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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 March 31, 2005
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
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CLEAN DIESEL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1393453
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(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 May 12, 2005, there were outstanding 17,165,868 shares of Common Stock,
par value $0.05 per share, of the registrant.
================================================================================
CLEAN DIESEL TECHNOLOGIES, INC.
Form 10-Q for the Quarter Ended March 31, 2005
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Balance Sheets as of March 31, 2005 (Unaudited), 3
and December 31, 2004
Statements of Operations for the Three Months 4
Ended March 31, 2005 and 2004 (Unaudited)
Statements of Cash Flows for the Three Months 5
Ended March 31, 2005 and 2004 (Unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES & CERTIFICATIONS 15
-2-
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
CLEAN DIESEL TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
MARCH 31, December 31,
----------------------------------
2005 2004
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,996 $ 4,265
Accounts receivable, net of allowance of $14 and $12 in
2005 and 2004, respectively 156 145
Inventories 295 387
Other current assets 125 71
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TOTAL CURRENT ASSETS 3,572 4,868
Patents, net 496 418
Fixed assets, net of accumulated depreciation of $218 in
2005 and $188 in 2004, respectively 220 200
Other assets 27 27
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TOTAL ASSETS $ 4,315 $ 5,513
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 384 391
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TOTAL CURRENT LIABILITIES 384 391
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.05 per share,
100,000 shares authorized, no shares issued
and outstanding -- --
Common Stock, par value $0.05 per share, authorized
30,000,000 shares, issued and outstanding
17,165,868 shares 858 858
Additional paid-in capital 38,431 38,431
Accumulated deficit (35,358) (34,167)
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TOTAL STOCKHOLDERS' EQUITY 3,931 5,122
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,315 $ 5,513
================ ================
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
March 31,
2005 2004
-------------------- -------------------
REVENUE:
Additive revenue $ 95 $ 57
Hardware revenue 92 119
License and royalty revenue 5 18
-------------------- -------------------
Total revenue 192 194
COSTS AND EXPENSES:
Cost of revenue 110 132
General and administrative 1,165 790
Research and development 59 80
Patent amortization and other expense 39 12
-------------------- -------------------
Loss from operations (1,181) (820)
Other income (expense):
Foreign currency exchange gain/(loss) (19) --
Interest income 9 12
-------------------- -------------------
Net loss attributable to common stockholders $ (1,191) $ (808)
==================== ===================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.07) $ (0.05)
==================== ===================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 17,166 15,679
==================== ===================
See notes to condensed financial statements.
-4-
CLEAN DIESEL TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
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OPERATING ACTIVITIES
Net loss $ (1,191) $ (808)
Adjustments to reconcile net loss to cash used in
operating activities:
Bad debt 2 --
Depreciation and amortization 42 24
Changes in operating assets and liabilities:
Accounts receivable (13) (45)
Inventories 92 47
Other current assets (54) (68)
Accounts payable and accrued expenses (7) (75)
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Net cash used in operating activities (1,129) (925)
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INVESTING ACTIVITIES
Patent costs (90) (4)
Purchase of fixed assets (50) (30)
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Net cash used in investing activities (140) (34)
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FINANCING ACTIVITIES -- 3
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Proceeds from broker fee credit (2003 fundraising) -- 3
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Net cash provided by financing activities
NET (DECREASE)INCREASEIN CASH AND CASH EQUIVALENTS (1,269) (956)
----------- -----------
Cash and cash equivalents at beginning of period 4,265 6,515
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,996 $ 5,559
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See notes to condensed financial statements.
-5-
CLEAN DIESEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(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 three-month period ended
March 31, 2005, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005.The balance sheet at December 31,
2004 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, 2004.
Clean Diesel Technologies, Inc. (the "Company" or "CDT") 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 a 10.6% interest in the Company as of March
31, 2005.
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 and is approved
under the VERT-VSET procedure. 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
FOREIGN CURRENCY
The US dollar is considered the functional currency for CDT.CDT maintains a UK
bank account for its UK representative office. Foreign currency translation
gains or losses are recognized in the period incurred, which is included in
other income (expense) in the accompanying statements of operations. CDT
recorded a foreign currency loss of $19,000 on its UK bank holdings as of March
31, 2005.
INVENTORIES
Inventories are stated at the lower of cost or market and consist of the
following:
MARCH 31, December 31,
(in thousands) 2005 2004
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Finished Platinum Plus FBC $ 106 $ 142
Platinum concentrate/metal 133 150
Hardware (ARIS and Purifier) 25 77
Other 31 18
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Total inventory $ 295 $ 387
REVENUE RECOGNITION
-6-
Clean Diesel Technologies generates revenue from the sale of additives including
the Platinum Plus FBC products and concentrate; hardware including the EPA
verified Purifier System, ARIS injectors and dosing systems; and license and
royalty fees from the ARIS 2000 System. CDT sells to end-user fleets,
municipalities and construction companies, as well as fuel resellers, additive
distribution companies and emission reduction companies.
CDT shipping terms are FOB shipping point and revenue is recognized when its
products are shipped and collections are reasonably assured unless the purchase
order or contract specifically requires CDT to provide installation of hardware.
For hardware projects where CDT is responsible for installation either directly
or indirectly (third-party contractor), revenue is recognized when the hardware
is installed and/or accepted if the project requires inspection/acceptance.
License revenue is recognized when the license agreement is entered into, the
license period commences, the technology rights, information and know-how have
been transferred to the licensee and CDT does not have any ongoing
responsibilities or performance requirements and collection is reasonably
assured. Royalty income is recognized when earned.
During the third quarter of 2004, the RJM Corporation ceased operations and
consequently their ARIS stationary license for the North American market
reverted back to CDT and thus CDT will not receive any future royalties from
RJM.CDT had previously received and recognized $1.1 million in license revenue
from RJM in 2000 and 2001 for the exclusive ARIS stationary license in the North
American market.
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 for the remaining life of
the patents, through 2018.Under terms of the agreement, CCA agreed to pay CDT a
$150,000 non-refundable license fee and the licensee committed to spend an
additional $100,000 in developing, testing and demonstrating ARIS mobile
prototypes. CDT also receives ongoing royalty payments on a per unit basis. CDT
recognized the $150,000 license revenue in the second quarter of 2003, as there
are no significant ongoing services required to be performed by CDT.
In September 2004, CCA was granted a limited two-year non-exclusive ARIS
stationary license for the US market. The license fee of $150,000 is due by the
end of a two-year trial period. Similar to the other ARIS license agreements for
stationary applications, a per unit royalty of approximately $1,500 (based on
percentage of sales price) is due for each ARIS system sold. CDT did not
recognize any revenue from this license in 2004.
In August 2001, Clean Diesel Technologies completed an exclusive license
agreement with Mitsui Ltd for CDT's ARIS 2000 NOx control system for all
stationary diesel power generators in Japan for the remaining life of the
patents, through 2018.Under the agreement, CDT received a nonrefundable up-front
license payment of $495,000, and will receive ongoing standard royalties of
between $1,500 and $2,500 on each system sold by Mitsui. CDT recognized the
license payment as revenue in 2001, as there are no significant ongoing services
to be performed by CDT.
In December 2002, Clean Diesel Technologies completed an additional exclusive
license agreement with Mitsui for the mobile ARIS technology for Japan for the
remaining life of the patents, through 2018. 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 are no significant ongoing services to be performed by CDT.
GEOGRAPHIC INFORMATION
CDT sells its Platinum Plus additives and licenses its ARIS systems throughout
the world. A geographic breakdown of revenue consists of the following:
First Quarter
(in thousands) 2005 2004
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REVENUE:
US $ 180 $ 67
UK/Europe 12 0
Asia 0 127
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Total Revenue $ 192 $ 194
Foreign assets held by Clean Diesel Technologies consist of capitalized foreign
patents net of accumulated amortization and are as follows:
-7-
MARCH 31, December 31,
(in thousands) 2005 2004
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US patents, net $ 106 $ 79
Foreign patents, net 390 339
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Total patents, net $ 496 $ 418
PATENT EXPENSE
CDT capitalizes all direct incremental costs associated with initial patent
filing costs and amortizes the cost over the estimated remaining life of such
patent. Patents are reviewed regularly and the remaining carrying value of any
patents deemed not commercial or cost effective are written off. The expiration
dates of CDT's patents, in numerous countries throughout the world, range from
2005 to 2022.
RESEARCH AND DEVELOPMENT COSTS
Costs relating to the research, development and testing of products are charged
to operations as they are incurred. These costs include test programs, salary
and benefits, consultancy fees, materials and certain testing equipment.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense is summarized as the following:
First Quarter
(in thousands) 2005 2004
------ --------
Compensation and benefits $ 763 $ 534
Occupancy 112 82
Professional 182 104
Other 108 70
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Total general and administrative expense $1,165 $ 790
STOCK-BASED COMPENSATION
Clean Diesel Technologies accounts for employee/director stock option grants in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees" and its related interpretations. 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.
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 as follows on a pro forma basis:
First Quarter
2005 2004
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Net loss attributable to common stockholders as reported $(1,191) $ (808)
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards,
net of related tax effects (537) (203)
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Pro forma net loss attributable to common stockholders $(1,728) $ (1,011)
Net loss per share attributable to common stockholders:
Basic and diluted net loss per common share-as reported $ (0.07) $ (0.05)
Basic and diluted per common share-pro forma $ (0.10) $ (0.06)
In March 2005, the Board of Directors elected to vest all employees outstanding,
unvested 2003 option grants and up to 25,000 unvested 2004 option grants. Since
the market price at the time of the vesting was below the option grant price no
additional expense was recognized on the Company's statement of operations. The
remaining compensation value for the 363,000 of accelerated unvested option
grants was $498,000 and is included in the pro formatable above. The 363,000 of
accelerated option grants represent less than 14 percent of the 2.7 million
option grants outstanding and 81% of the accelerated option grants would have
vested in 2005.
-8-
The CDT Board's decision to accelerate the vesting of these option grants was in
response to the issuance by the FASB of SFAS No. 123R, "share based payment." As
a result of this measure, CDT will not be required to recognize any compensation
expense in the current year or future periods associated with these option
grants.
In accordance with the provisions of SFAS No. 123, for purposes of the pro forma
disclosure the estimated fair value of the options are amortized over the option
vesting period. The application of the pro forma disclosures presented above is
not representative of the effects SFAS No. 123 may have on operating results and
earnings (loss) per share in future years due to the timing of stock option
grants and considering that options vest over a period of two years (one third
at grant, and one-third on the first and second anniversary respectively).
BASIC AND DILUTED LOSS PER COMMON SHARE
Basic and diluted loss per share is calculated in accordance with SFAS No. 128,
"Earnings Per Share." Basic loss per share is computed by dividing net loss by
the weighted-average shares outstanding during the reporting period. Diluted
loss per share is computed similar to basic earnings per share, except that the
weighted-average shares outstanding are increased to include additional shares
from the assumed exercise of stock options and warrants, if dilutive using the
treasury stock method. CDT's computation of diluted net loss per share does not
include common share equivalents associated with 2,713,000 and 2,234,000
options, respectively, and 532,000 and 532,000 warrants, respectively for the
2005 and 2004 periods, as the result would be anti-dilutive.
STOCKHOLDERS' EQUITY
Pursuant to a Regulation S exemption with respect to an offshore placement,
Clean Diesel Technologies sold, effective October 8, 2004, 426,500 shares of its
common stock. The price of the common stock was 1.025 sterling (GBP) per share
(approximately $1.82 per share).As part of the transaction, retired CEO Jeremy
Peter-Hoblyn exchanged his deferred salary of $135,400 for 73,587 shares of CDT
common stock. The proceeds of the common stock issuance, was $754,000 (net of
$25,000 in expenses).
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 $1.789 million (net of $65,000 in expenses).
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 for the quarter).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.
NOTE 4: COMMITMENTS
Clean Diesel Technologies leases 3,925 square feet of administrative office
space at 300 Atlantic Street, Stamford, Connecticut. The five year lease through
March 2009 has an annual cost of approximately $123,000, 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, Connecticut. 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 pays 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 $4.4 million in 2005
and declining annually to $3.3 million in 2006, $2.2 million in 2007 and $1.1
million in 2008. The Company as assignee and owner is responsible for
maintaining the
-9-
technology at its own expense. A royalty of $7,450 was paid to Fuel Tech for
2004 and the royalty payable to Fuel Tech at March 31, 2005 and 2004 is $2,404
and $1,418, respectively.
NOTE 5: CONCENTRATION
For the quarter ended March 31, 2005, three customers accounted for 50% of the
Company's revenue. For the comparable quarter in 2004, a different single
customer accounted for65% of the Company's revenue.
-10-
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, 2004.
RESULTS OF OPERATIONS
2005 VERSUS 2004
Revenues and cost of revenue in the first quarter of 2005 were $192,000 and
$110,000, respectively, versus $194,000 and $132,000, respectively. Revenues
consist of the following:
First Quarter
(in thousands) 2005 2004
------ --------
REVENUE:
Additive $ 95 $ 57
Hardware 92 119
License & royalty 5 18
------ --------
Total revenue $ 192 $ 194
In the foregoing table "Additive" includes the Platinum Plus FBC products
and concentrate; "Hardware" includes the EPA verified Purifier System, ARIS
injectors and dosing systems.
CDT received EPA verification of its Purifier System (FBC and DOC) in
October 2003, and a second verification for its catalyzed wire mesh filter
system (FBC and CWMF) in June 2004.Clean Diesel Technologies has applied for
verification for emission reduction by CARB for the CWMF/FBC system as well. The
Platinum Plus FBC is registered with the EPA.
Additive revenue has increased as a result of successful demonstration
programs and sales of the verified Purifier System which requires the use of the
Platinum Plus FBC. The slight decrease in hardware sales is primarily the result
of the timing of ARIS injector sales mostly offset by higher Purifier sales.
Clean Diesel Technologies identified a market opportunity for its urea
selective catalytic reduction (SCR) system, The ARIS 2000, to reduce NOx in
stationary power generation diesel engines. The ARIS 2000 NOx reduction system
is a single-fluid injection and metering system complete with an electronic
control unit that can be integrated with engine electronic and diagnostic
systems. CDT's business strategy is to license the ARIS 2000 NOx reduction
system to other companies for an up-front fee for the technology and information
transfer and a separate on-going royalty per unit payment. CDT currently has an
exclusive license agreement for both stationary and mobile ARIS applications
with Mitsui Ltd for Japan. CDT has a non-exclusive license for both stationary
and mobile ARIS applications in the United States with Combustion Components
Associates of Monroe Connecticut. CDT previously had an ARIS stationary license
agreement for North America with the RJM Corporation of Norwalk Connecticut, but
as of August 2004 RJM was out of business and the ARIS license reverted back to
CDT.CDT believes that the ARIS 2000 system can most effectively be
commercialized through licensing several companies with a related business in
these markets. Clean Diesel Technologies is actively seeking additional ARIS
licensees for both mobile and stationary applications in the US, Europe and
Asia.
-11-
General and administrative expenses increased to $1,165,000 in 2005 from
$790,000 in 2004 as summarized in the following table:
First Quarter
(in thousands) 2005 2004
------ --------
Compensation and benefits $ 763 $ 534
Occupancy 112 82
Professional 182 104
Other 108 70
------ --------
Total general and administrative expenses $1,165 $ 790
Compensation and benefit expense increased as of the result of several
staff additions in the second half of 2004 in the US and in Europe in 2005
related to increased sales and marketing efforts and a new CEO. Occupancy
increased in 2005 as a result of the establishment of a UK representative
office. Professional fees also increased primarily due to the creation of a
technical advisory board, additional UK advisors and Sarbanes Oxley 404
compliance work.
Research and development expenses decreased to $59,000 in 2005 from $80,000
in 2004. The decrease in research and development in 2005 is due to the timing
of expenses and projects from year to year.
Patent amortization and other costs increased to $39,000 in 2005 versus
$12,000 in 2004.The 2005 increase is related to higher amortization related to
prior period capitalization and non-capitalizable patent expenses.
Interest income decreased to $9,000 in 2005 from $12,000 in 2004due to the
higher amount of invested funds in the first quarter of 2004 related to the
November 2003 fund-raising.
LIQUIDITY AND SOURCES OF CAPITAL
Prior to 2000, the Company was primarily engaged in research and development and
has incurred losses since inception aggregating $30,606,000 (excluding the
effect of the non-cash preferred stock dividends on preferred shares prior to
conversion to common).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 three months ended March 31, 2005 and 2004, the Company used cash of
$1,129,000 and $925,000 respectively, in operating activities.
At March 31, 2005 and December 31, 2004, the Company had cash and cash
equivalents of $2,996,000 and $4,265,000, respectively. The decrease in cash and
cash equivalents in 2005 was the result of limited revenues and on-going
operating costs. The Company anticipates incurring additional losses through at
least 2005 as it further pursues its commercialization efforts.
In October 2004, Clean Diesel Technologies received $754,000 (net of $25,000 in
expenses) through a private placement of 426,500 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 September 2004, Clean Diesel Technologies received $1.789 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).
-12-
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 March 31, 2005 of $2.996 million will be
sufficient to meet the cash needs into the first quarter of 2006.In the future,
unless 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 or if such financing is available, it will be on
acceptable terms. 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
its technologies, or to license the rights to such technologies on terms that
are less favorable to CDT 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.
The Company generally receives most 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 employees.
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.
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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
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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: May 16, 2005 By: /s/Bernhard Steiner
--------------------
Bernhard Steiner
Director and
Chief Executive Officer
Date: May 16, 2005 By: /s/David W. Whitwell
----------------------
David W. Whitwell
Chief Financial Officer,
Vice President and Treasurer
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