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 June 30, 2015
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.)

1621 Fiske Place

Oxnard, CA  93033

(Address of principal executive offices) (Zip Code)

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

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

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

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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).            Yes   o No   þ

As of July 31, 2015, the outstanding number of shares of the registrant’s common stock, par value $0.01 per share, was 16,753,178.

CLEAN DIESEL TECHNOLOGIES, INC.

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements(Unaudited)	1
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Comprehensive Loss	2
Condensed Consolidated Statements of Cash Flows	3
Notes to Condensed Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
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	28

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-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, as well as assumptions, which could cause our results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements generally are identified by the words “may,” “will,” “project,” “might,” “expects,” “anticipates,” “believes,” “intends,” “estimates,” “should,” “could,” “would,” “strategy,” “plan,” “continue,” “pursue,” or the negative of these words or other words or expressions of similar meaning. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements. These forward-looking statements are based on information available to us, are current only as of the date on which the statements are made, and are subject to numerous risks and uncertainties that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. For examples of such risks and uncertainties, please refer to the discussion under the caption “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2015 and important factors discussed in this report and our other filings with the SEC, including without limitation the following:

·We have incurred losses and 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 reports on our financial statements for the years ended December 31, 2014 and 2013. Our ability to achieve profitability and positive cash flows from operations, or finance negative cash flows 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 or exercisable for common stock, may result in dilution to our existing stockholders;

·Future growth of our business depends, in part, on the general availability of funding for emissions control programs, enforcement of existing emissions-related environmental regulations, further tightening of emission standards worldwide, market acceptance of our catalyst products, and successful product verifications;

·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 expired agreement with Honda that may limit our rights to commercialize certain technology within the scope of that agreement and adversely affect our technology licensing strategy;

·We cannot assure you that we will be successful in our transition into an advanced materials supplier or that those efforts will have the intended effect of increasing profitability;

·We may not be able to successfully market new products that are developed or obtain verification or approval of our new products;

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

·We are subject to restrictions and must pay a royalty on certain sales of our products and technology in specified countries in Asia;

·If we are unable to attract and retain qualified personnel, it will harm the ability of our business to grow;

·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;

·Our results may fluctuate due to certain regulatory, marketing and competitive factors over which we have little or no control; and

·We face constant changes in governmental standards by which our products are evaluated as well as competition and technological advances by competitors.

        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)

	June 30, 2015		December 31, 2014
ASSETS
Current assets:
Cash	$	6,784	$	7,220
Accounts receivable, net		3,867		2,875
Inventories		6,403		6,298
Prepaid expenses and other current assets		1,268		2,130
Total current assets		18,322		18,523
Property and equipment, net		1,400		1,357
Intangible assets, net		2,291		2,662
Goodwill		4,967		5,177
Other assets		554		620
Total assets	$	27,534	$	28,339
LIABILITIES AND STOCKHOLDERS’EQUITY
Current liabilities:
Line of credit	$	3,583	$	2,841
Accounts payable		3,831		3,022
Accrued expenses and other current liabilities		6,894		6,189
Income taxes payable		637		1,459
Total current liabilities		14,945		13,511
Shareholder notes payable		7,525		7,476
Deferred tax liability		339		359
Total liabilities		22,809		21,346
Commitments and contingencies (Note 12)
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 16,753,178 and 14,152,772 shares at June 30, 2015 and December 31, 2014, respectively		168		142
Additional paid-in capital		204,793		200,771
Accumulated other comprehensive loss		(3,736)		(2,865)
Accumulated deficit		(196,500)		(191,055)
Total stockholders’ equity		4,725		6,993
Total liabilities and stockholders’ equity	$	27,534	$	28,339

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 June 30,				Six Months Ended   June 30,
	2015		2014		2015		2014
Revenues	$	9,938	$	11,673	$	20,279	$	23,252
Cost of revenues		7,171		7,848		14,694		15,687
Gross profit		2,767		3,825		5,585		7,565
Operating expenses:
Selling, general and administrative		3,026		2,931		6,433		6,508
Research and development		1,854		1,472		3,973		2,768
Severance and other charges		(5)		34		1		377
Total operating expenses		4,875		4,437		10,407		9,653
Loss from continuing operations		(2,108)		(612)		(4,822)		(2,088)
Other expense:
Interest expense		(301)		(288)		(577)		(592)
Other expense, net		(224)		(299)		(106)		(2,113)
Total other expense		(525)		(587)		(683)		(2,705)
Loss from continuing operations before income taxes		(2,633)		(1,199)		(5,505)		(4,793)
Income tax expense (benefit) from continuing operations		(217)		30		(60)		267
Net loss from continuing operations		(2,416)		(1,229)		(5,445)		(5,060)
Net income from discontinued operations		-		40		-		35
Net loss		(2,416)		(1,189)		(5,445)		(5,025)
Foreign currency translation adjustments		602		582		(871)		145
Comprehensive loss	$	(1,814)	$	(607)	$	(6,316)	$	(4,880)
Basic and diluted net income (loss) per common share:
Net loss from continuing operations	$	(0.16)	$	(0.10)	$	(0.38)	$	(0.46)
Net income from discontinued operations		-		-		-		-
Net loss	$	(0.16)	$	(0.10)	$	(0.38)	$	(0.46)
Basic and diluted weighted average shares outstanding		14,846		12,304		14,503		11,038

See accompanying notes to the condensed consolidated financial statements

2

CLEAN DIESEL TECHNOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2015		2014
Cash flows from operating activities:
Net loss	$	(5,445)	$	(5,025)
Net income from discontinued operations		-		(35)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		444		505
Stock-based compensation expense		316		284
Loss on change in fair value of liability-classified warrants		272		1,682
Gain on foreign currency transactions		(124)		153
Loss related to litigation		-		123
Gain on disposal of property and equipment		(4)		(296)
Offering costs allocated to warrants issued		88		165
Other		3		65
Changes in operating assets and liabilities:
Accounts receivable		(1,068)		(210)
Inventories		(329)		(701)
Prepaid expenses and other assets		437		20
Accounts payable, accrued expenses and other current liabilities		296		18
Income taxes		(68)		(828)
Cash used in operating activities of continuing operations		(5,182)		(4,080)
Cash used in operating activities of discontinued operations		(100)		(45)
Net cash used in operating activities		(5,282)		(4,125)
Cash flows from investing activities:
Purchases of property and equipment		(249)		(191)
Proceeds from sale of property and equipment		8		322
Distribution from unconsolidated affiliate		-		91
Net cash used in investing activities		(241)		222
Cash flows from financing activities:
Net borrowings under demand line of credit		741		1,174
Proceeds from issuance of common stock and warrants, net of offering costs		4,490		6,114
Proceeds from exercise of warrants		-		1,000
Proceeds from exercise of stock options		-		275
Other		-		(18)
Net cash provided by financing activities		5,231		8,545
Effect of exchange rates on cash		(144)		7
Net change in cash		(436)		4,649
Cash at beginning of period		7,220		3,909
Cash at end of period	$	6,784	$	8,558
Significant noncash financing activity:
Issuance of warrants classified as derivative liability	$	845	$	1,531

See accompanying notes to the condensed consolidated financial statements.

3

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.Description of Business

Clean Diesel Technologies, Inc. (“CDTi” or the “Company”) currently commercializes its material technology by manufacturing and distributing light duty vehicle catalysts and heavy duty diesel emissions control systems and products to major automakers, distributors, integrators and retrofitters. Further, CDTi is evolving from being a niche manufacturer of emissions control solutions for the automotive and heavy duty diesel OEM, retrofit and aftermarket markets to becoming an advanced materials technology provider for these markets. 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. It has operations in the United States (“U.S.”), Canada, the United Kingdom, France, Japan and Sweden as well as an Asian investment.

2.Liquidity and Going Concern

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 $196.5 million at June 30, 2015. The Company has funded its operations through asset sales, credit facilities and other borrowings and equity sales.

        At June 30, 2015, the Company had $6.8 million in cash, and based upon current cash levels, including proceeds from the June 2015 offering, and expected cash flows from operations, management believes that the Company will have access to sufficient working capital to fund operations through the end of this year and into next year. However, there can be no assurances that the Company will be able to achieve projected levels of revenue and maintain access to sufficient working capital. If cash from operations is not sufficient for the working capital needs of the Company, the Company may be forced to 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 on terms acceptable to the Company or reduce its discretionary spending to a level sufficient for its working capital needs, and accordingly, there is substantial doubt as to whether the Company's existing cash resources and working capital are sufficient to enable it to continue its operations for the next twelve months.

        The Company has a $7.5 million secured demand financing facility backed by its receivables and inventory with Faunus Group International, Inc. (“FGI”) that terminates 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. At June 30, 2015, the Company had $3.6 million in borrowings outstanding under this facility with $3.9 million available, subject to the availability of eligible accounts receivable and inventory balances for collateral. 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.

        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 May 19, 2015, the Company filed a shelf registration statement on Form S-3 with the SEC to replace the existing Shelf Registration (the “Replacement Shelf”), which the Company anticipates will be declared effective later this year. Once declared effective, the Replacement Shelf will permit 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 Replacement Shelf 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 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 offering expenses.

        On October 20, 2014, the Company completed the sale of its Reno, Nevada-based custom fabricated exhaust parts and accessories business (the “Reno Business”) for $1.3 million in cash.

        On November 4, 2014, the Company entered into subscription agreements to sell 1,385,000 shares of common stock and warrants to purchase up to an aggregate of 388,393 shares of common stock with an exercise price of $3.25 per share (the “Series A Warrants”), for a combined purchase price of $2.80 per share and 0.28 of one Series A Warrant, and other warrants to purchase up to an aggregate of 168,571 shares of common stock with an exercise price of $0.01 per share (the “Series B Warrants”) for a purchase price of $2.79 per Series B Warrant, pursuant to the Shelf Registration. The Company received net proceeds of $3.8 million after deducting placement agent fees and other offering expenses.

4

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

        On November 11, 2014, the Company and Kanis S.A. entered into a letter agreement whereby Kanis S.A. agreed to amend the terms of the outstanding loans, in the aggregate principal amount of $7.5 million, made to the Company, such that (i) the maturity dates of all outstanding loans were extended to October 1, 2016; and (ii) the early redemption feature applicable to one of the outstanding loans was removed.

        On June 2, 2015, the Company entered into an underwriting agreement to sell 2,500,000 units pursuant to the Shelf Registration for $2.05 per unit, with each unit consisting of one share of common stock and 0.2 of one warrant to purchase one share of common stock with an exercise price of $2.65 per share. The Company received net proceeds of $4.5 million after deducting the underwriting discounts and other offering expenses. For additional information, refer to Note 10, “Stockholders’ Equity”.

3.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. Intercompany transactions and balances have been eliminated in consolidation. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“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, 2014.

        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. Actual results could differ materially from those estimates.

        Discontinued Operations

In October 2014, the Company completed the sale of substantially all of the assets of its Reno Business, and the operations of this business were classified as discontinued operations for all periods presented in this report. Discontinued operations also includes accruals and related costs for the Company’s estimated liability to settle its ongoing indemnification matters with Johnson Matthey (“JM”) associated with the sale of Applied Utility Systems, Inc. (“AUS”), a former subsidiary of the Company, in 2009. In the statements of cash flows, the cash flows of discontinued operations are separately classified and aggregated.

For additional information, refer to Note 14, “Discontinued Operations”.

       All discussions and amounts in the consolidated financial statements and related notes for all periods presented relate to continuing operations only, unless otherwise noted.

b.Concentration of Risk

        For the three months ended June 30, 2015 and 2014, one automotive OEM customer within the Catalyst segment accounted for 60% and 47%, respectively, of the Company’s revenues. For the six months ended June 30, 2015 and 2014, one automotive OEM customer within the Catalyst segment accounted for 59% and 45%, respectively, of the Company’s revenues. This customer accounted for 50% of the Company’s accounts receivable at June 30, 2015 and December 31, 2014. 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:

5

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

		Three Months Ended June 30,		Six Months Ended June 30,
Vendor	Supplies	2015	2014	2015	2014
A	Substrates	34%	17%	37%	19%
B	Substrates	13%	*	12%	*
C	Substrates	*	11%	*	11%
D	Catalysts	*	*	*	13%
* less than 10%

c.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 and warrants and debt that are convertible into the Company’s common stock. Because the Company incurred net losses in the three and six months ended June 30, 2015 and 2014, the effect of potentially dilutive securities has been excluded in the computation of net loss per share as their impact would be anti-dilutive. Potentially dilutive common stock equivalents excluded were 2.8 million and 2.3 million shares during the three months ended June 30, 2015 and 2014, respectively. Potentially dilutive common stock equivalents excluded were 2.7 million and 2.1 million shares during the six months ended June 30, 2015 and 2014, respectively.

d.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. For additional information, refer to Note 11, “Warrants”. The valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis is summarized as follows (in thousands):

Warrant liability	Level 1	Level 2	Level 3
June 30, 2015	-	-	$	2,591
December 31, 2014	-	-	$	1,474

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

6

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

	Six Months Ended June 30,
	2015		2014
Balance at beginning of period	$	1,474	$	939
Issuance of common stock warrants		845		1,531
Exercise of common stock warrants		-		(2,505)
Remeasurement of common stock warrants		272		1,682
Balance at end of period	$	2,591	$	1,647

e.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 the line of credit approximates its carrying value due to the variable interest rates. The fair value of shareholder notes payable 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 $7.8 million and $7.7 million at June 30, 2015 and December 31, 2014, respectively.

f.Recent Accounting Pronouncements 

        In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". ASU No. 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)". ASU No. 2014-09 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB finalized the delay of the effective date by one year, making the new standard effective for interim periods and annual periods beginning after December 15, 2017. Early adoption is permitted, but it is not permitted earlier than the original effective date. ASU No. 2014-09 provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. The Company is currently in the process of evaluating the impact of the adoption of ASU No. 2014-09 on its consolidated financial statements.

        In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. ASU No. 2014-15 defines management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. It is effective for annual reporting periods ending after December 15, 2016, and for annual and interim reporting periods thereafter. Early adoption is permitted. The Company has not elected to early adopt, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2014-15 on its consolidated financial statements.

        In April 2015, the FASB issued ASU No. 2015-03, "Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be reported on the consolidated statements of financial condition as a direct deduction from the carrying amount of that debt liability. It is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period with early application permitted for financial statements that have not been previously issued. The Company has not elected to early adopt, and it does not expect the impact of the adoption of ASU No. 2015-03 to be material to its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". ASU No. 2015-05 provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. It is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. Entities can elect to adopt the standard update prospectively or retrospectively to arrangements entered into, or materially modified, after the effective date. The Company does not expect to early adopt ASU 2015-05, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2015-05 on its consolidated financial statements.

7

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”. ASU No. 2015-11 changes the measurement principle for inventory from the “lower of cost or market” to “lower of cost and net realizable value.” Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.”  ASU 2015-11 eliminates the guidance that entities consider replacement cost or net realizable value less an approximately normal profit margin in the subsequent measurement of inventory when cost is determined on a first-in, first-out or average cost basis. It is effective for annual reporting periods ending after December 15, 2016, including periods within those fiscal years. Early adoption is permitted. The Company has not yet determined whether it will elect to early adopt ASU 2015-11, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2015-11 on its consolidated financial statements.

4.Inventories

Inventories consist of the following (in thousands):

	June 30, 2015		December 31, 2014
Raw materials	$	2,864	$	2,744
Work in process		961		902
Finished goods		2,578		2,652
	$	6,403	$	6,298

5.Goodwill and Intangible Assets

        Goodwill

        The change in the carrying amount of goodwill during the six months ended June 30, 2015 was due to the effect of foreign currency translation.

        Intangible Assets

        Intangible assets consist of the following (in thousands):

	Useful Life in Years	June 30, 2015		December 31, 2014
Trade name	15 - 20	$	1,254	$	1,293
Patents and know-how	5 - 12		4,337		4,529
Customer relationships	4 - 8		787		837
			6,378		6,659
Less accumulated amortization			(4,087)		(3,997)
		$	2,291	$	2,662

The Company recorded amortization expense related to amortizable intangible assets of $0.2 million and $0.1 million during the three months ended June 30, 2015 and 2014, respectively. The Company recorded amortization expense related to amortizable intangible assets of $0.3 million during the six months ended June 30, 2015 and 2014.

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

Years ending December 31
Remainder of 2015	$	283
2016	$	471
2017	$	461
2018	$	164
2019	$	164
2020	$	164

8

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

6.Accrued Expenses and Other Current Liabilities

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

	June 30, 2015		December 31, 2014
Accrued salaries and benefits	$	1,409	$	1,115
Accrued severance and other charges (1)		108		372
Accrued warranty (2)		342		373
Warrant liability (3)		2,591		1,474
Accrued indemnification settlement (4)		550		650
Liability for consigned precious metals		494		565
Other		1,400		1,640
	$	6,894	$	6,189
(1) For additional information, refer to Note 7, "Severance and Other Charges".
(2) For additional information, refer to Note 8, "Accrued Warranty".
(3) For additional information, refer to Note 11, "Warrants".
(4) For additional information, refer to Note 14, "Discontinued Operations".

7.Severance and Other Charges

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Employee severance expense	$	(5)	$	34	$	1	$	69
Lease exit costs		-		-		-		43
Legal settlements		-		-		-		265
Total severance and other charges	$	(5)	$	34	$	1	$	377

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

			Lease Exit Costs
	Severance				Total
December 31, 2014	$	293	$	79	$	372
Provision		1		-		1
Payments		(231)		(34)		(265)
June 30, 2015	$	63	$	45	$	108

The Company expects to pay substantially all of the accrued amounts by the third quarter of 2015.

8.Accrued Warranty

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

	Six Months Ended June 30,
	2015		2014
Balance at beginning of period	$	373	$	453
Accrued warranty expense		219		363
Warranty claims paid		(225)		(338)
Translation adjustment		(25)		7
Balance at end of period	$	342	$	485

9

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

9.Debt

        Debt consists of the following (in thousands):

	June 30, 2015		December 31, 2014
Line of credit with FGI	$	3,583	$	2,841
$1.5 million, 8% shareholder note due 2016 (1)		1,612		1,598
$3.0 million, 8% subordinated convertible shareholder notes due 2016 (1)		2,962		2,947
$3.0 million, 8% shareholder note due 2016 (1)		2,951		2,931
		11,108		10,317
Less current portion		(3,583)		(2,841)
	$	7,525	$	7,476
(1) The aggregate amount of unamortized debt discount was $0.1 million and $0.2 million at June 30, 2015 and December 31, 2014, respectively.

        Line of Credit with FGI

        At June 30, 2015, the Company had $2.9 million of gross accounts receivable pledged to FGI as collateral for short-term debt in the amount of $2.3 million. At June 30, 2015, the Company also had $1.3 million in borrowings outstanding against eligible inventory. The Company was in compliance with the terms of the FGI Facility at June 30, 2015. 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.

10.Stockholders’ Equity

        June 2015 Offering

        On June 2, 2015, the Company entered into an underwriting agreement with Cowen and Company, LLC, as the representative of the several underwriters identified therein, pursuant to which the Company agreed to offer and sell up to 2,500,000 units at a price to the public of $2.05 per unit (the “Offering”). Each unit consisted of one share of common stock and 0.2 of a warrant (the “Offering Warrants”) to purchase one share of common stock. The Offering Warrants have an exercise price of $2.65 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.

        The Company received gross proceeds of $5.1 million and net proceeds of $4.5 million after deducting the underwriting discounts and other offering expenses. The Offering Warrants are within the scope of ASC 815-40 and are required to be recorded as liabilities. For additional information, refer to Note 11, “Warrants”. Accordingly, of the $4.5 million in net proceeds, $3.7 million was allocated to the common stock and included in additional paid-in capital and $0.8 million was allocated to the warrant liability based on the fair value of the warrants on the issuance date. Additionally, $0.1 million of the underwriter discounts and other offering costs were allocated to the Offering Warrants, based on the relative fair value of the Offering Warrants and the common stock on the issuance date, and was included in other expense, net in the accompanying statements of comprehensive loss for the three and six months ended June 30, 2015. The Company intends to use the net 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.

11.Warrants

        Warrants outstanding and exercisable are summarized as follows: 

10

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

		Weighted
		Average
		Exercise		Range of
	Shares	Price		Exercise Prices
Outstanding  at December 31, 2014	1,610,069	$	3.54	$1.25 - $10.40
Issued	500,000	$	2.65	$2.65
Outstanding  at June 30, 2015	2,110,069	$	3.33	$ 1.25 - $10.40
Exercisable at June 30, 2015	1,610,069	$	3.54	$1.25 - $10.40

        Warrant Classification

        The Company evaluates warrants on issuance and at each reporting date to determine proper classification as equity or as a liability. The Offering Warrants require physical settlement by delivering registered shares, and the provisions of the warrant agreement include potential cash payments for failure to timely deliver shares and fractional share settlement. Accordingly, the Offering Warrants require liability classification.

        Warrant Liability

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

        The Company determines the fair value of its warrant liability using the Black-Scholes option-pricing model unless the warrants are subject to market conditions, in which case it uses a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that market conditions will be achieved. These models are dependent on several variables, such as the warrant’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, for warrants with an expected term that required a volatility look-back that pre-dated the Merger, the Company 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 these warrants prior to 2015. For warrants with an expected term that did not require a volatility look-back that pre-dated the Merger, CDTi’s post-Merger historical price volatility was considered representative of expected volatility, and accordingly, only CDTi’s historical volatility was used for the valuation of these warrants prior to 2015. During 2015, the Company determined that its post-Merger historical volatility was considered representative of expected volatility for the valuation of its warrants. The expected life is equal to the remaining contractual life of the warrants.

11

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the warrant liability for these warrants outstanding are as follows:

	June 30, 2015		June 8, 2015		December 31, 2014
Issued April 2014
Number of warrants		812,000				812,000
CDTi stock price	$	1.84			$	1.81
Strike price	$	4.20			$	4.20
Expected volatility (1)		121.4%				86.6%
Risk-free interest rate		1.4%				1.6%
Dividend yield		-				-
Expected life in years		4.3				4.8
Issued November 2014
Number of warrants		388,393				388,393
CDTi stock price	$	1.84			$	1.81
Strike price	$	3.25			$	3.25
Expected volatility (1)		122.5%				86.5%
Risk-free interest rate		1.4%				1.6%
Dividend yield		-				-
Expected life in years		4.4				4.9
Issued June 2015
Number of warrants		500,000		500,000
CDTi stock price	$	1.84	$	2.09
Strike price	$	2.65	$	2.65
Expected volatility		106.4%		114.6%
Risk-free interest rate		1.7%		1.8%
Dividend yield		-		-
Expected life in years		5.4		5.5
(1) During 2015, the Company's post-Merger historical volatility began to be considered representive of expected volatility for these warrants.

12

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The assumptions used in the Monte Carlo simulation model to estimate the fair value of the warrant liability for warrants outstanding with full-ratchet down-round protection are as follows:

		June 30, 2015	December 31,  2014
Issued July 2013
Number of warrants		159,000		159,000
CDTi stock price	$	1.84	$	1.81
Strike price	$	1.25	$	1.25
Expected volatility		98.9%		103.6%
Risk-free interest rate		1.0%		1.2%
Dividend yield		-		-
Expected life in years		3.0		3.5
Issued November 2014
Number of warrants		80,000		80,000
CDTi stock price	$	1.84	$	1.81
Strike price	$	1.75	$	1.75
Expected volatility (1)		106.6%		77.0%
Risk-free interest rate		1.4%		1.6%
Dividend yield		-		-
Expected life in years		4.4		4.9
(1) During  2015, the Company's post-Merger historical volatility began to be considered representive of expected volatility for these warrants.

        The warrant liability, included in accrued expenses and other current liabilities in the accompanying unaudited condensed consolidated balance sheets, is re-measured at the end of each reporting period with changes in fair value recognized in other expense, net in the accompanying unaudited 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. For additional information regarding the fair value of the warrant liability, amounts recognized in other income (expense) and amounts reclassified to additional paid-in capital upon exercise, refer to the warrant liability reconciliation in Note 3(d), “Summary of Significant Accounting Policies—Fair Value Measurements”.  

12.Commitments and Contingencies

        The Company is involved in legal proceedings from time to time in the ordinary course of its business. Management does not believe that any of these claims and proceedings against it is likely to have, individually or in the aggregate, a material adverse effect on the Company’s 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 consolidated financial statements as of June 30, 2015, nor is it possible to estimate what litigation-related costs will be in the future.

For information related to commitments and contingencies related to AUS, a former subsidiary of the Company that was sold in 2009, refer to Note 14, “Discontinued Operations”.

13.Segment Reporting and Geographic Information

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

        Catalyst division — The Catalyst division develops and 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 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 2001. The Catalyst division also provides catalyst formulations for the Company’s Heavy Duty Diesel Systems division. Intersegment revenues are based on market prices.

13

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

         Heavy Duty Diesel Systems division— The Heavy Duty Diesel Systems division designs and manufactures exhaust emissions control solutions. This division offers a full range of DuraFit^™ OEM replacement diesel particulate filters and products for the verified retrofit and non-retrofit OEM 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.

        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				Six Months Ended
	June  30,				June  30,
	2015		2014		2015		2014
Revenues
Catalyst	$	6,882	$	6,289	$	13,693	$	12,100
Heavy Duty Diesel Systems		3,826		6,101		7,978		12,376
Eliminations (1)		(770)		(717)		(1,392)		(1,224)
Total	$	9,938	$	11,673	$	20,279	$	23,252
Income (loss) from operations
Catalyst	$	(157)	$	361	$	(715)	$	583
Heavy Duty Diesel Systems		(484)		642		(862)		938
Corporate		(1,419)		(1,625)		(3,129)		(3,599)
Eliminations (1)		(48)		10		(116)		(10)
Total	$	(2,108)	$	(612)	$	(4,822)	$	(2,088)
(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				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
United States	$	6,296	$	5,683	$	12,643	$	11,097
Canada		2,835		4,689		5,957		9,716
Europe		807		1,301		1,679		2,439
Total international		3,642		5,990		7,636		12,155
Total revenues	$	9,938	$	11,673	$	20,279	$	23,252

14.Discontinued Operations

The Reno Business

On October 20, 2014, the Company completed the sale of its Reno Business for $1.3 million in cash. The net assets held for sale of the Reno Business were eliminated from the Company’s balance sheet as of the sale date, and the Company recognized a gain of $0.2 million. Historically, the Reno Business was a component of the Company’s Heavy Duty Diesel Systems division.

14

CLEAN DIESEL TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Applied Utility Systems, Inc.    

        The Company is undergoing a sales and use tax audit by the State of California (the “State”) 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 asserts that proper documentation of resale may not have been obtained and that the Company owes sales tax of $1.5 million, inclusive of interest. The Company contends and believes that it received sufficient and proper documentation from its customer to support not collecting and remitting sales tax from that customer and is actively disputing the audit report with the State. On August 12, 2013, the Company appeared at an appeals conference with the State Board of Equalization (“BOE”). On July 21, 2014, the Company received a Decision and Recommendation (“D&R”) from the BOE. The D&R’s conclusion was that the basis for the calculation of the aforementioned $1.5 million tax due should be reduced from $12.2 million to $9.0 million with a commensurate reduction in the tax owed to the State. Regardless of this finding, the Company continues to believe that it will prevail in this matter, as it believes that the State did not adequately address the legal arguments related to the Company’s acceptance of the valid resale certificate from its customer. The Company has not agreed to these findings, and therefore, it will be appealing at a higher level at the BOE. Based on a re-audit, the BOE lowered the tax due to $0.9 million, inclusive of interest. However, the Company continues to not agree with these findings based on the aforementioned reasons, and it will continue with the appeals process. 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.    

        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. This 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 entered into discussions relating to the application of offsets and the validity of the claims presented. The Company initially offered a settlement amount of $0.2 million during the fourth quarter of 2013, and during the third and fourth quarters of 2014, it offered increases to the settlement amount that have now increased its total settlement offer to $0.7 million. The expense for the value of these settlement offers was recorded in discontinued operations at the time that each offer was made, and the associated liability was included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. On June 3, 2015, JM and the Company entered into a settlement and release agreement pursuant to which they settled all claims for the aforementioned offer of $0.7 million. This settlement was paid with an initial $0.1 million installment upon execution of the settlement and release agreement, and the remaining balance was paid in July 2015.

In presenting discontinued operations, general corporate overhead expenses that have been historically allocated to the Reno Business for segment presentation purposes are not included in discontinued operations. The following table presents revenue and expense information for discontinued operations.

	Three Months Ended June 30, 2014		Six Months Ended June 30, 2014
Revenue	$	918	$	1,801
Expenses		(878)		(1,766)
Net income from discontinued operations	$	40	$	35

15

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

         The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes 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, 2014. This discussion contains forward-looking statements, the accuracy of which involves risks and uncertainties. Refer to the “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, 2014.

        References to “Notes” are notes included in the unaudited condensed consolidated financial statements included elsewhere in the Quarterly Report on Form 10-Q.

Overview

Our business is evolving from being a niche manufacturer of emissions control solutions for the automotive and heavy duty diesel OEM, retrofit and replacement markets to becoming an advanced materials technology provider for these markets. We have a proven ability to develop proprietary materials incorporating various base metals that replace costly platinum group metals, or PGM, and rare earth metals in coatings on vehicle catalytic converters. Over the past decade, we have developed several generations of high performance catalysts, including our low-PGM MPC^® catalysts that are used on certain new Honda vehicles. Recently, we have expanded our materials platform to include new SPGM^TM diesel oxidation catalysts, Base-Metal Activated Rhodium Support, or BMARS^TM, and Spinel^™ technologies. Initial vehicle tests using these new technologies have demonstrated dramatic PGM savings compared to current OEM catalysts. We are now in the process of introducing these new catalyst technologies to OEMs and other vehicle catalyst manufacturers in a proprietary powder form, which will allow them to capture the benefits of our advanced catalyst technology in their own manufacturing operations. We believe that this powder-to-coat business model will allow us to achieve greater scale and higher return on our technology investment than in the past, while continuing to manufacture catalysts for select customers in our existing facilities.

We currently commercialize our materials technology by manufacturing and distributing light duty vehicle catalysts and heavy duty diesel emissions control systems and products to major automakers, distributors, integrators and retrofitters. We have more than 14 years history of supplying catalysts to light duty vehicle OEMs and 35 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 auto makers’ 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: Catalyst and Heavy Duty Diesel Systems.

      Catalyst: Utilizing our advanced materials technology platform, we develop and produce catalysts to reduce emissions from gasoline, diesel and natural gas combustion engines. Most catalytic systems require significant amounts of costly 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. We have recently developed a new generation of catalyst technologies, which we believe will enable further advances in catalyst performance and further reductions in PGM usage. Our technical and manufacturing capabilities have been established to meet automakers’ most stringent requirements. Since 2001, we have supplied over eleven million parts to light duty vehicle OEM customers. Our Catalyst division is also a supplier of products for our Heavy Duty Diesel Systems division. Revenues from our Catalyst division accounted for 61% and 47% of the total consolidated revenues for the six months ended June 30, 2015 and 2014, respectively. 

16

          Heavy Duty Diesel Systems: We specialize in the design and manufacture of exhaust emissions control solutions for a wide range of heavy duty diesel applications. We offer a full range of DuraFit^™ OEM replacement diesel particulate filters and products for the verified retrofit and non-retrofit OEM markets through our distribution/dealer network and direct sales. We believe we offer one of the industry’s most comprehensive portfolios of emissions control systems for use in engine retrofit programs that have been evaluated and verified as compliant with applicable regulations by the United States, or U.S., Environmental Protection Agency, or EPA, and the California Air Resources Board, or CARB, as well as by regulators in several European countries. We recently announced that we received certification from the Verification of Emission Reduction Technologies Association (VERT) for our Purifilter^® exhaust gas recirculation (EGR) diesel particulate filter system, which expands our retrofit market opportunities into South America and other international locations. Sales of emissions control systems by our Heavy Duty Diesel Systems division are driven by the regulation of diesel emissions, particularly in the State of California. Revenues from our Heavy Duty Diesel Systems division accounted for 39% and 53% of the total consolidated revenues for the six months ended June 30, 2015 and 2014, respectively.

Strategy

 Our strategy is to transition from being a niche manufacturer of emissions control solutions for the automotive and heavy duty diesel OEM, retrofit and replacement markets to becoming an advanced materials technology provider for these markets. In support of this strategy, we have filed a significant number of patents that underpin next-generation technology for our advanced low-PGM catalysts. Late last year, we were awarded two significant patents for our new Spinel^™ technology, a proprietary clean emissions exhaust platform aimed at improved catalytic performance, which we believe will dramatically reduce the cost of compliance with more stringent clean-air requirements. This is becoming increasingly relevant as new standards, such as the EPA’s Tier 3, become effective and are expected to require increased loadings of PGMs to achieve compliance with conventional formulation technology.

We have recently completed an initial series of vehicle tests to validate our next-generation technologies for specific introductory products for global OEMs, with a goal of accelerating broad commercialization of these technologies. Based on the success of these tests, we are beginning to make our new catalyst technologies available to OEMs and other catalytic coaters for use in proprietary powder form, and we foresee multiple paths to market our new technologies to complement our existing business model.

We plan to continue to maintain our current world-class manufacturing capability, and deploy it selectively where it adds value for our customers; to explore new joint ventures and partnerships; and to pursue new verticals. We intend to continue to evaluate and refine our strategic plan in order to seize opportunities as they arise. 

Since 2013, we have filed over 100 patents pertaining to our advanced low-PGM and ZPGM^™ catalysts. The development of our advanced low-PGM and ZPGM^™ catalysts utilizing our new technologies and their commercialization is a strategic priority and will require investment in research, development, marketing and sales.

Recent Developments

Initial Vehicle and Engine Test Results

·SPGM^TM diesel oxidation catalyst technology.  Preliminary engine and vehicle test results indicate the achievement of emission control and system performance comparable to a leading OEM catalyst product while reducing PGM usage by over 80%.

·BMARS^TM technology.  Initial test results also demonstrate that BMARS^TM, with one catalyst and 50% less PGM, outperformed the OEM’s typical two-catalyst system on a popular passenger car. These results provide OEMs the prospect of eliminating one of the catalyst units altogether, while achieving a greater than 50% PGM cost reduction on the remaining catalyst unit.

·Spinel^™ technology.  Initial vehicle test results demonstrated that a Spinel^™ underfloor catalyst with 97% less PGM usage achieved emissions control performance equivalent to the OEM catalyst. Testing of the Spinel^™ close coupled catalyst is currently underway with results expected during the 2^nd half of 2015.   

Collaboration Agreement

We recently entered into a collaboration agreement with AP Exhaust Technologies, Inc., or AP Exhaust, to commercialize next-generation catalysts. This collaboration aims to bring to market our latest catalyst technologies, which include MPC^®, BMARS^™ and Spinel^™, across portions of AP Exhaust's extensive aftermarket catalytic converter product line. This collaboration agreement is also expected to involve a powder-to-coat business model whereby we would sell AP Exhaust enabling proprietary catalytic powders that AP Exhaust would precision coat onto catalytic converter substrates in its state-of-the-art coating facility. The initial drive to commercialization will target the North American aftermarket for light duty replacement catalytic converters, and it is designed to achieve large-scale, rapid commercialization of our advanced catalyst technologies.

17

Equity Financing

On June 2, 2015, we entered into an underwriting agreement, pursuant to which we agreed to offer and sell up to 2,500,000 units at a price to the public of $2.05 per unit. Each unit consisted of one share of common stock and 0.2 of a warrant (the “Offering Warrants”) to purchase one share of common stock. The Offering Warrants have an exercise price of $2.65 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 $4.5 million after deducting the underwriting discounts and other offering expenses. We intend to use the net proceeds for general corporate purposes, which may include working capital, general and administrative expenses, capital expenditures and implementation of 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 there are no present commitments or agreements for any such transactions.

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 liability-classified warrants have the greatest potential impact on our unaudited condensed consolidated financial statements. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2014 for a more complete discussion of our critical accounting policies and estimates.

Recently Issued Accounting Guidance

        Refer to Note 3(f), “Summary of Significant Accounting Policies—Recent Accounting Pronouncements”.

Factors Affecting Future Results

Technology Strategy

Our strategy is to transition from being a niche manufacturer of emissions control solutions for the automotive and heavy duty diesel OEM, retrofit and replacement markets to becoming an advanced materials technology provider for these markets. In support of this strategy, we have filed a significant number of patents that underpin next-generation technology for our advanced low-PGM catalysts. It is our intention to invest in developing and commercializing these catalyst technologies. As a consequence, we anticipate that we will continue to expand our intellectual property portfolio with additional patents in 2015 and beyond. In addition, we will invest in other development and marketing activities, including hiring of personnel and incurring costs for outside testing and consulting.

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DuraFit^™

        In the third quarter of 2014, we introduced CDTi’s DuraFit™ OEM replacement diesel particulate filters through independent distributors to provide an alternative to OEM manufactured parts. According to market analysis firm Power System Research, manufacturers in North America have produced an average of 250,000 heavy duty on-road diesel vehicles equipped with diesel particulate filters each year since 2007 to comply with EPA requirements. The typical OEM warranty on diesel particulate filters is 5 years and has expired for many of these vehicles with more continuing to expire in the coming years. As 2007 and newer diesel particulate filters from OEMs fail and require replacement, non-OEM diesel particulate filters will be needed as replacements. According to a 2012 industry report, the market for medium and heavy duty vehicle after-treatment maintenance and repair is projected to grow from $0.3 billion in 2010 to $3.0 billion by 2017. Recently, we announced that the New York Department of Sanitation, or DSNY, became the first major fleet customer for our DuraFit™ OEM replacement diesel particulate filters. The DSNY operates the largest municipal-owned sanitation fleet in the world consisting of approximately 3,000 vehicles including refuse collection trucks and mechanical street sweepers. Additionally, we recently announced that we signed a National Distribution Agreement, pursuant to which DuraFit™ will be sold under a private label to hundreds of retailers in the North American aftermarket. As expected, sales from these products were modest in 2014, with increased sales expected in 2015 and beyond. 

Customer Dependency

Historically, we have derived a significant portion of our revenue from a limited number of customers. For example, sales to Honda represented 59% of our revenues for the six months ended June 30, 2015 and 52% of our revenues for the year ended December 31, 2014. 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.

Our business with Honda has grown steadily in the last few years as we have expanded the sale of our catalyst solutions from four passenger vehicle models in 2012 to seven models 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. While we believe that core technology within the scope of the agreement was developed solely by us, there can be no assurance that our belief will not be challenged or invalidated. 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.

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, the availability of funding to incentivize the adoption of emission reduction programs is often one-off, which means that such funding does not generally result in a regular source of recurring revenues for us.

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Macroeconomic Factors Impacting the Automotive Industry

Since the customers of our Catalyst division are primarily OEM auto makers, this division is generally affected by 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.

        In addition, our business, operations, results of operation and financial condition may be affected by other factors, including those discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014, and our other filings with the Securities and Exchange Commission, or SEC.

Results of Operations                       

     The tables in the discussion that follow are based upon the way we analyze our business. For additional information regarding our business divisions, refer to Note 13, “Segment Reporting and Geographic Information”.

Comparison of Three Months Ended June 30, 2015 to Three Months Ended June 30, 2014

Revenues

	Three Months Ended June 30,
			% of Total Revenues			% of Total Revenues
							Change
	2015			2014			$		%
		($ in thousands)
Catalyst	$	6,882	69%	$	6,289	54%	$	593	9%
Heavy Duty Diesel Systems		3826	38%		6,101	52%		(2,275)	(37)%
Intercompany revenues		(770)	(7)%		(717)	(6)%		(53)	(7)%
Total revenues	$	9,938	100%	$	11,673	100%	$	(1,735)	(15)%

         Excluding intercompany revenues, the increase in revenues for our Catalyst division was due to an increase in demand from our Japanese OEM customer, including the new model that we announced in March of 2015, which entered production in January of 2015. Further, unit volume for this customer increased by 6% for vehicles currently in mass production.

        The decrease in revenues for our Heavy Duty Diesel Systems division was due to a sharp downturn in retrofit due to a compliance deadline in California during the prior year period, partially offset by DuraFit™ sales, which are just beginning to ramp.

We eliminate intercompany revenues from the Catalyst division to our Heavy Duty Diesel Systems division in consolidation.        

Gross profit

	Three Months Ended June 30,
			% of			% of	Percentage point change in
	2015		Revenues (1)	2014		Revenues (1)	gross profit margin
	($ in thousands)
Catalyst	$	1,816	26%	$	1,721	27%	(1)%
Heavy Duty Diesel Systems		1,001	26%		2,095	34%	(8)%
Intercompany eliminations		(50)	-		9	-	-
Total gross profit	$	2,767	28%	$	3,825	33%	(5)%
(1)  Division calculations based on division revenues. Total based on total revenues.

The gross margin for our Catalyst division remained fairly consistent.

The decrease in gross margin for our Heavy Duty Diesel Systems division was a result of the aforementioned decrease in revenues, coupled with the impact of fixed costs. Further, gross margin was impacted by DuraFit™ launch costs and a supply chain that we are in the process of optimizing.   

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Operating expenses

	Three Months Ended  June 30,
			% of Total Revenues			% of Total Revenues
							Change
	2015			2014			$		%
	($ in thousands)
Selling, general and administrative	$	3,026	30%	$	2,931	25%	$	95	3%
Research and development		1,854	19%		1,472	13%		382	26%
Severance and other charges		(5)	0%		34	0%		(39)	(115)%
Total operating expenses	$	4,875	49%	$	4,437	38%	$	438	10%

       Selling, general and administrative expenses

The increase was primarily due to a $0.3 million gain on the sale of a building at one of our foreign locations in the prior period, and partially offsetting the change from this gain were employee-related cost savings in the current period.

       Research and development expenses

       The increase was primarily due to development work and outside testing related to new products and employee-related costs to support our technology initiatives. During 2015, we expect costs to be higher than 2014 and to remain fairly consistent sequentially, as we continue testing newer technologies and pursuing our advanced materials business strategy.

        Severance and other charges

The decrease was due to higher severance costs in the prior year period.  

Other expense

	Three Months Ended June 30,
					Change
	2015		2014		$		%
	($ in thousands)
Interest expense	$	(301)	$	(288)	$	(13)	(5)%
Other expense, net		(224)		(299)		75	25%
Total other expense	$	(525)	$	(587)	$	62	11%

        The decrease in total other expense was due to a decrease in foreign exchange losses and less offering costs attributable to the relative fair value of warrants issued, partially offset by a decrease in income for the change in the warrant liability re-measurement.

Income Tax Expense (Benefit)

        We incurred income tax benefit of $0.2 million in the three months ended June 30, 2015. The effective income tax rates were 8.2% and (2.5)% for the three months ended June 30, 2015 and 2014, respectively. For interim income tax reporting, we estimate our annual effective tax rate and apply it to our year-to-date pre-tax loss. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded from the annualized effective tax rate. The difference between our effective tax rate and the U.S. statutory tax rate is primarily related to the valuation allowance offsetting the deferred tax assets in both the U.S. and United Kingdom jurisdictions as well as to a foreign tax rate differential related to Sweden and Canada.

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Comparison of Six Months Ended June 30, 2015 to Six Months Ended June 30, 2014

Revenues

	Six Months Ended June 30,
			% of Total Revenues			% of Total Revenues
								Change
	2015			2014			$		%
		($ in thousands)
Catalyst	$	13,693	68%	$	12,100	52%	$	1,593	13%
Heavy Duty Diesel Systems		7,978	39%		12,376	53%		(4,398)	(36)%
Intercompany revenues		(1,392)	(7)%		(1,224)	(5)%		(168)	(14)%
Total revenues	$	20,279	100%	$	23,252	100%	$	(2,973)	(13)%

        Excluding intercompany revenues, the increase in revenues for our Catalyst division was due to an increase in demand from our Japanese OEM customer, including the new model that we announced in March of 2015, which entered production in January of 2015. Further, unit volume for this customer increased by 8% for vehicles currently in mass production.

        The decrease in revenues for our Heavy Duty Diesel Systems division was due to a sharp downturn in retrofit due to a compliance deadline in California during the prior year period, partially offset by DuraFit™ sales, which are just beginning to ramp.

 We eliminate intercompany revenues from the Catalyst division to our Heavy Duty Diesel Systems division in consolidation.        

Gross profit

	Six Months Ended June 30,
			% of			% of	Percentage point change in gross profit margin
	2015		Revenues (1)	2014		Revenues (1)
	($ in thousands)
Catalyst	$	3,562	26%	$	3,240	27%	(1)%
Heavy Duty Diesel Systems		2,139	27%		4,336	35%	(8)%
Intercompany eliminations		(116)	-		(11)	-	-
Total gross profit	$	5,585	28%	$	7,565	33%	(5)%
(1)  Division calculations based on division revenues. Total based on total revenues.

The gross margin for our Catalyst division remained fairly consistent.

The decrease in gross margin for our Heavy Duty Diesel Systems division was a result of the aforementioned decrease in revenues, coupled with the impact of fixed costs. Further, gross margin was impacted by DuraFit™ launch costs and a supply chain that we are in the process of optimizing.   

Operating expenses

	Six Months Ended  June 30,
			% of Total Revenues			% of Total Revenues
							Change
	2015			2014			$		%
		($ in thousands)
Selling, general and administrative	$	6,433	32%	$	6,508	28%	$	(75)	(1)%
Research and development		3,973	19%		2,768	12%		1,205	44%
Severance and other charges		1	0%		377	2%		(376)	(100)%
Total operating expenses	$	10,407	51%	$	9,653	42%	$	754	8%

       Selling, general and administrative expenses

The dollar decrease was primarily due to employee-related cost savings, and partially offsetting the change from these cost savings was a $0.3 million gain on the sale of a building at one of our foreign locations in the prior period.

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        Research and development expenses

        The increase was primarily due to development work and outside testing related to new products and employee-related costs to support our technology initiatives. During 2015, we expect costs to be higher than 2014 and to remain fairly consistent sequentially, as we continue testing newer technologies and pursuing our advanced materials business strategy.

        Severance and other charges

The decrease was due to litigation settlement costs, settlement of a customer dispute and higher severance costs in the prior year period.  

Other expense

	Six Months Ended June 30,
						Change
	2015		2014			$	%
		($ in thousands)
Interest expense	$	(577)	$	(592)	$	15	3%
Other expense, net		(106)		(2,113)		2,007	95%
Total other expense	$	(683)	$	(2,705)	$	2,022	75%

        The decrease in total other expense was due to a $1.4 million decrease in losses for the warrant liability re-measurement driven largely by lower stock prices and foreign exchange gains in the current year period.

Income Tax Expense (Benefit)

        We incurred income tax expense (benefit) of $(0.1) million and $0.3 million in the six months ended June 30, 2015 and 2014, respectively. The effective income tax rates were 1.1% and (5.6)% for the six months ended June 30, 2015 and 2014, respectively. For interim income tax reporting, we estimate our annual effective tax rate and apply it to our year-to-date pre-tax loss. Tax jurisdictions with a projected or year-to-date loss for which a tax benefit cannot be realized are excluded from the annualized effective tax rate. The difference between our effective tax rate and the U.S. statutory tax rate is primarily related to the valuation allowance offsetting the deferred tax assets in both the U.S. and United Kingdom jurisdictions as well as to a foreign tax rate differential related to Sweden and Canada.

Liquidity and Capital Resources

        Historically, the revenue that we have generated has not been sufficient to fund our operating requirements and debt servicing needs. Notably, we have suffered recurring losses since inception. As of June 30, 2015, we had an accumulated deficit of $196.5 million compared to $191.1 million at December 31, 2014. 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 $6.8 million in cash at June 30, 2015 compared to $7.2 million at December 31, 2014. At June 30, 2015, $1.3 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 backed by our receivables and inventory with Faunus Group International, Inc., or FGI, 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, refer to the “—Description of Indebtedness” discussion below. At June 30, 2015, we had $3.6 million in borrowings outstanding under this facility with $3.9 million available, 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.

        On May 15, 2012, we filed a shelf registration statement on Form S-3 with the SEC, or 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). On May 19, 2015, we filed a shelf registration statement on Form S-3 with the SEC to replace the existing Shelf Registration, which we anticipate will be declared effective later this year. Shelf registration statements are intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs.

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        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 $6.1 million after deducting placement agent fees and other offering expenses.

On October 20, 2014, we completed the sale of our Reno, Nevada-based custom fabricated exhaust parts and accessories business for $1.3 million in cash.

On November 4, 2014, we entered into subscription agreements to sell 1,385,000 shares of common stock, Series A Warrants to purchase up to an aggregate of 388,393 shares of common stock, and Series B Warrants to purchase up to an aggregate of 168,571 shares of common stock. We received net proceeds of $3.8 million after deducting placement agent fees and other offering expenses.

On November 11, 2014, we and Kanis S.A. entered into a letter agreement whereby Kanis S.A. agreed to amend the terms of the outstanding loans, in the aggregate principal amount of $7.5 million, made to us, such that (i) the maturity dates of all outstanding loans were extended to October 1, 2016; and (ii) the early redemption feature applicable to one of the outstanding loans was removed.

On June 2, 2015, we entered into an underwriting agreement to sell 2,500,000 shares of common stock and warrants to purchase up to an aggregate of 500,000 shares of common stock. We received net proceeds of $4.5 million after underwriting discounts and other offering expenses.

        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, including proceeds from the June 2015 offering, and expected cash flows from operations, we believe that we will have access to sufficient working capital to fund operations through the end of this year and into next year. However, there can be no assurances that we will be able to achieve projected levels of revenue and maintain access to sufficient working capital. If cash from operations is not sufficient for our working capital needs, we may be forced to 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 on acceptable terms or reduce our discretionary spending to a level sufficient for our working capital needs, and accordingly, there is substantial doubt as to whether our existing cash resources and working capital are sufficient to enable us to continue our operations for the next twelve months.

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

	Six Months Ended June 30,
						Change
	2015		2014			$	%
	($ in thousands)
Cash provided by (used in):
Operating activities	$	(5,282)	$	(4,125)	$	(1,157)	(28)%
Investing activities	$	(241)	$	222	$	(463)	(209)%
Financing activities	$	5,231	$	8,545	$	(3,314)	(39)%

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 flows were largely impacted by the loss from operations, adjusted for non-cash items, including depreciation and amortization, stock-based compensation, change in fair value of the liability-classified warrants, and foreign currency gains. The cash flows of the current year period were also impacted by the timing of sales and collections, net of other working capital changes.         

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Cash provided by (used in) investing activities

        The increase in cash used in investing activities was due to proceeds from the sale of a building at one of our foreign location and the return of most of our investment balance for our dissolved joint venture with Pirelli in the prior period. 

Cash provided by financing activities

The decrease in cash provided by financing activities was due to higher proceeds from a common stock and warrant offering, pursuant to our Shelf Registration, and proceeds from the exercise of warrants in the prior year period.

Description of Indebtedness

	June 30, 2015		December 31, 2014
	($ in thousands)
Line of credit with FGI	$	3,583	$	2,841
$1.5 million, 8% shareholder note due 2016		1,612		1,598
$3.0 million, 8% subordinated convertible shareholder notes due 2016		2,962		2,947
$3.0 million, 8% shareholder note due 2016		2,951		2,931
	$	11,108	$	10,317

        We have a $7.5 million secured demand facility with FGI backed by our receivables and inventory. 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 June 30, 2015, 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 inventory sublimit were not changed, borrowing against Honda inventory has been limited to $0.2 million 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 June 30, 2015 and December 31, 2014.

        We were in compliance with the terms of the FGI facility at June 30, 2015. 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 additional information on our indebtedness, refer to Note 9, “Debt”.

Capital Expenditures

As of June 30, 2015, we had no material commitments for capital expenditures and no material commitments are anticipated in the near future.

Off-Balance Sheet Arrangements

As of June 30, 2015 and December 31, 2014, we had no off-balance sheet arrangements.

Commitments and Contingencies

As of June 30, 2015, 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 unaudited condensed consolidated financial statement included elsewhere in this Quarterly Report on Form 10-Q. For additional information, refer to Note 12, “Commitments and Contingencies”.

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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 our Chief Executive Officer 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 Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective 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 Chief Executive Officer 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.

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PART II—OTHER INFORMATION

Item 1.  Legal Proceedings             

Refer to Note 12 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A.  Risk Factors

Not applicable.

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

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

        Not applicable.

Item 5.  Other Information

        None.

Item 6.  Exhibits

        Refer to the Exhibit Index immediately following the signature page, which is incorporated herein by reference.

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SIGNATURES

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

	CLEAN DIESEL TECHNOLOGIES, INC.
Date: August 6, 2015	By:	/s/ Christopher J. Harris
		Christopher J. Harris
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: August 6, 2015	By:	/s/ David E. Shea
		David E. Shea
		Chief Financial Officer
		(Principal Financial Officer)

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Exhibit Index

Exhibit No.	Description of Exhibit
2.1	Asset Purchase Agreement, dated as of October 20, 2014, between Clean Diesel Technologies, Inc., ECS Holdings, Inc., Engine Control Systems Ltd., and SES USA Inc. (incorporated by reference to Exhibit 2.1 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on October 21, 2014).
3.1	Restated Certificate of Incorporation of Clean Diesel Technologies, Inc., as amended through May 23, 2012. (incorporated by reference to Exhibit 3.1 to CDTi’s Annual Report on Form 10-K (SEC file number 001-33710) filed on March 18, 2015).
3.2	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).
4.4	Form of Investor Series A Warrant issued on November 7, 2014 (incorporated by reference to Exhibit 4.1 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on November 4, 2014).
4.5	Form of Investor Warrant issued on June 8, 2015 (incorporated by reference to Exhibit 4.1 to CDTi’s Current Report on Form 8-K (SEC file number 001-33710) filed on June 3, 2015).
10.1†	Stock Incentive Plan as amended through May 20, 2015 (incorporated by reference to Appendix A to CDTi’s Definitive Proxy Statement (SEC file number 001-33710) filed on April 2, 2015).
10.2*	North American Purchase and Sale Agreement, dated June 5, 2015, between Honda North America and each of the other Honda Companies named in the Agreement and Clean Diesel Technologies, Inc.
10.3*†	Employment agreement, dated July 27, 2015, between Hans Eric Bippus and Clean Diesel Technologies, Inc.
31.1*	Certification of Christopher J. Harris pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of David E. Shea 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.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.
*	Filed herewith
**	Furnished herewith
†	Indicates a management contract or compensatory plan or arrangement

29

EX-10.2

EXHIBIT 10.2

Rev. 4/01/2014

NORTH AMERICAN PURCHASE AND SALE AGREEMENT

This North American Purchase and Sale Agreement ("Agreement") is between Honda North America, Inc., Inc. ("HNA") and each of the other Honda Companies named on Attachment 1 (each, individually, "Buyer") and each of the Seller Companies named below (each, individually, "Seller").

The Agreement includes each of the following, as indicated:

If applicable, check and initial:
PJLB MJL ü Seller Initial Buyer Initial	Terms and Conditions for Purchase and Sale of Goods (Rev.10/05/07)
PJLB MJL ü Seller Initial Buyer Initial	Component Parts Supply System Addendum (For Purchase of Component Parts from Component Parts Supplier) (Rev.04/21/08)
PJLB MJL ü Seller Initial Buyer Initial	Component Parts Supply System Addendum (For Sale of Component Parts to Parts Supplier) (Rev. 11/01/06)
PJLB MJL ü Seller Initial Buyer Initial	Internet Terms and Conditions Addendum (Rev.11/01/06)
PJLB MJL ü Seller Initial Buyer Initial	Tooling Terms and Conditions (Rev.11/01/06)
PJLB MJL ü Seller Initial Buyer Initial	Supplier Substances of Concern Declaration (Rev. 5/4/10)
o Seller Initial Buyer Initial	Mexico Tooling Addendum (for Mexico Entity Seller) (Rev. 11/14/12)
o Seller Initial Buyer Initial	Mexico Addendum (For  Mexico Entity Buyer and Mexico Entity Seller) (Rev. 11/14/12)
o Seller Initial Buyer Initial	Mexico Addendum (For  Mexico Entity Seller and  non-Mexico Entity Buyer) (Rev. 11/14/12)

North American Purchase and Sale Agreement Signature Page 1

Rev. 04/01/14

PJLB MJL ü Seller Initial Buyer Initial	Conflict 4/1/13)	Minerals	Addendum	(Rev.
o Seller Initial Buyer Initial

The Agreement is signed by a duly authorized representative (1) by and on behalf of each Buyer indicated below, individually and not jointly or collectively, as to each Seller indicated below, and (2) by and on behalf of each Seller indicated below, individually and not jointly or collectively, as to each Buyer indicated below. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be a duplicate original, but all of which, taken together, constitute a single document.

North American Purchase and Sale Agreement Signature Page - Revised 4-1-2014 2

Rev. 04/01/14

The Agreement shall be effective as of the date set forth below Buyer's signature ("Effective Date").

BUYER: Honda North America, Inc., for itself and in its capacity as duly authorized representative of the affiliates and subsidiaries named in Attachment 1 as the same may change from time to time by notice to Seller (each, including HNA hereafter sometimes also referred to as a "Honda Company" and collectively as the "Honda Companies")		SELLER: CDTI                          , for itself and in its capacity as duly authorized representative of the affiliates and subsidiaries named below as the same may change from time to time upon agreement by Buyer (each hereafter sometimes also referred to as a "Seller Company" and collectively as the "Seller Companies")
		Clean Diesel Technologies, Inc.
		(Insert full legal name above)
		Corporation
		Insert type of organization (corporation, LLC, etc.)
		Delaware
		Insert state/country of organization
By:	/s/ Michael J. Lapham	By:	/s/ Pedro J. Lopez-Baldrich
Printed:	Michael J. Lapham	Printed:	Pedro J. Lopez-Baldrich
Title:	NAAP Dept. Mgr.	Title:	General Counsel
Date:	6/5/15	Date:	5/22/15
	HONDA DE MEXICO, S.A. de C.V.	Seller Address for Notices:
By:		1621 Fiske Place
Printed:		Oxnard, California 93033
Title:		U.S.A.
Date:		Attention:	General Counsel
		FAX:	+1 805 639 9466
Buyer Addresses for Notices: Notices must be delivered to the address/fax number listed on Attachment 1 for the Honda Company to which applicable.		List the full legal names, type of organization, and state/country of organization of each additional entity that may be a "Seller" hereunder:

North American Purchase and Sale Agreement Signature Page - Revised 4-1-2014 3

Rev. 04/01/14

Attachment 1

Honda of America Mfg., Inc. 24000 Honda Parkway Marysville, Ohio 43040-9251 USA Attention: Purchasing Manager Facsimile: (937) 645-7401	Honda of South Carolina Mfg., Inc. ' 111 Honda Way, P.O. Box 489 Timmonsville, South Carolina 29161 USA Attention: Purchasing Manager Facsimile: (843) 346-8141
Honda Power Equipment Manufacturing, Inc. 3721 Highway 119 Swepsonville, NC 27359 USA Attention: Purchasing Manager Facsimile: (336) 395-6142	Honda de Mexico, S.A. de C.V. El Salto, Jalisco P.O. Box 1-1467 Guadalajara, Jalisco, MEXICO Attention: Purchasing Manager Facsimile: 011-52-333-284-008 Carretera Libramiento Sur. Km. 6 Ejido, Rincon de Tamayo Municipio de Celaya Guanajuato, MEXICO (under construction)
Honda Transmission Manufacturing of America, Inc. 6964 State Route 235N Russell's Point, OH 43348 USA Attention: Purchasing Manager Facsimile: (937) 843-5371	Honda Manufacturing of Alabama, LLC 1800 Honda Drive Lincoln, Alabama 35096-5107 USA Attention: Purchasing Manager Facsimile: (205) 355-6370
Honda of Canada Mfg., a division of Honda Canada, Inc. 4700 Tottenham Road Box 500 Alliston, Ontario L9R 1A2 CANADA Attention: Purchasing Manager Facsimile: (705) 435-0990	Honda Precision Parts of Georgia, LLC 550 Honda Parkway Tallapoosa, Georgia 30176 USA Attention: Purchasing Manager Facsimile: (770) 574-3463
Honda Trading America Corporation 19900 State Route 739 Marysville, Ohio 43040 USA Attention: Purchasing Manager Facsimile: (937) 644-8070	Honda Trading Canada, Inc. 4700 Tottenham Road, P.O. Box Alliston, Ontario L9R 1W7 CANADA Attention: Purchasing Manager Facsimile: (705) 435-0121

North American Purchase and Sale Agreement Signature Page - Revised 4-1-2014 4

Rev. 04/01/14

Honda Manufacturing of Indiana, LLC	Honda Trading de Mexico, S.A. de
2755 North Michigan Avenue	C.V.
Greensburg, Indiana 47240 USA	Carretera a el Castillo No. 7250
Attention: Purchasing Manager	Coredor Industrial el Salto
Facsimile:	El Salto, Jalisco, C.P. 45680 MEXICO
	Attention: Purchasing Manager
	Facsimile: 52 (33) 3688-1646
Honda North America, Inc.
24000 Honda Parkway
Marysville, OH 43040-9251
Attention: Purchasing Manager

North American Purchase and Sale Agreement Signature Page - Revised 4-1-2014 5

Rev. 10/05/07

TERMS AND CONDITIONS FOR PURCHASE AND SALE OF GOODS

Article 1.           Exclusivity of Terms, Entire Agreement; Buyer; Specifications

1.1

Exclusivity of Terms; Entire Agreement; Buyer

1.1.a Except as otherwise specifically provided herein, the terms of the Agreement are exclusive and contain the entire agreement of Buyer and Seller (sometimes referred to herein as "Parties[y]") with respect to the purchase by Buyer from Seller of goods and related services (collectively, whether goods or related services, "Goods"), and none of these terms may be added to, modified, or superseded except by written agreement or modification hereof signed by authorized representatives of Buyer and Seller, notwithstanding any terms which may now or in the future appear on Seller's invoices, quotations, acknowledgments, or other forms. Any shipment, delivery, or other tender of performance by Seller shall be taken as Seller's assent to and acceptance of the terms hereof, notwithstanding Buyer's payment or other acceptance of the Goods or Seller's performance.

1.1.b "Buyer" shall mean any Honda Company that purchases or is expected to purchase Goods under this Agreement. "Seller" shall mean any Seller Company that sells or is expected to sell Goods under this Agreement. As a result, each Buyer shall have the right to issue an order, purchase order, material release request, or other form adopted by Buyer as an order ("Order") to each Seller under this Agreement, and the Parties agree that each such Order shall be a separate contract between such Seller and the Honda Company issuing such Order. The Parties further agree, except as set forth herein, that the other Honda Companies or Seller Companies that are not parties to such Order shall have no obligations, liabilities, or responsibilities under such Order, and that any default under such Order or otherwise under this Agreement by Buyer or Seller shall not constitute an event of default by any other Honda Company or Seller Company under any other Order or this Agreement.

1.2

Notwithstanding the foregoing, Buyer and Seller agree that the following, to the extent transmitted, including, without limitation, electronic transmissions, to Seller by Buyer or accepted in writing by Buyer as applicable to the Agreement, are incorporated herein by reference: models; drawings; Buyer's specifications, including without limitation Honda Engineering Standards; Seller's specifications accepted in writing by Buyer; quality control regulations and quality standards; guidelines for electronic transactions (including without limitation electronic data interchange); packaging and transportation guidelines; forms of Order; and other standards, procedures, guidelines, or specifications, all as replaced, substituted, amended, and in effect from time to time (collectively, the "Specifications").

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Article 2

Separate Contracts; Applicability

2.1

Each contract for the purchase and sale of Goods shall be entered into hereunder by Buyer's issuance to Seller, and Seller's acceptance, of an Order. Acceptance of any Order is expressly limited to its terms and the terms of the Agreement, and any additional or different terms are objected to without further notification by Buyer. Each Order accepted by Seller under the terms of this Section 2.1 shall incorporate all the terms of the Agreement and will be a separate contract, and any two (2) or more Orders hereunder are not intended to be parts of an installment contract, but shall be separate contracts. Notwithstanding the foregoing, these Terms and Conditions for Purchase and Sale of Goods (these "Terms and Conditions") shall be applicable and effective from and after the Effective Date.

2.2

Each Order, when completed by Buyer, will be transmitted by hand, mail, courier, or facsimile transmission, or transmitted electronically to Seller in accordance with Electronic Data Interchange ("EDI") standards and procedures or such other standards and procedures for electronic communication established as Specifications in compliance with Section 1.2 hereof. Buyer may also transmit Orders by telephonic means or other form of unwritten communication. Any Order transmitted by a form of unwritten communication shall be deemed delivered when received by Seller but shall be confirmed by Buyer in writing or electronically in accordance with EDI or other electronic communication standards and procedures.

2.3

An Order will be deemed to have been accepted by Seller upon the first to occur of the following: (a) Seller's first shipment or other tender of performance under the Order, (b) written acceptance by Seller, (c) acceptance by Seller via an electronic transmission sent in accordance with EDI or other electronic communication standards and procedures, or (d)Seller's failure to deliver written objection to Buyer's Order within eight (8) days of Seller's receipt thereof (or such shorter period as may be specified in the Order or any Specification).

2.4

Buyer shall have the right at any time to change any Order (whether by adjustment order or otherwise) as to Specifications, delivery, packaging, or means of shipment. If any such change is expected to result in a change in cost to Seller, Seller shall immediately inform Buyer of such fact and Buyer and Seller will agree upon an adjustment in the price or other terms of the Order to reflect the change, if such change can be demonstrated to Buyer's satisfaction.

Terms and Conditions for Purchase and Sale of Goods - Revised 10-5-2007 2

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Article 3.

Price, Taxes, Payment

3.1

The price(s) applicable to each Order shall be reached after mutual consultations and may follow submission by Seller of one or more quotations. A quotation shall be deemed accepted upon notice by Buyer to Seller of acceptance (whether such notice is written, electronic, or otherwise); provided, however, that if Goods are ordered prior to acceptance of a quotation, then pricing for such Goods shall be as agreed upon by Buyer and Seller.

3.2

All price quotations submitted by Seller to Buyer and all prices set forth in or with reference to each Order shall be

                        3.2.a  F.O.B. Buyer's plant or other designated place of delivery specified by Buyer in the Order or otherwise in writing;

                        3.2.b Inclusive of applicable taxes (except those based on Seller's net income, revenues, and the like, those exempted under Section 3.3, or as otherwise specified by Buyer), excises, duties, importation fees, and any other fees directly related to the production, sale, or transportation of the Goods, except only as otherwise specified by Buyer; and

                        3.2.c In compliance with all laws, regulations, rules, or orders, and agency or association standards or other standards, applicable to the manufacture, pricing, labeling, transportation, warranty, use, licensing, approval, or certification of the Goods, whether foreign or domestic (collectively, "Applicable Laws").

3.3

Upon request, the Parties will cooperate in obtaining and furnishing to each other certificates, direct pay permits, or other evidences of inapplicability of, or exemption from, any sales, excise, or other taxes or duties to which any Party may be entitled. To the extent that Seller receives any such certificate, direct pay permit, or other evidence of inapplicability or exemption, Seller will not include any applicable taxes or duties in the price charged to Buyer.

3.4

Unless otherwise specified in a writing signed by Buyer, the payment terms for the Goods are "net 25th prox."

3.5

Any price quotations that have been accepted by Buyer shall be subject to increase upon not less than 60 days' prior written notice and Buyer's written consent. The notice shall contain adequate justification data, including reasons caused by persons other than Seller and not foreseen or foreseeable by Seller, for the proposed increase. Such price increases shall not affect any Orders that have been issued to and accepted by Seller.

Terms and Conditions for Purchase and Sale of Goods - Revised 10-5-2007 3

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3.6

In addition to any right of setoff or recoupment provided by law, Buyer and its affiliates (the "Buyer Group") may setoff against, or recoup from, any amounts owing to Seller or its affiliates (the "Seller Group") any amounts owing to any member of the Buyer Group by any member of the Seller Group, including, without limitation, damages (including reasonable attorney and professional fees and costs) resulting from breaches by Seller of its obligations to Buyer under any Order. Specifically, in the event of any member of the Seller Group's insolvency or financial distress, if the Buyer Group retains legal counsel or other professional counsel to provide services related to the Buyer Group's business relationship with the Seller Group, the Buyer Group shall have the right to recover reasonable fees and costs related to such legal or professional services, and specifically, to recoup and/or offset such fees and costs from amounts owing by the Buyer Group to the Seller Group.

Article 4.

Delivery

4.1

Time, quality, and quantity are of the essence in each Order and Buyer may cancel the Order or reject the Goods and/or return at Seller's expense any delivery (in whole or in part) of Goods not in conformity with the time, quality, and/or quantity specified in the Order or Specifications.

4.2

Delivery times specified are times of delivery of the Goods at Buyer's designated place of delivery.

4.3

In the absence of specific instructions contained in the Order or Specifications, Seller shall pack, label, and ship all Goods in a commercially reasonable manner selected by Seller and approved by Buyer, which will ensure timely, safe, and conforming delivery and the lowest transportation cost. All shipments shall be F.O.B. Buyer's plant or other designated place of delivery specified by Buyer in the Order or otherwise in writing.

4.4

Seller will inform Buyer promptly of any circumstance that is expected to result in any delivery time, quality, and/or quantity not specified by Buyer and also of corrective measures that Seller is taking to minimize the effect of such circumstance.

               4.5        In the event of tendered delivery not in compliance with the times, quality, and/or quantities specified by Buyer, unless Seller has received notice of rejection or cancellation from Buyer, then Seller will ship conforming Goods at the earliest possible moment and by the fastest practicable and available means, but without any increase in any costs to Buyer.

4.6

All Goods received are subject, at Buyer's option, to inspection by Buyer or Buyer's designee within a reasonable time after delivery to Buyer's plant or designated place of delivery. Notwithstanding the foregoing, Seller acknowledges that final inspection may not occur until the Goods are delivered to Buyer's plant. Payment by Buyer for any Goods does not constitute acceptance, and neither inspection nor payment shall relieve Seller of its responsibility to furnish conforming Goods.

Terms and Conditions for Purchase and Sale of Goods - Revised 10-5-2007 4

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4.7

Buyer may cancel any Order (in whole or in part) or reject any delivery (in whole or in part) upon Buyer's or Buyer's designee's determination that any of the Goods are defective or nonconforming or that delivery did not conform with the terms of the Order and, in the case of any such rejection, may instruct Seller as to the means and method(s) of cure or cover. If such instructions are given, Seller will deliver (at the earliest possible moment and by the fastest practicable and available means but without any increase in any costs to Buyer)- conforming substitutes or replacements for each defective or nonconforming item or delivery of the Goods. All defective or nonconforming Goods, which have been rejected due to quality problems may, at Buyer's option, be disposed of by Buyer or Seller, as determined by Buyer, at Seller's expense. Any Goods rejected because of a failure to comply with specified time, delivery terms, and/or quantity will be returned pursuant to Seller's instruction at Seller's expense. If Seller fails to give such instructions within a reasonable time, Buyer may, in Buyer's sole discretion, dispose of such Goods at Seller's expense.

4.8

Either Party may suspend performance during an "Excusable Delay", which shall mean any delay not resulting from the fault or negligence of the delayed Party and resulting from acts of God, acts of war, restrictions, prohibitions, priorities, or allocations imposed by governmental authority, acts of the other Party hereto, embargoes, fires, floods, winds, earthquakes, epidemics, unusually severe weather, and delays of similar natural or governmental causes. Excusable Delay does not include any strike, lock-out, shortage of labor, lack of or inability to obtain raw materials, fuel, or supplies (unless caused solely by priorities, restrictions, or allocations imposed by governmental authority), or other industrial disturbance unless Seller is using its best efforts to cure the cause of such delay and Buyer has approved Seller's detailed plans for assurance of timely and conforming delivery(ies) in the event of such specific delay and Seller is diligently implementing such plans. Nothing contained in this Section 4.8 shall limit Buyer's rights under Section 13.3.

4.9

If Seller discovers any fact that could with the passage of time result in an Excusable Delay or affect its ability to perform its obligations under this Agreement or any Orders issued hereunder, Seller will immediately (a) advise Buyer of such fact and (b) use its best efforts to take all measures and precautions to reduce the effect of the Excusable Delay and/or nonperformance upon Buyer's production. In addition, at any time at Buyer's request, Seller will furnish to Buyer (a) any such information as Buyer may request concerning matters the presence or absence of which could result in delays and/or non-performance, and (b) assurance or contingency plans, in such form as may be requested by Buyer, with respect to those matters.

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4.10

Seller shall bear and pay all charges and expenses as may be required by Buyer, including those relating to production changes, additional labor, additional transportation charges, and cover, resulting from Seller's failure to make delivery in conformity with the times, quality, and/or quantities specified by Buyer.

Article 5.

Seller's Warranties and Representations

            Seller warrants and represents to Buyer as to all Goods, which warranties and representations will survive the acceptance, use, or subsequent sale thereof by Buyer and the termination of this Agreement and any Orders issued hereunder, that:

5.1

The Goods will conform to all Specifications and will be in compliance with all accepted models, samples, and all written affirmations of fact made by Seller, and will be subject to a system administered by Seller (and acceptable to Buyer) for the identification, segregation, and positive control of defective items of the Goods; and

5.2

The Goods will be in compliance with any and all Applicable Laws; and

5.3

The Goods will be merchantable and, if made to Specifications made or furnished by Seller and accepted by Buyer hereunder, will be fit for the particular purpose(s) for which required by Buyer; and

5.4

Regardless of where delivery occurs, the Goods will be free of defects (except to the extent defects result solely from the negligence of Buyer) in manufacture, shipping, handling, packaging, or processing prior to arrival at Buyer's plant; and

5.5

The Goods will be free of lawful claims of any party; and

5.6

If Seller makes or offers a written warranty to retail purchasers, which warranty is to be passed by or through Buyer, such warranty (a) will be in compliance with all Applicable Laws as to form and content and will be furnished in copies and manner sufficient to permit Buyer and subsequent retail sellers to comply with such Applicable Laws and (b) will not limit in any way any similar or other warranty or representation of Seller to Buyer; and

5.7

Seller has obtained, or will obtain, any required approval by any governmental authority with respect to the sale, shipping, handling, packaging, processing, or use of the Goods, as applicable from time to time, and Seller will furnish Buyer with copies or other satisfactory evidence of all such approvals; Buyer, at its sole option, may obtain, or assist Seller in obtaining, such approval; and

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5.8

Seller's obligations under (a) Article 6 of this Agreement or (b) any other agreement between Buyer and Seller shall not limit Buyer's rights or remedies in the event that the Goods or any portion thereof do not conform to Seller's warranties and representations; and

5.9

The warranties and representations contained in Sections 5.1 through 5.8, inclusive, are specifically for the benefit of Buyer and any person claiming by or through Buyer. Furthermore, the parties agree that the above warranties and representations extend to the future performance of the Goods for a period of time equal to the period during which Buyer is reimbursing its parent company, affiliated companies and/or dealers for consumers' warranty claims, and for such longer period(s) that may be set forth in the Specifications. However, the expiration of a warranty on a particular consumer's product is not to be considered an absolute bar to future claims of Buyer to Seller resulting from, by way of example, individual extensions of warranty as a matter of policy or replacement of Goods in the event of recall or other safety-related concerns, where the same are attributable to the Goods not conforming to Seller's warranties set forth in this Article 5.

Article 6.

Indemnity

6.1

Seller shall defend, indemnify, and hold Buyer and Buyer's affiliates, subsidiaries, and representatives and each of their respective officers, directors, employees, and agents free and harmless from and against any loss, cost, liability, claims, demands, or lawsuits, including attorney and other professional fees, arising from or relating to (a) the Goods (including costs and expenses related to any product liability claim or any recall ordered by any federal, provincial, state, local, or foreign government); (b) infringement of any trade names, trademarks, service marks, copyrights, patents, trade secrets, or any other intellectual property rights related to the Goods and/or Buyer's sale or use thereof; and/or (c) unfair competition by reason of sale or use of the Goods by Buyer. With respect to claims under 6.1(b) above, Seller shall further take any and all actions necessary to ensure that Buyer will be able to continue to purchase, use, and sell the Goods, including acquiring the necessary consents or licenses at Seller's sole cost and expense. In addition, Buyer may require Seller to modify the Specifications of the Goods or to source the Goods from another supplier to prevent any claims of infringement, which modification or re-sourcing shall be at the sole cost and expense of Seller.

6.2

Seller is responsible for the acts and omissions of Seller's employees, agents, or other representatives ("Seller's Agents") and, except to the extent prohibited by applicable law, shall defend, indemnify, and hold Buyer and Buyer's affiliates and subsidiaries and each of their respective officers, directors, employees, and agents free and harmless from and against any loss, cost, liability, claims, demands, or lawsuits, including attorney and other professional fees, arising from or relating to loss of property or injuries or death to persons, of any kind or nature, arising out of acts or omissions of Seller or Seller's Agents. For the sole purpose of furthering the foregoing obligation of indemnity, Seller hereby expressly waives any and all statutory and/or constitutional immunity to which, but for this waiver, it might be entitled (a) as an employer in compliance with the State of Ohio's workers' compensation laws or (b) under any other employee benefit statutes or similar laws of any jurisdiction.

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6.3

In the event of any claim or threatened claim which may be the subject of indemnification described in this Article 6, Buyer will give Seller prompt written notification thereof and provide Seller such reasonable assistance in the response and prosecution of any defense as Seller may reasonably request, at Seller's expense.

6.4

The provisions of this Article 6, and the indemnity obligations hereunder, shall survive this Agreement and any performance hereunder.

Article 7.

Insurance

7.1

Seller shall procure and maintain insurance, in amounts and coverage reasonable in the circumstances and acceptable to Buyer, but not less than One Million Dollars ($1,000,000) per occurrence, at Seller's sole expense, with reputable and financially responsible insurance companies, insuring against any and all public liability, including injuries or death to persons and damage to property, arising out of or related to the Goods or Seller's performance hereunder. In addition, if Seller's Agents perform work at property owned or leased by Buyer, Seller shall furnish such additional insurance as Buyer may request in respect thereof, but in any event and without such request, workers' compensation insurance and unemployment compensation insurance as required by applicable state law and automotive liability insurance with a limit of not less than One Million Dollars ($1,000,000) per accident. Notwithstanding the foregoing, in no event shall Seller's Agents be deemed to be the employees of, or under the direction or control of, Buyer for any purpose whatsoever.

7.2

Seller shall furnish to Buyer certificates of all such insurance required hereunder and any renewals thereof signed by the issuing company or agent or other information regarding such insurance at any time promptly upon Buyer's request. Such policies shall provide for cancellation only subsequent to thirty (30) days' prior written notice to Buyer. Buyer's examination of, or failure to request or demand, any evidence of insurance hereunder, shall not constitute a waiver of any requirement of this Article 7, and the existence of any insurance shall not limit Seller's obligation under this Agreement.

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7.3

Except as otherwise agreed by Buyer, Seller will, or will cause any carrier of the Goods engaged by Seller to, insure all shipments of Goods at full value. For purposes of this Section 7.3, and unless otherwise indicated by Buyer, "full value" shall mean quotation price plus freight cost.

Article 8.

Buyer's Property, Patents, Trade Secrets, Know-How

8.1

Unless otherwise specified in a separate written agreement between Buyer and Seller, all tools, tooling, equipment, dies, jigs, returnable containers (including racks and modular containers), Specifications, and other material (except Supplies as defined in Section 10.1), and all intellectual property related thereto and/or embodied therein, of every description furnished to Seller or paid for or to be paid for by Buyer, shall be inspected by Seller (whether manufactured by Seller or by others) for condition, compliance with Specifications, descriptions, and count, shall remain the sole property of Buyer, shall be plainly marked and/or otherwise clearly identified by Seller as "Property of Honda", shall be stored on Seller's premises, shall be stored and used in compliance with any instructions of Buyer and so as to prevent disclosure inconsistent herewith, shall not be used except pursuant to any Order or other writing signed by Buyer, shall be subject to Buyer's inspection at any time during business hours, shall be available for immediate possession on demand, and, in any event, shall be returned to Buyer at the earlier of (a) simultaneously with termination under this Agreement; or (b) the time that Buyer may specify under any agreement covering the same. Such property shall be insured by Seller in amounts equal to its full insurable replacement value at Seller's cost with loss payable to Buyer and Seller and shall be subject to Buyer's immediate possession and total control. Excepting only reasonable wear and use, such property in the possession of Seller shall be kept at Seller's risk, and Seller shall be responsible for all maintenance thereof. With respect to returnable containers, the applicable packaging and transportation guidelines of Buyer, as in effect from time to time, shall apply.

8.2

Any unpatented knowledge or information concerning either Party's products, production, or other methods, processes, scheduling, sources of supply, customers, marketing, or otherwise that the Party may disclose to the other Party attendant or incident to this Agreement shall be deemed to have been disclosed as part of the consideration hereunder and shall not be given other use, shall be retained in confidence by the Party to which disclosed, and, to the extent represented by or in samples, writings, drawings, or other tangibles, shall be returned to the disclosing Party simultaneously with termination under this Agreement or at any time upon demand. To be protected under this Agreement, the information or knowledge of Seller, (a) in written form must be marked "confidential", and (b) in any other form must be indicated as confidential at the time of disclosure and summarized in writing indicating the confidential nature of the information or knowledge disclosed by Seller to Buyer within thirty (30) days of first disclosure. Any and all such information received from Seller may be shared by Buyer with affiliates of Buyer, provided that Buyer shall endeavor to ensure that such affiliates shall be bound by the same obligations of confidentiality as Buyer is obligated to Seller. The obligations of confidentiality under this Agreement shall not apply to any information or knowledge that (i) is publicly known at the time of disclosure to the receiving Party; (ii) becomes public knowledge without breach of this Agreement by the receiving Party; (iii) is known to the receiving Party at the time of the disclosure and not subject to any restrictions; (iv) is lawfully obtained without restriction (x) by Buyer from a third party, or (y) by Seller from a third party not affiliated with Buyer; or (z) is independently developed by the receiving party by employees of the receiving Party who have not had access to the confidential knowledge or information of the disclosing Party.

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8.3

Except as may otherwise be agreed in writing, all inventions, products, processes, apparatus, or designs, patentable or unpatentable, conceived, invented, or originated by either Party prior to the Effective Date shall remain the property of that Party.

8.4

Seller grants to Buyer, and to Buyer's affiliates, subsidiaries, and designees, nonexclusive, irrevocable licenses under any applicable patent, copyright, or other property right to use, modify, publish, or distribute the same or any right therein without the payment of any royalties or similar fees, provided, however, that such grant is only for the purpose of the manufacture, assembly, distribution, and sale of products and parts by Buyer, its affiliates, subsidiaries, and designees. Notwithstanding the foregoing, to the extent that Buyer determines that Seller is unable or unwilling to provide sufficient quantities of conforming Goods in a timely manner, the above license shall include the right of Buyer to make or have a designee make the Goods.

8.5

If any Goods to be supplied by Seller to Buyer are covered by patents, design patents, or other industrial or intellectual property rights of Seller or pending applications for such rights of Seller or are produced under a license from a third party, then Seller shall notify Buyer in writing of such patents, design patents, or other industrial or intellectual property rights, pending applications, or such license from a third party as soon as possible, but in no event later than thirty (30) days before first delivery of the Goods to Buyer. Buyer shall have no obligation to Seller for infringement of Seller's or a third party's industrial or intellectual property rights for which Seller has failed to provide its required notice under this Section, and Seller shall indemnify, defend, and hold Buyer harmless from any claims for such infringement pursuant to Section 6.1.

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8.6

If, during the term of this Agreement, Buyer and Seller engage in joint research or development activities related to the Goods or otherwise, Buyer and Seller shall agree in writing on the ownership of patents, design patents, or other industrial or intellectual property rights to inventions, devices, or designs to be achieved or developed in such joint activities before commencing any or each such development activity. In the absence of such written agreement or any prior written agreement with respect to such joint development activity, ownership of patents, design patents, or other industrial or intellectual property shall belong to Buyer.

8.7

If Seller has received or receives any intellectual property infringement claim from a third party regarding Seller's ability to make, have made, use, or sell the Goods or any part of the Goods to Buyer or regarding any method or apparatus for producing the Goods or any part of the Goods for Buyer, Seller shall promptly upon receipt provide to Buyer a copy of the claim. Thereafter, Seller promptly shall keep Buyer apprised of the defense and disposition of such claim.

8.8

Seller agrees that all trademarks, service marks, trade names, patents, copyrights, trade secrets, and other proprietary rights of Buyer (collectively, "Buyer's Intellectual Property") are the sole and exclusive property of Buyer. Nothing in this Agreement shall give Seller any right, title, or interest in Buyer's Intellectual Property or the goodwill connected therewith, except the right to use the same in strict accordance with the terms and conditions of this Agreement. Seller shall not contest the validity or ownership of any of Buyer's Intellectual Property or assist others in contesting the validity or ownership of such property. Seller shall promptly notify Buyer in writing of any infringement or potential infringement of Buyer's Intellectual Property of which Seller becomes aware.

Article 9.

Service Parts

9.1

Seller will provide Buyer or Buyer's designee(s) with all service and replacement parts for the Goods, which are required by Buyer or Buyer's designee for a period of ten (10) years, or such lesser period as Buyer or Buyer's designee agrees in writing, after Buyer terminates production of any item or line of the products, which production incorporates or uses the Goods.

9.2

During the effectiveness of this Agreement, the terms and conditions of this Agreement shall fully apply with respect to the service and replacement parts identified in Section 9.1 hereof.

Article 10.

Supplies

10.1

With Seller's agreement, Buyer may provide Seller, directly or indirectly, with material, work in process, or component parts of the Goods ("Supplies"). Buyer and Seller shall agree on pricing with respect to the Supplies.

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10.2

All Supplies will be inspected and processed in compliance with Buyer's instructions to Seller and the Specifications for the Goods. Seller will give Buyer prompt notice of failure of the Supplies to meet quality, quantity, and delivery requirements, which (a) has a high rate of occurrence, (b) impairs or may impair Seller's ability to meet its delivery schedules or comply with the Specifications, (c) affects product safety or (d) is otherwise serious in the opinion of Seller. Seller will follow Buyer's instructions concerning the Supplies.

10.3

Seller will not substitute any other property for the Supplies and will not sell, transfer, loan, use, or permit use of the Supplies for any purpose except to furnish Goods to Buyer.

               10.4        Seller will store, insure, inspect, process, and keep records of the Supplies as Buyer requests.

Article 11.

 Prohibition of Sale or Use, Advertising

11.1

Seller shall not sell, transfer, loan to any person except Buyer, or otherwise use or permit use of (a) Goods manufactured from Specifications and/or other information that has originated with or been furnished by Buyer; or (b) Goods, packages, or containers identified with the trade names, trademarks, or markings evidencing property rights of Buyer or any of its designees or affiliates.

11.2

Without Buyer's prior written consent, Seller shall not advertise or publish in any manner the existence of this Agreement or the business relationship between Buyer and Seller.

Article 12.

 Duty, Drawback and Other Customs Related Information

12.1

With respect to each Order, Seller transfers to Buyer all customs duty and/or drawback rights, if any, related to the Goods or Supplies or to component parts or materials of the Goods or Supplies, including all such customs duty and/or drawback rights related to substitution of other Goods or Supplies or parts or materials of the Goods or Supplies and all such customs duty and/or drawback rights that may be acquired from Seller's suppliers.

12.2

Seller shall inform Buyer of all such customs duty and/or drawback rights referred to in Section 12.1 and, upon request by Buyer, shall supply such documentation or other information that Buyer deems necessary or appropriate to permit Buyer to obtain the full and complete benefits of such drawback or other rights.

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12.3

Seller agrees to provide Buyer at Seller's expense with such other documentation or information that Buyer deems necessary or appropriate to satisfy the requirements of any other customs benefits or procedures related to the Goods or Supplies, including documentation and information to satisfy the requirements of the North American Free Trade Agreement.

           12.4    Seller agrees to provide Buyer at Seller's expense with such other documentation or information that Buyer deems necessary or appropriate to satisfy the requirements of any federal or state law on domestic and/or foreign content including documentation and information to satisfy the requirements of the American Automobile Labeling Act and the U.S. Environmental Protection Agency's regulations on Corporate Average Fuel Economy.

Article 13.

Cancellation; Termination; and Additional Remedies

13.1

In addition to any other rights under this Agreement, Buyer may cancel any Order, in whole or in part, if Seller defaults under this Agreement or any Order. Upon such cancellation, Buyer shall have no further liability or responsibility with respect to such Order(s) or the cancelled portion of such Order(s), as the case may be.

13.2

Either Party may terminate this Agreement if:

13.2.a

The other Party defaults in any performance, warranty, or representation hereunder, and the default is not cured after thirty (30) days' written notice to the defaulting Party by the non-defaulting Party; or

13.2.b

The other Party defaults under any two (2) consecutive Orders; or

13.2.c

The other Party is subject to any administrative or governmental action that suspends or terminates its business or that portion of its business that relates to any outstanding Orders; or

13.2.d 

The other Party makes a general assignment for the benefit of creditors, suspends business, or commits any act amounting to business failure, or makes a voluntary assignment or transfer of all or substantially all of its property; or

13.2.e 

A voluntary petition under Title 11, U.S.C., as amended, or any successor statute (the "Bankruptcy Code") is filed by the other Party, or any involuntary petition to obtain an order for relief against the other Party is filed under the Bankruptcy Code that is not vacated within forty-five (45) days from the date of filing, or a receiver or custodian (as defined in the Bankruptcy Code) is appointed under the Bankruptcy Code for such other Party, which appointment is not vacated within forty-five (45) days from the date of the appointment; or

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13.2.f

An Excusable Delay or other event(s) enumerated in Section 4.8 (including industrial disturbances) suspends or substantially or materially impairs the performance hereunder of the other party for longer than four (4) months.

                13.3           For any reason or no reason Buyer may cancel, in Buyer's sole discretion, the Agreement and/or any Order (in whole or in part) by giving notice of cancellation of the Agreement and/or Order to Seller. In the event of such cancellation of any Order, Buyer and Seller agree as follows:

13.3.a    

Unless otherwise directed by Buyer, after notice of cancellation, Seller shall immediately terminate all work under the Order and shall (i) terminate all orders and subcontracts relating to the performance of the work terminated by the notice of cancellation; (ii) settle all claims arising out of such termination of orders and subcontracts; (iii) transfer title and deliver to Buyer (A) all completed work that conforms to the Order and does not exceed the amounts authorized by Buyer under the Order and (B) all reasonable quantities (not exceeding the amounts authorized by Buyer under the Order) of work in process and materials produced or acquired with respect to Goods that are the subject of the cancelled Orders, which are of a type and quality suitable for producing Goods and which cannot reasonably be used by Seller to produce goods or supplies for itself or its other customers; (iv) take all action necessary to protect property in Seller's possession in which Buyer has or may acquire an interest; (v) promptly (but not later than three (3) months from the effective date of cancellation) submit to Buyer its cancellation claim in accordance with Section 13.3.b of the Agreement, and if Seller fails to submit its cancellation claim within such period, Buyer may determine, notwithstanding the provisions of Section 13.3.b hereof, the amount (if any) due Seller with respect to the cancellation, which determination shall be final;

13.3.b

After cancellation of any Order by Buyer under this Section 13.3, Buyer shall pay to Seller the following amounts without duplication: (i) the price applicable to such Order for all Goods that have been completed in accordance with the Order and not previously paid for and delivered under Section 13.3.a; (ii) the actual costs incurred by Seller in accordance with the Order (to the extent such costs are reasonable in amount and are properly allocable under generally accepted accounting principles to the cancelled portion of the Order) for the actual cost of work in process and materials delivered to Buyer in accordance with Section 13.3.a, and the actual cost of claims permitted under Section 13.3.a(ii); and (iii) the reasonable costs incurred by Seller to protect property in its possession in which Buyer has or may acquire an interest. Payments made under this Section 13.3.b excluding payments under subdivision (iii) hereof) shall not exceed the aggregate price applicable to the canceled Order, less payments made for Goods accepted under the Order (if any);

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13.3.c

Buyer shall have access to Seller's premises and records, before and after payment, to verify charges supporting any cancellation claim; and

13.3.d  The provisions of this Section 13.3 shall not apply if any Order is canceled by Buyer, in whole or in part, as a result of causes set forth in Sections 13.1 and 13.2.

Article 14.           Miscellaneous

14.1

All covenants and agreements contained in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the Parties, except that Seller shall have no right to assign any interest herein without the prior written consent of Buyer. A merger or change in the entity structure of Seller (including a change in controlling ownership interest) shall constitute an assignment that shall require the prior written consent of Buyer. Seller further agrees that this Agreement may not be assumed or assigned pursuant to 11 U.S.C. Section 365 or any other similar federal, state, or local law without the prior express written consent of Buyer, and Seller hereby expressly waives any rights it may have under such laws to assume and assign this Agreement.

14.2

Unless otherwise agreed in writing, the obligations, liabilities, warranties, representations, rights, and remedies of each of the Parties accrued, made, or incurred prior to or at the time of any termination of this Agreement or Order shall survive such termination.

14.3

Except as otherwise provided in this Agreement (including, without limitation, in Section 1.2), no amendment, modification, termination, or waiver of any provision of this Agreement shall be effective unless it is in writing and signed by the Parties. The failure or delay of either Party at any time to enforce any right or remedy available to it under this Agreement with respect to any breach or failure shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other Party.

14.4

The titles of the articles of this Agreement are solely for convenience and are not part of the Agreement for purposes of interpreting its provisions.

14.5

Terms used in this Agreement, unless otherwise defined, shall be deemed to have the meanings set forth in the Uniform Commercial Code as in effect from time to time in Ohio.

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14.6

Unless otherwise specified, the terms "herein", "hereunder", "hereto", "herewith", and the like refer to this entire Agreement; the singular includes the plural, and conversely. The word "including" shall be read to mean "including without limitation" where appropriate so that it is not in any way a limitation or exclusion of items not referenced.

14.7

This Agreement and any other document delivered under this Agreement are being executed and delivered in and are intended to be performed under and governed by the laws of the State of Ohio. If any provision hereof is or becomes invalid or unenforceable under any law, the Parties intend that such provision will be deemed severed and omitted from this Agreement and the remaining portions shall remain in full force and effect as written. Any provision hereof that becomes unenforceable by reason of the commencement of a case under the Bankruptcy Code shall again be valid and enforceable no later than the termination of said case. Furthermore, to the extent the Honda Company issuing the Order is located in a state other than Ohio, or in a country other than the United States, it is the intention of the Parties that this Section 14.7 shall apply; provided, however, that in the event that the governing laws provision of this Section 14.7 is found to be unenforceable, the law of the state/country where the Honda Company's applicable receiving facility is located shall govern.

14.8

The United Nations Convention on Contracts for the International Sale of Goods shall have no application to this Agreement or actions hereunder or contemplated hereby.

14.9

The Parties agree that all notices, consents, approvals, records, and other communications required or permitted to be held or delivered under this Agreement, and all disputes to be resolved in connection with this Agreement, shall be held, delivered, and resolved in the English language.

14.10

The rights and remedies reserved to Buyer in this Agreement are cumulative with, and in addition to, all other or further remedies provided in law or equity. To the extent that this Agreement is for the supply of Goods for use as, or fabrication into, parts, components, systems, or vehicles, Seller acknowledges and agrees that money damages may not be a sufficient remedy for any actual, anticipatory, or threatened breach of this Agreement by Seller with respect to its delivery of Goods to Buyer and that, in addition to all other rights and remedies that Buyer may have, Buyer shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach.

14.11

Notices required or permitted hereunder shall be delivered by any commercially reasonable manner to the address set forth in the Agreement for the Party to which applicable, or to such other address as may be provided by such Party by notice, and shall be effective upon receipt.

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            14.12      In addition to the other rights of Buyer under the Agreement, to the extent any affiliate of Buyer acquires all or any portion of the Goods from Buyer, all rights of ownership of the Goods, including all rights under warranties, all rights with respect to indemnity and insurance, and all rights to receive notices and/or grant consents under the Agreement shall fully inure to the benefit of and extend to such affiliate, and such affiliate shall be a third party beneficiary under the Agreement for such purposes.

Article 15.

Supply Chain Security

15.1

Buyer is a strong supporter and certified member of the Customs-Trade Partnership Against Terrorism ("C-TPAT"). C-TPAT is a joint effort between U.S. Customs and Border Protection and the trade community to reduce the threat of terrorism by means of protecting the integrity of cargo imported into, further processed or warehoused in, and/or exported from, the United States. As a member of C-TPAT, Buyer is required to ensure that its business partners, such as Seller, develop security processes and procedures consistent with the C-TPAT security criteria (see www.cbp.gov for more information on C-TPAT, including the C-TPAT program). Buyer strongly urges Seller to adopt the security standards found in the C-TPAT program, or the equivalent supply chain security program criteria administered by the customs administration in Seller's home country.

15.2

Seller agrees to take reasonable measures to ensure the physical security of all shipments to Buyer, or any other location designated by Buyer, against the unauthorized introduction of harmful or dangerous materials or unauthorized personnel in transportation conveyances or containers. The prior sentence extends not only to the adequacy of Seller's own security measures, but also to its selection of transportation, packing, or other business partners based in part on physical security considerations.

15.3

As a C-TPAT member, Buyer is required to conduct periodic assessments of its international supply chain. Seller agrees to take such reasonable measures as may be necessary when requested by Buyer to cooperate with Buyer's supply chain security assessments and to confirm that Seller and its business partners are taking reasonable measures to ensure the physical security of all shipments.

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Rev. 04/21/08

COMPONENT PARTS SUPPLY SYSTEM ADDENDUM
(FOR PURCHASE OF COMPONENT PARTS FROM COMPONENT PARTS SUPPLIER)

                   This Component Parts Supply System Addendum (For Purchase of Component Parts from Component Parts Supplier) ("Addendum") to the North American Purchase and Sale Agreement ("Agreement") supersedes and replaces any previous addendum or other terms and conditions with respect to the same subject matter. Whenever possible, the terms of this Addendum shall be construed in such a manner so as to avoid conflict with the Agreement, but, in the event of an unavoidable conflict, the terms of this Addendum shall control over the terms and conditions of the Agreement. Except as modified or supplemented hereby, all terms and provisions of the Agreement shall continue in full force and effect. All capitalized terms specified in the Agreement shall have the same meaning when used in this Addendum. All capitalized terms not otherwise defined in the Agreement shall have the meaning given to them in this Addendum.

Article 1 General

                   In accordance with Buyer's right under the Agreement, this Addendum documents and sets forth the responsibilities of Buyer and Seller with respect to the implementation of a component parts supply system ("Component Parts Supply System") pursuant to which Buyer may purchase certain Goods from Seller, resell those Goods to Buyer's or another Honda Company's intermediate parts supplier ("Supplier"), and designate delivery of those Goods to Supplier. The Component Parts Supply System is separate from and in addition to Buyer's purchase of Goods from Seller for its own direct use in its manufacturing process.

Article 2 Amendment to Section 2.1 of the Terms and Conditions for
Purchase and Sale of Goods ("Terms and Conditions")

                   Section 2.1 of the Terms and Conditions is hereby amended by adding the following sentence at the end:
                   The Component Parts Supply System may be implemented by way of a different form of Order and different procedures developed by Buyer (adopted from time to time for such purposes) than the Order and/or procedures utilized for Goods purchased for Buyer's direct use and delivered to Buyer.

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Article 3 Amendment to Section 4.3 of the Terms and Conditions

                   Section 4.3 of the Terms and Conditions is hereby amended by adding the following sentence:
If the F.O.B. point is Seller's plant, Supplier or its agent may take delivery of the Goods at that location.

Article 4 Amendment to Section 4.6 of the Terms and Conditions

                   Section 4.6 of the Terms and Conditions is hereby amended by adding the following sentences at the end:
If the Goods are delivered to Supplier as designated by Buyer, Supplier shall perform the inspection of the Goods, including confirming the quantity of Goods delivered by Seller. Seller expressly acknowledges that Buyer shall make payment to Seller based upon notification by Supplier of the satisfactory inspection of the Goods, including the quantity of conforming Goods received by Supplier and not upon Seller's notification of the quantity of conforming Goods delivered to Supplier. All disputes over the quantity of Goods delivered to Supplier must be resolved at the time of delivery. With respect to all other disputes related to the Goods, Seller shall make every effort to resolve such disputes directly with Supplier, and Buyer shall be involved only if Seller and Supplier are unable to reconcile such disputes.

Article 5 Amendment to Section 5.9 of the Terms and Conditions

                   Section 5.9 of the Terms and Conditions is hereby amended by replacing the first sentence of said Section in its entirety with the following:
The warranties, representations and covenants contained in Sections 5.1 through 5.8, inclusive, are specifically for the benefit of Buyer and any person claiming by or through Buyer, including Supplier, to which Buyer may assign such warranties, representations, and covenants.

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Rev. 11/01/06

COMPONENT PARTS SUPPLY SYSTEM ADDENDUM

(FOR SALE OF COMPONENT PARTS TO PARTS SUPPLIER)

This Component Parts Supply System Addendum (For Sale of Component Parts to Parts Supplier) ("Addendum") to the North American Purchase and Sale Agreement ("Agreement") supersedes and replaces any previous addendum or other terms and conditions with respect to the same subject matter. Whenever possible, the terms of this Addendum shall be construed in such a manner so as to avoid conflict with the Agreement but, in the event of an unavoidable conflict, the terms of this Addendum shall control over the terms and conditions of the Agreement. Except as modified or supplemented hereby, all terms and provisions of the Agreement shall continue in full force and effect. All capitalized terms specified in the Agreement shall have the same meaning when used in this Addendum. All capitalized terms not otherwise defined in the Agreement may have the meaning given to them in this Addendum.

Article 1 General

In accordance with Buyer's right under the Agreement, with Seller's concurrence, to provide Seller with material, work in progress or component parts of the Goods, this Addendum documents and sets forth the responsibilities of Buyer and Seller with respect to the implementation of a component parts supply system ("Component Parts Supply System") pursuant to which Buyer or another Honda Company designated by Buyer may purchase and resell Supplies to Seller as agreed upon by Buyer and Seller for use in making the Goods, which Supplies may be delivered directly to Seller by Buyer's designated supplier of Supplies (the "Component Parts Supplier").

Article 2 Amendment to Section 2.2 of the Terms and Conditions for Purchase and Sale of Goods (the "Terms and Conditions")

                   Section 2.2 of the Terms and Conditions is hereby amended by adding the following sentences at the end:
Upon receipt of an Order issued from Buyer, Seller shall notify Buyer or another Honda Company designated by Buyer (hereafter referred to as the "Designated Honda Company") of its needs for Supplies, and shall indicate the daily delivery schedule for Supplies for the applicable time period. Buyer (or the Designated Honda Company) in turn shall order the Supplies from the Component Parts Supplier, Buyer (or the Designated Honda Company) agrees to sell and Seller agrees to buy the Supplies at a price specified in the Order or as otherwise agreed upon by Buyer (or the Designated Honda Company) and Seller.

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Article 3 Amendment to Section 3.6 of the Terms and Conditions

                   Section 3.6 of the Terms and Conditions is hereby amended by adding the following sentence at the end:
Payment made to Seller pursuant to the Agreement may net out the amount due for Supplies sold by Buyer (or the Designated Honda Company) to Seller.

Article 4 Amendment to Section 7.1 of the Terms and Conditions

                   Section 7.1 of the Terms and Conditions is hereby amended by adding the following sentence at the end:
At all times that title to the Supplies is held by Seller, the Supplies are at Seller's sole risk of loss and Seller shall insure the Supplies at Seller's expense in amounts equal to their full insurable replacement value and otherwise in compliance with Article 7.

Article 5 Amendment to Section 10.1 of the Terms and Conditions

                   Section 10.1 of the Terms and Conditions is hereby amended by adding the following sentences at the end:
Buyer (or the Designated Honda Company) shall designate to Seller the F.O.B. point for delivery of the Supplies to Seller. If Buyer (or the Designated Honda Company) designates F.O.B. Seller's plant, Buyer (or the Designated Honda Company) shall instruct the Component Parts Supplier to deliver the Supplies to Seller. If Buyer (or the Designated Honda Company) designates F.O.B. Component Parts Supplier's plant, Seller shall arrange for shipment of the Supplies in a commercially reasonable manner selected by Seller and approved by Buyer (or the Designated Honda Company), which will ensure timely, safe delivery and the lowest transportation cost.

                   Seller shall hold title to and shall own the Supplies from the time of delivery to Seller at the F.O.B. point designated by Buyer (or the Designated Honda Company) until the Goods incorporating the Supplies are delivered to Buyer in accordance with the terms of the Agreement.

Article 6 Amendment to Section 10.2 of the Terms and Conditions

                   Section 10.2 of the Terms and Conditions is hereby amended by adding the following sentences at the end:
At the time Supplies are received by Seller, Seller shall confirm the quantity of conforming Supplies as indicated by Component Parts Supplier's packing slip and shall notify Buyer (or the Designated Honda Company) of the quantity of conforming Supplies received. Any disputes over the amount of conforming Supplies delivered to Seller must be resolved at the time of delivery because Buyer (or the Designated Honda Company) shall only pay Components Parts Supplier for conforming Supplies which Seller verifies it receives. Seller shall make every effort to resolve disputes directly with Component Parts Supplier. Buyer (or the Designated Honda Company) shall be involved only if Seller and Component Parts Supplier are unable to reconcile their dispute.

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Article 7 Amendment to Section 10.3 of the Terms and Conditions

                   Section 10.3 of the Terms and Conditions is hereby amended by replacing said Section in its entirety with the following:
Except with Buyer's prior written consent, Seller will not substitute any other property for the Supplies and will not sell, transfer, loan, use or permit use of the Supplies for any purpose except to furnish Goods to Buyer. Seller expressly warrants that if it substitutes (with Buyer's consent) any other property for the Supplies, such substitutes shall in all cases conform to the same quality as the Supplies provided under this Agreement. The Supplies shall be subject to inspection by Buyer upon request at reasonable hours. Seller also expressly agrees to make a periodic accounting to Buyer (or the Designated Honda Company) for all scrap or salvage resulting from the Supplies which are not used to furnish Goods to Buyer, or any other situation resulting in a discrepancy between the amount of Supplies delivered to Seller and the amount of such Supplies incorporated in the Goods received by Buyer. In the event of such a discrepancy, a separate debit/credit memo may, if appropriate, be issued by Buyer. Seller further agrees to process the Supplies into the Goods within a period of time as set forth in the Order. Seller also agrees, in the event of strike, work stoppage, insolvency or other inability to meet product schedules as described in the Agreement and the Order, or in the event of termination of the Agreement, that all Supplies shall be immediately upon request be returned to Buyer (or the Designated Honda Company) and all outstanding balances owed to Buyer (or the Designated Honda Company) for the Supplies shall be paid.

Article 8 Taxes

                   Seller agrees to pay any and all taxes incurred or accrued upon the Supplies while Seller holds title to the Supplies, including but not limited to personal property taxes or other ad valorem taxes.

Article 9 Warranties

                   To the extent permitted in the agreement between Buyer (or the Designated Honda Company) and Component Parts Supplier for the purchase of Supplies, Buyer (or the Designated Honda Company) hereby assigns to Seller the warranties of Component Parts Supplier regarding the Supplies. Buyer (or the Designated Honda Company) makes no warranties whatsoever regarding the Supplies, it being the understanding of Buyer (or the Designated Honda Company) and Seller that the Supplies are sold to Seller hereunder on an "AS-IS" basis.

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Internet Terms and Conditions Addendum

              This Internet Terms and Conditions Addendum ("Addendum") to the North American Purchase and Sale Agreement ("Agreement") supersedes and replaces any previous addendum with respect to the same subject matter, except it shall not replace any Specifications with respect to EDI currently in effect. Wherever possible, the terms of this Addendum shall be construed in such a manner so as to avoid conflict with the Agreement but, in the event of an unavoidable conflict, the terms of this Addendum shall control over the terms and conditions of the Agreement. Except as modified or supplemented hereby, all terms and provisions of the Agreement shall continue in full force and effect. All capitalized terms specified in the Agreement shall have the same meaning when used in this Addendum. All capitalized terms not otherwise defined in the Agreement shall have the meaning given to them in this Addendum.

Article 1 General

               This Addendum shall govern all transactions and communications performed over the Internet in which Buyer and Seller communicate some or all offers, acceptances, and other information relating to the Agreement, the purchase and sale of Goods or to otherwise facilitate the fulfillment of Orders (collectively a "Transaction" or "Transactions"). By signing the Agreement or using Buyer's Internet supplier portal located at www.HondaSupplyTeam.com or any successor site or additional sites thereto (collectively the "Web Site"),or otherwise engaging in Transactions, whichever first occurs, Seller agrees to be bound by the terms and conditions of this Addendum.

Article 2 Electronic Agreements and Electronic Records

               2.1 Authorized Users. Only Sellers that have properly completed the application process and agreed to be bound by the terms of this Addendum may use the Web Site to perform Transactions. A person or entity that a Seller appoints or authorizes to act on behalf of such Seller may also use the Web Site, at such Seller's sole risk.

              2.2 Signatures. In addition to any signature deemed as such under applicable law, regulation, rule, association standard or other standard, upon request by Buyer, Seller agrees to adopt a unique electronic identification consisting of such components of identification information in a format determined by Buyer (collectively hereafter referred to as "Electronic Signature") that is to be attached to, logically associated with or contained in each Transaction. Seller shall arrange for each of its employees, agents or representatives designated by Seller ("Authorized User" or "Authorized Users") to have access to the Web Site on Seller's behalf. Seller agrees that its Authorized User's Electronic Signature attached to, logically associated with or contained in any agreement or Transaction shall be sufficient to verify that such Seller originated such Transaction and to create a legally binding obligation of such Seller. Seller shall not disclose to any unauthorized person its Electronic Signature or any part thereof. Seller shall keep security procedures in place that are sufficient to ensure that all Transactions are authorized, and to protect its passwords, business records, data, smart cards and each Electronic Signature from improper use or theft. Seller shall be responsible for any unauthorized use by Seller (or any of its Authorized Users) of its passwords, Electronic Signatures, smart cards or other such security device.

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                2.3 User Identification Numbers, Passwords and Digital Certificates. Seller's access to the Web Site may be dependent upon a security access system that may require Seller and each Authorized User to specify a user identification number and password as part of the sign-on procedure. Seller represents and warrants that each Authorized User registered with Seller pursuant to such a system is (i) an employee of Seller, (ii) authorized to perform Transactions, and (iii) the individual identified as such on the user registration form submitted to Buyer. Seller agrees to ensure that any individual password is known only to the appropriate Authorized User. In addition, Seller agrees to immediately notify Buyer (a) if at any time an Authorized User who has been issued an individual user identification number, password and/or digital certificate (or has been registered to receive any of the foregoing) ceases to be an Authorized User for any reason, including as a result of such Authorized User no longer being employed by Seller, or (b) in the event of any loss, theft or unauthorized disclosure or use of any user identification number, password or digital certificate. Individual user identification numbers, passwords and digital certificates may not be transferred between Authorized Users, and Seller shall ensure that such transfers do not occur. Buyer may, but is under no obligation to, offer new services and functionality within the Web Site such that Seller is able to electronically compare its list of Authorized Users with such a list maintained by Buyer. To the extent such functionality is provided, Seller shall conduct periodic comparisons of the separately maintained lists, and Seller immediately shall notify Buyer of any discrepancy revealed by any such comparison. Buyer reserves the right at any time and from time to time to change or revoke user identification numbers, passwords and digital certificates issued to Seller or to any Authorized User.

             2.4 Equipment and Access. Seller shall be responsible for obtaining and maintaining, at Seller's expense, all telecommunication, computer hardware, web browsers and other equipment needed for access to and use of the Web Site as it currently exists and as it may change in the future.

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Article 3 Transmissions

                 3.1 Risk of Transmission. Seller bears the risk that any Transaction or other data electronically transmitted by Seller to the Web Site or over the Internet is not properly transmitted or is garbled or lost in transmission.

                 3.2 Notice of Errors and Garbled Transmissions. Seller agrees to notify Buyer immediately if Seller becomes aware (i) of any failure by Seller to receive an electronic message through the Web Site or over the Internet or (ii) that a Transaction initiated through the Web Site or over the Internet has not been properly processed. Seller agrees to notify Buyer if any communication sent by Buyer is received in an unintelligible or garbled form.

Article 4 Validity; Enforceability

                 4.1 This Addendum has been adopted by Seller to evidence Seller's intent that any Transactions performed over the Internet or through the Web Site to which it attaches its Electronic Signature create legally binding contracts.

                4.2 Any Transaction performed through the Web Site or over the Internet shall be considered to be a "writing" or "in writing" for purposes of applicable law. Either party at any time may cause a Transaction, whether sent or received, to be reproduced in a tangible visually perceptible form and may label or identify information so reproduced in such tangible form. Any such reproduction may be used for any and all purposes for which a written or printed original could be used had such Transmission been sent in a tangible visually perceptible form in the first instance, including, but not limited to, use in evidence in any court, including, for example, to prove contract terms or a debt or in regard to any dispute hereunder. Nothing herein precludes a challenge to the accuracy of such reproduction available on grounds other than that electronic communications were involved, or any objection also available as against use of a written or printed original.

               4.3 A Transaction to which Seller has attached its Electronic Signature (a "Signed Transaction") shall be deemed for all purposes: (i) a symbol executed or adopted by the sender with a present intention to authenticate a writing, pursuant to Sections 1-201(MM) and 1-201(TT) of the Uniform Commercial Code as in effect in the State of Ohio; (ii) to create a legally binding obligation of Seller; and (iii) to constitute an "original" when printed from electronic files or records established and maintained in the normal course of business. The conduct of the Parties to a Transaction pursuant to this Addendum, including the use of Signed Transactions pursuant to this Addendum, shall, for all legal purposes, evidence a course of dealing and a course of performance accepted by Seller in furtherance of the Agreement. Seller agrees not to contest the validity or enforceability of Signed Transaction under the provisions of any applicable law relating to whether certain agreements are to be in writing or signed by Seller to be bound thereby. Signed Transactions, if introduced as evidence on paper in any judicial, arbitration, mediation, administrative or other similar proceeding, will be admissible as between the parties to a specific Transaction to the same extent and under the same conditions as other business records originated and maintained in documentary form. Buyer shall not contest the validity of copies of Signed Transactions under the statute of frauds, nor contest the admissibility of copies of Signed Transactions under either the hearsay rule or the best evidence rule on the basis that the Signed Transaction did not originate or were not maintained in documentary form.

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Article 5 Scope

           This Addendum is intended to facilitate the exchange between the parties of information over the Internet or through the Web Site. Except to the extent specifically set forth herein, this Addendum does not extend to the substance, significance or effect, legal or otherwise, of the information or communications actually exchanged.

Article 6 Notices

               In addition to the notice provision of the Agreement, notices, requests, demands, bulletins and other communications may also be given by Buyer posting to the applicable portion of the Web Site, and the same shall be deemed to have been received by Seller upon such posting.

Article 7 Alternate Method of Communication

                Unless otherwise specified by Buyer, in the event of a failure of a Transaction (whether by lack of confirmation or for other reason known to the sender which would indicate that the addressee did not receive a transmission), it is the responsibility of the sending party to transmit the contents of any pending transmission to the receiving party using another method which is timely, reasonable, and appropriate under the circumstances.

Article 8 Web Site Terms of Use

Seller agrees to comply with the terms of use posted by Buyer on the Web Site from time to time.

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TOOLING TERMS AND CONDITIONS

              For purposes of these Tooling Terms and Conditions (these "Tooling Terms"), "Owner" refers to Honda of America Mfg., Inc. ("HAM") unless another Honda Company is otherwise identified as "Owner" in a writing issued by HAM or such Honda Company, including without limitation, a Tooling Authorization (as defined in Section 17.3 of these Tooling Terms), and "Seller” refers to the Seller Company to which the Tooling is provided hereunder.

Article 1 Tooling, Record[s]

               As used herein, "Tooling" shall mean all tools, tooling, equipment, dies, jigs, specifications, and other like material of every description furnished to Seller or paid for or to be paid for by Owner, including without limitation, the items identified on one or more Record(s) (as hereafter defined), if any, together with all replacements, additions, and substitutions thereof, and all Proprietary Materials (as hereafter defined) with respect thereto. As used herein, "Record(s)" shall mean any document or record (including without limitation, tooling records, tooling quotations, or other transmissions related to the Tooling) that is intended by the parties to identify such Tooling.

Article 2 Acknowledgement

                 Owner and Seller acknowledge that (i) the subject matter of these Tooling Terms is an integral part of Owner's business and (ii) these Tooling Terms are a supplement to any existing agreements between the parties with respect to the purchase and/or sale of production parts and/or materials for use by Owner or the Honda Companies, and if terms contained within these Tooling Terms conflict with those existing agreements, then these Tooling Terms shall control.

Article 3 Ownership, Identification

               The Tooling is and remains the sole property of Owner and is to be plainly marked and/or otherwise clearly identified by Seller as Owner's property and is to be used in filling only the orders of Owner and/or the Honda Companies. Seller is expressly prohibited from selling, leasing, bailing, or otherwise disposing of any Tooling or portion thereof to any third party at any time, and this obligation shall survive the expiration, termination, or cancellation of these Tooling Terms.

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Article 4 Owner's Rights of Possession, Equitable Relief

                  Except as set forth herein, Seller will have no interest of any sort in the Tooling. Owner has the right to the sole, unencumbered, unqualified, and absolute possession of the Tooling at any time. In furtherance of this right, Owner or a Honda Company, in its sole discretion, may at any time (i) request Seller to remove the Tooling, in which case Seller shall immediately prepare it for shipment and redeliver it to the location specified by Owner or such Honda Company, freight prepaid, in the same condition as originally received by Seller, reasonable wear and tear excepted, provided, however, that Owner will reimburse Seller to the extent such freight cost exceeds the cost of shipping the Tooling from the Seller plant where the Tooling is located to the nearest Owner or Honda Company manufacturing plant; and/or (ii) exercise its unconditional right of entry, which Seller hereby gives to Owner, the Honda Companies, and their respective designees, to inspect at and remove the Tooling from the premises at which the Tooling is located without liability in trespass for such entry. In any case, Owner's, a Honda Company's, or their respective designees' inspection of Tooling is final as to both quality and quantity. Seller acknowledges that any failure by it to promptly deliver or remove the Tooling or to give Owner, a Honda Company, or their respective designees access to the Tooling to inspect and remove it would result in immediate irreparable damage and injury to Owner and/or the Honda Companies beyond the value of the Tooling itself or for which an adequate remedy at law may not exist. Therefore, Seller agrees that in the event of such failure or threatened failure for any reason whatsoever, and in addition to any other remedy to which Owner or the Honda Companies may be entitled, Owner and/or the Honda Companies shall be entitled to institute and prosecute proceedings in a court of competent jurisdiction to obtain temporary and/or permanent injunctive or other equitable relief to enforce any provision hereof without the necessity of posting bond or proof of actual injury or damage.

Article 5 Installation and Testing

                Unless Owner or a Honda Company specifies otherwise: Seller is responsible for installing the Tooling on or before the date on which Owner or such Honda Company specifies and in accordance with all terms and conditions specified by the Toolmaker (as defined in Section 17.3); and Seller is also responsible for testing the Tooling to determine if the Tooling is merchantable, fit for its intended purpose, and in compliance with all standards, specifications, and other instructions furnished by or on behalf of Owner or a Honda Company.

Article 6 Location, Storage and Owner's Inspection

The Tooling is and shall continue to be kept and maintained safely at the location(s) identified on the Records and shall not be removed therefrom without Owner's or a Honda Company's prior written approval. The Tooling is subject to inspection by Owner, any Honda Company, or their respective designees at any time during normal business hours. To the extent that Seller is permitted by Owner or a Honda Company to locate the Tooling at one of its supplier's facilities, Seller shall enter into a written agreement with such supplier with respect to such Tooling that is at least as stringent as the terms contained herein and shall make Owner and the Honda Companies third party beneficiaries to said agreement.

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Article 7 Insurance and Risk of Loss

             Seller, at its expense, shall procure insurance with reputable and financially responsible insurance companies to insure the Tooling at all times in amounts equal to its full insurable replacement value, with loss payable to Owner. While in Seller's possession or control, the Tooling is at Seller's risk of loss, excepting only reasonable wear and use. Seller shall provide a certificate or other evidence of insurance at Owner's request.

Article 8 Use, Maintenance and Inspections

               The Tooling shall be used (i) in compliance with all applicable laws, regulations, orders, and standards, and (ii) in conformity with all standards, specifications, and other instructions (including without limitation, Owner's, a Honda Company's, or their respective designee's instructions from time to time that design and engineering changes be made to the Tooling) furnished by Owner, a Honda Company, or their respective designee. The Tooling shall not be modified without the prior written consent of Owner or a Honda Company. Maintenance of the Tooling is solely Seller's responsibility for so long as the Tooling is subject to these Tooling Terms, whether or not the Tooling is in use. Upon Seller's initial receipt of the Tooling, and for so long as the Tooling is subject to these Tooling Terms, Seller will inspect both the Record and the Tooling and report promptly to Owner any defect, damage, or omission that does or could affect the value of the Tooling or its suitability for production. Absent Seller's prompt report to the contrary, Owner may rely upon the accuracy of the Records and the satisfactory condition of the Tooling.

Article 9 Indemnification and Release

Except as otherwise prohibited by applicable law, Seller shall indemnify and hold Owner and the Honda Companies harmless from all claims, actions, causes of action, suits, damages, losses, and expenses of any nature, including but not limited to, attorneys' fees, arising out of the possession, storage, installation, maintenance, use, or control of the Tooling by Seller, its employees, or any subsidiary, subcontractor, or other person licensed under Section 13, including but not limited to, damages to the Tooling or other property of Owner or any Honda Company or the property of others and injuries or death to persons. In furtherance of the foregoing, Seller hereby expressly waives any and all statutory and/or constitutional immunity to which, but for this waiver, it might be entitled (i) as an employer in compliance with the workers' compensation laws of the jurisdictions in which Seller is located, or (ii) under any other employee benefit statutes or similar laws of any jurisdiction.

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Article 10 Warranty Disclaimer

Owner and Seller acknowledge that neither Owner nor any of the Honda Companies are or were at any time a manufacturer or distributor of the Tooling, and Owner expressly disclaims liability for damage to persons or property resulting from the use of the Tooling. OWNER DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE TOOLING, INCLUDING WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT, AND FITNESS FOR A PARTICULAR PURPOSE.

Article 11 Non-disclosure

             The Tooling Contract (to the extent set forth in Article 17), the Tooling, and any Proprietary Materials (as defined in Article 13) associated there with and all intellectual property rights embodied therein, are and shall continue to be treated as confidential and proprietary to Owner, used so as to prevent disclosure, and subject to all patent, proprietary, or other property rights of Owner, including without limitation, the rights afforded Owner pursuant to Sections 1333.61 through 1333.69 of the Revised Code of Ohio and under any trade secret statutes or similar laws of any jurisdiction. Without Owner's prior written consent, Seller will not disclose, transfer, or loan the Tooling, the Tooling Contract, or any information (including without limitation, any Proprietary Materials associated therewith and all intellectual property rights embodied thereon or therein) associated therewith to any subsidiary, affiliate, subcontractor, or other person.

Article 12 Waiver of Liens

              As a continuing condition of Seller's possession or use of the Tooling, Seller, for itself and its successors and assigns, shall ensure that no third party obtains any lien or other right in the Tooling and hereby waives and relinquishes, and agrees to obtain from any third parties who might claim any such lien (including without !imitation mechanic's liens) or right, their written waiver and relinquishment of all rights, if any, to any lien or other right of retention whatsoever with respect to the Tooling. To the extent that any common law or statutory provision, including without limitation, Sections 1333.29, 1333.30, 1333.31, and 1333.41 of the Revised Code of Ohio and similar laws or statutes of any other jurisdictions, should be deemed applicable to the Tooling or Tooling Contract and should confer upon or create in favor of Seller any lien, right, or remedy, whether for work performed on or goods produced with or raw materials ordered in connection with the Tooling or Tooling Contract, Seller hereby irrevocably waives and relinquishes, for itself and its successors and assigns, any and all such liens, rights, and remedies, agreeing that its rights and remedies are solely as set forth in these Tooling Terms. Seller acknowledges that the provisions of this Article 12 are a bargained consideration essential to Owner's agreement and to Seller's possession of the Tooling.

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Article 13 License to Use Tooling Information for Limited Purposes

                 Owner hereby grants to Seller a limited, nonexclusive, and non-transferable license to utilize Owner's intellectual property relating to the Tooling and the Tooling Contract, whether or not patented or patentable, including without limitation, all designs, drawings, schematics, and blueprints, and any modifications, deviations, improvements, or adaptations thereof, whether by Owner, a Honda Company, Owner's designee, or Seller (individually and collectively the "Proprietary Materials"), solely for the purposes of manufacturing and using the Tooling solely for Owner's and the Honda Companies' benefit pursuant to Owner's, a Honda Company's, or their respective designee's instructions in compliance with this and other written agreements to which Owner or a Honda Company is signatory and for no other purpose whatsoever. Seller acknowledges Owner's proprietary ownership of each of the Proprietary Materials. If Owner consents to Seller's disclosure, transfer, or loan of the Tooling or any information (including without limitation, any Proprietary Materials associated therewith and all intellectual property rights embodied thereon) associated therewith to any subsidiary, subcontractor, or other person, such consent shall be contingent, in Owner's sole discretion, upon Owner's grant to such third party of a limited, nonexclusive, and non-transferable license in the Proprietary Materials, or Seller's grant, with Owner's permission, to such third party of a limited, nonexclusive, and non-transferable sublicense in the Proprietary Materials. Upon termination of these Tooling Terms, upon assignment of the Tooling Contract to Owner under Article 17 hereof, and/or upon possession of the Tooling by Owner, a Honda Company, or their respective designee, whichever first occurs, Seller will return to Owner all originals of all materials embodying the Proprietary Materials, in whatever medium or format, and all copies of such originals.

Article 14 No Implied Waiver

Nothing herein contained or capable of being inferred from any possession of Tooling by Seller or any other relationship between Owner or a Honda Company and Seller shall obligate Owner or any Honda Company in any way to purchase any goods from Seller or to create any defense in favor of Seller, whether by setoff, contract, or otherwise, to any demand by Owner for possession of the Tooling and/or assignment of the Tooling Contract to Owner.

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Article 15 Further Assurances

            Seller agrees that it will promptly, upon any request of Owner, participate in the obtaining, execution, and filing of any financing statements, lien waivers, or other documents deemed by Owner to be necessary or prudent for the protection of Owner's interest in the Tooling and/or Tooling Contract. Notwithstanding the foregoing, Seller hereby irrevocably authorizes Owner at any time and from time to time to file any such financing statements, lien waivers, bills of sale, or other documents, and amendments thereto, disclosing or confirming Owner's interest in the Tooling and Tooling Contract, and to provide any other information required by the Uniform Commercial Code or other similar law of any jurisdiction for the sufficiency or filing office acceptance of any such financing statement, lien waiver, or other document or amendment thereto. Any Records at any time furnished by Owner or a Honda Company to Seller will, upon Owner's request, be verified, completed, signed, and returned, which verification, completion, signature, and return may be by electronic data interchange or other electronic communication methods, to Owner or, to the extent furnished by such Honda Company, to the Honda Company within three (3) business days.

Article 16 Miscellaneous

              All covenants and agreements contained in these Tooling Terms by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not, except that Seller shall have no right to assign its rights hereunder or any interest herein without the prior written consent of Owner.

            No amendment, modification, termination, or waiver of any provision of these Tooling Terms given pursuant or attendant hereto, and no consent to any departure by either party therefrom, shall in any event be effective unless the same shall be in writing and signed by both parties, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on Seller in any event, case, or occurrence, shall of itself entitle Seller to any other or further notice or demand in any similar or other circumstances.

             Unless otherwise agreed in writing, the obligations, liabilities, warranties, representations, rights, and remedies, including without limitation, the provisions of Article 9 (Indemnification and Release) and Article 11 (Non-disclosure), of each of the parties accrued, made, or incurred prior to or at the time of any termination or expiration of these Tooling Terms shall survive such termination or expiration. Furthermore, a default under any other agreement between the parties shall not affect Owner's rights with respect to the Tooling and/or the Tooling Contract under these Tooling Terms.

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                 The titles of the various articles of these Tooling Terms are solely for convenience and are not part of these Tooling Terms for purposes of interpreting the provisions hereof.

                 These Tooling Terms and any other document or instrument delivered or to be delivered hereunder are being executed and delivered in and are intended to be performed under the local laws of the State of Ohio. Notwithstanding the foregoing, to the extent Owner is located in a state other than Ohio, or in a country other than the United States, the parties intend that this Article 16 shall govern; provided however, that if the governing laws provision of this Article 16 are found to be unenforceable, then the laws of the state/country where such Owner is located shall govern. The United Nations Convention on Contracts for the International Sale of Goods shall have no application to these Tooling Terms or any actions hereunder or contemplated hereby. If any provision hereof is or becomes invalid or unenforceable under any law of mandatory application, it is the intent of the parties hereto that such provision will be deemed severed and omitted herefrom, the remaining portions hereof to remain in full force and effect as written. Any provision hereof that becomes unenforceable by reason of the commencement of a case under the Bankruptcy Code, or similar law of any jurisdiction shall again be valid and enforceable no later than the termination of said case.

                Notices required or permitted under these Tooling Terms shall be delivered by any commercially reasonable manner to the address set forth in the North American Purchase and Sale Agreement for the party to which applicable, or to such other address as may be provided by such party by notice, and shall be effective upon receipt.

Article 17  Manufacture of Tooling

                17.1        Background. The provisions of this Article 17 address the rights and obligations of Owner and Seller during the manufacture of Tooling for or on behalf of Owner.

                17.2       Owner's Procedures. Except as set forth in this Article 17, quotation, order, manufacturing, testing, delivery, acceptance, and payment for Tooling shall be in accordance with Owner's procedures, all of which shall be provided to Seller from time to time ("Owner's Procedures"). Seller acknowledges that a Honda Company designated by Owner may, on behalf of Owner, generate Tooling quotes forms, solicit and accept Tooling quotes from Seller, issue Tooling Authorizations, and otherwise engage in activities described in this Article 17.

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                     17.3  Commencement; Tooling Contract

                               17.3.a  Commencement. Seller will commence its work related to Tooling in accordance with the Tooting Authorization for such Tooling. Until such time as Seller receives the Tooling Authorization, Seller has no authority to commence work on the Tooling. "Tooling Authorization" shall mean the tooling authorization form(s) (including without limitation, purchase orders and `Go 1" and `Go 2" releases) generated by Owner from time to time, which designates the Tooling intended by Owner to be purchased, produced, or supplied by Seller. The Tooling Authorization shall generally describe the Tooling to be produced by Seller and may indicate the quantity, quality, or other characteristics of such Tooling, as the same may be modified or supplemented by Owner from time to time.

                               17.3.b  Tooling Contract. Seller warrants and represents that any purchase order, contract, or other agreement for the purchase, fabrication, or acquisition of the Tooling ("Tooling Contract") with the supplier of the Tooling (the "Toolmaker") will (1) direct the Toolmaker to supply the Tooling only in accordance with specifications agreed upon by Seller and Owner, including without limitation, the Tooling Authorization, (2) be subject to the prior review and approval by Owner upon request, (3) permit assignment thereof to Owner to enable Owner to exercise all rights of Seller thereunder, (4) provide that Toolmaker shall afford to Owner the rights of access to and possession of the Tooling (including all simulations, test data, and other information necessary to manufacture, install, and otherwise use such Tooling), as are set forth in Article 4 hereof, (5) name Owner as an express third-party beneficiary in the Tooling Contract, (6) provide that title to the Tooling will pass directly from Toolmaker to Owner, and (7) if the Tooling is not made in North America, provide that Seller shall be the importer of record of the Tooling.

               17.4  Inspection during Manufacture

                             17.4.a Right to Inspect. Seller shall secure for Owner oral or written (if requested by Owner) consent from the Toolmaker for Owner and/or each of the Honda Companies to inspect Toolmaker's premises, the Tooling, and all test data and other information relating to the Tooling at all times during the manufacture and acceptance process of the Tooling.

                         17.4.b Remedial Work. If, at any time, the Tooling is not being produced in substantial conformity with the specification or engineering requirements provided or approved by Owner, or is otherwise nonconforming, as determined by Owner in its sole discretion (the "Rejected Tooling"), Owner has the right to require Seller, at Seller's cost, to either (i) repair such Rejected Tooling, including but not limited to, performing remedial work, or (ii) replace the Rejected Tooling with new Tooling.

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                 17.5  Completion of Tooling.

                        17.5.a  Completion Date. Time, quality, and quantity are of the essence in completion of the Tooling. Tooling shall be completed within the designated timeframe (the "Production Timetable") as set forth in the Tooling Authorization or as otherwise designated by Owner (the "Completion Date"). Seller is solely responsible for having the Tooling completed as of the Completion Date. Owner may either shorten or extend the Production Timetable. If such rescheduling results in a shorter Production Timetable, Owner will negotiate in good faith with Seller, the premiums, if any, to be paid to Seller to compensate for realized expenditures directly resulting from such shortened Production Timetable.

                        17.5.b  Completion Quality and Quantity. Seller represents and warrants that the Tooling will be merchantable, fit for its intended purpose, and in compliance with all standards, specifications, and other instructions furnished by or on behalf of Owner.

                 17.6  Seller's Breach; Remedies. In the event of a breach by Seller of these Tooling Terms or any Tooling Authorization, Owner shall be entitled to one or more of the following remedies, which remedies shall be cumulative and additional to any other or further remedies provided herein, at law, or inequity:

                           17.6.a  Cancel the Tooling Authorization; and/or

                           17.6.b  Deal directly with Toolmaker, including but not limited to, the following actions:

                                                17.6.b.1 To have assigned to Owner and to assume the Tooling Contract or to contract independently with Toolmaker for the completion of the Tooling; and/or

                                                17.6.b.2 To make payments to Toolmaker and all amounts so paid to Toolmaker shall be credited against any amounts still due and owing to Seller;

               If Toolmaker completes the Tooling and (i) is paid in full for such work by Owner, the payment to Toolmaker shall fully satisfy and discharge any additional amounts due to Seller, irrespective of the original agreed upon price or the actual amount paid to Toolmaker or (ii) is paid more than the original agreed upon price due to Seller's default and in order to complete the Tooling, Owner shall have a claim against Seller for such differential in price, and further, may offset such amounts against any other amounts owed to Seller by Owner and/or any Honda Company.                

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                17.7     Cancellation for Convenience. Owner may cancel or terminate any Tooling Authorization for any reason or no reason whatsoever upon written notice to Seller. In the event of such cancellation by Owner, and subject to Seller complying with Section 17.8 hereof, Owner shall pay Seller for amounts related to the Subject Tooling (as defined below) in accordance with Owner's Procedures defined in Section 17.2 hereof.

                 17.8     Rights Upon Cancellation or Termination of Tooling Authorization. Upon any cancellation or termination of the Tooling Authorization by Owner, Seller shall:

                               17.8.a Immediately stop production and/or use of any Tooling subject to the cancelled Tooling Authorization (the "Subject Tooling");

                               17.8.b Assemble and segregate the Subject Tooling from any other property, including the removal of the Subject Tooling from presses or other machinery;

                               17.8.c Allow Owner to immediately take possession of the Subject Tooling, which includes the right of Owner, any Honda Company or their respective designees to enter onto Seller's or Toolmaker's premises or to require Seller to pack and ship the Subject Tooling, at Seller's expense, to a destination selected by Owner; and

                                17.8.d Indemnify and hold harmless Owner and the Honda Companies from any Toolmaker or other third party claims with respect to the Tooling, including any claim arising out of any state mechanic’s lien or molder’s lien statute.

Tooling Terms and Conditions 10

Supplier Substances of Concern Declaration

Issued as a Specification of the North American Purchase and Sale Agreement or the

Agreement for Purchase and Sale of Goods

This Declaration relates to chemical substances of concern (SOC) in parts, components, material, material preparations, logistics/packaging materials, and manufacturing service parts, collectively hereafter referred to as "product " This includes any applied coatings, adhesives, and any other substances or MRO materials that remain with the final product.

We, CDTI, do declare that each current and future "product" supplied for eventual receipt by any North American Honda entity is or will be in compliance with all current and future Honda requirements with respect to substances of concern, including without limitation the Honda Chemical Substance Management Standard (HCSMS).

The Standard below is located on the Honda Supply Team Portal under the “References” link.

Standard

Honda Chemical Substance Management Standard (HCSMS) – as may be revised from time to time

The HCSMS follows the Global Automotive Declarable Substances List (GADSL).  Because the GADSL addresses only automotive requirements, the HCSMS additionally addresses power sports and motorcycle requirements.

The undersigned hereby certifies that he or she is an employee of the supplier named above who has the authority to sign for the company.

Supplier Name	CDTI
6 Digit Supplier Code	507798
Authorized Employee/Title/Department	Pedro J. Lopez-Baldrich, General Counsel
Phone/E-mail Address	+1 805 639 9462 / pedro@cdti.com
Signature/Date	/s/ Pedro J. Lopez-Baldrich / 5/22/2015

Document Rev. No.: SSCD-0004 Rev. Date: 05/04/2010

 

Rev. 04/01/13

Conflict Minerals Addendum

                This Conflict Mineral Addendum ("Addendum") to the North American Purchase and Sale Agreement ("Agreement") supersedes and replaces any previous addendum with respect to the same subject matter, Wherever possible, the terms of this Addendum shall be construed in such a manner so as to avoid conflict with the Agreement but, in the event of an unavoidable conflict, the terms of this Addendum shall control over the terms and conditions of the Agreement. Except as modified or supplemented hereby, all terms and provisions of the Agreement shall continue in full force and effect. All capitalized terms specified in the Agreement shall have the same meaning when used in this Addendum. All capitalized terms not otherwise defined in the Agreement shall have the meaning given to them in this Addendum.

Article 1        Amendment to Title to Article 12 of the Terms and Conditions for Purchase and Sale of Goods or the Purchase and Sales Agreement, as applicable, (“Terms and Conditions”).

                    The title of Article 12 of the Terms and Conditions is hereby amended by deleting such title and replacing with the following:

“Article 12.  Duty, Drawback and Other Customs Related Information; Conflict Minerals”

Article 2       Amendment to Article 12 of the Terms and Conditions

                    Article 12 of the Terms and Conditions is hereby amended by adding the following Section 12.5 at the end of such Article:

"12.5 Seller agrees to provide Buyer at Seller's expense with such other documentation or information that Buyer deems necessary or appropriate, and agrees to participate in any reasonable country of origin inquiry, any due diligence exercise, and any independent audit to determine if Seller is supplying Buyer with any Goods or Supplies that contain conflict minerals, as that term is defined under Section 1502 of Dodd-Frank Wall Street Reform and Consumer Protection Act, or any law that amends or supersedes that Act. Seller further represents and warrants that it has implemented, or is in the process of implementing its own conflict minerals policy to ensure that purchased metals originate from smelters validated by Seller as being conflict mineral free."

Conflict Minerals Addendum 1

EX-10.3

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of July 27, 2015 (the “Effective Date”) by and between Clean Diesel Technologies, Inc., a Delaware corporation (“CDTI” or the “Company”), and Hans Eric Bippus (“Executive”).  

WHEREAS, CDTI and Executive desire to enter into an agreement setting forth the terms and conditions of Executive’s employment with CDTI;

NOW THEREFORE, in consideration of the mutual promises of the parties and the mutual benefits they will gain by the performance thereof, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties do hereby agree as follows:

1.         Employment.

CDTI employs Executive, and Executive hereby accepts employment with CDTI, upon the terms and conditions set forth in this Agreement for the period beginning on the Effective Date.  Executive’s employment shall be “at-will” subject to the Termination provisions that appear in Section 4 of this Agreement.

2.         Position and Duties.

(a) Executive shall serve as Executive Vice President of Sales & Marketing of CDTI and shall have the normal duties, responsibilities and authority of such position, subject to the power of the Chief Executive Officer of the Company or Board of Directors of CDTI (“Board”) to expand or limit such duties, responsibilities and authority.     

(b) Executive shall report to the Chief Executive Officer of the Company or Board, in the absence of the Chief Executive Officer.  Executive shall devote Executive’s best efforts and all of Executive’s business time and attention (except for permitted vacation periods, reasonable periods of illness or other incapacity) to the business and affairs of CDTI.  Executive shall perform Executive’s duties and responsibilities hereunder to the best of Executive’s abilities in a diligent, trustworthy, businesslike and efficient manner.  

(c) Executive will be subject to, and will comply with, the policies, standards and procedures generally applicable to senior management employees of CDTI from time to time.

3.         Compensation and Benefits.

(a) Base Salary.  Executive will receive an annual base salary of $265,000 per year, effective as of the Effective Date, less applicable payroll withholdings and payable in accordance with CDTI’s normal payroll practices.  This salary shall be subject to annual review by CDTI in accordance with its general policies as in effect from time to time.  

(b) Annual Bonus.  Executive shall be eligible to receive an annual bonus based on achievement of financial objectives established by the Board and the Executive’s achievement of

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agreed-to personal business objectives.  The amount of any Annual Bonus will be based upon the degree to which such objectives are met, and will vary from 0% of Base Salary to a maximum of 68% of Base Salary with a target of 40% of Base Salary and with payout at the discretion of the Board.  The annual bonus will be prorated based on the number of days Executive is employed during a calendar year.  The bonus with respect to any calendar year shall be payable in the following calendar year no later than 45 days from the date on which audited financial statements covering such calendar year are filed on Form 10-K.

(c) Equity and Cash Incentive.  Executive shall be eligible to receive long term incentive awards determined by the Board. Awards may be comprised of stock options, restricted share units and/or cash compensation. For 2015, subject to Board approval, Executive will be entitled to receive a grant of 20,000 restricted share units.  Also subject to Board approval, Executive will be granted 100,000 Stock Options that shall vest over a 3-year period as follows: one-third on each of the first, second, and third anniversaries of the date of employment. All equity awards shall be issued under and governed by the terms of CDTI’s Incentive Plan and shall be issued at 100% of fair market value on the date of grant. Stock options will be valued using the Company’s customary accounting methodology. All of Executive’s unvested stock options and restricted stock will vest immediately upon Executive’s Termination Without Cause or Resignation for Good Reason concurrent with or subsequent to a Change in Control. “Change in Control” means a change in ownership or control of CDTI effected through any of the following transactions:

(i) A merger, consolidation or other reorganization, unless securities representing more than fifty-one percent (51%) of the total combined voting power of the voting securities of the successor company are immediately thereafter beneficially owned, directly or indirectly, by the persons who beneficially owned CDTI’s outstanding voting securities immediately prior to such transaction; or

(ii) A sale, transfer or other disposition of all or substantially all of CDTI’s assets in liquidation or dissolution of CDTI; or

(iii) The acquisition, directly or indirectly by any person or related group of persons (other than CDTI or a person that directly or indirectly controls, is controlled by, or is under common control with, CDTI), of beneficial ownership of securities possessing more than fifty-one percent (51%) of the total combined voting power of CDTI’s outstanding securities pursuant to a transfer of the then issued and outstanding voting securities of CDTI by one or more of CDTI’s shareholders; or

(iv) During any period of two (2) consecutive years, individuals who, at the beginning of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director of the Board subsequent to the date of adoption of this Plan whose election, or a nomination for election by CDTI’s shareholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of any individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Board,

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as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934.

Notwithstanding the foregoing, a transaction shall not constitute a Change in Control if its sole purpose is to change the legal jurisdiction of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s securities immediately before such transaction.  

(d) Auto Allowance.  CDTI shall provide Executive with an allowance for Executive’s business-related auto expenses, in the amount of $500 per month, to be used for business purposes only.

(e) Fringe Benefits.  Executive shall be entitled to participate in all of CDTI’s employee benefit programs for which CDTI employees are generally eligible, subject to the terms and conditions of such programs.  Those programs currently include group medical, dental and vision insurance; 401(k) plan; life insurance; short-term and long-term disability insurance; and paid vacation and sick leave.  All benefits are subject to change at the sole discretion of the Board and/or CDTI.  

(i) Executive shall be entitled to four (4) weeks of vacation per year, with a maximum accrual of eight (8) weeks.  Such vacation time shall accrue and will be paid out upon Termination subject to customary payroll withholding in accordance with CDTI’s general practices.  

(f) Reimbursement of Business Expenses.  CDTI shall reimburse Executive for all reasonable expenses incurred by Executive in the course of performing Executive’s duties under this Agreement which are consistent with CDTI’s policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to CDTI’s requirements with respect to reporting and documentation of such expenses.  Such reimbursements shall be payable in accordance with CDTI’s general reimbursement practices.

4.         Termination.

(a) Employment At-Will and Termination.  Executive’s employment with CDTI will be “at will” (i.e., either Executive or CDTI may terminate Executive’s employment at any time for any reason, with or without Cause).  Executive’s employment and this Agreement may be terminated as follows:

(i) Either party may terminate this Agreement and Executive’s employment for any reason upon thirty (30) days’ written notice to the other party that this Agreement is being terminated;

(ii) The parties may terminate this Agreement and Executive’s employment for any reason without notice upon mutual written agreement of the parties;

(iii) CDTI may terminate Executive’s employment and this Agreement upon written notice to Executive at any time that the Board has determined that there is Cause for such termination.  For purposes of this Agreement, “Cause” shall mean Executive’s

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(A) gross negligence or severe or continued misconduct in the performance of Executive’s material duties; (B) commission of or pleas of “guilty” or “no contest” to a felony offense or commission of any unlawful or criminal act which would be detrimental to the reputation or character of CDTI; (C) participation in fraud or an act of dishonesty against CDTI; (D) intentional material damage to or misappropriation of CDTI property; material breach of company policies or regulations, or (E) material breach of this Agreement that is not cured to CDTI’s reasonable satisfaction within five (5) days after written notice thereof to Executive (provided that any such breach which is not capable of cure, shall immediately constitute “Cause”);

(iv) This Agreement shall terminate immediately upon Executive’s death or Disability.  “Disability” means Executive’s physical or mental incapacity to perform a substantial portion of his duties and responsibilities for any period or periods which, in the aggregate, total 90 or more calendar days within any 12-month period; or  

(v) Executive may resign for Good Reason.  For purposes of this Agreement, Executive will have Good Reason to terminate Executive’s employment with CDTI upon the occurrence of any of the following:  (A) a material diminution in the nature or scope of Executive’s responsibilities, duties or authority; (B) CDTI’s requirement that Executive relocate more than 50 miles from Executive’s place of residence; (C) any other action or inaction that constitutes a material breach by CDTI of this Agreement; or (D) a material diminution in Executive’s Base Salary unless such reduction is part of an across-the-board reduction for the Chief Executive Officer and his/her direct reports (except that an across-the-board reduction resulting in the diminution in Executive’s Base Salary due to or within six (6) months of a Change in Control is excluded and still constitutes Good Reason). Executive may not resign for Good Reason unless (A) Executive provides written notice of Executive’s intent to resign to the Board and of the occurrence of Good Reason for resignation under this paragraph within ninety (90) days of the initial existence of such reason and (B) CDTI has not remedied the alleged violation(s) within thirty (30) days of receipt of such written notice.  For purposes of this paragraph written notice must include a detailed description of the facts and circumstances of the violation allegedly constituting Good Reason and such notice must be given in accordance with applicable CDTI policy, or in the absence of such policy, to the Chair of the Board or the General Counsel of CDTI.  

(b) Payments Upon Termination.  Upon termination of Executive’s employment for any reason, Executive shall be entitled to receive any salary and benefits that are accrued and unpaid as of the date of termination.  

(i) Termination for Cause or Resignation.  If Executive resigns Executive’s employment for any reason other than for Good Reason pursuant to Paragraph 4(a)(v) above, is terminated by CDTI or the Board for Cause pursuant to Paragraph 4(a)(iii), or is terminated by mutual agreement of the parties pursuant to Paragraph 4(a)(ii) above, all compensation and benefits will cease immediately and Executive will receive none of the Severance Benefits (as defined below) or any other severance pay.  

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(ii) Termination Without Cause or Executive’s Resignation for Good Reason.  If Executive resigns for Good Reason under Paragraph 4(a)(v) above or Executive’s employment with CDTI is terminated by CDTI for any reason other for Cause or mutual agreement of the parties pursuant to Paragraph 4(a)(ii) above, subject to Paragraph 4(c) below, Executive will receive the following compensation (“Severance Benefits”):

 (A)

an amount equal to twelve (12) months of Executive’s current base salary at the time of termination (less required withholdings) payable pursuant to the Company’s regular payroll practices commencing on the later of the day after the expiration of the revocation period of the Release (as defined below) or 35 days after Executive’s termination date;

 (B)

for a period of twelve (12) months following Executive’s termination date, continue Executive’s medical, dental and vision coverage under the Company’s group health plan as in effect immediately before Executive’s termination, after which Executive may elect continuation coverage at his own expense under COBRA (section 4980 of the Internal Revenue Code of 1986 [the “Code”] and the California Continuation Benefits Replacement Act (“Cal-COBRA”); provided, however, that such extended coverage will only be provided to the extent that it is not discriminatory under section 105(h) of the Code or under any other section of the Code or other applicable law.  If the extension of such coverage would be discriminatory under section 105(h) of the Code or other applicable law, CDTI shall in lieu of extending coverage under its group health plan reimburse Executive for the cost of  individual (providing care for Executive and his family) medical, dental and vision coverage for a period of twelve (12) months after he exhausts available COBRA and Cal-COBRA; provided, however, that if such payment is discriminatory under applicable law, CDTI may in its sole discretion increase the payment in part (a) above (including applicable gross-up); and

(C)

an amount equal to a prorated portion (based on the number of full months of service) of Executive’s Annual Bonus for the year in which the termination occurs calculated and payable pursuant to the terms of the applicable bonus program in effect as determined by the Board; provided, however, that such payment shall be made to the Executive within 45 days of the 10-K as above.  

(iii) Disability.  If Executive’s employment is terminated due to Disability, subject to Paragraph 4(c) below, Executive will receive the following compensation (“Severance Benefits”):  

(A)

an amount equal to six (6) months of Executive’s current base salary at the time of termination (less required withholdings) payable

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pursuant to the Company’s regular payroll practices commencing on the later of the day after the expiration of the revocation period of the Release (as defined below) or 35 days after Executive’s termination date;

(B)

for the period of six (6) months following Executive’s termination date, continue medical, dental and vision coverage under the Company’s group health plan in effect immediately before Executive’s termination, after which Executive may elect continuation coverage at his own expense under COBRA (section 4980 of the Internal Revenue Code of 1986 [the “Code”] and the California Continuation Benefits Replacement Act (“Cal-COBRA”); provided, however, that such extended coverage will only be provided to the extent that it is not discriminatory under section 105(h) of the Code or under any other section of the Code or other applicable law.  If the extension of such coverage would be discriminatory under section 105(h) of the Code or other applicable law, CDTI shall in lieu of extending coverage under its group health plan reimburse Executive for the cost of  individual (providing care for Executive and his family)  medical, dental and vision coverage for a period of six (6) months after he exhausts available COBRA and Cal-COBRA; provided, however, that if such payment is discriminatory under applicable law, CDTI may in its sole discretion increase the payment in part (a) above (including applicable gross-up); and

(C)

an amount equal to a prorated portion (based on the number of full months of service) of Executive’s Annual Bonus for the year in which the termination occurs calculated and payable pursuant to the terms of the applicable bonus program in effect as determined by the Board; provided, however, that such payment shall be made to the Executive within 45 days of 10-K as above.

 (D)

Notwithstanding the foregoing, any benefits that Executive shall become entitled to receive under CDTI’s long-term disability insurance program as it may from time to time be in effect shall reduce the Severance Benefits payable under this Paragraph 4(b)(ii).

(c) Release and Commencement of Severance Benefits.  As a condition of receiving any Severance Benefits under this Paragraph 4, Executive is required to sign (and not revoke) a Severance Agreement and Release of All Claims (“Release”) against CDTI and related entities and individuals, in a form to be provided by CDTI, within 45 days after his termination date.  Payment of Severance Benefits shall not commence until after the time for revocation of the Release has expired (if the period for signing and not revoking the Release begins in one taxable year for the Executive and ends in the subsequent taxable year, the payment of any Severance Benefits will begin in the second taxable year).

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(d) 409A.  The parties intend that the Severance Benefits provided under this Agreement will be deemed not to be deferred compensation subject to section 409A of the Code (“section 409A”) to the maximum extent provided in the exceptions provided in the Treasury Regulations for short term deferrals (section 1.409A-1(b)(4)) and separation pay plans (section 1.409A-1(b)(9)).  All Severance Benefits shall be paid within the period ending no later than the last day of the second taxable year of the Executive following the taxable year in which the Executive’s separation from service occurs, in conformance with section 1.409A-1(b)(9) of the Treasury Regulations.  To the extent that the payment of any amount under this Paragraph 4 constitutes deferred compensation, any payment or benefit due upon Executive’s termination of employment will only be paid or provided to Executive once Executive’s termination qualifies as a “separation from service” under section 409A.  If Executive is a “specified employee” within the meaning of section 409A, any such payment scheduled to occur during the first six (6) months following Executive’s separation from service shall not be paid until the first regularly scheduled pay period following the six (6) month anniversary date of such separation from service and shall include payment of any amount that was otherwise scheduled to be paid prior thereto.

(e) Return of Property.  Upon termination of Executive’s employment or whenever requested by CDTI, Executive will immediately return all CDTI property, tangible or (where returnable) intangible, in Executive’s possession.

(f) Upon termination of Executive’s employment with CDTI for any reason, Executive shall promptly resign from any position as an officer, director or fiduciary of CDTI.  

5.         Protection of Confidential Information.

(a) Executive acknowledges entry into a Confidential Non-Disclosure Agreement on June 19, 2015 and agrees that in connection with his employment with CDTI, he will be given access to or will obtain Confidential Information (as defined below) with respect to CDTI’s business and employees.  Executive will use the Confidential Information only to carry out Executive’s job duties under this Agreement.  Executive will hold this information strictly confidential and will not use or disclose it, except in performance of Executive’s obligations to CDTI, without CDTI’s express written consent.  Executive’s obligation to maintain the confidentiality of the Confidential Information of CDTI and to refrain from using such information for any improper purpose will continue during Executive’s employment with CDTI and at all times thereafter, unless and to the extent that such Confidential Information (i) was otherwise available to Executive from a source other than CDTI, (ii) becomes generally known to, and available for use by, the public other than as a result of the acts or omissions of the Executive in contravention of this Paragraph 5, or (iii) is required to be disclosed by applicable law, court order or other legal process.  

(b) Executive shall deliver to CDTI at the termination of his employment, or at any other time CDTI may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of CDTI which Executive may then possess or have under Executive’s control.  

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(c) “Confidential Information” includes but is not limited to the following:  (i) trade secrets, ideas, processes, formulas, data, programs, other works of authorship, knowhow, improvements, discoveries, developments, designs and techniques; (ii) information regarding plans for research, development, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices, costs, supplies, customers and information regarding the skills and compensation of other employees, directors or consultants of CDTI or any Affiliate; (iii) confidential marketing information (including without limitation marketing strategies, customer or client names and requirements for product and services, prices, margins and costs); and (iv) other confidential business information of CDTI or any Affiliate.  For purposes of this Agreement, “Affiliate” means any trade or business under common control with CDTI, as that term is defined in sections 414(b) and 414(c) of the Code.

6.         Protection of Intellectual Property.  

Executive agrees that all inventions, innovations, improvements, developments, methods, techniques, processes, algorithms, data, databases, designs, analyses, drawings, reports, and all similar or related information, all software, copyrights, and other works of authorship, all other intellectual property or proprietary rights (including any patents, registrations or similar rights that may issue from the foregoing), and all tangible embodiments of any of the foregoing (in any form or medium, whether now known or hereafter existing), which relate to CDTI’s or any Affiliate’s actual or anticipated business, research and development or existing or future products or services and which are conceived, developed, contributed to, or made by Executive while employed by CDTI or any Affiliate thereof (collectively, “Work Product”), belong to and are the property of CDTI or such Affiliate, as applicable, and Executive hereby assigns to CDTI or such Affiliate, as applicable, any right, title and interest Executive may have in and to the Work Product, free and clear of any claims for compensation or restrictions on the use or ownership thereof.  Executive will promptly disclose such Work Product to CDTI and perform all actions reasonably requested by CDTI (whether during or after his employment) to establish, record, perfect and otherwise confirm such ownership, and protect, maintain and enforce CDTI’s and the Affiliate’s rights, as applicable, in such Work Product (including, without limitation, by executing assignments, consents, powers of attorney, and other instruments and providing affidavits and testifying in any proceeding).  

7.         Post-Employment Covenants.

(a) Non-Solicitation of Employees.  For a period of two (2) years following termination of Executive’s employment with CDTI, Executive shall not knowingly solicit or encourage, directly or indirectly, in person or through others, any employee of the Company whom Executive worked with at the Company or any Affiliate to terminate his or her relationship with the Company or its Affiliate or to alter his or her relationship with the Company to the Company’s detriment; provided, however, that generalized advertisement of employment opportunities including in trade or industry publications (not focused specifically on or directed in any way at the employees or an employee of CDTI) shall not be deemed to cause a breach of this Paragraph 7(a).  

(b) Non-Solicitation of Customers. For a period of two (2) years following termination of Executive’s employment with CDTI, Executive shall not knowingly solicit, divert

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or take away, or attempt to solicit, divert or take away, any person, firm or company that was, at any time during the period of twelve (12) months preceding the termination of Executive’s employment, a client of CDTI and with whom during that twelve (12) month period Executive had business dealings on behalf of CDTI or any Affiliate, for the purpose of selling or providing a product or service that competes with or displaces a product or service of CDTI that Executive had some material involvement in or received Confidential Information about while employed by CDTI.

(c) If, at the time of enforcement of this Paragraph 7, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable under circumstances then existing with respect to (i) any part of the time period covered by these covenants, (ii) any activity covered by these covenants, or (iii) any other aspect of these covenants, any adverse determination will be implemented as narrowly as possible and will not affect these covenants with respect to any other time period, activity or other aspect covered by these covenants.  

(d) Enforcement.  Each of the parties acknowledges that (i) the covenants and restrictions contained in this Paragraph 7, and the protections for Confidential Information and Work Product under Paragraphs 5 and 6, are necessary, fundamental and required for the protection and continued conduct of CDTI’s business, (ii) such covenants and restrictions relate to matters which are of a special, unique and extraordinary character and which give these covenants a special, unique value and (iii) breach of these covenants may cause CDTI or its Affiliates irreparable harm which cannot be adequately compensated by monetary damages, and therefore in the event of a breach or threatened breach of this Agreement, CDTI or its Affiliates or their applicable successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or immediate injunctive or other relief in order to enforce, or prevent any breaches of, the provisions of this Agreement.  Executive agrees that the restrictions contained in Paragraphs 5, 6 and 7 are reasonable.

8.         General Provisions.

(a) Arbitration.  Except for claims for injunctive relief brought pursuant to Paragraph 7, any dispute or controversy arising out of or relating to this Agreement, or the employment relationship created by this Agreement, including the termination of that relationship and any allegations of unfair or discriminatory treatment arising under state or federal law or otherwise, will be resolved exclusively by final and binding arbitration, except where the law specifically forbids the use of arbitration as a final and binding remedy.  The arbitration shall be administered by the Judicial Arbitration and Mediation Service (“JAMS”) (www.jamsadr.com) and shall be conducted exclusively under the then-current Employment Arbitration Rules & Procedures and JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness, and the California Code of Civil Procedure (available at www.jamsadr.com).  The arbitration will take place before a single neutral arbitrator in Ventura, California.  CDTI shall be responsible for the fees and expenses of the arbitrator in connection with the Arbitration.  Executive shall be responsible for his attorney fees and any costs required by JAMS necessary to commence the arbitration, if so commenced at Executive’s request, but in no event shall Executive be responsible for any costs beyond those which he would be required to incur if he filed a civil action in court concerning the dispute or controversy.  The parties shall have all the rights,

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remedies and defenses available in a civil action for the dispute or controversy.  The arbitrator shall issue a written award that includes the arbitrator’s essential findings and conclusions, and shall have the authority to assess attorneys’ fees and costs of the prevailing party to the losing party.  The arbitrator will not have the authority to amend, modify, supplement or change the terms and conditions of employment as set forth in this Agreement.  This arbitration provision will not prohibit either party from seeking injunctive relief pending the outcome of the arbitration or an order confirming or vacating the award in a court of competent jurisdiction.  

(b) Severability.  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

(c) Complete Agreement.  This Agreement embodies the complete agreement and understanding of the parties with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof.  There are no other agreements or understandings, written or oral, in effect between the parties relating to the subject matter of this Agreement, unless expressly referenced in this Agreement.

(d) Counterparts.  This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.  Facsimile or scanned and emailed counterpart signatures to this Agreement shall be acceptable and binding on the parties hereto.

(e) Successors and Assigns.  Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, CDTI and their respective successors and assigns; provided that the rights and obligations of Executive under this Agreement shall not be assignable.

(f) Governing Law and Jurisdiction.  All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits hereto shall be governed by, and construed in accordance with, the laws of the State of California.  Except as provided in Paragraph 8(a), each of the parties hereto submits to the exclusive jurisdiction and venue of any state or federal court sitting in the County of Ventura, California.  

(g) Waiver of Jury Trial.  AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY.

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(h) Amendment and Waiver.  The provisions of this Agreement may be amended or waived only with the prior written consent of CDTI (as approved by the Board) and Executive.

(i) Representations and Warranties of Executive.  Executive hereby represents and warrants that Executive’s employment with CDTI on the terms and conditions set forth herein and Executive’s execution and performance of this Agreement do not constitute a breach or violation of any other agreement, obligation or understanding with any third party.  Executive represents that Executive is not bound by any agreement or any other existing or previous business relationship which conflicts with, or may conflict with, the performance of Executive’s obligations hereunder or prevent the full performance of Executive’s duties and obligations hereunder.

(j) No Strict Construction.  The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.

(k) No Third Party Beneficiaries.  Nothing in this Agreement, express or implied, is intended or shall be construed to give any Person other than the parties to this Agreement and their respective heirs, executors, administrators, successors or permitted assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(l) Notices.  All notices, requests and other communications under this Agreement must be in writing and shall be deemed to have been duly given only if delivered by email or facsimile transmission, personal delivery with written receipt, or mail delivery by overnight courier prepaid, using the following contact information:

If to Executive:  Hans Eric Bippus

                                                                   email:                                     

If to CDTI:

Clean Diesel Technologies, Inc.1621 Fiske Place

Oxnard, CA 93033

Attention:  General Counsel Fax:  

Fax:                                        
email:                                      

(m) Survival.  The covenants contained in Paragraphs 4(b), 5, 6 and 7 will survive any termination or expiration of this Agreement.

(n) Review and Enforceability of Agreement.  Executive represents and warrants that prior to executing this Agreement, Executive reviewed each and every provision of this Agreement and understands same, and that Executive had a full opportunity to have this Agreement review by legal counsel of Executive’s own choosing.  

11

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above.

HANS ERIC BIPPUS, Executive: /s/ Hans Eric Bippus                    [Signature]	CLEAN DIESEL TECHNOLOGIES, INC., By: /s/ Christopher J. Harris                Title: Chief Executive Officer
6/22/15

12

EX-31.1

Exhibit 31.1

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

I, Christopher J. Harris, 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;
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: August 6, 2015	By:	/s/ Christopher J. Harris
		Christopher J. Harris
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

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

I, David E. Shea, 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;
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: August 6, 2015	By:	/s/ David E. Shea
		David E. Shea
		Chief Financial Officer (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 June 30, 2015 (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 the Registrant.

/s/  Christopher J. Harris

Christopher J. Harris

President and Chief Executive Officer

(Principal Executive Officer)

August 6, 2015

/s/  David E. Shea

David E. Shea

Chief Financial Officer

(Principal Financial Officer)

August 6, 2015

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

Goodwill and Intangible Assets (Details) - Estimated amortization expense $ in Thousands	Jun. 30, 2015 USD ($)
Estimated amortization expense [Abstract]
Remainder of 2015	$ 283
2016	471
2017	461
2018	164
2019	164
2020	$ 164

XML

Discontinued Operations (Details) - Revenue and expense information - Jun. 30, 2015 - USD ($) $ in Thousands	Total	Total
Revenue and expense information [Abstract]
Revenue	$ 918	$ 1,801
Expenses	(878)	(1,766)
Net income from discontinued operations	$ 40	$ 35

XML

Warrants (Details) - Assumptions in Black Scholes option-pricing model to estimate the fair value of the warrant liability - Black Scholes [Member] - $ / shares	5 Months Ended	6 Months Ended	12 Months Ended
	Jun. 08, 2015	Jun. 30, 2015	Dec. 31, 2014
Issued On April 2014 [Member]
Warrants (Details) - Assumptions in Black Scholes option-pricing model to estimate the fair value of the warrant liability [Line Items]
Number of warrants (in Shares)		812,000	812,000
CDTi stock price (in Dollars per share)		$ 1.84	$ 1.81
Strike price (in Dollars per share)		$ 4.20	$ 4.20
Expected volatility (1)		121.40%	86.60%
Risk-free interest rate		1.40%	1.60%
Dividend yield
Expected life		4 years 109 days	4 years 292 days
Issued On November 2014 [Member]
Warrants (Details) - Assumptions in Black Scholes option-pricing model to estimate the fair value of the warrant liability [Line Items]
Number of warrants (in Shares)		388,393	388,393
CDTi stock price (in Dollars per share)		$ 1.84	$ 1.81
Strike price (in Dollars per share)		$ 3.25	$ 3.25
Expected volatility (1)		122.50%	86.50%
Risk-free interest rate		1.40%	1.60%
Dividend yield
Expected life		4 years 146 days	4 years 328 days
Issued On June 2015 [Member]
Warrants (Details) - Assumptions in Black Scholes option-pricing model to estimate the fair value of the warrant liability [Line Items]
Number of warrants (in Shares)	500,000	500,000
CDTi stock price (in Dollars per share)	$ 2.09	$ 1.84
Strike price (in Dollars per share)	$ 2.65	$ 2.65
Expected volatility (1)	114.60%	106.40%
Risk-free interest rate	1.80%	1.70%
Dividend yield
Expected life	5 years 6 months	5 years 146 days

XML

Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended
	Jun. 02, 2015	Jun. 30, 2015	Jun. 30, 2014
Stockholders' Equity (Details) [Line Items]
Proceeds from Issuance of Common Stock		$ 4,490	$ 6,114
Underwriting Agreement [Member]
Stockholders' Equity (Details) [Line Items]
Gross Proceeds from Underwriting		5,100
Proceeds from Issuance of Common Stock		4,500
Adjustments to Additional Paid in Capital, Other		3,700
Proceeds from Issuance of Common Stock and Warrants		800
Issuance Cost		$ 100
Cowan & Company, LLC [Member] | Underwriting Agreement [Member]
Stockholders' Equity (Details) [Line Items]
Underwriting Agreement Shares Authorized (in Shares)	2,500,000
Offering Price (in Dollars per share)	$ 2.05
Public Offering Share Component Per Unit Sold (in Shares)	1
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right (in Shares)	1
Cowan & Company, LLC [Member] | Offering Warrants [Member] | Underwriting Agreement [Member]
Stockholders' Equity (Details) [Line Items]
Public Offering Warrant Component Per Unit Sold (in Shares)	0.2
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share)	$ 2.65
Class of Warrant or Rights Period from Issuance Date for which Warrants or Rights Exercisable		6 months

XML

Summary of Significant Accounting Policies (Details) - Concentration of risk raw materials purchases - Supplier Concentration Risk [Member]	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Concentration Risk [Line Items]
Purchase of Raw Material, Concentration of Risk, Percentage			10.00%
Vendor A [Member]
Concentration Risk [Line Items]
Purchase of Raw Material, Concentration of Risk, Percentage	34.00%	17.00%	37.00%	19.00%
Vendor A [Member] | Cost of Goods, Total [Member]
Concentration Risk [Line Items]
Supplies			Substrates
Vendor B [Member]
Concentration Risk [Line Items]
Purchase of Raw Material, Concentration of Risk, Percentage	13.00%		12.00%
Vendor B [Member] | Cost of Goods, Total [Member]
Concentration Risk [Line Items]
Supplies			Substrates
Vendor C [Member]
Concentration Risk [Line Items]
Purchase of Raw Material, Concentration of Risk, Percentage		11.00%		11.00%
Vendor C [Member] | Cost of Goods, Total [Member]
Concentration Risk [Line Items]
Supplies			Substrates*
Vendor D [Member]
Concentration Risk [Line Items]
Purchase of Raw Material, Concentration of Risk, Percentage				13.00%
Vendor D [Member] | Cost of Goods, Total [Member]
Concentration Risk [Line Items]
Supplies			Catalysts***

XML

Severance and Other Charges (Tables)

6 Months Ended

Jun. 30, 2015

Restructuring and Related Activities [Abstract]

Restructuring and Related Costs [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014			2015		2014
Employee severance expense	$	(5)	$	34	$	1	$	69
Lease exit costs		-		-		-		43
Legal settlements		-		-		-		265
Total severance and other charges	$	(5)	$	34	$	1	$	377

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

			Lease Exit
	Severance		Costs		Total
December 31, 2014	$	293	$	79	$	372
Provision		1		-		1
Payments		(231)		(34)		(265)
June 30, 2015	$	63	$	45	$	108

XML

Segment Reporting and Geographic Information (Details)	6 Months Ended
	Jun. 30, 2015
Segment Reporting [Abstract]
Number of Operating Segments	2

XML

Severance and Other Charges (Details) - Company`s accrual for severance and other charges $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($)
Severance and Other Charges (Details) - Company`s accrual for severance and other charges [Line Items]
December 31, 2014	$ 372
Provision	1
Payments	(265)
June 30, 2015	108
Employee Severance [Member]
Severance and Other Charges (Details) - Company`s accrual for severance and other charges [Line Items]
December 31, 2014	293
Provision	1
Payments	(231)
June 30, 2015	63
Contract Termination [Member]
Severance and Other Charges (Details) - Company`s accrual for severance and other charges [Line Items]
December 31, 2014	$ 79
Provision
Payments	$ (34)
June 30, 2015	$ 45

XML

Goodwill and Intangible Assets (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of Intangible Assets	$ 0.2	$ 0.1	$ 0.3	$ 0.3

XML

Segment Reporting and Geographic Information (Details) - Net sales by geographic region - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenues	$ 9,938	$ 11,673	$ 20,279	$ 23,252
UNITED STATES
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenues	6,296	5,683	12,643	11,097
CANADA
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenues	2,835	4,689	5,957	9,716
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenues	807	1,301	1,679	2,439
International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenues	$ 3,642	$ 5,990	$ 7,636	$ 12,155

XML

Warrants (Details) - Warrant activity - $ / shares		6 Months Ended
	Dec. 31, 2014	Jun. 30, 2015
Warrants (Details) - Warrant activity [Line Items]
Outstanding at December 31, 2014 (in Shares)	1,610,069
Outstanding at December 31, 2014	$ 3.54
Issued (in Shares)		500,000
Issued		$ 2.65
Outstanding at June 30, 2015 (in Shares)		2,110,069
Outstanding at June 30, 2015		$ 3.33
Exercisable at June 30, 2015 (in Shares)		1,610,069
Exercisable at June 30, 2015		$ 3.54
Minimum [Member]
Warrants (Details) - Warrant activity [Line Items]
WarrantsOutstandingExercisePriceRangeWeightedAverageExercisePrice	1.25	1.25
Issued		2.65
WarrantsOutstandingExercisePriceRangeWeightedAverageExercisePrice	1.25	1.25
WarrantsExercisableExercisePriceRangeWeightedAverageExercisePrice		1.25
Maximum [Member]
Warrants (Details) - Warrant activity [Line Items]
WarrantsOutstandingExercisePriceRangeWeightedAverageExercisePrice	10.40	10.40
Issued		2.65
WarrantsOutstandingExercisePriceRangeWeightedAverageExercisePrice	$ 10.40	10.40
WarrantsExercisableExercisePriceRangeWeightedAverageExercisePrice		$ 10.40

XML

Inventories

6 Months Ended

Jun. 30, 2015

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

4.Inventories

Inventories consist of the following (in thousands):

	June 30,		December 31,
	2015		2014
Raw materials	$	2,864	$	2,744
Work in process		961		902
Finished goods		2,578		2,652
Inventories	$	6,403	$	6,298

XML

Accrued Warranty (Details) - Changes in the Company`s product warranty reserve - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Changes in the Company`s product warranty reserve [Abstract]
Balance at beginning of period	$ 373	$ 453
Balance at end of period	342	485
Accrued warranty expense	219	363
Warranty claims paid	(225)	(338)
Translation adjustment	$ (25)	$ 7

XML

Segment Reporting and Geographic Information (Tables)

6 Months Ended

Jun. 30, 2015

Segment Reporting [Abstract]

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

	Three Months Ended				Six Months Ended
	June  30,				June  30,
		2015		2014		2015		2014
Revenues
Catalyst	$	6,882	$	6,289	$	13,693	$	12,100
Heavy Duty Diesel Systems		3,826		6,101		7,978		12,376
Eliminations (1)		(770)		(717)		(1,392)		(1,224)
Total	$	9,938	$	11,673	$	20,279	$	23,252
Income (loss) from operations
Catalyst	$	(157)	$	361	$	(715)	$	583
Heavy Duty Diesel Systems		(484)		642		(862)		938
Corporate		(1,419)		(1,625)		(3,129)		(3,599)
Eliminations (1)		(48)		10		(116)		(10)
Total	$	(2,108)	$	(612)	$	(4,822)	$	(2,088)
(1) Elimination of Catalyst revenue and profit in ending inventory related to sales to Heavy Duty Diesel Systems.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2015		2014		2015		2014
United States	$	6,296	$	5,683	$	12,643	$	11,097
Canada		2,835		4,689		5,957		9,716
Europe		807		1,301		1,679		2,439
Total international		3,642		5,990		7,636		12,155
Total revenues	$	9,938	$	11,673	$	20,279	$	23,252

XML

Warrants (Tables)

6 Months Ended

Jun. 30, 2015

Warrants (Tables) [Line Items]

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

		Weighted
		Average
		Exercise		Range of
	Shares	Price		Exercise Prices
Outstanding  at December 31, 2014	1,610,069	$	3.54	$1.25 - $10.40
Issued	500,000	$	2.65	$2.65
Outstanding  at June 30, 2015	2,110,069	$	3.33	$ 1.25 - $10.40
Exercisable at June 30, 2015	1,610,069	$	3.54	$1.25 - $10.40

Black Scholes [Member]

Warrants (Tables) [Line Items]

Schedule of Share-based Payment Award Warrants, Valuation Assumptions [Table Text Block]

	June 30,			June 8,	December 31,
	2015			2015	2014
Issued April 2014
Number of warrants		812,000				812,000
CDTi stock price	$	1.84			$	1.81
Strike price	$	4.20			$	4.20
Expected volatility (1)		121.4%				86.6%
Risk-free interest rate		1.4%				1.6%
Dividend yield		-				-
Expected life in years		4.3				4.8
Issued November 2014
Number of warrants		388,393				388,393
CDTi stock price	$	1.84			$	1.81
Strike price	$	3.25			$	3.25
Expected volatility (1)		122.5%				86.5%
Risk-free interest rate		1.4%				1.6%
Dividend yield		-				-
Expected life in years		4.4				4.9
Issued June 2015
Number of warrants		500,000		500,000
CDTi stock price	$	1.84	$	2.09
Strike price	$	2.65	$	2.65
Expected volatility		106.4%		114.6%
Risk-free interest rate		1.7%		1.8%
Dividend yield		-		-
Expected life in years		5.4		5.5
(1) During 2015, the Company's post-Merger historical volatility began
to be considered representive of expected volatility for these warrants.

Monte Carlo Simulation Model [Member]

Warrants (Tables) [Line Items]

Schedule of Share-based Payment Award Warrants, Valuation Assumptions [Table Text Block]

	June 30,		December 31,
	2015		2014
Issued July 2013
Number of warrants		159,000		159,000
CDTi stock price	$	1.84	$	1.81
Strike price	$	1.25	$	1.25
Expected volatility		98.9%		103.6%
Risk-free interest rate		1.0%		1.2%
Dividend yield		-		-
Expected life in years		3.0		3.5
Issued November 2014
Number of warrants		80,000		80,000
CDTi stock price	$	1.84	$	1.81
Strike price	$	1.75	$	1.75
Expected volatility (1)		106.6%		77.0%
Risk-free interest rate		1.4%		1.6%
Dividend yield		-		-
Expected life in years		4.4		4.9
(1) During  2015, the Company's post-Merger historical volatility began
to be considered representive of expected volatility for these warrants.

XML

Debt (Details) - FGI Facility [Member] $ in Millions	Jun. 30, 2015 USD ($)
Debt (Details) [Line Items]
Pledged Assets Accounts Receivable Pledged as Collateral Gross Value	$ 2.9
Borrowings Outstanding Amount Against Pledged Accounts Receivable	2.3
Borrowings Outstanding Amount Against Pleged Inventory	1.3
Line of Credit Facility, Maximum Borrowing Capacity	$ 7.5

XML

Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2015

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement [Table Text Block]

	Three Months Ended		Six Months Ended
	June 30, 2014		June 30, 2014
Revenue	$	918	$	1,801
Expenses		(878)		(1,766)
Net income from discontinued operations	$	40	$	35

XML

Liquidity and Going Concern (Details) - USD ($) $ / shares in Units, $ in Thousands	Jun. 02, 2015	Nov. 01, 2014	Oct. 20, 2014	Apr. 04, 2014	Jun. 30, 2015	May. 19, 2015	Dec. 31, 2014	Nov. 04, 2014	Jun. 30, 2014	Dec. 31, 2013	May. 15, 2012
Liquidity and Going Concern (Details) [Line Items]
Retained Earnings (Accumulated Deficit)					$ (196,500)		$ (191,055)
Cash					6,784		7,220		$ 8,558	$ 3,909
Long-term Line of Credit					3,583		$ 2,841
Shelf Registration, Authorized Amount						$ 50,000					$ 50,000
Shelf Registration Public Float, Threshold						$ 75,000					$ 75,000
Shelf Registration, Units Sold (in Shares)	2,500,000			2,030,000
Shelf Registration, Unit Price (in Dollars per share)	$ 2.05			$ 3.40
Proceeds from Divestiture of Businesses			$ 1,300
Line Of Credit With FGI [Member]
Liquidity and Going Concern (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity					7,500
Long-term Line of Credit					3,600
Line of Credit Facility, Current Borrowing Capacity					$ 3,900
Shelf Registration [Member]
Liquidity and Going Concern (Details) [Line Items]
Proceeds from Issuance of Common Stock and Warrants	$ 4,500			$ 6,100
Subscription Agreement [Member]
Liquidity and Going Concern (Details) [Line Items]
Stock Subscription Agreement,Number of Shares to be Purchased (in Shares)								1,385,000
Proceeds from Issuance of Private Placement		$ 3,800
Kanis SA [Member]
Liquidity and Going Concern (Details) [Line Items]
Long-term Debt, Gross		$ 7,500
Common Stock [Member] | Shelf Registration [Member]
Liquidity and Going Concern (Details) [Line Items]
Shelf Registration, Units Sold, Share Component Per Unit (in Shares)	1			1
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)	0.2			0.4
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share)	$ 2.65			$ 4.20
Reno Business [Member]
Liquidity and Going Concern (Details) [Line Items]
Proceeds from Divestiture of Businesses			$ 1,300
Series A Warrants [Member] | Subscription Agreement [Member] | Common Stock [Member]
Liquidity and Going Concern (Details) [Line Items]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)								388,393
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share)								$ 3.25
Share Price (in Dollars per share)								$ 2.80
Series B Warrants [Member] | Subscription Agreement [Member] | Common Stock [Member]
Liquidity and Going Concern (Details) [Line Items]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)								168,571
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share)								$ 0.01
Share Price (in Dollars per share)								$ 2.79

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

3.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. Intercompany transactions and balances have been eliminated in consolidation. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“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, 2014.

        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. Actual results could differ materially from those estimates.

        Discontinued Operations

In October 2014, the Company completed the sale of substantially all of the assets of its Reno Business, and the operations of this business were classified as discontinued operations for all periods presented in this report. Discontinued operations also includes accruals and related costs for the Company’s estimated liability to settle its ongoing indemnification matters with Johnson Matthey (“JM”) associated with the sale of Applied Utility Systems, Inc. (“AUS”), a former subsidiary of the Company, in 2009. In the statements of cash flows, the cash flows of discontinued operations are separately classified and aggregated.

For additional information, refer to Note 14, “Discontinued Operations”.

       All discussions and amounts in the consolidated financial statements and related notes for all periods presented relate to continuing operations only, unless otherwise noted.

b.Concentration of Risk

        For the three months ended June 30, 2015 and 2014, one automotive OEM customer within the Catalyst segment accounted for 60% and 47%, respectively, of the Company’s revenues. For the six months ended June 30, 2015 and 2014, one automotive OEM customer within the Catalyst segment accounted for 59% and 45%, respectively, of the Company’s revenues. This customer accounted for 50% of the Company’s accounts receivable at June 30, 2015 and December 31, 2014. 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		Six Months Ended
		June 30,		June 30,
Vendor	Supplies	2015	2014	2015	2014
A	Substrates	34%	17%	37%	19%
B	Substrates	13%	*	12%	*
C	Substrates	*	11%	*	11%
D	Catalysts	*	*	*	13%
* less than 10%

c.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 and warrants and debt that are convertible into the Company’s common stock. Because the Company incurred net losses in the three and six months ended June 30, 2015 and 2014, the effect of potentially dilutive securities has been excluded in the computation of net loss per share as their impact would be anti-dilutive. Potentially dilutive common stock equivalents excluded were 2.8 million and 2.3 million shares during the three months ended June 30, 2015 and 2014, respectively. Potentially dilutive common stock equivalents excluded were 2.7 million and 2.1 million shares during the six months ended June 30, 2015 and 2014, respectively.

d.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. For additional information, refer to Note 11, “Warrants”. The valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis is summarized as follows (in thousands):

Warrant liability	Level 1	Level 2	Level 3
June 30, 2015	-	-	$                 2,591
December 31, 2014	-	-	$                 1,474

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

	Six Months Ended
	June 30,
	2015		2014
Balance at beginning of period	$	1,474	$	939
Issuance of common stock warrants		845		1,531
Exercise of common stock warrants		-		(2,505)
Remeasurement of common stock warrants		272		1,682
Balance at end of period	$	2,591	$	1,647

e.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 the line of credit approximates its carrying value due to the variable interest rates. The fair value of shareholder notes payable 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 $7.8 million and $7.7 million at June 30, 2015 and December 31, 2014, respectively.

f.Recent Accounting Pronouncements 

        In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". ASU No. 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)". ASU No. 2014-09 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB finalized the delay of the effective date by one year, making the new standard effective for interim periods and annual periods beginning after December 15, 2017. Early adoption is permitted, but it is not permitted earlier than the original effective date. ASU No. 2014-09 provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. The Company is currently in the process of evaluating the impact of the adoption of ASU No. 2014-09 on its consolidated financial statements.

        In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. ASU No. 2014-15 defines management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. It is effective for annual reporting periods ending after December 15, 2016, and for annual and interim reporting periods thereafter. Early adoption is permitted. The Company has not elected to early adopt, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2014-15 on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, "Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be reported on the consolidated statements of financial condition as a direct deduction from the carrying amount of that debt liability. It is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period with early application permitted for financial statements that have not been previously issued. The Company has not elected to early adopt, and it does not expect the impact of the adoption of ASU No. 2015-03 to be material to its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". ASU No. 2015-05 provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. It is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. Entities can elect to adopt the standard update prospectively or retrospectively to arrangements entered into, or materially modified, after the effective date. The Company does not expect to early adopt ASU 2015-05, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2015-05 on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”. ASU No. 2015-11 changes the measurement principle for inventory from the “lower of cost or market” to “lower of cost and net realizable value.” Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.”  ASU 2015-11 eliminates the guidance that entities consider replacement cost or net realizable value less an approximately normal profit margin in the subsequent measurement of inventory when cost is determined on a first-in, first-out or average cost basis. It is effective for annual reporting periods ending after December 15, 2016, including periods within those fiscal years. Early adoption is permitted. The Company has not yet determined whether it will elect to early adopt ASU 2015-11, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2015-11 on its consolidated financial statements.

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Summary of Significant Accounting Policies (Details) - USD ($) shares in Millions, $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Summary of Significant Accounting Policies (Details) [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)	2.8	2.3	2.7	2.1
Notes Payable, Fair Value Disclosure (in Dollars)	$ 7.8		$ 7.8		$ 7.7
Customer Concentration Risk [Member]
Summary of Significant Accounting Policies (Details) [Line Items]
Concentration Risk, Percentage			10.00%
Supplier Concentration Risk [Member]
Summary of Significant Accounting Policies (Details) [Line Items]
Concentration Risk, Percentage			10.00%
OEM Customer [Member] | Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Catalyst [Member]
Summary of Significant Accounting Policies (Details) [Line Items]
Concentration Risk, Percentage	60.00%	47.00%	59.00%	45.00%
OEM Customer [Member] | Accounts Receivable [Member] | Customer Concentration Risk [Member]
Summary of Significant Accounting Policies (Details) [Line Items]
Concentration Risk, Percentage			50.00%		50.00%

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Accrued Expenses and Other Current Liabilities (Details) - Accrued expenses and other current liabilities - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014	Dec. 31, 2013
Accrued Expenses And Other Current Liabilities [Abstract]
Accrued salaries and benefits	$ 1,409	$ 1,115
Accrued severance and other charges (1)	108	372
Accrued warranty (2)	342	373	$ 485	$ 453
Warrant liability (3)	2,591	1,474	$ 1,647	$ 939
Accrued indemnification settlement (4)	550	650
Liability for consigned precious metals	494	565
Other	1,400	1,640
Accrued expenses and other current liabilities	$ 6,894	$ 6,189

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Discontinued Operations (Details) - USD ($) $ in Millions				3 Months Ended	6 Months Ended
	Jun. 03, 2015	Oct. 20, 2014	Oct. 01, 2009	Dec. 31, 2013	Dec. 31, 2014	Jun. 30, 2015
Discontinued Operations (Details) [Line Items]
Proceeds from Divestiture of Businesses		$ 1.3
Discontinued Operation, Gain (Loss) on Disposal of Discontinued Operation, Net of Tax		$ 0.2
Sales and Excise Tax Payable						$ 1.5
Tax Calculation Basis						12.2
Payments for Legal Settlements	$ 0.1
BOE Adjustment [Member]
Discontinued Operations (Details) [Line Items]
Sales and Excise Tax Payable						0.9
Tax Calculation Basis						$ 9.0
Asset Purchase Agreement [Member]
Discontinued Operations (Details) [Line Items]
Disposal Group, Including Discontinued Operation, Increase in Estimated Litigation Reserve			$ 0.9
Litigation Settlement, Amount				$ 0.2	$ 0.7

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current assets:
Cash	$ 6,784	$ 7,220
Accounts receivable, net	3,867	2,875
Inventories	6,403	6,298
Prepaid expenses and other current assets	1,268	2,130
Total current assets	18,322	18,523
Property and equipment, net	1,400	1,357
Intangible assets, net	2,291	2,662
Goodwill	4,967	5,177
Other assets	554	620
Total assets	27,534	28,339
Current liabilities:
Line of credit	3,583	2,841
Accounts payable	3,831	3,022
Accrued expenses and other current liabilities	6,894	6,189
Income taxes payable	637	1,459
Total current liabilities	14,945	13,511
Shareholder notes payable	7,525	7,476
Deferred tax liability	339	359
Total liabilities	$ 22,809	$ 21,346
Commitments and contingencies (Note 12)
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 16,753,178 and 14,152,772 shares at June 30, 2015 and December 31, 2014, respectively	$ 168	$ 142
Additional paid-in capital	204,793	200,771
Accumulated other comprehensive loss	(3,736)	(2,865)
Accumulated deficit	(196,500)	(191,055)
Total stockholders’ equity	4,725	6,993
Total liabilities and stockholders’ equity	$ 27,534	$ 28,339

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Debt (Details) - Components of Debt - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Debt (Details) - Components of Debt [Line Items]
Line of credit with FGI	$ 3,583	$ 2,841
Debt, Total	11,108	10,317
Less current portion	(3,583)	(2,841)
Long-term debt, net of current portion	7,525	7,476
1.5 Million 8% Shareholder Note Due 2016 [Member]
Debt (Details) - Components of Debt [Line Items]
Shareholder Note Due 2016	1,612	1,598
3.0 Million 8% Subordinated Convertible Shareholder Notes Due 2016 [Member]
(1) The aggregate amount of unamortized debt discount was $0.1 million and $0.2 million at June 30, 2015 and December 31, 2014, respectively.
$3.0 million, 8% subordinated convertible shareholder notes due 2016 (1)	2,962	2,947
3.0 million 8% Shareholder Note Due 2016 [Member]
Debt (Details) - Components of Debt [Line Items]
Shareholder Note Due 2016	$ 2,951	$ 2,931

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Description of Business

6 Months Ended

Jun. 30, 2015

Disclosure Text Block [Abstract]

Business Description and Basis of Presentation [Text Block]

1.Description of Business

Clean Diesel Technologies, Inc. (“CDTi” or the “Company”) currently commercializes its material technology by manufacturing and distributing light duty vehicle catalysts and heavy duty diesel emissions control systems and products to major automakers, distributors, integrators and retrofitters. Further, CDTi is evolving from being a niche manufacturer of emissions control solutions for the automotive and heavy duty diesel OEM, retrofit and aftermarket markets to becoming an advanced materials technology provider for these markets. 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. It has operations in the United States (“U.S.”), Canada, the United Kingdom, France, Japan and Sweden as well as an Asian investment.

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Summary of Significant Accounting Policies (Details) - Reconciliation of the warrant liability measured at fair value using Level 3 inputs - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Reconciliation of the warrant liability measured at fair value using Level 3 inputs [Abstract]
Balance at beginning of period	$ 1,474	$ 939
Issuance of common stock warrants	$ 845	1,531
Exercise of common stock warrants		(2,505)
Remeasurement of common stock warrants	$ 272	1,682
Balance at end of period	$ 2,591	$ 1,647

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Inventories (Tables)

6 Months Ended

Jun. 30, 2015

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

	June 30,		December 31,
	2015		2014
Raw materials	$	2,864	$	2,744
Work in process		961		902
Finished goods		2,578		2,652
Inventories	$	6,403	$	6,298

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Inventories (Details) - Componets of Inventory - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Componets of Inventory [Abstract]
Raw materials	$ 2,864	$ 2,744
Work in process	961	902
Finished goods	2,578	2,652
Inventories	$ 6,403	$ 6,298

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Accrued Expenses and Other Current Liabilities (Tables)

6 Months Ended

Jun. 30, 2015

Accrued Expenses And Other Current Liabilities [Abstract]

Schedule of Accrued Expenses and Other Current Liabilities [TableText Block]

	June 30,		December 31,
	2015		2014
Accrued salaries and benefits	$	1,409	$	1,115
Accrued severance and other charges (1)		108		372
Accrued warranty (2)		342		373
Warrant liability (3)		2,591		1,474
Accrued indemnification settlement (4)		550		650
Liability for consigned precious metals		494		565
Other		1,400		1,640
Accrued expenses and other current liabilities	$	6,894	$	6,189
(1) For additional information, refer to Note 7, "Severance and Other Charges".
(2) For additional information, refer to Note 8, "Accrued Warranty".
(3) For additional information, refer to Note 11, "Warrants".
(4) For additional information, refer to Note 14, "Discontinued Operations".

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Liquidity and Going Concern

6 Months Ended

Jun. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Substantial Doubt about Going Concern [Text Block]

2.Liquidity and Going Concern

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 $196.5 million at June 30, 2015. The Company has funded its operations through asset sales, credit facilities and other borrowings and equity sales.

        At June 30, 2015, the Company had $6.8 million in cash, and based upon current cash levels, including proceeds from the June 2015 offering, and expected cash flows from operations, management believes that the Company will have access to sufficient working capital to fund operations through the end of this year and into next year. However, there can be no assurances that the Company will be able to achieve projected levels of revenue and maintain access to sufficient working capital. If cash from operations is not sufficient for the working capital needs of the Company, the Company may be forced to 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 on terms acceptable to the Company or reduce its discretionary spending to a level sufficient for its working capital needs, and accordingly, there is substantial doubt as to whether the Company’s existing cash resources and working capital are sufficient to enable it to continue its operations for the next twelve months.

        The Company has a $7.5 million secured demand financing facility backed by its receivables and inventory with Faunus Group International, Inc. (“FGI”) that terminates 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. At June 30, 2015, the Company had $3.6 million in borrowings outstanding under this facility with $3.9 million available, subject to the availability of eligible accounts receivable and inventory balances for collateral. 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.

        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 May 19, 2015, the Company filed a shelf registration statement on Form S-3 with the SEC to replace the existing Shelf Registration (the “Replacement Shelf”), which the Company anticipates will be declared effective later this year. Once declared effective, the Replacement Shelf will permit 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 Replacement Shelf 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 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 offering expenses.

        On October 20, 2014, the Company completed the sale of its Reno, Nevada-based custom fabricated exhaust parts and accessories business (the “Reno Business”) for $1.3 million in cash.

        On November 4, 2014, the Company entered into subscription agreements to sell 1,385,000 shares of common stock and warrants to purchase up to an aggregate of 388,393 shares of common stock with an exercise price of $3.25 per share (the “Series A Warrants”), for a combined purchase price of $2.80 per share and 0.28 of one Series A Warrant, and other warrants to purchase up to an aggregate of 168,571 shares of common stock with an exercise price of $0.01 per share (the “Series B Warrants”) for a purchase price of $2.79 per Series B Warrant, pursuant to the Shelf Registration. The Company received net proceeds of $3.8 million after deducting placement agent fees and other offering expenses.

        On November 11, 2014, the Company and Kanis S.A. entered into a letter agreement whereby Kanis S.A. agreed to amend the terms of the outstanding loans, in the aggregate principal amount of $7.5 million, made to the Company, such that (i) the maturity dates of all outstanding loans were extended to October 1, 2016; and (ii) the early redemption feature applicable to one of the outstanding loans was removed.

        On June 2, 2015, the Company entered into an underwriting agreement to sell 2,500,000 units pursuant to the Shelf Registration for $2.05 per unit, with each unit consisting of one share of common stock and 0.2 of one warrant to purchase one share of common stock with an exercise price of $2.65 per share. The Company received net proceeds of $4.5 million after deducting the underwriting discounts and other offering expenses. For additional information, refer to Note 10, “Stockholders’ Equity”.

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Consolidated Balance Sheets (Parentheticals) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
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	16,753,178	14,152,772
Common stock, shares outstanding	16,753,178	14,152,772

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

12.Commitments and Contingencies

        The Company is involved in legal proceedings from time to time in the ordinary course of its business. Management does not believe that any of these claims and proceedings against it is likely to have, individually or in the aggregate, a material adverse effect on the Company’s 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 consolidated financial statements as of June 30, 2015, nor is it possible to estimate what litigation-related costs will be in the future.

For information related to commitments and contingencies related to AUS, a former subsidiary of the Company that was sold in 2009, refer to Note 14, “Discontinued Operations”.

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Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 31, 2015
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		16,753,178
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	Jun. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

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Segment Reporting and Geographic Information

6 Months Ended

Jun. 30, 2015

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

13.Segment Reporting and Geographic Information

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

Catalyst division — The Catalyst division develops and 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 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 2001. The Catalyst division also provides catalyst formulations for the Company’s Heavy Duty Diesel Systems division. Intersegment revenues are based on market prices.

Heavy Duty Diesel Systems division — The Heavy Duty Diesel Systems division designs and manufactures exhaust emissions control solutions. This division offers a full range of DuraFit^™ OEM replacement diesel particulate filters and products for the verified retrofit and non-retrofit OEM 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.

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				Six Months Ended
	June  30,				June  30,
		2015		2014		2015		2014
Revenues
Catalyst	$	6,882	$	6,289	$	13,693	$	12,100
Heavy Duty Diesel Systems		3,826		6,101		7,978		12,376
Eliminations (1)		(770)		(717)		(1,392)		(1,224)
Total	$	9,938	$	11,673	$	20,279	$	23,252
Income (loss) from operations
Catalyst	$	(157)	$	361	$	(715)	$	583
Heavy Duty Diesel Systems		(484)		642		(862)		938
Corporate		(1,419)		(1,625)		(3,129)		(3,599)
Eliminations (1)		(48)		10		(116)		(10)
Total	$	(2,108)	$	(612)	$	(4,822)	$	(2,088)
(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				Six Months Ended
	June 30,				June 30,
		2015		2014		2015		2014
United States	$	6,296	$	5,683	$	12,643	$	11,097
Canada		2,835		4,689		5,957		9,716
Europe		807		1,301		1,679		2,439
Total international		3,642		5,990		7,636		12,155
Total revenues	$	9,938	$	11,673	$	20,279	$	23,252

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Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues	$ 9,938	$ 11,673	$ 20,279	$ 23,252
Cost of revenues	7,171	7,848	14,694	15,687
Gross profit	2,767	3,825	5,585	7,565
Operating expenses:
Selling, general and administrative	3,026	2,931	6,433	6,508
Research and development	1,854	1,472	3,973	2,768
Severance and other charges	(5)	34	1	377
Total operating expenses	4,875	4,437	10,407	9,653
Loss from continuing operations	(2,108)	(612)	(4,822)	(2,088)
Other expense:
Interest expense	(301)	(288)	(577)	(592)
Other expense, net	(224)	(299)	(106)	(2,113)
Total other expense	(525)	(587)	(683)	(2,705)
Loss from continuing operations before income taxes	(2,633)	(1,199)	(5,505)	(4,793)
Income tax expense (benefit) from continuing operations	(217)	30	(60)	267
Net loss from continuing operations	(2,416)	(1,229)	(5,445)	(5,060)
Net income from discontinued operations		40		35
Net loss	(2,416)	(1,189)	(5,445)	(5,025)
Foreign currency translation adjustments	602	582	(871)	145
Comprehensive loss	$ (1,814)	$ (607)	$ (6,316)	$ (4,880)
Basic and diluted net income (loss) per common share:
Net loss from continuing operations (in Dollars per share)	$ (0.16)	$ (0.10)	$ (0.38)	$ (0.46)
Net income from discontinued operations (in Dollars per share)
Net loss (in Dollars per share)	$ (0.16)	$ (0.10)	$ (0.38)	$ (0.46)
Basic and diluted weighted average shares outstanding (in Shares)	14,846	12,304	14,503	11,038

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Severance and Other Charges

6 Months Ended

Jun. 30, 2015

Restructuring and Related Activities [Abstract]

Restructuring and Related Activities Disclosure [Text Block]

7.Severance and Other Charges

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014			2015		2014
Employee severance expense	$	(5)	$	34	$	1	$	69
Lease exit costs		-		-		-		43
Legal settlements		-		-		-		265
Total severance and other charges	$	(5)	$	34	$	1	$	377

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

			Lease Exit
	Severance		Costs		Total
December 31, 2014	$	293	$	79	$	372
Provision		1		-		1
Payments		(231)		(34)		(265)
June 30, 2015	$	63	$	45	$	108

The Company expects to pay substantially all of the accrued amounts by the third quarter of 2015.

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Accrued Expenses and Other Current Liabilities

6 Months Ended

Jun. 30, 2015

Accrued Expenses And Other Current Liabilities [Abstract]

Accrued Expenses And Other Current Liabilities [Text Block]

6.Accrued Expenses and Other Current Liabilities

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

	June 30,		December 31,
	2015		2014
Accrued salaries and benefits	$	1,409	$	1,115
Accrued severance and other charges (1)		108		372
Accrued warranty (2)		342		373
Warrant liability (3)		2,591		1,474
Accrued indemnification settlement (4)		550		650
Liability for consigned precious metals		494		565
Other		1,400		1,640
Accrued expenses and other current liabilities	$	6,894	$	6,189
(1) For additional information, refer to Note 7, "Severance and Other Charges".
(2) For additional information, refer to Note 8, "Accrued Warranty".
(3) For additional information, refer to Note 11, "Warrants".
(4) For additional information, refer to Note 14, "Discontinued Operations".

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

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

	Useful Life	June 30,		December 31,
	in Years	2015		2014
Trade name	15 - 20	$	1,254	$	1,293
Patents and know-how	5 - 12		4,337		4,529
Customer relationships	4 - 8		787		837
Intangible assets, Gross			6,378		6,659
Less accumulated amortization			(4,087)		(3,997)
Intangible assets, Net		$	2,291	$	2,662

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

Years ending December 31
Remainder of 2015	$	283
2016	$	471
2017	$	461
2018	$	164
2019	$	164
2020	$	164

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Discontinued Operations

6 Months Ended

Jun. 30, 2015

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

14.Discontinued Operations

The Reno Business

On October 20, 2014, the Company completed the sale of its Reno Business for $1.3 million in cash. The net assets held for sale of the Reno Business were eliminated from the Company’s balance sheet as of the sale date, and the Company recognized a gain of $0.2 million. Historically, the Reno Business was a component of the Company’s Heavy Duty Diesel Systems division.

Applied Utility Systems, Inc.    

        The Company is undergoing a sales and use tax audit by the State of California (the “State”) 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 asserts that proper documentation of resale may not have been obtained and that the Company owes sales tax of $1.5 million, inclusive of interest. The Company contends and believes that it received sufficient and proper documentation from its customer to support not collecting and remitting sales tax from that customer and is actively disputing the audit report with the State. On August 12, 2013, the Company appeared at an appeals conference with the State Board of Equalization (“BOE”). On July 21, 2014, the Company received a Decision and Recommendation (“D&R”) from the BOE. The D&R’s conclusion was that the basis for the calculation of the aforementioned $1.5 million tax due should be reduced from $12.2 million to $9.0 million with a commensurate reduction in the tax owed to the State. Regardless of this finding, the Company continues to believe that it will prevail in this matter, as it believes that the State did not adequately address the legal arguments related to the Company’s acceptance of the valid resale certificate from its customer. The Company has not agreed to these findings, and therefore, it will be appealing at a higher level at the BOE. Based on a re-audit, the BOE lowered the tax due to $0.9 million, inclusive of interest. However, the Company continues to not agree with these findings based on the aforementioned reasons, and it will continue with the appeals process. 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.    

        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. This 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 entered into discussions relating to the application of offsets and the validity of the claims presented. The Company initially offered a settlement amount of $0.2 million during the fourth quarter of 2013, and during the third and fourth quarters of 2014, it offered increases to the settlement amount that have now increased its total settlement offer to $0.7 million. The expense for the value of these settlement offers was recorded in discontinued operations at the time that each offer was made, and the associated liability was included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets. On June 3, 2015, JM and the Company entered into a settlement and release agreement pursuant to which they settled all claims for the aforementioned offer of $0.7 million. This settlement was paid with an initial $0.1 million installment upon execution of the settlement and release agreement, and the remaining balance was paid in July 2015.

In presenting discontinued operations, general corporate overhead expenses that have been historically allocated to the Reno Business for segment presentation purposes are not included in discontinued operations. The following table presents revenue and expense information for discontinued operations.

	Three Months Ended		Six Months Ended
	June 30, 2014		June 30, 2014
Revenue	$	918	$	1,801
Expenses		(878)		(1,766)
Net income from discontinued operations	$	40	$	35

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Stockholders' Equity

6 Months Ended

Jun. 30, 2015

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

10.Stockholders’ Equity

June 2015 Offering

        On June 2, 2015, the Company entered into an underwriting agreement with Cowen and Company, LLC, as the representative of the several underwriters identified therein, pursuant to which the Company agreed to offer and sell up to 2,500,000 units at a price to the public of $2.05 per unit (the “Offering”). Each unit consisted of one share of common stock and 0.2 of a warrant (the “Offering Warrants”) to purchase one share of common stock. The Offering Warrants have an exercise price of $2.65 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.

        The Company received gross proceeds of $5.1 million and net proceeds of $4.5 million after deducting the underwriting discounts and other offering expenses. The Offering Warrants are within the scope of ASC 815-40 and are required to be recorded as liabilities. For additional information, refer to Note 11, “Warrants”. Accordingly, of the $4.5 million in net proceeds, $3.7 million was allocated to the common stock and included in additional paid-in capital and $0.8 million was allocated to the warrant liability based on the fair value of the warrants on the issuance date. Additionally, $0.1 million of the underwriter discounts and other offering costs were allocated to the Offering Warrants, based on the relative fair value of the Offering Warrants and the common stock on the issuance date, and was included in other expense, net in the accompanying statements of comprehensive loss for the three and six months ended June 30, 2015. The Company intends to use the net 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.

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Accrued Warranty

6 Months Ended

Jun. 30, 2015

Product Warranties Disclosures [Abstract]

Product Warranty Disclosure [Text Block]

8.Accrued Warranty

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

	Six Months Ended
	June 30,
	2015		2014
Balance at beginning of period	$	373	$	453
Accrued warranty expense		219		363
Warranty claims paid		(225)		(338)
Translation adjustment		(25)		7
Balance at end of period	$	342	$	485

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Debt

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

9.Debt

        Debt consists of the following (in thousands):

	June 30,	December 31,
	2015	2014
Line of credit with FGI	$               3,583	$               2,841
$1.5 million, 8% shareholder note due 2016 (1)	1,612	1,598
$3.0 million, 8% subordinated convertible shareholder notes due 2016 (1)	2,962	2,947
$3.0 million, 8% shareholder note due 2016 (1)	2,951	2,931
Debt, Total	11,108	10,317
Less current portion	(3,583)	(2,841)
Long-term debt, net of current portion	$               7,525	$               7,476
(1) The aggregate amount of unamortized debt discount was $0.1 million and $0.2 million at June 30, 2015 and December 31, 2014, respectively.

Line of Credit with FGI

        At June 30, 2015, the Company had $2.9 million of gross accounts receivable pledged to FGI as collateral for short-term debt in the amount of $2.3 million. At June 30, 2015, the Company also had $1.3 million in borrowings outstanding against eligible inventory. The Company was in compliance with the terms of the FGI Facility at June 30, 2015. 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.

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Warrants

6 Months Ended

Jun. 30, 2015

Warrants Disclosures [Abstract]

Warrants Disclosures [Text Block]

11.Warrants

        Warrants outstanding and exercisable are summarized as follows: 

		Weighted
		Average
		Exercise		Range of
	Shares	Price		Exercise Prices
Outstanding  at December 31, 2014	1,610,069	$	3.54	$1.25 - $10.40
Issued	500,000	$	2.65	$2.65
Outstanding  at June 30, 2015	2,110,069	$	3.33	$ 1.25 - $10.40
Exercisable at June 30, 2015	1,610,069	$	3.54	$1.25 - $10.40

Warrant Classification

        The Company evaluates warrants on issuance and at each reporting date to determine proper classification as equity or as a liability. The Offering Warrants require physical settlement by delivering registered shares, and the provisions of the warrant agreement include potential cash payments for failure to timely deliver shares and fractional share settlement. Accordingly, the Offering Warrants require liability classification.

Warrant Liability

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

        The Company determines the fair value of its warrant liability using the Black-Scholes option-pricing model unless the warrants are subject to market conditions, in which case it uses a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability that market conditions will be achieved. These models are dependent on several variables, such as the warrant’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, for warrants with an expected term that required a volatility look-back that pre-dated the Merger, the Company 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 these warrants prior to 2015. For warrants with an expected term that did not require a volatility look-back that pre-dated the Merger, CDTi’s post-Merger historical price volatility was considered representative of expected volatility, and accordingly, only CDTi’s historical volatility was used for the valuation of these warrants prior to 2015. During 2015, the Company determined that its post-Merger historical volatility was considered representative of expected volatility for the valuation of its warrants. The expected life is equal to the remaining contractual life of the warrants.

        The assumptions used in the Black-Scholes option-pricing model to estimate the fair value of the warrant liability for these warrants outstanding are as follows:

	June 30,			June 8,	December 31,
	2015			2015	2014
Issued April 2014
Number of warrants		812,000				812,000
CDTi stock price	$	1.84			$	1.81
Strike price	$	4.20			$	4.20
Expected volatility (1)		121.4%				86.6%
Risk-free interest rate		1.4%				1.6%
Dividend yield		-				-
Expected life in years		4.3				4.8
Issued November 2014
Number of warrants		388,393				388,393
CDTi stock price	$	1.84			$	1.81
Strike price	$	3.25			$	3.25
Expected volatility (1)		122.5%				86.5%
Risk-free interest rate		1.4%				1.6%
Dividend yield		-				-
Expected life in years		4.4				4.9
Issued June 2015
Number of warrants		500,000		500,000
CDTi stock price	$	1.84	$	2.09
Strike price	$	2.65	$	2.65
Expected volatility		106.4%		114.6%
Risk-free interest rate		1.7%		1.8%
Dividend yield		-		-
Expected life in years		5.4		5.5
(1) During 2015, the Company's post-Merger historical volatility began
to be considered representive of expected volatility for these warrants.

The assumptions used in the Monte Carlo simulation model to estimate the fair value of the warrant liability for warrants outstanding with full-ratchet down-round protection are as follows:

	June 30,		December 31,
	2015		2014
Issued July 2013
Number of warrants		159,000		159,000
CDTi stock price	$	1.84	$	1.81
Strike price	$	1.25	$	1.25
Expected volatility		98.9%		103.6%
Risk-free interest rate		1.0%		1.2%
Dividend yield		-		-
Expected life in years		3.0		3.5
Issued November 2014
Number of warrants		80,000		80,000
CDTi stock price	$	1.84	$	1.81
Strike price	$	1.75	$	1.75
Expected volatility (1)		106.6%		77.0%
Risk-free interest rate		1.4%		1.6%
Dividend yield		-		-
Expected life in years		4.4		4.9
(1) During  2015, the Company's post-Merger historical volatility began
to be considered representive of expected volatility for these warrants.

        The warrant liability, included in accrued expenses and other current liabilities in the accompanying unaudited condensed consolidated balance sheets, is re-measured at the end of each reporting period with changes in fair value recognized in other expense, net in the accompanying unaudited 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. For additional information regarding the fair value of the warrant liability, amounts recognized in other income (expense) and amounts reclassified to additional paid-in capital upon exercise, refer to the warrant liability reconciliation in Note 3(d), “Summary of Significant Accounting Policies—Fair Value Measurements”.   

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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	Jun. 30, 2015	Dec. 31, 2014
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 [Line Items]
Warrant liability
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 [Line Items]
Warrant liability
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 [Line Items]
Warrant liability	$ 2,591	$ 1,474

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Segment Reporting and Geographic Information (Details) - Company`s reportable segments - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenues
Revenues	$ 9,938	$ 11,673	$ 20,279	$ 23,252
Income (loss) from operations
Income (loss) from operations	(2,108)	(612)	(4,822)	(2,088)
Intersegment Eliminations [Member]
Revenues
Revenues	(770)	(717)	(1,392)	(1,224)
Income (loss) from operations
Income (loss) from operations	(48)	10	(116)	(10)
Catalyst [Member] | Operating Segments [Member]
Revenues
Revenues	6,882	6,289	13,693	12,100
Income (loss) from operations
Income (loss) from operations	(157)	361	(715)	583
Heavy Duty Diesel Systems [Member] | Operating Segments [Member]
Revenues
Revenues	3,826	6,101	7,978	12,376
Income (loss) from operations
Income (loss) from operations	(484)	642	(862)	938
Corporate Segment [Member] | Operating Segments [Member]
Income (loss) from operations
Income (loss) from operations	$ (1,419)	$ (1,625)	$ (3,129)	$ (3,599)

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

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

		Three Months Ended		Six Months Ended
		June 30,		June 30,
Vendor	Supplies	2015	2014	2015	2014
A	Substrates	34%	17%	37%	19%
B	Substrates	13%	*	12%	*
C	Substrates	*	11%	*	11%
D	Catalysts	*	*	*	13%
* less than 10%

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

Warrant liability	Level 1	Level 2	Level 3
June 30, 2015	-	-	$                 2,591
December 31, 2014	-	-	$                 1,474

Schedule of Reconciliation of Warrants Liability [Table Text Block]

	Six Months Ended
	June 30,
	2015		2014
Balance at beginning of period	$	1,474	$	939
Issuance of common stock warrants		845		1,531
Exercise of common stock warrants		-		(2,505)
Remeasurement of common stock warrants		272		1,682
Balance at end of period	$	2,591	$	1,647

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Accrued Warranty (Tables)

6 Months Ended

Jun. 30, 2015

Product Warranties Disclosures [Abstract]

Schedule of Product Warranty Liability [Table Text Block]

	Six Months Ended
	June 30,
	2015		2014
Balance at beginning of period	$	373	$	453
Accrued warranty expense		219		363
Warranty claims paid		(225)		(338)
Translation adjustment		(25)		7
Balance at end of period	$	342	$	485

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Warrants (Details) - Assumptions in Monte Carlo simulation model to estimate the fair value of the warrant liability - Monte Carlo Simulation Model [Member] - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Issued On July 2013 [Member]
Warrants (Details) - Assumptions in Monte Carlo simulation model to estimate the fair value of the warrant liability [Line Items]
Number of warrants (in Shares)	159,000	159,000
CDTi stock price (in Dollars per share)	$ 1.84	$ 1.81
Strike price (in Dollars per share)	$ 1.25	$ 1.25
Expected volatility	98.90%	103.60%
Risk-free interest rate	1.00%	1.20%
Dividend yield
Expected life in years	3 years	3 years 6 months
Issued On November 2014 [Member]
Warrants (Details) - Assumptions in Monte Carlo simulation model to estimate the fair value of the warrant liability [Line Items]
Number of warrants (in Shares)	80,000	80,000
CDTi stock price (in Dollars per share)	$ 1.84	$ 1.81
Strike price (in Dollars per share)	$ 1.75	$ 1.75
Expected volatility	106.60%	77.00%
Risk-free interest rate	1.40%	1.60%
Dividend yield
Expected life in years	4 years 146 days	4 years 328 days

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Severance and Other Charges (Details) - Severance and other charges - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Restructuring Cost and Reserve [Line Items]
Severance and other charges	$ (5)	$ 34	$ 1	$ 377
Employee Severance [Member]
Restructuring Cost and Reserve [Line Items]
Severance and other charges	$ (5)	$ 34	$ 1	69
Contract Termination [Member]
Restructuring Cost and Reserve [Line Items]
Severance and other charges				43
Legal Settlement [Member]
Restructuring Cost and Reserve [Line Items]
Severance and other charges				$ 265

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net loss	$ (5,445)	$ (5,025)
Net income from discontinued operations		(35)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	$ 444	505
Stock-based compensation expense	316	284
Loss on change in fair value of liability-classified warrants	272	1,682
Gain on foreign currency transactions	$ (124)	153
Loss related to litigation		123
Gain on disposal of property and equipment	$ (4)	(296)
Offering costs allocated to warrants issued	88	165
Other	3	65
Changes in operating assets and liabilities:
Accounts receivable	(1,068)	(210)
Inventories	(329)	(701)
Prepaid expenses and other assets	437	20
Accounts payable, accrued expenses and other current liabilities	296	18
Income taxes	(68)	(828)
Cash used in operating activities of continuing operations	(5,182)	(4,080)
Cash used in operating activities of discontinued operations	(100)	(45)
Net cash used in operating activities	(5,282)	(4,125)
Cash flows from investing activities:
Purchases of property and equipment	(249)	(191)
Proceeds from sale of property and equipment	$ 8	322
Distribution from unconsolidated affiliate		91
Net cash used in investing activities	$ (241)	222
Cash flows from financing activities:
Net borrowings under demand line of credit	741	1,174
Proceeds from issuance of common stock and warrants, net of offering costs	$ 4,490	6,114
Proceeds from exercise of warrants		1,000
Proceeds from exercise of stock options		275
Other		(18)
Net cash provided by financing activities	$ 5,231	8,545
Effect of exchange rates on cash	(144)	7
Net change in cash	(436)	4,649
Cash at beginning of period	7,220	3,909
Cash at end of period	6,784	8,558
Significant noncash financing activity:
Issuance of warrants classified as derivative liability	$ 845	$ 1,531

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Goodwill and Intangible Assets

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

5.Goodwill and Intangible Assets

Goodwill

        The change in the carrying amount of goodwill during the six months ended June 30, 2015 was due to the effect of foreign currency translation.

                                                                                                                                                                                                                     Intangible Assets

        Intangible assets consist of the following (in thousands):

	Useful Life	June 30,		December 31,
	in Years	2015		2014
Trade name	15 - 20	$	1,254	$	1,293
Patents and know-how	5 - 12		4,337		4,529
Customer relationships	4 - 8		787		837
Intangible assets, Gross			6,378		6,659
Less accumulated amortization			(4,087)		(3,997)
Intangible assets, Net		$	2,291	$	2,662

        The Company recorded amortization expense related to amortizable intangible assets of $0.2 million and $0.1 million during the three months ended June 30, 2015 and 2014, respectively. The Company recorded amortization expense related to amortizable intangible assets of $0.3 million during the six months ended June 30, 2015 and 2014.

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

Years ending December 31
Remainder of 2015	$	283
2016	$	471
2017	$	461
2018	$	164
2019	$	164
2020	$	164

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Debt (Tables)

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

	June 30,	December 31,
	2015	2014
Line of credit with FGI	$               3,583	$               2,841
$1.5 million, 8% shareholder note due 2016 (1)	1,612	1,598
$3.0 million, 8% subordinated convertible shareholder notes due 2016 (1)	2,962	2,947
$3.0 million, 8% shareholder note due 2016 (1)	2,951	2,931
Debt, Total	11,108	10,317
Less current portion	(3,583)	(2,841)
Long-term debt, net of current portion	$               7,525	$               7,476
(1) The aggregate amount of unamortized debt discount was $0.1 million and $0.2 million at June 30, 2015 and December 31, 2014, respectively.

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Goodwill and Intangible Assets (Details) - Intangible assets - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Gross	$ 6,378	$ 6,659
Less accumulated amortization	(4,087)	(3,997)
Intangible assets, Net	2,291	2,662
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Gross	1,254	1,293
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Gross	4,337	4,529
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, Gross	$ 787	$ 837
Minimum [Member] | Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life	15 years
Minimum [Member] | Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life	5 years
Minimum [Member] | Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life	4 years
Maximum [Member] | Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life	20 years
Maximum [Member] | Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life	12 years
Maximum [Member] | Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life	8 years

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Accounting Policies, by Policy (Policies)

6 Months Ended

Jun. 30, 2015

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. Intercompany transactions and balances have been eliminated in consolidation. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“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, 2014.

        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. Actual results could differ materially from those estimates.

        Discontinued Operations

In October 2014, the Company completed the sale of substantially all of the assets of its Reno Business, and the operations of this business were classified as discontinued operations for all periods presented in this report. Discontinued operations also includes accruals and related costs for the Company’s estimated liability to settle its ongoing indemnification matters with Johnson Matthey (“JM”) associated with the sale of Applied Utility Systems, Inc. (“AUS”), a former subsidiary of the Company, in 2009. In the statements of cash flows, the cash flows of discontinued operations are separately classified and aggregated.

For additional information, refer to Note 14, “Discontinued Operations”.

       All discussions and amounts in the consolidated financial statements and related notes for all periods presented relate to continuing operations only, unless otherwise noted.

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

b.Concentration of Risk

        For the three months ended June 30, 2015 and 2014, one automotive OEM customer within the Catalyst segment accounted for 60% and 47%, respectively, of the Company’s revenues. For the six months ended June 30, 2015 and 2014, one automotive OEM customer within the Catalyst segment accounted for 59% and 45%, respectively, of the Company’s revenues. This customer accounted for 50% of the Company’s accounts receivable at June 30, 2015 and December 31, 2014. 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		Six Months Ended
		June 30,		June 30,
Vendor	Supplies	2015	2014	2015	2014
A	Substrates	34%	17%	37%	19%
B	Substrates	13%	*	12%	*
C	Substrates	*	11%	*	11%
D	Catalysts	*	*	*	13%
* less than 10%

Earnings Per Share, Policy [Policy Text Block]

c.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 and warrants and debt that are convertible into the Company’s common stock. Because the Company incurred net losses in the three and six months ended June 30, 2015 and 2014, the effect of potentially dilutive securities has been excluded in the computation of net loss per share as their impact would be anti-dilutive. Potentially dilutive common stock equivalents excluded were 2.8 million and 2.3 million shares during the three months ended June 30, 2015 and 2014, respectively. Potentially dilutive common stock equivalents excluded were 2.7 million and 2.1 million shares during the six months ended June 30, 2015 and 2014, respectively.

Fair Value Measurement, Policy [Policy Text Block]

d.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. For additional information, refer to Note 11, “Warrants”. The valuation inputs hierarchy classification for the warrant liability measured at fair value on a recurring basis is summarized as follows (in thousands):

Warrant liability	Level 1	Level 2	Level 3
June 30, 2015	-	-	$                 2,591
December 31, 2014	-	-	$                 1,474

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

	Six Months Ended
	June 30,
	2015		2014
Balance at beginning of period	$	1,474	$	939
Issuance of common stock warrants		845		1,531
Exercise of common stock warrants		-		(2,505)
Remeasurement of common stock warrants		272		1,682
Balance at end of period	$	2,591	$	1,647

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

e.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 the line of credit approximates its carrying value due to the variable interest rates. The fair value of shareholder notes payable 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 $7.8 million and $7.7 million at June 30, 2015 and December 31, 2014, respectively.

New Accounting Pronouncements, Policy [Policy Text Block]

f.Recent Accounting Pronouncements 

        In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)". ASU No. 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)". ASU No. 2014-09 requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In July 2015, the FASB finalized the delay of the effective date by one year, making the new standard effective for interim periods and annual periods beginning after December 15, 2017. Early adoption is permitted, but it is not permitted earlier than the original effective date. ASU No. 2014-09 provides for either full retrospective adoption or a modified retrospective adoption by which it is applied only to the most current period presented. The Company is currently in the process of evaluating the impact of the adoption of ASU No. 2014-09 on its consolidated financial statements.

        In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. ASU No. 2014-15 defines management's responsibility to assess an entity's ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. It is effective for annual reporting periods ending after December 15, 2016, and for annual and interim reporting periods thereafter. Early adoption is permitted. The Company has not elected to early adopt, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2014-15 on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, "Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs". ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be reported on the consolidated statements of financial condition as a direct deduction from the carrying amount of that debt liability. It is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period with early application permitted for financial statements that have not been previously issued. The Company has not elected to early adopt, and it does not expect the impact of the adoption of ASU No. 2015-03 to be material to its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement". ASU No. 2015-05 provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. It is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. Entities can elect to adopt the standard update prospectively or retrospectively to arrangements entered into, or materially modified, after the effective date. The Company does not expect to early adopt ASU 2015-05, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2015-05 on its consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”. ASU No. 2015-11 changes the measurement principle for inventory from the “lower of cost or market” to “lower of cost and net realizable value.” Net realizable value is defined as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.”  ASU 2015-11 eliminates the guidance that entities consider replacement cost or net realizable value less an approximately normal profit margin in the subsequent measurement of inventory when cost is determined on a first-in, first-out or average cost basis. It is effective for annual reporting periods ending after December 15, 2016, including periods within those fiscal years. Early adoption is permitted. The Company has not yet determined whether it will elect to early adopt ASU 2015-11, and it is currently in the process of evaluating the impact of the adoption of ASU No. 2015-11 on its consolidated financial statements.