10-Q 1 0001.txt 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-