10-Q

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 March 31, 2014

or

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

4567 Telephone Road, Suite 100

Ventura, CA  93003

(Address of principal executive offices) (Zip Code)

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

(Former name, former address and former fiscal year, if changed since last report)

        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, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

(Do not check if a smaller reporting company)

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

As of May 5, 2014, the outstanding number of shares of the registrant’s common stock, par value $0.01 per share, was 12,352,747.

CLEAN DIESEL TECHNOLOGIES, INC.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements(Unaudited)
	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	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
SIGNATURES		30

i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        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.

        This Quarterly Report on Form 10-Qcontains 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 see the discussion under the caption “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2014 and important factors discussed in this report and our other filings with the SEC, including without limitation the following:

· We have incurred losses, have not experienced positive cash flows from operations in the past and our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern in their report on our financial statements for the period ended December 31, 2013. Our ability to achieve profitability and positive cash flows from operations, or finance negative cash flow from operations, could depend on reductions in our operating costs, which may not be achievable, or from increased sales, which may not occur;

· We could require additional working capital to maintain our operations in the form of funding from outside sources which may be limited, difficult to obtain, or unavailable on acceptable terms or not available at all, or in the case of an offering of common stock or securities convertible into common stock, may result in dilution to our existing stockholders;

· The pursuit of opportunities relating to special government mandated retrofit programs requires cash investment in operating expenses and working capital such as inventory and receivables prior to the realization of profits and cash from sales and, if we are not successful in accessing cash resources to make these investments, we may miss out on these opportunities; further, if we are not successful in generating sufficient sales from these opportunities, we will not realize the benefits of the investments in inventory, which could have an adverse effect on our business, financial condition and results of operations;

· We cannot assure you that we will be successful in realigning our strategic path to pursue aggressive development of our unique materials science platform or that those efforts will have the intended effect of increasing profitability;

· Historically, we have been dependent on a few major customers, particularly Honda, for a significant portion of our revenue and our revenue would decline if we are unable to maintain those relationships, if customers reduce their orders for our products, or if we are unable to secure new customers. In addition, we have an agreement with Honda that could limit our rights to commercialize certain technology which could adversely affect our technology licensing strategy;

· We are not able to sell our current catalyst products in certain countries in Asia since such products are based on technology which we sold to a third party;

· We have entered into contractual agreements in connection with the sale of certain of our assets, which may expose us to liability for claims for indemnification under such agreements; and

· We depend on intellectual property and the failure to protect our intellectual property could adversely affect our future growth and success.

        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.

ii

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)

	March 31, 2014		December 31, 2013
ASSETS
Current assets:
Cash	$	3,597	$	3,909
Accounts receivable, net		6,068		5,524
Inventories		6,026		5,919
Prepaid expenses and other current assets		1,431		1,462
Total current assets		17,122		16,814
Property and equipment, net		1,402		1,459
Intangible assets, net		3,274		3,508
Goodwill		5,767		5,870
Other assets		1,009		718
Total assets	$	28,574	$	28,369
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Line of credit	$	2,684	$	2,258
Accounts payable		6,044		5,370
Accrued expenses and other current liabilities		5,434		6,002
Income taxes payable		1,411		1,058
Total current liabilities		15,573		14,688
Shareholder notes payable		7,565		7,549
Deferred tax liability		666		686
Total liabilities		23,804		22,923
Commitments and contingencies (Note 13)
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 24,000,000; issued and outstanding 10,150,575 and 9,299,253 shares at March 31, 2014 and December 31, 2013, respectively		102		93
Additional paid-in capital		191,696		188,108
Accumulated other comprehensive loss		(1,473)		(1,036)
Accumulated deficit		(185,555)		(181,719)
Total stockholders’ equity		4,770		5,446
Total liabilities and stockholders’ equity	$	28,574	$	28,369

See accompanying notes to condensed consolidated financial statements.

1

CLEAN DIESEL TECHNOLOGIES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2014		2013
Revenues	$	12,462	$	13,307
Cost of revenues		8,598		10,195
Gross profit		3,864		3,112
Operating expenses:
Selling, general and administrative (including stock-based compensation expense of $109 and $192)		3,674		3,830
Research and development (including stock-based compensation expense of $2 and $2)		1,289		1,265
Severance and other charges		354		11
Total operating expenses		5,317		5,106
Loss from operations		(1,453)		(1,994)
Other (expense) income:
Interest expense		(306)		(336)
Other (expense) income, net		(1,812)		306
Total other expense		(2,118)		(30)
Loss from continuing operations before income taxes		(3,571)		(2,024)
Income tax expense from continuing operations		237		114
Net loss from continuing operations		(3,808)		(2,138)
Net loss from discontinued operations		(28)		(3)
Net loss		(3,836)		(2,141)
Foreign currency translation adjustments		(437)		(593)
Comprehensive loss	$	(4,273)	$	(2,734)
Basic and diluted net loss per share:
Net loss from continuing operations	$	(0.39)	$	(0.29)
Net loss from discontinued operations		-		-
Net loss	$	(0.39)	$	(0.29)
Weighted-average number of common shares outstanding - basic and diluted		9,758		7,261

See accompanying notes to the condensed consolidated financial statements.

2

CLEAN DIESEL TECHNOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2014		2013
Cash flows from operating activities:
Net loss	$	(3,836)	$	(2,141)
Net loss from discontinued operations		28		3
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		274		334
Write-down of excess and obsolete inventory		16		137
Stock-based compensation expense		111		194
Loss (gain) on change in fair value of liability-classified warrants		2,051		(3)
Gain on foreign currency transactions		(162)		(277)
Other		(6)		88
Changes in operating assets and liabilities:
Accounts receivable		(642)		(1,107)
Inventories		(206)		(417)
Prepaid expenses and other assets		(279)		171
Accounts payable		612		1,281
Income taxes		389		69
Accrued expenses and other current liabilities		62		(80)
Cash used in operating activities of continuing operations		(1,588)		(1,748)
Cash used in operating activities of discontinued operations		(31)		(2)
Net cash used in operating activities		(1,619)		(1,750)
Cash flows from investing activities:
Purchases of property and equipment		(78)		(80)
Investment in unconsolidated affiliate		─		(66)
Net cash used in investing activities		(78)		(146)
Cash flows from financing activities:
Net borrowings (payments) under demand line of credit		426		(334)
Proceeds from exercise of warrants		1,000		─
Other		(18)		(2)
Net cash provided by (used in) financing activities		1,408		(336)
Effect of exchange rates on cash		(23)		(63)
Net change in cash		(312)		(2,295)
Cash at beginning of period		3,909		6,878
Cash at end of period	$	3,597	$	4,583

See accompanying notes to the condensed consolidated financial statements.

3

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Organization

a.Description of Business

        Clean Diesel Technologies, Inc. (“CDTi” or the “Company”) is a global manufacturer and distributor of heavy duty diesel and light duty vehicle emissions control systems and products to major automakers and retrofitters. CDTi’s business is driven by increasingly stringent global emission standards for internal combustion engines, which are major sources of a variety of harmful pollutants. The Company has operations in the United States, Canada, the United Kingdom, France, Japan and Sweden as well as an Asian investment.

b.Liquidity

        The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Therefore, the consolidated financial statements contemplate the realization of assets and liquidation of liabilities in the ordinary course of business. The Company has suffered recurring losses and negative cash flows from operations since inception, resulting in an accumulated deficit of $185.6million at March 31, 2014. The Company has funded its operations through equity sales, debt and bank borrowings.

        The Company has a $7.5 million secured demand facility backed by its receivables and inventory with Faunus Group International, Inc. (“FGI”). At March 31, 2014, the Company had $2.7 million in borrowings outstanding under this facility with $4.8 million available, subject to the availability of eligible accounts receivable and inventory balances for collateral. There is no guarantee that the Company will be able to borrow to the full limit of $7.5 million if FGI chooses not to finance a portion of its receivables or inventory. Additionally, FGI can cancel the facility at any time.

        On May 15, 2012, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”) (the “Shelf Registration”), which was declared effective by the SEC on May 21, 2012. The Shelf Registration permits the Company to sell, from time to time, up to an aggregate of $50.0 million of various securities, provided that the Company may not sell its securities in a primary offering pursuant to the Shelf Registration or any other registration statement on Form S-3 with a value exceeding one-third of its public float in any 12-month period (unless the Company’s public float rises to $75.0 million or more).

        On July 3, 2013, the Company sold 1,730,000 units pursuant to the shelf registration for $1.25 per unit, with each unit consisting of one share of common stock and one half of a warrant to purchase one share of common stock with an exercise price of $1.25 per share. The Company received net proceeds of $1.7 million after deducting discounts and commissions to the underwriter and offering expenses. In the first quarter of 2014, warrant holders exercised an aggregate of 800,000 of the warrants issued in the offering at an exercise price of $1.25 per share for  proceeds of $1.0 million.

  On March 21, 2014, the Company and Kanis S.A. entered into a letter agreement whereby Kanis S.A. agreed not to accelerate the maturity of the company’s 8% subordinated convertible notes due 2016 prior to July 1, 2015. See Note 8 for additional information on these notes.

On April 4, 2014, the Company sold 2,030,000 units pursuant to the Shelf Registration for $3.40 per unit, with each unit consisting of one share of common stock and 0.4 of one warrant to purchase one share of common stock with an exercise price of $4.20 per share. The Company received net proceeds of $6.1 million after deducting placement agent fees and other estimated offering expenses.

  At March 31, 2014, the Company had $3.6 million in cash. Based on the Company’s current cash levels, proceeds from the April 2014 offering and expected cash flows from operations, management believes that the Company will have access to sufficient working capital to sustain operations through at least the next twelve months. However, there can be no assurances that the Company will be able to achieve projected levels of revenue in 2014 and beyond. If cash from operations is not sufficient for the working capital needs of the Company, the Company may seek additional financing in the form of funding from outside sources. However, there is no assurance that the Company will be able to raise additional funds or reduce its discretionary spending to a level sufficient for its working capital needs.

2.Summary of Significant Accounting Policies

a.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 adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been reflected. The results reported in these 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 (“U.S. 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 consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

4

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

b.Principles of Consolidation

        The condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

        Investments in which the Company has at least a 20%, but not more than a 50% interest are generally accounted for under the equity method. Investment interests below 20% are generally accounted for under the cost method, except if the Company could exercise significant influence, the investment would be accounted for under the equity method. The Company’s judgment regarding the level of influence over each equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company includes its proportionate share of the net income or loss of equity-method investees in its condensed consolidated statements of comprehensive loss.

c.Use of Estimates

 The preparation of financial statements in conformity with U.S. GAAP 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 assets and 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 goodwill and 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.

d.Concentration of Risk

        For the three months ended March 31, 2014 and 2013, one automotive original equipment manufacturer (“OEM”) customer within the Catalyst segment accounted for 41% and 40%, respectively, of the Company’s revenues. This customer accounted for 30% and 24% of the Company’s accounts receivable at March 31, 2014 and December 31, 2013, respectively. No other customers accounted for 10% or more of the Company’s revenues or accounts receivable for these periods.            

        For the periods presented below, certain vendors accounted for 10% or more of the Company’s raw material purchases as follows:

	Three Months Ended March 31,
Vendor	2014	2013
A	19%	13%
B	18%	16%
C	6%	16%
D	9%	13%

Vendor A above is a catalyst supplier, vendors B and D above are substrate suppliers and vendor C is a rare earth materials supplier.

e.Net 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 and dilutive potential common shares. Dilutive potential common shares include employee stock options and restricted share units (“RSUs”) and warrants and debt that are convertible into the Company’s common stock.

5

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

        Diluted net loss per share excludes certain dilutive potential common shares outstanding as their effect is anti-dilutive. Because the Company incurred net losses in the three months ended March 31, 2014 and 2013, the effect of potentially dilutive securities has been excluded in the computation of net loss per share and net loss from continuing operations per share as their impact would be anti-dilutive. Potential common stock equivalents excluded consist of the following (in thousands):

	March 31,
	2014	2013
Common stock options	635	786
RSUs	442	371
Warrants	340	923
Convertible notes	250	250
Total	1,667	2,330

f.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.

The Company records its liability-classified warrants at fair value in accordance with the fair value measurement framework. See Note 10 for further information on these liability-classified warrants. The valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis is summarized as follows (in thousands):

As of March 31, 2014:	Level 1		Level 2		Level 3
Warrant liability		─		─	$	485
		─		─	$	485

As of December 31, 2013:	Level 1		Level 2		Level 3
Warrant liability		-		-	$	939
		-		-	$	939

The following is a reconciliation of the warrant liability measured at fair value using Level 3 inputs (in thousands):

	Three Months Ended March 31,
	2014		2013
Balance at beginning of period	$	939	$	10
Exercise of common stock warrants		(2,505)		─
Remeasurement of common stock warrants		2,051		(3)
Balance at end of period	$	485	$	7

6

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

g.Fair Value of Financial Instruments

        Accounting Standards Codification (“ASC”) Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial instruments for which the determination of fair value is practicable. The fair values of the Company’s cash, trade 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 borrowings under the line of credit approximates their carrying value due to the variable interest rates. The fair value of shareholder notes payable, noncurrent, calculated using level 3 inputs, using a Black-Scholes option-pricing model to value the debt’s conversion factor and a net present value model was $7.6 million and $7.5 million at March 31, 2014 and December 31, 2013, respectively.

h.Reclassifications

        Certain prior-period amounts have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported consolidated results of operations or stockholders' equity.

i.Recently Adopted Accounting Guidance

        In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. ASU 2013-05 was effective for reporting periods beginning after December 15, 2013. Adoption of ASU 2013-05 in the first quarter of 2014 did not have a material impact on the Company’s consolidated financial statements or financial statement disclosures.

        In June 2013, the FASB ratified Emerging Issues Task Force (EITF) Issue 13-C, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which concludes an unrecognized tax benefit should be presented as a reduction of a deferred tax asset when settlement in this manner is available under the tax law. Adoption of this amendment in the first quarter of 2014 did not have a material impact on its consolidated financial statements or financial statement disclosures.

3.Inventories

Inventories consist of the following (in thousands):

	March 31, 2014		December 31, 2013
Raw materials	$	2,825	$	2,782
Work in progress		1,125		1,039
Finished goods		2,076		2,098
	$	6,026	$	5,919

4.Goodwill and Intangible Assets

Goodwill 

The Company’s Engine Control Systems reporting unit, which is within its Heavy Duty Diesel Systems reporting segment, contains all of the Company’s allocated goodwill. The change in the carrying amount of goodwill is as follows (in thousands):

Balance at December 31, 2013	$	5,870
Effect of translation adjustment		(103)
Balance at March 31, 2014	$	5,767

7

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 Intangible Assets

        Intangible assets consist of the following (in thousands):

	Useful Life in Years	March 31, 2014		December 31, 2013
Trade name	15 – 20	$	1,328	$	1,352
Patents and know-how	5 – 12		4,696		4,814
Customer relationships	4 – 8		1,202		1,224
			7,226		7,390
Less accumulated amortization			(3,952)		(3,882)
		$	3,274	$	3,508

        The Company recorded amortization expense related to intangible assets of $0.2 million during each of the three months ended March 31, 2014 and 2013.

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

Years ending December 31:
Remainder of 2014	$	496
2015		656
2016		511
2017		500
2018		168

5.Accrued Expenses and Other Current Liabilities

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

	March 31, 2014		December 31, 2013
Accrued salaries and benefits	$	1,089	$	1,232
Warrant liability		485		939
Liability for consigned precious metals		654		832
Accrued legal settlement and related expenses		783		616
Accrued severance and other charges		371		530
Accrued warranty		458		453
Other		1,594		1,400
	$	5,434	$	6,002

6.Severance and Other Charges

        Severance and other charges consist of the following (in thousands):

	Three Months Ended March 31,
	2014		2013
Employee severance expense	$	46	$	11
Lease exit costs		43		─
Legal settlements		265		─
Total severance and other charges	$	354	$	11

        Severance and Other Exit Costs

        The Company incurred severance costs in 2014 related to its North American and United Kingdom locations. The Company incurred additional lease exit costs related to the exit of a lease in North America in 2013.               

8

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following summarizes the activity in the Company’s accrual for severance and other exit costs (in thousands):

	Severance		Lease Exit Costs		Total
Accrual at December 31, 2013	$	530	$	─	$	530
Provision in 2014		46		43		89
Payments and other settlements in 2014		(222)		(23)		(245)
Translation adjustment		(3)		─		(3)
Accrual at March 31, 2014	$	351	$	20	$	371

The Company expects to pay substantially all of the accrued amounts during the remainder of 2014.

Legal Settlements

On March 13, 2014, the Company reached a settlement with its former chief financial officer pursuant to an administrative complaint that was filed in 2010 which provides for a one-time lump sum amount of $0.4 million and the issuance of 75,000 shares of Company common stock. The accrued balance of $0.7 million at March 31, 2014 includes the lump sum amount, the market value of the common stock on the balance sheet date and related accrued legal expenses. In the three months ended March 31, 2014, the Company recorded an additional $0.2 million primarily related to the increase in fair value of its common stock. The settlement was paid and stock issued in April 2014. In the three months ended March 31, 2014, the Company also incurred $0.1 million related to the settlement of a customer dispute.

7.Accrued Warranty

        Changes in the Company’s product warranty reserve are as follows (in thousands):

	Three Months Ended March 31,
	2014		2013
Balance at beginning of period	$	453	$	665
Accrued warranty expense		230		199
Warranty claims paid		(212)		(19)
Translation adjustment		(13)		(21)
Balance at end of period	$	458	$	824

8.Debt

        Debt consists of the following (in thousands):

	March 31, 2014		December 31,  2013
Line of credit with FGI	$	2,684	$	2,258
$1.5 million, 8% shareholder note due 2015		1,596		1,586
$3.0 million, 8% subordinated convertible shareholder notes due 2016		3,000		3,000
$3.0 million, 8% shareholder note due 2015		2,969		2,963
		10,249		9,807
Less current portion		(2,684)		(2,258)
	$	7,565	$	7,549

Line of Credit with FGI

        The Company has a $7.5 million secured demand facility with FGI backed by its receivables and inventory (as amended, the “FGI Facility”). The FGI Facility expires on August 15, 2015 and may be extended at the Company’s option for additional one-year terms. However, FGI can cancel the facility at any time.

9

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

        Under the FGI Facility, FGI can elect to purchase eligible accounts receivables from the Company and certain of its subsidiaries at up to 80% of the value of such receivables (retaining a 20% reserve). Purchased receivables are subject to full recourse to the Company in the event of nonpayment by the customer. FGI becomes responsible for the servicing and administration of the accounts receivable purchased. The Company is not obligated to offer accounts in any month and FGI has the right to decline to purchase any accounts. At FGI’s election, FGI may advance the Company up to 80% of the value of any purchased accounts receivable, subject to the $7.5 million limit. Reserves retained by FGI on any purchased receivable are expected to be refunded to the Company net of interest and fees on advances once the receivables are collected from customers. The Company may also borrow against eligible inventory up to the inventory sublimit, as determined by FGI, subject to the aggregate $7.5 million limit under the FGI Facility and certain other conditions. At March 31, 2014, the inventory sublimit amount was the lesser of $1.5 million or 50% of the aggregate purchase price paid for accounts receivable purchased under the FGI facility. While the overall credit limit and the inventory sublimit were not changed, in the first quarter of 2014 borrowing against the Company’s significant OEM customer’s inventory has been eliminated by FGI due to their concerns about customer concentration.

        The interest rate on advances or borrowings under the FGI Facility is 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 March 31, 2014 and December 31, 2013. Any advances or borrowings under the FGI Facility are due on demand. The Company also agreed to pay FGI collateral management fees of 0.30% per month on the face amount of eligible receivables as to which advances have been made and 0.38% per month on borrowings against inventory, if any. At any time outstanding advances or borrowings under the FGI Facility are less than $2.4 million, the Company agreed to pay FGI standby fees of (i) the interest rate on the difference between $2.4 million and the average outstanding amounts and (ii) 0.44% per month on 80% of the amount by which advances or borrowings are less than the agreed $2.4 million minimum.   

        At March 31, 2014, the Company had $3.5 million of gross accounts receivable pledged to FGI as collateral for short-term debt in the amount of $1.8 million. At March 31, 2014, the Company also had $0.9 million in borrowings outstanding against eligible inventory. The Company was in compliance with the terms of the FGI Facility at March 31, 2014. However, there is no guarantee that the Company will be able to borrow to the full limit of $7.5 million if FGI chooses not to finance a portion of its receivables or inventory.

        $1.5 Million, 8% Shareholder Note Due 2015

        On December 30, 2010, the Company executed a Loan Commitment Letter with Kanis S.A., a shareholder of the Company, pursuant to which Kanis S.A. loaned the Company $1.5 million. The unsecured loan, as amended, bears interest on the unpaid principal at a rate of 8%, with interest only payable quarterly in arrears. In addition to principal and accrued interest, the Company is obligated to pay Kanis S.A. “Payment Premium” of $250,000 with $100,000 paid on June 30, 2013 and the remaining amount payable on the June 30, 2015 maturity date. There is no prepayment penalty.

        $3.0 Million, 8% Subordinated Convertible Shareholder Notes Due 2016

        On April 11, 2011, the Company entered into a Subordinated Convertible Notes Commitment Letter with Kanis S.A. that provides for the sale and issuance by the Company of 8% subordinated convertible notes (the “Notes”). As provided in the Commitment Letter, on May 6, 2011 Kanis S.A. purchased from the Company at par $3.0 million aggregate principal amount of the Notes, which bear interest at a rate of 8% per annum, payable quarterly in arrears.

        The Notes have a stated maturity of five years from the date of issuance. The agreement, as amended, allows for the acceleration of the maturity of the Notes if: (i) the Company was in breach of the notes or other agreements with Kanis S.A., or (ii) Kanis S.A. provided written notice, not less than 30 days prior to such date, that it elected to accelerate the maturity to a date not earlier than May 12, 2013. On March 21, 2014, the Company and Kanis S.A. entered into a letter agreement whereby Kanis S.A. agreed not to accelerate the maturity of these Notes prior to July 1, 2015. The Notes have been classified as noncurrent in the condensed consolidated balance sheets at March 31, 2014 and December 31, 2013.

        The Notes also provide that the Company has the option to redeem the Notes at any time at a price equal to 100% of the face amount plus accrued and unpaid interest through the date of redemption. There is no prepayment penalty. The Notes are unsecured obligations of the Company and subordinated to existing and future secured indebtedness of the Company.

        As amended, the outstanding principal balance of the Notes, and accrued and unpaid interest are convertible, at the option of Kanis S.A., at any time upon written notice given not less than 75 calendar days prior to the date of conversion, into no more than 250,000 shares of the Company’s common stock at a conversion price of $4.00 per share.

10

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

        $3.0 Million, 8% Shareholder Note Due 2015

        On July 27, 2012, the Company executed a Loan Commitment Letter with Kanis S.A., pursuant to which the Company issued an unsecured promissory note in the principal amount of $3.0 million, which bears interest at 8% per annum, payable quarterly in arrears. The promissory note matures on July 27, 2015. There is no prepayment penalty or premium.

9.Stockholders’ Equity

        Significant Changes in Stockholders’ Equity

        During the three months ended March 31, 2014, additional paid-in capital increased by $3.6 million. $3.5 million of this increase is attributable to (i) $1.0 million in proceeds received from the exercise of warrants to purchase a total of 800,000 shares of the Company’s common stock and (ii) $2.5 million being the fair value of these warrants reclassified from liabilities. See Note 10 below for additional information.

        Shelf Registration

       On May 15, 2012, the Company filed a Shelf Registration which was declared effective by the SEC on May 21, 2012. The Shelf Registration permits the Company to sell, from time to time, up to an aggregate of $50.0 million of various securities, including common stock, preferred stock, warrants to purchase common stock or preferred stock and units consisting of one or more shares of common stock, shares of preferred stock, warrants, or any combination of such securities. However, the Company may not sell its securities in a primary offering pursuant to the Shelf Registration or any other registration statement on Form S-3 with a value exceeding one-third of its public float in any 12-month period (unless the Company’s public float rises to $75.0 million or more). The Shelf Registration is intended to provide the Company with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and the Company's capital needs.

        On July 3, 2013, the Company closed a public offering made pursuant to the Company’s Shelf Registration in which it sold 1,730,000 units consisting of one share of common stock and on half of a warrant to purchase one share of common stock for a price of $1.25 per unit. The Company received gross proceeds of $2.2 million and net proceeds of approximately $1.7 million after deducting discounts and commissions to the Underwriter and offering expenses. 

        On April 4, 2014, Clean Diesel Technologies, Inc. closed a registered direct offering of 2,030,000 shares of common stock and warrants to purchase 812,000 shares of common stock. The Company received net proceeds of approximately $6.1 million after deducting  placement agent fees and other estimated offering expenses. See Note 15 for further discussion.

        Common Stock Purchase Agreement with LPC

        On October 7, 2011, the Company signed a Purchase Agreement with LPC, together with a Registration Rights Agreement, whereby LPC agreed to purchase up to $10.0 million of the Company’s common stock over a 30-month period ending April 24, 2014. This expired unused in April 2014.

10.Warrants

        From time to time, the Company issues warrants to purchase its common stock. These warrants have been issued for consulting services, in connection with the Company’s issuance of debt and sales of its common stock.

        Warrant activity is summarized as follows: 

	Shares	Weighted Average Exercise Price		Range of Exercise Prices
Outstanding at December 31, 2013	1,139,535	$	1.68	$1.25 - $10.40
Warrants exercised	(800,000)	$	1.25	$1.25
Outstanding at March 31, 2014	339,535	$	2.70	$1.25 - $10.40
Warrants exercisable at March 31, 2014	319,535	$	3.03	$1.25 - $10.40

11

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

         Warrant Liability

        The Company evaluates warrants on issuance and at each reporting date to determine proper classification as equity or as a 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 a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that market conditions will be achieved. This model is 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. Due to the significant change in the Company following its business combination with Catalytic Solutions, Inc. (the “Merger”), CDTi’s pre-Merger historical price volatility was not considered representative of expected volatility going forward. Therefore, the Company has used an estimate based upon a weighted average of implied and historical volatility of a portfolio of peer companies and CDTi’s post-Merger historical volatility for the valuation of its warrants. The expected life is equal to the contractual life of the warrants.

        The assumptions used in the Monte Carlo simulation model to estimate the fair value of the warrant liability are as follows:

	March 31, 2014		December 31, 2013
CDTi stock price	$	3.82	$	1.51
Strike price	$	1.25	$	1.25
Expected volatility		79.0%		73.6%
Risk-free interest rate		1.3%		1.8%
Dividend yield		─		─
Expected life in years		4.3		4.5

        The liability, included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets, is re-measured at the end of each reporting period with changes in fair value recognized in other expense in the condensed 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. The Company recorded other expense of $2.1 million for the three months ended March 31, 2014 as a result of the change in fair value of the warrant liability which was primarily due to an increase in the Company’s stock price during the reporting period. During the three months ended March 31, 2014, as a result of the exercise of warrants to purchase 800,000 shares of the Company’s common stock, the warrant liability decreased $2.5 million, excluding the effects of remeasurement, with an offsetting increase to additional paid-in capital.

11.Stock-Based Compensation

        The Clean Diesel Technologies, Inc. Stock Incentive, as amended (the “Plan”), provides for the awarding of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, performance awards, bonuses or other forms of share-based awards, or combinations of these to the Company’s directors, officers, employees, consultants and advisors (except consultants or advisors in capital-raising transactions) as determined by the board of directors. As of March 31, 2014, there were 217,832 shares available for future grants under the Plan.

        Total stock-based compensation expense for the three months ended March 31, 2014 and 2013 was $0.1 million and $0.2 million, respectively.
 

12

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

        Stock Options              

        Stock option activity is summarized as follows:

	Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (thousands)
Outstanding at December 31, 2013	714,712	$	7.17	7.58		─
Cancelled	(79,504)	$	2.83
Outstanding at March 31, 2014	635,208	$	7.71	6.05	$	355
Exercisable at March 31, 2014	556,343	$	8.39	5.78	$	286

        The aggregate intrinsic value represents the difference between the exercise price and the Company’s closing stock price on the last trading day of the year.

        Compensation costs for stock options that vest over time are recognized over the vesting period on a straight-line basis. As of March 31, 2014, the Company had $0.1 million of unrecognized compensation cost related to stock option grants which will be recognized over a weighted estimated period of 0.9 years.

        Restricted Stock Units

        RSU activity is as follows:

	Shares	Weighted Average  Grant Date Fair Value
Outstanding at December 31, 2013	312,196	$	2.37
Granted	288,760	$	3.18
Vested and issued	(58,139)	$	2.06
Forfeited	(101,241)	$	2.14
Outstanding units at March 31, 2014	441,576	$	2.91
Vested and unissued at March 31, 2014	59,589	$	2.49

       During the three months ended March 31, 2014, the Company granted 288,760 RSUs to executive officers and other key employees. The RSUs are time-based and vest over three years from the date of grant.

       As of March 31, 2014, the Company had $1.0 million of unrecognized compensation cost related to RSUs, which will be recognized over a weighted average estimated period of 2.7 years. In 2014, of the 58,139 shares vested, 6,817 vested shares were withheld for minimum statutory tax obligations, resulting in a net issuance of 51,322 shares.

12.Joint Venture

On February 19, 2013, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pirelli & C. Ambiente SpA (“Pirelli”) to form a joint venture entity, Eco Emission Enterprise Srl under the laws of Italy (the “Joint Venture”), through which the Company and Pirelli would jointly sell their emission control products in Europe and the Commonwealth of Independent States countries. The Joint Venture commenced operations in April 2013.

On November 8, 2013, as a result of slower than anticipated progress in achieving sales objectives initially established for the Joint Venture, the Company and Pirelli agreed to voluntarily dissolve the Joint Venture in accordance with the Joint Venture Agreement. The Joint Venture ceased operations on November 30, 2013 and commenced liquidation on December 9, 2013. The dissolution was finalized in April 2014. The majority of its investment balance of $0.1 million, included in other assets in the accompanying condensed consolidated balance sheets at March 31, 2014 and December 31, 2013, was received in April 2014, with a small balance to be collected following the receipt of VAT due from the Swedish and Italian governments. The Company has resumed its operations in Europe in a similar manner as conducted prior to the Joint Venture.

13

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

13.Contingencies

Legal Proceedings

        On April 30, 2010, the Company received notice of an administrative complaint filed by its former chief financial officer. The complaint was filed with the Hartford, Connecticut office of the U.S. Department of Labor (“U.S. DOL”) under Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”) and alleged, among other things, that the Company’s termination of her employment on April 19, 2010 was retaliatory and due to her alleged protected activity associated with comments she made to the Company’s board of directors at their meeting on March 26, 2010. On June 14, 2010, the Company filed its response to the complaint denying the allegations and requesting a dismissal of the matter. On September 27, 2013, the U.S. DOL issued preliminary findings on the matter concluding there was reasonable cause to support the former employee’s claims and ordering the Company to pay damages in excess of $1.9 million and take certain other actions. On October 22, 2013, the Company filed its Objections and Request for Hearing with the U.S. DOL which triggered the appointment of an Administrative Law Judge (“ALJ”), and the scheduling of a hearing on the merits of the matter. Thereafter, the parties agreed to participate in a U.S.DOL mediation process on February 7, 2014. On March 13, 2014, the parties entered into a settlement agreement which provides for payment of a one-time lump sum amount of $0.4 million to the former employee, along with issuance of 75,000 shares of Company stock. The settlement has been formally approved by the ALJ. As a result, there has been mutual releases of all claims and a dismissal of the SOX complaint. The Company has reserved $0.7 million and $0.6 million at March 31, 2014 and December 31, 2013, respectively, which includes the lump sum amount, the market value of the common stock on the respective dates and accrued legal expenses incurred. The amounts were settled in April 2014.

        On November 15, 2013, BP Products North America (“BP”) instituted claims against Johnson Matthey (“JM”) as the parent company of and purchaser of Applied Utility Systems, Inc. (“AUS”), a former subsidiary of the Company. On May 12, 2010, JM tendered to the Company a claim for indemnification under the Asset Purchase Agreement dated October 1, 2009, (the “Asset Purchase Agreement”), among JM, the Company and AUS. On June 11, 2013, BP, JM and the Company entered into a Settlement Agreement and Mutual Release pursuant to which they settled all claims. The settlement agreement had no material impact on the Company. Under the indemnification clauses of the Asset Purchase Agreement, the Company may be liable for legal expenses incurred by JM. These legal costs may be offset against funds withheld by JM from the acquisition of AUS.

        In connection with the Asset Purchase Agreement, on October 1, 2009, JM presented the Company with an indemnification claim seeking recovery of the net amount of  $0.9 million after offsetting the funds withheld by JM from the acquisition of AUS. These claims are for matters relating to various customer contracts that JM purchased including the BP contract discussed above. The Company and JM have entered into discussions relating to the application of offsets and the validity of the claims presented. The Company has offered a settlement amount of $0.2 million and has reserved for this amount in the fourth quarter of 2013. Since the discussions are ongoing, the ultimate costs associated with this matter cannot be determined at this time.

In addition to the foregoing, 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 are likely to have, individually or in the aggregate, a material adverse effect on the Company’s 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 condensed consolidated financial statements as of March 31, 2014, nor is it possible to estimate what litigation-related costs will be in the future.

Sales and Use Tax Audit

        The Company is undergoing a sales and use tax audit by the State of California on 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 of California asserts that proper documentation of resale may not have been obtained and that the Company owes sales tax of $1.4 million. 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 of California. On August 12, 2013, the Company appeared at an appeals conference with the Board of Equalization. The outcome of that hearing is still pending. Accordingly, no accrual has been recorded for this matter as the Company does not assess a loss as being probable. Should the Company not prevail in this matter, it will pursue reimbursement from the customer for all assessments from the State.   

14

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

14.Segment Reporting and Geographic Information

The Company has two business division segments based on the products it delivers:

Heavy Duty Diesel Systems division— The Heavy Duty Diesel Systems division designs and manufactures verified exhaust emissions control solutions. This division offers a full range of products for the verified retrofit and non-retrofit OEM and aftermarket markets through its distributor/dealer network and direct sales. These products are used to reduce exhaust emissions created by on-road, off-road and stationary diesel and alternative fuel engines including propane and natural gas. The retrofit market in the U.S. is driven in particular by state and municipal environmental regulations and incentive funding for voluntary early compliance. The Heavy Duty Diesel Systems division derives significant revenues from retrofit with a portfolio of solutions verified by the California Air Resources Board and the United States Environmental Protection Agency.

Catalyst division— The Catalyst division produces catalysts to reduce emissions from gasoline, diesel and natural gas combustion engines that are offered for multiple markets and a wide range of applications. The Catalyst Division developed a family of unique high-performance catalysts, featuring inexpensive base-metals with low or even no platinum group metals, or PGMs, to provide increased catalytic function and value for technology-driven automotive industry customers. The Catalyst division’s technical and manufacturing competence in the light duty vehicle market is aimed at meeting auto makers’ most stringent requirements, and it has supplied over eleven million parts to light duty vehicle customers since 1996. The Catalyst division also provides catalyst formulations for the Company’s Heavy Duty Diesel Systems division. Intersegment revenues are based on market prices.

Corporate — Corporate includes cost for personnel, insurance and public company expenses such as legal, audit and taxes that are not allocated down to the operating divisions.

Summarized financial information for the Company’s reportable segments is as follows (in thousands):

	Three  Months Ended March 31,
	2014		2013
Net sales
Heavy Duty Diesel Systems	$	7,158	$	7,284
Catalyst		5,811		6,456
Corporate		─		─
Eliminations (1)		(507)		(433)
Total	$	12,462	$	13,307
(Loss) income from operations
Heavy Duty Diesel Systems		278		(337)
Catalyst		222		121
Corporate		(1,933)		(1,817)
Eliminations (1)		(20)		39
Total	$	(1,453)	$	(1,994)

(1)Elimination of Catalyst revenue and profit in ending inventory related to sales to Heavy Duty Diesel Systems.

        Net sales by geographic region based on the location of sales organization is as follows (in thousands):

	Three Months Ended March 31,
	2014		2013
United States	$	6,297	$	6,968
Canada		5,027		4,836
Europe		1,138		1,503
Total	$	12,462	$	13,307

15

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

15.Subsequent Event

On April 1, 2014, the Company entered into a placement agent agreement with Roth Capital Partners, LLC and Craig-Hallum Capital Group LLC related to a registered direct offering of an aggregate of 2,030,000 shares of the Company’s common stock and warrants to purchase an aggregate of 812,000 shares of Company common stock. The shares of common stock and warrants were sold in units at $3.40 per unit, with each unit consisting of one share of common stock and 0.4 of one warrant to purchase one share of common stock at an exercise price of $4.20 per share. The warrants can be exercised during the period commencing after six months and ending five and a half years from the date of issuance. The offering closed on April 4, 2014 and the Company received gross proceeds of $6.9 million and net proceeds of approximately $6.1 million after deducting placement agent fees and other estimated offering expenses. The Company intends to use the proceeds for general corporate purposes, which may include working capital, general and administrative expenses, capital expenditures and implementation of its strategic priorities. The Company may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to its current business, although there are no present commitments or agreements for any such transactions.

16

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 condensed consolidated financial statements and related notes 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, 2013. This discussion contains forward-looking statements, the accuracy of which involves risks and uncertainties, see “Cautionary Note Concerning Forward-Looking Statements” at the beginning of this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, as a result of many important factors, including those set forth in Part I — Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

        All percentage amounts and ratios included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations were calculated using the underlying data in thousands. References to “Notes” are notes included in the condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q.

Overview

        We are a leading technology-focused, global manufacturer and distributor of light duty vehicle catalysts and heavy duty diesel emissions control systems and products to major automakers, integrators and retrofitters. We have more than 13 years history of supplying catalysts to light duty vehicle original equipment manufacturers, or OEMs, and over 30 years of experience in the heavy duty diesel systems market. We have a proven technical and manufacturing competence in the light duty vehicle catalyst market meeting automakers’ stringent requirements for performance, quality and delivery. Our business is driven by increasingly stringent global emission standards for internal combustion engines, which are major sources of a variety of harmful pollutants. Since inception, we have developed a substantial portfolio of patents and related proprietary rights and extensive technological know-how.

         We organize our operations in two business divisions or reportable segments: the Heavy Duty Diesel Systems division and the Catalyst division.

Heavy Duty Diesel Systems: Our Heavy Duty Diesel Systems division specializes in the design and manufacture of verified exhaust emissions control solutions. This division offers a full range of products for the verified retrofit and non-retrofit OEM and aftermarket markets through its distribution/dealer network and direct sales. Our Purifilter^® , Purifier™, Combifilter ^®, Cattrap ^® and Actifilter™ products, along with our catalyst technologies, are used to reduce exhaust emissions created by on-road, off-road and stationary diesel, and alternative fuel engines including propane and natural gas. We also provide Platinum Plus ^® fuel-borne catalyst technology, ARIS ^® airless return flow system technology and exhaust gas recirculation with selective catalyst reduction technologies. Revenues from our Heavy Duty Diesel Systems division accounted for approximately 57% and 55% of the total consolidated revenues for the three months ended March 31, 2014 and 2013, respectively.

        Catalyst: Our Catalyst division develops and produces catalysts to reduce emissions from gasoline, diesel and natural gas combustion engines. Most catalytic systems require significant amounts of costly platinum group metals, or PGMs, to operate efficiently. Using our proprietary mixed-phase catalyst, or MPC ^®, technology, we have developed a family of unique high-performance catalysts, featuring inexpensive base-metals with low or even no PGM content. Our technical and manufacturing capabilities have been established to meet auto makers’ most stringent requirements. Since 2001, we have supplied over eleven million parts to light duty vehicle customers. Our Catalyst division also provides catalyst products for our Heavy Duty Diesel Systems division. Revenues from our Catalyst division accounted for approximately 43% and 45% of the total consolidated revenues for the three months ended March 31, 2014 and 2013, respectively. 

We are headquartered, in Ventura, California and have operations in the United States, Canada, the United Kingdom, France, Japan and Sweden. We also have an Asian investment. Our proprietary catalyst products are manufactured at our facility in Oxnard, California and our heavy duty diesel systems and products are manufactured at our facilities in Reno, Nevada; Thornhill, Canada; and Malmö, Sweden.               

17

Strategic Plan

In the second quarter of 2013, our board of directors and management team conducted a strategic review of our business and determined to pursue aggressive development of our unique materials science platform, which we view as the most likely path to enhance growth and improve shareholder value over the long-term. The new strategy is intended to build on recent initiatives and announcements, including an increased focus on developing and patenting our proprietary advanced low-PGM and zero-PGM, or ZPGM, catalysts. We believe our disruptive technology provides a solution to OEMs that contrasts with current solutions; one that reduces the dependence upon increasingly costly and scarce PGMs to meet stringent emission standards, such as the U.S. Environmental Protection Agency’s (the “EPA”) Tier 3 light duty vehicle emission standards. Our strategy includes combining our manufacturing expertise with advanced low-PGM and ZPGM materials to develop advanced catalysts in powder form to allow for potentially broader distribution and delivery options resulting in new commercial opportunities. We intend to pursue licensing and partnership arrangements to accelerate the commercialization of our patented and proprietary materials technology. Based on our strategic review, we have defined our near-term strategic priorities as follows:

· Explore strategic options to maximize the value of our existing manufacturing assets and business;

· Focus our research and development efforts on technology development, patent protection and commercialization of new advanced low-PGM and ZPGM materials and robust manufacturing process technology;

· Aggressively build our patent portfolio to maintain and protect our technology leadership position;

· Develop and qualify emission catalysts for a variety of applications in multiple segments of the emissions control market;

· Seek customers or partners for core emission control technology via development partnerships, licensing, joint venture or manufacturing agreements and pursue short-term catalyst sales opportunities; and

· Pursue new end markets, including fuel cells, petro-chemicals and thermo-electrics.

Recent Developments

Equity Financing              

On April 4, 2014, we completed a registered direct offering in which we sold 2,030,000 shares of common stock and warrants to purchase 812,000 shares of common stock. The securities were sold in units at $3.40 per unit, with each unit consisting of one share of common stock and 0.4 of a warrant to purchase one share of common stock. The warrants have an exercise price of $4.20 per share and can be exercised during the period commencing after six months and ending five and a half years from the date of issuance.We received net proceeds of approximately $6.1 million after deducting placement agent fees and other estimated offering expenses. We plan to use the proceeds for general corporate purposes, including working capital, general and administrative expenses, capital expenditures and implementation of our strategic priorities. We may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to our current business, although we have no present commitments or agreements for any such transactions.

Letter Agreement related to $3.0 million, 8% subordinated convertible note due 2016

On March 21, 2014, we and Kanis S.A. entered into a letter agreement regarding our outstanding 8% subordinated convertible note due 2016 whereby Kanis S.A. has agreed not to accelerate the maturity of these notes prior to July 1, 2015. See Note 8 for more information relating to the terms of our 8% subordinated convertible note due 2016.

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 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 warrant derivative liability have the greatest potential impact on our 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 our year ended December 31, 2013 for a more complete discussion of our critical accounting policies and estimates.

18

Recently Issued Accounting Guidance

        Refer to Note 2, “Summary of Significant Accounting Policies.”

Factors Affecting Future Results

Government Funding and Standards

        The nature of our business is heavily influenced by government funding of emissions control projects and increased emission control regulations and mandates. Compliance with these regulatory initiatives drives demand for our products and the timing of the implementation of emission reduction projects. We believe that, due to the constant focus on the environment and clean air standards throughout the world, it can be expected that new and more stringent regulations, both domestically and abroad, will continually be adopted, requiring the ongoing development of new products that meet these standards. However, emission reduction programs are often one-off, or have staggered compliance dates, which mean they do not generally result in a regular source of recurring revenues for our company.

        The California Air Resources Board (“CARB”) has mandated that all Class 7 and Class 8 heavy diesel trucks meet certain emission targets by 2016, with interim targets established for 2011, 2012 and 2013, such that 90% of current operating diesel trucks will be required to meet these targets by 2014. Based on figures available from CARB and the Manufacturers of Emission Controls Associations (“MECA”), we estimate that during 2014 to 2016, potentially 28,000 heavy duty diesel trucks have yet to be replaced or retrofitted. We believe that the rate of adoption of electing to retrofit by truck owners as well as the overall level of retrofit activity and our ability to gain sales are dependent upon several factors, including the level of enforcement of the mandate by CARB, the level of new truck acquisitions by truck owners and also our success in attaining the required verifications and approvals for products currently under review by CARB. In 2012, we experienced a slower than anticipated ramp-up in adoption by truck owners, a delay in enforcement by CARB and a delay in verification for a product which was under review by CARB. This resulted in weaker than expected sales in 2012. CARB began to actively enforce the regulation in the latter part of 2012. In January 2013, we received the product verification from CARB. In addition, a key competitor exited the market. As a result of these factors, we experienced a stronger year in 2013 as compared to 2012 and had $13.4 million of sales in California. In December 2013, CARB extended the compliance deadline from December 31, 2013 to June 30, 2014 for some vehicles. Previously it was expected that sales of products in California would peak in 2013 and drop off rapidly in 2014 and 2015. Due to the extended compliance deadline, while sales in 2014 are still expected to be lower than 2013, the year over year drop off is not expected to be as steep as previously expected.

Emerging Aftermarket in North America

        According to market analysis firm Power System Research, manufacturers in North America have produced on average 250,000 on-road heavy duty diesel vehicles each year since 2007, while the market for medium duty diesel vehicles has averaged 125,000 each year. The emission warranty for these engines expires upon the earlier of 100,000 miles or 5 years. The EPA requirements that were put into effect for 2007 model year engines reduced the allowable limit for particulate matter from 0.10 g/bhp-hr (grams per brake-horsepower-hour) to 0.01 g/bhp-hr. Accordingly, as 2007 model year diesel engines no longer under warranty experience failure and require emission component replacement, aftermarket filters will be in demand. According to a 2012 industry report, the market for medium and heavy duty vehicle after-treatment maintenance and repair is projected to grow from $0.5 billion in 2010 to $3.0 billion by 2017. In the second quarter of 2014, we are introducing CDTi manufactured replacement parts through our channel of distributors to provide an alternate to OEM manufactured parts. We expect sales from this activity to be modest in 2014, with increased sales in 2015 and beyond.

Dependency on a Few Major Customers

Historically, we have derived a significant portion of our revenue from a limited number of customers. For example, sales to Honda accounted for approximately 41% of our revenue for the three months ended March 31, 2014 and 39% of our revenue for the year ended December 31, 2013. While we continually seek to broaden our customer base, it is likely that for the foreseeable future we will remain dependent on Honda to supply a substantial portion of our revenue. Manufacturers typically seek to have two or more sources of critical components. However, there can be no assurance that manufacturers for which we are a shared supplier will not sole source the products we supply. Once our product is designed into a vehicle model, we generally supply our component for the life of that model. There can be no assurance, however, that our customers will retain us for a full model term. In this regard, relationships with our customers are based on purchase orders rather than long-term formal supply agreements and customers can discontinue or materially reduce orders without warning or penalty. In addition, while new models tend to remain relatively stable for a few years, there can be no assurance that manufacturers will not change models more rapidly, or change the performance requirements of components used in those models, and use other suppliers for these new or revised models.

19

Macroeconomic Factors Impacting the Automotive Industry

Demand for our products is tied directly to the demand for vehicles. Accordingly, factors that affect the truck and automobile markets have a direct effect on our business, including factors outside of our control, such as vehicle sales slowdowns due to economic concerns, or as a result of natural disasters, including earthquakes and/or tsunamis. The loss of one or more of our significant customers, or reduced demand from one or more of our significant customers, particularly Honda, would result in an adverse effect on our revenue, and could affect our ability to become profitable or continue our business operations. 

Since the customers of our Catalyst division are primarily OEM auto makers, our Catalyst division is generally affected by macroeconomic factors impacting the automotive industry. During 2013, sales to Honda, our largest OEM auto customer, were positively impacted due to increased vehicle shipments, expansion of our catalysts onto new vehicle platforms and increased purchasing by Honda due to their increased auto sales. In addition, our sales and gross margins are also impacted by the pass-through sales of rare earth materials and the extent to which the price increases are shared with Honda. However, the formula for determining these shared costs is based on published indices of rare earth prices and, as such, we could experience margin reductions if the formula does not accurately reflect our actual costs.

Technology Strategy

Our strategic focus on developing our ZPGM catalyst technology has resulted in what we believe to be a number of significant patent filings since the first quarter of 2013. It is our intention to invest in developing and commercializing our advanced low-PGM and ZPGM catalyst technologies. As a consequence, we anticipate that we will continue to expand our intellectual property portfolio with additional patents in 2014. In addition, we will invest in other development and marketing activities, including hiring of personnel, and incurring outside testing and consulting expenses in support of our technology strategy that could result in higher operating expenses.

We remain dependent on our primary customer, Honda, for which we provide catalyst solutions. Our business with Honda has grown steadily in the last few years as we have expanded the sale of our catalyst solutions from two passenger vehicle models in 2011 to six models in 2013. We expect to see continued expansion in 2014. In conjunction with our longstanding relationship with Honda, we entered into a joint research agreement with the motorcycle division of Honda regarding the development of ZPGM catalysts for motorcycles. The agreement was signed in 2010, extended in 2012 and expired in March 2014, although confidentiality provisions continue to survive. The agreement provides that technology within the scope of the agreement developed solely by one party is owned by that party, and that technology within the scope of the agreement that is jointly developed by both parties is jointly owned. The parties are in the process of assessing what technology, if any, developed during the term of the agreement is jointly owned. To the extent that Honda is a joint owner of critical technology developed under the agreement, Honda (including its automotive division) might not be required to pay us a license or royalty fee for use of the jointly owned technology; Honda may be able to manufacture its own catalysts based on the jointly owned technology; and Honda may be able to license the jointly owned technology to others without our consent. In addition, under the terms of the agreement, we may not be able to license jointly owned technology to others without Honda’s consent. Our inability to license jointly owned technology to others could adversely affect our technology licensing strategy. Further, as noted above, we do not have long-term supply agreements with Honda, and accordingly, Honda could terminate its relationship with us at any time for any reason. For additional information on another set of agreements that could affect our relationship with Honda, see “Item 1A. Risk Factors—We are not able to sell our current products in certain countries in Asia since products are based on technology which we sold to a third party” included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Supply of Catalyst Division Products to Heavy Duty Diesel Systems Division

Our strategy is to progressively utilize the products of our Catalyst division in the products of our Heavy Duty Diesel Systems division. We anticipate that our intercompany sales of catalysts will increase compared to historical levels, as we commence sales in the HDD aftermarket and as our planned new products are approved by regulatory agencies and begin to generate sales. While this will not impact our reported sales, we believe that the manufacturing gross margin associated with these sales will improve our total gross margin.

20

Results of Operations

     The tables in the discussion that follow are based upon the way we analyze our business. See Note 14 for additional information about our business divisions.

Revenues

	Three Months Ended March 31,
			% of Total Revenue			% of Total Revenue
	2014			2013			$ Change		% Change
	(Dollars in millions)
Heavy Duty Diesel Systems	$	7.2	57.4%	$	7.3	54.7%	$	(0.1)	(1.7)%
Catalyst		5.8	46.6%		6.5	48.5%		(0.7)	(10.0)%
Intercompany revenue		(0.5)	(4.0)%		(0.5)	(3.2)%		─	─
Total revenue	$	12.5	100.0%	$	13.3	100.0%	$	(0.8)	(6.4)%

   Total revenue for the three months ended March 31, 2014 decreased by $0.8 million, or 6.4%, to $12.5 million from $13.3 million for the three months ended March 31, 2013.

        Revenues for our Heavy Duty Diesel Systems division for the three months ended March 31, 2014 decreased $0.1 million, or 1.7%, to $7.2 million from $7.3 million for the three months ended March 31, 2013. The decrease was due to decreased non-retrofit sales of $1.0 million partially offset by increased retrofit sales of $0.9 million. Non-retrofit sales decreased due to a decline in sustainable system sales in North America of $0.7 million and a decrease in European mining of $0.4 million, partially offset by a $0.1 million increase in standard exhaust products. Retrofit sales increased $0.9 million in North America. The increase in North America consisted of an increase of $1.6 million in California sales under the California Truck and Bus Rule with decreases in the other 49 states.

        Revenues for our Catalyst division for the three months ended March 31, 2014 decreased $0.7 million, or 10.0%, to $5.8 million from $6.5 million for the three months ended March 31, 2013. Excluding intercompany revenue, sales for this division decreased 11.9% to $5.3 million for the three months ended March 31, 2014 as compared to $6.0 million for the three months ended March 31, 2013. The decrease was due to a $0.3 million decrease in sales to our Japanese OEM customer as a result of lower volume and lower rare earth reimbursements and a decrease of $0.4 million in sales of primarily service parts to other OEM customers.

        We eliminate intercompany sales by the Catalyst division to our Heavy Duty Diesel Systems division in consolidation.

Cost of revenues

        Cost of revenues decreased $1.6 million, or 15.7% to $8.6 million for the three months ended March 31, 2014, compared to $10.2 million for the three months ended March 31, 2013. The decrease in cost of revenues was primarily due to lower product sales volume.

Gross profit

	Three Months Ended March 31,
			% of Revenue (1)			% of Revenue (1)
	2014			2013			$ Change		% Change
	(Dollars in millions)
Heavy Duty Diesel Systems	$	2.4	33.0%	$	1.8	25.2%	$	0.6	28.9%
Catalyst		1.5	26.1%		1.2	19.2%		0.3	22.7%
Intercompany eliminations		─	─		0.1	─		(0.1)	(100)%
Total gross profit	$	3.9	31.0%	$	3.1	23.4%	$	0.8	24.2%

(1)Division calculation based on division revenue. Total based on total revenue.

21

        Gross profit for the three months ended March 31, 2014 increased by $0.8 million, or 24.2%, to $3.9 million from $3.1 million for the three months ended March 31, 2013. Gross margin was 31.0% during the three months ended March 31, 2014 compared to 23.4% during the three months ended March 31, 2013.

        The increase in gross margin for our Heavy Duty Diesel Systems division from 25.2% for the three months ended March 31, 2013 to 33.0% for the three months ended March 31, 2014 is a result of improved manufacturing efficiency, lower substrate costs due to introduction of a second source supplier and to favorable product mix.   

        The increase in gross margin for our Catalyst division from 19.2% for the three months ended March 31, 2013 to 26.1% for the three months ended March 31, 2014 is due to a favorable product mix resulting from an expansion of models sold to our Japanese OEM, lower costs of certain chemicals, lower diesel substrate costs as well as a change from purchased to consigned for certain substrates used in product sold to our Heavy Duty Diesel Systems division.

Operating expenses

	Three Months Ended March 31,
			% of Total Revenue			% of Total Revenue
	2014			2013			$ Change		% Change
	(Dollars in millions)
Selling, general and administrative	$	3.6	29.5%	$	3.8	28.9%	$	(0.2)	(4.1)%
Research and development		1.3	10.3%		1.3	9.5%		─	─
Severance and other charges		0.4	2.8%		─	─		0.4	─
Total operating expenses	$	5.3	42.6%	$	5.1	38.4%	$	0.2	4.1%

        For the three months ended March 31, 2014, operating expenses increased by $0.2 million to $5.3 million from $5.1 million for the three months ended March 31, 2013.

Selling, general and administrative expenses

        For the three months ended March 31, 2014, selling, general and administrative expenses decreased by $0.2 million, or 4.1%, to $3.6 million from $3.8 million for the three months ended March 31, 2013. This decrease is a result of cost savings due to headcount reductions made during 2012 partially offset by higher outside accounting and audit fees, legal and consulting fees. Selling, general and administrative expenses as a percentage of revenues increased to 29.5% in the three months ended March 31, 2014 compared to 28.9% in the three months ended March 31, 2013.

Research and development expenses

        Research and development expenses were $1.3 million in each of the three months ended March 31, 2014 and 2013. As a percentage of revenues, research and development expenses were 10.3% in the three months ended March 31, 2014, compared to 9.5% in the three months ended March 31, 2013.

Severance and other charges

        In the three months ended March 31, 2014, we incurred $0.1 million in severance and lease exit costs related to our North American and United Kingdom locations. Additionally, on March 13, 2014, we reached a legal settlement of all claims related to an administrative complaint originally filed against us by a former chief financial officer in 2010 whereby we will pay a lump sum amount of cash and shares of our common stock which had already been partially accrued in 2013. In the three months ended March 31, 2014, we recorded an additional $0.2 million primarily related to the increase in fair value of our common stock. The settlement was paid and stock issued in April 2014. In the three months ended March 31, 2014, we also incurred $0.1 million related to the settlement of a customer dispute.

22

Other expense

	Three Months Ended March 31,
			% of Total  Revenue			% of Total  Revenue
	2014			2013			$ Change		% Change
	(Dollars in millions)
Interest expense	$	(0.3)	(2.5)%	$	(0.3)	(2.5)%	$	─	─
Loss on change in fair value of  common stock warrant liability		(2.1)	(16.2)%		─	─		(2.1)	─
Foreign currency exchange gain		0.3	1.7%		0.3	2.5%		─	─
Total other expense	$	(2.1)	(17.0)%	$	─	─	$	(2.1)	─

We incurred interest expense of $0.3 million in each of the three months ended March 31, 2014 and 2013. We recorded $2.1 million in loss related to the change in fair value liability-classified warrants issued in our 2013 public offering, which was primarily due to an increase in our stock price during the reporting period. The three months ended March 31, 2014 and 2013 each included a $0.3 million exchange gain related primarily to changes in value of the Canadian dollar in relation to the U.S. dollar. 

Income Tax Expense

We incurred income tax expense of $0.2 million in the three months ended March 31, 2014 compared to income tax expense of $0.1 million in the three months ended March 31, 2013. The effective income tax rate was (6.6)% for the three months ended March 31, 2014, compared to (5.6)% for the three months ended March 31, 2013. For interim income tax reporting we estimate our annual effective tax rate and apply it to our year-to-date income. 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 U.K. jurisdictions as well as to a foreign tax rate differential related to Sweden and Canada.

Net loss

        For the foregoing reasons, we had a net loss and net loss from continuing operations of $3.8 million for the three months ended March 31, 2014 compared to a net loss of $2.1 million for the three months ended March 31, 2013. We continue to have legal and other expenses as well as gains on litigation settlements related to the 2009 divestiture of the assets of Applied Utility Systems. We record these activities as discontinued operations. For additional information relating to Applied Utility Systems, see Note 15 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

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 March 31, 2014, we had an accumulated deficit of approximately $185.6 million compared to $181.7 million at December 31, 2013. 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 $3.6 million in cash at March 31, 2014 compared to $3.9 million at December 31, 2013. At March 31, 2014, $1.5 million of our cash was held by foreign subsidiaries in Canada, Sweden and the United Kingdom. We do not intend to repatriate any amount of this cash to the United States as it will be used to fund our subsidiaries’ operations. If we decide to repatriate unremitted foreign earnings in the future, it could have negative tax implications.

We have a $7.5 million secured demand financing facility with FGI backed by our receivables and inventory that terminates on August 15, 2015 and may be extended at our option for additional one-year terms. However, FGI can cancel the facility at any time. For details regarding the FGI facility, see “—Description of Indebtedness” below and Note 8, “Debt.” At March 31, 2014, we had $2.7 million in borrowings outstanding with $4.8 million available under our FGI credit facility, subject to the availability of eligible accounts receivable and inventory balances for collateral. However, there is no guarantee that we will be able to borrow to the full limit of $7.5 million if FGI chooses not to finance a portion of our receivables or inventory.

23

        In addition, on May 15, 2012, we filed a shelf registration statement on Form S-3 with the SEC (the "Shelf Registration") which permits us to sell, from time to time, up to an aggregate of $50.0 million of various securities. However, we may not sell our securities in a primary offering pursuant to the Shelf Registration or any other registration statement on Form S-3 with a value exceeding one-third of our public float in any 12-month period (unless our public float rises to $75.0 million or more).The Shelf Registration is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs.

        On July 3, 2013, we completed a public offering under the Shelf Registration in which we sold 1,730,000 shares of common stock and warrants to purchase up to 865,000 shares of common stock and received net proceeds of $1.7 million after deducting discounts and commissions to the underwriter and offering expenses.

On March 21, 2014, we and Kanis S.A. entered into a letter agreement regarding our outstanding 8% subordinated convertible note due 2016 whereby Kanis S.A. has agreed not to accelerate the maturity of these notes prior to July 1, 2015.

        On April 4, 2014, we completed a registered direct offering under the Shelf Registration in which we sold 2,030,000 shares of common stock and warrants to purchase 812,000 shares of common stock and received net proceeds of approximately $6.1 million after deducting placement agent fees and other estimated offering expenses. For more discussion on this offering, see“—Recent Developments” and Note 9, “Stockholders’ Equity” and 15, “Subsequent Events.”

        We continue to pursue revenue generating opportunities relating to special government mandated retrofit programs in California and potentially others in various jurisdictions domestically and internationally. Opportunities such as these require cash investment in operating expenses and working capital such as inventory and receivables prior to realizing profits and cash from sales. Additionally, as previously discussed, we intend to pursue aggressive development of our materials science platform which will require cash investment.

        Based on our current cash levels, the $6.1 million in proceeds from the April 2014 offering and expected cash flows from operations, management believes that we will have access to sufficient working capital to sustain operations through at least the next twelve months. However, there can be no assurances that we will be able to achieve projected levels of revenue in 2014 and beyond. If cash from operations is not sufficient for our working capital needs, we may seek additional financing in the form of funding from outside sources. However, there is no assurance that we will be able to raise additional funds or reduce our discretionary spending to a level sufficient for our working capital needs.

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

	Three Months Ended March 31,
	2014		2013		$ Change		% Change
	(Dollars in millions)
Cash (used in) provided by:
Operating activities	$	(1.6)	$	(1.8)	$	0.2		(11.1)%
Investing activities	$	(0.1)	$	(0.1)		─		─
Financing activities	$	1.4	$	(0.3)	$	1.7		(566.7)%

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.

Cash used in operating activities in the three months ended March 31, 2014 was $1.6 million compared to cash used of $1.8 million in the three months ended March 31, 2013. The improvement in the three months ended March 31, 2014 is primarily due to the increase in our gross profit, as discussed above.

Cash used in investing activities

Our cash flows from investing activities primarily relate to asset sales and acquisitions, our joint venture with Pirelli, our Asian investment as well as capital expenditures and other assets to support our growth plans.

        Net cash used in investing activities was $0.1 million in the each of the three months ended March 31, 2014 and March 31, 2013. Cash used in the three months ended March 31, 2014 was for purchases of property and equipment. Cash used in investing activities in the three months ended March 31, 2013 relates to our initial investment in the joint venture with Pirelli and to purchases of property and equipment.

Cash provided by (used in) financing activities

Since inception, we have financed our net operating cash usage through a combination of financing activities such as issuance of equity or debt and investing activities such as sale of intellectual property or other assets. Changes in our cash flows from financing activities primarily relate to borrowings and payments under debt obligations.

24

Net cash provided by financing activities was $1.4 million in the three months ended March 31, 2014 compared to cash used of $0.3 million in the three months ended March 31, 2013. Cash provided by financing activities in the three months ended March 31, 2014 is due to $1.0 million in proceeds from the exercise of common stock warrants and $0.4 million from a net increase in borrowings under our line of credit with FGI. Cash used in the three months ended March 31, 2013 is related to a net decrease in borrowings under our line of credit with FGI.

Description of Indebtedness

	March 31, 2014		December 31, 2013
	(Dollars in millions)
Line of credit with FGI	$	2.7	$	2.3
$1.5 million, 8% shareholder note due 2015		1.6		1.5
$3.0 million, 8% subordinated convertible shareholder notes due 2016		3.0		3.0
$3.0 million, 8% shareholder note due 2015		2.9		3.0
Total borrowings	$	10.2	$	9.8

        We have a $7.5 million secured demand facility with FGI backed by our receivables and inventory (as amended, the “FGI Facility”). The FGI Facility expires on August 15, 2015 and may be extended at our option for additional one-year terms. However, FGI can cancel the facility at any time.

        Under the FGI Facility, FGI can elect to purchase eligible accounts receivables from us and certain of our subsidiaries at up to 80% of the value of such receivables (retaining a 20% reserve). At FGI’s election, FGI may advance us up to 80% of the value of any purchased accounts receivable, subject to the $7.5 million limit. Reserves retained by FGI on any purchased receivable are expected to be refunded to us net of interest and fees on advances once the receivables are collected from customers. We may also borrow against eligible inventory up to the inventory sublimit as determined by FGI subject to the aggregate $7.5 million limit under the FGI Facility and certain other conditions. At March 31, 2014, the inventory sublimit was the lesser of $1.5 million or 50% of the aggregate purchase price paid for accounts receivable purchased under the FGI Facility. While the overall credit limit and the inventory sublimit was not changed, in the first quarter of 2014 borrowing against Honda inventory has been eliminated by FGI due to their concerns about customer concentration.

        The interest rate on advances or borrowings under the FGI Facility is 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 March 31, 2014 and December 31, 2013.

        We were in compliance with the terms of the FGI Facility at March 31, 2014. However, there is no guarantee that we will be able to borrow the full limit of $7.5 million if FGI chooses not to finance a portion of our receivables or inventory.

        For more information on our indebtedness, see Note 8.

Capital Expenditures

As of March 31, 2014, we had no commitments for capital expenditures and no material commitments are anticipated in the near future.

Off-Balance Sheet Arrangements

As of March 31, 2014 and December 31, 2013, we had no off-balance sheet arrangements.

Commitments and Contingencies

As of March 31, 2014, other than office leases, employment agreements with key executive officers and the obligation to fund our portion (5%) of the losses of our Asian investment, we had no material commitments other than the liabilities reflected in our condensed consolidated financial statement included elsewhere in this Quarterly Report on Form 10-Q.

25

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

        Not applicable.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures            

        In evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of the members of our interim office of the Chief Executive Officer (“Office of the CEO”) and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Office of the CEO and our Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this report to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 (1) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) is accumulated and communicated to management, including our Office of the CEO and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

        There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q.

26

PART II—OTHER INFORMATION

Item 1.  Legal Proceedings             

         See Note 13 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A.  Risk Factors

Not applicable.

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

         Issuances

On April 9, 2014, the Company issued 75,000 shares of common stock to its former chief financial officer pursuant to a settlement agreement dated March 13, 2014 resulting in the dismissal of a complaint filed by the former chief financial officer against the Company. See Note 13 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The issuance of the shares was made pursuant to an exemption from registration requirements provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving any public offering.

Purchases  

        The Company currently has no active share repurchase programs. When restricted stock awarded by the Company becomes taxable compensation to personnel, shares may be withheld to satisfy the associated withholding tax liabilities. Information on our purchases of equity securities by means of such share withholdings is provided in the table below:

	Issuer Purchases of Equity Securities
	Total Number of Shares Purchased	Average Price Paid Per Share
January 1-31, 2014	─	─
February 1-28, 2014	6,817	$2.65
March 1-31, 2014	─	─
Total	6,817	$2.65

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

        Not applicable.

Item 5.  Other Information

        None.

Item 6.  Exhibits

No.	Description
3.1	Restated Certificate of Incorporation of Clean Diesel Technologies, Inc. (incorporated by reference to Exhibit 3(i)(a) to CDTi’s Annual report on Form 10-K (SEC file number 000-27432) for the year ended December 31, 2006 and filed on March 30, 2007).
3.2	Certificate of Amendment of Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i)(b) to CDTi’s Registration Statement on Form S-1 (SEC file number 333-144201) filed on June 29, 2007).
3.3	Certificate of Amendment of Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to CDTi’s Post-Effective Amendment No. 1 to Form S-4 on Form S-3 (SEC file number 333-166865) filed on November 10, 2010).
3.4	Certificate of Amendment of Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on May 24, 2012).

27

3.5	By-Laws of Clean Diesel Technologies, Inc. as amended through November 6, 2008 (incorporated by reference to Exhibit 3.1 to CDTi’s Quarterly Report on Form 10-Q (SEC file number 001-33710) filed on November 10, 2008).
4.1	Specimen of Certificate for Clean Diesel Technologies, Inc. Common Stock (incorporated by reference to Exhibit 4.1 to CDTi’s Post-Effective Amendment No. 1 to Form S-4 on Form S-3 (SEC file number 333-166865) filed on November 10, 2010).
4.2	Form of Investor Warrant issued on July 3, 2013 (incorporated by reference to Exhibit 4.1 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on July 3, 2013).
4.3	Form of Investor Warrant issued on April 4, 2014 (incorporated by reference to Exhibit 4.1 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on April 1, 2014).
10.1	Separation Agreement and Release, dated January 24, 2014, between R. Craig Breese and Clean Diesel Technologies, Inc. (incorporated by reference to Exhibit 10.24 to CDTi’s Annual Report on Form 10-K (SEC file number 001-33710) filed on March 31, 2014).
10.2*	Confidential Settlement Agreement and General Release, dated March 13, 2014, between Ann B. Ruple and Clean Diesel Technologies, Inc.
10.3	Letter Agreement, dated March 21, 2014, between Kanis S.A. and Clean Diesel Technologies, Inc. (incorporated by reference to Exhibit 10.1 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on March 27, 2014).
10.4	Employment Agreement, dated March 25, 2014, between Pedro J. Lopez-Baldrich and Clean Diesel Technologies, Inc. (incorporated by reference to Exhibit 10.2 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on March 27, 2014).
10.5	Employment Agreement, dated March 25, 2014, between Christopher J. Harris and Clean Diesel Technologies, Inc. (incorporated by reference to Exhibit 10.22 to CDTi’s Annual Report on Form 10-K (SEC file number 001-33710) filed on March 31, 2014).
31.1*	Certification of Pedro J. Lopez-Baldrich pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Nikhil A. Mehta pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32**	Certification 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.

28

101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

*	Filed herewith
**	Furnished herewith

29

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 hereunto duly authorized.

	CLEAN DIESEL TECHNOLOGIES, INC.  (Registrant)
Date: May 8, 2014	By:	/s/ Pedro J. Lopez-Baldrich
		Pedro J. Lopez-Baldrich
		Member of the Interim Office of the Chief Executive Officer
		(Principal Executive Officer)
Date: May 8, 2014	By:	/s/ Nikhil A. Mehta
		Nikhil A. Mehta
		Member of the Interim Office of the Chief Executive Officer and Chief Financial Officer
		(Principal Executive Officer and Principal Financial Officer)

30

EX-10

Exhibit 10.2  

CONFIDENTIAL SETTLEMENT AGREEMENT AND GENERAL RELEASE

Clean Diesel Technologies, Inc. (“CDTI”) and Ann B. Ruple her heirs, executors, administrators, successors, and assigns (collectively referred to throughout this Agreement as “Ms. Ruple”), hereby enter this Confidential Settlement Agreement and General Release (“Agreement and General Release”) agreeing to be bound by its terms and state as follows:

WHEREAS Ms. Ruple is a former employee and the Chief Financial Officer of CDTI;

WHEREAS CDTI was previously based in Stamford, CT and in Bridgeport, Connecticut and Ms. Ruple’s entire tenure with CDTI was based at these Connecticut locations;

WHEREAS subsequent to Ms. Ruple's tenure with CDTI, CDTI was merged with Catalytic Solutions, Inc. and the merged entity maintained the name “Clean Diesel Technologies, Inc.,” but relocated to Ventura, California;

WHEREAS on or about April 26, 2010, Ms. Ruple filed an administrative complaint with the U.S. Department of Labor (“U.S. DOL”) - Occupational Safety and Health Administration (“OSHA”) alleging claims pursuant to the Sarbanes Oxley Act of 2002 (hereinafter “Ms. Ruple’s SOX Complaint”) and naming as respondents in this matter the following:  CDTI, Michael Asmussen, Charles Grinnell, and CDTI’s Board of Directors (hereinafter collectively referred to as the “CDTI Respondents”);  

WHEREAS the CDTI Respondents deny each and every allegation of wrongdoing asserted in Ms. Ruple's SOX Complaint;

WHEREAS CDTI and Ms. Ruple (collectively referred to throughout this Agreement and General Release as the “Parties”) desire to compromise and fully and finally resolve all claims which were or could have been made in Ms. Ruple’s SOX Complaint, and to similarly compromise and fully and finally resolve any and all claims and disputes of whatever kind or character that Ms. Ruple could have asserted against the CDTI Respondents arising from her prior employment at CDTI; 

WHEREAS CDTI and Ms. Ruple have reached such a settlement of any and all claims for the benefit of all CDTI Respondents and for the benefit of Ms. Ruple; and

NOW THEREFORE, in consideration of the terms and conditions hereafter set forth and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties agree and act as follows:

1.Consideration.  As consideration for signing this Agreement and General Release, and complying with its terms, CDTI agrees to do the following, upon receiving approval of the settlement memorialized in this Agreement and General Release (“the Settlement”) from the U.S. DOL Administrative Law Judge (“ALJ”) presiding over Ms. Ruple’s SOX Complaint:

a.         to pay Ms. Ruple the sum total of four hundred thirty thousand dollars ($430,000.00) less applicable tax and related withholdings, within ten business days after all of the following have occurred:  the ALJ approves the Settlement and dismisses Ms. Ruple’s SOX Complaint, CDTI’s counsel receives a signed original of this Agreement and General Release, and the applicable time

1

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

to rescind this Agreement and General Release has expired (hereinafter the “Settlement Preconditions”).  CDTI will issue an IRS W 2 Form as appropriate.

b.         to issue as soon as possible and within 30 days of satisfaction of the Settlement Preconditions, seventy-five thousand (75,000) shares of CDTI stock to Ms. Ruple.  The parties agree that such stock certificates will have a legend stating that the stock is restricted and cannot be traded or otherwise negotiated until such legend is removed in accordance with any and all applicable laws and regulations of the U.S. Securities and Exchange Commission.  Upon the lapsing of such restricted period, CDTI agrees it will proceed as soon as practical to remove the legend from the shares of stock upon receiving Ms. Ruple’s request that this be done, but in no event more than 5 days after receiving Ms. Ruple’s request.  In connection with the issuance of such shares, Ms. Ruple agrees to execute and be fully bound by the provisions at Attachment A and to complete the Questionnaire at Exhibit B hereto.  

2.         No Consideration Absent Execution of this Agreement.  Ms. Ruple understands and agrees that she would not receive the monies and/or benefits specified in paragraph “1” above, except for her execution of this Agreement and General Release and the fulfillment of the promises contained herein.

3.General Release of All Claims by Ms. Ruple.  Ms. Ruple knowingly and voluntarily releases and forever discharges: (a) Clean Diesel Technologies, Inc. its parent corporation, affiliates, subsidiaries, divisions, predecessors, insurers, successors and assigns: (b) Catalytic Solutions, Inc., including any and all of its officers and directors; (c) any and all of Clean Diesel Technologies, Inc.’s officers and directors as reflected on Clean Diesel Technologies, Inc.’s securities filings through October 31, 2010, including but not limited to:  Michael Asmussen, Charles Grinnell, Mungo Park, Derek R. Gray, John A. de Havilland, David F. Merrion, Timothy Rogers,  and John B. Wynne, both individually and in their business capacities; (d) Clean Diesel Technologies Inc.’s current and former attorneys and agents thereof, both individually and in their business capacities; and (e) Clean Diesel Technologies, Inc.’s benefit plans and programs and their administrators and fiduciaries (all of the foregoing being collectively referred to throughout the remainder of this Agreement as "Releasees"), of and from any and all claims, known and unknown, asserted or unasserted, which Ms. Ruple has or may have against Releasees as of the date of execution of this Agreement and General Release, including, but not limited to, any alleged violation of: 

· Title VII of the Civil Rights Act of 1964;

· Sections 1981 through 1988 of Title 42 of the United States Code;

· The Employee Retirement Income Security Act of 1974 ("ERISA") (except for any vested benefits under any tax qualified benefit plan);

· The Immigration Reform and Control Act;

· The Americans with Disabilities Act of 1990;

2

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

· The Age Discrimination in Employment Act of 1967 (“ADEA”);

· The Worker Adjustment and Retraining Notification Act;

· The Fair Credit Reporting Act;

· The Family and Medical Leave Act;

· The Equal Pay Act;

· Connecticut Fair Employment Practices Act, Conn. Gen. Stat. § 46a-51 et seq.;

· The Connecticut Statutory Provision Regarding Retaliation/ Discrimination for Filing a Workers’ Compensation Claim, Conn. Gen. Stat. § 31-290a;

· Connecticut Family and Medical Leave Act, Conn. Gen. Stat. § 31-51kk et seq.;

· The Connecticut Whistleblower Law, Conn. Gen. Stat. § 31-51m;

· The Connecticut Free Speech Law, Conn. Gen. Stat. § 31-51q;

· Connecticut Wage Hour and Wage Payment Laws, as amended;

· The Connecticut Statutory Provision Regarding Retaliation and/or Discrimination for Making a Claim under the Connecticut Wage and Hour Laws, Conn. Gen. Stat. § 31- 69b;

· Connecticut OSHA, as amended;

· Connecticut Equal Pay Law – Conn. Gen. Stat. § 31-58(e) et seq.; §§ 31-75 and 31-76;

· Connecticut Drug Testing Law – Conn. Gen. Stat. § 31-51t et seq.;

· Connecticut AIDS Testing and Confidentiality Law – Conn. Gen. Stat. § 19a-581 et seq.;

· Connecticut Age Discrimination and Employee Benefits Law – Conn. Gen. Stat. § 38a-543;

· Connecticut Reproductive Hazards Law – Conn. Gen. Stat. § 31-40g et seq.;

3

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

· Connecticut Smoking Outside the Workplace Law – Conn. Gen. Stat. § 31-40s;

· Connecticut Electronic Monitoring of Employees – Conn. Gen. Stat. § 31-48b and d;

· Connecticut Statutory Provision Regarding Protection of Social Security Numbers and Personal Information – Conn. Gen. Stat. § 42-470 et seq.;

· Connecticut Statutory Provision Regarding Consumer Privacy and Identity Theft;

· Connecticut Family Violence Leave Law

· Connecticut Paid Sick Leave law;

· Connecticut Credit History Law, Public Act No. 11-223;

· any other federal, state or local law, rule, regulation, or ordinance

· any public policy, contract, tort, or common law; or

· any basis for recovering costs, fees, or other expenses including attorneys' fees incurred in these matters.

If any claim is not subject to release, to the extent permitted by law, Ms. Ruple waives any right or ability to be a class or collective action representative or to otherwise participate in any putative or certified class, collective or multi-party actionor proceeding based on such a claim in which CDTI or any other Releasee identified in this Agreement is a party.

4.         General Release of all Claims by CDTI.  CDTI knowingly and voluntarily releases and forever discharges Ms. Ruple and her insurers, heirs, personal representatives, successors and assigns, as well as her current and former attorneys and agents thereof, both individually and in their business capacities, of and from any and all claims, known and unknown, asserted or unasserted, which CDTI has or may have against Ms. Ruple as of the date of execution of this Agreement and General Release.

5.Acknowledgments and Affirmations.  Ms. Ruple affirms that she has not filed or caused to be filed, and is not presently a party to any claim against CDTI and/or the CDTI Respondents except for the administrative complaint she filed on or about April 26, 2010, with OSHA entitled Ann B. Ruple v. CDTI, Michael Asmussen, Charles Grinnell and CDTI Board, OSHA Case No.:  1-0080-10-014/U.S. DOL OALJ Case No.: 2014-SOX-00006.

Ms. Ruple also affirms that she has been paid and/or has received all compensation, wages, bonuses, commissions, and/or benefits to which she may be entitled.  Ms. Ruple affirms that she has been granted any leave to which she was entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws.

4

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

Ms. Ruple further affirms that she has no known workplace injuries or occupational diseases arising from her employment at CDTI. 

Ms. Ruple also affirms that she has not divulged any proprietary or confidential information of CDTI and will continue to maintain the confidentiality of such information consistent with Ms. Ruple’s agreement(s) with CDTI and/or common law.

Ms. Ruple further affirms that other than the allegations asserted in Ms. Ruple’s SOX Complaint, she has not been otherwise retaliated against for reporting any allegations of wrongdoing by CDTI or its officers, including any allegations of corporate fraud.   Both Parties acknowledge that this Agreement does not limit either party’s right, where applicable, to file or participate in an investigative proceeding of any federal, state or local governmental agency.  To the extent permitted by law, Ms. Ruple agrees that if such an administrative claim is made, she shall not be entitled to recover any individual monetary relief or other individual remedies.

Ms. Ruple affirms that as of the date she signs this Agreement, she is not Medicare eligible (i.e., is not 65 years of age or older; is not suffering from end stage renal failure; has not received Social Security Disability Insurance benefits for 24 months or longer, etc.). Nonetheless, if the Centers for Medicare & Medicaid Services (CMS) (this term includes any related agency representing Medicare’s interests) determines that Medicare has an interest in the payment to Ms. Ruple under this settlement, Ms. Ruple agrees to (i) indemnify, defend and hold Releasees harmless from any action by CMS relating to medical expenses of Ms. Ruple, (ii) reasonably cooperate with Releasees upon request with respect to any information needed to satisfy the reporting requirements under Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007, if applicable, and any claim that the CMS may make and for which Ms. Ruple is required to indemnify Releasees under this paragraph, and (iii) waive any and all future actions against Releasees for any private cause of action for damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

In furtherance of the issuance of shares referenced above at Section 1b. above, Ms. Ruple agrees that the Company and its affiliates, directors, officers, employees, stockholders and agents shall have no liability to Ms. Ruple or her affiliates whatsoever due to or in connection with the Company's use or non-disclosure of the Information (as defined in Attachment “A” hereto) or otherwise as a result of the transactions contemplated hereby, even if the market value of the Shares declines, and Ms. Ruple hereby irrevocably waives any claim that she might have against any of the Releasees based on the failure of the Company to disclose the Information.

6.         Confidentiality and Return of Property.   Ms. Ruple agrees not to disclose other than as required by law or as explicitly provided herein any information regarding the underlying facts leading up to or the existence or substance of this Agreement and General Release, except that she may so disclose to her spouse, tax advisor, and/or an attorney with whom Ms. Ruple chooses to consult regarding her consideration of this Agreement and General Release.  In furtherance of this provision, Ms. Ruple expressly agrees not to communicate, in any form, with the media or investment community (including but not limited to CDTI shareholders) about the terms or related content of this Agreement and General Release or to otherwise, at any time going forward, make any comments about her employment with CDTI, or about this Agreement and General Release to such third parties beyond what is disclosed in

5

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

the corresponding SEC Form 8K filing by CDTI.  CDTI agrees to keep the terms of this Agreement and General Release confidential with the express limitation being that the Parties recognize that CDTI has public filing and disclosure requirements mandated by the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).  Accordingly, the Parties hereby agree that such SEC filing will briefly report the settlement of Ms. Ruple's SOX Claim in accordance with applicable regulations and shall amend the previously filed characterization of Ms. Ruple's April 2010 separation from CDTI.  The Parties agree that Exhibit C is acceptable language for the SEC Form 8K subject to review and approval by CDTI's securities law advisors and the Parties further agree that CDTI will likely need to make further filings, including but not limited to a filing of the full Agreement and General Release, in accordance with SEC requirements and as recommended by CDTI’s securities counsel.

Ms. Ruple affirms that she has returned all of CDTI's property, documents, and/or any confidential information in her possession or control.  Ms. Ruple also affirms that she is in possession of all of her property that she had at CDTI’s premises and that CDTI is not in possession of any of Ms. Ruple’s property.

7.Non-disparagement.  Neither Ms. Ruple nor any person acting at her direction will in any manner make or cause to be made any private or public comments which would disparage or damage the reputation of Releasees.  In furtherance of this provision, Ms. Ruple expressly agrees not to communicate, in any form, with the media or investment community (including but not limited to CDTI shareholders) about the terms or related content of this Agreement and General Release or to otherwise, at any time going forward, make any negative references about CDTI to such third parties.

Likewise, neither CDTI's current executive management team nor any person acting at any of their direction will in any manner make or cause to be made any private or public comments which would disparage or damage the reputation of Ms. Ruple.  In furtherance of this provision, each member of CDTI’s current executive management team expressly agrees not to communicate, in any form, with the media or investment community (including but not limited to CDTI shareholders) about the terms or related content of this Agreement and General Release (except in a manner consistent with CDTI’s corresponding SEC 8K filing and related filings as referenced at Section 6 above) or to otherwise, at any time going forward, make any negative references about Ms. Ruple to such third parties.  Furthermore, CDTI agrees to provide Ms. Ruple with a letter of reference as set forth at Exhibit D.

8.Governing Law and Interpretation.  This Agreement and General Release shall be governed by and construed in accordance with the laws of the State of Connecticut without regard to its conflict of laws provision.  In the event of a breach of any provision of this Agreement and General Release, either party may institute an action specifically to enforce any term or terms of this Agreement and General Release and/or to seek any damages for breach.  Should any provision of this Agreement and General Release be declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Agreement and General Release in full force and effect.

6

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

9.         No Admission of Wrongdoing.  The Parties agree that neither this Agreement and General Release nor the furnishing of the consideration for this Agreement and General Release shall be deemed or construed at any time for any purpose as an admission by Ms. Ruple or Releasees of wrongdoing or evidence of any liability or unlawful conduct of any kind.

10.       Amendment.  This Agreement and General Release may not be modified, altered or changed except in writing and signed by both Parties wherein specific reference is made to this Agreement and General Release.

11.Counterparts and Facsimile Signatures.   This Agreement and General Release may be executed in multiple counterparts, and with facsimile signatures, and all such counterparts shall construed together as a single valid, effective and binding original.

12.       Entire Agreement.  This Agreement and General Release sets forth the entire agreement between the Parties hereto, and fully supersedes any prior agreements or understandings between the Parties.Ms. Ruple acknowledges that she has not relied on any representations, promises, or agreements of any kind made to her in connection with her decision to accept this Agreement and General Release, except for those set forth in this Agreement and General Release.

MS. RUPLE IS ADVISED THAT SHE HAS UP TO TWENTY-ONE (21) CALENDAR DAYS TO CONSIDER THIS AGREEMENT AND GENERAL RELEASE.  SHE ALSO IS ADVISED TO CONSULT WITH AN ATTORNEY PRIOR TO HER SIGNING OF THIS AGREEMENT AND GENERAL RELEASE.

MS. RUPLE MAY REVOKE THIS AGREEMENT AND GENERAL RELEASE FOR A PERIOD OF SEVEN (7) CALENDAR DAYS FOLLOWING THE DAY SHE SIGNS THIS AGREEMENT AND GENERAL RELEASE.  ANY REVOCATION WITHIN THIS PERIOD MUST BE SUBMITTED, IN WRITING, TO DAVID R. JIMENEZ AND STATE, "I HEREBY REVOKE MY ACCEPTANCE OF OUR AGREEMENT AND GENERAL RELEASE." THE REVOCATION MUST BE PERSONALLY DELIVERED TO MR. DAVID JIMENEZ OR MAILED TO MR. DAVID JIMENEZ AT 90 STATE HOUSE SQUARE HARTFORD, CT 06103 AND POSTMARKED WITHIN SEVEN (7) CALENDAR DAYS AFTER MS. RUPLE SIGNS THIS AGREEMENT AND GENERAL RELEASE. IF NOT REVOKED, THE AGREEMENT WILL BECOME EFFECTIVE ON THE EIGHTH DAY AFTER MS. RUPLE SIGNS AND DOES NOT REVOKE IT (THE “EFFECTIVE DATE”).

MS. RUPLE AGREES THAT ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT AND GENERAL RELEASE, DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL UP TO TWENTY-ONE (21) CALENDAR DAY CONSIDERATION PERIOD. 

MS. RUPLE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS MS. RUPLE HAS OR MIGHT HAVE AGAINST RELEASEES.

7

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

The Parties knowingly and voluntarily sign this Agreement and General Release as of the date(s) set forth below:

CLEAN DIESEL TECHNOLOGIES, INC.

By: /s/ Ann B. Ruple                                        By: /s/ Nikhil Mehta                                        

ANN B. RUPLE                                              NIKHIL MEHTA

                                                                               CHIEF FINANCIAL OFFICER, CDTI

Date: 3/7/14                                                      Date: March 13, 2014                                     

8

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

EXHIBIT A

PRIVATE PLACEMENT REPRESENTATIONS AND RELATED PROVISIONS

Ann Ruple (“Ruple”) hereby represents and warrants as follows:

Authorization. This Agreement constitutes Ruple's valid and legally binding obligation, enforceable in accordance with its terms except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other laws of general application relating to or affecting the enforcement of creditors' rights generally, and (ii) the effect of rules of law governing the availability of specific performance, injunctive relief or other equitable remedies. Ruple has full power and authority to enter into this Agreement.

Investment. Ruple is acquiring 75,000 shares of common stock, par value $0.01 per share (the “Shares”), of Clean Diesel Technologies, Inc. (the “Company”) for investment for Ruple's own account and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). Ruple has no present intention of selling, granting any participation in, or otherwise distributing the Shares.

Restrictions on Transfer. Ruple acknowledges and understands that the Shares have not been, and will not be, registered under the Securities Act, by reason of an exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Ruple's representations as expressed herein.  Ruple acknowledges and understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Ruple must hold the Shares indefinitely unless they are registered under the Securities Act and qualified by state authorities, or an exemption from such registration and qualification requirements is available.  Ruple acknowledges and understands that the Company is under no obligation to register the Shares and that the instrument evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company.  Ruple further acknowledges and understands that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and other requirements relating to the Company which are outside of Ruple's control, and which the Company is under no obligation to satisfy and may not be able to satisfy. 

Offer and Sale.  Ruple was not offered or sold the Shares, directly or indirectly, by means of any form of general solicitation or general advertisement, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar medium or broadcast over television or radio or (ii) any seminar or other meeting whose attendees had been invited by general solicitation or general advertising.

Risks. Ruple is aware that the Shares are highly speculative and that there can be no assurance as to what return, if any, there may be.  Ruple is aware that the Company may issue additional securities in the future which could result in the dilution of Ruple's ownership interest in the Company.  Ruple is capable of bearing the economic risk and burden of the investment in the Shares and the possibility of a complete

9

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

loss of Ruple’s entire investment.  Ruple has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Shares and completing the transactions contemplated by this Agreement (collectively, the “Transaction”) with a full understanding of all the terms, conditions and risks and willingly assumes those terms, conditions and risks.

Reliance and Access to Information.  

(a) Ruple has received and carefully reviewed the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2012 and all subsequent public filings of the Company with the SEC, other publicly available information regarding the Company, and such other information that she and her advisers deem necessary to make the decision to acquire the Shares.  Ruple is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares.

(b) Ruple has made her own decision to acquire the Shares based on her independent review and consultations with such investment, legal, tax, accounting and other advisers as she deemed necessary without reliance on any representation or warranty or, of advice, from the Company.

(c) Ruple acknowledges and understands that the Company possesses material nonpublic information not known to Ruple that may impact the value of the Shares (the “Information”).  Ruple acknowledges and understands the disadvantage to which Ruple is subject due to the disparity of information between the Company and Ruple, and, notwithstanding this, Ruple has deemed it appropriate to acquire the Shares.

(d) Ruple acknowledges and understands that the Company is relying on Ruple’s representations, warranties and agreements herein as a condition to proceeding with the Transaction.  Without such representations, warranties and agreements, the Company would not engage in the Transaction.

Accredited Investor. Ruple is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act, and has such knowledge and experience in financial and business matters to make Ruple capable of evaluating the merits and risks of the investment in the Shares.

10

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

EXHIBIT B

QUESTIONNAIRE

CLEAN DIESEL TECHNOLOGIES, INC.
(A Delaware Corporation)

PRIVATE OFFERING OF SECURITIES

The undersigned desires to participate in a private offering pursuant to which Clean Diesel Technologies, In. (the “Company”) proposes to issue 75,000 shares of its common stock (the “Securities”).  The undersigned understands that no offer of Securities is made, nor will any subscription be accepted, prior to the receipt by the Company of the information required by this Questionnaire.

The information contained herein is being furnished to the Company to determine whether Securities may be sold to the undersigned in light of the requirements of Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and/or Regulation D promulgated thereunder by the Securities and Exchange Commission (“Regulation D”), and the requirements of certain state securities laws.  The undersigned understands that (a) the Company will rely upon the information contained herein for purposes of such determination and (b) the Securities will not be registered under the Securities Act in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act and/or Regulation D thereunder, and in reliance upon similar exemptions under certain applicable state securities laws.

The undersigned agrees to furnish such additional information to the Company that may be reasonably requested in order to make a determination that the undersigned satisfies the suitability standards described herein.

The undersigned also understands and agrees that the Company will use its best efforts to keep the answers provided herein strictly confidential at all times; however, the Company may present this Questionnaire to such parties as it deems appropriate in order to assure itself that the offer and sale of the Securities will not result in a violation of the registration provisions of the Securities Act or a violation of the securities laws of any state.

In accordance with the foregoing, the following representations and information are hereby made and provided:

INVESTOR INFORMATION

GENERAL INFORMATION

NAME(S) AND AGE(S) OF INVESTOR(S): Ann Ruple

INDICATE TYPE OF OWNERSHIP OF SECURITIES:

11

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

Individual

Tenants in Common

Joint Tenants with rights of survivorship

(husband and wife only)

Community Property

Other, specify:

SOCIAL SECURITY  NUMBER(S):	UNITED STATES CITIZEN(S): ____ YES                       ____ NO
HOME ADDRESS:(Street)
(City)                                                   (State)                                                              (Zip)
HOME TELEPHONE  NUMBER:                        (Area Code)                 (Number)	STATE IN WHICH REGISTERED TO VOTE:
I (WE) PREFER TO HAVE CORRESPONDENCE SENT TO:
(City)                                                   (State)                                                              (Zip)

To the knowledge of the undersigned, the undersigned is not (a) related (by blood, marriage or otherwise) to any other individual prospective purchaser of Securities, or (b) a general partner, officer or director, trustee or other legal representative of a partnership, corporation, trust or other entity prospective purchaser of Securities, except as follows (state “No Exception” or describe fully the exception(s)):

EDUCATIONAL BACKGROUND

School  Major  Degree (if any)
and Year Conferred

List any financial or investment seminars or courses attended:

12

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

Seminar or Course Sponsor Date

EMPLOYMENT

Describe briefly occupations and positions held during the past five years (e.g., name of employer, nature of business, job title and responsibilities, etc.):

Employer and Names of Business Position Held Length of Time

INVESTMENT EXPERIENCE

Describe briefly your knowledge and experience in financial and business matters that make you capable of evaluating the merits and risks of your prospective investment in the Company:

Describe any preexisting personal or business relationship that you have with the Company or any of its officers, directors or principal shareholders (“Pre-existing relationship” shall mean any relationship consisting of personal or business contacts of a nature and duration such as would enable a reasonably prudent purchaser to be aware of the character, business acumen, and general business and financial circumstances of the person with whom such relationship exists):

13

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

Have you previously invested in unregistered or “restricted” securities of any corporation other than the Company?

            ____ Yes                                             ____ No

If so, how many of such investments have you made? (Please count multiple investments in the same corporation as one investment.)  _______________

List the aggregate dollar amount invested in all such corporations.  $_______________

Please list the unseasoned corporations in which you have invested.

Describe briefly any other factors which may reflect your overall investment experience or knowledge and that you believe make you capable of evaluating the merits and risks of your prospective investment in the Company:

 INVESTOR SUITABILITY STANDARDS

The Company reserves the right not to issue Securities to persons who are not Accredited Investors (as defined in Rule 501 of Regulation D).  In general, an Accredited Investor is (i) any individual whose net worth (either individually or jointly with his spouse, but excluding the value of such person’s primary residence) exceeds $1,000,000, or (ii) any individual who had an individual income (not joint with his spouse, and computed as described below) in each of the two most recent years in excess of $200,000, or who had joint income with his spouse in excess of $300,000 in each of those years, and reasonably expects to reach the same income level in 2014.

For purposes of determining whether you are an Accredited Investor, please mark the applicable line below:

14

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

The undersigned has a net worth, individually or jointly with his spouse, in excess of $1,000,000.¹

The undersigned had an individual income,² not including the income of his spouse (even if they are purchasing the Securities with funds which are community property or as joint tenants or tenants in common), in excess of $200,000 in each of the two most recent years and reasonably expects such individual income to exceed $200,000 in 2014, or the undersigned had joint income with his spouse in excess of $300,000 in each of the two most recent years and reasonably expects such joint income to exceed $300,000 in 2014.

If you are unable to mark one of the foregoing lines, please complete the following:

My individual net worth, or joint net worth with my spouse (excluding the value of my primary residence), is not less than $_______________.

My individual income for the last two years was:

                        2012:  $_______________

                        2013:  $_______________

My estimated income for 2014is:  $________________.

1     (a)  Except as provided in paragraph (b) below, for purposes of calculating net worth:

(i)  Your primary residence shall not be included as an asset;

(ii)  Indebtedness that is secured by your primary residence at the time of the sale of the Securities, up to the estimated fair market value of the primary residence at the time of the sale of the Securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of the sale of the Securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability); and

(iii)  Indebtedness that is secured by your primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of the Securities shall be included as a liability.

        (b)  Paragraph (a) will not apply to any calculation of your net worth made in connection with the purchase of the Securities in accordance with a right to purchase such Securities, provided that:

(i)  such right was held by you on July 20, 2010;

(ii)  you qualified as an Accredited Investor on the basis of net worth at the time you acquired such right; and

(iii)  you held securities of the same issuer, other than such right, on July 20, 2010.

2    For this purpose, a person’s income is the amount of that person’s individual adjusted gross income (as reported on a federal income tax return), increased by the following amounts:  (a) any deduction for a portion of long-term capital gains (Section 1202 of the Internal Revenue Code (the “Code”)); (b) any deduction for depletion (Section 611 et seq. of the Code ); (c) any exclusion for interest on tax-exempt municipal obligations (Section 103 of the Code); and (d) any losses of a partnership allocated to the person (as reported on Schedule E of Form 1040).

15

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

The approximate percentage of my net worth is represented by:

Home	_______%
a. Listed Securities	_______%
b. Unlisted Securities	_______%
c. Cash, Certificates of Deposit, etc.	_______%
d. Real Estate (other than home)	_______%
e. Other tax-sheltered investments	_______%
f. Other	_______%
	100%

My proposed investment does not exceed 10% of my net worth, or joint net worth with my spouse.            ____ Yes ____ No

REPRESENTATION AND WARRANTY

The undersigned hereby represents and warrants to the Company that (a) the information contained herein is complete and accurate and may be relied upon by the Company, (b) the undersigned will notify the Company immediately, of any material change in any of such information occurring prior to the acceptance or rejection of the subscription for Securities, (c) the undersigned has knowledge and experience in financial and business matters sufficient to evaluate the merits and risks of the prospective investment, and (d) the undersigned is able to bear the economic risk of the proposed investment and at the present time could afford a complete loss of such investment.

SIGNATURE

I have executed this Questionnaire this _____ day of __________, 2014.

INDIVIDUAL INVESTOR:
Ann Ruple
Print name of Individual	Print name of spouse if funds are to be invested in joint name or are community property
By:
Signature of Individual	Signature of spouse if funds are to be invested in joint name or are community property

16

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

EXHIBIT C

SEC FORM 8-K CONTENT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): February xx, 2014 (February xx, 2014)

CLEAN DIESEL TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Charter)

DELAWARE	001-33710	06-1393453
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)
4567 TELEPHONE ROAD, SUITE 100 VENTURA, CALIFORNIA		93003
(Address of Principal Executive Offices)		(Zip Code)

(805) 639-9458

(Registrants telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

17

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

1.01       Entry into a Material Definitive Agreement.

As previously disclosed, on April 30, 2010, Clean Diesel Technologies, Inc. (the “Company”) received a complaint from the Hartford, Connecticut office of the U.S. Department of Labor (“U.S. DOL”) under Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes-Oxley Act of 2002,18 U.S.C. §1514A (“SOX”), alleging that Ms. Ann B. Ruple, the Company’s former Chief Financial Officer, was fired in retaliation for engaging in SOX-protected activity.  On September 27, 2013, the Company received notification from the U.S. DOL Occupational Safety and Health Administration (“OSHA”) that it had completed its preliminary investigation of the complaint and found in Ms. Ruple’s favor.  The preliminary findings were subject to further review upon the Company’s request for a hearing. The matter was set for a full, de novo hearing on the merits, but the case was resolved by way of the U.S. DOL settlement process.

On [date], the Company and Ms. Ruple entered into a Settlement Agreement and General Release (the “Agreement”) which, upon approval by the U.S. DOL’s administrative law judge, settles and resolves all claims asserted by Ms. Ruple, and the OSHA matter in its entirety. Under the Agreement, the Company shall pay a lump sum total of $430,000 to Ms. Ruple and issue to her 75,000 shares of common stock. The Agreement also provides that the Company and Ms. Ruple exchange mutual releases and that the termination of Ms. Ruple’s employment by the Company was without cause.

Forward-Looking Statements Safe Harbor

Certain information contained in this Form 8-K constitutes forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Any statements contained herein that are not statements of historical fact should be considered forward-looking statements, and include in this Form 8-K the settlement and resolution of all of Ms. Ruple’s claims and the OSHA matter and approval of the Agreement by the U.S. DOL’s administrative law judge.  Forward-looking statements involve known or unknown risks, including, without limitation, that the Agreement may not ultimately resolve all of Ms. Ruple’s claims or the OSHA matter, Ms. Ruple may exercise her statutory right to rescind the Agreement, and the U.S. DOL’s administrative law judge may not approve the Agreement, each of which could materially and adversely affect the Company's financial condition, business and prospects. In addition, reference is made to the risks detailed in the Company's filings with the U.S. Securities and Exchange Commission. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. The Company assumes no obligation to update the forward-looking information contained in this Form 8-K.

18

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

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 hereunto duly authorized.

	CLEAN DIESEL TECHNOLOGIES, INC.
February xx, 2014	By:
		Name:  Nikhil A. Mehta
		Title: Chief Financial Officer

19

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

 

EXHIBIT D

LETTER OF REFERENCE

To Whom It May Concern:

Re:       Letter of Reference for Ann B. Ruple

It is with pleasure that I provide this letter of reference on behalf of Ann B. Ruple.  Ms. Ruple is the former Chief Financial Officer of Clean Diesel Technologies, Inc. (“CDTI”), a publicly traded NASDAQ company.  I came to know Ms. Ruple in connection with a nearly year-long project by which CDTI merged with Catalytic Solutions Inc. (CSI).  As the CFO of CSI, during the merger negotiation period I worked extensively with Ms. Ruple in connection with the business and financial aspects of this complex reverse merger transaction.  As a result of these interactions, I became familiar with Ms. Ruple’s business acumen and her financial talents. 

Without hesitation, I can state that Ms. Ruple is an able negotiator able to address the minute aspects of a deal as well as take into account the larger aspects of the transaction.  She negotiates responsibly, with integrity, and represents her company’s interests to the fullest extent.  She displayed a strong sense for the combined business of the merging companies.  Ms. Ruple has good financial acumen and the financial reporting and related work product by her that transferred to me post-closure reinforced this impression.   

Although we contemplated having Ms. Ruple remain with the merged entity, she pursued other opportunities.  I believe Ms. Ruple will be an asset to any organization and I have no doubt that she will be both a devoted business advisor and a careful, thorough and strong financial officer. 

20

Ann B. Ruple Initials ABRCDTI Initial by Nikhil Mehta NM

EX-31

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Pedro J. Lopez-Baldrich, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q (this “report”) of Clean Diesel Technologies, Inc. (the “registrant”);

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2014	By:	/s/ Pedro J. Lopez-Baldrich
		Pedro J. Lopez-Baldrich
		Member of the Interim Office of the Chief Executive Officer (Principal Executive Officer)

EX-31

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Nikhil A. Mehta, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q (this “report”) of Clean Diesel Technologies, Inc. (the “registrant”);

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 8, 2014	By:	/s/ Nikhil A. Mehta
		Nikhil A. Mehta
		Member of the Interim Office of the Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)

EX-32

Exhibit 32

Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,

 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, in their capacities as officers of Clean Diesel Technologies, Inc. (the “Registrant”), do each hereby certify, that, to the best of such officer’s knowledge:

(1)	The Quarterly Report on Form 10-Q of the Registrant for the period ended March 31, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.

/s/ Pedro J. Lopez-Baldrich

Pedro J. Lopez-Baldrich

Member of the Interim Office of the Chief Executive Officer

(Principal Executive Officer)

May 8, 2014

/s/ Nikhil A. Mehta  

Nikhil A. Mehta 

Member of the Interim Office of the Chief Executive

Officer and Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

May 8, 2014

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being “filed” as part of the Form 10-Q or as a separate disclosure document for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Inventories (Details) - Inventories (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Inventories [Abstract]
Raw materials	$ 2,825	$ 2,782
Work in progress	1,125	1,039
Finished goods	2,076	2,098
Inventories	$ 6,026	$ 5,919

XML

Warrants (Details) - Warrant activity (USD $)	3 Months Ended		3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 Minimum [Member]	Mar. 31, 2014 Minimum [Member]	Mar. 31, 2014 Maximum [Member]	Mar. 31, 2014 Maximum [Member]
Warrants (Details) - Warrant activity [Line Items]
Outstanding at December 31, 2013 (in Shares)		1,139,535
Outstanding at December 31, 2013		$ 1.68
Outstanding at December 31, 2013			$ 1.25	$ 1.25	$ 10.40	$ 10.40
Warrants exercised (in Shares)	(800,000)
Warrants exercised	$ 1.25
Warrants exercised	$ 1.25
Outstanding at March 31, 2014 (in Shares)	339,535	1,139,535
Outstanding at March 31, 2014	$ 2.70	$ 1.68
Outstanding at March 31, 2014			$ 1.25	$ 1.25	$ 10.40	$ 10.40
Warrants exercisable at March 31, 2014 (in Shares)	319,535
Warrants exercisable at March 31, 2014	$ 3.03
Warrants exercisable at March 31, 2014			$ 1.25		$ 10.40

XML

Accrued Warranty (Details) - Changes in the Company’s Product Warranty (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Changes in the Company’s Product Warranty [Abstract]
Balance at beginning of period	$ 453	$ 665
Balance at end of period	458	824
Accrued warranty expense	230	199
Warranty claims paid	(212)	(19)
Translation adjustment	$ (13)	$ (21)

XML

Warrants (Details) - Assumptions in Monte Carlo simulation model to estimate the fair value of the warrant liability (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Assumptions in Monte Carlo simulation model to estimate the fair value of the warrant liability [Abstract]
CDTi stock price (in Dollars per share)	$ 3.82	$ 1.51
Strike price (in Dollars per Share)	$ 1.25	$ 1.25
Expected volatility	79.00%	73.60%
Risk-free interest rate	1.30%	1.80%
Dividend yield
Expected life in years	4 years 109 days	4 years 6 months

XML

Severance and Other Charges (Details) - Severance and Other Charges Costs (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Restructuring Cost and Reserve [Line Items]
Total severance and other charges	$ 354	$ 11
Employee Severance [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and other charges	46	11
Contract Termination [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and other charges	43
Legal Settlement [Member]
Restructuring Cost and Reserve [Line Items]
Total severance and other charges	$ 265

XML

Organization (Details) (USD $)	3 Months Ended				0 Months Ended				0 Months Ended	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013	Dec. 31, 2012	Apr. 04, 2014 Subsequent Event [Member] Common Stock [Member] Shelf Registration [Member]	Apr. 04, 2014 Subsequent Event [Member] Shelf Registration [Member]	Jul. 03, 2013 Common Stock [Member] Shelf Registration [Member]	Jul. 03, 2013 Common Stock [Member]	Jul. 03, 2013 Shelf Registration [Member]	Mar. 31, 2014 Shelf Registration [Member]	Mar. 31, 2014 Line Of Credit With FGI [Member]	Mar. 31, 2014 8% Subordinated Convertible Notes Due 2016 [Member]	May 11, 2011 8% Subordinated Convertible Notes Due 2016 [Member]
Organization (Details) [Line Items]
Retained Earnings (Accumulated Deficit)	$ (185,555,000)		$ (181,719,000)
Line of Credit Facility, Maximum Borrowing Capacity											7,500,000
Line of Credit Facility, Amount Outstanding											2,700,000
Line of Credit Facility, Current Borrowing Capacity											4,800,000
Shelf Registration Authorized Amount	50,000,000									50,000,000
Shelf Registartion Public Float Threshold	75,000,000									75,000,000
Shelf Registration Units Sold (in Shares)						2,030,000	1,730,000		1,730,000
Shelf Registration Unit Price (in Dollars per share)						$ 3.40			$ 1.25
Shelf Registration Units Sold Share Component Per Unit (in Shares)					1		1	1
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right (in Shares)					1		1
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Share)					$ 4.20				$ 1.25	$ 1.25
Proceeds from Issuance of Common Stock and Warrants					6,100,000				1,700,000
Warrants Exercised During the Period (in Shares)										800,000
Proceeds from Warrant Exercises	1,000,000									1,000,000
Debt Instrument, Interest Rate, Stated Percentage												8.00%	8.00%
Cash	$ 3,597,000	$ 4,583,000	$ 3,909,000	$ 6,878,000

XML

Stock-Based Compensation (Details) - Stock option activity (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2014
Stock option activity [Abstract]
Outstanding at December 31, 2013		714,712
Outstanding at December 31, 2013		$ 7.17
Outstanding at December 31, 2013	6 years 18 days	7 years 211 days
Outstanding at December 31, 2013
Cancelled	(79,504)
Cancelled	$ 2.83
Outstanding at March 31, 2014	635,208	635,208
Outstanding at March 31, 2014	$ 7.71	$ 7.71
Outstanding at March 31, 2014	6 years 18 days	7 years 211 days
Outstanding at March 31, 2014	355	355
Exercisable at March 31, 2014	556,343	556,343
Exercisable at March 31, 2014	$ 8.39	$ 8.39
Exercisable at March 31, 2014	5 years 284 days
Exercisable at March 31, 2014	$ 286	$ 286

XML

Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill [Table Text Block]

Balance at December 31, 2013	$	5,870
Effect of translation adjustment		(103)
Balance at March 31, 2014	$	5,767

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	Useful Life in Years	March 31, 2014		December 31, 2013
Trade name	15 – 20	$	1,328	$	1,352
Patents and know-how	5 – 12		4,696		4,814
Customer relationships	4 – 8		1,202		1,224
Intangible assets, Gross			7,226		7,390
Less accumulated amortization			(3,952)		(3,882)
Intangible assets, Net		$	3,274	$	3,508

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Years ending December 31:
Remainder of 2014	$	496
2015		656
2016		511
2017		500
2018		168

XML

Debt (Details) - Long-term debt (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Debt (Details) - Long-term debt [Line Items]
Line of credit with FGI	$ 2,684	$ 2,258
Debt, Total	10,249	9,807
Less current portion	(2,684)	(2,258)
Long-term debt, net of current portion	7,565	7,549
1.5 Million Shareholder Note Due 2015 [Member]
Debt (Details) - Long-term debt [Line Items]
Shareholder note due 2015	1,596	1,586
Three Million Eight Percentage Subordinated Convertible Shareholder Notes Due 2016 [Member]
Debt (Details) - Long-term debt [Line Items]
$3.0 million, 8% subordinated convertible shareholder notes due 2016	3,000	3,000
Three Million Eight Percentage Shareholder Note Due 2015 [Member]
Debt (Details) - Long-term debt [Line Items]
Shareholder note due 2015	$ 2,969	$ 2,963

XML

Goodwill and Intangible Assets (Details) - Components of Intangible assets (USD $) In Thousands, unless otherwise specified									3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 Trade Names [Member]	Dec. 31, 2013 Trade Names [Member]	Mar. 31, 2014 Patents [Member]	Dec. 31, 2013 Patents [Member]	Mar. 31, 2014 Customer Relationships [Member]	Dec. 31, 2013 Customer Relationships [Member]	Mar. 31, 2014 Minimum [Member] Trade Names [Member]	Mar. 31, 2014 Minimum [Member] Patents [Member]	Mar. 31, 2014 Minimum [Member] Customer Relationships [Member]	Mar. 31, 2014 Maximum [Member] Trade Names [Member]	Mar. 31, 2014 Maximum [Member] Patents [Member]	Mar. 31, 2014 Maximum [Member] Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life									15 years	5 years	4 years	20 years	12 years	8 years
Intangible Assets, Gross	$ 7,226	$ 7,390	$ 1,328	$ 1,352	$ 4,696	$ 4,814	$ 1,202	$ 1,224
Less accumulated amortization	(3,952)	(3,882)
Intangible assets, Net	$ 3,274	$ 3,508

XML

Summary of Significant Accounting Policies (Details) - Valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis (USD $) In Thousands, unless otherwise specified (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair Value, Inputs, Level 1 [Member]
Summary of Significant Accounting Policies (Details) - Valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis (USD $) In Thousands, unless otherwise specified [Line Items]
Warrant liability
Liabilities
Fair Value, Inputs, Level 2 [Member]
Summary of Significant Accounting Policies (Details) - Valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis (USD $) In Thousands, unless otherwise specified [Line Items]
Warrant liability
Liabilities
Fair Value, Inputs, Level 3 [Member]
Summary of Significant Accounting Policies (Details) - Valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis (USD $) In Thousands, unless otherwise specified [Line Items]
Warrant liability	485	939
Liabilities	$ 485	$ 939

XML

Stockholders' Equity (Details) (USD $)	3 Months Ended				0 Months Ended			3 Months Ended	0 Months Ended			0 Months Ended	3 Months Ended	0 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Apr. 04, 2014 Subsequent Event [Member] Common Stock [Member] Shelf Registration [Member]	Apr. 04, 2014 Subsequent Event [Member] Common Stock [Member]	Apr. 04, 2014 Subsequent Event [Member] Shelf Registration [Member]	Apr. 04, 2014 Subsequent Event [Member]	Oct. 07, 2011 Purchase Agreement With LPC [Member]	Mar. 31, 2014 Warrant [Member]	Jul. 03, 2013 Common Stock [Member] Shelf Registration [Member]	Mar. 31, 2014 Common Stock [Member]	Jul. 03, 2013 Common Stock [Member]	Jul. 03, 2013 Shelf Registration [Member]	Mar. 31, 2014 Shelf Registration [Member]	Jul. 03, 2013 Underwriting Agreement [Member]
Stockholders' Equity (Details) [Line Items]
Adjustments to Additional Paid in Capital, Other	$ 3,600,000							$ 3,500,000
Proceeds from Warrant Exercises	1,000,000												1,000,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)				812,000						800,000
Fair Value Adjustment of Warrants	2,051,000	(3,000)						2,500,000
Shelf Registration Date of Filing	Dec. 31, 2012
Shelf Registration Effective Date	May 21, 2012
Shelf Registration Authorized Amount	50,000,000												50,000,000
Shelf Registartion Public Float Threshold	75,000,000												75,000,000
Shelf Registration Units Sold (in Shares)					2,030,000				1,730,000			1,730,000
Shelf Registration Units Sold Share Component Per Unit (in Shares)			1						1		1
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Share)			$ 4.20									$ 1.25	$ 1.25
Gross Proceed from Issuance of Common Stock												2,200,000
Net Proceeds from Issuance of Common Stock														1,700,000
Placement Agent Agreement, Registered Direct Offering, Number of Shares Authorized (in Shares)				2,030,000
Placement Agent Agreement Registered Direct Offering Net Proceeds						6,100,000
Stock Purchase Agreement Authorized Amount							$ 10,000,000
Stock Purchase Agreement Period in Force							30 months

XML

Segment Reporting and Geographic Information (Details)	3 Months Ended
	Mar. 31, 2014
Segment Reporting [Abstract]
Number of Operating Segments	2

XML

Severance and Other Charges (Details) - Company`s accrual for severance and other charges (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
Severance and Other Charges (Details) - Company`s accrual for severance and other charges [Line Items]
Accrual at December 31, 2013	$ 530
Provision in 2014	89
Payments and other settlements in 2014	(245)
Translation adjustment	(3)
Accrual at March 31, 2014	371
Employee Severance [Member]
Severance and Other Charges (Details) - Company`s accrual for severance and other charges [Line Items]
Accrual at December 31, 2013	530
Provision in 2014	46
Payments and other settlements in 2014	(222)
Translation adjustment	(3)
Accrual at March 31, 2014	351
Contract Termination [Member]
Severance and Other Charges (Details) - Company`s accrual for severance and other charges [Line Items]
Accrual at December 31, 2013
Provision in 2014	43
Payments and other settlements in 2014	(23)
Translation adjustment
Accrual at March 31, 2014	$ 20

XML

Inventories

3 Months Ended

Mar. 31, 2014

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

3. Inventories

Inventories consist of the following (in thousands):

		March 31, 2014		December 31, 2013
Raw materials	$	2,825	$	2,782
Work in progress		1,125		1,039
Finished goods		2,076		2,098
Inventories	$	6,026	$	5,919

XML

Segment Reporting and Geographic Information (Details) - Company`s reportable segments (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Segment Reporting Information [Line Items]
Net sales	$ 12,462	$ 13,307
Income (loss) from operations	(1,453)	(1,994)
Operating Segments [Member] | Heavy Duty Diesel Systems [Member]
Segment Reporting Information [Line Items]
Net sales	7,158	7,284
Income (loss) from operations	278	(337)
Operating Segments [Member] | Catalyst [Member]
Segment Reporting Information [Line Items]
Net sales	5,811	6,456
Income (loss) from operations	222	121
Operating Segments [Member] | Corporate Segment [Member]
Segment Reporting Information [Line Items]
Net sales
Income (loss) from operations	(1,933)	(1,817)
Intersegment Eliminations [Member]
Segment Reporting Information [Line Items]
Net sales	(507)	(433)
Income (loss) from operations	$ (20)	$ 39

XML

Goodwill and Intangible Assets (Details) - Estimated amortization expense for existing intangible assets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Estimated amortization expense for existing intangible assets [Abstract]
Remainder of 2014	$ 496
2015	656
2016	511
2017	500
2018	$ 168

XML

Debt (Tables)

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

	March 31, 2014		December 31, 2013
Line of credit with FGI	$	2,684	$	2,258
$1.5 million, 8% shareholder note due 2015		1,596		1,586
$3.0 million, 8% subordinated convertible shareholder notes due 2016		3,000		3,000
$3.0 million, 8% shareholder note due 2015		2,969		2,963
Debt, Total		10,249		9,807
Less current portion		(2,684)		(2,258)
Long-term debt, net of current portion	$	7,565	$	7,549

XML

Accrued Warranty (Tables)

3 Months Ended

Mar. 31, 2014

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability [Table Text Block]

	Three Months Ended March 31,
		2014		2013
Balance at beginning of period	$	453	$	665
Accrued warranty expense		230		199
Warranty claims paid		(212)		(19)
Translation adjustment		(13)		(21)
Balance at end of period	$	458	$	824

XML

Stock-Based Compensation (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	217,832
Share-based Compensation (in Dollars)	$ 111,000	$ 194,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	288,760
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	58,139
Employee Stock Option [Member]
Stock-Based Compensation (Details) [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options (in Dollars)	100,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	328 days
Restricted Stock Units (RSUs) [Member]
Stock-Based Compensation (Details) [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	2 years 255 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	288,760
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options (in Dollars)	$ 1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	58,139
Shares Withheld for Minimum Statutory Tax Obligations	6,817
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period	51,322

XML

Accrued Expenses and Other Current Liabilities (Details) - Accrued expenses and other current liabilities (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2012
Accrued expenses and other current liabilities [Abstract]
Accrued salaries and benefits	$ 1,089	$ 1,232
Warrant liability	485	939
Liability for consigned precious metals	654	832
Accrued legal settlement and related expenses	783	616
Accrued severance and other charges	371	530
Accrued warranty	458	453	824	665
Other	1,594	1,400
Accrued expenses and other current liabilities	$ 5,434	$ 6,002

XML

Warrants (Tables)

3 Months Ended

Mar. 31, 2014

Warrants (Tables) [Line Items]

Schedule of Sharebased Compensation Warrants Activity [Table Text Block]

	Shares	Weighted Average Exercise Price		Range of Exercise Prices
Outstanding at December 31, 2013	1,139,535	$	1.68	$1.25 - $10.40
Warrants exercised	(800,000)	$	1.25	$1.25
Outstanding at March 31, 2014	339,535	$	2.70	$1.25 - $10.40
Warrants exercisable at March 31, 2014	319,535	$	3.03	$1.25 - $10.40

Monte Carlo Simulation Model [Member]

Warrants (Tables) [Line Items]

Schedule of Share Based Payment Award Warrants Valuation Assumptions [Table Text Block]

	March 31, 2014		December 31, 2013
CDTi stock price	$	3.82	$	1.51
Strike price	$	1.25	$	1.25
Expected volatility		79.00%		73.60%
Risk-free interest rate		1.30%		1.80%
Dividend yield		─		─
Expected life in years		4.3		4.5

XML

Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (thousands)
Outstanding at December 31, 2013	714,712	$	7.17		7.58		─
Cancelled	(79,504)	$	2.83
Outstanding at March 31, 2014	635,208	$	7.71		6.05	$	355
Exercisable at March 31, 2014	556,343	$	8.39		5.78	$	286

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

	Shares	Weighted Average  Grant Date Fair Value
Outstanding at December 31, 2013	312,196	$	2.37
Granted	288,760	$	3.18
Vested and issued	(58,139)	$	2.06
Forfeited	(101,241)	$	2.14
Outstanding units at March 31, 2014	441,576	$	2.91
Vested and unissued at March 31, 2014	59,589	$	2.49

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

2. Summary of Significant Accounting Policies

a. 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 adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been reflected. The results reported in these 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 (“U.S. 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 consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

b. Principles of Consolidation

        The condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

        Investments in which the Company has at least a 20%, but not more than a 50% interest are generally accounted for under the equity method. Investment interests below 20% are generally accounted for under the cost method, except if the Company could exercise significant influence, the investment would be accounted for under the equity method. The Company’s judgment regarding the level of influence over each equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company includes its proportionate share of the net income or loss of equity-method investees in its condensed consolidated statements of comprehensive loss.

c. Use of Estimates

 The preparation of financial statements in conformity with U.S. GAAP 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 assets and 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 goodwill and 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.

d. Concentration of Risk

        For the three months ended March 31, 2014 and 2013, one automotive original equipment manufacturer (“OEM”) customer within the Catalyst segment accounted for 41% and 40%, respectively, of the Company’s revenues. This customer accounted for 30% and 24% of the Company’s accounts receivable at March 31, 2014 and December 31, 2013, respectively. No other customers accounted for 10% or more of the Company’s revenues or accounts receivable for these periods.            

        For the periods presented below, certain vendors accounted for 10% or more of the Company’s raw material purchases as follows:

	Three Months Ended March 31,
Vendor	2014	2013
A	19%	13%
B	18%	16%
C	6%	16%
D	9%	13%

Vendor A above is a catalyst supplier, vendors B and D above are substrate suppliers and vendor C is a rare earth materials supplier.

e. Net 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 and dilutive potential common shares. Dilutive potential common shares include employee stock options and restricted share units (“RSUs”) and warrants and debt that are convertible into the Company’s common stock.

        Diluted net loss per share excludes certain dilutive potential common shares outstanding as their effect is anti-dilutive. Because the Company incurred net losses in the three months ended March 31, 2014 and 2013, the effect of potentially dilutive securities has been excluded in the computation of net loss per share and net loss from continuing operations per share as their impact would be anti-dilutive. Potential common stock equivalents excluded consist of the following (in thousands):

	March 31,
	2014	2013
Common stock options	635	786
RSUs	442	371
Warrants	340	923
Convertible notes	250	250
Total	1,667	2,330

f. 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.

The Company records its liability-classified warrants at fair value in accordance with the fair value measurement framework. See Note 10 for further information on these liability-classified warrants. The valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis is summarized as follows (in thousands):

As of March 31, 2014:	Level 1	Level 2		Level 3
Warrant liability	─	─	$	485
Warrant liability	─	─	$	485

As of December 31, 2013:	Level 1	Level 2		Level 3
Warrant liability	-	-	$	939
Warrant liability	-	-	$	939

The following is a reconciliation of the warrant liability measured at fair value using Level 3 inputs (in thousands):

	Three Months Ended March 31,
		2014		2013
Balance at beginning of period	$	939	$	10
Exercise of common stock warrants		(2,505)		─
Remeasurement of common stock warrants		2,051		(3)
Balance at end of period	$	485	$	7

g. Fair Value of Financial Instruments

        Accounting Standards Codification (“ASC”) Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial instruments for which the determination of fair value is practicable. The fair values of the Company’s cash, trade 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 borrowings under the line of credit approximates their carrying value due to the variable interest rates. The fair value of shareholder notes payable, noncurrent, calculated using level 3 inputs, using a Black-Scholes option-pricing model to value the debt’s conversion factor and a net present value model was $7.6 million and $7.5 million at March 31, 2014 and December 31, 2013, respectively.

h. Reclassifications

        Certain prior-period amounts have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported consolidated results of operations or stockholders' equity.

i. Recently Adopted Accounting Guidance

        In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. ASU 2013-05 was effective for reporting periods beginning after December 15, 2013. Adoption of ASU 2013-05 in the first quarter of 2014 did not have a material impact on the Company’s consolidated financial statements or financial statement disclosures.

        In June 2013, the FASB ratified Emerging Issues Task Force (EITF) Issue 13-C, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which concludes an unrecognized tax benefit should be presented as a reduction of a deferred tax asset when settlement in this manner is available under the tax law. Adoption of this amendment in the first quarter of 2014 did not have a material impact on its consolidated financial statements or financial statement disclosures.

XML

Segment Reporting and Geographic Information (Tables)

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended March 31,
	2014		2013
Net sales
Heavy Duty Diesel Systems	$	7,158	$	7,284
Catalyst		5,811		6,456
Corporate		─		─
Eliminations (1)		(507)		(433)
Total	$	12,462	$	13,307
(Loss) income from operations
Heavy Duty Diesel Systems		278		(337)
Catalyst		222		121
Corporate		(1,933)		(1,817)
Eliminations (1)		(20)		39
Total	$	(1,453)	$	(1,994)

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	Three Months Ended March 31,
	2014		2013
United States	$	6,297	$	6,968
Canada		5,027		4,836
Europe		1,138		1,503
Total	$	12,462	$	13,307

XML

Goodwill and Intangible Assets (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of Intangible Assets	$ 0.2	$ 0.2

XML

Warrants (Details) (USD $)	3 Months Ended
	Mar. 31, 2014
Warrants (Details) [Line Items]
Adjustments to Additional Paid in Capital, Warrant Exercised	$ 2,500,000
Warrant [Member]
Warrants (Details) [Line Items]
Other Nonoperating Expense	$ 2,100,000
Common Stock [Member]
Warrants (Details) [Line Items]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)	800,000

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Current assets:
Cash	$ 3,597	$ 3,909
Accounts receivable, net	6,068	5,524
Inventories	6,026	5,919
Prepaid expenses and other current assets	1,431	1,462
Total current assets	17,122	16,814
Property and equipment, net	1,402	1,459
Intangible assets, net	3,274	3,508
Goodwill	5,767	5,870
Other assets	1,009	718
Total assets	28,574	28,369
Current liabilities:
Line of credit	2,684	2,258
Accounts payable	6,044	5,370
Accrued expenses and other current liabilities	5,434	6,002
Income taxes payable	1,411	1,058
Total current liabilities	15,573	14,688
Shareholder notes payable	7,565	7,549
Deferred tax liability	666	686
Total liabilities	23,804	22,923
Commitments and contingencies (Note 13)
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 24,000,000; issued and outstanding 10,150,575 and 9,299,253 shares at March 31, 2014 and December 31, 2013, respectively	102	93
Additional paid-in capital	191,696	188,108
Accumulated other comprehensive loss	(1,473)	(1,036)
Accumulated deficit	(185,555)	(181,719)
Total stockholders’ equity	4,770	5,446
Total liabilities and stockholders’ equity	$ 28,574	$ 28,369

XML

Severance and Other Charges (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		0 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Administrative Complaint By Former CFO [Member] Common Stock [Member]	Mar. 13, 2014 Administrative Complaint By Former CFO [Member]	Mar. 31, 2014 Administrative Complaint By Former CFO [Member]	Dec. 31, 2013 Administrative Complaint By Former CFO [Member]
Severance and Other Charges (Details) [Line Items]
Litigation Settlement, Amount			$ 0.4
Litigation Settlement Shares Issuable (in Shares)			75,000
Estimated Litigation Liability				0.7	0.6
Equity, Fair Value Adjustment		0.2
Payments for Legal Settlements	$ 0.1

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities:
Net loss	$ (3,836)	$ (2,141)
Net loss from discontinued operations	28	3
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	274	334
Write-down of excess and obsolete inventory	16	137
Stock-based compensation expense	111	194
Loss (gain) on change in fair value of liability-classified warrants	2,051	(3)
Gain on foreign currency transactions	(162)	(277)
Other	(6)	88
Changes in operating assets and liabilities:
Accounts receivable	(642)	(1,107)
Inventories	(206)	(417)
Prepaid expenses and other assets	(279)	171
Accounts payable	612	1,281
Income taxes	389	69
Accrued expenses and other current liabilities	62	(80)
Cash used in operating activities of continuing operations	(1,588)	(1,748)
Cash used in operating activities of discontinued operations	(31)	(2)
Net cash used in operating activities	(1,619)	(1,750)
Cash flows from investing activities:
Purchases of property and equipment	(78)	(80)
Investment in unconsolidated affiliate		(66)
Net cash used in investing activities	(78)	(146)
Cash flows from financing activities:
Net borrowings (payments) under demand line of credit	426	(334)
Proceeds from exercise of warrants	1,000
Other	(18)	(2)
Net cash provided by (used in) financing activities	1,408	(336)
Effect of exchange rates on cash	(23)	(63)
Net change in cash	(312)	(2,295)
Cash at beginning of period	3,909	6,878
Cash at end of period	$ 3,597	$ 4,583

XML

Joint Venture (Details) (Subsequent Event [Member], USD $) In Millions, unless otherwise specified	1 Months Ended
	Apr. 30, 2014
Subsequent Event [Member]
Joint Venture (Details) [Line Items]
Proceeds from Divestiture of Interest in Joint Venture	$ 0.1

XML

Summary of Significant Accounting Policies (Details) - Concentration of risk raw materials purchases	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Vendor A [Member]
Concentration Risk [Line Items]
Purchase Of Raw Material, Concentration of Risk, Percentage	19.00%	13.00%
Vendor B [Member]
Concentration Risk [Line Items]
Purchase Of Raw Material, Concentration of Risk, Percentage	18.00%	16.00%
Vendor C [Member]
Concentration Risk [Line Items]
Purchase Of Raw Material, Concentration of Risk, Percentage	6.00%	16.00%
Vendor D [Member]
Concentration Risk [Line Items]
Purchase Of Raw Material, Concentration of Risk, Percentage	9.00%	13.00%

XML

Accounting Policies, by Policy (Policies)

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

a. 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 adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been reflected. The results reported in these 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 (“U.S. 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 consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

Consolidation, Policy [Policy Text Block]

b. Principles of Consolidation

        The condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.

        Investments in which the Company has at least a 20%, but not more than a 50% interest are generally accounted for under the equity method. Investment interests below 20% are generally accounted for under the cost method, except if the Company could exercise significant influence, the investment would be accounted for under the equity method. The Company’s judgment regarding the level of influence over each equity method investment includes considering key factors such as the Company’s ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. The Company includes its proportionate share of the net income or loss of equity-method investees in its condensed consolidated statements of comprehensive loss.

Use of Estimates, Policy [Policy Text Block]

c. Use of Estimates

 The preparation of financial statements in conformity with U.S. GAAP 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 assets and 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 goodwill and 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

Concentration Risk, Credit Risk, Policy [Policy Text Block]

d. Concentration of Risk

        For the three months ended March 31, 2014 and 2013, one automotive original equipment manufacturer (“OEM”) customer within the Catalyst segment accounted for 41% and 40%, respectively, of the Company’s revenues. This customer accounted for 30% and 24% of the Company’s accounts receivable at March 31, 2014 and December 31, 2013, respectively. No other customers accounted for 10% or more of the Company’s revenues or accounts receivable for these periods.            

        For the periods presented below, certain vendors accounted for 10% or more of the Company’s raw material purchases as follows:

	Three Months Ended March 31,
Vendor	2014	2013
A	19%	13%
B	18%	16%
C	6%	16%
D	9%	13%

Vendor A above is a catalyst supplier, vendors B and D above are substrate suppliers and vendor C is a rare earth materials supplier.

Earnings Per Share, Policy [Policy Text Block]

e. Net 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 and dilutive potential common shares. Dilutive potential common shares include employee stock options and restricted share units (“RSUs”) and warrants and debt that are convertible into the Company’s common stock.

        Diluted net loss per share excludes certain dilutive potential common shares outstanding as their effect is anti-dilutive. Because the Company incurred net losses in the three months ended March 31, 2014 and 2013, the effect of potentially dilutive securities has been excluded in the computation of net loss per share and net loss from continuing operations per share as their impact would be anti-dilutive. Potential common stock equivalents excluded consist of the following (in thousands):

	March 31,
	2014	2013
Common stock options	635	786
RSUs	442	371
Warrants	340	923
Convertible notes	250	250
Total	1,667	2,330

Fair Value Measurement, Policy [Policy Text Block]

f. 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.

The Company records its liability-classified warrants at fair value in accordance with the fair value measurement framework. See Note 10 for further information on these liability-classified warrants. The valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis is summarized as follows (in thousands):

As of March 31, 2014:	Level 1	Level 2		Level 3
Warrant liability	─	─	$	485
Warrant liability	─	─	$	485

As of December 31, 2013:	Level 1	Level 2		Level 3
Warrant liability	-	-	$	939
Warrant liability	-	-	$	939

The following is a reconciliation of the warrant liability measured at fair value using Level 3 inputs (in thousands):

	Three Months Ended March 31,
		2014		2013
Balance at beginning of period	$	939	$	10
Exercise of common stock warrants		(2,505)		─
Remeasurement of common stock warrants		2,051		(3)
Balance at end of period	$	485	$	7

Fair Value of Financial Instruments, Policy [Policy Text Block]

g. Fair Value of Financial Instruments

        Accounting Standards Codification (“ASC”) Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial instruments for which the determination of fair value is practicable. The fair values of the Company’s cash, trade 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 borrowings under the line of credit approximates their carrying value due to the variable interest rates. The fair value of shareholder notes payable, noncurrent, calculated using level 3 inputs, using a Black-Scholes option-pricing model to value the debt’s conversion factor and a net present value model was $7.6 million and $7.5 million at March 31, 2014 and December 31, 2013, respectively.

Reclassification, Policy [Policy Text Block]

h. Reclassifications

        Certain prior-period amounts have been reclassified to conform to the current period presentation. These changes had no impact on the previously reported consolidated results of operations or stockholders' equity

New Accounting Pronouncements, Policy [Policy Text Block]

i. Recently Adopted Accounting Guidance

        In March 2013, the FASB issued ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." The objective of ASU 2013-05 is to resolve the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. ASU 2013-05 was effective for reporting periods beginning after December 15, 2013. Adoption of ASU 2013-05 in the first quarter of 2014 did not have a material impact on the Company’s consolidated financial statements or financial statement disclosures.

        In June 2013, the FASB ratified Emerging Issues Task Force (EITF) Issue 13-C, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” which concludes an unrecognized tax benefit should be presented as a reduction of a deferred tax asset when settlement in this manner is available under the tax law. Adoption of this amendment in the first quarter of 2014 did not have a material impact on its consolidated financial statements or financial statement disclosures.

XML

Summary of Significant Accounting Policies (Details) - Potential common stock equivalents In Thousands, unless otherwise specified In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,667	2,330
Equity Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	635	786
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	442	371
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	340	923
Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	250	250

XML

Inventories (Tables)

3 Months Ended

Mar. 31, 2014

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

		March 31, 2014		December 31, 2013
Raw materials	$	2,825	$	2,782
Work in progress		1,125		1,039
Finished goods		2,076		2,098
Inventories	$	6,026	$	5,919

XML

Organization

3 Months Ended

Mar. 31, 2014

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. Organization

a. Description of Business

        Clean Diesel Technologies, Inc. (“CDTi” or the “Company”) is a global manufacturer and distributor of heavy duty diesel and light duty vehicle emissions control systems and products to major automakers and retrofitters. CDTi’s business is driven by increasingly stringent global emission standards for internal combustion engines, which are major sources of a variety of harmful pollutants. The Company has operations in the United States, Canada, the United Kingdom, France, Japan and Sweden as well as an Asian investment.

b. Liquidity

        The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. Therefore, the consolidated financial statements contemplate the realization of assets and liquidation of liabilities in the ordinary course of business. The Company has suffered recurring losses and negative cash flows from operations since inception, resulting in an accumulated deficit of $185.6 million at March 31, 2014. The Company has funded its operations through equity sales, debt and bank borrowings.

        The Company has a $7.5 million secured demand facility backed by its receivables and inventory with Faunus Group International, Inc. (“FGI”). At March 31, 2014, the Company had $2.7 million in borrowings outstanding under this facility with $4.8 million available, subject to the availability of eligible accounts receivable and inventory balances for collateral. There is no guarantee that the Company will be able to borrow to the full limit of $7.5 million if FGI chooses not to finance a portion of its receivables or inventory. Additionally, FGI can cancel the facility at any time.

        On May 15, 2012, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”) (the “Shelf Registration”), which was declared effective by the SEC on May 21, 2012. The Shelf Registration permits the Company to sell, from time to time, up to an aggregate of $50.0 million of various securities, provided that the Company may not sell its securities in a primary offering pursuant to the Shelf Registration or any other registration statement on Form S-3 with a value exceeding one-third of its public float in any 12-month period (unless the Company’s public float rises to $75.0 million or more).

        On July 3, 2013, the Company sold 1,730,000 units pursuant to the shelf registration for $1.25 per unit, with each unit consisting of one share of common stock and one half of a warrant to purchase one share of common stock with an exercise price of $1.25 per share. The Company received net proceeds of $1.7 million after deducting discounts and commissions to the underwriter and offering expenses. In the first quarter of 2014, warrant holders exercised an aggregate of 800,000 of the warrants issued in the offering at an exercise price of $1.25 per share for proceeds of $1.0 million.

        On March 21, 2014, the Company and Kanis S.A. entered into a letter agreement whereby Kanis S.A. agreed not to accelerate the maturity of the company’s 8% subordinated convertible notes due 2016 prior to July 1, 2015. See Note 8 for additional information on these notes.

On April 4, 2014, the Company sold 2,030,000 units pursuant to the Shelf Registration for $3.40 per unit, with each unit consisting of one share of common stock and 0.4 of one warrant to purchase one share of common stock with an exercise price of $4.20 per share. The Company received net proceeds of $6.1 million after deducting placement agent fees and other estimated offering expenses.

        At March 31, 2014, the Company had $3.6 million in cash. Based on the Company’s current cash levels, proceeds from the April 2014 offering and expected cash flows from operations, management believes that the Company will have access to sufficient working capital to sustain operations through at least the next twelve months. However, there can be no assurances that the Company will be able to achieve projected levels of revenue in 2014 and beyond. If cash from operations is not sufficient for the working capital needs of the Company, the Company may seek additional financing in the form of funding from outside sources. However, there is no assurance that the Company will be able to raise additional funds or reduce its discretionary spending to a level sufficient for its working capital needs.

XML

Condensed Consolidated Balance Sheets (Parentheticals) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Preferred stock par value (in Dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	100,000	100,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	24,000,000	24,000,000
Common stock, shares issued	10,150,575	9,299,253
Common stock, shares outstanding	10,150,575	9,299,253

XML

Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

11. Stock-Based Compensation

        The Clean Diesel Technologies, Inc. Stock Incentive, as amended (the “Plan”), provides for the awarding of incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, performance awards, bonuses or other forms of share-based awards, or combinations of these to the Company’s directors, officers, employees, consultants and advisors (except consultants or advisors in capital-raising transactions) as determined by the board of directors. As of March 31, 2014, there were 217,832 shares available for future grants under the Plan.

        Total stock-based compensation expense for the three months ended March 31, 2014 and 2013 was $0.1 million and $0.2 million, respectively.

        Stock Options              

        Stock option activity is summarized as follows:

	Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (thousands)
Outstanding at December 31, 2013	714,712	$	7.17		7.58		─
Cancelled	(79,504)	$	2.83
Outstanding at March 31, 2014	635,208	$	7.71		6.05	$	355
Exercisable at March 31, 2014	556,343	$	8.39		5.78	$	286

        The aggregate intrinsic value represents the difference between the exercise price and the Company’s closing stock price on the last trading day of the year.

        Compensation costs for stock options that vest over time are recognized over the vesting period on a straight-line basis. As of March 31, 2014, the Company had $0.1 million of unrecognized compensation cost related to stock option grants which will be recognized over a weighted estimated period of 0.9 years.

        Restricted Stock Units

        RSU activity is as follows:

	Shares	Weighted Average  Grant Date Fair Value
Outstanding at December 31, 2013	312,196	$	2.37
Granted	288,760	$	3.18
Vested and issued	(58,139)	$	2.06
Forfeited	(101,241)	$	2.14
Outstanding units at March 31, 2014	441,576	$	2.91
Vested and unissued at March 31, 2014	59,589	$	2.49

       During the three months ended March 31, 2014, the Company granted 288,760 RSUs to executive officers and other key employees. The RSUs are time-based and vest over three years from the date of grant.

       As of March 31, 2014, the Company had $1.0 million of unrecognized compensation cost related to RSUs, which will be recognized over a weighted average estimated period of 2.7 years. In 2014, of the 58,139 shares vested, 6,817 vested shares were withheld for minimum statutory tax obligations, resulting in a net issuance of 51,322 shares.

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2014	May 05, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	CLEAN DIESEL TECHNOLOGIES INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		12,352,747
Amendment Flag	false
Entity Central Index Key	0000949428
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1

XML

Joint Venture

3 Months Ended

Mar. 31, 2014

Joint Ventures Disclosure [Abstract]

Joint Ventures Disclosure [Text Block]

12. Joint Venture

On February 19, 2013, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pirelli & C. Ambiente SpA (“Pirelli”) to form a joint venture entity, Eco Emission Enterprise Srl under the laws of Italy (the “Joint Venture”), through which the Company and Pirelli would jointly sell their emission control products in Europe and the Commonwealth of Independent States countries. The Joint Venture commenced operations in April 2013.

On November 8, 2013, as a result of slower than anticipated progress in achieving sales objectives initially established for the Joint Venture, the Company and Pirelli agreed to voluntarily dissolve the Joint Venture in accordance with the Joint Venture Agreement. The Joint Venture ceased operations on November 30, 2013 and commenced liquidation on December 9, 2013. The dissolution was finalized in April 2014. The majority of its investment balance of $0.1 million, included in other assets in the accompanying condensed consolidated balance sheets at March 31, 2014 and December 31, 2013, was received in April 2014, with a small balance to be collected following the receipt of VAT due from the Swedish and Italian governments. The Company has resumed its operations in Europe in a similar manner as conducted prior to the Joint Venture.

XML

Condensed Consolidated Statements of Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Revenues	$ 12,462	$ 13,307
Cost of revenues	8,598	10,195
Gross profit	3,864	3,112
Operating expenses:
Selling, general and administrative (including stock-based compensation expense of $109 and $192)	3,674	3,830
Research and development (including stock-based compensation expense of $2 and $2)	1,289	1,265
Severance and other charges	354	11
Total operating expenses	5,317	5,106
Loss from operations	(1,453)	(1,994)
Other (expense) income:
Interest expense	(306)	(336)
Other (expense) income, net	(1,812)	306
Total other expense	(2,118)	(30)
Loss from continuing operations before income taxes	(3,571)	(2,024)
Income tax expense from continuing operations	237	114
Net loss from continuing operations	(3,808)	(2,138)
Net loss from discontinued operations	(28)	(3)
Net loss	(3,836)	(2,141)
Foreign currency translation adjustments	(437)	(593)
Comprehensive loss	$ (4,273)	$ (2,734)
Basic and diluted net loss per share:
Net loss from continuing operations (in Dollars per share)	$ (0.39)	$ (0.29)
Net loss from discontinued operations (in Dollars per share)
Net loss (in Dollars per share)	$ (0.39)	$ (0.29)
Weighted-average number of common shares outstanding - basic and diluted (in Shares)	9,758	7,261

XML

Severance and Other Charges

3 Months Ended

Mar. 31, 2014

Restructuring and Related Activities [Abstract]

Restructuring and Related Activities Disclosure [Text Block]

6. Severance and Other Charges

        Severance and other charges consist of the following (in thousands):

	Three Months Ended March 31,
		2014		2013
Employee severance expense	$	46	$	11
Lease exit costs		43		─
Legal settlements		265		─
Total severance and other charges	$	354	$	11

        Severance and Other Exit Costs

        The Company incurred severance costs in 2014 related to its North American and United Kingdom locations. The Company incurred additional lease exit costs related to the exit of a lease in North America in 2013.               

        The following summarizes the activity in the Company’s accrual for severance and other exit costs (in thousands):

		Severance		Lease Exit Costs		Total
Accrual at December 31, 2013	$	530	$	─	$	530
Provision in 2014		46		43		89
Payments and other settlements in 2014		(222)		(23)		(245)
Translation adjustment		(3)		─		(3)
Accrual at March 31, 2014	$	351	$	20	$	371

The Company expects to pay substantially all of the accrued amounts during the remainder of 2014.

Legal Settlements

On March 13, 2014, the Company reached a settlement with its former chief financial officer pursuant to an administrative complaint that was filed in 2010 which provides for a one-time lump sum amount of $0.4 million and the issuance of 75,000 shares of Company common stock. The accrued balance of $0.7 million at March 31, 2014 includes the lump sum amount, the market value of the common stock on the balance sheet date and related accrued legal expenses. In the three months ended March 31, 2014, the Company recorded an additional $0.2 million primarily related to the increase in fair value of its common stock. The settlement was paid and stock issued in April 2014. In the three months ended March 31, 2014, the Company also incurred $0.1 million related to the settlement of a customer dispute.

XML

Accrued Expenses and Other Current Liabilities

3 Months Ended

Mar. 31, 2014

Accrued Expenses And Other Current Liabilities [Abstract]

Accrued Expenses And Other Current Liabilities [Text Block]

5. Accrued Expenses and Other Current Liabilities

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

	March 31, 2014		December 31,2013
Accrued salaries and benefits	$	1,089	$	1,232
Warrant liability		485		939
Liability for consigned precious metals		654		832
Accrued legal settlement and related expenses		783		616
Accrued severance and other charges		371		530
Accrued warranty		458		453
Other		1,594		1,400
Accrued expenses and other current liabilities	$	5,434	$	6,002

XML

Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2014

Summary of Significant Accounting Policies (Tables) [Line Items]

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	March 31,
	2014	2013
Common stock options	635	786
RSUs	442	371
Warrants	340	923
Convertible notes	250	250
Total	1,667	2,330

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

As of March 31, 2014:	Level 1	Level 2		Level 3
Warrant liability	─	─	$	485
Warrant liability	─	─	$	485

As of December 31, 2013:	Level 1	Level 2		Level 3
Warrant liability	-	-	$	939
Warrant liability	-	-	$	939

Schedule of Reconciliation of Warrants Liability [Table Text Block]

	Three Months Ended March 31,
		2014		2013
Balance at beginning of period	$	939	$	10
Exercise of common stock warrants		(2,505)		─
Remeasurement of common stock warrants		2,051		(3)
Balance at end of period	$	485	$	7

Supplier Concentration Risk [Member]

Summary of Significant Accounting Policies (Tables) [Line Items]

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Three Months Ended March 31,
Vendor	2014	2013
A	19%	13%
B	18%	16%
C	6%	16%
D	9%	13%

XML

Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

13. Contingencies

Legal Proceedings

        On April 30, 2010, the Company received notice of an administrative complaint filed by its former chief financial officer. The complaint was filed with the Hartford, Connecticut office of the U.S. Department of Labor (“U.S. DOL”) under Section 806 of the Sarbanes-Oxley Act of 2002 (“SOX”) and alleged, among other things, that the Company’s termination of her employment on April 19, 2010 was retaliatory and due to her alleged protected activity associated with comments she made to the Company’s board of directors at their meeting on March 26, 2010. On June 14, 2010, the Company filed its response to the complaint denying the allegations and requesting a dismissal of the matter. On September 27, 2013, the U.S. DOL issued preliminary findings on the matter concluding there was reasonable cause to support the former employee’s claims and ordering the Company to pay damages in excess of $1.9 million and take certain other actions. On October 22, 2013, the Company filed its Objections and Request for Hearing with the U.S. DOL which triggered the appointment of an Administrative Law Judge (“ALJ”), and the scheduling of a hearing on the merits of the matter. Thereafter, the parties agreed to participate in a U.S.DOL mediation process on February 7, 2014. On March 13, 2014, the parties entered into a settlement agreement which provides for payment of a one-time lump sum amount of $0.4 million to the former employee, along with issuance of 75,000 shares of Company stock. The settlement has been formally approved by the ALJ. As a result, there has been mutual releases of all claims and a dismissal of the SOX complaint. The Company has reserved $0.7 million and $0.6 million at March 31, 2014 and December 31, 2013, respectively, which includes the lump sum amount, the market value of the common stock on the respective dates and accrued legal expenses incurred. The amounts were settled in April 2014.

        On November 15, 2013, BP Products North America (“BP”) instituted claims against Johnson Matthey (“JM”) as the parent company of and purchaser of Applied Utility Systems, Inc. (“AUS”), a former subsidiary of the Company. On May 12, 2010, JM tendered to the Company a claim for indemnification under the Asset Purchase Agreement dated October 1, 2009, (the “Asset Purchase Agreement”), among JM, the Company and AUS. On June 11, 2013, BP, JM and the Company entered into a Settlement Agreement and Mutual Release pursuant to which they settled all claims. The settlement agreement had no material impact on the Company. Under the indemnification clauses of the Asset Purchase Agreement, the Company may be liable for legal expenses incurred by JM. These legal costs may be offset against funds withheld by JM from the acquisition of AUS.

        In connection with the Asset Purchase Agreement, on October 1, 2009, JM presented the Company with an indemnification claim seeking recovery of the net amount of  $0.9 million after offsetting the funds withheld by JM from the acquisition of AUS. These claims are for matters relating to various customer contracts that JM purchased, including the BP contract discussed above. The Company and JM have entered into discussions relating to the application of offsets and the validity of the claims presented. The Company has offered a settlement amount of $0.2 million and has reserved for this amount in the fourth quarter of 2013. Since the discussions are ongoing, the ultimate costs associated with this matter cannot be determined at this time.

In addition to the foregoing, 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 are likely to have, individually or in the aggregate, a material adverse effect on the Company’s 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 condensed consolidated financial statements as of March 31, 2014, nor is it possible to estimate what litigation-related costs will be in the future.

Sales and Use Tax Audit

        The Company is undergoing a sales and use tax audit by the State of California on 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 of California asserts that proper documentation of resale may not have been obtained and that the Company owes sales tax of $1.4 million. 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 of California. On August 12, 2013, the Company appeared at an appeals conference with the Board of Equalization. The outcome of that hearing is still pending. Accordingly, no accrual has been recorded for this matter as the Company does not assess a loss as being probable. Should the Company not prevail in this matter, it will pursue reimbursement from the customer for all assessments from the State.    

XML

Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

9. Stockholders’ Equity

Significant Changes in Stockholders’ Equity

During the three months ended March 31, 2014, additional paid-in capital increased by $3.6 million. $3.5 million of this increase is attributable to (i) $1.0 million in proceeds received from the exercise of warrants to purchase a total of 800,000 shares of the Company’s common stock and (ii) $2.5 million being the fair value of these warrants reclassified from liabilities. See Note 10 below for additional information.

Shelf Registration

        On May 15, 2012, the Company filed a Shelf Registration which was declared effective by the SEC on May 21, 2012. The Shelf Registration permits the Company to sell, from time to time, up to an aggregate of $50.0 million of various securities, including common stock, preferred stock, warrants to purchase common stock or preferred stock and units consisting of one or more shares of common stock, shares of preferred stock, warrants, or any combination of such securities. However, the Company may not sell its securities in a primary offering pursuant to the Shelf Registration or any other registration statement on Form S-3 with a value exceeding one-third of its public float in any 12-month period (unless the Company’s public float rises to $75.0 million or more). The Shelf Registration is intended to provide the Company with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and the Company's capital needs.

        On July 3, 2013, the Company closed a public offering made pursuant to the Company’s Shelf Registration in which it sold 1,730,000 units consisting of one share of common stock and on half of a warrant to purchase one share of common stock for a price of $1.25 per unit. The Company received gross proceeds of $2.2 million and net proceeds of approximately $1.7 million after deducting discounts and commissions to the Underwriter and offering expenses.

        On April 4, 2014, Clean Diesel Technologies, Inc. closed a registered direct offering of 2,030,000 shares of common stock and warrants to purchase 812,000 shares of common stock. The Company received net proceeds of approximately $6.1 million after deducting placement agent fees and other estimated offering expenses. See Note 15 for further discussion.

        Common Stock Purchase Agreement with LPC

        On October 7, 2011, the Company signed a Purchase Agreement with LPC, together with a Registration Rights Agreement, whereby LPC agreed to purchase up to $10.0 million of the Company’s common stock over a 30-month period ending April 24, 2014. This expired unused in April 2014.

XML

Contingencies (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended					3 Months Ended
	Mar. 13, 2014 Administrative Complaint By Former CFO [Member]	Sep. 27, 2013 Administrative Complaint By Former CFO [Member]	Mar. 31, 2014 Administrative Complaint By Former CFO [Member]	Dec. 31, 2013 Administrative Complaint By Former CFO [Member]	Dec. 31, 2013 Sales And Use Tax Audit [Member]	Mar. 31, 2014 Asset Purchase Agreement [Member] JM [Member]	Dec. 31, 2013 Asset Purchase Agreement [Member] JM [Member]
Contingencies (Details) [Line Items]
Loss Contingency Damages Awarded		in excess of $1.9 million
Litigation Settlement, Amount	$ 0.4						$ 0.2
Litigation Settlement Shares Issuable (in Shares)	75,000
Estimated Litigation Liability			0.7	0.6
Loss Contingency, Damages Sought, Value						0.9
Loss Contingency, Range of Possible Loss, Maximum					$ 1.4

XML

Accrued Warranty

3 Months Ended

Mar. 31, 2014

Product Warranties Disclosures [Abstract]

Product Warranty Disclosure [Text Block]

7. Accrued Warranty

        Changes in the Company’s product warranty reserve are as follows (in thousands):

	Three Months Ended March 31,
		2014		2013
Balance at beginning of period	$	453	$	665
Accrued warranty expense		230		199
Warranty claims paid		(212)		(19)
Translation adjustment		(13)		(21)
Balance at end of period	$	458	$	824

XML

Debt

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

8. Debt

        Debt consists of the following (in thousands):

	March 31, 2014		December 31, 2013
Line of credit with FGI	$	2,684	$	2,258
$1.5 million, 8% shareholder note due 2015		1,596		1,586
$3.0 million, 8% subordinated convertible shareholder notes due 2016		3,000		3,000
$3.0 million, 8% shareholder note due 2015		2,969		2,963
Debt, Total		10,249		9,807
Less current portion		(2,684)		(2,258)
Long-term debt, net of current portion	$	7,565	$	7,549

Line of Credit with FGI

        The Company has a $7.5 million secured demand facility with FGI backed by its receivables and inventory (as amended, the “FGI Facility”). The FGI Facility expires on August 15, 2015 and may be extended at the Company’s option for additional one-year terms. However, FGI can cancel the facility at any time.

        Under the FGI Facility, FGI can elect to purchase eligible accounts receivables from the Company and certain of its subsidiaries at up to 80% of the value of such receivables (retaining a 20% reserve). Purchased receivables are subject to full recourse to the Company in the event of nonpayment by the customer. FGI becomes responsible for the servicing and administration of the accounts receivable purchased. The Company is not obligated to offer accounts in any month and FGI has the right to decline to purchase any accounts. At FGI’s election, FGI may advance the Company up to 80% of the value of any purchased accounts receivable, subject to the $7.5 million limit. Reserves retained by FGI on any purchased receivable are expected to be refunded to the Company net of interest and fees on advances once the receivables are collected from customers. The Company may also borrow against eligible inventory up to the inventory sublimit, as determined by FGI, subject to the aggregate $7.5 million limit under the FGI Facility and certain other conditions. At March 31, 2014, the inventory sublimit amount was the lesser of $1.5 million or 50% of the aggregate purchase price paid for accounts receivable purchased under the FGI facility. While the overall credit limit and the inventory sublimit were not changed, in the first quarter of 2014 borrowing against the Company’s significant OEM customer’s inventory has been eliminated by FGI due to their concerns about customer concentration.

        The interest rate on advances or borrowings under the FGI Facility is 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 March 31, 2014 and December 31, 2013. Any advances or borrowings under the FGI Facility are due on demand. The Company also agreed to pay FGI collateral management fees of 0.30% per month on the face amount of eligible receivables as to which advances have been made and 0.38% per month on borrowings against inventory, if any. At any time outstanding advances or borrowings under the FGI Facility are less than $2.4 million, the Company agreed to pay FGI standby fees of (i) the interest rate on the difference between $2.4 million and the average outstanding amounts and (ii) 0.44% per month on 80% of the amount by which advances or borrowings are less than the agreed $2.4 million minimum.   

        At March 31, 2014, the Company had $3.5 million of gross accounts receivable pledged to FGI as collateral for short-term debt in the amount of $1.8 million. At March 31, 2014, the Company also had $0.9 million in borrowings outstanding against eligible inventory. The Company was in compliance with the terms of the FGI Facility at March 31, 2014. However, there is no guarantee that the Company will be able to borrow to the full limit of $7.5 million if FGI chooses not to finance a portion of its receivables or inventory.

        $1.5 Million, 8% Shareholder Note Due 2015

        On December 30, 2010, the Company executed a Loan Commitment Letter with Kanis S.A., a shareholder of the Company, pursuant to which Kanis S.A. loaned the Company $1.5 million. The unsecured loan, as amended, bears interest on the unpaid principal at a rate of 8%, with interest only payable quarterly in arrears. In addition to principal and accrued interest, the Company is obligated to pay Kanis S.A. “Payment Premium” of $250,000 with $100,000 paid on June 30, 2013 and the remaining amount payable on the June 30, 2015 maturity date. There is no prepayment penalty.

        $3.0 Million, 8% Subordinated Convertible Shareholder Notes Due 2016

        On April 11, 2011, the Company entered into a Subordinated Convertible Notes Commitment Letter with Kanis S.A. that provides for the sale and issuance by the Company of 8% subordinated convertible notes (the “Notes”). As provided in the Commitment Letter, on May 6, 2011 Kanis S.A. purchased from the Company at par $3.0 million aggregate principal amount of the Notes, which bear interest at a rate of 8% per annum, payable quarterly in arrears.

        The Notes have a stated maturity of five years from the date of issuance. The agreement, as amended, allows for the acceleration of the maturity of the Notes if: (i) the Company was in breach of the notes or other agreements with Kanis S.A., or (ii) Kanis S.A. provided written notice, not less than 30 days prior to such date, that it elected to accelerate the maturity to a date not earlier than May 12, 2013. On March 21, 2014, the Company and Kanis S.A. entered into a letter agreement whereby Kanis S.A. agreed not to accelerate the maturity of these Notes prior to July 1, 2015. The Notes have been classified as noncurrent in the condensed consolidated balance sheets at March 31, 2014 and December 31, 2013.

        The Notes also provide that the Company has the option to redeem the Notes at any time at a price equal to 100% of the face amount plus accrued and unpaid interest through the date of redemption. There is no prepayment penalty. The Notes are unsecured obligations of the Company and subordinated to existing and future secured indebtedness of the Company.

        As amended, the outstanding principal balance of the Notes, and accrued and unpaid interest are convertible, at the option of Kanis S.A., at any time upon written notice given not less than 75 calendar days prior to the date of conversion, into no more than 250,000 shares of the Company’s common stock at a conversion price of $4.00 per share.

        $3.0 Million, 8% Shareholder Note Due 2015

        On July 27, 2012, the Company executed a Loan Commitment Letter with Kanis S.A., pursuant to which the Company issued an unsecured promissory note in the principal amount of $3.0 million, which bears interest at 8% per annum, payable quarterly in arrears. The promissory note matures on July 27, 2015. There is no prepayment penalty or premium.

XML

Warrants

3 Months Ended

Mar. 31, 2014

Warrants Disclosures [Abstract]

Warrants Disclosures [Text Block]

10. Warrants

        From time to time, the Company issues warrants to purchase its common stock. These warrants have been issued for consulting services, in connection with the Company’s issuance of debt and sales of its common stock.

        Warrant activity is summarized as follows: 

	Shares	Weighted Average Exercise Price		Range of Exercise Prices
Outstanding at December 31, 2013	1,139,535	$	1.68	$1.25 - $10.40
Warrants exercised	(800,000)	$	1.25	$1.25
Outstanding at March 31, 2014	339,535	$	2.70	$1.25 - $10.40
Warrants exercisable at March 31, 2014	319,535	$	3.03	$1.25 - $10.40

        Warrant Liability

        The Company evaluates warrants on issuance and at each reporting date to determine proper classification as equity or as a 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 a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that market conditions will be achieved. This model is 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. Due to the significant change in the Company following its business combination with Catalytic Solutions, Inc. (the “Merger”), CDTi’s pre-Merger historical price volatility was not considered representative of expected volatility going forward. Therefore, the Company has used an estimate based upon a weighted average of implied and historical volatility of a portfolio of peer companies and CDTi’s post-Merger historical volatility for the valuation of its warrants. The expected life is equal to the contractual life of the warrants.

        The assumptions used in the Monte Carlo simulation model to estimate the fair value of the warrant liability are as follows:

	March 31, 2014		December 31, 2013
CDTi stock price	$	3.82	$	1.51
Strike price	$	1.25	$	1.25
Expected volatility		79.00%		73.60%
Risk-free interest rate		1.30%		1.80%
Dividend yield		─		─
Expected life in years		4.3		4.5

        The liability, included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets, is re-measured at the end of each reporting period with changes in fair value recognized in other expense in the condensed 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. The Company recorded other expense of $2.1 million for the three months ended March 31, 2014 as a result of the change in fair value of the warrant liability which was primarily due to an increase in the Company’s stock price during the reporting period. During the three months ended March 31, 2014, as a result of the exercise of warrants to purchase 800,000 shares of the Company’s common stock, the warrant liability decreased $2.5 million, excluding the effects of remeasurement, with an offsetting increase to additional paid-in capital.

XML

Subsequent Event (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended		0 Months Ended
	Apr. 04, 2014 Subsequent Event [Member] Common Stock [Member] Roth Capital Partners and Craig Hallum Capital Group [Member]	Apr. 04, 2014 Subsequent Event [Member] Common Stock [Member]	Apr. 04, 2014 Subsequent Event [Member] Roth Capital Partners and Craig Hallum Capital Group [Member]	Apr. 04, 2014 Subsequent Event [Member]	Mar. 31, 2014 Common Stock [Member]
Subsequent Event (Details) [Line Items]
Placement Agent Agreement, Registered Direct Offering, Number of Shares Authorized	2,030,000	2,030,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	812,000	812,000			800,000
Shares Issued, Price Per Share (in Dollars per share)	$ 3.40
Placement Agent Agreement, Registered Direct Offering, Share Component of Per Unit Sold	1
Placement Agent Agreement, Registered Direct Offering, Warrant Component of Per Unit Sold	0.4
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right	1
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Share)			$ 4.20
Class of Warrant or Right, Perod During which Warrants or Rights Exercisable			The warrants can be exercised during the period commencing after six months and ending five and a half years from the date of issuance
Placement Agent Agreement, Registered Direct Offering, Gross Proceeds (in Dollars)			$ 6.9
Placement Agent Agreement Registered Direct Offering Net Proceeds (in Dollars)			$ 6.1	$ 6.1

XML

Segment Reporting and Geographic Information (Details) - Net sales by geographic region (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales	$ 12,462	$ 13,307
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales	6,297	6,968
Canada [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales	5,027	4,836
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Net sales	$ 1,138	$ 1,503

XML

Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Catalyst [Member] OEM Customer [Member] Customer Concentration Risk [Member]	Mar. 31, 2013 Catalyst [Member] OEM Customer [Member] Customer Concentration Risk [Member]	Mar. 31, 2014 Catalyst [Member] Customer Concentration Risk [Member] Accounts Receivable [Member]	Dec. 31, 2013 Catalyst [Member] Customer Concentration Risk [Member] Accounts Receivable [Member]	Mar. 31, 2014 Supplier Concentration Risk [Member]	Mar. 31, 2014 Fair Value, Inputs, Level 3 [Member] Shareholder Notes Payable Noncurrent [Member]	Dec. 31, 2013 Fair Value, Inputs, Level 3 [Member] Shareholder Notes Payable Noncurrent [Member]	Mar. 31, 2014 Minimum [Member]	Mar. 31, 2014 Maximum [Member]
Summary of Significant Accounting Policies (Details) [Line Items]
Equity Method Investment, Ownership Percentage									20.00%	50.00%
Cost Method Investment Ownership Percentage Description	20%
Concentration Risk, Percentage		41.00%	40.00%	30.00%	24.00%	10.00%
Notes Payable, Fair Value Disclosure (in Dollars)							$ 7.6	$ 7.5

XML

Debt (Details) - Long-term debt (Parentheticals) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
1.5 Million Shareholder Note Due 2015 [Member]
Debt (Details) - Long-term debt (Parentheticals) [Line Items]
Interest Rate, Stated Percentage	8.00%	8.00%
Maturity Year	2015	2015
Shareholder note due, Face Amount	$ 1.5	$ 1.5
Three Million Eight Percentage Subordinated Convertible Shareholder Notes Due 2016 [Member]
Debt (Details) - Long-term debt (Parentheticals) [Line Items]
Interest Rate, Stated Percentage	8.00%	8.00%
Maturity Year	2016	2016
Shareholder note due, Face Amount	3.0	3.0
Three Million Eight Percentage Shareholder Note Due 2015 [Member]
Debt (Details) - Long-term debt (Parentheticals) [Line Items]
Interest Rate, Stated Percentage	8.00%	8.00%
Maturity Year	2015	2015
Shareholder note due, Face Amount	$ 3.0	$ 3.0

XML

Subsequent Event

3 Months Ended

Mar. 31, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

15. Subsequent Event

On April 1, 2014, the Company entered into a placement agent agreement with Roth Capital Partners, LLC and Craig-Hallum Capital Group LLC related to a registered direct offering of an aggregate of 2,030,000 shares of the Company’s common stock and warrants to purchase an aggregate of 812,000 shares of Company common stock. The shares of common stock and warrants were sold in units at $3.40 per unit, with each unit consisting of one share of common stock and 0.4 of one warrant to purchase one share of common stock at an exercise price of $4.20 per share. The warrants can be exercised during the period commencing after six months and ending five and a half years from the date of issuance. The offering closed on April 4, 2014 and the Company received gross proceeds of $6.9 million and net proceeds of approximately $6.1 million after deducting  placement agent fees and other estimated offering expenses. The Company intends to use the proceeds for general corporate purposes, which may include working capital, general and administrative expenses, capital expenditures and implementation of its strategic priorities. The Company may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to its current business, although there are no present commitments or agreements for any such transactions.

XML

Accrued Expenses and Other Current Liabilities (Tables)

3 Months Ended

Mar. 31, 2014

Accrued Expenses And Other Current Liabilities [Abstract]

Schedule of Accrued Expenses and Other Current Liabilities [Table Text Block]

	March 31, 2014		December 31,2013
Accrued salaries and benefits	$	1,089	$	1,232
Warrant liability		485		939
Liability for consigned precious metals		654		832
Accrued legal settlement and related expenses		783		616
Accrued severance and other charges		371		530
Accrued warranty		458		453
Other		1,594		1,400
Accrued expenses and other current liabilities	$	5,434	$	6,002

XML

Debt (Details) (USD $)	3 Months Ended	0 Months Ended	3 Months Ended				0 Months Ended	3 Months Ended			3 Months Ended
	Mar. 31, 2014	Jun. 30, 2013 Scenario, Adjustment [Member] 8% Shareholder Note Due 2015 [Member]	Mar. 31, 2014 Scenario, Adjustment [Member] Line Of Credit With FGI [Member]	Mar. 31, 2014 8% Shareholder Note Due 2015 [Member]	Jul. 27, 2012 8% Shareholder Note Due 2015 [Member]	Dec. 30, 2010 8% Shareholder Note Due 2015 [Member]	Jul. 27, 2012 8% Subordinated Convertible Notes Due 2016 [Member]	Mar. 31, 2014 8% Subordinated Convertible Notes Due 2016 [Member]	Jul. 27, 2014 8% Subordinated Convertible Notes Due 2016 [Member]	May 11, 2011 8% Subordinated Convertible Notes Due 2016 [Member]	Mar. 31, 2014 Line Of Credit With FGI [Member]
Debt (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity (in Dollars)											$ 7,500,000
Line of Credit Facility, Expiration Date			Aug. 15, 2015
Line of Credit Facility Optional Additional Term											1 year
Line of Credit Facility Threshold Percentage of Purchase Receivables Elected by Issuer											80.00%
Line of Credit Facility Purchased Receivable Reserved by Borrower											20.00%
Line of Credit Facility Advance Amount in Percentage of Purchased Accounts Receivable Value											80.00%
Line of Credit Facility Maximum Borrowing Capacity Against Inventory Collateral (in Dollars)											1,500,000
Line of Credit Facility Inventory Collateral Sublimit Determinant Percentage of Aggregate Purchase Price For Purchased Receivable											50.00%
Debt Instrument, Basis Spread on Variable Rate											2.50%
Line of Credit Facility Interest Rate Determinant Threshold Percentage											6.50%
Line of Credit Facility Periodic Collateral Fees Percentage of Eligible Receivables											0.30%
Line of Credit Facility Periodic Collateral Fees Percentage of Borrowing Against Inventory Collateral											0.38%
Line of Credit Facility Amount Outstanding Stand by Fees Determination Threshold (in Dollars)											2,400,000
Line of Credit Facility Standby Fees Percentage of Determinant Rate											0.44%
Line of Credit Facility Standby Fees Determinant Rate											80.00%
Pledged Assets Accounts Receivable Pledged as Collateral Gross Value (in Dollars)											3,500,000
Borrowings Outstanding Amount Against Pledged Accounts Receivable (in Dollars)											1,800,000
Borrowings Outstanding Amount Against Pleged Inventory (in Dollars)											900,000
Debt Instrument, Interest Rate, Stated Percentage				8.00%	8.00%	8.00%		8.00%		8.00%
Debt Instrument, Face Amount (in Dollars)					3,000,000	1,500,000				3,000,000
Debt Instrument, Unamortized Premium (in Dollars)		250,000
Debt Instrument, Periodic Payment (in Dollars)		$ 100,000
Debt Instrument Maturity Period								5 years
Debt Instrument Maturity Acceleration Notice Period to be Served by Lender	30 days
Debt Instrument, Redemption Price, Percentage								100.00%
Debt Instrument Convertible Threshold Notice Period							75 days
Debt Instrument, Convertible, Number of Equity Instruments							250,000
Debt Instrument, Convertible, Conversion Price (in Dollars per share)									$ 4.00
Debt Instrument, Maturity Date				Jul. 27, 2015

XML

Goodwill and Intangible Assets (Details) - Changes in carrying amount of goodwill (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Changes in carrying amount of goodwill [Abstract]
Balance	$ 5,767	$ 5,870
Effect of translation adjustment	$ (103)

XML

Condensed Consolidated Statements of Comprehensive Loss (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Selling, General and Administrative Expenses [Member]
Stock-based compensation expense	$ 109	$ 192
Research and Development Expense [Member]
Stock-based compensation expense	$ 2	$ 2

XML

Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

4. Goodwill and Intangible Assets

Goodwill 

The Company’s Engine Control Systems reporting unit, which is within its Heavy Duty Diesel Systems reporting segment, contains all of the Company’s allocated goodwill. The change in the carrying amount of goodwill is as follows (in thousands):

Balance at December 31, 2013	$	5,870
Effect of translation adjustment		(103)
Balance at March 31, 2014	$	5,767

        Intangible Assets

        Intangible assets consist of the following (in thousands):

	Useful Life in Years	March 31, 2014		December 31, 2013
Trade name	15 – 20	$	1,328	$	1,352
Patents and know-how	5 – 12		4,696		4,814
Customer relationships	4 – 8		1,202		1,224
Intangible assets, Gross			7,226		7,390
Less accumulated amortization			(3,952)		(3,882)
Intangible assets, Net		$	3,274	$	3,508

        The Company recorded amortization expense related to intangible assets of $0.2 million during each of the three months ended March 31, 2014 and 2013.

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

Years ending December 31:
Remainder of 2014	$	496
2015		656
2016		511
2017		500
2018		168

XML

Stock-Based Compensation (Details) - RSU activity (USD $)	3 Months Ended
	Mar. 31, 2014
RSU activity [Abstract]
Outstanding at December 31, 2013	312,196
Outstanding at December 31, 2013	$ 2.37
Granted	288,760
Granted	$ 3.18
Vested and issued	(58,139)
Vested and issued	$ 2.06
Forfeited	(101,241)
Forfeited	$ 2.14
Outstanding units at March 31, 2014	441,576
Outstanding units at March 31, 2014	$ 2.91
Vested and unissued at March 31, 2014	59,589
Vested and unissued at March 31, 2014	$ 2.49

XML

Severance and Other Charges (Tables)

3 Months Ended

Mar. 31, 2014

Restructuring and Related Activities [Abstract]

Restructuring and Related Costs [Table Text Block]

	Three Months Ended March 31,
		2014		2013
Employee severance expense	$	46	$	11
Lease exit costs		43		─
Legal settlements		265		─
Total severance and other charges	$	354	$	11

Schedule of Restructuring Reserve by Type of Cost [Table Text Block]

		Severance		Lease Exit Costs		Total
Accrual at December 31, 2013	$	530	$	─	$	530
Provision in 2014		46		43		89
Payments and other settlements in 2014		(222)		(23)		(245)
Translation adjustment		(3)		─		(3)
Accrual at March 31, 2014	$	351	$	20	$	371

XML

Summary of Significant Accounting Policies (Details) - Reconciliation of the warrant liability measured at fair value using Level 3 inputs (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Summary of Significant Accounting Policies (Details) - Reconciliation of the warrant liability measured at fair value using Level 3 inputs [Line Items]
Balance at beginning of period	$ 939
Exercise of common stock warrants	(2,500)
Remeasurement of common stock warrants	2,051	(3)
Balance at end of period	485
Warrant [Member] | Fair Value, Inputs, Level 3 [Member]
Summary of Significant Accounting Policies (Details) - Reconciliation of the warrant liability measured at fair value using Level 3 inputs [Line Items]
Balance at beginning of period	939	10
Exercise of common stock warrants	(2,505)
Remeasurement of common stock warrants	2,051	(3)
Balance at end of period	485	7
Warrant [Member]
Summary of Significant Accounting Policies (Details) - Reconciliation of the warrant liability measured at fair value using Level 3 inputs [Line Items]
Remeasurement of common stock warrants	$ 2,500

XML

Segment Reporting and Geographic Information

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

14. Segment Reporting and Geographic Information

The Company has two business division segments based on the products it delivers:

Heavy Duty Diesel Systems division— The Heavy Duty Diesel Systems division designs and manufactures verified exhaust emissions control solutions. This division offers a full range of products for the verified retrofit and non-retrofit OEM and aftermarket markets through its distributor/dealer network and direct sales. These products are used to reduce exhaust emissions created by on-road, off-road and stationary diesel and alternative fuel engines including propane and natural gas. The retrofit market in the U.S. is driven in particular by state and municipal environmental regulations and incentive funding for voluntary early compliance. The Heavy Duty Diesel Systems division derives significant revenues from retrofit with a portfolio of solutions verified by the California Air Resources Board and the United States Environmental Protection Agency.

Catalyst division— The Catalyst division produces catalysts to reduce emissions from gasoline, diesel and natural gas combustion engines that are offered for multiple markets and a wide range of applications. The Catalyst Division developed a family of unique high-performance catalysts, featuring inexpensive base-metals with low or even no platinum group metals, or PGMs, to provide increased catalytic function and value for technology-driven automotive industry customers. The Catalyst division’s technical and manufacturing competence in the light duty vehicle market is aimed at meeting auto makers’ most stringent requirements, and it has supplied over eleven million parts to light duty vehicle customers since 1996. The Catalyst division also provides catalyst formulations for the Company’s Heavy Duty Diesel Systems division. Intersegment revenues are based on market prices.

Corporate — Corporate includes cost for personnel, insurance and public company expenses such as legal, audit and taxes that are not allocated down to the operating divisions.

Summarized financial information for the Company’s reportable segments is as follows (in thousands):

	Three Months Ended March 31,
	2014		2013
Net sales
Heavy Duty Diesel Systems	$	7,158	$	7,284
Catalyst		5,811		6,456
Corporate		─		─
Eliminations (1)		(507)		(433)
Total	$	12,462	$	13,307
(Loss) income from operations
Heavy Duty Diesel Systems		278		(337)
Catalyst		222		121
Corporate		(1,933)		(1,817)
Eliminations (1)		(20)		39
Total	$	(1,453)	$	(1,994)

(1) Elimination of Catalyst revenue and profit in ending inventory related to sales to Heavy Duty Diesel Systems.

        Net sales by geographic region based on the location of sales organization is as follows (in thousands):

	Three Months Ended March 31,
	2014		2013
United States	$	6,297	$	6,968
Canada		5,027		4,836
Europe		1,138		1,503
Total	$	12,462	$	13,307