UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED March 31, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 000-18730
Klever Marketing, Inc.
(Exact name of small business issuer as specified in its charter)
| Delaware | 36-3688583 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1100 East 6600 South, Suite 305, Salt Lake City, UT 84121 |
| (Address of principal executive offices) |
| (801) 847-6444 |
| (Issuer’s Telephone Number) |
Indicate by check mark whether the issuer (1) has 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x
Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o |
| Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date. As of May 12, 2014, there were 52,341,043 shares of the issuer's $.01 par value common stock issued and outstanding.
KLEVER MARKETING, INC.
TABLE OF CONTENTS
| Page No. | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited): | 3 |
| Balance Sheets as of March 31, 2014 and December 31, 2013 (Audited) | 3 | |
| Statements of Operations for the three months ending March 31, 2014 and 2013 and from inception of Development Stage on July 5, 1996 through March 31, 2014 | 4 | |
| Statement of Stockholders’ Equity for the three months ending March 31, 2014 | 5 | |
| Statements of Cash Flows for the three months ending March 31, 2014 and 2013 and from inception of Development Stage on July 5, 1996 through March 31, 2014 | 6 | |
| Notes to Condensed Financial Statements | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 16 |
| Item 4. | Controls and Procedures | 16 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 19 |
| Item 1A. | Risk Factors and Uncertainties | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
| Item 3. | Defaults Upon Senior Securities | 20 |
| Item 4. | Submission of Matters to Vote of Security Holders | 21 |
| Item 5. | Other Information | 21 |
| Item 6. | Exhibits | 21 |
| Signatures | 22 | |
| Exhibit Index | ||
| Exhibit 31.1 | ||
| Exhibit 31.2 | ||
| Exhibit 32.1 | ||
| Exhibit 32.2 | ||
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
KLEVER MARKETING, INC.
(A Development Stage Company)
Balance Sheets
| (Unaudited) | ||||||||
| March 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 27,421 | $ | 51,654 | ||||
| Total Current Assets | 27,421 | 51,654 | ||||||
| FIXED ASSETS | ||||||||
| Capitalized software development and licenses | 472,834 | 422,330 | ||||||
| Office Equipment | 3,350 | 3,350 | ||||||
| Less accumulated depreciation | (1,279 | ) | (915 | ) | ||||
| Total Fixed Assets | 474,905 | 424,765 | ||||||
| OTHER ASSETS | ||||||||
| Intangibles, net | 85,823 | 86,898 | ||||||
| Total Other Assets | 85,823 | 86,898 | ||||||
| TOTAL ASSETS | $ | 588,149 | $ | 563,317 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 323,454 | $ | 304,669 | ||||
| Accrued liabilities | 92,998 | 65,724 | ||||||
| Preferred stock dividends | 24,030 | – | ||||||
| Total Current Liabilities | 440,482 | 370,393 | ||||||
| Total Liabilities | 440,482 | 370,393 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Convertible preferred stock - Class A ( par value $0.01; 150,000 shares authorized; 124,531 issued and outstanding at March 31, 2014 and December 31, 2013, respectively); aggregate liquidation preference of $3,306,604. | 1,245 | 1,245 | ||||||
| Convertible preferred stock - Class B (par value $0.01; 125,000 shares authorized; 94,383 issued and outstanding at March 31, 2014 and December 31, 2013 respectively); aggregate liquidation preference of $1,638,609. | 944 | 944 | ||||||
| Convertible preferred stock - Class C ( par value $0.01; 200,000 shares authorized; 165,955 issued and outstanding at March 31, 2014 and December 31, 2013 respectively); aggregate liquidation preference of $1,118,583. | 1,660 | 1,660 | ||||||
| Common stock (par value $0.01), 250,000,000 shares authorized, 51,803,124 and 51,693,124 shares issued and outstanding, at March 31, 2014 and December 31, 2013, respectively. | 518,031 | 516,931 | ||||||
| Treasury stock, 100,000 shares at March 31, 2014 and December 31, 2013, respectively | (1,000 | ) | (1,000 | ) | ||||
| Paid in capital in excess of par value | 17,861,841 | 17,880,371 | ||||||
| Retained deficit | (3,333,785 | ) | (3,333,785 | ) | ||||
| Deficit accumulated during development stage | (14,901,269 | ) | (14,873,442 | ) | ||||
| Total Stockholders' Equity | 147,667 | 192,924 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 588,149 | $ | 563,317 | ||||
The accompanying notes are an integral part of these financial statements.
| 3 |
KLEVER MARKETING, INC.
(A Development Stage Company)
Statements of Operations
(Unaudited)
| For the Three Months Ended | From Inception of Development Stage On July 5, 1996 Through | |||||||||||
| March 31, | March 31, | |||||||||||
| 2014 | 2013 | 2014 | ||||||||||
| REVENUES | $ | – | $ | – | $ | 256,000 | ||||||
| EXPENSES | ||||||||||||
| Sales and marketing | – | – | 163,306 | |||||||||
| General and administrative | 66,662 | 95,183 | 12,655,223 | |||||||||
| Research and development | 2,141 | 860 | 4,783,007 | |||||||||
| Total Expenses | 68,803 | 96,043 | 17,601,536 | |||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Other income | – | – | 685,751 | |||||||||
| Interest income | – | – | 19,152 | |||||||||
| Interest expense | – | (16,626 | ) | (2,755,234 | ) | |||||||
| Forgiveness of debt | – | 818,708 | 1,285,661 | |||||||||
| Gain (loss) on sale of assets | – | (325 | ) | 649,856 | ||||||||
| Litigation settlement | 41,250 | – | 135,735 | |||||||||
| Capital gain on sale of investments | – | – | 191,492 | |||||||||
| Total Other Income (Expense) | 41,250 | 801,757 | 212,413 | |||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (27,553 | ) | 705,714 | (17,133,123 | ) | |||||||
| INCOME TAXES | (274 | ) | – | (39,540 | ) | |||||||
| INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS | (27,827 | ) | 705,714 | (17,172,663 | ) | |||||||
| EXTRAORDINARY ITEM - TROUBLED DEBT RESTRUCTURING | – | – | 2,271,394 | |||||||||
| NET INCOME (LOSS) | $ | (27,827 | ) | $ | 705,714 | $ | (14,901,269 | ) | ||||
| BASIC EARNINGS PER COMMON SHARE | $ | (0.00 | ) | $ | 0.01 | |||||||
| FULLY DILUTED INCOME (LOSS) PER COMMON SHARE | $ | (0.00 | ) | $ | 0.01 | |||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 51,728,568 | 47,410,624 | ||||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - FULLY DILUTED | 51,728,568 | 67,796,743 | ||||||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
KLEVER MARKETING, INC.
(A Development Stage Company)
Statement of Stockholders’ Equity
(Unaudited)
| Preferred Stock | Common Stock | Treasury | Capital in Excess of | Retained | Deficit Accumulated During Development | Total Stockholders' | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Stock | Par Value | Deficit | Stage | Equity | ||||||||||||||||||||||||||||
| Balance, December 31, 2013 | 384,869 | $ | 3,849 | 51,693,124 | $ | 516,931 | $ | (1,000 | ) | $ | 17,880,371 | $ | (3,333,785 | ) | $ | (14,873,442 | ) | $ | 192,924 | |||||||||||||||||
| Common Stock issued for cash at $0.05 per share | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||||
| Common Stock issued for services at $0.06 per share | – | – | 110,000 | 1,100 | – | 5,500 | – | – | 6,600 | |||||||||||||||||||||||||||
| Accrual for preferred stock dividend | – | – | – | – | – | (24,030 | ) | – | – | (24,030 | ) | |||||||||||||||||||||||||
| Net loss for quarter ended March 31, 2014 | – | – | – | – | – | – | (27,827 | ) | (27,827 | ) | ||||||||||||||||||||||||||
| Balance, March 31, 2014 | 384,869 | $ | 3,849 | 51,803,124 | $ | 518,031 | $ | (1,000 | ) | $ | 17,861,841 | $ | (3,333,785 | ) | $ | (14,901,269 | ) | $ | 147,667 | |||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| 5 |
KLEVER MARKETING, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
| For the Three Months Ended | From Inception of Development Stage On July 5, 1996 Through | |||||||||||
| March 31, | March 31, | |||||||||||
| 2014 | 2013 | 2014 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income (loss) | $ | (27,827 | ) | $ | 705,714 | $ | (14,901,269 | ) | ||||
| Adjustments to reconcile net income (loss) to net cash used by operating activities: | ||||||||||||
| Stock issued for general and administrative | – | 6,250 | 1,283,606 | |||||||||
| Stock issued for research and development | – | – | 62,850 | |||||||||
| Stock returned for services not rendered | – | – | (391,446 | ) | ||||||||
| (Gain) loss on sale/disposal of assets | – | 325 | (5,170 | ) | ||||||||
| Compensation expense from stock options and warrants | – | – | 110,202 | |||||||||
| Stock issued for interest | – | – | 135,226 | |||||||||
| Stock issued for accounts payable | – | – | 243,458 | |||||||||
| Deferred income | – | – | (214,000 | ) | ||||||||
| Depreciation and amortization | 5,600 | 3,600 | 1,938,299 | |||||||||
| Write-off bad debts | – | – | 15,000 | |||||||||
| Debt forgiveness | – | (818,708 | ) | (993,533 | ) | |||||||
| Services contributed by officers | – | 40,500 | 141,000 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Decrease (increase) in due from related parties | – | – | 62,281 | |||||||||
| (Increase) decrease in other assets and prepaids | – | – | 89,238 | |||||||||
| Increase (decrease) in accounts payable | 18,785 | 12,358 | 585,899 | |||||||||
| Increase (decrease) in accrued liabilities | 27,274 | (3,873 | ) | 1,143,862 | ||||||||
| Net Cash Provided by (Used by) Operating Activities | 23,832 | (53,834 | ) | (10,694,497 | ) | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Acquisition of equipment | – | (1,300 | ) | (591,694 | ) | |||||||
| Capitalized software development costs | (43,904 | ) | – | (380,607 | ) | |||||||
| Proceeds from sale of intangibles | – | – | 516,570 | |||||||||
| Intellectual property development costs | (4,161 | ) | (2,976 | ) | (109,191 | ) | ||||||
| Sale of stock | – | – | 12,375 | |||||||||
| Net Cash Used by Investing Activities | $ | (48,065 | ) | $ | (4,276 | ) | $ | (552,547 | ) | |||
The accompanying notes are an integral part of these financial statements.
| 6 |
KLEVER MARKETING, INC.
(A Development Stage Company)
Condensed Statements of Cash Flows (Continued)
(Unaudited)
| For the Three Months Ended | From Inception of Development Stage On July 5, 1996 Through | |||||||||||
| March 31, | March 31, | |||||||||||
| 2014 | 2013 | 2014 | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Stock deposit | $ | – | $ | – | $ | 11,000 | ||||||
| Stock subscription received | – | – | 23,000 | |||||||||
| Proceeds from capital stock issued | – | 54,500 | 8,051,201 | |||||||||
| Proceeds from loans | – | – | 3,518,202 | |||||||||
| Proceeds from related party loans | – | 13,450 | 24,900 | |||||||||
| Repayments on related party loans | – | (69,850 | ) | |||||||||
| Change in line-of-credit | – | – | 4,837 | |||||||||
| Loan receivables | – | – | (15,000 | ) | ||||||||
| Principal payments on lease obligations | – | – | (18,769 | ) | ||||||||
| Cash payments on note payable | – | – | (279,730 | ) | ||||||||
| Net Cash Provided by Financing Activities | – | 67,950 | 11,249,791 | |||||||||
| NET INCREASE (DECREASE) IN CASH | (24,233 | ) | 9,840 | 2,747 | ||||||||
| CASH AT BEGINNING OF PERIOD | 51,654 | 3,055 | 24,674 | |||||||||
| CASH AT END OF PERIOD | $ | 27,421 | $ | 12,895 | $ | 27,421 | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||||||
| Cash Paid For: | ||||||||||||
| Interest | $ | – | $ | – | $ | 3,326 | ||||||
| Income taxes | $ | – | $ | – | $ | 2,041 | ||||||
| Non-Cash Transactions for Investing and Financing Activities: | ||||||||||||
| Common stock issued to pay accounts payable | $ | – | $ | 11,339 | ||||||||
| Common stock issued for capitalized software development | $ | 6,600 | $ | – | ||||||||
| Common stock issued to pay accrued liabilities | $ | – | $ | 7,500 | ||||||||
| Accrued compensation forgiven by officers | $ | – | $ | 404,250 | ||||||||
| Accrual for preferred stock dividends payable with preferred shares | $ | 24,030 | $ | – | ||||||||
The accompanying notes are an integral part of these financial statements.
| 7 |
KLEVER MARKETING, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 – BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto included in its December 31, 2013 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
The Company was organized under the laws of the State of Delaware in December 1989. The Company was in the development stage from 1989 to 1991. The Company was an operating company from 1992 to December 8, 1993 when it filed petitions for relief under Chapter 11 bankruptcy. The Company was inactive until July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse merger and changed its name to Klever Marketing, Inc. The Company has been in the development stage since the reverse merger occurred.
The Company was formed for the purpose of creating a vehicle to obtain capital, to file and acquire patents, to seek out, investigate, develop, manufacture, market and distribute an electronic shopping cart for in-store advertising, promotion and media content and retail shopper services, which have potential for profit.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Common Share
The computations of basic and fully diluted earnings per share of common stock are based on the weighted average number of common shares outstanding during the period of the financial statements, plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding during the period, or the exercise of convertible preferred stock. For the periods where the Company incurred a net loss, common stock equivalents related to the conversion of preferred rights have not been included in calculation of diluted earnings per share because they are anti-dilutive.
Following is a reconciliation of the income (loss) per share for the three months ended March 31, 2014 and 2013, respectively:
| Three Months Ending March 31, | ||||||||
| 2014 | 2013 | |||||||
| Numerator: | ||||||||
| Income (loss) before extraordinary items | $ | (27,827 | ) | $ | 705,714 | |||
| Income from extraordinary items, net of tax | – | – | ||||||
| Net income (loss) | $ | (27,827 | ) | $ | 705,714 | |||
| Denominator: | ||||||||
| Weighted-average common shares outstanding | ||||||||
| Basic | 51,728,568 | 47,410,624 | ||||||
| Conversion of preferred rights | – | 20,386,119 | ||||||
| Diluted | 51,728,568 | 67,796,743 | ||||||
| Income (loss) per share | ||||||||
| Basic | ||||||||
| Income (loss) before extraordinary items | $ | (0.00 | ) | $ | 0.01 | |||
| Income from extraordinary items, net of tax | – | – | ||||||
| Net income (loss) | $ | (0.00 | ) | $ | 0.01 | |||
| Diluted | ||||||||
| Income (loss) before extraordinary items | $ | (0.00 | ) | $ | 0.01 | |||
| Income from extraordinary items, net of tax | – | – | ||||||
| Net income (loss) | $ | (0.00 | ) | $ | 0.01 | |||
| 8 |
KLEVER MARKETING, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Capitalized Software Development
The Company capitalizes software development costs incurred from the time technological feasibility has been obtained until the product is generally released to customers. The Company achieved technological feasibility with regard to its mobile phone technology during the fourth quarter of 2010. The Company had $472,834 and $422,330 of capitalized software development costs as of March 31, 2014 and December 31, 2013, respectively.
Income Taxes
The Company accounts for income taxes pursuant to ASC 740, Income Taxes (“ASC 740”). Under this accounting standard, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Given the Company’s history of losses, the Company maintains a full valuation allowance with respect to any deferred tax assets.
ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the uncertain tax position to determine the amount to recognize in the financial statements. Our uncertain tax positions relate to certain state tax issues for which we have recorded an estimated current liability for in the accompanying financial statements at March 31, 2014 and December 31, 2013. There has been no significant change in the unrecognized tax benefit through March 31, 2014 except for accruing additional interest and penalties. The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company has not identified any uncertain tax positions for which it is reasonably possible that the total amount of liability for unrecognized tax positions will significantly increase or decrease within the next 12 months.
The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about the realizability of the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
The Company files income tax returns in the U.S. federal and Utah jurisdictions. Tax years 2010 to current remain open to examination by U.S. federal and state tax authorities.
From inception through March 31, 2014, the Company has incurred net losses and, therefore, had no federal income tax liability. To date, the Company has incurred the statutory minimum tax liability for state taxes and has accrued for its uncertain state tax position described above. The net deferred tax asset generated by the loss carry-forwards has been fully reserved. The cumulative federal net operating loss carry-forward is approximately $16.0 million as of March 31, 2014, and will expire in the years 2018 through 2034. The cumulative state net operating loss carry-forward is approximately $5.4 million as of March 31, 2014, and will expire in the years 2017 through 2029.
Research and Development
The Company continues to develop its technology which facilitates the use of in-store advertising and coupon services through various technologies. As time and technology have progressed, the system being developed by the Company comprises mobile and other state of the art technology that facilitates retailers and package good companies to provide "product specific" point-of-purchase advertising to its customers using proprietary software. The Company is currently developing mobile smart phone technology that will provide similar functionality to the Klever-Kart System.
During the three months ended March 31, 2014 and 2013, the Company incurred costs of $2,141 and $860 respectively, for research and development of its technologies.
| 9 |
KLEVER MARKETING, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Fair Value of Financial Instruments
The FASB provides the framework for measuring fair value. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows: Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.
The carrying amounts reported in the accompanying balance sheets as of March 31, 2014 and December 31, 2013 for cash and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and expected realization and their current market rate of interest.
NOTE 3 – GOING CONCERN
As shown in the accompanying financial statements, the Company generated a net loss of $27,827 during the three months ended March 31, 2014. The Company did not generate any revenue from product sales during the three months ended March 31, 2014 or March 31, 2013. As of March 31, 2014, the Company’s current and total liabilities exceeded its current assets by $413,061. As of March 31, 2014, the Company had $27,421 of cash available on hand.
The Company will require additional funding during the next twelve months to finance the growth of its current operations and achieve its strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital through private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations through 2014. However, management cannot make any assurances that such financing will be secured.
NOTE 4 – PREFERRED STOCK
Authorized Shares
In accordance with the Company’s bylaws, the Company has authorized a total of 2,000,000 shares of preferred stock for all classes. As of March 31, 2014 and December 31, 2013, there were 384,869 preferred shares issued and outstanding for all classes, respectively. As of March 31, 2014, all of the Company’s outstanding preferred shares are owned by a Company that is controlled by the Company’s CEO.
Preferred Stock Dividends
As of March 31, 2014, the Company had accrued and unpaid preferred stock dividends totaling $24,030 relating to dividends for the three months ended March 31, 2014. To date all accrued dividends for preferred stock have been authorized for payment through the issuance of preferred stock based on the ratios for each class of preferred stock described below.
Class A Voting Preferred Stock
The Company has 150,000 shares of “Class A Voting Preferred Stock” (“Class A Shares”) authorized. As of March 31, 2014 and December 31, 2013, there were 124,531 Class A Shares outstanding. The Class A Shares are convertible into 99.035 shares of common stock. Holders of Class A Shares are entitled to receive dividends at the rate of $2.20 per share per annum, payable semi-annually. Dividends are 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. Class A Shares carry a liquidation preference of $26.00 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. Class A shares are redeemable by the Company, in whole or in part, at the option of the Board of Directors of the Company, at any time.
| 10 |
Class B Voting Preferred Stock
The Company has 125,000 shares of “Class B Voting Preferred Stock” (“Class B Shares”) authorized. As of March 31, 2014 and December 31, 2013, there were 94,383 Class B Shares outstanding. The Class B Shares are convertible into 64.754 shares of common stock. Holders of Class B Shares are entitled to receive dividends at the rate of $1.70 per share per annum, payable semi-annually. Dividends are cumulative and may be paid in cash or in kind through the distribution of .0425 Class B Shares for each outstanding Class B Share, on each dividend payment date. Class B Shares carry a liquidation preference of $17.00 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. Class B shares are redeemable by the Company, in whole or in part, at the option of the Board of Directors of the Company, at any time.
Class C Voting Preferred Stock
The Company has 200,000 shares of “Class C Voting Preferred Stock” (“Class C Shares”) authorized. As of March 31, 2014 and December 31, 2013, there were 165,955 Class C Shares outstanding. The Class C Shares are convertible into 25.140 shares of common stock. Holders of Class C Shares are entitled to receive dividends at the rate of $0.66 per share per annum, payable semi-annually. Dividends are cumulative and may be paid in cash or in kind through the distribution of .0425 Class C Shares for each outstanding Class C Share, on each dividend payment date. Class C Shares 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. Class C shares are redeemable by the Company, in whole or in part, at the option of the Board of Directors of the Company, at any time.
NOTE 5 – DEBT FORGIVENESS
The Company had certain claims against it for unpaid salary and benefits due to former officers and employees that existed on the balance sheet as accrued liabilities as of December 31, 2012. During the three months ended March 31, 2013, management worked to reduce the Company’s total liabilities. As a result, the Company settled certain debt obligations using stock, cash, and certain obligations where the statute of limitations was believed to have run as described below.
Debts Settled for Stock via Escrow Account
During the three months ended March 31, 2013, the Company entered into an agreement with an existing shareholder, four creditors, and two investors whereby the Company contributed 1,200,000 shares of its restricted common stock, the existing shareholder contributed 1,000,000 free trading shares of the Company’s common stock, the creditors contributed the rights to $549,721 of outstanding debts owed by the Company, and two third party investors contributed $47,000 of cash into an escrow account held by the Company’s stock transfer agent. In exchange for the contributions made by each party, the existing shareholder received 1,200,000 shares of restricted common stock, the four creditors received 450,000 shares of free trading common stock valued at $13,500, the third party investors received 550,000 shares of the Company’s free trading common stock, and the Company received $47,000 in cash and settlement of $549,721 in outstanding debts resulting in a gain on Forgiveness of Debt totaling $536,221.
Debts Settled for Cash
During the three months ended March 31, 2013, the Company entered into settlement agreements with three creditors whereby the Company made cash payments totaling $25,450 in exchange for full settlement of 226,432 of outstanding liabilities. The Company recorded a gain on Forgiveness of Debt totaling $200,982 in connection with these transactions.
Debts Where Statute of Limitations Has Most Likely Barred Such Claims
During the three months ended March 31, 2013, the Company also wrote off $81,504 of obligations where the statute of limitations was believed to have run. It should be noted the statute of limitations is an affirmative defense that can only be definitively determined applicable by judicial ruling. However, the Company is reasonably certain based upon review by its legal counsel that a statute of limitations defense would bar the debts deemed discharged herein by the statute.
The settlement of these obligations coupled with the settlement of the obligations described above resulted in the Company recording a total gain on Forgiveness of Debt totaling $818,708.
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KLEVER MARKETING, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
Contributed Services
During the three months ended March 31, 2013, the Company’s officers agreed to forgive $404,250 of compensation related to prior years that was owed to them and contribute the value of those services to the Company. As a result, the Company recorded an addition to paid-in capital for this amount.
For the three months ended March 31, 2013, the Company’s officers agreed to not take any compensation which resulted in the Company recording $40,500 in contributed services for that period.
NOTE 6 – 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. The Company had no stock options outstanding as of March 31, 2014.
NOTE 7 – COMMON STOCK
Three Months Ended March 31, 2014
During the three months ended March 31, 2014, the Company issued 110,000 shares of common stock valued at $6,600 to a consultant for services.
Three Months Ended March 31, 2013
During the three months ended March 31, 2013, the Company issued 1,200,000 shares of common stock to settle certain debt obligations and to raise $47,000 of capital as more fully described in Note 5.
During the three months ended March 31, 2013, the Company issued 450,000 share of common stock that had a value of $13,500 to certain creditors to settle outstanding debt obligations totaling $549,721 as more fully described in Note 5.
During the three months ended March 31, 2013, the Company issued 150,000 shares of common stock for $7,500 in cash to a third party investor.
During the three months ended March 31, 2013, the Company issued 66,747 shares of common stock to pay for $5,340 of accounts payable obligations.
During the three months ended March 31, 2013, the Company 125,000 shares of common stock valued at $6,250 to a consultant for services.
NOTE 8 – RELATED PARTY TRANSACTIONS
The Company accrued $40,500 for compensation for the CEO during the three months ended March 31, 2014 of which $0 was paid during the three months ended March 31, 2014. Due to the Company’s limited financial resources, the Company recorded $40,500 which represents the estimated fair value of uncompensated services contributed by management during the three months ended March 31, 2013.
The bookkeeper, who is the wife of the CEO, earned $4,500 during the three months ended March 31, 2014 for services provided to the Company. $3,000 of these amounts were paid during the three months ended March 31, 2014.
During the three months ended March 31, 2013, the Company’s officers agreed to forgive $404,250 of compensation that was owed to them from prior years services and contribute the value of those services to the Company through additional paid in capital.
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KLEVER MARKETING, INC.
(A Development Stage Company)
Notes to Condensed Financial Statements
(Unaudited)
NOTE 9 – LITIGATION SETTLEMENTS
During the three months ended March 31, 2014, the Company settled certain lawsuits against various defendants for infringement against patents owned by the Company resulting in the Company recording $41,250 in net proceeds from litigation settlements.
NOTE 10 – SUBSEQUENT EVENTS
In April 2014, the Company entered into a settlement agreement with a defendant for which the Company had filed law suits for related to patent infringement. Pursuant to the terms of the settlement agreement, the Company received net proceeds of $17,875.
In April 2014, the Company issued 500,000 shares of common stock to a third party investor for $25,000.
The Company has evaluated events subsequent to period end pursuant to the requirements of ASC 855 and has determined that there are no additional events to disclose.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information specifies certain forward-looking statements of management of the Company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
We advise anyone relying upon this report that any statement of earnings by the company for the three months ended March 31, 2014 has been obtained solely through the reduction, adjustment or termination of various debt obligations and through net proceeds received in a litigation settlement and does not reflect operating revenues to the Company. The Company continues as a development stage company without revenues and with continuing substantial expenses, yielding a net loss from operations if considered apart from reduction of debt and asset sales. The Company continues to search for merger or acquisition candidates or possible entities to which it may sell or license its patent interest, but makes no warranty or assurance that it will be successful in any of these endeavors. Further, there is no assurance that the Company can continue to operate without cash flows or revenues and during the past year has relied exclusively upon interim capital financing for its continuation.
General
Klever Marketing, Inc. was formed for the purpose of creating a vehicle to obtain capital, to file and acquire patents, to seek out, investigate, develop, and market electronic in-store advertising, directory and coupon services which have potential for profit. The Company successfully conducted two in-store demonstrations of its shopping cart technology – the latest being in 2009 with the release of the Giving Cart and its Retailer Chime-Time Awards Programs. Subsequently, in 2010, the Company shifted its business model to mobile technology and has aggressively developed new applications using this technology, which it expects to market and release in the near future. The Company is currently testing its mobile technology in a pilot store in Anaheim, California.
Product Base
Following a decade of development of its shopping cart-based electronic advertising technology, which was successful in demonstrating the advantages of electronic distribution and redemption of electronic coupons and promotions, the Company realized that mobile technology had advanced to the level where Klever’s product base could be applied and considerably expanded into an entirely new product line. Accordingly, in 2010, the Company made a dramatic shift into mobile technology. Since that time the Company has made remarkable progress on its mobile application development and implementation. The software programming of the consumer KleverShop® application has been completed and successfully tested in our- demonstration store. The retailer and supplier KleverDash® application has completed its database and backend programming, complete with a revised graphical user interface, and successfully tested in our demonstration store.
Progress During the three Months Ending March 31, 2014
During the first quarter, the Company pursued its transition from a development stage company to an operating company. The full production versions of the KleverShop and KleverDash software were completed, and the KleverShop application was released as iPhone and Android apps. The software documentation was completed. Draft agreements for retail store operations were prepared and reviewed for presentation to potential clients. The Company continues to work on its operating procedures for delivery of our full product resources to clients.
The Company has focused on marketing its services, and presentations were made to potential retailers with promising results. Interest in the Company’s products remains high, and although there are other applications on the market, Klever’s technology continues to offer perceived technical advantages and attractive features.
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Klever held several meetings with potential investors and discussions are continuing though no assurances of funding are implied. In order to further expand the investment community’s understanding of our Company, we will also be presenting to investor groups as opportunities permit. Additional capital was received during this quarter through awards from patent infringement cases.
Anticipated Business Development in the Next 12 Months
During 2014, the Company will continue to move forward along several paths. We will continue to attempt to strengthen our balance sheet, and reduce our outstanding debt and seek additional capital investment. Additionally, we will be working with an investment relations company to strengthen public awareness of our Company's investment potential. As we work with retailers, we will strengthen our KleverShop® and KleverDash™ systems to improve the consumer experience and ability of suppliers to manage their promotional programs. We are looking to expand into a regional super market chain of moderate size to demonstrate the multi-store usability of our software systems, and by fall we are targeting to land a major supermarket chain. By that time we expect to have promotional relationships with numerous product suppliers. We will begin attempting to promote our KleverBank® system for promotions management and consumer redemption, which, if successful, should place our Company in an improved position. We, of course aren't the only Company developing digital solutions for coupon management. There are several applications on the market now; but in our opinion these have limited capability. We expect to differentiate ourselves by being a full service digital marketing provider to consumers, retailers and suppliers with platforms to meet all of their promotional needs. Notable progress is being made, and the Company is moving forward to an exciting future. However, we must caution the reader that Klever Marketing is still a development stage company, and no revenue contracts have yet been signed. No assurance or warranty can be given that the Company will be successful in implementing the efforts described in this report.
Results of Operations
Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013
For the three months ended March 31, 2014, the Company had a net loss of $27,827 compared to net income of $705,714 for the three months ended March 31, 2013. The decrease in earnings in the current year is primarily due to the Company not generating any further income from debt forgiveness in the current period as compared to $818,708 of debt forgiveness income generated during the three months ended March 31, 2013 partially offset by lower costs for general and administrative and interest expense coupled with $41,250 of net proceeds received in the current year in connection with patent infringement litigation settlements. General and administrative costs were reduced from $95,183 for the three months ended March 31, 2013 to $66,662 for the three months ended March 31, 2014. The reduction in costs was primarily due to reduced costs for outside services, accounting fees, promotional expenses of $11,935, $6,340, and $21,995, respectively, partially offset by an increase in legal fees of $9,949. Outside service fees were lower due to reduced costs for third party consultants. Accounting fees were lower primarily due to lower costs for preparing the Company’s December 31, 2014 10-K. Promotional fees were lower primarily due to the Company receiving a refund of promotional fees paid as a result of the Company terminating its agreement with a third party consulting firm. Legal fees were higher for the three months ended March 31, 2014 because of increased legal costs associated with the Company’s intellectual property coupled with certain credits provided to the Company from its patent legal counsel in the prior year.
The Company had no interest expense during the quarter ended March 31, 2014 compared to $16,626 in the quarter ended March 31, 2013. Interest expense in the current year was reduced as a result of the debt settlement agreements the Company entered into during the first quarter of 2013.
The Company received $41,250 in net proceeds from litigation settlements related to certain parties infringing upon the Company’s patents. The Company did not have any proceeds from litigation settlements during the prior year.
Liquidity and Capital Resources
The Company requires working capital principally to fund its proposed product development and operating expenses for which the Company has relied primarily on short-term borrowings and the issuance of restricted common stock.
During the three months ended March 31, 2013, the Company entered into settlement agreements with certain creditors resulting in the Company making cash payments totaling $25,450 and issuing 450,000 shares of common stock valued at $13,500 to settle outstanding obligations totaling $776,153. The Company also wrote off $81,504 of obligations where the statute of limitations had expired. The settlement of these obligations resulted in the Company recording a gain on Forgiveness of Debt totaling $818,708.
During the three months ending March 31, 2013, the Company’s officers agreed to forgive $404,250 of compensation that was owed to them and contribute the value of those services to the Company. As a result, the Company recorded an addition to paid-in capital for this amount.
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Cash flows generated from operating activities during the three months ended March 31 2014 totaled $23,832 compared to cash flows used in operations of $53,834 during the three months ended March 31, 2013. The increase in cash flows from operations is due to increased depreciation and amortization of $2,000, a bigger increase in in accounts payable of $6,427 and accrued liabilities of 31,147, and an increase resulting from no debt forgiveness income in the current year as compared to $818,708 in the prior year. These increases in the current year as compared to the prior year were partially offset by a decrease in net income of $733,541, stock issued for general and administrative of $6,250, and contributed services of $40,500.
Cash flows used in investing activities during the three months ended March 31, 2014 were $48,065 as compared to $4,276 for the three months ended March 31, 2013. During the three months ended March 31, 2014, the Company incurred $43,904 for capitalized software development and $4,161 to develop patents and trademarks. During the three months ended March 31, 2013, the Company spent $1,300 acquiring equipment and $2,976 developing patents and trademarks.
Cash flows generated from financing activities were $0 for the three months ended March 31, 2014 as compared to $67,950 for the quarter ended March 31, 2013. During the three months ended March 31, 2013, the Company received proceeds from sales of common stock of $54,500 and $13,450 from borrowing from related parties.
As of March 31, 2014, our cash position was $27,421, compared with $51,654 as of December 31, 2013. We anticipate hiring additional employees and consultants for development and the corresponding operations of the Company, but this hiring is not planned to occur prior to obtaining additional capital. The Company requires working capital principally to complete development, testing and marketing of its new mobile products and to pay for ongoing operating expenses. Management is currently in the process of looking for additional investors. Currently, 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 raise minimal additional working capital that has been required to enable the Company to continue operations. From time to time in the past, required short-term borrowings have been obtained from principal shareholders or other related entities or working capital has been obtained through the issuance of restricted common stock to fund operations in accordance with the Company’s revised business plan.
Factors That May Affect Future Results - Management’s Discussion and Analysis contains information based on management’s beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to the following:
| · | The Company may not obtain the equity funding or short-term borrowings necessary to market and launch its mobile applications. | |
| · | The product launch may take longer to implement than planned or may not be successful. |
Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to help ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure. Our Chief Executive Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation and the requirements of the Exchange Act, our Chief Executive Officer concluded that, as of March 31, 2014, our disclosure controls and procedures continue to be ineffective. The small size of our Company does not provide for the desired segregation of duty control functions, and we do not have the required level of documentation of our monitoring and control procedures. Currently, our financial constraints prevent us from fully implementing the internal controls prescribed by the Sarbanes-Oxley Act.
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Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company. Due to limited resources, Management conducted an evaluation of internal controls based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The results of this evaluation determined that our internal control over financial reporting was ineffective as of March 31, 2014, due to material weaknesses. A material weakness in internal control over financial reporting is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
Management’s assessment identified the following material weaknesses in internal control over financial reporting:
| · | The small size of our Company limits our ability to achieve the desired level of separation of internal controls and financial reporting. We do have a separate CEO and CFO, to review and oversee the financial policies and procedures of the Company, which does achieve a degree of separation. However, until such time as the Company is able to hire a Controller, we do not believe we meet the full requirement for separation. | |
| · | We do not have a functional audit committee. | |
| · | We have not achieved the desired level of documentation of our internal controls and procedures. When the Company obtains sufficient funding, this documentation will be strengthened through utilizing a third party consulting firm to assist management with its internal control documentation and further help to limit the possibility of any lapse in controls occurring. | |
| · | We have not achieved the desired level of corporate governance to ensure that our accounting for all of our contractual and other agreements is in accordance with all of the relevant terms and conditions. Because of our limited capital resources, we sometimes formalize our agreements with certain contractors after the work is performed when additional resources become available to pay for the services. |
As a result of the material weaknesses in internal control over financial reporting described above, the Company’s management has concluded that, as of March 31, 2014, the Company's internal control over financial reporting was not effective based on the criteria in Internal Control - Integrated Framework issued by the COSO.
To date, the Company has not been able to add any additional members to its Audit Committee due its limited financial resources. When the Company obtains sufficient funding, Management intends to add additional members to the Audit Committee and charge them with assisting the Company in addressing the material weaknesses noted above. The Company’s lack of current financial resources makes it impossible for the Company to hire the appropriate personnel needed to overcome these weaknesses and ensure that appropriate controls and separation of responsibilities of a larger organization exist. We also will continue to follow the standards for the Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that:
| · | Pertain to the maintenance of records in reasonable detail accurately that fairly reflect the transactions and dispositions of the Company's assets; | |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and | |
| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements. |
Our management determined that there were no changes made in our internal controls over financial reporting during the three months ending March 31, 2014 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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Controls and Procedures.
Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company has taken limited steps to meet its Sarbanes-Oxley (SOX) Section 404 compliance requirements and implement procedures to assure financial reports are prepared in accordance with generally accepted accounting principles (GAAP) and therefore fairly represent the results and condition of the Company. We are not materially compliant with the Section 404 requirements.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors and Uncertainties.
Readers should carefully consider the risks and uncertainties described below before deciding whether to invest in shares of our common stock.
Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.
As an enterprise engaged in the development of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.
We need to continue as a going concern if our business is to succeed.
Our independent accountant’s report to our audited consolidated financial statements for the year ended December 31, 2013, indicates that there are a number of factors that raise substantial risks about our ability to continue as a going concern. Such factors identified in the report are our accumulated deficit since inception, our failure to attain profitable operations and our dependence upon obtaining adequate additional financing to pay our liabilities. If we are not able to continue as a going concern, investors could lose their investments.
Because of the unique difficulties and uncertainties inherent in technology development, we face a risk of business failure.
Potential investors should be aware of the difficulties normally encountered by companies developing new technology and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the development of new technology with limited personnel and financial means. These potential problems include, but are not limited to, unanticipated technical problems that extend the time and cost of product development, or unanticipated problems with the operation of our technology or that with which we are licensing that also extend the time and cost of product development.
If we do not obtain additional financing, our business will fail.
Our current operating funds are less than necessary to complete the full development and marketing of our mobile products, and we will need to obtain additional financing in order to complete our business plan. We currently have minimal operations and no income.
Our business plan calls for significant expenses in connection with developing our mobile phone technology and paying our current obligations. The Company currently does not have sufficient funds to complete the development of its technology and to pay its obligations. As a result, the Company will require additional financing to execute its business plan.
We do not currently have any firm arrangements for financing, and we can provide no assurance to investors that we will be able to find such additional financing if required. Obtaining additional financing is subject to a number of factors, including investor acceptance of our technology and current financial condition as well as general market conditions. These factors affect the timing, amount, terms or conditions of additional financing unavailable to us. And if additional financing is not arranged, the company faces the risk of going out of business.
The most likely source of future funds presently available to us is through the additional sale of private equity capital or through a convertible debt instrument. Any sale of share capital will result in dilution to existing shareholders.
There is no history upon which to base any assumption as to the likelihood we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
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Because the SEC imposes additional sales practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means that investors may have difficulty reselling their shares and may cause the price of the shares to decline.
Our shares qualify as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934, which imposes additional sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. In particular, prior to selling a penny stock, broker/dealers must give the prospective customer a risk disclosure document that: contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; contains a description of the broker/dealers’ duties to the customer and of the rights and remedies available to the customer with respect to violations of such duties or other requirements of Federal securities laws; contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask prices; contains the toll free telephone number for inquiries on disciplinary actions established pursuant to section 15(A)(i); defines significant terms used in the disclosure document or in the conduct of trading in penny stocks; and contains such other information, and is in such form (including language, type size, and format), as the SEC requires by rule or regulation. Further, for sales of our securities, the broker/dealer must make a special suitability determination and receive from you a written agreement before making a sale to you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent reselling of shares and may cause the price of the shares to decline.
Technology companies face intense competition. We will have to compete with our competitors for financing and for qualified managerial and technical employees.
The technology industry is intensely competitive in all of its phases. Competition includes large established technology companies with substantial capabilities and with greater financial and technical resources than we have. As a result of this competition, we may be unable to become a leader in our industry and attract and retain qualified managerial and technical employees. If we are unable to successfully compete for financing or for qualified employees, our technology development and commercialization efforts may be slowed down or suspended.
We do not expect to declare or pay any dividends.
We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.
Volatility of Stock Price.
Our common shares are currently publicly traded on the OTC BB exchange under the symbol KLMK. In the future, the trading price of our common shares may be subject to wide fluctuations. Trading prices of the common shares may fluctuate in response to a number of factors, many of which will be beyond our control. In addition, the stock market in general, and the market for software technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. Market and industry factors may adversely affect the market price of the common shares, regardless of our operating performance. Readers should carefully consider the risks and uncertainties described below before deciding whether to invest in shares of our common stock.
Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.
As an enterprise engaged in the development of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out below.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On February 11, 2014, the Company issued 110,000 unregistered shares of common stock to a software consultant. The shares had an estimated value of $6,600.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. 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) | |
| 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) | |
| 10.05 | Asset purchase agreement dated August 27, 2004 (6) | |
| 10.06 | Software Development Works Agreement between Klever Marketing, Inc. and Qualzoom Inc. dated August 15, 2010 (7) | |
| 10.07 | Software Development Agreement between Klever Marketing, Inc. and Briabe Media Inc. September 22, 2010 (7) | |
| 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. | |
| 101.INS | XBRL Instance Document * | |
| 101.SCH | XBRL Schema Document * | |
| 101.CAL | XBRL Calculation Linkbase Document * | |
| 101.DEF | XBRL Definition Linkbase Document * | |
| 101.LAB | XBRL Label Linkbase Document * | |
| 101.PRE | XBRL Presentation Linkbase Document * |
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| * | Pursuant to Rule 406T of Regulation S-T, these interactive data files are not deemed filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act or Section 18 of the Securities Exchange Act and otherwise not subject to liability. |
(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.
(6) Incorporated herein by reference from Registrant’s Form 10QSB, dated November 19, 2004.
(7) Incorporated herein by reference from Registrant’s Form 8-K, dated November 19, 2010.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Klever Marketing, Inc.
(Registrant)
DATE: May 14, 2014
By: /s/ Paul G Begum
Paul G. Begum
Chairman
(Principal Executive Officer)
By: /s/ Robert Campbell
Robert Campbell
(Principal Financial Officer)
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Exhibit 31.1
Section 302 Certifications
I, Paul G. Begum, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a – 15(f) and 15d – 15(f) for the Registrant 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 is made known to us by others, 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. The registrant’s other certifying officer and I have disclosed, based on our 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: May 14, 2014
By: /s/ Paul G Begum
Paul G. Begum
(Principal Executive Officer)
Exhibit 31.2
Section 302 Certifications
I, Robert Campbell, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a – 15(f) and 15d – 15(f) for the Registrant 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 is made known to us by others, 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. The registrant’s other certifying officer and I have disclosed, based on our 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: May 14, 2014
By: /s/ Robert Campbell
Robert Campbell
(Principal Financial Officer)
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 Quarterly Report of Klever Marketing, Inc. on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul G. Begum 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.
By: /s/ Paul G Begum
Paul G. Begum
(Principal Executive Officer)
Date: May 14, 2014
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 Quarterly Report of Klever Marketing, Inc. on Form 10-Q for the period ending March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert Campbell, Chief Financial 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.
By: /s/ Robert Campbell
Robert Campbell
(Principal Financial Officer)
Date: May 14, 2014