10KSB/A 1 a10ksba123100.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A AMENDMENT NO. 1 (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended: December 31, 2000 or [ ] TRANSITION REPORT UNDER 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. (Name of small business issuer in its charter) Delaware 36-3688583 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 350 West 300 South, Suite 201, Salt Lake City, Utah 84101 -------------------------------------------------------------------------------- (Address of principal executive offices) (zip code) Issuer's telephone number (801) 322-1221 --------------- Securities registered under Section 12(b) of the Act: NONE Securities registered under Section 12(g) of the Act: Common Stock Par Value $0.01 (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- Total pages: [32] ------ Exhibit Index Page: [30] ------- Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year. $ 27,000 -------- As of March 9, 2001, there were 12,152,768 shares of common stock, par value $0.01 per share, issued and outstanding. The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant was approximately $6,837,956 computed at the closing price of $1.00 per share as of March 9, 2001. DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"): NONE This 10-KSB/A Amendment No. 1, amends the following sections of the 10-KSB: (a) Cover Page, (b) Part II, Item 5; (c) Part III, Item 9; (d) Part III, Item 10; (e) Part III, Item 11; (f) Part III, Item 12; (g) Part III, Item 13 paragraph 1, financial statement notes 7 and 8; and (h) Part III, Item 13 paragraph 3(a), Exhibits 3.02 (amended) and 3.03 (numbering corrected from 3.02 to 3.03); and paragraph 3(b), reports on Form 8-K (report filed in 2001 deleted) Transitional Small Business Disclosure Format (check one): Yes ; No X -------------------------------------------------------------------------------- TABLE OF CONTENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item Number and Caption Page -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PART I -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 1. Description of Business 4 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 2. Description of Property 10 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 3. Legal Proceedings 10 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders 10 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PART II ------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 5. Market for Common Equity and Related Stockholder Matters 10 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 6. Management's Discussion and Analysis or Plan of Operations 12 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 7. Financial Statements 17 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 8. Changes in and Disagreements With Accountants on Accounting and -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PART III -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 9. Directors, Executive Officers, Promoters and Control Persons; -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 10. Executive Compensation 22 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 11. Security Ownership of Certain Beneficial Owners and Management 27 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 12. Certain Relationships and Related Transactions 29 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Item 13. Exhibits and Reports on Form 8-K 30 -------------------------------------------------------------------------------- 3 PART I ITEM 1 DESCRIPTION OF BUSINESS General 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 and market electronic in-store advertising, directory and coupon services which have potential for profit. The Company is currently in the process of the commercialization of the patented process, Klever-Kart(R), it has acquired. History The Company 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 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. The Company (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. The Company re-entered the development stage commencing July 5, 1996. Principal Products or Services and Their Markets The mission of the Company ("Klever Marketing(TM)") is to become the leading supplier of wireless communication platforms for use in large retail stores. The Company is currently making plans to market a patented technology - the Klever-Kart(R) - designed to deliver targeted ads and promotions to a small display device on the shopping cart handle. Each marketing message, triggered by proximity to the product on the shelf, is designed to reach the consumer at the critical Point-of-Selection(R), when the shopper is ready to decide. With a revenue model targeted at the significant amounts currently being spent by consumer goods manufacturers on marketing in stores, the Company is positioning for entry into the U.S. retail store market with plans for parallel expansion and licensing internationally. The Company's strategy includes no installation costs for retailers. To the Company's knowledge, there appear to be minimal barriers to consumer acceptance and only indirect competitors. Klever Marketing seeks to evolve its solutions 4 into a robust networked platform that connects multiple key players in the retail equation. This World Wide Retail Web(TM) (WWRW(TM)) will be designed to deliver value-added content to shoppers, support B2B transactions between retailers and advertisers, allow consumers to participate in streamlining and personalizing the shopping experience, serve as a built-in promotion vehicle and distribution channel for wireless handheld devices, enhance retailer loyalty programs, process electronic coupons, and offer a development platform for a variety of third-party applications and services. Distribution Methods of the Products or Services Klever Marketing has developed - and patented - a wireless communication platform for delivering ads to grocery and mass-merchandise shoppers at the Point-of-Selection in the store. Using a small PDA-like device attached to the shopping cart handle, the Klever-Kart system is triggered to sound a chime and display an advertisement or promotion when the cart approaches the area where the featured product is shelved. When not near a trigger point, the Klever-Kart can display advertisements for a range of participating products or local merchants. Recent pilot tests have shown an average 35% increase in sales of products featured on Klever-Karts without discounted pricing. Klever Kart is aimed at reaching buyers when they are reaching for the product on the shelf, something which the Company believes no other presently available in-store marketing system can do. Status of Publicly Announced New Products and Services After first launching its wireless communication service, Klever Marketing will seek to evolve its systems into a technology platform intended to deliver a range of content, services, and applications to support the in-store shopping experience. The Company will seek to promote the Klever Kart platform as the "World Wide Retail Web." Klever Marketing will seek to profit from the additional players whom the Company expects will be eager to use the WWRW to reach its large audience. The Company's business plan will seek to obtain access fees from marketing affiliates for sponsorships on the WWRW. The Company will also seek to enter into content deals to favor the Company by delivering an attractive audience to media firms. The Company will seek to market data mining services to market researchers and analysts. The Company will also offer to third-party developers a prime position through which to deliver an array of applications and services - all focused on reaching the shopper at the critical Point-of-Selection. Furthermore, the Company will seek to commercialize the WWRW platform to serve as a B2B exchange for a range of business transactions among retailers, advertising agencies, consumer goods companies, and other advertisers - all of which Klever Marketing will seek to manage. A point of leverage in the Company's blend of technology, advertising, and product sales is found on the shopping cart handle - in the Klever Kart device itself. Initially produced as a special purpose wireless device, the Klever-Kart of the future is being planned by the Company to employ a commercial-grade model of a consumer wireless handheld wireless computer device adapted for use on a cart. The Company will seek to arrange for shoppers with the initial version of 5 the device to cruise the aisles and thereby be "test-driving" the hardware manufacturer's product. In the process, the Company envisions that the supermarkets and mass-merchandise retail stores can become promotional vehicles - and retail distribution channels as well - for this item of handheld hardware of the future. A second version of the Klever-Kart device is being planned to replace the initial monochrome display and 4-button interface of the current device with a color display and more functional input interface designed to expand its effectiveness and appeal to shoppers. The Company envisions that electronic coupons and personalized integration with retailer loyalty programs can provide additional revenue streams. The Company also envisions that, at home, Web-savvy customers would be able to interact with the retailer's Web site to streamline and enhance their shopping when they later arrive at participating retail stores. Competitive Business Conditions, the Issuer's Competitive Position in the Industry and Methods of Competition At present, the Company is aware of two major product entries in the in-store marketing arena: News America Marketing, Inc., a subsidiary of News Corporation ("News America") and Catalina Marketing, Inc. ("Catalina") which each use paper coupons as a primary source of product promotion. The News America product is primarily a static instant coupon dispenser positioned at fixed locations throughout a store intended to entice the consumer to purchase a specific product. The Catalina product is a post-purchase coupon-printing device located at the retailer's checkout counter. This device gives a consumer a coupon upon the payment of the consumer's existing purchase that may be used for a certain product purchase in the future. The Company believes that the Point-of-Selection advantage of the Klever-Kart System can enhance the effectiveness of the promotional dollars of the consumer goods companies and retailers and can therefore be superior to the product offerings of its primary competitors. The Company believes that Catalina and News America product offerings are subject to non-exclusive contracts with grocery chains and consumer goods companies. Catalina is reportedly installed in more than 13,000 retailers nationwide and News America is reportedly installed in more than 30,000 retailers nationwide. The Company believes that the competitive product assessment table set forth below illustrates the broad nature of the Klever-Kart System and its advantages over the News America and Catalina products. 6

Competitive Product Assessment ------------------------------------------------- ----------------- ----------------- ---------------- Feature Klever-Kart Catalina News America ------------------------------------------------- ----------------- ----------------- ---------------- Point-of-Selection |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Audio |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Video |X| ------------------------------------------------- ----------------- ----------------- ---------------- Shelf Sign |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Flashing Light |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Perpetual In-store Scrolled Advertising |X| ------------------------------------------------- ----------------- ----------------- ---------------- Store Directory |X| ------------------------------------------------- ----------------- ----------------- ---------------- Bolded Brand Listings |X| ------------------------------------------------- ----------------- ----------------- ---------------- Cross-Category Triggering |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Competitive Triggering |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Animation Capability |X| ------------------------------------------------- ----------------- ----------------- ---------------- Paper Coupon |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Electronic Coupon(1) |X| ------------------------------------------------- ----------------- ----------------- ---------------- Frequent Shopper-Specific Messages |X| |X| ------------------------------------------------- ----------------- ----------------- ---------------- Average Incremental Product Movement 35%(2) 24.0%(3) 15%(4) ------------------------------------------------- ----------------- ----------------- ----------------

(1) Feature enhancement targeted to be introduced in 2002. (2) Source: Average Klever Kart Product Movement Results, based on limited pilot studies in 2000. (3) Source: Catalina's web site. (4) Source: News America's web site. Average of six News America Marketing products. Consumer goods companies - which reportedly spend an estimated $13 billion per year in the U.S. on coupons, promotional fulfillment, product samples, and in-store services, are expected by the Company to begin to realize that the Klever-Kart system can offer a more reliable, targeted, and effective way to spend their existing advertising and promotion dollars. Klever Marketing intends to aggressively pursue rapid deployment of Klever-Karts into its U.S. target market--that of large retail stores. There are more than 50,000 large retail stores in the U.S. By keeping a share of the revenue from advertisements displayed on Klever-Karts, the Company estimates that it will require an installed base of approximately 700 stores before the Company can become profitable. Sources and Availability of Raw Materials and Principal Suppliers The Klever-Kart System is comprised of four primary components; a display unit, a storewide complement of trigger units, a host computer and a battery charger. The Company will rely upon in-house staff and third-party manufacturers to design and manufacture the equipment to the Company's specifications. The Company presently anticipates relying upon a number of manufacturers and suppliers, both domestic and foreign, for procurement of "off the shelf" materials to produce the equipment and to secure the most attractive available terms for manufacturing. The Company has currently agreed in principle with Western Electronics, a Boise, ID based manufacturer, to assemble pre-purchased components which will be Klever-Kart(R). The Company is also currently negotiating with several Korean and Taiwanese based manufacturers to purchase components and manufacture the Klever-Kart(R) units and the trigger units. 7 Dependency on One or a few Major Customers. A substantial portion of the Company's revenues at any particular time may be generated in connection with a limited number of customers and a limited number of agreements. The Company has, in the past, contracted with several consumer goods manufacturers for the sale of advertising or other services. Klever Marketing's first major customer, a Midwest supermarket chain, is expected to agree to install almost approximately 20,000 Klever-Karts in 175 of its stores during 2001. The decision is being driven by the potential customer's realization that there is no cost to install the system; the customer is expected to be able to share in the advertising revenue paid by the consumer goods companies; the potential customer envisions larger than present per-basket sales; and the potential customer expects increased customer satisfaction and loyalty. The Company is planning for the retailer to have the contractual right to disengage from the agreement if the Klever-Kart(R) system does not perform to expectations. In addition, the Company is planning to announce both rollout and tests for other U.S. retailers in the first half of 2001. The Company expects to add more customers, which the Company is targeting to reach an installed base of 50,000 units within the first twelve months after launch. If the Company were unable to continue to contract with consumer goods companies or to sign additional retailer agreements, such development would have a material adverse effect upon the Company's business, operating results and financial condition. Patents, Trademarks, Licenses, Franchises, Concessions and Royalty Agreements The Company has acquired and/or developed intellectual property rights to various patents, trademarks and software licenses for the shopping cart display system, the electronic coupon, and the design of the shopping cart handle, and eventually expects to patent the in-store communication system. The patent rights, licenses, and trademarks are detailed below:

Klever Marketing Patent Rights and Licenses ---------------------- -------------- --------------- -------------- ------------------------------------------ U.S. Patent Patent Numbers Filed Outside the United Patent Name Numbers Issue Date Expiry Date States ---------------------- -------------- --------------- -------------- ------------------------------------------ ---------------------- -------------- --------------- -------------- ------------------------------------------ Shoppers Communication 4,882,724 11-21-89 11-21-06 Canada - 1317347, 1332848 System and Process 5,630,068 5-13-97 5-13-14 ---------------------- -------------- --------------- -------------- ------------------------------------------ ---------------------- -------------- --------------- -------------- ------------------------------------------ Shopping Cart Display System 4,973,952 11-27-90 11-27-07 Argentina - 242676 5,287,266 2-15-94 2-15-11 Australia - 616917,636809, 635169, 633457 5,295,064 3-15-94 3-15-11 Brazil - PI8807216 Canada - 1300235, 1322577, 133367 France - 0335931 Germany - 0335931 Italy - 0335931 Great Britain - 0335931 Japan - 2743340 ---------------------- -------------- --------------- -------------- ------------------------------------------ ---------------------- -------------- --------------- -------------- ------------------------------------------ Instant Electronic Coupon Verification System 5,420,606 5-30-95 9-20-13 Canada - 2117716 Great Britain - 2282253 Japan - 2712139 Germany - 4433569 Republic of China - NI-109525 ---------------------- -------------- --------------- -------------- ------------------------------------------ ---------------------- -------------- --------------- -------------- ------------------------------------------ 5,703,564 12-30-97 12-10-14 ---------------------- -------------- --------------- -------------- ------------------------------------------

8

Mobile Advertising Device with Electronic Transmission Capabilities ---------------------- -------------- --------------- -------------- ------------------------------------------ Automated Shopping 6,177,880 01-23-01 01-23- Cart Handle ---------------------- -------------- --------------- -------------- ------------------------------------------

Klever Marketing(TM) Trademarks and Service Marks ------------------------------------- ------------------------------------------------------------- Other Intellectual Property Detail ------------------------------------- ------------------------------------------------------------- Service Marks (SM) "Klever-KardSM", BrandKastingSM ------------------------------------- ------------------------------------------------------------- ------------------------------------- ------------------------------------------------------------- Trademarks (TM) "Klever-Net(TM)", "Klever Marketing(TM)", WWRW(TM), World Wide Retail Web(TM) ------------------------------------- ------------------------------------------------------------- ------------------------------------- ------------------------------------------------------------- Registered ((R)) Trademark "Klever-Kart(R)", "Point- of- Selection(R)", "Sight + Sound = Product Movement(R)" ------------------------------------- -------------------------------------------------------------

Required Governmental Approval for Products or Service The Company is in the process of submitting product descriptions to the appropriate governmental agencies, including the FTC, FCC, OSHA, State Consumer Safety and Protection Agency and the FDA, and is requesting a ruling of applicability of such regulations to the Company's products for use with in-store advertising. There can be no assurance that such governmental agencies will determine applicability in a timely fashion or, if applicable, will issue necessary approvals. The failure to obtain necessary approvals, if any, could have a material adverse effect on the Company's financial condition and results of operations. The Company also faces the risk of future privacy regulation of consumer electronic transaction data. It is not possible to predict the means by which and extent to which such regulation may affect the Company's business. Expenditures on R&D Activities For the year ending December 31, 2000, the Company spent $1,852,903 on R&D activities. That compares with $689,558 spent on R&D activities in the prior year. The reasons for the increase were due to a more concentrated effort to improve the efficiency and technology of the Klever-Kart system. Costs and Effects of Compliance with Environmental Laws 9 The Company is not aware of any costs that would be associated to compliance with Federal, State or local environmental laws. Employees The Company had 17 full-time employees as of the end of the year 2000. ITEM 2 DESCRIPTION OF PROPERTY The Company currently leases 5,272 square feet of office space on a month-to-month basis from a joint venture owned by Tree of Stars, Inc. and the Estate of Peter Dean Olson (both being major shareholders of the Company). The office space is used as the corporate headquarters. It is located at 350 West 300 South, Suite 201, Salt Lake City, Utah. The total lease payments are $73,812 per year. Research and Development activities are conducted at the Company's corporate headquarters location. Additional research and development activities, as contemplated in the Company's development plan, will be outsourced to third parties and will not require additional space at the Company's current location. ITEM 3 LEGAL PROCEEDINGS The Company is not a party to any pending legal proceedings of the type required by Item 103 of Regulation S-B to be disclosed other than routine litigation incidental to its business. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the last quarter of the fiscal year covered by this report. PART II ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The shares of common stock are traded on the over-the-counter and reported on the OTC Bulletin Board (OTCBB), a reporting medium for subscribing NASD members, with the trading symbol KLMK. 10 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 by S & P Comstock and reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions: -------------------------------------------------------------------------------- 1999: High Low -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- First Quarter $2.88 $1.50 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Second Quarter $2.38 $1.50 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Third Quarter $4.44 $2.00 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Fourth Quarter $4.13 $1.50 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2000: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- First Quarter $4.25 $1.88 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Second Quarter $3.67 $2.06 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Third Quarter $2.50 $1.13 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Fourth Quarter $1.53 $0.38 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The approximate number of shareholders of record of the Company's common stock as of March 9, 2001 was 824. The Company has not paid any cash dividends to date and does not anticipate paying dividends in the foreseeable future. It is the present intention of management to utilize all available funds for the development of the Company's business. Recent Sales of Unregistered Securities. The Company sold 877,647 shares of common stock and 94,191 shares of preferred stock (defined below as "Class A, Series 1 Shares") during 2000. All of such stock was sold in private placements to accredited investors directly by the Company without an underwriter in transactions exempt from registration under Regulation D Rule 506 and Section 4(2) of the Securities Act of 1933, as amended. The total offering price of such securities was $3,180,828. No underwriting commissions were paid. (See Part II Item 6, Part III Item 13, Financial Statements, Statement of Stockholders' Equity, pages F - 5 through F - 9). On February 7, 2000 the Board of Directors authorized and established the Class A Voting Preferred Stock ("Class A Shares") and Series 1 of such Class A ("Class A, Series 1 Shares") as a class of its $.01 par value, 2,000,000 shares authorized, preferred stock. Class A Shares consists of 1,000,000 shares, 250,000 shares thereof are designated as Class A, Series 1 Shares. Subsequent Class A Shares, Series 2 and Series 3 have been authorized and established each thereof designating 125,000 shares for each Series (respectively, the "Class A, Series 2 Shares" and the "Class A, Series 3 Shares"). (See Part III, Item 13, Exhibit 3.02.) 11 Each Class A Share is convertible at the option of the holder at any time into such number of shares of Common Stock as is determined by dividing the issue price by the conversion price then in effect. Based on the initial conversion price, each Class A Share had a conversion rate of one Class A Share to ten shares of Common Stock. The rate of conversion is subject to changes based upon an anti-dilution formula. Holders of Class A Shares shall be entitled to receive when and as declared by the Board of Directors of the Company out of any funds at the time legally available therefor dividends at the rate of $2.20, $1.44 and $0.56 per share per annum, respectively, for Series 1, 2 and 3, payable semi-annually on the first day of January and July of each year. Such dividends shall accrue on each such share from the date of its original issuance and shall accrue from day to day, whether or not earned or declared. Such dividend shall be cumulative and may be paid in cash or in kind through the distribution of .0425 Class A Shares of the same Series, for each outstanding Class A Share, on each dividend payment date. In addition, each holder of Class A Shares shall be entitled to receive, when and as declared, a dividend equal to each dividend declared and paid on the shares of Common Stock, on a share for share basis. If there is a split or dividend on the Common Stock, then the Class A Share dividends shall be adjusted as if a similar split or dividend had occurred with respect to the Class A Shares. Class A Shareholders shall be entitled to one vote for each share of Common Stock into which such Class A Shares could then be converted, and shall have voting rights and powers equal to that of a holder of Common Stock. The holders of Class A Shares shall vote with the holders of Common Stock and not as a separate class. Each Class A, Series 1, 2 and 3 Share carries a liquidation preference, respectively, of $26, $17 and $6.60 per share plus any accrued but unpaid dividends on such shares, if any, and adjusted for combinations, splits, dividends or distributions of shares of stock with respect to such shares. Class A, Series 1, 2 and 3 Shares are redeemable by the Company, in whole or in part, at the option of the Board of Directors of the Company, at any time and from time to time on or after July 1, 2002, March 24, 2004 and July 2, 2004, respectively. The redemption price shall be the same as the liquidation preference for such Share. If dividends on the Class A Shares, have not been paid for any period, then until all unpaid dividends thereon are paid or set apart for payment, the Company may not pay, declare or set apart any dividend or other distribution of its shares of Common Stock or other shares junior to the Class A Shares, nor may any other distributions, redemptions or other payments be made with respect to the shares of Common Stock or other junior shares. (See also Part III Item 13. Financial Statements, Note 7- Preferred Stock, and Note 8 - Subsequent Events). 12 ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS This Annual 10-KSB Report includes certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including, most importantly, information concerning possible or assumed results from the future operations of the Company. The assumptions used in this report are primarily based on current expectations of Company management and the industry in which the Company operates. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions. The achievement of the outcomes described in such forward-looking statements is subject to both known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements, to be materially different from the outcomes expressed or implied by such forward-looking statements. Several important factors including, among other things; economic, competitive and regulatory conditions, demographic trends, financial market conditions and business decisions (of the Company and its competitors) could affect the results of the Company and could cause those results to materially differ from those expressed in these forward-looking statements. All of these important factors are difficult or impossible to accurately predict and many are beyond the control of the Company. Risk factors include: that an investment in the capital stock of the Company involves a high degree of financial risk; the Company has limited customers; the Company is a development stage company with a limited operating history and significant historical operational losses; the Company has an immediate need for additional financing; the Company may encounter difficulties and uncertainties in connection with the development and commercialization of its new technology and within its industry; the Company faces risks associated with information security and network failure; there can be no assurance as to the validity of intellectual property rights; the Company is dependent on key management and the need to manage expanding operations and key employees; management has broad discretion in use of proceeds of financings; the Company faces substantial competition; the Company faces risks of technological obsolescence; the need for new financing poses a risk to stockholders of dilution and absence of dividends; there is a potential adverse effect of shares eligible for future sale and price volatility; the Company may be reliant on a limited number of suppliers for acquiring and maintaining equipment; the Company faces potential fluctuations in quarterly operating results; and the Company is under control of existing shareholders. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, the actual results could differ materially and the Company can give no assurance that such expectations will prove to be correct. Plan of Operations The Company's goal is to become the leading supplier of in-store advertising and promotions technology for grocery and other mass-merchandise retailers. The Company believes that the existing Klever-Kart System can be adapted to meet the requirements of mass-merchandise retailers operating in a variety of environments and expects to expand the Klever-Kart System's orientation to other retailers including superstores, discount stores, toy stores and warehouse stores, among others. 13 In order to carry out its plan of operations, the Company has established a set of milestones for the year 2001: 1. Continue product research and development 2. Announce two retail contracts with major store chains 3. Establish strategic partnerships with hardware and content vendors 4. Expand the employee and management team 5. Secure adequate funding: --to purchase the equipment to install the Klever Kart system into 100 stores --to main operations 6. Build the Revenue stream Milestone #1: Continue Product Research and Development The Company is in the process of developing various product enhancements for its prospective retail grocer and consumer goods manufacturer clients and is striving to offer these enhancements throughout the years 2001 and 2002. Electronic Couponing The Company is endeavoring to complete the development and testing of the electronic coupon feature of the Klever-Kart System in 2001. The Company expects the electronic coupon feature to be well received by the consumer goods companies, retailers and consumers because the feature (i) reduces handling costs for both the retailer and consumer goods manufacturer; (ii) significantly reduces mis-redemption, mal-redemption and fraud associated with paper coupons; and (iii) makes coupon use convenient for the consumer. In addition, this feature is expected to permit the consumer goods manufacturer or retailer to electronically alter the face value of coupon to rapidly customize it for competitive situations and seasonal trends or to alter its value or expiration based upon predetermined redemption rates. Industry sources indicate the number of coupons redeemed annually in the U.S. is approximately 5.3 billion with coupon fraud accounting for more than $300 million in losses to the consumer goods companies. The Company believes the electronic coupon feature of the Klever-Kart System will be superior to competitor product offerings due to the substantial reduction of mis-redemption, mal-redemption and fraud associated with paper coupons. Klever-Kard The Company expects to introduce the Klever-Kard in 2002. The Klever-Kard is designed to be a frequent shopper program enhancement that the Company 14 expects to permit consumer goods companies and retailers to target specific promotional campaigns to individual consumers based upon demographics and personal buying history. Further development of the Klever-Kard is expected by the Company to include targeted Internet tie-ins, direct mail, rebates, and download of shopping lists/recipes, product sampling and electronic contest entry. Information from individual consumer card usage is expected to produce individual customer profiles and track specific marketing and purchasing trends. Using this precedent in conjunction with the Klever-Kart System, the Company expects to sell customer profile information to consumer research companies, consumer goods companies and retailers. Kart-Lock The Company is planning to introduce an electronic locking device in 2002. The electronic locking system is expected to reduce the pilferage of shopping carts by electronically locking the shopping cart's wheel when it is moved beyond the vicinity of the retailer. Milestone #2: Announce two retail contracts with major store chains for rollouts and/or tests Klever Marketing's first major customer is expected to be a Midwest supermarket chain. Current discussions are underway with that chain which, if concluded, would lead to the installation of almost 18,000 Klever-Karts in as many as approximately 175 stores in 2001. In addition, the Company is in negotiations with two additional large supermarket chains. The Company is developing plans to expand the Klever-Kart System's orientation to other retailers, including superstores, discount stores, toy stores, do-it-yourself (DIY) stores and warehouse stores. The Company plans to install the Klever-Kart System in a pilot store operated by each of two or more key retailers across the US. The Company believes that the existing Klever-Kart System can be adapted to meet the requirements of retailers operating in a variety of environments. Milestone #3: Establish Strategic Partnerships The adoption of the Internet in a variety of industries has created a new paradigm for conducting business in the digital age, offering new methods for conducting commerce, including direct communication with customers and business partners and for alternative means for distributing products and selling services to consumers. In particular, the acceptance of the Internet by other companies into mainstream business and the continued success of other companies' emerging digital enterprises have shifted corporate adoption of the Internet from R&D experimentation to multi-million dollar strategic initiatives across industries. The Company intends to capitalize on this new paradigm by linking initiatives involving many facets of the Company's Klever-Kart System and Klever-Kard Program, including individual stores, retailers and consumer goods companies, their advertising agencies and the Company via the Internet. The company believes that the Klever-Kart System can bring together the Internet and the brick and Mortar store, resulting in a more targeted and focused approach to consumer awareness. National marketing programs are becoming less important to the consumer goods companies and the retailers, while targeted marketing directly to the consumer is increasingly becoming the norm. 15 Because of this new paradigm, the Company is actively seeking strategic partners that will further enhance the value and contribution of the Klever-Kart system in the store. Klever Marketing is seeking strategic partners in the area of hardware distribution, wireless communications, content providers and manufacturing. Milestone #4: Continue to build and expand a quality management team. During the year 2001, the Company plans to actively recruit and hire certain key individuals in order to implement the business plan. These positions include: --Vice President Sales and Marketing --Chief Technical Officer --Vice President Business Development --Vice President Operations In addition to the positions noted above, it is anticipated by the Company that as many as 25 other employees may be hired during the course of the year. Milestone #5: Secure Funding for the purchase of equipment to install the Klever Kart system into approximately 250 stores and to maintain operations Klever Marketing anticipates that the cost to install its systems into approximately 250 stores for the year 2001 will be up to $9,500,000. The Company is in discussions with potential financing sources and intends to raise approximately $20 million with a combination of equity and debt for financing to fund the roll out of the Company's systems within up to 250 stores, (ii) to fund research and development costs (iii) to fund consulting services to bring about international licensing (iv) to fund working capital needs through December 31, 2001. If securities are offered in such financings, they will not be and have not been registered under the Securities Act of 1933, as amended and may not be offered or sold in the U.S. absent registration or an applicable exemption from such registration requirements. Milestone #6: Build Revenue Stream In the year 2000, Klever-Kart was installed in eight Ralphs Grocery Company outlets in Southern California to test and measure the results of the system. The Company then sold advertising to approximately 30 consumer goods companies, which resulted in sales of over 100 branded advertising messages. With the installation of 250 stores during the year 2001, the Company expects to be in a position to sell adversting and receive revenues. As the number of store installations increases, the revenue is expected to grow accordingly. Additional revenue streams 16 License The Company has held discussions with a number of retailers operating from nine countries outside the United States regarding the potential licensing of the Klever-Kart System for use in various retail environments. The Company expects to complete its initial licensing contract for international use by the first quarter of 2002. The Company has made patent filings in a number of international jurisdictions and expects to accelerate these efforts in conjunction with the international licensing arrangements. Liquidity and Capital Resources - The Company requires working capital principally to fund its current research and development and operating expenses for which the Company has relied on short-term borrowings and the issuance of restricted Class A Shares. 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. It is anticipated that the Company may have to borrow from certain shareholders or other related parties in order to continue funding day-to-day operations and to continue the Company's development program. The Company has borrowed $1.1 million from a shareholder with an interest rate of eight percent (8%) and a due date of May 1, 2001 or within 60 days of demand. This note was amended in principle on March 21, 2001 wherein the interest rate will be changed to ten percent (10%) starting April 1, 2001 and the due date was extended to October 1, 2001. In addition, under the amendment the Company would be allowed, at its option, to convert the note to Common Stock, to be calculated as the weighted average price of the shares for a ten-day trading period prior to the date of conversion. Cash flows. Operating activities used cash of $3,422,000 and $1,177,000 for 2000 and 1999 respectively. The increase in the use of cash is due primarily to an increase in general and administrative costs. Investing activities have used cash of $87,000 and $471,000 for 2000 and 1999, respectively. Investing activities primarily represent purchases of phase 2 equipment, expenditures for patents relating to the electronic in-store advertising, directory and coupon devices, and purchases of office equipment. Financing activities provided cash of $3,309,000 and $1,805,000 for 2000 and 1999, respectively. Financing activities primarily represent sales of the Company's restricted stock, and short-term borrowings. Factors That May Affect Future Results - This Item 6 and portion of this report, and Part I, Item 1 of this report, contain information based on management's beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurance those actual results will not differ materially for the forward-looking statements as a result of various factors, including but not limited those identified above under the heading "ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS". 17 The foregoing statements are based upon management's current assumptions. ITEM 7 FINANCIAL STATEMENTS The financial statements of the Company and supplementary data are included beginning immediately following the signature page to this report. See Item 13 for a list of the financial statements and financial statement schedules included. ITEM 8 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 statements disclosure. PART III ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Directors and Executive Officers The names, ages as of March 31, 2001, and certain information concerning the members of the Board of Directors and the executive officers of the Company are set forth below. Name Age Position Corey A. Hamilton 43 Director and President, Chief Executive Officer Richard J. Trout 44 Director and Interim Chief Financial Officer D. Paul Smith 54 Director and Chairman William C. Bailey 66 Director Michael L. Mills 38 Director Paul G. Begum 62 Director Leonard D. Southwick 47 Director 18 The Board of Directors currently consists of seven persons. Directors are elected annually by the Company's stockholders at each annual meeting, and serve until the next annual meeting and until their successors are elected and shall have qualified. Corey A. Hamilton became President in May 2000 and Chief Executive Officer in December 2000 and has served as a director of the Company since September 2000. Prior to becoming President and Chief Executive Officer, Mr. Hamilton served as the Company's Vice President of Sales and Marketing since September 1999 until May 2000. Mr. Hamilton joined Klever with over twenty years of marketing and sales industry expertise including sales experience with Fortune 100 manufacturers and leading retailers. Throughout his 20-year career, Mr. Hamilton has filled various executive marketing and sales positions. His responsibilities included strategic marketing, national sales, client relationship management and P & L management. He also served as Vice President/Division Manager with PIA Merchandising Company for several years. Mr. Hamilton spent ten years at Pepsi-Cola Company, six years with Johnson & Johnson and a year with Huffy Service First, Inc. His experience at these companies included responsibilities as Vice President retail operations, Vice President franchise operations, director of sales & marketing, trade development manager, and district sales manager. His experience involved relationships with all of the major consumer goods companies and retailers including, but not limited to, Frito Lay, Quaker Oats, Alberto Culver, Kroger and HEB. Richard J. Trout became the Company's Interim Chief Financial Officer in June 2000 and a director on the Board in September 2000. In the capacity of the Company's CFO, Mr. Trout will work side-by-side with Mr. Hamilton to facilitate the Company's plans for funding, M & A activity, strategic positioning and various other financial planning and reporting functions. Mr. Trout comes to Klever Marketing with a strong financial background working for Western Financial Bank in California as a Vice President for 12 years. For the past three years he has been the CFO and an active board member for Olson Farms Inc. D. Paul Smith became Chairman of the Board in January 2001 and has served as director of the Company since November 2000. Mr. Smith has been an ongoing financial advisor to the Company for the past five years and has played an active part in the development of the Company's business plan. Mr. Smith is Chief Financial Officer for the Arbinger Institute. William C. Bailey was elected as a director of the Company in June 1994. Mr. Bailey is President and owner of Mount Olympus Waters, Inc. and founder of Water and Power Technologies. Mr. Bailey served on the Board of Directors for the American Bottled Water Association and the International Bottled Water Association from 1975 to 1996, and was the Association's President in 1978 and again in 1990. He received the industry's first award of Excellence from IWBA in 1987 and was elected to the Beverage World Water Hall of Fame in 1989. He serves as a member of the Board of Trustees for the Utah Food Industry Associations Insurance Trust. He is a member of the Board of Trustees for the Utah Opera, currently serving as Chairman of the Board. He has been a member of the Board of Directors for KUED 1990-1996, University of Utah Alumni Board 1990-1994, and a member of the University of Utah's Fine Art's Advisory Board. He is also a member of the Salt Lake Rotary and served as Secretary 1999-2000. 19 Michael L. Mills was elected as a director of the Company in December 1998. Mr. Mills is President/CEO of Olson Farms, Inc., a diversified agricultural and real estate holding company with operations throughout the western United States. Olson Farms, Inc. deals primarily in the production, processing, and distribution of eggs, with headquarters in Ontario, California. Mr. Mills has been with Olson Farms, Inc. since 1989. Mr. Mills began his career with Deloitte & Touche in Los Angeles after graduating from the University of Utah summa cum laude in accounting and math. Paul G. Begum is the Company's founder. Mr. Begum has served in the capacities of Chairman of the Board, President and Chief Executive Officer of the Company. Mr. Begum's professional experience includes service as President and CEO of Hi Tiger International, Inc., the parent company of a major regional Internet provider that was acquired by AvTel Communications, Inc. in 1996. Mr. Begum has owned and successfully operated The Windchimer Restaurants, a Southern California restaurant chain, which he sold in the late 1970s. Additionally, Mr. Begum has over twenty years of real estate investment experience, in both investment management and commercial real estate sales. Leonard D. Southwick became a member of the Company's Board in January 2001. Mr. Southwick is currently Vice President and Director of Operations of the Riverside Metro Auto Group in Southern California and also a director on the Olson Farms Board. Mr. Southwick provides a successful history of managerial experience in the planning and execution of high growth operations. Executive Officers The Company's executive officers consist of the Corey A. Hamilton and Richard J. Trout, whose titles and business experience are described above. Board Committees and Attendance at Meetings During the fiscal year ended December 31, 2000, the Board of Directors held a total of eleven meetings. The standing committees of the Board of Directors are the Compliance Committee, the Compensation Committee, the Budget Committee and the Strategic Planning Committee. The Compliance and Audit Committee is composed of Richard J. Trout, Chairman, Michael L. Mills, D. Paul Smith, Kris Burt, the Company's Controller, and StacyAnn L. Hoerner, the Company's Corporate Secretary. The Compliance and Audit Committee's functions include: assuring the Company is in compliance with all Federal and State laws and assuring all the Company's internal rules and regulations, as set forth in the By-laws, Operating Agreement, and Certificate of Incorporation, are followed and enforced; meeting with the Company's independent auditors at least annually to review the results of the annual audit and discuss the financial results for the year as reported in the Company's financial statements; recommending to the Board of Directors the independent auditors to be retained for the ensuing year; and receiving and considering the 20 auditors' comments as to controls, adequacy of staff and management performance and procedures in connection with audit and financial controls. The Compliance and Audit Committee was formed in late November 2000 and met once during the course of the 2000 fiscal year. The Compensation Committee is composed of Michael L. Mills, Chairman, William C. Bailey, and Richard J. Trout. The Compensation Committee's functions include: assuring that the Company's human resource policies are effective in attracting, retaining, and developing outstanding executive talent; assuring that the Company has succession plans for senior management positions; assuring that the Company's total compensation program supports the Company's business goals and strategies, reinforces desired corporate behaviors, and properly recognizes performance; and assuring that the Company's compensation levels are internally equitable and externally competitive. The Compensation Committee was formed in late November 2000 and met two times during the course of the 2000 fiscal year. The Budget Committee is composed of Richard J. Trout, Chairman, Corey A. Hamilton, D. Paul Smith, and Kris Burt, the Company's Controller. The Budget Committee's functions include: approving the nature and scope of services performed by the independent accountants and reviewing the range of fees for such services; conferring with the independent accountants and reviewing the results of their audit; and reviewing the Company's internal auditing, accounting and financial controls. The Budget Committee was formed in late November 2000 and met once during the course of the 2000 fiscal year. The Strategic Planning Committee is composed of Corey A. Hamilton, Chairman, William C. Bailey, and Richard J. Trout. The Strategic Planning Committee's functions include: analyzing the applicable market for the Company's products and giving recommendations to the Board of Directors on the best methods and approach in which to market the Company's products. The Strategic Planning Committee was formed in late November 2000 and did not meet during the course of the 2000 fiscal year. During 2000, each member of the Board of Directors, attended at least 75% of the meetings of the Board, and of the committees on which such director served, held during the period for which he was a director or committee member, respectively. Section 16(a) Beneficial Ownership Reporting Compliance 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. To the best of the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ending December 31, 2000, 21 the Company believes that all reporting persons complied with all Section 16(a) filing requirements, except as follows: the Estate of Peter Dean Olson filed a late Form 3; and Paul G. Begum missed three Form 4 filings for four transactions during the last fiscal year and also missed sixteen Form 4 filings for thirty-eight transactions from 1996 through 1999. Mr. Begum's noncompliance with the requirements of Section 16(a) was uncovered during an audit after Paul G. Begum's resignation from the Company. The Company was unaware of the noncompliance prior to the investigation. ITEM 10. EXECUTIVE COMPENSATION Compensation of Directors The Board of Directors has the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment will preclude any director from serving the Company in any other capacity and receiving compensation therefore. Members of special or standing committees are allowed like compensation for attending committee meetings. The non-employee directors have not received any cash compensation for the past fiscal year. The directors have been granted options on January 26, 2001 for 100,000 common shares each. Each option is contingent upon the directors remaining on the Board for an entire year after the grant date. Each option vests on January 26, 2002 and expires January 26, 2004. Compensation of Executive Officers The following table sets forth, for the fiscal year ended December 31, 2000, certain compensation, including salary, bonuses, stock options and certain other compensation, awarded or paid to, or earned by, the Company's Chief Executive Officer and the Company's former Chief Executive Officer.

----------------------------- ------- ----------------------------------------------------------- --------------------------- Name and Annual Compensation Long-Term Compensation Principal Position Year Awards ----------------------------- ------- ----------------------------------------------------------- --------------------------- ----------------------------- ------- ----------------- ------------------- --------------------- --------------------------- Other Annual Securities Underlying Salary ($) Bonus ($) Compensation ($) Options (#) ----------------------------- ------- ----------------- ------------------- --------------------- --------------------------- ----------------------------- ------- ----------------- ------------------- --------------------- --------------------------- Corey A. Hamilton 2000 126,875 0.00 0.00 200,000 President/CEO 1999 23,5381 0.00 0.00 100,000 ----------------------------- ------- ----------------- ------------------- --------------------- --------------------------- ----------------------------- ------- ----------------- ------------------- --------------------- --------------------------- Paul G. Begum 2000 96,7802 0.00 33,1912 0 Former Chairman/CEO 1999 72,0002 17,500 185,3862 237,000 1998 72,0002 14,000 88,0892 0 ----------------------------- ------- ----------------- ------------------- --------------------- ---------------------------

1 Corey A. Hamilton joined the Company in September 1999 as the Vice President of Sales and Marketing. In May of 2000, Mr. Hamilton was named President, and later was named Chief Executive Officer upon Paul G. Begum's resignation in December 2000. 2 Paul G. Begum resigned as Chief Executive Officer in December 2000 and ceased acting as Chairman in January 2001, however remains a director of the Board. In addition to the compensation noted above, Mr. Begum applied $33,191, $185,386, and $88,089 in 2000, 1999, and 1998 respectively for an exercise of a Company stock option and also signed a note in February 2000 for that option for the balance of $191,776; the note was paid down to $93,876 as of December 31, 2000. 22 Corey A. Hamilton Employment Agreement In July 2000, an Employment Agreement was entered into between the Company and Corey A. Hamilton. The agreement sets forth the mutual covenants and conditions of Mr. Hamilton's employment. Namely, the agreement states that the Company will employ Mr. Hamilton as the President of the Company to perform such duties generally associated with such office. In such capacity, Mr. Hamilton will report to and be under direct supervision of Paul G. Begum, the Company's then-current Chief Executive Officer. Upon Mr. Begum's resignation, see below, Mr. Hamilton was also named the Company's Chief Executive Officer. The Compensation Committee recommended that the Board ratify Corey A. Hamilton's contract at a base salary of $150,000 through July 2001 and name him President/Chief Executive Officer. In addition, the Committee recommended granting a 100,000-share option with the strike price being the weighted average for the last 10 days from the date of the Board Meeting (October 27, 2000). The option is to vest as follows: 50,000 shares shall vest in one year (October 27, 2001), and the remaining 50,000 shall vest in two years (October 27, 2002). The option shall expire October 27, 2003. If the Company were to have a change in control defined as a merger or were to be acquired, the shares will vest immediately. Paul G. Begum Separation Agreement In January 2001, a Separation Agreement was entered into between the Company, Paul G. Begum, PSF, Inc., a Utah corporation, and Tree of Stars, Inc., a Nevada corporation. The agreement sets forth the terms and conditions of Mr. Begum's resignation and termination. Namely, the Company agrees to the following: First, the Company agrees to pay all business expenses charged to Mr. Begum's Advanta credit card in the approximate amount of $26,000 Second, the Company agrees to pay Mr. Begum $20,000 in cash and reduce the principal amount owing under the PSF, Inc. Note by $13,000. Third, the Company agrees to make all lease payments through the end of the lease term on the Lexus vehicle Mr. Begum is currently using, at which time Mr. Begum will be responsible to either purchase the vehicle personally or return the vehicle pursuant to the lease. To the extent the lease payments exceed $500.00 per month, Mr. Begum will reimburse the Company the excess amount upon written notice by the Company. Fourth, the Company agrees to continue to make all lease payments through the end of the lease term on the laptop computer Mr. Begum is currently using, at which time Mr. Begum will comply with the lease with respect to disposition of the laptop computer. Fifth, the Company agreed to hire Mr. Begum as a consultant for seven months following the execution of the separation agreement. Mr. Begum would be paid $6,500.00 per month for seven months as a consulting fee. The Company agrees to cooperate with Mr. Begum's fundraising activities by providing promotional materials and having a Company representative attend the fundraising activities. Sixth, the separation agreement states that Mr. Begum is personally responsible for his medical insurance premiums effective January 1, 2001. Seventh, Mr. Begum is responsible to transfer the cellular phone he is currently using into his personal name and is responsible to pay all charges relating to 23 such telephone service from and after January 4, 2001. Eighth, The Company will reimburse Mr. Begum for attorneys' fees and legal expenses that he has personally incurred, but only up to a maximum of $3,000. Ninth, the Company agrees to continue to reimburse Mr. Begum for all travel and related expenses incurred in connection with fundraising activities for the Company so long as such expenses are authorized and approved by the Company in advance. Lastly, Mr. Begum has the right, prior to July 31, 2001, to surrender to the Company 100,000 shares of the Company's Common Stock owned by PSF, Inc. in full satisfaction of all amounts owing under the PSF, Inc. Note. Gerard C. Coelsch Employment Agreement In June 1998, an Employment Agreement was entered into between the Company and Gerald C. Coelsch. The agreement sets forth the mutual covenants and conditions of Mr. Hamilton's employment. Namely, the agreement states that the Company would have employed Mr. Coelsch for a one-year period beginning on July 6, 1998 and ending on July 8, 1999 (the "First Contract Year"). If the Company obtained a binding commitment to raise capital, or did in fact raise capital, in an amount of at least $5,000,000, through a private or public offering, or the Board of Directors approved any other funding method, during the First Contract Year, the term of Mr. Coelsch's employment would have automatically extended for a two year period (the "Extension Period"). The Extension period would have begun on the date that the Company first obtained such binding commitment for capital or first raises such capital, whichever occurred first, or the date the Board of Directors approved such other funding method, provided such funding transaction was ultimately consummated. Mr. Coelsch's term of employment would have automatically renewed for additional one-year terms unless, at least sixty (60) days prior to the expiration of the current term, either Mr. Coelsch or the Company provided written notice to the other party that such party was terminating the employment of Mr. Coelsch. Mr. Coelsch was to assume the office of President and Chief Operating Officer of the Company. Mr. Coelsch would have been paid an annual salary of $200,000, unless mutually agreed by Mr. Coelsch and the Company to adjust Mr. Coelsch's salary. Additionally, Mr. Coelsch would have received or been paid cash bonuses, moving expenses, rent payments during the first twelve months of the agreement, travel allowance for the first two months of the agreement for two round-trip air tickets from Jacksonville, Florida to Salt Lake City, Utah, vacation and other fringe benefits. Additionally, Mr. Coelsch was granted the option to purchase 400,000 shares of Common Stock of the Company. If the Company obtained a binding commitment to raise capital, or did in fact raise capital, in an amount of at least $5,000,000.00, through a private or public offering, then the Company agreed to grant Mr. Coelsch an additional option as follows: (i) if the price per share in such private or public offering was at least $4.00 per share, the additional option would be for 50,000 shares (for an aggregate of 450,000 shares subject to the option and additional option; and (ii) if the price per share in such private or public offering was at least $4.50 per share, an additional 50,000 shares will be subject to the additional option (for an aggregate of 500,000 shares subject to the option and additional option). 24 Gerard C. Coelsch Separation Agreement In May 1999, a Separation Agreement was entered into between the Company and Gerard C. Coelsch. The agreement set forth the terms and conditions of Mr. Coelsch's resignation and termination. Namely, the Company agreed to the following. First, the Company agreed to pay $41,184 in cash for accrued salary. Second, the Company agreed to pay Mr. Coelsch $6,000 reimbursement for legal expenses. Third, the Company agreed to pay Mr. Coelsch $3,567 for unused vacation days. Fourth, the 175,000 options granted to Mr. Coelsch became immediately exercisable and the Company agreed to grant Mr. Coelsch an additional 25,000 options which were immediately exercisable, provided however that all 200,000 options were $2.50 per share and the options were not assignable by Mr. Coelsch by operation of law or otherwise except pursuant to inheritance, or a merger of the Company with a company which is not an affiliate of the Company and in which the Company is not the surviving company. Lastly, the Company agreed to continue to list Mr. Coelsch on its healthcare and dental plans as a terminated employee though November 30, 1999 or until notified by Mr. Coelsch that such coverage is not desired. Mr. Coelsch was responsible for the premiums paid by the Company and was to pay the Company no later than the 20th day of each month, an amount equal to $379 for healthcare coverage per month, and $28 for dental coverage per month, for the coverage in the subsequent month to such respective payment. In the event the Company did not receive such respective payment on or before such date, the insurance coverage contemplated shall lapse, without recourse or renewal. The Company had no obligation to notify Mr. Coelsch of this obligation, or the lapse of coverage. 1998 Stock Incentive Plan The 1998 Stock Incentive Plan ("Plan") was adopted by the Board of Directors on June 1, 1998 and approved by the stockholders of the Company on November 13, 1998, covering 3,500,000 shares of the Common Stock subject to customary prorata adjustments. The Plan, which is administered by the Board of Directors or a committee thereof, provides for the granting of options stock grants, stock appreciation rights and other stock related awards to officers, directors and certain and consultants. For incentive stock options the awards will be at 100% (or 110% in come cases) of fair market value of the common stock on the date of the grant. The Board or committee determines the optionees, option prices, dates of grant, applicable vesting period and restrictions on transfer or special conditions of forfeiture. Options are not transferable by the optionee other than on death by will or applicable laws of descent and distribution. Incentive stock options awarded under the Plan are intended to qualify as incentive stock options under the applicable provisions of the Internal Revenue Code. As of the date hereof, options covering 1,044,352 shares of common stock have been awarded under the Plan. Shares of Common Stock are reserved under the Plan for issuance upon the exercise of options and other stock-based incentives. The Plan permits the award of both qualified and non-qualified incentive stock options. The purpose of the Plan is to enable the Company to attract and retain the services of and provide performance incentives to (1) selected employees, directors and officers of the Company or of any subsidiary of the Company and (2) selected non-employee agents, consultants, advisors and independent contractors of the Company or any subsidiary. 25

OPTION GRANTS IN LAST FISCAL YEAR ------------------------------- ------------------- --------------------- --------------------- ----------------------- Number of Securities Underlying % of Total Option Options Granted Granted to Employees Exercise Price ($) Expiration Date ------------------------------- ------------------- --------------------- --------------------- ----------------------- ------------------------------- ------------------- --------------------- --------------------- ----------------------- Corey A. Hamilton 100,000 16.5% 1.78 07/24/2004 ------------------------------- ------------------- --------------------- --------------------- ----------------------- Corey A. Hamilton 100,000 16.5% 1.41 10/27/2003 ------------------------------- ------------------- --------------------- --------------------- ----------------------- Richard J. Trout 25,000 4.1% 1.91 09/07/2002 ------------------------------- ------------------- --------------------- --------------------- ----------------------- Michael L. Mills 0 0 N/A N/A ------------------------------- ------------------- --------------------- --------------------- ----------------------- D. Paul Smith 0 0 N/A N/A ------------------------------- ------------------- --------------------- --------------------- ----------------------- William C. Bailey 0 0 N/A N/A ------------------------------- ------------------- --------------------- --------------------- ----------------------- Paul G. Begum 0 0 N/A N/A ------------------------------- ------------------- --------------------- --------------------- ----------------------- Leonard D. Southwick N/A N/A N/A N/A ------------------------------- ------------------- --------------------- --------------------- -----------------------

OPTION EXERCISES AND YEAR END VALUE TABLE ------------------------------ ------------ -------------- ---------------------------------------------------------------------- At Fiscal Year End ------------------------------ ------------ -------------- ----------------------------------- ---------------------------------- Shares Acquired on Value Number of Securities Underlying Value of Unexercised exercise Realized ($) Unexercised Options in-the-money options ($) (a) ------------------------------ ------------ -------------- ----------------------------------- ---------------------------------- Exercisable Unexercisable Exercisable Unexercisable ------------------------------ ------------ -------------- -------------- -------------------- -------------- ------------------- Corey A. Hamilton 0 0 125,000 175,000 0 0 ------------------------------ ------------ -------------- -------------- -------------------- -------------- ------------------- Richard J. Trout 0 0 25,000 0 0 0 ------------------------------ ------------ -------------- -------------- -------------------- -------------- ------------------- Michael L. Mills 0 0 12,000 0 0 0 ------------------------------ ------------ -------------- -------------- -------------------- -------------- ------------------- D. Paul Smith 0 0 10,000 0 0 0 ------------------------------ ------------ -------------- -------------- -------------------- -------------- ------------------- William C. Bailey 28,979 31,008 20,000 0 0 0 ------------------------------ ------------ -------------- -------------- -------------------- -------------- ------------------- Paul G. Begum 608,564 529,451 237,000 0 0 0 ------------------------------ ------------ -------------- -------------- -------------------- -------------- ------------------- Leonard D. Southwick N/A N/A N/A N/A N/A N/A ------------------------------ ------------ -------------- -------------- -------------------- -------------- -------------------

(a) The closing price of the Company's Common Stock was $0.37 per share on December 31, 2000, the last business day of the fiscal year. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationship exists between the Board of Directors or Compensation Committee and the Board of Directors or Compensation Committee of any other company, nor has any such interlocking relationship existed in the past. 26 ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 31, 2001, certain information regarding the ownership of the Company's Common Stock (including shares of Common Stock which may be issued on conversion of outstanding Preferred Stock, convertible into Common Stock at the rate of 1 share of Preferred Stock into 10 shares of Common Stock) by: (1) all those known by the Company to be beneficial owners of more than five percent of the outstanding shares of the Company's Common, who are not directors, nominees for director, or executive officers; (2) each director and nominee for director; (3) each of the executive officers; and (4) all directors and executive officers of the Company as a group. 27 Name of Beneficial Owner Number of Shares Percent (%) of Class Beneficially Owned Beneficial Owned Peter Dean Olson Trust ........................ 2,511,270 15.56% 601 S. Milliken Ave, Ste K-100 Ontario, CA 91761 Olson Farms, Inc............................... 1,555,225-1 9.63% 601 S. Milliken Ave., Ste K-100 Ontario, CA 91761 Estate of Peter Dean Olson .................... 961,444-2 5.95% 601 S. Milliken Ave, Ste K-100 Ontario, CA 91761 C. Terry Warner ............................... 902,540-3 5.59% 1278 Locust Lane Provo, UT 84604 Primavera, Ltd................................. 819,980-4 5.07% 1278 Locust Lane Provo, UT 84604 Corey A. Hamilton.............................. 300,000-5 1.85% 350 W 300 S, Ste 201 Salt Lake City, UT 84101 Richard J. Trout............................... 50,000-6 0.31% 601 S. Milliken Ave, Ste K-100 Ontario, CA 91761 William C. Bailey.............................. 264,801-7 1.64% PO Box 25426 Salt Lake City, UT 84125 Paul G. Belgum................................. 3,327,470-8 20.61% PO Box 58045 Salt Lake City, UT 84158 Michael L. Mills............................... 2,819,652-9 17.46% 601 S. Milliken Ave, Ste K-100 Ontario, CA 91761 Leonard D. Southwick........................... 0 0% 8489 Sunshine Ln Riverside, CA 92508 1) Represents: (a) 961,944 Common Shares held by the Estate of Peter Dean Olson, subject to court approval as to which the Peter D. Olson Trust disclaims beneficial ownership; and 79,546 Preferred Shares (convertible within the next 60 days into 795,460 Common Shares) and 759,765 Common Shares owned by Olson Farms, Inc. as to which the Peter D. Olson Trust may be deemed to share voting and investment power, but as to all except the Peter Dean Olson Trust's indirect 0.0322% interest in Olson Farms, Inc. beneficial ownership is disclaimed by the Peter D. Olson Trust. 2 Represents: 79,546 Preferred Shares (convertible within the next 60 days into 795,460 Common Shares) held by Olson Farms, Inc.; and 759,765 Common Shares held by Olson Farms, Inc. 28 D. Paul Smith ................................. 178,612-10 1.10% 350 W 300 S, Ste 100 Salt Lake City, UT 84101 Tree of Stars ................................. 2,566,777-11 15.89% PO Box 58045 Salt Lake City, UT 84158 Presido Investments, LLC....................... 2,171,048-12 13.45% 1850 North Central Ave., Ste 500 Phoenix, AZ 85004 The Seabury Group, LLC......................... 641,890-13 3.98% 540 Madison Ave New York, NY 10022 1) Represents: (a) 961,944 Common Shares held by the Estate of Peter Dean Olson, subject to court approval as to which the Peter D. Olson Trust disclaims beneficial ownership; and 79,546 Preferred Shares (convertible within the next 60 days into 795,460 Common Shares) and 759,765 Common Shares owned by Olson Farms, Inc. as to which the Peter D. Olson Trust may be deemed to share voting and investment power, but as to all except the Peter Dean Olson Trust's indirect 0.0322% interest in Olson Farms, Inc. beneficial ownership is disclaimed by the Peter D. Olson Trust. Certain preferred shareholders and the Company are in negotiation over the precise number of common shares their preferred stock is convertible. This may result in a greater of converted common shares. 2 Represents: 79,546 Preferred Shares (convertible within the next 60 days into 795,460 Common Shares) held by Olson Farms, Inc.; and 759,765 Common Shares held by Olson Farms, Inc. Certain preferred shareholders and the Company are in negotiation over the precise number of common shares their preferred stock is convertible. This may result in a greater of converted common shares. 3 Represents: Shares held by the Estate of Peter Dean Olson, subject to court approval. Excludes all Common Shares and all Preferred Shares held by Olson Farms, Inc. in which the Estate holds a 0.0322% indirect interest. 4 Represents: 12,500 Common Shares held by C. Terry Warner; 819,980 Common Shares held by Primavera, Ltd as to all of which Mr. Warner disclaims beneficial ownership; 55,060 Common Shares held by Alice Warner as to all of which Mr. Warner disclaims beneficial ownership; and 15,000 Common Shares held by Susan Warner as to all of which Mr. Warner disclaims beneficial ownership. 5 Represents: Mr. Hamilton's options covering 300,000 Common Shares. This calculation does not include the options granted on January 26, 2001. 6 Represents: 25,000 Common Shares held by Mr. Trout; and Mr. Trout's options covering 25,000 Common Shares. This calculation does not include the options granted on January 26, 2001. 7 Represents: 224,801 Common Shares held by William C. Bailey; Mr. Bailey's options covering 20,000 Common Shares exercisable within the next 60 days; and 20,285 Common Shares held by the William C. Bailey Family Trust as to all of which Mr. Bailey disclaims beneficial ownership. This calculation does not include the options granted on January 26, 2001. 8 Represents: 31,834 Common Shares held by Mr. Begum; Mr. Begum's options covering 237,000 Common Shares expired April 9, 2001; 2,542,967 Common Shares held by Tree of Stars as to all of which Mr. Begum disclaims beneficial ownership; 2,381 Preferred Shares (convertible within the next 60 days into 23,810 Common Shares) as to all of which Mr. Begum disclaims beneficial ownership; and 638,859 Common Shares held by Reed H. Bradford Center as to all of which Mr. Begum disclaims beneficial ownership. This calculation does not include the options granted on January 26, 2001. Certain preferred shareholders and the Company are in negotiation over the precise number of common shares their preferred stock is convertible. This may result in a greater of converted common shares. 9 Represents: 23,182 Common Shares held by Michael L. Mills; Mr. Mills' options covering 12,000 Common Shares exercisable within the next 60 days; 79,546 Preferred Shares (convertible within the next 60 days into 795,460 Common Shares) held by Olson Farms, Inc., of which Mr. Mills is President as to all of which Mr. Mills disclaims beneficial ownership; 759,765 Common Shares held by Olson Farms, Inc., of which Mr. Mills is President as to all of which Mr. Mills disclaims beneficial ownership; 150,000 Common Shares held by The Olson Foundation, of which Mr. Mills is one of four trustees, as to all of which Mr. Mills disclaims beneficial ownership; 14,990 Preferred Shares (convertible within the next 60 days into 149,900 Common Shares) held by the Olson Foundation, of which Mr. Mills is one of four trustees, as to all of which Mr. Mills disclaims beneficial ownership; and 961,944 Common Shares held by the Estate of Peter Dean Olson, of which Mr. Mills is executor, as to all of which Mr. Mills disclaims beneficial interest. This calculation does not include the options granted on January 26, 2001. Certain preferred shareholders and the Company are in negotiation over the precise number of common shares their preferred stock is convertible. This may result in a greater of converted common shares. 10 Represents: 168,612 Common Shares held by Mr. Smith; and Mr. Smith's options covering 10,000 Common Shares. This calculation does not include the options granted on January 26, 2001. 11 Represents: 2,542,967 Common Shares held by Tree of Stars as to all of which Mr. Begum disclaims beneficial ownership; 2,381 Preferred Shares (convertible within the next 60 days into 23,810 Common Shares) held by Tree of Stars as to all of which Mr. Begum disclaims beneficial ownership. Certain preferred shareholders and the Company are in negotiation over the precise number of common shares their preferred stock is convertible. This may result in a greater of converted common shares. 12 Represents: 207,619 Preferred Shares (convertible within the next 60 days into 2,076,190 Common Shares) should Presidio Investments, LLC chose to convert their $1.5M note to the Company; 94,858 Common Shares held by Presidio Investments, LLC. Certain preferred shareholders and the Company are in negotiation over the precise number of common shares their preferred stock is convertible. This may result in a greater of converted common shares. 13Represents: Certain preferred shareholders and the Company are in negotiation over the precise number of common shares their preferred stock is convertible. This may result in a greater of converted common shares. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company's Building Lease The Office Space occupied by the Company is jointly owned by the estate of Peter Dean Olson and Tree of Stars, Inc. The Company leases on a month-to-month basis, 5,272 square feet at a monthly rental of $6,151. Olson Farms, Inc. Loan to the Company Olson Farms, Inc. made a $150,000 unsecured loan to the Company on February 26, 2001. This note has a six-month term at 10% annual interest rate maturing on August 26, 2001. The maker of the note may give written notice within 10-days of maturity, to the Company, to convert the principal and interest into common stock with a convertible price of $1.037 (10-day weighted average from February 26, 2001 and the nine days prior). Presidio Investments, LLC Loan to the Company Presidio Investments, LLC has loaned the Company $1,000,000, and a subsequent advance of $50,000, which loan is secured by a blanket lien on the assets of the Company and is convertible into equity at the discretion of the note holder. The sole trustee of Presidio Investments, LLC is William J. Howard, trustee of the Olson Legacy Trust, whose residual beneficiary is the Olson Foundation. The Olson Foundation obtained the funds loaned by borrowing such funds from Northern Trust Bank of Arizona. This note was amended on March 22, 2001 with an additional $450,000 loaned to the Company Between January 1, 2001 and March 22, 2001. An interest rate of 8% applies until March 31, 2001 and increases on April 1, 2001 to 10%. Principal and all due and unpaid interest are to be paid on October 1, 2001. Director Loan to the Company 30 On February 20, 2001, the Company borrowed $50,000 from Leonard D. Southwick, a member of the Board of Directors. This loan was repaid on February 26, 2001. The interest rate on the note was 9% and matured on March 19, 2001. Seabury Engagement The Seabury Group and its Managing Director, John Luth, a beneficial owner of Preferred Stock (collectively, "Seabury"), entered into an agreement with the Company in December, 2000 under which Seabury has been engaged to render services as a placement agent, financial advisor and possible business combination transactions to the Company in connection with one or more potential future private financings. In exchange, Seabury would receive contingent cash compensation based upon the level of financing, if obtained. In addition, the Company would reimburse a certain amount of Seabury's expenses incurred in the course of its engagement. ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report. 1. Financial Statements Page Report of Robison, Hill & Co., Independent Certified Public Accountants......F-1 Balance Sheets December 31, 2000, and 1999................................................F-2 Statements of Loss For the Years Ended December 31, 2000, and 1999............................F-4 Statement of Stockholders' Equity For the Years Ended December 31, 2000, and 1999............................F-5 Statements of Cash Flows For the Years Ended December 31, 2000, and 1999...........................F-10 Notes to Financial Statements December 31, 2000, and 1999...............................................F-12 2. Financial Statement Schedules There are no financial statements schedules included because they are either not applicable or the required information is shown in the consolidated financial statements or the notes thereto. 3. Exhibits The following exhibits are included as part of this report: Exhibit Number Title of Document 31 3.01 Restated Certificate of Incorporation of Klever Marketing, Inc. a Delaware corporation(1) 3.03 Bylaws, as amended(1) 10.01 Employment Agreement between Gerard C. Coelsch and the Registrant dated June 26,1998(2) 10.02 Employment Agreement between Corey Hamilton and the Registrant dated July 24, 2000(2) 10.03 Separation Agreement between Paul G. Begum and the Registrant dated January 8, 2001(2) 10.04 Stock Incentive Plan, effective June 1, 1998(2) 10.05 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) (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. (b) No reports on Form 8-K were filed by the Company during the last quarter of the fiscal year covered by this report except as follows: (i) On October 12, 2000 the Company filed a report on Form 8-K reporting the addition of two members to the Company's Board of Directors: Corey A. Hamilton, the Company's President, was voted onto the Board on September 12, 2000; and Richard J. Trout, the Company's Interim CFO as of June 16, 2000, was named to the Board on September 25, 2000. 32 (ii) On November 28, 2000 the Company filed a report on Form 8-K reporting that the Company ceased operations of its current system in Ralphs Grocery Company stores due to business reasons and not the operations of the current system. [Not filed during last quarter of the fiscal year] SIGNATURES In accordance with 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 27, 2001 By: /s/Corey A. Hamilton Corey A. Hamilton President, C.E.O., Director In accordance with 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 and on the dates indicated. Signatures Title Date /s/Corey A. Hamilton Corey A. Hamilton President, C.E.O. April 27, 2001 (Principal Executive, Financial and Accounting Officer) and Director /s/Richard J. Trout Richard J. Trout Interim C.F.O. and Director April 27, 2001 /s/D. Paul Smith D. Paul Smith Chairman of the Board April 27, 2001 /s/William C. Bailey William C. Bailey Director April 27, 2001 /s/Michael L. Mills Michael L. Mills Director April 27, 2001 33 /s/Paul G. Begum Paul G. Begum Director April 27, 2001 /s/Leonard D. Southwick Leonard D. Southwick Director April 27, 2001 34 INDEPENDENT AUDITOR'S REPORT Board of Directors Klever Marketing, Inc. Salt Lake City, Utah We have audited the accompanying balance sheets of Klever Marketing, Inc. as of December 31, 2000 and 1999, and the related statements of operations, changes in stockholders' equity and cash flows for the two years 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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., as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the two years then ended in conformity with generally accepted accounting principles. Respectfully submitted, /S/ ROBISON, HILL & CO. Certified Public Accountants Salt Lake City, Utah March 12, 2001 F - 1 KLEVER MARKETING, INC. BALANCE SHEET DECEMBER 31, ----------------------------- ASSETS ..................................... 2000 1999 ----------- ----------- Current Assets Cash .................................. $ 2,870 $ 203,232 Accounts Receivable ................... 8,631 -- Prepaid Expense ....................... 5,000 -- Shareholder Receivables ............... 103,854 34,892 Other Assets .......................... 92,339 -- ----------- ----------- Total Current Assets ............. 212,694 238,124 ----------- ----------- Fixed Assets Office Equipment ...................... 155,298 77,279 Phase 2 Equipment ..................... -- 445,330 Less Accumulated Depreciation ......... (78,663) (56,798) ----------- ----------- Net Fixed Assets ................. 76,635 465,811 ----------- ----------- Other Assets Patents ............................... 2,247,153 2,212,850 Less Accumulated Amortization ......... (1,477,349) (1,266,201) ----------- ----------- Net Other Assets ................. 769,804 946,649 ----------- ----------- Total Assets ..................... $ 1,059,133 $ 1,650,584 =========== =========== F - 2 KLEVER MARKETING, INC. BALANCE SHEET (Continued)

DECEMBER 31, -------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY ........... 2000 1999 ---------- ---------- Current Liabilities Accounts Payable, Trade ................... $ 192,510 $ 401,708 Accrued Liabilities ....................... 166,078 458,563 Related Party Payables .................... 1,228,750 191,250 Short-term Notes Payable .................. 8,478 259,115 ---------- ---------- Total Current Liabilities ............ 1,595,816 1,310,636 Non-Current Liabilities Lease Obligation Payable .................. 9,057 -- ---------- ---------- Total Liabilities .................... 1,604,873 1,310,636 ---------- ---------- Stockholders' Equity Preferred stock (par value $.01), 2,000,000 shares authorized 94,191 issued and outstanding December 31, 2000 and -0- issued and outstanding December 31, 1999 942 -- Common Stock (Par Value $.01), 20,000,000 shares authorized 12,152,768 shares issued and outstanding December 31, 2000 and 11,275,121 shares issued and outstanding December 31, 1999 .................. 121,528 112,751 Common Stock to be issued ........................ 4,356 4,589 Paid in Capital in Excess of Par Value ......... 11,546,459 8,375,350 Retained Deficit ............................... (12,219,025) (8,152,742) ------------ ----------- Total Stockholders' Equity ............... (545,740) 339,948 ------------ ----------- Total Liabilities and Stockholders' Equity $ 1,059,133 $ 1,650,584 ============ ===========

The accompanying notes are an integral part of these financial statements F - 3 KLEVER MARKETING, INC. STATEMENT OF LOSS For the Year Ended December 31, ------------------------------ 2000 1999 ------------ ------------ Revenue ...................................... $ 27,000 $ -- ------------ ------------ Expenses Sales and marketing ........................ 83,617 General and administrative ................. 2,312,875 1,015,700 Research and development ................... 1,830,349 689,558 ------------ ------------ Total Expenses .......................... 4,226,841 1,705,258 ------------ ------------ Other income (expense) Interest income ............................ 11,764 1,276 Interest expense ........................... (68,364) (30,541) Capital gain on sale of investment ......... 190,258 -- ------------ ------------ Total Other Income (Expense) ............ 133,658 (29,265) ------------ ------------ Income (Loss) Before Taxes ................... (4,066,183) (1,734,523) Income Taxes ................................. 100 100 ------------ ------------ Net Income (Loss) After Taxes ................ $ (4,066,283) $ (1,734,623) ============ ============ Weighted Average Shares Outstanding ................................ 11,978,017 11,361,021 ============ ============ Loss Per Share ............................... $ (0.34) $ (0.15) ============ ============ The accompanying notes are an integral part of these financial statements. F - 4 KLEVER MARKETING, INC. STATEMENT OF STOCKHOLDERS' EQUITY

Paid in Common Stock Capital in Preferred Stock Common Stock to be issued Excess of Retained -------------- -------------- Shares Amount Shares Amount Shares Amount Par Value Deficit ------ ------ ------ ------ ------ ------ --------- ------- Balance at January 1, 1999 ............. -- $ -- 10,394,819 $ 103,948 458,918 $4,589 $ 6,625,919 $(6,418,119) January 1999 shares returned at $.67 to $1.58 per share ............. -- -- (62,489) (624) -- -- (107,047) -- January & February 1999 issued shares to individuals for cash at $2.00 per share ..................... -- -- 112,500 1,125 -- -- 223,875 -- January & February 1999 issued shares to individuals for cash at $2.25 per share ..................... -- -- 224,444 2,244 -- -- 502,755 -- January 1999 shares issued to employee for compensation at $2.34 per share .................... -- -- 1,328 13 -- -- 3,094 -- April & June 1999 issued shares to individuals for cash at $2.25 to $2.50 per share ........... -- -- 40,689 407 -- -- 91,344 -- April 1999 shares issued to employee for compensation at $1.95 per share ....................... -- -- 1,667 17 -- -- 3,093 -- June 1999 shares issued for exercise of option at $.86 per share ............................. -- -- 231,834 2,318 -- -- 197,059 --

F - 5 KLEVER MARKETING, INC, STATEMENT OF STOCKHOLDER'S EQUITY (Continued)

Paid in Common Stock Capital in Preferred Stock Common Stock to be issued Excess of Retained --------------- -------------- Shares Amount Shares Amount Shares Amount Par Value Deficit ------ ------ ------ ------ ------- ------ ---------- -------- July 1999 shares issued to for cash at $2.25 per share ........ -- $-- 72,500 $ 725 -- $ -- $ 162,400 $ -- July & August 1999 shares issued to individuals for cash at $2.50 per share ........................ -- -- 78,500 785 -- -- 195,465 -- July 1999 issued shares to employee for cash at $1.96 per share .......................... -- -- 1,285 13 -- -- 2,506 -- August 1999 issued shares to individuals for cash at $3.00 per share ............................... -- -- 5,607 56 -- -- 16,764 -- September 1999 shares issued to an individual exercise of optio at $.52 per share ................... -- -- 6,437 64 -- -- 3,283 -- September 1999 shares issued to an individual for cash at $2.75 per share ........................... -- -- 6,000 60 -- -- 16,440 -- October & November 1999 shares issued to individuals for cash at $2.75 per share ................... -- -- 160,000 1,600 -- -- 438,400 -- Net Loss .............................. -- -- -- -- -- -- -- (1,734,623) ------ ------ -------- ------ -------- ------- ------ ---------- Balance at December 31, 1999 ......... -- -- 11,275,121 112,751 458,918 4,589 8,375,350 (8,152,742)

F - 6 KLEVER MARKETING, INC, STATEMENT OF STOCKHOLDER'S EQUITY (Continued)

Paid in Common Stock Capital in Preferred Stock Common Stock to be issued Excess of Retained --------------- -------------- Shares Amount Shares Amount Shares Amount Par Value Deficit ------ ------ ------ ------- ------- ------ --------- --------- January 2000 shares to company for cash at $2.75 per share ........ -- $-- 27,273 $ 273 - $ -- $ 74,727 $ -- February 2000 shares issued for compensation at $3.99 per share .... -- -- 74,608 746 - -- 296,939 -- February 2000 exercise of stock option for cash and note receivable at $0.86 per share ...... -- -- 579,585 5,796 - -- 492,646 -- February 2000 shares to individual for cash at $1.07 per share ...... -- -- 28,979 290 - -- 30,718 -- February 2000 shares canceled and converted to preferred shares at $2.75 per share .................. -- -- (100,000) (1,000) - -- (274,000) -- January & February 2000 shares issued to companies for cash at $26 per share ............... 5,769 57 -- -- -- 149,943 -- February 2000 shares converted from common shares at $26 per share ...................... 10,576 106 -- -- - -- 274,894 -- February 2000 conversion of note payable to preferred shares at $26 9,615 96 -- -- - -- 249,904 -- February 2000 shares issued to company for cash at $26 per share .............................21,285 213 -- -- - -- 553,162 --

F - 7 KLEVER MARKETING, INC, STATEMENT OF STOCKHOLDER'S EQUITY (Continued)

Paid in Common Stock Capital in Preferred Stock Common Stock to be issued Excess of Retained --------------- -------------- Shares Amount Shares Amount Shares Amount Par Value Deficit ------- ------- ------ ------ ---- ------- --------- -------- January 2000 shares to company March 2000 shares issued to company for accounts payable at $3.00 per share ................. -- $ -- 2,603 $ 26 -- $-- 7,783 -- March 2000 shares issued to individual for cash at $2.75 per share .......................... -- -- 10,909 109 -- -- 29,891 -- April 2000 exercise of stock option by individual for cash at $1.07 per share .......................... -- -- 18,193 182 -- -- 19,285 -- April 2000 shares issued to company for cash at $2.50 per share .............................. -- -- 40,312 403 -- -- 100,377 -- May 2000 shares issued to company for cash at $2.75 per share .............................. -- -- 54,546 546 -- -- 149,455 -- May 2000 shares issued to companies for accounts payable at $2.75 per share ................. -- -- 6,885 69 -- -- 18,866 -- May 2000 paid-in capital from treasury stock transaction ......... -- -- -- -- -- -- 5,980 -- May 2000 shares issued to individual that were paid for in 1997 -- -- 23,334 233 (23,334) (233) -- -- May 2000 shares issued to

F - 8 KLEVER MARKETING, INC, STATEMENT OF STOCKHOLDER'S EQUITY (Continued)

Paid in Common Stock Capital in Preferred Stock Common Stock to be issued Excess of Retained --------------- -------------- Shares Amount Shares Amount Shares Amount Par Value Deficit ------ ------ ------ ------- ------ ------ --------- --------- January 2000 shares to company March 2000 shares issued to company for cash at $26.00 per share ............................. 5,769 $ 58 -- $ -- -- $ -- $149,942 $ -- July 2000 shares issued to individuals for cash at $1.07 per share ........................... -- -- 68,744 687 -- -- 72,869 -- July 2000 paid-in capital from treasury stock transaction ...........-- -- -- -- -- -- 10,200 -- September 2000 stock issued to company for cash at $17.00 per share ..............................41,177 412 -- -- -- -- 699,588 -- November & December 2000 shares issued to individuals for cash at $1.50 to $1.56 per share . -- -- 48,979 490 -- -- 74,717 -- December 2000 shares issued to individual for legal services at $0.89 per share .................. -- -- 2,697 27 -- -- 2,373 -- December 2000 shares returned at $1.73 to $2.12 per share ......... -- -- (10,000) (100) -- -- (19,150) -- Net Loss ............................ -- -- -- -- -- -- -- (4,066,283) ---- ------ ------- ------- ------ -------- -------- ---------- Balance December 31, 2000 ............ 94,191 $942 12,152,768 $ 121,528 435,584 $4,356 $11,546,459 $(12,219,025) ==== ====== ========= ======== ======= ======= ========== =============

The accompanying notes are an integral part of these financial statements. F - 9 KLEVER MARKETING, INC. STATEMENT OF CASH FLOWS

For the Year ended December 31, ------------------------- 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss ......................................................$(4,066,283) $(1,734,623) Adjustments used to reconcile net loss to net cash provided by (used in) operating activities: Stock issued for general and administrative ................... 603,777 49,999 Stock issued for patents and equipment ......................... 16,189 -- Write-off of research and development equipment ..................445,330 -- Stock issued for account payable ................................. 18,935 6,218 Stock issued for interest expense .............................. 20,400 -- Depreciation and amortization ....................................233,404 217,454 (Increase) decrease in accounts receivable ....................... (8,631) -- (Increase) decrease in shareholder receivable .................. ( 69,712) 101,928 (Increase) decrease in other assets & prepaid expense ........... (97,339) -- Increase (decrease) in accounts payable .........................(209,197) (211,372) Increase (decrease) in lease obligation payable .............. 9,057 -- Increase (decrease) in accrued liabilities ..................... (293,122) 393,505 ----------- ----------- Net Cash Used in Operating Activities ........................... (3,397,192) (1,176,891) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition/Sale of equipment, net ............................. $ (78,019) $ (455,790) Acquisition of patents ............................................. (34,303) (14,740) ----------- ----------- Net Cash Used by Investing Activities ..............................(112,322) (470,530) =========== =========== CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds capital stock issued ...................................... 2,521,652 1,702,017 Proceeds from loans .............................................. 1,062,500 265,328 Conversion of note payable to preferred stock ...................... (250,000) -- Stock issued for note payable ..................................... (25,000) -- Principle payments on lease obligations ........................... -- ( 6,213) Cash payments on notes payable ...................................... -- (155,850) --------- ----------- Net Cash Provided by Financing Activities ...........................3,309,152 1,805,282 ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents ................(200,362) 157,861 Cash and Cash Equivalents at Beginning of the Year ................. 203,232 45,371 ----------- ----------- Cash and Cash Equivalents at End of the Year .................... $ 2,870 $ 203,232 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest ......................................................... $ 14,731 $ 7,119 Income Taxes ................................................... $ 100 $ 100

F - 10 KLEVER MARKETING, INC STATEMENT OF CASH FLOWS (Continued) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: o During January 1999, the Company issued 22,222 shares in exchange for accounts payable of $49,999. o During February 1999, the Company issued 2,995 shares for employee compensation of $6,218. o During February 2000, the Company issued 74,608 shares of common stock for employee compensation of $297,686. o During February 2000, the Company issued 579,585 shares of common stock for employee compensation of $306,667. o During March 2000, the Company issued 2,603 shares of common stock in exchange for accounts payable of $7,809. o During May 2000, the Company issued 18,193 shares of common stock in exchange for interest payable of $19,467. o During May 2000, the Company issued 4,529 shares of common stock in exchange for accounts payable of $12,455. o During May 2000, the Company issued 2,356 shares of common stock in exchange for accounts payable of $6,480. o During May 2000, the company issued 2,000 shares of common stock held in the treasury in exchange for a forklift. o During December 2000, the Company issued 2,697 shares of common stock in exchange for legal expenses of $2,400. o During December 2000, 10,000 shares of common stock were returned to the Company. The accompanying notes are an integral part of these financial statements. F - 11 KLEVER MARKETING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND1999 NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES This summary of accounting policies for Klever Marketing, Inc. is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Organization and Basis of Presentation 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 was in the development stage until June 30, 1998. Nature of Business 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 and market electronic in-store advertising, directory and coupon services which have potential for profit. The Company is currently in the process of the commercialization of the patented process it has acquired. Cash Equivalents For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F - 12 KLEVER MARKETING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND1999 (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued): -------------------------------------------------------------------- Reclassifications Certain reclassifications have been made in the 1999 financial statements to conform with the 2000 presentation. Loss per Share The reconciliations of the numerators and denominators of the basic earnings per share computations are as follows: Per-Share Loss Share Amount For the year ended December 31, 2000 Basic Earnings per Share Income available to common shareholders $ (4,068,905) 11,978,017 $ (0.34) ============= =============== ============= For the year ended December 31, 1999 Basic Earnings per Share Income available to common shareholders $ (1,734,623) 11,361,021 $ (0.15) ================ =============== ============= Basic earnings per common share were computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share for the years ended December 31, 2000 and 1999 are not presented as it would be anti-dilutive. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. F - 13 KLEVER MARKETING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND1999 (Continued) NOTE 1 - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES(continued): -------------------------------------------------------------------- Fixed Assets Fixed assets are stated at cost. 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 5-10 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. Intangibles Intangibles associated with certain technology agreements are amortized over 10 -14 years. Other Current Assets During 2000, the Company purchased supplies of batteries and parts related to research and development of the Klever-Kart System. These supplies are carried at fair market value on the balance sheet. Due to technological changes, these supplies have become obsolete. The parts supplies were sold in January 2001. NOTE 2 - INCOME TAXES The Company has accumulated tax losses estimated at $12,000,000 expiring in years 2007 through 2014. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. The amount of net operating loss carryforward available to offset future taxable income may be limited if there is a substantial change in ownership. NOTE 3 - LEASE COMMITMENT The Company currently leases 5,272 square feet of office space from Tree of Stars, Inc./P.D.O. on a month to month basis. The lease payments are $73,812 per year. F - 14 KLEVER MARKETING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND1999 (Continued) NOTE 3 - LEASE COMMITMENT (continued) The Company has also entered into lease agreements for the rental of an automobile and various computer equipment. These leases expire between March 2001 and September 2003. The total monthly lease payments due on the above leases is $1,808. During 2000, the Company entered into a financing agreement for the purchase of a laser printer. The payments on this agreement are $312 per month for a term of 36 months. The minimum future lease payments under these lease for the next five years are: Year Ended December 31, --------------------------------- 2001 $ 12,108 2002 5,160 2003 4,182 2004 - 2005 - ----------------- Total minimum future lease payments $ 21,450 ================= NOTE 4 - RESEARCH AND DEVELOPMENT Research and development of the Klever-Kart System began with the sole purpose of reducing thefts of shopping carts. A voice-activated alarm system was envisioned. As time and technology progressed, the present embodiment of the Klever-Kart System evolved into a "product specific" point-of-purchase advertising system consisting of an easily readable electronic display that attaches to any shopping cart, a shelf mounted message sending unit that automatically sends featured products' ad-message to the display and a host computer using proprietary software. During the years ended December 31, 2000 and 1999, the Company expended $1,852,903 and $689,558, respectively for research and development of the technology involved with its patents. Due to technological changes during 2000, the Company decided to write-off and expense research and development equipment that had been previously capitalized. The total expense from this write-off is $1,282,845. NOTE 5- RELATED PARTY TRANSACTIONS During 1998 various shareholders loaned the Company $347,100. The notes are payable within one year plus interest at 10% and 12% per annum. During 1999 and 2000, principle payments of $155,850 and $62,500 were paid toward these loans. F - 15 KLEVER MARKETING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND1999 (Continued) NOTE 5- RELATED PARTY TRANSACTIONS (continued) During the year ended December 31, 2000, a shareholder loaned the Company $1,100,000. This loan is secured by the Company's inventory, accounts receivable, equipment and any proceeds related to these assets. This note is payable within one year plus interest at 8% per annum. The total balance of notes payable due as of December 31, 2000 is $1,228,750. On February 1, 2000 an accrued liability in the amount of $306,666.64 was converted to common shares by exercise of options for the purchase of 579,585 shares at $.86 per share and a note receivable in the amount of $191,776.46. The note is payable in thirty-six equal installments with interest at the rate of eight percent. The note is collateralized by 100,000 shares of the Company's common shares. As of December 31, 2000, the total balance on the note receivable is $93,904. NOTE 6- STOCK OPTIONS The shareholders approved, by a majority vote, the adoption of the 1998 Stock Incentive Plan (the "Plan"). Under the Plan, 3,500,000 shares of common stock are reserved for issuance upon the exercise of options which may be granted from time-to-time to officers, directors and certain employees and consultants of the Company or its subsidiaries. The Plan permits the award of both qualified and non-qualified incentive stock options. Under the Plan, an additional 500,000 shares of common stock are reserved for issuance in the form of restricted stock grants. As of December 31, 1998, no options had been granted under the Plan. Compensation expense charged to operations in 2000 and 1999 is $297,686 and $24,010. The following is a summary of transactions: Shares Under Option -------------------------------------------- December 31, -------------------------------------------- 2000 1999 --------------------- -------------------- Outstanding, beginning of year 2,898,098 1,675,355 Granted during the year 864,151 1,284,641 Canceled during the year (361,699) -- Exercised during the year (715,501) (61,937) --------------------- -------------------- Outstanding, end of year (at prices ranging from $.86 to $3.61 per share) 2,685,049 2,898,059 ===================== ==================== Eligible, end of year for exercise currently (at prices ranging from $.86 to $3.61 per share) 2,055,752 2,898,059 ===================== ==================== F - 16 KLEVER MARKETING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (Continued) NOTE 7 - PREFERRED STOCK On February 7, 2000 the Board of Directors authorized and established the Class A Voting Preferred Stock ("Class A Shares") and Series 1 of such Class A ("Class A, Series 1 Shares") as a class of its $.01 par value, 2,000,000 shares authorized, preferred stock. Class A Shares consists of 1,000,000 shares, 250,000 shares thereof are designated as Class A, Series 1 Shares. Subsequent Class A Shares, Series 2 and Series 3 have been authorized and established each thereof designating 125,000 shares for each Series (respectively, the "Class A, Series 2 Shares" and the "Class A, Series 3 Shares"). (See Part III, Item 13, Exhibit 3.03.) Each Class A Share is convertible at the option of the holder at any time into such number of shares of Common Stock as is determined by dividing the issue price by the conversion price then in effect. Based on the initial conversion price, each Class A Share had a conversion rate of one Class A Share to ten shares of Common Stock. The rate of conversion is subject to changes based upon an anti-dilution formula. Holders of Class A Shares shall be entitled to receive when and as declared by the Board of Directors of the Company out of any funds at the time legally available therefore dividends at the rate of $2.20, $1.44 and $0.56 per share per annum, respectively for Series 1, 2 and 3, payable semi-annually on the first day of January and July of each year. Such dividends shall accrue on each such share from the date of its original issuance and shall accrue from day to day, whether or not earned or declared. Such dividend shall be cumulative and may be paid in cash or in kind through the distribution of .0425 Class A Shares of the same Series, for each outstanding Class A Share, on each dividend payment date. In addition, each holder of Class A Shares shall be entitled to receive, when and as declared, a dividend equal to each dividend declared and paid on the shares of Common Stock, on a share for share basis. If there is a split or dividend on the Common Stock, then the Class A Share dividends shall be adjusted as if a similar split or dividend had occurred with respect to the Class A Shares. Class A Shareholders shall be entitled to one vote for each share of Common Stock into which such Class A Shares could then be converted, and shall have voting rights and powers equal to that of a holder of Common Stock. The holders of Class A Shares shall vote with the holders of Common Stock and not as a separate class. Each Class A, Series 1, 2 and 3 Share carries a liquidation preference, respectively, of $26, $17 and $6.60 per share plus any accrued but unpaid dividends on such shares, if any, and adjusted for combinations, splits, dividends or distributions of shares of stock with respect to such shares. Class A, Series 1, 2 and 3 Shares are redeemable by the Company, in whole or in part, at the option of the Board of Directors of the Company, at any time and from time to time on or after July 1, 2002, March 24, 2004 and July 2, 2004, respectively. The redemption price shall be the same as the liquidation preference for such Share. F - 17 KLEVER MARKETING, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 AND 1999 (Continued) NOTE 7 - PREFERRED STOCK (continued) If dividends on the Class A Shares, have not been paid for any period, then until all unpaid dividends thereon are paid or set apart for payment, the Company may not pay, declare or set apart any dividend or other distribution of its shares of Common Stock or other shares junion to the Class A Shares, nor may any other distributions, redemptions or other payments be made with respect to the shares of Common Stock or other junion shares. NOTE 8 - SUBSEQUENT EVENTS On January 4, 2001, the Company borrowed cash of $150,000 from a shareholder. On January 4, 2001, $250,000 in notes payable was converted to 37,879 shares of Class A Preferred Stock Series 3. On February 9, 2001, the Company borrowed cash of $90,000 from a shareholder. On February 20, 2001, the Company borrowed $50,000 from a member of the Board of Directors. This loan was repaid on February 26, 2001. On February 27, 2001, the Company borrowed $100,000 from a shareholder. On February 28, 2001, the Company borrowed $50,000 from a shareholder. On March 1, 2001, the Company received $40,000 for 6,061 shares of Class A Preferred Stock Series 3. F - 18