ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
We are a clinical stage oncology company, developing new precision medicine treatment options for cancer patients in indications with the greatest unmet medical need. Our goal is to target tumor vulnerabilities with treatment combinations that overcome disease resistance and improve disease response to standard treatment regimens and to increase overall survival. We are developing onvansertib, an oral and highly selective PLK1 inhibitor, in combination with standard-of-care anti-cancer therapeutics. Our clinical development programs incorporate tumor genomics and biomarker technology to refine assessment of patient response to treatment. We have three clinical programs currently ongoing: a Phase 1b/2 study of onvansertib in combination with FOLFIRI/Avastin® (bevacizumab) in mCRC; a Phase 2 trial of onvansertib in combination with nanoliposomal irinotecan, leucovorin and fluorouracil for the second-line treatment of patients with PDAC; and a Phase 2 study of onvansertib in combination with Zytiga® (abiraterone)/prednisone in mCRPC.
Financial and Company Updates
Financial
On November 18, 2021 we announced that Pfizer, Inc. made an equity investment of $15.0 million in the Company as part of the Pfizer Breakthrough Growth Initiative. In connection with the equity investment, Adam Schayowitz, Ph.D., MBA, Vice President & Medicine Team Group Lead for Breast Cancer, Colorectal Cancer and Melanoma at Pfizer, will join our Scientific Advisory Board and Pfizer has rights of first access to any pre-clinical or final clinical data and results generated as part of the onvansertib development program at least two business days prior to us providing such data to a third party.
Company
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On July 12, 2021, we announced the appointments of Katherine L. Ruffner, M.D., as Chief Medical Officer and James E. Levine as Chief Financial Officer. We entered into an employment agreement with Mr. Levine on July 12, 2021 and with Dr. Ruffner on August 4, 2021.
On January 11, 2022 we announced the appointment of Tod Smeal, Ph.D., as Chief Scientific Officer and Charles Monahan, R.Ph., as Senior Vice President, Regulatory Affairs.
Our accumulated deficit through December 31, 2021 is $259.8 million. To date, we have generated minimal revenues and expect to incur additional losses to perform further research and development activities.
Our drug development efforts are in their early stages, and we cannot make estimates of the costs or the time that our development efforts will take to complete, or the timing and amount of revenues related to the sale of our drugs. The risk of completion of any program is high because of the many uncertainties involved in developing new drug candidates to market, including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses, and competing technologies being developed by organizations with significantly greater resources.
Critical Accounting Estimate
Our accounting policies are described in Part II, Item 8. Financial Statements—Note 2 Basis of Presentation and Summary of Significant Accounting Policies in this Annual Report on Form 10-K. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. We believe that the following discussion represents our critical accounting policies.
Accrued Clinical Trial Expenses
We accrue and expense research and development expenditures as incurred, which include costs related to clinical trial activities. We accrue costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the Clinical Research Organizations ("CROs"), professional service providers, and other vendors providing clinical trial services (collectively, the “service providers”). We accrue costs based on estimated work completed in accordance with agreements established with our service providers. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trial activities.
Recent Accounting Pronouncements
See Item 8. Financial Statements—Note 2 Basis of Presentation and Summary of Significant Accounting Policies in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.
Results of Operations
Years Ended December 31, 2021 and 2020
Revenues
Our total revenues were $359,000 and $366,000 for the years ended December 31, 2021 and 2020, respectively. Revenues are from our sales-based or usage-based royalties on other intellectual property licenses, unrelated to onvansertib. Revenue recognition of the royalty depends on the timing and overall sales activities of the licensees.
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Research and Development Expenses
Research and development expenses consisted of the following:
For the years ended December 31,
(in thousands) 2021 2020 Increase/(Decrease)
Clinical trials, outside services, and lab supplies 14,174 8,388 5,786
Research and development expenses increased by $6.1 million to $17.4 million for the year ended December 31, 2021 from $11.2 million for the year ended December 31, 2020. The overall increase in research and development expenses was primarily due to costs associated with clinical programs and outside service costs for three ongoing clinical trials related to the development of our lead drug candidate, onvansertib. Facilities costs increased due to amending our operating lease. Stock based compensation costs increased primarily due to new grants issued during 2021.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consisted of the following:
For the years ended December 31,
(in thousands) 2021 2020 Increase/(Decrease)
Total selling, general and administrative $ 11,838 $ 8,217 $ 3,621
Selling, general and administrative expenses increased by $3.6 million to $11.8 million for the year ended December 31, 2021, from $8.2 million for the year ended December 31, 2020. The significant components of the increase were outside services and stock-based compensation. The increase in outside services is primarily related to strategic valuation consulting related to our lead drug candidate, onvansertib. Outside services and professional fees also increased due to legal expenses related to the expansion of our patent portfolio and recruiting fees related to hiring of key employees and directors. The increase in stock-based compensation is primarily due to additional stock option grants to employees and directors during the period and the modification of stock option grants for departing directors in June 2021.
Change in Fair Value of Derivative Financial Instruments—Warrants
We have issued warrants to purchase shares of our common stock that are accounted for as derivative liabilities. As of December 31, 2021, the derivative financial instruments—warrants liabilities related to securities issued were revalued to $0, resulting in a decrease in fair value of $285,000 from December 31, 2020 based primarily upon the fluctuation in our stock price, as well as the decrease in the remaining life of the warrants. The change in value upon remeasurement at December 31, 2021 was recorded as a gain from the change in fair value of derivative financial instruments—warrants in the statement of operations.
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Net Loss
Net loss and per share amounts were as follows:
For the years ended December 31,
(in thousands) 2021 2020 Increase/(Decrease)
Preferred stock dividend (24) (24) —
Deemed dividend on preferred stock — (3,267) (3,267)
Net loss attributable to common stockholders $ (28,315) $ (22,598) $ 5,717
Net loss per common share — basic and diluted $ (0.73) $ (1.08) $ (0.35)
Weighted-average shares outstanding — basic and diluted 39,030 20,875 18,155
The increase of $5.7 million in net loss attributable to common shareholders was primarily the result of an increase in operating expenses, offset by a decrease in deemed dividend on preferred stock for the year ended December 31, 2021 compared to the same period in the prior year. The $0.35 decrease in basic and diluted net loss per share was impacted by the increase in net loss attributable to shareholders and by the increase in weighted average shares outstanding resulting primarily from the issuance of approximately 5.2 million shares of common stock during the twelve months ended December 31, 2021.
Liquidity and Capital Resources
The COVID-19 pandemic in the United States has caused business disruptions. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. The economic effects of the outbreak could also have an adverse effect on our ability to raise additional capital. At this point, the extent to which COVID-19 may impact our future financial condition or results of operations is uncertain. There has not been a material impact on our financial statements for the twelve months ended December 31, 2021.
As of December 31, 2021, we had $11.9 million in cash and cash equivalents and $128.9 million in short-term investments. Net cash used in operating activities for the year ended December 31, 2021 was $23.0 million, compared to $16.3 million for the year ended December 31, 2020. Our use of cash was primarily a result of the net loss of $28.3 million for the year ended December 31, 2021, adjusted for non-cash items mainly related to stock-based compensation of $3.2 million, release of clinical trial funding commitment of $2.0 million, and depreciation of $0.5 million. The net change in our operating assets and liabilities was $1.8 million increasing cash used in operations. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow for the next several years.
Net cash used by investing activities was $131.4 million and $0.2 million for the years ended December 31, 2021 and 2020, respectively. Investing activities during the year ended December 31, 2021 were primarily related to $131.2 of net purchases of marketable securities. Investing activities during the year ending December 31, 2020 primarily consisted of the purchase of capital equipment.
Net cash provided by financing activities was $35.5 million during the year ended December 31, 2021, compared to $137.3 million provided in financing activities during the year ended December 31, 2020. Financing activities during the year ended December 31, 2021 related primarily to sales of Common Stock and proceeds from exercise of warrants. Financing activities during the year ended December 31, 2020 related primarily to sales of common stock, preferred stock, warrants and proceeds from exercise of warrants.
As of December 31, 2021 and 2020, we had working capital of $139.6 million and $127.2 million, respectively. The increase in working capital is primarily due to the increase in cash and cash equivalents from financing activities during the year ended December 31, 2021.
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We have incurred net losses since our inception and have negative operating cash flows. As of December 31, 2021, we had $140.8 million in cash, cash equivalents and short-term investments and we believe we have sufficient cash to meet our funding requirements for at least the next 12 months following the issuance date of these financial statements.
For the foreseeable future, we expect to continue to incur losses and require additional capital to further advance our clinical trial programs and support our other operations. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we can raise additional funds by issuing equity securities, our stockholders may experience additional dilution. The economic effects of COVID-19 could also have an adverse effect on our ability to raise additional capital.
Our working capital requirements will depend upon numerous factors including but not limited to the nature, cost and timing of our research and development programs. To date, our sources of cash have been primarily limited to the sale of equity securities. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates, all of which may have a material adverse impact on our operations. We may also be required to (i) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (ii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms. We are evaluating all options to raise additional capital, increase revenue, as well as reduce costs, in an effort to strengthen our liquidity position, which may include the following: (1) Raising capital through public and private equity offerings; (2) Introducing operation and business development initiatives to bring in new revenue streams; (3) Reducing operating costs by identifying internal synergies; and (4) Engaging in strategic partnerships. We continually assess our spending plans to effectively and efficiently address our liquidity needs.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our cash, cash equivalents and short-term investments consist of cash held in readily available checking and money market accounts, as well as debt securities. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates. Due to the short-term duration of our investment portfolio and the relatively low risk profile of our investments, a sudden change in interest rates would not have a material effect on the fair market value of our portfolio, nor our operating results or cash flows.
Foreign Currency Risk
We face foreign currency risk as a result of entering into transactions denominated in currencies other than U.S. dollars. Changes in foreign currency exchange rates can create foreign exchange gains or losses to us. We did not incur significant foreign currency gains or losses for the years ended December 31, 2021 and 2020.
Effects of Inflation
We do not believe that inflation and changing prices during the years ended December 31, 2021 and 2020 had a significant impact on our results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
As of December 31, 2021, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference from the information contained in our Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Stockholders to be held in 2022 (the “2022 Proxy Statement”), under the heading “Election of Directors.”
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the information contained in the 2022 Proxy Statement under the heading “Executive Compensation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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The information required by this item is incorporated by reference from the information contained in the 2022 Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference from the information contained in the 2022 Proxy Statement under the headings “Family Relationships and other Arrangements.”
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference from the information contained in the 2022 Proxy Statement under the heading “Proposal 2: Ratification of the Appointment of Our Independent Registered Public Accounting Firm for Fiscal Year Ending December 31, 2022”.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ExhibitNumber Description of Exhibit
(a)(1) Financial Statements
(b) Exhibits
ExhibitNumber Description
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23.1 Consent of BDO USA, LLP.
24 Power of Attorney (included on signature page hereto).
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.LAB XBRL Taxonomy Extension Labels Linkbase.
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101.PRE XBRL Taxonomy Extension Presentation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
+ Indicates a management contract or compensatory plan or arrangement.
* The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CARDIFF ONCOLOGY, INC.
/s/ Mark Erlander
2/24/2022 Chief Executive Officer (Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mark Erlander as his or her attorney-in-fact, with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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SIGNATURE TITLE DATE
/s/ Mark Erlander Chief Executive Officer 2/24/2022
Mark Erlander (Principal Executive Officer)
/s/ James Levine Chief Financial Officer 2/24/2022
James Levine (Principal Financial and Accounting Officer)
/s/ Rodney S. Markin Chairman of the Board and Director 2/24/2022
Rodney S. Markin
/s/ James O. Armitage Director 2/24/2022
James O. Armitage
/s/ John Brancaccio Director 2/24/2022
John Brancaccio
/s/ Mani Mohindru Director 2/24/2022
Mani Mohindru
Gary W. Pace
/s/ Renee Tannenbaum Director 2/24/2022
Renee Tannenbaum
Lâle White
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CARDIFF ONCOLOGY, INC.
Index to Financial Statements
Balance Sheets F-4
Statements of Operations F-5
Statements of Comprehensive Loss F-6
Statements of Stockholders’ Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-10
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Cardiff Oncology, Inc.
San Diego, California
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Cardiff Oncology, Inc. (the “Company”) as of December 31, 2021 and 2020, the related statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Accrued clinical trial expenses
As disclosed in Note 2 to the financial statements, the Company expenses research and development expenditures as incurred, which include costs relating to clinical trial activities. The Company accrues costs for clinical trial activities based upon estimates of the services performed and costs incurred that have not been invoiced by the service providers. The Company’s clinical trial accrual balance at December 31, 2021 is $1.6 million, and the Company’s related 2021 clinical trial expenses are included in research and development expense of $17.4 million for the year ended December 31, 2021.
We identified accrued clinical trial expenses as a critical audit matter. When estimating clinical trial expenses, the Company considers several factors including clinical trial budgets, contract amendments and the progress toward completion. Auditing these elements involves especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.
F-2
The primary procedures we performed to address the critical audit matter included:
•Testing management’s estimation of accrued clinical trial expenses by (i) obtaining and inspecting significant agreements, clinical trial budgets, and contract amendments, (ii) evaluating the Company’s documentation of trial progress and status (including consideration of patient enrollment and milestones achieved), (iii) confirming clinical trial billings with third party service providers, and (iv) testing a sample of transactions by comparing the costs against the related invoices and agreements.
•Testing the completeness of the Company’s clinical trial accruals by (i) evaluating publicly available information (such as press releases, investor presentations and public databases that track clinical trials) and board of directors’ minutes which discuss the status of clinical trials, (ii) inquiring of clinical staff outside of finance to gain an understanding of the status of significant on-going clinical trials, and (iii) testing a sample of payments subsequent to year end to evaluate the completeness of clinical trial accruals.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 2007.
San Diego, California
February 24, 2022
F-3
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Cardiff Oncology, Inc.
Balance Sheets
(in thousands, except par value)
Assets
Current assets:
Short-term investments 128,878 —
Accounts receivable and unbilled receivable 535 320
Prepaid expenses and other current assets 4,771 2,055
Property and equipment, net 382 624
Operating lease right-of-use assets 2,796 343
Liabilities and Stockholders’ Equity
Current liabilities:
Operating lease liabilities 551 860
Other current liabilities 42 42
Derivative financial instruments—warrants — 285
Operating lease liabilities, net of current portion 2,568 9
Other liabilities — 156
Commitments and contingencies (Note 10)
Stockholders’ equity
Preferred stock, $0.001 par value, 20,000 shares authorized; (Note 5) 1 1
Accumulated other comprehensive loss (142) —
Total Liabilities and Stockholders’ Equity $ 149,544 $ 134,727
The accompanying notes are an integral part of these financial statements.
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Cardiff Oncology, Inc.
Statements of Operations
(in thousands, except per share amounts)
Year Ended December 31,
Costs and expenses:
Selling, general and administrative 11,838 8,217
Other income (expense), net:
Interest expense — (2)
Other gain (loss), net 15 (28)
Total other income (expense), net 564 (221)
Net loss attributable to common stockholders $ (28,315) $ (22,598)
Net loss per common share — basic and diluted $ (0.73) $ (1.08)
Weighted-average shares outstanding — basic and diluted 39,030 20,875
The accompanying notes are an integral part of these financial statements.
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Cardiff Oncology, Inc.
Statements of Comprehensive Loss
(in thousands)
Year Ended December 31,
Unrealized loss on securities available-for-sale (142) —
Comprehensive loss attributable to common stockholders $ (28,457) $ (22,598)
The accompanying notes are an integral part of these financial statements.
F-6
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Cardiff Oncology, Inc.
Statements of Stockholders’ Equity
(in thousands)
Stock-based compensation — — — 1,765 — — — 1,765
Release of clinical trial funding commitment — — — — — 1,101 — 1,101
Common Stock par value adjustment — — — (6) 6 — — — —
Issuance of common stock upon exercise of stock options — — 60 — 148 — — — 148
Stock-based compensation — — — — 3,234 — — — 3,234
Issuance of common stock upon exercise of warrants — — 771 — 1,263 — — — 1,263
Unrealized loss on available-for-sale securities — — — — — — (142) — (142)
Release of clinical trial funding commitment — — — — — 2,032 — — 2,032
(1)Net of expenses of $7.5 million, and fair value of warrants issued as a transaction advisory fee as of the date of issuance of $0.4 million.
(2)Net of expenses of $0.8 million.
The accompanying notes are an integral part of these financial statements.
F-7
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Cardiff Oncology, Inc.
Statements of Cash Flows
(in thousands)
Year ended December 31,
Operating activities
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of assets 1 —
Impairment loss — 34
Stock-based compensation expense 3,234 1,765
Amortization of premiums on short-term investments 1,607 —
Change in fair value of derivative financial instruments—warrants (285) 281
Release of clinical trial funding commitment 2,032 1,100
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivable (215) (117)
Prepaid expenses and other current assets (2,099) (1,100)
Operating lease right-of-use assets 607 320
Accounts payable and accrued expenses 719 1,276
Operating lease liabilities (811) (857)
Other liabilities (156) 70
Net cash used in operating activities (23,040) (16,315)
Investing activities
Capital expenditures (205) (211)
Maturities of short-term investments 28,391 —
Purchases of short-term investments (174,385) —
Sales of short-term investments 14,751 —
Net cash used in investing activities (131,448) (211)
Financing activities
Costs related to the clinical trial funding commitment — (8)
Proceeds from exercise of warrants 1,263 24,872
Proceeds from exercise of options — 148
Borrowings under note payable — 305
Repayments of note payable — (305)
Net cash provided by financing activities 35,450 137,312
Cash and cash equivalents—Beginning of period 130,981 10,195
Cash and cash equivalents—End of period $ 11,943 $ 130,981
Supplementary disclosure of cash flow activity:
Cash paid for taxes $ 1 $ 1
Supplemental disclosure of non-cash investing and financing activities:
F-8
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Year ended December 31,
The accompanying notes are an integral part of these financial statements.
F-9
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Cardiff Oncology, Inc.
Notes to Financial Statements
1. Business Overview and Liquidity
Business Organization and Overview
Cardiff Oncology, Inc. (“Cardiff Oncology” or the “Company”) headquartered in San Diego, California, is a clinical-stage oncology company with the mission of developing new precision medicine treatment options for cancer patients in indications with the greatest unmet medical need, including KRAS-mutated metastatic colorectal cancer, metastatic pancreatic cancer and metastatic castration-resistant prostate cancer. The Company's common stock is listed on the Nasdaq Capital Market under the ticker symbol "CRDF".
Liquidity
The Company has incurred net losses since its inception and has negative operating cash flows. As of December 31, 2021, the Company had $140.8 million in cash, cash equivalents and short-term investments and believes it has sufficient cash to meet its funding requirements for at least the next 12 months following the issuance date of these financial statements.
For the foreseeable future, the Company expects to continue to incur losses and require additional capital to further advance its clinical trial programs and support its other operations. The Company cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company can raise additional funds by issuing equity securities, the Company’s stockholders may experience additional dilution. The economic effects of COVID-19 could also have an adverse effect on the Company's ability to raise additional capital. See Note 13 to the financial statements for further information.
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2. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying financial statements of Cardiff Oncology have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations as, and manages its business in, one operating segment.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimate involves accrued clinical trial expenses.
Accrued Clinical Trial Expenses
The Company expenses research and development expenditures as incurred, which include costs related to clinical trial activities. The Company accrues costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the Clinical Research Organizations ("CROs"), investigators, professional service providers, and other vendors providing clinical trial services (collectively, the “service providers”). As of December 31, 2021 the Company’s clinical trial accrual balance of $1.6 million is included in accrued liabilities. The Company’s related 2021 clinical trial expenses are included in research and development expense of $17.4 million. Certain clinical trial expenses are released from service receivables classified within equity (see Note 5) as clinical trial services are performed.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash in readily available checking and money market accounts.
Investment Securities
All investments have been classified as “available-for-sale” and are carried at fair value as determined based upon quoted market prices or pricing models for similar securities at period end. Investments with contractual maturities less than 12 months at the balance sheet date are considered short-term investments. Investments with contractual maturities beyond one year are also classified as short-term due to the Company’s ability to liquidate the investment for use in operations within the next 12 months.
Realized gains and losses on investment securities are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company has not realized any significant gains or losses on sales of available-for-sale investment securities during any of the periods presented. As all the Company’s investment holdings are in the form of debt securities or certificates of deposit, unrealized gains and losses that are determined to be temporary in nature are reported as a component of accumulated other comprehensive loss. A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security. Interest income is recognized when earned and is included in investment income, as are the amortization of purchase premiums and accretion of purchase discounts on investment securities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposit accounts at financial institutions that are in excess of federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk on its cash due to the financial position of the depository institution in which those deposits are held. The Company limits its exposure to credit loss by generally placing its cash in high credit quality financial institutions and investment in non FDIC insured money market funds denominated and payable in U.S. dollars.
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Revenues
The Company recognizes revenue when control of its products and services are transferred to its customers in an amount that reflects the consideration it expects to receive from its customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of goods or service to the customer, meaning the customer has the ability to use and obtain the benefit of goods or service. The Company recognizes revenue for satisfied performance obligations only when it determines there are no uncertainties regarding payment terms or transfer of control. For sales-based royalties, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Royalty and License Revenues
The Company licenses and sublicenses its patent rights to healthcare companies, medical laboratories and biotechnology partners. These patents are from the Company's legacy portfolio and unrelated to onvasertib. Agreements may involve multiple elements such as license fees, minimum royalties, usage-based royalties and milestone payments. Revenue is recognized when the criteria described above have been met as well as the following:
•Up-front nonrefundable license fees pursuant to agreements under which the Company has no continuing performance obligations are recognized as revenues on the effective date of the agreement and when collection is probable.
•Minimum royalties are recognized as earned, and royalties are earned based on the licensee’s use. The Company estimates and records licensee’s sales based on historical usage rate and collectability.
•For sales-based royalties, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Payment terms and conditions vary by contracts, although terms generally include a requirement of payment within 30 to 45 days after invoice. Royalties are generally due quarterly or annually.
Derivative Financial Instruments—Warrants
The Company has issued common stock warrants in connection with the execution of certain equity financings. Such warrants are classified as derivative liabilities and are recorded at their fair market value as of each reporting period as they do not meet the criteria for equity classification. Changes in fair value of derivative liabilities are recorded in the statement of operations under the caption “Change in fair value of derivative instruments—warrants.”
The fair value of warrants is determined using the Black-Scholes option-pricing model using assumptions regarding the historical volatility of Cardiff Oncology’s common stock price, the remaining life of the warrants, and the risk-free interest rates at each period end. The Company thus uses model-derived valuations where inputs are observable in active markets to determine the fair value. The use of the Black-Scholes model classifies such warrants as Level 3 (See "Fair Value of Financial Instruments" below). At December 31, 2021 and 2020, the fair value of these warrants was $0 and $285,000, respectively, and was recorded as a liability under the caption “derivative financial instruments—warrants” on the balance sheets. These warrants expire in the first quarter of 2023.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized straight-line over the requisite service period of the individual grants, which typically equals the vesting period.
Fair Value of Financial Instruments
Financial instruments consist of cash equivalents, accounts receivable, accounts payable and derivative liabilities. The Company applies ASC 820 for financial assets and liabilities that are required to be measured at fair value and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis. These financial instruments are stated at their
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respective historical carrying amounts, which approximate fair value due to their short-term nature as they reflect current market interest rates.
The authoritative guidance establishes a fair value hierarchy that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities. In general, the authoritative guidance requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the measurement of its fair value. The three levels of input defined by the authoritative guidance are as follows:
The Company measures certain assets and liabilities at fair value on a recurring basis using the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three tiers include:
•Level 1 — Quoted prices for identical instruments in active markets.
•Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.
•Level 3 — Instruments where significant value drivers are unobservable to third parties.
Long-Lived Assets
Long-lived assets consist of property, equipment and lease right-of-use assets. The Company records property and equipment at cost. Depreciation on property and equipment is calculated using the straight-line method over the estimated useful life of the asset. Depreciation of leasehold improvements is computed based on the shorter of the life of the asset or the term of the lease. The estimated useful lives of the major classes of property and equipment are as follows:
Estimated Useful Lives
Furniture and office equipment 3 to 5 years
Leasehold improvements 5 to 6 years
Laboratory equipment 5 years
Impairment losses on long-lived assets used in operations are recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease Right-of-Use (“ROU”) assets, current operating lease liabilities and non-current operating lease liabilities in the Company’s balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. None of the Company’s operating leases provide an implicit rate, therefore the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would expect to pay to borrow on a collateralized and fully amortizing basis over a similar term an amount equal to the lease payments in a similar economic environment. The operating lease ROU asset also includes any lease payments made less lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Our facilities lease agreement contains lease and non-lease components, such as common area maintenance. We have elected to account for these lease and non-lease components of this agreement as a single lease component.
Leases with an initial term of 12 months or less are not recorded on the Company's balance sheets. These short-term leases are expensed on a straight-line basis over the lease term.
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Income Taxes
Income taxes are determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Deferred taxes result from differences between the financial statement and tax bases of Cardiff Oncology’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. The assessment of whether or not a valuation allowance is required often requires significant judgment.
Contingencies
In the normal course of business, Cardiff Oncology is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, stockholder lawsuits, product and environmental liability, and tax matters. In accordance with FASB ASC Topic 450, Contingencies, Cardiff Oncology records such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. Cardiff Oncology, in accordance with this guidance, does not recognize gain contingencies until realized.
Research and Development
Research and development expenses include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, clinical trials, purchased in-process research and development and regulatory and scientific consulting fees, as well as contract research and insurance. Also, patent filing and patent maintenance expenses are considered legal in nature and therefore classified as general and administrative expense, if any.
Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts are recognized as an expense.
Net Loss Per Share
Basic and diluted net loss per common share is determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. Preferred dividends and deemed dividends recognized in connection with certain preferred share issuances are included in net loss attributable to common stockholders in the computation of basic and diluted earnings per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities would be antidilutive. Shares used in calculating diluted net loss per common share exclude as anti-dilutive the following share equivalents:
December 31,
Restricted Stock Units — 491
Series A Convertible Preferred Stock 877 877
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Recent Accounting Pronouncement Not Yet Adopted
In August 2020, the FASB issued ASU No. 2020-06 ("ASU 2020-06"), Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2021 (or December 15, 2023 for companies who meet the SEC definition of Smaller Reporting Companies), and interim periods within those fiscal years. The amendment is to be adopted through either a fully retrospective or modified retrospective method of transition. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its financial statements and related disclosures.
In May 2021, the FASB issued ASU No. 2021-04 ("ASU 2021-04), Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company will adopt this standard on January 1, 2022 and does not expect that the adoption of this standard will have a material impact on its financial statements and related disclosures.
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3. Supplementary Balance Sheet Information
Short-term investments available-for-sale securities consist of the following:
Maturity less than 1 year:
Certificate of deposit $ 1,260 $ — $ — $ 1,260
Non U.S. government 728 — — 728
Maturity 1 to 2 years:
For the year ending December 31, 2021 the realized loss on the sale of short-term investments was $0. The Company did not have short-term investments during the year ending December 31, 2020.
None of the Company’s short-term investments available for sale were in a material unrealized loss position at December 31, 2021. The Company reviewed its investment holdings as of December 31, 2021 and determined that its unrealized losses were not considered to be other-than-temporary based upon (i) the financial strength of the issuing institution and (ii) the fact that no securities have been in an unrealized loss position for twelve months or more. As such, the Company has not recognized any impairment in its financial statements related to its available-for-sale investment securities.
Property and Equipment
Fixed assets consist of furniture and office equipment, leasehold improvements and laboratory equipment. Depreciation expense for property and equipment for the years ended December 31, 2021 and 2020 was $0.5 million and $0.5 million, respectively. Property and equipment consisted of the following:
As of December 31,
Furniture and office equipment $ 955 $ 798
Less—accumulated depreciation (3,441) (3,004)
Property and equipment, net $ 382 $ 624
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Accrued Liabilities
Accrued liabilities consisted of the following:
As of December 31,
Preferred stock dividend 414 390
Research agreements and services 726 67
Professional fees and outside services 63 38
Patent, license and other fees 43 117
Other accrued liabilities 66 66
Total accrued liabilities $ 4,527 $ 3,851
4. Leases
As a lessee, the Company’s current leases include its master facility lease and immaterial equipment leases, all of which are considered operating leases.
The Company (as a sublessor) also subleases portions of its facility to third parties under three separate subleases. All of these subleases have been determined to be operating leases and are accounted for separately from the head lease.
Master Facility Lease
The Company currently occupies 9,500 square feet of office and lab space in San Diego. During July 2021, the Company entered into an amended lease agreement to increase its occupied space to 12,300 square feet which commences on January 1, 2022 and expires on February 28, 2027. Under the current master facility lease, which expired on December 31, 2021, the Company leases 26,100 square feet of office and lab space. This includes 16,600 square feet of space that is subleased to third parties, all of which expired on December 31, 2021. The minimum monthly rent under the amended lease is $55,000 with an annual rent escalation of 3% per year beginning on January 1, 2022. Through December 31, 2021 rent payments were approximately $80,000 per month.
Facility Subleases
As a result of corporate restructurings in previous years, the Company vacated a portion of its facility and has subleased the space to third parties under three separate sublease agreements, which all expired on December 31, 2021. Prior to the expiration of the sublease agreements, the Company as a sublessor was leasing approximately 16,600 square feet of space to third parties.
The components of lease expense were as follows:
Operating lease cost $ 745 $ 441
Operating sublease income (403) (291)
Net operating lease cost $ 342 $ 150
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Supplemental balance sheet information related to leases was as follows:
(in thousands) As of December 31, 2021 As of December 31, 2020
Operating lease ROU assets $ 2,796 $ 343
Current operating lease liabilities $ 551 $ 860
Non-current operating lease liabilities 2,568 9
Total operating lease liabilities $ 3,119 $ 869
Weighted-average remaining lease term–operating leases 5.2 years 1.0 year
Weighted-average discount rate–operating leases 7 % 6.5 %
Supplemental cash flow and other information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 949 $ 944
ROU assets obtained in exchange for lease obligations:
Operating leases $ 3,061 $ —
Total remaining annual commitments under non-cancelable lease agreements for each of the years ended December 31 are as follows:
(in thousands)
Year Ending December 31, Operating Leases
Total future minimum lease payments $ 3,749
Less imputed interest (630)
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5. Stockholders’ Equity
Warrants
A summary of warrant activity and changes in warrants outstanding, including both liability and equity classifications, is presented below:
The above table excludes pre-funded warrants with a nominal exercise price of $.01 per share:
1.605,072 pre-funded warrants outstanding as of December 31, 2019;
2.386,967 pre-funded warrants which were issued during the twelve months ending December 31, 2020;
3.All 992,039 pre-funded warrants were exercised in full during the twelve months ending December 31, 2020.
Preferred Stock
A summary of our Company's classes of preferred stock is presented below:
Shares outstanding
Series B Convertible Preferred Stock $ 0.001 8,860 None — —
Series C Convertible Preferred Stock $ 0.001 200,000 None — —
Series D Convertible Preferred Stock $ 0.0001 154,670 None — —
Series A Convertible Preferred Stock
The material terms of the Series A Convertible Preferred Stock consist of:
1)Dividends. Holders of the Company’s Series A Convertible Preferred Stock are entitled to receive cumulative dividends at the rate per share of 4% per annum, payable quarterly on March 31, June 30, September 30 and December 31, beginning with September 30, 2005. Dividends are payable, at the Company’s sole election, in cash or shares of common stock. As of December 31, 2021 and 2020, the Company had $414,000 and $390,000, respectively in accrued cumulative unpaid preferred stock dividends, included in accrued liabilities in the Company’s balance sheets, and $24,000 and $24,000 of accrued dividends were recorded during the years ended December 31, 2021 and 2020, respectively.
2)Voting Rights. Shares of the Series A Convertible Preferred Stock have no voting rights. However, so long as any shares of Series A Convertible Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of the shares of Series A Convertible Preferred Stock then outstanding, (a) adversely change the powers, preferences or rights given to the Series A Convertible Preferred Stock, (b) authorize or create any class of stock senior or equal to the Series A Convertible Preferred Stock, (c) amend its certificate of incorporation or other charter
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documents, so as to affect adversely any rights of the holders of Series A Convertible Preferred Stock or (d) increase the authorized number of shares of Series A Convertible Preferred Stock.
3)Liquidation. Upon any liquidation, dissolution or winding-up of the Company, the holders of the Series A Convertible Preferred Stock are entitled to receive an amount equal to the Stated Value per share, which is currently $10 per share plus any accrued and unpaid dividends.
4)Conversion Rights. Each share of Series A Convertible Preferred Stock is convertible at the option of the holder into that number of shares of common stock determined by dividing the Stated Value, currently $10 per share, by the conversion price, which at the time of issuance was $928.80 per share, and subsequently adjusted to $691.20 per share.
5)Subsequent Equity Sales. The conversion price is subject to adjustment for dilutive issuances for a period of 12 months beginning March 17, 2006 and the conversion price was adjusted to $691.20 per share.
6) Automatic Conversion. If the price of the Company’s common stock equals $1,857.60 per share for 20 consecutive trading days, and an average of 116 shares of common stock per day are traded during the 20 trading days, the Company will have the right to deliver a notice to the holders of the Series A Convertible Preferred Stock, requesting the holders to convert any portion of the shares of Series A Convertible Preferred Stock into shares of common stock at the applicable conversion price. As of the date of these financial statements, such conditions have not been met.
Series D Convertible Preferred Stock and Service Receivable
On May 8, 2020, the Company entered into a Stock and Warrant Subscription Agreement with PoC, whereby PoC agreed to finance an additional $2.3 million for a clinical trial in exchange for (i) 602,833 shares of its common stock (the “Common Stock”), (ii) 154,670 shares of its Series D Preferred Stock and (iii) a warrant exercisable for 859,813 shares of its Common Stock. In exchange, PoC is funding our clinical development of onvansertib in metastatic colorectal cancer pursuant to a Master Services Agreement dated as of January 25, 2019, as amended. The warrant will be exercisable six months following the date of issuance at an exercise price of $1.50 per share and will expire on November 7, 2025. In June of 2020, all 154,670 Series D Preferred Stock were converted to 1,546,700 shares of Common Stock.
The Company evaluated the awards issued under this transaction and determined they should be classified as equity. These equity awards were fully vested and non-forfeitable. Since the equity awards were for clinical trial services yet to be provided, the Company recognized $2.3 million service receivables as contra equity. The Company releases the service receivables as clinical trial services are performed. The conversion feature of the Series D Convertible Preferred Stock at the time of issuance was determined to be beneficial on the commitment date. Because the Series D Convertible Preferred Stock was perpetual with no stated maturity date, and the conversions could occur any time from inception, the Company immediately recorded a non-cash deemed dividend of $0.6 million related to the beneficial conversion feature arising from the issuance of Series D Convertible Preferred Stock. This non-cash deemed dividend increased the Company’s net loss attributable to common stockholders and net loss per share for the year-ending December 31, 2020.
Series E Convertible Preferred Stock
On June 15, 2020 the Company entered into a Securities Purchase Agreement with Acorn Bioventures LP ("Acorn"), CDK Associates, L.L.C. (“CDK”) and Third Street Holdings LLC (“Third Street”), pursuant to which the Company agreed to offer, issue and sell to Acorn, CDK and Third Street, (i) in a registered direct offering, an aggregate of 1,984,328 shares of common stock and (ii) in a concurrent private placement, (a) an aggregate of 865,824 shares of Series E Preferred Stock (“Series E Preferred Stock”) and (b) Series N warrants to purchase up to 2,213,115 shares of Common Stock. The Series E Preferred Stock is convertible at any time determined by dividing the $10 stated value per share of the Series E Preferred Stock by a conversion price of $2.44 per share, subject to adjustment in accordance with the Certificate of Designation. The Series N Warrants will be exercisable six months following the date of issuance at an exercise price of $2.39 per share and will expire on December 16, 2025. Certain investors converted 210,780 shares of Series E Convertible Preferred stock to 863,852 shares of Common Stock during December 2020.
The conversion feature of the Series E Convertible Preferred Stock at the time of issuance was determined to be beneficial on the commitment date. Because the Series E Convertible Preferred Stock was perpetual with no stated maturity date, and the conversions could occur any time from inception, the Company immediately recorded a non-cash deemed dividend of $2.7 million related to the beneficial conversion feature arising from the issuance of Series E Convertible Preferred Stock. This non-cash deemed dividend increased the Company’s net loss attributable to common stockholders and net loss per share for the year-ending December 31, 2020.
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In conjunction with the June 15, 2020 offering, we issued 184,426 warrants as an advisory fee. These warrants are exercisable six months following the date of issuance at an exercise price of $3.05 per share and will expire 5.5 years following the date of issuance. These warrants are classified as equity and its estimated fair value of $370,666 was recognized as additional paid in capital on the issuance date. The estimated fair value is determined using the Black-Scholes Option Pricing Model which is based on the value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.
Securities Purchase Agreements with Lincoln Park Capital Fund, LLC
On March 30, 2020, the Company entered into a Securities Purchase Agreement with Lincoln Park Capital Fund, LLC ("LPC") which the company sold a combination of common stock and warrants for gross proceeds of $1.0 million. Under this agreement 800,000 shares of common stock, 131,967 pre-funded warrants and 931,967 Series J Warrants were sold.
On April 9, 2020, the Company entered into a Securities Purchase Agreement with LPC, which the company sold a combination of common stock and warrants for gross proceeds of $1.1 million. Under this agreement 904,970 shares of common stock, 255,000 pre-funded warrants and 1,159,970 Series L Warrants were sold.
Securities Purchase Agreement with Certain Directors and Executives
On May 11, 2020 and May 14, 2020, the Company entered into Securities Purchase Agreements with certain directors and executives of the Company pursuant to which the Company sold 447,761 shares of common stock at a purchase price of $1.34 per share and 146,854 shares of common stock at a purchase price of $1.43 per share. The gross proceeds from these purchases were $810,000.
Securities Purchase Agreement with Acorn Bioventures LP
On May 26, 2020, the Company entered into a Securities Purchase Agreement with Acorn which the Company sold a combination of common stock and warrants for gross proceeds of $2.5 million. Under the agreement the Company sold 1,205,400 shares of common stock and 482,160 Series M Warrants.
Underwritten Public Offering
On October 2, 2020 the Company completed an underwritten public offering of 6,500,000 shares of its common stock at a price to the public of $13.50 per share. In addition, the underwriters exercised in full an option to purchase an additional 975,000 shares of common stock at the public offering price, less the underwriting discounts and commissions. All of the shares in the offering were sold by the Company, with gross proceeds of approximately $100.9 million, and net proceeds of approximately $94.0 million, after deducting underwriting discounts, commissions and estimated offering expenses.
Sales Agreement with Jefferies LLC
During May 2021, the Company sold 2.0 million shares of its common stock under the Sales Agreement with Jefferies LLC., for gross proceeds of approximately $20.0 million.
Pfizer Breakthrough Growth Initiative
During November 2021, the Company sold 2.4 million shares of its common stock under a Securities Purchase Agreement with Pfizer Inc. ("Pfizer"), in a registered direct offering for gross proceeds of approximately $15.0 million. The investment is part of the Pfizer Breakthrough Growth Initiative, which includes an information rights agreement and Pfizer's participation on a Scientific Advisory Board for the Company. Pfizer has agreed to not sell or transfer any shares for 180 days from the closing date of the agreement.
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6. Stock-Based Compensation
2021 Equity Incentive Plan
In June 2021 the Company's stockholders approved the 2021 Omnibus Equity Incentive Plan ("2021 Plan"). The number of authorized shares in the 2021 plan is equal to the sum of (i) 3,150,000 shares, plus (ii) the number of shares of Common Stock reserved, but unissued under the 2014 Plan; and (iii) the number of shares of Common Stock underlying forfeited awards under the 2014 Plan. As of December 31, 2021, there were 2,284,862 shares available for issuance under the 2021 Plan.
2014 Equity Incentive Plan
Subsequent to the adoption of the 2021 Plan, no additional equity awards can be made under the terms of the 2014 Plan.
Inducement Grants
In July 2021, the Company began issuing equity awards to certain new employees as inducement grants outside of its 2021 Plan. As of December 31, 2021, an aggregate of 790,112 shares were issuable upon the exercise of inducement grant stock options approved by the Company.
Modification of Stock Options
In June 2021 two of the Company's directors' terms ended. At the conclusion of their term, the Compensation Committee passed a resolution to extend the expiration date of the departing directors vested stock options, and to immediately accelerate the vesting of one of the directors unvested options. The Company recorded incremental stock compensation expenses of $0.6 million during the twelve months ending December 31, 2021, related to the modifications.
Stock-based compensation has been recognized in operating results as follows:
(in thousands) Years ended December 31,
Research and development expenses 491 355
Selling, general and administrative expenses 2,743 1,410
Total stock-based compensation $ 3,234 $ 1,765
Stock Options
The estimated fair value of stock option awards was determined on the date of grant using the Black-Scholes option valuation model with the following assumptions during the years indicated below:
Years ended December 31,
Dividend yield 0% 0%
Expected volatility (weighted-average) 108% 105%
Expected term (in years) 6.0 years 5.9 years
Risk-free interest rate — Based on the daily yield curve rates for U.S. Treasury obligations with maturities that correspond to the expected term of the Company’s stock options.
Dividend yield — Cardiff Oncology has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.
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Expected volatility — Based on the historical volatility of Cardiff Oncology’s common stock.
Expected term — The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method, which averages an award’s weighted-average vesting period and expected term for “plain vanilla” share options. Options are considered to be “plain vanilla” if they have the following basic characteristics: (1) are granted “at-the-money”; (2) exercisability is conditioned upon service through the vesting date; (3) termination of service prior to vesting results in forfeiture; (4) limited exercise period following termination of service; and (5) are non-transferable and non-hedgeable.
Forfeitures — The Company estimates forfeitures based on its historical experience.
The weighted-average fair value per share of all options granted during the years ended December 31, 2021 and 2020, estimated as of the grant date using the Black-Scholes option valuation model, was $5.96 and $2.09 per share, respectively.
The unrecognized compensation cost related to non-vested stock options outstanding at December 31, 2021 was $10.1 million. The weighted-average remaining amortization period at December 31, 2021 for non-vested stock options was 3.2 years.
The total fair value of shares vested during the years ended December 31, 2021 and 2020 was $1.2 million and $1.5 million, respectively.
The intrinsic value of stock options exercised during the year ended December 31, 2020 was $1.0 million.
A summary of stock option activity and of changes in stock options outstanding is presented below:
Restricted Stock Units
RSU's are measured at the grant date based on the closing market price of the Company’s common stock at the grant date and recognized ratably over the service period through the vesting date. All RSU's were granted with no purchase price. Vesting of the RSU's is generally subject to service conditions.
A summary of the RSU's activity is presented below:
Number of Shares Weighted AverageGrant Date Fair ValuePer Share IntrinsicValue
Non-vested RSU's outstanding, December 31, 2021 — $ — $ —
The total fair values of RSU's vested during the year ended December 31, 2021 and 2020 were $0.1 million and $0.1 million, respectively.
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7. Derivative Financial Instruments — Warrants
Certain warrants issued in connection with the Company’s equity financings are accounted for as derivative liabilities. Accordingly, the warrants are remeasured at each balance sheet date based on their estimated fair value using the Black-Scholes option pricing model. Changes in fair value are recorded within Company’s statements of operations.
The assumptions used to determine the fair value of the warrants using the Black-Scholes option pricing model were:
As of December 31,
Fair value of Cardiff Oncology common stock $6.01 $17.99
Expected warrant term 1.1 years 2.1 years
Risk-free interest rate 0.41 % 0.13 %
Expected volatility of Cardiff Oncology common stock 83 % 116 %
Dividend yield 0 % 0 %
Expected volatility is based on the historical volatility of Cardiff Oncology’s common stock. The warrants have a transferability provision and based on guidance for instruments issued with such a provision, Cardiff Oncology used the remaining contractual term as the expected term of the warrants. The risk-free interest 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.
(in thousands, except for number of warrants)
Date Description Number of Warrants DerivativeInstrumentLiability
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8. Fair Value Measurements
The following table presents the Company’s assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of December 31, 2021 and 2020:
Fair Value Measurements atDecember 31, 2021
Assets:
Total included in cash and cash equivalents $ 10,990 $ — $ — $ 10,990
Available for sale investments:
Non U.S. government — 728 — 728
Fair Value Measurements atDecember 31, 2020
Assets:
Liabilities:
Derivative financial instruments—warrants (2) $ — $ — $ 285 $ 285
(1) Included in short-term investments in the accompanying balance sheets.
(2) A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments that trade infrequently and therefore have little or no price transparency are classified as Level 3. See Note 7 to the financial statements for further information.
The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no transfers into or out of Level 3 during the years ended December 31, 2021 and 2020.
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9. Income Taxes
At December 31, 2021, Cardiff Oncology had federal net operating loss carryforwards (“NOLs”) of approximately $128.9 million which, if not used, will continue to expire through 2037, and federal net operating loss carryforwards of approximately $73.3 million, which do not expire. Cardiff Oncology also has California NOLs of approximately $75.6 million which, if not used, will begin to expire in 2030. Cardiff Oncology also has research and development tax credits available for federal and California purposes of approximately $2.4 million and $2.0 million, respectively. The federal research and development tax credits will begin to expire on January 31, 2025. The California research and development tax credits do not expire.
Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of a company’s NOL and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company has not completed such an analysis pursuant to Sections 382 and 383 and has established a valuation allowance as the realization of such deferred tax assets has not met the more likely than not threshold requirement. Due to the existence of the valuation allowance, further changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.
The provision for income taxes based on losses from continuing operations consists of the following at December 31 (in thousands):
Years ended December 31,
Current:
State $ 1 $ 1
Total current provision 1 1
Deferred:
Total deferred (benefit) expense (6,082) (4,135)
Total income tax provision $ — $ —
Significant components of the Company’s taxes and the rates as of December 31 are shown below (in thousands, except percentages):
Years ended December 31,
Tax computed at the federal statutory rate $ (5,941) 21 % $ (4,054) 21 %
State tax, net of federal tax benefit (233) 1 % (122) 1 %
Permanent items 62 — % 261 (1) %
Stock based compensation 325 (1) % 81 (1) %
Other 72 — % — — %
Valuation allowance increase (decrease) 6,081 (22) % 4,134 (22) %
Provision for income taxes $ — — % $ — — %
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Significant components of the Company’s deferred tax assets and liabilities from federal and state income taxes as of December 31 are shown below (in thousands):
Years ended December 31,
Deferred tax assets:
Research and development credits and other tax credits 4,035 3,904
Stock-based compensation 962 684
Deferred tax liabilities:
Operating lease right-of-use assets (611) (74)
Other — (6)
Total deferred tax liabilities (611) (80)
Net deferred tax assets before valuation allowance 54,038 47,955
Net deferred tax asset $ — $ —
Since inception the Company has incurred continuing losses and expects to continue to incur losses for the foreseeable future. The Company has recorded a full valuation allowance against its net deferred tax assets as it is more likely than not they will not be realized.
Cardiff Oncology does not have any unrecognized tax benefits. Cardiff Oncology’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense, and none have been incurred to date. The Company does not anticipate a significant change in unrecognized tax benefits over the next 12 months. The Company is subject to taxation in the U.S. and California. Due to net operating losses all tax years since inception remain open to examination.
10. Commitments and Contingencies
Executive Agreements
Certain executive agreements provide for severance payments in case of terminations without cause or certain change of control scenarios.
Research and Development and Clinical Trial Agreements
In March 2017, the Company entered into a license agreement with Nerviano which granted the Company development and commercialization rights to NMS-1286937, which Cardiff Oncology refers to as onvansertib. The Company was committed to order $1.0 million of future services provided by Nerviano, such as the cost to manufacture drug product, no later than June 30, 2019, and these services have been purchased. Terms of the agreement also provide for the Company to pay development milestones and royalties based on sales volume.
The Company is a party of various agreements under which it licenses technology on an exclusive basis in the field of oncology therapeutics. These agreements include License fees, Royalties and Milestone payments. The company also has a legacy license agreement in the field of oncology diagnostics under which royalty payments are due. These royalty payments are calculated as a percent of revenue. During the years ended December 31, 2021 and 2020 payments have not been material.
Litigation
Cardiff Oncology does not believe that it has legal liabilities that are probable or reasonably possible that require either accrual or disclosure. From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in matters may arise from time to time that may harm the Company’s business. As of the date of this report, management believes that there are no claims against the Company, which it believes will result in a material adverse effect on the Company’s business or financial condition.
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