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Warrants
 12 Months Ended
Dec. 31, 2015
Warrants  
Warrants

12. Warrants

        From time to time, the Company issues warrants to purchase its common stock. Warrants have been issued for consulting services, in connection with the Company's issuance of debt and sales of its common stock. For additional information regarding the warrants discussed in this Note, refer to Note 10, "Debt" and Note 11 "Stockholders' Equity", respectively.

        Warrants activity is summarized as follows:

                                                                                                                                                                                    

 

 

Shares(1)

 

Weighted
Average
Exercise
Price

 

Range of
Exercise Prices

Outstanding at December 31, 2013

 

 
1,139,535

 

$
1.68

 

$1.25 - $10.40

Issued

 

 
1,448,964

 

$
3.32

 

$0.01 - $4.20

Exercised

 

 
(968,571

)

$
1.03

 

$0.01 - $1.25

Expired

 

 
(9,859

)

$
2.80

 

$2.80

​

​

​  

​  

​

​

​

​

​

Outstanding at December 31, 2014

 

 
1,610,069

 

$
3.54

 

$1.25 - $10.40

Issued

 

 
2,957,138

 

$
0.90

 

$0.01 - $2.65

Exchange warrants issued

 

 
856,393

 

$
1.70

 

$1.70

Exchange warrants surrendered

 

 
(856,393

)

$
3.19

 

$2.65 - $4.20

​

​

​  

​  

​

​

​

​

​

Outstanding at December 31, 2015

 

 
4,567,207

 

$
1.49

(2)

$0.01 - $4.50(2)

​

​

​  

​  

​

​

​

​

​

​

​

​  

​  

​

​

​

​

​

Exercisable at December 31, 2015

 

 
2,939,814

 

$
1.37

 

$0.01 - $4.50

​

​

​  

​  

​

​

​

​

​

​

​

​  

​  

​

​

​

​

​

 

 

(1)          

Outstanding and exercisable information includes 170,676 equity-classified warrants.

(2)          

Includes the effects of repricing. Refer to the Warrant Liability discussion below for additional information.

Warrant Classification

        The Company evaluated the following warrants on issuance and at each reporting date to determine proper classification as equity or as a liability.

                                                                                                                                                                                    

Issuance

 

 

 

 

Date

 

Quantity

 

Key Considerations

 

Classification

April 2014

 

 
812,000 

 

•

Require settlement in registered shares

 

Liability

 

 

 

 

 

•

Cash payment provision for failure to timely deliver

 

 

November 2014

 

 
556,964 

 

•

Require settlement in registered shares

 

Liability

 

 

 

(1)

 

•

Cash payment provision for failure to timely deliver

 

 

November 2014

 

 
80,000 

 

•

Require settlement in registered shares

 

Liability

 

 

 

 

 

•

Include full-ratchet down-round price protection

 

 

June 2015

 

 
500,000 

 

•

Require settlement in registered shares

 

Liability

 

 

 

 

 

•

Cash payment provision for failure to timely deliver

 

 

November 2015

 

 
2,457,138 

 

•

Require settlement in registered shares

 

Liability

 

 

 

(2)

 

•

Cash payment provision for failure to timely deliver

 

 

 

 

(1)          

Includes 388,393 Series A Warrants and 168,571 Series B Warrants.

(2)          

Includes 771,000 Series A Warrants and 1,686,138 Series B Warrants.

Warrant Liability

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

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

        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 initially not considered representative of expected volatility going forward. Therefore, for warrants with an expected term that required a volatility look-back that pre-dates 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. For warrants with an expected term that does not require a volatility look-back that pre-dates the Merger, CDTi's post-Merger historical price volatility was considered representative of expected volatility going forward, and accordingly, only CDTi's historical volatility was used for the valuation of these 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:

                                                                                                                                                                                    

 

 

December 31,

 

 

 

 

 

Issued
April 4,
2014

 

 

 

2015(1)

 

2015

 

2014

 

Number of warrants

 

 
148,000 

 

 
664,000 

 

 
812,000 

 

 
812,000 

 

CDTi stock price

 

$
0.94 

 

$
0.94 

 

$
1.81 

 

$
2.95 

 

Strike price

 

$
1.70 

 

$
4.20 

 

$
4.20 

 

$
4.20 

 

Expected volatility(2)

 

 
96.7 

%

 
94.4 

%

 
86.6 

%

 
84.9 

%

Risk-free interest rate

 

 
1.6 

%

 
1.5 

%

 
1.6 

%

 
1.9 

%

Dividend yield

 

 

—

 

 

—

 

 

—

 

 

—

 

Expected life in years

 

 
4.4 

 

 
3.8 

 

 
4.8 

 

 
5.5 

 

 

 

(1)          

Concurrent with the November 2015 offering, these warrants were exchanged for warrants with a different strike price and term.

(2)          

During 2015, the Company's Post-Merger historical volatility began to be considered representative of expected volatility for these warrants.

                                                                                                                                                                                    

 

 

December 31,

 

Issued November 4, 2014

 

 

 

2015(1)

 

2014

 

Series A

 

Series B(2)

 

Number of warrants

 

 
388,393 

 

 
388,393 

 

 
388,393 

 

 
168,571 

 

CDTi stock price

 

$
0.94 

 

$
1.81 

 

$
3.04 

 

$
3.04 

 

Strike price

 

$
1.70 

 

$
3.25 

 

$
3.25 

 

$
0.01 

 

Expected volatility

 

 
96.6 

%

 
86.5 

%

 
87.1 

%

 

—

 

Risk-free interest rate

 

 
1.6 

%

 
1.6 

%

 
1.6 

%

 

—

 

Dividend yield

 

 

—

 

 

—

 

 

—

 

 

—

 

Expected life in years

 

 
4.4 

 

 
4.9 

 

 
5.0 

 

 

—

 

 

 

(1)          

Concurrent with the November 2015 offering, these warrants were exchanged for warrants with a different strike price and term.

(2)          

Due to the $0.01 strike price, fair value equals CDTi stock price minus the strike price.

                                                                                                                                                                                    

 

 

December 31,

 

 

 

 

 

Issued
June 8,
2015

 

 

 

2015(1)

 

2015

 

Number of warrants

 

 
320,000 

 

 
180,000 

 

 
500,000 

 

CDTi stock price

 

$
0.94 

 

$
0.94 

 

$
2.09 

 

Strike price

 

$
1.70 

 

$
2.65 

 

$
2.65 

 

Expected volatility

 

 
110.3 

%

 
102.3 

%

 
114.6 

%

Risk-free interest rate

 

 
1.8 

%

 
1.7 

%

 
1.8 

%

Dividend yield

 

 

—

 

 

—

 

 

—

 

Expected life in years

 

 
5.5 

 

 
4.9 

 

 
5.5 

 

 

 

(1)          

Concurrent with the November 2015 offering, these warrants were exchanged for warrants with a different strike price and term.

                                                                                                                                                                                    

 

 

December 31, 2015

 

Issued November 27, 2015

 

 

 

Series A

 

Series B(1)

 

Series A

 

Series B(1)

 

Number of warrants

 

 
771,000 

 

 
1,686,138 

 

 
771,000 

 

 
1,686,138 

 

CDTi stock price

 

$
0.94 

 

$
0.94 

 

$
1.39 

 

$
1.39 

 

Strike price

 

$
1.70 

 

$
0.01 

 

$
1.70 

 

$
0.01 

 

Expected volatility

 

 
96.6 

%

 

—

 

 
110.3 

%

 

—

 

Risk-free interest rate

 

 
1.8 

%

 

—

 

 
1.7 

%

 

—

 

Dividend yield

 

 

—

 

 

—

 

 

—

 

 

—

 

Expected life in years

 

 
5.5 

 

 

—

 

 
5.6 

 

 

—

 

 

 

(1)          

Due to the $0.01 strike price, fair value equals CDTi stock price minus the strike price.

        The assumptions used in the Monte Carlo simulation model to estimate the fair value of the warrant liability for the following warrants, as of their respective issuance dates, are as follows:

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2015(1)

 

2015

 

2014

 

Number of warrants

 

 
94,000 

 

 
65,000 

 

 
159,000 

 

CDTi stock price

 

$
0.94 

 

$
0.94 

 

$
1.81 

 

Strike price

 

$
1.22 

 

$
1.25 

 

$
1.25 

 

Expected volatility

 

 
95.5 

%

 
99.1 

%

 
103.6 

%

Risk-free interest rate

 

 
1.5 

%

 
1.2 

%

 
1.2 

%

Dividend yield

 

 

—

 

 

—

 

 

—

 

Expected life in years

 

 
3.9 

 

 
2.5 

 

 
3.5 

 

 

 

(1)          

Concurrent with the November 2015 offering, the strike price for these warrant were reset due, per the full-ratchet down-round price protection provision. In connection with a letter agreement, dated October 7, 2015, the Company agreed to amend the term of these warrants in order to extend the expiration date until November 11, 2019.

                                                                                                                                                                                    

 

 

December 31,

 

 

 

 

 

Issued
November 11,
2014

 

 

 

2015

 

2014

 

Number of warrants

 

 
80,000 

 

 
80,000 

 

 
80,000 

 

CDTi stock price

 

$
0.94 

 

$
1.81 

 

$
2.46 

 

Strike price(1)

 

$
1.22 

 

$
1.75 

 

$
1.75 

 

Expected volatility(2)

 

 
95.5 

%

 
77.0 

%

 
76.6 

%

Risk-free interest rate

 

 
1.5 

%

 
1.6 

%

 
1.7 

%

Dividend yield

 

 

—

 

 

—

 

 

—

 

Expected life in years

 

 
3.9 

 

 
4.9 

 

 
5.0 

 

 

 

(1)          

Concurrent with the November 2015 offering, the strike price for these warrants were reset, per the full-ratchet down-round price protection provision.

(2)          

During 2015, the Company's Post-Merger historical volatility began to be considered representative of expected volatility for these warrants.

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