Derivative Financial Instruments - Warrants

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments - Warrants

Derivative Financial Instruments — Warrants

Based upon the Company’s analysis of the criteria contained in ASC Topic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”) or ASC Topic 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”), Cardiff Oncology determined that certain warrants issued in connection with the execution of certain equity financings must be recorded as derivative liabilities. In accordance with ASC 815-40 and ASC 480-10, the warrants are also being re-measured at each balance sheet date based on estimated fair value, and any resultant change in fair value is being recorded in the Company’s condensed statements of operations. The Company estimates the fair value of these warrants using the Black-Scholes option pricing model.

The range of assumptions and weighted averages used to determine the fair value of the warrants valued using the Black-Scholes option pricing model during the periods indicated were:


	Nine Months Ended September 30,
	2020		2019
Range:
Estimated fair value of Cardiff Oncology common stock	$1.01 - $14.19		$1.51 - $3.75
Expected warrant term	2.3 - 3.1 years		3.3 - 4.1 years
Risk-free interest rate	0.14 - 1.62%		1.56 - 2.49%
Expected volatility of Cardiff Oncology common stock	110 - 118%		102 - 106%
Dividend yield	0	%	0	%

	As of September 30, 2020
Weighted Average(1)(2):
Fair value of Cardiff Oncology common stock	$14.19
Expected warrant term	2.3 years
Risk-free interest rate	0.14	%
Expected volatility of Cardiff Oncology common stock	110	%
Dividend yield	0	%

(1) Weighted average is only disclosed for periods after January 1, 2020 under the adoption of ASU 2018-13.

(2) The weighted average was calculated using the relative fair value method.

Expected volatility is based on historical volatility of Cardiff Oncology’s common stock. The warrants have a transferability provision and based on guidance provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB No. 107”), for instruments issued with such a provision, Cardiff Oncology used the remaining contractual term as the expected term of the warrants. The risk-free rate is based on the U.S. Treasury security rates consistent with the expected remaining term of the warrants at each balance sheet date.

The following table sets forth the components of changes in the Company’s derivative financial instruments—warrants liability balance, valued using the Black-Scholes option pricing method, for the periods indicated.


Date	Description	Number of Warrants	Derivative Instrument Liability
December 31, 2019	Balance of derivative financial instruments—warrants liability	64,496	$	4,127

	Change in fair value of derivative financial instruments—warrants during the period recognized as a loss in the condensed statements of operations	—	186,072
September 30, 2020	Balance of derivative financial instruments—warrants liability	64,496	$	190,199