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”), Trovagene 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:



	Three Months Ended March 31,
	2020		2019
Range:
Estimated fair value of Trovagene common stock	$1.01 - $1.24		$3.15 - $3.75
Expected warrant term	2.8 - 3.1 years		3.8 - 4.1 years
Risk-free interest rate	0.28 - 1.61%		2.22 - 2.49%
Expected volatility of Trovagene common stock	111 - 112%		102 - 105%
Dividend yield	0	%	0	%

Weighted Average⁽¹⁾⁽²⁾:
Fair value of Trovagene common stock	$1.01
Expected warrant term	2.8 years
Risk-free interest rate	0.28	%
Expected volatility of Trovagene common stock	112	%
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 Trovagene’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, Trovagene 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 gain in the condensed statements of operations	—	(2,107		)
March 31, 2020	Balance of derivative financial instruments—warrants liability	64,496	$	2,020