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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, 1999
[ ] 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 3,593,906 shares of common stock, $0.001 Par Value,
outstanding as of March 30, 1999.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
1
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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, 1999, and
the related statements of operations, stockholders equity, and cash flows
for the three months ended March 31, 1999 and 1998. We have also
reviewed the cumulative statements of operations, stockholders equity and
cash flows for the period from January 1, 1995 through March 31, 1999.
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, 1998, and the related
statements of operations, stockholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated November 24,
1999, 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, 1998 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
November 29, 1999
2
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KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
March 31 December 31
1999 1998
Unaudited
----------- -----------
CURRENT ASSETS:
Cash $ 1,039 $ 443
Prepaid expenses 45,000 90,000
----------- -----------
Total Current Assets 46,039 90,443
PROPERTY AND EQUIPMENT 1,450 1,595
OTHER ASSETS:
Patent license 3,607,137 3,607,137
----------- -----------
TOTAL ASSETS $ 3,654,626 $ 3,699,175
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable (all due to related
parties) $ 43,411 $ 42,711
STOCKHOLDERS' EQUITY:
Preferred stock, series A, $.001 par
value (10,000,000 shares authorized,
112,333 outstanding) 112 112
Common stock, $.001 par value
(50,000,000 shares authorized,
3,593,906 and 3,293,906 outstanding) 3,594 3,294
Additional paid-in capital 5,286,075 5,211,375
Deficit accumulated during the
development stage (1,678,566) (1,558,317)
----------- -----------
Total Stockholder's Equity 3,611,215 3,656,464
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,654,626 $ 3,699,175
=========== ===========
See Accountants review report and accompanying selected information.
3
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KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For Three Months Ended March 31, 1999 and 1998
<TABLE>
<S> <C> <C> <C>
Cumulative
During Devel-
1999 1998 opment Stage
--------- --------- -----------
PRODUCT DEVELOPMENT COSTS $ - $ 2,500 $ 251,660
OPERATING EXPENSES:
Personnel costs and director fees - - 135,625
Consultants 97,500 11,073 688,623
Professional fees 22,500 - 107,350
Office expenses - - 19,357
Depreciation 145 - 290
Advertising and promotion 35 - 133,483
Loss on cancellation of license agreements - - 19,860
Other expenses 69 12 23,009
Unknown sources prior to current ownership - - 151,518
--------- --------- -----------
Total operating expenses 120,249 11,085 1,279,115
--------- --------- -----------
(LOSS) FROM OPERATIONS (120,249) (13,585) (1,530,775)
OTHER INCOME AND (EXPENSES):
Amortization of discount on receivables - - 20,259
--------- --------- -----------
(Loss) Before Extraordinary Item (120,249) (13,585) (1,510,516)
Extraordinary Item:
Costs of terminated acquisition - - 168,050
--------- --------- -----------
Net (Loss) $(120,249) $ (13,585) $(1,678,566)
========= ========= ===========
Basic earnings per share:
(Loss) Per Share Before Extraordinary Item $ (0.04) $ (0.03) $ (5.46)
(Loss) Per Share From Extraordinary Item - - (0.60)
--------- --------- -----------
Net (Loss) Per Share $ (0.04) $ (0.03) $ (6.06)
========= ========= ===========
Weighted Average Shares Outstanding 3,330,573 472,242 276,879
========= ========= ===========
</TABLE>
See Accountants review report and accompanying selected information.
4
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KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Additional Unearned Deficit During
Preferred Stock Common Stock Paid-In Compen- Development
Shares Amount Shares Amount Capital sation Stage
--------- ------- --------- ------- ---------- --------- -------------
BALANCES, 12/31/94 - $ - 37,066 $ 37 $ 151,481 $ - $ (151,518)
Stock issued for cash - - 13,667 14 66,995 - -
For adjustment - - 267 1 - - -
For consulting services - - 43,074 43 279,482 - -
For professional services - - 2,333 2 12,748 - -
For purchase of patent rights 466,667 466 30,000 30 3,507,003 - -
For directors' compensation - - 2,000 2 22,498 - -
For officers' compensation 16,667 17 4,667 5 194,978 - -
Other contributed capital - - - - 2,367 - -
Options compensation - - - - 70,313 152,016) -
Net loss - - - - - - (329,289)
--------- ------- --------- ------- ---------- -------- -----------
BALANCES, 12/31/95 483,334 483 133,074 134 4,307,865 (152,016) (480,807)
Stock issued for services 6,666 6 12,333 12 201,857 (78,750) -
For officers' compensation 16,666 17 - - 15,608 (15,625) -
For aborted acquisition - - 20,000 20 140,530 - -
Exercise of options - - 37,500 37 112,462 - -
Conversion to common (159,333) (159) 159,334 159 - - -
Net Loss - - - - - 187,346 (716,511)
--------- ------- --------- ------- ---------- -------- -----------
BALANCES, 12/31/96 347,333 347 362,241 362 4,778,322 (59,045) (1,197,318)
Stock issued for cash - - 60,000 60 14,940 - -
For officers' compensation 16,667 17 - - 3,858 (3,875) -
Conversion to common (50,000) (50) 50,000 50 - - -
Net loss - - - - - 37,979 (55,438)
--------- ------- --------- ------- ---------- -------- -----------
BALANCES, 12/31/97 314,000 314 472,241 472 4,797,120 (24,941) (1,252,756)
Stock issued for cash - - 400,000 400 199,600 - -
For services - - 1,060,000 1,060 93,315 - -
To officers and developers - - 160,000 160 59,840 - -
For diesel license - - 1,000,000 1,000 61,500 - -
Conversion to common (201,667) (202) 201,665 202 - - -
Net loss - - - - - 24,941 (305,561)
--------- ------- --------- ------- ---------- -------- -----------
BALANCES, 12/31/98 112,333 112 3,293,906 3,294 5,211,375 - (1,558,317)
Stock issued for services - - 300,000 300 74,700 - -
Net loss - - - - - - (120,249)
--------- ------- --------- ------- ---------- -------- -----------
BALANCES, 03/31/99 112,333 $ 112 3,593,906 $ 3,594 $5,286,075 $ - $(1,678,566)
========= ======= ========= ======= ========== ======== ===========
</TABLE>
See Accountants review report and accompanying selected information.
5
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KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Increases/(Decreases) in Cash and Cash Equivalents
For Three Months Ended March 31, 1999 and 1998
<TABLE>
<S> <C> <C> <C>
Cumulative
During Devel-
1999 1998 opment Stage
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (120,249) $ (13,585) $(1,678,566)
Adjustments to reconcile net income/(loss) to
net cash provided by operations:
Losses prior to current ownership - - 151,518
Depreciation 145 - 290
Amortization of:
Prepaid expenses 45,000 6,771 207,220
Deferred services - 6,802 250,267
Stock issued for services 75,000 - 507,950
Stock issued for extraordinary loss - - 140,550
Advances to consultants - - 20,000
Prepaid expenses - - (180,000)
Trade accounts payable 700 - 43,411
---------- ---------- -----------
NET CASH USED BY OPERATING ACTIVITIES 596 (12) (537,360)
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment - - (1,740)
Patent licensing costs - - (37,137)
---------- ---------- -----------
NET CASH USED IN INVESTING ACTIVITIES - - (38,877)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuing stock - - 574,909
Additional capital contributions - - 2,367
---------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES - - 577,276
---------- ---------- -----------
NET INCREASE/(DECREASE) IN CASH 596 (12) 1,039
CASH AT BEGINNING OF YEAR 443 557 -
---------- ---------- -----------
CASH AT END OF YEAR $ 1,039 $ 545 $ 1,039
========== ========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest $ - $ - $ -
Income taxes - - -
Non-cash investing and financing transactions:
Stock issued for:
Compensation and directors fees - - 186,875
Services and prepaid services 75,000 - 437,500
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
</TABLE>
See Accountants review report and accompanying selected information.
6
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KLEENAIR SYSTEMS, INC.
(A Development Stage Enterprise)
SELECTED INFORMATION FOR FINANCIAL STATEMENTS
March 31, 1999
(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, 1998. 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, 1999, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999.
The December 31, 1998, balance sheet presented is from the audited
financial statements for the year ended December 31, 1998 as presented in
Form 10-KSB.
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.
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
During the first quarter, the Company issued 300,000 shares of S-8
free-trading stock in exchange for financial consulting services. These
shares, valued at the market price on the date of approval, were recorded
at $75,000.
NOTE 4: AMORTIZATION
The Company is amortizing services prepaid during 1998. The services were
to be provided over a year starting in July 1998. The total amortization
of $45,000 is split equally between Professional fees and Consultants.
NOTE 5: SUBSEQUENT EVENTS
In July 1999, the Company issued 210,000 shares to key personnel as
compensation for services and efforts to get the Company moving.
In October 1999, the Company has also entered into a contract with a third
party for the modification of catalytic coatings to work specifically with
the Company's diesel emission control system.
7
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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 towards 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.
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 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.
PART II
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 following are the highs and lows for each quarter for the
three fiscal quarters ended December 31, 1997, fiscal year 1998 and the first
quarter of fiscal year 1999 respectively. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not represent
actual transactions.
High Low
1997
2nd Quarter $0.47 $0.47
3rd Quarter $1.125 $0.125
4th Quarter $0.125 $0.125
1998
1st Quarter $0.125 $0.125
2nd Quarter $0.125 $0.125
3rd Quarter $1.25 $0.125
4th Quarter $1.31 $0.75
1999
1st Quarter $0.25 $0.625
Shareholders: At October 31, 1999 there were 122 shareholders of record
with an additional 62 shareholders registered with firms reporting to the
Depository Trust Company.
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: November 30, 1999 /s/ LIONEL SIMONS.
By: Lionel Simons., President,
Secretary,
Principal Accounting Officer, &
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following schedule contains summary financial information which has
been extracted from the consolidated financial statements of KLEENAIR
SYSTEMS, INC. for the interim financial statements filed on Form 10-QSB
for the periods indicated. These summary schedules are qualified in their
entirety by reference to such financial statements and the notes thereto.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-30-1999 MAR-30-1998
<CASH> 1,039 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 46,039 0
<PP&E> 1,740 0
<DEPRECIATION> (290) 0
<TOTAL-ASSETS> 3,654,626 0
<CURRENT-LIABILITIES> 43,411 0
<BONDS> 0 0
0 0
112 0
<COMMON> 3,594 0
<OTHER-SE> 3,607,509 0
<TOTAL-LIABILITY-AND-EQUITY> 3,654,626 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 120,249 13,585
<LOSS-PROVISION> (120,249) (13,585)
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (120,249) (13,585)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (120,249) (13,585)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (120,249) (13,585)
<EPS-BASIC> (0.04) (0.03)
<EPS-DILUTED> (0.04) (0.03)
</TABLE>
