Warrants

3 Months Ended

Mar. 31, 2015

Warrants Disclosures [Abstract]

Warrants Disclosures [Text Block]

10. Warrants

Warrants outstanding and exercisable are summarized as follows:  

	Shares	Weighted Average Exercise Price	Range of Exercise Prices
Outstanding and exercisable at March 31, 2015 and December 31, 2014	1,610,069	$             3.54	$1.25 - $10.40
			.

Warrant Liability

The Company evaluates warrants on issuance and at each reporting date to determine proper classification as equity or as a liability. The Company’s warrant liability is carried at fair value and is classified as Level 3 in the fair value hierarchy because the warrants are valued based on unobservable inputs.

The Company determines the fair value of its warrant liability using 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. 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. 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 are as follows:

	March 31, 2015		December 31, 2014
Issued April 2014
Number of warrants		812,000		812,000
CDTi stock price	$	1.82	$	1.81
Strike price	$	4.20	$	4.20
Expected volatility (1)		127.7%		86.6%
Risk-free interest rate		1.3%		1.6%
Dividend yield		-		-
Expected life in years		4.5		4.8
Issued November 2014
Number of warrants		388,393		388,393
CDTi stock price	$	1.82	$	1.81
Strike price	$	3.25	$	3.25
Expected volatility (1)		127.7%		86.5%
Risk-free interest rate		1.3%		1.6%
Dividend yield		-		-
Expected life in years		4.6		4.9
(1) At March 31, 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 with full-ratchet down-round protection are as follows:

	March 31, 2015		December 31, 2014
Issued July 2013
Number of warrants		159,000		159,000
CDTi stock price	$	1.82	$	1.81
Strike price	$	1.25	$	1.25
Expected volatility		98.0%		103.6%
Risk-free interest rate		1.0%		1.2%
Dividend yield		-		-
Expected life in years		3.3		3.5
Issued November 2014
Number of warrants		80,000		80,000
CDTi stock price	$	1.82	$	1.81
Strike price	$	1.75	$	1.75
Expected volatility (1)		113.7%		77.0%
Risk-free interest rate		1.3%		1.6%
Dividend yield		-		-
Expected life in years		4.6		4.9
(1) At March 31, 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 income (expense) 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”.