U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 1996
OR
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to ____________.
Commission File Number - 33-3362-D
KleenAir Systems, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 87-0431043
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
18871 Portofino Drive, Irvine, Ca. 92715
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (714) 362-1862
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 requirement
for the past 90 days. Yes [X] No [ ]
1,984,863 Shares, Common Stock, $.001 par value
Number of shares outstanding of each of the issuer's classes
of common equity, as of March 31, 1996.
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements. See the following pages.
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BALANCE SHEET
The following table sets forth the balances sheets for the
periods indicated.
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Prepared Without Audit or Review)
ASSETS
March 31 December 31
1996 1995
CURRENT ASSETS:
Cash $ 48,148 $ 152,344
Advances to consultants 15,000 20,000
Prepaid marketing costs 27,083 27,083
Commissions receivable - 8,937
Notes receivable 144,093 136,035
Total Current Assets 234,324 344,399
Fixed Assets 3,246 3,746
OTHER ASSETS:
Patent license 3,510,401 3,509,125
Notes receivable from related
parties-long term 2,139,691 1,620,783
Deposits 3,600 3,600
Prepaid marketing costs (net
of current portion) 38,368 45,139
Total Other Assets 5,692,060 5,178,647
TOTAL ASSETS $ 5,929,630 $ 5,526,792
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 39,942 $ 42,439
Deferred consulting fees 13,941 73,342
Note payable 31,497 -
Other - 1,866
Total Liabilities 85,380 117,647
Deferred license fees 2,223,467 1,736,558
STOCKHOLDER'S EQUITY:
Preferred stock, series A, $.001 par
value (10,000,000 shares authorized,
7,000,000 outstanding) 7,000 7,000
Common stock, $.001 par value
(50,000,000 shares authorized,
2,284,864 and 1,723,752 outstanding,
respectively) 2,285 1,724
Preferred stock to be issued
(250,000 shares) 125,000 125,000
Common stock to be issued (632,500
and 571,112 shares) 182,500 250,400
Additional paid-in capital 4,233,787 3,924,358
Unearned compensation (75,558) (152,016)
Deficit accumulated during the
development stage (854,231) (483,879)
Total Stockholder's Equity 3,620,783 3,672,587
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 5,929,630 $ 5,526,792
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RESULTS OF OPERATIONS
The following table sets forth the results of operations for the periods
indicated.
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Prepared Without Audit or Review)
For The Quarters Ended
March 31 March 31
1996 1995
SALES $ - $ 14,866
COST OF GOODS SOLD - 13,493
GROSS PROFIT - 1,373
OTHER OPERATING INCOME:
Residual income 10,868 34,613
Other income 3,546 4,776
Total other operating income 14,414 39,389
PRODUCT DEVELOPMENT COSTS 59,366 -
OPERATING EXPENSES:
Director's fees 39,250 -
Consultants 111,354 -
Professional fees 2,699 -
Office expenses 1,664 -
Advertising and promotion 52,016 4,111
Vehicle lease 4,313 -
Other expenses 28,392 23,068
Total operating expenses 239,688 27,179
INCOME/(LOSS) FROM OPERATIONS (284,640) 13,583
OTHER INCOME AND (EXPENSES):
Amortization of discount on receivables 32,400 -
INCOME/(LOSS) BEFORE INCOME TAXES (252,240) 13,583
Provision for income taxes 800 800
NET INCOME/(LOSS) $ (253,040) $ 12,783
WEIGHTED AVERAGE SHARES OUTSTANDING 2,347,391 854,751
NET INCOME/(LOSS) PER SHARE $ (.11) $ .01
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CASH FLOWS
The following table sets forth the cash flows for the periods indicated.
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Prepared Without Audit or Review)
For The Quarters Ended
March 31 March 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (252,339) $ 12,783
Adjustments to reconcile net income/
(loss) to net cash provided by operations:
Depreciation 500 500
Amortization of receivables discount (32,000) -
Amortization of prepaid marketing 6,771 -
Stock issued for services 112,500 -
Stock issued for director fees 48,000 -
Compensation recognized related to
stock to be issued 76,458 -
(Increase)/decrease in:
Accounts and other receivables 18,937 15,126
Inventory - 1,277
Prepaid expenses (5,000) -
Deposits - 2000
Increase/(decrease) in:
Trade accounts payable (4,364) (22,700)
Accrued expenses (12,000) -
Deferred consulting services (52,400) -
Deferred income - (1,920)
NET CASH PROVIDED/(USED) BY OPERATING
ACTIVITIES (94,937) 7,066
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent licensing costs (1,276) -
Purchase of fixed assets - (109)
NET CASH (USED) BY INVESTING ACTIVITIES (1,276) (109)
CASH FLOWS FROM FINANCING ACTIVITIES:
Addition capital contributions - 9,165
Distributions to stockholders - (7,108)
Repayment of note payable (7,983) (9,964)
NET CASH PROVIDED BY/(USED BY) FINANCING
ACTIVITIES (7,983) (7,907)
NET INCREASE/(DECREASE) IN CASH (104,196) (950)
CASH AT BEGINNING OF PERIOD 152,344 1,674
CASH AT END OF PERIOD $ 48,148 $ 724
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest $ - $ -
Income taxes - -
Non-cash investing and financing
transactions:
Stock issued for:
Directors fees 48,000 -
Services and prepaid services 112,500 -
Sale of marketing licenses for
notes receivable 486,909 -
Reductions of deferred consulting fees:
By exercising stock options 112,500 -
For repayment of note receivable 10,000 -
For payment of interest receivable 400 -
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KLEENAIR SYSTEMS, INC.
(a development stage company)
UNAUDITED SELECTED INFORMATION
For The Quarter Ended March 31, 1996
NOTE 1: BASIS OF PRESENTATION.
The accompanying unaudited financial statements have been prepared in
accordance with the generally accepted accounting principles for
interim financial information and with instructions to Form 10-01 of
Regulation S-X. 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-K for the year ended December 31, 1995.
In the opinion of management, the accompanying interim unaudited
financial statements contain all adjustments considered necessary for a
fair presentation have been included. Operating results for the three
month period ended March 31, 1996, are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
NOTE 2: ACQUISITION OF SUBSIDIARY
During February 1996, the Company entered into an agreement to acquire
100% of the stock of National Diversified Telecom, Inc. (NDT). This
acquisition was accomplished with 300,000 shares of the Company's
restricted common stock. In addition, the Company advanced $10,000
immediately and another $10,000 in four months to NDT for operations.
This acquisition is effective March 30, 1996. The Company's president
is also the president of NDT. However, there are no other common
stockholders between the companies.
NDT has been in the cellular telephone business in Southern California
for about 10 years. Having recently redefined its program, it is
switching to offering a package of services which interface cellular,
fibre-optic, ISDN, and internet backbones. These services are geared
primarily towards existing cellular telephone users in home-based and
small to mid-sized businesses needing increased services. NDT expects
to use a network of contacts and agents established over the years
along with telemarketing strategies to reach its anticipated markets.
This transaction qualifies for the pooling of interests method of
accounting. In order to qualify as a pooling of interests, the
acquisition must be accomplished via an exchange of acquiring company
stock for at least 90% of the outstanding shares of the company to be
acquired, among other criteria. Under the pooling of interests method
of recording acquisitions, the companies' separate financial statements
and historical transactions are essentially combined and the resulting
consolidated financial statements are presented as though there had
been only one historical entity. There is no recognition of current
values of the underlying assets or the value of the purchase price.
The following table sets forth pro forma combined condensed balance
sheets as of December 31, 1995 and income statement information
extracted from the Company's audited financial statements and unaudited
financial statements of NDT. No adjustments to the separate financial
information is expected in obtaining the combined results. There have
been no transactions between the two companies.
Balance Sheets
KASI NDT Combined
Current assets $ 335,114 $ 2,220 $ 337,334
Fixed assets (net of
depreciation) - 5,073 5,073
Other assets 5,175,047 6,918 5,181,965
Total Assets $5,510,161 $ 14,211 $ 5,524,372
Current liabilities $ 97,944 $ 21,968 $ 119,912
Deferred license revenues 1,736,558 - 1,736,558
Stockholders' equity 3,675,659 (7,757) 3,667,902
Total Liabilities &
Stockholders' Equity $5,510,161 $ 14,211 $ 5,524,372
Income Statements for 1995
Total revenues $ - $ 159,053 $ 159,053
Cost of sales - (23,199) (23,199)
Development costs (67,454) - (67,454)
Operating expenses (282,094) (80,576) (362,670)
Other income/(expenses) 20,259 (7,109) 13,150
Net Income $ (329,289) $ 48,169 $ (281,120)
Income statements for 1994
Total revenues $ - $ 533,998 $ 533,998
Cost of sales - (281,100) (281,100)
Operating expenses - (247,355) (247,355)
Other income/(expenses) - (3,681) (3,681)
Net Income $ - $ 1,862 $ 1,862
NOTE 3: EXERCISE OF OPTIONS
During the first quarter, $112,500 of deferred consulting fees were
utilized by consultants as payment for the exercise of options to
purchase 562,500 common shares. Generally, these options were earned
from contracts entered into for consulting and employment services.
Additionally, deferred consulting fees have been offset against the
advances to consultants.
NOTE 4: NEW LICENSING AGREEMENT
During March 1996, the Company entered into a third exclusive licensing
agreement for specified Easter Asian and Pacific island areas. This
agreement calls for the licensee to pay the Company a total of $500,000
over the next year.
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Item 2. Management's Discussion and Plan of Operation
During the past 12 months the Company acquired 100% of the patent
rights under United States Patent #5,224,346 entitled "Engine NOx
Reduction System" subject to royalties in the amount of 7% of the
wholesale value of the product and/or products covered by this or
related patents for the issuance of 7,000,000 preferred shares and
400,000 common shares. There was no cash consideration for the
acquisition of this/(these) patents.
Through the private placement of the companies common equity shares,
the Company has raised capital in the approximate amount of $252,000
which has been sufficient to continue operations through the fiscal
year end. Continued efforts in capital raising have been successful
resulting in formal commitments in the amounts of $500,000 and $250,000
respectively. These commitments are combinations of stock purchases
and the purchase of certain marketing, distribution and manufacturing
rights to the Company's product(s). Management believes this funding
will be sufficient to continue operations through December 31, 1996.
It is anticipated that the Company will proceed with a Secondary
Offering of its common stock during the fourth quarter of 1996 in order
to fully fund operations until revenues from sales will sustain
operations. Sales are anticipated to begin in the fourth quarter but
will not be sufficient to sustain operations until the second quarter
of 1997.
The first product, the NOxMASTER(TM) device, is currently in the final
stages of refinement. Nitrogen oxides (NOx) are the most difficult
auto exhaust pollutants to control. They are not fuel based but are
produced by the oxidation of nitrogen in the combustion air and their
formation requires high temperature (2500 degrees F and above). The
higher the temperature, the more NOx is produced, thus NOx is produced
in proportion to engine power output and efficiency. Meeting even the
current emission standard (0.4 grams/mile) requires sacrifice of
performance and economy.
The NOxMASTER(TM) utilizes both the non-catalytic reaction, that occurs
at high temperature, and the catalytic reaction, at lower temperature.
Tests have confirmed this approach. Further test data has shown that
the desired reaction does occur in the presence of excess air
(oxygen)and might even be enhanced by the oxygen. Thus the
NOxMASTER(TM) gives the manufacturer a method of control which is
essentially independent of engine operating parameters and provides new
options for economy and performance.
The first prototypes to be used in beta testing are anticipated to be
installed on a small fleet of vehicles by the end of April, 1996 with
the production prototype expected to be completed by June 30, 1996.
The testing laboratory of California Environmental Engineering (CEE) in
Irvine, California, has been certified by the California Air Resources
Board (CARB) and is the Company's laboratory of choice for further
testing of the product. CEE is also used by the CARB for testing.
As of this filing an application for the issuance of an Executive Order
(EO) from the CARB has been submitted. The EO states that the product
does not increase NOx emissions and will allow the Company to sell the
product(s) in the state of California. Once the production prototype
is finalized the Company will request formal testing by the CARB to
validate the finding of CEE and thereby certifying that the device does
in fact reduce the NOx in significate amounts to qualify for emission
credits.
Emission Credits - The emphasis will be on NOx reduction products which
are not required by law or regulation thereby satisfying the mobile
source emission reduction criteria for "emission credits". The
Guidelines for the Generation and Use of Mobile Source Emission
Reduction Credits published by the California Environmental Protection
Agency, Air Resources Board (ARB), and Mobile Source Emission Reduction
Credits were approved by the ARB on February 19, 1993.
The document states that NOx is the only pollutant considered in the
guidelines as a reasonable candidate for credit generation. These
emission credits do not as of yet have a specific monetary value placed
on them, however, the control costs are in the range of a few thousand
dollars to more than $20,000 per ton removed. The Company believes the
value of these emission credits will be a very substantial tool in the
marketing of the NOxMASTER(TM) to fleet vehicle owners, especially the
Diesel transportation industry.
Once production and sales begin the Company anticipates employing an
additional 5 to 10 full time employees, primarily in the management and
administrative capacity.
The pooling of interest with National Diversified Telecom, Inc. should
require the addition of 7 to 10 sales personnel who will be paid a
commission on sales in lieu of a salary. The revenues from sales are
anticipated to reach $50,000 monthly by the end of fiscal year 1996.
(See Notes to Financial Statements for more details on the
combination.)
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PART II
Item 1. Legal Proceedings.
There are no legal proceedings to which the registrant is subject as
of March 31, 1996.
Item 2. Changes is Securities.
There has been no changes in the registered securities of the
registrant.
Item 3. Defaults Upon Senior Securities.
There have been no defaults upon any senior securities of the
registrant as of March 31, 1996.
Item 4. Submission of Matters to a Vote of Security-Holders.
There were no matters submitted for vote by security-holders of the
registrant during the period covered by this report.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
A report on Form 8-K was filed by the registrant on April 15, 1996.
The item reported was the pooling of interest with National Diversified
Telecom, Inc. and is incorporated herein by reference.
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.
__/s/ Peter S. Cahill________________________ Date _05/17/96______
Peter S. Cahill, Secretary/Director
__/s/ Lester Berriman________________________ Date _05/17/96_____
Lester Berriman, Chairman of the Board
__/s/ Lionel Simons _________________________ Date _05/17/96______
Lionel Simons, President/CEO/Director