UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934
  For the quarterly period ended June 30, 2006

                                       or

[ ]  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:   0-27432
                          ------------


                         CLEAN DIESEL TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

       Delaware                                          06-1393453
       --------                                          ----------
(State of Incorporation)                    (I.R.S. Employer Identification No.)

Clean Diesel Technologies, Inc.
300 Atlantic Street - Suite 702
Stamford, CT                                             06901-3522
(Address of principal executive offices)                 (Zip Code)

                                 (203) 327-7050
              (Registrant's telephone number, including area code)

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 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  X      No
                                        ---         ---

Indicate  by  check  mark  whether  the registrant is a large accelerated filer,
accelerated  filer,  or  a non-accelerated filer. See definition of "accelerated
filer  and  large accelerated filer" in Rule 12b-2 of the Exchange Act.   (Check
one):
Large Accelerated Filer       Accelerated Filer      Non-Accelerated Filer  X
                        ----                    ----                       ---

Indicate  by check mark whether the registrant is a shell company (as defined in
Rule  12b-2  of  the  Exchange  Act).

                                    Yes          No  X
                                        ---         ---


As of August 11, 2006, there were outstanding 26,162,459 shares of Common Stock,
par value $0.05 per share, of the registrant.

================================================================================


<PAGE>
<TABLE>
<CAPTION>
                         CLEAN DIESEL TECHNOLOGIES, INC.

                  Form 10-Q for the Quarter Ended June 30, 2006

                                      INDEX


                                                                         Page
                                                                         ----
<S>                                                                      <C>
PART I.   FINANCIAL INFORMATION

Item 1.   Condensed Financial Statements

          Balance Sheets as of June 30, 2006 (Unaudited),                   3
          and December 31, 2005

          Statements of Operations for the Three and Six Months             4
          Ended June 30, 2006 and 2005 (Unaudited)

          Statements of Cash Flows for the Six Months                       5
          Ended June 30, 2006 and 2005 (Unaudited)

          Notes to Financial Statements                                     6

Item 2.   Management's Discussion and Analysis of                          12
          Financial Condition and Results of Operations

Item 3.   Quantitative and Qualitative Disclosures about Market Risk       14

Item 4.   Controls and Procedures                                          14


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                                16
Item 2.   Changes in Securities                                            16
Item 3.   Defaults upon Senior Securities                                  16
Item 4.   Submission of Matters to a Vote of Security Holders              16
Item 5.   Other Information                                                16
Item 6.   Exhibits and Reports on Form 8-K                                 16


SIGNATURES & CERTIFICATIONS                                                17
</TABLE>


                                      -2-
<PAGE>
<TABLE>
<CAPTION>
PART I.     FINANCIAL INFORMATION
Item 1.     Condensed Financial Statements

                                CLEAN DIESEL TECHNOLOGIES, INC.

                                    CONDENSED BALANCE SHEETS

                                                           (in thousands, except share data)
                                                               JUNE 30,          December 31,
                                                                 2006               2005
                                                             (Unaudited)
<S>                                                      <C>                   <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                $             2,501   $         4,513
Accounts receivable, net of allowance of $18 and $11 in
  2006 and 2005, respectively                                            172               125
Inventories                                                              452               285
Other current assets                                                     128                94
Subscription receivable, net                                               0               488
                                                         --------------------  ----------------
TOTAL CURRENT ASSETS                                                   3,253             5,505
Patents, net                                                             593               567
Fixed assets, net of accumulated depreciation of $307
  and $259 in 2006 and 2005, respectively                                118               175
Other assets                                                              37                27
                                                         --------------------  ----------------
TOTAL ASSETS                                             $             4,001   $         6,274
                                                         ====================  ================

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:

Deferred revenue                                                           0                 9
Accounts payable and accrued expenses                                    775               487
                                                         --------------------  ----------------
TOTAL CURRENT LIABILITIES                                                775               496

STOCKHOLDERS' EQUITY:
Preferred Stock, par value $0.05 per share,
100,000 shares authorized, no shares issued
  and outstanding                                                         --                --
Common Stock, par value $0.05 per share, authorized
  30,000,000 shares, issued and outstanding
  26,162,459 and 25,369,358 shares respectively                        1,308             1,268
Common Stock, par value $0.05 per share, subscribed
and to be issued; 705,113 shares in 2005                                   0                35
Additional paid-in capital                                            44,285            44,068
Accumulated deficit                                                  (42,367)          (39,593)
                                                         --------------------  ----------------
TOTAL STOCKHOLDERS' EQUITY                                             3,226             5,778
                                                         --------------------  ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY               $             4,001   $         6,274
                                                         ====================  ================

See notes to condensed financial statements.
</TABLE>


                                      -3-
<PAGE>
<TABLE>
<CAPTION>
                               CLEAN DIESEL TECHNOLOGIES, INC.

                              CONDENSED STATEMENTS OF OPERATIONS
                                         (Unaudited)

                                                    (in thousands except per share data)
                                                 Three Months Ended       Six Months Ended
                                                       June 30,               June 30,
                                                  2006        2005        2006        2005
                                               ----------  ----------  ----------  ----------
REVENUE:
<S>                                            <C>         <C>         <C>         <C>
Additive revenue                               $     145   $      91   $     296   $     186
Hardware revenue                                      73         166         117         258
License, royalty and other revenue                    61          11         135          16
                                               ----------  ----------  ----------  ----------
Total revenue                                        279         268         548         460

COSTS AND EXPENSES:
Cost of revenue                                      156         161         272         271
General and administrative                         1,186       1,210       2,715       2,375
Research and development                             177          88         395         147
Patent amortization and other patent expense          50          25          93          64
                                               ----------  ----------  ----------  ----------

Loss from operations                              (1,290)     (1,216)     (2,927)     (2,397)
Other income (expense):
Foreign currency exchange gain/(loss)                 79         (75)         93         (94)
Interest income                                       21           5          48          14
Miscellaneous income                                   0           0          12           0
                                               ----------  ----------  ----------  ----------

Net loss                                       $  (1,190)  $  (1,286)  $  (2,774)  $  (2,477)
                                               ==========  ==========  ==========  ==========

BASIC AND DILUTED LOSS PER COMMON SHARE        $   (0.05)  $   (0.07)  $   (0.11)  $   (0.14)
                                               ==========  ==========  ==========  ==========

WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING - BASIC AND DILUTED          26,111      17,171      26,098      17,168
                                               ==========  ==========  ==========  ==========
</TABLE>

See notes to condensed financial statements.


                                      -4-
<PAGE>
<TABLE>
<CAPTION>
                         CLEAN DIESEL TECHNOLOGIES, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                        (in thousands)

                                                       Six Months Ended
                                                           June 30,
                                                        2006      2005
                                                     ---------  ---------
<S>                                                  <C>        <C>
OPERATING ACTIVITIES
Net loss                                             $ (2,774)  $ (2,477)
Adjustments to reconcile net loss to cash used in
  operating activities:
    Depreciation and amortization                          79          6
    Write-off patent and bad debt provision                18         83
    Non-cash compensation expense for stock options       106         --
  Changes in operating assets and liabilities:
    Accounts receivable                                   (57)      (116)
    Inventories                                          (161)        49
    Other current assets and security deposits            (44)       (42)
    Accounts payable and accrued expenses                 381        (38)
                                                     ---------  ---------
Net cash used in operating activities                  (2,452)    (2,535)
                                                     ---------  ---------

INVESTING ACTIVITIES
Patent costs                                              (62)      (145)
Purchase of fixed assets                                   --        (60)
                                                     ---------  ---------
Net cash used in investing activities                     (62)      (205)
                                                     ---------  ---------

FINANCING ACTIVITIES
Proceeds from exercise of stock options                    14         --
Proceeds from receipt of subscription receivable          488         --
                                                     ---------  ---------
Net cash provided by financing activities                 502    _____--
                                                     ---------  ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS              (2,012)    (2,740)
Cash and cash equivalents at beginning of period        4,513      4,265
                                                     ---------  ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD           $  2,501   $  1,525
                                                     =========  =========

Non-cash financing activities
      Accrued expenses settled in common stock       $     94   $     71
</TABLE>

See notes to condensed financial statements.


                                      -5-
<PAGE>
                         CLEAN DIESEL TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (Unaudited)


NOTE  1:  BASIS  OF  PRESENTATION

The  accompanying  unaudited,  condensed, consolidated financial statements have
been  prepared  in  accordance with generally accepted accounting principles for
interim  financial  information  and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and  footnotes required by generally accepted accounting principles for complete
financial  statements.  In the opinion of management, all adjustments considered
necessary  for  a fair presentation have been included. All such adjustments are
of  a  normal  recurring  nature.  Operating results for the three-and six month
periods  ended June 30, 2006, are not necessarily indicative of the results that
may  be  expected  for  the  year ending December 31, 2006. The balance sheet at
December 31, 2005 has been derived from the audited financial statements at that
date  but  does  not include all the information and notes required by generally
accepted  accounting  principles  for complete financial statement presentation.
For further information, refer to the Financial Statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31,  2005.

Clean Diesel Technologies, Inc. (the "Company" or "CDT") was incorporated in the
State of Delaware on January 19, 1994, as a wholly owned subsidiary of Fuel-Tech
N.V.  ("Fuel  Tech").  Effective December 12, 1995, Fuel Tech completed a Rights
Offering of the Company's Common Stock that reduced its ownership in the Company
to  27.6%.  Fuel  Tech currently holds a 7.0% interest in the Company as of June
30,  2006.

The Company is a specialty chemical and energy technology company supplying fuel
additives  and  proprietary  systems that reduce harmful emissions from internal
combustion engines while improving fuel economy. The Company's Platinum Plus FBC
fuel  additive  is  registered  with  the EPA for on-highway use and is approved
under  the  VERT-VSET  procedure.  The  Platinum  Plus FBC in combination with a
diesel  oxidation  catalyst  or  a  catalyzed  wire  mesh  filter have both been
verified  by  the  EPA  for  retrofit  emission  reduction.  The  success of the
Company's  technologies  will  depend  upon  the  market  acceptance  of  the
technologies  and  governmental  regulations including corresponding foreign and
state  agencies.

Clean Diesel has been unable to generate positive cash flows from its operations
in  the  past.  The  Company  does not have any credit facilities available with
financial  institutions  or  other  third  parties.  If the Company is unable to
generate cash flow from operations in the future, Clean Diesel will be dependent
upon  external  sources  of  best-efforts  financing, of which there are no firm
commitments  or  arrangements.  Based  on the current operating plan, management
believes  that  the  cash  balance  as  of June 30, 2006 of $2.5 million will be
sufficient to meet the cash needs into the first quarter of 2007. In the future,
unless operating revenues are sufficient to meet operating expenses, the Company
may  need to access capital markets to fund operations by incurring indebtedness
or  issuing equity securities. The Company can provide no assurance that it will
be  successful  in  any  future financing effort to obtain the necessary working
capital  to  support operations or if such financing is available, it will be on
acceptable terms. If management is unable to obtain the necessary financing from
external  sources,  the Company may need to manage any cash shortfalls by taking
measures  which may include deferring or reducing the scope of commercialization
efforts,  reducing  costs  and  overhead  expenses,  or  otherwise  curtailing
operations,  or  obtaining  funds  by  a  disposition  of  assets  or  through
arrangements  with  others that may require Clean Diesel to relinquish rights to
certain  of  its  technologies, or to license the rights to such technologies on
terms that are less favorable to Clean Diesel than might otherwise be available.
The  condensed  financial statements have been prepared on a going concern basis
and  do  not  reflect any adjustments that might result from the outcome of this
uncertainty.

NOTE  2:  SIGNIFICANT  ACCOUNTING  POLICIES

FOREIGN CURRENCY

The  US dollar is considered the functional currency for CDT. CDT maintains a UK
bank  account  for  its  UK  representative office. Foreign currency translation
gains  or  losses  are  recognized  in  the  period  incurred, which is included


                                      -6-
<PAGE>
in  other  income  (expense)  in  the accompanying statements of operations. CDT
recorded  a foreign currency gain of $79,000 and $93,000 on its UK bank holdings
for  the three and six months ended June 30, 2006 versus a loss of ($75,000) and
($94,000)  for  the  same  three  and  six  month  period  ended  June 30, 2005.

INVENTORIES

Inventories  are  stated  at  the  lower  of  cost  or market and consist of the
following:

<TABLE>
<CAPTION>
                                      JUNE 30,     December 31,
         (in thousands)                 2006          2005
                                   -------------  -------------
<S>                                <C>            <C>
     Finished Platinum Plus FBC    $         146  $          59
     Platinum concentrate/metal              138            119
     Hardware (ARIS and Purifier)            102             55
     Other                                    66             52
                                   -------------  -------------
     Total inventory               $         452  $         285
</TABLE>

REVENUE RECOGNITION

Clean Diesel Technologies generates revenue from the sale of additives including
the  Platinum  Plus  FBC  products  and  concentrate; hardware including the EPA
verified  Purifier  System  and  catalyzed  wire mesh filter, ARIS injectors and
dosing  systems;  and license, royalty fees and other revenue from the ARIS 2000
System  and  market  analysis/consulting.  CDT  sells  to  end-user  fleets,
municipalities  and  construction companies, as well as fuel resellers, additive
distribution  companies  and  emission  reduction  companies.

CDT  shipping  terms  are  FOB shipping point but revenue is recognized when its
products are received and collections are reasonably assured unless the purchase
order or contract specifically requires CDT to provide installation of hardware.
For  hardware projects where CDT is responsible for installation either directly
or  indirectly (third-party contractor), revenue is recognized when the hardware
is  installed  and/or  accepted  if  the project requires inspection/acceptance.

License  revenue  is  recognized when the license agreement is entered into, the
license  period  commences, the technology rights, information and know-how have
been  transferred  to  the  licensee  and  CDT  does  not  have  any  ongoing
responsibilities  or  performance  requirements  and  collection  is  reasonably
assured.  Royalty  income  is  recognized  when  earned.

In  January  2006 Clean Diesel signed a one year contract with a new customer to
provide certain consulting and market analysis services for a fee of 130,000 GBP
(approximately  $230,000).  The  Company is recognizing the revenue ratably over
the  12  month  term of the contract. During the three and six months ended June
30,  2006,  the Company recorded $59,000 and $117,000, respectively, of revenues
relating  to  this  contract.

GEOGRAPHIC  INFORMATION

CDT  sells  its Platinum Plus additives and licenses its ARIS systems throughout
the  world.  A  geographic  breakdown  of  revenue  consists  of  the following:

<TABLE>
<CAPTION>
                        Second Quarter      Year to Date
     (in thousands)    2006      2005      2006      2005
                     --------  --------  --------  --------
<S>                  <C>       <C>       <C>       <C>
     REVENUE:
     US              $    153  $    247  $    326  $    427
     UK/Europe            126         8       211        20
     Asia                   0        13        11        13
                     --------  --------  --------  --------
     Total Revenue   $    279  $    268  $    548  $    460
</TABLE>

Patents held by Clean Diesel consist of capitalized patent costs net of
accumulated amortization and are as follows:

<TABLE>
<CAPTION>
                               JUNE 30,     December 31,
     (in thousands)              2006          2005
                            -------------  -------------
<S>                         <C>            <C>
     US patents, net        $         157  $         138
     Foreign patents, net             436            429
                            -------------  -------------
     Total patents, net     $         593  $         567
</TABLE>


                                      -7-
<PAGE>
PATENT  EXPENSE

CDT  capitalizes  all  direct  incremental  costs associated with initial patent
filing  costs  and  amortizes the cost over the estimated remaining life of such
patent.  Patents  are reviewed regularly and the remaining carrying value of any
patents  deemed not commercial or cost effective are written off. The expiration
dates  of  CDT's patents, in numerous countries throughout the world, range from
2006  to  2025.

RESEARCH AND DEVELOPMENT COSTS

Costs  relating to the research, development and testing of products are charged
to  operations  as  they are incurred. These costs include test programs, salary
and  benefits,  consultancy  fees,  materials  and  certain  testing  equipment.

GENERAL AND ADMINISTRATIVE EXPENSE

General and administrative expense is summarized as the following:

<TABLE>
<CAPTION>
                                             Second Quarter       Year to Date
 (in thousands)                              2006      2005      2006      2005
                                           --------  --------  --------  --------
<S>                                        <C>       <C>       <C>       <C>
     Compensation and benefits             $    770  $    791  $  1,896  $  1,554
     Occupancy                                  104       129       210       241
     Professional                               231       216       432       398
     Other                                       81        74       177       182
                                           --------  --------  --------  --------
Total general and administrative expense   $  1,186  $  1,210  $  2,715  $  2,375
</TABLE>

Included  in  the 2006 year to date compensation and benefit expense is $357,475
of  severance charges related to the departure of James Valentine, President and
Chief  Operating  Officer.  Clean  Diesel  announced  in  January  2006 that Mr.
Valentine  had  been  "released  from employment and resigned as director of the
company."  The balance sheet at June 30, 2006 includes accrued severance charges
of  $195,000  representing salary and benefit costs for the remainder of the one
year  employment  contract between Clean Diesel and Mr. Valentine which is to be
paid  on  a  monthly  basis  through  January  2007.

STOCK-BASED COMPENSATION

Effective  January  1,  2006,  Clean  Diesel  adopted  Statement  of  Financial
Accounting  Standards  No.  123  (Revised  2004),  Share Based Payment (SFAS No.
123R),  which  requires a public entity to measure the cost of employee, officer
and  director  services received in exchanged for an award of equity instruments
based  on  the  grant-date fair value of the award. SFAS No. 123R supersedes the
Company's  previous  accounting  under  SFAS No. 123, accounting for Stock-Based
Compensation  (SFAS  No.  123),  which permitted the Company to account for such
compensation  under  Accounting  Principles Board Opinion No. 25, Accounting for
Stock  Issued  to  Employees  (APB  No. 25). Pursuant to APB No. 25, and related
interpretations, no compensation cost had been recognized in connection with the
issuance  of  stock  options,  as  all options granted under the Company's stock
option  plan  had an exercise price equal to or greater than the market value of
the  underlying  common  stock  on  the  date  of  the  grant.

The  Company  adopted  SFAS  No.  123R using the modified prospective transition
method,  which  requires  that  compensation  cost be recorded as earned for all
unvested  stock options outstanding at the beginning of the first fiscal year of
adoption  of  SFAS  No.  123R  based upon the grant date fair value estimated in
accordance  with  the  original  provisions of SFAS No. 123 and for compensation
cost  for  all  share-based  payments  granted  or  modified  subsequent  to the
adoption,  based  on  fair  value estimated in accordance with the provisions of
SFAS  No.  123R.  The Company's Financial Statements as of and for the three and
six  months  ended  June  30,  2006  reflect  the  impact  of  SFAS No. 123R. In
accordance  with  the  modified  prospective  transition  method,  the Company's
Financial Statements for prior periods have not been restated to reflect, and do
not include, the impact of SFAS No. 123R. In the three and six months ended June
30,  2006,  Clean  Diesel  recorded  share-based  compensation  for  options
attributable  to  employees  and  officers of $53,000 and $106,000, or $0.00 and
$0.00  per  share which is included in the Company's net loss for the respective
periods.

Clean Diesel has a 1994 stock option plan approved by shareholders for officers,
directors,  key  employees  of  the  Company,  and  consultants  to the Company.
Participants  are  eligible  to  receive  incentive  and/or  nonqualified  stock
options.  The  stock  option  plan  allows for total options granted to be up to
17.5% of outstanding common shares. The stock option plan is administered by the
Compensation  Committee  of  the  Board  of  Directors.  The  selection  of


                                      -8-
<PAGE>
participants,  grant  of  options,  determination  of price and other conditions
relating to the exercise of options are determined by the Compensation Committee
of  the  Board  of  Directors and administered in accordance with the 1994 stock
option  plan.

Both  incentive  stock  options  and non-qualified options granted to employees,
officers  and directors under this plan are exercisable for a period of up to 10
years  from  the  date  of grant at an exercise price which is not less than the
fair  market  value  of  the  common stock on the date of the grant. The options
typically  grant  one-third  on grant date and one-third on the first and second
grant  anniversary  dates  except  for Non-Executive Directors for which options
fully  vest  upon  granting.

A  summary of the Company's stock option plans activity as of June 30, 2006, and
changes  during  the  six  months  then  ended  is  as  follows:

<TABLE>
<CAPTION>
                                                                Weighted
                                                   Weighted     average
                                                    average    remaining    Aggregate
                                                   exercise   contractual   intrinsic
                                         Shares      price    term (years)    value
                                        ---------  ---------  ------------  ----------
<S>                                     <C>        <C>        <C>           <C>
     Outstanding, January 1, 2006       3,245,936  $    2.06
          Granted                              --        N/A
          Exercised                        15,000       0.90
          Forfeited                        47,167       2.00
          Expired                           5,000       5.63
                                        ---------  ---------
     Outstanding and expected to vest,
       June 30, 2006                    3,178,769  $    2.06           7.4  $  382,000
                                        =========  =========  ============  ==========

     Exercisable, June 30, 2006         2,809,437  $    2.18           6.4  $  253,000
                                        =========  =========  ============  ==========
</TABLE>

The  Company  estimates  the  fair  value of stock options using a Black-Scholes
valuation model, consistent with the provisions of SFAS No. 123R, Securities and
Exchange  Commission  (SEC)  Staff Accounting Bulletin No. 107 and the Company's
prior  period pro forma disclosures of net earnings, including the fair value of
stock-based  compensation. Key input assumptions used to estimate the fair value
of  stock  options  include  the  expected  term  until  exercise of the option,
expected  volatility of the Company's stock, the risk free interest rate, option
forfeiture  rates,  and  dividends,  if any. The expected term of the options is
based  on  a  historical  weighted  average  of  exercised options. The expected
volatility  is  derived from the historical volatility of the Company's stock on
the  UK  London  Stock Exchange AIM listing and the US Over the Counter listings
for  a  period  that  matches  the  expected  life  of the option. The risk-free
interest  rate  is  the  yield from a treasury bond or note corresponding to the
expected  term of the option. Option forfeiture rates are based on the Company's
historical  forfeiture  rates.  The  Company has not paid dividends and does not
expect  to  pay  dividends  in  the  future.

Compensation costs for stock options with graded vesting are recognized over the
vesting  period.  As  of  June  30,  2006,  there  was  $200,000  unrecognized
compensation costs related to granted stock options. These costs are expected to
be  recognized  over  a  weighted  average  period  of  1.2  years.

No options have been granted in 2006. The weighted-average grant-date fair value
of  options  granted  for the three and six months ended June 30, 2005 was $1.18
and  $1.12,  respectively.  The total intrinsic value of stock options exercised
for  the  three  and  six  months  ended  June  30,  2006  was  $0  and  $3,000,
respectively.  For  the  three and six month period of 2005, the total intrinsic
value of stock options exercised was $0 and $0, respectively. In March 2005, the
Company  accelerated  vesting  of  363,000  options  with  fair  market value of
$498,000  in  response  to  the  issuance  by  FASB  of  SFAS  No.  123R.

The  fair  value of each option grant in 2005 was estimated on the date of grant
using  the  Black-Scholes  options-pricing  model  with  the  following weighted
average  assumptions:

<TABLE>
<CAPTION>
                                              Second Quarter   Year To Date
                                            ---------------  ---------------
<S>                                         <C>              <C>
     Expected volatility                             106.5%           104.3%
     Weighted average expected volatility            106.5%           104.3%
     Expected dividends                                 N/A              N/A
     Expected term (in years)                          4.3              4.3
     Risk-free interest rates                          4.1%             4.2%
</TABLE>


                                      -9-
<PAGE>
SFAS  No.  123  required  disclosure  of net income, on a pro forma basis, as if
expense  treatment  had  been  applied.  Had  the  Company  elected to recognize
compensation  expense  for  the  stock  option  plan, consistent with the method
prescribed  by  SFAS  No.  123R, the Company's net loss for the previous periods
presented  would  have  changed  to  the  pro  forma  amounts  as  follows:

<TABLE>
<CAPTION>
                                                                      Three Months Ended      Year-To-Date
                                                                         June 30, 2005        June 30, 2005
                                                                      -------------------  -------------------
                                                                               (Amounts in thousands,
                                                                               except per share data)
<S>                                                                   <C>                  <C>
Net loss                                                              $           (1,286)  $           (2,477)

     Deduct:  Total stock based employee compensation expense
       Under fair value method for all awards, determined
       Net of related tax effects                                                    (80)                (617)
                                                                      -------------------  -------------------

     Pro forma net loss                                               $           (1,366)  $           (3,094)
                                                                      ===================  ===================

           Basic and diluted net loss per common share - as reported  $            (0.07)  $            (0.14)
           Basic and diluted net loss per common share - pro forma    $            (0.08)  $            (0.18)
</TABLE>

BASIC AND DILUTED LOSS PER COMMON SHARE

Basic  and diluted loss per share is calculated in accordance with SFAS No. 128,
"Earnings  Per  Share." Basic loss per share is computed by dividing net loss by
the  weighted-average  shares  outstanding  during the reporting period. Diluted
loss  per share is computed similar to basic earnings per share, except that the
weighted-average  shares  outstanding are increased to include additional shares
from  the assumed exercise of stock options and warrants, if dilutive, using the
treasury  stock method. CDT's computation of diluted net loss per share does not
include  common  share  equivalents  associated  with  3,179,000  and  2,763,000
options,  respectively,  and  507,000 and 507,000 warrants, respectively for the
2006  and  2005  periods,  as  the  result  would  be  anti-dilutive.

STOCKHOLDERS' EQUITY

Pursuant  to  a  Regulation  S  exemption with respect to an offshore placement,
Clean  Diesel  Technologies  sold,  effective  November  11, 2005, 8.174 million
shares of its common stock. The price of the common stock was 40 pence (GBP) per
share  (approximately  $0.704  per  share).  The  proceeds  of  the common stock
issuance,  was  $5.5  million  (net  of  $232,000  in  expenses).

In  addition, Clean Diesel Technologies received subscriptions for an additional
$487,500  (net  of $12,500 in expenses) related to the November 11th issuance of
common  stock  for 0.7 million shares of common stock. The $487,500 was received
in  the  first  quarter  2006.

NOTE 3:  RELATED PARTY TRANSACTIONS

The  Company  has  a  Management  and  Services  Agreement  with  Fuel Tech. The
agreement  requires  CDT  to  reimburse  Fuel  Tech for management, services and
administrative  expenses  incurred  on our behalf. The Company has agreed to pay
Fuel  Tech  a  fee  equal  to  an  additional  3% of the costs paid on behalf of
administration  (approximately  $500  for  the quarter and $1,000 year to date).
Currently,  and  for  the  last three years CDT has reimbursed Fuel Tech for the
expenses  associated  with  one Fuel Tech officer/director who also serves as an
officer/director  of  CDT. The Company believes the charges under the Management
and  Services  Agreement  are  reasonable  and fair. The Management and Services
Agreement  may be cancelled by either party by notifying the other in writing of
the  cancellation  on  or  before  May  15  in  any  year.

NOTE  4:  COMMITMENTS


                                      -10-
<PAGE>
Clean  Diesel  Technologies  leases  3,925  square feet of administrative office
space at 300 Atlantic Street, Stamford, Connecticut. The five year lease through
March  2009  has  an  annual  cost  of  approximately  $125,000, including rent,
utilities  and  parking.

CDT  leases  400  square  feet  of  administrative space at 23 Bourne House, 475
Godstone  Road in Surrey, England. The two and half year lease through September
2007  has  an  annual  cost  of  approximately  $33,000  including utilities and
communication  services.

CDT  has  signed  a four year lease (through July 2008) for 2,750 square feet of
warehouse space in Milford, Connecticut. Annual rent including utilities will be
approximately  $21,000.

Effective  October  28,  1994, Fuel Tech granted two licenses to the Company for
all  patents  and  rights associated with its platinum fuel catalyst technology.
Effective  November  24, 1997, the licenses were canceled and Fuel Tech assigned
to the Company all such patents and rights on terms substantially similar to the
licenses.  In  exchange for the assignment, the Company pays Fuel Tech a royalty
of  2.5%  of  its annual gross revenue from sales of the platinum fuel catalysts
commencing  in  1998.  The  royalty  obligation expires in 2008. The Company may
terminate  the  royalty  obligation  to  Fuel Tech by payment of $3.3 million in
2006,  and  declining annually to $2.2 million in 2007 and $1.1 million in 2008.
The  Company as assignee and owner is responsible for maintaining the technology
at  its  own expense. Royalty expense was $3,631 and $2,259 for the three months
ended  June  30,  2006 and 2005, respectively, and $7,387 and $4,663 for the six
month  period  ended  June  30, 2006 and 2005, respectively. The royalty expense
payable  to  Fuel  Tech  at  June  30,  2006  and  2005  is  $7,387  and $4,663,
respectively.

NOTE  5:  CONCENTRATION

For  the  quarters  ended June 30, 2006 and 2005 and year to date 2006 and 2005,
Clean  Diesel's  largest  customers  as  a  percentage of sales were as follows:

<TABLE>
<CAPTION>
                             Second Quarter            Year To Date
REVENUE:                     2006      2005           2006      2005
                           --------  --------       --------  --------
<S>                        <C>       <C>            <C>       <C>
     Customer A               16%        *             15%      10%
     Customer B               18%        *               *        *
     Customer C               21%        *             21%        *
     Customer D                 *        *               *      10%
     Customer E                 *      55%               *      32%
</TABLE>

*  Represents  less than 10% revenue for that customer in the applicable period.
There  were  no  other customers that represented 10% or more of revenue for the
shown  periods.

In  addition to the revenue concentration, at June 30, 2006 Clean Diesel has two
customers  that  represent  39% of its gross accounts receivable balance. One of
the  customers  is  the same as listed in the revenue concentration chart above.

NOTE  6:  ISSUANCE  OF  STOCK  TO  DIRECTOR  FOR  DIRECTOR'S  FEES

On  June  15, 2006 Clean Diesel issued 62,194 shares of common stock for payment
of  $94,250  of  accrued  2005  non-executive  directors'  fees  due  to  three
non-executive  directors.  The shares are determined based on the average of the
high  and  low  price  of  the  stock  each  quarter.

NOTE  7:  NEW  ACCOUNTING  PRONOUNCEMENT

In  June  2006,  the  Financial  Accounting  Standards  Board (FASB) issued FASB
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
interpretation  of  FASB  Statement  No  109"  (FIN  48),  which  prescribes  a
recognition  threshold  and  measurement  attribute  for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  FIN  48  also  provides guidance on derecognition, classification,
interest  and  penalties,  accounting  in  interim  periods,  disclosures  and
transition.  FIN  48  is effective for fiscal years beginning after December 15,
2006.  We  do not expect the adoption of FIN 48 to have a material impact on our
financial  reporting  and  we  are  currently evaluating the impact, if any, the
adoption  of  FIN  48  will  have  on  our  disclosure  requirements.


                                      -11-
<PAGE>
                         CLEAN DIESEL TECHNOLOGIES, INC.


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


FORWARD-LOOKING STATEMENTS

Statements  in  this  Form  10-Q  that  are  not  historical  facts,  so-called
"forward-looking statements," are made pursuant to the safe harbor provisions of
the  Private  Securities  Litigation Reform Act of 1995. Investors are cautioned
that  all  forward-looking statements involve risks and uncertainties, including
those  detailed  in  the  Company's  filings  with  the  Securities and Exchange
Commission.  See  "Risk Factors of the Business" in Item 1, "Business," and also
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of  Operations"  in  the Company's Annual Report on Form 10-K for the year ended
December  31,  2005.

RECENT DEVELOPMENTS

Clean  Diesel's  markets include alternative energy and emission reduction. With
rising  oil  prices  and diminishing supplies as well as pending global emission
reduction  requirements, the demand for Clean Diesel's technologies continues to
increase.  Recently, Clean Diesel has gained substantial interest and acceptance
with  original  equipment  manufacturers  and  Tier  one  suppliers. Many of the
leading  manufacturers  or  suppliers  are now testing or negotiating with Clean
Diesel  for  access  to  its  technologies.  Clean Diesel has also added several
international distributors for its Platinum Plus FBC and made arrangements for a
UK  based  toll blending operation to be utilized for production of the Platinum
Plus  FBC  into  the  UK  and  continental  Europe.

RESULTS OF OPERATIONS

2006 VERSUS 2005

Revenues  and  cost  of  revenue in the second quarter of 2006 were $279,000 and
$156,000,  respectively, versus $268,000 and $161,000, respectively for the 2005
second  quarter.  For  the  six months to date, 2006 revenue and cost of revenue
were  $548,000  and  $272,000,  respectively  versus  $460,000  and  $271,000,
respectively  for  the  same  six  month period in 2005. Revenues consist of the
following:

<TABLE>
<CAPTION>
                                    Second Quarter           Year To Date
     (in thousands)                 2006      2005           2006      2005
                                  --------  --------       --------  --------
<S>                               <C>       <C>            <C>       <C>
     REVENUE:
     Additive                     $    145  $     91       $    296  $    186
     Hardware                           73       166            117       258
     License, royalty and other         61        11            135        16
                                  --------  --------       --------  --------

     Total revenue                $    279  $    268       $    548  $    460
</TABLE>

In  the  foregoing  table "Additive" includes the Platinum Plus FBC products and
concentrate;  "Hardware"  includes  the  EPA  verified  Purifier  System,  ARIS
injectors  and  dosing  systems.

Additive  revenue has increased as a result of the addition of new customers and
expanding sales in several niche markets including mining and off road vehicles.
The  decrease  in  hardware  sales is primarily the result of the timing of ARIS
injector  sales  and  the  2005  State  of  Pennsylvania  grant  project.

License,  royalty  and  other  revenue  increased  as  a  result  of  the income
recognized  for  a  consulting  and  market  analysis project performed by Clean
Diesel  for  a  new  International  customer.

Clean  Diesel's  strategy  is  to  license the ARIS 2000 NOx reduction system to
other  companies for an up-front fee for the technology and information transfer
and a separate on-going royalty per unit payment. CDT currently has an exclusive


                                      -12-
<PAGE>
license  agreement  for both stationary and mobile ARIS applications with DENOX,
Inc.  (transferred  from  Mitsui Ltd) for Japan. CDT has a non-exclusive license
for  both  stationary  and  mobile  ARIS  applications in the United States with
Combustion  Components  Associates of Monroe, Connecticut. CDT previously had an
ARIS  stationary license agreement for North America with the RJM Corporation of
Norwalk, Connecticut, but as of August 2004 RJM was out of business and the ARIS
license  reverted  back  to CDT. CDT believes that the ARIS 2000 system can most
effectively be commercialized through licensing several companies with a related
business  in  these  markets.  Clean  Diesel  Technologies  is  actively seeking
additional ARIS licensees for both mobile and stationary applications in the US,
Europe  and  Asia.

General  and  administrative  expenses  decreased  in the second quarter 2006 to
$1,186,000 from $1,210,000 in 2005 and year to date 2006 increased to $2,715,000
from  $2,375,000  in  2005  as  summarized  in  the  following  table:

<TABLE>
<CAPTION>
                                                   Second Quarter            Year To Date
                                                   2006      2005           2006      2005
                                                 --------  --------       --------  --------
<S>                                              <C>       <C>            <C>       <C>
     (in thousands)
     Compensation and benefits                   $    770  $    791       $  1,896  $  1,554
     Occupancy                                        104       129            210       241
     Professional                                     231       216            432       398
     Other                                             81        74            177       182
                                                 --------  --------       --------  --------

     Total general and administrative expenses   $  1,186  $  1,210       $  2,715  $  2,375
</TABLE>

Included  in  the 2006 year to date compensation and benefit expense is $357,475
of  severance charges related to the departure of James Valentine, President and
Chief  Operating  Officer.  Clean  Diesel  announced  in  January  2006 that Mr.
Valentine  had  been  "released  from employment and resigned as director of the
company."  The balance sheet at June 30, 2006 includes accrued severance charges
of  $195,000  representing salary and benefit costs for the remainder of the one
year  employment  contract between Clean Diesel and Mr. Valentine which is to be
paid  on  a  monthly  basis  through  January  2007.

Compensation  and  benefit expense decreased slightly in the second quarter 2006
as  the  savings from the departure of the President and Chief Operating Officer
was  mostly offset by the salary and benefit expense of the new Chief Technology
Officer.  Professional  fees  increased as a result of Clean Diesel's listing on
the  German  stock  market.

For the first six months year to date compensation and benefit expense increased
as  a  result  of  recognition  of  severance  expense,  the addition of a chief
technology  officer  in  July  2005  and the recognition of $106,000 in non-cash
compensation  expense relating to stock options granted prior to January 1, 2006
as  required  under  Financial  Accounting  Standards  123R.

Research  and  development  expense  increased  in  the  second  quarter 2006 to
$177,000  from  $88,000  in  2005. For the six months year to date, research and
development  expenses  increased  to $395,000 in 2006 from $147,000 in 2005. The
increase  in  research  and  development in 2006 is due to additional laboratory
testing  on the CWMF technology acquired from Mitsui and a new bio-fuel additive
formulation.

Patent  amortization  and other costs increased to $50,000 in the second quarter
2006  versus  $25,000  in  2005.  For  the  six  months  to  date in 2006 patent
amortization and other costs increased to $93,000 from $64,000 in 2005. The 2006
increase  is  related  to  higher  amortization  related  to  prior  period
capitalization  and  patent  legal  fees  related  to  recently granted European
patents.

Interest  income  increased to $21,000 in the second quarter 2006 from $5,000 in
2005  and for the six months year to date to $48,000 from $14,000 in 2005 due to
higher  rates  of  return  and  the higher amount of invested funds in the first
quarter  and  first six months of 2006 related to the November 2005 fundraising.

Inventory  increased  to $452,000 at June 30, 2006 from $285,000 at December 31,
2005  as  Clean  Diesel  increased  finished  Platinum Plus FBC for its European
operations.  Clean Diesel also increased the inventory of onboard dosing systems
to  support  Platinum  Plus  FBC  sales  in  both  the  US  and  Europe.

Capitalized  patents excluding accumulated depreciation increased to $718,000 at
June  30, 2006 from $665,000 at December 31, 2005. As a technology company Clean
Diesel  is  continuously  filing  patents.  Clean  Diesel  also  had


                                      -13-
<PAGE>
several  key  European  patents grant recently and added several pending patents
related  to  the  wire  mesh filter technology which was acquired from Mitsui in
2005.

LIQUIDITY AND SOURCES OF CAPITAL

Prior to 2000, the Company was primarily engaged in research and development and
has  incurred  losses  since  inception  aggregating  $37,565,000 (excluding the
effect  of  the  non-cash preferred stock dividends on preferred shares prior to
conversion  to  common). Clean Diesel is likely to incur losses through at least
the  next  twelve  months  as  it further pursues its commercialization efforts.
Although  the  Company  started  selling  limited  quantities  of  Platinum Plus
additive  and  the  verified  Purifier system and generating some ARIS licensing
fees  and  royalties,  operating  revenue to date has been insufficient to cover
operating  expenses and the Company continues to be dependent upon proceeds from
fundraising  to  finance  its  working  capital  requirements.

For  the  six  months  ended  June  30,  2006 and 2005, the Company used cash of
$2,452,000  and  $2,535,000,  respectively,  in  operating  activities.

At  June  30,  2006  and  December  31,  2005,  the  Company  had  cash and cash
equivalents of $2,501,000 and $4,513,000, respectively. The decrease in cash and
cash  equivalents  in  2006  was  the  result  of  limited revenues and on-going
operating  costs. The Company anticipates incurring additional losses through at
least  2006  as  it  further  pursues  its  commercialization  efforts.

Pursuant  to  a  Regulation  S  exemption with respect to an offshore placement,
Clean  Diesel  Technologies  sold,  effective  November  11, 2005, 8.174 million
shares of its common stock. The price of the common stock was 40 pence (GBP) per
share  (approximately  $0.704  per  share).  The  proceeds  of  the common stock
issuance,  was  $5.5  million  (net  of  $232,000  in  expenses).

In  addition, Clean Diesel Technologies received subscriptions for an additional
$487,500  (net  of  $12,500 in expense) related to the November 11th fundraising
above  for 0.7 million shares of common stock. The $487,500 had been received as
of  March  3,  2006.

Clean Diesel has been unable to generate positive cash flows from its operations
in  the  past.  The  Company  does not have any credit facilities available with
financial  institutions  or  other  third  parties.  If the Company is unable to
generate cash flow from operations in the future, Clean Diesel will be dependent
upon  external  sources  of  best-efforts  financing, of which there are no firm
commitments  or  arrangements.  Based  on the current operating plan, management
believes  that  the  cash  balance  as  of June 30, 2006 of $2.5 million will be
sufficient to meet the cash needs into the first quarter of 2007. In the future,
unless operating revenues are sufficient to meet operating expenses, the Company
may  need to access capital markets to fund operations by incurring indebtedness
or  issuing equity securities. The Company can provide no assurance that it will
be  successful  in  any  future financing effort to obtain the necessary working
capital  to  support operations or if such financing is available, it will be on
acceptable terms. If management is unable to obtain the necessary financing from
external  sources,  the Company may need to manage any cash shortfalls by taking
measures  which may include deferring or reducing the scope of commercialization
efforts,  reducing  costs  and  overhead  expenses,  or  otherwise  curtailing
operations,  or  obtaining  funds  by  a  disposition  of  assets  or  through
arrangements  with  others that may require Clean Diesel to relinquish rights to
certain  of  its  technologies, or to license the rights to such technologies on
terms that are less favorable to Clean Diesel than might otherwise be available.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In  the opinion of management, with the exception of exposure to fluctuations in
the  cost of platinum and the British Sterling exchange rate, the Company is not
subject  to  any  significant  market  risk  exposure.

The  Company  generally  receives  most  income  in United States dollars. Clean
Diesel  Technologies  maintains  a  UK  bank account and typically makes several
payments  monthly  in  various  foreign  currencies for patent expenses, product
tests  and  registration,  local  marketing  and  promotion,  consultants  and
employees.

ITEM 4.     CONTROLS AND PROCEDURES

The  Company  maintains disclosure controls and procedures and internal controls
designed  to  ensure  that information required to be disclosed in the Company's
filings  under  the  Securities  Exchange  Act  of  1934 is recorded, processed,
summarized  and reported within the time periods specified in the Securities and
Exchange  Commission's  rules  and


                                      -14-
<PAGE>
forms.  The  Company's  management,  with  the  participation  of  its principal
executive  and  financial  officers,  has  evaluated  the  effectiveness  of the
Company's disclosure controls and procedures as of the end of the period covered
by  this  Quarterly  Report  on  form 10Q. The Company's principal executive and
financial  officers  have  concluded,  based  on  such  evaluation,  that  such
disclosure controls and procedures were effective for the purpose for which they
were  designed  as  of  the  end  of  such  period.

There  was  no change in the Company's internal control over financial reporting
that  was identified in connection with such evaluation that occurred during the
period  covered  by  this  Quarterly  Report  on  form  10Q  that has materially
affected,  or  is reasonably likely to materially affect, the Company's internal
control  over  financial  reporting.


                                      -15-
<PAGE>
PART II.    OTHER INFORMATION

Item 1.     Legal Proceedings
            None

Item 1A     Risk Factors

Item 2.     Unregistered Sales of Securities and Use of Proceeds
            None

Item 3.     Defaults upon Senior Securities
            None

Item 4.     Submission of Matters to a Vote of Security Holders

At  the  June  15,  2006  Annual  Meeting of Stockholders of CDT, the holders of
13,765,552 shares of CDT's common stock were present in person or by proxy. This
attendance  was,  according to the records of CDT's Transfer Agent, 52.7% of the
total  of  26,100,268  shares  outstanding as of the record date of May 5, 2006.

     (i) the proposal to elect seven nominees as directors was approved by a
vote with respect to each individuals, as follows:

<TABLE>
<CAPTION>
                               Shares          Shares
Name                            For           Withheld
<S>                          <C>              <C>
John A. de Havilland         13,734,130         31,422
Derek R. Gray                13,760,763          4,789
Charles W. Grinnell          13,684,524         81,028
John J. McCloy, II           13,733,869         31,683
David F. Merrion             13,761,024          4,528
Jeremy D. Peter-Hoblyn       13,684,263         81,289
Bernard Steiner              13,733,980         31,572
</TABLE>

     (ii) the proposal to ratify the appointment of Eisner LLP as independent
auditors of CDT for the year 2006 was approved by a vote of 13,663,424 for, 400
shares against and 1,728 abstentions.

     (iii) the proposal to increase the authorized capital of CDT to 45,100,000
shares was approved by a vote of 13,490,619 for, 112,105 against and 162,828
abstentions.

Item 5.     Other Information
            None

Item 6.     Exhibits
            None


                                      -16-
<PAGE>
                         CLEAN DIESEL TECHNOLOGIES, INC.
                           SIGNATURES & CERTIFICATIONS


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



Date:  August 11, 2006               By: /s/Bernhard Steiner
                                         -------------------------------------
                                         Bernhard Steiner
                                         Director, President and
                                         Chief Executive Officer



Date:  August 11 2006                By: /s/David W. Whitwell
                                         -------------------------------------
                                         David W. Whitwell
                                         Chief Financial Officer,
                                         Senior Vice President and Treasurer


                                      -17-