Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 – BASIS OF FINANCIAL STATEMENT
PRESENTATION
Klever Marketing, Inc. (the “Company”)
was created to develop, market and distribute an electronic shopping cart device for in-store advertising, promotion and media
content and retail shopper services and has not commenced its planned principal operations. The Company’s activities since
inception have consisted principally of developing various applications of its electronic shopping cart concept including its mobile
application for smart phones which the Company is currently testing in retail supermarkets, obtaining patents and trademarks related
to its technology, and raising capital. The Company’s activities are subject to significant risks and uncertainties including
failing to secure additional funding needed to finalize development of the Company’s technology and to commercialize its
product in a profitable manner.
The accompanying unaudited, condensed 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 (“GAAP”) 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,
2015 Annual Report on Form 10-K. Operating results for the three months and nine months ended September 30, 2016 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2016.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting
policies are described in the notes to the Company’s audited financial statements included its December 31, 2015 Annual Report
on Form 10-K.
Income (Loss) Per Common Share
Basic net income (loss) per share of common
stock is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per share of common stock is computed by dividing net income (loss) by the sum of the weighted average
number of common shares outstanding and the dilutive potential common share equivalents than outstanding. Potential dilutive common
share equivalents consist of shares issuable upon exercise of outstanding stock options and the exercise of convertible preferred
stock.
For the three and nine months ended September
30, 2016 and 2015, the Company incurred net losses; therefore, common stock equivalents related to the conversion of stock options
and convertible preferred stock have not been included in the calculation of diluted loss per common shares because they are anti-dilutive.
Therefore, basic loss per common share is the same as diluted loss per common share for both periods.
Reclassifications
Certain amounts in the 2015 condensed financial
statements have been reclassified to conform with the current year presentation.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified
effective date or earlier if allowed. If not discussed, management believes that the impact of recently issued standards, which
are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
There were no new accounting pronouncements
issued during the nine months ended September 30, 2016 and through the date of this filing that we believe are applicable to or
would have a material impact on the condensed financial statements of the Company.
NOTE 3 – GOING CONCERN UNCERTAINTY
As shown in the accompanying condensed financial
statements, during the nine months ended September 30, 2016 and 2015, the Company did not generate any revenue from product sales
and reported net losses of $215,293 and $410,798, respectively. As of September 30, 2016, the Company’s current and total
liabilities exceeded its current assets by $927,177. As of September 30, 2016, the Company had $13,798 of cash.
The Company will require additional funding
during the next twelve months to finance the growth of its current operations and achieve its strategic objectives. These factors,
as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as
to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through
private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin
generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital
offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include
any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing
additional sources of financing sufficient to generate enough cash flow to fund its operations through calendar year 2016. However,
management cannot make any assurances that such financing will be secured.
NOTE 4 – INTANGIBLE ASSETS
Intangible assets consist of the following:
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September 30,
2016
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December 31,
2015
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|
|
|
|
|
|
|
|
|
|
Capitalized software development costs
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$
|
552,503
|
|
|
$
|
535,023
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|
|
Patents and trademarks
|
|
|
152,712
|
|
|
|
133,601
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|
|
Accumulated amortization of patents and trademarks
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(75,653
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)
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|
(54,026
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)
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|
|
|
|
|
|
|
|
|
|
|
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$
|
629,562
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|
|
$
|
614,598
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|
The Company capitalizes software development
costs incurred from the time technological feasibility has been obtained until the product is generally released to customers.
Amortization of capitalized software development costs begins when the products are available to customers and is computed using
the straight-line method over the remaining estimated economic life of the product. Currently, the Company anticipates amortization
of software development costs to commence in fiscal year 2017. The Company achieved technological feasibility with regard to its
mobile phone technology during the fourth quarter of 2010. During the three months and nine months ended September 30, 2016 and
2015, software development costs of $17,480 and $0 were incurred and capitalized, respectively. No amortization expense for software
development costs was recorded for the nine months ended September 30, 2016 and 2015.
The costs of patents and trademarks are amortized
on a straight-line basis over 5 years from the date the patent or trademark is issued. Intangible assets with indefinite lives
are tested for impairment on an annual basis or when the facts and circumstances suggest that the carrying amount of the assets
may not be recovered. Amortization expense for patents and trademarks was $7,584 and $6,088 for the three months ended September
30, 2016 and 2015, respectively, and $21,627 and $16,093 for the nine months ended September 30, 2016 and 2015, respectively.
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities consist of the following:
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September 30,
2016
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December 31,
2015
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|
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Compensation - officers and bookkeeper
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$
|
453,125
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|
|
$
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330,125
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|
|
Taxes
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|
|
40,367
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|
|
|
39,474
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Accrued interest – related party
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|
830
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|
|
|
953
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|
|
|
|
|
|
|
|
|
|
|
|
|
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$
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494,322
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|
|
$
|
370,552
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|
NOTE 6 – 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, par value $0.01 per share, for all classes. As of September
30, 2016 and December 31, 2015, there were 463,850 and 427,168 total preferred shares issued and outstanding for all classes, respectively.
As of September 30, 2016, 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 September 30, 2016, the Company had accrued
and unpaid preferred stock dividends totaling $48,943 compared to $72,399 as of December 31, 2015. Through September 30, 2016,
all accrued dividends for preferred stock have been paid through the issuance of either shares of preferred stock or common 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 September 30, 2016 and December 31, 2015, there
were 150,000 and 138,217 Class A Shares outstanding, respectively. Each Class A Share is 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.
In February 2016, 5,874 Class A Shares were
issued and in July 2016, 5,909 Class A Shares were issued in payment of accrued dividends
Class B Voting Preferred Stock
The Company has 125,000 shares of “Class
B Voting Preferred Stock” (“Class B Shares”) authorized. As of September 30, 2016 and December 31, 2015, there
were 113,850 and 104,757 Class B Shares outstanding, respectively. Each Class B Share is 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.
In February 2016, 4,452 Class B Shares were
issued and in May 2016, 4,641 Class B Shares were issued in payment of accrued dividends.
Class C Voting Preferred Stock
The Company has 200,000 shares of “Class
C Voting Preferred Stock” (“Class C Shares”) authorized. As of September 30, 2016 and December 31, 2015, there
were 200,000 and 184,194 Class C Shares outstanding, respectively. Each Class C Share is 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.
In February 2016, 7,829 Class C Shares were
issued and in July 2016, 7,977 Class C Shares were issued in payment of accrued dividends.
NOTE 7 – COMMON STOCK
In accordance with the Company’s bylaws,
the Company has authorized a total of 250,000,000 shares of common stock, par value $0.01 per share. As of September 30, 2016 and
December 31, 2015, there were 58,516,364 and 57,240,446 common shares issued and outstanding.
During the nine months ended September 30,
2016, the Company issued a total of 1,250,000 shares of common stock to an investor for $62,500 cash and 25,918 shares of common
stock to a company that is controlled by the Company’s CEO in payment of accrued preferred stock dividends.
During the nine months ended September 30,
2015, the Company issued a total of 2,585,119 shares of common stock to investors for $150,000 cash. As more fully described in
Note 8, one investor also received options to purchase shares of the Company’s restricted common stock in connection with
his investment in the Company.
NOTE 8 – STOCK OPTIONS
The Company’s shareholders approved,
by a majority vote, the adoption of the 1998 Stock Incentive Plan (the “Plan”). As amended on August 11, 2003, the
Plan reserves 20,000,000 shares of common stock for issuance upon the exercise of options which may be granted from time-to-time
to officers, directors, certain employees and consultants of the Company or its subsidiaries by the Board of Directors. The Plan
permits the award of both qualified and non-qualified incentive stock options.
During the nine months ended September 30,
2016, the Company did not issue any stock options. During the nine months ended September 30, 2015, the Company issued 100,000
options to an investor who simultaneously purchased common shares of the Company, 2,800,000 options to officers and a director,
and 500,000 options to a director in connection with a loan made to the Company.
A summary of the Company’s stock
option awards as of September 30, 2016, and changes during the nine months then ended is as follows:
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Shares
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Weighted
Average
Exercise Price
|
Weighted Average
Remaining
Contract Term
(Years)
|
Aggregate
Intrinsic
Value
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Outstanding at December 31, 2015
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2,800,000
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$
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0.050
|
2.09
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Granted
|
–
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$
|
–
|
|
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Exercised
|
-–
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$
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–
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|
Forfeited or expired
|
-–
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$
|
–
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|
|
|
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Outstanding and
exercisable
at September 30, 2016
|
2,800,000
|
$
|
0.050
|
1.34
|
$ 0
|
The aggregate intrinsic value in the preceding
table represents the total pretax intrinsic value, based on our closing stock price of $0.035 as of September 30, 2016, which would
have been received by the holders of in-the-money options had the option holders exercised their options as of that date.
As of September 30, 2016, there are 17,200,000
shares available under the Plan.
NOTE 9 – RELATED PARTY TRANSACTION
The Company periodically receives funding from
officers and directors to fund operations. Jerry Wright, a director, advanced to the Company $30,000 during the year ended December
31, 2015. The Company repaid $4,500 of the advance, resulting in a related party note payable of $25,500 as of September 30, 2016
and December 31, 2015 reported in the Company’s Condensed Balance Sheets. The related party note payable bears interest at
the rate of 6% per annum, and had accrued interest payable of $830 and $953 as of September 30, 2016 and December 31, 2015, respectively.
The maturity date of the note was extended to June 30, 2016, and the note is currently in default.
The Company’s CEO and the bookkeeper
who is the wife of the CEO provide consulting services to the Company through companies controlled by the individuals. The Company
accrued $40,500 for compensation for the CEO during each of the three-month periods ended September 30, 2016 and 2015 and $121,500
during each of the nine-month periods ended September 30, 2016 and 2015. Accrued compensation to the CEO totaled $430,625 and $318,125
as of September 30, 2016 and December 31, 2015, respectively.
For services provided to the Company, the bookkeeper
earned $4,500 during each of the three-month periods ended September 30, 2016 and 2015 and $13,500 during each of the nine-month
periods ended September 30, 2016 and 2015. Accrued compensation to the bookkeeper totaled $13,500 and $12,000 as of September 30,
2016 and December 31, 2015, respectively.
NOTE 10 – SUBSEQUENT EVENTS
The Company evaluated events occurring after
the date of the accompanying condensed balance sheets through the date the financial statements were issued and has identified
the following subsequent events that it believes require disclosure.
In November 2016, the Company issued 4,838 Series
B Shares and 1,020,203 shares of its common stock in payment of accrued preferred dividends .
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Background
Klever Marketing, Inc. (the “Company”)
was created to develop, market and distribute an electronic shopping cart device for in-store advertising, promotion and media
content and retail shopper services and has not commenced its planned principal operations. The Company’s activities since
inception have consisted principally of developing various applications of its electronic shopping cart concept including its mobile
application for smart phones which the Company is currently testing in retail supermarkets, obtaining patents and trademarks related
to its technology, and raising capital. The Company’s activities are subject to significant risks and uncertainties including
failing to secure additional funding needed to finalize development of the Company’s technology and to commercialize its
product in a profitable manner.
Going Concern Uncertainty
As shown in the accompanying condensed financial
statements, during the nine months ended September 30, 2016 and 2015, the Company did not generate any revenue from product sales
and reported net losses of $215,293 and $410,798, respectively. As of September 30, 2016, the Company’s current and total
liabilities exceeded its current assets by $927,177. As of September 30, 2016, the Company had $13,798 of cash.
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 principally 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 calendar year 2016. However,
management cannot make any assurances that such financing will be secured.
Results of Operations
Revenues
To date, the Company has not generated any
operating revenues.
Operating Expenses
General and administrative expenses for three
months ended September 30, 2016 decreased by $6,765 to $66,351 from $73,116 for the three months ended September 30, 2015. General
and administrative expenses for nine months ended September 30, 2016 decreased by $188,206 to $212,208 from $400,414 for the nine
months ended September 30, 2015. The primary reason for the overall decrease in general and administrative expenses in the current
year is a decrease in stock-based compensation, legal and professional fees, and outside services.
Research and development expenses are currently
not material to our operations and totaled $414 and $357 for the three months ended September 30, 2016 and 2015, and $1,043 and
$2,273 for the nine months ended September 30, 2016 and 2015, respectively.
Other Income (Expense)
Interest expense was $386 and $5,535 for the
three months ended September 30, 2016 and 2015, and $1,149 and $7,134 for the nine months ended September 30, 2016 and 2015, respectively.
The decrease in interest expense in the current year resulted from a reduction in a related party note payable and the amortization
of debt discount included in the 2015 amounts.
Provision for Income Taxes
The provision for income taxes was $300 and
$401 for the three months ended September 30, 2016 and 2015, and $893 and $977 for the nine months ended September 30, 2016 and
2015, respectively. The biggest component of income tax expense in both years is the interest and penalties accrued associated
with the Company’s uncertain tax positions.
Net Loss
As a result, net loss for the three months
ended September 30, 2016 decreased by $11,958 to $67,451 from $79,409 for the three months ended September 30, 2015. Net loss for
the nine months ended September 30, 2016 decreased by $195,505 to $215,293 from $410,798 for the nine months ended September 30,
2015.
Liquidity and Capital Resources
The Company requires working capital 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 nine months ended September 30, 2016, the Company sold 1,250,000 shares of
its restricted common stock for total proceeds of $62,500.
As of September 30, 2016, our cash position
was $13,798, compared to $31,782 as of December 31, 2015. The Company currently does not have sufficient cash to fund its operations
for the next 12 months, and will require working capital to complete development, testing and marketing of its new mobile products
and to pay for ongoing operating expenses. The Company anticipates adding consultants for technology development and the corresponding
operations of the Company, but this will not occur prior to obtaining additional capital. Management is currently in the process
of looking for additional investors. Currently, loans from banks or other lending sources for lines of credit or similar short-term
borrowings are not available to the Company. The Company has been able to raise working capital to fund operations from short-term
borrowings from principal shareholders or officers and directors, or obtained through the issuance of the Company’s restricted
common stock.
As of September 30, 2016, our current liabilities
and total liabilities of $940,975 exceeded our current assets of $13,798 by $927,177.
Cash Flows From Operating Activities
During the nine months ended September 30,
2016, net cash used by operating activities was $43,893, resulting from our net loss of $215,293, partially offset by non-cash
expenses of $21,723 and increases in accounts payable of $25,907 and accrued liabilities of $123,770.
By comparison, during the nine months ended
September 30, 2015, net cash used by operating activities was $61,396, resulting from our net loss of $410,798, partially offset
by non-cash expenses totaling $186,173 and increases in accounts payable of $35,690 and accrued liabilities of $127,539.
Cash Flows From Investing Activities
During the nine months ended September 30,
2016, net cash used by investing activities was $36,591, comprised of increases in capitalized patents and trademarks costs of
$19,111 and capitalized software development costs of $17,480. During the nine months ended September 30, 2015, net cash used by
investing activities was $112,514, comprised of increases in capitalized patents and trademarks costs of $33,447 and capitalized
software development costs of $79,067.
Cash Flows From Financing Activities
During the nine months ended September
30, 2016, net cash provided by financing activities was $62,500, comprised of proceeds from the issuance of common stock.
During the nine months ended September 30, 2015, net cash provided by financing activities was $172,000, comprised of
proceeds from the issuance of common stock of $150,000 and proceeds from related party notes payable of $30,000, partially
offset by repayment of related party notes payable of $8,000.
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:
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|
·
|
The Company may not obtain the equity
funding or short-term borrowings necessary to market and launch its mobile applications.
|
|
|
·
|
The Company may not be able to raise sufficient
capital to maintain its ongoing operations.
|
|
|
·
|
The product development and launch may
take longer to implement than planned or may not be successful.
|
Recent Accounting Pronouncements
There were no new accounting pronouncements
issued during the nine months ended September 30, 2016 and through the date of this filing that we believe are applicable to or
would have a material impact on the condensed financial statements of the Company.