-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lx19h4Uga2PUi0ItkZhuz17wp6Oj+wKpaMDA06TT65ONHA9+fu6Lv6pT9gwRuwAn RbqmHqIJr/L062+3EE/mjw== 0000939802-07-000073.txt : 20070405 0000939802-07-000073.hdr.sgml : 20070405 20070404212223 ACCESSION NUMBER: 0000939802-07-000073 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070405 DATE AS OF CHANGE: 20070404 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KLEVER MARKETING INC CENTRAL INDEX KEY: 0000866439 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 363688583 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18730 FILM NUMBER: 07750460 BUSINESS ADDRESS: STREET 1: 350 WEST 300 SOUTH SUITE 201 CITY: SALT LAKE CITY STATE: UT ZIP: 84101 BUSINESS PHONE: 8013221221 MAIL ADDRESS: STREET 1: 350 WEWT SOUTH SUITE 201 CITY: SALT LAKE CITY STATE: UT ZIP: 84101 FORMER COMPANY: FORMER CONFORMED NAME: VIDEOCART INC DATE OF NAME CHANGE: 19930328 10KSB 1 form10ksb123106.txt 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, 2006 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 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.) 3785 South 700 E Second Floor Salt Lake City, UT 84106 (Address of principal executive offices) (zip code) Issuer's telephone number (801) 263-0404 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) 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 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. [ ] State issuer's revenues for its most recent fiscal year. $0 --- As of December 31, 2006, there were 38,190,620 (1 vote per share) Common and 168,434 Convertible Preferred, for a preferred (converted to common) and common share total of 39,874,960. All shares have a par value of $0.01. The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was approximately $1,072,144 computed at the closing price as of December 31, 2006. The number of preferred and common shares held by non-affiliates of the Registrant total 21,442,878 votes. 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] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. [ ] Yes [ X ] No TABLE OF CONTENTS Item Number and Caption Page PART I Item 1. Description of Business 1 Item 2. Description of Property 2 Item 3. Legal Proceedings 2 Item 4. Submission of Matters to a Vote of Security Holders 3 PART II Item 5. Market for Common Equity and Related Stockholder Matters 3 Item 6. Management's Discussion and Analysis or Plan of Operations 5 Item 7. Financial Statements 7 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 7 Item 8A. Controls and Procedures 7 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 8 Item 10. Executive Compensation 11 Item 11. Security Ownership of Certain Beneficial Owners and Management 13 Item 12. Certain Relationships and Related Transactions 16 Item 13. Exhibits and Reports on Form 8-K 18 Item 14. Principal Accountant Fees & Services 21 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 evaluating tangible go-to-market partnerships and models, assessing next-stage development protocols and monetizing the existing patent portfolio through licensing Agreements in order to establish a near-term presence with shopping cart-affixed, promotion and advertising devises in-store. 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. During the period from July 5, 1996 to December 31, 2003, the Company has been in the development stage, except for an approximate 2-month period in 2000 when the Company generated revenue from installations of their Klever-Kart system in stores. In August 2004, the Company signed a partnership contract with Fujitsu Transaction Solutions (FTXS). Under this contract, Fujitsu committed to manufacture and develop the hardware for a cart-based, advertising and promotional device offering, to develop relevant and required software and applications to support said device, to act as sales lead for the solution & hardware sell-in process and to provide for technical installations, IT implementation, and support for all retail locations. The Company and Fujitsu agreed to jointly share responsibility for marketing into Fujitsu's current retail client base for the initial nationwide sales effort. The Company likewise agreed to act as sales lead for the participant sell-in of advertising and promotion space to both retailers and manufacturers. In 2007, as the Company continues to assess and reconcile progress with the as yet unrealized benefits of the Fujitsu (FTXS) relationship, the Company is assessing alternative go-to-market models, partners and relationships which can be actualized near-term. This necessarily places a heavy emphasis on the monetization of the existing and robust Patent portfolio which maintains a meaningful duration in-market. The Company is also evaluating its potential, evolution and future role as an Advanced Analytics, Data Mining and Information Management entity in support of the aforementioned shopping-cart deployed and centric technologies. 1 ITEM 2 DESCRIPTION OF PROPERTY The Company currently leases approximately 700 square feet of office space from Poulton & Associates.. The rent payments are approximately $800 per month. The office space is used as the corporate headquarters. It is located at 3785 S 700 2nd Floor East Salt Lake City, UT 84106. ITEM 3 LEGAL PROCEEDINGS On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC., filed against the Company in the Third Judicial District Court of Utah under the provisions of the Utah Foreign Judgment Act a judgment from the Superior Court of California, in and for the County of San Francisco Jurisdiction. The judgment is in relation to a consulting agreement between eiKart, LLC. and the Company. Pursuant to the judgment Information Statement, also filed on October 27, 2003, the amount of the above judgment is $81,124. The relief sought is collection from the Company in Utah of the amount of said judgment. The Company has filed an action to dismiss said Utah judgment on the grounds that the Superior Court of California did not have jurisdiction over the Company when the original judgment was granted. This judgment has been included in the financial statements as part of accrued liabilities at December 31, 2005 and 2006. This situation remains dormant as of December 31, 2006. On September 6, 2002, an entry of judgment was entered against the Company by Micropower Direct, LLC. The total judgment was for $17,167.18. The judgment was in relation to parts purchased by the Company. This judgment has been included in accounts payable as of December 31, 2005 and 2006. This litigation was settled out-of court, resulting in a favorable depreciation of the Judgment entered, and full and complete resolution in this matter. 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. This matter is still in the process of being resolved. This situation remains unresolved, however, suffice to say, that subsequent Court dates have come and passed without further prosecution of the original claim against the Company, while our counter-claim and position remain in-tact. During 2006, Arthur Portugal, a former officer of the Company, filed a formal claim asserted for approximately $125,000 for alleged past due executive compensation including stock options. The Company disputes the claim. The claimant previously filed a formal administrative wage claim in California which is inactive but pending. As of December 31, 2006, 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 $9,710 due to Mr. Portugal. 2 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of shareholders during 2006. PART II ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The stock is traded on the "Pink Sheets" with the trading symbol KLMK.PK 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: 2006: HIGH LOW First Quarter $0.10 $0.05 Second Quarter $0.17 $0.07 Third Quarter $0.13 $0.06 Fourth Quarter $0.08 $0.04 2005: HIGH LOW First Quarter $0.12 $0.04 Second Quarter $0.15 $0.04 Third Quarter $0.19 $0.04 Fourth Quarter $0.12 $0.06 The number of shareholders of record of the Company's common stock as of December 31, 2006 was approximately 861. The Company has not paid any cash dividends to date and does not anticipate paying cash 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. During the year ended December 31, 2006, the Company issued 586,000 shares of common stock for cash of $146,500. The shares were sold for $.25 per share. 3 In December 2006, the Company issued 2,788 shares of common stock for general and administrative expenses of $697. The shares were valued at $.25 per share. In October 2006, the Company issued 24,000 shares of common stock for accounts payable of $6,000. The shares were valued at $.25 per share. In December 2006, the Company issued 47,956 shares of common stock for accounts payable of $11,989. The shares were valued at $.25 per share. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Exchange Act requires the Company's directors, executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Commission reports regarding initial ownership and changes in ownership. Directors, executive officers, and greater than 10% stockholders are required by the Commission to furnish the Company with copies of all Section 16(a) forms they file. BENEFICIAL OWNERSHIP COMPLIANCE REPORTING The company is aware of the following share and option transactions for the reporting period ending December 31, 2006 for which Form 4 or Form 5 were not filed.
- --------------------- --------- -------- ---------- -------- --------- ---------- --------- -------------- ------- Officer Stock Number Number Date Term or or of Share Total of Strike of in Name Board Option Shares Price Cost Options Price Issue years - --------------------- --------- -------- ---------- -------- --------- ---------- --------- -------------- ------- John T. Zaccheo B & O O 5,000 0.50 1/10/2006 3 John T. Zaccheo B & O O 5,000 1.00 1/10/2006 3 John Zaccheo B & O O 14,000 0.50 1/10/2006 3 John Zaccheo B & O O 14,000 1.00 1/10/2006 3 Paul Begum B O 10,000 1.00 1/10/2006 3 Paul Begum B O 10,000 0.50 1/10/2006 3 William C. Bailey B & O O 20,000 0.50 5/9/2006 2 William C. Bailey B & O O 20,000 1.00 5/9/2006 2 Paul Begum B O 6,000 0.50 5/22/2006 3 Paul Begum B O 6,000 1.00 5/22/2006 3 Willam C. Bailey B & O O 3,000 0.50 5/22/2006 2 Willam C. Bailey B & O O 3,000 1.00 5/22/2006 2 Paul Begum B O 10,000 0.50 6/1/2006 3 Paul Begum B O 10,000 1.00 6/1/2006 3
4
Paul Begum B O 35,000 0.50 6/1/2006 2 Paul Begum B O 35,000 1.00 6/1/2006 2 Paul Begum B O 4,000 0.50 6/9/2006 3 Paul Begum B O 40,000 1.00 6/9/2006 3 Paul Begum B O 40,000 0.50 7/27/2006 3 Paul Begum B O 40,000 1.00 7/27/2006 3 Paul Begum B O 3,000 0.50 8/8/2006 3 Paul Begum B O 3,000 1.00 8/8/2006 3 Paul Begum B O 20,000 0.50 9/18/2006 3 Paul Begum B O 20,000 1.00 9/18/2006 3 William C. Bailey B & O O 10,000 0.50 9/18/2006 2 William C. Bailey B & O O 10,000 1.00 9/18/2006 2 Paul Begum B O 2,400 0.50 9/22/2006 3 Paul Begum B O 2,400 1.00 9/22/2006 3 Paul Begum B O 10,000 0.50 9/29/2006 3 Paul Begum B O 10,000 1.00 9/29/2006 3 John Zaccheo B & O S 10,000 0.25 2,500 1/10/2006 Paul Begum B S 10,000 0.25 2,500 1/10/2006 Paul Begum B S 20,000 0.25 5,000 3/31/2006 Bill Bailey B & O S 40,000 0.25 10,000 5/12/2006 John Zaccheo B & O S 28,000 0.25 7,000 5/12/2006 Paul Begum B & O S 6,000 0.25 1,500 9/1/2006 Bill Bailey B & O S 20,000 0.25 5,000 9/18/2006 Paul Begum B & O S 48,000 0.25 12,000 12/31/2006
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The Company's plan of operations is subject to obtaining substantive financing. The Company's goal is to become the leading supplier of in-store delivered promotions and advertising technology and applications for grocery and other mass-merchandise retailers. Alternatively, the Company is also looking to exploit and monetize its existing US Patent Portfolio, while supporting other in-market platforms and partners through an effective transformation into an Advanced Analytics, Data Mining and Information Management entity. Through this evolved positioning, the Company will support other partner-centric in-store, cart-based solutions and initiatives. To accomplish this goal, the Company intends to expand the usage and leverage of its Patents, while also evolving and embracing an Informational and Consultative Based Management Service, which reinforces our core strategy. 5 BUSINESS DEVELOPMENT, NEXT 12 MONTHS As a result of the current financial condition of the Company, the plan of the Company for the next twelve months is to obtain sufficient financing to permit the Company to commence active business operations. Absent obtaining such financing, the Company's plan is to continue to obtain sufficient smaller financing to permit the Company to continue to prevent the loss or wasting of its assets and to continue to seek such operation's financing. Currently, the Company has sufficient liquid assets to permit current restricted operations to continue for one month. If such smaller interim financing is not obtained, it is likely that the Company will cease being a going concern at the end of such period. In the event such operational funding is obtained, then the Company plans to: 1) work with its existing business Partners to reconcile and exploit current relationships and opportunities 2) evolve current business model to expand through new Partner affiliation 3) concentrate efforts to exploit information rich collection and analysis of data, derived from in-store, point-of-selection and point-of purchase sources 4) continue defense of the Klever patent portfolio where violations are evident. Absent such financing, the Company has no plans to employ additional employees or to purchase additional equipment. If such financing is obtained, there would be additional employees employed and additional equipment purchased. The number of each is dependent upon the amount of such financing and the in-sourcing vs. outsourcing requirements and opportunities associated with subsequent go-to-market models. . 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 remains in the development stage. For the years ended December 31, 2006, and 2005, the Company had net losses of $850,440 and $736,913, respectively. This increase in the loss is primarily due to interest charges. LIQUIDITY AND CAPITAL RESOURCES - The Company requires working capital principally to fund its proposed 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 minimal additional working capital that has been required to prevent the assets from wasting away. 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 approximately $150,000 and $280,000 for 2006 and 2005 respectively. The decrease in the use of cash is due primarily to a decrease in operations. 6 Investing activities have used cash of approximately $7,000 and $13,000 for 2006 and 2005, respectively. Investing activities primarily represent purchases of patents relating to the electronic in-store advertising. Financing activities provided cash of approximately $159,000 and $274,000 for 2006 and 2005, 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: 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. ITEM 8A CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company. (a) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's President, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon the evaluation, the Company's President concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective in timely alerting him to material information relating to the Company required to be included in the reports that the Company files and submits pursuant to the Exchange Act. 7 (b) Changes in Internal Controls Based on this evaluation as of December 31, 2006, there were no changes in the Company's internal controls over financial reporting or in any other areas that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 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 William C. Bailey 70 Chairman Next annual shareholder meeting John L. Hastings III 43 Interim Pres./CEO 3-31-07 Bernadette Suckel 50 Interim COO 3-31-07 Michael L. Mills 42 Director Next annual shareholder meeting John T. Zaccheo 79 V-Chair/CFO Next annual shareholder meeting - -----------------------------------------------------------------------------------------
John L. Hastings III, age 43, joined the Company in November 2006 as Interim President and CEO of Klever Marketing, He brings with him more than 20 years experience in the roles of Sales, Marketing & Brand Management, Consultative Practice Leader and Executive General Management within Consumer Packaged Goods, Global Information Services and Global Retail/CPG Research & Analytics industries with a strong emphasis in strategic thought leadership, B2C and B2B sales and marketing. Most recently John served as Senior Vice President and General Manager of Global Business Intelligence for VNU-ACNielsen ("The Nielsen Companies"), the Global Leader in Market Research for Retail & Consumer Packaged Goods. Formerly, John was SVP/GM of the US Centers of Excellence, the market leading Advanced Analytics division of ACNielsen US, which he managed and grew for several years. Prior to ACNielsen, John is most well-known for his global consulting management as the Managing Director of Retail & CPG Decision Support, Large Systems and Data Warehousing initiatives with Unisys and NCR-Teradata, serving in 30 countries. Prior to that, John served in Sales and Brand Management roles within Kraft-All American Gourmet and Nestle-Stouffer's. 8 Bernadette Suckel, age 50, joined the Company in November 2006 as Interim Chief Operating Officer of Klever Marketing. She brings with her more than 25 years experience in in the roles of Senior Sales, Marketing, Business Development and Consultative Sales Management within Global Research, Global Information Management, Large Systems and Retail Technologies industries. William C. Bailey, age 70, was elected as a director of the Company in June 1994. Since July of 2005, Mr. Bailey has been serving as Chairman of the Board. Mr. Bailey is also President and owner of Mount Olympus Waters, Inc. and founder of Water and Power Technologies. Mr. Bailey served on the Board of Directors for the American Bottled Water Association and the International Bottled Water Association from 1975 to 1996, and was the Association's President in 1978 and again in 1990. He received the industry's first award of Excellence from IWBA in 1987 and was elected to the Beverage World Water Hall of Fame in 1989. He serves as a member of the Board of Trustees for the Utah Food Industry Associations Insurance Trust. He is a lifetime member of the Board of Trustees for the Utah Symphony Opera, having served as Chairman from 1999-2002. He has been a member of the Board of Directors for KUED 1990- 1996, University of Utah Alumni Board 1990-1994, and a member of the University of Utah's Fine Art's Advisory Board. He is also a member of the Salt Lake Rotary and served as Secretary 1999-2000. Michael L. Mills, age 42, was elected as a director of the Company in December 1998. Mr. Mills is President/CEO of Olson Holdings, Inc. (formerly known as Olson Farms, Inc.). Olson Holdings, Inc. is a diversified agricultural and real estate holding company with operations throughout the western United States, dealing primarily in the distribution of eggs, with headquarters in Riverside, California. Mr. Mills has been with that company since 1989. Mr. Mills began his career with Deloitte & Touche in Los Angeles after graduating from the University of Utah SUMMA CUM LAUDE in accounting and mathematics. John T. Zaccheo jointed the board of Directors in March, 2006. He currently serves as President of the Equity Capital Management, Inc., an investment company managing trust holdings. John also owns Mr. Z's restaurant in Salt Lake City. For 22 years he was corporate manager of engineering for a division of Tenneco, with responsibility for managing a team of engineers and a yearly expansion program ranging from $56 million to $61 million per year. He has also been a land developer in Aspen, CO. John participated in extensive management development courses and training while at Tenneco. John has also been a member of Rotary International for 40 years. 9 CHANGES TO EXECUTIVE OFFICERS AND DIRECTORS DIRECTOR'S NAME AGE OFFICE DATE OF CHANGE Arthur Portugal 64 President Released as of 6-30-06 Daniel Warner 33 EVP Business Resigned as of 3-31-06 Development D. Paul Smith 59 CFO Resigned 6-1-06 C. Terry Warner 68 Director Released as of 3-24-06 Dick King 53 Director Resigned as of 1-15-06 AUDIT COMMITTEE As of December 31, 2006, the Company had one active board committee, the Audit and Compliance Committee. D. Paul Smith and Michael L. Mills serve on this committee. The committee meets annually to determine auditors and scope of the audit, as well as reviews of the 10KSB and all audited financials. AUDIT COMMITTEE FINANCIAL EXPERT The Company's board of directors does not have an "audit committee financial expert," within the meaning of such phrase under applicable regulations of the Securities and Exchange Commission, serving on its audit committee. The board of directors believes that all members of its audit committee are financially literate and experienced in business matters, and that one or more members of the audit committee are capable of (i) understanding generally accepted accounting principles ("GAAP") and financial statements, (ii) assessing the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (iii) analyzing and evaluating our financial statements, (iv) understanding our internal controls and procedures for financial reporting; and (v) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the board of directors believes that there is not any audit committee member who has obtained these attributes through the experience specified in the SEC's definition of "audit committee financial expert." Further, like many small companies, it is difficult for the Company to attract and retain board members who qualify as "audit committee financial experts," and competition for these individuals is significant. The board be lieves that its current audit committee is able to fulfill its role under SEC regulations despite not having a designated "audit committee financial expert." 10 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.
(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) ($) ($) ($) (no.) ($) ($) D. PAUL SMITH 2006 - - - - - - - Chairman/CFO/ 2005 - - - - - (1) - - Sec/Treasurer 2004 - - - - 200,000 - - Exec Vice-President WILLIAM J. DUPRE 2006 - - - - - - - President/COO 2005 $62,000 - - - - - - 2004 $122,250 - - - (2) - - ART PORTUGAL 2006 $96,700 - - - (3) - - President through 6/30/06 2005 $23,822 - - - 195,288 - - JOHN HASTINGS 2006 $60,000 - - - (4) - - Interim Pres/CEO 11/06 BERNADETTE SUCKEL 2006 $10,000 - - - (5) - - Interim COO 11/06
11 (1). D. Paul Smith joined the Company in October 2001 as Chief Financial Officer, Vice-President, Corporate Secretary, and Treasurer. Mr. Smith resigned as Vice-President when William J. Dupre assumed that position in November 2002. Mr. Smith served as Chairman of the Board from January 2001 until July 2005. On May 19, 2006, Mr. Smith resigned as Chief Financial Officer, Corporate Secretary and Treasurer. (2) William Dupre joined the Company in November 2002 as Chief Operating Officer and Executive Vice-President, on December 3, 2003 was named President of the Company. On May 1, 2005, Mr. Dupre resigned from the Company (3) Arthur Portugal joined the company as President in November 2005. The $23,822 worth of restricted stock that Portugal received in 2005, equates to 195,288 in Klever restricted stock, which was granted in place of the payroll that he had accrued from November 14, 2005 until December 31, 2005 at a share price of $0.25. As part of the same transaction, Portugal also received the same amount of options for a three year period and a strike price of $0.50. Mr. Portugal was released as of June 30, 2006. (4) John Hastings joined the Company on November 16, 2006, under terms of a contract, as Interim President and Chief Executive Officer and as a member of the board. (5) Bernadette Suckel joined the Company on November 16, 2006, under terms of a contract, as Interim Chief Operating Officer and as a member of the board. AGGREGATE OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND YEAR END OPTION/SAR VALUES The following table sets forth information respecting all individual grants of options and SARs made during the last completed fiscal year to the chief executive officer, chief financial officer, and directors of the Company.
- --------------------------- ---------------- -------------- ----------------------------------- ----------------------------------- Name Shares Value Number of Securities Underlying Value of Unexercised in-the-money Acquired on Realized ($) Unexercised Options options ($) (a) exercise - --------------------------- ---------------- -------------- ----------------------------------- ----------------------------------- Exercisable Unexercisable Exercisable Unexercisable - --------------------------- ---------------- ------------- --------------- ------------------- --------------- ------------------- John Zaccheo 0 $0 38,000 - $1,900 $0 - --------------------------- ---------------- ------------- --------------- ------------------- --------------- ------------------- William Bailey 0 $0 66,000 - $3,300 $0 - --------------------------- ---------------- ------------- --------------- ------------------- --------------- -------------------
(a) Based on the closing price of the Company's Common Stock on December 31, 2006 at $.05 per share Executive Compensation and Benefits The Company provides no health insurance to any full or part-time employees. The Company adopted a stock incentive plan for its employees, executive officers, directors, and consultants. 12 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 shares of stock that have more than 5% of the 46,970,383 votes as of December 31, 2006, including options to acquire stock of the Company that are currently exercisable or will be within the next 60 days, 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 AND PRINCIPAL SHAREHOLDERS Paul G. Begum Direct (2) 3,158,807 P.O. Box 58045 Preferred Shares (2) 126,302 Salt Lake City, UT 84158 Options/Warrants 208,800 ---------- Total 3,493,909 7.41% Olson Foundation Direct (1) 4,101,838 2220 Eastridge Ave Preferred Shares (1) 3,946,953 Options 572,000 Riverside, CA 92507 Convertible Debt (1) 9,935,933 ---------- Total 18,556,724 32.28% C. Terry Warner Direct (3) 2,610,880 1278 Locust Lane Options (3) 500,000 Provo, UT 84604 Convertible Debt (3) 13,111 ---------- Total 3,123,991 6.58% Presidio Investments LLC Direct (4) 1,266,708 3200 North Central Ave Preferred Shares (4) 347,332 Suite 1560 Options/Warrants (4) 0 Phoenix, AZ 85012 Convertible Debt (1)(4) 8,651,244 ---------- Total 10,265,284 18.46% 13 Olson Legacy Trust Direct (1)(4) 1,266,708 3200 North Central Ave Preferred Shares (4) 347,332 Suite 1560 Options/Warrants (1)(4) 0 Phoenix, AZ 85012 Convertible Debt (4) 8,651,244 ---------- Total 10,265,284 18.46% Olson Holdings Direct (1) 759,765 2220 Eastridge Ave. Preferred Shares (1) 2,999,684 Suite B Options/Warrants (1) 256,895 Riverside, CA 92507 ---------- Total 4,016,344 8.50% Seabury Investors III Preferred Shares 4,036,552 540 Madison Avenue Warrants 0 New York, NY 10022 Convertible Debt (5) 1,701,189 ---------- Total 5,737,741 11.79% Zedeka. LLC Direct 3,421,383 (formerly Primavera) 1278 Locust Lane ---------- Provo, UT 84604 Total 3,421,383 7.28% Arbinger Direct 3,490,756 Gateway Park Tower Options/Warrants 0 563 W 500 S Convertible Debt 52,446 Suite 200 --------- Woods Cross, UT 84087 Total 3,543,202 7.54% William Bailey Direct 3,244,914 3889 E. Brockbank Dr. Options/Warrants 586,000 Salt Lake City, UT 84124 --------- Total 3,830,914 8.06% DIRECTORS AND EXECUTIVE OFFICERS William Bailey Direct 3,244,914 3889 E. Brockbank Dr. Options/Warrants 586,000 Salt Lake City, UT 84124 --------- Total 3,830,914 8.06% Michael L. Mills Direct 951,762 3889 E. Brockbank Dr. Options/Warrants 512,000 Salt Lake City, UT 84124 ---------- Total 1,463,762 3.08% 14 ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (5 PERSONS) Direct 4,196,676 Options/Warrants 1,098,000 Convertible Debt 0 ------------ Total 5,294,676 11.14% (1) Michael Mills is president of Olson Holdings, Inc., executor of the Estate of Peter Dean Olson, trustee of the Olson Foundation, he has voting and investment control but disclaims any pecuniary interest. For The Olson Foundation, Mr. Mills is one of four trustees and does not have voting or investment power because of a majority-vote rule relation to the Foundation. The Olson ownership includes 759,765 Shares held by Olson Holdings, 1,123,603 Shares held by the Olson Foundation, 928,580 Shares held by the Estate of Peter D. Olson, and 23,182 Shares held by Mr. Mills. The Olson ownership also includes Preferred Stock that, as of December 31, 2006 would convert 3,946,953 votes held by Presidio (347,332 votes), Olson Holdings (2,999,684 votes) and Olson Foundation (3,946,933 votes). Ownership includes warrants covering 572,000 Shares held by Olson Foundation, and options covering 512,000 Shares held by Mr. Mills. Convertible debt held by Olson Foundation and affiliates in the amount of 18,587,177 shares may also be converted as of December 31, 2006 into 9,935,933 Shares held by Olson Foundation and 8,651,244 shares held by Presidio. (2) Mr. Begum's ownership includes 2,427,089 shares held by Tree of Stars, Inc., a corporation of which Mr. Begum is a director, officer and principal shareholder; and 506,864 shares held by PSF, Inc., a private company of which Mr. Begum is President and principal shareholder. Mr. Begum's ownership also includes Class A Convertible Preferred Shares that would convert to 126,302 Shares as of December 31, 2006 (3) Mr. Warner's ownership includes 12,500 Shares held by C. Terry Warner; 3,252,771 Shares held by Primavera, Ltd, (now called Zedeka, LLC), a limited partnership of which Mr. Warner is a passive member owning one (1) percent and Susan Warner, his spouse, who owns forty-nine (49) percent; 15,000 shares by Susan Warner, his spouse and 872,689 shares held by the Arbinger Institute, a private corporation of which Mr. Warner is a director and twenty-five (25) percent shareholder; options covering 576,033 shares and convertible debt held by Mr. Warner that may be converted into 13,111 shares as of December 31 2006. (4) Presidio Investments, of which William J. Howard is the single member, and Olson Legacy Trust, of which William J. Howard is the sole trustee, ownership includes 94,858 Shares held by Presidio Investments LLC.; 347,332 Shares should the Class A Convertible Preferred Shares held by Presidio Investments LLC. be converted as of December 31, 2006; Olson Legacy Trust, of which William J. Howard is the sole trustee,. In addition to the total Presidio and Olson Legacy Trust ownership, convertible debt held by Presidio Investments may be converted into 8,651,244 Shares as of December 31, 2006. (5) In addition to the total Seabury ownership, convertible debt held by Seabury Investors III, Limited Partnership could be converted into 1,701,189 shares as of December 31, 2006 15 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OLSON HOLDINGS, INC. LOANS TO THE COMPANY Olson Holdings, Inc. made a $150,000.00 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 $1,835.84. 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. OLSON FOUNDATION LOANS TO THE COMPANY 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. 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 $1,059.37, 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. PRESIDIO INVESTMENTS, LLC LOAN TO THE COMPANY Presidio Investments, LLC 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 16 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. THE SEABURY GROUP LOAN TO THE COMPANY The Seabury Group loaned the Company $60,000 on July 5, 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 5, 2002. Principal and all due and unpaid interest are to be paid on January 5, 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 5, 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 The Seabury Group 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. ARBINGER LOANS TO THE COMPANY The loans listed below were made to the Company by The Arbinger Institute. The Arbinger Institute is controlled by four equal partners, of which C. Terry Warner and D. Paul Smith are each a partner.
DATE PRINCIPAL ANNUAL INTEREST MATURITY DATE COMMON OPTION STOCK OPTION # RATE SHARES STRIKE PRICE --------------------------------------------------------------------------------------------- 09/12/03 $10,040.00 8.00% 09/12/05 16,733 $1.00 09/17/03 $471.73 8.00% 09/17/05 786 $1.00 09/25/03 $4,500.00 8.00% 09/25/05 7,500 $1.00 09/26/03 $80.95 8.00% 09/26/05 135 $1.00 10/01/03 $79.00 8.00% 10/01/05 132 $1.00 11/01/03 $79.00 8.00% 11/01/05 132 $1.00 11/26/03 $10,000.00 8.00% 11/26/05 16,667 $1.00 12/02/03 $79.00 8.00% 12/02/05 132 $1.00 12/15/03 $13,000.00 8.00% 12/15/05 21,667 $1.00 12/24/03 $2,750.00 8.00% 12/24/05 4,583 $1.00 ------------- --------------- Total $41,079.68 68,467 ============= ===============
17 During 2004, the Arbinger Institute loaned the Company an additional $2,260 to pay general and administrative expenses. 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 Independent Registered Public Accountants....................................F-1 Balance Sheets December 31, 2006 and 2005..........................................................F-3 Statements of Operations For the Years Ended December 31, 2006 and 2005 And for the Cumulative Period from July 5, 1996 (inception of development stage) To December 31, 2006................................................................F-5 Statement of Stockholders' Equity From July 5, 1996 (inception of development stage) to December 31, 2006 ............F-6 Statements of Cash Flows For the Years Ended December 31, 2006 and 2005 And for the Cumulative Period from July 5, 1996 (inception of development stage) To December 31, 2006...............................................................F-15 Notes to the Financial Statements.....................................................F-17
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 Restated Certificate of Incorporation of Klever Marketing, Inc. a Delaware corporation (1) 18 3.02 Certificate of Designation of Rights, Privileges and Preferences: Rights of A Class Voting Preferred Stock, Series 1, of Klever Marketing, Inc., dated February 7, 2000 (2) 3.03 Bylaws, as amended (2) 4.01 Amended Certificate of Designation of Rights, Privileges and Preferences: Rights of A Class of Voting Preferred Stock, Series 1, of Klever Marketing, Inc., Dated February 7, 2000 (3) 4.02 Certificate of Designation of Rights, Privileges and Preferences of Class B Voting Preferred Stock, of Klever Marketing, Inc., dated September 24, 2000 (3) 4.03 Certificate of Designation of Rights, Privileges and Preferences of Class C Voting Preferred Stock, of Klever Marketing, Inc., dated January 2, 2001 (3) 4.04 Certificate of Designation of Rights, Privileges and Preferences of Class D Voting Preferred Stock, of Klever Marketing, Inc., dated June 14, 2002 (5) 4.05 Amendment to the Certificates of Designation of Rights, Privileges and Preferences of Class A, B, and C Voting Preferred Stock, of Klever Marketing, Inc., dated June 12, 2002 (5) 10.01 Separation Agreement between Paul G. Begum and the Registrant Dated January 8, 2001 (2) 10.02 Stock Incentive Plan, effective June 1, 1998 (2) 10.03 Amended and Restated Promissory Note (Secured) of the Registrant payable to Presidio Investments, LLC, dated June 27, 2000, with Financing Statement and Exhibit "A" (2) 10.04 Intercreditor Agreement between Seabury Investors III, Limited Partnership, The Olson Foundation, Presidio Investments, LLC, and the Registrant dated August 27, 2001 (4) 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 19 (1) Incorporated herein by reference from Registrant's Form 10KSB, dated June 20, 1997. (2) Incorporated herein by reference from Registrant's Form 10KSB, dated March 29, 2001 (3) Incorporated herein by reference from Registrant's Form 10QSB, dated May 15, 2001. (4) Incorporated herein by reference from Registrant's Form 10QSB, dated May 15, 2002. (5) Incorporated herein by reference from Registrant's Form 10QSB, dated August 19, 2002 (b) REPORTS FILED ON FORM 8-K On January 6, 2006, the Company filed a Form 8-K under Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, announcing that Arthur Portugal had been appointed as President of the Company, replacing Danny Warner who has been serving as Interm-President and will continue on as EVP of Business Development. It was also announced that Ted File has been appointed to the board.. On January 25, 2006, the Company filed a Form 8-K under Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, announcing that they have moved their office, and that Ted File had not yet accepted the board position.. On April 5, 2006, the Company filed a Form 8-K under Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, and Item 8.01, Other Events, announcing that Terry Warner had been released from the board of Directors, and John Zaccheo had been appointed to the board. As of March 31, 2006 Danny Warner resigned as Executive Vice President of Business Development. They also announced that Klever had moved their corporate headquarters. On May 25, 2006, the Company filed a Form 8-K under Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, and Item 8.01, Other Events, announcing that D. Paul Smith had resigned as CFO and Secretary Treasurer, effective May 19, 2006. On September 15, 2006, the Company filed a Form 8-K under Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, and Item 8.01, Other Events, announcing that Craig Poulton had been appointed to the board, effective September 11, 2006. On November 16, 2006 the Company filed a Form 8-K under the Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers, and Item 8.01, Other Events, announcing that John L. Hastings III had been appointed Part-time, Interim President and CEO and appointed to the Board, and announcing that Bernadette Suckel had been appointed Part-time, Interim COO and appointed to the Board. On March 30, 2007, the Company filed a Form 8-K under Item 9.01, Regulation FD Disclosure, announcing that Paul G. Begum had been appointed to the board, effective February 10, 2006. On May 19, 2006, the Company filed a Form 8-K under Item 9.01, Regulation FD Disclosure, announcing that Richard King had resigned as a board member , effective January 15, 2006. 20 ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES The following is a summary of the fees billed to us by Robison, Hill & Company for professional services rendered for the years ended December 31, 2006 and 2005: Service 2006 2005 Audit Fees $25,109 $16,475 Audit-Related Fees - - Tax Fees 224 192 All Other Fees - - Total $25,333 $16,667 AUDIT FEES. Consists of fees billed for professional services rendered for the audits of our consolidated financial statements, reviews of our interim consolidated financial statements included in quarterly reports, services performed in connection with filings with the Securities & Exchange Commission and related comfort letters and other services that are normally provided by Robison, Hill & Company in connection with statutory and regulatory filings or engagements. TAX FEES. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions. Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors The Audit Committee, is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically approved amount. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Audit Committee pre-approved 100% of the Company's 2003 audit fees, audit-related fees, tax fees, and all other fees to the extent the services occurred after May 6, 2003, the effective date of the Securities and Exchange Commission's final pre-approval rules. 21 KLEVER MARKETING, INC. (A DEVELOPMENT STAGE COMPANY) -:- INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS REPORT DECEMBER 31, 2006 AND 2005 TABLE OF CONTENTS
Page Report of Independent Registered Public Accountants.....................................F-1 Balance Sheets December 31, 2006 and 2005...........................................................F-3 Statements of Operations For the Years Ended December 31, 2006 and 2005 And for the Cumulative Period from July 5, 1996 (inception of development stage) To December 31, 2006.................................................................F-5 Statement of Stockholders' Equity From July 5, 1996 (inception of development stage) to December 31, 2006 .............F-6 Statements of Cash Flows For the Years Ended December 31, 2006 and 2005 And for the Cumulative Period from July 5, 1996 (inception of development stage) To December 31, 2006................................................................F-15 Notes to the Financial Statements......................................................F-17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS Board of Directors Klever Marketing, Inc. (A Development Stage Company) Salt Lake City, Utah We have audited the accompanying balance sheets of Klever Marketing, Inc. (a development stage company) as of December 31, 2006 and 2005, and the related statements of operations and cash flows for the two years ended December 31, 2006, and the cumulative period from July 5, 1996 (inception of development stage) to December 31, 2006, and the statement of stockholders' equity from July 5, 1996 (inception of development stage) to December 31, 2006. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. (a development stage company), as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America. F - 1 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Robison, Hill & Co. Certified Public Accountants Salt Lake City, Utah April 2, 2007 F - 2 KLEVER MARKETING, INC. (a Development Stage Company) BALANCE SHEETS December 31, ASSETS 2006 2005 - ------ ------------------ ------------------ Current Assets Cash $ 3,172 $ 3,892 Prepaid Expense 3,850 750 Other Receivable 25,865 25,865 ------------------ ------------------ Total Current Assets 32,887 30,507 ------------------ ------------------ Fixed Assets Office Equipment 92,964 92,964 Less Accumulated Depreciation (92,964) (92,964) ------------------ ------------------ Net Fixed Assets - - ------------------ ------------------ Other Assets Patents 775,045 767,830 Less Accumulated Amortization (775,045) (767,830) ------------------ ------------------ Net Other Assets - - ------------------ ------------------ Total Assets $ 32,887 $ 30,507 ================== ================== F - 3 KLEVER MARKETING, INC. (a Development Stage Company) BALANCE SHEETS (Continued)
December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 2006 2005 - ------------------------------------ ------------------ ------------------ Current Liabilities Accounts Payable, Trade $ 379,491 $ 307,591 Accrued Liabilities 2,608,007 2,063,182 Related Party Payables 2,128,648 2,116,393 Notes Payable 45,000 45,000 ------------------ ------------------ Total Current Liabilities 5,161,146 4,532,166 ------------------ ------------------ Stockholders' Equity Preferred stock (par value $.01), 2,000,000 shares authorized 168,434 issued and outstanding December 31, 2006 and December 31, 2005 1,684 1,684 Common Stock (Par Value $.01), 50,000,000 shares authorized 39,183,864 shares issued and outstanding at December 31, 2006 and 38,523,120 shares issued and outstanding at December 31, 2005 391,839 385,231 Common Stock to be issued, 469,752 shares at December 31, 2006 and 2005 4,698 4,698 Treasury Stock, 1,000 shares at December 31, 2006 and 2005 (1,000) (1,000) Paid in Capital in Excess of Par Value 13,643,186 13,440,954 Shareholder Receivable - (15,000) Retained Deficit (3,333,785) (3,333,785) Deficit Accumulated During Development Stage (15,834,881) (14,984,441) ------------------ ------------------ Total Stockholders' Equity (5,128,259) (4,501,659) ------------------ ------------------ Total Liabilities and Stockholders' Equity $ 32,887 $ 30,507 ================== ==================
The accompanying notes are an integral part of these financial statements F - 4 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF OPERATIONS
Cumulative From July 5, 1996 For the Year Ended Inception of December 31, Development 2006 2005 Stage ------------------ ------------------ ------------------ Revenue $ - $ - $ 256,000 ------------------ ------------------ ------------------ Expenses Sales and marketing 8,098 37,662 163,306 General and administrative 400,080 461,066 9,801,527 Research and development - - 4,529,656 ------------------ ------------------ ------------------ Total Expenses 408,178 498,728 14,494,489 ------------------ ------------------ ------------------ Other income (expense) Other income - 150,082 428,717 Interest income - - 18,902 Interest expense (442,162) (388,167) (2,261,350) Gain (Loss) on disposal of assets - - 26,947 Capital gain on sale of investments - - 191,492 ------------------ ------------------ ------------------ Total Other Income (Expense) (442,162) (238,085) (1,595,292) ------------------ ------------------ ------------------ Income (Loss) Before Taxes (850,340) (736,813) (15,833,781) Income Taxes 100 100 1,100 ------------------ ------------------ ------------------ Net Income (Loss) After Taxes $ (850,440) $ (736,913) $ (15,834,881) ================== ================== ================== Weighted Average Shares Outstanding 38,718,472 37,672,182 ================== ================== Loss Per Share $ (0.02) $ (0.02) ================== ==================
The accompanying notes are an integral part of these financial statements. F - 5 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development ---------------- ------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage -------- ------- ---------- -------- -------- -------- ---------------- ------------- ------------ Balance December 31, 1995 247,100 $ 2,471 12,210,949 $122,109 $ - $ - $ 74,022,028 $(103,351,248) $ - January 1996 shares issued in connection with merger (247,100) (2,471)(3,784,905) (37,849) - 5,059 (70,257,358) 100,017,463 Shares issued for cash at $0.50 - 3.00 per share - - 314,287 3,143 - - 507,932 - - Shares issued in exercise of options at $1.00 - $1.25 per share - - 130,000 1,300 - - 136,200 - - Shares issued for services at $1.25 per share - - 14,282 143 - - 17,710 - - Shares issued for receivable at $1.00 - 3.00 per share - - - - - 407 101,543 - - Shares issued to officer and employee for patents - - - - - 2,250 130,500 - - Net Loss - - - - - - - - (831,814) -------- ------- ---------- -------- -------- -------- ---------------- ------------- ------------ Balance December 31, 1996 - - 8,884,613 88,846 - 7,716 4,658,555 (3,333,785) (831,814)
F - 6 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development --------------- ----------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage ------- ------- --------- ------- ------ ------- ----------- ----------- ---------------- Shares issued for cash at $0.01 - 3.00 per share - $ - 228,150 $ 2,282 $ - $ 49 $ 449,976 $ - $ - Shares issued to officers for loans at $0.08 - 1.82 per share - - 249,444 2,494 - - 74,287 - - Shares issued for services at $0.50 - 2.59 per share - - 10,398 104 - - 7,391 - - Shares issued to officers for patents - - 260,813 2,608 - (2,250) 1,892 - - Shares issued for cash and receivables at $1.75 - 2.00 per share - - 58,286 583 - (100) 85,267 - - Shares issued to VideOcart creditors - - 97,610 976 - (976) - - - Shares issued for research & development at par - - - - - 464 - - - Shares issued for employee compensation at $2.50 per share - - 6,000 60 - - 14,940 - - Net Loss - - - - - - - - (755,594) ------- ------- --------- ------- ------ ------- ----------- ----------- ---------------- Balance December 31, 1997 - - 9,795,314 97,953 - 4,903 5,292,308 (3,333,785) (1,587,408)
F - 7 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development ------------------- -------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage ------- ----------- ---------- --------- --------- -------- ------------ ---------- ------------- Shares issued for cash at $1.50 - 3.00 per share - $ - 294,059 $ 2,941 $ - $ (100)$ 612,416 - - Shares issued for services at $2.00 - 7.80 per share - - 13,648 136 - - 43,590 - - Shares issued for employee compensation at $2.19 - 3.06 per share - - 4,363 44 - - 9,954 - - Shares issued for accounts receivable at $1.50 - 2.12 per share - - 129,437 1,294 - - 209,671 - - Shares issued for 1,500 shares of Avtel stock at $3.00 per share - - 4,125 41 - - 12,334 - - Shares issued for research & development contract - - 46,366 464 - (464) - - - Shares issued to officer for patent at $2.94 per share - - 150,000 1,500 - 250 512,313 - - Shares returned at $1.58 per share - - (42,493) (425) - - (66,667) - - Net Loss - - - - - - - - (1,496,926) ------- ----------- ---------- --------- --------- -------- ------------ ---------- ------------- Balance December 31, 1998 - - 10,394,819 103,948 - 4,589 6,625,919 (3,333,785) (3,084,334)
F - 8 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development --------------- -------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage ------ -------- ---------- --------- -------- -------- ----------- ----------- --------------- Shares issued for cash at $1.96 - 3.00 per share - $ - 701,525 $ 7,015 $ - $ - $ 1,649,949 $ - - Shares issued for employee compensation at $1.95 - 2.34 per share - - 2,995 30 - - 6,187 - - Shares issued for exercise of options at $0.52 - .86 per share - - 238,271 2,383 - - 200,342 - - Shares returned at $0.67-1.58 per share - - (62,489) (625) - - (107,047) - - Net Loss - - - - - - - - (1,734,623) ------ ------- ----------- --------- -------- -------- ----------- ----------- --------------- Balance December 31, 1999 - - 11,275,121 112,751 - 4,589 8,375,350 $(3,333,785)$ (4,818,957) Shares issued for cash at $1.07 - 2.75 per share - - 279,742 2,798 - - 532,754 - - Preferred shares issued for cash at $17 - 26 per share 84,576 846 - - - - 1,827,529 - - Shares issued for employee compensation at $3.99 per share - - 74,608 746 - - 296,939 - -
F - 9 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development ----------------- -------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage --------- ------- ---------- --------- -------- ------- ----------- ------------ --------------- Shares issued for exercise of stock options at $0.86 - 1.07 per share - $ - 597,778 $ 5,978 $ - $ $ 511,931 $ - $ - Shares issued for accounts payable at $2.75 - 3.00 per share - - 9,488 95 - - 26,649 - - Paid-in capital from treasury stock transaction - - - - - - 16,180 - - Shares canceled & converted to preferred shares at $2.75 per share - - (100,000) (1,000) - - (274,000) - - Conversion of note payable to preferred shares at $26 per share 9,615 96 - - - - 249,904 - - Shares issued that were paid for in 1997 - - 23,334 233 - (233) - - - Shares issued for services at $0.89 per share - - 2,697 27 - - 2,373 - - Shares returned at $1.73 - 2.12 per share - - (10,000) (100) - - (19,150) - - Net Loss - - - - - - - - (4,066,283) --------- ------- ---------- --------- -------- ------- ----------- ------------ --------------- Balance December 31, 2000 94,191 942 12,152,768 121,528 - 4,356 11,546,459 (3,333,785) (8,885,240)
F - 10 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development ------------------ ------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage --------- -------- ---------- -------- ------- ------- ----------- ----------- -------------- Shares issued for cash at $0.82 per share - $ - 4,685 $ 47 $ - $ - $ 3,795 $ - $ - Preferred shares issued for cash at $6.60 per share 6,061 60 - - - - 39,940 - - Preferred shares issued for payment of note payable - -49,3186.60 per share 68,182 682 Shares canceled for nonpayment - - (4,694) (47) - - (9,903) - - Shares issued for research & development expenses at $1.00 per share - - 15,000 150 - - 14,850 - - Shares issued for general & administrative expenses at $0.66 per share - - 507,048 5,070 - - 329,581 - - Shares returned to Company for accounts receivable of $98,375 - - - - (1,000) - (97,375) - - Net Loss - - - - - - - - (2,342,405) --------- -------- ---------- -------- ------- ------- ----------- ----------- -------------- Balance December 31, 2001 168,434 1,684 12,674,807 126,748 (1,000) 4,356 12,276,665 (3,333,785) (11,227,645)
F - 11 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development --------------- -------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage ------- ------- ---------- --------- -------- ------ ----------- ----------- --------------- Shares canceled for services not rendered - $ - (304,229)$ (3,042) $ - $ - $ (197,749) $ - $ - Cash received for shares that have not yet been issued - - - - - 3,333 21,667 - - Net Loss - - - - - - - - (1,025,837) ------- ------- ---------- --------- -------- ------ ----------- ----------- --------------- Balance December 31, 2002 168,434 1,684 12,370,578 123,706 (1,000) 7,689 12,100,583 (3,333,785) (12,253,482) Shares issued for cash at $0.05 - 0.75 per share - - 2,580,000 25,800 - (3,333) 151,033 - - Shares issued for S&C Medical at $0.05 per share - - 3,000,000 30,000 - - 120,000 - - Shares issued for notes payable at $.04-.05/share - - 11,259,786 112,598 - - 446,642 - - Shares issued for accounts payable at $.01-.10/share - - 4,200,000 42,000 - - 96,000 - - Shares authorized for expense at $.03 per share - not issued - - - - - 9,545 19,090 - - Shares authorized for payment of accounts payable at $.21 per share - not issued - - - - - 56 1,115 - -
F - 12 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development ---------------- -------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage --------- ------ ---------- --------- -------- ------- ------------ ------------ ---------------- Net Loss - $ - - $ - - $ - $ - $ - $ (1,361,753) --------- ------ ---------- --------- -------- ------- ------------ ------------ ---------------- Balance December 31, 2003 168,434 1,684 33,410,364 334,104 (1,000) 13,957 12,934,463 (3,333,785) (13,615,235) Shares issued for cash at - $.036 - .15 per share - - 770,000 7,700 - - 57,420 - - Shares issued for accounts payable at $.05-.23/share - - 391,939 3,919 - - 27,306 - - Shares issued for expenses at $.04 - .23 per share - - 1,910,604 19,106 - (9,203) 108,325 - - Authorized shares issued - - 5,571 56 - (56) - - - Shares issued for settlement of liabilities - - 152,142 1,521 - - 36,514 - - Net Loss - - - - - - - - (632,293) --------- ------ ---------- --------- -------- ------- ------------ ------------ ---------------- Balance December 31, 2004 168,434 1,684 36,640,620 366,406 (1,000) 4,698 13,164,028 (3,333,785) (14,247,528) Shares issued for cash at $.028 - .25 per share - - 1,790,000 17,900 - - 254,726 - - Shares issued for expenses at $.25 per share - - 92,500 925 - - 22,200 - - Net Loss - - - - - - - - (736,913) --------- ------ ---------- --------- -------- ------- ------------ ------------ ---------------- Balance December 31, 2005 168,434 $1,684 38,523,120 $ 385,231 $ (1,000)$ 4,698 $ 13,440,954 $ (3,333,785)$ (14,984,441)
F - 13 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Deficit Accumulated From Common Paid in July 5, 1996 Stock Capital in Inception of Preferred Stock Common Stock Treasury to be Excess of Retained Development ---------------- --------------------- Shares Amount Shares Amount Stock Issued Par Value Deficit Stage -------- ------- ----------- --------- -------- --------- ------------ ------------ ------------ Shares issued for general and administrative expenses at $.25 per share - - 2,788 29 - - 669 - - Shares issued for cash at $.25 per share - - 586,000 5,860 - - 140,640 - - Shares issued for accounts payable at $.25 per share - - 71,956 719 - - 17,270 - - Compensation expense from issuance of stock options - - - - - - 43,653 - - Net Loss - - - - - - - - (850,440) -------- ------- ----------- --------- -------- --------- ------------ ------------ ------------ Balance December 31, 2006 168,434 $ 1,684 39,183,864 $ 391,839 $ (1,000) $ 4,698 $ 13,643,186 $ (3,333,785) $(15,834,881) ======== ======= =========== ========= ======== ========= ============ ============ ============
The accompanying notes are an integral part of these financial statements. F - 14 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF CASH FLOWS
Cumulative From July 5, 1996 For the Year ended Inception of December 31, Development 2006 2005 Stage ----------------- ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (850,440) $ (736,913) $ (15,834,881) Adjustments used to reconcile net loss to net cash provided by (used in) operating activities: Sock issued for general and administrative 697 23,125 987,482 Stock issued for research and development - - 62,850 Stock returned for services not rendered - - (200,790) (Gain) loss on sale/disposal of assets - - 486,536 Compensation expense from stock options 43,653 - 69,900 Stock issued for interest expense - - 119,701 Stock issued for accounts payable 17,989 - 226,462 Deferred income - - (214,000) Depreciation and amortization 7,215 43,537 1,912,883 Write-off of bad debts 15,000 - 15,000 (Increase) decrease in accounts receivable - - (413) (Increase) decrease in shareholder receivable - - 37,694 (Increase) decrease in other assets & prepaids (3,100) - 84,523 Increase (decrease) in accounts payable 71,899 (36,174) 293,786 Increase (decrease) in accrued liabilities 544,826 426,152 2,556,676 ----------------- ------------------ ------------------ Net Cash Used in Operating Activities (152,261) (280,273) (9,396,591) ----------------- ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition/Sale of equipment, net - - (587,801) Acquisition/Sale of patents (7,215) (12,741) 25,089 Acquisition/Sale of stock, net - - 12,375 ----------------- ------------------ ------------------ Net Cash Used by Investing Activities (7,215) (12,741) (550,337) ----------------- ------------------ ------------------
F - 15 KLEVER MARKETING, INC. (a Development Stage Company) STATEMENT OF CASH FLOWS (continued)
Cumulative From July 5, 1996 For the Year ended Inception of December 31, Development 2006 2005 Stage ----------------- ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds capital stock issued 146,500 272,626 6,765,673 Proceeds from loans 16,500 1,564 3,473,252 Loan receivables - - (15,000) Principal payments on lease obligations - - (18,769) Cash payments on notes payable (4,244) (458) (279,730) ----------------- ------------------ ------------------ Net Cash Provided by Financing Activities 158,756 273,732 9,925,426 ----------------- ------------------ ------------------ Net Increase (Decrease) in Cash and Cash Equivalents (720) (19,282) (21,502) Cash and Cash Equivalents at Beginning of the Year 3,892 23,174 24,674 ----------------- ------------------ ------------------ Cash and Cash Equivalents at End of the Year $ 3,172 $ 3,892 $3,172 ================= ================== ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest $ - $ - $ - Income Taxes $ 100 $ 100 $ 1,100
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: None. The accompanying notes are an integral part of these financial statements. F - 16 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 incurred net losses of $850,440 and $736,913 for the years ended December 31, 2006 and 2005, respectively, and losses of $19,168,666 since inception. 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. During the period from July 5, 1996 to December 31, 2002, the Company has been in the development stage, except for an approximate 2-month period in 2000 when the Company generated revenue from installations of their Klever-Kart system in stores. F - 17 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) 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 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. 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. 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. Reclassifications Certain reclassifications have been made in the 2005 financial statements to conform with the 2006 presentation. Fair Value of Financial Instruments The carrying value of the Company's financial instruments, including accounts payable and accrued liabilities at December 31, 2006 and 2005 approximates their fair values due to the short-term nature of these financial instruments. F - 18 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued) Loss per Share Basic earnings per common share were computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share for the years ended December 31, 2006 and 2005 are not presented as it would be anti-dilutive. At December 31, 2006 and 2005, the total number of potentially dilutive common stock equivalents was 6,425,467 and 8,109,807, respectively. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Fixed Assets Fixed assets are stated at cost. Depreciation and amortization are computed using the straight- line method over the estimated economic useful lives of the related assets as follows: Computer equipment 3 years Office furniture and fixtures 5-10 years Upon sale or other disposition of property and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is included in the determination of income or loss. Expenditures for maintenance and repairs are charged to expense as incurred. Major overhauls and betterments are capitalized and depreciated over their estimated economic useful lives. Depreciation expense was $0 and $3,644 for the years ended December 31, 2006 and 2005, respectively. Intangibles Intangibles associated with certain technology agreements are amortized over 10 - 14 years. Amortization expense was $7,215 and $39,892 for the years ended December 31, 2006 and 2005, respectively. F - 19 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued) 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. During the year ended December 31, 2006, the Company granted 312,800 stock options to officers and directors, and granted 290,000 stock options to non-employees. Accordingly, stock- based compensation expense of $43,653 was recognized in the Statement of Operations at December 31, 2006. 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 4.50%; expected life of option was 2 or 3 years; expected volatility of stock for the two and three year options was 215.6% and 238.3%, respectively. During the year ended December 31, 2005, the Company valued stock options using the intrinsic value method prescribed by APB 25. Since the exercise price of stock options previously issued was greater than or equal to the market price on grant date, no compensation expense was recognized. F - 20 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 3 - INCOME TAXES As of December 31, 2006, the Company had a net operating loss carry forward for income tax reporting purposes of approximately $19,068,236 that may be offset against future taxable income through 2026. 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. 2006 2005 Net Operating Losses $ 2,860,236 2,740,329 Valuation Allowance (2,860,236) (2,740,329) $ - $ - ================== ================== The provision for income taxes differs from the amount computed using the federal US statutory income tax rate as follows: 2006 2005 Provision (Benefit) at US Statutory Rate $ 119,907 $ 110,207 Increase (Decrease) in Valuation Allowance (119,907) (110,207) $ - $ - ============= ================== 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 The Company currently leases approximately 700 square feet of office space from Poulton & Associates on a month to month basis. The rent payments are approximately $800 per month. The office space is used as the corporate headquarters. It is located at 3785 S 700 E, 2nd Floor, Salt Lake City, UT 84106. F - 21 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 4 - LEASE COMMITMENT (continued) The minimum future lease payments under these leases for the next five years are: Year Ended December 31, - ------------------------------------------- 2007 $ - 2008 - 2009 - 2010 - 2011 - -------------- Total minimum future lease payments $ - ============== 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 years ended December 31, 2006 and 2005, the Company expended $0 and $0 respectively for research and development of the technology involved with its patents. NOTE 6- RELATED PARTY TRANSACTIONS OLSON HOLDINGS, INC. LOANS TO THE COMPANY Olson Holdings, Inc. made a $150,000.00 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 $1,835.84. 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. At December 31, 2006 and 2005, the total amount due on these notes was $336,139 and $288,183, respectively. F - 22 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6- RELATED PARTY TRANSACTIONS (continued) OLSON FOUNDATION LOANS TO THE COMPANY 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. 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 $1,059.37, 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. At December 31, 2006 and 2005, the total amount due on these loans was $289,927 and $265,010, respectively. PRESIDIO INVESTMENTS, LLC LOAN TO THE COMPANY Presidio Investments, LLC 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 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. F - 23 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6- RELATED PARTY TRANSACTIONS (continued) At December 31, 2006 and 2005, the total amount due on these loans was $2,798,188 and $2,542,713, respectively. THE SEABURY GROUP LOAN TO THE COMPANY The Seabury Group loaned the Company $60,000 on July 5, 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 5, 2002. Principal and all due and unpaid interest are to be paid on January 5, 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 5, 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 The Seabury Group 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. At December 31, 2006 and 2005, the total amount due on these loans was $540,658 and $464,601, respectively. ARBINGER LOANS TO THE COMPANY The loans listed below were made to the Company by The Arbinger Institute. The Arbinger Institute is controlled by four equal partners, of which C. Terry Warner and D. Paul Smith are each a partner. F - 24 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6- RELATED PARTY TRANSACTIONS (continued)
Common Annual Stock Option Interest Option # Strike DATE Principal Rate Maturity Date Shares Price - ------------ ---------------- ---------------------------------------------------------------- 09/12/03 $10,040.00 8.00% 09/12/05 16,733 $1.00 09/17/03 $471.73 8.00% 09/17/05 786 $1.00 09/25/03 $4,500.00 8.00% 09/25/05 7,500 $1.00 09/26/03 $80.95 8.00% 09/26/05 135 $1.00 10/01/03 $79.00 8.00% 10/01/05 132 $1.00 11/01/03 $79.00 8.00% 11/01/05 132 $1.00 11/26/03 $10,000.00 8.00% 11/26/05 16,667 $1.00 12/02/03 $79.00 8.00% 12/02/05 132 $1.00 12/15/03 $13,000.00 8.00% 12/15/05 21,667 $1.00 12/24/03 $2,750.00 8.00% 12/24/05 4,583 $1.00 ---------------- -------------- Total $41,079.68 68,467 ================ ==============
During 2004, the Arbinger Institute loaned the Company an additional $2,260 to pay general and administrative expenses. At December 31, 2006 and 2005, the total amount due on these loans was $53,373 and $49,095, 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. At December 31, 2006, the total due on these loans was $17,545. NOTE 7 - 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, 2006 and 2005, the total amount due on these loans was $65,137 and $60,175, respectively. F - 25 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 8- 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, 2006, 5,070,088 options were outstanding. The Company granted 602,800 options during 2006, of which 426,000 expire in two years, and 176,800 expire in three years. Compensation expense charged to operations for the years ended December 31, 2006 and 2005 was $43,653 and $0, respectively. The following table sets forth the options and warrants outstanding as of December 31, 2005.
Weighted Option / Average Weighted Warrants Exercise Average Shares Price Fair Value ----------------- ------------------ ----------------- Options & warrants outstanding, December 31, 2004 6,861,584 $ 0.77 Granted, Exercise price more than fair value 1,310,288 0.43 0.08 Granted, Exercise price less than fair value - - - Expired (845,819) 0.06 Exercised - - ----------------- Options & warrants outstanding, December 31, 2005 7,326,053 $ 0.54 ================= ==================
The following table sets forth the options and warrants outstanding as of December 31, 2006.
Weighted Option / Average Weighted Warrants Exercise Average Shares Price Fair Value ----------------- ------------------ ----------------- Options & warrants outstanding, December 31, 2005 7,326,053 $ 0.77 Granted, Exercise price more than fair value 602,800 0.75 0.06 Granted, Exercise price less than fair value - - - Expired (2,858,765) 0.08 Exercised - - ----------------- Options & warrants outstanding, December 31, 2006 5,070,088 $ 0.25 ================= ==================
F - 26 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 8- STOCK OPTIONS (continued) Exercise price for optioned shares and warrants outstanding as of December 31, 2006 range from $0.06 to $1.00. A summary of these options by range of exercise prices is shown as follows:
Weighted- Weighted- Weighted- Shares/ Average Average Shares / Average Warrants Exercise Price Contractual Exercise Warrants Exercise Currently Currently Remaining Price Outstanding Price Exercisable Exercisable Life - ------------------ ------------------ --------------- ------------------ --------------------- ----------------- $ 0.06 2,557,000 $ 0.06 2,557,000 $ 0.06 8 months ..07 400,000 0.07 400,000 0.07 2 months ..08 100,000 0.08 100,000 0.08 26 months ..10 125,000 0.10 125,000 0.10 24 months ..23 200,000 0.23 200,000 0.23 13 months ..50 1,396,688 0.50 1,396,688 0.50 29 months 1.00 291,400 1.00 291,400 1.00 23 months
NOTE 9 - 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 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. F - 27 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 9 - 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). 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 F - 28 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 9 - PREFERRED STOCK (continued) 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. 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 F - 29 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 9 - PREFERRED STOCK (continued) 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. 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). F - 30 KLEVER MARKETING, INC. (a Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 9 - PREFERRED STOCK (continued) 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. 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. F - 31 KLEVER MARKETING, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 10 - LITIGATION On October 27, 2003, Thomas J. LaLanne, assignee of eiKart, LLC., filed against the Company in the Third Judicial District Court of Utah under the provisions of the Utah Foreign Judgment Act a judgment from the Superior Court of California, in and for the County of San Francisco Jurisdiction. Pursuant to the Judgment Information Statement, also filed on October 27, 2003, the amount of the above judgment is $81,124. The relief sought is collection from the Company in Utah of the amount of said judgment. The Company has filed an action to dismiss said Utah judgment on the grounds that the Superior Court of California did not have jurisdiction over the Company when the original judgment was granted. This judgment has been included in the financial statements as part of accrued liabilities at December 31, 2006 and 2005. On September 6, 2002, an entry of judgment was entered against the Company by Micropower Direct, LLC. The total judgment was for $17,167.18. During 2006, this judgment was paid in full. 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. This matter is still in the process of being resolved. During 2006, Arthur Portugal, a former officer of the Company, filed a formal claim asserted for approximately $125,000 for alleged past due executive compensation including stock options. The Company disputes the claim. The claimant previously filed a formal administrative wage claim in California which is inactive but pending. As of December 31, 2006, 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 $9,710 due to Mr. Portugal. NOTE 11 - STOCK TRANSACTIONS On January 20, 2005, the Company issued 50,000 shares of common stock at $.048 for cash of $2,400. On February 3, 2005, the Company issued 50,000 shares of common stock at $.034 for cash of $1,700. On February 11, 2005, the Company issued 100,000 shares of common stock at $.036 for cash of $3,600. On April 5, 2005, the Company issued 350,000 shares of common stock at $.028 for cash of $10,106. F - 32 KLEVER MARKETING, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 11 - STOCK TRANSACTIONS (continued) On April 12, 2005, the Company issued 100,000 shares of common stock at $.03 for cash of $3,000. On April 22, 2005, the Company issued 150,000 shares of common stock at $.028 for cash of $4,320. During 2005, the Company issued 990,000 shares of common stock at $.25 for cash of $247,500. On December 31, 2005, the Company issued 92,500 shares of common stock for expenses of $23,125. The shares were valued at $.25 per share. During the year ended December 31, 2006, the Company issued 586,000 shares of common stock for cash of $146,500. The shares were sold for $.25 per share. In December 2006, the Company issued 2,788 shares of common stock for general and administrative expenses of $697. The shares were valued at $.25 per share. In October 2006, the Company issued 24,000 shares of common stock for accounts payable of $6,000. The shares were valued at $.25 per share. In December 2006, the Company issued 47,956 shares of common stock for accounts payable of $11,989. The shares were valued at $.25 per share. NOTE 12 - PURCHASE AGREEMENT On July 29, 2003, the Company entered into an agreement to purchase 80% of the issued and outstanding shares of S&C Medical, Inc. (S&C). The Company agreed to issue 3,000,000 restricted shares of the Company's common voting stock to acquire the S&C shares. The Company also sent S&C $15,000 in cash. As of December 31, 2003, the Company cancelled the agreement. The 3,000,000 shares have not yet been returned to the Company. The Company is in the process of cancelling these shares. The $15,000 has been recorded as a shareholder receivable. During 2006, the receivable was written-off and the $15,000 expensed. 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. F - 33 KLEVER MARKETING, INC. (A Development Stage Company) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 13 - LICENSE AGREEMENT (continued) 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 ModStream 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 - EMPLOYMENT AGREEMENT On November 14, 2005, the Company entered into an employment agreement with Arthur Portugal. Under the terms of the agreement, Mr. Portugal will receive a base salary of $185,000 per year. The employment agreement was concluded on June 30, 2006 and was not renewed. NOTE 15 - 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, 2006 and 2005, the Company was still owed $25,000 relating to this sale. F - 34 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 its behalf by the undersigned, thereunto duly authorized. KLEVER MARKETING, INC. Dated: April 2, 2007 By /S/ William C. Bailey --------------------------------- William C. Bailey Chairman (Principal Executive Officer) 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 2nd day of April 2007. Signatures Title /S/ William C. Bailey - -------------------------------------------------------------- William C. Bailey Chairman (Principal Executive Officer) /S/ John L. Hastings III John L. Hastings III Interim President & CEO, as of 11/10/06 /S/ Craig Poulton Craig Poulton Director /S/ Michael L. Mills - ----------------------------------------------------------- Michael L. Mills Director /S/ Bernadette Suckel Bernadette Suckel Interim COO, as of 11/10/06 /S/ John T. Zaccheo John T. Zaccheo Vice Chairman & CFO, - --------------- Acting President & CEO 7/01/06 through 11/10/06 /S/ Paul G. Begum Paul G. Begum Director and interim CFO, as of - ------------- 22 EX-31 2 form10ksb123106ex31-1.txt EXHIBIT 31.1 SECTION 302 CERTIFICATIONS I, William C. Bailey, certify that: 1. I have reviewed this annual report on form 10-KSB of Klever Marketing, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such disclosure control over financial reporting, or caused such internal control over financial reporting got be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the this fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: April 2, 2007 /S/ William C. Bailey - ------------------------------- William C. Bailey Chairman (Principal Executive Officer) EX-31 3 form10ksb123106ex31-2.txt EXHIBIT 31.2 SECTION 302 CERTIFICATIONS I, John Zaccheo, certify that: 1. I have reviewed this annual report on form 10-KSB of Klever Marketing, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such disclosure control over financial reporting, or caused such internal control over financial reporting got be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the this fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: April 2, 2007 /S/ John Zaccheo John Zaccheo Vice-Chairman, CFO (Principal Financial Officer) EX-32 4 form10ksb123106ex32-1.txt EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Klever Marketing, Inc. on Form 10-KSB for the period ending December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William C. Bailey, Chairman and Principal Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ William C. Bailey _____ William C. Bailey Chairman (Principal Executive Officer) April 2, 2007 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 5 form10ksb123106ex32-2.txt EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Klever Marketing, Inc. on Form 10-KSB for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Zaccheo, C.F.O./Treasurer/Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ John Zaccheo Vice Chairman & CFO (Principal Financial Officer) April 2, 2007 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----