U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-3362-D
KLEENAIR SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
State of Nevada 87-0431043
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
828 Production Place, Newport Beach, CA 92663
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (949) 574-1600
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities 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 [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 10,123,482 shares of common stock, $0.001 Par Value,
outstanding as of March 31, 2000.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KleenAir Systems, Inc.
Dana Point, CA
We have reviewed the accompanying balance sheet of KleenAir Systems, Inc.
(a development stage enterprise) (the "Company") as of March 31, 2000, and
the related statements of operations, stockholders equity, and cash flows
for the three months ended March 31, 2000 and 1999. We have also
reviewed the cumulative statements of operations, stockholders equity and
cash flows for the period from January 1, 1995 through March 31, 2000.
These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1999, and the related
statements of operations, stockholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated April 3, 2000,
we expressed an opinion on those financial statements which was qualified
based on the Company's ability to continue as a going concern. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1999 is fairly stated in all
material respects in relation to the consolidated balance sheet from which
it has been derived.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and has no
operating revenues. This situation raises substantial doubt as to the
Company's ability to continue as a going concern. Management's plans in
regard to this situation are also described in Note 2. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Robert Early & Company
ROBERT EARLY & COMPANY, P.C.
Abilene, Texas
May 11, 2000
2
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
March 31 December 31
2000 1999
---------- ----------
Unaudited
CURRENT ASSETS:
Cash $ 20,918 $ 25,980
Cash restricted 103,125 -
Prepaid expenses 800 800
---------- ----------
Total Current Assets 124,843 26,780
PROPERTY AND EQUIPMENT (net) 43,240 14,815
OTHER ASSETS:
Patent license 3,611,558 3,611,558
---------- ----------
TOTAL ASSETS $3,779,641 $3,653,153
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ($49,179 and $52,805 due
to related parties, respectively) $ 55,448 $ 71,796
Advances from directors 52,000 25,000
---------- ----------
Total Current Liabilities 107,448 96,796
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, series A, $.001 par value
(10,000,000 shares authorized, -0- and
163,332 outstanding, respectively) - 163
Common stock, $.001 par value (50,000,000
shares authorized, 10,123,482 and 9,357,480
outstanding, respectively) 10,123 9,357
Additional paid-in capital 6,057,940 5,907,876
Deficit accumulated during the development stage (2,395,870) (2,361,039)
---------- ----------
Total Stockholder's Equity 3,672,193 3,656,357
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,779,641 $3,656,153
========== ==========
See accompanying accountants' report and selected information.
3
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For Three Months Ended March 31, 2000 and 1999
Cumulative
During Devel-
2000 1999 opment Stage
-------- -------- ----------
PRODUCT DEVELOPMENT COSTS $ 1,742 $ - $ 335,572
OPERATING EXPENSES:
Personnel costs and director fees - - 471,274
Consultants 2,500 97,500 892,615
Professional fees 11,878 22,500 164,255
Office expenses 1,459 - 22,163
Depreciation 1,630 145 4,121
Advertising and promotion 7,658 35 142,687
Loss on cancellation of licensing
agreements - - 19,660
Rent 5,000 - 10,000
Other expenses 3,339 69 34,389
Unknown sources prior to current ownership - - 151,518
-------- -------- ----------
Total operating expenses 33,464 120,249 1,912,882
-------- -------- ----------
(LOSS) FROM OPERATIONS (35,206) (120,249) (2,248,454)
OTHER INCOME AND (EXPENSES):
Interest income 375 - 375
Amortization of discount on receivables - - 20,259
-------- -------- ----------
(Loss) Before Extraordinary Item (34,831) (120,249) (2,227,820)
Extraordinary Item:
Costs of terminated acquisition - - 168,050
-------- -------- ----------
Net (Loss) $(34,831) $(120,249) $(2,395,870)
======== ======== ==========
Basic earnings per share:
(Loss) Per Share Before Extraordinary Item $ (0.00) $ (0.02) $ (0.80)
(Loss) Per Share From Extraordinary Item - - (0.06)
-------- -------- ----------
Net (Loss) Per Share $ (0.00) $ (0.02) $ (0.86)
======== ======== ==========
Weighted Average Shares Outstanding 9,616,894 6,661,146 2,793,478
See accompanying accountants' report and selected information.
4
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Additional Unearned Deficit During
Preferred Stock Common Stock Paid-In Compen- Development
Shares Amount Shares Amount Capital sation Stage
--------- -------- --------- ---------- --------- --------- ----------
BALANCES, 1/1/95 - $ - 74,132 $ 74 $ 151,444 $ - $ (151,518)
Stock issued for cash - - 27,334 27 66,982 - -
For adjustment - - 534 1 - - -
For consulting services - - 86,148 86 279,439 - -
For professional services - - 4,666 5 12,745 - -
For purchase of patent rights 933,334 934 60,000 60 3,506,505 - -
For directors' compensation - - 4,000 4 22,496 - -
For officers' compensation 33,334 33 9,334 9 194,958 - -
Other contributed capital - - - - 2,367 - -
Options compensation - - - - 70,313 (152,016) -
Net loss - - - - - - (329,289)
--------- -------- --------- ---------- --------- --------- ----------
BALANCES, 12/31/95 966,668 967 266,148 266 4,307,249 (152,016) (480,807)
Stock issued for services 13,332 13 24,666 25 201,837 (78,750) -
For officers' compensation 33,332 33 - - 15,592 (15,625) -
For aborted acquisition - - 40,000 40 140,510 - -
Exercise of options - - 75,000 75 112,424 - -
Conversion to common (318,666) (319) 318,666 319 - - -
Net Loss - - - - - 187,346 (716,511)
--------- -------- --------- ---------- --------- --------- ----------
BALANCES, 12/31/96 694,666 694 724,480 725 4,777,612 (59,045) (1,197,318)
Stock issued for cash - - 120,000 120 14,880 - -
For officers' compensation 33,334 33 - - 3,842 (3,875) -
Conversion to common (100,000) 100) 100,000 100 - - -
Net loss - - - - - 37,979 (55,438)
--------- -------- --------- ---------- --------- --------- ----------
BALANCES, 12/31/97 628,000 627 944,480 945 4,796,334 (24,941) (1,252,756)
See accompanying accountants' report and selected information.
5
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
Accumulated
Additional Unearned Deficit During
Preferred Stock Common Stock Paid-In Compen- Development
Shares Amount Shares Amount Capital sation Stage
--------- -------- ---------- ---------- ---------- --------- -----------
Stock issued for cash - $ - 800,000 $ 800 $ 199,200 $ - $ -
For services - - 2,120,000 2,120 92,255 - -
To officers and directors - - 320,000 320 59,680
For diesel license - - 2,000,000 2,000 60,500 - -
Conversion to common (403,334) (403 403,334 403 - - -
Net loss - - - - - 24,941 (305,561)
--------- -------- ---------- ---------- ---------- --------- -----------
BALANCES, 12/31/98 224,666 224 6,587,814 6,588 5,207,969 - (1,558,317)
Stock issued for cash - - 146,800 147 35,653 - -
For services - - 1,103,334 1,103 247,179 - -
For equipment - - 33,200 33 8,267 - -
To officers and directors - - 1,425,000 1,425 408,808 - -
Conversion to common (61,334) (61) 61,334 61 - - -
Net loss - - - - - - (802,722)
--------- -------- ---------- ---------- ---------- --------- -----------
BALANCES, 12/31/99 163,332 163 9,357,482 9,357 5,907,876 - (2,361,039)
Stock issued for cash - - 600,000 600 149,400 - -
For services - - 2,666 3 664 - -
Conversion to common (163,332) (163) 163,334 163 - - -
Net loss - - - - - - (34,831)
--------- -------- ---------- ---------- ---------- --------- -----------
BALANCES, 03/31/00 - $ - 10,123,482 $ 10,123 $6,057,940 $ - $(2,395,870)
--------- -------- ---------- ---------- ---------- --------- -----------
See accompanying accountants' report and selected information.
6
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Increases/(Decreases) in Cash and Cash Equivalents
For Three Months Ended March 31, 2000 and 1999
Cumulative
During Devel-
2000 1999 opment Stage
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (34,831) $(120,249) $(2,395,870)
Adjustments to reconcile net income/(loss)
to net cash provided by operations:
Losses prior to current ownership - - 151,518
Depreciation 1,630 145 4,121
Amortization of:
Prepaid expenses - 45,000 252,220
Deferred services - - 250,267
Stock issued for services 668 75,000 1,092,133
Stock issued for extraordinary loss - - 140,550
Advances to consultants - - 20,000
Prepaid expenses - - (180,000)
Trade accounts payable (16,348) 700 55,448
Advances from directors 27,000 - 52,000
--------- --------- -----------
NET CASH USED BY OPERATING ACTIVITIES (21,881) 596 (558,413)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment (30,056) - (39,062)
Patent licensing costs - - (41,558)
--------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES (30,056) - (80,620)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuing stock 150,000 - 760,709
Additional capital contributions - - 2,367
--------- --------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 150,000 - 763,076
--------- --------- -----------
NET INCREASE/(DECREASE) IN CASH 98,063 596 124,043
CASH AT BEGINNING OF YEAR 25,980 443 -
--------- --------- -----------
CASH AT END OF YEAR $ 124,043 $ 1,039 $ 124,043
========= ========= ===========
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest $ - $ - $ -
Income taxes - - -
Non-cash investing and financing transactions:
Stock issued for:
Compensation and directors fees - - 597,108
Services and prepaid services 668 75,000 611,450
Patent licensing - - 3,507,500
Repurchase of U.S. diesel license - - 62,500
Acquisition of National Diversified
Telecom, Inc. - - 140,550
Sale of marketing licenses for notes
receivable - - 1,736,558
See accompanying accountants' report and selected information.
7
KLEENAIR SYSTEMS, INC.
(A Development Stage Enterprise)
SELECTED INFORMATION FOR FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions of Regulation S-B. They
do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material change in the
information included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The report of Robert Early &
Company, P.C. commenting on their review accompanies the condensed
financial statements included in Item 1 of Part 1. Operating results for
the three month period ended March 31, 2000, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000.
NOTE 2: GOING CONCERN ISSUES
These financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has neither sufficient
operating revenues or disposable assets to fund completion of its
development program, current level of expenses, or initial production
stages. In this situation, the Company is reliant solely upon its ability
to raise capital through sales of its stock, debt financing, or
acquisition of services through issuances of the Company's stock. There is
no assurance that a market exists for the sale of the Company's stock or
that lenders could be found to loan money to the Company. Should
financing not be available, the Company would, in all likelihood, be
forced to stop development efforts and/or to shut down its activities
completely. C Management has had indications that investors are interested
in the technology being developed by the Company and that these investors
have capacity and will be willing to be available to provide financing for
the remaining cost of the development of the device. As such, Management
anticipates that development activities being carried on by the Company
will be continued and that there should be no substantial difficulties in
obtaining sufficient financing to carry its project through to completion
and subsequent distribution. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amount of liabilities that might be necessary should
the Company be unable to continue in existence.
NOTE 3: STOCK TRANSACTIONS
In February, 2000, the directors of the Company authorized a 2 for 1
forward stock split. All share numbers and per share amounts presented in
these financial statements have been restated to reflect this split.
8
During the first quarter, the Company issued 600,000 shares for cash of
$150,000. In addition, all of the remaining outstanding preferred shares
were converted to common stock.
NOTE 4: PROPERTY AND EQUIPMENT
During 1999 and the first quarter of 2000, the Company has purchased
testing equipment, a test automobile, and office equipment and furniture
as presented in the following table. Depreciation expense for the first
quarter of 2000 was $1,630.
Office furniture and equipment $ 4,312
Test vehicle 5,000
Analysis equipment 38,049
-------
47,361
Accumulated depreciation (4,121)
-------
Net property & equipment $43,240
=======
9
ITEM 2. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION
The Company was incorporated under the laws of the State of Nevada on
February 4, 1986, under the name of Covington Capital Corporation. In
1986, the Company filed an S-18 and registered certain stock. From 1989
through 1993, the Company underwent a series of name changes in order to
explore various business opportunities. However, none of the business
opportunities was successfully completed.
In April, 1995, under the name Investment and Consulting
International, Inc., the Company acquired a patent for a proprietary
device designed to neutralize nitrogen oxide automobile emissions from a
separate Company which was then known as KleenAir Systems, Inc.
Simultaneously with the acquisition of the patent, the Company acquired
the right to use the corporate name "KleenAir Systems, Inc.," and changed
to its current name.
Since acquiring the patent in 1995, the Company has been a
developmental stage Company and has worked toward the completion of the
development and testing of the NOXMASTERTM technology. The Company owns US
Patent # 5,224,346 "Engine NOx Reduction System" issued in 1993 and US
Patent # 5,609,026 "Engine NOx Reduction" issued in 1997. In 1997, the
Company filed a pending patent application under US Patent Application SN
08/816,796 on "Ammonia Injection in NOx Control". The Company has applied
for and maintained patent protection under the Patent Cooperation Treaty
(PCT) to protect its intellectual property in a variety of countries that
are significant producers of automotive products.
The Company has R & D facilities at 828 Production Place, Newport
Beach, CA 92663, occupying approximately 2,000 sq. ft. The Company has
appropriate computers and test equipment to advance its development and
testing activity and has a diesel vehicle for testing its products. In
addition, the Company continues to use the CARB approved testing
facilities of California Environmental Engineering of Santa Ana, CA for
state testing requirements.
The Company is continuing its testing program in the UK and
completing US testing of the NOxMasterTM Diesel Catalytic Converter
together with its NOxMasterTM Ammonia Injection System to present an
integrated system for the elimination of emissions from diesel powered
mobile sources.
Once production and sales begin, the Company anticipates employing
initially 15 to 20 employees, primarily in management, technical and
administrative capacities. The Company is actively seeking sources of
funding for its operating capital requirements both to complete its test
and evaluation programs and to support initial sales and production.
The Company concluded a Licensing Agreement with Extengine Transport
Systems, LLC, for China, India, California and the US Urban Bus Market. If
the minimum requirements are met to maintain the exclusive rights over the
10-year period of the agreement, the total projected value of this
agreement would be $180 million.
The European patent rights have been valued at approximately $65
million by Valuation Consultants Ltd., a leading UK corporate asset
valuer. The Company has a beneficial interest of 30% in the associated
10
Company, which is licensed to exploit those rights, valued at some $20
million, and receives 8% royalties. A test and evaluation program is
currently underway and revenue is anticipated to commence in the 4th
quarter of 2000 in connection with the program.
Similarly, the Company anticipates starting test and evaluation
programs in the US during the 3rd quarter leading to revenue starting in
the 4th quarter.
The Company is negotiating potential licensing and other commercial
arrangements with certain international companies in the automotive
industry, subject to completion of satisfactory test and evaluation
programs.
The statements contained in this filing are not historical fact and
are forward-looking statements within the meaning of the private
securities Litigation Reform Act of 1995. Actual results may differ
materially from those forward-looking statements, as such statements
involve risks and uncertainties that could significantly impact the
Company's business and the actual outcome and results may differ
materially.
PART II - OTHER INFORMATION
ITEM 1. MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
MARKET INFORMATION: The trading market for the common equity securities
of the Company is the National Association of Securities Dealers OTC
Bulletin Board quotation system. The Company declared a two for one
forward stock split in the form of a 100% stock dividend to shareholders
of record as of March 15, 2000 and these shares were distributed on March
20, 2000. The following are the highs and lows for the first three
quarters of fiscal year 1998, fiscal 1999 and the 1st quarter of fiscal
year 2000 respectively, having been restated to reflect the two for one
stock split. These quotations reflect inter-dealer prices, without retail
mark up, markdown or commissions, and may not represent actual
transactions.
High Low
1998
2nd Quarter $0.0625 $0.0625
3rd Quarter $0.625 $0.0625
4th Quarter $0.655 $0.375
1999
1st Quarter $0.3125 $0.125
2nd Quarter $0.5625 $0.125
3rd Quarter $1.125 $0.3075
4th Quarter $1.03125 $0.4844
2000
1st Quarter $12.00 $1.50
SHAREHOLDERS: At March 31, 2000, there were 119 shareholders of record
with an additional 65 shareholders registered with firms reporting to the
Depository Trust Company.
11
ITEM 2. LEGAL PROCEEDINGS
There were no legal proceedings to which the registrant was subject as
of March 31st, 1999.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
KLEENAIR SYSTEMS, INC.
Date: May 12, 2000 /s/ LIONEL SIMONS
By: Lionel Simons., President,
Secretary, Principal Accounting Officer,
& Principal Financial Officer
12