Cardiff Oncology, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS CARDIFF ONCOLOGY, INC. CONDENSED BALANCE SHEETS (Unaudited) June 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 27,754,813 $ 10,195,292 Accounts receivable and unbilled receivable 109,334 203,480 Prepaid expenses and other current assets 954,986 954,957 Total current assets 28,819,133 11,353,729 Property and equipment, net 655,367 877,823 Operating lease right-of-use assets 501,894 697,418 Other assets 152,585 157,576 Total Assets $ 30,128,979 $ 13,086,546 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,155,531 $ 656,304 Accrued expenses 2,858,161 3,260,061 Note payable 70,730 — Operating lease liabilities 877,607 865,379 Total current liabilities 4,962,029 4,781,744 Derivative financial instruments—warrants 46,164 4,127 Note payable, net of current portion 234,270 — Operating lease liabilities, net of current portion 429,776 860,963 Other liabilities 72,701 128,368 Total Liabilities 5,744,940 5,775,202 Commitments and contingencies (Note 8) Stockholders’ equity Preferred stock, 20,000,000 shares authorized; (Note 7) 926 60 Common stock, $ 0.0001 par value, 150,000,000 shares authorized; 21,325,076 and 8,593,633 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 9,585 8,312 Additional paid-in capital 247,528,273 217,172,528 Service receivables ( 2,765,164 ) ( 971,673 ) Accumulated deficit ( 220,389,581 ) ( 208,897,883 ) Total stockholders’ equity 24,384,039 7,311,344 Total liabilities and stockholders’ equity $ 30,128,979 $ 13,086,546 See accompanying notes to the unaudited condensed financial statements. 3 Table of Contents CARDIFF ONCOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues: Royalties $ 42,633 $ 36,852 $ 110,337 $ 98,873 Services — 1,496 — 1,496 Total revenues 42,633 38,348 110,337 100,369 Costs and expenses: Research and development 2,475,722 2,830,340 5,181,413 5,478,939 Selling, general and administrative 1,669,227 1,427,967 3,155,246 2,803,152 Total operating expenses 4,144,949 4,258,307 8,336,659 8,282,091 Loss from operations ( 4,102,316 ) ( 4,219,959 ) ( 8,226,322 ) ( 8,181,722 ) Interest income 15,671 69,761 51,494 134,504 Gain (loss) from change in fair value of derivative financial instruments—warrants ( 44,144 ) 23,789 ( 42,037 ) 14,028 Other income (expense), net 6,257 1,106 3,771 3,116 Net loss ( 4,124,532 ) ( 4,125,303 ) ( 8,213,094 ) ( 8,030,074 ) Preferred stock dividend payable on Series A Convertible Preferred Stock ( 6,060 ) ( 6,060 ) ( 12,120 ) ( 12,120 ) Deemed dividend recognized on beneficial conversion features of Series C Convertible Preferred Stock issuance — — — ( 268,269 ) Deemed dividend recognized on beneficial conversion features of Series D Convertible Preferred Stock issuance ( 601,767 ) — ( 601,767 ) — Deemed dividend recognized on beneficial conversion features of Series E Convertible Preferred Stock issuance ( 2,664,717 ) — ( 2,664,717 ) — Net loss attributable to common stockholders $ ( 7,397,076 ) $ ( 4,131,363 ) $ ( 11,491,698 ) $ ( 8,310,463 ) Net loss per common share — basic and diluted $ ( 0.51 ) $ ( 0.76 ) $ ( 0.94 ) $ ( 1.75 ) Weighted-average shares outstanding — basic and diluted 14,492,159 5,408,124 12,201,232 4,750,993 See accompanying notes to the unaudited condensed financial statements. 4 Table of Contents CARDIFF ONCOLOGY, INC. CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) Preferred Stock Shares Preferred Stock Amount Common Stock Shares Common Stock Amount Additional Paid-In Capital Service Receivable Accumulated Deficit Total Stockholders’ Equity Balance, January 1, 2020 60,600 $ 60 8,593,633 $ 8,312 $ 217,172,528 $ ( 971,673 ) $ ( 208,897,883 ) $ 7,311,344 Stock-based compensation — — — 177,309 — — 177,309 Sale of common stock and warrants — — 800,000 80 999,921 — — 1,000,001 Issuance of common stock upon exercise of warrants — — 1,610,144 161 1,456,208 — — 1,456,369 Issuance of common stock upon vesting of restricted stock units — — 6,810 1 ( 1 ) — — — Preferred stock dividend — — — — — — ( 6,060 ) ( 6,060 ) Release of clinical trial funding commitment — — — — — 293,017 — 293,017 Net loss — — — — — — ( 4,088,562 ) ( 4,088,562 ) Balance, March 31, 2020 60,600 $ 60 11,010,587 $ 8,554 $ 219,805,965 $ ( 678,656 ) $ ( 212,992,505 ) $ 6,143,418 Stock-based compensation — — — — 281,776 — — 281,776 Issuance of common stock, preferred stock and warrants for clinical trial funding commitment 154,670 15 602,833 60 2,292,425 ( 2,300,000 ) — ( 7,500 ) Deemed dividend recognized on beneficial conversion features of Series D Convertible Preferred Stock issuance — — — — 601,767 — ( 601,767 ) — Deemed dividend recognized on beneficial conversion features of Series E Convertible Preferred Stock issuance — — — — 2,664,717 — ( 2,664,717 ) — Sale of common stock, preferred stock and warrants (1) 865,824 866 4,689,313 469 17,277,093 — — 17,278,428 Issuance of common stock upon exercise of warrants — — 3,473,393 347 4,604,670 — — 4,605,017 Issuance of common stock upon vesting of restricted stock units — — 2,250 — — — — — Issuance of common stock upon conversion of Series D Convertible Preferred Stock ( 154,670 ) ( 15 ) 1,546,700 155 ( 140 ) — — — Preferred stock dividend payable on Series A Convertible Preferred Stock — — — — — — ( 6,060 ) ( 6,060 ) Release of clinical trial funding commitment — — — — — 213,492 — 213,492 Net loss — — — — — — ( 4,124,532 ) ( 4,124,532 ) Balance, June 30, 2020 926,424 $ 926 21,325,076 $ 9,585 $ 247,528,273 $ ( 2,765,164 ) $ ( 220,389,581 ) $ 24,384,039 (1) Net of expenses of $ 616,143 , and fair value of warrants issued as a transaction advisory fee as of the date of issuance of $ 370,666 . 5 Table of Contents Preferred Stock Shares Preferred Stock Amount Common Stock Shares Common Stock Amount Additional Paid-In Capital Service Receivable Accumulated Deficit Total Stockholders’ Equity Balance, January 1, 2019 60,600 $ 60 3,831,879 $ 7,742 $ 202,267,605 $ — $ ( 192,191,215 ) $ 10,084,192 Stock-based compensation — — — — 200,067 — — 200,067 Issuance of common stock, preferred stock and warrants for clinical trial funding commitment, net of expenses and discount of $ 40,000 and $ 235,640 , respectively 200,000 200 183,334 110 1,634,690 ( 1,675,000 ) — ( 40,000 ) Deemed dividend recognized on beneficial conversion features of Series C Convertible Preferred Stock issuance — — — — 268,269 — ( 268,269 ) — Issuance of common stock upon exercise of warrants — — 497,313 50 3,282,216 — — 3,282,266 Issuance of common stock upon vesting of restricted stock units — — 6,362 4 ( 4 ) — — — Preferred stock dividend payable on Series A Convertible Preferred Stock — — — — — — ( 6,060 ) ( 6,060 ) Issuance of common stock for share rounding as a result of reverse stock split — — 6,466 — — — — — Release of clinical trial funding commitment — — — — — 70,487 — 70,487 Net loss — — — — — — ( 3,904,771 ) ( 3,904,771 ) Balance, March 31, 2019 260,600 $ 260 4,525,354 $ 7,906 $ 207,652,843 $ ( 1,604,513 ) $ ( 196,370,315 ) $ 9,686,181 Stock-based compensation — — — — 148,834 — — 148,834 Sale of common stock and warrants, net of expenses — — 421,917 42 2,902,698 — — 2,902,740 Issuance of common stock upon exercise of warrants — — 156,353 16 1,548 — — 1,564 Issuance of common stock upon vesting of restricted stock units — — 4,433 — — — — — Issuance of common stock upon conversion of Series C Convertible Preferred Stock ( 200,000 ) ( 200 ) 333,333 33 167 — — — Preferred stock dividend payable on Series A Convertible Preferred Stock — — — — — — ( 6,060 ) ( 6,060 ) Release of clinical trial funding commitment — — — — — 240,279 — 240,279 Net loss — — — — — ( 4,125,303 ) ( 4,125,303 ) Balance, June 30, 2019 60,600 $ 60 5,441,390 $ 7,997 $ 210,706,090 $ ( 1,364,234 ) $ ( 200,501,678 ) $ 8,848,235 See accompanying notes to the unaudited condensed financial statements. 6 Table of Contents CARDIFF ONCOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2020 2019 Operating activities Net loss $ ( 8,213,094 ) $ ( 8,030,074 ) Adjustments to reconcile net loss to net cash used in operating activities: Impairment loss 34,169 — Depreciation 233,909 248,958 Stock-based compensation expense 459,085 348,901 Change in fair value of derivative financial instruments—warrants 42,037 ( 14,028 ) Release of clinical trial funding commitment 506,509 310,766 Changes in operating assets and liabilities: Other assets 4,991 ( 32,464 ) Accounts receivable and unbilled receivable 94,146 45,474 Prepaid expenses ( 29 ) 163,950 Operating lease right-of-use assets 161,355 147,974 Accounts payable and accrued expenses ( 514,239 ) 387,046 Operating lease liabilities ( 418,959 ) ( 379,662 ) Other liabilities ( 55,667 ) — Net cash used in operating activities ( 7,665,787 ) ( 6,803,159 ) Investing activities: Capital expenditures — ( 5,274 ) Net cash used in investing activities — ( 5,274 ) Financing activities: Proceeds from sales of common stock, preferred stock and warrants, net of expenses of $ 92,648 and $ 97,260 , respectively 18,801,924 2,902,740 Costs related to the clinical trial funding commitment ( 7,500 ) ( 40,000 ) Proceeds from exercise of warrants, net of expenses of $ 393,285 and $ 0 , respectively 6,125,884 3,283,830 Borrowings under long-term debt 305,000 — Net cash provided by financing activities 25,225,308 6,146,570 Net change in cash and cash equivalents 17,559,521 ( 661,863 ) Cash and cash equivalents—Beginning of period 10,195,292 11,453,133 Cash and cash equivalents—End of period $ 27,754,813 $ 10,791,270 Supplementary disclosure of cash flow activity: Cash paid for taxes $ 800 $ 800 Supplemental disclosure of non-cash investing and financing activities: Acquisition of property and equipment included in accounts payable and accrued expenses $ 11,453 $ — Expenses from sales of common stock, preferred stock and warrants included in accounts payable and accrued liabilities $ 523,495 $ — Expenses from exercise of warrants included in accounts payable and accrued liabilities $ 64,498 $ — Preferred stock dividend payable on Series A Convertible Preferred Stock $ 12,120 $ 12,120 Deemed dividend recognized for beneficial conversion features of Series C Convertible Preferred Stock issuance $ — $ 268,269 7 Table of Contents Six Months Ended June 30, 2020 2019 Deemed dividend recognized for beneficial conversion features of Series D Convertible Preferred Stock issuance $ 601,767 $ — Deemed dividend recognized for beneficial conversion features of Series E Convertible Preferred Stock issuance $ 2,664,717 $ — Common stock, Series C Convertible Preferred Stock and warrants issued in connection with clinical trial funding commitment, net of discount of $ 235,640 $ — $ 1,675,000 Common stock, Series D Convertible Preferred Stock and warrants issued in connection with clinical trial funding commitment, net of discount of $ 488,270 $ 2,300,000 $ — Common stock issued upon conversion of Series C Convertible Preferred Stock $ — $ 33 Common stock issued upon conversion of Series D Convertible Preferred Stock $ 155 $ — See accompanying notes to the unaudited condensed financial statements. 8 Table of Contents CARDIFF ONCOLOGY, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Organization and Basis of Presentation Business Organization and Overview Cardiff Oncology, Inc. (“Cardiff Oncology” or the “Company”) headquartered in San Diego, California, is a clinical-stage biotechnology company with the singular mission of developing new treatment options for cancer patients in indications with the greatest medical need, including KRAS-mutated metastatic colorectal cancer, Zytiga®-resistant metastatic castration-resistant prostate cancer and relapsed or refractory acute myeloid leukemia. Our goal is to overcome resistance, improve response to treatment and increase overall survival and the integration of predictive clinical biomarkers to assess patient response to treatment. Basis of Presentation The accompanying unaudited interim condensed financial statements of Cardiff Oncology have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The unaudited interim condensed financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and the results of its operations and cash flows for the periods presented. The unaudited condensed balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by GAAP for annual financial statements. The operating results presented in these unaudited interim condensed financial statements are not necessarily indicative of the results that may be expected for any future periods. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2019 included in the Company’s annual report on Form 10-K filed with the SEC on February 27, 2020. Liquidity The Company has incurred net losses since its inception and has negative operating cash flows. As of June 30, 2020, the Company had $ 27.8 million in cash and cash equivalents 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 10 to the condensed financial statements for further information. 2. Summary of Significant Accounting Policies During the six months ended June 30, 2020, there have been no changes to the Company’s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except as described below. 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 are included in net loss attributable to common stockholders in the computation of basic and diluted earnings per share. Shares used in calculating diluted net loss per common share exclude as anti-dilutive the following share equivalents: 9 Table of Contents The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Numerator: Net loss attributable to common shareholders $ ( 7,397,076 ) $ ( 4,131,363 ) $ ( 11,491,698 ) $ ( 8,310,463 ) Net loss used for basic and diluted loss per share $ ( 7,397,076 ) $ ( 4,131,363 ) $ ( 11,491,698 ) $ ( 8,310,463 ) Denominator: Weighted-average shares used to compute basic and diluted net loss per share 14,492,159 5,408,124 12,201,232 4,750,993 Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.51 ) $ ( 0.76 ) $ ( 0.94 ) $ ( 1.75 ) The following table sets forth the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their effect was anti-dilutive: June 30, 2020 2019 Options to purchase Common Stock 1,924,039 1,033,274 Warrants to purchase Common Stock 12,329,435 4,404,185 Restricted Stock Units 2,241 14,187 Series A Convertible Preferred Stock 877 877 Series E Convertible Preferred Stock 3,548,459 — 17,805,051 5,452,523 Recently Adopted Accounting Pronouncement In August 2018, the FASB issued ASU No. 2018-13 ("ASU 2018-13"), Changes to the Disclosure Requirements for Fair Value Measurement . This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company has prospectively adopted ASU 2018-13 as of January 1, 2020 for periods presented after adoption. The adoption of ASU 2018-13 did not have a material impact on the Company's financial statements. 10 Table of Contents 3. 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 June 30, 2020 and December 31, 2019: Fair Value Measurements at June 30, 2020 Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Money market fund (1) $ 27,706,506 $ — $ — $ 27,706,506 Total Assets $ 27,706,506 $ — $ — $ 27,706,506 Liabilities: Derivative financial instruments — warrants (2) $ — $ — $ 46,164 $ 46,164 Total Liabilities $ — $ — $ 46,164 $ 46,164 Fair Value Measurements at December 31, 2019 Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Money market fund (1) $ 10,131,240 $ — $ — $ 10,131,240 Total Assets $ 10,131,240 $ — $ — $ 10,131,240 Liabilities: Derivative financial instruments — warrants (2) $ — $ — $ 4,127 $ 4,127 Total Liabilities $ — $ — $ 4,127 $ 4,127 (1) Included as a component of cash and cash equivalents on the accompanying condensed 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 6 to the condensed financial statements for further information. 4. Property and Equipment Property and equipment consist of the following: As of June 30, 2020 As of December 31, 2019 Furniture and office equipment $ 775,030 $ 775,030 Leasehold improvements 1,962,230 1,962,230 Laboratory equipment 756,310 744,856 3,493,570 3,482,116 Less—accumulated depreciation and amortization ( 2,838,203 ) ( 2,604,293 ) Property and equipment, net $ 655,367 $ 877,823 5. 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. 11 Table of Contents The Company (as a sublessor) also subleases portions of its facility to third parties under two 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 leases a building in San Diego under an operating lease that expires on December 31, 2021. The lease currently requires fixed monthly rent payments of approximately $ 78,000 , with 3 % annual escalation. The lease also contains one five-year renewal option with minimum monthly rent equal to the then-current fair market value, subject to a 3 % annual increase. As the Company is not reasonably certain to exercise this option, it has not been included in the calculation of the lease liability or right-of-use asset related to this lease. 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 two separate sublease agreements, which both expire December 31, 2021. An additional sublease expired on October 31, 2019 and was not renewed. The Company recorded a cease-use loss liability and expense in 2018 pursuant to ASC 420, Exit or Disposal Cost Obligations , representing the total expected shortfall in sublease income for two of the subleases as compared to its required payments for those spaces under the remainder of the master lease term. This liability was being amortized over the remaining lease term until the adoption of ASC 842, whereupon the remaining cease-use loss liability of approximately $ 487,000 was eliminated and treated as a reduction to the beginning ROU asset value for the master lease as of January 1, 2019. Income will continue to be recognized on a straight-line basis over the term of the sublease. Impairment of Right-of-Use Assets The Company recorded an impairment loss of $ 34,169 for the three months ended June 30, 2020. The loss related to a vacated portion of the facility that is no longer being subleased. The Company determined that the prolonged loss of sublease income and an adverse commercial real estate market caused by COVID-19 were indicators of impairment. A fair value approach using quoted prices for similar assets was used to determine the impairment loss. The loss was recorded within operating expenses in the condensed statement of operations. The components of lease expense were as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Operating lease cost $ 139,283 $ 112,115 $ 246,028 $ 225,708 Operating sublease income ( 72,793 ) ( 99,937 ) ( 145,587 ) ( 199,874 ) Net operating lease cost $ 66,490 $ 12,178 $ 100,441 $ 25,834 Supplemental balance sheet information related to leases was as follows: As of June 30, 2020 As of December 31, 2019 Operating lease ROU assets $ 501,894 $ 697,418 Current operating lease liabilities $ 877,607 $ 865,379 Non-current operating lease liabilities 429,776 860,963 Total operating lease liabilities $ 1,307,383 $ 1,726,342 Weighted-average remaining lease term–operating leases 1.5 years 2.0 years Weighted-average discount rate–operating leases 6.5 % 6.5 % 12 Table of Contents Supplemental cash flow and other information related to leases was as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 236,385 $ 229,574 $ 469,463 $ 455,938 Total remaining annual commitments under non-cancelable lease agreements for each of the years ended December 31 are as follows: Year Ending December 31, Operating Leases Sublease Income Net Operating Leases 2020 (excluding the six months ended June 30, 2020) $ 395,916 $ ( 145,587 ) $ 250,329 2021 968,165 ( 291,173 ) 676,992 2022 5,868 — 5,868 2023 3,423 — 3,423 Total future minimum lease payments 1,373,372 $ ( 436,760 ) $ 936,612 Less imputed interest ( 65,989 ) Total $ 1,307,383 6. 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: Six Months Ended June 30, 2020 2019 Range: Estimated fair value of Cardiff Oncology common stock $ 1.01 - $ 5.01 $ 2.50 - $ 3.75 Expected warrant term 2.6 - 3.1 years 3.6 - 4.1 years Risk-free interest rate 0.17 - 1.62 % 1.72 - 2.49 % Expected volatility of Cardiff Oncology common stock 111 - 118 % 102 - 106 % Dividend yield 0 % 0 % As of June 30, 2020 Weighted Average (1)(2) : Fair value of Cardiff Oncology common stock $ 5.01 Expected warrant term 2.6 years Risk-free interest rate 0.17 % Expected volatility of Cardiff Oncology common stock 118 % 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. 13 Table of Contents 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 — 42,037 June 30, 2020 Balance of derivative financial instruments — warrants liability 64,496 $ 46,164 7. Stockholders’ Equity Stock Options Stock-based compensation expense related to Cardiff Oncology equity awards have been recognized in operating results as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Included in research and development expense $ 70,085 $ 86,058 $ 146,953 $ 196,138 Included in selling, general and administrative expense 211,691 62,776 312,132 152,763 Total stock-based compensation expense $ 281,776 $ 148,834 $ 459,085 $ 348,901 The unrecognized compensation cost related to non-vested stock options outstanding at June 30, 2020 and 2019, net of estimated forfeitures, was $ 2,732,126 and $ 1,735,973 , respectively, which is expected to be recognized over a weighted-average remaining vesting period of 2.4 and 2.5 years, respectively. The weighted-average remaining contractual term of outstanding options as of June 30, 2020 was approximately 9.4 years. The total fair value of stock options vested during the six months ended June 30, 2020 and 2019 were $ 764,724 and $ 279,760 , respectively. 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 weighted-average assumptions during the following periods indicated: Six Months Ended June 30, 2020 2019 Risk-free interest rate 0.44 % 1.8 % Dividend yield 0 % 0 % Expected volatility of Cardiff Oncology common stock 105 % 95 % Expected term 5.9 years 5.9 years 14 Table of Contents A summary of stock option activity and changes in stock options outstanding is presented below: Total Options Weighted-Average Exercise Price Per Share Intrinsic Value Balance outstanding, December 31, 2019 1,015,418 $ 12.77 $ — Granted 969,965 $ 2.53 Canceled / Forfeited ( 46,069 ) $ 12.58 Expired ( 15,275 ) $ 8.98 Balance outstanding, June 30, 2020 1,924,039 $ 7.64 $ 4,675,733 Exercisable at June 30, 2020 441,316 $ 24.82 $ 973,456 On June 6, 2019, the number of authorized shares in the Cardiff Oncology 2014 Equity Incentive Plan (“2014 EIP”) was increased from 243,056 to 1,243,056 . On April 16, 2020 the 2014 EIP was amended to increase the number of shares of common stock reserved for issuance thereunder to 2,243,056 from 1,243,056 . As of June 30, 2020, there were 258,497 shares available for issuance under the 2014 EIP. Restricted Stock Units A summary of the RSU activity is presented below: Total Restricted Stock Units Weighted-Average Grant Date Fair Value Per Share Intrinsic Value Non-vested RSUs outstanding, December 31, 2019 11,301 $ 15.38 $ 14,013 Vested ( 9,060 ) $ 10.89 $ 13,763 Non-vested RSUs outstanding, June 30, 2020 2,241 $ 33.49 $ 11,227 The total fair value of vested RSUs during the six months ended June 30, 2020 and 2019 were $ 98,703 and $ 147,516 , respectively. Warrants A summary of warrant activity and changes in warrants outstanding, including both liability and equity classifications is presented below: Total Warrants Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Term Balance outstanding, December 31, 2019 10,589,482 $ 4.08 3.7 years Granted 5,831,451 $ 1.70 Exercised ( 4,091,498 ) $ 1.59 Balance outstanding, June 30, 2020 12,329,435 $ 3.78 4.5 years 15 Table of Contents Preferred Stock A summary of our Company's classes of preferred stock is presented below: Shares outstanding Class Par value Shares designated Liquidation preference As of June 30, 2020 As of December 31, 2019 Series A Convertible Preferred Stock $ 0.001 277,100 $ 606,000 60,600 60,600 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 E Convertible Preferred Stock $ 0.001 865,824 None 865,824 — Series C Convertible Preferred Stock and Service Receivable On January 25, 2019, the Company entered into a Master Services Agreement and a Stock and Warrant Subscription Agreement with PoC Capital, LLC (“PoC”), whereby PoC agreed to finance $ 1.675 million for the development costs associated with Phase 1b/2 study of onvansertib in combination with FOLFIRI and Avastin ® in patients with metastatic Colorectal Cancer (“mCRC”) harboring KRAS mutation in exchange for (i) 183,334 shares of common stock, (ii) warrants to purchase an aggregate of 150,000 shares of common stock, with an exercise price of $ 3.762 per share, expiring on January 25, 2024, and (iii) 200,000 shares of Series C Convertible Preferred Stock, each share of which was convertible into 1.67 shares of common stock. In April of 2019, all 200,000 shares of Series C Convertible Preferred Stock were converted into 333,333 shares of the Company's common stock. As of June 30, 2020, there were no shares of Series C Convertible Preferred Stock outstanding. 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 $ 1.675 million service receivables as contra equity. The Company releases the service receivables as clinical trial services are performed. The conversion feature of the Series C Convertible Preferred Stock at the time of issuance was determined to be beneficial on the commitment date. Because the Series C 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 $ 0.3 million related to the beneficial conversion feature arising from the issuance of Series C Convertible Preferred Stock. This non-cash deemed dividend increased the Company’s net loss attributable to common stockholders and net loss per share. 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 (as defined below) and (iii) a warrant (the “Warrant”) exercisable for 859,813 shares of its Common Stock. In exchange for PoC funding clinical development of onvansertib, the Company’s first-in-class, 3rd generation oral and highly selective PLK1 inhibitor in a Phase 1b/2 clinical trial in patients with metastatic colorectal cancer pursuant to a Master Services Agreement dated as of January 25, 2019 by and among the Company, Integrium, LLC and PoC, as amended. The Series N Warrants 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. As of June 30, 2020, there were no shares of Series D Convertible Preferred Stock outstanding. 16 Table of Contents 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. Series E Convertible Preferred Stock and Service Receivable 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. As of June 30, 2020, there were 865,824 shares of Series E Convertible Preferred Stock outstanding. 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. 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”), pursuant to which the Company agreed to offer, issue and sell to LPC, (i) in a registered direct offering, an aggregate of (a) 800,000 shares of common stock and (b) Series I warrants to purchase up to 131,967 shares (the “Series I Warrant Shares”) of common stock. In a concurrent private placement, the Company also sold to LPC Series J warrants (the “Series J Warrants”) to purchase one share of common stock for each Share and for each Series I Warrant purchased for cash in the registered direct offering. The Series J Warrants are exercisable six months following the date of issuance at an exercise price of $ 0.948 per share and will expire 5.5 years following the date of issuance. The gross proceeds from this purchase were $ 1.0 million. On April 9, 2020, the Company entered into a Securities Purchase Agreement with LPC, pursuant to which the Company agreed to offer, issue and sell to LPC, (i) in a registered direct offering, an aggregate of (a) 904,970 shares of common stock and (b) Series K warrants to purchase up to 255,000 shares (the “Series K Warrant Shares”) of common stock. In a concurrent private placement, the Company also sold to LPC Series L warrants (the “Series L Warrants”) to purchase one share of Common Stock for each Share and for each Series K Warrant purchased for cash in the registered direct offering. The Series L Warrants are exercisable six months following the date of issuance at an exercise price of $ 0.81 per share and will expire 5.5 years following the date of issuance. The gross proceeds form this purchase were $ 1.1 million. 17 Table of Contents 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, pursuant to which the Company agreed to offer, issue and sell to Acorn, (i) in a registered direct offering, an aggregate of 1,205,400 shares of common stock and (ii) in a concurrent private placement, Series M warrants to purchase up to 482,160 shares of common stock. The Series M Warrants are exercisable six months following the date of issuance at an exercise price of $ 2.024 per share and will expire 5.5 years following the date of issuance. The gross proceeds from this purchase were $ 2.5 million. 8. 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. Onvansertib is an oral, investigative drug and a highly-selective adenosine triphosphate competitive inhibitor of the serine/threonine PLK1. The Company plans to develop onvansertib in patients with leukemias/lymphomas and solid tumor cancers. Upon execution of the agreement, the Company paid $ 2.0 million in license fees which were expensed to research and development costs. 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 royalties based on certain development and sales milestones. The Company is a party to various agreements under which it licenses technology on an exclusive basis in the field of human diagnostics and oncology therapeutics. License fees are generally calculated as a percentage of product revenues, with rates that vary by agreement. For the six months ended June 30, 2020 and 2019, 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. 9. Related Party Transactions In November 2018, the Company entered into a Material Transfer Agreement (“MTA”) with Leucadia Life Sciences (“Leucadia”) pursuant to which Leucadia will develop a PCR-based assay for onvansertib for Acute Myeloid Leukemia (“AML”). The Company’s Executive Chairman, Dr. Thomas Adams, is a principal stockholder of Leucadia. In connection with the MTA, the Company entered into a consulting agreement with Tommy Adams, Co-Founder & Chief Operating Officer of Leucadia, who is the son of Dr. Adams. During the three months ended June 30, 2020 and 2019 the Company incurred and recorded research and development expenses of approximately $ 253,000 and $ 258,000 , respectively, during the six months ended June 30, 2020 and 2019 the Company incurred and recorded approximately $ 529,000 and $ 503,000 , respectively, for services performed by Leucadia and Tommy Adams. 18 Table of Contents 10. COVID-19 The COVID-19 outbreak in the United States has caused significant business disruption. The extent of the impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and impact on the Company's clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact the Company's financial condition or results of operations is uncertain. A prolonged outbreak could have a material adverse impact on financial results and business operations of the Company, including the timing and ability of the Company to complete certain clinical trials and other efforts required to advance the development of its drugs and raise additional capital. In response to the pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act, among other things, includes tax provisions relating to refundable payroll tax credits, deferment of employer’s social security payments, net operating loss utilization and carryback periods, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company is utilizing the deferment of employer social security payments. The CARES Act did not have a material impact on our income tax provision for the three or six months ended June 30, 2020. We continue to monitor changes and revisions of the CARES Act and its impact on our financial position, results of operations and cash flows. Small Business Administration Payroll Protection Program Loan On April 15, 2020, the Company was granted a loan (the “Loan”) from JPMorgan Chase Bank, N.A. in the aggregate amount of $ 305,000 , pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act. The Loan, which was in the form of a Note dated April 15, 2020 issued by us, matures on April 15, 2022 and bears interest at a rate of 0.98 % per annum, payable monthly commencing on April 15, 2021. The Note may be prepaid by us at any time prior to maturity with no prepayment penalties. Funds from the Loan may only be used for payroll costs, rent, and utilities. We intend to use the entire Loan amount for qualifying expenses. Under the terms of the PPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. The application for these funds required the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The certification made by the Company did not contain any objective criteria and is subject to interpretation. If, despite the good-faith belief that given the Company’s circumstances all eligibility requirements for the PPP were satisfied, it is later determined that the Company had violated any applicable laws or regulations or it is otherwise determined the Company was ineligible to receive the PPP, it may be required to repay the PPP in its entirety and/or be subject to additional penalties. 11. Subsequent Events Exercise of Series G Warrants In July 2020 we received net proceeds of approximately $ 2.3 million from the exercise of 1,600,000 Series G Warrants at $ 1.56 per share. Exercise of Series F Warrants In August 2020 we received net proceeds of approximately $ 0.6 million from the exercise of 300,000 Series F Warrants at $ 1.936 per share. 19 Table of Contents