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:

<PAGE>


                          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



<PAGE>





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                                TABLE OF CONTENTS
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Item Number and Caption                                                    Page
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PART I
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Item 1.     Description of Business                                            4
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Item 2.     Description of Property                                           10
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Item 3.     Legal Proceedings                                                 10
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Item 4.     Submission of Matters to a Vote of Security Holders               10
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PART II
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Item 5.     Market for Common Equity and Related Stockholder Matters          10
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Item 6.     Management's Discussion and Analysis or Plan of Operations        12
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Item 7.      Financial Statements                                             17
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Item 8.      Changes in and Disagreements With Accountants on Accounting and
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PART III
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Item 9.     Directors, Executive Officers, Promoters and Control Persons;
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Item 10.   Executive Compensation                                             22
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Item 11.   Security Ownership of Certain Beneficial Owners and Management     27
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Item 12.   Certain Relationships and Related Transactions                     29
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Item 13.   Exhibits and Reports on Form 8-K                                   30
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                                       3

<PAGE>


                                     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
<PAGE>

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
<PAGE>

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
<PAGE>
<TABLE>
<CAPTION>


                         Competitive Product Assessment

------------------------------------------------- ----------------- ----------------- ----------------
                    Feature                         Klever-Kart         Catalina       News America
------------------------------------------------- ----------------- ----------------- ----------------
<S>                                               <C>               <C>               <C>
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)
------------------------------------------------- ----------------- ----------------- ----------------

</TABLE>

(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
<PAGE>


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:

<TABLE>
<CAPTION>


                   Klever Marketing Patent Rights and Licenses

---------------------- -------------- --------------- -------------- ------------------------------------------
                        U.S. Patent                                   Patent Numbers Filed Outside the United
     Patent Name          Numbers       Issue Date     Expiry Date                    States
---------------------- -------------- --------------- -------------- ------------------------------------------
---------------------- -------------- --------------- -------------- ------------------------------------------



<S>                    <C>             <C>            <C>            <C>
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
---------------------- -------------- --------------- -------------- ------------------------------------------
</TABLE>

                                       8
<PAGE>
<TABLE>
<CAPTION>


Mobile Advertising
Device with
Electronic
Transmission
Capabilities
---------------------- -------------- --------------- -------------- ------------------------------------------
<S>                    <C>            <C>             <C>
Automated Shopping       6,177,880       01-23-01        01-23-
Cart Handle
---------------------- -------------- --------------- -------------- ------------------------------------------
</TABLE>


<TABLE>
<CAPTION>


                Klever Marketing(TM) Trademarks and Service Marks
<S>                                   <C>
------------------------------------- -------------------------------------------------------------
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)"
------------------------------------- -------------------------------------------------------------

</TABLE>

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

<PAGE>


     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

<PAGE>

     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
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--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 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
<PAGE>

     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
<PAGE>



                       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
<PAGE>


     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
<PAGE>

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
<PAGE>


     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
<PAGE>


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
<PAGE>

     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
<PAGE>


     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
<PAGE>

     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
<PAGE>

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
<PAGE>

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.
<TABLE>
<CAPTION>



----------------------------- ------- ----------------------------------------------------------- ---------------------------
          Name and                                       Annual Compensation                        Long-Term Compensation
     Principal Position        Year                                                                         Awards
----------------------------- ------- ----------------------------------------------------------- ---------------------------
----------------------------- ------- ----------------- ------------------- --------------------- ---------------------------
                                                                                Other Annual        Securities Underlying
                                         Salary ($)         Bonus ($)         Compensation ($)           Options (#)
----------------------------- ------- ----------------- ------------------- --------------------- ---------------------------
----------------------------- ------- ----------------- ------------------- --------------------- ---------------------------
<S>                           <C>     <C>               <C>                 <C>                   <C>
     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
----------------------------- ------- ----------------- ------------------- --------------------- ---------------------------
</TABLE>

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
<PAGE>


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
<PAGE>

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
<PAGE>


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
<PAGE>

<TABLE>
<CAPTION>

                        OPTION GRANTS IN LAST FISCAL YEAR

------------------------------- ------------------- --------------------- --------------------- -----------------------
                                    Number of
                                    Securities
                                    Underlying       % of Total Option
                                 Options Granted    Granted to Employees   Exercise Price ($)      Expiration Date
------------------------------- ------------------- --------------------- --------------------- -----------------------
------------------------------- ------------------- --------------------- --------------------- -----------------------
<S>                             <C>                 <C>                   <C>                   <C>
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
------------------------------- ------------------- --------------------- --------------------- -----------------------
</TABLE>

<TABLE>
<CAPTION>



                    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
------------------------------ ------------ -------------- -------------- -------------------- -------------- -------------------
<S>                            <C>          <C>            <C>            <C>                  <C>            <C>
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
------------------------------ ------------ -------------- -------------- -------------------- -------------- -------------------
</TABLE>


(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
<PAGE>




                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
<PAGE>



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
<PAGE>


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.

<PAGE>


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

<PAGE>




     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
<PAGE>


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
<PAGE>

            (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
<PAGE>



/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

<PAGE>



                             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

<PAGE>



                             KLEVER MARKETING, INC.
                                  BALANCE SHEET
                                   (Continued)



<TABLE>
<CAPTION>

                                                             DECEMBER 31,
                                                      --------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY ...........          2000            1999
                                                      ----------      ----------
Current Liabilities
<S>                                                   <C>             <C>
     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
                                                      ============   ===========
</TABLE>




    The accompanying notes are an integral part of these financial statements

                                      F - 3

<PAGE>



                             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

<PAGE>

                             KLEVER MARKETING, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                            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
                                           ------  ------  ------  ------  ------  ------  ---------  -------

<S>                                        <C>     <C>     <C>     <C>     <C>     <C>     <C>        <C>
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        --

</TABLE>



                                      F - 5

<PAGE>


                             KLEVER MARKETING, INC,
                        STATEMENT OF STOCKHOLDER'S EQUITY
                                   (Continued)
<TABLE>
<CAPTION>

                                                                                         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
<S>                                     <C>     <C>     <C>     <C>     <C>      <C>     <C>         <C>
   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)

</TABLE>



                                      F - 6

<PAGE>



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

<TABLE>
<CAPTION>

                                                                                       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
<S>                                     <C>     <C>      <C>    <C>      <C>    <C>      <C>         <C>
   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      --

</TABLE>



                                      F - 7

<PAGE>


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


<TABLE>
<CAPTION>

                                                                                       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
<S>                                      <C>    <C>     <C>     <C>     <C>   <C>       <C>        <C>
   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

</TABLE>



                                      F - 8

<PAGE>

                             KLEVER MARKETING, INC,
                        STATEMENT OF STOCKHOLDER'S EQUITY
                                   (Continued)
<TABLE>
<CAPTION>



                                                                                       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
<S>                                     <C>    <C>      <C>     <C>     <C>      <C>    <C>        <C>
   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)
                                       ====  ======  =========   ======== ======= ======= ========== =============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F - 9

<PAGE>

                             KLEVER MARKETING, INC.
                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                 For the Year ended
                                                                    December 31,
                                                               -------------------------
                                                                  2000          1999
                                                               -----------   -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                            <C>           <C>
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
</TABLE>
                                     F - 10

<PAGE>

                              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

<PAGE>



                             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
<PAGE>



                             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

<PAGE>



                             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

<PAGE>



                             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


<PAGE>



                             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
<PAGE>
                             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



<PAGE>
                             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