545,000 options during 2007, of which 545,000 expire in three years. Compensation expense charged to operations for the twelve months ended December 31, 2007 is 19,891.
The following table sets forth the options and warrants outstanding as of December 31, 2008 and 2007.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS (continued)
| | | | | | Weighted | | | | |
| | | Option / | | | Average | | | Weighted | |
| | | Warrants | | | Exercise | | | Average | |
| | | Shares | | | Price | | | Fair Value | |
| Options & warrants outstanding, | | | | | | | | | |
| December 31, 2006 | | | 5,070,388 | | | $ | 0.18 | | | $ | .03 | |
| Granted, Exercise price more than fair value | | | 545,000 | | | $ | 0.75 | | | $ | .03 | |
| Granted, Exercise price less than fair value | | | - | | | | - | | | | - | |
| Expired | | | 4,820,588 | | | $ | .13 | | | $ | .03 | |
| Exercised | | | - | | | | - | | | | - | |
| Options & warrants outstanding, | | | | | | | | | | | | |
| December 31, 2007 | | | 794,800 | | | $ | 0.75 | | | $ | .03 | |
| | | | | | | | | | | | | |
| | | | | | Weighted | | | | |
| | | Option / | | | Average | | | Weighted | |
| | | Warrants | | | Exercise | | | Average | |
| | | Shares | | | Price | | | Fair Value | |
| Options & warrants outstanding, | | | | | | | | | |
| December 31, 2007 | | | 794,800 | | | $ | 0.75 | | | $ | .03 | |
| Granted, Exercise price more than fair value | | | - | | | | - | | | | - | |
| Granted, Exercise price less than fair value | | | - | | | | - | | | | - | |
| Expired | | | 46,000 | | | $ | 0.75 | | | $ | .03 | |
| Exercised | | | - | | | | - | | | | - | |
| Options & warrants outstanding, | | | | | | | | | | | | |
| December 31, 2008 | | | 748,800 | | | $ | 0.75 | | | $ | .03 | |
| | | | | | | | | | | | | |
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCK OPTIONS (continued)
| | | | | | | | | | | | | Weighted- | | | Weighted- | |
| | | | | | | Weighted- | | | Shares/ | | | Average | | | Average | |
| | | | Shares / | | | Average | | | Warrants | | | Exercise Price | | | Contractual | |
| Exercise | | | Warrants | | | Exercise | | | Currently | | | Currently | | | Remaining | |
| Price Range | | | Outstanding | | | Price | | | Exercisable | | | Exercisable | | | Life (months) | |
| | | | | | | | | | | | | | | | | |
| | 0.10 | | | | 25,000 | | | | 0.10 | | | | 25,000 | | | | 0.10 | | | | 8 | |
| | 0.50 | | | | 391,900 | | | | 0.50 | | | | 391,900 | | | | 0.50 | | | | 14 | |
| | 1.00 | | | | 331,900 | | | | 1.00 | | | | 331,900 | | | | 1.00 | | | | 14 | |
| | | | | | 748,800 | | | | 0.71 | | | | 748,800 | | | | 0.71 | | | | | |
NOTE 10 - PREFERRED STOCK
On February 7, 2000 the Board of Directors authorized and established “Class A Voting Preferred Stock” (“Class A Shares”) as a class of its $.01 par value, 2,000,000 shares authorized, preferred stock. Class A Shares consisted of 1,000,000, 125,000 shares thereof were designated as Series 1 shares. On May 20, 2002, the Board of Directors amended the number of authorized shares of Class A voting preferred stock to 55,000 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 therefore 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.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - PREFERRED STOCK (continued)
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.
On September 24, 2000 the Board of Directors authorized and established “Class B Voting Preferred Stock” (“Class B Shares”) as a class of its $.01 par value, 2,000,000 shares authorized, preferred stock. Class B Shares consisted of 250,000, 125,000 shares thereof were designated as Series 1 shares. On May 20, 2002, the Board of Directors amended the number of authorized shares of Class B voting preferred stock to 42,000 shares.
Class B Shares are convertible into Common Stock at an initial conversion price of $1.70 (subject to adjustment).
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - PREFERRED STOCK (continued)
Holders of Class B Shares shall be entitled to receive when and as declared by the Board of Directors of the Corporation out of any funds at the time legally available therefore dividends at the rate of the Original Issue Price divided by 11.8181818 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 dividends shall be cumulative and may be paid in cash or in kind through the distribution of .0425 Class B Shares, of the same Series for which the dividend is accrued, for each outstanding Class B Share, on each dividend payment date; provided, that if such dividends in respect of any period shall not have been paid or declared and set apart for payment for all outstanding Class B Shares by each payment date, then until all unpaid dividends thereon shall be paid or set apart for payment to the holders of such shares, the Corporation may not pay, declare or set apart any dividend or other distribution on its shares of Common Stock or other shares junior to the Class B Shares, nor may any other distributions, redemptions or other payments be made with respect to the shares of Common Stock or other junior shares. In addition to the foregoing, each holder of a Class B Share 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, so the holders of the Class B Shares shall be entitled to participate equally on a share for share basis with the holders of the shares of Common Stock. If there is a share split or dividend on the Common Stock, then the Class B Share dividends shall be adjusted as if a similar split or dividend had occurred with respect to the Class B Shares.
Class B Shareholders shall be entitled to one vote for each share of Common Stock into which such Class B Shares could then be converted and shall have voting rights and powers equal to the voting rights and powers of a holder of shares of Common Stock. The holders of Class B Shares shall vote with the holders of shares of Common Stock and not as a separate class.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - PREFERRED STOCK (continued)
Class B Shares shall carry a liquidation preference of $17 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 B 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 March 24, 2004 for Series 1, and such date as determined by the Board of Directors for each additional Series. The redemption price shall be $17.00 per share together with accrued but unpaid dividends on such shares, if any.
On January 2, 2001 the Board of Directors authorized and established “Class C Voting Preferred Stock” (“Class C Shares”) as a class of its $.01 par value, 2,000,000 shares authorized, preferred stock. Class C Shares consisted of 500,000, 125,000 shares thereof were designated as Series 1 shares and 125,000 shares thereof were designated as Series 2 shares. On May 20, 2002, the Board of Directors amended the number of authorized shares of Class C voting preferred stock to 150,000 shares.
Class C Shares are convertible into Common Stock at an initial conversion price of $.66 (subject to adjustment).
Holders of Class C Shares shall be entitled to receive when and as declared by the Board of Directors of the Corporation out of any funds at the time legally available therefore dividends at the rate of the Original Issue Price divided by 11.8181818 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 dividends shall be cumulative and may be paid in cash or in kind through the distribution of .0425 Class C Shares, of the same Series for which the dividend is accrued, for each outstanding Class C Share, on each dividend payment date; provided, that if such dividends in respect of any period shall not have been paid or declared and set apart for payment for all outstanding Class C Shares by each payment date, then until all unpaid dividends thereon shall be paid or set apart for payment to the holders of such shares, the Corporation may not pay, declare or set apart any dividend or other distribution on its shares of Common Stock or other shares junior to the Class C Shares, nor may any other distributions, redemptions or other payments be made with respect to the shares of Common Stock or other junior shares. In addition to the foregoing, each holder of a Class C Share 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, so the holders of the Class C Shares shall be entitled to participate equally on a share for share basis with the holders of the shares of Common Stock. If there is a share split or dividend on the Common Stock, then the Class C Share dividends shall be adjusted as if a similar split or dividend had occurred with respect to the Class C Shares.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - PREFERRED STOCK (continued)
Class C Shareholders shall be entitled to one vote for each share of Common Stock into which such Class C Shares could then be converted and shall have voting rights and powers equal to the voting rights and powers of a holder of shares of Common Stock. The holders of Class C Shares shall vote with the holders of shares of Common Stock and not as a separate class.
Class C Shares shall carry a liquidation preference of $6.60 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 C 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 2, 2004 for Series 1, and such date as determined by the Board of Directors for each additional Series. The redemption price shall be $6.60 per share together with accrued but unpaid dividends on such shares, if any.
On May 20, 2002, the Board of Directors authorized and established “Class D Voting Preferred Stock” (“Class D Shares”) as a class of its $.01 par value, 2,000,000 shares authorized, preferred stock. Class D Shares consist of 500,000 shares thereof are designated as “Class D Voting Preferred Stock” (the “Class D Shares”).
Class D Shares are convertible into Common Stock at an initial conversion price of $1.05
(subject to adjustment).
Holders of Class D Shares shall be entitled to receive when and as declared by the Board of Directors of the Corporation out of any funds at the time legally available therefore dividends at the rate of the Original Issue Price divided by 11.8181818 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 dividends shall be cumulative and may be paid in cash or in kind through the distribution of .0425 Class D Shares for each outstanding Class D Share, on each dividend payment date; provided, that if such dividends in respect of any period shall not have been paid or declared and set apart for payment for all outstanding Class D Shares by each payment date, then until all unpaid dividends thereon shall be paid or set apart for payment to the holders of such shares, the Corporation may not pay, declare or set apart any dividend or other distribution on its shares of Common Stock or other shares junior to the Class D Shares, nor may any other distributions, redemptions or other payments be made with respect to the shares of Common Stock or other junior shares. In addition to the foregoing, each holder of a Class D Share 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, so the holders of the Class D Shares shall be entitled to participate equally on a share for share basis with the holders of the shares of Common Stock. If there is a share split or dividend on the Common Stock, then the Class D Share dividends shall be adjusted as if a similar split or dividend had occurred with respect to the Class D Shares.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - PREFERRED STOCK (continued)
Class D Shareholders shall be entitled to one vote for each share of Common Stock into which such Class D Shares could then be converted and shall have voting rights and powers equal to the voting rights and powers of a holder of shares of Common Stock. The holders of Class D Shares shall vote with the holders of shares of Common Stock and not as a separate class.
Class D Shares shall carry a liquidation preference of $10.50 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 D 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 May 14, 2007. The redemption price shall be $10.50 per share together with accrued but unpaid dividends on such shares, if any.
NOTE 11 - LITIGATION
On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC. filed against the Company in the Third Judicial District Court of Utah. The legal action was permitted under the provision of the Utah Foreign Judgment Act and allowed a judgment, previously rendered against the Company by the Superior Court of California, in and for the County of San Francisco Jurisdiction, to be filed in the state of Utah. The judgment was in relation to a consulting agreement between eiKart, LLC. and the Company. This judgment was included in the financial statements as part of accrued liabilities at December 31, 2006. In June 2007, this litigation was settled in full out-of court by a cash payment of $10,000 and the remainder of the liability of $80,448 was included in the statement of operations as extraordinary income for the period ending December 31, 2007.
On December 12, 2005 Klever Marketing was summoned, and a complaint was filed in the Third District Court of the State of Utah, by Dennis Shepard, one of the partners of S&C Medical. The complaint contested Klever Marketing’s cancellation of an attempted deal with S&C medical in December of 2001. On January 13, 2006, Klever Marketing answered their complaint and filed a counter claim against S&C Medical. During 2008, this litigation was settled out-of court, resulting in a favorable disposition of the claim sought, and full and complete resolution in this matter, also resulting in the return of 992,100 shares of common stock to the Company’s treasury. These shares were subsequently cancelled.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 – LITIGATION (continued)
During 2006, Arthur Portugal, a former officer of the Company, filed a formal claim asserted for approximately $125,000 for past due executive compensation including stock options. Mr. Portugal previously filed a formal administrative wage claim in California which is inactive and no longer pending. As of December 31, 2008, the Company has accrued compensation of $96,700 for Mr. Portugal as part of his employment agreement through June 30, 2006. The Company also has accrued notes payable of $11,374 due to Mr. Portugal.
In addition to the claim for Arthur Portugal, there are other claims for unpaid salary and benefits due to former officers and employees that exist on the balance sheet as accrued liabilities, Management has either completed or is in the process of negotiating with a number of these claimants in order to conclude agreements that would allow these liabilities to be settled in the form of payment by cash, stock and stock options. As of December 31, 2008, the total amount of claims for accrued but unpaid salary and benefits is $456,312
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - STOCK TRANSACTIONS
On February 20, 2007, the company issued 200,000 shares of commons stock for cash of $50,000. The shares were valued at $.25 per share.
On March 6, 2007 the company issued 40,000 shares of commons stock for cash of $10,000. The shares were valued at $.25 per share.
On April 9, 2007, the company received 992,100 shares of common stock as the result of litigation settlement. The shares were returned to treasury and cancelled.
On April 16, 2007, the Company issued 200,000 shares of common stock for cash of $50,000. The shares were valued at $.25 per share.
On June 1, 2007, the Company issued 60,000 shares of common stock for cash of $15,000. The shares were valued at $.25 per share.
On June 1, 2007, the Company issued 40,000 shares of common stock for cash of $10,000. The shares were valued at $.25 per share.
On June 28, 2007, the Company issued 120,000 shares of common stock for cash of $30,000. The shares were valued at $.25 per share.
On June 30, 2007, the Company issued 34,764 shares of common stock for payment of service in the amount of $8,691. The shares were valued at $.25 per share.
On July 24, 2007, the Company issued 20,000 shares of common stock for cash of $5,000. The shares were valued at $.25 per share.
On July 25, 2007, the Company issued 20,000 shares of common stock for cash of $5,000. The shares were valued at $.25 per share.
On July 26, 2007, the Company issued 20,000 shares of common stock for cash of $5,000. The shares were valued at $.25 per share.
On July 31, 2007, the Company issued 20,000 shares of common stock for cash of $5,000. The shares were valued at $.25 per share.
On August 3, 2007, the Company issued 50,000 shares of common stock for cash of $12,500. The shares were valued at $.25 per share.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - STOCK TRANSACTIONS (continued)
On August 31, 2007, the Company authorized issuance of 150,000 shares of common stock for services rendered in the amount of $5,000. The shares were valued at $.03 per share. At December 31, 2007, these had not been issued.
On September 28, 2007, the Company issued 180,000 shares of common stock for cash of $45,000. The shares were valued at $.25 per share.
On September 30, 2007, the company issued 150,000 shares of commons stock for services rendered in the amount of $7,500. The shares were valued at $.05 per share. At December 31, 2007, these shares had not been issued.
On September 30, 2007, the Company issued the following shares of common stock: 8,281,016 shares for notes payable of $2,070,254; 62,101 shares for accrued interest of $15,525; 33,224 shares for accounts payable of $8,306. The shares were valued at $.25 per share.
On October 31, 2007, the Company authorized issuance of 150,000 shares of common stock for services rendered in the amount of $5,000. The shares were valued at $.03 per share. At December 31, 2007, these had not been issued.
On December 7, 2007, 6,594,566 shares of common stock were returned to the Company and held as treasury stock. On the same date, 1,424,566 of these shares were cancelled.
On December 7, 2007, the Company issued 120,000 shares of common stock for cash of $30,000. The shares were valued at $.25 per share.
On January 15, 2008, the Company issued 44,000 shares of common stock for cash of 11,000 dollars. The shares were valued at $.25 per share. This transaction was recorded in 2007.
On December 16, 2008, 5,170,000 shares of common stock were returned to the Company and were cancelled.
On December 22, 2008, the Company issued 100,000 shares of common stock for cash of $5,000. The shares were valued at $.05 per share.
On December 29, 2008, the Company issued 140,000 shares of common stock for cash of $7,000. The shares were valued at $.05 per share.
On December 31, 2008, the Company recorded a stock subscription receivable of $23,000 for the issue of 460,000 shares of common stock. The shares were valued at $.05 per share.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - LICENSE AGREEMENT
On May 11, 2004, Media Cart, Inc. acquired from the Company a limited exclusive license to use the Company’s United States patent portfolio for electronic display devices specific to Media Cart’s product design. Under the license agreement, Media Cart paid the Company $200,000 and will pay ongoing royalties for all Media Cart products that utilize the Company’s licensed technology.
On February 15, 2005 ModStream Digital Messaging Products, LLC acquired from the Company limited non-exclusive licensees to use the Company's United States patent portfolio for electronic display devices specific to ModStreams product design. This product design is limited to a 80 character dot-matrix LCD-type screen with limited alerts, and does not include full motion video or product scanning. Under the license agreement, ModStream paid the Company $150,000 and will pay ongoing royalties for all ModStream products that utilize the specific components of the Company's licensed technology.
NOTE 14 - SALE OF PATENTS
On August 27, 2004, the Company sold all of its international patents for $350,000. The international patents comprised approximately 69% of the total patents the Company owned. At December 31, 2008 and 2007, the Company was owed $0 and $25,000, respectively, relating to this sale.
NOTE 15 - UNCERTAIN TAX POSITIONS
Effective January 1, 2007, the company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The adoption of the provisions of FIN 48 did not have a material impact on the company’s condensed consolidated financial position and results of operations. At January 1, 2007, the company had no liability for unrecognized tax benefits and no accrual for the payment of related interest.
KLEVER MARKETING, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - UNCERTAIN TAX POSITIONS (continued)
Interest costs related to unrecognized tax benefits are classified as “Interest expense, net” in the accompanying consolidated statements of operations. Penalties, if any, would be recognized as a component of “Selling, general and administrative expenses”. The Company recognized $0 of interest expense related to unrecognized tax benefits for the year ended December 31, 2008. In many cases the company’s uncertain tax positions are related to tax years that remain subject to examination by relevant tax authorities. With few exceptions, the company is generally no longer subject to U.S. federal, state, local or non-U.S. income tax examinations by tax authorities for years before 2003. The following describes the open tax years, by major tax jurisdiction, as of December 31, 2008:
| United States (a) | 2004 - Present |
| (a) Includes federal as well as state or similar local jurisdictions, as applicable. | |
