Notes to Condensed Financial
Statements
(Unaudited)
NOTE 1 – BASIS OF FINANCIAL STATEMENT
PRESENTATION
Klever Marketing, Inc. (the “Company”
or “Klever”) 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.
As further discussed in Note 10, on
April 27, 2018, Klever entered into an Agreement and Plan of Merger (the “Merger Agreement”) involving Klever as the
surviving parent corporation and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. (“DarkPulse”
or “DP” as its wholly owned subsidiary. DarkPulse is a development stage company involved in the development and marketing
of certain unique and proprietary fiber optic sensing devices. DarkPulse does not have current revenues, but anticipates revenues
later in 2018. Klever anticipates closing the Merger Agreement on or around May 30, 2018 and potentially earlier. While we believe
the Merger will close, it is also important to note the Merger has not closed and is subject to various due diligence requirements.
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,
2017 Annual Report on Form 10-K. Operating results for the three months ended March 31, 2018 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2018.
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES
The Company’s significant accounting
policies are described in the notes to the Company’s audited financial statements included in its December 31, 2017 Annual
Report on Form 10-K.
Use of Estimates
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 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 months ended March 31, 2018,
29,961,983 common stock equivalents related to convertible preferred stock have not been included in the calculation of diluted
loss per common share because they are anti-dilutive. Therefore, basic loss per common share is the same as diluted loss per common
share.
For the three months ended March 31, 2017,
27,568,773 common stock equivalents related to convertible preferred stock have been included in the calculation of diluted income
per common share. Common stock equivalents related to the conversion of stock options have not been included in the calculation
of diluted income per common share because they are anti-dilutive.
Recently Issued Accounting Pronouncements
There were no new accounting pronouncements
issued or proposed by the Financial Accounting Standards Board during the three months ended March 31, 2018 and through the date
of filing of this report that the Company believes has had or will have a material impact on its financial position or results
of operations.
NOTE 3 – GOING CONCERN UNCERTAINTY
As shown in the accompanying financial
statements, during the three months ended March 31, 2018, the Company did not generate any revenues and reported a net loss of
$33,339. As of March 31, 2018, the Company’s current and total liabilities exceeded its current assets by $773,708. As of
March 31, 2018, the Company had $2,707 of cash.
The Company will require additional funding
during the next twelve months to finance the growth of its current operations and achieve its strategic objectives. These factors,
as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as
to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through
private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin
generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital
offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include
any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing
additional sources of financing sufficient to generate enough cash flow to fund its operations through calendar year 2018. However,
management cannot make any assurances that such financing will be secured.
NOTE 4 – INTANGIBLE ASSETS
Intangible assets consist of the following:
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March 31,
2018
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December 31,
2017
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Capitalized software development costs
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$
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262,243
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$
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262,243
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Patents and trademarks
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168,564
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168,564
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Accumulated amortization of patents and trademarks
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(120,227
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)
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(114,097
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)
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$
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310,580
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$
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316,710
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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 2018. The Company achieved technological feasibility with regard to its
mobile phone technology during the fourth quarter of 2010. No software development costs were incurred and capitalized during the
three months ended March 31, 2018 and 2017, and no amortization expense for software development costs was recorded for the three
months ended March 31, 2018 and 2017.
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 $6,130 and $7,984 for the three months ended March
31, 2018 and 2017, respectively.
NOTE 5 – ACCRUED LIABILITIES
Accrued liabilities consist of the following:
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March 31,
2018
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December 31,
2017
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Compensation - officers and bookkeeper
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$
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539,125
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$
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539,125
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Taxes
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1,800
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1,800
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Accrued interest – related party
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3,583
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3,052
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$
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544,508
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$
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543,977
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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 March 31, 2018 and December 31, 2017, there were 509,374 total preferred shares issued and outstanding for all classes. As
of March 31, 2018, 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, 2018, the Company had no
accrued and unpaid preferred stock dividends. As of December 31, 2017, the Company had accrued and unpaid preferred stock dividends
totaling $2,546 relating to dividends for the three months ended December 31, 2017.
The Board of Directors of the Company elected
to cancel the preferred stock dividends for the semi-annual period ended March 31, 2018. Consequently, the preferred stock dividends
payable of $2,546 relating to dividends for the three months ended December 31, 2017 was eliminated. Historically, 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. However, the Board of Directors of the Company has authorized payment of preferred
stock dividends through the issuance of common shares where no authorized shares of preferred stock are available for issuance
in a class.
Class A Voting Preferred Stock
The Company has 300,000 shares of “Class
A Voting Preferred Stock” (“Class A Shares”) authorized. As of March 31, 2018 and December 31, 2017, there were
163,022 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, when declared by the Board of Directors, 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.
Class B Voting Preferred Stock
The Company has 250,000 shares of “Class
B Voting Preferred Stock” (“Class B Shares”) authorized. As of March 31, 2018 and December 31, 2017, there were
128,990 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, when declared by the Board of Directors, 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 400,000 shares of “Class
C Voting Preferred Stock” (“Class C Shares”) authorized. As of March 31, 2018 and December 31, 2017, there were
217,362 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, when declared by the Board of Directors, 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 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 March 31, 2018
and December 31, 2017, there were 61,322,567 common shares issued and outstanding.
During the three months ended March 31,
2018, the Company did not issue any shares of common stock.
During the three months ended March 31,
2017, the Company issued a total of 590,000 shares of common stock to two investors for $25,000 cash.
NOTE 8 – STOCK OPTIONS
The Company’s shareholders approved,
by a majority vote, the adoption of the 1998 Stock Incentive Plan (the “Plan”). As amended on August 11, 2003, the
Plan reserves 20,000,000 shares of common stock for issuance upon the exercise of options which may be granted from time-to-time
to officers, directors, certain employees and consultants of the Company or its subsidiaries by the Board of Directors. The Plan
permits the award of both qualified and non-qualified incentive stock options.
During the three months ended March 31,
2018, the Company did not issue any stock options and had no stock options outstanding at March 31, 2018.
A summary of the Company’s stock
option awards as of March 31, 2018, and changes during the three months then ended is as follows:
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Shares
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Weighted
Average
Exercise Price
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Weighted
Average
Remaining
Contract
Term
(Years)
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Aggregate
Intrinsic
Value
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Outstanding at December 31, 2017
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2,800,000
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$
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0.050
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.08
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Granted
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–
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$
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–
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Exercised
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–
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$
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–
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Forfeited or expired
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(2,800,000
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)
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$
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0.050
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Outstanding and exercisable
at March 31, 2018
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-
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NOTE 9 – RELATED PARTY TRANSACTIONS
The Company periodically receives funding
from its CEO, CFO and directors to fund operating costs of the Company. Jerry Wright, a director, loaned the Company $30,000 during
the year ended December 31, 2015, which bears interest at the rate of 6% per annum. The related party note payable had a principal
balance of $25,500 as of March 31, 2018 and 2017, respectively, and accrued interest payable of $3,123 and $2,746 as of March 31,
2018 and December 31, 2017, respectively. The loan was to have been paid by June 30, 2016, and is currently in default.
A shareholder loaned the Company $12,500
on July 5, 2017, which bears interest at the rate of 5% per annum, matured on January 5, 2018 and is currently in default. At March
31, 2018 and December 31, 2017, the note had a principal balance of $12,500 and accrued interest payable of $460 and $306, respectively.
During the three months ended March 31,
2018, the three Directors of the Company advanced the Company a total of $13,500: $4,000 by Jerry Wright, $4,000 by Robert Campbell
and $5,500 by Tree of Stars, Inc., a company controlled by Paul Begum. The short-term loans are non-interest bearing.
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
did not accrue any compensation to the CEO or to the bookkeeper during the three months ended March 31, 2018. The Company accrued
compensation of $15,000 to the CEO and $3,000 to the bookkeeper during the three months ended March 31, 2017. Accrued compensation
to the CEO totaled $503,125 and accrued compensation to the bookkeeper totaled $36,000 as of March 31, 2018 and December 31, 2017.
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:
Merger
All descriptions of the Merger (described
below), anticipated terms, anticipated consequences and anticipated related events and transactions set forth in this 10-Q are
forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve substantial known and unknown risks, uncertainties and other factors which may cause the proposed transactions
relating to the Merger not to be consummated or may cause the actual terms and consequences of the Merger and related events and
transactions to be materially different from those anticipated in the following descriptions, including the risks that (i) the
closing conditions to the Merger are not satisfied, (ii) we are unable to perform our closing obligations with respect to the Merger
Agreement (described below).
You should not place undue reliance
on these forward-looking statements, which speak only as of the date that they were made. Except as required by applicable law,
including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform
these statements to reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events.
On April 27, 2018, Klever entered into
an Agreement and Plan of Merger (the “Merger Agreement”) involving Klever as the surviving parent corporation and acquiring
a privately held New Brunswick corporation known as DarkPulse Technologies Inc. (“DarkPulse” or “DP” as
its wholly owned subsidiarty. The specific terms of the Merger are more fully described in the Merger Agreement filed as an exhibit
to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 1, 2018.
The following is an abbreviated outline
of what management believes to be the most important terms and probable effects of the Merger, but is qualified in its entirety
by reference to the Merger documents listed above. Klever has also recently filed an SEC Schedule 14F-1 document with specific
information about the new management for Klever at the closing of the Merger. While we believe the Merger will close, it is also
important to note the Merger has not closed and is subject to various due diligence requirements. Consequently the following terms
and expectations are contingent on such closing and constitute forward looking information. Subject to this more specific information,
Klever discloses the following concerning the Merger:
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The Merger should close on or around May 30, 2018 and potentially earlier;
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All current shares of Klever will be reverse split on a 6:1 ratio such that there will not be more
than 15 million shares outstanding post-split;
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·
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DarkPulse will become the sole operating subsidiary of the surviving company (Klever), which will
continue operating under the DarkPulse name, with the new DarkPulse management and business in place.
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·
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At closing, a relatively small group of control shareholders designated by DarkPulse will be issued
85,000,000 post-split shares such that the capitalization of Klever immediately after the Merger closing will be 100,000,000 shares
outstanding.
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·
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All preferred shares and stock options or rights will be cancelled, except for four convertible
notes payable to certain prior creditors and aggregating $150,000.
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DarkPulse is a development stage company involved in the development and marketing of certain unique
and proprietary fiber optic sensing devices. DarkPulse does not have current revenues, but anticipates revenues later in 2018.
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The Merger will result in a change of control of the Company and will be accounted for as
a recapitalization in a manner similar to a reverse acquisition.
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