SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number:
December 31, 1995 33-3362-D
KLEENAIR SYSTEMS, INC.
(formerly Investment & Consulting International, Inc.
(Exact name of registrant as specified in charter)
Nevada 87-0431043
(State of incorporation) (I.R.S. Employer
Identification Number)
18871 Portofino Drive, Irvine, Ca 92715
(Address of principal executive offices) (Zip code)
Issuers telephone number: (714) 854-1592
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Equity Shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporporated 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. $-0-
The number of shares of Common Stock outstanding as of December 31, 1995
was 1,423,752.
Aggregrate market value of voting stock held by non-affilliates computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock as of March 31, 1996 is $ 1,869,308.
<PAGE>
PART I
Item 1. Description of Business.
The Company was incorporated under the laws of the State of Nevada
on February 4, 1986, under the name of Covington Capital Corporation.
The Company changed its name to Investment and Consulting International,
Inc. on June 2, 1993. KleenAir Systems, Inc. is the successor with the
name change being filed on April 17, 1995. During the past three years
the Company has attempted several acquisition and/or mergers, none of
which were completed until the acquisition of the NOxMaster(TM)
technology on April 11, 1995.
In April, 1995 the Company effected a one (1) for ten (10) reverse
split of its common outstanding shares leaving the par value at $.001 per
share. The number of issued and outstanding shares was reduced to
553,750 while its authorized shares remained unchanged at 3,500,000,000.
On December 20, 1995 the Shareholders of the Company approved an
amendment to the Articles of Incorporation reducing the authorized number
of shares to 50,000,000 without effecting the outstanding shares or the
par value.
The acquisition of the NOxMaster(TM) technology was the reason for
the name change to KleenAir Systems, Inc. The NOxMaster(TM) is an
electro-mechanical device which substantially reduces the oxides of
nitrogen (NOx) from the exhaust gases of cars and trucks (mobile
sources.) The cost of the acquisition was $3,500,000 which was paid in
the form of 400,000 common shares and 7,000,000 Preferred non-voting
shares.
The purpose of the NOxMaster(TM) is to reduce the (NOx) to a level
substantially lower than the minimum requirements of even the most
restrictive state California. The NOxMaster(TM) is a one-of-a-kind
device that can effectively accomplish this task and consists of: 1) an
ammonia injector(s) located on the engine exhaust system upstream of the
catalytic converter: 2) a tank of minimally pressurized ammonia with
solenoid operated valves; 3) tubing, wiring and an electronic controller
which senses engine parameters. The ammonia injection is programmed to
occur only when the engine is operating at specific load and performance
conditions.
A timing pulse from the engine is used to determine certain
parameters indicating NOx production and to trigger a solenoid causing
the injection of gaseous ammonia into the exhaust gas system upstream of
the catalytic converter. The chemical reaction that occurs causes the
NOx to be reduced to harmless constituents primarily at the initial
mixing and secondarily at the catalytic converter. The ammonia injection
is programmed to occur only when the engine is operating at specific load
and performance conditions.
In addition to cost effectively reducing NOx from the exhaust, the
NOxMaster(TM) has the potential of aiding in the enhancement of engine
performance. Controlled reduction of NOx could allow for the re-tuning
of the engine for increased efficiency which will increase fuel mileage
while continuing to maintain the government set NOx standard.
The Company currently has 2 full time employees and 4 outside
contractors.
Subsequent to Year End the Company entered into an agreement with
National Diversified Telecom, Inc. (NDT) wherein the Company acquired
100% of the issued and outstanding shares of NDT for the issuance of
300,000 shares of the Company's common equity shares. This pooling-of-
interest combination brings to the Company an operating history in excess
of 10 years as well as a positive cash flow.
National Diversified Telecom has a successful 10 year history in the
cellular telephone market in Southern California. With rapid changes in
the telecommunications industry it is switching it's program to offering
a package of communication services that interface cellular, fiber-optics,
ISDN, and internet backbones. It is teaming with technology companies that
offer advanced capabilities as to capacity and speed for voice, image and
data communication media at discounted costs.
The services of NDT are geared primarily to existing users of
cellular telephones. The Company has access to a substantial database of
such users and is gearing, in particular, to two market segments the home
based business exceeding $500 monthly in phone services, and small to
medium sized businesses needing more services at lower a cost. Both
markets are reached through a network of cellular or former cellular
agents and in-house telemarketing.
The long-term strategy is to offer it's users a Wide Area Network
for an EDI paperless exchange capability. One goal is to reduce the use
of pater and thereby contribute to a saving of forests and tghe
consequent protection of the environment.
Item 2. Description of Property.
In order to conserve operating capital, the Company does not
maintain a corporate office. The Company uses the address of the
Director of Engineering, Lester Berriman, as its official corporated
address until such time as additional funding and activity require the
use of additional space. The officers provide their own facilities.
Item 3. Legal Proceedings.
The Company is not currently involved in any litigation.
Item 4. Submission of Matters to a vote of Security Holders.
During the fourth quarter, Company held a special shareholders
meeting for the purposes of 1) authorizing an amendment to Article IV of
the Company' Articles of Incorportion to reduce the number of authorized
common shares from 3,500,000,000 to 50,000,000 and 2) electing Lionel
Simons as a director to replace Sandra Sawyer.
<PAGE>
PART II
Item 5. Market For Common Equity and Related Stockholder Matters.
Market Information: The principle trading market for the common
equity securities of the Company is the National Association of
Securities Dealers OTC Bulletin Board quotation system. The following
are the highs and lows for each quarter for fiscal year ended December
31, 1994 and 1995 respectively. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not
represent actual transactions.
High Low
1994 No trading market
1995
1st Quarter No trading market
2nd Quarter 1.00 .75
3rd Quarter .8437 .50
4th Quarter 1.00 .6875
Shareholders: At March 31, 1996 there were 120 shareholders of
record with an additional 62 shareholders registered with firms reporting
to the Depository Trust Company.
Dividends: The Company has paid no dividends and has no plans of
paying dividends until such time as revenues and net profit warrant the
additional expense.
Item 6. 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 beta test 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 is being 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 the
continued testing of the product. CEE is also used by the California Air
Resources Board for testing.
As of this filing an application for the issuance of an Executive
Order (EO) from the California Air Resources Board 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.)
Item 7. Financial Statements
Report of Independent Public Accountants
Balance Sheets
Statements of Operations
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to the Financial Statements
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
KleenAir Systems, Inc.
Irvine, California
We have audited the accompanying balance sheet of KleenAir Systems,
Inc. (a development stage Company formerly known as Investment &
Consulting International, Inc.) as of December 31, 1995, and the
related statements of income, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
The financial statements of Investment & Consulting International,
Inc. as of December 31, 1994 and for the year then ended, were audited
by other auditors whose report dated February 25, 1995, expressed an
unqualified opinion on those statements.
We conducted our audit 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
consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present
fairly, in all material respects, the financial position of KleenAir
Systems, Inc. at December 31, 1995, and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
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.
Robert Early & Company, P.C.
Abilene, Texas
April 8, 1996
<PAGE>
KLEENAIR SYSTEMS, INC.
(Formerly Investment & Consulting International, Inc.)
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31 December 31
1995 1994
CURRENT ASSETS:
Cash $ 151,996 $ -
Advances to consultants 20,000 -
Prepaid marketing costs 27,083 -
Notes receivable 136,035 -
Total Current Assets 335,114 -
OTHER ASSETS:
Patent license 3,509,125 -
Notes receivable from related
parties-long term 1,620,783 -
Prepaid marketing costs
(net of current portion) 45,139 -
Total Other Assets 5,175,047 -
TOTAL ASSETS $ 5,510,161 $ -
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,602 $ -
Deferred consulting fees 73,342 -
Total Liabilities 97,944 -
Deferred license fees 1,736,558 -
STOCKHOLDER'S EQUITY:
Preferred stock, series A, $.001
par value (10,000,000 shares
authorized, 7,000,000 and 0
outstanding, respectively) 7,000 -
Common stock, $.001 par value
(50,000,000 shares authorized,
1,423,752 and 554,752 outstanding,
respectively) 1,424 555
Preferred stock to be issued
(250,000 and 0 shares) 125,000 -
Common stock to be issued
(571,112 and 0 shares) 250,400 -
Additional paid-in capital 3,924,658 150,963
Unearned compensation (152,016) -
Deficit accumulated during the
development stage (480,807) (151,518)
Total Stockholder's Equity 3,675,659 -
TOTAL LIABILITIES AND STOCKHOLERS'
EQUITY $ 5,510,161 $ -
The accompanying notes are an integral part of these financial statemenmts.
<PAGE>
KLEENAIR SYSTEMS, INC.
(Formerly Investment & Consulting International, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For Years Ended
December 31 December 31
1995 1994
PRODUCT DEVELOPMENT COSTS $ 67,454 $ -
OPERATING EXPENSES:
Director's fees 31,250 -
Consultants 177,868 -
Professional fees 17,345 -
Office expenses 4,307 -
Advertising and promotion 50,280 -
Other expenses 1,044 -
Total operating expenses 282,094 -
INCOME/(LOSS) FROM OPERATIONS (349,548) -
OTHER INCOME AND (EXPENSES):
Amortization of discount on receivables 20,259 -
NET INCOME/(LOSS) $ (329,289) $ -
WEIGHTED AVERAGE SHARES OUTSTANDING 1,163,735 554,751
NET INCOME/(LOSS) PER SHARE $ (.28) $ -
The accompanying notes are an integral part of these financial statemenmts.
<PAGE>
<TABLE>
<CAPTION
KLEENAIR SYSTEMS, INC.
(Formerly Investment & Consulting International, Inc.)
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional Unearned During the
Preferred Stock Common Stock Stock to be Issued Paid-In Compen- Development
Shares Amount Shares(1) Amount Preferred Common Capital sation Stage
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, 12/31/93 - $ - 538,452 $ 539 $ - $ - $ 150,979 $ - $ (151,518)
Issued for:
Director's fees - - 7,500 7 - - (7) - -
Consulting services - - 8,800 9 - - (9) - -
Net loss for 1994 - - - - - - - - -
BALANCES, 12/31/94 - - 554,752 555 - - 150,963 - (151,518)
Issued for:
Adjustment of shares
outstanding - - 4,000 4 - - (4) - -
Cash - - 205,000 205 - - 66,804 - -
Consulting services - - 145,000 145 - - 98,980 - -
Professional services - - 35,000 35 - - 12,715 - -
Purchase of patent
rights 7,000,000 7,000 450,000 450 - - 3,500,050 - -
Directors' compensa-
tion - - 30,000 30 - - 22,470 - -
Other contributed
capital - - - - - - 2,367 - -
Options compensation - - - - - - 70,313 - -
Unearned stock
compensation - - - - - - - (152,017) -
Stock to be issued
(125,000 shares) - - - - 125,000 - - - -
Stock to be issued
(501,110 shares) - - - - - 180,400 - - -
Stock to be issued for
services(70,000 shares) - - - - - 70,000 - - -
Net loss for 1995 - - - - - - - - (329,289)
BALANCES, 12/31/95 7,000,000 $ 7,000 1,423,752 $1,424 $125,000 $250,400 $3,924,658 $(152,017) $ (480,807)
<FN>
(1) Share balances have been adjusted to reflect a 1 for 10 reverse stock split adopted during 1995.
The accompanying notes are an integral part of these financial statemenmts.
</FN>
</ TABLE>
<PAGE>
KLEENAIR SYSTEMS, INC.
(Formerly Investment & Consulting International, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For Years Ended
December 31 December 31
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (329,289) $ -
Adjustments to reconcile net income/(loss)
to net cash provided by operations:
Amortization of receivables discount (20,259) -
Stock recorded for services 132,979 -
Stock issued for director fees 22,470 -
Increase/(decrease) in:
Trade accounts payable 24,602 -
Deferred consulting services 73,342 -
NET CASH PROVIDED BY/(USED BY) OPERATING
ACTIVITIES (96,155) -
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent licensing costs (1,625) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock to be issued 180,400 -
Proceeds from issuing stock 67,009 -
Additional capital contributions 2,367 -
NET CASH PROVIDED BY/(USED BY) FINANCING
ACTIVITIES 249,776 -
NET INCREASE/(DECREASE) IN CASH 151,996 -
CASH AT BEGINNING OF YEAR - -
CASH AT END OF YEAR $ 151,996 $ -
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest $ - $ -
Income taxes - -
Non-cash investing and financing
transactions:
Stock issued for:
Directors fees 22,500 75
Services and prepaid services 119,375 88
Patent licensing 3,507,500 -
Sale of marketing licenses for notes
receivable 1,736,558 -
Stock to be issued for services 70,000 -
<FN>
The accompanying notes are an integral part of these financial statemenmts.
</FN>
<PAGE>
KLEENAIR SYSTEMS, INC.
(Formerly Investment & Consulting International, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DESCRIPTION OF BUSINESS
KleenAir Systems, Inc. (the Company) (formerly Investment & Consulting
International, Inc.) was originally incorporated in 1986 in Nevada as
Covington Capital Corporation. The Company has had various names
during its existence as various endeavors were attempted. None of
these actually became fruitful. The Company was most recently known
as Investment & Consulting International, Inc. until April 1995. In
April 1995, the Company purchased a patent for a proprietary device
shown to be capable of neutralizing the environmental impact of automobile
exhaust emissions without significant modification to the
vehicle. Soon after the acquisition of this patent and the right to
use of the seller's name, the Company changed to its current name.
With the patent acquisition in April 1995, the Company moved into the
development stage and has since worked toward the completion of tests,
fine tuning, and clearance of California Air Resources Board standards.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The Company's accounting and reporting policies conform with generally
accepted accounting principles. Policies which materially affect the
determination of financial position, cash flows, and results of operations
are summarized as follows:
Development stage reporting -- Generally accepted accounting principles call
for certain presentations of cumulative financial statement information from
inception to the date of the financial statements. Since the Company
restarted its operations (from a position of inactivity) in April 1995, these
statements present information from inception of its development stage
although separate columns have not presented to so indicate.
Patent License -- The Company has purchased the rights to a patent as
discussed below. The cost of the patent, along with legal costs
incurred to register and protect it, has been capitalized and will be
amortized once the Company commences sales of the product. Amortization
will be charged on a straight-line basis over seven years. No
amortization expense related to these rights has been charged to
operations because development of the underlying patented device has
not been completed. Amortization is expected to begin in 1996 along
with anticipated initial sales of the device.
Federal Income Taxes -- For Federal income tax purposes, the Company
reports its operations on the accrual basis of accounting. Depreciation
and amortization are recorded on the basis most advantageous to the
Company for minimizing its income tax liabilities.
Generally accepted accounting principles require an asset and liability
approach for financial accounting and reporting of deferred income
taxes. Generally, this approach allows for recognition of deferred
tax assets in the current period for the future benefit of operating
loss carryforwards and other items for which expenses have been recognized
for financial accounting purposes but will be deductible in tax
returns of future periods. A valuation allowance is recognized, if
available evidence indicates that it is more likely than not that some
portion or all of the deferred tax asset will not be realized. Deferred
tax liabilities are recognized for revenue items which have been recognized
for financial accounting purposes which will be includable in future tax
returns.
Cash Flows -- The Company considers cash to be its only cash equivalent for
purposes of presenting its Statements of Cash Flows.
Common Stock Data -- Per share data has been computed on the weighted
average number of common stock shares outstanding each period. The
1994 amounts and 1993 balances have been adjusted to reflect the
effect of a 1 for 10 reverse stock split in March 1995. Stock to be
issued has been included in weighted average shares outstanding.
Options and convertible preferred shares have not been included in the
calculation of earnings per share because they would be antidilutive.
See Note 5 for further information on equity transactions.
Accounting 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, the 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.
New Accounting Pronouncements -- Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of" (SFAS 121) issued by the Financial Accounting
Standards Board (FASB) is effective for financial statements for fiscal years
beginning after December 15, 1995. The new standard establishes new guide-
lines regarding when impairment losses on long-lived assets, which includes
plant and equipment and certain identifiable intangible assets, should be
recognized and how impairment losses should be measured. The Company does
not expect adoption to have a material effect on its financial position or
results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123) issued by the FASB is effective for specific
transactions entered into after December 15, 1995, while the disclosure
requirements of SFAS 123 are effective for financial statements for fiscal
years beginning after December 15, 1995. The new standard establishes a
fair value method of accounting for stock-based compensation plans and for
transactions in which an entity acquires goods or services from non-employees
in exchange for equity instruments. The Company does not expect adoption to
have a material effect on its financial position or results of operations.
At the present time, the Company has not determined if it will change its
accounting policy for stock-based compensation or only provide the required
financial statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently unknown.
NOTE 2: GOING CONCERN
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, the obtainment of 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 operations completely.
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 there
will not be any interruption in the development activities and that the
Company will have no 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: FEDERAL INCOME TAXES
Because of timing, relative insignificance, and changes in control and
management, the Company has elected to ignore prior operating losses in
calculating its income taxes. Operating losses reported for tax purposes
vary from accumulated deficits in retained earnings due to differences in tax
treatment or timing of various items. The tax loss carry-forward generated
in 1995 is estimated to be $148,187 and expires in the year 2010.
The Company has deferred tax assets (no liabilities) at December 31, 1995.
This asset has occurred due to timing differences in the deductibility of
deferred payments to contractors ($69,750), options compensation recorded
($70,313), and accrued stock compensation ($41,039). These differences
would yield a deferred tax asset of $45,276. However, because management
is unable to determine that it is more likely than not that the Company
will be able to utilize these deductions against future revenues, a
valuation allowance has been recorded to offset the asset.
There is no income tax benefit or expense to be reported for the period
ended December 31, 1995.
NOTE 4: PATENT LICENSE, RESEARCH AND DEVELOPMENT
During April 1995, the Company acquired a patent for a proprietary device
shown to reduce the pollutant content of automobile emissions. The cost
of acquiring this patent has been capitalized and shown as Patent on the
balance sheet. Subsequent to the acquisition of this patent, the Company
has continued to refine the device and expand its applicability to a wider
range of vehicles. Also, the Company has been in the process of performing
tests aimed at obtaining minimum state approvals to be able to advertise
and sell the device initially as not causing an increase in pollution.
Subsequent testing and completion of the specified procedures are expected
to allow the Company to obtain a ruling by the Air Resource Board that the
device reduces pollutants. This ruling would greatly expand the markets
for the device.
The Company's rights to the patent are subject to royalties totalling seven
per cent of wholesale sales. The royalties do not require the Company to
make minimum payments.
Only the direct costs of acquisition of the license and costs of extending
or perfecting the patents are available for capitalization. All payments
for the development and production thereof are charged to operations as
development costs when incurred and are included in results of operations.
Managment has estimated that additional costs required to obtain executive
orders and additional approvals should be in the $15,000 to $25,000 range.
Management also has estimated that it should be able to obtain the executive
orders in the second quarter of 1996.
NOTE 5: NOTES RECEIVABLE AND DEFERRED LICENSE FEES
During September and October 1995, the Company entered into licensing agree-
ments with two entities for non-U.S. marketing rights for the device. These
agreements call for the licensee to develop these markets for sales of the
device as produced by the Company. One of the licensee is a stockholder in
the Company.
Under each of these licensing agreements, the licensee agreed to pay the
license fee in four installments without interest. The total face value of
these agreements is $2,000,000. The balances shown represent the net amount
after application of a seven percent discount factor in order to show the
present value of the obligations. The agreements call for the Company to
secure certain approvals by the State of California prior to the due dates
of the first installment. The Company has been assured by its consultants
that this approval will occur significantly ahead of the dates contemplated
in the license agreements. However, due to the uncertainty of the date of
this approval, the license revenues have been deferred until such approval
has been obtained and the contingency removed. It Company expects to recog-
nize these revenues over the anticipated life of the license (currently
estimated to be seven years) on a straight-line basis.
NOTE 6: COMPENSATORY STOCK BENEFIT PLAN AND VALUATION BASIS
During 1995, the Company adopted a Compensatory Stock Benefit Plan (the Plan)
for the furtherance of the Company by allowing the Company the option of
compensating officers, directors, consultants, and certain other service
providers who render bona fide services to the Company through the award of
the Company's free trading common shares. Under the Plan, 5,000,000 shares
(500,000 shares after the reverse stock split) were approved by the Board of
Directors. Of the shares approved for the Plan, 195,000 shares were issued,
70,000 were committed in agreements with officers, and 40,000 were committed
to a consultant. These shares have been issued primarily for marketing and
promotion services, directors fees, and facilitation of the purchase of the
patent.
Subsequent to the adoption of this measure, the Company acquired services
with both free trading and restricted (section 144) stock. Transactions
utilizing free trading stock have been valued at the trading price for
market shares on the date of the transaction. Transactions utilizing
restricted stock have been valued at one-half of the trading price on the
date of the transaction.
NOTE 7: STOCKHOLDERS'S EQUITY
In 1986, the Company completed an initial offering of 10,000,000 shares with
net proceeds (after commissions) of $110,233. Between that time and December
31, 1993, it is apparent that there were several stock transactions and
other actions. However, records regarding this period of time are not
available. Additionally, no records have been found to enable analysis of
the 1993 retained earnings balance. Due to this lack of records, management
has elected to discount the retained earnings with regard to tax loss
carryforwards. Inception-to-date information required for development stage
companies is also unavailable for this period.
During 1994, the Company issued 75,000 common shares for directors fees and
88,000 common shares for other professional services. This represents a
total of 16,300 shares after the reverse split. These services were deemed
to be of no monetary benefit to the Company and the shares were recognized
at par value with no cost being recognized for these services.
In March 1995, the Company's Board approved a measure (ratified at a subse-
quent shareholders' meeting) whereby the Company's outstanding common shares
were reverse split on the basis of one new share for ten shares held.
In April 1995, the Company issued 7,000,000 shares of convertible, non-voting
preferred stock and 450,000 common shares as consideration for the patent and
a facilitation fee to a consultant. This transaction was valued at
$3,507,500.
Other consulting services not directly related to the patent purchase were
obtained through the issuance of 180,000 common shares valued at total of
$111,875. Directors were issued a total of 30,000 shares valued at $22,500.
This stock-based compensation, as well as the transactions described below,
has been valued as described at Note 6.
The Company issued 205,000 common shares pursuant to a Regulation S offering.
Net proceeds to the Company after commissions was $66,804. In addition,
$180,400 for 501,112 shares under Regulation S were received prior to
December 31, 1995, but the underlying shares had not been issued at that
date.
As discussed in Note 8 below, the Company has also issued and committed to
issue both common and preferred stock for continuing services and employment
agreements.
The Company has issued options to purchase common shares. These options have
arisen from various transactions including, as mentioned above, the purchase
of the patent. Other options have been granted as incentives to sign service
contracts. All options issued are to purchase one share for each option held.
There is no market for these options, but they may be assigned. At December
31, 1995, options to purchase a total of 2,375,000 common shares were
outstanding as detailed in the following table.
Number Per Share
of Exercise
Issued to/for Options Price Expires
Granted Product development 525,000 $ .20 9/96
Granted Product development 525,000 1.00 9/97
Granted Product development 525,000 3.00 9/98
Granted Public relations consultant 50,000 .20 9/96
Granted Public relations consultant 50,000 1.00 9/97
Granted Officers 200,000 .20 12/96
Granted Officers 200,000 1.00 12/97
Granted Officers 200,000 3.00 12/98
Granted Commissions 100,000 .10 10/97
Total at December 31, 1995 2,375,000
NOTE 8: COMMITMENTS AND DEFERRED CONSULTING FEES
The Company has committed to certain fixed payments under consulting contracts
for marketing, financial, and managerial services. Most of these contracts
call for monthly payments of which portions are being deferred for an interim
period. Certain obligations would survive termination of the agreements.
Additionally, the Company has entered into employment contracts with its
Chief Executive Officer (CEO) and Director of Engineering (DE) which call
for fixed compensation, stock, and stock options. These contracts are
for a three year term and call for base annual compensation for the CEO
and DE of $90,000 each in addition to an initial grant of 40,000 and 30,000
free trading common shares, respectively. Each of these contracts also call
for options to purchase 300,000 shares of stock. These options are included
in the table at Note 7 above. The CEO also was granted rights to 750,000
shares of convertible preferred stock of which one-third vested with the
initiation of the agreement while the other two-thirds vests on attaining
the first and second anniversary of the agreement. Neither the initial
grants of common stock or preferred stock had been issued at December 31,
1995. However, these shares have been included as stock to be issued and
valued at a total of $195,000. This total is being amortized over the term
of the agreements. The unamortized cost is included in Unearned Compensation
in the stockholders' equity section.
Other contracts requiring monthly retainer fees are as follows: $7,500 for
marketing, management, and general -- good until terminated, $4,500 per month
is currently being deferred; $7,500 for engineering and design -- good until
terminated, $4,500 per month is currently being deferred; $7,500 for
professional marketing -- three year term, $4,500 per month is currently
being deferred; $3,000 for advertising, marketing and financial promotion
- -- two year term, $1,000 per month is currently being deferred.
Two of these consulting contracts call for additional stock commitments. One
received 100,000 shares of free-trading stock as a service incentive. This
has been valued at $81,250 and is being amortized over the initial three year
term of the contract. The other contract calls for the issuance of 40,000
shares of free-trading common shares along with 100,000 shares of convertible
preferred shares. These commitments to issue stock have been valued at a
total of $78,750 and are being amortized over the three year initial term
of the contract. Recognition of the future issuance of the underlying stock
is being included in Unearned Compensation pending actual issuance of the
shares.
NOTE 9: RELATED PARTY TRANSACTIONS
Most of the Company's consultants are also stockholders of the Company.
This includes engineering services, marketing and financial promotion, and
management and stockholder services. As mentioned above, upon the purchase
of the patent, the previous owners became preferred stockholders.
Individuals involved also have continued many of the development and other
services which they were providing to the previous owner.
A consultant to the Company who is also a shareholder, borrowed $10,000
during November 1995. This same consultant was advanced an additional
$10,000 for the purpose of identifying an appropriate acquisition target
which had not been repaid or earned at year end.
As noted above, one of the licensees, and thereby, notes receivable sources
is also a stockholder of the Company.
Although the Company has no official offices, the official address of the
Company is the same as that of its vice-president of engineering.
As discussed below, the president of the Company is also the president of a
company acquired subsequent to year end.
NOTE 10: 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 is to advance $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, more specifically, home-based and small to mid-
sized businesses needing increase 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 11: OTHER SUBSEQUENT EVENTS
During the first quarter, approximately $110,000 of deferred consulting
fees were utilized by consultants as payment for the exercise of options
to purchase 650,000 common shares. The options exercised are a portion
of those set out in the table presented at Note 7 above. Additionally,
deferred consulting fees have been offset against the advances to
consultants.
During March 1996, the Company entered into a third exclusive licensing
agreement for specified Eastern Asian and Pacific island areas. This
agreement calls for the licensee to pay the Company a total of $500,000
over the next year.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
The Company and the certified public accounting firm of Bayaa &
Dimeglio of Irvine, California, by mutual agreement, discontinued the
services of Bayaa & Dimeglio as independent certifiec public accountant
of the Company. The Company has replaced its former accountants with
Robert Early & Company, P.C. of Abilene, Texas.
Bayaa & Dimelgio's report on the financial statements for the year ended
December 31, 1994 contianed no adverse opion nor disclaimers of opinion.
There were no disagreements with the former accounting firm.
<PAGE> PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With section 16(a) of the Exchange Act.
Served
Name Age Position / Office Term Since
Lionel Simons 65 Director/President/CEO 1 yr April 1995
Lester Berriman 70 Director/VP Engineering 3 yr April 1995
Peter Cahill 38 Director/Sec/Treasurer 2 yr April 1995
Lionel Simons - President & CEO - attended the London School of Economics
in London, England where her earned his Bachelor of Science in Economics
and was awarded one of 7 Leverhiume Scholarships. He earned his Masters
in Business Administration, majoring in International Business and
Marketing, at Columbia University Graduate School. While Managing
Director of Denbyware, Ltd. of England, he increased sales from
approximately $10 million to $25 million and took the company public via
the London Stock exchange. He has extensive experience in international
contract negotiations and business management having worked for such
companies as Remington Rand UNIVAC, Millard-Norman Company, Denbyware,
Ltd., Simons Office Systems, Trac-Tel Corporation and Asia Global
TEchnologies.
Lester Berriman - P.E., Chairman of the Board/Vice President/Director of
Engineering - is a Professional Engineer with a degree in Chemical
Engineering, Mr. Berriman leads the Company in its research. Mr.
Berriman served 20 years as manager of Chemical and Mechanical
Engineering for the Southern California laboratories of the Stanford
Research Institute and 17 years with Dresser Corporate Advanced
Technology which included 2 years as their Director of Advanced
Technology Center. Mr. Berriman has 21 United States patents and over 80
foreign patents to his credit and is one of the co-developers of the
NOxMaster(TM) technology. Mr. Berriman is also very closely aligned with
the Air Resources Board in California.
Peter Cahill - Secretary/Treasurer/Director, received his Bachelor of
Arts degree from the University of Hawaii in economics in 1989. Since
that time he has been working as an independent consultant to the
financial industry. Mr. Cahill has had several years experience with
publicly traded companies.
Item 10. Executive Compensation.
(a) SUMMARY COMPENSATION TABLE
Annual Compensation
Names and Principle Other Annual
Position Year Salary Bonus Compensation
Lionel Simons 1995 $7,500 - 0 - - 0 -
CEO, President
Lester Berriman 1995 7,500 - 0 - 10,000
Chariman/Director Engineering shares S-8
Peter Cahill 1995 7,500 - 0 - 10,000
Secretary/Treasurer shares S-8
(b) OPTIONS/STOCK APPRECIATION RIGHTS
Stock options in the amount of 100,000 shares at an exercise price
of $.20 per share were awarded to Mr. Simons and Mr. Berriman as a
signing bonus in November, 1995. A stock option in the amount of 75,000
shares with an exercise price of $.20 per share was granated to Mr.
Cahill in December, 1995. These options expire at the end of the 12
month period from the date of grant.
(c) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END
OPTION/SAR VALUE TABLE.
There was no exercise during 1995 of stock options and free standing
SARs by executive officers of the Company.
(d) LONG TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE
The Company did not make any long-term incentive plan awards to any
executive officer in 1995.
(e) COMPENSATION OF DIRECTORS
Directors of the Company are compensated for their services at the
rate of 5,000 shares of common stock registered under the Company's 1995
Stock Compensation Plan for each complete quarter of service.
(f) EMPLOYMENT CONTRACTS
The Company entered into two employment contracts during 1995. The
contract with Lionel Simons calls for an annual salary of $90,000, the
issuance of 40,000 common shares registered under the Company's 1995
Stock Compensation Plan as a signing bonus and the issuance of 250,000
shares of the Company's Preferred Non-voting shares. The contract with
Lester Berrimans calls for an annual salary of $90,000. Both parties
have agreed to defer 60% of these salaries until such time as revenues
from sales can sufficiently compensate each at 100% of the contract.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
</TABLE>
<TABLE>
SECURITY OWNERSHIP OF CERTIAN BENEFICIAL OWNERS AND MANAGEMENT
<CAPTION>
Shares from Shares Percent
Title of Name and Address of Shares of Convertible from of
Class Beneficial Owner Record Preferred Options Class
<S> <C> <C> <C> <C> <C>
Common Lester Berriman, VP/Director
18871 Portofino Drive
Irvine, Ca 92715 15,000 618,333 100,000 24.3%
Common Lionel Simons, CEO, President
/Director
28095 Padrino
Laguna Niguel, Ca 92677 140,000<F1> 83,333 100,000 12.4%
Common Peter Cahill, Sec/Tres/Director
4130 La Jolla Village Dr, #1O7
La Jolla, Ca 92037 115,000 75,000 8.3%
All officers and directorsas a group: 270,000 701,666 275,000 35.3%
Common Weinstein Pacific Traders, Ltd.
228 Queen's Rd. East, 3rd Floor
Wanchai, Hong Kong 138,000 266,666 100,000 18.9%
Common Roland Freasier, Jr.
9191 Towne Centre Dr., Ste 430
San Diego, Ca 92122 200,000 11.4%
Common Marty Finver 150,000 6.6%
Common The Kingsford Group
4275 Executive Square, Ste 410
La Jolla, Ca 92037 45,000<F2> 76,666 5.1%
Common Heritage Marketing Group
417 East Avenieda Cordoba
San Clemente, Ca 92672 100,000 166,667 12.1%
Common Hadleigh Consulting Group, Ltd.
Auckland, New Zealand 140,000 150,000 11.3%
Common John Z Company 285,000 100,000 10.7%
Common William Hylton
10108 Crawford Way
Sacramento, Ca 95827 618,333 100,000 23.9%
Common Multimedia Acquisitions,
Inc. 333,333 12.7%
Common KAS Syndicate 333,333 11.6%
<FN>
<F1>(1) Includes 100,000 common shares to be issued in the National
Diversified Telecom acquisition.
<F2>(2) Includes 45,000 common shares held by James Ross.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions.
The business combination with National Diversified Telecom, Inc. was
accomplished without the vote of Mr. Lionel Simons. Mr. Simons was a 33%
owner of the outstanding shares of National Diversified and abstained
from any vote regarding the matter. His interest in NDT and his ability
to structure marketing techniques specific to the business of NDT made it
a reasonable acquisition for KleenAir. Mr. Simons will remain as the CEO
of NDT as well as KleenAir. Although NDT's sales revenues have suffered
in the past due to a variety of changes in the general business,
management feels that Mr. Simons has the ability to restructure the
marketing of the NDT products in order to bring the cash flow up a
substantial amount thereby assisting KleenAir in its own endeavors.
Item 13. Exhibits, Lists and Reports on Form 8-k.
Filed Form 8-K dated April 7, 1995 File No. 33-3362-D
SIGNATURES
KLEENAIR SYSTEMS, INC.
// Lionel Simons //
Lionel Simons, President/Chief Financial Officer
In accordance with the Exchange Act, this report has been signed
by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
// Lionel Simons // April 11, 1996
Lionel Simons, President
// Lester Berriman // April 11, 1996
Lester Berriman, Vice President
// Peter Cahill // April 11, 1996
Peter Cahill, Secretary/Treasurer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summary financial information which has been
extracted from the consolidated financial statements of Golden Triangle Royalty
& Oil, Inc. and Subsidiarys for the period ended December 31, 1995, and is
qualified in its entirety by reference to such financial statements and the
notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 151996
<SECURITIES> 0
<RECEIVABLES> 156035
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 335114
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5510161
<CURRENT-LIABILITIES> 97944
<BONDS> 0
0
7000
<COMMON> 1424
<OTHER-SE> 3667235
<TOTAL-LIABILITY-AND-EQUITY> 5510161
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 282094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (329289)
<INCOME-TAX> 0
<INCOME-CONTINUING> (329289)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329289)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TEXT
