-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SOxrlPMbgS6EgeA5zJO6DvJfps3zLgXn11TrYJCTP1PVsjfTP6pVa0343vlFNsOo mX+R0X6Uc5rxWKf1iq5dog== 0001015402-01-502109.txt : 20010813 0001015402-01-502109.hdr.sgml : 20010813 ACCESSION NUMBER: 0001015402-01-502109 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLEAN DIESEL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000949428 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INORGANIC CHEMICALS [2810] IRS NUMBER: 061393453 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27432 FILM NUMBER: 1703551 BUSINESS ADDRESS: STREET 1: 300 ATLANTIC ST STREET 2: STE 702 CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2033277050 MAIL ADDRESS: STREET 1: 300 ATLANTIC ST STREET 2: STE 702 CITY: STAMFORD STATE: CT ZIP: 06901 10-Q 1 doc1.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 June 30, 2001 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 August 7, 2001, there were outstanding 2,698,787 shares of Common Stock, par value $0.05 per share, of the registrant. ================================================================================ CLEAN DIESEL TECHNOLOGIES, INC. Form 10-Q for the Quarter Ended June 30, 2001 INDEX Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Balance Sheets as of June 30, 2001, 3 and December 31, 2000 Statements of Operations for the Three and Six 4 Months Ended June 30, 2001 and 2000 Statements of Cash Flows for the Three and Six 5 Months Ended June 30, 2001 and 2000 Note to Financial Statements 6 Item 2. Management's Discussion and Analysis of 11 Financial Condition and Results of Operations 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 15 - 2 -
PART I. FINANCIAL INFORMATION Item 1. Financial Statements CLEAN DIESEL TECHNOLOGIES, INC. BALANCE SHEETS (in thousands except share data) June 30, December 31, 2001 2000 -------------- -------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 457 $ 541 Accounts receivable 419 50 Inventories 224 287 Other current assets 68 87 -------------- -------------- Total current assets 1,168 965 Other assets 116 92 -------------- -------------- Total assets $ 1,284 $ 1,057 ============== ============== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses 298 400 Notes payable $ 1,000 $ 500 -------------- -------------- Total current liabilities 1,298 900 Deferred compensation and pension benefits 343 308 -------------- -------------- Total long term liabilities 1,641 1,208 Stockholders' deficit: Preferred stock, par value $.05 per share, authorized 80,000 shares, no shares issued and outstanding -- -- Series A Convertible Preferred Stock, par value $.05 per share, $500 per share liquidation preference, authorized 20,000 shares, issued and outstanding 14,623 and 13,218 respectively, involuntary liquidation value (including unissued dividend shares of 804 and 1,424) $7,713,500 and $7,321,000 1 1 Common Stock, par value $0.05 per share, authorized 15,000,000 shares, issued and outstanding 2,698,787 shares 135 133 Additional paid-in capital 21,360 20,849 Accumulated Deficit (21,853) (21,134) -------------- -------------- Total Stockholders' Deficit (357) (151) -------------- -------------- Total Liabilities and Stockholders' Deficit $ 1,284 $ 1,057 ============== ==============
See note to financial statements. - 3 -
CLEAN DIESEL TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (Unaudited) (in thousands except per share data) Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenue: Product revenue $ 75 $ 40 $ 88 $ 86 License and royalty revenue 844 19 855 279 ---------- ---------- ---------- ---------- Total revenue 919 59 943 365 Costs and expenses: Cost of sales 51 25 58 47 General and administrative 450 489 885 918 Research and development 91 167 176 306 Patent filing and maintenance 53 52 100 76 ---------- ---------- ---------- ---------- Gain/(loss) from operations 274 (674 (276) (982) Interest income 3 13 6 23 Interest expense (26) -- (37) 1 ---------- ---------- ---------- ---------- Net profit/(loss) before preferred stock dividend 251 (661) (307) (960) Preferred stock dividend (non-cash) (207) (168) (409) (331) ---------- ---------- ---------- ---------- Net income/(loss) attributed to common stockholders $ 44 $ (829) $ (716) $ (1,291) ========== ========== ========== ========== Basic gain/(loss) per common share $ 0.02 $ (0.32) $ (0.27) $ (0.49) ========== ========== ========== ========== Diluted gain/(loss) per common share $ 0.01 $ N/A $ N/A $ N/A ========== ========== ========== ========== Weighted average number of common shares outstanding - basic 2,693 2,627 2,680 2,609 ========== ========== ========== ========== Weighted average number of common shares outstanding - diluted 8,235 N/A N/A N/A ========== ========== ========== ==========
See note to financial statements. - 4 -
CLEAN DIESEL TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30 2001 2000 ----------- ------------ OPERATING ACTIVITIES Net Loss before preferred stock dividend $ (307) $ (960) Adjustments to reconcile net loss to cash used in operating activities: Depreciation 5 5 Amortization of deferred financing expense 35 -- Changes in operating assets and liabilities: Accounts receivable (371) 13 Inventories 62 9 Other current assets 21 17 Unrecognized license revenue -- 141 Accounts payable and accrued expenses (30) (18) ----------- ------------ Net cash used in operating activities $ (585) $ (793) ----------- ------------ FINANCING ACTIVITIES Proceeds from exercise of stock options Preferred stocks -- 1,022 Common stocks 3 5 Proceeds from term loan 500 -- ----------- ------------ Net cash provided by financing activities 503 1,027 ----------- ------------ INVESTING ACTIVITIES Purchase of fixed assets (2) (3) ----------- ------------ Net cash used in investing activities (2) (3) ----------- ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (84) 231 ----------- ------------ Cash and cash equivalents at beginning of period 541 892 ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 457 $ 1,123 =========== ============ NON-CASH ACTIVITIES Preferred dividend $ 409 $ 331
See note to financial statements. - 5 - CLEAN DIESEL TECHNOLOGIES, INC. NOTE TO FINANCIAL STATEMENTS JUNE 30, 2001 (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 six-month period ended June 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. 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 that reduced its ownership in the Company to 27.6%. Fuel Tech currently holds a 21.4% interest in the Company on a fully converted basis. 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 was 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. Prior to 2000, the Company was primarily engaged in research and development and has incurred losses since inception totaling $19,145,000 (excluding non-cash preferred stock dividends). The Company expects to incur losses through the foreseeable future as it further pursues its commercialization efforts and thus is unable to generate a positive cash flow. The Company will require additional capital in the future in order to fund its operations. The Company's current cash position, including the $825,000 of ARIS license revenue recognized in the second quarter and the $495,000 Mitsui license revenue(see subsequent events), will fund operations through December 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 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 June 30, 2001, 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 The Company recognizes revenue from sales of Platinum Plus fuel borne catalyst and ARIS 2000 systems upon shipment. - 6 - In February 2000, the Company completed a license agreement with the RJM Corporation for CDT's ARIS 2000 NOx control system for all stationary, marine and locomotive applications in North, Central, and South America. The Company received a $260,000 license payment in return for transferring the ARIS 2000 technology to the RJM Corporation. The company also received $100,000 from the RJM Corporation for the remaining ARIS 2000 inventory. The license payment is non-refundable and requires no ongoing services to be performed by CDT. In April 2001, the Company amended its February 2000 ARIS Stationary NOx Reduction License agreement with the RJM Corporation. The previous terms of the RJM ARIS license agreement provided the Company the opportunity to earn up to a total of $1,040,000 in additional ARIS license revenue on the first, second and third anniversary of the license agreement if RJM's sales exceeded certain levels. No additional license revenue was earned or paid on the first anniversary in February 2001. Under the amended terms of the RJM ARIS license agreement, the Company received $412,500 on June 1, 2001 and will receive another $412,500 payment on September 1, 2001 in lieu of potentially receiving $1,040,000 on the second or third anniversary. The Company has recognized both $412,500 payments as revenue in the second quarter of 2001. NOTES PAYABLE In November 2000 the Company arranged a $1,000,000 term loan with three private lenders. The term loan has a 10% interest rate, is payable in full on May 14, 2002 and can be drawn down in increments of $200,000. The Company drew down $500,000 in November 2000 and the remaining $500,000 in March of 2001. The $1,000,000 term loan is classified as short term on the Company's balance sheet at June 30, 2001. SERIES A PREFERRED STOCK During the year ended December 31, 2000 the Company received proceeds of $1.021 million through private placements of 1,362 shares of its Series A Preferred Stock. During the second quarter of 2001, $203,500 (407 shares) of preferred stock dividends were declared, but unissued. In May 2001 the company issued 1,405 of preferred stock shares for the previously declared 2000 preferred dividends. At June 30, 2001, the Company had 14,623 shares of Series A Preferred Stock issued and outstanding and an additional 804 of preferred stock shares issueable for the 2001 preferred stock dividends declared. As of June 30, 2001 there were earned but undeclared dividends of approximately $215,000 (430 shares). 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 funds of the Company legally available therefore. Cash dividends and dividends in kind are each deemed "Preferred Stock Dividends". Preferred Stock Dividends are payable quarterly in arrears. In order to conserve cash, the Company's Board of Directors has 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 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. - 7 - 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 June 30, 2001, the Company would have approximately 7.84 million shares of Common Stock outstanding, of which Fuel Tech would own approximately 1.675 million shares, or a 21.4% 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 The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Six Months Ended June 30 June 30 2001 2000 2001 2000 - ----------------------------------------- ------- ------- ------- -------- Numerator: Income profit before preferred stock Dividend 251 (661) (307) (960) Preferred stock dividend (non-cash) (207) (168) (409) (331) ------- ------- ------- -------- Net income (loss) attributable to common Stockholder* 44 (829) (716) (1,291) Denominator: Denominator for basic earnings per share (weighted-average shares) 2,693 2,627 2,680 2,609 Effect of dilutive securities: Convertible Preferred Stock 5,074 - - - Employee stock options & stock Purchase warrants 468 - - - Denominator for diluted earnings per share (adjusted weighted-average ------- ------- ------- -------- shares and assumed conversions) 8,235 N/A N/A N/A ======= ======= ======= ======== Basic earnings (loss) per share $ 0.02 $(0.32) $(0.27) $ (0.49) ======= ======= ======= ======== Diluted earnings (loss) per share $ .01 $ N/A $ N/A $ N/A ======= ======= ======= ========
* Income and Net income available to common shareowners is the same for purposes of calculating basic and diluted earnings per share. - 8 - Employee stock options and stock purchase warrants were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive for the period. Diluted earnings per share is not presented for prior periods because the Company reported a loss for the period or their exercise prices were greater than the average market price of the common stock and therefore would be antidilutive. RELATED PARTY TRANSACTIONS The Company has a Management and Services Agreement with Fuel Tech. Under the agreement, the Company pays 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 in both the second quarter of 2001 and 2000, 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 $8,727,273 in 2001 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 June 30, 2001. MARKETING AND LICENSE AGREEMENTS In March 2001, the Company licensed the Lubrizol Corporation to distribute and blend the Company's patented Platinum Plus fuel borne catalyst in Europe for use with particulate filters. The seven-year exclusive agreement includes minimum annual sales performance requirements. In June 2001 the company announced a non-exclusive distribution license agreement with Baker Petrolite, a division of Baker Hughes. Baker Petrolite will distribute CDT's patented Platinum Plus diesel fuel combustion catalyst to refineries and fuel terminals in the U.S. and Canada. SUBSEQUENT EVENTS On July 13, 2001, the Company finalized an agreement with Mitsui & Co. Ltd. to exclusively license the Company's patented ARIS NOx reduction technology, exclusively in Japan for stationary applications. To date the Company has received $305,000 in license payments from Mitsui related to this agreement, and will receive an additional $190,000 in October 2001. In addition, the Company will receive an ongoing unit royalty on each system Mitsui sells. - 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 Form 10-K for the year ended December 31, 2000. RESULTS OF OPERATIONS Prior to 2000, 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 December 1999, the Company received its US EPA registration for its platinum-cerium fuel catalyst product and completed its first commercial sales. Product sales and cost of sales were $75,000 and $51,000 respectively for the second quarter of 2001 versus $40,000 and $25,000 for 2000. $72,000 and $40,000 of Platinum Plus fuel catalyst sales were recorded in the second quarter of 2001 and 2000 respectively. Commercial sales of Platinum Plus fuel catalyst began in 2000 and the Company is in the process of completing distribution agreements with several companies. Year-to-date sales and cost of sales were $88,000 and $58,000 in 2001 versus $86,000 and $47,000 in 2000. Included in the 2001 revenue is $855,000 of royalty and license income from the RJM Corporation for the ARIS 2000 NOx reduction technology. CDT will earn a royalty on all future RJM sales of the ARIS. CDT recognized $825,000 of license revenue from RJM for the amended April 2001 ARIS license agreement between CDT and RJM. General and administrative expenses decreased $39,000 to $450,000 in the second quarter 2001 versus $489,000 in the same period of 2000. General and administrative expenses have decreased $33,000 to $885,000 in the first six months of 2001 versus $918,000 in the comparable period in 2000. The decrease in the second quarter and six months to date is related to the timing of marketing programs and lower professional/administrative fees. Research and development expenses decreased $76,000 to $91,000 in 2001 versus $167,000 in the comparable period in 2000. For the year, research and development expenses have declined $130,000 to $176,000 versus $306,000 in the comparable 2000 period. The decrease is attributable to the continued shift from research and development to commercialization that occurred in 2000. In addition two engineers transferred from CDT to RJM as part of the ARIS 2000 license agreement in early 2000. Patent filing expense increased $1,000 to $53,000 in 2001 versus $52,000 in the comparable 2000 period. For the year, patent expense has increased $24,000 to $100,000 versus $76,000 in the 2000 comparable period. The increase is due to the filing of several new patents and maintenance fees resulting from recently filed patents. - 10 - Interest income decreased $10,000 in 2001 to $3,000 from $13,000 in the comparable period in 2000. For the year, interest income has decreased to $6,000 versus the 2000 comparable interest income of $23,000. This was a result of a decrease in the amount of cash and cash equivalents on hand in the second quarter of 2001. 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 $19,145,000 (excluding the effect of non-cash preferred stock dividends). 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 and 2000 quarterly dividends, if converted, along with its Common Stock ownership would give Fuel Tech an approximate 21.6% interest in the Company on a fully converted basis at December 31, 2000. In August/September 1999, the Company received gross proceeds of $1.75 million, excluding expenses of $29,000, from private investors for the issuance of an additional 3,500 shares of Preferred Stock. In April 2000, the Company completed a $1.021 million private placement offering of 1,362 Preferred shares, excluding $13,833 of expenses. Therefore, the Company had 13,218 shares of Preferred Stock issued and outstanding at December 31, 2000. and issued 1,405 of preferred shares in May 2001 for the 2000 quarterly dividends declared in 2000. The Company had an additional 804 shares of Preferred Stock issuable upon demand for the 2001 dividends declared. At June 30, 2001, the Company had a total of 15,427 issuable shares of Preferred Stock, which are convertible into approximately 5.1 million shares of the Company's Common Stock, ($0.05 par convertible at a rate of 1:333.33). 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 - 11 - 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 $1,040,000 in license revenue over the next three 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 April 2001, the Company amended the February 2000 ARIS Stationary NOx Reduction License agreement with the RJM Corporation. Under the amended terms of the RJM ARIS license agreement, the Company will receive $825,000 in ARIS license revenue, payable in two equal $412,500 payments on June 1, 2001 and September 1, 2001 in lieu of potentially receiving $1,040,000 on the second or third anniversary. 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 CDT. The Company recognized sales revenues for these products when they shipped and the license revenue was prorated over the six-month license period. 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 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 PFC's, commencing in 1998. The royalty obligation expires in 2008. The Company may terminate the royalty obligation to Fuel Tech by payment of $8,727,273 in 2001 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 six months ended June 30, 2001 and 2000, the Company used cash of $585,000 and $793,000 respectively, in operating activities. At June 30, 2001, and December 31, 2000, the Company had cash and cash equivalents of $457,000 and $541,000, respectively. The decrease in cash and cash equivalents in 2001 was the result of the Company's use of its resources to fund operations. The Company anticipates incurring additional losses through at least 2001 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 June 30, 2001 and the remaining $412,500 RJM ARIS license payment and the $495,000 license revenue from Mitsui will be sufficient to fund the Company's operations through December 2001. The Company will require additional capital to fund its working capital needs in 2001 and 2002. 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 on terms that will be satisfactory to the Company. The Company has developed contingency plans in the event future financing efforts are not successful. Such plans include reducing expenses and selling or licensing some of the Company's technologies. Accordingly, at June 30, 2001, 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. - 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 At the Annual Meeting of the Stockholders of the Company held on June 12, 2001a total of 5,012,086, or 66.3%, of the votes were represented in person or by proxy. Both of the Company's Common and Series A Convertible Preferred Stock are included in such total, with each share of Preferred voting 333.33 shares. A total of 5,003,725 shares were cast for and 8,361 shares against the election of the nominees for election as directors as a group with no abstentions or withheld shares for either group of individuals. A total of 5,011,886 shares were cast for and 200 shares against the approval of the appointment for Ernst & Young LLP as independent auditors of the Company for the year 2001, with no abstentions or withheld shares. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits None b. Reports on Form 8-K None - 13 - 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: August 7, 2001 By: /s/ Jeremy D. Peter-Hoblyn ----------------------------- Jeremy D. Peter-Hoblyn President and Chief Executive Officer Date: August 7, 2001 By: /s/ David W. Whitwell ------------------------ David W. Whitwell Vice President and Chief Financial Officer - 14 - -----END PRIVACY-ENHANCED MESSAGE-----