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, 2004
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
--- ---
As of November 11, 2004, there were outstanding 17,164,868 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, 2004
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Balance Sheets as of September 30, 2004 (Unaudited), 3
and December 31, 2003
Statements of Operations for the Three and Nine Months 4
Ended September 30, 2004 and 2003 (Unaudited)
Statements of Cash Flows for the Nine Months 5
Ended September 30, 2004 and 2003 (Unaudited)
Note to Financial Statements 6
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 4. Controls and Procedures 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES & CERTIFICATIONS 14
- 2 -
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CLEAN DIESEL TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
SEPTEMBER 30, December 31,
------------------------------
2004 2003
(Unaudited)
-------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,408 $ 6,515
Accounts receivable, net of allowance of $10 and $3 in
2004 and 2003, respectively 178 115
Inventories 443 320
Other current assets 54 73
-------------- --------------
TOTAL CURRENT ASSETS 6,083 7,023
Patents, net 324 274
Fixed assets, net of accumulated depreciation of $163 in
2004 and $123 in 2003, respectively 206 126
Other assets 27 18
-------------- --------------
TOTAL ASSETS $ 6,640 $ 7,441
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred compensation and pension benefits $ 441 $ 441
Accounts payable and accrued expenses 713 427
-------------- --------------
TOTAL CURRENT LIABILITIES 1,154 868
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.05 per share,
authorized 100,000 and 80,000 respectively, no shares
issued and outstanding -- --
Series A Convertible Preferred Stock, par value $0.05 per
share, $500 per share liquidation preference, authorized --
0 and 20,000 shares respectively, no shares issued -- --
and outstanding
Common Stock, par value $0.05 per share, authorized
30,000,000 shares, issued and outstanding 16,738,368
and 15,679,337 shares respectively 837 784
Additional paid-in capital 37,609 35,813
Accumulated deficit (32,960) (30,024)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 5,486 6,573
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,640 $ 7,441
============== ==============
See notes to condensed financial statements.
- 3 -
CLEAN DIESEL TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
----------- ------------ ------------ ------------
Revenue:
Product revenue $ 223 $ 81 $ 479 $ 291
License and royalty revenue 18 18 49 187
----------- ------------ ------------ ------------
Total revenue 241 99 528 478
Costs and expenses:
Cost of product sales 149 47 334 167
General and administrative 1,150 517 2,761 1,855
Research and development 174 171 344 590
Patent amortization and other expense 22 29 61 29
----------- ------------ ------------ ------------
Loss from operations (1,254) (665) (2,972) (2,163)
Interest income 11 1 36 7
----------- ------------ ------------ ------------
Net loss $ (1,243) $ (664) $ (2,936) $ (2,156)
=========== ============ ============ ============
Basic and diluted loss per common share $ (0.08) $ (0.05) $ (0.19) $ (0.18)
=========== ============ ============ ============
Weighted average number of common shares
outstanding - basic and diluted 15,757 12,119 15,719 12,021
=========== ============ ============ ============
See notes to condensed financial statements.
- 4 -
CLEAN DIESEL TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
---------- -----------
OPERATING ACTIVITIES
Net loss $ (2,936) $ (2,156)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 95 59
Changes in operating assets and liabilities:
Accounts receivable (63) 133
Inventories (123) 15
Other current assets 10 13
Accounts payable and accrued expenses 347 163
---------- -----------
Net cash used in operating activities (2,670) (1,773)
---------- -----------
INVESTING ACTIVITIES
Patent costs (82) (142)
Purchase of fixed assets (143) (39)
---------- -----------
Net cash used in investing activities (225) (181)
---------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 1,785 3,865
Proceeds from broker fee credit (2003 fundraising) 3 --
---------- -----------
Net cash provided by financing activities 1,788 3,865
---------- -----------
NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (1,107) 1,911
---------- -----------
Cash and cash equivalents at beginning of period 6,515 2,083
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,408 $ 3,994
========== ===========
See notes to condensed financial statements.
- 5 -
CLEAN DIESEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
NOTE 1: 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, 2004, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2004. The balance sheet at December
31, 2003 has been derived from the audited financial statements at that date but
does not include all the information and notes required by generally accepted
accounting principles for complete financial statement presentation. For further
information, refer to the Financial Statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2003.
Clean Diesel Technologies, Inc. (the "Company" or "CDTI") 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 that reduced its ownership in
the Company to 27.6%. Fuel Tech currently holds an 10.7% interest in the Company
as of September 30, 2004.
The Company is a specialty chemical and energy technology company supplying fuel
additives and proprietary systems that reduce harmful emissions from internal
combustion engines while improving fuel economy. The Company's Platinum Plus
FBC fuel additive is registered with the EPA for on-highway use. The Platinum
Plus FBC in combination with a diesel oxidation catalyst or a catalyzed wire
mesh filter have both been verified by the EPA for retrofit emission reduction.
The success of the Company's technologies will depend upon the market acceptance
of the technologies and governmental regulations including corresponding foreign
and state agencies.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories including raw materials and finished product are stated at the lower
of cost or market. Cost is determined using the first-in, first-out (FIFO)
method. As of September 30, 2004 $189,000 of finished goods and $254,000 of raw
materials were on hand.
REVENUE RECOGNITION
CDT recognizes revenue from the sale of Platinum Plus FBC, Purifier, CWMF and
ARIS 2000 systems upon shipment. The Company sells to end user fleets,
resellers, and additive distribution companies primarily in the U.S. One-time
license revenue fees are recorded in the period the license agreement is
completed and if there are no significant ongoing services required to be
performed in the future. Royalty revenue is recognized when earned.
In December 2002, Clean Diesel Technologies completed an additional exclusive
license agreement with Mitsui for the mobile ARIS technology for Japan. Under
terms of the agreement Mitsui agreed to pay CDT a $250,000 license fee and
Mitsui committed to spend an additional $200,000 in developing, testing and
demonstrating ARIS mobile prototypes. CDT recognized the $250,000 license
revenue in the fourth quarter of 2002, as there were no significant ongoing
services required to be performed by CDT at that time. The Company will also
receive ongoing royalty payments on a per unit basis.
- 6 -
In April 2003, Clean Diesel Technologies completed a non-exclusive license
agreement with Combustion Component Associates Inc. (CCA) of Monroe,
Connecticut, for the mobile ARIS technology in the US. Under terms of the
agreement CCA agreed to pay CDT a $150,000 license fee and committed to spend an
additional $100,000 in developing, testing and demonstrating ARIS mobile
prototypes. CDT will also receive ongoing royalty payments on a per unit basis.
CDT recognized the $150,000 license revenue in the second quarter of 2003, as
there were no significant ongoing services required to be performed by CDT at
that time.
RESEARCH AND DEVELOPMENT COSTS
Costs relating to the research, development and testing of products including
verification expenses for testing programs with the California Air Resources
Board (CARB) and the Environmental Protection Agency (EPA), are charged to
operations as they are incurred. These costs include test programs, salary and
benefits, consultancy fees, materials and certain testing equipment.
PATENT EXPENSE
Effective January 1, 2002, CDT began capitalizing all direct incremental costs
associated with initial patent filing costs and amortized such cost over the
remaining life of each patent. Patents are reviewed regularly and any patents
deemed not commercially feasible or cost effective are removed and the
cumulative capitalized cost is written off at that time. Prior to this all
patent related costs were expensed as incurred. The expiration of CDT's U.S.
patents range from 2007 to 2022 while several of the initial international
patents expire in 2005.
STOCKHOLDERS' EQUITY
Pursuant to a Regulation S exemption with respect to an offshore placement,
Clean Diesel Technologies sold, effective September 28, 2004, 1,000,000 shares
of its Common Stock. The price of the Common Stock was 1.025 sterling (GBP) per
share (approximately $1.82 per share). The proceeds of the Common Stock
issuance, was $1.785 million (net of $65,000 in expenses).
Pursuant to a Regulation S exemption with respect to an offshore placement,
Clean Diesel Technologies sold, effective December 1, 2003, 1,282,600 shares of
its Common Stock. The price of the Common Stock was 1.70 sterling (GBP) per
share (approximately $2.92 per share). The proceeds of the Common Stock
issuance, was $3.583 million (net of $170,000 in expenses).
Pursuant to a Regulation S exemption with respect to an offshore placement,
Clean Diesel Technologies sold, effective September 26, 2003, 2,395,597 shares
of its Common Stock. The price of the Common Stock was $1.63 per share. The
proceeds of the Common Stock issuance was $3.866 million (net of $39,000 in
expenses).
STOCK-BASED COMPENSATION
Clean Diesel Technologies accounts for stock option grants in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Under CDT's current plan, options may be granted at not less than the
fair market value on the date of grant and therefore no compensation expense is
recognized for the stock options granted to employees. In December 2002, the
FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition
and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, the Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has adopted the disclosure requirements of SFAS 148 on December 31, 2002.
If compensation expense for CDT's plan had been determined based on the fair
value at the grant dates for awards under its plan, consistent with the method
described in SFAS No. 123, CDT's net loss and basic and diluted loss per common
share would have been increased to the pro forma amounts indicated below for the
three months and nine months ended September 30:
- 7 -
Third Quarter Nine months YTD
2004 2003 2004 2003
--------- --------- -------- --------
Net loss attributable to common stockholders as $ (1,243) $ (664) $(2,936) $(2,156)
reported
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (140) (406) 463) (791)
--------- --------- -------- --------
Pro forma net loss (1,383) (1,070) (3,399) (2,534)
Net loss per share:
Basic and diluted loss per common share-as reported $ (0.08) $ (0.05) (0.19) $ (0.18)
Basic and diluted per common share-pro forma $ (0.09) $ (0.09) $ (0.22) $ (0.21)
In accordance with the provisions of SFAS No. 123, for purposes of the pro forma
disclosures the estimated fair value of the options is amortized over the option
vesting period. The application of the pro forma disclosures presented above
are not representative of the effects SFAS No. 123 may have on operating results
and earnings (loss) per share in future periods due to the timing of stock
option grants and considering that options vest over a period of three years.
The fair value of each option grant, for pro forma disclosure purposes, was
estimated on the date of grant using the modified Black-Scholes option-pricing
model with the following weighted-average assumptions for the 2004 grants,
expected dividend yield 0%, risk free interest rate 5.05%, expected volatility
99.41% and expected life of the option 4 years. 35,000 options were granted in
the first quarter of 2004 at an estimated value of $69,700 and 150,000 options
were granted in the third quarter of 2004 at an estimated value of $194,800.
LOSS PER SHARE
Employee stock options and stock purchase warrants were not included in the
computation of diluted loss per share for 2004 or 2003, because the Company
reported a loss for the period and the effect would be anti-dilutive. Total
potential dilutive employee stock options and warrants outstanding at the end of
the third quarter were 2,385,000 and 532,000 respectively.
NOTE 3: RELATED PARTY TRANSACTIONS
The Company has a Management and Services Agreement with Fuel Tech. The
agreement requires CDT to reimburse Fuel Tech for management, services and
administrative expenses incurred on our behalf. The Company has agreed to pay
Fuel Tech a fee equal to an additional 3% of the costs paid on behalf of
administration (approximately $500 and $1,500 for the quarter and nine months
year to date. Currently, and for the last three years CDT has reimbursed Fuel
Tech for the expenses associated with one Fuel Tech officer/director who also
serves as an officer/director of CDT. The Company believes the charges under
the Management and Services Agreement are reasonable and fair. The Management
and Services Agreement may be cancelled by either party by notifying the other
in writing of the cancellation on or before May 15 in any year.
The Company had a deferred salary plan with its former Chief Executive Officer
in which he deferred $62,500 of his annual salary until the Company reaches $5
million in revenue. This agreement was terminated in March 2001 and the
executive's salary was returned to full pay. At September 30, 2004 total
obligations were $135,400 pertaining to this plan. This expense has been
classified as a current liability on the balance sheet as of September 30, 2004
and was exchanged for 73,587 shares of common stock in October 2004 (see Note 6
Subsequent Events ).
The Company has made annual pension payments or accruals pursuant to a deferred
compensation plan. Until June 15, 2003, CDT made annual accruals in amounts of
up to $50,000 for the former Chief Executive Officer for his post-retirement
benefit upon his retirement or when the Company reaches $5 million in sales. At
September 30, 2004, total obligations were $305,616 pertaining to this plan.
This expense has been
- 8 -
classified as a current liability on the balance sheet as of September 30, 2004.
The Company paid its total obligation under the plan in October 2004 (see Note 6
Subsequent Events).
NOTE 4: COMMITMENTS
Clean Diesel Technologies has signed a lease at 300 Atlantic Street, Stamford,
Connecticut for 3,925 square feet of administrative space. The 5 year lease
through March 2009, will have an annual cost of approximately $116,000,
including rent, utilities and parking.
CDT has signed a four year lease (through July 2008) for 2,750 square feet of
warehouse space in Milford, CT. Annual rent including utilities will be
approximately $21,000.
Effective October 28, 1994, Fuel Tech granted two licenses to the Company for
all patents and rights associated with its platinum fuel catalyst 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 platinum fuel
catalysts commencing in 1998. The royalty obligation expires in 2008. The
Company may terminate the royalty obligation to Fuel Tech by payment of
$5,454,546 in 2004 and declining annually to $ 4,363,637 in 2005, $3,272,728 in
2006, $2,181,819 in 2007 and $1,090,910 in 2008. The Company as assignee and
owner is responsible for maintaining the technology at its own expense. Minimum
royalties were paid to Fuel Tech in 2003 and royalties payable to Fuel Tech at
September 30, 2004 are $4,950.
NOTE 5: CONCENTRATION
For the quarter ended September 30, 2004, two customers accounted for 61% of the
Company's revenue and for the year to date period ending September 30, 2004 one
customer accounted for 43% of total revenue. For the comparable nine month
period in 2003, a different single customer accounted for 31% of the Company's
revenue.
NOTE 6: SUBSEQUENT EVENTS
In October 2004 the Company completed an additional private placement of its
Common Stock Pursuant to a Regulation S exemption with respect to an offshore
placement. Clean Diesel Technologies sold 426,500 shares of its Common Stock at
a price of 1.025 sterling (GBP) per share (approximately $1.83 per share). The
proceeds of the Common Stock issuance, was $750,000 (net of $25,000 in
expenses). As part of that transaction, retired CEO Jeremy Peter-Hoblyn
exchanged his deferred salary of $135,400 for 73,587 shares of CDT common stock.
Also in October of 2004 the Company paid as required under a deferred
Compensation Plan, its retired CEO Jeremy Peter-Hoblyn all of his accrued
pension of $305,500.
- 9 -
CLEAN DIESEL TECHNOLOGIES, INC.
Item 2. Management's Discussion and 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 Annual Report on Form 10-K for the year ended
December 31, 2003.
RESULTS OF OPERATIONS
2004 VERSUS 2003
Product sales and cost of sales were $223,000 and $149,000 respectively for the
third quarter of 2004 versus $81,000 and $47,000 for 2003. Platinum Plus fuel
catalyst sales of $89,000 and $58,000 were recorded in the third quarter of 2004
and 2003, respectively and Platinum Plus purifier system sales of $85,000 and $0
were recorded in the third quarter of 2004 and 2003 respectively. ARIS product
sales of $43,000 and $12,000, primarily to Mitsui & Co., Ltd., were recorded in
the third quarter of 2004 and 2003, respectively.
Included in both the 2004 and 2003 third quarter revenue is $18,000 of license
and royalty income. The 2004 license and royalty income is from continuing ARIS
system royalties from Mitsui & Co., Ltd and the 2003 royalty income is from RJM.
For the nine months ended September 30, product sales and cost of sales were
$479,000 and $334,000 respectively for 2004 versus $291,000 and $167,000 for
2003. Platinum Plus fuel catalyst sales of $199,000 and $138,000 were recorded
in the first nine months of 2004 and 2003, respectively and Platinum Plus
Purifier system sales of $95,000 and $0 respectively in 2004 and 2003. ARIS
product sales of $177,000 and $87,000, were recorded year-to-date in 2004 and
2003 respectively. Included in first nine months of total revenue is $49,000
and $187,000 of license and royalty income for 2004 and 2003, respectively.
General and administrative expenses increased $633,000 to $1,150,000 in the
third quarter 2004 versus $517,000 in the same period of 2003. For the first 9
months of 2004, general and administrative expenses increased $906,000 to
$2,761,000 from $1,855,000 in the same 2003 period. The year-to-date 2004
increase in general and administrative expenses is related to the third quarter
write off of $275,000 for legal and advisory expenses associated with a
potential stock registration and increases in marketing and sales activities,
primarily personnel and related costs of $400,000 in the US and Europe.
Research and development expenses increased $3,000 to $174,000 in the third
quarter 2004 versus $171,000 in the comparable 2003 period. For the nine months
to date research and development expenses have decreased $246,000 to $344,000
from $590,000 which were incurred in 2003. The decrease is attributable to the
verification and certification program expenses for the Platinum Plus FBC in
2003.
Patent amortization and other costs were $22,000 in the third quarter of 2004
versus $29,000 in the comparable 2003 period. The year-to-date increase in 2004
is $32,000. The increase is related to the change in capitalization policy and
the write-off of several patents in 2004.
- 10 -
Third quarter interest income increased $10,000 in 2004 to $11,000 versus $1,000
in the comparable period in 2003. Year-to-date interest has increased $29,000 to
$36,000 versus $7,000 for the 2003 period. This was a result of an increase in
the amount of cash and cash equivalents on hand in 2004.
LIQUIDITY AND SOURCES OF CAPITAL
Prior to 2000, the Company was primarily engaged in research and development and
has incurred losses since inception aggregating $28,208,000 (excluding the
effect of the non-cash preferred stock dividends). The Company expects to incur
losses through the foreseeable future as it further pursues its
commercialization efforts. Although the Company started selling limited
quantities of Platinum Plus additive and the verified Purifier system and
generating some ARIS licensing fees and royalties, operating revenue to date has
been insufficient to cover operating expenses, and the Company continues to be
dependent upon proceeds from fund raising to finance its working capital
requirements.
For the nine months ended September 30, 2004 and 2003, the Company used cash of
$2,731,000 and $1,773,000 respectively, in operating activities.
At September 30, 2004 and December 31, 2003, the Company had cash and cash
equivalents of $5,408,000 and $6,515,000, respectively. The decrease in cash
and cash equivalents in 2004 was the result of building of inventories, capital
expenditures for equipment and new administrative offices and on-going marketing
and operation costs, primarily related to personnel costs. The Company
anticipates incurring additional losses through at least 2004 as it further
pursues its commercialization efforts.
In September 2004, Clean Diesel Technologies received $1.785 million (net of
$65,000 in expenses) through a private placement of 1,000,000 shares of its
Common Stock. The price of the Common Stock was 1.025 GBP per share
(approximately $1.82 per share). The proceeds of the Common Stock issuance are
being used for the general corporate purposes of Clean Diesel Technologies.
In December 2003, Clean Diesel Technologies received $3.583 million (net of
$170,000 in expenses) through a private placement of 1,282,600 shares of its
Common Stock. The price of the Common Stock was 1.70 GBP per share
(approximately $2.92 per share).
In September 2003, Clean Diesel Technologies received $3.866 million (net of
$39,000 in expenses) through a private placement of 2,395,597 shares of its
Common Stock. In conjunction with the private placement, 230,240 ten year
warrants with an exercise price of $1.63 per share were issued.
At the present time, the Company cannot estimate when, or if, its operations
will generate positive cash flows from operations. The Company does not have
any credit facilities available with financial institutions or other third
parties if the Company cannot generate cash flow from operations, CDT will be
dependent upon external sources of best-efforts financing, of which there are no
firm commitments or arrangements. Based on the current operating plan,
management believes that the cash balance as of September 30, 2004 of $5.4
million along with the $750,000 raised in October 2004 (see subsequent events
section) will be sufficient to meet the cash needs into the second quarter of
2006. In the future, unless the operating revenues are sufficient to meet
operating expenses, the Company may need to access capital markets to fund
operations by incurring indebtedness or issuing equity securities. The Company
can provide no assurance that it will be successful in any future financing
effort to obtain the necessary working capital to support operations. If
Management is unable to obtain the necessary financing from external sources,
the Company may need to manage any cash shortfalls by taking measures which may
include deferring or reducing the scope of commercialization efforts, reducing
costs and overhead expenses, or otherwise curtailing operations, or obtaining
funds by a disposition of assets or through arrangements with others that may
require CDT to relinquish rights to certain of our technologies, or to license
the rights to such technologies on terms that are less favorable to than might
otherwise be available.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the opinion of management, with the exception of exposure to fluctuations in
the cost of platinum, the Company is not subject to any significant market risk
exposure.
- 11 -
The Company generally receives all income in United States dollars. The Company
typically makes several payments monthly in various foreign currencies for
patent expenses, product tests and registration, local marketing and promotion,
consultants and one employee.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures and internal controls
designed to ensure that information required to be disclosed in the Company's
filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. The Company's management, with the
participation of its principal executive and financial officers, has evaluated
the effectiveness of the Company's disclosure controls and procedures as of the
end of the period covered by this Quarterly Report on form 10Q. The Company's
principal executive and financial officers have concluded, based on such
evaluation, that such disclosure controls and procedures were effective for the
purpose for which they were designed as of the end of such period.
There was no change in the Company's internal control over financial reporting
that was identified in connection with such evaluation that occurred during the
period covered by this Quarterly Report on form 10Q that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
- 12 -
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
On August 26, 2004 the Company announced the appointment of Dr.
Bernhard Steiner as CEO and director and at the same time the
Retirement of CEO Jeremy Peter-Hoblyn who remains on the Board of
Directors.
On September 20, 2004 the Company reported a commitment to sell
and issue under the exemption from registration of Regulation S,
1 million shares of the company's common stock for 1.025 GBP
(approximately $1.82).
On October 5, 2004 the Company reported a commitment to sell and
issue under the exemption from registration of Regulation S,
426,500 shares of the company's common stock for 1.025 GBP
(approximately $1.82).
- 13 -
CLEAN DIESEL TECHNOLOGIES, INC.
SIGNATURES & CERTIFICATIONS
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.
Date: November 11, 2004 By: /s/ Bernhard Steiner
----------------------------
Bernhard Steiner
Director and
Chief Executive Officer
Date: November 11, 2004 By: /s/ David W. Whitwell
----------------------------
David W. Whitwell
Chief Financial Officer,
Vice President and Treasurer
- 14 -