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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33710

CLEAN DIESEL TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



Delaware		06-1393453
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1621 Fiske Place

Oxnard, CA 93033

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (805) 639-9458

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
			Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 7, 2017, the outstanding number of shares of the registrant’s common stock, par value $0.01 per share, was 15,802,936.

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CLEAN DIESEL TECHNOLOGIES, INC.

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	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)	1

Condensed Consolidated Balance Sheets	1

Condensed Consolidated Statements of Comprehensive Loss	2

Condensed Consolidated Statements of Cash Flows	3

Notes to Condensed Consolidated Financial Statements	4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3. Quantitative and Qualitative Disclosures About Market Risk	22

Item 4. Controls and Procedures	22

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	23

Item 1A. Risk Factors	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3. Defaults Upon Senior Securities	23

Item 4. Mine Safety Disclosures	23

Item 5. Other Information	23

Item 6. Exhibits	24

SIGNATURES	25

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

CLEAN DIESEL TECHNOLOGIES, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)



	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash	$	3,341		$	7,839
Accounts receivable, net	3,669			5,398
Inventories	3,534			7,125
Prepaid expenses and other current assets	961			968
Total current assets	11,505			21,330
Property and equipment, net	935			1,158
Intangible assets, net	1,158			1,483
Deferred tax asset	670			554
Other assets	326			305
Total assets	$	14,594		$	24,830
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	—		$	1,458
Shareholder notes payable	—			1,803
Accounts payable	4,243			5,979
Accrued expenses and other current liabilities	3,972			6,345
Income taxes payable	765			642
Total current liabilities	8,980			16,227
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, par value $0.01 per share: authorized 100,000; no shares issued and outstanding	—			—
Common stock, par value $0.01 per share: authorized 50,000,000 shares; issued and outstanding 15,802,936 and 15,703,301 shares at September 30, 2017 and December 31, 2016, respectively	158			157
Additional paid-in capital	238,340			237,838
Accumulated other comprehensive loss	(5,979		)	(6,329		)
Accumulated deficit	(226,905		)	(223,063		)
Total stockholders’ equity	5,614			8,603
Total liabilities and stockholders’ equity	$	14,594		$	24,830

See accompanying notes to condensed consolidated financial statements.

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CLEAN DIESEL TECHNOLOGIES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands, except per share amounts)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
				As Restated						As Restated
Revenues	$	6,857		$	10,132		$	23,470		$	28,284
Cost of revenues	5,370			7,425			18,605			21,153
Gross profit	1,487			2,707			4,865			7,131
Operating expenses:
Research and development	1,155			762			3,211			3,955
Selling, general and administrative	1,877			2,322			6,519			8,549
Severance and other charges	235			571			(384		)	1,945
Total operating expenses	3,267			3,655			9,346			14,449
Loss from operations	(1,780		)	(948		)	(4,481		)	(7,318		)
Other income (expense):
Interest expense, net	(93		)	(458		)	(260		)	(1,541		)
Gain on bifurcated derivative liability	—			—			—			2,754
Loss on extinguishment of debt	—			(10,780		)	(194		)	(12,410		)
Gain (loss) on change in fair value of liability-classified warrants	738			(705		)	404			883
Gain on sale of DuraFit	805			—			805			—
Other (expense) income, net	(149		)	196			(67		)	824
Total other income (expense)	1,301			(11,747		)	688			(9,490		)
Loss from operations before income taxes	(479		)	(12,695		)	(3,793		)	(16,808		)
Income tax (benefit) expense	(119		)	(113		)	49			(1,232		)
Net loss	(360		)	(12,582		)	(3,842		)	(15,576		)
Foreign currency translation adjustments	129			(190		)	350			(460		)
Comprehensive loss	$	(231	)	$	(12,772	)	$	(3,492	)	$	(16,036	)
Basic and diluted net loss per common share:
Net loss	$	(0.02	)	$	(2.14	)	$	(0.24	)	$	(3.49	)
Weighted average shares outstanding – basic and diluted	15,760			5,876			15,724			4,462

See accompanying notes to the condensed consolidated financial statements.

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CLEAN DIESEL TECHNOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	Nine Months Ended September 30,
	2017			2016
				As Restated
Cash flows from operating activities:
Net loss	$	(3,842	)	$	(15,576	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	511			599
Stock-based compensation expense	304			841
Gain on sale of DuraFit business	(805		)	—
Gain on change in fair value of liability-classified warrants	(404		)	(883		)
Loss on extinguishment of debt	194			12,410
Gain on change in fair value of bifurcated derivative liability	—			(2,754		)
Loss (gain) on foreign currency transactions	92			(813		)
Amortization of debt discount	—			398
Other	8			(20		)
Changes in operating assets and liabilities:
Accounts receivable	1,795			(1,583		)
Inventories	1,169			(666		)
Prepaid expenses and other assets	23			170
Accounts payable, accrued expenses and other current liabilities	(3,772		)	3,929
Income taxes payable	—			(102		)
Net cash used in operating activities	(4,727		)	(4,050		)
Cash flows from investing activities:
Purchases of property and equipment	—			(116		)
Proceeds from sale of DuraFit business	3,337			—
Proceeds from sale of property and equipment	—			130
Net cash provided by investing activities	3,337			14
Cash flows from financing activities:
Net payments under demand line of credit	(1,458		)	(201		)
Payments of shareholder notes payable	(2,000		)	—
Proceeds from exercise of stock options	42			—
Proceeds from issuance of debt	—			3,750
Proceeds from exercise of warrants	122			247
Net cash (used in) provided by financing activities	(3,294		)	3,796
Effect of exchange rates on cash	186			(20		)
Net change in cash	(4,498		)	(260		)
Cash at beginning of period	7,839			2,958
Cash at end of period	$	3,341		$	2,698

See accompanying notes to the condensed consolidated financial statements.

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CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization

Clean Diesel Technologies, Inc. is a leading provider of technology and solutions to the automotive emissions control markets. We possess market leading expertise in emissions catalyst design and engineering for automotive and off-road applications. In particular, we have a proven ability to develop proprietary materials incorporating various base metals that replace costly platinum group metals ("PGM") and rare earth metals in coatings on vehicle catalytic converters. Our business is driven by increasingly stringent global emission standards for internal combustion engines, which are major sources of a variety of harmful pollutants.

We deliver our catalyst technology through the supply of materials and technology used in the catalyst coating process as well as finished products such as coated substrates and emission control systems. We supply our proprietary catalyst technologies to catalyst manufacturers, vehicle and equipment manufacturers, integrators and retrofitters.

We produce coated substrates at our ISO Technical Specifications certified manufacturing facility in Oxnard, California. In some instances, the coated substrates we produce are integrated into exhaust systems by third-party manufacturers before being shipped to our end customer. We also supply coated substrates directly to exhaust systems manufacturers for incorporation in their own products.

Over the past decade, we have developed several generations of high performance catalysts, including our low-PGM mixed phase catalysts, or MPC® that are used on certain new Honda vehicles. During the same period we have developed the ability to deliver our catalyst technology to other catalyst manufacturers in the form of functional powders or material systems. Recently, we have expanded our offering of material systems beyond MPC® to include new synergized-PGM diesel oxidation catalysts, or SPGM™ DOCs, base-metal activated rhodium support, or BMARS™, and Spinel™ technologies. Most catalytic systems require significant amounts of costly PGMs to operate effectively. Our family of unique high-performance material systems, featuring inexpensive base-metals with low PGM content will enable further advances in catalyst performance. We are marketing these new catalyst technologies to other catalyst manufacturers in a proprietary powder form, which will allow them to capture the benefits of our advanced catalyst technology in their own manufacturing operations and will provide a new source of revenue for the Company.

2. Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. Therefore, the condensed 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 inception, resulting in an accumulated deficit of $226.9 million at September 30, 2017. The Company has funded its operations through asset sales, credit facilities and other borrowings and equity sales. At September 30, 2017, the Company had $3.3 million in cash.

The Company’s continuation as a going concern is dependent upon its ability to obtain adequate financing, which the Company has successfully secured since inception, including financing from equity sales and asset divestitures. However, there is no assurance that the Company will be able to achieve projected levels of revenue and maintain access to sufficient working capital, and accordingly, there is substantial doubt as to whether the Company’s existing cash resources and working capital are sufficient to enable it to continue its operations within one year from the financial statement issuance date. The Company is currently working towards obtaining a new credit facility that would provide the Company the flexibility it needs as it implements its new business strategy. If the Company is unable to obtain the necessary capital, it will be forced to license or liquidate its assets, significantly curtail or cease its operations and/or seek reorganization under the U.S. Bankruptcy Code.

On May 19, 2015, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on November 17, 2015. The Form S-3 permits the Company to sell in one or more registered transactions up to an aggregate of $50.0 million of various securities not to exceed one-third of the Company’s public float in any 12-month period. As of September 30, 2017, the Company had sold an aggregate of $3.1 million using the Form S-3.

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3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial reporting. In the opinion of management, all normal recurring accruals and adjustments that are necessary for a fair presentation have been reflected. Intercompany transactions and balances have been eliminated in consolidation. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), but is not required for interim reporting purposes, has been condensed or omitted. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 7, 2017.

On July 22, 2016, the Company effected a one-for-five reverse stock split. All share and per share information presented in these unaudited condensed consolidated financial statements for periods prior to July 22, 2016 has been retroactively adjusted to reflect the reverse stock split.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. These estimates and assumptions are based on management's best estimates and judgment. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to impairment of long-lived assets, stock-based compensation, the fair value of financial instruments including warrants, allowance for doubtful accounts, inventory valuation, taxes and contingent and accrued liabilities. The Company bases its estimates on historical experience and various 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. Actual results may differ from these estimates under different assumptions and conditions. Management believes that the estimates are reasonable.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, "Revenue from Contracts with Customers (Topic 606)". ASU 2014-9 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)". ASU 2014-9 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB finalized the delay of the effective date by one year, making the new standard effective for interim periods and annual periods beginning after December 15, 2017. Early adoption is permitted, but it is not permitted earlier than the original effective date. ASU 2014-9 provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. While the Company has not finalized the impact of the adoption of ASU 2014-9 on its consolidated financial statements, the Company does not expect the adoption to have a material impact.

In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory". ASU 2015-11 changes the measurement principle for inventory from the "lower of cost or market" to "lower of cost and net realizable value." Net realizable value is defined as the "estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation." ASU 2015-11 eliminates the guidance that entities consider replacement cost or net realizable value less an approximately normal profit margin in the subsequent measurement of inventory when cost is determined on a first-in, first-out or average cost basis. It is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those fiscal years. The Company implemented ASU 2015-11 in the first quarter 2017. The adoption of this provision did not have a material impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU 2016-1, "Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2016-1 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and

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significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. ASU 2016-1 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is evaluating the impact of adoption of ASU 2016-1 on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)". ASU 2016-2 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. generally accepted accounting principles. It is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is evaluating the impact of adoption of ASU 2016-2 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 will change how companies account for certain aspects of share-based payments to employees. Entities will be required to recognize the income tax effects of awards in the statement of income when the awards vest or are settled, the guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing and the update requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company adopted ASU 2016-09 in the first quarter of 2017. The Company elected to account for the forfeitures when they occur. The adoption of this provision did not have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments: a consensus of the Emerging Task Force”. ASU 2016-15 provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. The standard is intended to reduce current diversity in practice. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this accounting standard on its consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets of Other Than Inventory.” Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 updates the current guidance by requiring that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this ASU do not change GAAP for the pre-tax effects of an intra-entity asset transfer under Topic 810, Consolidation, or for the income tax effects of an intra-entity transfer of inventory. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this accounting standard on its consolidated financial statements.

On May 10, 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) - Scope of Modification Accounting. The guidance clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company believes the adoption of ASU 2017-09 will not have a significant impact on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of this

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Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that ASU 2017-11 will have on its consolidated financial statements.

4. Sale of DuraFit business

On September 8, 2017, the Company entered into an Asset Purchase Agreement with AP Emissions Technologies, LLC (“AP") wherein the Company sold substantially all of the assets of its DuraFit and private label OEM replacement diesel particulate filter ("DPF") and diesel oxidation catalysts ("DOC") business for approximately $3.3 million in cash. The assets sold included all tangible and intangible assets of that business, including brands, intellectual property, equipment, customer agreements, private label programs and inventory. As a result of the transaction, for the three and nine months ended September 30, 2017, the Company recorded a gain on sale of DuraFit of approximately $0.8 million. The Company will continue to serve this market through coating arrangements and its powder-to-coat technology.

Concurrently with the sale of the DuraFit business, the Company repaid in full all indebtedness owed to FGI Worldwide LLC, successor to Faunus Group International, Inc. ("FGI"), and terminated the Company's loan agreements with FGI and all commitments thereunder. In connection with termination of the loan agreements, FGI terminated and released all of its security interests in and liens on all of the assets of the Company and its subsidiaries. Of the proceeds received by the Company from the sale of the DuraFit business, the Company applied approximately $315,000 in repayment of the outstanding indebtedness to FGI. The Company did not incur any prepayment or early termination penalties in connection with termination of the FGI loan agreements.

5. Inventories

Inventories consists of the following (in thousands):



	September 30, 2017		December 31, 2016
Raw materials	$	1,372	$	3,291
Work in process	437		790
Finished goods	1,725		3,044
Total inventories	$	3,534	$	7,125

6. Goodwill and Intangible Assets

Goodwill

The Company recognized an impairment charge of $4.7 million for the year ended December 31, 2016. As such, the Company has no goodwill at September 30, 2017 and December 31, 2016, respectively.

Intangible Assets

Intangible assets consist of the following (in thousands):



	Useful Life in Years	September 30, 2017			December 31, 2016
Trade name	15 - 20	$	1,209		$	1,204
Patents and know-how	5 - 12	4,113			4,090
Customer relationships	4 - 8	752			721
		6,074			6,015
Less accumulated amortization		(4,916		)	(4,532		)
		$	1,158		$	1,483

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The Company recorded amortization expense related to amortizable intangible assets of $0.1 million and $0.1 million during the three months ended September 30, 2017 and 2016, respectively and $0.3 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively.

Estimated amortization expense for each of the next five years is as follows (in thousands):



Years ending December 31:
Remainder of 2017	$	105
2018	161
2019	161
2020	161
2021	161
Thereafter	409
	$	1,158

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):



	September 30, 2017		December 31, 2016
Accrued salaries and benefits	$	526	$	759
Accrued severance and other charges (1)	392		1,738
Accrued warranty (2)	65		338
Warrant liability (3)	788		1,226
Liability for consigned precious metals	1,695		1,282
Other	506		1,002
	$	3,972	$	6,345


(1)	For additional information, refer to Note 8, “Severance and Other Charges”.


(2)	For additional information, refer to Note 9, “Accrued Warranty”.


(3)	For additional information, refer to Note 11, “Warrants” and Note 12, “Fair Value Measurements”.

8. Severance and Other Charges

Severance and other charges consist of employee severance expense and lease exit costs, and the following summarizes the activity (in thousands):



	Severance			Lease Exit Costs		Total
December 31, 2015	$	1,092		$	—	$	1,092
Provision	791			570		1,361
Payments	(1,000		)	—		(1,000		)
September 30, 2016	$	883		$	570	$	1,453



	Severance			Lease Exit Costs			Total
December 31, 2016	$	718		$	1,020		$	1,738
Provision (reversals)	235			(619		)	(384		)
Payments	(576		)	(386		)	(962		)
September 30, 2017	$	377		$	15		$	392

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At September 30, 2017 and December 31, 2016, the balance of severance and other charges were recorded in accrued expenses and other liabilities in the condensed consolidated balance sheet. In the third quarter of 2017, the Company incurred severance charges related to the sale of its Durafit business as well as the contraction in its operations team in response to the permanent decrease in sales to Honda. In the second quarter of 2017, the Company reached an agreement with the property owner of its former Canadian facility to exit the lease prior to its December 2018 termination. Severance and other charges reflect the reduction of the liability for the remaining estimated costs relative to the closed facility.

9. Accrued Warranty

The Company establishes reserves for future product warranty costs that are expected to be incurred pursuant to specific warranty provisions with its customers. The Company generally warrants its products against defects between one and five years from date of shipment, depending on the product. The warranty reserves are established at the time of sale and updated throughout the warranty period based upon numerous factors including historical warranty return rates and expenses over various warranty periods. Historically, warranty returns have not been material.

The following summarizes the activity in the Company’s accrual for product warranty (in thousands):



	Nine Months Ended September 30,
	2017			2016
Balance at beginning of period	$	338		$	228
Accrued warranty expense	(16		)	387
Warranty claims paid	(152		)	(301		)
Transferred in sale of DuraFit	(110		)	—
Translation adjustment	5			—
Balance at end of period	$	65		$	314

At September 30, 2017 and December 31, 2016, the balance of accrued warranty was recorded in accrued expenses and other liabilities in the condensed consolidated balance sheet. As part of the sale of its Durafit product line, the Company transferred its warranty liability for Durafit to the buyer.

10. Debt

Notes payable consists of the following (in thousands):



	September 30, 2017		December 31, 2016
Line of credit with FGI	$	—	$	1,458
$2.0 million, 8% shareholder note due 2017 (Kanis S.A.) (1)	—		1,803
	—		3,261
Less current portion	—		(3,261		)
	$	—	$	—


(1)	Debt discount related to extinguishment and amendment of previous outstanding debt. The aggregate amount of unamortized debt discount was $0.2 million at December 31, 2016. For additional information, refer to the respective discussions below.

Line of credit with FGI

The Company maintained a $7.5 million secured demand facility with FGI backed by the Company's receivables and inventory. The Company also granted FGI a first lien collateral interest in substantially all of the Company's assets. On September 8, 2017, concurrent with the sale of the DuraFit business (see Note 4), the Company repaid all outstanding balances under this demand facility and terminated the loan agreements and all commitments thereunder. In connection with termination of the loan agreements, FGI terminated and released all of its security interests in and liens on all of the assets of the Company and its subsidiaries.

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The interest rate on advances or borrowings under the FGI facility was the greater of (i) 6.50% per annum and (ii) 2.50% per annum above the prime rate, as defined in the FGI facility and was 6.50% at December 31, 2016.

Kanis S. A. Indebtedness

On April 1, 2016, the Company borrowed $2.0 million from Kanis S.A. pursuant to a promissory note with an interest rate of 8% per annum and a maturity date of September 30, 2017 (see Note 18).

In January 2017, the Company repaid the entire $2.0 million balance and recorded a loss on extinguishment of $0.2 million.

11. Warrants

Warrants outstanding and exercisable are summarized as follows:



	Shares(1)		Weighted Average Exercise Price		Range of Exercise Prices
Outstanding at December 31, 2016	979,869		$	6.36	$2.20-$21.00
Exercised	(75,399	)	$	19.46	$13.25-$21.00
Expired	—		$	—	$—
Outstanding at September 30, 2017	904,470		$	5.27	$2.20-$21.00
Exercisable at September 30, 2017	904,470		$	5.27	$2.20-$21.00

(1) Outstanding and exercisable information includes 21,920 equity-classified warrants.

Warrant Liability

The Company's warrant liability is carried at fair value and is classified as Level 3 in the fair value hierarchy because the warrants are valued based on unobservable inputs.

The Company determines the fair value of its warrant liability using the Black-Scholes option-pricing model unless the awards are subject to market conditions, in which case it uses a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that market conditions will be achieved. These models are dependent on several variables such as the instrument's expected term, expected strike price, expected risk-free interest rate over the expected term of the instrument, expected dividend yield rate over the expected term and the expected volatility. The expected strike price for warrants with full-ratchet down-round price protection is based on a weighted average probability analysis of the strike price changes expected during the term as a result of the full-ratchet down-round price protection.

The assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the warrant liability as of September 30, 2017 were as follows:




Expected volatility	88.7-101.0
Risk-free interest rate	1.47%-1.80%
Dividend yield	—
Expected life in years	2.0-4.2

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The assumptions used in the Monte Carlo simulation model to estimate the fair value of the warrant liability as of September 30, 2017 were as follows:




Expected volatility	62.0-89.7
Risk-free interest rate	1.26%-1.49%
Dividend yield	—
Expected life in years	0.8-2.1

The warrant liability, included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets, is re-measured at the end of each reporting period with changes in fair value recognized in other income (expense), net in the consolidated statements of comprehensive loss. Upon the exercise of a warrant that is classified as a liability, the fair value of the warrant exercised is re-measured on the exercise date and reclassified from warrant liability to additional paid-in capital.

12. Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value in accordance with a hierarchy which requires an entity to maximize the use of observable inputs which reflect market data obtained from independent sources and minimize the use of unobservable inputs. There are three levels of inputs that may be used to measure fair value:

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 including quoted prices for similar instruments in active markets and quoted prices for identical or similar instruments in markets that are not active; and

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.

Assets and liabilities measured at fair value on the Company’s balance sheet on a recurring basis include the following at September 30, 2017 and December 31, 2016 (in thousands):



Warrant Liability	Level 1	Level 2	Level 3
September 30, 2017	—	—	$	788
December 31, 2016	—	—	$	1,226

There were no transfers in or out of Level 1, Level 2 or Level 3 fair value measurements during the three and nine months ended September 30, 2017.

The following is a reconciliation of the warrant liability, included in accrued expenses and other current liabilities in the accompanying unaudited condensed consolidated balance sheets, measured at fair value using Level 3 inputs (in thousands):



	Nine Months Ended September 30,
	2017			2016
Balance at beginning of period	$	1,226		$	3,072
Exercise of common stock warrants	(34		)	(1,224		)
Remeasurement of common stock warrants	(404		)	(883		)
Balance at end of period	$	788		$	965

The fair values of the Company’s cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other current liabilities approximate carrying values due to the short maturity of these instruments. The fair value of the line of credit approximates its carrying value due to the variable interest rates.

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The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy.

13. Loss per Share

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 plus potentially dilutive common shares. Potentially dilutive common shares include employee stock options and restricted share units and warrants and debt that are convertible into the Company’s common stock.

Because the Company incurred net losses in the three and nine months ended September 30, 2017 and 2016, the effect of potentially dilutive securities has been excluded in the computation of diluted loss per share as their impact would be anti-dilutive. Potentially dilutive common stock equivalents excluded were 2.0 million shares during the three and nine months ended September 30, 2017. Potentially dilutive common stock equivalents excluded were 4.8 million and 4.3 million shares during the three and nine months ended September 30, 2016, respectively.

14. Commitments and Contingencies

The Company leases facilities under non-cancellable operating leases. The leases expire at various dates through fiscal 2018 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance and maintenance costs, and provisions for minimum rent increases. Minimum lease payments, including scheduled rent increases are recognized as rent expense on a straight-line basis over the term of the lease.

Litigation

The Company is involved in legal proceedings from time to time in the ordinary course of its business. Management does not believe that any of these claims and proceedings against it is likely to have, individually or in the aggregate, a material adverse effect on the Company’s condensed consolidated financial condition, results of operations or cash flows. Accordingly, the Company cannot determine the final amount, if any, of its liability beyond the amount accrued in the unaudited condensed consolidated financial statements as of September 30, 2017, nor is it possible to estimate what litigation-related costs will be in the future.

For information related to commitments and contingencies related to Applied Utility Systems, a former subsidiary of the Company that was sold in 2009, refer to Note 17, “Discontinued Operations”.

15. Geographic Information

Net sales by geographic region based on the location of the Company’s point of sale is as follows (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
United States	$	3,909	$	7,354	$	13,969	$	18,719
Canada	1,844		2,084		6,748		7,143
Europe	1,104		694		2,753		2,422
Total international	2,948		2,778		9,501		9,565
Total revenues	$	6,857	$	10,132	$	23,470	$	28,284

16. Concentrations

For the three months ended September 30, 2017 and 2016, Honda accounted for 48% and 68%, respectively, of the Company's revenues. For the nine months ended September 30, 2017 and 2016, Honda accounted for 52% and 60%, respectively, of the Company's revenues. This customer accounted for 22% and 35% of the Company's accounts receivable at September 30, 2017 and December 31, 2016, respectively. Based on discussions with Honda, and acceleration of the Company's powder-to-coat strategy, the Company's supply of coated catalysts to Honda has begun to significantly decline in the second half of 2017, as certain current vehicle models are phased out. The Company does not anticipate significant revenue from Honda in 2018.

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For the three months ended September 30, 2017, the Company had four suppliers that accounted for approximately 14%, 12%, 12%, and 11% of the Company's material purchases. For the three months ended September 30, 2016, the Company had two suppliers that accounted for approximately 36% and 12% of the Company's material purchases.

For the nine months ended September 30, 2017, the Company had two suppliers that accounted for approximately 18%, and 11% of the Company's material purchases. For the nine months ended September 30, 2016, the Company had one supplier that accounted for approximately 38% of the Company's material purchases.

17. Discontinued Operations

Applied Utility Systems, Inc.

The Company is undergoing a sales and use tax audit by the State of California (the “State”) on Applied Utility Systems, Inc. “AUS” for the period of 2007 through 2009. The audit has identified a project performed by the Company during that time period for which sales tax was not collected and remitted and for which the State asserts that proper documentation of resale may not have been obtained and that the Company owes sales tax of $1.5 million, inclusive of interest. The Company contends and believes that it received sufficient and proper documentation from its customer to support not collecting and remitting sales tax from that customer and is actively disputing the audit report with the State. On August 12, 2013, the Company appeared at an appeals conference with the State Board of Equalization (“BOE”). On July 21, 2014, the Company received a Decision and Recommendation (“D&R”) from the BOE. The D&R’s conclusion was that the basis for the calculation of the aforementioned $1.5 million tax due should be reduced from $12.2 million to $9.0 million with a commensurate reduction in the tax owed to the State. Based on a re-audit, the BOE lowered the tax due to $0.9 million, inclusive of interest. The Company continues to disagree with these findings based on the aforementioned reasons. However, in October 2015, the Company offered to settle this case for $0.1 million, which is based on the expected cost of continuing to contest this audit. Accordingly, an accrual was charged to discontinued operations during the year ended December 31, 2015. Should the Company not prevail with the offer to settle this case, it plans to continue with the appeals process. Further, should the Company not prevail in this case, it will pursue reimbursement from the customer for all assessments from the State. As of each of September 30, 2017 and December 31, 2016, the Company had $0.1 million, respectively, in accrued expenses on the condensed consolidated balance sheet.

18. Restatement of Prior Period Financial Statements

Subsequent to the issuance of the Company's consolidated financial statement for the quarterly period ended September 30, 2016, the Company identified immaterial errors that were the result of an incorrect assessment of the April 1, 2016 debt transaction with Kanis S.A.

On April 1, 2016, the Company executed a promissory note (the “Note”) in favor of Kanis S.A., pursuant to which Kanis S.A. loaned the Company $2.0 million (the “New Loan”). In addition, on April 1, 2016, the Company entered into an amendment to the loan agreement (the “Amendment”) with Kanis S.A., pursuant to which the Company and Kanis S.A. agreed to amend certain prior loans and amendments aggregating a principal balance of $7.5 million (the “Existing Loans”). The Amendment included the addition of a conversion feature to the Existing Loans, providing for their conversion into the Company’s common stock. Certain financial instruments of the Amendment required bifurcation and were determined to be an embedded derivative comprised of a conversion feature and a call option valued at $3.9 million using the Monte Carlo simulation model. The Company recorded the bifurcated derivative as a liability with a corresponding debt discount. During the three months ended June 30, 2016, the Company recognized $0.3 million of debt discount amortization, and on June 30, 2016, the Company marked to market the derivative liability resulting in a gain on the derivative liability of $2.8 million.

During the three months ended September 30, 2016, the Company received stockholder approval to complete the conversion of the Existing Loans into common stock, which conversion occurred on August 30, 2016. The Company accounted for the conversion of the Existing Loans as an extinguishment. The Company subsequently reviewed the accounting treatment of the Amendment and determined that the Amendment resulted in the extinguishment of the Existing Loans, and that the Company should have followed the accounting required for debt extinguishment and recorded the revalued Existing Loans on April 1, 2016.

As a result of its review, the Company determined that an extinguishment loss should have been recorded in other income (expense) with a corresponding decrease to Notes payable, net of debt discount and current portion in the second quarter of 2016 for $1.6 million as a result of the April 1, 2016 Amendment of the Existing Loans

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The Company has restated the three months ending September 30, 2016 Condensed Consolidated Statement of Comprehensive Loss to correct for the extinguishment loss of $1.6 million and less than $0.1 million of amortization of discount within other income (expense). The Company has restated the nine months ending September 30, 2016 Condensed Consolidated Statement of Comprehensive Loss and Condensed Consolidated Statements of Cash Flows to correct for the extinguishment loss of $0.2 million and $0.1 million of amortization of discount within other income (expense).

The impact of this error in the prior year periods was not material to the consolidated financial statements in any of the periods affected. In addition, the Company properly reflected the extinguishment loss in its consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2016.

The revisions to the Company's Condensed Consolidated Statement of Comprehensive Loss for the three and nine months ended September 30, 2016 were as follows:



	Three Months Ended September 30, 2016						Nine Months Ended September 30, 2016
	As Reported			As Restated			As Reported			As Restated
Other income (expense):
Interest expense	(489		)	(458		)	(1,637		)	(1,541		)
Gain on bifurcated derivative liability	—			—			2,754			2,754
Loss on extinguishment of convertible debt	(12,572		)	(10,780		)	(12,572		)	(12,410		)
Gain (loss) on warrant liability	(705		)	(705		)	883			883
Other income, net	196			196			824			824
Total other income	(13,570		)	(11,747		)	(9,748		)	(9,490		)
Income (loss) from continuing operations before income taxes	(14,518		)	(12,695		)	(17,066		)	(16,808		)
Net income (loss)	(14,405		)	(12,582		)	(15,834		)	(15,576		)
Comprehensive income (loss)	$	(14,595	)	$	(12,772	)	$	(16,294	)	$	(16,036	)
Earnings/(loss) per common share:
Basic	$	(2.45	)	$	(2.14	)	$	(3.55	)	$	(3.49	)
Diluted	$	(2.45	)	$	(2.14	)	$	(3.55	)	$	(3.49	)

The revisions to the Company's Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 were as follows:



	Nine Months Ended September 30, 2016
	As Reported			As Restated
Cash flows from operating activities:
Net loss	$	(15,834	)	$	(15,576	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on extinguishment of convertible debt	12,572			12,410
Amortization of debt discount	494			398

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q should also be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

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As used in this Quarterly Report on Form 10-Q, the terms “CDTi” or the “Company” or “we,” “our” and “us” refer to Clean Diesel Technologies, Inc. and its consolidated subsidiaries.

In addition, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, as well as assumptions, which could cause our results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements generally are identified by the words “may,” “will,” “project,” “might,” “expects,” “anticipates,” “believes,” “intends,” “estimates,” “should,” “could,” “would,” “strategy,” “plan,” “continue,” “pursue,” or the negative of these words or other words or expressions of similar meaning. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements. These forward-looking statements are based on information available to us, are current only as of the date on which the statements are made, and are subject to numerous risks and uncertainties that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. For examples of such risks and uncertainties, please refer to the discussion under the caption “Risk Factors” contained in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on April 7, 2017 and our other filings with the SEC.

You should not place undue reliance on any forward-looking statements. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to other forward-looking statements.

Overview

Over the past decade, we have developed several generations of high performance catalysts, including our low-PGM mixed phase catalysts, or MPC®, that are used on certain new Honda vehicles. During the same period we have developed the ability to deliver our catalyst technology to other catalyst manufacturers in the form of functional powders or material systems. Recently, we have expanded our offering of material systems beyond MPC® to include new synergized-PGM diesel oxidation catalysts, or SPGM™ DOCs, base-metal activated rhodium support, or BMARS™, and Spinel™ technologies. Most catalytic systems require significant amounts of costly PGMs to operate effectively. Our family of unique high-performance material systems, featuring inexpensive base-metals with low PGM content will enable further advances in catalyst performance. We are marketing these new catalyst technologies to other catalyst manufacturers in a proprietary powder form, which will allow them to capture the benefits of our advanced catalyst technology in their own manufacturing operations and will provide a new source of revenue for the Company.

Strategy

Over more than twenty years, we have developed the emissions control technology and manufacturing know-how to allow us to progress to delivering enabling technology for manufacturers serving the emissions catalyst market. The ability to deliver our advanced materials to other catalyst producers as functional powders allows us to achieve greater scale and higher return on our technology investment than would be possible as a manufacturer of emission control systems. The strategy to provide our

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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.

The Chinese market offers significant opportunity as the world’s single largest automotive market with over 24 million vehicles produced in 2016. There is an extensive emission control systems supply chain serving domestic and international automobile manufacturers in China. Somewhat unique to China, there are many domestic catalyst manufacturers serving the automotive market in competition with the large global catalyst producers. This segment of the market requires technology and know-how to adhere to increasingly stringent emissions standards and to deliver competitively priced catalysts. In addition, there is significant pressure for the Chinese automotive market to address increasing air pollution, an issue that has escalated to become a matter of public policy. We believe these factors provide a highly favorable environment for our products and technology.

Air quality is also an important market driver in India where annual vehicle production was over 4 million in 2016. India has a number of domestic vehicle manufacturers that are served by both global and local catalyst manufacturers. There is significant opportunity to provide enabling technology to domestic catalyst producers with the appropriate manufacturing expertise.

In North America and in Europe, our transition to a technology provider business model includes an initial commercial focus on aftermarket catalyst manufacturers. In North America, there is important opportunity for us to provide our advanced materials to producers of diesel particulate filters ("DPF") and diesel oxidation catalysts ("DOC") for the heavy duty diesel aftermarket and to manufacturers of aftermarket catalysts for the passenger car market. In Europe, we have begun commercialization of our technology for selective catalytic reduction (“SCR”) de-nox applications to catalyst manufacturers and systems integrators serving the heavy duty diesel aftermarket.

During the third quarter of 2017, we sold substantially all of the assets of our DuraFit and private label OEM replacement DPF and DOC business, completing the final step in facilitating our transformation into a provider of enabling technology to the emissions catalyst market by the end of 2017. Our advanced materials and specialty coating business model streamlines our infrastructure, supports higher margins and improves profitability. While we will begin with less revenue than under our previous model, we expect to drive growth in our new powder-to-coat business in 2018 and into 2019 by providing technology to our manufacturing partners in the U.S., China, India and Europe and to OEMs around the world. We believe our technology provider model is highly scalable, allowing us to contend for the more than 90 million vehicle market globally.

In support of this strategy, 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. Based on the success of these tests, we are beginning to make our new catalyst technologies available to OEMs, catalyst coaters and other participants in the emission reduction supply chain for use in proprietary powder form, and we foresee multiple paths to market our new technologies.

Financial Overview

For the three months ended September 30, 2017 revenues were $6.9 million, a decrease of approximately $3.3 million from the prior year largely attributable to the decrease in coated catalyst shipments to Honda, and loss from operations was $1.8 million, an increase of approximately $0.8 million from the prior year, primarily due to lower sales partially offset by lower severance and other charges for our remaining liability related to our closed Canadian manufacturing facility.

For the nine months ended September 30, 2017 revenues were $23.5 million, a decrease of approximately $4.8 million from the prior year largely attribuatble to the decrease in coated catalyst shipments to Honda, and loss from operations was $4.5 million, a decrease of approximately $2.8 million from the prior year primarily due to benefits from our 2016 cost reduction initiatives as well as a decrease in severance and other charges for our remaining liability related to our closed Canadian manufacturing facility.

Net cash used in operations was $4.7 million for the nine months ended September 30, 2017.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and

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judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, allowance for doubtful accounts, inventory valuation, product warranty reserves, accounting for income taxes, goodwill, impairment of long-lived assets other than goodwill, stock-based compensation and liability-classified warrants have the greatest potential impact on our unaudited condensed consolidated financial statements. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016 for a more complete discussion of our critical accounting policies and estimates.

Impact of Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements see Note 3, “Summary of Significant Accounting Policies – Recent Accounting Pronouncements” in the accompanying notes to the unaudited condensed consolidated financial statements.

Customer Dependency and Relationship with Honda

Historically, we have derived a significant portion of our revenue from a limited number of customers. Sales to Honda represented 52% and 60% of our revenues for the nine months ended September 30, 2017 and 2016, respectively. However, based on discussions with Honda, and acceleration of our powder-to-coat strategy, our supply of coated catalysts to Honda has begun to significantly decline in the second half of 2017, as certain current vehicle models are phased out. We do not anticipate significant revenue from Honda in 2018. Accordingly, it will be critical that our advanced materials business strategy produces revenue with new customers, which may include Honda, directly or indirectly, to replace revenues from our current core catalyst business.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2017 and 2016

(Amounts in tables in thousands, except percentages)

Revenues



	Three Months Ended September 30,
	2017				2016
	$		% of Revenues		$		% of Revenues		Change			% Change
Coated catalysts	$	3,456	50	%	$	7,110	70	%	$	(3,654	)	(51	)%
Emission control systems	2,948		43	%	2,778		27	%	170			6	%
Technology and advanced materials	453		7	%	244		3	%	209			86	%
Total revenues	$	6,857	100	%	$	10,132	100	%	$	(3,275	)	(32	)%



	Nine Months Ended September 30,
	2017				2016
	$		% of Revenues		$		% of Revenues		Change			% Change
Coated catalysts	$	12,747	55	%	$	17,626	62	%	$	(4,879	)	(28	)%
Emission control systems	9,500		40	%	9,565		34	%	(65		)	(1	)%
Technology and advanced materials	1,223		5	%	1,093		4	%	130			12	%
Total revenues	$	23,470	100	%	$	28,284	100	%	$	(4,814	)	(17	)%

Coated catalyst revenues are generated from the sale of our high performance catalysts which reduce emissions from gasoline, diesel and natural gas combustion engines. Emission control systems revenues were generated from the sale of products in our

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extensive line of heavy duty diesel aftertreatment systems for retrofit and aftermarket applications including the Purafilter TM and DuraFit TM brands. In September 2017, we sold our DuraFit product line although we continue to provide technology and materials to aftermarket participants. Technology and advanced materials revenues included licenses and royalties, as well as sales of our advanced materials platform. The timing and amounts of revenue generated from licensing agreements will fluctuate.

Coated catalyst revenues decreased for the three and nine months ended September 30, 2017 due to the decline in sales to Honda. We do not anticipate significant revenue from Honda in 2018. Emissions control systems revenue showed a a small increase for the three months ended 2017 and remained consistent with the prior year nine month period. Due to the sale of the DuraFit product line, emission control systems revenues will decrease in future periods. Technology and advanced materials revenues increased for the three and nine months ended September 30, 2017 primarily due to increased royalty payments under our licensing agreements.

Cost of revenues



	Three Months Ended September 30,
	2017				2016
	$		% of Revenues		$		% of Revenues		Change			% Change
Cost of revenues	$	5,370	78	%	$	7,425	73	%	$	(2,055	)	(28	)%



	Nine Months Ended September 30,
	2017				2016
	$		% of Revenues		$		% of Revenues		Change			% Change
Cost of revenues	$	18,605	79	%	$	21,153	75	%	$	(2,548	)	(12	)%

Cost of revenues includes the costs of materials and assembly labor, as well as assembly services, and labor and overhead costs associated with manufacturing and product procurement, planning and quality assurance. Our cost of revenues is affected by various factors, including product mix, volume, and provisions for excess and obsolete inventories, materials, labor and overhead costs, as well as manufacturing efficiencies. Our cost of revenues as a percentage of revenues is affected by these factors, as well as customer mix, volume, pricing and competitive pricing programs.

The increase in cost of revenues as a percentage of revenue for the three and nine months ended September 30, 2017 is primarily driven by the impact of overhead on lower sales as well as a less favorable revenue mix as compared to the same periods in prior years. We also saw a significant increase in the price of palladium in the first quarter of 2017, which impacted our PGM liability for the nine month period.

Operating expenses



	Three Months Ended September 30,
	2017				2016
	$		% of Revenues		$		% of Revenues		Change			% Change
Research and development	$	1,155	17	%	$	762	8	%	$	393		52	%
Selling, general and administrative	1,877		27	%	2,322		23	%	(445		)	(19	)%
Severance and other charges	235		3	%	571		6	%	(336		)	*
Total operating expenses	$	3,267	47	%	$	3,655	37	%	$	(388	)	(11	)%

* Percentage not meaningful

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	Nine Months Ended September 30,
	2017					2016
	$			% of Revenues		$		% of Revenues		Change			% Change
Research and development	$	3,211		14	%	$	3,955	14	%	$	(744	)	(19	)%
Selling, general and administrative	6,519			28	%	8,549		30	%	(2,030		)	(24	)%
Severance and other charges	(384		)	(2	)%	1,945		7	%	(2,329		)	*
Total operating expenses	$	9,346		40	%	$	14,449	51	%	$	(5,103	)	(35	)%

* Percentage not meaningful

Research and development expenses consist primarily of compensation expense for employees and contractors engaged in research, design and development activities, as well costs paid to outside parties for testing, validation and certification of our products. Selling, general and administrative expenses consist primarily of compensation expense, legal and professional fees, facilities expenses, and communication expenses. Severance and other charges relate primarily to the closure of our Canadian facility and the transfer of operations to our California facility, the sale of our Durafit product line, and the decrease in operations personnel in response to the decrease in sales to Honda and include severance costs, equipment disposal, moving costs, and building exit costs.

Research and development expenses

The increase in research and development expenses in the third quarter of 2017 is primarily a result of the timing of testing as we work with new customers on the implementation of our powder-to-coat technologies in their manufacturing facilities. For the nine month period, these expenses were lower compared to the prior year due to the timing of testing and validation requirements.

Selling, general and administrative expenses

We decreased general and administrative costs including consulting, payroll and benefits expenses, in both the three and nine months ended September 30, 2017 as a result of the closure of our Canadian facility and changes made at our California location. In the third quarter of 2017, we further decreased our sales and support staff upon the sale of our DuraFit product line.

Severance and other charges

In the third quarter of 2017, we recorded the severance expense relative to the elimination of sales and support positions impacted by the sale of our Durafit product line, as well as the decrease in our operations personnel in response to the decrease in our coated catalyst revenues. In the second quarter of 2017, we reached an agreement with the property owner of our former Canadian facility to exit our lease prior to its December 2018 termination which resulted in a decrease in our severance liability for the nine month period.

Other Income



	Three Months Ended September 30,
	2017					2016
						As Restated
	$			% of Revenues		$			% of Revenues		Change			% Change
Interest expense, net	$	(93	)	(1	)%	$	(458	)	(5	)%	$	365		(80)%
Loss on extinguishment of debt	—			—	%	(10,780		)	(106	)%	10,780			(100)%
(Loss)/gain on change in fair value of liability-classified warrants	738			11	%	(705		)	(7	)%	1,443			(205)%
Gain on sale of DuraFit	805			12	%	—			—	%	805			*
Other income, net	(149		)	(2	)%	196			2	%	(345		)	(176)%
Total other income	$	1,301		20	%	$	(11,747	)	(116	)%	$	13,048		*

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* Percentage not meaningful



	Nine Months Ended September 30,
	2017					2016
						As Restated
	$			% of Revenues		$			% of Revenues		Change			% Change
Interest expense, net	$	(260	)	(1	)%	$	(1,541	)	(5	)%	$	1,281		(83)%
Gain on bifurcated derivative liability	—			—	%	2,754			10	%	(2,754		)	(100)%
Loss on extinguishment of debt	(194		)	(1	)%	(12,410		)	(44	)%	12,216			(98)%
(Loss)/gain on change in fair value of liability-classified warrants	404			2	%	883			3	%	(479		)	(54)%
Gain on sale of DuraFit	805			3	%	—			—	%	805			*
Other income, net	(67		)	—	%	824			3	%	(891		)	(108)%
Total other (expense)/income	$	688		3	%	$	(9,490	)	(33	)%	$	10,178		*

For the three and nine months ended September 30, 2017, the decrease in other income was primarily due to the gain on bifurcated derivative liability partially offset by a loss on extinguishment of debt related to the Kanis S.A. $2.0 million promissory note and amendment of the Kanis S.A. loan agreement during the second quarter of 2016. We also recognized a gain in three and nine months ended September 30, 2017, due to the remeasurement of liability-classified warrants and incurred lower interest expense due to the decrease in debt outstanding during the respective periods.

Income Tax Expense (Benefit)

We incurred income tax (benefit)/expense of approximately $(0.1) million million and $0.0 million in the three and nine months ended September 30, 2017. For the three and nine months ended months ended September 30, 2016, we recognized an income tax benefit of approximately $(0.1) million and $(1.2) million respectively. The effective income tax rates were (24.8)% and (0.9%) for the three months ended September 30, 2017 and 2016, respectively. The effective income tax rates were 1.3% and (7.3%) for the nine months ended September 30, 2017 and 2016, respectively. For interim income tax reporting, we estimate our annual effective tax rate and apply it to our year-to-date pre-tax loss. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded from the annualized effective tax rate. The difference between our effective tax rate and the U.S. statutory tax rate is primarily related to the valuation allowance offsetting the deferred tax assets in both the U.S. and United Kingdom jurisdictions as well as to a foreign tax rate differential related to Sweden and Canada.

Liquidity and Capital Resources

Historically, the revenue that we have generated has not been sufficient to fund our operating requirements and debt servicing needs. Notably, we have suffered recurring losses since inception. As of September 30, 2017, we had an accumulated deficit of $226.9 million compared to $223.1 million at December 31, 2016. We have also had negative cash flows from operations from inception. Our primary sources of liquidity in recent years have been asset sales, credit facilities and other borrowings and equity sales.

We had $3.3 million in cash at September 30, 2017 compared to $7.8 million at December 31, 2016. At September 30, 2017, $0.6 million of our cash was held by foreign subsidiaries in Canada, Sweden and the United Kingdom. If we decide to repatriate unremitted foreign earnings in the future, it could have negative tax implications.

Prior to September 8, 2017, we had a $7.5 million secured demand financing facility backed by our receivables and inventory with FGI. On September 8, 2017, the we repaid in full all indebtedness owed to FGI, terminated the FGI loan agreements and all commitments thereunder, and obtained the termination and release by FGI of all of its security interests in and liens on all of our assets and those of our subsidiaries. We have no outstanding debt at September 30, 2017.

On May 19, 2015, we filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on November 17, 2015. Shelf registration statements are intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs. The Form S-3 permits us to sell in one or more registered transactions up to an aggregate of $50.0 million of various securities not to exceed one-third of our public float in any 12-month period. At September 30, 2017, we had sold an aggregate of $3.1 million using the Form S-3.

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We believe the equity raise and the debt conversions completed in 2016, and the sale of our DuraFit product line in the third quarter of 2017, improved our overall net cash positions; however, there is no assurance that we will be able to achieve projected levels of revenue and maintain access to sufficient working capital. As a result there is substantial doubt as to whether our existing cash resources and working capital are sufficient to enable us to continue operations within one year from the financial statement issuance date. If necessary, we will seek to raise additional capital from the sale of equity securities or the increase of indebtedness. There can be no assurance that additional financing will be available to us on acceptable terms, or at all. Additionally, if we issue additional equity securities to raise funds, whether to potential customers or other investors, the ownership percentage of our existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of common stock. Additionally, we may be limited as to the amount of funds we can raise pursuant to SEC rules and the continued listing requirements of NASDAQ. If we cannot raise needed funds, we might be forced to make substantial reductions in our operating expenses, which could adversely affect our ability to implement our business plan and ultimately our viability as a company. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.

The following table summarizes our cash flows for the periods indicated.



	Nine Months Ended September 30,
							Change
	2017			2016			$			%
	(unaudited) (in thousands, except percentages)
Cash (used in) provided by :
Operating activities	$	(4,727	)	$	(4,050	)	$	(677	)	(17	)%
Investing activities	$	3,337		$	14		$	3,323		*
Financing activities	$	(3,294	)	$	3,796		$	(7,090	)	(187	)%

* Percentage not meaningful

Cash used in operating activities

Our largest source of operating cash flows is cash collections from our customers following the sale of our products and services. Our primary uses of cash for operating activities are for purchasing inventory in support of the products that we sell, personnel related expenditures, facilities costs and payments for general operating matters. During the nine months ended September 30, 2017, cash used in operations was $4.7 million. Cash flows were largely impacted by the loss from operations, adjusted for non-cash items, including depreciation and amortization, stock-based compensation, change in the fair value of the liability-classified warrant, gain on sale of DuraFit as well as the net effect of changes in net working capital and other balance sheet accounts. These changes include decreases in operating cash flows associated with lower accounts payable and accrued expenses. This decrease was partially offset by decreases in our accounts receivable and inventory balances.

Cash provided by investing activities

Cash provided by investing activities was $3.3 million for the nine months ended September 30, 2017. This amount represented the cash received from the sale of the DuraFit business discussed in Note 4.

Cash (used in) / provided by financing activities

Cash used in financing activities was due to a $3.3 million repayment of outstanding debt as well as net payments under our demand line of credit during the nine months ended September 30, 2017.

Cash provided by financing activities during the nine months ended September 30, 2016 was due to $2.0 million generated from the promissory note entered into with Kanis S.A. on April 1, 2016, $0.5 million generated from the promissory note entered into with Lon E. Bell, Ph.D., one of CDTi’s directors, on April 11, 2016 and $1.3 million generated from the convertible notes entered into with Haldor Topsøe on June 30, 2016. The Company also received approximately $0.2 million from the exercise of outstanding warrants in the nine months ended September 30, 2016. These were partially offset by net payments under our demand line of credit of approximately $0.2 million.

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Description of Indebtedness



	September 30, 2017		December 31, 2016
	(unaudited) (in thousands)
Line of credit with FGI	$	—	$	1,458
$2.0 million, 8% shareholder note due 2017 (Kanis S.A.)	—		1,803
	$	—	$	3,261

On September 8, 2017, the Company repaid in full all outstanding indebtedness of the Company and its subsidiaries owed to FGI . We did not incur any prepayment or early termination penalties in connection with termination of the FGI Agreement.

Capital Expenditures

As of September 30, 2017, we had no material commitments for capital expenditures and no material commitments are anticipated in the near future.

Off-Balance Sheet Arrangements

As of September 30, 2017 and December 31, 2016, we had no off-balance sheet arrangements.

Commitments and Contingencies

As of September 30, 2017, other than office leases, we had no material commitments other than the liabilities reflected in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. For additional information, refer to Note 14, “Commitments and Contingencies”.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is (1) recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our procedures or our internal controls will prevent or detect all errors and all fraud. Any internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of our controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Refer to Note 13, “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking statements, which are subject to a variety of risks and uncertainties. Other actual results could differ materially from those anticipated in those forward-looking statements as a result of various factors, including those set forth in the risk factors relating to our business and common stock contained in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016. There are no material changes to such risk factors as of the date of this report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

File Number

Exhibit

Filing Date

Herewith

2.1

Asset Purchase Agreement, dated September 8, 2017, by and between the Registrant, Catalytic Solutions, Inc., Engine Control Systems Limited, and AP Emissions Technologies, LLC.

8-K

001-33710

2.1

9/12/2017

3.1.1

Composite Certificate of Incorporation of the Registrant.

10-K

001-33710

3.1

3/30/2016

3.1.2

Certificate of Amendment to the Restated Certificate of Incorporation of the Registrant.

8-K

001-33710

3.1

7/26/2016

3.2

By-Laws of the Registrant, as amended through November 6, 2008

10-Q

001-33710

3.1

11/10/2008

31.1

Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

# -

The information in this exhibit is furnished and deemed not filed with the Securities and Exchange Commission for purposes of section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of Registrant under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		CLEAN DIESEL TECHNOLOGIES, INC.


Date:	November 14, 2017	By:	/s/ Matthew Beale
			Matthew Beale
			Chief Executive Officer
			(Principal Executive Officer)


Date:	November 14, 2017	By:	/s/ Tracy Kern
			Tracy Kern
			Chief Financial Officer
			(Principal Financial and Accounting Officer)

Document And Entity Information - shares	9 Months Ended
Document And Entity Information - shares	Sep. 30, 2017	Nov. 07, 2017
Document and Entity Information
Entity Registrant Name	CLEAN DIESEL TECHNOLOGIES INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Amendment Flag	false
Entity Central Index Key	0000949428
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Entity Common Stock, Shares Outstanding		15,802,936

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2017	Dec. 31, 2016
Statement of Financial Position [Abstract]
Preferred stock par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	100,000	100,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	15,802,936	15,703,301
Common stock, shares outstanding (in shares)	15,802,936	15,703,301

Organization	9 Months Ended
Organization	Sep. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Organization	Organization Clean Diesel Technologies, Inc. is a leading provider of technology and solutions to the automotive emissions control markets. We possess market leading expertise in emissions catalyst design and engineering for automotive and off-road applications. In particular, we have a proven ability to develop proprietary materials incorporating various base metals that replace costly platinum group metals ("PGM") and rare earth metals in coatings on vehicle catalytic converters. Our business is driven by increasingly stringent global emission standards for internal combustion engines, which are major sources of a variety of harmful pollutants. We deliver our catalyst technology through the supply of materials and technology used in the catalyst coating process as well as finished products such as coated substrates and emission control systems. We supply our proprietary catalyst technologies to catalyst manufacturers, vehicle and equipment manufacturers, integrators and retrofitters. We produce coated substrates at our ISO Technical Specifications certified manufacturing facility in Oxnard, California. In some instances, the coated substrates we produce are integrated into exhaust systems by third-party manufacturers before being shipped to our end customer. We also supply coated substrates directly to exhaust systems manufacturers for incorporation in their own products. Over the past decade, we have developed several generations of high performance catalysts, including our low-PGM mixed phase catalysts, or MPC® that are used on certain new Honda vehicles. During the same period we have developed the ability to deliver our catalyst technology to other catalyst manufacturers in the form of functional powders or material systems. Recently, we have expanded our offering of material systems beyond MPC® to include new synergized-PGM diesel oxidation catalysts, or SPGM™ DOCs, base-metal activated rhodium support, or BMARS™, and Spinel™ technologies. Most catalytic systems require significant amounts of costly PGMs to operate effectively. Our family of unique high-performance material systems, featuring inexpensive base-metals with low PGM content will enable further advances in catalyst performance. We are marketing these new catalyst technologies to other catalyst manufacturers in a proprietary powder form, which will allow them to capture the benefits of our advanced catalyst technology in their own manufacturing operations and will provide a new source of revenue for the Company.

Liquidity and Going Concern	9 Months Ended
Liquidity and Going Concern	Sep. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Liquidity and Going Concern	Liquidity and Going Concern The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. Therefore, the condensed 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 inception, resulting in an accumulated deficit of $226.9 million at September 30, 2017. The Company has funded its operations through asset sales, credit facilities and other borrowings and equity sales. At September 30, 2017, the Company had $3.3 million in cash. The Company’s continuation as a going concern is dependent upon its ability to obtain adequate financing, which the Company has successfully secured since inception, including financing from equity sales and asset divestitures. However, there is no assurance that the Company will be able to achieve projected levels of revenue and maintain access to sufficient working capital, and accordingly, there is substantial doubt as to whether the Company’s existing cash resources and working capital are sufficient to enable it to continue its operations within one year from the financial statement issuance date. The Company is currently working towards obtaining a new credit facility that would provide the Company the flexibility it needs as it implements its new business strategy. If the Company is unable to obtain the necessary capital, it will be forced to license or liquidate its assets, significantly curtail or cease its operations and/or seek reorganization under the U.S. Bankruptcy Code. On May 19, 2015, the Company filed a shelf registration statement on Form S-3 with the SEC, which was declared effective on November 17, 2015. The Form S-3 permits the Company to sell in one or more registered transactions up to an aggregate of $50.0 million of various securities not to exceed one-third of the Company’s public float in any 12-month period. As of September 30, 2017, the Company had sold an aggregate of $3.1 million using the Form S-3.

Summary of Significant Accounting Policies	9 Months Ended
Summary of Significant Accounting Policies	Sep. 30, 2017
Accounting Policies [Abstract]
Summary of Significant Accounting Policies	Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial reporting. In the opinion of management, all normal recurring accruals and adjustments that are necessary for a fair presentation have been reflected. Intercompany transactions and balances have been eliminated in consolidation. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), but is not required for interim reporting purposes, has been condensed or omitted. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on April 7, 2017. On July 22, 2016, the Company effected a one-for-five reverse stock split. All share and per share information presented in these unaudited condensed consolidated financial statements for periods prior to July 22, 2016 has been retroactively adjusted to reflect the reverse stock split. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the U.S requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. These estimates and assumptions are based on management's best estimates and judgment. On an ongoing basis, the Company evaluates its estimates and assumptions, including those related to impairment of long-lived assets, stock-based compensation, the fair value of financial instruments including warrants, allowance for doubtful accounts, inventory valuation, taxes and contingent and accrued liabilities. The Company bases its estimates on historical experience and various 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. Actual results may differ from these estimates under different assumptions and conditions. Management believes that the estimates are reasonable. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, "Revenue from Contracts with Customers (Topic 606)". ASU 2014-9 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)". ASU 2014-9 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB finalized the delay of the effective date by one year, making the new standard effective for interim periods and annual periods beginning after December 15, 2017. Early adoption is permitted, but it is not permitted earlier than the original effective date. ASU 2014-9 provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. While the Company has not finalized the impact of the adoption of ASU 2014-9 on its consolidated financial statements, the Company does not expect the adoption to have a material impact. In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory". ASU 2015-11 changes the measurement principle for inventory from the "lower of cost or market" to "lower of cost and net realizable value." Net realizable value is defined as the "estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation." ASU 2015-11 eliminates the guidance that entities consider replacement cost or net realizable value less an approximately normal profit margin in the subsequent measurement of inventory when cost is determined on a first-in, first-out or average cost basis. It is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those fiscal years. The Company implemented ASU 2015-11 in the first quarter 2017. The adoption of this provision did not have a material impact on the Company's consolidated financial statements. In January 2016, the FASB issued ASU 2016-1, "Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2016-1 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. ASU 2016-1 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is evaluating the impact of adoption of ASU 2016-1 on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-2, "Leases (Topic 842)". ASU 2016-2 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. generally accepted accounting principles. It is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is evaluating the impact of adoption of ASU 2016-2 on its consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting”. ASU 2016-09 will change how companies account for certain aspects of share-based payments to employees. Entities will be required to recognize the income tax effects of awards in the statement of income when the awards vest or are settled, the guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing and the update requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company adopted ASU 2016-09 in the first quarter of 2017. The Company elected to account for the forfeitures when they occur. The adoption of this provision did not have a material impact on the Company's consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments: a consensus of the Emerging Task Force”. ASU 2016-15 provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, and separately identifiable cash flows and application of the predominance principle. The standard is intended to reduce current diversity in practice. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this accounting standard on its consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets of Other Than Inventory.” Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. ASU 2016-16 updates the current guidance by requiring that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this ASU do not change GAAP for the pre-tax effects of an intra-entity asset transfer under Topic 810, Consolidation, or for the income tax effects of an intra-entity transfer of inventory. The standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this accounting standard on its consolidated financial statements. On May 10, 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) - Scope of Modification Accounting. The guidance clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company believes the adoption of ASU 2017-09 will not have a significant impact on its consolidated financial statements. In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact that ASU 2017-11 will have on its consolidated financial statements.



Date: November 14, 2017	By:	/s/ Matthew Beale
		Matthew Beale
		Chief Executive Officer
		(Principal Executive Officer)



Date: November 14, 2017	By:	/s/ Tracy A. Kern
		Tracy A. Kern
		Chief Financial Officer
		(Principal Financial Officer)

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash	$ 3,341	$ 7,839
Accounts receivable, net	3,669	5,398
Inventories	3,534	7,125
Prepaid expenses and other current assets	961	968
Total current assets	11,505	21,330
Property and equipment, net	935	1,158
Intangible assets, net	1,158	1,483
Deferred tax asset	670	554
Other assets	326	305
Total assets	14,594	24,830
Current liabilities:
Line of credit	0	1,458
Shareholder notes payable	0	1,803
Accounts payable	4,243	5,979
Accrued expenses and other current liabilities	3,972	6,345
Income taxes payable	765	642
Total current liabilities	8,980	16,227
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, par value $0.01 per share: authorized 100,000; no shares issued and outstanding	0	0
Common stock, par value $0.01 per share: authorized 50,000,000 shares; issued and outstanding 15,802,936 and 15,703,301 shares at September 30, 2017 and December 31, 2016, respectively	158	157
Additional paid-in capital	238,340	237,838
Accumulated other comprehensive loss	(5,979)	(6,329)
Accumulated deficit	(226,905)	(223,063)
Total stockholders’ equity	5,614	8,603
Total liabilities and stockholders’ equity	$ 14,594	$ 24,830

Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Income Statement [Abstract]
Revenues	$ 6,857	$ 10,132	$ 23,470	$ 28,284
Cost of revenues	5,370	7,425	18,605	21,153
Gross profit	1,487	2,707	4,865	7,131
Operating expenses:
Research and development	1,155	762	3,211	3,955
Selling, general and administrative	1,877	2,322	6,519	8,549
Severance and other charges	235	571	(384)	1,945
Total operating expenses	3,267	3,655	9,346	14,449
Loss from operations	(1,780)	(948)	(4,481)	(7,318)
Other income (expense):
Interest expense, net	(93)	(458)	(260)	(1,541)
Gain on bifurcated derivative liability	0	0	0	2,754
Loss on extinguishment of debt	0	(10,780)	(194)	(12,410)
Gain (loss) on change in fair value of liability-classified warrants	738	(705)	404	883
Gain on sale of DuraFit	805	0	805	0
Other (expense) income, net	(149)	196	(67)	824
Total other income (expense)	1,301	(11,747)	688	(9,490)
Loss from operations before income taxes	(479)	(12,695)	(3,793)	(16,808)
Income tax (benefit) expense	(119)	(113)	49	(1,232)
Net loss	(360)	(12,582)	(3,842)	(15,576)
Foreign currency translation adjustments	129	(190)	350	(460)
Comprehensive loss	$ (231)	$ (12,772)	$ (3,492)	$ (16,036)
Basic and diluted net loss per common share:
Net loss (in dollars per share)	$ (0.02)	$ (2.14)	$ (0.24)	$ (3.49)
Weighted average shares outstanding - basic and diluted (in shares)	15,760	5,876	15,724	4,462

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net loss	$ (3,842)	$ (15,576)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	511	599
Stock-based compensation expense	304	841
Gain on sale of DuraFit business	(805)	0
Gain on change in fair value of liability-classified warrants	(404)	(883)
Amortization of debt discount	194	12,410
Gain on change in fair value of bifurcated derivative liability	0	(2,754)
Loss (gain) on foreign currency transactions	92	(813)
Amortization of debt discount	0	398
Other	8	(20)
Changes in operating assets and liabilities:
Accounts receivable	1,795	(1,583)
Inventories	1,169	(666)
Prepaid expenses and other assets	23	170
Accounts payable, accrued expenses and other current liabilities	(3,772)	3,929
Income taxes payable	0	(102)
Net cash used in operating activities	(4,727)	(4,050)
Cash flows from investing activities:
Purchases of property and equipment	0	(116)
Proceeds from sale of DuraFit business	3,337	0
Proceeds from sale of property and equipment	0	130
Net cash provided by investing activities	3,337	14
Cash flows from financing activities:
Net payments under demand line of credit	(1,458)	(201)
Payments of shareholder notes payable	(2,000)	0
Proceeds from exercise of stock options	42	0
Proceeds from issuance of debt	0	3,750
Proceeds from exercise of warrants	122	247
Net cash (used in) provided by financing activities	(3,294)	3,796
Effect of exchange rates on cash	186	(20)
Net change in cash	(4,498)	(260)
Cash at beginning of period	7,839	2,958
Cash at end of period	$ 3,341	$ 2,698

Sale of DuraFit business	9 Months Ended
Sale of DuraFit business	Sep. 30, 2017
Discontinued Operations and Disposal Groups [Abstract]
Sale of DuraFit business	Sale of DuraFit business On September 8, 2017, the Company entered into an Asset Purchase Agreement with AP Emissions Technologies, LLC (“AP") wherein the Company sold substantially all of the assets of its DuraFit and private label OEM replacement diesel particulate filter ("DPF") and diesel oxidation catalysts ("DOC") business for approximately $3.3 million in cash. The assets sold included all tangible and intangible assets of that business, including brands, intellectual property, equipment, customer agreements, private label programs and inventory. As a result of the transaction, for the three and nine months ended September 30, 2017, the Company recorded a gain on sale of DuraFit of approximately $0.8 million. The Company will continue to serve this market through coating arrangements and its powder-to-coat technology. Concurrently with the sale of the DuraFit business, the Company repaid in full all indebtedness owed to FGI Worldwide LLC, successor to Faunus Group International, Inc. ("FGI"), and terminated the Company's loan agreements with FGI and all commitments thereunder. In connection with termination of the loan agreements, FGI terminated and released all of its security interests in and liens on all of the assets of the Company and its subsidiaries. Of the proceeds received by the Company from the sale of the DuraFit business, the Company applied approximately $315,000 in repayment of the outstanding indebtedness to FGI. The Company did not incur any prepayment or early termination penalties in connection with termination of the FGI loan agreements. Discontinued Operations Applied Utility Systems, Inc. The Company is undergoing a sales and use tax audit by the State of California (the “State”) on Applied Utility Systems, Inc. “AUS” for the period of 2007 through 2009. The audit has identified a project performed by the Company during that time period for which sales tax was not collected and remitted and for which the State asserts that proper documentation of resale may not have been obtained and that the Company owes sales tax of $1.5 million, inclusive of interest. The Company contends and believes that it received sufficient and proper documentation from its customer to support not collecting and remitting sales tax from that customer and is actively disputing the audit report with the State. On August 12, 2013, the Company appeared at an appeals conference with the State Board of Equalization (“BOE”). On July 21, 2014, the Company received a Decision and Recommendation (“D&R”) from the BOE. The D&R’s conclusion was that the basis for the calculation of the aforementioned $1.5 million tax due should be reduced from $12.2 million to $9.0 million with a commensurate reduction in the tax owed to the State. Based on a re-audit, the BOE lowered the tax due to $0.9 million, inclusive of interest. The Company continues to disagree with these findings based on the aforementioned reasons. However, in October 2015, the Company offered to settle this case for $0.1 million, which is based on the expected cost of continuing to contest this audit. Accordingly, an accrual was charged to discontinued operations during the year ended December 31, 2015. Should the Company not prevail with the offer to settle this case, it plans to continue with the appeals process. Further, should the Company not prevail in this case, it will pursue reimbursement from the customer for all assessments from the State. As of each of September 30, 2017 and December 31, 2016, the Company had $0.1 million, respectively, in accrued expenses on the condensed consolidated balance sheet.

Loss per Share	9 Months Ended
Loss per Share	Sep. 30, 2017
Earnings Per Share [Abstract]
Loss per Share	Loss per Share 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 plus potentially dilutive common shares. Potentially dilutive common shares include employee stock options and restricted share units and warrants and debt that are convertible into the Company’s common stock. Because the Company incurred net losses in the three and nine months ended September 30, 2017 and 2016, the effect of potentially dilutive securities has been excluded in the computation of diluted loss per share as their impact would be anti-dilutive. Potentially dilutive common stock equivalents excluded were 2.0 million shares during the three and nine months ended September 30, 2017. Potentially dilutive common stock equivalents excluded were 4.8 million and 4.3 million shares during the three and nine months ended September 30, 2016, respectively.

Commitments and Contingencies	9 Months Ended
Commitments and Contingencies	Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and Contingencies The Company leases facilities under non-cancellable operating leases. The leases expire at various dates through fiscal 2018 and frequently include renewal provisions for varying periods of time, provisions which require us to pay taxes, insurance and maintenance costs, and provisions for minimum rent increases. Minimum lease payments, including scheduled rent increases are recognized as rent expense on a straight-line basis over the term of the lease. Litigation The Company is involved in legal proceedings from time to time in the ordinary course of its business. Management does not believe that any of these claims and proceedings against it is likely to have, individually or in the aggregate, a material adverse effect on the Company’s condensed consolidated financial condition, results of operations or cash flows. Accordingly, the Company cannot determine the final amount, if any, of its liability beyond the amount accrued in the unaudited condensed consolidated financial statements as of September 30, 2017, nor is it possible to estimate what litigation-related costs will be in the future. For information related to commitments and contingencies related to Applied Utility Systems, a former subsidiary of the Company that was sold in 2009, refer to Note 17, “Discontinued Operations”.

Concentrations	9 Months Ended
Concentrations	Sep. 30, 2017
Risks and Uncertainties [Abstract]
Concentrations	Concentrations For the three months ended September 30, 2017 and 2016, Honda accounted for 48% and 68%, respectively, of the Company's revenues. For the nine months ended September 30, 2017 and 2016, Honda accounted for 52% and 60%, respectively, of the Company's revenues. This customer accounted for 22% and 35% of the Company's accounts receivable at September 30, 2017 and December 31, 2016, respectively. Based on discussions with Honda, and acceleration of the Company's powder-to-coat strategy, the Company's supply of coated catalysts to Honda has begun to significantly decline in the second half of 2017, as certain current vehicle models are phased out. The Company does not anticipate significant revenue from Honda in 2018. For the three months ended September 30, 2017, the Company had four suppliers that accounted for approximately 14%, 12%, 12%, and 11% of the Company's material purchases. For the three months ended September 30, 2016, the Company had two suppliers that accounted for approximately 36% and 12% of the Company's material purchases. For the nine months ended September 30, 2017, the Company had two suppliers that accounted for approximately 18%, and 11% of the Company's material purchases. For the nine months ended September 30, 2016, the Company had one supplier that accounted for approximately 38% of the Company's material purchases.

Discontinued Operations	9 Months Ended
Discontinued Operations	Sep. 30, 2017
Discontinued Operations and Disposal Groups [Abstract]
Discontinued Operations	Sale of DuraFit business On September 8, 2017, the Company entered into an Asset Purchase Agreement with AP Emissions Technologies, LLC (“AP") wherein the Company sold substantially all of the assets of its DuraFit and private label OEM replacement diesel particulate filter ("DPF") and diesel oxidation catalysts ("DOC") business for approximately $3.3 million in cash. The assets sold included all tangible and intangible assets of that business, including brands, intellectual property, equipment, customer agreements, private label programs and inventory. As a result of the transaction, for the three and nine months ended September 30, 2017, the Company recorded a gain on sale of DuraFit of approximately $0.8 million. The Company will continue to serve this market through coating arrangements and its powder-to-coat technology. Concurrently with the sale of the DuraFit business, the Company repaid in full all indebtedness owed to FGI Worldwide LLC, successor to Faunus Group International, Inc. ("FGI"), and terminated the Company's loan agreements with FGI and all commitments thereunder. In connection with termination of the loan agreements, FGI terminated and released all of its security interests in and liens on all of the assets of the Company and its subsidiaries. Of the proceeds received by the Company from the sale of the DuraFit business, the Company applied approximately $315,000 in repayment of the outstanding indebtedness to FGI. The Company did not incur any prepayment or early termination penalties in connection with termination of the FGI loan agreements. Discontinued Operations Applied Utility Systems, Inc. The Company is undergoing a sales and use tax audit by the State of California (the “State”) on Applied Utility Systems, Inc. “AUS” for the period of 2007 through 2009. The audit has identified a project performed by the Company during that time period for which sales tax was not collected and remitted and for which the State asserts that proper documentation of resale may not have been obtained and that the Company owes sales tax of $1.5 million, inclusive of interest. The Company contends and believes that it received sufficient and proper documentation from its customer to support not collecting and remitting sales tax from that customer and is actively disputing the audit report with the State. On August 12, 2013, the Company appeared at an appeals conference with the State Board of Equalization (“BOE”). On July 21, 2014, the Company received a Decision and Recommendation (“D&R”) from the BOE. The D&R’s conclusion was that the basis for the calculation of the aforementioned $1.5 million tax due should be reduced from $12.2 million to $9.0 million with a commensurate reduction in the tax owed to the State. Based on a re-audit, the BOE lowered the tax due to $0.9 million, inclusive of interest. The Company continues to disagree with these findings based on the aforementioned reasons. However, in October 2015, the Company offered to settle this case for $0.1 million, which is based on the expected cost of continuing to contest this audit. Accordingly, an accrual was charged to discontinued operations during the year ended December 31, 2015. Should the Company not prevail with the offer to settle this case, it plans to continue with the appeals process. Further, should the Company not prevail in this case, it will pursue reimbursement from the customer for all assessments from the State. As of each of September 30, 2017 and December 31, 2016, the Company had $0.1 million, respectively, in accrued expenses on the condensed consolidated balance sheet.

Liquidity and Going Concern - Narrative (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015	May 19, 2015
Liquidity and Going Concern
Accumulated deficit	$ 226,905,000	$ 223,063,000
Cash	3,341,000	$ 7,839,000	$ 2,698,000	$ 2,958,000
Shelf Registration
Liquidity and Going Concern
Aggregate securities authorized					$ 50,000,000.0
Aggregate securities sold	$ 3,100,000

Sale of DuraFit business - Activity (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2017	Sep. 08, 2017
Discontinued Operations
Gain on transaction		$ 0.8
DPF and DOC \| Disposal Group, Disposed of by Sale, Not Discontinued Operations
Discontinued Operations
Consideration			$ 3.3
Gain on transaction	$ 0.8
Line of credit with FGI \| Line of Credit
Discontinued Operations
Repayments of lines of credit		$ 0.0

Inventories - Summary of Inventory (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 1,372	$ 3,291
Work in process	437	790
Finished goods	1,725	3,044
Total inventories	$ 3,534	$ 7,125

Goodwill and Intangible Assets - Goodwill (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Sep. 30, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill, impairment loss	$ 4,700,000
Goodwill	$ 0	$ 0

Goodwill and Intangible Assets - Amortization Expense (Details) $ in Thousands	Sep. 30, 2017 USD ($)
Estimated amortization expense for each of the next five years
Remainder of 2017	$ 105
2018	161
2019	161
2020	161
2021	161
Thereafter	409
Finite-Lived Intangible Assets, Net	$ 1,158

Accrued Expenses and Other Current Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Accrued Expenses and Other Current Liabilities
Accrued salaries and benefits	$ 526	$ 759
Accrued severance and other charges	392	1,738
Accrued warranty	65	338	$ 314	$ 228
Warrant liability	788	1,226
Liability for consigned precious metals	1,695	1,282
Other	506	1,002
Accrued expenses and other current liabilities	$ 3,972	$ 6,345

Severance and Other Charges - Summary of Activity (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Severance and other charges
Balance, start of period	$ 1,738	$ 1,092
Provision (reversals)	(384)	1,361
Payments	(962)	(1,000)
Balance, end of period	392	1,453
Severance
Severance and other charges
Balance, start of period	718	1,092
Provision (reversals)	235	791
Payments	(576)	(1,000)
Balance, end of period	377	883
Lease Exit Costs
Severance and other charges
Balance, start of period	1,020	0
Provision (reversals)	(619)	570
Payments	(386)	0
Balance, end of period	$ 15	$ 570

Accrued Warranty - Summary of Activity (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Accrued Warranty
Balance at beginning of period	$ 338	$ 228
Accrued warranty expense	(16)	387
Warranty claims paid	(152)	(301)
Transferred in sale of DuraFit	(110)	0
Translation adjustment	5	0
Balance at end of period	$ 65	$ 314
Minimum
Accrued Warranty
Warrants period	1 year
Maximum
Accrued Warranty
Warrants period	5 years

Debt - Schedule of Notes Payable (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016	Apr. 01, 2016
Debt, long-term and short-term, combined amount
Total debt	$ 0	$ 3,261,000
Less current portion	0	(3,261,000)
Long-term debt, net of current portion	0	$ 0
Line of credit with FGI \| Line of Credit
Debt, long-term and short-term, combined amount
Interest rate (as a percent)		6.50%
Total debt	0	$ 1,458,000
Convertible Debt \| Two Million 8 Percent Shareholder Note Due September 2017
Debt, long-term and short-term, combined amount
Face amount of debt			$ 2,000,000.0
Interest rate (as a percent)			8.00%
Unamortized debt discount		200,000
Notes Payable, Other Payables \| $2.0 million, 8% shareholder note due 2017
Debt, long-term and short-term, combined amount
Face amount of debt	$ 2,000,000
Interest rate (as a percent)	8.00%
Total debt	$ 0	$ 1,803,000

Debt - Line of Credit With FGI (Details) - USD ($)	9 Months Ended
Debt - Line of Credit With FGI (Details) - USD ($)	Sep. 30, 2016	Sep. 30, 2017	Dec. 31, 2016
Debt Instrument
Total debt		$ 0	$ 3,261,000
Line of Credit \| Line of credit with FGI
Debt Instrument
Maximum borrowing capacity		$ 7,500,000.0
Interest rate (as a percent)			6.50%
Line of credit facility, interest rate at period end		6.50%
Total debt		$ 0	$ 1,458,000
Line of Credit \| Line of credit with FGI \| Prime Rate
Debt Instrument
Debt instrument, basis spread on variable rate	2.50%

Debt - Kanis S. A. Indebtedness (Details) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
Debt - Kanis S. A. Indebtedness (Details) - USD ($)	Jan. 31, 2017	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Apr. 01, 2016
Debt Instrument
Loss on extinguishment of debt		$ 0	$ (10,780,000)	$ (194,000)	$ (12,410,000)
Convertible Debt \| Two Million 8 Percent Shareholder Note Due September 2017
Debt Instrument
Face amount of debt						$ 2,000,000.0
Interest rate (as a percent)						8.00%
Repayments of notes payable	$ 2,000,000
Loss on extinguishment of debt	$ (200,000)

Warrants - Activity (Details) - $ / shares	9 Months Ended
Warrants - Activity (Details) - $ / shares	Sep. 30, 2017	Dec. 31, 2016
Shares
Outstanding at beginning of period (in shares)	979,869
Exercised (in shares)	(75,399)
Expired (in shares)	0
Outstanding at end of period (in shares)	904,470
Exercisable at end of period (in shares)	904,470
Weighted Average Exercise Price
Outstanding at beginning of period (in dollars per share)	$ 6.36
Exercised (in dollars per shares)	19.46
Expired ( in dollars per share)	0.00
Outstanding at end of period (in dollars per share)	5.27
Exercisable at end of period (in dollars per share)	5.27
Range of Exercise Prices
Expired (in dollars per share)	$ 0.00
Temporary equity, shares outstanding (in shares)	21,920	21,920
Minimum
Range of Exercise Prices
Outstanding at beginning of period (in dollars per share)	$ 2.20
Outstanding at end of period (in dollars per share)	2.20
Exercisable (in dollars per share)	2.20
Maximum
Range of Exercise Prices
Outstanding at beginning of period (in dollars per share)	21.00
Outstanding at end of period (in dollars per share)	21.00
Exercisable (in dollars per share)	$ 21.00

Warrants - Fair Value of Warrant Liabilities (Details)	9 Months Ended
Warrants - Fair Value of Warrant Liabilities (Details)	Sep. 30, 2017
Black Scholes
Fair value assumptions and methodology for assets and liabilities
Dividend yield	0.00%
Monte Carlo Simulation Model
Fair value assumptions and methodology for assets and liabilities
Dividend yield	0.00%
Minimum \| Black Scholes
Fair value assumptions and methodology for assets and liabilities
Expected volatility	88.70%
Risk-free interest rate	1.47%
Expected life in years	2 years
Minimum \| Monte Carlo Simulation Model
Fair value assumptions and methodology for assets and liabilities
Expected volatility	62.00%
Risk-free interest rate	1.26%
Expected life in years	9 months
Maximum \| Black Scholes
Fair value assumptions and methodology for assets and liabilities
Expected volatility	101.00%
Risk-free interest rate	1.80%
Expected life in years	4 years 2 months
Maximum \| Monte Carlo Simulation Model
Fair value assumptions and methodology for assets and liabilities
Expected volatility	89.70%
Risk-free interest rate	1.49%
Expected life in years	2 years 1 month 6 days

Fair Value Measurements - Assets and Liabilities Measured at Fair Value (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Liabilities measured at fair value on a recurring basis
Warrant liability	$ 788,000	$ 1,226,000
Liability transfers from Level 1 to Level 2		0
Liability transfers from Level 2 to Level 1	0
Fair Value, Inputs, Level 1
Liabilities measured at fair value on a recurring basis
Warrant liability	0	0
Fair Value, Inputs, Level 2
Liabilities measured at fair value on a recurring basis
Warrant liability	0	0
Fair Value, Inputs, Level 3
Liabilities measured at fair value on a recurring basis
Warrant liability	$ 788,000	$ 1,226,000

Fair Value Measurements - Reconciliation of Warrant Liability (Details) - Warrants - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Reconciliation of warrant liability and embedded derivative
Balance at beginning of period	$ 1,226	$ 3,072
Exercise of common stock warrants	(34)	(1,224)
Remeasurement of common stock warrants	(404)	(883)
Balance at end of period	$ 788	$ 965

Loss per Share (Details) - shares shares in Millions	3 Months Ended		9 Months Ended
Loss per Share (Details) - shares shares in Millions	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Earnings Per Share [Abstract]
Potentially dilutive common stock equivalents excluded from computation (in shares)	2.0	4.8	2.0	4.3

Concentrations - Narrative (Details)	3 Months Ended		9 Months Ended		12 Months Ended
Concentrations - Narrative (Details)	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
One automotive OEM customer \| Sales Revenue, Net \| Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage	48.00%	68.00%	52.00%	60.00%
One automotive OEM customer \| Accounts Receivable \| Credit Concentration
Concentration Risk [Line Items]
Concentration risk, percentage			22.00%		35.00%
Supplier One \| Material Purchases \| Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage	14.00%		18.00%
Supplier Two \| Material Purchases \| Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage	12.00%		11.00%
Supplier Three \| Material Purchases \| Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage	12.00%
Supplier Four \| Material Purchases \| Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage	11.00%			38.00%
Supplier Five [Member] \| Material Purchases \| Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage		36.00%
Supplier Six [Member] \| Material Purchases \| Customer Concentration Risk
Concentration Risk [Line Items]
Concentration risk, percentage		12.00%

Discontinued Operations - Applied Utility Systems, Inc. (Details) - Applied Utility Systems, Inc. - Sales And Use Tax Audit - USD ($) $ in Millions	1 Months Ended	9 Months Ended	12 Months Ended
	Oct. 31, 2015	Sep. 30, 2017	Dec. 31, 2016	Mar. 31, 2017	Jul. 21, 2014	Dec. 31, 2013
Discontinued Operations
Loss Contingency Accrual			$ 0.1	$ 0.1
Sales tax owed					$ 1.5
Basis for determining sales tax owed					12.2
Adjusted basis for determining sales tax owed					9.0
Amount offered to settle the case	$ 0.1	$ 0.1	$ 0.1
Maximum
Discontinued Operations
Sales tax owed					$ 0.9	$ 1.5