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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 15, 2010
CLEAN DIESEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 001-33710 | 06-1393453 | ||
(State or other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
4567 TELEPHONE ROAD, SUITE 206 VENTURA, CALIFORNIA | 93003 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code:(805) 639-9458
(Former name or former address if changed since last report.) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Explanatory Note
This Current Report on Form 8-K is being amended solely to append, commencing on page F-1 hereof, the financial statements of business acquired and pro forma financial information required by Item 9.01, which previously had been incorporated by reference. No updated information is contained in this Form 8-K/A
Item 1.01 Entry into a Material Definitive Agreement
On October 15, 2010, Clean Diesel Technologies, Inc. (“Clean Diesel,” “we,” “our,” or “us”), CDTI Merger Sub, Inc., a California corporation and our wholly-owned subsidiary, and Catalytic Solutions, Inc., a California corporation (“CSI”), consummated a business combination pursuant to the terms of the Agreement and Plan of Merger dated May 13, 2010, as amended by letter agreements dated September 1, 2010 and September 14, 2010 (the “Merger Agreement”). Pursuant to the Merger Agreement, CDTI Merger Sub, Inc. merged with and into CSI, and CSI became our wholly-owned subsidiary. We refer to this business combination as the “Merger.” Immediately prior to the Merger, and as contemplated by the Merger Agreement, a one-for-six reverse stock split took effect.
On October 15, 2010, Clean Diesel issued a press release announcing the completion of the Merger and the reverse stock split ratio, among other items. A copy of the press release is attached hereto as Exhibit 99.1.
On October 15, 2010, CSI entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with the investors in its secured convertible notes, which notes are described in more detail in our Registration Statement on Form S-4/A filed with the Securities and Exchange Commission (the “SEC”) on September 23, 2010 (the “Registration Statement”). Subsequent to the Merger, on October 15, 2010, we and CSI entered into an Assignment and Assumption Agreement whereby we agreed to assume CSI’s obligations under the Registration Rights Agreement. The Registration Rights Agreement provides for certain registration rights with respect to the shares of Clean Diesel common stock issued to the holders of such notes in the Merger (which notes converted into shares of CSI’s Class B common stock of CSI immediately prior to the Merger). Pursuant to the Registration Rights Agreement, we agreed to file a registration statement to register the shares of Clean Diesel common stock issued in the Merger to such holders for resale at the request of such holders. In addition, we also granted such holders “piggyback” registration rights. We will pay substantially all of the costs and expenses related to the filing of the registration statements and any underwritten public offering required pursuant to the Registration Rights Agreement.
In addition, on October 15, 2010, prior to the completion of the Merger, pursuant to binding commitment letters from investors in our Regulation S private placement described in our Current Report on Form 8-K filed with the SEC on May 18, 2010 and in the Registration Statement, we sold units consisting of 109,020 shares of our common stock on a post-split basis (654,118 on a pre-split basis) and warrants to purchase 166,666 shares of our common stock on a post-split basis (1,000,000 on a pre-split basis) for approximately $1,000,000 in cash before commissions and expenses. The warrants issued in our Regulation S private placement have an exercise price of $7.92 on a post-split basis ($1.32 on a pre-split basis) and expire on the earlier of (i) October 15, 2013 (the third anniversary of the effective time of the Merger) and (ii) the date that is 30 days after we give notice to the warrant holder that the market value of one share of our common stock has exceeded 130% of the exercise price of the warrant for 10 consecutive days.
Copies of both the Assignment and Assumption Agreement and Registration Rights Agreement are filed as Exhibits to this Current Report on Form 8-K and the foregoing descriptions are qualified in their entirety by the full text of such agreements, which are incorporated by reference herein.
Item 2.01 Completion of Acquisition or Disposition of Assets
On October 15, 2010, Clean Diesel’s wholly-owned subsidiary, CDTI Merger Sub, Inc., merged with and into CSI, with CSI continuing as the surviving corporation and as a wholly-owned subsidiary of Clean Diesel.
Pursuant to the terms of the Merger Agreement, each outstanding share of (i) CSI Class A Common Stock was converted into and became exchangeable for 0.007888 fully paid and non-assessable shares of Clean Diesel common stock on a post-split basis (0.04732553 on a pre-split basis) with any fractional shares to be paid in cash and warrants to acquire 0.006454 fully paid and non-assessable shares of Clean Diesel common stock for $7.92 per share on a post-split basis (0.03872267 shares for $1.32 per share on a pre-split basis); and (ii) CSI Class B Common Stock was converted into and became exchangeable for 0.010039 fully paid and non-assessable shares of Clean Diesel common stock on a post-split basis (0.06023308 on a pre-split basis) with any fractional shares to be paid in cash. In connection with the Merger and as contemplated by the Merger Agreement, we also issued 166,666
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shares of common stock on a post-split basis (1,000,000 shares on a pre-split basis) and warrants to purchase an additional 166,666 shares of common stock on a post-split basis (1,000,000 shares on a pre-split basis) to Allen & Company LLC, CSI’s financial advisor. The warrants issued in the Merger expire on the earlier of (x) October 15, 2013 (the third anniversary of the effective time of the Merger) and (y) the date that is 30 days after we give notice to the warrant holder that the market value of one share of our common stock has exceeded 130% of the exercise price of the warrant for 10 consecutive days.
As provided in the Merger Agreement, Clean Diesel is issuing (or reserving for issuance pursuant to “in-the-money” warrants) approximately 2,287,943 shares of Clean Diesel common stock on a post-split basis (13,727,658 on a pre-split basis) and warrants to purchase an additional 666,666 shares of Clean Diesel common stock (4,000,000 on a pre-split basis) in connection with the Merger. Based on the closing price of $0.82 per share of Clean Diesel common stock on The NASDAQ Capital Market (“NASDAQ”) on October 15, 2010, the last trading day before the effectiveness of the reverse stock split and the closing of the Merger, the aggregate value of the Clean Diesel common stock issued in connection with the Merger was approximately $11,256,680.
Following the closing of the Merger, CSI became a wholly-owned subsidiary of Clean Diesel and the shares of CSI common stock, which previously traded under the ticker symbols “CTS” and “CTSU” on the AIM market of the London Stock Exchange (the “AIM”), ceased trading on, and were delisted from, the AIM.
Following the consummation of the Merger, the holders of CSI securities (including the holders of its secured convertible notes) and CSI’s financial advisor collectively hold approximately 60% of our outstanding common stock and Clean Diesel stockholders (including investors in its Regulation S offering discussed herein) hold the remaining 40% of our outstanding common stock. For legal purposes, Clean Diesel acquired CSI, although the combination will be accounted for as a reverse merger with CSI deemed to be the “acquiror” for accounting and financial reporting purposes.
The description of the Merger contained in this Item 2.01 does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement as amended by the two letter agreements, which Merger Agreement (as amended) was included as Annex A to the joint proxy statement/information statement and prospectus included in the Registration Statement, and which letter agreements were filed as Exhibits 2.2 and 2.3 to the Registration Statement, all of which are incorporated by reference herein.
On October 15, 2010, we issued a press release announcing the completion of the Merger, among other items. A copy of that press release is included as Exhibit 99.1 hereto.
Item 3.02 Unregistered Sales of Equity Securities
We did not register on the Registration Statement all of the shares and warrants issued on October 15, 2010 in connection with the Merger. Only an aggregate 560,112 shares of common stock on a post-split basis (or 3,360,676 shares on a pre-split basis) and warrants to acquire 458,295 shares of common stock on a post-split basis (or 2,749,770 shares on a pre-split basis) were registered on the Registration Statement. Accordingly, the following securities issued on October 15, 2010 in connection with the Merger have not been registered under the Securities Act of 1933, as amended (the “Act”), or state securities laws, and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from the registration requirements: (a) an aggregate 1,510,189 shares of our common stock on a post-split basis (9,061,160 on a pre-split basis) to the holders of CSI’s Class B common stock, (b) 166,666 shares of common stock on a post-split basis (1,000,000 shares on a pre-split basis) and warrants to purchase 166,666 shares of common stock on a post-split basis (1,000,000 shares on a pre-split basis) to Allen & Company LLC, CSI’s financial advisor, and (c) an aggregate 50,969 shares of common stock on a post-split basis (305,822 shares of common stock on a pre-split basis) and warrants to acquire 41,705 shares of common stock on a post-split basis (or 250,230 shares on a pre-split basis) to CSI’s former non-employee directors. All of these shares of Clean Diesel common stock and warrants to purchase Clean Diesel common stock were issued in reliance upon the exemption from the registration requirements of the Act pursuant to Section 4(2) of the Act and/or Rule 506 of Regulation D promulgated thereunder. CSI has agreed to use commercially reasonable efforts to register for resale under the Act the shares of Clean Diesel common stock issued or issuable upon exercise of warrants issued to Allen & Company. In addition to the securities issued as part of the Merger consideration, Clean Diesel issued 32,414 shares of common stock on a post-split basis (194,486 shares on a pre-split basis) and warrants to acquire 14,863 shares of common stock on a post-split basis (89,180 shares on a pre-split basis) to Clean Diesel’s financial advisor Innovator Capital as payment for fees.
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As described under Item 1.01, we assumed CSI’s obligations under the Registration Rights Agreement. The Registration Rights Agreement provides for certain demand and “piggyback” registration rights, and requires us to register all the shares of Clean Diesel common stock issued in the Merger to the former holders of CSI’s Class B common stock (which was issued upon conversion of CSI’s secured convertible notes immediately prior to the Merger).
In addition to the unregistered shares of Clean Diesel common stock and warrants to purchase Clean Diesel common stock issued in the Merger, on October 15, 2010, we also completed our Regulation S private placement described in Item 1.01 above, and sold units consisting of 109,020 shares of our common stock on a post-split basis (654,118 on a pre-split basis) and warrants to purchase up to 166,666 shares of our common stock on a post-split basis (1,000,000 on a pre-split basis). All of these shares of Clean Diesel common stock and warrants to purchase Clean Diesel common stock were issued in reliance upon the exemption from the registration requirements of the Act pursuant to Regulation S promulgated thereunder.
Neither this Current Report on Form 8-K nor the exhibits attached hereto is an offer to sell or the solicitation of an offer to buy shares of our common stock or any other security.
The disclosure in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item.
Item 3.03 Material Modification to Rights of Security Holders.
As contemplated by the Merger Agreement and described in the Registration Statement, at the annual meeting held on October 12, 2010, Clean Diesel’s stockholders approved a reverse stock split with the ratio to be determined by the Board of Directors. Following approval by the Clean Diesel stockholders, the Board of Directors authorized a one-for-six reverse stock split, which took effect on October 15, 2010, with respect to all shares of Clean Diesel common stock outstanding as of October 15, 2010.
The foregoing description of the amendment to Clean Diesel’s Restated Certificate of Incorporation contained in this Item 3.03 does not purport to be complete and is qualified in its entirety by reference to the Certificate of Amendment, which is filed as Exhibit 3.1 hereto and is incorporated herein by reference.
On October 15, 2010, Clean Diesel issued a press release announcing the ratio of the reverse stock split, among other items. A copy of the press release is attached hereto as Exhibit 99.1.
Item 5.01 Changes in Control of Registrant
Reference is made to the disclosure set forth under Item 2.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference.
Following the consummation of the Merger, the holders of CSI securities (including the holders of its secured convertible notes) prior to the Merger and CSI’s financial advisor hold approximately 60% of our outstanding common stock, and the holders of our equity prior to the Merger hold approximately 40% of our outstanding common stock. For legal purposes, Clean Diesel acquired CSI, although the combination will be accounted for as a reverse merger with CSI deemed to be the “acquiror” for accounting and financial reporting purposes.
Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
Board of Directors
In connection with the Merger and as contemplated by the Merger Agreement, at the effective time of the Merger:
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• | four members of Clean Diesel’s Board (Frank Gallucci, Charles W. Grinnell, David F. Merrion, and David W. Whitwell) resigned from the Board of Directors; and |
• | four members of the Board of Directors of CSI (Charles F. Call, Bernard H. “Bud” Cherry, Alexander “Hap” Ellis, III and Charles R. Engles, Ph.D.) were appointed to Clean Diesel’s Board of Directors |
Additional information regarding the directors listed above is contained in the Registration Statement, which information is incorporated herein by reference.
On October 19, 2010, the Board designated Mr. Ellis as Chairman of the Board, and confirmed the appointment of Messrs. Ellis and Engles as members of the Audit Committee (with Mr. Gray continuing to serve as Chairman and as the Audit Committee’s financial expert), and Messrs. Cherry, Ellis and Engles as members of the Compensation and Nominating Committee. (with Mr. Cherry serving as Chairman). The Board also determined that Messrs. Cherry, Ellis, Engles, and Gray are each “independent” as that term is defined in the NASDAQ listing rules. Messrs. Call, Park and Rogers are not independent under NASDAQ listing standards.
Resignation of Officers
As contemplated by the Merger Agreement, upon the completion of the Merger, Timothy Rogers resigned as President and Chief Executive Officer of Clean Diesel, John B. Wynne resigned as Treasurer and Chief Financial Officer and Charles V. Grinnell relinquished his positions as Vice President, General Secretary and Secretary of Clean Diesel. Mr. Rogers will continue with Clean Diesel as Senior Corporate Vice President – Product Development. John Wynne and Charles V. Grinnell will continue to serve Clean Diesel in a transitional capacity, but no longer will be considered a “Section 16 Officer.”
These departures were as contemplated by the Merger Agreement and not a result of any disagreements with Clean Diesel on any matter relating to Clean Diesel’s operations, policies or practices.
Appointment of Officers
On October 15, 2010, prior to consummation of the Merger, the Board appointed Charles F. Call as Chief Executive Officer, Nikhil A. Mehta as Chief Financial Officer and Treasurer, and Stephen J. Golden, Ph.D. as Chief Technical Officer. The material terms of Messrs. Call, Mehta and Golden’s employment agreements are described in the Registration Statement (which information is incorporated herein by reference), copies of which were filed as Exhibits thereto. Additional information regarding the directors and officer listed above is contained in the Registration Statement, which information is incorporated herein by reference.
On October 19, 2010, following consummation of the Merger, the newly constituted Board designated the persons who serve as the officers of Clean Diesel to hold office until such officer’s successor is elected and qualified or until such officer’s earlier resignation or removal. The Board confirmed the appointments of Charles F. Call, Nikhil Mehta, Stephen J. Golden, Ph.D., and Timothy Rogers to the offices noted above. In addition, the Board appointed Christopher J. Harris as Chief Operations Officer, and David E. Shea as Corporate Controller. Bruce McRoy was designated Secretary of the Corporation. The Board delegated to Mr. Call authority as to the appointment or removal of subordinate officers.
Following is biographical information for Mr. Harris and Mr. Shea:
Christopher J. Harris, Chief Operations Officer (Age 45)
Mr. Harris joined CSI as President of its Catalyst Business in August 2008 and will serve as the combined company’s Chief Operations Officer and President of Engine Control Systems, Limited. Mr. Harris has over 20 years of technical, commercial and general management experience in both privately-held and publicly-traded specialty chemicals and materials companies. Prior to joining CSI, Mr. Harris’ positions included Chief Operating Officer of Aculon, Inc., an early-stage nanotechnology company, from May 2007 to August 2008, and prior thereto Global Vice President/General Manager of Avery Dennison Corporation’s (NYSE: AVY) Performance Polymers business. Earlier in his career, Mr. Harris held various management positions in North America and Europe during eleven years with Rohm and Haas Company, acquired by The Dow Chemical Company (NYSE: DOW) in 2009. Mr. Harris earned his Bachelor of Science in Chemical Engineering from Cornell University and completed graduate business coursework at Temple University.
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David E. Shea, Corporate Controller (Age 48)
Mr. Shea joined CSI in October 2005 as Manager of Financial Planning and Analysis and was appointed Corporate Controller in 2009. Mr. Shea has over 20 years of financial management experience in a number of different industries. Prior to joining CSI, from 2001 to 2005, he was the Director of Finance for ENCO Utility Services, a privately held utility services outsourcing provider. From 1998 to 2001, he was the Manager of Business Planning and Development for Edison Enterprises, an unregulated subsidiary of Edison International (NYSE: EIX). From 1986 to 1998, Mr. Shea held several of financial positions, the last being Manager of Material Estimating and Cost Management at Northrop Grumman (NYSE: NOC). Mr. Shea received an MBA Degree from The University of Southern California Marshall School of Business and a Bachelor of Arts in Economics/Mathematics from the University of California at Santa Barbara.
There are no arrangements or understandings between any of Messrs. Call, Mehta, Golden, Harris, Shea or McRoy or any other person pursuant to which such person was selected as an officer. None of Messrs. Call, Mehta, Golden, Harris, Rogers, Shea or McRoy has any family relationship with any director or other executive officer of Clean Diesel or any person nominated or chosen by Clean Diesel to become a director or executive officer. There are no transactions in which any of Messrs. Call, Mehta, Golden, Harris, Rogers, Shea or McRoy has an interest requiring disclosure under Item 404(a) of Regulation S-K.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Audited financial statements of Catalytic Solutions, Inc. as of and for the year ended December 31, 2009 (attached to this Current Report on Form 8-K/A hereto and incorporated herein by reference).
Unaudited financial statements of Catalytic Solutions, Inc. as of and for the six months ended June 30, 2010 (attached to this Current Report on Form 8-K/A hereto and incorporated herein by reference).
(b) Pro forma financial information.
Unaudited Pro Forma condensed balance sheet of Catalytic Solutions, Inc. as of June 30, 2010 (attached to this Current Report on Form 8-K/A hereto and incorporated herein by reference).
Unaudited Pro Forma condensed statement of operations of Catalytic Solutions, Inc. for the year ended December 31, 2009 and the six months ended June 30, 2010 (attached to this Current Report on Form 8-K/A hereto and incorporated herein by reference).
Unaudited Pro Forma condensed combined balance sheet of Clean Diesel Technologies, Inc. as of June 30, 2010 (attached to this Current Report on Form 8-K/A hereto and incorporated herein by reference).
Unaudited Pro Forma condensed combined statement of operations of Clean Diesel Technologies, Inc. for the year ended December 31, 2009 and the six months ended June 30, 2010 (attached to this Current Report on Form 8-K/A hereto and incorporated herein by reference).
(c) Exhibits.
EXHIBIT INDEX
Exhibit Number | Description of Exhibits | |
2.1 | Agreement and Plan of Merger, dated as of May 13, 2010, among Clean Diesel Technologies, Inc., CDTI Merger Sub, Inc. and Catalytic Solutions , Inc. (incorporated by reference to Annex A to the joint proxy statement/information statement and prospectus included in Clean Diesel’s Registration Statement on Form S-4/A filed on September 23, 2010). |
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2.2 | Letter Agreement dated September 1, 2010 amending the Agreement and Plan of Merger dated as of May 13, 2010 (incorporated by reference to Exhibit 2.2 to the joint proxy statement/information statement and prospectus included in Clean Diesel’s Registration Statement on Form S-4/A filed on September 23, 2010). | |
2.3 | Letter Agreement dated September 14, 2010 amending the Agreement and Plan of Merger dated as of May 13, 2010 (incorporated by reference to Exhibit 2.3 to the joint proxy statement/information statement and prospectus included in Clean Diesel’s Registration Statement on Form S-4/A filed on September 23, 2010). | |
3.1 | Certificate of Amendment of Restated Certificate of Incorporation (incorporated by reference to Annex B to the joint proxy statement/information statement and prospectus included in Clean Diesel’s Registration Statement on Form S-4/A filed on September 23, 2010). | |
10.1 | Registration Rights Agreement dated October 15, 2010* | |
10.2 | Assignment and Assumption Agreement dated October 15, 2010* | |
23.1 | Consent of KPMG, LLP, independent registered public accounting firm of Catalytic Solutions, Inc.* | |
99.1 | Press Release of the registrant dated October 15, 2010* |
* | previously filed with this Form 8-K on October 21, 2010 |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CLEAN DIESEL TECHNOLOGIES, INC. | ||||
December 30, 2010 | By: | /s/ Nikhil A. Mehta | ||
Name: Nikhil A. Mehta | ||||
Title: Chief Financial Officer and Treasurer | ||||
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June 30, | December 31, | |||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,887 | $ | 2,336 | ||||
Trade accounts receivable, net | 5,926 | 8,066 | ||||||
Inventories | 5,026 | 6,184 | ||||||
Prepaid expenses and other current assets | 1,635 | 2,010 | ||||||
Total current assets | 15,474 | 18,596 | ||||||
Property and equipment, net | 2,688 | 2,897 | ||||||
Intangible assets, net | 4,160 | 4,445 | ||||||
Goodwill | 4,161 | 4,223 | ||||||
Other assets | 311 | 82 | ||||||
Total assets | $ | 26,794 | $ | 30,243 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Line of credit | $ | 3,029 | $ | 5,147 | ||||
Current portion of long-term debt | 3,000 | 3,000 | ||||||
Secured convertible notes | 1,767 | — | ||||||
Accounts payable | 4,449 | 4,967 | ||||||
Deferred revenue | — | 195 | ||||||
Accrued salaries and benefits | 1,427 | 1,294 | ||||||
Accrued expenses | 3,103 | 2,990 | ||||||
Deferred gain on sale of intellectual property | — | 1,900 | ||||||
Accrued professional and consulting fees | 1,499 | 2,375 | ||||||
Income taxes payable | 784 | 1,081 | ||||||
Total current liabilities | 19,058 | 22,949 | ||||||
Long-term debt, excluding current portion | 61 | 75 | ||||||
Deferred tax liability | 1,283 | 1,336 | ||||||
Total liabilities | 20,402 | 24,360 | ||||||
Commitments and contingencies (Note 12) | ||||||||
Stockholders’ equity | ||||||||
Common stock, no par value. Authorized 148,500,000 shares; issued and outstanding 69,761,902 shares at June 30, 2010 and December 31, 2009 | 156,307 | 156,216 | ||||||
Treasury stock at cost (60,000 shares) | (100 | ) | (100 | ) | ||||
Accumulated other comprehensive loss | (1,116 | ) | (889 | ) | ||||
Accumulated deficit | (148,699 | ) | (149,344 | ) | ||||
Total stockholders’ equity | 6,392 | 5,883 | ||||||
Total liabilities and stockholders’ equity | $ | 26,794 | $ | 30,243 | ||||
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Six Months Ended | ||||||||
June 30 | ||||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
(Unaudited) | ||||||||
Revenues | $ | 25,371 | $ | 19,144 | ||||
Cost of revenues | 18,595 | 15,582 | ||||||
Gross margin | 6,776 | 3,562 | ||||||
Operating expenses: | ||||||||
Sales and marketing | 1,561 | 2,113 | ||||||
Research and development | 2,145 | 3,724 | ||||||
General and administrative | 4,126 | 3,988 | ||||||
Recapitalization expense | 727 | 655 | ||||||
Severance expense | 15 | 237 | ||||||
Gain on sale of intellectual property | (3,900 | ) | (2,500 | ) | ||||
Total operating expenses | 4,674 | 8,217 | ||||||
Income (loss) from operations | 2,102 | (4,655 | ) | |||||
Other income (expense): | ||||||||
Interest income | 2 | 13 | ||||||
Interest expense | (678 | ) | (1,513 | ) | ||||
Other | (109 | ) | (774 | ) | ||||
Total other expense, net | (785 | ) | (2,274 | ) | ||||
Income (loss) from continuing operations before income taxes | 1,317 | (6,929 | ) | |||||
Income tax expense from continuing operations | 510 | 67 | ||||||
Net income (loss) income from continuing operations | 807 | (6,996 | ) | |||||
Discontinued operations: | ||||||||
Net loss from operations of discontinued Energy | ||||||||
Systems division | (162 | ) | (1,159 | ) | ||||
Net income (loss) | $ | 645 | $ | (8,155 | ) | |||
Basic net income (loss) per share: | ||||||||
Net income (loss) from continuing operations | $ | 0.01 | $ | (0.10 | ) | |||
Loss from discontinued operations | — | $ | (0.02 | ) | ||||
Basic net income (loss) per share | $ | 0.01 | $ | (0.12 | ) | |||
Diluted net income (loss) per share: | ||||||||
Net income (loss) from continuing operations | $ | 0.01 | $ | (0.10 | ) | |||
Loss from discontinued operations | — | $ | (0.02 | ) | ||||
Diluted net income (loss) per share | $ | 0.01 | $ | (0.12 | ) | |||
Weighted average number of common shares outstanding (000s): | ||||||||
Basic | 69,762 | 69,762 | ||||||
Diluted | 70,226 | 69,762 | ||||||
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Six Months Ended | ||||||||
June 30 | ||||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
(Unaudited) | ||||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 645 | $ | (8,155 | ) | |||
Loss from discontinued operations | 162 | 1,159 | ||||||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | 619 | 651 | ||||||
(Recovery of) provision for doubtful accounts, net | (11 | ) | 53 | |||||
Stock-based compensation | 91 | 344 | ||||||
Change in fair value of liability classified warrants | — | (207 | ) | |||||
Change in fair value of financial instruments | (178 | ) | — | |||||
Amortization of debt discount on convertible notes | 281 | — | ||||||
Loss on foreign currency transactions | 231 | 19 | ||||||
Amortization of deferred financing costs | 56 | 321 | ||||||
Loss on unconsolidated affiliate | 33 | 575 | ||||||
Loss on sale of property and equipment | 34 | 189 | ||||||
Gain on sale of intellectual property | (3,900 | ) | (2,500 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivable | 2,137 | (246 | ) | |||||
Inventories | 1,125 | 2,495 | ||||||
Prepaid expenses and other assets | 1,081 | 2,498 | ||||||
Accounts payable | (506 | ) | 579 | |||||
Income taxes payable | (289 | ) | (115 | ) | ||||
Accrued expenses and other current liabilities | (840 | ) | (423 | ) | ||||
Cash provided by (used in) operating activities of continuing operations | 771 | (2,763 | ) | |||||
Cash (used in) provided by operating activities of discontinued operations | (161 | ) | 215 | |||||
Net cash provided by (used in) operating activities | 610 | (2,548 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (186 | ) | (593 | ) | ||||
Investment in unconsolidated affiliate | (413 | ) | — | |||||
Proceeds from sale of property and equipment | — | 10 | ||||||
Proceeds from sale of intellectual property | 2,000 | 2,500 | ||||||
Net cash provided by investing activities of continuing operations | 1,401 | 1,917 | ||||||
Net cash used in investing activities of discontinued operations | — | (51 | ) | |||||
Net cash provided by investing activities | 1,401 | 1,866 | ||||||
Cash flows from financing activities: | ||||||||
Borrowings under line of credit | 241 | 891 | ||||||
Proceeds from issuance of debt | 1,500 | 44 | ||||||
Repayments under line of credit | (2,501 | ) | (2,703 | ) | ||||
Repayment of long-term debt | (14 | ) | — | |||||
Payments for debt issuance costs | (272 | ) | (12 | ) | ||||
Net cash used in financing activities | (1,046 | ) | (1,780 | ) | ||||
Effect of exchange rates on cash | (414 | ) | (259 | ) | ||||
Net change in cash and cash equivalents | 551 | (2,721 | ) | |||||
Cash and cash equivalents at beginning of period | 2,336 | 6,726 | ||||||
Cash and cash equivalents at end of period | $ | 2,887 | $ | 4,005 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 258 | $ | 667 | ||||
Cash paid for income taxes | $ | 663 | $ | 2 |
F-4
Table of Contents
• | Merger Sub will merge with and into the Company and the Company will be the surviving corporation. | ||
• | As a result of the Merger, the business and assets of the Company will be a wholly-owned subsidiary of CDTI. | ||
• | The Company will cease trading on the Alternative Investment Market (AIM). |
F-5
Table of Contents
• | The board of directors of the combined company is expected to comprise seven directors, four from the Company’s existing board of directors (Charles F. Call, Alexander Ellis, III, Charles R. Engles Ph.D. and Bernard H. Cherry) and three from CDTI (Mungo Park, Derek R. Gray and Timothy Rogers). | ||
• | The executive management team of the combined company is expected to be composed of the following members of the current management team of the Company: Charles F. Call, Nikhil A. Mehta and Stephen J. Golden Ph.D. |
F-6
Table of Contents
Six Months Ended June 30 | ||||||||
Customer | 2010 | 2009 | ||||||
A | 22 | % | 24 | % | ||||
B | 15 | % | 26 | % |
Customer | June 30, 2010 | December 31, 2009 | ||||||
A | 13 | % | 18 | % | ||||
B | 13 | % | 6 | % | ||||
C | 11 | % | 22 | % |
Six Months Ended June 30 | ||||||||
Vendor | 2010 | 2009 | ||||||
A | 22 | % | 7 | % | ||||
B | 14 | % | 19 | % | ||||
C | 10 | % | 11 | % | ||||
D | 6 | % | 11 | % |
F-7
Table of Contents
• | Level 1:Quoted prices (unadjusted) in active markets for identical assets or liabilities. | ||
• | Level 2:Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable. | ||
• | Level 3:Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
F-8
Table of Contents
Warrants exercisable into common stock (issued in USD) | 37,500 | |||
Exercise price | $ | 1.67 | ||
Warrants exercisable into common stock (issued in GBX) | 4,367,115 | |||
Weighted average exercise price | $ | 1.02 |
F-9
Table of Contents
F-10
Table of Contents
F-11
Table of Contents
Convertible | ||||||||||||
Notes | Financial | |||||||||||
(net of discount) | Instruments | Total | ||||||||||
US $000 | US $000 | US $000 | ||||||||||
Assigned value on date of issuance | 482 | 1,018 | 1,500 | |||||||||
Fair value of contingent equity forward issued in advance of final $0.5 million notes | — | 164 | 164 | |||||||||
Amortization of discount on notes | 281 | — | 281 | |||||||||
Change in fair value of financial instruments | — | (178 | ) | (178 | ) | |||||||
Balance at June 30, 2010 | 763 | 1,004 | 1,767 | |||||||||
June 30, 2010 | December 31, 2009 | |||||||
US $000 | US $000 | |||||||
Line of credit | 3,029 | 5,147 | ||||||
Consideration payable | 3,000 | 3,000 | ||||||
Secured convertible notes payable with a face value of $1.5 million, net of discount of $0.7 million | 1,767 | — | ||||||
Capital lease obligation | 61 | 75 | ||||||
7,857 | 8,222 | |||||||
Less current portion | (7,796 | ) | (8,147 | ) | ||||
61 | 75 | |||||||
Six Months Ended | ||||||||
June 30 | ||||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
Balance at beginning of period | 670 | 187 | ||||||
Accrued severance expense | 15 | 237 | ||||||
Paid severance expense | (276 | ) | (317 | ) | ||||
Balance at end of period | 409 | 107 | ||||||
F-12
Table of Contents
Six Months Ended | ||||||||
June 30 | ||||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
Balance at beginning of period | 371 | 178 | ||||||
Accrued warranty expense | 61 | 119 | ||||||
Warranty claims paid | (50 | ) | (97 | ) | ||||
Translation adjustment | 3 | 7 | ||||||
Balance at end of period | 385 | 207 | ||||||
F-13
Table of Contents
Six Months Ended | ||||||||
June 30 | ||||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
Assets | 5,074 | 11,675 | ||||||
Liabilities | 9,951 | 13,399 | ||||||
Deficit | (4,877 | ) | (1,724 | ) | ||||
Net sales | 936 | 544 | ||||||
Gross Margin | 670 | (274 | ) | |||||
Net loss | (641 | ) | (2,041 | ) |
F-14
Table of Contents
US $000 | ||||
Balance at December 31, 2009 | 4,223 | |||
Effect of translation adjustment | (62 | ) | ||
Balance at June 30, 2010 | 4,161 | |||
Useful life | June 30, 2010 | December 31, 2009 | ||||||||||
US $000 | US $000 | |||||||||||
Trade name | 15-20 years | 739 | 738 | |||||||||
Patents and know-how | 5-10 years | 3,796 | 3,792 | |||||||||
Customer relationships | 8 years | 1,184 | 1,206 | |||||||||
5,719 | 5,736 | |||||||||||
Less accumulated amortization | (1,559 | ) | (1,291 | ) | ||||||||
4,160 | 4,445 | |||||||||||
F-15
Table of Contents
F-16
Table of Contents
F-17
Table of Contents
Six Months Ended | ||||||||
June 30 | ||||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
Net sales | ||||||||
HDD Systems | 15,776 | 8,796 | ||||||
Catalyst | 9,936 | 10,457 | ||||||
Corporate | — | — | ||||||
Eliminations (1) | (341 | ) | (109 | ) | ||||
Total | 25,371 | 19,144 | ||||||
Income (loss) from operations | ||||||||
HDD Systems | 1,913 | (61 | ) | |||||
Catalyst | 3,104 | (1,768 | ) | |||||
Corporate | (2,915 | ) | (2,826 | ) | ||||
Total | 2,102 | (4,655 | ) | |||||
(1) | Elimination of Catalyst revenue related to sales to HDD Systems. |
Six Months Ended | ||||||||
June 30 | ||||||||
2010 | 2009 | |||||||
US $000 | US $000 | |||||||
United States | 11,346 | 11,880 | ||||||
Canada | 11,177 | 5,298 | ||||||
Europe | 2,848 | 1,966 | ||||||
Total | 25,371 | 19,144 | ||||||
F-18
Table of Contents
F-19
Table of Contents
Catalytic Solutions, Inc.:
May 4, 2010, except for Note 21, as to
which the date is May 14, 2010
F-20
Table of Contents
December 31 | ||||||||
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
As Adjusted | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 2,336 | 6,726 | ||||||
Trade accounts receivable, less allowance for doubtful accounts of $313 and $123 at December 31, 2009 and 2008, respectively | 8,066 | 10,667 | ||||||
Inventories | 6,184 | 8,919 | ||||||
Prepaid expenses and other current assets | 2,010 | 4,494 | ||||||
Total current assets | 18,596 | 30,806 | ||||||
Property and equipment, net | 2,897 | 2,882 | ||||||
Intangible assets, net | 4,445 | 6,486 | ||||||
Goodwill | 4,223 | 6,319 | ||||||
Promissory note from unconsolidated affiliate | — | 2,767 | ||||||
Other assets | 82 | 454 | ||||||
Total assets | 30,243 | 49,714 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Line of credit | 5,147 | 8,068 | ||||||
Current portion of long-term debt | 3,000 | 9,812 | ||||||
Accounts payable | 4,967 | 7,325 | ||||||
Deferred revenue | 195 | 2,942 | ||||||
Accrued salaries and benefits | 1,294 | 1,451 | ||||||
Accrued expenses | 2,990 | 4,816 | ||||||
Deferred gain on sale of intellectual property | 1,900 | — | ||||||
Accrued professional and consulting fees | 2,375 | 1,085 | ||||||
Income taxes payable | 1,081 | 354 | ||||||
Total current liabilities | 22,949 | 35,853 | ||||||
Long-term debt, excluding current portion | 75 | 33 | ||||||
Deferred tax liability | 1,336 | 2,415 | ||||||
Total liabilities | 24,360 | 38,301 | ||||||
Commitments and contingencies (Notes 9, 19 and 21) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, no par value. Authorized 148,500,000 shares; issued and outstanding 69,761,902 shares at December 31, 2009 and 2008 | 156,216 | 158,019 | ||||||
Treasury stock at cost (60,000 shares) | (100 | ) | (100 | ) | ||||
Accumulated other comprehensive loss | (889 | ) | (2,867 | ) | ||||
Accumulated deficit | (149,344 | ) | (143,639 | ) | ||||
Total stockholders’ equity | 5,883 | 11,413 | ||||||
Total liabilities and stockholders’ equity | 30,243 | 49,714 | ||||||
F-21
Table of Contents
Years Ended | ||||||||
December 31 | ||||||||
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
As Adjusted | ||||||||
Revenues | 50,514 | 52,563 | ||||||
Cost of revenues | 38,547 | 44,346 | ||||||
Gross margin | 11,967 | 8,217 | ||||||
Operating expenses: | ||||||||
Sales and marketing | 3,577 | 5,165 | ||||||
Research and development | 7,257 | 8,942 | ||||||
General and administrative | 8,903 | 10,611 | ||||||
Impairment of long-lived assets | — | 4,928 | ||||||
Severance expense | 1,429 | 234 | ||||||
Recapitalization expense | 1,258 | — | ||||||
Gain on sale of intellectual property | (2,500 | ) | (5,000 | ) | ||||
Total operating expenses | 19,924 | 24,880 | ||||||
Loss from operations | (7,957 | ) | (16,663 | ) | ||||
Other income (expense): | ||||||||
Interest income | 18 | 266 | ||||||
Interest expense | (2,304 | ) | (2,224 | ) | ||||
Other | (291 | ) | (643 | ) | ||||
Total other income (expense) | (2,577 | ) | (2,601 | ) | ||||
Loss from continuing operations before income taxes | (10,534 | ) | (19,264 | ) | ||||
Income tax (benefit) expense from continuing operations | (1,036 | ) | 624 | |||||
Net loss from continuing operations | (9,498 | ) | (19,888 | ) | ||||
Discontinued operations: | ||||||||
Income (loss) from operations of discontinued Energy Systems division (including gain on disposal of $3.7 million in 2009) | 2,554 | (915 | ) | |||||
Income tax expense from discontinued operations | 1,032 | 1 | ||||||
Net income (loss) from discontinued operations | 1,522 | (916 | ) | |||||
Net loss | (7,976 | ) | (20,804 | ) | ||||
Basic and diluted loss per share: | ||||||||
Net loss from continuing operations per share | $ | (0.14 | ) | $ | (0.29 | ) | ||
Net loss per share | $ | (0.11 | ) | $ | (0.30 | ) | ||
Weighted average number of common shares outstanding (000s): | ||||||||
Basic and diluted | 69,762 | 69,701 | ||||||
F-22
Table of Contents
Years Ended December 31, 2009 and 2008 | ||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||
Other | Net | |||||||||||||||||||||||||||
Common Stock | Treasury Stock | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Gain/(Loss) | Deficit | Equity | ||||||||||||||||||||||
US $000 | US $000 | US $000 | US $000 | US $000 | ||||||||||||||||||||||||
Balance at December 31, 2007 | 69,756,461 | 156,562 | (60,000 | ) | (100 | ) | 427 | (122,612 | ) | 34,277 | ||||||||||||||||||
Cumulative effect of change in accounting for patent costs | — | — | — | — | — | (223 | ) | (223 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (20,804 | ) | (20,804 | ) | |||||||||||||||||||
Unrealized loss on foreign currency translation | — | — | — | — | (3,294 | ) | — | (3,294 | ) | |||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | (24,098 | ) | ||||||||||||||||||||
Stock based compensation | — | 821 | — | — | — | — | 821 | |||||||||||||||||||||
Issuance of warrants | — | 614 | — | — | — | — | 614 | |||||||||||||||||||||
Issuance of restricted stock | 60,000 | 22 | — | — | — | — | 22 | |||||||||||||||||||||
Cashless exercise of stock options | 5,441 | — | — | — | — | — | — | |||||||||||||||||||||
Balance at December 31, 2008 | 69,821,902 | 158,019 | (60,000 | ) | (100 | ) | (2,867 | ) | (143,639 | ) | 11,413 | |||||||||||||||||
Cumulative effect of change in accounting for warrants | — | (2,494 | ) | — | — | — | 2,271 | (223 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (7,976 | ) | (7,976 | ) | |||||||||||||||||||
Unrealized gain on foreign currency translation | — | — | — | — | 1,978 | — | 1,978 | |||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | (5,998 | ) | ||||||||||||||||||||
Stock based compensation | — | 691 | — | — | — | — | 691 | |||||||||||||||||||||
Balance at December 31, 2009 | 69,821,902 | 156,216 | (60,000 | ) | (100 | ) | (889 | ) | (149,344 | ) | 5,883 | |||||||||||||||||
F-23
Table of Contents
Years Ended | ||||||||
December 31 | ||||||||
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
As Adjusted | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | (7,976 | ) | (20,804 | ) | ||||
(Income) loss from discontinued operations (including gain on sale of discontinued operations of $3.7 million) | (1,522 | ) | 916 | |||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,394 | 3,012 | ||||||
Provision for (recovery of) doubtful accounts, net | 11 | (35 | ) | |||||
Amortization of deferred financing | 686 | 923 | ||||||
Stock-based compensation | 691 | 821 | ||||||
Change in fair value of liability-classified warrants | (221 | ) | — | |||||
Loss on unconsolidated affiliate | 1,271 | 988 | ||||||
Gain on sale of interest in unconsolidated affiliate | (1,165 | ) | (428 | ) | ||||
Impairment of long-lived assets | — | 4,928 | ||||||
Deferred income taxes | (1,347 | ) | 93 | |||||
Loss on disposal of property and equipment | 60 | 476 | ||||||
Loss (gain) on foreign currency transaction | 655 | (8 | ) | |||||
Gain on sale of intellectual property | (2,500 | ) | (5,000 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts receivable | (3,041 | ) | 641 | |||||
Inventories | 3,184 | 763 | ||||||
Prepaid expenses and other assets | 1,036 | (959 | ) | |||||
Accounts payable | 1,662 | (1,523 | ) | |||||
Deferred revenue | — | 2,937 | ||||||
Accrued expenses | (820 | ) | (2,015 | ) | ||||
Income taxes payable | 377 | (1 | ) | |||||
Cash used in operating activities of continuing operations | (7,565 | ) | (14,275 | ) | ||||
Cash provided by (used in) operating activities of discontinued operations | 195 | (866 | ) | |||||
Net cash used in operating activities | (7,370 | ) | (15,141 | ) | ||||
F-24
Table of Contents
Years Ended | ||||||||
December 31 | ||||||||
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
As Adjusted | ||||||||
Cash flows from investing activities: | ||||||||
Investment in unconsolidated affiliate | — | (986 | ) | |||||
Purchases of property and equipment | (629 | ) | (1,896 | ) | ||||
Purchase of ECS, net of cash | — | 475 | ||||||
Proceeds from sale of interest in unconsolidated affiliate | 108 | 441 | ||||||
Proceeds from sale of intellectual property | 5,400 | 4,000 | ||||||
Proceeds from sale of property and equipment | — | 1,702 | ||||||
Proceeds from sale of discontinued Energy Systems division | 8,550 | — | ||||||
Cash provided by investing activities of continuing operations | 13,429 | 3,736 | ||||||
Cash provided by (used in) investing activities of discontinued operations | — | (109 | ) | |||||
Net cash provided by investing activities | 13,429 | 3,627 | ||||||
Cash flows from financing activities: | ||||||||
Borrowings under line of credit | 1,721 | 4,790 | ||||||
Proceeds from issuance of debt | 30 | 3,345 | ||||||
Repayment of line of credit | (5,424 | ) | (3,506 | ) | ||||
Repayment of long-term debt | (6,800 | ) | (1,889 | ) | ||||
Payments for debt issuance costs | (14 | ) | (713 | ) | ||||
Net cash (used in) provided by financing activities | (10,487 | ) | 2,027 | |||||
Effect of exchange rates on cash | 38 | (1,231 | ) | |||||
Net change in cash and cash equivalents | (4,390 | ) | (10,718 | ) | ||||
Cash and cash equivalents at beginning of year | 6,726 | 17,444 | ||||||
Cash and cash equivalents at end of year | 2,336 | 6,726 | ||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the year for: | ||||||||
Interest | 1,390 | 1,222 | ||||||
Income taxes | 528 | 809 | ||||||
Noncash investing and financing activities: | ||||||||
Warrants issued for long-term debt | — | 614 |
F-25
Table of Contents
F-26
Table of Contents
Years Ended | ||||||||
December 31 | ||||||||
Customer | 2009 | 2008 | ||||||
A | 24 | % | 30 | % | ||||
B | 22 | % | 7 | % |
Years Ended | ||||||||
December 31 | ||||||||
Customer | 2009 | 2008 | ||||||
A | 18 | % | 7 | % | ||||
B | 15 | % | — | |||||
C | 14 | % | — |
Years Ended | ||||||||
December 31 | ||||||||
Vendor | 2009 | 2008 | ||||||
A | 16 | % | 12 | % | ||||
B | 14 | % | 11 | % | ||||
C | 11 | % | 19 | % |
F-27
Table of Contents
Machinery and equipment | 2 – 10 years | |
Furniture and fixtures | 2 – 5 years | |
Computer hardware and software | 2 – 5 years | |
Vehicles | 2 – 5 years |
F-28
Table of Contents
F-29
Table of Contents
F-30
Table of Contents
• | Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. | ||
• | Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable. | ||
• | Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. |
F-31
Table of Contents
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
Non-contract trade accounts receivable | 8,379 | 4,521 | ||||||
Completed contracts | — | 178 | ||||||
Contracts in progress | — | 6,091 | ||||||
Less allowance for doubtful accounts | (313 | ) | (123 | ) | ||||
8,066 | 10,667 | |||||||
F-32
Table of Contents
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
Finished goods | 2,221 | 4,735 | ||||||
Work in progress | 1,255 | 1,127 | ||||||
Raw materials | 2,708 | 3,057 | ||||||
6,184 | 8,919 | |||||||
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
Buildings and land | 679 | 511 | ||||||
Furniture and fixtures | 2,354 | 2,175 | ||||||
Computer hardware and software | 1,351 | 1,335 | ||||||
Machinery and equipment | 11,544 | 11,376 | ||||||
Vehicles | 59 | 73 | ||||||
15,987 | 15,470 | |||||||
Less accumulated depreciation | (13,090 | ) | (12,588 | ) | ||||
2,897 | 2,882 | |||||||
2008 | ||||
US $000 | ||||
Furniture and fixtures | 278 | |||
Computer hardware and software | 1,127 | |||
Machinery and equipment | 3,515 | |||
Vehicles | 8 | |||
4,928 | ||||
F-33
Table of Contents
2008 | ||||
Expected volatility | 59.9 | % | ||
Risk-free interest rate | 2.8 | % | ||
Dividend yield | 0.0 | % | ||
Expected life in years | 5.0 | |||
Forfeiture rate | 6.0 | % |
Weighted Average | ||||||||
Shares | Exercise Price | |||||||
$ | ||||||||
Options outstanding at December 31, 2007 | 5,305,151 | 1.95 | ||||||
Granted | 728,000 | 0.81 | ||||||
Exercised | (30,000 | ) | 1.07 | |||||
Forfeited | (129,000 | ) | 2.44 | |||||
Expired | (556,740 | ) | 1.96 | |||||
Options outstanding at December 31, 2008 | 5,317,411 | 1.78 | ||||||
Granted | — | — | ||||||
Exercised | — | — | ||||||
Forfeited | (220,620 | ) | 1.98 | |||||
Expired | (455,848 | ) | 2.16 | |||||
Options outstanding at December 31, 2009 | 4,640,943 | 1.73 |
F-34
Table of Contents
Options | ||||||||||||
Options | Currently | Options Vested or | ||||||||||
Outstanding | Exercisable | Expected to Vest | ||||||||||
Number of shares | 4,640,943 | 3,682,861 | 4,456,739 | |||||||||
Weighted average exercise price | $ | 1.73 | $ | 1.91 | $ | 1.75 | ||||||
Aggregate intrinsic value | — | — | — | |||||||||
Weighted average remaining contractual term | 4.87 | 4.74 | 4.90 |
Warrants exercisable into common stock (issued in USD) | 37,500 | |||
Exercise price | $ | 1.67 | ||
Warrants exercisable into common stock (issued in GBX) | 4,367,115 | |||
Weighted average exercise price | $ | 1.02 |
F-35
Table of Contents
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
Line of credit | 5,147 | 8,068 | ||||||
Consideration payable | 3,000 | 3,000 | ||||||
Term loans | — | 3,500 | ||||||
Cycad debt facility | — | 3,300 | ||||||
Capital lease obligation | 75 | 45 | ||||||
8,222 | 17,913 | |||||||
Less current portion | (8,147 | ) | (17,880 | ) | ||||
75 | 33 | |||||||
F-36
Table of Contents
Capital leases | Operating leases | |||||||
US $000 | US $000 | |||||||
Years ending December 31: | ||||||||
2010 | 35 | 1,261 | ||||||
2011 | 32 | 1,107 | ||||||
2012 | 12 | 1,049 | ||||||
2013 | 6 | 646 | ||||||
2014 | — | 641 | ||||||
Later years, through 2031 | — | 1,150 | ||||||
Total minimum lease payments | 85 | 5,854 | ||||||
Less amount representing interest | (10 | ) | ||||||
Present value of net minimum capital lease payments | 75 | |||||||
US $000 | ||||
Accrued severance at December 31, 2007 | — | |||
Accrued severance expense | 234 | |||
Paid severance expense | (47 | ) | ||
Accrued severance at December 31, 2008 | 187 | |||
Accrued severance expense | 1,429 | |||
Paid severance expense | (946 | ) | ||
Accrued severance at December 31, 2009 | 670 | |||
F-37
Table of Contents
US $000 | ||||
Accrued warranty at December 31, 2007 | 237 | |||
Accrued warranty expense | 130 | |||
Claims paid | (143 | ) | ||
Accrued warranty at December 31, 2008 | 224 | |||
Accrued warranty expense | 372 | |||
Claims paid | (205 | ) | ||
Accrued warranty at December 31, 2009 | 391 |
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
U.S.-based operations | (11,678 | ) | (21,396 | ) | ||||
Non U.S.-based operations | 1,144 | 2,132 | ||||||
(10,534 | ) | (19,264 | ) | |||||
Current | Deferred | Total | ||||||||||
US $000 | US $000 | US $000 | ||||||||||
Year ended December 31, 2008: | ||||||||||||
U.S. Federal | (47 | ) | — | (47 | ) | |||||||
State and local | 56 | — | 56 | |||||||||
Foreign | 522 | 93 | 615 | |||||||||
Total | 531 | 93 | 624 | |||||||||
Year ended December 31, 2009: | ||||||||||||
U.S. Federal | (560 | ) | (258 | ) | (818 | ) | ||||||
State and local | (150 | ) | (70 | ) | (220 | ) | ||||||
Foreign | 1,021 | (1,019 | ) | 2 | ||||||||
Total | 311 | (1,347 | ) | (1,036 | ) | |||||||
F-38
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2009 | 2008 | |||||||
US $000 | US $000 | |||||||
Expected tax benefit | (3,582 | ) | (6,550 | ) | ||||
Net tax effects of: | ||||||||
State taxes, net of federal benefit | (643 | ) | (1,374 | ) | ||||
Research credits | (153 | ) | (103 | ) | ||||
Other | (245 | ) | 209 | |||||
Change in deferred tax asset valuation allowance | 3,587 | 8,442 | ||||||
(1,036 | ) | 624 | ||||||
2009 | 2008 | |||||||
US $000 | US $000 | |||||||
Deferred tax assets: | ||||||||
Research and development credits | 3,895 | 3,758 | ||||||
Other credits | 366 | 354 | ||||||
Operating loss carry forwards | 34,509 | 27,727 | ||||||
Warrant expense | 84 | 84 | ||||||
Inventories | 601 | 960 | ||||||
Allowance for doubtful accounts | 105 | 36 | ||||||
Depreciation | 566 | 1,112 | ||||||
Deferred research and development expenses for income tax | 6,882 | 8,557 | ||||||
Non-cash compensation | 681 | 482 | ||||||
Other | 3,800 | 3,264 | ||||||
Total gross deferred tax assets | 51,489 | 46,334 | ||||||
Valuation allowance | (48,536 | ) | (44,949 | ) | ||||
Net deferred tax assets | 2,953 | 1,385 | ||||||
Deferred tax liabilities: | ||||||||
Amortization | (2,749 | ) | (2,030 | ) | ||||
Other identifiable intangibles | (1,540 | ) | (1,770 | ) | ||||
Total gross deferred tax liabilities | (4,289 | ) | (3,800 | ) | ||||
Net deferred tax liabilities | (1,336 | ) | (2,415 | ) | ||||
F-39
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US $000 | ||||
Balance as of January 1, 2009 | 268 | |||
Additions for current year tax positions | 127 | |||
Reductions for prior year tax positions | (34 | ) | ||
Balance as of December 31, 2009 | 361 | |||
Open Tax Years | ||
United States — Federal | 2006 - 2009 | |
United States — State | 2005 - 2009 | |
Canada | 2004 - 2009 | |
Sweden | 2008 - 2009 |
F-40
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2009 | ||||
US $000 | ||||
Assets | 6,928 | |||
Liabilities | 10,980 | |||
Deficit | (4,052 | ) | ||
Net sales | 745 | |||
Gross Margin | (213 | ) | ||
Net earnings | (4,379 | ) |
F-41
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US $000 | ||||
Balance at December 31, 2007 | 7,753 | |||
Goodwill adjustments related to acquisition of Engine Control Systems | 54 | |||
Tax valuation adjustment | (489 | ) | ||
Effect of translation adjustment | (999 | ) | ||
Balance at December 31, 2008 | 6,319 | |||
Sale of Energy Systems division | (2,600 | ) | ||
Effect of translation adjustment | 504 | |||
Balance at December 31, 2009 | 4,223 | |||
Useful Life | 2009 | 2008 | ||||||||||
US $000 | US $000 | |||||||||||
Trade name | 15-20 years | 738 | 2,151 | |||||||||
Non-compete agreement | 3 years | — | 111 | |||||||||
Patents and know-how | 5-10 years | 3,792 | 4,919 | |||||||||
Acquired contract work-in-progress | 1.4 years | — | 353 | |||||||||
Customer relationships | 8 years | 1,206 | 1,094 | |||||||||
5,736 | 8,628 | |||||||||||
Less accumulated amortization | (1,291 | ) | (2,142 | ) | ||||||||
4,445 | 6,486 | |||||||||||
F-42
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F-43
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F-44
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2009 | 2008 | |||||||
US $000 | US $000 | |||||||
Net sales | ||||||||
HDD Systems | 25,916 | 27,126 | ||||||
Catalyst | 25,074 | 26,311 | ||||||
Corporate | — | — | ||||||
Eliminations(1) | (476 | ) | (874 | ) | ||||
Total | 50,514 | 52,563 | ||||||
Income (loss) from operations | ||||||||
HDD Systems | 1,942 | 1,923 | ||||||
Catalyst(2) | (5,730 | ) | (14,146 | ) | ||||
Corporate | (4,169 | ) | (4,440 | ) | ||||
Total | (7,957 | ) | (16,663 | ) | ||||
Depreciation and amortization | ||||||||
HDD Systems | 1,143 | 1,061 | ||||||
Catalyst | 251 | 1,951 | ||||||
Corporate | — | — | ||||||
Total | 1,394 | 3,012 | ||||||
Total assets | ||||||||
HDD Systems | 28,181 | 26,357 | ||||||
Catalyst | 29,231 | 43,635 | ||||||
Discontinued operations | 532 | 11,537 | ||||||
Eliminations | (27,701 | ) | (31,815 | ) | ||||
Total | 30,243 | 49,714 | ||||||
Capital expenditures | ||||||||
HDD Systems | 294 | 526 | ||||||
Catalyst | 335 | 1,370 | ||||||
Corporate | — | — | ||||||
Total | 629 | 1,896 | ||||||
(1) | Elimination of Catalyst revenue related to sales to HDD Systems. | |
(2) | Included in Catalyst operating income (loss) in 2008 are impairment losses of $4.9 million (see Note 5). |
F-45
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2009 | 2008 | |||||||
US $000 | US $000 | |||||||
United States | 27,671 | 29,721 | ||||||
Canada | 18,247 | 13,250 | ||||||
Europe | 4,596 | 9,592 | ||||||
Total | 50,514 | 52,563 | ||||||
Net Fixed Assets | Net Assets | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
US $000 | US $000 | US $000 | US $000 | |||||||||||||
United States | 1,316 | 1,533 | 10,333 | 31,299 | ||||||||||||
Canada | 1,313 | 1,043 | 16,016 | 14,507 | ||||||||||||
Europe | 268 | 306 | 3,894 | 3,908 | ||||||||||||
Total | 2,897 | 2,882 | 30,243 | 49,714 | ||||||||||||
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F-47
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• | net cash used in Clean Diesel’s and CSI’s operations between the dates of the pro forma financial statements and the closing of the Merger; | |
• | the effect of Clean Diesel’s and CSI’s capital raise transactions; | |
• | other changes in Clean Diesel’s and CSI’s assets and liabilities that occur prior to completion of the Merger; | |
• | the timing of completion of the Merger; and | |
• | other changes in estimated costs and fair values, which could cause material differences in the information presented. |
F-48
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F-49
Table of Contents
Catalytic | Pro Forma | |||||||||||
Solutions, Inc. | Pro Forma | Catalytic | ||||||||||
Historical | Adjustments | Solutions, Inc. | ||||||||||
(Amounts in thousands) | ||||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 2,887 | $ | 500 | (A) | $ | 3,387 | |||||
Trade accounts receivable, less allowance for doubtful accounts | 5,926 | — | 5,926 | |||||||||
Inventories | 5,026 | — | 5,026 | |||||||||
Prepaid expenses and other current assets | 1,635 | — | 1,635 | |||||||||
Total current assets | 15,474 | 500 | 15,974 | |||||||||
Property and equipment, net | 2,688 | — | 2,688 | |||||||||
Intangible assets, net | 4,160 | — | 4,160 | |||||||||
Goodwill | 4,161 | 4,161 | ||||||||||
Other assets | 311 | — | 311 | |||||||||
Total assets | $ | 26,794 | $ | 500 | $ | 27,294 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Line of credit | $ | 3,029 | $ | — | $ | 3,029 | ||||||
Current portion of long-term debt | 3,000 | — | 3,000 | |||||||||
Secured convertible notes payable | 1,767 | 500 | (A) | 2,267 | ||||||||
Accounts payable | 4,449 | — | 4,449 | |||||||||
Accrued expenses | 6,029 | — | 6,029 | |||||||||
Income taxes payable | 784 | — | 784 | |||||||||
Total current liabilities | 19,058 | 500 | 19,558 | |||||||||
Long-term debt | 61 | — | 61 | |||||||||
Deferred tax liability | 1,283 | — | 1,283 | |||||||||
Total liabilities | 20,402 | 500 | 20,902 | |||||||||
Stockholders’ equity: | ||||||||||||
Class A common stock, no par value | 156,307 | — | 156,307 | |||||||||
Historical and pro forma: Authorized 148,500,000; issued 69,761,902; and outstanding 69,761,902 | ||||||||||||
Class B common stock, no par value | — | — | — | |||||||||
Historical and pro forma: Authorized, issued and outstanding: none | ||||||||||||
Treasury stock at cost (Historical: 60,000 shares) | (100 | ) | — | (100 | ) | |||||||
Accumulated other comprehensive loss | (1,116 | ) | — | (1,116 | ) | |||||||
Accumulated deficit | (148,699 | ) | — | (148,699 | ) | |||||||
Total stockholders’ equity | 6,392 | — | 6,392 | |||||||||
Total liabilities and stockholders’ equity | $ | 26,794 | $ | 500 | $ | 27,294 | ||||||
Book value per share | $ | 0.09 | $ | 0.09 | ||||||||
F-50
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Catalytic | Pro Forma | |||||||||||
Solutions, Inc. | Pro Forma | Catalytic | ||||||||||
Historical | Adjustments | Solutions, Inc. | ||||||||||
(Amounts in thousands, except per share amounts) | ||||||||||||
Revenues | $ | 25,371 | $ | — | $ | 25,371 | ||||||
Cost of revenues | 18,595 | — | 18,595 | |||||||||
Gross margin | 6,776 | — | 6,776 | |||||||||
Operating expenses: | ||||||||||||
Sales and marketing | 1,561 | — | 1,561 | |||||||||
Research and development | 2,145 | — | 2,145 | |||||||||
General and administrative | 4,126 | — | 4,126 | |||||||||
Severance expense | 15 | — | 15 | |||||||||
Recapitalization expense | 727 | — | 727 | |||||||||
Gain on sale of intellectual property | (3,900 | ) | — | (3,900 | ) | |||||||
Total operating expenses | 4,674 | — | 4,674 | |||||||||
Income from operations | 2,102 | — | 2,102 | |||||||||
Other income (expense): | ||||||||||||
Interest income | 2 | — | 2 | |||||||||
Interest expense | (678 | ) | — | (678 | ) | |||||||
Other expense | (109 | ) | — | (109 | ) | |||||||
Total other income (expense) | (785 | ) | — | (785 | ) | |||||||
Income from continuing operations before income taxes | 1,317 | — | 1,317 | |||||||||
Provision for income taxes | 510 | — | 510 | |||||||||
Net income from continuing operations | $ | 807 | $ | — | $ | 807 | ||||||
Basic and diluted income per share: | ||||||||||||
Basic net income from continuing operations | $ | 0.01 | $ | — | ||||||||
Diluted net income from continuing operations | $ | 0.01 | $ | — | ||||||||
Weighted average shares outstanding (000s): | ||||||||||||
Basic | 69,762 | 220,197 | ||||||||||
Diluted | 70,226 | 220,661 | ||||||||||
Cash dividends per share | $ | — | $ | — | ||||||||
F-51
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Catalytic | Pro Forma | |||||||||||
Solutions, Inc. | Pro Forma | Catalytic | ||||||||||
Historical | Adjustments | Solutions, Inc. | ||||||||||
(Amounts in thousands, except per share amounts) | ||||||||||||
Revenues | $ | 50,514 | $ | — | $ | 50,514 | ||||||
Cost of revenues | 38,547 | — | 38,547 | |||||||||
Gross margin | 11,967 | — | 11,967 | |||||||||
Operating expenses: | ||||||||||||
Sales and marketing | 3,577 | — | 3,577 | |||||||||
Research and development | 7,257 | — | 7,257 | |||||||||
General and administrative | 8,903 | — | 8,903 | |||||||||
Severance expense | 1,429 | — | 1,429 | |||||||||
Recapitalization expense | 1,258 | — | 1,258 | |||||||||
Gain on sale of intellectual property | (2,500 | ) | — | (2,500 | ) | |||||||
Total operating expenses | 19,924 | — | 19,924 | |||||||||
Loss from operations | (7,957 | ) | — | (7,957 | ) | |||||||
Other income (expense): | ||||||||||||
Interest income | 18 | — | 18 | |||||||||
(1,707 | )(B) | |||||||||||
Interest expense | (2,304 | ) | (1,342 | )(C) | (5,353 | ) | ||||||
(1,527 | )(D) | |||||||||||
Other expense | (291 | ) | 701 | (E) | (1,117 | ) | ||||||
Total other income (expense) | (2,577 | ) | (3,875 | ) | (6,452 | ) | ||||||
Loss from continuing operations before income taxes | (10,534 | ) | (3,875 | ) | (14,409 | ) | ||||||
Income tax benefit | (1,036 | ) | — | (1,036 | ) | |||||||
Net loss from continuing operations | $ | (9,498 | ) | $ | (3,875 | ) | $ | (13,373 | ) | |||
Loss per share: | ||||||||||||
Basic and diluted net loss from continuing operations | $ | (0.14 | ) | $ | (0.06 | ) | ||||||
Weighted average shares outstanding (000s): | ||||||||||||
Basic and diluted | 69,762 | 220,197 | ||||||||||
Cash dividends per share | $ | — | $ | — | ||||||||
F-52
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1. | The Capital Raise Transaction and Basis of Presentation |
2. | Pro Forma Adjustments |
F-53
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F-54
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Item | Amount | Notes | ||||
Amortization of debt discount | $ | 1,359,000 | As described above in adjustment (A) the Notes are initially recorded at a value of $641,000. This adjustment reflects the amortization of the debt discount to the face value of the debt of $2,000,000. | |||
Deferred financing costs | 272,000 | In order to complete the sale of the Notes, $272,000 of costs were incurred. This adjustment reflects the full amortization of such costs. | ||||
Coupon interest | 28,000 | The Notes include a coupon interest rate of 8%, which is estimated to be recorded for a period of two months. | ||||
Default interest | 48,000 | The interest rate on the Notes increases to 15% in the event of a default by CSI. The adjustment assumes that the CSI will be required to pay the default interest rate for two months, representing the estimated additional time after original maturity of the Notes that is needed to complete the Merger. | ||||
Total | $ | 1,707,000 | ||||
F-55
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3. | Pro Forma Income (Loss) Per Share |
4. | Book Value Per Share |
F-56
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Pro Forma | ||||||||||||||||||||||||||||
Clean Diesel | Clean Diesel | |||||||||||||||||||||||||||
Clean Diesel | Technologies, | Pro Forma | Business | Technologies, | ||||||||||||||||||||||||
Technologies, | Inc. | Clean Diesel | Pro Forma | Combination | Inc. For | |||||||||||||||||||||||
Inc. | Pro Forma | Technologies, | Catalytic | Pro Forma | Business | |||||||||||||||||||||||
Historical | Adjustments | Inc. | Solutions, Inc. | Subtotal | Adjustments | Combination | ||||||||||||||||||||||
(In thousands except per share data) | ||||||||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 8,106 | $ | 1,000 | (a) | $ | 9,106 | $ | 3,387 | $ | 12,493 | $ | 2,000 | (c) | $ | 14,493 | ||||||||||||
Trade accounts receivable, less allowance for doubtful accounts | 218 | — | 218 | 5,926 | 6,144 | — | 6,144 | |||||||||||||||||||||
Inventories | 822 | — | 822 | 5,026 | 5,848 | — | 5,848 | |||||||||||||||||||||
Prepaid expenses and other current assets | 108 | — | 108 | 1,635 | 1,743 | — | 1,743 | |||||||||||||||||||||
Total current assets | 9,254 | 1,000 | 10,254 | 15,974 | 26,228 | 2,000 | 28,228 | |||||||||||||||||||||
Property and equipment, net | 239 | — | 239 | 2,688 | 2,927 | — | 2,927 | |||||||||||||||||||||
Intangible assets, net | 957 | — | 957 | 4,160 | 5,117 | 2,793 | (d) | 7,910 | ||||||||||||||||||||
Goodwill | — | — | — | 4,161 | 4,161 | — | 4,161 | |||||||||||||||||||||
Other assets | 55 | — | 55 | 311 | 366 | — | 366 | |||||||||||||||||||||
Total assets | $ | 10,505 | $ | 1,000 | $ | 11,505 | $ | 27,294 | $ | 38,799 | $ | 4,793 | $ | 43,592 | ||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Line of credit | $ | 3,243 | $ | — | $ | 3,243 | $ | 3,029 | $ | 6,272 | $ | — | $ | 6,272 | ||||||||||||||
Current portion of long-term debt | — | — | — | 3,000 | 3,000 | — | 3,000 | |||||||||||||||||||||
Secured convertible notes payable | — | — | — | 2,267 | 2,267 | (2,267 | )(b) | — | ||||||||||||||||||||
Accounts payable | 454 | — | 454 | 4,449 | 4,903 | (599 | )(e) | 4,304 | ||||||||||||||||||||
293 | (e) | |||||||||||||||||||||||||||
1,556 | (f) | |||||||||||||||||||||||||||
Accrued expenses | 567 | — | 567 | 6,029 | 6,596 | 880 | (i) | 9,325 | ||||||||||||||||||||
Income taxes payable | — | — | — | 784 | 784 | — | 784 | |||||||||||||||||||||
Total current liabilities | 4,264 | — | 4,264 | 19,558 | 23,822 | (137 | ) | 23,685 | ||||||||||||||||||||
Long-term debt | — | — | — | 61 | 61 | — | 61 | |||||||||||||||||||||
Deferred tax liability | — | — | — | 1,283 | 1,283 | — | 1,283 | |||||||||||||||||||||
Total liabilities | $ | 4,264 | $ | — | $ | 4,264 | $ | 20,902 | $ | 25,166 | $ | (137 | ) | $ | 25,029 | |||||||||||||
Stockholders’ equity: | ||||||||||||||||||||||||||||
(82 | )(g) | |||||||||||||||||||||||||||
137 | (h) | |||||||||||||||||||||||||||
Clean Diesel common stock par value $0.01 per share | $ | 82 | $ | — | $ | 82 | $ | — | $ | 82 | $ | 91 | (j) | $ | 228 | |||||||||||||
Historical: Authorized 12,000,000; issued and outstanding 8,213,988 shares | ||||||||||||||||||||||||||||
Pro forma: Authorized 31,100,000; issued and outstanding 22,790,250 shares | ||||||||||||||||||||||||||||
Catalytic Solutions Class A common stock, no par value | — | — | — | 156,307 | 156,307 | (156,307 | )(j) | — | ||||||||||||||||||||
Pro forma: Authorized 85,000,000; issued 76,223,996; and outstanding none | ||||||||||||||||||||||||||||
2,267 | (b) | |||||||||||||||||||||||||||
2,000 | (c) | |||||||||||||||||||||||||||
Catalytic Solutions Class B common stock, no par value | — | — | — | — | — | (4,267 | )(j) | — | ||||||||||||||||||||
Pro forma: Authorized 185,000,000, issued 150,434,943 and outstanding none | ||||||||||||||||||||||||||||
Catalytic Solutions treasury stock at cost (Historical: 60,000 shares) | — | — | — | (100 | ) | (100 | ) | 100 | (j) | — | ||||||||||||||||||
930 | (e) | |||||||||||||||||||||||||||
(75,751 | )(g) | |||||||||||||||||||||||||||
8,635 | (h) | |||||||||||||||||||||||||||
(880 | )(i) | |||||||||||||||||||||||||||
Additional paid in capital | 74,751 | 1,000 | (a) | 75,751 | — | 75,751 | 160,383 | (j) | 169,068 | |||||||||||||||||||
Accumulated other comprehensive income (loss) | (449 | ) | — | (449 | ) | (1,116 | ) | (1,565 | ) | 449 | (g) | (1,116 | ) | |||||||||||||||
561 | (d) | |||||||||||||||||||||||||||
(624 | )(e) | |||||||||||||||||||||||||||
(855 | )(f) | |||||||||||||||||||||||||||
Accumulated deficit | (68,143 | ) | — | (68,143 | ) | (148,699 | ) | (216,842 | ) | 68,143 | (g) | (149,617 | ) | |||||||||||||||
Total stockholders’ equity | 6,241 | 1,000 | 7,241 | 6,392 | 13,633 | 4,930 | 18,563 | |||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 10,505 | $ | 1,000 | $ | 11,505 | $ | 27,294 | $ | 38,799 | $ | 4,793 | $ | 43,592 | ||||||||||||||
Book value per share | $ | 0.76 | $ | 0.82 | $ | 0.09 | $ | 0.81 | ||||||||||||||||||||
Equivalent book value per share | $ | 0.04 | ||||||||||||||||||||||||||
F-57
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Pro Forma | ||||||||||||||||||||
Business | Clean Diesel | |||||||||||||||||||
Clean Diesel | Pro Forma | Combination | Technologies, Inc. | |||||||||||||||||
Technologies, Inc. | Catalytic | Pro Forma | For Business | |||||||||||||||||
Historical | Solutions, Inc. | Subtotal | Adjustments | Combination | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Revenues | $ | 1,056 | $ | 25,371 | $ | 26,427 | $ | — | $ | 26,427 | ||||||||||
Cost of revenues | 685 | 18,595 | 19,280 | — | 19,280 | |||||||||||||||
Gross margin | 371 | 6,776 | 7,147 | — | 7,147 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Sales and marketing | — | 1,561 | 1,561 | — | 1,561 | |||||||||||||||
Research and development | 189 | 2,145 | 2,334 | — | 2,334 | |||||||||||||||
(59 | )(k) | |||||||||||||||||||
General and administrative | 2,695 | 4,126 | 6,821 | 209 | (l) | 6,971 | ||||||||||||||
Severance expense | (163 | ) | 15 | (148 | ) | — | (148 | ) | ||||||||||||
Recapitalization expense | — | 727 | 727 | — | 727 | |||||||||||||||
Gain on sale of intellectual property | — | (3,900 | ) | (3,900 | ) | — | (3,900 | ) | ||||||||||||
Total operating expenses | 2,721 | 4,674 | 7,395 | 150 | 7,545 | |||||||||||||||
Income (loss) from operations | (2,350 | ) | 2,102 | (248 | ) | (150 | ) | (398 | ) | |||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 91 | 2 | 93 | — | 93 | |||||||||||||||
Interest expense | — | (678 | ) | (678 | ) | — | (678 | ) | ||||||||||||
Other | (67 | ) | (109 | ) | (176 | ) | — | (176 | ) | |||||||||||
Total other income (expense) | 24 | (785 | ) | (761 | ) | — | (761 | ) | ||||||||||||
Income (loss) from continuing operations before income taxes | (2,326 | ) | 1,317 | (1,009 | ) | (150 | ) | (1,159 | ) | |||||||||||
Provision for income taxes | — | 510 | 510 | — | 510 | |||||||||||||||
Net income (loss) from continuing operations | $ | (2,326 | ) | $ | 807 | $ | (1,519 | ) | $ | (150 | ) | $ | (1,669 | ) | ||||||
Basic and diluted income (loss) per share: | ||||||||||||||||||||
Basic net income (loss) from continuing operations | $ | (0.28 | ) | $ | — | $ | (0.07 | ) | ||||||||||||
Diluted net income (loss) from continuing operations | $ | (0.28 | ) | $ | — | $ | (0.07 | ) | ||||||||||||
Weighted average number of common shares outstanding (000s): | ||||||||||||||||||||
Basic | 8,184 | 220,197 | 22,790 | |||||||||||||||||
Diluted | 8,184 | 220,661 | 22,790 | |||||||||||||||||
Equivalent basic and diluted loss per share | $ | (0.00 | ) | |||||||||||||||||
Cash dividends per share | $ | — | $ | — | $ | — | ||||||||||||||
F-58
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Pro Forma | ||||||||||||||||||||
Business | Clean Diesel | |||||||||||||||||||
Clean Diesel | Pro Forma | Combination | Technologies, Inc. | |||||||||||||||||
Technologies, Inc. | Catalytic | Pro Forma | For Business | |||||||||||||||||
Historical | Solutions, Inc. | Subtotal | Adjustments | Combination | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Revenues | $ | 1,221 | $ | 50,514 | $ | 51,735 | $ | — | $ | 51,735 | ||||||||||
Cost of revenues | 801 | 38,547 | 39,348 | — | 39,348 | |||||||||||||||
Gross margin | 420 | 11,967 | 12,387 | — | 12,387 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Sales and marketing | — | 3,577 | 3,577 | — | 3,577 | |||||||||||||||
Research and development | 386 | 7,257 | 7,643 | — | 7,643 | |||||||||||||||
(107 | )(k) | |||||||||||||||||||
General and administrative | 6,280 | 8,903 | 15,183 | 417 | (l) | 15,493 | ||||||||||||||
Severance expense | 958 | 1,429 | 2,387 | — | 2,387 | |||||||||||||||
Recapitalization expense | — | 1,258 | 1,258 | — | 1,258 | |||||||||||||||
Gain on sale of intellectual property | — | (2,500 | ) | (2,500 | ) | — | (2,500 | ) | ||||||||||||
Total operating expenses | 7,624 | 19,924 | 27,548 | 310 | 27,858 | |||||||||||||||
Loss from operations | (7,204 | ) | (7,957 | ) | (15,161 | ) | (310 | ) | (15,471 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 245 | 18 | 263 | — | 263 | |||||||||||||||
Interest expense | — | (5,353 | ) | (5,353 | ) | — | (5,353 | ) | ||||||||||||
Change in fair value of investments and interest expense | 100 | — | 100 | — | 100 | |||||||||||||||
Other | 112 | (1,117 | ) | (1,005 | ) | — | (1,005 | ) | ||||||||||||
Total other income (expense) | 457 | (6,452 | ) | (5,995 | ) | — | (5,995 | ) | ||||||||||||
Loss from continuing operations before income taxes | (6,747 | ) | (14,409 | ) | (21,156 | ) | (310 | ) | (21,466 | ) | ||||||||||
Income tax benefit | — | (1,036 | ) | (1,036 | ) | — | (1,036 | ) | ||||||||||||
Net loss from continuing operations | $ | (6,747 | ) | $ | (13,373 | ) | $ | (20,120 | ) | $ | (310 | ) | $ | (20,430 | ) | |||||
Basic and diluted loss per share: | ||||||||||||||||||||
Net loss from continuing operations per share | $ | (0.83 | ) | $ | (0.06 | ) | $ | (0.90 | ) | |||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||||||
Basic and diluted | 8,147 | 220,197 | 22,790 | |||||||||||||||||
Equivalent basic and diluted loss per share | $ | (0.04 | ) | |||||||||||||||||
Cash dividends per share | $ | — | $ | — | $ | — | ||||||||||||||
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1. | The Merger and Basis of Presentation |
2. | Estimate of Consideration Expected to Be Transferred |
Fair value of Clean Diesel outstanding common stock at June 30, 2010 | $ | 7,639,000 | ||
Estimated fair value of Clean Diesel shares issued to accredited investors | 608,000 | |||
Estimated fair value of Clean Diesel shares issued to Innovator Capital | 181,000 | |||
Estimated fair value of Clean Diesel stock options and warrants outstanding at June 30, 2010 | 25,000 | |||
Estimated fair value of Clean Diesel warrants issued to Innovator Capital and accredited investors | 319,000 | |||
Total estimated purchase consideration | $ | 8,772,000 | ||
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3. | Preliminary Allocation of Consideration Transferred to Net Assets Acquired |
Cash and cash equivalents(1) | $ | 9,106,000 | ||
Accounts receivable and other assets | 381,000 | |||
Inventory(2) | 822,000 | |||
Fixed assets | 239,000 | |||
Intangible Assets | ||||
Customer relationships | 180,000 | |||
Trade name | 948,000 | |||
Patents | 2,352,000 | |||
In-process research and development | 270,000 | |||
Total Assets Acquired | 14,298,000 | |||
Liabilities assumed | (4,264,000 | ) | ||
Merger related liabilities | (701,000 | ) | ||
Net assets acquired | 9,333,000 | |||
Gain on transaction | (561,000 | ) | ||
Total preliminary purchase price allocation | $ | 8,772,000 | ||
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(1) | Includes $1,000,000 of cash to be received by Clean Diesel upon closing of sale of stock and warrants to accredited investors described in note 4(a) below. | |
(2) | Assumed carrying value equals fair value. |
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4. | Pro Forma Adjustments |
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Historical value of CSI’s outstanding shares including conversion of Notes | $ | 160,474 | ||
Fair value of shares held by Clean Diesel shareholders | 8,772 | |||
Fair value of 1,000,000 shares issued to Allen and Company LLC as a merger cost | 930 | |||
Estimated fair value of 3,000,000 warrants issued to CSI Class A Shareholders’ recorded as a distribution | (880 | ) | ||
Less: amount attributable to par value of shares | (228 | ) | ||
$ | 169,068 | |||
Amortization Expense | ||||||||||||||||
Estimated | Six months | Twelve months | ||||||||||||||
useful | ended | ended | ||||||||||||||
Fair value | life | June 30, 2010 | December 31, 2009 | |||||||||||||
Customer relationships | $ | 180,000 | 3 | $ | 30,000 | $ | 60,000 | |||||||||
Trade name | 948,000 | 10 | 47,000 | 95,000 | ||||||||||||
Patents | 2,352,000 | 10 | 118,000 | 235,000 | ||||||||||||
In-process research and development | 270,000 | 10 | 14,000 | 27,000 | ||||||||||||
$ | 3,750,000 | $ | 209,000 | $ | 417,000 | |||||||||||
5. | Pro Forma Income (Loss) Per Share |
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Pre-Reverse | ||||
Split | ||||
Clean Diesel shares outstanding | 8,213,988 | |||
New shares to be issued in the Merger to CSI shareholders and Allen & Company LLC | 13,727,658 | |||
New shares to be issued to accredited investors | 654,118 | |||
New shares to be issued to Innovator Capital | 194,486 | |||
Total | 22,790,250 | |||
One for | One for | One for | ||||||||||
three | five | eight | ||||||||||
Six months ended June 30, 2010 | ||||||||||||
Pro forma income from continuing operations per share: | ||||||||||||
Basic and diluted | $ | (0.22 | ) | $ | (0.37 | ) | $ | (0.59 | ) | |||
Pro forma weighted average shares outstanding (000s): | ||||||||||||
Basic and diluted | 7,597 | 4,558 | 2,849 | |||||||||
Year ended December 31, 2009 | ||||||||||||
Pro forma loss from continuing operations per share: | ||||||||||||
Basic and diluted | $ | (2.69 | ) | $ | (4.48 | ) | $ | (7.17 | ) | |||
Pro forma weighted average shares outstanding (000s): | ||||||||||||
Basic and diluted | 7,597 | 4,558 | 2,849 |
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6. | Book Value per Share |
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