Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one)
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
The aggregate market value of the registrant’s
common stock owned by non-affiliates, based on the closing price of $0.03 as quoted on the OTCBB, on June 30, 2017, is $1,333,961.
For purposes of this computation all officers, directors and 5% beneficial owners of the registrant are deemed to be affiliates.
Such determination should not be deemed an admission that such officers, directors and beneficial owners are, in fact, affiliates
of the registrant. The number of common shares held by non-affiliates of the Registrant totaled 44,465,371.
As of April 2, 2018, there were
61,322,567 common shares issued and outstanding.
This annual report on Form 10-K for Klever
Marketing, Inc. (“Klever” or the “Company”) and the exhibits attached hereto contain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements concern
the Company’s anticipated results and developments in the Company’s operations in future periods, planned development
of the Company’s technology, plans related to its business and other matters that may occur in the future. These statements
relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable
and assumptions of management. Such forward-looking statements include, among others, those statements including the words “expects”,
“anticipates”, “intends”, “believes” and similar language. Our actual results may differ significantly
from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but
are not limited to, those discussed in the section “Risk Factors.” We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances after the date of this report.
Although we believe that the expectations
reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties
that could cause actual results to differ materially from such forward-looking statements. These factors include among others:
This list is not exhaustive of the factors
that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking
statements are described further under the sections titled “Description of the Business”, “Risk Factors and Uncertainties”,
and “Management’s Discussion and Analysis”. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or
expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date
made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
We qualify all the forward-looking statements
contained in this annual report on Form 10-K by the foregoing cautionary statements.
PART I
ITEM 1. BUSINESS
General
Klever Marketing, Inc. is engaged in obtaining
capital to file and acquire patents, to seek out and to investigate, develop, manufacture and market electronic in-store advertising,
directory, loyalty coupon and 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.
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, primarily cell phones, 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 substantial progress on
its mobile application development and implementation. The software programming of the consumer KleverShop® 1.0 application
was completed and successfully tested in our demonstration store. The retailer and supplier KleverDash® application completed
its database and backend programming, complete with a revised graphical user interface, and successfully tested in our demonstration
store.
Since the initial rollout of KleverShop®
1.0, Klever has expended its applications to include KleverBank®, our online repository for the deposit and redemption of product
coupons, and KleverKloud®, which is our cloud-based data repository and promotions hosting environment. Additionally, we introduced
the Chime-Time Award Program®, which provides random store merchandise awards to shoppers in the store with notification to
all shoppers using KleverShop®. These ‘gamification’ features have been shown to increase smartphone usage while
shopping. All of these features are designed to work together.
In 2015, the Company’s business efforts
were concentrated on two areas: 1) modifying the software to meet retailers’ refined business requirements while introducing
some of our phase 2 features, and 2) expanding our contacts within the retail grocery industry. We had completed our second Wholesome
Choice Market demonstration test in 2014, and the feedback led us to conclude that to best serve our clients we needed to 1) add
a loyalty program with points and 2) develop store branding and license our KleverShop software, allowing markets to brand the
application as their own. Following further discussions with our investors, we also decided that now was the time to upgrade our
software to an entirely new development platform that would be much more efficient and effective in addressing the desired enhancements
and provide for the needed scalability.
2016 Software Application Development
and Implementation
All of these goals were accomplished, and
in mid-2016 Klever rolled out its new upgraded software, known as KleverShop 2.0. This new platform is highly efficient, and the
new features deliver what our retailers have been asking for. Our coupon options have been expanded. Our user interface provides
for complete client branding in order to serve individual retailer needs. We have built our loyalty program designated KleverPoints,
which gives retailers the opportunity to award points for various shopping functions that lead to greater basket uplift. Points
are awarded for checking in and for redeeming coupons as well as total basket size.
Also during 2016, we upgraded our KleverDash®
platform. We developed a number of ways to make this tool even more useful to suppliers and retailers, with easier coupon generation,
more types of coupons and expanded graphics analytics. Analytics offer the key to expanded use of this module and is a key to retailers
gaining increasing market share and basket uplift. Our future work will focus on the consumer engagement uses of our software tools.
Our new software platform not only has
far better built-in documentation but also allowed us to embed hundreds of software tests that greatly reduce the debugging process.
In addition, we purchased a Retalix POS test center to further enable us to eliminate any post-development bugs.
We continued to pursue marketing on 3 fronts:
1) Marketing to retail grocers in Southern California to establish a retailer base with established regional grocers, 2) Marketing
through retail grocery associations who supply support services and tools to a broad range of retail grocers, and 3) Marketing
through software companies who support the Retalix ISS45 POS software throughout the grocery industry.
Towards the end of the year we recognized
that customer engagement tools could greatly help us to transition consumers to a digital couponing world. Retail grocers, with
their customers making 2-3 trips to the store each week offer a wonderful opportunity to engage their customers with multiple messages
responding to their shopping actions or inactions. Klever wants each customer to feel that their local grocery store is “their
personal store.” We do this by sending personal messages to them, recognizing them when they are at the store, and most of
all offering them promotions and coupons that respond to their particular food interests. And we don’t bother them with products
they are not interested in. We also reward them with loyalty points for responding to our promotions and are able to give them
special promotions. The Klever Shopping Platform combined with customer engagement tools offer a very powerful resource to retailers
and manufacturers, while meeting the needs of consumers.
The Company has also conducted a number
of system failure tests to be sure we were prepared for network or power failures, overloading of data and a number of possible
user errors in operating KleverShop. We also made further enhancements to KleverDash by including a supplier dashboard similar
to the retailer dashboard. All of these features we are able to test on our in house POS laboratory.
Product Development and Marketing in
2017
As stated in last year’s Annual Report
on Form 10-K, Klever had 4 goals for 2017. Following are the results achieved against these goals:
|
1.
|
Focus on the eLoyalty aspects of our products. eLoyalty became the focus of our work in 2017. It
had become apparent to us that Loyalty was the New Couponing, in that implementation of a full-scale loyalty program would produce
greater loyalty than offering product discounts alone. Further, that retailers main objective against the wave of competition from
Amazon and Walmart was to offer a level of personalization and loyalty rewards such that shoppers would continue to utilize brick
and mortar services. Klever worked diligently with our intended ‘customer engagement’ partner in 2017. Work was interrupted
towards yearend and has not resumed.
|
|
2.
|
Obtain additional demonstration stores for or products, leading to revenue operations. Our focus
turned away from a demonstration store in 2017 towards online ecommerce businesses who are in need of customer loyalty programs.
|
|
3.
|
Continue to work with cloud-based companies to enhance our access to consumer engagement actions.
Work with our cloud-based potential partner was pursued in earnest in 2017. This opportunity still has significant potential
|
|
4.
|
Expand beyond the grocery industry. The grocery industry has remained resilient against technology,
becoming an increasingly difficult industry for any company to break through without significant funding and a great deal of time
to overcome the inherent resistance.
|
Anticipated Business Development in
the Next 12 Months
2018 is expected to become a defining year
for Klever. We have developed technology proven to benefit retailers in the grocery and similar industries but have met reluctance
by these customers to accept change. This change to concentrate on customer loyalty seems paramount to us if retail grocers, for
example, are to remain competitive with Amazon and Walmart. Nevertheless, our marketing efforts have not yet been successful.
Our work efforts with a large cloud marketing
company are promising; they understand the underlying importance of loyalty and customer engagement in future retailing –
both in traditional and ecommerce businesses, and the understand the need to mine customer purchasing data to determine individual
consumer purchasing needs. But Klever is uncertain if the Company will have the resources to sustain our efforts here.
In order to provide our shareholders with
the best opportunity for growth of the Company and its stock, Klever is also seeking buyout or partnering opportunities with other
companies that could produce faster and better results than our current path might produce.
ITEM 1A. RISK FACTORS
Readers should carefully consider the risks
and uncertainties described below.
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 registered public accounting
firm’s report on our audited financial statements for the years ended December 31, 2017 and 2016, indicate 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, no sales recorded to date, our failure to attain profitable operations,
the excess of liabilities over assets, 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
or sufficient revenues, 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 we are not currently generating revenue
or net 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 pay its obligations. As a result, the Company will require additional financing to execute its business
plan through raising additional capital and/or beginning to generate revenue.
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 Company’s management is currently engaged in actively pursuing multiple financing options in order to obtain the capital
necessary to execute the Company’s business plan.
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 or conversion of convertible debt will most likely 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.
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. As reported in
Item 5. Market For Common Equity and
Related Stockholder Matters,
the market price of our common stock has fluctuated significantly.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
The Company has no current legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Executive Officers and Directors
The following table sets forth the name, age, and position of
each executive officer and director of the Company:
Director's Name
|
Age
|
Office
|
Term Expires
|
Paul G. Begum
|
77
|
Chairman/CEO
|
Future shareholder meeting
|
|
|
|
|
Robert A. Campbell
|
74
|
COO and CFO
|
Future shareholder meeting
|
|
|
|
|
Jerry P. Wright
|
65
|
Director
|
Future shareholder meeting
|
Paul G. Begum, Founder, age 77, returned
to the Board of Directors in February, 2007. Paul currently serves as Chairman and CEO. Paul has substantial entrepreneurial experience
managing and owning controlling interest in HelpUSolve, LLC which operates a number of divisions with products ranging from filtered
breathing masks (EnviroAir), food service industry cup liners, script writing, screen plays and theatrical productions. Paul also
brings substantial and diverse fundraising abilities and negotiating skills to the Board.
Robert A. Campbell, age 74, retired from
Parsons Corporation, a large engineering and program management Company, where he served as senior manager and director of program
operations for projects and operations around the world. He has been responsible for the design and implementation of major software
developments and installations. He has been responsible for finance and controls on multi-billion programs in the United States,
Middle East and Asia. He has broad experience in both managing day-to-day project operations and a portfolio of programs. Mr. Campbell’s
last formal level of education was at the Anderson School of Business at the University of California at Los Angeles where he received
his M.B.A. degree in finance.
Jerry P. Wright, age 65, is the CEO and
President of United Potato Growers of America with a broad experience in the food production, packaged goods manufacturing and
retail sales industries. Jerry has been very successful in adding sales growth and profitability to Company’s he has worked
with. Jerry has demonstrated strong leadership skills along with his successful turnarounds of a number of companies and organizations.
His knowledge of packaged goods manufacturing and retail sales operations bring valuable skills to Klever Marketing. Jerry has
an MBA from Brigham Young University.
Changes to Executive Officers and Directors
None
Audit Committee
As of December 31, 2017, the Company did
not have a functioning Audit and Compliance Committee. The Company’s management is currently reviewing the Company’s
SEC filings and relying on outside experts to assist with this process.
Audit Committee Financial Expert
The Company's board of directors needs
to have an “audit committee financial expert,” within the meaning of such phrase under applicable regulations of the
Securities and Exchange Commission, serving on its audit committee. The individual needs to be capable of (i) understanding generally
accepted accounting principles ("GAAP") and financial statements, (ii) assessing the general application of GAAP principles
in connection with our accounting for estimates, accruals and reserves, (iii) analyzing and evaluating our financial statements,
(iv) understanding our internal controls and procedures for financial reporting; and (v) understanding audit committee functions,
all of which are attributes of an audit committee financial expert and meet the experience requirements specified in the SEC's
definition of “audit committee financial expert.” Further, like many small companies, it is difficult for the Company
to attract and retain board members who qualify as “audit committee financial experts,” and competition for these individuals
is significant.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The following table shows the executive
compensation paid to our executive officers and directors for the years ended December 31, 2017 and 2016.
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Principal Position
|
|
Year
Ended
Dec 31,
|
|
|
Salary
(1)
|
|
|
Bonus
|
|
|
Option Awards
(2)
|
|
|
All Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul G. Begum
Chairman/CEO and Director*
|
|
|
2017
|
|
|
$
|
60,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
60,000
|
|
|
|
|
2016
|
|
|
$
|
136,500
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
136,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Campbell
COO and CFO and Director
|
|
|
2017
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
2016
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Wright, Director
|
|
|
2017
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
2016
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Services provided through PSF Inc., a
company owned by Mr. Begum.
(1)
The Company accrued
$60,000 and $136,500 for compensation for Mr. Begum during the years ended December 31, 2017 and 2016, respectively, of which $2,500
and $9,000 were paid, respectively. Effective October 1, 2016, annual compensation was reduced from $162,000 to $60,000. Accrued,
unpaid compensation to Mr. Begum totaled $503,125 and $445,625 as of December 31, 2017 and 2016, respectively.
(2)
The amounts in column (e) reflect the
aggregate grant date fair value with respect to stock options granted during the respective years in accordance with ASC Topic
718. No stock options were awarded or vested in 2017 and 2016.
Aggregate Option/SAR Exercises in the
Last Fiscal Year and Year End Option/SAR Values
During the year ended December 31, 2017, the Company did not
grant any stock options or SARs to the chief executive officer, chief financial officer and directors of the Company.
During the year ended December 31, 2017, no stock options were
exercised by the chief executive officer, chief financial officer and directors of the Company.
The following table sets forth information with respect to outstanding
stock options granted to our chief executive officer, chief financial officer and directors of the Company at December 31, 2017.
Outstanding
Equity Awards at Fiscal Year-End
Name
|
|
Number of Securities Underlying Unexercised Options Exercisable
|
|
|
Number of Securities Underlying Unexercised Options Unexercisable
|
|
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
|
|
|
Option Exercise Price
|
|
|
Option Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul G. Begum
|
|
|
1,500,000
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
0.05
|
|
|
1/31/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Campbell
|
|
|
1,200,000
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
0.05
|
|
|
1/31/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry P. Wright
|
|
|
100,000
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
0.05
|
|
|
1/31/2018
|
|
Executive Compensation and Benefits
The Company provides no health insurance
to any full or part-time employees.
The Company has adopted a stock incentive
plan for its employees, executive officers, directors, and consultants.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Principal Shareholders
The table below sets forth information
as to our Directors and Executive Officers and each person owning of record or was known by the Company to own beneficially shares
of stock greater than 5% of the 91,284,550 (61,322,567 common plus 29,961,983 preferred) votes as of March 30, 2018. The table
includes preferred stock that is convertible into common stock and information as to the ownership of the Company's Stock by each
of its directors and executive officers and by the directors and executive officers as a group. There were no stock options outstanding
as of March 30, 2018. Except as otherwise indicated, all shares are owned directly, and the persons named in the table have sole
voting and investment power with respect to shares shown as beneficially owned by them.
Name and Address
|
|
Nature of
|
|
|
Shares
|
|
|
Percent of
|
|
of Beneficial Owners
|
|
Ownership
|
|
|
Owned
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
Directors, Executive Officers and >5% Stock Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul G. Begum (through PSF Inc. and Tree of Stars, Inc.)
|
|
|
Direct
|
|
|
|
11,688,196
|
|
|
|
|
|
30251 Golden Lantern
|
|
|
Preferred
|
|
|
|
29,961,983
|
|
|
|
|
|
Suite E, PMB 411
|
|
|
Total
|
|
|
|
41,650,179
|
|
|
|
45.63%
|
|
Laguna Niguel, CA 92677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A. Campbell
|
|
|
Direct
|
|
|
|
4,669,000
|
|
|
|
|
|
991 Rippey Street
|
|
|
Preferred
|
|
|
|
–
|
|
|
|
|
|
El Cajon, CA 92020
|
|
|
Total
|
|
|
|
4,669,000
|
|
|
|
5.11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry P. Wright
|
|
|
Direct
|
|
|
|
–
|
|
|
|
|
|
991 Rippey Street
|
|
|
Preferred
|
|
|
|
–
|
|
|
|
|
|
El Cajon, CA 92020
|
|
|
Total
|
|
|
|
–
|
|
|
|
*%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
46,319,179
|
|
|
|
50.74%
|
|
* Less than 1%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Related Party Notes Payable
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 December 31, 2017 and 2016, and accrued interest payable of $2,746 and $1,216 as of December 31, 2017
and 2016, respectively. The loan was to have been paid by June 30, 2016, and is currently in default.
PSF Inc., a company controlled by the Company’s
CEO, loaned the Company $1,000 during the year ended December 31, 2017 and $6,000 during the year ended December 31, 2016, which
bear interest at the rate of 4% per annum and mature in June 2017. The related party notes payable were repaid in full during the
year ended December 31, 2017.
A shareholder loaned the Company $12,500
on July 5, 2017, which bears interest at the rate of 5% per annum and matures on January 5, 2018. At December 31, 2017, the note
had a principal balance of $12,500 and accrued interest payable of $306.
Accrued Compensation
Paul G. Begum, the Company’s CEO,
provides consulting services to the Company through PSF Inc. The Company accrued $60,000 and $136,500 for compensation for the
CEO during the years ended December 31, 2017 and 2016, of which $2,500 and $9,000 were paid, respectively. Accrued compensation
to the CEO totaled $503,125 and $445,625 as of December 31, 2017 and 2016, respectively.
The Company’s bookkeeper, who is
the wife of Mr. Begum, earned $12,000 and $18,000 during the years ended December 31, 2017 and 2016, respectively, for services
provided to the Company of which $5,500 and $3,000 were paid, respectively. Accrued compensation to the bookkeeper totaled $36,000
and $27,000 as of December 31, 2017 and 2016, respectively.
Director Independence
A Director is considered independent if
the Board affirmatively determines that the director (or an immediate family member) does not have any direct or indirect material
relationship with us or our affiliates or any member of our senior management or his or her affiliates. The term “affiliate”
means any corporation or other entity that controls, is controlled by, or under common control with us, evidenced by the power
to elect a majority of the Board of Directors or comparable governing body of such entity. The term “immediate family member”
means spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in law, brothers- and sisters-in-laws
and anyone (other than domestic employees) sharing the director’s home.
In accordance with these guidelines, the
Board has determined that current Board member Jerry P. Wright is an independent director.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
. Consists of fees billed
for professional services rendered for the audits of our financial statements, reviews of our interim financial statements included
in quarterly reports, services performed in connection with filings with the Securities & Exchange Commission, and related
other services that were provided by Haynie & Company (“Haynie”) in connection with statutory and regulatory filings
or engagements.
The following is a summary of the fees
incurred by the Company to Haynie for professional services rendered for the years ended December 31, 2017 and 2016, respectively.
Service
|
|
2017
|
|
|
2016
|
|
Audit Fees
|
|
$
|
22,400
|
|
|
$
|
24,090
|
|
Audit-Related Fees
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
22,400
|
|
|
$
|
24,090
|
|
Tax Fees
. Consists of fees billed
for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal,
state and local tax compliance and consultation in connection with various transactions. There were no tax fees incurred by the
Company for the years ended December 31, 2017 and 2016.
Board of Directors Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditors
The Board of Directors may pre-approve
all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related
services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year
and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically
approved amount. The independent auditors and management are required to periodically evaluate the extent of services provided
by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Board of Directors may also
pre-approve particular services on a case-by-case basis.
The Board of Directors pre-approved 100%
of the Company’s 2017 and 2016 audit fees, audit-related fees and all other fees.
Notes to the Financial Statements
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.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting
policies consistently applied in the preparation of the accompanying financial statements are as follows:
Accounting Method
The Company’s financial statements
are prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and reflect
all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation
of the financial statements.
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.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with maturities of three months or less to be cash equivalents. The Company did not have any cash equivalents as of
and for the years ended December 31, 2017 and 2016.
Valuation of Long-Lived Assets
Long-lived assets such as capitalized software
development and licenses, office equipment and intangible assets with definite useful lives are reviewed for impairment when events
or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or in the period in which the
held for sale criteria are met. For assets held and used, this analysis consists of comparing the asset’s carrying value
to the expected future cash flows to be generated from the asset on an undiscounted basis. If the carrying amount of the asset
is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market
values, discounted cash flows, or external appraisals, as applicable. Long-lived assets are reviewed for impairment at the individual
asset or the asset group level for which the lowest level of independent cash flows can be identified. The Company recorded an
impairment loss for the year ended December 31, 2017 of $290,260.
Property and Equipment
Property and equipment consisted of office
equipment with a cost of $3,350 and with accumulated depreciation of $3,350 as of December 31, 2017 and 2016. Depreciation of office
equipment is computed using the straight-line method over an estimated economic useful life of 3 years. Depreciation expense was
$0 and $96 for the years ended December 31, 2017 and 2016, respectively.
Upon sale or other disposition of property
and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss
is included in the determination of income or loss.
Expenditures for maintenance and repairs
are charged to expense as incurred. Major overhauls and betterments are capitalized and depreciated over their estimated economic
useful lives.
Intangible Assets
Intangible assets consist of capitalized software development
costs and patents and trademarks.
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.
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. During the year ended December 31, 2017, the Company reduced the book
value of the capitalized software development costs by an impairment expense of $290,260. As of December 31, 2017 and 2016, the
Company had capitalized software development costs of $262,243 and $552,503, respectively. No amortization expense was recorded
for the years ended December 31, 2017 and 2016.
Patents and Trademarks
The Company capitalizes the cost of
patents and trademarks and amortizes the capitalized costs on a straight-line basis over 5 years from the date the patent or
trademark is issued. At December 31, 2017, patents and trademarks have a cost of $168,564, accumulated amortization of
$114,097, and had a net book value of $54,467. At December 31, 2016, patents and trademarks have a cost of $159,664,
accumulated amortization of $83,289, and had a net book value of $76,375. Amortization expense was $30,808 and $29,263 for
the years ended December 31, 2017 and 2016, respectively. Future amortization expense of the Company’s existing patents
and trademarks over their remaining lives will be $21,922 for 2018, $15,587 for 2019, $11,141 for 2020, $4,452 for 2021 and
$815 for 2022.
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.
Revenue Recognition
The Company currently has no revenues from
its operations. We anticipate that revenues from product sales, net of estimated returns and allowances, will be recognized when
evidence of an arrangement is in place, related prices are fixed and determinable, contractual obligations have been satisfied,
title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured.
Concentration of Credit Risk
The Company has no significant concentrations
of credit risk.
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 years ended December 31, 2017 and
2016, 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 years. For the years ended December 31, 2017
and 2016, the Company has excluded a total of 32,761,983 and 30,368,773 common shares, respectively, for exercisable options and
potential conversion of convertible preferred stock.
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 in the accompanying financial statements at December 31, 2017 and December 31, 2016. At December
31, 2017, we determined that the statute of limitations had expired and no accrual for uncertain tax positions was needed and wrote
off the $40,200 balance.
The Company includes interest and penalties
arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December
31, 2017 and 2016, the Company had $0 and $9,868 of accrued interest and penalties related to uncertain tax positions.
Research and Development
The Company continues to develop additional
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 providing "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.
For the years ended December 31, 2017 and
2016, the Company incurred research and development expenses of $895 and $1,343 respectively.
Fair Value of Financial Instruments
The FASB provides the framework for measuring
fair value. ASC 820-10-50,
Fair Value Measurements
, provides guidance that 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; and Level 3 inputs to valuation methodology are unobservable and significant to the
fair measurement.
In determining fair value, the Company
utilizes observable market data when available, or models that incorporate observable market data. In addition to market information,
the Company incorporates transaction-specific details that, in management’s judgment, market participants would take into
account in measuring fair value.
In arriving at fair-value estimates, the
Company utilizes the most observable inputs available for the valuation technique employed. If a fair-value measurement reflects
inputs at multiple levels within the hierarchy, the fair-value measurement is characterized based upon the lowest level of input
that is significant to the fair-value measurement.
The carrying amounts reported in the accompanying
balance sheets as of December 31, 2017 and 2016 for cash and current liabilities each qualify as financial instruments, which management
believes 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.
Recently Issued Accounting Pronouncements
In July 2017, the FASB issued Accounting Standards Update ("ASU")
2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic
815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests
with a Scope Exception." Part I of this update addresses the complexity of accounting for certain financial instruments with
down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in
the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost
and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features
that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty
of navigating Topic 480, "Distinguishing Liabilities from Equity," because of the existence of extensive pending content
in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements
about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling
interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and
interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact
on its consolidated financial statements of the adoption of this new accounting pronouncement.
Although there are several other new accounting
pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not
believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
As shown in the accompanying financial
statements, the Company generated net losses of $185,259 and $268,951 during the years ended December 31, 2017 and 2016, respectively.
The Company did not generate any revenue from product sales during the years ended December 31, 2017 and 2016. As of December
31, 2017, the Company’s current and total liabilities exceeded its current assets by $749,045. As of December 31,
2017, the Company had $2,498 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 2017. However,
management cannot make any assurances that such financing will be secured.
NOTE 4 – ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December
31:
|
|
2017
|
|
|
2016
|
|
Compensation - officer and bookkeeper
|
|
$
|
539,125
|
|
|
$
|
472,625
|
|
Taxes
|
|
|
1,800
|
|
|
|
40,769
|
|
Accrued interest – related party
|
|
|
3,052
|
|
|
|
1,230
|
|
|
|
$
|
543,977
|
|
|
$
|
514,624
|
|
NOTE 5 – INCOME TAXES
The components of income tax benefit
(expense) are as follows for the years ended December 31:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
$
|
38,728
|
|
|
$
|
(1,295
|
)
|
|
Deferred
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
38,728
|
|
|
$
|
(1,295
|
)
|
Included in the current tax benefit for
the year ended December 31, 2017 is a $40,200 benefit resulting from the write off of the Company’s accrual for uncertain
tax provisions due to the expiration of the statute of limitations.
Deferred tax assets are calculated using
a combined statutory tax rate of 39%. The Company’s deferred income tax asset and the related valuation allowance are as
follows at December 31:
|
|
2017
|
|
|
2016
|
|
Deferred tax assets - current:
|
|
|
|
|
|
|
|
|
Accrued compensation
|
|
$
|
210,259
|
|
|
$
|
184,324
|
|
Accrued interest – related party
|
|
|
1,190
|
|
|
|
480
|
|
|
|
|
211,449
|
|
|
|
184,804
|
|
Deferred tax assets - long-term:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
5,728,709
|
|
|
|
5,774,160
|
|
Amortization
|
|
|
28,676
|
|
|
|
20,914
|
|
Total deferred income tax assets
|
|
|
5,968,834
|
|
|
|
5,979,878
|
|
Valuation allowance
|
|
|
(5,968,834
|
)
|
|
|
(5,979,878
|
)
|
Total
|
|
$
|
–
|
|
|
$
|
–
|
|
A reconciliation of benefit (provision)
for income taxes provided at the federal statutory rate to actual provision for income taxes is as follows for the
years ended December 31:
|
|
2017
|
|
|
2016
|
|
Benefit (provision) for income taxes computed at federal statutory rate
|
|
$
|
(87,355
|
)
|
|
$
|
(104,386
|
)
|
State income taxes, net of federal benefit
|
|
|
(94
|
)
|
|
|
(39
|
)
|
Impairment expense
|
|
|
113,201
|
|
|
|
–
|
|
Other
|
|
|
19,604
|
|
|
|
64,128
|
|
Valuation allowance
|
|
|
(6,628
|
)
|
|
|
39,002
|
|
Benefit (provision) for income taxes
|
|
$
|
38,728
|
|
|
$
|
(1,295
|
)
|
Effective tax rate
|
|
|
17.29%
|
|
|
|
(0.48%
|
)
|
As of December 31, 2017, the Company had
net operating loss carry-forwards for federal income tax reporting purposes of approximately $14.7 million that may be offset against
future taxable income through 2037. The Company has state net operating loss carry-forwards of approximately $4.9 million that
may be offset against future taxable income through 2030. Current tax laws limit the amount of loss available to be offset against
future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income
may be limited. No tax benefit has been reported in the financial statements because the Company believes there is a 50% or greater
chance that the carry-forwards will expire unused. Accordingly, the potential tax benefits of the loss carry-forwards are offset
by a valuation allowance of the same amount.
The Company files income tax returns in
the U.S. federal and Utah jurisdictions. Tax years 2012 to current remain open to examination by U.S. federal and state tax authorities.
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 December 31, 2017 and December 31, 2016, there were 509,374 and 468,688 total preferred shares issued and outstanding for
all classes, respectively. As of December 31, 2017, 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 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.
As of December 31, 2016, the Company had accrued and unpaid preferred stock dividends totaling $7,909 relating to dividends for
the three months ended December 31, 2016. 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 December 31, 2017 and December
31, 2016, there were 163,022 and 150,000 Class A Shares outstanding, respectively. 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.
Class B Voting Preferred Stock
The Company has 250,000 shares of “Class
B Voting Preferred Stock” (“Class B Shares”) authorized. As of December 31, 2017 and December 31, 2016, there
were 128,990 and 118,688 Class B Shares outstanding, respectively. 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 400,000 shares of “Class
C Voting Preferred Stock” (“Class C Shares”) authorized. As of December 31, 2017 and December 31, 2016, there
were 217,362 and 200,000 Class C Shares outstanding, respectively. 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 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 December 31,
2017 and December 31, 2016, there were 61,322,567 and 59,731,567 common shares issued and outstanding.
During the year ended December 31, 2017,
the Company issued 1,591,000 shares of common stock to investors for $50,300 cash.
During the year ended December 31, 2016,
the Company issued 1,445,000 shares of common stock to investors for $70,000 cash and 1,046,121 shares of common stock valued at
$37,029 to a related party in payment of accrued preferred stock dividends.
NOTE 8 – STOCK OPTIONS
The shareholders approved, by a majority
vote, the adoption of the 1998 Stock Incentive Plan (the “Plan”). As amended on August 11, 2003, the Plan reserves
20,000,000 shares of common stock for issuance upon the exercise of options which may be granted from time-to-time to officers,
directors, 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 year ended December 31, 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 directors for services, 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 December 31, 2017, and changes during the two years then ended is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contract Term
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
2,800,000
|
|
|
|
0.05
|
|
|
|
2.09
|
|
|
$
|
–
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
2,800,000
|
|
|
|
0.05
|
|
|
|
1.08
|
|
|
$
|
–
|
|
Granted
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2017
|
|
|
2,800,000
|
|
|
$
|
0.05
|
|
|
|
.08
|
|
|
$
|
–
|
|
The aggregate intrinsic value in
the preceding table represents the total pretax intrinsic value, based on our closing stock price of $0.0040 as of December
31, 2017, which would have been received by the holders of in-the-money options had the option holders exercised their
options as of that date.
NOTE 9 - LITIGATION AND CONTINGENT LIABILITIES
Various creditors of the Company have potential
claims against the Company for unpaid invoices relating to services provided to the Company. The amount of unpaid bills over 90
days old that exist within accounts payable on the balance sheet is $157,316 and $314,184 as of December 31, 2017 and 2016, respectively.
NOTE 10 – 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 December 31, 2017 and 2016, and accrued interest payable of $2,746 and $1,216 as of December 31, 2017
and 2016, respectively. The loan was to have been paid by June 30, 2016, and is currently in default.
PSF Inc., a company controlled by the Company’s
CEO, loaned the Company $1,000 during the year ended December 31, 2017 and $6,000 during the year ended December 31, 2016, which
bear interest at the rate of 4% per annum and mature in June 2017. The related party notes payable were repaid in full during the
year ended December 31, 2017.
A shareholder loaned the Company $12,500
on July 5, 2017, which bears interest at the rate of 5% per annum and matures on January 5, 2018. At December 31, 2017, the note
had a principal balance of $12,500 and accrued interest payable of $306.
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 $60,000 and $136,500 for compensation for the CEO during the years ended December 31, 2017 and 2016, of which $2,500 and
$9,000 were paid, respectively. Accrued compensation to the CEO totaled $503,125 and $445,625 as of December 31, 2017 and 2016,
respectively.
The bookkeeper earned $12,000 and $18,000
during the years ended December 31, 2017 and 2016, respectively, for services provided to the Company of which $5,500 and $3,000
were paid, respectively. Accrued compensation to the bookkeeper totaled $36,000 and $27,000 as of December 31, 2017 and 2016, respectively.
NOTE 11 – SUBSEQUENT EVENTS
In March 2018, three officers and directors
loaned the Company a total of $12,000.
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.