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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 JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 33-3362-D
KLEENAIR SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
State of Nevada 87-0431043
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
828 Production Place, Newport Beach, CA 92663
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (949) 574-1600
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 10,123,482 shares of common stock, $0.001 Par Value,
outstanding as of March 31, 2000.
Transitional Small Business Disclosure Format (check one); Yes [ ] No [X]
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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 June 30, 2000, and the
related statements of operations, stockholders equity, and cash flows for
the three and six months ended June 30, 2000 and 1999. We have also
reviewed the cumulative statements of operations, stockholders equity and
cash flows for the period from January 1, 1995 through June 30, 2000. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1999, and the related
statements of operations, stockholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated April 3, 2000, we
expressed an opinion on those financial statements which was qualified based
on the Company's ability to continue as a going concern. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of December 31, 1999 is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in the development stage and has no
operating revenues. This situation raises substantial doubt as to the
Company's ability to continue as a going concern. Management's plans in
regard to this situation are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Robert Early & Company
ROBERT EARLY & COMPANY, P.C.
Abilene, Texas
August 16, 2000
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KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
---------- ----------
Unaudited
CURRENT ASSETS:
Cash $ 39,136 $ 25,980
Cash restricted 75,390 -
Prepaid expenses 357,050 800
---------- ----------
Total Current Assets 471,576 26,780
PROPERTY AND EQUIPMENT (net) 45,588 14,815
OTHER ASSETS:
Patent license 3,611,558 3,611,558
---------- ----------
TOTAL ASSETS $4,128,722 $3,653,153
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ($63,128 and $52,805 due
to related parties, respectively) $ 67,213 $ 71,796
Advances from directors 52,000 25,000
---------- ----------
Total Current Liabilities 119,213 96,796
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, series A, $.001 par value
(10,000,000 shares authorized, -0- and
163,332 outstanding, respectively) - 163
Common stock, $.001 par value (50,000,000
shares authorized, 11,525,212 and
9,357,480 outstanding, respectively) 11,525 9,357
Additional paid-in capital 6,467,546 5,907,876
Deficit accumulated during the
development stage (2,469,562) (2,361,039)
---------- ----------
Total Stockholder's Equity 4,009,509 3,556,357
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $4,128,722 $3,653,153
========== ==========
See accompanying accountants' report and selected information.
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KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For Three and Six Months Ended June 30, 2000 and 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
Cumulative
Three Months Six Months During Devel-
2000 1999 2000 1999 opment Stage
---------- ---------- ---------- ---------- ------------
PRODUCT DEVELOPMENT COSTS $ 8,194 $ - $ 9,936 $ - $ 343,766
OPERATING EXPENSES:
Personnel costs and director fees - - - - 471,274
Consultants 19,500 22,500 22,000 120,000 912,115
Professional fees 15,760 23,832 27,638 46,332 180,015
Office expenses 1,423 - 2,882 - 23,586
Depreciation 2,789 145 4,419 290 6,910
Advertising and promotion 7,673 - 15,331 35 150,360
Loss on cancellation of licensing
agreements - - - - 19,860
Rent 10,000 - 15,000 - 20,000
Other expenses 9,522 72 12,861 141 43,911
Unknown sources prior to current
ownership - - - - 151,518
---------- ---------- ---------- ---------- ------------
Total operating expenses 66,667 46,549 100,131 166,798 1,979,549
---------- ---------- ---------- ---------- ------------
(LOSS) FROM OPERATIONS (74,861) (46,549) (110,067) (166,798) (2,323,315)
OTHER INCOME AND (EXPENSES):
Interest income 1,169 - 1,544 - 1,544
Amortizate discount on receivables - - - - 20,259
---------- ---------- ---------- ---------- ------------
(Loss) Before Extraordinary Item (73,692) (46,549) (108,523) (166,798) (2,301,512)
Extraordinary Item:
Costs of terminated acquisition - - - - 168,050
---------- ---------- ---------- ---------- ------------
Net (Loss) $ (73,692) $ (46,549) $ (108,523) $ (166,798) $ (2,469,562)
========== ========== ========== ========== ============
Basic earnings per share:
(Loss) Per Share Before
Extraordinary Item $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.73)
(Loss) Per Share From
Extraordinary Item - - - - (0.06)
---------- ---------- ---------- ---------- ------------
Net (Loss) Per Share $ (0.01) $ (0.01) $ (0.01) $ (0.02) $ (0.79)
========== ========== ========== ========== ============
Weighted Average Shares Outstanding 10,282,182 7,187,812 9,949,539 6,925,934 3,132,856
========== ========== ========== ========== ============
See accompanying accountants' report and selected information.
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</TABLE>
<TABLE>
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<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, 1/1/95 - $ - 74,132 $ 74 $ 151,444 $ - $ (151,518)
Stock issued for cash - - 27,334 27 66,982 - -
For adjustment - - 534 1 - - -
For consulting services - - 86,148 86 279,439 - -
For professional services - - 4,666 5 12,745 - -
For purchase of patent rights 933,334 934 60,000 60 3,506,505 - -
For directors' compensation - - 4,000 4 22,496 - -
For officers' compensation 33,334 33 9,334 9 194,958 - -
Other contributed capital - - - - 2,367 - -
Options compensation - - - - 70,313 (152,016) -
Net loss - - - - - - (329,289)
--------- -------- --------- ---------- --------- --------- ----------
BALANCES, 12/31/95 966,668 967 266,148 266 4,307,249 (152,016) (480,807)
Stock issued for services 13,332 13 24,666 25 201,837 (78,750) -
For officers' compensation 33,332 33 - - 15,592 (15,625) -
For aborted acquisition - - 40,000 40 140,510 - -
Exercise of options - - 75,000 75 112,424 - -
Conversion to common (318,666) (319) 318,666 319 - - -
Net Loss - - - - - 187,346 (716,511)
--------- -------- --------- ---------- --------- --------- ----------
BALANCES, 12/31/96 694,666 694 724,480 725 4,777,612 (59,045) (1,197,318)
Stock issued for cash - - 120,000 120 14,880 - -
For officers' compensation 33,334 33 - - 3,842 (3,875) -
Conversion to common (100,000) (100) 100,000 100 - - -
Net loss - - - - - 37,979 (55,438)
--------- -------- --------- ---------- --------- --------- ----------
BALANCES, 12/31/97 628,000 627 944,480 945 4,796,334 (24,941) (1,252,756)
</TABLE>
See accompanying accountants' report and selected information.
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<TABLE>
KLEENAIR SYSTEMS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Continued)
<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
--------- -------- ---------- ---------- ---------- --------- -----------
Stock issued for cash - $ - 800,000 $ 800 $ 199,200 $ - $ -
For services - - 2,120,000 2,120 92,255 - -
To officers and directors - - 320,000 320 59,680
For diesel license - - 2,000,000 2,000 60,500 - -
Conversion to common (403,334) (403) 403,334 403 - - -
Net loss - - - - - 24,941 (305,561)
--------- -------- ---------- ---------- ---------- --------- -----------
BALANCES, 12/31/98 224,666 224 6,587,814 6,588 5,207,969 - (1,558,317)
Stock issued for cash - - 146,800 147 35,653 - -
For services - - 1,103,334 1,103 247,179 - -
For equipment - - 33,200 33 8,267 - -
To officers and directors - - 1,425,000 1,425 408,808 - -
Conversion to common (61,334) (61) 61,334 61 - - -
Net loss - - - - - - (802,722)
--------- -------- ---------- ---------- ---------- --------- -----------
BALANCES, 12/31/99 163,332 163 9,357,482 9,357 5,907,876 - (2,361,039)
Stock issued for cash - - 800,000 800 199,200 - -
For services - - 1,202,666 1203 355,714 - -
As promotion - - 1,730 2 4,756 - -
Conversion to common (163,332) (163) 163,334 163 - - -
Net loss - - - - - - (108,523)
--------- -------- ---------- ---------- ---------- --------- -----------
BALANCES, 06/30/00 - $ - 11,525,212 $ 11,525 $6,467,546 $ - $(2,469,562)
========= ======== ========== ========== ========== ========= ===========
</TABLE>
See accompanying accountants' report and selected information.
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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, 2000 and 1999
Cumulative
During Devel-
2000 1999 opment Stage
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(108,523) $(166,798) $(2,469,562)
Adjustments to reconcile net (loss)
to net cash provided by operations:
Losses prior to current ownership - - 151,518
Depreciation 4,419 290 6,910
Amortization of:
Prepaid expenses - 90,000 252,220
Deferred services - - 250,267
Stock issued for services 5,426 75,000 1,096,891
Stock issued for extraordinary loss - - 140,550
Advances to consultants - - 20,000
Prepaid expenses - - (180,800)
Trade accounts payable (4,583) 1,100 67,213
Advances from directors 27,000 - 52,000
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NET CASH USED BY OPERATING ACTIVITIES (76,261) (408) (612,793)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment (35,193) - (44,199)
Patent licensing costs - - (41,558)
--------- --------- -----------
NET CASH USED IN INVESTING ACTIVITIES (35,193) - (85,757)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuing stock 200,000 - 810,709
Additional capital contributions - - 2,367
--------- --------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 200,000 - 813,076
--------- --------- -----------
NET INCREASE/(DECREASE) IN CASH 88,546 (408) 114,526
CASH AT BEGINNING OF YEAR 25,980 443 -
--------- --------- -----------
CASH AT END OF YEAR $ 114,526 $ 35 $ 114,526
========= ========= ===========
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest $ - $ - $ -
Income taxes - - -
Non-cash investing and financing transactions:
Stock issued for:
Compensation and directors fees - - 597,108
Services and prepaid services 361,676 75,000 940,567
Patent licensing - - 3,507,500
Repurchase of U.S. diesel license - - 62,500
Acquisition of National Diversified
Telecom, Inc. - - 140,550
Sale of marketing licenses for notes
receivable - - 1,736,558
See accompanying accountants' report and selected information.
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KLEENAIR SYSTEMS, INC.
(A Development Stage Enterprise)
SELECTED INFORMATION FOR FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions of Regulation S-B. They do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, except as
disclosed herein, there has been no material change in the information
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1999. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The report of Robert Early & Company, P.C.
commenting on their review accompanies the condensed financial statements
included in Item 1 of Part 1. Operating results for the six month period
ended June 30, 2000, are not necessarily indicative of the results that may
be expected for the year ending December 31, 2000.
NOTE 2: GOING CONCERN ISSUES
These financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has neither sufficient operating
revenues or disposable assets to fund completion of its development program,
current level of expenses, or initial production stages. In this situation,
the Company is reliant solely upon its ability to raise capital through
sales of its stock, debt financing, or acquisition of services through
issuances of the Company's stock. There is no assurance that a market
exists for the sale of the Company's stock or that lenders could be found to
loan money to the Company. Should financing not be available, the Company
would, in all likelihood, be forced to stop development efforts and/or to
shut down its activities completely.
Management has had indications that investors are interested in the
technology being developed by the Company and that these investors have
capacity and will be willing to be available to provide financing for the
remaining cost of the development of the device. As such, Management
anticipates that development activities being carried on by the Company will
be continued and that there should be no substantial difficulties in
obtaining sufficient financing to carry its project through to completion
and subsequent distribution. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or the amount of liabilities that might be necessary should
the Company be unable to continue in existence.
NOTE 3: STOCK TRANSACTIONS
In February, 2000, the directors of the Company authorized a 2 for 1 forward
stock split. All share numbers and per share amounts presented in these
financial statements have been restated to reflect this split.
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During the first quarter of 2000, the Company issued 600,000 shares for cash
of $150,000. In addition, all of the remaining outstanding preferred shares
were converted to common stock. During the second quarter, the Company
issued 1,730 shares (valued at $4,867 to various individuals as a promotion
of the Company. Additionally, the Company issued 200,000 shares for cash of
$50,000.
During July 2000, the Company filed a S-8 registration of 1,950,000 shares
to be used for employee and consultant compensation. The shares were
divided in the directors resolution authorizing the S-8 as follows: 750,000
shares were reserved for the establishment of an Employee Stock Option Plan,
1,200,000 shares were authorized to fulfill consulting agreements entered
into during June 2000. These 1,200,000 shares were recorded as issued at
June 30, 2000 as prepaid expenses due to the underlying contract provisions.
NOTE 4: PROPERTY AND EQUIPMENT
During 1999 and the first quarter of 2000, the Company has purchased testing
equipment, a test automobile, and office equipment and furniture as
presented in the following table. Depreciation expense for the second
quarter and first half of 2000 was $2,789 and $4,419.
Office furniture and equipment $ 7,447
Test vehicle 5,000
Analysis equipment 40,051
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52,498
Accumulated depreciation (6,910)
-------
Net property & equipment $45,588
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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
were successfully completed.
In April, 1995, under the name Investment and Consulting International,
Inc., the Company acquired a patent for a proprietary device designed to
neutralize nitrogen oxide automobile emissions from a separate Company which
was then known as KleenAir Systems, Inc. Simultaneously with the acquisition
of the patent, the Company acquired the right to use the corporate name
"KleenAir Systems, Inc.," and changed to its current name.
Since acquiring the patent in 1995, the Company has been a
developmental stage Company and has worked toward the completion of the
development and testing of the NOXMASTER(TM) 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. KleenAir received
it's latest patent award on November 30th, 2000 of US Patent # 5,992,141 on
"Ammonia Injection in NOx Control". The Company has applied for and
maintained patent protection under the Patent Cooperation Treaty(PCT) to
protect its intellectual property in a variety of countries that are
significant producers of automotive products.
The Company has R & D facilities at 828 Production Place, Newport
Beach, CA 92663, occupying approximately 2,000 sq. ft. The Company has
appropriate computers and test equipment to advance its development and
testing activity and has a diesel vehicle for testing its products. In
addition, the Company continues to use the CARB approved testing facilities
of California Environmental Engineering of Santa Ana, CA for state testing
requirements.
The Company is continuing its testing program in the UK and, in
connection with reducing pollution from London Taxicabs has applied for
funding from the Clean Vehicle Program, part of the Energy Savings Trust. US
testing is continuing of the NOXMASTER(TM) Diesel Catalytic Converter
together with its NOXMASTER(TM) Ammonia Injection System to present an
integrated system for the elimination of emissions from diesel powered
mobile sources.
Once production and sales begin, the Company anticipates employing
initially 15 to 20 employees, primarily in management, technical and
administrative capacities. The Company is actively seeking sources of
funding for its operating capital requirements both to complete its test and
evaluation programs and to support initial sales and production.
The Company concluded a Licensing Agreement with Extengine Transport
Systems, LLC, for China, India, California and the US Urban Bus Market. If
the minimum requirements are met to maintain the exclusive rights over the
10-year period of the agreement, the total projected value of this agreement
would be $180 million. Under this program the Company has received and is
testing six engines from a major manufacturer in China, including 2 diesel
engines 2 gasoline engines and 2 motor cycle engines, with the mission to
demonstrate NOx reduction capability that will meet Euro 3 standards for
implementation in the PRC. Under the Extengine program, the company has now
received an experimental certification for use in the California heavy duty
diesel vehicle market, including urban buses.
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The European patent rights have been valued at approximately $65
million by Valuation Consultants Ltd., a leading UK corporate asset valuer.
The Company has a beneficial interest of 30% in the associated Company,
which is licensed to exploit those rights, valued at some $20 million, and
receives 8% royalties. A test and evaluation program is currently underway
and revenue is anticipated to commence in the 4th quarter of 2000 in
connection with the program.
Similarly, the Company anticipates starting test and evaluation
programs in the US during the 3rd quarter leading to revenue starting in the
4th quarter.
The Company is negotiating potential licensing and other commercial
arrangements with certain international companies in the automotive
industry, subject to completion of satisfactory test and evaluation
programs.
The statements contained in this filing are not historical fact and are
forward-looking statements within the meaning of the private securities
Litigation Reform Act of 1995. Actual results may differ materially from
those forward-looking statements, as such statements involve risks and
uncertainties that could significantly impact the Company's business and the
actual outcome and results may differ materially.
PART II - OTHER INFORMATION
ITEM 1. MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
MARKET INFORMATION: The trading market for the common equity securities of
the Company is the National Association of Securities Dealers OTC Bulletin
Board quotation system. The Company declared a two for one forward stock
split in the form of a 100% stock dividend to shareholders of record as of
March 15, 2000 and these shares were distributed on March 20, 2000. The
following are the highs and lows for the first three quarters of fiscal year
1998, fiscal 1999 and the 1st quarter of fiscal year 2000 respectively,
having been restated to reflect the two for one stock split. These
quotations reflect inter-dealer prices, without retail mark up, markdown or
commissions, and may not represent actual transactions.
High Low
1998
3rd Quarter $0.625 $0.0625
4th Quarter 0.655 0.375
1999
1st Quarter $0.3125 $0.125
2nd Quarter 0.5625 0.125
3rd Quarter 1.125 0.3075
4th Quarter 1.03125 0.4844
2000
1st Quarter $12.00 $1.50
2nd Quarter 7.75 1.1875
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SHAREHOLDERS: At June 30, 2000, there were 461 shareholders of record
with an additional 69 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 June 30, 2000.
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: August 17, 2000 /s/ LIONEL SIMONS
By: Lionel Simons., President,
Secretary, Principal Accounting Officer,
& Principal Financial Officer
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