UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
OR
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________  to  _________

 

Commission file number: 0-18834

 

Klever Marketing, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware   36-3688583
(State of other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     

5320 South 900 East

Suite 120

Salt Lake City, UT

 

 

 

84117-7250

(Address of Principal Executive Offices)   (Zip Code)

 

(801) 847 6444

(Registrant’s Telephone Number, including Area Code)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $.01 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o    No  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o    No  x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o   

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  o    No  x

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definition of “accelerated filer” and “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one)

 

Large Accelerated Filer  o Accelerated Filer  o
Non-Accelerated Filer o Smaller Reporting Company x

 

Indicate by check mark whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.    Yes  o    No  x

 

The aggregate market value of the registrant’s common stock owned by non-affiliates, based on the closing price of $0.04 as quoted on the OTCBB, on December 31, 2012, is $1,073,115. 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 26,827,885.

 

As of April 11, 2013, there were 49,093,124 common shares issued and outstanding.

 

Transitional Small Business Disclosure Format (Check one):    Yes  o    No  x

Check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

 

 
 

 

 

 

TABLE OF CONTENTS

 

Item Number and Caption Page
     
  Forward-Looking Statements ii
     
PART I
     
Item 1. Description of the Business 1
     
Item 1A. Risk Factors and Uncertainties 3
     
Item 2. Description of Property 4
     
Item 3. Legal Proceedings 4
     
Item 4. Mine Safety Disclosures 4
     
PART II
     
Item 5. Market for Common Equity and Related Stockholder Matters 5
     
Item 6 Selected Financial Data 6
     
Item 7. Management’s Discussion and Analysis 6
     
Item 8. Financial Statements 8
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 8
     
Item 9A. Controls and Procedures 8
     
PART III
     
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 10
     
Item 11. Executive Compensation 11
     
Item 12. Security Ownership of Certain Beneficial Owners and Management 12
     
Item 13. Certain Relationships and Related Transactions 13
     
Item 14. Principal Accountant Fees & Services 14
     
Item 15. Exhibits and Reports on form 10-K 15
     
Signatures   17 

 

i
 

 

FORWARD-LOOKING STATEMENTS

 

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: 

 

·Our ability to raise sufficient capital to fund the development of our technology and continue to fund operating expenses;  

 

·Our ability to get our technology to work in accordance with our technical specifications;

 

·Our ability to attract customers to our products once they are developed;  

 

·Our ability to attract and retain the necessary personnel with the expertise needed to ensure that we can operate the

 

·Company effectively.  

 

·Actions or inactions of third-party contractors and vendors;  

 

·Our ability to successfully patent and protect our intellectual property.

 

·The potential that our competitors will get their products to market ahead of us.

 

·General economic conditions.

 

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.

 

ii
 

   

PART I

 

ITEM 1.   DESCRIPTION OF THE BUSINESS

 

General

 

Klever Marketing, Inc. was formed for the purpose of creating a vehicle to obtain capital, to file and acquire patents, to seek out, investigate, develop, manufacture and market electronic in-store advertising, directory and coupon services which have potential for profit.  The Company has successfully conducted two in-store demonstrations of its technology – the latest being in 2009 with the release of the Giving Cart and its Retailer Chime-Time Awards Program.  Subsequently, in 2010, the Company shifted its business model to mobile technology and has aggressively developed new applications using this technology, which it expects to market and release in the near future. The Company is currently testing its mobile technology in a pilot store in Anaheim, California.

 

History

 

The Company, which began as a part of Information Resources, Inc. (“IRI”) in 1987, was incorporated as a subsidiary of IRI under the laws of the State of Delaware on December 8, 1989, and was fully distributed to the stockholders of IRI in a spinoff on October 31, 1990.  At the time of the spinoff, a portion of the business and assets of the Company included a software operation in Australia, which was sold in March, 1993 called VideOCart, Inc.. VideOCart, Inc. filed petitions for relief under Chapter 11 bankruptcy in December 1993.  The Company was inactive until July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse merger and changed its name to Klever Marketing, Inc.  During the period from July 5, 1996 to December 31, 2012, the Company was in a development stage, except for an approximate 2-month period in 2000 when the Company generated revenue from installations of their Klever-Kart system in stores.

 

In August 2004, the Company signed a partnership contract with Fujitsu Transaction Solutions (“Fujitsu” or “FTXS”).  Under this contract, Fujitsu committed to manufacture and develop the hardware for a cart-based, advertising and promotional device offering (the U-Scan Shopping Cart), to develop relevant and required software and applications to support the device, to act as sales lead for the solution and hardware sell-in process and to provide for technical installations, IT implementation, and support for all retail locations.  The Company and Fujitsu agreed to jointly share responsibility for marketing into Fujitsu’s current retail client base for the initial nationwide sales effort.  The Company likewise agreed to act as sales lead for the participant sell-in of advertising and promotion space to both retailers and manufacturers.

 

In 2007, the Company was informed by Fujitsu that they were restructuring their US management team and had reprioritized their go-to-market model, which would no longer include pursuing the joint deployment of U-Scan Shopping Carts in the US marketplace, as this was no longer part of their US business strategy. As a result, Fujitsu amicably disengaged from collaborative deployment discussions with the Company.  Fujitsu paid the Company $25,000 related to the sale of its international Patents and Patent work done by the Company on Fujitsu’s behalf.  Importantly post-Fujitsu through 2008, the Company pursued alternative deployment approaches; continued efforts to protect its Patents against potential infringement; and explored opportunities to deploy its product with interested retailers.

 

During 2009, The Company made a number of significant structural changes, followed by a successful rollout and demonstration of an updated Giving Cart™ product with improved location technology, coupon delivery and product selection data collection – all accompanied by continued strengthening of its patent portfolio.  The prior board of directors resigned at the end of 2008 and a new, revitalized board of directors was installed in January, 2009 with plans to develop a technically improved, significantly lower cost wireless shopping cart unit for installation with a major retailer chain.  This upgraded unit was designated the Giving Cart™ with its Retailer Chime Time ™ Rewards Program.     The Company’s founder, Paul G. Begum, was reinstated as Chairman of the Board and is the current operating CEO.  Under the returning Chairman’s guidance, the Company was able to focus its resources on new technology developments. Financing was obtained for an updated wireless portable shopping cart unit taking advantage of improved technologies available since the last product release.  This unit was produced at a significantly lower cost with significant software improvements that allow for rapid and efficient data updates to improve the effectiveness of advertising.

 

The Company achieved a rapid 6-month product development, and a pilot store was installed in August, 2009 followed by a successful 3-month product demonstration at The Market in Park City, Utah.

 

To continue to protect the Company’s patent rights, our patent attorneys filed and obtained additional trademarks, including comprehensive new “wrap around” patents.

 

1
 

 

2012 Mobile Application Development and Implementation

 

The Company accomplished its goals for 2012. The Alpha release for our KleverShop® application was completed in February 2012. By April we acquired a full product database and API from Google, which allowed us to reach our Beta release in early May 2012. Following test operations, we applied for KleverShop® application approval with Apple which was granted.

 

As soon as the KleverShop® application completed Beta testing, our focus shifted to Android development and approval. Android development took longer than anticipated while a number of technical solutions were added and ease of use enhancements were made. Android approval was received in November with improvements that were coordinated into the Apple version.

 

During the summer months, the Company selected its demonstration market partner, Wholesome Choice in Anaheim, CA. This market turned out to be very beneficial to the Company as a platform for testing KleverShop® with our sample customer base. We integrated the Wholesome Choice product database with the Google product database, and were then able to offer promotions on any product, allow scanning of any product, and redemption coupons at store checkout. The current technology uses the store’s portable scanners at checkout which read our KleverShop® codes. While this process works effectively, our next step is to process these transactions through KleverKloud™ providing opportunities for greater personal contact between the checker and customer.

 

Our KleverDash™ retailer/supplier promotion management dashboard finished its phase 1 programming in June 2012 and has been tested in our demonstration market. It provides real-time management of promotional campaigns and redemptions, either adding or changing the promotion as redemption trends are received or as available budget limits are reached.

 

On top of all this, we also finished and tested our Chime-Time Awards™ program where shoppers are able to earn points for shopping at a particular market, receive randomly selected merchandise coupon awards while shopping in the store and participate in additional in-store promotions while shopping.

 

Important to the strengthening of our Company's assets was the progress made on securing patents and trademarks this year. Klever has been a leader in developing new technologies in digitized marketing, and it has been a critical objective for our Company to obtain patents to protect the unique product developments we have made. KleverShop® and KleverBank® are now registered trademarks, and KleverDash™ and KleverKloud™ have met the basic requirements and are now published trademarks. The Company continues to maintain patents on its points bank for coupon redemption, its method for influencing consumers to purchase CPG products, and its system for incentivizing shoppers using points rewards.

 

Anticipated Business Development in the Next 12 Months

 

During 2013, the Company intends to move forward along several paths. We will continue to strengthen our balance sheet, and reduce our outstanding debt and seek additional capital investment. Additionally, we will be working with an investment relations company to strengthen public awareness of our Company's investment potential.. We will strengthen our KleverShop® and KleverDash™ systems to improve the consumer experience and ability of suppliers to manage their promotional programs. We are looking to expand into a regional super market chain of moderate size to test the multi-store usability of our software systems, and by late fall we are targeting to land a major supermarket chain. By that time we expect to have promotional relationships with numerous product suppliers. We will begin heavily promoting our KleverBank® system for promotions management and consumer redemption, which, if successful, should place our Company in an advantageous position. We, of course aren't the only Company developing digital solutions for coupon management. There are several applications on the market now; but in our opinion these have limited capability. We expect to differentiate ourselves by being a full service digital marketing provider to consumers, retailers and suppliers with platforms to meet all of their promotional needs. Notable progress is being made, and the Company is moving forward to an exciting future. However, we must caution the reader that Klever Marketing is still a development stage company, and no revenue contracts have yet been signed. No assurance or warranty can be given that the Company will be successful in implementing the efforts described in this report.

 

2
 

 

ITEM 1A.  RISK FACTORS AND UNCERTAINTIES

  

Readers should carefully consider the risks and uncertainties described below before deciding whether to invest in shares of our common stock.

 

Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.

 

As an enterprise engaged in the development of new technology, our business is inherently risky.  Our common shares are considered speculative during the development of our new business operations.  Prospective investors should consider carefully the risk factors set out below.

 

We need to continue as a going concern if our business is to succeed.  

 

Our independent accountant’s report to our audited consolidated financial statements for the year ended December 31, 2012, indicates that there are a number of factors that raise substantial risks about our ability to continue as a going concern.  Such factors identified in the report are our accumulated deficit since inception, our failure to attain profitable operations and our dependence upon obtaining adequate additional financing to pay our liabilities.  If we are not able to continue as a going concern, investors could lose their investments.

 

Because of the unique difficulties and uncertainties inherent in technology development, we face a risk of business failure.

 

Potential investors should be aware of the difficulties normally encountered by companies developing new technology and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the development of new technology with limited personnel and financial means.  These potential problems include, but are not limited to, unanticipated technical problems that extend the time and cost of product development, or unanticipated problems with the operation of our technology or that with which we are licensing that also extend the time and cost of product development.

 

If we do not obtain additional financing, our business will fail.

 

Our current operating funds are less than necessary to complete the full development and marketing of our mobile products, and we will need to obtain additional financing in order to complete our business plan.   We currently have minimal operations and no income.  

 

Our business plan calls for significant expenses in connection with developing our mobile phone technology and paying our current obligations.  The Company currently does not have sufficient funds to complete the development of its technology and to pay its obligations.  As a result, the Company will require additional financing to execute its business plan.

 

We do not currently have any firm arrangements for financing, and we can provide no assurance to investors that we will be able to find such additional financing if required. Obtaining additional financing is subject to a number of factors, including investor acceptance of our technology and current financial condition as well as general market conditions.  These factors affect the timing, amount, terms or conditions of additional financing unavailable to us.  And if additional financing is not arranged, the company faces the risk of going out of business.

 

The most likely source of future funds presently available to us is through the additional sale of private equity capital or through a convertible debt instrument. Any sale of share capital will result in dilution to existing shareholders.   

 

There is no history upon which to base any assumption as to the likelihood we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail. 

 

3
 

 

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.

 

ITEM 2.  DESCRIPTION OF PROPERTY

 

None

 

ITEM 3.  LEGAL PROCEEDINGS

 

The Company has no current legal proceedings.

 

ITEM 4.   MINE SAFETY DISCLOSURES

 

Not applicable.

 

4
 

 

PART II

 

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

The stock is traded on the OTC BB exchange under the trading symbol KLMK.  The Company has 250 million authorized common shares.

 

The following table sets forth the high and low bid of the Company’s Common Stock for each quarter within the past two years.  The information below was provided from Google’s financial website and reflects the highest and lowest closing prices during each quarter.

 

2012:   High   Low
First Quarter   $0.21   $0.02
Second Quarter   $0.16   $0.09
Third Quarter   $0.10   $0.04
Fourth Quarter   $0.08   $0.02
 
2011:   High   Low
First Quarter   $0.06   $0.03
Second Quarter   $0.05   $0.03
Third Quarter   $0.06   $0.02
Fourth Quarter   $0.05   $0.01

 

The number of shareholders of record of the Company's common stock as of December 31, 2012 was approximately 902.

 

The Company has not paid any cash dividends to date and does not anticipate paying cash dividends in the foreseeable future.  It is the present intention of management to utilize any available funds for the development of the Company's business.

 

Recent Sales of Unregistered Securities.

 

On February 22, 2011, the Company issued 250,000 shares of common stock at $0.15 per share to an investor resulting in cash proceeds to the Company of $37,500.

 

On March 12, 2012, the Company sold 170,000 shares of common stock at $0.10 per share to an investor resulting in cash proceeds to the Company of $17,000.

 

On March 12, 2012, the Company sold 194,444 shares of common stock at $0.09 per share to an investor resulting in cash proceeds to the Company of $17,500.

 

On April 18, 2012, the Company sold 125,000 shares of common stock at $0.10 per share to an investor resulting in cash proceeds to the Company of $12,500.

 

On May 22, 2012, the Company sold 250,000 shares of common stock at $0.10 per share to an investor resulting in cash proceeds to the Company of $25,000.

 

On June 13, 2012, the Company sold 100,000 shares of common stock at $0.125 per share to an investor resulting in cash proceeds to the Company of $12,500.

 

On November 1, 2012, the Company sold 250,000 shares of common stock at $0.10 per share to two investors resulting in cash proceeds to the Company of $25,000.

 

On November 1, 2012, the Company sold 125,000 shares of common stock at $0.10 per share to an investor resulting in cash proceeds to the Company of $12,500. The Company also granted to the investor 125,000 stock options in connection with the issuance. The options vest immediately, have an exercise price of $0.06, and expire on March 31, 2013.

 

5
 

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the Commission reports regarding initial ownership and changes in ownership.  Directors, executive officers, and greater than 10% stockholders are required by the Commission to furnish the Company with copies of all Section 16(a) forms they file.

 

Beneficial Ownership Compliance Reporting

 

The Company is aware of the following share and option transactions for the reporting period ending December 31, 2012 for which neither Form 4 nor Form 5 were filed.

 

Name Officer or Board Member Number of Shares  Share Price  Option Price  Total Cost Date

No. of

Years

Chris Marrochi (f) No 25,000   $0.10 $1,135 1/31/2012  
Anthony Begum (d) (e) No (161,000) $0.10   ($16,100) 2/27/2012  
King Udall (c) No 170,000 $0.10   $17,000 3/12/2012  
Gale Leetzow Intervious Trust (c) No 194,444 $0.09   $17,500 3/12/2012  
Mike Mokhture (f) No 100,000   $0.10 $9,246 3/22/2012  
Chris Marrochi (f) No 35,000   $0.10 $4,039 4/2/2012 No 35,000   $0.10 $4,039 4/2/2012  
Paul Ashton (c) No 125,000 $0.10   $12,500 4/18/2012  
Daron Johnson (a) No 60,000 $0.1133   $6,800 5/8/2012  
Mohammad Alsuliman (c) No 250,000 $0.10   $25,000 5/22/2012  
John Berra (c) No 100,000 $0.125   $12,500 6/13/2012  
William Christopher Zapata (c) No 125,000 $0.10   $12,500 11/1/2012  
IPV4 Market Group (c) No 125,000 $0.10   $12,500 11/1/2012  
Mohammad Alsuliman (c) No 125,000 $0.094   $11,750 11/1/2012  
Mohammad Alsuliman (g) No 125,000 $0.006 $0.06 $750 11/1/2012 0.41

 

 

(a) Stock issued in lieu of expense

(b) Stock issued in lieu of debt

(c) Stock issued for cash

(d) Stock subsequently returned

(e) Stock subsequently cancelled

(f) Option issued for services

(g) Option issued for cash

 

ITEM 6.  SELECTED FINANCIAL DATA

 

Not required for smaller reporting companies.

 

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS

 

For the year ended December 31, 2012, the Company incurred a net operating loss of $450,571. To date the Company has not had any revenues from operations. For the year ended December 31, 2011, the Company’s primary source of funding came through the sale of certain non-core intangible assets.

 

The Company is dependent on obtaining additional capital or an operations partner in order to complete its mobile technology deployment and makes no warranty or assurance that it will be successful in any of these endeavors. Further, there is no assurance that the Company can continue to operate without cash flows or revenues. During the past year, the Company has relied exclusively upon interim capital financing for its continuation.

 

Results of Operations - For the year ended December 31, 2012, the Company generated a net loss of $450,571 as compared to net income of $179,540 for the year ended December 31, 2011.  The 2012 net loss is primarily the result of expenditures on development of the Company’s mobile applications and ongoing administrative expenses.   The Company remains in the product development stage and generated no revenue in 2012 or 2011.  During 2012, the Company’s expenditures were directed at developing software for its mobile phone applications. During the summer of 2012, the Company completed a successful test of its KleverShop® application.

 

6
 

 

In May 2011, the Company entered into an agreement to sell the rights to certain IP addresses that were noncore to the Company’s business and were fully amortized.  The sale closed during September 2011 and the Company received proceeds of $623,234 after paying commissions associated with the sale.  Management used the proceeds to fund development costs associated with its mobile technology and to cover ongoing operating expenses.  

 

General and administrative expenses for the year ended December 31, 2012 decreased by $199,026 or 33.9% to $388,042 from $587,068 for the year ended December 31, 2011.   The primary reason for the overall decrease in general and administrative expenses is due to decreased management compensation of $182,502. Management compensation decreased to $180,000 in 2012 from $362,502 in 2011 as a result of decreased accruals for management compensation during the year ended December 31, 2012 coupled with the Company’s CEO receiving $131,203 in 2011 as compensation for work done in connection with the Company’s sale of its IP addresses described above. Only $37,500 of the compensation accrued during the year was paid. During the year ended December 31, 2012, the Company had decreases in legal fees, accounting fees and outside services of $7,603, $6,578, and $39,442 respectively. Legal and accounting costs were higher in 2011 due to the Company having to re-audit its 2009 financial statements as a result of their former auditor being sanctioned and deregistered by the PCAOB. Outside services decreased due to the Company eliminating certain consultants who were no longer needed to facilitate the development of the Company’s products. These increases were offset by higher costs for travel and SEC filing fees of $6,020 and $7,564, respectively. Travel costs were higher because of increased costs to attend out of town meetings with development consultants as well as other potential strategic partners. SEC filing fees were higher due primarily due to the Company restating its December 31, 2011 10-K and its March 31, 2012 10-Q.

 

During the year ended December 31, 2012 research and development costs decreased by 71.1% from $27,063 in 2011 to $7,833 in 2012.  During 2012, the Company incurred less costs to develop its technology than it did in 2011; however, the decrease in R&D expenses was due primarily to the Company obtaining technological feasibility with its mobile software development and capitalizing $100,223 as compared to $104,720 of development costs for the year ended December 31, 2011.

 

Other income (expense) decreased to ($48,368) in 2012 from $823,672 in 2011 representing a decrease of $872,040.  In 2012, other income (expense) consisted of interest expense. During 2011, the Company generated $623,234 of proceeds from selling certain IP addresses that were noncore to the Company’s business and were fully amortized.   The Company did not sell any assets during 2012.  In addition, during 2011 the Company recorded a $177,000 due to gain the cancellation of certain agreements with a private investor and an investment banking firm which resulted in the Company receiving $9,000 in cash plus the return of 1,150,000 shares of common stock. The Company recorded $67,566 of forgiveness of debt income in connection with the Company entering into settlement agreements with one of its creditors and due to one creditor agreeing to waive all of its finance charges during 2011.

 

Income tax expense decreased to $6,328 for the year ended December 31, 2012 compared to $30,001 for the year ended December 31, 2011 primarily due to management recording a liability of $29,101 during the fourth quarter of 2011 relating to the Company’s uncertain tax positions. Approximately $5,328 of the 2012 income tax expense related to interest and penalties are being accrued but not paid in connection with the Company’s uncertain tax positions.

 

Liquidity and Capital Resources – The Company has not received, recorded, or consolidated revenue from ongoing operations and has relied on equity transactions, loans, and proceeds from selling non-core assets to fund development of its business plan and the costs of ongoing operations.  Management intends to raise additional funds through selling private placement offerings, targeting strategic partners in an effort to increase revenues, and expanding revenues through strategic acquisitions.

 

Cash used by operating activities – Cash used for operating activities totaled $168,364 for 2012 compared with $306,688 for 2011, a decrease of $138,324.  The decrease in 2012 for cash used by operating activities was primarily due to a decrease in net income of $630,111 from net income of $179,540 in 2011 to a net loss of $450,571 for 2012.  Non-cash expenses relating to shares issued for services and stock option compensation totaling $21,220 in 2012 compared to $28,986 in 2011;. During 2011 stock returned for services not rendered and gain on sale of assets totaled $175,100 and $623,234 compared to $0 for both categories in 2012.. The Company obtained debt forgiveness of $0 in 2012 compared to $67,566 in 2011 as a result of negotiating reductions in amounts owed with certain creditors.  Accounts payable increased by $69,729 in 2012 compared to an increase of $30,110 for 2011.   Accrued liabilities increased by $187,888 in 2012 as compared to an increase of $320,541 for 2011.  The increase in 2012 is primarily due to increased accruals for officer compensation, uncertain tax positions and interest.   At December 31, 2012, the Company had accrued $413,250 for officer compensation.  During 2012, a company controlled by the CEO was paid $27,000 in compensation for services provided to the Company.  During 2011, a company controlled by the CEO was paid $6,750 for salary and $131,203 in other compensation for services provided in connection with the Company’s sale of its IP addresses described above.

 

During 2010, the Company entered into settlement agreements with certain creditors.  Pursuant to the terms of the agreements, the Company had to pay off the amounts owed in the settlement agreements by March 2011.  If the payments were not made, the Company had to accrue interest on the total outstanding obligation owed.  The Company was not able to meet the scheduled payments in accordance with the settlement agreements.  As a result at December 31, 2012, the Company had accrued interest of $133,635 compared to $94,475 as of December 31, 2011, an increase of $39,160.

 

7
 

 

Cash provided (used) by investing activities – During the year ended December 31, 2012, the Company used cash for investing activities of ($139,904) compared to cash provided by investing activities of $490,940 for the year ended December 31, 2011.  In 2012, the Company spent $2,084 on equipment purchases, invested $100,223 in capitalized software development costs, and spent $37,597 on developing patents and trademarks for its intellectual property. In 2011, the Company received $623,234 from the sale of the IP addresses partially offset by capitalized software development costs of $104,720 and costs spent obtaining patents and trademarks on its intellectual property of $27,574.  

 

Cash (used) provided by financing activities – Cash provided by financing activities for 2012 totaled $133,450 compared to cash used by financing activities of ($7,450) for 2011.  During 2012, the Company received proceeds from the sale of its common stock of $122,000 and received $11,450 of proceeds from officer loans. During 2011, the Company received proceeds from selling common stock of $37,500 and repaid loans from its officers totaling $44,950.

 

As of December 31, 2012, our cash position was $3,055, compared with $177,873 as of December 31, 2011.  We anticipate continuing development and marketing expenses in future periods as the Company further develops and begins testing its technologies.  We anticipate hiring additional employees for this development and the corresponding operations of the Company, but this hiring is not planned to occur prior to obtaining additional capital. The Company requires working capital principally to complete development, testing and marketing of its new mobile products and to pay for ongoing operating expenses. Currently, there are no formal commitments from banks or other lending sources for lines of credit or similar short-term borrowings. From time to time in the past, required short-term borrowings have been obtained from a principal shareholder or other related entities.

 

Factors That May Affect Future Results - Management’s Discussion and Analysis contains information based on management’s beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions.  There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to the following:

 

·The Company may not obtain the equity funding or short-term borrowings necessary to market and launch its mobile applications.
·The product launch may take longer to implement than planned or may not be successful.

 

ITEM 8.   FINANCIAL STATEMENTS

 

The financial statements of the Company and supplementary data are included beginning immediately following the signature page to this report.  See Item 15 for a list of the financial statements and financial statement schedules included.

 

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

There are not and have not been any disagreements between the Company and its accountants on any matter of accounting principles, practices or financial statement disclosures.

 

On February 25, 2013, the Company filed an 8-K announcing the appointment of the new auditors, HJ & Associates, LLC.

 

ITEM 9A.  CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company, and have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of the end of the period covered by this report, based on their evaluation of these controls and procedures required by paragraph (b) of Rules 13a-15(f) and 15d-15(f), due to certain material weaknesses in our internal control over financial reporting as discussed below.

 

8
 

 

Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company.  Due to limited resources, Management conducted an evaluation of internal controls based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The results of this evaluation determined that our internal control over financial reporting was ineffective as of December 31, 2012, due to material weaknesses.  A material weakness in internal control over financial reporting is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.  A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

 

Management’s assessment identified the following material weaknesses in internal control over financial reporting:

 

·The small size of our Company limits our ability to achieve the desired level of separation of internal controls and financial reporting.  We do have a separate CEO and CFO, to review and oversee the financial policies and procedures of the Company, which does achieve a degree of separation.  However, until such time as the Company is able to hire a Controller, we do not believe we meet the full requirement for separation.
·We do not have a functional audit committee.
·We have not achieved the desired level of documentation of our internal controls and procedures.  When the Company obtains sufficient funding, this documentation will be strengthened through utilizing a third party consulting firm to assist management with its internal control documentation and further help to limit the possibility of any lapse in controls occurring.
·We have not achieved the desired level of corporate governance to ensure that our accounting for all of our contractual and other agreements is in accordance with all of the relevant terms and conditions.  Because of our limited capital resources, we sometimes formalize our agreements with certain contractors after the work is performed when additional resources become available to pay for the services.
·We have not achieved the desired level of corporate governance with regard to identifying, measuring, and recording in a timely manner our uncertain tax positions. Because of our limited internal resources, lack of corporate governance and in-house financial expertise, we do not have the necessary process and procedures in place to track and account for our uncertain tax positions.
·We have not achieved adequate controls surrounding identifying, disclosing and accounting for all of our related party transactions. In particular, we are not in compliance with all  required provisions of Item 404 of Sarbanes-Oxley.

 

As a result of the material weaknesses in internal control over financial reporting described above, the Company’s management has concluded that, as of December 31, 2012, the Company's internal control over financial reporting was not effective based on the criteria in Internal Control - Integrated Framework issued by the COSO.

 

To date, the Company has not been able to add any additional members to its Audit Committee due its limited financial resources. When the Company obtains sufficient funding, Management intends to add additional members to the Audit Committee and charge them with assisting the Company in addressing the material weaknesses.   The Company’s lack of current financial resources makes it impossible for the Company to hire the appropriate personnel needed to overcome these weaknesses and ensure that appropriate controls and separation of responsibilities of a larger organization exist.  We also will continue to follow the standards for the Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that:

 

oPertain to the maintenance of records in reasonable detail accurately that fairly reflect the transactions and dispositions of the Company's assets;
oProvide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and
oProvide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

 

Our management determined that there were no changes made in our internal controls over financial reporting during the fiscal year 2012 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

9
 

 

PART III

 

ITEM 10.   DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

Executive Officers and Directors

 

The following table sets forth the name, age, and position of each executive officer and director of the Company:

 

Director's Name Age Office Term Expires
Paul G. Begum 72 Chairman/CEO Future shareholder meeting
       
Robert A. Campbell 70 COO and CFO Future shareholder meeting
       
Jerry P. Wright 60 Director Future shareholder meeting

 

Paul G. Begum, Founder, age 72 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 70 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 60 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, 2012, 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.

 

10
 

 

ITEM 11.  EXECUTIVE COMPENSATION

 

Summary Compensation

 

The following table shows the executive compensation paid for the years ended December 31, 2012 and 2011.

 

(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)  
                        Securities          

 

Name and

Principal Position

 

Year

Ended

Dec 31,

  Salary   Bonus  

Other

Annual

Compensation

 

Restricted

Stock

Award(s)

 

Underlying

Options

/SAR’s

  LTIP  

All Other

Compensation

 
                                   
Paul G. Begum Chairman/CEO   2012   $27,000   $0   $0   $0   $0   $0   $0  
                                   
    2011   $6,750   $0   $0   $0   $0   $0   $131,203  
                                   
Robert Campbell COO   2012   $0   $0   $0   $0   $0   $0   $0  
                                   
    2011   $0   $0   $0   $0   $0   $0   $0  

 

Aggregate Option/SAR Exercises in the Last Fiscal Year and year End Option/SAR Values

 

The following table sets forth information respecting all individual grants of options and SARs made during the last completed fiscal year, 2012, to the chief executive officer, chief financial officer, and directors of the Company.  As shown, no grants of options took place and no options are outstanding as of December 31, 2012.

 

Name  

Shares Acquired

on exercise

    Value Realized ($)     Number of Securities Underlying  Unexercised Options     Value of Unexercised in-the-money options ($) (a)  
               

 

Exercisable

    Unexercisable     Exercisable     Unexercisable  
Paul G. Begum     0     $0     $0     $0     $0     $0  
                                       
Robert A. Campbell     0     $0     $0     $0     $0     $0  
                                       
Jerry P. Wright     0     $0     $0     $0     $0     $0  

 

 

  (a) 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.

 

11
 

 

ITEM 12.   SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT

 

Principal Shareholders

 

The table below sets forth information as to each person owning of record or was known by the Company to own beneficially shares of stock that have more than 5% of the 67,012,496 (46,626,377 common plus 20,386,119 preferred)  votes as of December 31, 2012.  The table includes preferred stock that is convertible into common stock as well as options to acquire stock of the Company that are currently exercisable or will be within the next 60 days, and information as to the ownership of the Company's Stock by each of its directors and executive officers and by the directors and executive officers as a group.  Except as otherwise indicated, all shares are owned directly, and the persons named in the table have sole voting and investment power with respect to shares shown as beneficially owned by them.

 

Name and Address   Nature of   Shares     Percent of  
of Beneficial Owners   Ownership   Owned     Common  
                 
Directos and Executive Officers                
                 
Paul G. Begum (through PSF Inc.)   Direct     10,450,230        
30251 Golden Latern   Preferred     20,386,119        
Suite E, PMB 411   Options/Warrants            
Laguna Niquel, CA 92677   Total     30,836,349       46.01 %
                     
Robert A. Campbell   Direct     4,741,000          
991 Rippey Sreet   Preferred              
El Cajon, CA 92020   Options/Warrants              
    Total     4,741,000       7.07 %
                     
Terry Warner   Direct     4,607,262          
(through Mahalo, LLC and Zedeka, LLC)   Preferred              
    Options/Warrants              
    Total     4,607,262       6.87 %
                     
Total         38,165,968       59.95 %

 

 

 

12
 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Director and Officer Loans to the Company

 

Loans were made to the Company during 2012 by two officers in the following amounts:

 

From  Principal Balance as of 12/31/2011   Borrowings   Repayments   Principal Balance as of 12/31/2012 
                     
Paul G. Begum
(through PSF Inc.)
  $   $   $   $ 
                     
Paul G. Begum
(through Tree of Stars, Inc)
       3,000        3,000 
                     
Robert A. Campbell       8,450        8,450 
                     
Total  $   $11,450   $   $11,450 

 

 

 

 

 

 

 

 

 

13
 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES & SERVICES

 

The following is a summary of the fees paid by the Company to Haynie & Company for professional services rendered for the years ended December 31, 2012 and 2011, respectively.

 

Service  2012   2011 
Audit Fees  $20,689   $20,245 
Audit-Related Fees        
Tax Fees   1,000    930 
Total  $21,689   $21,175 

 

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 are normally provided by Haynie & Company in connection with statutory and regulatory filings or engagements.

 

In February 2013, the Company appointed HJ & Associates as its successor auditors to replace Haynie & Company.

 

The following is a summary of the fees paid by the Company to HJ & Associates, LLC for professional services rendered for the years ended December 31, 2012 and 2011, respectively.

 

Service  2012   2011 
Audit Fees  $5,000   $ 
Audit-Related Fees        
Total  $5,000   $ 

 

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.

 

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 2012 and 2011 audit fees, audit-related fees, tax fees, and all other fees to the extent the services occurred after May 6, 2003, the effective date of the Securities and Exchange Commission’s final pre-approval rules.

 

 

14
 

 

ITEM 15. EXHIBITS, AND REPORTS ON FORM 10-K

 

(a)  The following documents are filed as part of this report.

 

1.  Financial Statements   

 

   Page
   
Reports of Independent Registered Public Accountants F-3
   
Balance Sheets  
December 31, 2012 and 2011 F-5
   
Statements of Operations  
For the Years Ended December 31, 2012 and 2011 and for the Cumulative Period from July 5, 1996 (inception of development stage) to December 31, 2012 F-6
   
Statement of Stockholders’ Equity  
From July 5, 1996 (inception of development stage) to December 31, 2012 F-7
   
Statements of Cash Flows  
For the Years Ended December 31, 2012 and 2011 and for the Cumulative Period from July 5, 1996 (inception of development stage) to December 31, 2012 F-17
   
Notes to the Financial Statements F-19

 

2.     Financial Statement Schedules

 

All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

 

 

 

 

15
 

 

3.     Exhibits

 

The following exhibits are included as part of this report:

 

Exhibit

Number

 

Title of Document

   
3.01 Restated Certificate of Incorporation of Klever Marketing, Inc. a Delaware corporation (1)
   
3.02 Certificate of Designation of Rights, Privileges and Preferences: Rights of A Class Voting Preferred Stock, Series 1, of Klever Marketing, Inc., dated February 7, 2000 (2)
   
3.03 Bylaws, as amended (2)
   
4.01 Amended Certificate of Designation of Rights, Privileges and Preferences: Rights of A Class of Voting Preferred Stock, Series 1, of Klever Marketing, Inc., Dated February 7, 2000 (3)
   
4.02 Certificate of Designation of Rights, Privileges and Preferences of Class B Voting Preferred Stock, of Klever Marketing, Inc., dated September 24, 2000 (3)
   
4.03 Certificate of Designation of Rights, Privileges and Preferences of Class C Voting Preferred Stock, of Klever Marketing, Inc., dated January 2, 2001 (3)
   
4.04 Certificate of Designation of Rights, Privileges and Preferences of Class D Voting Preferred Stock, of Klever Marketing, Inc., dated June 14, 2002 (5)
   
4.05 Amendment to the Certificates of Designation of Rights, Privileges and  Preferences of Class A, B, and C Voting Preferred Stock, of Klever Marketing, Inc., dated June 12, 2002 (5)
   
10.01 Separation Agreement between Paul G. Begum and the Registrant, dated January 8, 2001 (2)
   
10.02 Stock Incentive Plan, effective June 1, 1998 (2)
   
10.03 Amended and Restated Promissory Note (Secured) of the Registrant payable to Presidio Investments, LLC, dated June 27, 2000, with Financing Statement and Exhibit “A” (2)
   
10.04 Intercreditor Agreement between Seabury Investors III, Limited Partnership, The Olson Foundation, Presidio Investments, LLC, and the Registrant dated August 27, 2001 (4)
   
10.05 Asset purchase agreement dated August 27, 2004 (6)
   
10.06 Software Development Works Agreement between Klever Marketing, Inc. and Qualzoom Inc. dated August 15, 2010 (7)
   
10.07  Software Development Agreement between Klever Marketing, Inc. and Briabe Media Inc. September 22, 2010 (7)
   
23.1 Consent of Independent Registered Public Accounting Firm
   
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS XBRL Instance Document
   
101.SCH XBRL Schema Document
   
101.CAL XBRL Calculation Linkbase Document
   
101.DEF XBRL Definition Linkbase Document
   
101.LAB XBRL Label Linkbase Document
   
101.PRE XBRL Presentation Linkbase Document

 

 

(1) Incorporated herein by reference from Registrant’s Form 10KSB, dated June 20, 1997.

(2) Incorporated herein by reference from Registrant’s Form 10KSB, dated March 29, 2001

(3) Incorporated herein by reference from Registrant’s Form 10QSB, dated May 15, 2001.

(4) Incorporated herein by reference from Registrant’s Form 10QSB, dated May 15, 2002.

(5) Incorporated herein by reference from Registrant’s Form 10QSB, dated August 19, 2002.

(6) Incorporated herein by reference from Registrant’s Form 10QSB, dated November 19, 2004.

(7) Incorporated herein by reference from Registrant’s Form 8-K, dated November 19, 2010.

 

16
 

 

SIGNATURES

 

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  KLEVER MARKETING, INC.  
       
Dated:  April 15, 2013 By: /s/ Paul G. Begum  
    Paul G. Begum  
    Chairman and CEO  
       

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on this 15th day of April 2013.

 

Signature   Title    
         
/s/ Paul G. Begum   Chairman and CEO    
Paul G. Begum        
         
/s/ Robert A. Campbell   COO and CFO    
Robert A. Campbell        
         
/s/ Jerry P. Wright     Director    
Jerry P. Wright          

 

 

 

17
 

 

KLEVER MARKETING, INC.

 

(A Development Stage Company)

 

Financial Statements

 

As of December 31, 2012 and 2011

and for the Years Ended December 31, 2012 and 2011 and for the Period from Inception July 5, 1996 to December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-1
 

 

C O N T E N T S

 

 

 

Reports of Independent Registered Public Accounting Firms F-3
   
Balance Sheets F-5
   
Statements of Operations F-6
   
Statements of Stockholders’ Equity (Deficit) F-7
   
Statements of Cash Flows F-17
   
Notes to the Financial Statements F-19

 

 

 

 

 

 

 

 

 

 

 

 

F-2
 

 

Report of Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders
Klever Marketing, Inc.

Salt Lake City, Utah

We have audited the accompanying balance sheet of Klever Marketing, Inc. (a Development Stage Company) as of December 31, 2012, and the related statements of operations, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Klever Marketing, Inc. (a Development Stage Company) as of December 31, 2012, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As disclosed in Note 4 to the financial statements, the Company does not generate significant revenue and has negative cash flow from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The financial statements do not include any adjustments that might result in the outcome of this uncertainty.

We were not engaged to audit, and we did not audit, the related statements of operations, stockholders’ equity (deficit) and cash flows from inception (July 5, 1996) through December 31, 2012, and accordingly, we express no opinion or any other form of assurance on them.

 


/s/ HJ & Associates, LLC

HJ & Associates, LLC

Salt Lake City, Utah

April 15, 2013

 

F-3
 

 

Report of Independent Registered Public Accounting Firm

 

The Board of Directors

Klever Marketing, Inc.

Salt Lake City, Utah

 

 

We have audited the accompanying balance sheet of Klever Marketing, Inc. (a Development Stage Company) as of December 31, 2011, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Klever Marketing, Inc. (a Development Stage Company) as of December 31, 2011, and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

As discussed in Note 2, Note 3 and Note 11 to the financial statements, the Company has restated its financial statements as of December 31, 2011 and for the year ended December 31, 2011 to reclassify compensation paid to a related party and add related party disclosures and to correct an error to properly account for uncertain tax positions in accordance with Accounting Standards Codification 740, Income Taxes.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 4 to the financial statements, the Company is in the development stage, has no current source of revenue and suffered losses from operations since inception and is dependent on financing to continue operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are described in Note 4. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of assets and liabilities that might result in the event the Company cannot continue in existence.

 

We were not engaged to audit, and we did not audit, the related statements of operations, stockholders’ equity (deficit) and cash flows from inception (July 5, 1996) through December 31, 2011, and accordingly, we express no opinion or any other form of assurance on them.

 

 

/s/ Haynie & Company

 

Salt Lake City, Utah

March 30, 2012, except for the restatement discussed in Note 2, Note 3 and Note 11 to the financial statements as to which the date is August 14, 2012.

 

F-4
 

KLEVER MARKETING, INC.

(A Development Stage Company)

Balance Sheets

 

   December 31, 
   2012   2011 
       (Restated) 
ASSETS 
           
CURRENT ASSETS          
Cash  $3,055   $177,873 
           
Total Current Assets   3,055    177,873 
           
FIXED ASSETS          
Capitalized software development and licenses   291,343    191,120 
Office Equipment   2,084     
Less accumulated depreciation   (319)    
           
Total Fixed Assets   293,108    191,120 
           
OTHER ASSETS          
Intangibles, net   62,670    28,124 
           
Total Other Assets   62,670    28,124 
           
TOTAL ASSETS  $358,833   $397,117 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 
           
CURRENT LIABILITIES          
Accounts payable  $525,589   $455,860 
Accrued liabilities   1,024,777    836,889 
Preferred stock dividends   77,798    323,968 
Related party notes payable   11,450     
Notes payable   15,000    15,000 
           
Total Current Liabilities   1,654,614    1,631,717 
           
Total Liabilities   1,654,614    1,631,717 
           
STOCKHOLDERS' EQUITY (DEFICIT)          
Convertible preferred stock - Class A ( par value $0.01; 150,000 shares authorized; 112,249 and 101,134 issued and outstanding at December 31, 2012 and December 31, 2011, respectively); aggregate liquidation preference of $2,918,474.   1,122    1,011 
Convertible preferred stock - Class B ( par value $0.01; 125,000 shares authorized; 85,075 and 76,651 issued and outstanding at December 31, 2012 and December 31, 2011, respectively); aggregate liquidation preference of $1,446,275.   851    767 
Convertible preferred stock - Class C ( par value $0.01; 200,000 shares authorized; 149,586  and 134,774 issued and outstanding at December 31, 2012 and December 31, 2011, respectively); aggregate liquidation preference of $987,268.   1,496    1,348 
Common stock (par value $0.01), 250,000,000 shares authorized, 46,626,377 and 45,512,933 shares issued and outstanding, at December 31, 2012 and December 31, 2011, respectively   466,264    455,129 
Treasury stock, 100,000 shares at December 31, 2012 and 2011   (1,000)   (1,000)
Due from related party payable in common stock       (16,100)
Paid in capital in excess of par value   16,963,780    16,601,968 
Retained deficit   (3,333,785)   (3,333,785)
Deficit accumulated during development stage   (15,394,509)   (14,943,938)
           
Total Stockholders' Equity (Deficit)   (1,295,781)   (1,234,600)
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  $358,833   $397,117 

 

See accompanying notes to financial statements.

 

F-5
 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Operations

For the Years Ended December 31, 2012 and 2011

 

           Unaudited 
   2012   2011   From
Inception of
Development
Stage On
July 5, 1996
Through
December 31,
2012
 
       (Restated)     
REVENUES  $   $   $256,000 
                
EXPENSES               
                
Sales and marketing           163,306 
General and administrative   388,042    587,068    12,217,522 
Research and development   7,833    27,063    4,777,926 
                
Total Expenses   395,875    614,131    17,158,754 
                
OTHER INCOME (EXPENSE)               
                
Other income       177,000    685,751 
Interest income       250    19,152 
Interest expense   (48,368)   (44,378)   (2,738,608)
Forgiveness of debt       67,566    466,953 
Gain on sale of assets       623,234    650,181 
Capital gain on sale of investments           191,492 
                
Total Other Income (Expense)   (48,368)   823,672    (725,079)
                
NET INCOME (LOSS) BEFORE INCOME TAXES   (444,243)   209,541    (17,627,833)
                
INCOME TAXES   6,328    30,001    38,070 
                
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS   (450,571)   179,540    (17,665,903)
                
EXTRAORDINARY ITEM - TROUBLED DEBT RESTRUCTURING           2,271,394 
                
NET INCOME (LOSS)  $(450,571)  $179,540   $(15,394,509)
                
BASIC EARNINGS PER COMMON SHARE  $(0.01)  $      
                
FULLY DILUTED INCOME (LOSS) PER COMMON SHARE  $(0.01)  $0.00      
                
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC   46,043,507    45,150,293      
                
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - FULLY DILUTED   46,043,507    63,343,152      

 

 

See accompanying notes to financial statements.

 

 

F-6
 


KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Stockholders' Equity (Deficit)

From Inception of the Development Stage on July 5, 1996 Through December 31, 2012

(UNAUDITED)

 

    Preferred Stock     Common Stock     Common Stock to be     Subscription     Treasury     Paid in Capital in Excess of Par     Retained      Deficit
Accumulated
During
Development 
    Total Stockholders’
Equity 
 
    Shares     Amount     Shares     Amount     Issued   Receivable     Stock     Value     Deficit     Stage   (Deficit)  
Balance, December 31, 1995 (Unaudited)     247,100     $ 2,471       12,210,949     $ 122,109     $ -     $ -     $ -     $ 74,022,028     $ (103,351,248 )   $ -     $ (29,204,640 )
January 1996, shares issued in connection with merger     (247,100 )     (2,471 )     (3,784,905 )     (37,849 )     5,059       -       -       (70,257,358 )     100,017,463       -       29,724,844  
Shares issued for cash at $0.50-$3.00 per share     -       -       314,287       3,143       -       -       -       507,932       -       -       511,075  
Shares issued in exercise of options at $1.00-$1.25 per share     -       -       130,000       1,300       -       -       -       136,200       -       -       137,500  
Shares issued for services at $1.25 per share     -       -       14,282       143       -       -       -       17,710       -       -       17,853  
Shares issued for receivable at $1.00-$3.00 per share     -       -       -       -       407       -       -       101,543       -       -       101,950  
Shares issued to officer and employee for patents     -       -       -       -       2,250       -       -       130,500       -       -       132,750  
Net loss in the year ended December 31, 1996     -       -       -       -       -       -       -       -       -       (831,814 )     (831,814 )
Balance, December 31, 1996 (Unaudited)     -       -       8,884,613       88,846       7,716       -       -       4,658,555       (3,333,785 )     (831,814 )     589,518  
Shares issued for cash at $0.01 - $3.00 per share     -       -       228,150       2,282       49       -       -       449,976       -       -       452,307  
Shares issued to officers for loans at $0.08 - $1.82 per share     -       -       249,444       2,494       -       -       -       74,287       -       -       76,781  
Shares issues for services at $0.50 - $2.59 per share     -       -       10,398       104       -       -       -       7,391       -       -       7,495  
Share issued to officers for patents     -       -       260,813       2,608       (2,250 )     -       -       1,892       -       -       2,250  
Shares issued for cash and receivables at $1.75 - $2.00 per share     -       -       58,286       583       (100 )     -       -       85,267       -       -       85,750  
Shares issued to Videocart creditors     -       -       97,610       976       (976 )     -               -       -       -       -  
Shares issued for research and development at par     -       -       -       -       464       -       -       -       -       -       464  
Shares issued for employee compensation at $2.50 per share     -       -       6,000       60       -       -       -       14,940       -       -       15,000  
Net loss for the year ended December 31, 1997     -       -       -       -       -       -       -       -       -       (755,594 )     (755,594 )
Balance, December 31, 1997     -       -       9,795,314       97,953       4,903       -       -       5,292,308       (3,333,785 )     (1,587,408 )     473,971  
Shares issued for cash at $1.50 - $3.00 per share                     294,059       2,941       (100 )             -       612,416                       615,257  
Shares issued for services at $2.00 - $7.80 per share     -       -       13,648       136       -       -       -       43,590       -       -       43,726  
Shares issued for employee compensation at $2.19 - $3.06 per share     -       -       4,363       44       -       -       -       9,954       -       -       9,998  
Shares issued for accounts receivable at $1.50 - $2.12 per share     -       -       129,437       1,294       -       -       -       209,671       -       -       210,965  
Shares issued for 1,500 shares of Avtel stock at $3.00 per share     -       -       4,125       41       -       -       -       12,334       -       -       12,375  
Shares issued for research and development contract     -       -       46,366       464       (464 )     -       -       -       -       -       -  
Shares issued to officer for patent at $2.94 per share     -       -       150,000       1,500       250       -       -       512,313       -       -       514,063  
Shares returned at $1.58 per share     -       -       (42,493 )     (425 )     -       -       -       (66,667 )     -       -       (67,092 )
Net loss for the year ended December 31, 1998     -       -       -       -       -       -       -       -       -       (1,496,926 )     (1,496,926 )
Balance, December 31, 1998 (Unaudited)     -     $ -       10,394,819     $ 103,948     $ 4,589     $ -     $ -     $ 6,625,919     $ (3,333,785 )   $ (3,084,334 )   $ 316,337  

 

See accompanying notes to financial statements.

 

F-7
 

 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Stockholders' Equity (Deficit) (Continued)

From Inception of the Development Stage on July 5, 1996 Through December 31, 2012

(UNAUDITED)

 

    Preferred Stock     Common Stock     Common Stock to be     Subscription     Treasury     Paid in Capital in Excess of Par     Retained      Deficit
Accumulated
During
Development 
    Total Stockholders’
Equity 
 
    Shares     Amount     Shares     Amount     Issued   Receivable     Stock     Value     Deficit     Stage   (Deficit)  
                                                                                         
Balance, December 31, 1998 (Unaudited)     -     $ -       10,394,819     $ 103,948     $ 4,589     $ -     $ -     $ 6,625,919     $ (3,333,785 )   $ (3,084,334 )   $ 316,337  
Shares issued for cash at $1.96 - $3.00 per share     -       -       701,525       7,015       -       -       -       1,649,949       -       -       1,656,964  
Shares issued for employee compensation at $1.95 - $2.34 per share     -       -       2,995       30       -       -       -       6,187       -       -       6,217  
Shares issued for exercise of options at $0.52 - $0.86 per share     -       -       238,271       2,383       -       -       -       200,342       -       -       202,725  
Shares returned at $0.67 - $1.58 per share     -       -       (62,489 )     (625 )     -       -       -       (107,047 )     -       -       (107,672 )
Net loss for the year ended December 31, 1999     -       -       -       -       -       -       -       -       -       (1,734,623 )     (1,734,623 )
Balance, December 31, 1999 (Unaudited)     -       -       11,275,121       112,751       4,589       -       -       8,375,350       (3,333,785 )     (4,818,957 )     339,948  
Shares issued for cash at $1.07 - $2.75 per share     -       -       279,742       2,798       -       -       -       532,754       -       -       535,552  
Preferred shares issued for cash at $17-$26 per share     84,576       846       -       -       -       -       -       1,827,529       -       -       1,828,375  
Shares issued for employee compensation at $3.99 per share     -       -       74,608       746       -       -       -       296,939       -       -       297,685  
Shares issued for exercise of stock options at $0.86 - $1.07 per share     -       -       597,778       5,978       -       -       -       511,931       -       -       517,909  
Shares issued for accounts payable at $2.75 - $3.00 per share     -       -       9,488       95       -       -       -       26,649       -       -       26,744  
Paid-in capital from treasury stock transaction     -       -       -       -       -       -       -       16,180       -       -       16,180  
Shares canceled and converted to preferred shares at $2.75 per share     -       -       (100,000 )     (1,000 )     -       -       -       (274,000 )     -       -       (275,000 )
Conversion of note payable to preferred shares at $26 per share     9,615       96       -       -       -       -       -       249,904       -       -       250,000  
Shares issued that were paid for in 1997     -       -       23,334       233       (233 )     -       -       -       -       -       -  
Shares issued for services at $0.89 per share     -       -       2,697       27       -       -       -       2,373       -       -       2,400  
Shares returned at $1.73 - $2.12 per share     -       -       (10,000 )     (100 )     -       -       -       (19,150 )     -       -       (19,250 )
Net loss for the year ended December 31, 2000     -       -       -       -       -       -       -       -       -       (4,066,283 )     (4,066,283 )
Balance, December 31, 2000 (Unaudited)     94,191       942       12,152,768       121,528       4,356       -       -       11,546,459       (3,333,785 )     (8,885,240 )     (545,740 )
Shares issued for cash at $0.82 per share     -       -       4,685       47       -       -       -       3,795       -       -       3,842  
Preferred shares issued for cash at $6.60 per share     6,061       60       -       -       -       -       -       39,940       -       -       40,000  
Preferred shares issued for payment of note payable at $6.60 per share     68,182       682       -       -       -       -       -       449,318       -       -       450,000  
Shares canceled for nonpayment     -       -       (4,694 )     (47 )     -       -       -       (9,903 )     -       -       (9,950 )
Shares issued for research and development expenses at $1.00 per share     -       -       15,000       150       -       -       -       14,850       -       -       15,000  
Shares issued for general and administrative expenses at $0.66 per share     -       -       507,048       5,070       -       -       -       329,581       -       -       334,651  
Shares returned to Company for accounts receivable of $98,375     -       -       -       -               -       (1,000 )     (97,375 )     -       -       (98,375 )
Net loss for the year ended December 31, 2001     -       -       -       -       -       -       -       -       -       (2,342,405 )     (2,342,405 )
Balance, December 31, 2001 (Unaudited)     168,434     $ 1,684       12,674,807     $ 126,748     $ 4,356     $ -     $ (1,000 )   $ 12,276,665     $ (3,333,785 )   $ (11,227,645 )   $ (2,152,977 )

 

See accompanying notes to financial statements.

 

F-8
 

 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Stockholders' Equity (Deficit) (Continued)

From Inception of the Development Stage on July 5, 1996 Through December 31, 2012

(UNAUDITED)

 

 

    Preferred Stock     Common Stock     Common Stock to be     Subscription     Treasury     Paid in Capital in Excess of Par     Retained      Deficit
Accumulated
During
Development 
    Total Stockholders’
Equity 
 
    Shares     Amount     Shares     Amount     Issued   Receivable     Stock     Value     Deficit     Stage   (Deficit)  
                                                                                         
Balance, December 31, 2001 (Unaudited)     168,434     $ 1,684       12,674,807     $ 126,748     $ 4,356     $ -     $ (1,000 )   $ 12,276,665     $ (3,333,785 )   $ (11,227,645 )   $ (2,152,977 )
Shares canceled for services not rendered     -       -       (304,229 )     (3,042 )     -       -       -       (197,749 )     -       -       (200,791 )
Cash received for shares that have not yet been issued     -       -       -       -       3,333       -       -       21,667       -       -       25,000  
Net loss for the year ended December 31, 2002     -       -       -       -       -       -       -       -       -       (1,025,837 )     (1,025,837 )
Balance, December 31, 2002 (Unaudited)     168,434       1,684       12,370,578       123,706       7,689       -       (1,000 )     12,100,583       (3,333,785 )     (12,253,482 )     (3,354,605 )
Shares issued for cash at $0.05 - $0.75 per share     -       -       2,580,000       25,800       (3,333 )     -       -       151,033       -       -       173,500  
Shares issued to S&C Medical at $0.05 per share     -       -       3,000,000       30,000       -       -       -       120,000       -       -       150,000  
Shares issued for notes payable at $0.04 - $0.05 per share     -       -       11,259,786       112,598       -       -       -       446,642       -       -       559,240  
Shares issued for accounts payable at $0.01 - $0.10 per share     -       -       4,200,000       42,000       -       -       -       96,000       -       -       138,000  
Shares authorized for expense at $0.03 per share - not issued     -       -       -       -       9,545       -       -       19,090       -       -       28,635  
Shares authorized for payment of accounts payable at $0.21 per share - not issued     -       -       -       -       56       -       -       1,115       -       -       1,171  
Net loss for the year ended December 31, 2003     -       -       -       -       -       -       -       -       -       (1,361,753 )     (1,361,753 )
Balance, December 31, 2003 (Unaudited)     168,434       1,684       33,410,364       334,104       13,957       -       (1,000 )     12,934,463       (3,333,785 )     (13,615,235 )     (3,665,812 )
Shares issued for cash at $0.036-$0.15 per share     -       -       770,000       7,700       -       -       -       57,420       -       -       65,120  
Shares issued for accounts payable at $0.05-$0.23 per share     -       -       391,939       3,919       -       -       -       27,306       -       -       31,225  
Shares issued for expenses at $0.04-$0.23 per share     -       -       1,910,604       19,106       (9,203 )     -       -       108,325       -       -       118,228  
Authorized shares issued     -       -       5,571       56       (56 )     -       -       -       -       -       -  
Shares issued for settlement of liabilities     -       -       152,142       1,521       -       -       -       36,514       -       -       38,035  
Net loss for the year ended December 31, 2004     -       -       -       -       -       -       -       -       -       (632,293 )     (632,293 )
Balance of December 31, 2004 (Unaudited)     168,484       1,684       36,640,620       366,406       4,698       -       (1,000 )     13,164,028       (3,333,785 )     (14,247,528 )     (4,045,497 )
Shares issued for cash at $0.028-$0.25 per share     -       -       1,790,000       17,900       -       -       -       254,726       -       -       272,626  
Shares issued for expenses at $0.25 per share     -       -       92,500       925       -       -       -       22,200       -       -       23,125  
Net loss for the year ended December 31, 2005     -       -       -       -       -       -       -       -       -       (736,913 )     (736,913 )
Balance, December 31, 2005 (Unaudited)     168,434       1,684       38,523,120       385,231       4,698       -       (1,000 )     13,440,954       (3,333,785 )     (14,984,441 )     (4,486,659 )
Shares issued for general and administrative expenses at $0.25 per share     -       -       2,788       29       -       -       -       669       -       -       698  
Shares issued for cash at $0.25 per share     -       -       586,000       5,860       -       -       -       140,640       -       -       146,500  
Shares issued for accounts payable at $0.25 per share     -       -       71,956       719       -       -       -       17,270       -       -       17,989  
Compensation expense from issuance of stock options     -       -       -       -       -       -       -       43,653       -       -       43,653  
Net loss for the year ended December 31, 2006     -       -       -       -       -       -       -       -       -       (850,440 )     (850,440 )
Balance, December 31, 2006 (Unaudited)     168,434     $ 1,684       39,183,864     $ 391,839     $ 4,698     $ -     $ (1,000 )   $ 13,643,186     $ (3,333,785 )   $ (15,834,881 )   $ (5,128,259 )

 

See accompanying notes to financial statements.

 

F-9
 

 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Stockholders' Equity (Deficit) (Continued)

From Inception of the Development Stage on July 5, 1996 Through December 31, 2012

 

 

    Preferred Stock     Common Stock     Common Stock to be     Subscription     Treasury     Paid in Capital in Excess of Par     Retained      Deficit
Accumulated
During
Development 
    Total Stockholders’
Equity
 
    Shares     Amount     Shares     Amount     Issued   Receivable     Stock     Value     Deficit     Stage   (Deficit)  
                                                                                         
Balance, December 31, 2006 (Unaudited)     168,434     $ 1,684       39,183,864     $ 391,839     $ 4,698     $ -     $ (1,000 )   $ 13,643,186     $ (3,333,785 )   $ (15,834,881 )   $ (5,128,259 )
Shares issued for general and administrative expenses at $0.03-$0.05 per share     -       -       450,000       4,500       -       -       -       13,000       -       -       17,500  
Shares issued for cash at $0.25 per share     -       -       1,090,000       10,900       -       -       -       261,600       -       -       272,500  
Shares issued for accounts payable at $0.25 per share     -       -       67,988       680       -       -       -       16,315       -       -       16,995  
Shares issued for notes payable at $0.25 per share     -       -       8,281,016       82,810       -       -       -       1,987,444       -       -       2,070,254  
Shares issued for accrued interest at $0.25 per share     -       -       62,101       621       -       -       -       14,905       -       -       15,526  
Shares returned to treasury and cancelled     -       -       (2,416,666 )     (24,167 )     -       -       -       24,167       -       -       -  
Compensation expense from issuance of stock options     -       -       -       -       -       -       -       19,891       -       -       19,891  
Net income for the year ended, December 31, 2007     -       -       -       -       -       -       -       -       -       1,563,898       1,563,898  
Balance, December 31, 2007 (Unaudited)     168,434       1,684       46,718,303       467,183       4,698       -       (1,000 )     15,980,508       (3,333,785 )     (14,270,983 )     (1,151,695 )
Preferred stock issued as dividends     119,161       1,192       -       -       -       -       -       (1,192 )     -       -       -  
Stock cancellation     -       -       (5,170,000 )     (51,700 )     -       -       -       51,700       -       -       -  
Shares issued for cash at $0.05 per share     -       -       700,000       7,000       -       (23,000 )     -       28,000       -       -       12,000  
Authorized shares issued     -       -       -       -       (4,698 )     -       -       4,698       -       -       -  
Net income for the year ending December 31, 2008     -       -       -       -       -       -       -       -       -       95,917       95,917  
Balance, December 31, 2008 (Unaudited)     287,595       2,876       42,248,303       422,483       -       (23,000 )     (1,000 )     16,063,714       (3,333,785 )     (14,175,066 )     (1,043,778 )
Cash received from shares issued in prior year     -       -       -       -       -       23,000       -       -       -       -       23,000  
Common stock issued for cash at $0.30 per share     -       -       1,500,093       15,001       -       -       -       435,027       -       -       450,028  
Common stock issued for services at $0.25 per share     -       -       150,000       1,500       -       -       -       36,000       -       -       37,500  
Stock cancellation (Note 6)     -       -       (400,000 )     (4,000 )     -       -       -       (11,556 )     -       -       (15,556 )
Common stock issued in lieu of debt at $0.30 per share     -       -       80,734       807       -       -       -       23,413       -       -       24,220  
Common stock issued in for services at $0.30 per share     -       -       11,000       110       -       -       -       3,190       -       -       3,300  
Compensation expense from issuance of stock options     -       -       -       -       -       -       -       2,121       -       -       2,121  
Net loss for the year ending December 31, 2009     -       -       -       -       -       -       -       -       -       (555,411 )     (555,411 )
Balance, December 31, 2009     287,595     $ 2,876       43,590,130     $ 435,901     $ -     $ -     $ (1,000 )   $ 16,551,909     $ (3,333,785 )   $ (14,730,477 )   $ (1,074,576 )
Cash received from shares issued in prior year     -       -       -       -       -               -       -       -       -       -  
Common stock issued for cash at $0.15 per share     -       -       500,000       5,000       -       -       -       70,000       -       -       75,000  
Common stock issued for services at $0.06 per share to a perspective lender                     150,000       1,500                               7,500                       9,000  
Common stock issued for services at $0.15 per share     -       -       1,150,000       11,500       -       -       -       161,000       -       -       172,500  
Common stock issued for services at $0.20 per share     -       -       33,938       339       -       -       -       6,449       -       -       6,788  
Common stock issued for services at $0.25 per share     -       -       60,000       600       -       -       -       14,400       -       -       15,000  
Common stock issued in lieu of debt at $0.25 per share     -       -       437,572       4,376       -       -       -       105,017       -       -       109,393  
Services contributed by officers     -       -               -       -       -       -       60,000       -       -       60,000  
Accrual for preferred stock dividend                                                             (385,144 )                     (385,144 )
Issuance of warrants for services     -       -       -       -       -       -       -       3,870       -       -       3,870  
Net Profit for the year ending December 31, 2010     -       -       -       -       -       -       -       -       -       (393,001 )     (393,001 )
Balance, December 31, 2010     287,595     $ 2,876       45,921,640     $ 459,216     $ -     $ -     $ (1,000 )   $ 16,595,001     $ (3,333,785 )   $ (15,123,478 )   $ (1,401,170 )

 

See accompanying notes to financial statements.

 

F-10
 

 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Stockholders' Equity (Deficit) (Continued)

From Inception of the Development Stage on July 5, 1996 Through December 31, 2012

 

 

 

    Preferred Stock     Common Stock     Common Stock to be     Subscription     Treasury     Paid in Capital in Excess of Par     Retained      Deficit
Accumulated
During
Development 
    Total Stockholders’
Equity
 
    Shares     Amount     Shares     Amount     Issued   Receivable     Stock     Value     Deficit     Stage   (Deficit)  
                                                                                         
Balance, December 31, 2010     287,595     $ 2,876       45,921,640     $ 459,216     $ -     $ -     $ (1,000 )   $ 16,595,001     $ (3,333,785 )   $ (15,123,478 )   $ (1,401,170 )
Common stock issued for cash at $0.15 per share     -       -       250,000       2,500       -               -       35,000       -       -       37,500  
Stock cancellation     -       -       (1,150,000 )     (11,500 )     -       -       -       (147,500 )     -       -       (159,000 )
Common stock issued for accounts payable at $0.1346 per share     -       -       50,000       500       -       -       -       6,230       -       -       6,730  
Common stock issued for stock deposit at $0.25 per share     -       -       44,000       440       -       -       -       10,560       -       -       11,000  
Common stock issued for accounts payable at $0.20 per share     -       -       1,688       17       -       -       -       321       -       -       338  
Common stock issued for services at $0.20 per share     -       -       938       9       -       -       -       178       -       -       187  
Common stock issued for services at $0.15 per share     -       -       84,667       847       -       -       -       11,852       -       -       12,699  
Common stock issued for services at $0.10 per share     -       -       300,000       3,000       -       -       -       27,000       -       -       30,000  
Common stock issued for accounts payable at $0.25 per share     -       -       10,000       100       -       -       -       2,400       -       -       2,500  
Preferred stock issued as dividends     24,964       250       -       -       -       -       -       384,894       -       -       385,144  
Accrual for preferred stock dividend     -       -       -       -       -       -       -       (323,968 )     -       -       (323,968 )
Due from related party payable in common stock     -       -       -       -       -       (16,100 )     -               -       -       (16,100 )

Net income for the year ending December 31,

2011 (Restated)

    -       -       -       -       -       -       -       -       -       179,540       179,540  
Balance, December 31, 2011 (Restated)     312,559     $ 3,126       45,512,933     $ 455,129     $ -     $ (16,100 )   $ (1,000 )   $ 16,601,968     $ (3,333,785 )   $ (14,943,938 )   $ (1,234,600 )

 

 

See accompanying notes to financial statements.

 

 

F-11
 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Stockholders' Equity (Deficit) (Continued)

From Inception of the Development Stage on July 5, 1996 Through December 31, 2012

 

 

    Preferred Stock     Common Stock     Common Stock to be     Subscription     Treasury     Paid in Capital in Excess of Par     Retained      Deficit
Accumulated
During
Development 
    Total Stockholders’
Equity
 
    Shares     Amount     Shares     Amount     Issued   Receivable     Stock     Value     Deficit     Stage   (Deficit)  
                                                                                         
Balance, December 31, 2011   312,559   $3,126    45,512,933   $455,129   $   $(16,100)  $(1,000)  $16,601,968   $(3,333,785)  $(14,943,938)  $(1,234,600)
                                                        
Common stock returned and cancelled to satisfy related party receivable           (161,000)   (1,610)       16,100        (14,490)            
                                                        
Common stock issued for cash at $0.09 per share           194,444    1,944                15,556            17,500 
                                                        
Common stock issued for cash at $0.10 per share           920,000    9,201                82,049            91,250 
                                                        
Common stock issued for services at $0.1133 per share           60,000    600                6,200            6,800 
                                                        
Common stock issued for cash at $0.125 per share           100,000    1,000                11,500            12,500 
                                                        
Common stock option issued for cash                               750            750 
                                                        
Issuance of stock options                               14,420            14,420 
                                                        
Accrual for preferred stock dividend                               (115,978)           (115,978)
                                                        
Preferred stock issued as dividends   34,351    343                        361,805            362,148 
                                                        
Net loss for year ended December 31, 2012                                       (450,571)   (450,571)
                                                        
Balance, December 31, 2012   346,910   $3,469    46,626,377   $466,264   $   $   $(1,000)  $16,963,780   $(3,333,785)  $(15,394,509)  $(1,295,781)

 

 

 

See accompanying notes to financial statements.

 

F-12
 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Cash Flows

 

          Unaudited 
          From 
          Inception of 
          Development 
          Stage On 
          July 5, 1996 
  For the Year Ended   Through 
  December 31,   December 31, 
   2012   2011   2012 
      (Restated)     
CASH FLOWS FROM OPERATING ACTIVITIES:               
                
Net income (loss)  $(450,571)  $179,540   $(15,394,509)
Adjustments to reconcile net loss to net cash used by operating activities:               
Stock issued for general and administrative   6,800    28,986    1,277,356 
Stock issued for research and development           62,850 
Stock returned for services not rendered       (175,100)   (391,446)
(Gain) loss on sale/disposal of assets       (623,234)   (5,495)
Compensation expense from stock options and warrants     14,420             110,202  
Stock issued for interest           135,226 
Stock issued for accounts payable           243,458 
Deferred income           (214,000)
Depreciation and amortization   3,370        1,916,253 
Write-off bad debts           15,000 
Debt forgiveness       (67,566)   (174,825)
Services contributed by officers           60,000 
Changes in operating assets and liabilities:               
(Increase) decrease in accounts receivable           62,281 
(Increase) decrease in other assets and prepaids       35    89,238 
Increase (decrease) in accounts payable   69,729    30,110    533,739 
Increase (decrease) in accrued liabilities   187,888    320,541    1,104,366 
Net Cash Used by Operating Activities   (168,364)   (306,688)   (10,570,306)
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
Acquisition of equipment   (2,084)       (589,885)
Capitalized software development costs   (100,223)   (104,720)   (269,943)
Proceeds from sale of intangibles       623,234    516,570 
Acquisition of intangibles   (37,597)   (27,574)   (65,171)
Sale of stock           12,375 
Net Cash Provided (Used) by Investing Activities  $(139,904)  $490,940   $(396,054)

 

See accompanying notes to financial statements.

 

F-13
 

 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Statements of Cash Flows (Continued)

 

          Unaudited 
          From 
          Inception of 
          Development 
          Stage On 
          July 5, 1996 
  For the Year Ended   Through 
  December 31,   December 31, 
   2012   2011   2012 
      (Restated)     
                
CASH FLOWS FROM FINANCING ACTIVITIES:               
                
Stock deposit  $   $   $11,000 
Stock subscription received           23,000 
Proceeds from capital stock issued   122,000    37,500    7,734,701 
Proceeds from loans           3,518,202 
Proceeds from related party loans   11,450        11,450 
Repayments on related party loans       (44,950)   (44,950)
Change in line-of-credit           4,837 
Loan receivables           (15,000)
Principal payments on lease obligations           (18,769)
Cash payments on note payable           (279,730)
                
Net Cash Provided (Used) by Financing Activities   133,450    (7,450)   10,944,741 
                
NET INCREASE (DECREASE) IN CASH   (174,818)   176,802    (21,619)
                
CASH AT BEGINNING OF PERIOD   177,873    1,071    24,674 
                
CASH AT END OF PERIOD  $3,055   $177,873   $3,055 
                
SUPPLEMENTAL DISCLOSURES               
                
Cash Paid For:               
                
Interest  $   $   $3,326 
                
Income taxes  $100   $100   $1,941 
                
Non-Cash Transactions for Investing and               
 Financing Activities:               
Common stock issued to pay accounts payable  $   $9,568      
Common stock issued to for stock deposit  $   $11,000      
Common stock issued for capitalized software development consulting services to a related party   $     $ 13,900          
Return of common stock to pay related party note receivable  $16,100   $      
Accrual for preferred stock dividends payable with preferred shares   $ 115,978     $ 323,968          
Preferred stock issued to pay preferred stock dividends   $ 362,148     $ 385,144          

 

See accompanying notes to financial statements.

 

F-14
 

  

KLEVER MARKETING, INC.

(A Development Stage Company)

Notes to the Financial Statements

 

NOTE 1 - ORGANIZATION

 

Organization and Description of Business

 

Klever Marketing, Inc. (the “Company”) was organized under the laws of the State of Delaware in December 1989.  The Company was in the development stage from 1989 to 1991.  The Company was an operating company from 1992 to December 8, 1993 when it filed petitions for relief under Chapter 11 bankruptcy.  The Company was inactive until July 5, 1996 when the Company merged with Klever Kart, Inc. in a reverse merger and changed its name to Klever Marketing, Inc. The Company has been in the development stage since that time.

 

The Company was formed for the purpose of creating a vehicle to obtain capital, to file and acquire patents, to seek out, investigate, develop, manufacture, market and distribute an electronic shopping cart for in-store advertising, promotion and media content and retail shopper services, which have potential for profit.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

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 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, 2012 and 2011.

 

Valuation of Long-Lived Assets

 

Long-lived assets such as property and equipment, software, 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.

 

Fixed Assets

 

Fixed assets consist of property and equipment and capitalized software costs and computer equipment as of December 31, 2012 and 2011.

 

F-15
 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Notes to the Financial Statements

 

Property and Equipment

 

Depreciation and amortization are computed using the straight-line method over the estimated economic useful lives of the related assets as follows:

 

Computer equipment 3 years
Office furniture and fixtures 5-7 years

 

Upon sale or other disposition of property and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss is included in the determination of income or loss.

 

Expenditures for maintenance and repairs are charged to expense as incurred.  Major overhauls and betterments are capitalized and depreciated over their estimated economic useful lives.  Depreciation expense was $319 and $0 for the years ended December 31, 2012 and 2011.

 

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 begins when the products are available to customers and is done using the straight-line method over the remaining estimated economic life of the product. The Company achieved technological feasibility with regard to its mobile phone technology during the fourth quarter of 2010.  As of December 31, 2012 and 2011, the Company had capitalized software development costs of $291,343 and $191,120, respectively.  No amortization was recorded for the years ended December 31, 2012 and 2011.

 

Revenue Recognition

 

The Company is currently in the development stage and has no revenues from its operations.

 

Concentration of Credit Risk

 

The Company has no significant concentrations of credit risk.

 

Earnings Per Common Share

 

The computations of basic and fully diluted earnings per share of common stock are based on the weighted average number of common shares outstanding during the period of the financial statements, plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding during the period, or the exercise of convertible preferred stock. For the period ended December 31, 2011, common stock equivalents related to the conversion of preferred rights have been included in calculation of diluted earnings per share as shown in the table below.  Common stock equivalents have not been included in the computations for the period ended December 31, 2012 because they are anti-dilutive.

 

F-16
 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Notes to the Financial Statements

  

Following is a reconciliation of the income (loss) per share for the years ended December 31, 2012 and 2011, respectively:

 

   December 31, 
   2012   2011 
Numerator:          
           
Income (loss) before extraordinary items  $(450,571)  $179,540 
Income from extraordinary items, net of tax        
           
Net income (loss)  $(450,571)  $179,540 
           
Denominator:          
Weighted-average common shares outstanding          
Basic   46,043,507    45,150,293 
Conversion of preferred rights       18,192,859 
Diluted   46,043,507    63,343,152 
           
Income (loss) per share          
Basic          
Income (loss) before extraordinary items  $(0.01)  $0.00 
Income from extraordinary items, net of tax        
Net income (loss)  $(0.01)  $0.00 
           
Diluted          
Income (loss) before extraordinary items  $(0.01)  $0.00 
Income from extraordinary items, net of tax        
Net income (loss)  $(0.01)  $0.00 

 

Intangibles

 

Intangible assets, consisting of patents and trademarks, are amortized on a straight-line basis over periods ranging from 5-20 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. At December 31, 2012, intangible assets have a cost of $65,721, accumulated amortization of $3,051, and had a net book value of $62,670.  During the year ended December 31, 2012, the Company wrote off intangible assets totaling $775,045 that were fully amortized that were no longer being utilized by the Company. As of December 31, 2011, intangible assets had a cost of $803,169, accumulated amortization of $775,045 and had a net book value of $28,124.

 

Income Taxes

 

The Company accounts for income taxes pursuant to ASC 740, Income Taxes (“ASC 740”).  Under this accounting standard, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.  Given the Company’s history of losses, the Company maintains a full valuation allowance with respect to any deferred tax assets.

 

ASC 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the uncertain tax position to determine the amount to recognize in the financial statements. Our uncertain tax positions relate to certain state tax issues for which we have recorded an estimated current liability for in the accompanying financial statements at December 31, 2012 and December 31, 2011. There has been no significant change in the unrecognized tax benefit through December 31, 2012.  

 

F-17
 

 

KLEVER MARKETING, INC.

(A Development Stage Company)

Notes to the Financial Statements

 

The Company did not have any uncertain tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. 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, 2012 and 2011, the Company had $5,328 and $636 of accrued interest and penalties related to uncertain tax positions.

 

The components of income tax expense are as follows for the years ended December 31, 2012 and 2011, respectively.

 

   December 31, 
   2012   2011 
         
Current  $6,328   $30,001 
Deferred        
           
Total  $6,328   $30,001 

 

The Company’s deferred income tax asset and the related valuation allowance are as follows at December 31, 2012 and 2011, respectively.  The deferred tax asset was calculated using a U.S. statutory tax rate of 34%.

 

 

 December 31,

 
   2012   2011 
Deferred tax assets - current:          
Accrued interest  $49,846   $35,239 
Accrued compensation   154,142    100,990 
    203,988    136,229 
Deferred tax assets - long-term:          
Net operating loss carryforwards   5,287,836    5,645,717 
Total deferred income tax assets   5,491,824    5,781,946 
Valuation allowance   (5,491,824)   (5,781,946)
Total  $   $ 

 

A reconciliation of provision (benefit) for income taxes provided at the federal statutory rate (34% for fiscal years 2012 and 2011) to actual provision for income taxes is as follows:

 

  December 31, 
   2012   2011 
Benefit (provision) for income taxes computed at federal statutory rate  $151,043   $(71,244)
State income taxes, net of federal benefit   14,660    (6,915)
Other   118,091    331,503 
Valuation allowance   (290,122)   (283,345)
Provision for Income taxes  $(6,328)  $(30,001)
Effective tax rate   1.42%    14.32% 

 

As of December 31, 2012, the Company had net operating loss carry-forwards for federal income tax reporting purposes of approximately $14.9 million that may be offset against future taxable income through 2032. The Company has state net operating loss carry-forwards of $5.7 million. 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 beca