UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number: 0-27432
-------
CLEAN DIESEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1393453
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
Clean Diesel Technologies, Inc.
300 Atlantic Street - Suite 702
Stamford, CT 06901-3522
(Address of principal executive offices) (Zip Code)
(203) 327-7050
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
As of November 10, 2000, there were outstanding 2,662,080 shares of Common
Stock, par value $0.05 per share, of the registrant.
================================================================================
CLEAN DIESEL TECHNOLOGIES, INC.
Form 10-Q for the Quarter Ended September 30, 2000
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 2000, 3
and December 31, 1999
Statements of Operations for Three and Nine 4
Months Ending September 30, 2000 and 1999
Statements of Cash Flows for the Three and Nine 5
Months Ending September 30, 2000 and 1999
Note to Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CLEAN DIESEL TECHNOLOGIES, INC.
BALANCE SHEETS
(in thousands except share data)
September 30, December 31,
2000 1999
--------------- --------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 526 $ 892
Accounts Receivable 8 46
Inventories 308 321
Other current assets 46 52
--------------- --------------
Total current assets 888 1,311
Other assets 31 35
--------------- --------------
Total assets $ 919 $ 1,346
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Unrecognized License Revenue $ 41 $ --
Accounts payable and accrued expenses 608 690
--------------- --------------
Total Current Liabilities 649 690
Stockholders' equity:
Preferred Stock, par value $.05 per share,
Authorized 85,000 shares, no shares issued
and outstanding -- --
Series A Convertible Preferred Stock, par
value $.05 per share, $500 per share
liquidation preference, authorized 15,000
shares, issued and outstanding 13,218 and 11,082,
involuntary liquidation value (incl. dividends payable)
$7,115,500 and $5,934,000 1 1
Common Stock, par value $0.05 per share,
Authorized 15,000,000 shares, issued and
outstanding 2,662,080 and 2,594,456 shares 133 130
Additional paid-in capital 20,532 18,946
Accumulated Deficit (20,396) (18,421)
--------------- --------------
Total stockholders' equity 270 656
--------------- --------------
Total liabilities and stockholders' equity $ 919 $ 1,346
=============== ==============
See note to financial statements.
-3-
CLEAN DIESEL TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- ---------- -----------
Revenue:
Sales $ 52 $ 41 $ 137 $ 100
License Revenue 60 -- 340 --
---------- ---------- ---------- -----------
Total Revenue 112 41 477 100
Costs and expenses:
Cost of sales 41 19 88 57
General and administrative 448 372 1,366 1,124
Research and development 110 197 415 649
Patent filing and maintenance 20 32 97 84
---------- ---------- ---------- -----------
Loss from operations 507 579 1,489 1,814
Interest income (11) (9) (34) (31)
Interest expense 1 1 2 2
---------- ---------- ---------- -----------
Net loss before preferred stock
Dividend 497 571 1,457 1,785
Preferred Stock dividend 185 1,858 516 2,012
---------- ---------- ---------- -----------
Net loss attributed to Common
Stockholders $ 682 $ 2,429 $ 1,973 $ 3,797
========== ========== ========== ===========
Basic and diluted loss per
Common Share $ 0.26 $ 0.94 $ 0.75 $ 1.48
========== ========== ========== ===========
Average number of Common Shares
outstanding 2,662 2,592 2,622 2,574
========== ========== ========== ===========
See note to financial statements.
-4-
CLEAN DIESEL TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2000 1999
------------ ------------
OPERATING ACTIVITIES
Net Loss before preferred stock dividend $ (1,457) $ (1,785)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation 8 16
Changes in operating assets and liabilities:
Accounts Receivable 38 (36)
Inventories 13 (27)
Other current assets 6 14
Unrecognized License Revenue 41 --
Accounts payable and accrued expenses (41) (43)
------------ ------------
Net cash used in operating activities $ (1,392) $ (1,861)
------------ ------------
FINANCING ACTIVITIES
Proceeds from the sale of preferred stocks 1,022 1,721
Proceeds from the exercise of stock options 7 2
------------ ------------
Net cash provided from (used in) financing activities 1,029 1,723
------------ ------------
INVESTING ACTIVITIES
Purchase of fixed assets (3) (6)
------------ ------------
Net cash (used in) provided by investing activities (3) (6)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (366) (144)
------------ ------------
Cash and cash equivalents at beginning of period 892 1,663
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 526 $ 1,519
============ ============
NON-CASH ACTIVITIES
Preferred Dividend 516 2,012
Accrued Director's Fee in stock 30 30
See note to financial statements.
-5-
CLEAN DIESEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited, condensed, consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. All such
adjustments are of a normal recurring nature. Operating results for the
nine-month period ended September 30, 2000, are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000. For
further information, refer to the Financial Statements and footnotes thereto
included in the Company's Form 10-K for the year ended December 31, 1999.
The balance sheet at December 31, 1999, has been derived from the audited
Financial Statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
Clean Diesel Technologies, Inc. (the "Company") was incorporated in the
State of Delaware on January 19, 1994, as a wholly owned subsidiary of Fuel-Tech
N.V. ("Fuel Tech"). Effective December 12, 1995, Fuel Tech completed a Rights
Offering of the Company's Common Stock, and then reduced its ownership in the
Company to 27.6%.
The Company is a specialty chemical company supplying fuel additives and
proprietary systems that reduce harmful emissions from internal combustion
engines while improving fuel economy. Prior to December 1999 the Company was a
development stage enterprise devoted to research, development, and
commercialization of Platinum Fuel Catalysts (PFC's) and Nitrogen Oxide (NOx)
reduction technologies for diesel engines. During December 1999, the Company
received its EPA registration for its platinum - cerium diesel fuel combustion
catalyst and recorded its first commercial sales for this Platinum Plus(R)
diesel fuel catalyst product. Accordingly, in the opinion of management the
Company is no longer a development stage enterprise.
GOING CONCERN
The financial statements have been prepared assuming that the Company will
continue as a going concern and do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets and
the amount and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
As a result of the Company's recurring operating losses of $17,737,000
since inception (excluding non-cash preferred dividends and the one-time imputed
preferred dividend of $1,750,000 recognized in the third quarter of 1999), the
Company has been unable to generate a positive cash flow. The Company may
require additional capital in the future in order to fund its operations. The
Company's current cash position, including proceeds from recent license
-6-
agreements will not be sufficient to fund the Company's cash requirements. The
Company completed a preferred stock offering of $1,021,500 in April of 2000.
Without any further funding, the Company expects to be able to fund operations
into the first quarter 2001. Although the Company believes that it will be
successful in its capital-raising efforts, there is no guarantee that it will be
able to raise such funds and, if raised, on terms that will be satisfactory to
the Company. The Company has developed contingency plans in the event its
financing efforts are not successful. Such plans include reducing expenses and
selling or licensing the Company's technologies. Accordingly, at September 30,
2000, there is substantial doubt as to the Company's ability to continue as a
going concern.
INVENTORIES
Inventories are stated at the lower of cost or market and consist of
finished product. Cost is determined using the first-in, first-out (FIFO)
method.
REVENUE RECOGNITION
During February 2000, the Company completed a license agreement with RJM
Corporation for CDT's ARIS 2000(TM) NOx Control System for all stationary,
marine and locomotive applications in North, Central and South America. The
Company received a $260,000 license payment and $100,000 inventory payment in
return for transferring the ARIS 2000 technology to the RJM Corporation. The
license payment is non-refundable and requires no ongoing services to be
performed by CDT. Clean Diesel has the opportunity to earn an additional
cumulative $1,000,000 in license revenue on the first, second, and third
anniversaries of the license agreement based on the prior years' ARIS 2000 sales
performance.
In June 2000, the company received a $160,000 payment from Mitsui & Co. Ltd. for
a short-term exclusive license for Platinum Plus fuel borne catalyst and ARIS
2000 diesel emission reduction technologies. In addition to the exclusive
license, Mitsui & Co. received an ARIS 2000 system, Platinum Plus product and
diesel emissions consulting services from Clean Diesel Technologies Inc. The
company is recognizing sales revenue for these products when they are shipped to
Mitsui and license revenue prorated over the six-month license period. $19,000
of the license revenue was recognized in the second quarter 2000. $58,500 of
license revenue, $41,000 of ARIS 2000 system revenue, and $759 of Platinum Plus
FBC revenue was recognized in the third quarter 2000.
SERIES A PREFERRED STOCK
On April 28, 2000, the Company completed a private placement preferred
stock offering of 1,362 Series A Preferred shares for $1,021,500 ($750 per
Series A Preferred Stock). The Series A Preferred shares have the same rights
and dividend terms as the previous Series A Preferred shares. The Series A
Preferred Stock was issued at a premium to the underlying common stock into
which it is convertible.
During the years ended December 31, 1999 and 1998, the Company received
proceeds of $1.75 million and $1.85 million through private placements of 3,500
and 3,753 shares of its Series A Preferred Stock, respectively. In addition, in
1998 $1.4 million of bridge loans and $0.5 million of term loans due to Fuel
Tech were converted into 2,800 and 1,029 shares of Series A Preferred Stock.
The Preferred Stock has a stated value and liquidation preference of $500
per share plus accrued and unpaid dividends. Holders of the Preferred Stock are
entitled to receive cash dividends at the annual rate of 9% or dividends in kind
at the annual rate of 11%, when and if declared by the Board of Directors of the
Company out of legally available funds of the Company. Cash dividends and
dividends in kind are each deemed "Preferred Dividends." Preferred Dividends
are payable quarterly in arrears.
In order to conserve cash, on February 4, 1999, the Company's Board of
Directors adopted a resolution that all dividends declared on the Preferred
Stock be payable in kind at the annual rate of 11%. The dividends will be paid
in the form of additional shares of Preferred Stock in accordance with the terms
and conditions of the Certificate of Designation on the first business day of
January, April, July and October to stockholders of record on the first business
day of the prior December, March, June, and September. Dividends in kind are
-7-
evidenced by a stock certificate for full share amounts of such dividends with
fractional amounts accruing and paid in full shares on a subsequent dividend.
The directors further resolved to issue certificates for stock dividends
annually rather than quarterly, unless a stockholder requests certificates to be
issued more frequently. These resolutions will remain in effect until revoked
by the Company's Board of Directors.
The third quarter 2000 stock dividend payable on July 1, 2000, was declared
in kind as 357 additional shares of the Preferred Stock with a stated value of
$178,000. As of September 30, 2000, the company had 13,218 shares of Preferred
Stock issued and outstanding. An additional 1,013 Preferred Stock shares were
declared for 2000, but not issued. As of September 30, 2000, the company had
earned, but undeclared, dividends of approximately $196,000(392 shares).
Each share of the Preferred Stock is convertible into 333.33 shares of the
Company's Common Stock, which is equivalent to $1.50 per Common Share. Assuming
full conversion of the Preferred Stock, at September 30, 2000 the Company would
have approximately 7.4 million shares of Common Stock outstanding, of which Fuel
Tech would own approximately 1.6 million shares, or a 21.8% interest in the
Company.
The Company can force the holder of Preferred Stock to convert its shares,
in whole or in part, into Common Stock at any time on, or after, the date that
the average Closing Price (as defined in the Certificate of Designation) of the
Common Stock equals or exceeds $4.50 for 20 consecutive trading days. Such
conversion may, at the election of the holders of 60% of the issued and
outstanding shares of the Preferred Stock, be scheduled to occur on a pro-rata
basis quarterly over 18 months. The Preferred Stock shall be automatically
converted into Common Stock should the Company consummate a public offering of
its Common Stock in excess of certain prescribed amounts. In the event of such
mandatory conversion, accrued and unpaid dividends will also convert into Common
Stock, on the same terms as the underlying shares of Preferred Stock.
EARNINGS PER SHARE DATA
Basic and diluted earnings/(loss) per share excludes the dilutive effect of
stock options and warrants. In addition, the 14,231 shares of Preferred Stock
(4.7M common stock equivalent) are not included in the basic and diluted
earnings/(loss) per share calculation.
RELATED PARTY TRANSACTIONS
The Company has a Management and Services Agreement with Fuel Tech. Under
the new agreement, the Company agreed to pay Fuel Tech a fee equal to an
additional 3 - 10% of the costs paid on the Company's behalf, dependent upon the
nature of the costs incurred. Currently, a fee of 3% is assessed on all costs
billed to the Company from Fuel Tech. Charges to the Company, inclusive of the
administrative fee, were approximately $17,300 and $26,000 in the third quarter
of 2000 and 1999, respectively.
COMMITMENTS
Effective October 28, 1994, Fuel Tech granted two licenses to the Company
for all patents and rights associated with its PFC technology. Effective
November 24, 1997, the licenses were canceled and Fuel Tech assigned to the
Company all such patents and rights on terms substantially similar to the
licenses. In exchange for the assignment, the Company will pay Fuel Tech a
royalty of 2.5% of its annual gross revenue from sales of the PFCs commencing in
1998. The royalty obligation expires in 2008. The Company may terminate the
royalty obligation to Fuel Tech by payment of $9,818,180 in 2000 and declining
annually to approximately $1,090,910 in 2008. The Company as assignee and owner
will maintain the technology at its own expense. To date, no royalties have
been paid to Fuel Tech, although the Company has recorded an insignificant
accrual for royalties payable to Fuel Tech at September 30, 2000.
SUBSEQUENT EVENT
On November 10, 2000, the Company arranged a $1,000,000 18th-month term
loan from several of the company's existing preferred shareholders. Terms of
the loan included a 10% annual interest rate and warrants to purchase common
stock.
-8-
CLEAN DIESEL TECHNOLOGIES, INC.
Item 2. Management's Discussion, Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q that are not historical facts, so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Investors are cautioned
that all forward-looking statements involve risks and uncertainties, including
those detailed in the Company's filings with the Securities and Exchange
Commission. See "Risk Factors of the Business" in Item 1, "Business," and also
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in the Company's Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
In prior years the Company was a development stage enterprise and its
efforts were devoted to the research, development and commercialization of
platinum fuel catalysts and nitrogen oxide reduction technologies to reduce
emissions from diesel engines. During 1999, the Company received its US EPA
registration for its platinum-cerium fuel catalyst product and completed its
first commercial sales.
Sales and Cost of sales were $52,000 and $41,000 respectively for the third
quarter of 2000 versus $41,000 and $19,000 for 1999. $11,000 of Platinum Plus
fuel catalyst sales was recorded in the third quarter of 2000. Commercial sales
of Platinum Plus fuel catalyst began in December 1999 and the Company is in the
process of rolling out regional demonstration programs with selected fleets.
The Company recorded $41,000 of ARIS 2000 sales and $60,000 of license revenue
from Mitsui for a limited 6-month term license for Platinum Plus fuel catalyst
and ARIS 2000 in the third quarter.
Year-to-date sales and cost of sales were $137,000 and $88,000 in 2000
versus $100,000 and $57,000 in 1999. Included in the 2000 revenue is $340,000
of license revenue associated with the RJM ARIS 2000 license and the Mitsui
limited license. Clean Diesel Technologies will earn a royalty on all future
RJM sales of the ARIS 2000 as well as additional license revenue in 2001, 2002
and 2003 depending on ARIS 2000 sales in these years.
General and administrative expense increased $76,000 to $448,000 in the
third quarter 2000 versus $372,000 in the comparable quarter in 1999. General
and administrative expenses have increased $242,000 to $1,366,000 in the first
nine months of 2000 versus $1,124,000 in the comparable period in 1999. The
increase is primarily attributable to the higher marketing costs associated with
the increased commercial activity and increased personnel costs, including a
full time chief financial officer.
Third quarter research and development expenses decreased $87,000 to
$110,000 in 2000 versus $197,000 in the comparable period in 1999. For the
year, research and development expenses have declined $234,000 to $415,000
versus $649,000 in the comparable 1999 period. The decrease is attributable to
the shift from research and development to commercialization that occurred in
the latter half of 1999. In addition, two engineers transferred from CDT to RJM
as part of the ARIS 2000 license agreement.
Patent expense decreased $12,000 to $20,000 in the third quarter 2000
versus $32,000 in 1999. For the year, patent expense has increased $13,000 to
$97,000 versus $84,000 in the 1999 comparable period. The increase is related
to several new patents filed in the United States and Europe.
-9-
Interest income increased $2,000 to $11,000 in the third quarter 2000
versus $9,000 in the comparable 1999 period. For the year, interest income is
up slightly to $34,000 versus 1999 comparable interest income of $31,000. The
increase is attributable to the $1 million preferred stock offering in April
2000.
LIQUIDITY AND SOURCES OF CAPITAL
In December 1999, the Company received its U.S. EPA registration for its
platinum - cerium fuel catalyst product and began commercial sales of the
product. Prior to this time the Company was a development stage enterprise.
The Company has been primarily a research and development company that has
incurred losses since inception aggregating $17,737,000 (excluding the effect of
the preferred dividends and the one-time non-cash imputed preferred dividend of
$1,750,000 recognized in the third quarter of 1999). The Company expects to
incur losses through the foreseeable future as it further pursues its
commercialization efforts. The Company continues to be dependent upon sources
other than operations to finance its working capital requirements.
In December 1995, the Company raised approximately $10.5 million, net of
offering expenses and broker-dealer commissions through the 1995 Rights Offering
of its shares by Fuel Tech. The Company then repaid Fuel Tech approximately
$2.3 million in inter-company loans. On February 17, 1998, Fuel Tech agreed to
provide the Company with up to $500,000 in order to fund its cash requirements
until such time as the Company obtained the long-term financing it was seeking.
On May 20, 1998, the $500,000 commitment was converted into a bridge loan (the
"Bridge Loan"). The Bridge Loan stipulated an automatic conversion into shares
of Preferred Stock upon the conclusion of a public or private financing that
contributed a minimum of $1.75 million of additional net proceeds to the
Company. In mid-1998, the Company also received an additional $900,000 of
financing under the same Bridge Loan (having the same terms and conditions) from
outside investors. As more fully described below, in November 1998, the Bridge
Loan automatically converted into 2,800 shares of Preferred Stock.
In 1997, the Company repaid $250,000 of a $745,000 promissory demand note
with Fuel Tech and restructured the remaining amount into a $495,000 promissory
note (the "Term Note") with Platinum Plus, Inc. ("Platinum Plus"), a wholly
owned subsidiary of Fuel Tech. See below for further information concerning the
exchange of the Term Note for shares of the Company's Preferred Stock.
In November 1998, the Company obtained approximately $1.85 million in net
proceeds against the issuance of 3,753 shares of Preferred Stock through a
private placement. As the Company received net proceeds in excess of the $1.75
million minimum, and in accordance with the terms of the Bridge Loan agreement,
the $1.4 million Bridge Loan, mentioned above, converted into 2,800 shares of
Preferred Stock. Additionally, in an effort to retain its approximate 27%
interest in the Company (assuming conversion of the Preferred Stock into the
Company's Common Shares), Fuel Tech elected to exchange its $495,000 Term Note,
and $20,000 of associated accrued interest from its Bridge Loan and Term Note,
for 1,029 shares of Preferred Stock. As a result, Fuel Tech owned 2,029 shares
of the Company's Preferred Stock at December 31, 1998. These shares plus the
1999 quarterly dividends, if converted, along with its Common Stock ownership
would give Fuel Tech an approximate 21.8% interest in the Company on a fully
converted basis at December 31, 1999.
In August/September 1999, the Company received gross proceeds of $1.75
million, excluding expenses of $29,000, from private investors against the
issuance of an additional 3,500 shares of Preferred Stock. Therefore, the
Company had 11,082 shares of Preferred Stock issued and outstanding at December
31, 1999.
In May 2000, 774 Preferred Series A shares were issued for 1999 preferred
dividends declared, but not issued. On April 28, 2000 the company completed a
private placement of 1,362 Series A Preferred shares for $1,021,500. Therefore
as of September 30, 2000, the Company had a total of 13,218 issued shares of
preferred stock, which are convertible into approximately 4.4 million shares of
-10-
common stock ($0.05 par convertible at a rate of 1:333.33). On January 1, 2000,
April 1, 2000 and July 1, 2000, the Company declared a preferred stock dividend
in kind of 318, 338 and 357 shares, respectively. Therefore, as of September
30,2000, the Company had a total of 14,231 shares of preferred stock issued or
issuable on demand.
In November 2000, the company arranged a $1,000,000 term loan from several
existing preferred shareholders.
The Company signed an agreement with the RJM Corporation on February 2,
2000 that licensed RJM to sell CDT's ARIS 2000 NOx control system for all
stationary, marine, and locomotive applications in North, Central, and South
America. Under terms of the agreement CDT received an initial $360,000 license
and inventory payment and the opportunity to earn an additional $1,000,000 in
license revenue over the next 3 years based on the performance of the ARIS 2000.
In addition to license revenue, CDT will earn a royalty on all future ARIS 2000
sales.
In June of 2000, the Company received a $160,000 payment from Mitsui & Co.
Ltd. for a short-term exclusive license for the Platinum Plus fuel borne
catalyst and the ARIS 2000 diesel emission reduction technologies. The Company
recognized $19,000 and $100,000 of license and product revenue in the second and
third quarter 2000, respectively. The Company will recognize the remaining
$41,000 of license revenue in the fourth quarter of 2000.
Effective as of October 28, 1994, Fuel Tech granted two licenses to the
Company for all patents and rights associated with its Platinum Fuel Catalyst
("PFC") technology. Effective November 24, 1997, the licenses were cancelled
and Fuel Tech assigned to the Company all such patents and rights on terms
substantially similar to the licenses. In exchange for the assignment, the
Company will pay Fuel Tech a royalty of 2.5% of its annual gross revenue from
sales of the PFC's, commencing in 1998. The royalty obligation expires in 2008.
The Company may terminate the royalty obligation to Fuel Tech by payment of
$9,818,180 in 2000 and declining annually to $1,090,910 in 2008. The Company as
assignee and owner will maintain the technology at its own expense. To date no
royalties have been paid to Fuel Tech.
For the nine months ended September 30, 2000 and 1999, the Company used
cash of $1,392,000 and $1,861,000 respectively, in operating activities.
At September 30, 2000, and December 31, 1999, the Company had cash and cash
equivalents of $526,000 and $1,519,000, respectively. The decrease in cash and
cash equivalents in 2000 was the result of the Company's use of its resources to
fund operations in 2000, partially offset by the funds received from the RJM and
Mitsui license agreements. The Company anticipates incurring additional losses
through at least 2000 as it further pursues its commercialization efforts.
As a result of the Company's recurring operating losses, the Company has
been unable to generate a positive cash flow. In management's opinion, the
Company's cash balance at September 30, 2000, including the $1,021,500 received
from private investors against the issuance of 1,362 shares of preferred stock
and the Mitsui license agreement will be sufficient to fund the Company's
operations into the first quarter of 2001. The Company requires additional
capital to fund its working capital needs in 2001. Although the Company
believes that it will be successful in its capital-raising efforts, there is no
guarantee that it will be able to raise such funds and, if raised, on terms that
will be satisfactory to the Company. The Company will develop contingency plans
in the event future financing efforts are not successful. Such plans may
include reducing expenses and selling or licensing some of the Company's
technologies. Accordingly, at September 30, 2000, there is substantial doubt as
to the Company's ability to continue as a going concern. See "Liquidity Going
Concern" elsewhere herein for additional information.
-11-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
-12-
CLEAN DIESEL TECHNOLOGIES, INC.
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 thereunto duly authorized.
CLEAN DIESEL TECHNOLOGIES, INC.
Date: November 13, 2000 By: /s/ Jeremy D. Peter-Hoblyn
------------------------------------------
Jeremy D. Peter-Hoblyn
President and Chief Executive Officer
Date: November 13, 2000 By: /s/ David W. Whitwell
------------------------------------------
David W. Whitwell
Vice President and Chief Financial Officer
-13-