<PAGE>
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, 1996
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
- - ------------------------ ----------------
(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 May 14, 1996, there were outstanding 2,500,000 shares of Common Stock, par
value $0.05 per share, of the registrant.
================================================================================
<PAGE>
CLEAN DIESEL TECHNOLOGIES, INC.
(A Development Stage Company)
Form 10-Q for the Quarter Ended March 31, 1996
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 1996 3
and December 31, 1995
Statements of Operations for the Three 4
Months Ended March 31, 1996 and 1995
and for the Period from January 1, 1992
through March 31, 1996
Statement of Cash Flows for the Three 5
Months Ended March 31, 1996 and 1995
and for the Period from January 1, 1992
through March 31, 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1 Financial Statements
CLEAN DIESEL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 8,414,000 $ 6,848,000
Stock subscription receivable -- 2,018,000
Other current assets 120,000 16,000
------------ ------------
Total current assets 8,534,000 8,882,000
Other assets 36,000 --
------------ ------------
Total assets $ 8,570,000 $ 8,882,000
============ ============
Liabilities and stockholders' equity Current liabilities:
Accounts payable and accrued expenses $ 364,000 $ 421,000
Due to Fuel-Tech N.V. 447,000 --
Demand loan payable to Fuel-Tech N.V. 745,000 66,000
------------ ------------
Total current liabilities 1,556,000 487,000
Loan payable to Fuel-Tech N.V. -- 745,000
Stockholders' equity:
Preferred stock, par value $.05 per share, authorized
100,000 shares, no shares issued and outstanding -- --
Common stock, par value $.05 per share, authorized
5 million shares, issued and outstanding
2,500,000 shares 125,000 125,000
Additional paid-in capital 11,125,000 11,125,000
Deficit accumulated during the development stage (4,236,000) (3,600,000)
------------ ------------
Total stockholders' equity 7,014,000 7,650,000
------------ ------------
Total liabilities and stockholders' equity $ 8,570,000 $ 8,882,000
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
CLEAN DIESEL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Ended January 1, 1992
March 31 through
1996 1995 March 31, 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Costs and expenses:
General and administrative $457,000 $187,000 $1,927,000
Research and development 224,000 82,000 1,809,000
Patent filing and maintenance 56,000 29,000 534,000
--------- --------- ----------
Loss from operations 737,000 298,000 4,270,000
Interest income, net (101,000) (3,000) (34,000)
--------- --------- ----------
Net loss during development stage $636,000 $295,000 $4,236,000
========= ========= ==========
Net loss per common share $ 0.25 $ 0.11 N/A
========= ========= ==========
Average number of common shares
outstanding 2,500,000 2,626,925 N/A
========= ========= ==========
</TABLE>
See notes to financial statements.
<PAGE>
CLEAN DIESEL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from
Three Months Ended January 1, 1992
March 31 through
1996 1995 March 31, 1996
------------ ---------- ---------------
<S> <C> <C> <C>
Operating Activities
Net loss $ (636,000) $(295,000) $ (4,236,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 2,000 -- 2,000
Changes in operating assets and liabilities:
Other current assets (104,000) -- (120,000)
Accounts payable and accrued expenses (57,000) (136,000) 364,000
Payment of security deposit (18,000) -- (18,000)
Demand loan payable to Fuel-Tech N.V. 381,000 -- 381,000
------------ ---------- -------------
Net cash used in operating activities (432,000) (431,000) (3,627,000)
------------ ---------- -------------
Financing activities
Proceeds from Rights Offering net
of $630,000 of brokerage commissions 2,018,000 -- 11,156,000
Expenses of Rights Offering -- -- (425,000)
Repayment of expenses of Rights Offering
paid by Fuel-Tech N.V. -- -- (200,000)
Issuance of common stock to parent -- -- 250,000
Net parent company investment -- -- 469,000
Proceeds of loan from Fuel-Tech N.V. -- 434,000 2,874,000
Repayment of loan to Fuel-Tech N.V. -- -- (2,063,000)
------------ ---------- -------------
Net cash provided from financing activities 2,018,000 434,000 12,061,000
------------ ---------- -------------
Investing activities
Purchase of fixed assets (20,000) -- (20,000)
------------ ---------- -------------
Net cash used in investing activity (20,000) -- (20,000)
Net increase in cash and cash equivalents 1,566,000 3,000 8,414,000
Cash and cash equivalents at beginning
of period 6,848,000 513,000 --
------------ ---------- -------------
Cash and cash equivalents at end of period $8,414,000 $ 516,000 $ 8,414,000
============ ========== =============
</TABLE>
See notes to financial statements.
<PAGE>
CLEAN DIESEL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(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, 1996, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1995.
Clean Diesel Technologies, Inc. ("CDTI" or 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"). Predecessor financial information
included in the accompanying financial statements for the period January 1, 1992
through January 18, 1994 reflects the Company's operations prior to
incorporation, at which time it was accounted for as part of Fuel Tech. As more
fully discussed in Note 2, effective December 12, 1995, Fuel Tech completed a
Rights Offering of the Company's common shares. Accordingly, at December 12,
1995, Fuel Tech held a 27.6% interest in the Company's common shares.
The Company is a development stage enterprise and its efforts from
January 1, 1992 through March 31, 1996 have been devoted to the research and
development of a platinum fuel catalyst ("PFC") for diesel engines, licensed to
the Company by Fuel Tech. There were no material activities related to the
Company's business prior to 1992.
The Company's PFC process will require additional research and
development testing in order to determine its commercial viability. The
Company's management believes that the Company has adequate capital to fund its
operations through December 31, 1997 and that additional financing will be
required in the future to commercialize its technologies.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
In 1995 and 1996 net loss per common share is based on the average
number of shares of common stock outstanding during each period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be antidilutive, except that, in accordance with
Securities and Exchange Commission requirements, common and common equivalent
shares issued during the 12-month period prior to the filing of a proposed
initial public offering and extending through December 12, 1995 (effective date
of the Rights Offering), have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method and the initial
public offering price of $6.50 per share.
<PAGE>
The demand loan payable to Fuel Tech of $745,000 bears interest at 8%
per annum. Fuel Tech has agreed, however, not to demand repayment of this loan
during 1996. Under the Management and Services Agreement with Fuel Tech, the
Company is to reimburse Fuel Tech for management, services and administrative
expenses it incurs on behalf of the Company, plus a management fee equal to 10%
of such charges. In the first quarter of 1996, $447,000 of such expenses were
incurred. The Company expects to pay Fuel Tech with respect to these charges in
May, 1996.
Note 2. Rights Offering of the Company's Common Shares
On December 12, 1995, Fuel Tech completed a Rights Offering to its
existing shareholders of 72.4% of the Company's common shares, retaining 27.6%
of the common shares outstanding. Approximately 1.8 million Company shares were
purchased in the offering, which raised net proceeds of approximately $10.5
million, all of which was contributed by Fuel Tech to the Company. In December
1995, after the offering was completed, the Company paid Fuel Tech approximately
$2.3 million, which represented the repayment of certain loans made to the
Company ($2.1 million), as well as certain expenses of the Rights Offering paid
by Fuel Tech ($200,000).
On December 26, 1995 the Company's common stock commenced trading on
the National Association of Securities Dealers Quotation System ("NASDAQ") under
the symbol CDTI.
Note 3. Subsequent Event
Pursuant to a financial consulting agreement with an investment banker,
the investment banker has the right to purchase warrants covering 50,000 of the
Company's common shares, with an exercise price of $6.50 per share. The warrants
expire on March 1, 2001.
<PAGE>
CLEAN DIESEL TECHNOLOGIES, INC.
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
General and administrative expenses increased to $457,000 in the first
quarter of 1996 from $187,000 in the first quarter of 1995. The increase was due
to expenses associated with the Company moving into its new corporate
headquarters, as well as increased management and administrative costs provided
by Fuel Tech pursuant to a management and services agreement. In the first
quarter of 1996, a greater portion of Fuel Tech management's time was spent on
the Company's business activities, which included research programs,
establishing relationships with potential marketing partners, and hiring staff.
Research and development expenses for the first quarter of 1996
increased to $224,000 from $82,000 in the first quarter of 1995. The increase
was primarily due to significant testing of the Company's PFC for emissions
reduction and fuel economy improvement on light duty diesel vehicles.
Patent filing and maintenance increased to $56,000 in the first quarter
1996, from $29,000 in the first quarter of 1995. The increase was primarily due
to the preparation and filing of new patent applications, both in the United
States and overseas.
Interest income, net, increased to $101,000 in the first quarter of
1996, from $3,000 the first quarter of 1995. The increase was due to interest
earned on higher cash balances resulting from the proceeds of the Rights
Offering.
Liquidity and Sources of Capital
The Company is a development stage company and has incurred losses
since inception aggregating $4,236,000 at March 31, 1996. The Company expects to
incur losses through the foreseeable future as it further pursues its research
and development efforts. In December 1995 the Company raised approximately $10.5
million, net of offering expenses and broker dealer commissions of approximately
$1.3 million, through a Rights Offering of its shares by Fuel Tech.
Approximately $2 million of this amount was received in January, 1996.
Total cash and cash equivalents were $8.4 million and $6.8 million at
March 31, 1996 and December 31, 1995 respectively. The increase in cash was
principally due to the receipt of approximately $2.0 million of proceeds from
the Rights Offering in the first quarter of 1996, partially offset by cash used
to fund the Company's first quarter loss. Working capital at March 31, 1996 was
approximately $7.0 million, a decrease of approximately $1.4 million from
December 31, 1995. The decrease was the result of working capital used to fund
the Company's operations in the first quarter of 1996 and the current
classification of a $0.7 million loan payable to Fuel-Tech N.V. previously
classified as long-term.
During the remainder of 1996, the Company expects to hire technical,
marketing and administrative employees, and as of February 1, 1996, leased space
for its corporate offices. Additionally, the Company has budgeted increased
spending in 1996 and 1997 on research and development programs over 1995. Some
of these programs are expected to be jointly funded by other companies. The
Company believes that it has sufficient cash balances to fund its requirements
through 1997. The Company will require additional financing in the future, and
expects to meet its future cash needs through private placements, a public
offering, technology licenses, and/or the establishment of a credit facility
with a financing institution. However, there is no guarantee that the Company
will be able to raise such capital on terms satisfactory to the Company.
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Election of Directors
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
a. Exhibits
Exhibit 27, Financial Data Schedule to this Form 10-Q
b. Reports on Form 8-K
None
<PAGE>
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: May 15, 1996 By: /s/James M. Valentine
-------------------------- -----------------------------
James M. Valentine
Executive Vice President and
Chief Operating Officer
Date: May 15, 1996 By: /s/Scott M. Schecter
-------------------------- -----------------------------
Scott M. Schecter
Vice President Finance
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 8,414,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,534,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,570,000
<CURRENT-LIABILITIES> 1,556,000
<BONDS> 0
0
0
<COMMON> 125,000
<OTHER-SE> 6,889,000
<TOTAL-LIABILITY-AND-EQUITY> 8,570,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 737,000
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (636,000)
<INCOME-TAX> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (636,000)
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0
</TABLE>
