TIDMCTS TIDMCTSU
RNS Number : 1639C
Catalytic Solutions, Inc.
09 November 2009
+-------------------------------------+------------------------------------------+
| For Immediate Release | 9 November 2009 |
+-------------------------------------+------------------------------------------+
Catalytic Solutions, Inc.
("The Company")
interim results for the six months ended 30 june 2009
Catalytic Solutions, Inc. (AIM: CTS and CTSU), the Company behind Mixed Phase
Catalyst (MPC ) technology, is pleased to announce its interim results for the
six months ended 30 June 2009. The Company provided a business trading update on
1 October 2009.
HIGHLIGHTS
* Revenue increased 3% to $27.7 million (H1 2008: $26.8 million)
* Net loss $8.0 million (H1 2008: $10.2 million)
* Sale of energy systems business on 1 October 2009 for $10 million, $8.5 million
cash at closing
* Repayment of $6.8 million debt to secured lenders on 1 October 2009
* Forbearance from sole remaining secured lender extended to 30 November 2009
The Company's shares, which were suspended from trading on 30 September 2009,
will remain suspended from trading while the Company works to resolve its
liquidity issues. The Company is in discussions with a view to the provision of
short-term finance while it seeks longer-term solutions to its liquidity
situation through discussions with additional parties. While the board is
working towards a successful conclusion to these discussions, there can be no
guarantee of success.
For further details please contact:
+--------------------------------+----------------------+-------------------------+
| Catalytic Solutions, Inc. | Canaccord Adams | Buchanan Communications |
| Charlie Call, Chief Executive | Robert Finlay | Charles Ryland |
| Officer | Guy Blakeney | Ben Willey |
| Tel: +1 (805) 639-9463 | Bhavesh Patel | Christian Goodbody |
| Steve Golden, Chief Technical | Tel: 020 7050 6500 | Tel: 020 7466 5000 |
| Officer | | |
| Tel: +1 (805) 639-9464 | | |
| Nikhil Mehta, Chief Financial | | |
| Officer | | |
| Tel: +1 (805) 639-9461 | | |
+--------------------------------+----------------------+-------------------------+
About Catalytic Solutions, Inc.
Catalytic Solutions, Inc. is a global manufacturer and distributor of emissions
control systems and products, focused in the heavy-duty diesel and light-duty
vehicle markets. The Company's emissions control systems and products are
designed to deliver high value to our customers while benefiting the global
environment through air quality improvement, sustainability and energy
efficiency. Catalytic Solutions, Inc. is listed on AIM of the London Stock
Exchange (AIM: CTS and CTSU) and currently has operations in the USA, Canada,
France, Japan and Sweden as well as an Asian joint venture.
This announcement was approved by the Audit Committee of the Board of Directors
on 6 November 2009. A copy of this release is available on the Company's website
at www.catalyticsolutions.com.
This announcement and the information contained herein is restricted and is not
for publication, release or distribution in whole or in part in, or into, the
United States of America, Canada, Australia, The Republic of Ireland, Japan or
South Africa.
The material set forth herein is for informational purposes only and is not
intended, and should not be construed, as an offer of securities for sale into
the United States or any other jurisdiction. The securities of the Company
described herein have not been registered under the U.S. Securities Act of 1933,
as Amended (the "Securities Act"), or the laws of any state, and may not be
offered or sold within the United States, except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state laws. There is no present intention to
register the Company's securities in the United States or to conduct a public
offering of securities in the United States.
This announcement and the information contained herein include forward-looking
statements. Forward-looking statements are identified by words such as
"believe," "anticipate," "expect," "intend," "plan," "will,"
"may," "should," "could," "think," "estimate" and "predict," and
other similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. We based these forward-looking
statements on our current expectations and projections about future events. Our
actual results could differ materially from those discussed in, or implied by,
these forward-looking statements. Factors that could cause actual results to
differ from those implied by the forward-looking statements include a number of
risks and uncertainties, described in the section entitled "Risks and
uncertainties", which could have a material impact on the Company's long-term
performance and prospects. Additional factors are discussed in our AIM
admission document, which was published in November 2006. The Company assumes no
responsibility to update any of the forward-looking statements contained herein.
Further, any indication in this announcement of the price at which common shares
have bought or sold in the past cannot be relied upon as a guide to future
performance.
BUSINESS AND FINANCIAL REVIEW
The Company reports its interim 2009 financial results under U.S. GAAP,
consistent with prior periods and the placing and admission on AIM.
Business Review
Catalytic Solutions, Inc. is a global manufacturer and distributor of emissions
control systems and products, focused in the heavy-duty diesel and light-duty
vehicle markets. The Company's emissions control systems and products are
designed to deliver high value to our customers while benefiting the global
environment through air quality improvement, sustainability and energy
efficiency. Our proven technical and manufacturing competence in the light-duty
vehicle market meets auto makers' most stringent requirements, having supplied
over 9 million parts to light-duty vehicle customers since 1996. Catalytic
Solutions, Inc. is listed on AIM of the London Stock Exchange (AIM: CTS and
CTSU) and currently has operations in the USA, Canada, France, Japan and Sweden
as well as an Asian joint venture.
Financial Review
Key Performance Indicators
The Company considers its key performance indicators to be the revenue and gross
margin of its principal automotive gasoline and diesel light-duty vehicle and
heavy-duty diesel (LDV/HDD) catalyst operations; revenue and gross margin from
growth in its energy operations prior to its sale on 1 October 2009; revenue,
gross margin, and operating margin in its off-road and retrofit heavy-duty
diesel (HDD) operations; operating expenses and operating cash flow measured
against a predetermined budget; and development progress toward
commercialisation of its key growth opportunities in the light- and heavy-duty
diesel markets.
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| | 6 months ended | | 6 months ended | | Percentage |
| | 30 June 2009 | | 30 June 2008 | | change |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| | $ | | $ | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Sales | | | | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| LDV/HDD | | | | | (4)% |
| catalysts | 10.5M | | 10.9M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Energy | | | | | 554% |
| | 8.5M | | 1.3M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| HDD | | | | | (40)% |
| | 8.8M | | 14.6M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| | (0.1M) | | | | N/A |
| Eliminations | | | - | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Total | | | | | 3% |
| | 27.7M | | 26.8M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Gross profit | | | | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| LDV/HDD | | | | | |
| catalysts | 0.8M | | 0.8M | | - |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Energy | | | | | 250% |
| | 1.4M | | 0.4M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| HDD | | | | | (39)% |
| | 2.8M | | 4.6M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Total | | | | | (14)% |
| | 5.0M | | 5.8M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Gross Margin | | | | | -370 |
| | 18.0% | | 21.7% | | basis |
| | | | | | points |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Operating | | | | | (30)% |
| expenses | 10.7M | | 15.2M | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
| Net change in | (2.7M) | | (8.5M) | | (68)% |
| cash | | | | | |
+-----------------+----------------------------------------------------+----+--------------------------------------------------------+----+-------------------------------------------------------------------------------+
Company Operating Performance
Profit and loss accounts - The Company reported revenue of $27.7 million for the
six month period ended 30 June 2009, representing an increase of $0.9 million or
3% from the $26.8 million reported for the comparable 2008 period. Gross profit
for the six months ended 30 June 2009 decreased to $5.0 million (gross margin -
18.0% of revenue), down from $5.8 million (gross margin - 21.7% of revenue) for
the comparable 2008 period. Gross profit declined as a result of decreased gross
profit from our heavy-duty diesel systems and catalyst businesses, partially
offset by increased gross profit resulting from increases in energy systems
sales. Gross profit also included a write-off of $0.5 million in inventory in
the catalyst business as well as a year-over-year increase in freight costs of
$0.4 million driven by international catalyst shipments to Renault. Operating
expenses totalled $10.7 million for the six months ended 30 June 2009 compared
to $15.2 million reported for the comparable 2008 period. Operating expenses in
the first half of 2009 include a gain on sale of intellectual property of $2.5
million arising from the sale of patents to TKK in December 2008 and a charge of
$0.7 million for fees paid to investment bankers in support of our
recapitalization efforts. Excluding the above mentioned gain from sale and
charges, operating expenses in the first half were down $2.7 million when
compared to the first half of 2008. This reduction is a result of the
restructuring of the catalyst business in the fourth quarter of 2008 and a cut
back of expenses in the heavy-duty diesel systems business.
The Company reported a net loss of $8.0 million for the six months ended 30 June
2009, down from a loss of $10.2 million reported for the comparable 2008 period.
The light-duty vehicle catalyst segment reported revenue of $10.5 million for
the first half of fiscal year 2009, representing a decrease of $0.4 million or
4% from the $10.9 million reported for the first half of 2008. Reductions in
sales from the slowdown in the automobile industry were partially offset by
increased sales in the first half of 2009 arising from business that commenced
in June of 2008. Gross profit for the segment was $0.8 million or 7% of revenue
for the first half of 2009, unchanged from the first half of 2008. This gross
profit comparison to the prior year was negatively affected by lower sales, an
inventory write-off of $0.5 million and a year-over-year increase in freight
cost of $0.4 million, offset by manufacturing cost reductions driven by the
restructuring of the business in the fourth quarter of 2008.
The heavy-duty diesel segment reported revenue of $8.8 million for the first
half of fiscal year 2009, representing a decrease of $5.8 million or 40% from
the $14.6 million reported for the first half of 2008. This decrease in sales
was driven by lower demand arising from a slow down in the industrial and mining
sector as well as delays in state and federal government spending in the U.S.
Gross profit for the segment decreased to $2.8 million or 32% of revenue for
2009, down from $4.6 million or 32% of revenue for 2008. This decreased gross
profit was due to the lower than expected sales noted above partially offset by
reduced manufacturing costs.
The energy systems segment reported revenue of $8.5 million for the first half
of fiscal year 2009, representing an increase of $7.2 million from the $1.3
million reported for the first half of 2008. Gross profit for the segment
increased to $1.4 million or 16% of revenue for 2009, up $1.0 million from $0.4
million or 31% of revenue for 2008. The increase in sales and gross profit was
driven by the increased activity on billable contracts compared to the prior
year. As reported earlier, this business was sold on 1 October 2009.
Balance sheet - As of 30 June 2009, the Company had cash and short-term
investments totalling $4.0 million compared to $8.9 million at 30 June 2008 and
$6.7 million at 31 December 2008. Goodwill of $6.5 million and intangible assets
of $6.8 million at 30 June 2009 principally comprised of assets acquired from
Engine Control Systems and Applied Utility Systems. The Directors of Catalytic
Solutions, Inc. have reviewed the carrying value of these assets and are
satisfied that they are fairly stated.
Cash flow - Net cash used in operating activities decreased to $2.6 million for
the period ended 30 June 2009 from $9.4 million used for the comparable 2008
period. This lower year-over-year use of cash was driven by slightly lower net
losses after adjustments for non-cash charges in both years, a decrease in net
working capital in 2009 compared to an increase in 2008 and advance payments
received from customers on energy systems contracts. Investing activities
generated $1.9 million in net cash, primarily due to the sale of intellectual
property to TKK of $2.5 million partially offset by capital expenditures of $0.6
million. This compares to net cash used in investing activities of $0.9 million,
primarily for capital expenditures, in the first half of 2008. The Company
reduced its borrowings under its line of credit with Fifth Third Bank by
approximately $1.8 million during the first half of 2009, compared to an
increase of approximately $1.4 million in the first half of 2008. Currency
translation had a negative impact of $0.3 million on cash in the current year
versus a positive impact of $0.3 million last year. Net cash usage in the first
half of 2009 was $2.7 million compared to usage of $8.5 million in the same
period last year.
Liquidity - At 30 June 2009, the Company had $4.0 million in cash. The sale of
our energy systems business on 1 October 2009 has enabled us to pay down $6.8
million of our outstanding debt. The debt due to Cycad Group LLC of $3.3 million
was paid in full. The debt due to Fifth Third Bank under a non-revolving term
loan of $3.5 million was also paid in full. Our remaining debt includes our
borrowing under a line of credit from Fifth Third Bank, currently at a rate of
3.86%, and an unsecured note payable to the seller under the Applied Utility
Systems Asset Purchase Agreement dated 28 August 2006, which was payable 28
August 2009. The total debt outstanding as of 1 October 2009 was $9.0 million.
The Company has not paid the unsecured note payable to seller and seller has
initiated an action to seek collection of the note. The Company prevailed in
arbitration against the seller on issues arising under the seller's consultancy
agreement, as disclosed in the Annual Report to Shareholders dated 30 June 2009.
The Company intends to vigorously assert its claims against seller under the
Asset Purchase Agreement, to require that seller pursue any claim on the note
through arbitration and to defend against any action or arbitration by seller to
collect the note amount. However, our access to working capital remains limited
and our debt service obligations and projected operating costs for the balance
of 2009 exceed our cash balance as of 30 June 2009. As of 30 September 2009, the
Company remains in default on the loan payable to Fifth Third Bank due to its
failure to achieve two of the covenants under the bank loan agreement. As of 31
March 2009, the Company had failed to achieve two of the covenants under the
bank loan agreement with Fifth Third Bank (see Note 7 to the condensed
consolidated financial statements for a discussion of the Fifth Third Bank loan
agreement). The covenants that the Company failed to achieve are those related
to the annualized EBITDA and the funded debt to EBITDA ratio for the Engine
Control Systems subsidiary. The Bank has agreed to extend the temporary
suspension of its rights with respect to the breach of these two covenants until
30 November 2009, but has required, as a condition to such extension, that the
Company not make any payments to unsecured creditors, including the seller on
his unsecured note.
The Company has suffered recurring losses and negative cash flows from
operations since its inception, resulting in an accumulated deficit of $149.0
million at 30 June 2009. In addition, due to non-compliance with the
above-mentioned loan covenants and per the repayment obligations under the
Company's loan agreements, the total debt of the Company has been classified as
current and due and payable in 2009. The Company has a working capital deficit
of approximately $12.4 million as at 30 June 2009. The Company had an
approximate cash balance as of 1 October 2009 of $3.1 million. Failure to raise
additional capital will result in the Company not having sufficient cash to
operate.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. In order to address this uncertainty, in the first quarter of
2009, the Company retained a U.S.-based investment banking firm to act as a
financial advisor to the Company in exploring alternatives to recapitalize the
Company. Alternatives under consideration include the sale of Company stock
and/or a sale of the Company's assets. At this time the Company cannot provide
any assurances that it will be successful in its continuing efforts to
recapitalize the balance sheet. In the event that the Company is not successful
in the immediate future, the Company will be unable to continue operations and
may be required to file bankruptcy. There can be no assurances that the Company
will be able to reorganize through bankruptcy, and might be forced to effect a
liquidation of its assets.
Interest - For the half year ended 30 June 2009 the Company recorded interest
income of $13,000, primarily comprising income from interest bearing cash
deposits and interest expense of $1.3 million.
Other expense - The Company entered into an agreement in February 2008 with
Tanaka Kikinzoku Kogyo K.K. (TKK) to form a new joint venture company, TC
Catalyst Incorporated (TCC), a Japanese corporation. The Company's share of the
TCC net loss for the first half of 2009 was $575,000.
Related Party Transactions
In June 2008, the Company put in place a debt facility with Cycad Group, LLC (a
significant shareholder of the Company) that would allow a one-time draw down of
up to $3.3 million. To avoid any conflict of interest, Mr. K. Leonard Judson,
officer of Cycad Group, LLC and then Non-Executive Director of the Company,
recused himself from all Board of Directors discussions and voting pertaining to
the debt facility. Further details regarding the debt facility are disclosed in
the long-term debt discussion in Note 7 to the consolidated financial
statements. Mr. Judson resigned from the Board of Directors of the Company in
January 2009. The debt facility was repaid in full on 1 October 2009.
In October 2008, the Company's Board of Directors unanimously adopted a
resolution to waive the Non-Executive Directors' right to receive, and the
Company's obligation to pay, any director fees with respect to participation in
Board and Committee meetings and other matters with effect from 1 July 2008 and
continuing thereafter until the Directors elect to adopt resolutions reinstating
such fees. On 1 May 2009, the Directors adopted a resolution to reinstate the
accrual of director fees effective 1 January 2009, with a payment schedule to be
determined at a later date.
Post Balance Sheet Event
On 1 October 2009, the Company sold the principal assets and liabilities of its
energy systems business, Applied Utility Systems, Inc. (AUS), to Johnson Matthey
for $10.0 million. The Company received $8.5 million in cash at signing. The
remaining $0.5 million is payable contingent upon AUS being awarded certain
projects and $1.0 million is retention against certain project and contract
warranties and other obligations. Assets sold include contracts in progress,
working capital, intellectual property relating to systems, trade marks and
trade names. A settlement will be made between Johnson Matthey and the Company
to reflect net working capital. The proceeds from the sale were utilized to pay
down $6.8 million debt and to provide working capital.
Risks and Uncertainties
Business history and net operating losses - The Company has a relatively short
operating history as it was established in 1996, and since inception, it has
incurred recurring losses from operations. There can be no assurance that the
Company will move into profitability at any stage. There is also no assurance
that any net operating losses will be available to the Company in the future as
an offset against future profits for income tax purposes.
Liquidity - See Liquidity under Company operating performance discussion above.
Product development - Some of the Company's products for light- and heavy-duty
diesel vehicles are still in the development or testing stage with targeted
customers. The Company is developing technologies in these areas which are
intended to have a commercial application. However, there is no guarantee that
such technologies will actually result in any commercial applications. The
Company's proposed operations are subject to all of the risks inherent in a
developing business enterprise, including the likelihood of continued operating
losses, although the Company has sought to mitigate these risks by jointly
developing its new products, where possible, with respected partners. The
likelihood of the Company's business success must be considered in light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with the growth of an existing business, the
development of products and channels of distribution, and current and future
development in several key technical fields, as well as the competitive and
regulatory environment in which the Company operates.
Market acceptance - While the Directors believe that there exists a viable
market for the Company's developing products, there can be no assurance that
such technology will succeed as an alternative to its competitors' existing and
new products. The development of a market for the products is affected by many
factors, some of which are beyond the Company's control. The adoption cycles of
the Company's key customers are lengthy and require extensive interaction
between the Company and the customer to develop an effective and reliable
catalyst for a particular application. While the Company continues to develop
and test products with key customers, there can be no guarantee that all such
products will be accepted and commercialized. The Company's relationships with
its customers are based on purchase orders rather than long-term formal supply
agreements. Generally, once a catalyst has successfully completed the testing
and certification stage for a particular application, it is generally the only
catalyst used on that application and therefore highly unlikely that, unless
there are any defects, the customer will try to replace that catalyst with a
competing product. However, our customers usually have alternate suppliers for
their products and there is no assurance that the Company will continue to win
the business.
If a market fails to develop or develops more slowly than anticipated, the
Company may be unable to recover the costs it will have incurred in the
development of its products and may never achieve profitability. In addition,
the Directors cannot guarantee that the Company will continue to develop,
manufacture or market its products or components if market conditions do not
support the continuation of the product or component.
Commercial and strategic relationships - The Company relies on its relationships
with relatively few key customers for the development of particular applications
of the Company's technology. For its light-duty vehicle segment, the Company is
not currently planning to actively pursue new business with certain U.S.
automakers, which previously accounted for a significant part of the Company's
customer base. The success of the Company will therefore depend on its ability
to maintain other existing customer relationships and also initiate, develop and
maintain beneficial commercial relationships with other parties. The successful
realization of the Company's business model requires the establishment and
maintenance of beneficial commercial and strategic relationships with other
parties in the industry. For its heavy-duty diesel systems segment, the Company
relies on emission system approvals from the U.S. Environmental Protection
Agency (EPA) and state agencies, plus relationships with numerous customers
including original equipment manufacturers (OEMs) and dealers/distributors.
Customers purchase heavy-duty diesel system products to reduce emissions for
either a retrofit or an OEM application. Retrofit applications generally
involve funded projects that use "approved systems" that are one-off in nature.
Future retrofit business therefore requires close monitoring of funding for
projects and successful bidding for these projects.
The Company's lack of liquidity could result in current or potential customers
withholding orders.
Dependency on customer sales volumes - The Company's catalysts are often
incorporated into the products or processes of third parties. The Company is
dependent on a small number of customers for a significant portion of its
business, with one customer representing 20% and three customers representing
54% of the Company's business for the six months ended 30 June 2009. If the
Company were to lose a significant customer, it would have a material adverse
effect on the Company. The sale of such catalysts are therefore dependent on the
sale of the product or process of which they form part and there can be no
assurance that such third party's products or processes will achieve commercial
success.
Third party suppliers - Due to customer demands, the Company is required to
source critical materials and components such as ceramic substrates from single
suppliers. Failure of one or more of the Company's key suppliers to timely
deliver could prevent, delay or limit the Company from supplying products
because the Company would be required to qualify an alternative supplier. For
certain customers, the Company is required to purchase platinum group metal
(PGM) materials. As commodities, PGM materials are subject to daily price
fluctuations and significant volatility, based on global market conditions.
Historically, the cost of PGMs used in the manufacturing process has been passed
through to the customer. This limits the economic risk of changes in market
prices to PGM usage in excess of nominal amounts allowed by the customer.
However, going forward there can be no assurance that the Company will continue
to be successful passing PGM price risk onto its current and future customers to
minimize the risk of financial loss. Additionally, PGM material is accounted for
as inventory and therefore subject to lower of cost or market adjustments on a
regular basis at the end of accounting periods. A drop in market prices relative
to the purchase price of PGM could result in a write-down of inventory.
Due to the high value of PGM materials, special measures have been taken to
secure and insure the inventory. There is a risk that these measures may be
inadequate and expose the Company to financial loss.
Environmental concerns and possibility of litigation in the future - Customers
rely upon the Company's products to meet emissions control standards imposed
upon them by government. Failure of the catalyst to meet such standards could
expose the Company to claims from its customers. The Company's products are also
integrated into goods used by consumers and therefore a malfunction or the
inadequate design of the Company's products could result in product liability
claims. Any liability for environmental harm or damages resulting from technical
faults or failures could be substantial and could materially adversely affect
the Company's business and results of operations. In addition, a well-publicized
actual or perceived problem could adversely affect the market's perception of
the Company's products, which would materially impact upon the Company's
financial condition and operating results.
CATALYTIC SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except for share information)
(Unaudited)
+--------------------------------------------------------------------+--------------+-------------+-------------+-------------+------------+----+------------+----------+
| | 6 months ended | | Year ended | |
+--------------------------------------------------------------------+---------------------------------------------------------------------+----+------------+----------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Assets | US $000 | | US $000 | | US $000 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Current assets: | | | | | | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Cash and cash equivalents | 4,005 | | 8,923 | | 6,726 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Short-term investments | - | | 6 | | - |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Trade accounts receivable, net | 11,930 | | 6,177 | | 10,667 |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Inventories | 6,530 | | 13,567 | | 8,919 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Prepaid expenses and other current assets | 1,653 | | 1,697 | | 4,494 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| | | | | | | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Total current assets | 24,118 | | 30,370 | | 30,806 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Property and equipment, net | 3,037 | | 10,290 | | 2,882 |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Intangible assets, net | 6,806 | | 8,194 | | 6,908 |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Goodwill | 6,476 | | 7,869 | | 6,319 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Promissory note from unconsolidated affiliate | 2,767 | | - | | 2,767 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Other assets | 295 | | 1,503 | | 454 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Total assets | 43,499 | | 58,226 | | 50,136 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| | | | | | | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Liabilities and stockholders equity | | | | | | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Current liabilities: | | | | | |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Current portion of long-term debt | 16,014 | | 450 | | 17,880 |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Accounts payable | 7,486 | | 6,288 | | 7,325 |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Deferred revenue | 2,958 | | - | | 2,942 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Accrued salaries and benefits | 1,945 | | 2,161 | | 1,451 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Accrued expenses | 8,083 | | 4,980 | | 6,255 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Total current liabilities | 36,486 | | 13,879 | | 35,853 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Long-term debt, excluding current portion | 59 | | 16,810 | | 33 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Deferred tax liability - long term | 2,503 | | 2,528 | | 2,415 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| | | | | | | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Total liabilities | 39,048 | | 33,217 | | 38,301 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| | | | | | | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Stockholders equity: | | | | | | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Common stock, no par value. Authorized 148,500,000 shares; issued | | | | | |
| and outstanding 69,761,902 shares at June 30, 2009 and 2008 and | | | | | |
| December 31, 2008 | 155,904 | | 158,132 | | 158,019 |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Treasury stock at cost (60,000 shares) | (100) | | (100) | | (100) |
+--------------------------------------------------------------------+----------------------------+---------------------------+------------+----+-----------------------+
| Accumulated other comprehensive income (loss) | (2,406) | | 340 | | (2,867) | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Accumulated deficit | (148,947) | | (133,363) | | (143,217) | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| Total stockholders equity | 4,451 | | 25,009 | | 11,835 | |
+--------------------------------------------------------------------+--------------+---------------------------+--------------------------+----+------------+----------+
| | 43,499 | | 58,226 | | 50,136 | |
+--------------------------------------------------------------------+--------------+-------------+-------------+-------------+------------+----+------------+----------+
See accompanying notes to condensed consolidated financial statements
CATALYTIC SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands)
(Unaudited)
+------------------------------------------------------------------+--------------+--------+--------+--------+----------+--+------------+
| | 6 months ended | | Year ended |
+------------------------------------------------------------------+----------------------------------------------------+--+------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| | US $000 | | US $000 | | US $000 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| | | | | | |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Revenues | 27,652 | | 26,833 | | 63,011 |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Cost of revenues | 22,619 | | 21,005 | | 52,595 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Gross margin | 5,033 | | 5,828 | | 10,416 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Operating expenses: | | | | | |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Sales and marketing | 2,418 | | 2,980 | | 6,094 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Research and development | 4,025 | | 5,703 | | 9,276 |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| General and administrative | 6,099 | | 6,485 | | 12,499 |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Impairment of long-lived assets | - | | - | | 4,928 |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Recapitalization expense | 655 | | - | | - |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Gain on sale of intellectual property | (2,500) | | - | | (5,000) |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Total operating expenses | 10,697 | | 15,168 | | 27,797 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Loss from operations | (5,664) | | (9,340) | | (17,381) |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Other income (expense): | | | | | |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Interest income | 13 | | 421 | | 266 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Interest expense | (1,260) | | (914) | | (2,224) |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Acceleration of deferred financing expense | (253) | | - | | - |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Loss on unconsolidated affiliate | (575) | | - | | (988) |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Other | (199) | | (83) | | 347 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Total other expense, net | (2,274) | | (576) | | (2,599) |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Loss before provision for income taxes | (7,938) | | (9,916) | | (19,980) |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| | | | | | |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Provision for income taxes | 63 | | 254 | | 625 |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Net loss | (8,001) | | (10,170) | | (20,605) |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| | | | | | |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| | | | | | |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Loss per share: | | | | | |
+------------------------------------------------------------------+-----------------------+-----------------+----------+--+------------+
| Basic and diluted | $(0.11) | | $(0.15) | | $(0.29) |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Weighted average number of common shares outstanding (000s): | | | | | |
+------------------------------------------------------------------+--------------+-----------------+-------------------+--+------------+
| Basic and diluted | 69,762 | | 69,700 | | 69,701 |
+------------------------------------------------------------------+--------------+--------+--------+--------+----------+--+------------+
See accompanying notes to condensed consolidated financial statements
CATALYTIC SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| | 6 months ended | | Year ended | |
+------------------------------------------------------------------+----------------------------+--+--------------+----------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| | US $000 | | US $000 | | US $000 | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Cash flows from operating activities: | | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Net loss | (8,001) | | (10,170) | | (20,605) |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Adjustments to reconcile net loss to net cash used in operating | | | | | |
| activities: | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Depreciation and amortization | 919 | | 1,757 | | 3,527 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Provision for (recovery of) doubtful accounts, | 226 | | (34) | | 50 |
| net | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Amortization of deferred financing | 321 | | - | | 923 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Stock-based compensation | 377 | | 375 | | 843 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Warrant expense for Cycad issuance | - | | 19 | | - |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Change in fair value of liability-classified | (207) | | - | | - |
| warrants | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Loss on unconsolidated affiliate | 575 | | - | | 988 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Gain on sale of shares of unconsolidated | - | | - | | (428) |
| affiliate | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Impairment of long-lived assets | - | | - | | 4,928 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Deferred income taxes | - | | - | | 322 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Loss on disposal of property and equipment | 189 | | - | | 476 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Gain on sale of intellectual property | (2,500) | | - | | (5,000) |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Changes in operating assets and liabilities: | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Trade accounts receivable | (1,312) | | 2,678 | | (2,518) |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Inventories | 2,495 | | (3,087) | | 763 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Prepaid expenses and other assets | 2,410 | | (867) | | (867) |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Accounts payable | 129 | | (1,143) | | 144 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Deferred revenue | - | | - | | 2,937 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Income taxes payable | (115) | | - | | - |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Accrued expenses | 1,946 | | 1,119 | | (1,415) | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Net cash used in operating activities | (2,548) | | (9,353) | | (14,932) | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Cash flows from investing activities: | | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Investment in unconsolidated affiliate | - | | - | | (986) | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Sale and maturities of available-for-sale | | | (6) | | - |
| securities | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Purchases of property and equipment | (644) | | (860) | | (2,207) |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Purchase of Engine Control Systems, net of cash | - | | - | | 475 |
| acquired | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Proceeds from sale of shares of unconsolidated | - | | - | | 441 |
| affiliate | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Proceeds from sale of intellectual property | 2,500 | | - | | 4,000 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Proceeds from sale of property and equipment | 10 | | - | | 1,703 | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Net cash provided by (used in) investing | 1,866 | | (866) | | 3,426 | |
| activities | | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Cash flows from financing activities: | | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Borrowings under line of credit | 891 | | 2,826 | | 5,732 | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Repayments under line of credit | (2,703) | | (1,228) | | - |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Proceeds from issuance of debt | 44 | | - | | 3,345 |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Repayment of short-term borrowings | - | | - | | (4,078) |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Repayment of long-term debt | - | | (197) | | (2,330) |
+------------------------------------------------------------------+------------+--+------------+--+-------------------------+
| Payments for debt issuance costs | (12) | | - | | (713) | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Net cash provided by (used in) financing | (1,780) | | 1,401 | | 1,956 | |
| activities | | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Effect of exchange rates on cash | (259) | | 297 | | (1,168) | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Net change in cash and cash equivalents | (2,721) | | (8,521) | | (10,718) | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Cash and cash equivalents at beginning of period | 6,726 | | 17,444 | | 17,444 | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Cash and cash equivalents at end of period | 4,005 | | 8,923 | | 6,726 | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Supplemental disclosures of cash flow information: | | | | | | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
| Cash paid during the year for interest | 667 | | 525 | | 1,222 | |
+------------------------------------------------------------------+------------+--+------------+--+--------------+----------+
See accompanying notes to condensed consolidated financial statements
Notes to Condensed Consolidated Financial Statements (unaudited)
1.Basis of Preparation
a.Description of Business
Catalytic Solutions, Inc. (the Company) is a global manufacturer and distributor
of emissions control systems and products, focused in the heavy-duty diesel and
light-duty vehicle markets. The Company's emissions control systems and products
are designed to deliver high value to our customers while benefiting the global
environment through air quality improvement, sustainability and energy
efficiency. Catalytic Solutions, Inc. is listed on AIM of the London Stock
Exchange (AIM: CTS and CTSU) and currently has operations in the USA, Canada,
France, Japan and Sweden as well as an Asian joint venture.
b.Subsequent Event
On October 1, 2009 the Company sold the majority of the assets of Applied
Utility Systems, Inc. (AUS), which comprised the Company's energy systems
business, for approximately $10.0 million, including $8.5 million in cash and
notes receivable of $1.5 million. Of the notes receivable, $0.5 million is
contingent upon AUS being awarded certain projects and $1.0 million is retention
against certain project and contract warranties and other obligations. The
balance sheet and income statement of AUS as of and for the six months ended
June 30, 2009, is included in the attached consolidating balance sheet and
income statement.
c.Liquidity
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. Therefore, the consolidated
financial statements contemplate the realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has suffered
recurring losses and negative cash flows from operations since its inception,
resulting in an accumulated deficit of $149.0 million at June 30, 2009. In
addition, due to non-compliance with certain loan covenants (described below)
and per the repayment obligations under the Company's loan agreements, the total
debt of the Company has been classified as current and due and payable in 2009.
At June 30, 2009, the Company has a working capital deficit. The Company has
funded its operations through equity sales, convertible debt, and bank
borrowings. The Company's current bank debt agreements contain certain covenants
in respect to which the Company was not in compliance at June 30, 2009. These
covenants are almost exclusively based on the performance of the Company's
Engine Control Systems subsidiary. As of March 31, 2009, the Company had failed
to achieve two of the covenants under the bank loan agreement with Fifth Third
Bank (see Note 7 for a discussion of the Fifth Third Bank loan agreement). The
covenants that the Company failed to achieve are those related to the annualized
EBITDA and the funded debt to EBITDA ratio for the Engine Control Systems
subsidiary.
As of May 31, 2009, the Company was out of compliance with a covenant in the
loan agreement with Cycad Group, LLC (see Note 7 for a discussion of the Cycad
loan agreement). The non-compliance resulted from the Company's failure to
achieve the above described covenants under the bank loan agreement with Fifth
Third Bank. Cycad Group, LLC had agreed to suspend its rights until July 1, 2009
subject to the Company being successful in its efforts to recapitalize the
balance sheet and Fifth Third Bank continuing to suspend its rights. As of July
1, 2009, the Company had not repaid the outstanding amount due to Cycad Group
LLC and was in default.
As a result of the sale of the principal assets and liabilities of AUS on
October 1, 2009, the Company realized $8.5 million in cash. These proceeds were
utilized to repay the entire $3.3 million owed to Cycad Group LLC and to repay
the $3.5 million term loan due to Fifth Third Bank. Following this transaction,
the Company's sole remaining secured lender, Fifth Third Bank has agreed to
temporarily suspend its rights with respect to the breach of covenants until
November 30, 2009 (see Note 7 for a discussion of the Fifth Third forbearance
agreement).
The Company has not paid the unsecured note payable to the seller under the
Asset Purchase Agreement dated August 28, 2006, and entered into in connection
with the acquisition of Applied Utility Systems, Inc. (See Note 7 for a
discussion of the note payable under the Asset Purchase Agreement.) The seller
has initiated an action to seek collection of the note. The Company prevailed in
arbitration against the seller on issues arising under the seller's consultancy
agreement, as disclosed in the Annual Report to Shareholders dated June 30,
2009. The Company intends to vigorously assert its claims against seller under
the Asset Purchase Agreement, to require that seller pursue any claim on the
note through arbitration and to defend against any action or arbitration by
seller to collect the note amount. Under the terms of the Fifth Third
forbearance agreement described in Note 7, the Company is prohibited from making
any payment to unsecured creditors, including seller, until the conditions of
the forbearance agreement have been met.
At June 30, 2009 the Company had $4.0 million in cash. The Company's access to
working capital is limited and its debt service obligations and projected
operating costs for the balance of 2009 exceed its cash balance at June 30,
2009. Failure to raise sufficient additional capital will result in the Company
not having sufficient cash to repay its outstanding debt or to operate.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. In order to address this uncertainty, in the first quarter of
2009, the Company retained a U.S.-based investment banking firm to act as a
financial advisor to the Company in exploring alternatives to recapitalize the
Company. The Company has made progress in this regard, with the sale of the
assets and liabilities of AUS. The Company continues to actively pursue
additional alternatives to recapitalize and improve liquidity. Alternatives
under consideration include the sale of Company stock and/or a sale of the
Company's assets, while negotiating with the Company's lenders to modify loan
terms in order to delay repayments while alternative capital is secured. At this
time the Company cannot provide any assurances that it will be successful in its
continuing efforts to recapitalize the balance sheet or work with its lenders on
loan modifications. In the event that the Company is not successful in the
immediate future, the Company will be unable to continue operations and may be
required to file bankruptcy. There can be no assurances that the Company will be
able to reorganize through bankruptcy, and might be forced to effect a
liquidation of its assets. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
d.Preparation based on U.S. Generally Accepted Accounting Principles (U.S. GAAP)
The unaudited condensed consolidated financial statements and accompanying notes
are presented in U.S. dollars and have been prepared in accordance with U.S.
GAAP for interim financial information. They have been prepared on the same
basis as the annual audited consolidated financial statements and, in the
opinion of management, reflect all adjustments necessary for a fair presentation
for each of the periods presented. The results of operations for interim
periods are not necessarily indicative of results to be achieved for full fiscal
years.
The accompanying condensed consolidated financial statements and related
footnotes have been condensed and do not contain certain information that will
be included in the Company's annual consolidated financial statements and
footnotes thereto. For further information, refer to the consolidated financial
statements and related footnotes included in the Company's Annual Report for the
year ended December 31, 2008.
The Company has evaluated subsequent events through November 9, 2009, which
represents the date the consolidated financial statements were issued.
2.Summary of Significant Accounting Policies
a.Principles of Consolidation
The consolidated financial statements include the financial statements of
Catalytic Solutions, Inc. and its subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation.
b.Fiscal Year/Period
The Company uses a fiscal year ending on December 31. The Company's joint
venture, TCC, uses a fiscal year ending on March 31.
c.Concentration of Risk
For the periods presented below, certain customers accounted for 10% or more of
the Company's revenues as follows:
+----------+--------------+--------------+--+--------------------+
| | 6 months ended | | Year ended |
+----------+-----------------------------+--+--------------------+
|Customer | 6/30/2009 | 6/30/2008 | | 12/31/2008 |
+----------+--------------+--------------+--+--------------------+
| | | | | |
+----------+--------------+--------------+--+--------------------+
| A | 20% | - | | 9% |
+----------+--------------+--------------+--+--------------------+
| B | 18% | 2% | | 7% |
+----------+--------------+--------------+--+--------------------+
| C | 16% | 32% | | 30% |
+----------+--------------+--------------+--+--------------------+
For purposes of the presentation provided above, customer A is a construction
services company and customers B and C are automotive manufacturers.
As of June 30, 2009 and 2008 and December 31, 2008, certain customers accounted
for 10% or more of the Company's accounts receivable balance as follows:
+----------+--------------+--------------+--+--------------------+
|Customer | 6/30/2009 | 6/30/2008 | | 12/31/2008 |
+----------+--------------+--------------+--+--------------------+
| | | | | |
+----------+--------------+--------------+--+--------------------+
| A | 35% | - | | 40% |
+----------+--------------+--------------+--+--------------------+
| B | 15% | - | | - |
+----------+--------------+--------------+--+--------------------+
The customers above are construction services companies.
For the periods presented below, certain vendors accounted for 10% or more of
the Company's raw material purchases as follows:
+----------+--------------+--------------+--+--------------------+
| | 6 months ended | | Year ended |
+----------+-----------------------------+--+--------------------+
| Vendor | 6/30/2009 | 6/30/2008 | | 12/31/2008 |
+----------+--------------+--------------+--+--------------------+
| | | | | |
+----------+--------------+--------------+--+--------------------+
| A | 19% | 17% | | 13% |
+----------+--------------+--------------+--+--------------------+
| B | 11% | 20% | | 23% |
+----------+--------------+--------------+--+--------------------+
| C | 11% | 15% | | 14% |
+----------+--------------+--------------+--+--------------------+
| D | 7% | 5% | | 6% |
+----------+--------------+--------------+--+--------------------+
The vendors above are substrate and chemical suppliers.
d.Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management of the Company to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Areas
where significant judgments are made include, but are not limited to:
stock-based compensation, allowance for doubtful accounts, accounting for
construction-type contracts, inventory valuation, taxes, investments, valuation
of long-lived assets, and accrued liabilities. Actual results could differ from
those estimates. These estimates and assumptions are based on the Company's best
estimates and judgment. The Company evaluates its estimates and assumptions on
an ongoing basis using historical experience and other factors, including the
current economic environment, which it believes to be reasonable under the
circumstances. Estimates and assumptions are adjusted when facts and
circumstances dictate. Illiquid credit markets, volatile equity, foreign
currency, and declines in customer spending have combined to increase the
uncertainty inherent in such estimates and assumptions. As future events and
their effects cannot be determined with precision, actual results could differ
from these estimates. Changes in estimates resulting from continuing changes in
the economic environment will be reflected in the financial statements in future
periods.
e.Cash and Cash Equivalents
Cash and cash equivalents of $4,005,000, $8,923,000 and $6,726,000 at June 30,
2009 and 2008 and December 31, 2008, respectively, consist of cash balances and
money market mutual funds. For purposes of the consolidated statements of cash
flows, the Company considers the money market funds and all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
f.Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the Company's best estimate of
the amount of probable credit losses in the Company's existing accounts
receivable. The Company determines the allowance based on historical write-off
experience and past-due balances over 60 days that are reviewed individually for
collectability. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance sheet credit
exposure related to its customers.
g.Investments
The Company held no investments at June 30, 2009 or December 31, 2008.
Investments of $6,000 at June 30, 2008 consisted of corporate bonds. In 2008,
the Company made an investment in TCC, a Japanese corporation (see Note 10 for a
discussion of the TCC joint venture).
h.Inventories
Inventories are stated at the lower of cost (specific-identification method) or
market (net realizable value). Finished goods inventory includes materials,
labor and manufacturing overhead.
i.Property and Equipment
Property and equipment are stated at cost. Property and equipment under capital
leases are stated at the present value of the minimum lease payments.
Depreciation and amortization have been provided using the straight-line method
over the following estimated useful lives:
+-----------------------------+--------------+
| Machinery and equipment | 2 - 10 years |
+-----------------------------+--------------+
| Furniture and fixtures | 2 - 5 years |
+-----------------------------+--------------+
| Computer hardware and | 2 - 5 years |
| software | |
+-----------------------------+--------------+
| Vehicles | 2 - 5 years |
+-----------------------------+--------------+
When an asset is sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized. Repairs and maintenance are charged to expense as incurred
and major replacements or betterments are capitalized. Property and equipment
held under capital leases and leasehold improvements are amortized straight-line
over the shorter of the lease term or estimated useful life of the asset. Total
depreciation at June 30, 2009 and 2008 and December 31, 2008 was $353,000,
$1,248,000 and $2,414,000, respectively.
j.Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the
estimated fair value of the net identified tangible and intangible assets
acquired and is recorded in the reporting that will benefit from acquired
intangible and tangible assets. Goodwill is tested for impairment on an annual
basis and written down to its implied fair value when impaired. The Company
performed the annual goodwill impairment testing as of October 31, 2008 and as a
result of its declining stock value, performed a goodwill impairment test as of
June 30, 2009. Two of the Company's reporting units which are also reporting
segments, AUS and ECS, have allocated goodwill. The Company's remaining
reporting unit, CSI, has no allocated goodwill. The Company performed Step I of
the annual impairment test and it was determined that the fair value of the
Company's reporting units (as determined using the expected present value of
future cash flows) was greater than the carrying amount of the respective
reporting units and Step II of the annual impairment test was not necessary;
therefore there was no impairment to the carrying amount of the reporting units.
k.Purchased Intangible Assets
Purchased intangible assets are carried at cost, less accumulated amortization.
Amortization is computed on a straight-line basis over the estimated useful
lives of the respective assets, ranging from 1 to 20 years. Intangible assets
consist of trade names, a non-competition agreement, patents and know-how, and
work-in-progress on a construction contract and customer relationships.
l.Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance against deferred tax assets is required if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The valuation allowance
should be sufficient to reduce the deferred tax asset to the amount that is more
likely than not to be realized.
m.Revenue Recognition
The Company generally recognizes revenue when products are shipped and the
customer takes ownership and assumes risk of loss, collection of the relevant
receivable is reasonably assured, persuasive evidence of an arrangement exists,
and the sales price is fixed or determinable. There are certain customers whose
revenue recognition policy is FOB destination point. For these customers,
revenue is recognized upon receipt at the customer's warehouse. This generally
occurs within five days from shipment date. Engine Control Systems has certain
sales with associated installation. For such sales, revenue is recognized upon
completion of installation.
AUS accounts for revenue and earnings from construction contracts under the
percentage-of-completion accounting in accordance with AICPA Statement of
Position 81-1, "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts." Under this method, AUS recognizes revenue measured
by the percentage of cost incurred to date to estimated total cost for each
contract. This method is used because management considers total cost to be the
best available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that the
estimates used may change materially.
Contract cost includes all direct labor and related fringe benefits, materials
installed in the project, and subcontractor costs. Indirect labor and related
fringe benefits and selling, general and administrative expenses are charged to
operations as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in estimated
job profitability resulting from job performance, job conditions, claims, change
orders, and settlements, are accounted for as changes in estimates in the
current period. Amounts representing contract change orders, claims or other
items are included in revenues only when they can be reliably estimated and
realization is probable.
n.Research and Development
Research and development costs are generally expensed as incurred.
o.Long-Lived Assets
In accordance with SFAS 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," assets such as property, plant, and equipment and
amortizable intangible assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset or asset group to estimated
undiscounted future cash flows expected to be generated by the asset or asset
group. If the carrying amount of an asset or asset group exceeds its estimated
future cash flows, an impairment charge is recognized for the amount by which
the carrying amount of the asset or asset group exceeds the fair value of the
asset or asset group. Assets to be disposed of would be separately presented in
the balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets and liabilities of
a disposed group classified as held for sale would be presented separately in
the appropriate asset and liability sections of the balance sheet.
p.Stock Compensation
The Company recognizes compensation expense based on the estimated grant date
fair value method using the Black-Scholes valuation model. In 2007, the Company
modified the Plan to adopt a market criteria. These options are valued using a
Monte Carlo univariate options pricing model. At June 30, 2009 and 2008 and
December 31, 2008, stock-based compensation expense was $377,000, $375,000 and
$843,000, respectively.
q.Foreign Currency
The functional currency of Engine Control Systems is the Canadian Dollar, while
that of its subsidiaries Unikat Acquisition Co. AB and Engine Control Systems
Europe AB in Sweden is the Swedish Krona. The functional currency of the
Company's Japanese branch office is the Japanese Yen. Assets and liabilities of
the foreign locations are translated into U.S. dollars at period-end exchange
rates. Revenue and expense accounts are translated at the average exchange rates
for the period. All realized and unrealized transaction adjustments are included
in other income (loss). The resulting adjustments are charged or credited
directly to accumulated comprehensive income (loss) within Stockholders' Equity.
r.Recently Issued Accounting Standards
In April 2008, the FASB issued EITF 07-05, "Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity's Own Stock" ("EITF 07-05"). EITF
07-05 provides guidance on determining what types of instruments or embedded
features in an instrument held by a reporting entity can be considered indexed
to its own stock. The Company adopted EITF 07-05 on January 1, 2009 and
reclassified certain of its warrants from equity to liabilities. See further
discussion in Note 6.
The Company adopted Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" (SFAS 157) for financial assets and financial liabilities
effective January 1, 2008 and for nonfinancial assets and liabilities beginning
January 1, 2009. The adoption of this standard did not have a material effect
on the Company's condensed consolidated financial statements. SFAS 157
prioritizes the inputs used in measuring fair value into the following
hierarchy:
* Level 1: Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
* Level 2: Inputs other than quoted prices included within Level 1 that are
either directly or indirectly observable.
* Level 3: Unobservable inputs in which little or no market activity exists,
therefore requiring an entity to develop its own assumptions about the
assumptions that market participants would use in pricing.
During the six months ended June 30, 2009, the Company determined that
impairment testing of the Company's goodwill was required due to a decline in
the Company's stock price. Goodwill impairment testing requires the Company
estimate the fair value of its reporting units. The Company's estimate of fair
value of its reporting units involved level 2 and 3 inputs. The estimated fair
value of the energy systems reporting unit was based on a directly observable
input, the subsequent sale of AUS on October 1, 2009, adjusted to reflect the
estimated fair value at June 30. The estimated fair value of the heavy-duty
diesel systems reporting unit was derived primarily from a discounted cash model
utilizing significant unobservable inputs including expected cash flows and
discount rates. In addition the Company considered the overall fair values of
its reporting units as compared to the market capitalization of the Company. The
Company determined that no goodwill impairment existed as of June 30, 2009;
however, it is reasonably possible that future impairment tests may result in a
different conclusion for the goodwill of the heavy-duty diesel reporting unit.
The estimate of fair value of the reporting units is sensitive to certain
factors including but not limited to: movements in the Company's share price,
changes in discount rates and the Company's cost of capital, growth of the
reporting unit's revenue, cost structure of the reporting units, successful
completion of research and development and customer acceptance of new products
and approval of the reporting unit's product by regulatory agencies.
s.Fair Value of Financial Instruments
The fair values of the Company's cash and cash equivalents, trade accounts
receivable, prepaid expenses and other current assets, accounts payable, accrued
salaries and benefits and accrued expenses approximate carrying values due to
the short maturity of these instruments. The fair values of the Company's debt
and off-balance sheet commitments are less than their carrying values as a
result of deteriorating credit quality of the Company and, therefore, expected
higher interest rates that would be available currently to the Company.
It is not practical to estimate the fair value of these instruments as the
Company's debt is not publicly traded and the Company's current financial
position and the recent credit crisis experienced by financial institutions have
caused current financing options to be limited.
3.Trade Accounts Receivable
Trade accounts receivable consisted of the following:
+---------------------------------------+------------+--+-----------+--+------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+---------------------------------------+------------+--+-----------+--+------------+
| | $ | | $ | | $ |
+---------------------------------------+------------+--+-----------+--+------------+
| Non-contract trade accounts | 4,768,000 | | 5,663,000 | | 4,398,000 |
| receivable, less allowance for | | | | | |
| doubtful accounts of $283,000 at June | | | | | |
| 30, 2009, $46,000 | | | | | |
| at June 30, 2008 and $81,000 at | | | | | |
| December 31, 2008 | | | | | |
+---------------------------------------+------------+--+-----------+--+------------+
| Completed contracts | - | | 269,000 | | 178,000 |
+---------------------------------------+------------+--+-----------+--+------------+
| Contracts in progress | 7,162,000 | | 245,000 | | 6,091,000 |
+---------------------------------------+------------+--+-----------+--+------------+
| | 11,930,000 | | 6,177,000 | | 10,667,000 |
+---------------------------------------+------------+--+-----------+--+------------+
At June 30, 2009, there were no amounts included in receivables under retainage
provisions in contracts.
The Company's revolving credit facility is collateralized by inventory and
receivables. At June 30, 2009 and 2008 and December 31, 2008, the collateralized
receivables were $3.4 million, $4.5 million and $2.8 million, respectively.
In December 2005, the Company fully reserved an accounts receivable balance from
Delphi in the amount of $422,000. The $422,000 represents the amount owed to
Catalytic Solutions at the time of Delphi's filing for bankruptcy protection in
October 2005. The entire balance was reserved when the Company determined it was
unlikely that Delphi would improve the priority of the debt beyond those of
general creditors and a probable loss would be incurred by the Company. In 2007,
the Company sold its interest in the receivable at 102.5% of value. The Company
continues to reserve the amount as a contingent liability as the buyer has the
ability to demand a refund if Delphi refused the Company's claim.
4.Inventories
Inventories consisted of the following:
+---------------------------------------+-----------+--+------------+--+------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+---------------------------------------+-----------+--+------------+--+------------+
| | $ | | $ | | $ |
+---------------------------------------+-----------+--+------------+--+------------+
| Finished goods | 3,346,000 | | 8,077,000 | | 4,735,000 |
+---------------------------------------+-----------+--+------------+--+------------+
| Work in progress | 962,000 | | 2,280,000 | | 1,127,000 |
+---------------------------------------+-----------+--+------------+--+------------+
| Raw materials | 2,222,000 | | 3,210,000 | | 3,057,000 |
+---------------------------------------+-----------+--+------------+--+------------+
| | 6,530,000 | | 13,567,000 | | 8,919,000 |
+---------------------------------------+-----------+--+------------+--+------------+
5.Property and Equipment
Property and equipment consisted of the following:
+---------------------------------------+--------------+--+--------------+--+--------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+---------------------------------------+--------------+--+--------------+--+--------------+
| | $ | | $ | | $ |
+---------------------------------------+--------------+--+--------------+--+--------------+
| Buildings and land | 570,000 | | 2,489,000 | | 511,000 |
+---------------------------------------+--------------+--+--------------+--+--------------+
| Furniture and fixtures | 2,445,000 | | 2,912,000 | | 2,175,000 |
+---------------------------------------+--------------+--+--------------+--+--------------+
| Computer hardware and software | 1,460,000 | | 3,170,000 | | 1,335,000 |
+---------------------------------------+--------------+--+--------------+--+--------------+
| Machinery and equipment | 11,683,000 | | 15,085,000 | | 11,376,000 |
+---------------------------------------+--------------+--+--------------+--+--------------+
| Vehicles | 55,000 | | 131,000 | | 73,000 |
+---------------------------------------+--------------+--+--------------+--+--------------+
| | 16,213,000 | | 23,787,000 | | 15,470,000 |
+---------------------------------------+--------------+--+--------------+--+--------------+
| Less accumulated depreciation | (13,176,000) | | (13,497,000) | | (12,588,000) |
+---------------------------------------+--------------+--+--------------+--+--------------+
| | 3,037,000 | | 10,290,000 | | 2,882,000 |
+---------------------------------------+--------------+--+--------------+--+--------------+
6. Warrants
In June 2008, the Company issued warrants to purchase 1,250,000 shares of common
stock as part of the consideration for a standing line of credit with Cycad
Group, LLC.
In December 2007, The Company issued warrants to purchase 3,117,115 shares of
common stock to Capital Works, LLC as part of the consideration to acquire
Engine Control Systems.
The exercisable warrants and their associated exercise prices are shown below at
June 30, 2009 and 2008 and December 31, 2008:
+---------------------------------------------------------------+-----------+
| Warrants exercisable into common stock (issued in USD) | 37,500 |
+---------------------------------------------------------------+-----------+
| Exercise price | $1.67 |
+---------------------------------------------------------------+-----------+
| Warrants exercisable into common stock (issued in GBX) | 4,367,115 |
+---------------------------------------------------------------+-----------+
| Weighted average exercise price | $1.51 |
+---------------------------------------------------------------+-----------+
The Company adopted EITF 07-05 on January 1, 2009. With the adoption of EITF
07-05, the warrants to Cycad Group, LLC and Capital Works, LLC are determined
not to be solely linked to the stock price of the Company and therefore require
classification as liabilities. As a result of the adoption on January 1, 2009,
the Company recorded a cumulative effect of change in accounting principle of
$2,272,000 directly as a reduction of accumulated deficit representing the
decline in fair value between the issuance and adoption date. For the six months
ended June 30, 2009, the application of EITF 07-05 resulted in an increase to
other income of $207,000 resulting from a decline in fair value of the warrants
during the period.
7.Long-Term Debt
In June 2008, the Company put in place a debt facility with Cycad Group, LLC
that would allow a one-time draw down of up to $3.3 million. In September 2008,
the Company borrowed $3.3 million under the debt facility. The debt was
collateralized by the accounts receivable at the energy systems business and the
machinery and equipment of the light-duty vehicle catalyst business segment. The
debt was due July 1, 2009 with interest paid at 18%. As of May 31, 2009, the
Company was out of compliance with a covenant in the loan agreement with Cycad
Group, LLC. The non-compliance resulted from the Company's failure to achieve
covenants under the bank loan agreement with Fifth Third Bank, as described
below. Cycad Group, LLC agreed to suspend its rights until July 1, 2009 subject
to the Company being successful in its efforts to recapitalize the balance sheet
and Fifth Third Bank continuing to suspend its rights. This debt was fully
repaid on October 1, 2009 with the proceeds resulting from the sale of AUS.
In December 2007, the Company and its subsidiaries including Engine Control
Systems entered into borrowing agreements with Fifth Third Bank as part of the
cash consideration paid for the purchase of Engine Control Systems on December
20, 2007. The borrowing agreements provided for three facilities including a
revolving line of credit and two term loans, collateralized by the assets of the
Company. The line of credit is a two-year revolving term operating loan up to a
maximum principal amount of Canadian $10.0 million, with availability based upon
eligible accounts receivable and inventory. At June 30, 2009, the outstanding
balance was $6.2 million. The other facilities include a five-year non-revolving
term loan of up to $2.5 million, which was paid off during 2008, and a
non-revolving term loan of $3.5 million that was paid off on October 1, 2009
with the proceeds resulting from the sale of AUS. Total borrowing on the
facilities as of June 30, 2009 was $9.7 million. The interest rate on the line
of credit is variable based upon Canadian Prime Rate (3.86% as at June 30, 2009)
and the term loan is fixed at 13%. As of June 30, 2009, the weighted average
interest rate on the line of credit and term loan was 6.14%. The Company is also
subject to covenants on minimum levels of tangible capital funds, fixed charge
coverage, earnings before income tax, depreciation and amortization, funded
debt-to-earnings before income tax and depreciation and amortization. In the
event of default, the bank may demand payment on all amounts outstanding
immediately. The Company is also restricted from paying corporate distributions
in excess of $250,000. The loan agreement also includes a material adverse
change clause, exercisable if, in the opinion of the bank, there is a material
adverse change in the financial condition, ownership or operation of Engine
Control Systems or the Company. If the bank deems that a material adverse
change has occurred, the bank may terminate the Company's right to borrow under
the agreement and demand payment of all amounts outstanding under the agreement.
As of March 31, 2009, the Company had failed to achieve two of the covenants
under the bank loan agreement with Fifth Third Bank. The covenants that the
Company failed to achieve are those related to the annualized EBITDA and the
funded debt to EBITDA ratio for the Engine Control Systems subsidiary. Following
the sale of the energy systems business, the bank has agreed to temporarily
suspend its rights until November 30, 2009. Under the terms of the forbearance
agreement, the Company repaid approximately $0.9 million of debt from the parent
company on November 2, 2009. Payment to the bank was made by borrowing
additional funds under the line of credit facility of Engine Control Systems
Ltd., the Company's subsidiary. Fees of approximately $0.2 million are expected
to be paid. Additional terms under the forbearance agreement restrict the
Company from making any payments to unsecured creditors other than trade
payables and expenses in the ordinary course of business.
The Company entered into a note payable of $3.0 million with the seller as part
of the AUS acquisition. The note was due August 28, 2009 and accrues interest at
5.36%. At June 30, 2009 the Company had accrued $457,000 of unpaid interest on
the note. The Company has not paid the foregoing amount. Seller has initiated an
action to seek collection of the foregoing amount. The Company has certain
claims against the seller under the terms of the Asset Purchase Agreement. At
this time, the Company intends to vigorously assert its claims against seller
under the terms of the Asset Purchase Agreement to require that seller pursue
any claim on the note through arbitration and to defend against any action or
arbitration by seller to collect on the note. Under the terms of the Fifth Third
forbearance agreement described in the preceding paragraph, the Company is
prohibited from making any payment to unsecured creditors, including seller,
until the conditions of the forbearance agreement have been met.
Long-term debt is summarized as follows:
+---------------------------------------+--------------+--+------------+--+--------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+---------------------------------------+--------------+--+------------+--+--------------+
| | $ | | $ | | $ |
+---------------------------------------+--------------+--+------------+--+--------------+
| Line of credit with Fifth Third Bank | 6,184,000 | | 8,628,000 | | 8,068,000 |
+---------------------------------------+--------------+--+------------+--+--------------+
| Note payable to AUS seller | 3,000,000 | | 3,000,000 | | 3,000,000 |
+---------------------------------------+--------------+--+------------+--+--------------+
| Term loans with Fifth Third Bank | 3,530,000 | | 5,632,000 | | 3,500,000 |
+---------------------------------------+--------------+--+------------+--+--------------+
| Cycad debt facility | 3,300,000 | | - | | 3,300,000 |
+---------------------------------------+--------------+--+------------+--+--------------+
| Capital lease obligation | 59,000 | | - | | 45,000 |
+---------------------------------------+--------------+--+------------+--+--------------+
| | 16,074,000 | | 17,260,000 | | 17,913,000 |
+---------------------------------------+--------------+--+------------+--+--------------+
| Less current portion | (16,014,000) | | (450,000) | | (17,880,000) |
+---------------------------------------+--------------+--+------------+--+--------------+
| | 59,000 | | 16,810,000 | | 33,000 |
+---------------------------------------+--------------+--+------------+--+--------------+
8.Comprehensive Loss
Comprehensive loss is the total of net loss and all other non-owner changes in
equity. At June 30, 2009 and 2008 and December 31, 2008, accumulated other
comprehensive income consisted of cumulative foreign currency translation
adjustment.
Comprehensive income loss is determined as follows:
+---------------------------------------+-----------+--+-----------+--+------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+---------------------------------------+-----------+--+-----------+--+------------+
| | $ | | $ | | $ |
+---------------------------------------+-----------+--+-----------+--+------------+
| Net loss | (8,001) | | (10,170) | | (20,605) |
+---------------------------------------+-----------+--+-----------+--+------------+
| Other comprehensive income (loss): | | | | | |
+---------------------------------------+-----------+--+-----------+--+------------+
| Cumulative foreign currency | 461 | | (87) | | (3,294) |
| translation adjustment | | | | | |
+---------------------------------------+-----------+--+-----------+--+------------+
| Total other comprehensive income | 461 | | (87) | | (3,294) |
| (loss) | | | | | |
+---------------------------------------+-----------+--+-----------+--+------------+
| | | | | | |
+---------------------------------------+-----------+--+-----------+--+------------+
| Comprehensive loss | (7,540) | | (10,257) | | (23,899) |
+---------------------------------------+-----------+--+-----------+--+------------+
9.Net Earnings per Share (EPS)
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed
using the weighted average number of common shares and excludes certain dilutive
potential common shares outstanding, as their effect is anti-dilutive on loss
from continuing operations. Dilutive potential common shares consist of employee
stock options and other warrants that are convertible into the Company's common
stock.
Because the Company incurred losses in the periods ended June 30, 2009 and 2008
and December 31, 2008, the effect of dilutive securities totaling 9,722,000,
9,770,000 and 9,782,000 equivalent shares, respectively, has been excluded in
net loss per share, as their impact would be anti-dilutive. The basic and
diluted EPS is shown in the table below:
+---------------------------------------+-------------+--+--------------+--+--------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+---------------------------------------+-------------+--+--------------+--+--------------+
| | $ | | $ | | $ |
+---------------------------------------+-------------+--+--------------+--+--------------+
| Numerator: ($) | | | | | |
+---------------------------------------+-------------+--+--------------+--+--------------+
| Net loss | (8,001,000) | | (10,170,000) | | (20,605,000) |
+---------------------------------------+-------------+--+--------------+--+--------------+
| Denominator | | | | | |
+---------------------------------------+-------------+--+--------------+--+--------------+
| Weighted average shares | 69,762,000 | | 69,700,000 | | 69,701,000 |
+---------------------------------------+-------------+--+--------------+--+--------------+
| Net loss per share | | | | | |
+---------------------------------------+-------------+--+--------------+--+--------------+
| Basic and diluted | $(0.11) | | $(0.15) | | $(0.29) |
+---------------------------------------+-------------+--+--------------+--+--------------+
10.TCC Joint Venture
In February 2008, the Company entered into an agreement with Tanaka Kikinzoku
Kogyo K.K. (TKK) to form a new joint venture company, TC Catalyst Incorporated
(TCC), a Japanese corporation. The joint venture is part of the light-duty
vehicle catalyst business. The Company entered the joint venture in order to
improve its presence in Japan and Asia and strengthen its business flow into the
Asian market. The Company owns 30% of the joint venture.
In December 2008, the Company agreed to sell and transfer specific heavy-duty
diesel catalyst technology and intellectual property to TKK for use in the
defined territory for a total selling price of $7.5 million. TKK will provide
that intellectual property to TCC on a royalty-free basis. $5.0 million of the
sale was completed and recognized in 2008, with $2.5 million being recognized in
the period ending June 30, 2009.
The Company's investment in TCC is accounted for using the equity method. The
Company's share of the TCC net loss as of June 30, 2009 was $575,000 and TKK's
share is the balance. At June 30, 2009, the Company's interest in the
accumulated deficit of TCC is reflected as an accrued liability as the Company
is contractually obligated to fund its portion of the deficit. TCC operates with
a March 31 fiscal year-end. Financial information for TCC as of and for the
three months ended June 30, 2009 is as follows:
+------------------------------------------------------------+--------------+
| | 6/30/2009 |
+------------------------------------------------------------+--------------+
| | $ |
+------------------------------------------------------------+--------------+
| Assets | 11,675,000 |
+------------------------------------------------------------+--------------+
| Liabilities | 13,399,000 |
+------------------------------------------------------------+--------------+
| Deficit | (1,724,000) |
+------------------------------------------------------------+--------------+
| | |
+------------------------------------------------------------+--------------+
| Net sales | 159,000 |
+------------------------------------------------------------+--------------+
| Gross Margin | (180,000) |
+------------------------------------------------------------+--------------+
| Net earnings | (1,095,000) |
+------------------------------------------------------------+--------------+
11.Goodwill and Intangible Assets
The changes in the carrying amount of goodwill at June 30, 2009 and 2008 and
December 31, 2008 are as follows:
+---------------------------------------------------------------+-----------+
| | $ |
+---------------------------------------------------------------+-----------+
| Balance at June 30, 2008 | 7,869,000 |
+---------------------------------------------------------------+-----------+
| Goodwill adjustments related to acquisition of Engine Control | (70,000) |
| Systems | |
+---------------------------------------------------------------+-----------+
| Tax valuation adjustment | (489,000) |
+---------------------------------------------------------------+-----------+
| Effect of translation adjustment | (991,000) |
+---------------------------------------------------------------+-----------+
| | |
+---------------------------------------------------------------+-----------+
| Balance at December 31, 2008 | 6,319,000 |
+---------------------------------------------------------------+-----------+
| Effect of translation adjustment | 157,000 |
+---------------------------------------------------------------+-----------+
| Balance at June 30, 2009 | 6,476,000 |
+---------------------------------------------------------------+-----------+
Intangible assets are summarized as follows:
+---------------------------+------------+-------------+--+-------------+--+-------------+
| | Useful | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
| | life | | | | | |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| | | $ | | $ | | $ |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| Trade name | 15-20 | 2,187,000 | | 2,284,000 | | 2,151,000 |
| | years | | | | | |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| Non-compete agreement | 3 years | 111,000 | | 111,000 | | 111,000 |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| Patents and know-how | 5-10 years | 5,692,000 | | 5,872,000 | | 5,343,000 |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| Acquired contract | 1.4 years | 353,000 | | 353,000 | | 353,000 |
| work-in-progress | | | | | | |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| Customer relationships | 8 years | 1,127,000 | | 1,288,000 | | 1,094,000 |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| | | 9,470,000 | | 9,908,000 | | 9,052,000 |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| Less accumulated | | (2,664,000) | | (1,714,000) | | (2,144,000) |
| amortization | | | | | | |
+---------------------------+------------+-------------+--+-------------+--+-------------+
| | | 6,806,000 | | 8,194,000 | | 6,908,000 |
+---------------------------+------------+-------------+--+-------------+--+-------------+
Aggregate amortization for amortizable intangible assets, using the
straight-line amortization method, for the six months ended June 30, 2009 and
2008 and the year ended December 31, 2008 was $566,000, $509,000 and $1,112,331,
respectively. Estimated amortization expense for existing intangible assets for
the next five years is: $483,000 in the second half of 2009, $923,000 in 2010,
$695,000 in 2011, $580,000 in 2012 and $580,000 in 2013.
12.Litigation
In connection with the Company's acquisition of the assets of Applied Utility
Systems, Inc., Applied Utility Systems entered into a Consulting Agreement with
M.N. Mansour, Inc. ("Mansour, Inc."), pursuant to which Mansour, Inc. and Dr.
M.N. Mansour ("Dr. Mansour") agreed to perform consulting services for Applied
Utility Systems. During February 2008, Applied Utility Systems terminated the
Consulting Agreement for cause and alleged that Mansour, Inc. and Dr. Mansour
had breached their obligations under the Consulting Agreement. The matter was
submitted to binding arbitration in Los Angeles, California. The arbitration was
held during February 2009. During May 2009 the Arbitrator rendered an Interim
Award (a) finding that the Consulting Agreement was properly terminated by the
Company on February 27, 2008, (b) excusing the Company from any obligation to
make any further payments under the Consulting Agreement and (c) excusing
Mansour, Inc. from any obligation to repay to the Company any of the amounts
previously paid to it under the Consulting Agreement. The Arbitrator requested
that the parties schedule a date for a hearing on the award of attorneys' fees
and the correction of any aspects of the award, without rearguing the merits of
the case. The date for such hearing has not been set. The Consulting Agreement
provides that, on termination of the Consulting Agreement by the Company,
Mansour, Inc. shall repay to the Company 75% of the amounts previously paid to
it under the Consulting Agreement. At the hearing, the Company intends to seek
the award of its attorneys' fees and the correction of the award to require such
payment by Mansour, Inc.
The Company entered into a note payable of $3.0 million with the seller under
the Applied Utility Systems Asset Purchase Agreement dated August 28, 2006. The
note was due August 28, 2009 and accrues interest at 5.36%. At June 30, 2009 the
Company had accrued $457,000 of unpaid interest on the note. The Company has not
paid the foregoing amount. Seller has initiated an action to seek collection of
the foregoing amount. The Company has certain claims against the seller under
the terms of the Asset Purchase Agreement. At this time, the Company intends to
vigorously assert its claims against seller under the Asset Purchase Agreement,
to require that seller pursue any claim on the note through arbitration pursuant
to the terms of the Asset Purchase Agreement and to defend against any action or
arbitration by seller to collect on the note. Under the terms of the Fifth Third
forbearance agreement described in Note 7, the Company is prohibited from making
any payment to unsecured creditors, including seller, until the conditions of
the forbearance agreement have been met.
The Company is pursuing Benz Air Engineering for non-payment on two contracts
performed by Applied Utility Systems. The amount in dispute is $172,500. The
Company is seeking prompt payment penalties and reimbursement of legal fees.
Benz Air has asserted its own claims for breach of contract, negligence and
misrepresentation, saying that Applied Utility Systems and/or the Company didn't
properly perform their work and misrepresented their qualifications. They seek
$300,000 plus interest, costs, punitive damages (for negligent
misrepresentation) and attorney fees. The Company believes that its position
will prevail.
13.Segment Reporting
The Company has three business segments:
Heavy-duty diesel (HDD) systems - The heavy-duty diesel systems business
includes retrofit of legacy diesel fleets with emissions control systems and the
emerging opportunity for new engine emissions controls for on- and off-road
vehicles. In 2007, the Company acquired Engine Control Systems (ECS), an
Ontario, Canada-based innovator focused on a variety of heavy-duty vehicle
applications. This environmental business segment specializes in the design and
manufacture of verified exhaust emissions control solutions. Globally, the
heavy-duty diesel systems business offers a full range of products for the OEM,
aftermarket and retrofit markets in order to reduce exhaust emissions created by
on-road, off-road and stationary diesel, gasoline and alternative fuel engines
including propane and natural gas. The retrofit market in the U.S.A. is driven
in particular by state and municipal environmental regulations and incentive
funding for voluntary early compliance. The heavy-duty diesel systems business
is a market leader in retrofit with a broad portfolio of solutions verified by
the California Air Resources Board and the United States Environmental
Protection Agency.
Light-duty vehicle/heavy-duty diesel (LDV/HDD) catalysts - The light-duty
vehicle/heavy-duty diesel catalyst business is the original part of the
Catalytic Solutions (CSI) business behind the Company's proprietary Mixed Phase
Catalyst (MPC ) technology enabling the Company to produce catalyst formulations
for gasoline, diesel and natural gas induced emissions that offer superior
performance, proven durability and cost effectiveness for multiple markets and a
wide range of applications. A family of unique high-performance catalysts has
been developed - with base-metals or low platinum group metal (PGM) and zero-PGM
content - to provide increased catalytic function and value for
technology-driven automotive industry customers. Typically automobile catalyst
suppliers use a blend of PGM - specifically rhodium, palladium and platinum - to
achieve a desired emission profile. This is a competitive marketplace
experiencing volatile metals pricing. This business segment has competitive
catalytic coating technologies that enable it to go head-to-head with its
largest competitors at some of the world's largest automobile manufacturers, and
win significant business. The light-duty vehicle/heavy-duty diesel catalyst
business has developed world-class technologies and customers recognize that by
working collaboratively with the Company, they can substantially reduce the
amount of catalytic metals necessary for emission controls.
Energy systems - In 2006, the Company purchased AUS, a provider of
cost-effective, engineered solutions for the clean and efficient utilization of
fossil fuels. The energy systems business provides emissions control and energy
systems solutions for industrial and utility boilers, process heaters, gas
turbines and generation sets used largely by major utilities, industrial process
plants, OEMs, refineries, food processors, product manufacturers and
universities. The energy systems business delivers integrated systems, optimized
for the customers' specific combustion process. The total system approach yields
energy cost savings and improved performance along with dramatic reductions in
emissions for a high return on investment. As discussed in Note 1.b, this
business was sold on October 1, 2009.
Summarized financial information for our reportable segments are shown in the
following table:
+--------------------------------------------+-----------+--+-----------+--+------------+
| | 6 months ended | | Year |
| | | | ended |
+--------------------------------------------+--------------------------+--+------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| | US $000 | | US $000 | | US $000 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Net sales | | | | | |
+--------------------------------------------+-----------+--+-----------+--+------------+
| LDV/HDD catalysts | 10,457 | | 10,909 | | 26,311 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Energy systems | 8,509 | | 1,320 | | 10,448 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| HDD systems | 8,796 | | 14,604 | | 27,126 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Eliminations | (110) | | - | | (874) |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total | 27,652 | | 26,833 | | 63,011 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Operating income (loss) | | | | | |
+--------------------------------------------+-----------+--+-----------+--+------------+
| LDV/HDD catalysts | (4,777) | | (9,284) | | (18,387) |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Energy systems | (826) | | (1,363) | | (917) |
+--------------------------------------------+-----------+--+-----------+--+------------+
| HDD systems | (61) | | 1,307 | | 1,923 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total | (5,664) | | (9,340) | | (17,381) |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Depreciation and amortization | | | | | |
+--------------------------------------------+-----------+--+-----------+--+------------+
| LDV/HDD catalysts | 128 | | 933 | | 1,910 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Energy systems | 286 | | 281 | | 556 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| HDD systems | 505 | | 543 | | 1,061 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total | 919 | | 1,757 | | 3,527 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total assets | | | | | |
+--------------------------------------------+-----------+--+-----------+--+------------+
| LDV/HDD catalysts | 39,002 | | 18,810 | | 44,057 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Energy systems | 12,330 | | 6,553 | | 11,537 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| HDD systems | 23,954 | | 32,863 | | 26,357 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Eliminations | (31,787) | | - | | (31,815) |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total | 43,499 | | 58,226 | | 50,136 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Capital expenditures | | | | | |
+--------------------------------------------+-----------+--+-----------+--+------------+
| LDV/HDD catalysts | 420 | | 786 | | 1,571 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Energy systems | 51 | | 27 | | 110 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| HDD systems | 173 | | 47 | | 526 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total | 644 | | 860 | | 2,207 |
+--------------------------------------------+-----------+--+-----------+--+------------+
Net sales by geographic region are shown in the following table:
+--------------------------------------------+-----------+--+-----------+--+------------+
| | 6 months ended | | Year |
| | | | ended |
+--------------------------------------------+--------------------------+--+------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| | US $000 | | US $000 | | US $000 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| United States | 20,389 | | 14,304 | | 39,998 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Canada | 5,297 | | 7,121 | | 13,654 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Europe | 1,966 | | 5,408 | | 9,359 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total | 27,652 | | 26,833 | | 63,011 |
+--------------------------------------------+-----------+--+-----------+--+------------+
Net fixed assets by geographic region are shown in the following table:
+--------------------------------------------+-----------+--+-----------+--+------------+
| | 6 months ended | | Year |
| | | | ended |
+--------------------------------------------+--------------------------+--+------------+
| | 6/30/2009 | | 6/30/2008 | | 12/31/2008 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| | US $000 | | US $000 | | US $000 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| United States | 1,572 | | 7,020 | | 1,533 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Canada | 1,188 | | 2,850 | | 1,043 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Europe | 277 | | 420 | | 306 |
+--------------------------------------------+-----------+--+-----------+--+------------+
| Total | 3,037 | | 10,290 | | 2,882 |
+--------------------------------------------+-----------+--+-----------+--+------------+
CATALYTIC SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
June 30, 2009
(In thousands, except for share information)
(Unaudited)
+------------------------------------------------+----+------+----+----+----+----+----+----+----+----+----+----+----+-------------------------------------------+----+----+----+------+----+
| | CSI | | AUS | | ECS | | Eliminations | | Total |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Assets | US $000 | | US $000 | | US $000 | | US $000 | | US $000 |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Current | | | | | | | | | |
| assets: | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Cash | 1,966 | | 946 | | 1,093 | | - | | 4,005 |
| and | | | | | | | | | |
| cash | | | | | | | | | |
| equivalents | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Trade | 2,033 | | 7,162 | | 2,735 | | - | | 11,930 |
| accounts | | | | | | | | | |
| receivable, | | | | | | | | | |
| net | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Inventories | 3,235 | | - | | 3,295 | | - | | 6,530 |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Prepaid | 1,106 | | (6) | | 553 | | - | | 1,653 |
| expenses | | | | | | | | | |
| and | | | | | | | | | |
| other | | | | | | | | | |
| current | | | | | | | | | |
| assets | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Total | 8,340 | | 8,102 | | 7,676 | | - | | 24,118 |
| current | | | | | | | | | |
| assets | | | | | | | | | |
| | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Property | 962 | | 126 | | 1,949 | | - | | 3,037 |
| and | | | | | | | | | |
| equipment, | | | | | | | | | |
| net | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Intangible | 572 | | 1,924 | | 4,310 | | - | | 6,806 |
| assets, | | | | | | | | | |
| net | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Goodwill | - | | 2,600 | | 3,876 | | - | | 6,476 |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Promissory | 2,767 | | - | | - | | - | | 2,767 |
| note from | | | | | | | | | |
| unconsolidated | | | | | | | | | |
| affiliate | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Other | 26,361 | | (422) | | 6,143 | | (31,787) | | 295 |
| assets | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Total | 39,002 | | 12,330 | | 23,954 | | (31,787) | | 43,499 |
| assets | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Liabilities | | | | | | | | | |
| and | | | | | | | | | |
| stockholders' | | | | | | | | | |
| equity | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Current | | | | | | | | | |
| liabilities: | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Current | 9,830 | | - | | 6,184 | | - | | 16,014 |
| portion | | | | | | | | | |
| of | | | | | | | | | |
| long-term | | | | | | | | | |
| debt | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Accounts | 2,850 | | 3,847 | | 789 | | - | | 7,486 |
| payable | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Deferred | 2,958 | | - | | - | | - | | 2,958 |
| revenue | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Accrued | 1,016 | | 264 | | 665 | | - | | 1,945 |
| salaries | | | | | | | | | |
| and | | | | | | | | | |
| benefits | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Accrued | 9,472 | | 3,264 | | 878 | | (5,531) | | 8,083 |
| expenses | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Total | 26,126 | | 7,375 | | 8,516 | | (5,531) | | 36,486 |
| current | | | | | | | | | |
| liabilities | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Long-term | 59 | | - | | - | | - | | 59 |
| debt, | | | | | | | | | |
| excluding | | | | | | | | | |
| current | | | | | | | | | |
| portion | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Deferred | - | | - | | 2,503 | | - | | 2,503 |
| tax | | | | | | | | | |
| liability | | | | | | | | | |
| - | | | | | | | | | |
| long-term | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| | 26,185 | | 7,375 | | 11,019 | | (5,531) | | 39,048 |
| Total | | | | | | | | | |
| liabilities | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Stockholders' | | | | | | | | | |
| equity: | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Common | 155,654 | | 5,356 | | 21,150 | | (26,256) | | 155,904 |
| stock, | | | | | | | | | |
| no par | | | | | | | | | |
| value | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Treasury | (100) | | - | | - | | - | | (100) |
| stock at | | | | | | | | | |
| cost | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Accumulated | (2) | | - | | (2,404) | | - | | (2,406) |
| other | | | | | | | | | |
| comprehensive | | | | | | | | | |
| loss | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Accumulated | (142,735) | | (401) | | (5,811) | | - | | (148,947) |
| deficit | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| Total | 12,817 | | 4,955 | | 12,935 | | (26,256) | | 4,451 |
| stockholders' | | | | | | | | | |
| equity | | | | | | | | | |
+-----------------------------------------------------+-----------+---------+---------+---------+---------+---------+------------------------------------------------+---------+-----------+
| | 39,002 | | 12,330 | | 23,954 | | (31,787) | | 43,499 |
+------------------------------------------------+----+------+----+----+----+----+----+----+----+----+----+----+----+-------------------------------------------+----+----+----+------+----+
CATALYTIC SOLUTIONS, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Operations
Period ended June 30, 2009
(In thousands)
(Unaudited)
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| | CSI | | AUS | | ECS | | Eliminations | | Total |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| | US $000 | | US $000 | | US $000 | | US $000 | | US $000 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| | | | | | | | | | |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Revenues | 10,457 | | 8,509 | | 8,796 | | (110) | | 27,652 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Cost of revenues | 9,679 | | 7,037 | | 6,013 | | (110) | | 22,619 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Gross margin | 778 | | 1,472 | | 2,783 | | - | | 5,033 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Operating expenses: | | | | | | | | | |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Sales and marketing | 1,175 | | 239 | | 1,004 | | - | | 2,418 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Research and development | 2,970 | | 451 | | 604 | | - | | 4,025 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| General and administrative | 3,255 | | 1,608 | | 1,236 | | - | | 6,099 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Recapitalization expense | 655 | | - | | - | | - | | 655 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Gain on sale of intellectual property | (2,500) | | - | | - | | - | | (2,500) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Total operating expenses | 5,555 | | 2,298 | | 2,844 | | - | | 10,697 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Loss from operations | (4,777) | | (826) | | (61) | | - | | (5,664) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Other income (expense): | | | | | | | | | |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Interest income | 8 | | - | | 221 | | (216) | | 13 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Interest expense | (1,339) | | - | | (137) | | 216 | | (1,260) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Acceleration of deferred financing | | | | | | | | | |
| expense | (253) | | - | | - | | - | | (253) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Loss on unconsolidated affiliate | (575) | | - | | - | | - | | (575) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Other | 206 | | - | | (405) | | - | | (199) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Total other expense, net | (1,953) | | - | | (321) | | - | | (2,274) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Loss before provision for income | (6,730) | | (826) | | (382) | | - | | (7,938) |
| taxes | | | | | | | | | |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| | | | | | | | | | |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Provision for income taxes | - | | - | | 63 | | - | | 63 |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
| Net loss | (6,730) | | (826) | | (445) | | - | | (8,001) |
+------------------------------------------+----------+--+--------------+----------+----------+--+--------------+--+------------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR ILFSTLSLTIIA
Grafico Azioni Catalytic (LSE:CTS)
Storico
Da Dic 2024 a Gen 2025
Grafico Azioni Catalytic (LSE:CTS)
Storico
Da Gen 2024 a Gen 2025
