Clean Diesel Technologies Inc (NASDAQ: CDTI) Gets A Closer Look

Clean Diesel Technologies, Inc. (NASDAQ: CDTI)CDTI) ("Clean Diesel"), provider of solutions to the automotive emissions control markets, has seen traders push up its share price from $2.50 to $3.16 this month. Due to astonishing returns, the team decided to commence an investigation of this company, as there were several things that we could not understand. Most of the violent upside movement occurred on April 21, 2017, while the company did not communicate anything important that day. Additionally, the last 10-k was announced at the beginning of the month and we firmly believe that the market reaction was not due to analysts, who saw the report some days later or took such a long time to make their calculations. Something was going on with this ticker and we wanted to give you some hints in this new piece. Have a look at the price action.SourceBusinessClean Diesel claims to be leader in emissions catalyst design and engineering for automotive and off-road applications. More specifically, the company is an expert in the development of new materials to replace the platinum group metals and rare earth metals that are necessary in catalytic converters. Clean Diesel supplies the materials and technology being used in the catalyst coating process as well as the finished products, such as coated substrates and emission control systems. The company produces these products in Oxnard, California. Other third-party manufacturers also help the company at some occasions. Clean Diesel employees 97 full time employees and 2 part time employees and also works with consultants and sales and marketing consultants and agents.We found in the annual report that the company's products have been incorporated into vehicles produced by well-known brands, such as Honda, which has used the low-PGM mixed phase catalysts, also called MPC®. For the professionals reading the article, you may know some of the following designs produced by Clean Diesel:

• synergized-PGM diesel oxidation catalysts, or SPGM™ DOCs
• base-metal activated rhodium support, or BMARS™
• Spinel™ technologies.

The key in this business is not only the market expertise developed by the company after twenty years of developing emissions catalysts, but the large amount of patents owned. Have a look at what is hidden in the annual report:

"We have filed approximately 215 patents that underpin next-generation technology for our advanced zero-PGM or ZPGM and low-PGM catalysts, and during 2015 and 2016, we completed an initial series of vehicle tests to validate our next-generation technologies." Annual Report

We could see that the company is actually using know-how accumulated in other markets, which are growing at a higher pace than North America; China and India. We believe that it is a great move, which will increase overall growth.

"The strategy to provide our technology to other manufacturers has significantly increased the size of our addressable market and provides access to markets that would not be achievable as a catalyst producer. In the short term, we are focusing our efforts and resources by pursuing opportunities in fast growing markets in China and India, as well as North America, where we believe that we can serve profitably with our technology provider business model." Annual Report

Finally, another significant key in the company's strategy is that catalysts being produced are required by regulatory standards worldwide. Not only that, the fact is that the United States Environmental Protection Agency, the California Air Resources, the European Union, the Chinese Ministry of Environmental Protection and many other regulators are becoming more restrictive every year. Hence, the business of Clean Diesel could not be better situated to grow.Financial SituationThe company has a clean balance sheet as of December 31 2016. It holds approximately $7.8 million in cash, and $7.1 million in the inventory. The amount of intangibles is $1.4 million, which, we believe, underestimates the potential of the know-how owned. Accountants can only register on the balance sheet a small amount of the R&D expensed. Obviously, they cannot include the potential of the technology. In our opinion, these assets could be worth much more if the company decides to sell these assets to Chinese or Indian companies.Cash And Cash Equivalents7,8392,9587,220Short Term Investments---Net Receivables5,3984,2552,875Inventory7,1257,9186,298Other Current Assets9681,5681,448Total Current Assets21,33016,69917,841Long Term Investments---Property Plant and Equipment1,1581,5381,357Goodwill-4,6595,177Intangible Assets1,4831,9012,662Accumulated Amortization---Other Assets305305620Deferred Long Term Asset Charges554554554Total Assets24,83025,10227,657Three last 10-KsCompared to this amount of assets, the amount of liabilities looks small; $16.2 million. Additionally, the company has no debt, which it paid last year, and is able to finance the working capital using accounts payable. Management is doing a great job in our opinion.Accounts Payable14,76913,4009,988Short/Current Long Term Debt1,4583,5132,841Other Current Liabilities---Total Current Liabilities16,22716,91312,829Long Term Debt-7,5597,476Other Liabilities---Deferred Long Term Liability Charges-193359Minority Interest---Negative Goodwill---Total Liabilities16,22724,66520,664Three last 10-KsRecent DevelopmentsThe year-end 2016 financial results were delivered to the market on March 31, 2017. As said, the company is expanding its business in Asia, thus it announced the following key milestones and announced that the first revenues from these new contracts would be seen in Q4 2016:

• Formed strategic alliance with Sino-Precious Metals Holding Co., Ltd. (SPMH), one of China's largest domestic catalyst coaters for the China passenger car market
• Entered commercial agreements for supply of BMARS™ and SPGM™ DOC powder with three domestic catalyst manufacturers

Additionally, the company launched new line of private label heavy-duty diesel emissions’ control after market products featuring CDTi's Diesel Particulate Filter (DPF) and Diesel Oxidation Catalyst (DOC) technology in the United States and signed two new manufacturing and distribution agreements with two new partners.From the financial figures, we highlighted the total annual revenue, which was $36.8 million, and the fact that the company ended 2016 with $7.8 million in cash, as compared to the figure reported last year, which was only $3.0 million. Additionally, the gross margin was 22% for 2016, which was 27% last year.As said, we don't think that the financial figures were responsible for the jump at the end of April. Thus, we tried to look the business from other angles.Several Scenarios to explain the recent jump

1. Acquisition: The company could be acquired by the Chinese Government or one of the companies created by the Government. This is not as crazy as it sounds. The company is small. It owns intangible assets and is negotiating with Chinese companies providing its know how. Isn't an acquisition more beneficial for the companies than negotiating contracts all the time with the Americans? Another party interested could be Honda. As mentioned earlier, the producer used the company's products recently and maybe it did not appreciate that one of its providers is working for the Chinese. Let me recap that Honda is a Japanese company. The market capitalization of the company is $49 million, which is peanuts for a big corporation, such as this Japanese company. Additionally, the company has many other competitors that could buy it out. This is a list, some of them are well-known: BASF GmbH, Johnson Matthey PLC and Umicore Limited Liability Company, Donaldson Company, Inc., ESW, Inc., Hug Filtersystems, and DCL International, Inc.
2. A new press release about a new line of manufacturing or another contract with another big corporation: this will be likely. In this kind of small companies, sometimes employees talk too much to traders, like us, or the ones in major banks. I have seen worse things, let me tell you. The company was up, for example, 15% in only one day after it announced an agreement with DENSO to provide its emission control technology to the North American heavy-duty market. Something similar could be happening now.
3. Market Manipulation: Some strange things happen sometimes in small companies, like this one at the end of the week and at the end of the month.

ConclusionClean Diesel seems to be a company to follow as it is delivering outstanding returns that we cannot really explain. We checked the last financial figures and they were fine, but we didn't find that we could justify the jump with the figures reported. We believe that either the company is about to be acquired, or it may release a communication to explain what is going on, or some fund is in the market. In any case, we encourage you to subscribe to our news alerts, as we believe that we may be able to explain the share price move soon. We will be updating our subscribers as soon as we know more. For the latest updates on CDTI, sign up below!Disclosure: We have no position in CDTI and have not been compensated for this article.Update: The Street Sweeper is out with a negative article on CDTI. We have NOT been compensated for this article nor do we have ANY position in CDTI. We wrote this article for the purpose of getting traffic to the site. The only time we have ever been paid is through our email newsletter and everything is 100% disclosed. We have never nor will we ever take a position in any company mentioned on this site. The Street Sweeper is spreading lies hoping to benefit their short position.