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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission file number 000-50626

CYCLACEL PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

91-1707622

(State or Other Jurisdiction
of Incorporation or Organization)

(I.R.S. Employer
Identification No.)

200 Connell Drive, Suite 1500
Berkeley Heights, New Jersey

07922

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (908) 517-7330

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.001 per share

CYCC

The Nasdaq Stock Market LLC

Preferred Stock, $0.001 par value

CYCCP

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

Smaller reporting filer

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of November 10, 2021 there were 9,975,135 shares of the registrant’s common stock outstanding.

Table of Contents

CYCLACEL PHARMACEUTICALS, INC.

INDEX

    

Page

Part I.       Financial Information

Item 1.

Financial Statements (Unaudited)

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

Part II.      Other Information

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

27

Item 4.

Mine Safety Disclosures

27

Item 5.

Other Information

27

Item 6.

Exhibits

27

SIGNATURE PAGE

28

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(In $000s, except share, per share, and liquidation preference amounts)

(Unaudited)

 

December 31, 

September 30, 

    

2020

    

2021

ASSETS

Current assets:

 

  

 

  

Cash and cash equivalents

$

33,406

$

40,219

Prepaid expenses and other current assets

 

2,063

 

3,156

Total current assets

 

35,469

 

43,375

Property and equipment, net

 

106

 

71

Right-of-use lease asset

1,227

44

Non-current deposits

1,509

Total assets

$

36,802

$

44,999

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

514

$

1,515

Accrued and other current liabilities

 

1,972

 

2,076

Total current liabilities

 

2,486

 

3,591

Lease liability

1,057

44

Total liabilities

 

3,543

 

3,635

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2020 and September 30, 2021;

 

  

 

  

6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2020 and September 30, 2021. Aggregate preference in liquidation of  $4,006,512 as of December 31, 2020 and September 30, 2021.

 

 

Series A convertible preferred stock, $0.001 par value; 264 shares issued and outstanding at December 31, 2020 and September 30, 2021.

 

 

Series B convertible preferred stock, $0.001 par value; 237,745 shares issued and outstanding at December 31, 2020 and September 30, 2021.

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2020 and September 30, 2021; 6,246,896 and 9,797,735 shares issued and outstanding at December 31, 2020 and September 30, 2021.

 

6

 

10

Additional paid-in capital

 

400,071

 

421,771

Accumulated other comprehensive loss

 

(746)

 

(753)

Accumulated deficit

 

(366,072)

 

(379,664)

Total stockholders’ equity

 

33,259

 

41,364

Total liabilities and stockholders’ equity

$

36,802

$

44,999

The accompanying notes are an integral part of these consolidated financial statements.

3

Table of Contents

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In $000s, except share and per share amounts)

(Unaudited)

 

Three Months Ended

 

Nine Months Ended

 

September 30, 

September 30, 

    

2020

    

2021

    

2020

    

2021

Revenues

$

$

$

$

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

1,075

 

4,217

 

3,344

 

10,884

General and administrative

 

1,497

 

1,781

 

4,124

 

5,520

Total operating expenses

 

2,572

 

5,998

 

7,468

 

16,404

Operating loss

 

(2,572)

 

(5,998)

 

(7,468)

 

(16,404)

Other income (expense):

 

  

 

  

 

  

 

  

Foreign exchange gains (losses)

 

(25)

 

9

 

42

 

5

Interest income

 

4

 

4

 

36

 

12

Other income, net

 

56

 

 

891

 

144

Total other income, net

 

35

 

13

 

969

 

161

Loss before taxes

 

(2,537)

 

(5,985)

 

(6,499)

 

(16,243)

Income tax benefit

 

281

 

998

 

858

 

2,650

Net loss

 

(2,256)

 

(4,987)

 

(5,641)

 

(13,593)

Dividend on convertible exchangeable preferred shares

 

(50)

 

(50)

 

(151)

 

(151)

Net loss applicable to common shareholders

$

(2,306)

$

(5,037)

$

(5,792)

$

(13,744)

Basic and diluted earnings per common share:

 

  

 

  

 

  

 

  

Net loss per share – basic and diluted

$

(0.47)

$

(0.54)

$

(1.81)

$

(1.60)

Weighted average common shares outstanding

 

4,863,984

 

9,368,056

 

3,197,508

 

8,575,379

The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In $000s)

(Unaudited)

 

Three Months Ended

 

Nine Months Ended

 

September 30, 

September 30, 

    

2020

    

2021

    

2020

    

2021

Net loss

$

(2,256)

$

(4,987)

$

(5,641)

$

(13,593)

Translation adjustment

 

(8,066)

 

5,348

 

3,704

 

2,896

Unrealized foreign exchange gain (loss) on intercompany loans

 

8,119

 

(5,443)

 

(3,765)

 

(2,903)

Comprehensive loss

$

(2,203)

$

(5,082)

$

(5,702)

$

(13,600)

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In $000s, except share amounts)

(Unaudited)

 

Accumulated

 

Additional

 

Other

 

Total

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit

    

Equity

Balances at December 31, 2019

335,537

$

 

859,998

$

1

$

370,142

$

(819)

$

(357,627)

$

11,697

Stock-based compensation

 

 

 

 

 

90

 

 

 

90

Preferred stock dividends

 

 

 

 

 

(50)

 

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 

 

 

 

 

(11,187)

 

 

(11,187)

Translation adjustment

 

 

 

 

 

 

11,060

 

 

11,060

Loss for the period

 

 

 

 

 

 

 

(1,220)

 

(1,220)

Balances at March 31, 2020

 

335,537

$

 

859,998

$

1

$

370,182

$

(946)

$

(358,847)

$

10,390

Issue of common stock, pre-funded warrants and warrants on equity financing, net of expenses

 

 

 

4,003,986

 

4

 

18,302

 

 

 

18,306

Stock-based compensation

 

 

 

 

 

86

 

 

 

86

Preferred stock dividends

 

 

 

 

 

(50)

 

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 

 

 

 

 

(697)

 

 

(697)

Translation adjustment

 

 

 

 

 

 

709

 

 

709

Loss for the period

 

 

 

 

 

 

 

(2,166)

 

(2,166)

Balances at June 30, 2020

 

335,537

$

 

4,863,984

$

5

$

388,520

$

(934)

$

(361,013)

$

26,578

Stock-based compensation

 

 

 

 

 

113

 

 

 

113

Preferred stock dividends

 

 

 

 

 

(50)

 

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 

 

 

 

 

8,119

 

 

8,119

Translation adjustment

 

 

 

 

 

 

(8,066)

 

 

(8,066)

Loss for the period

 

 

 

 

 

 

 

(2,256)

 

(2,256)

Balances at September 30, 2020

 

335,537

$

 

4,863,984

$

5

$

388,583

$

(881)

$

(363,269)

$

24,438

Balances at December 31, 2020

 

573,282

$

 

6,246,896

$

6

$

400,071

$

(746)

$

(366,072)

$

33,259

Issuance of common stock in underwritten offering, net of issuance costs

 

 

2,078,214

 

2

 

13,499

 

 

 

13,501

Warrant Exercises

 

 

909,000

 

1

 

4,544

 

 

 

4,545

Stock-based compensation

 

 

 

 

 

255

 

 

 

255

Preferred stock dividends

 

 

 

 

 

(50)

 

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 

 

 

 

 

1,599

 

 

1,599

Translation adjustment

 

 

 

 

 

 

(1,583)

 

 

(1,583)

Loss for the period

 

 

 

 

 

 

 

(3,478)

 

(3,478)

Balances at March 31, 2021

 

573,282

$

 

9,234,110

$

9

$

418,319

$

(730)

$

(369,550)

$

48,048

Stock-based compensation

 

 

 

 

 

279

 

 

 

279

Preferred stock dividends

 

 

 

 

 

(50)

 

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 

 

 

 

 

941

 

 

941

Translation adjustment

 

 

 

 

 

 

(869)

 

 

(869)

Loss for the period

 

 

 

 

 

 

 

(5,127)

 

(5,127)

Balances at June 30, 2021

 

573,282

$

 

9,234,110

$

9

$

418,548

$

(658)

$

(374,677)

$

43,222

Issue of common stock on At Market issuance sales agreement, net of expenses

 

 

563,625

 

1

 

2,954

 

 

 

2,955

Stock-based compensation

 

 

 

 

 

319

 

 

 

319

Preferred stock dividends

 

 

 

 

 

(50)

 

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 

 

 

 

 

(5,443)

 

 

(5,443)

Translation adjustment

 

 

 

 

 

 

5,348

 

 

5,348

Loss for the period

 

 

 

 

 

 

 

(4,987)

 

(4,987)

Balances at September 30, 2021

 

573,282

$

 

9,797,735

$

10

$

421,771

$

(753)

$

(379,664)

$

41,364

The accompanying notes are an integral part of these consolidated financial statements.

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CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In $000s)

(Unaudited)

Nine Months Ended

September 30, 

    

2020

    

2021

Operating activities:

  

  

Net loss

$

(5,641)

$

(13,593)

Adjustments to reconcile net loss to net cash used in operating activities:

  

  

Depreciation

16

36

Stock-based compensation

289

853

Changes in lease liability

(81)

173

Changes in operating assets and liabilities:

Prepaid expenses and other assets

(711)

(2,655)

Accounts payable and other current liabilities

(654)

1,195

Net cash used in operating activities

(6,782)

(13,991)

Investing activities:

  

  

Purchase of property, plant and equipment

(54)

(25)

Net cash used in investing activities

(54)

(25)

Financing activities:

  

  

Proceeds from issuing common stock and warrant exercises, net of issuance costs

18,307

21,001

Payment of preferred stock dividend

(151)

(151)

Net cash provided by financing activities

18,156

20,850

Effect of exchange rate changes on cash and cash equivalents

(75)

(21)

Net increase in cash and cash equivalents

11,245

6,813

Cash and cash equivalents, beginning of period

11,885

33,406

Cash and cash equivalents, end of period

$

23,130

$

40,219

Supplemental cash flow information:

  

  

Cash received during the period for:

  

  

Interest

36

13

Taxes

1,352

Non cash financing activities:

  

  

Accrual of preferred stock dividends

50

50

The accompanying notes are an integral part of these consolidated financial statements.

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CYCLACEL PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.           Company Overview

Nature of Operations

Cyclacel Pharmaceuticals, Inc. (“Cyclacel” or the “Company”) is a clinical-stage biopharmaceutical company developing innovative cancer medicines based on cell cycle, transcriptional regulation and mitosis biology. The Company uses insights in cancer biology to develop investigational medicines addressing the growing problem of resistance. Cancer cells learn to evade anticancer therapeutics and become resistant to available therapies. The Company aims to suppress mechanisms of resistance and reactivate the body’s own cell death mechanisms to destroy cancer cells.

Through September 30, 2021, substantially all efforts of the Company to date have been devoted to performing research and development, conducting clinical trials, developing and acquiring intellectual property, raising capital and recruiting and training personnel.

2.            Summary of Significant Accounting Policies

Basis of Presentation

The consolidated balance sheet as of September 30, 2021, the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 and the consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020, and all related disclosures contained in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2020 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2021. The consolidated financial statements are presented on the basis of accounting principles that are generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the consolidated balance sheet as of September 30, 2021, and the results of operations and, comprehensive loss for the three and nine months ended September 30, 2021, and cash flows for the nine months ended September 30, 2021, have been made. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other reporting period. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2020 that are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2021.

Reverse Stock Split

On April 14, 2020 the Company completed a one-for-twenty reverse stock split, which reduced the number of shares of the Company’s common stock that were issued and outstanding immediately prior to the effectiveness of the reverse stock split. The number of shares of the Company’s authorized common stock was not affected by the reverse stock split and the par value of Cyclacel’s common stock remained unchanged at $0.001 per share. The reverse stock split reduced the number of shares of the Company’s common stock that were outstanding at April 14, 2020 from 17,199,974 to 859,998, after the cancellation of 14 fractional shares. All amounts related to number of shares and per share amounts have been retroactively restated in these consolidated financial statements.

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Going Concern

Management considers that there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least one year from the date the financial statements are issued. The Company expects that its cash of approximately $40.2 million as of September 30, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements to early 2023.

This evaluation is based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued, including:

a.The Company’s current financial condition, including its sources of liquidity;
b.The Company’s conditional and unconditional obligations due or anticipated within one year;
c.The funds necessary to maintain the Company’s operations considering its current financial condition, obligations, and other expected cash flows; and
d.Other conditions and events, when considered in conjunction with the above, that may adversely affect the Company’s ability to meet its obligations.

The future viability of the Company beyond the beginning of 2023 is dependent on its ability to raise additional capital to finance its operations. The Company does not currently have sufficient funds to complete development and commercialization of any of its drug candidates. Additional funding may not be available to the Company on favorable terms, or at all. If the Company is not able to secure additional funding when needed, it may have to delay, reduce the scope of or eliminate one or more of its clinical trials or research and development programs or make changes to its operating plan. In addition, it may have to partner one or more of its product candidate programs at an earlier stage of development, which would lower the economic value of those programs to the Company. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. It has now spread globally, including the United States and United Kingdom, where the Company has its operations. The World Health Organization has declared the coronavirus outbreak a pandemic. The extent to which the coronavirus impacts the Company’s financial condition and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the pandemic, the emergence of new geographic hotspots, the emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States, the United Kingdom and other countries, and the effectiveness of actions taken globally to contain and treat the disease. Management continues to evaluate the impact of the COVID-19 pandemic on its current operations and future plans and takes appropriate measures to address any such impact, but there can be no assurance that these efforts will be successful and that the pandemic will not have negative effect on the Company’s financial position and results of operations, but it could materially affect the ability of the Company to raise future capital or to conduct clinical studies on a timely basis.

Accounting standards adopted in the period

On January 1, 2020, the Company adopted the guidance issued in ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” As permitted by the ASU, the Company will apply the new guidance on a prospective basis to any new cloud computing arrangements. ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. There has been no impact of this pronouncement on the Company’s consolidated financial statements and disclosures.

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The FASB has issued 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): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This standard simplifies the accounting for convertible instruments, such as convertible debt or convertible preferred stock, by eliminating two potential methods in accounting for the embedded conversion feature. The standard also removes certain conditions previously used to evaluate whether a freestanding financial instrument, or certain types of embedded features, are considered to be settled in the issuer’s own equity. Finally, ASU 2020-06 requires that an entity use the if-converted method in calculating the effects of convertible instruments on diluted earnings per share, with one limited exception. As a smaller reporting company, the amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those years. Early adoption is permitted, but no earlier than for fiscal years beginning after December 15, 2020. The Company does not currently have any contracts affected by this guidance, but has nonetheless elected to adopt ASU 2020-06 as of January 1, 2021. There was no impact of early adoption of this pronouncement on the Company’s consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. This standard provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform initiatives that would replace interbank offered rates, including the London Interbank Offered Rate (LIBOR). For example, modifications of lease contracts within the scope of ASC 842 solely for changes in reference rates would be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not currently have any contracts affected by this guidance.

Fair Value of Financial Instruments

Financial instruments consist of cash equivalents, accounts payable and accrued liabilities. The carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to the nature of the accounts, notably their short maturities.

Comprehensive Income (Loss)

All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments, are reported, net of any related tax effect, to arrive at comprehensive income (loss). No taxes were recorded on items of other comprehensive income (loss). There were no reclassifications out of other comprehensive income (loss) during the nine months ended September 30, 2020 and 2021.

Revenue recognition

The Company recognizes revenue using the five step-model provided in ASC 606, Revenue from Contracts with Customers (“ASC 606”):

(1)identify the contract with a customer;
(2)identify the performance obligations in the contract;
(3)determine the transaction price;
(4)allocate the transaction price to the performance obligations in the contract; and
(5)recognize revenue when, or as, the Company satisfies a performance obligation.

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The transaction price could include both fixed payments and an estimate of variable consideration, including milestone payments. The Company determines the variable consideration to be included in the transaction price by estimating the most likely amount that will be received and then applies a constraint to reduce the consideration to the amount which is probable of being received. When applying the constraint, the Company considers:

Whether achievement of a development milestone is highly susceptible to factors outside the entity’s influence, such as milestones involving the judgment or actions of third parties, including regulatory bodies;
Whether the uncertainty about the achievement of the milestone is not expected to be resolved for a long period of time;
Whether the Company can reasonably predict that a milestone will be achieved based on previous experience; and
The complexity and inherent uncertainty underlying the achievement of the milestone.

The transaction price is allocated to each performance obligation based on the relative selling price of each performance obligation. The best estimate of the selling price is determined after considering all reasonably available information, including market data and conditions, entity-specific factors such as the cost structure of the deliverable and internal profit and pricing objectives.

The revenue allocated to each performance obligation is recognized as or when the Company satisfies the performance obligation.

The Company recognizes a contract asset, when the value of satisfied (or part satisfied) performance obligations is in excess of the payment due to the Company, and deferred revenue when the amount of unconditional consideration is in excess of the value of satisfied (or part satisfied) performance obligations. Once a right to receive consideration is unconditional, that amount is presented as a receivable.

Grant revenue received from organizations that are not the Company’s customers, such as charitable foundations or government agencies, is presented as a reduction against the related research and development expenses.

Leases

The Company accounts for lease contracts in accordance with ASC 842. As of September 30, 2021, the Company’s one outstanding lease is classified as an operating lease.

The Company recognizes an asset for the right to use an underlying leased asset for the lease term and records lease liabilities based on the present value of the Company’s obligation to make lease payments under the lease. As the Company’s leases do not indicate an implicit rate, the Company uses a best estimate of its incremental borrowing rate to discount the future lease payments. The Company estimates its incremental borrowing rate based on observable information about risk-free interest rates that are the same tenure as the lease term, adjusted for various factors, including the effects of assumed collateral, the nature of how the loan is repaid (e.g., amortizing versus bullet), and the Company’s credit risk.

The Company evaluates options included in its lease agreements to extend or terminate the lease. The Company will reflect the effects of exercising those options in the lease term when it is reasonably certain that the Company will exercise that option. In assessing whether it is reasonably certain that the Company will exercise an option, the Company considers factors such as:

The lease payments due in any optional period;
Penalties for failure to exercise (or not exercise) the option;
Market factors, such as the availability of similar assets and current rental rates for such assets;
The nature of the underlying leased asset and its importance to the Company’s operations; and
The remaining useful lives of any related leasehold improvements.

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Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease payments, if any, are recognized in the period when the obligation to make those payments is incurred. Lease incentives received prior to lease commencement are recorded as a reduction in the right-of-use asset. Fixed lease incentives received after lease commencement reduce both the lease liability and the right-of-use asset.

The Company has elected an accounting policy to account for the lease and non-lease components as a single lease component.

3.           Revenue

Revenue recognized in the three and nine months ended September 30, 2020 and 2021 was $0.

4.           Net Loss per Common Share

The Company calculates net loss per common share in accordance with ASC 260 “Earnings Per Share” (“ASC 260”). Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.

The following potentially dilutive securities have not been included in the computation of diluted net loss per share for the three months ended September 30, 2020 and 2021, as the result would be anti-dilutive:

 

September 30, 

September 30, 

    

2020

    

2021

Stock options

 

154,594

 

720,788

6% convertible exchangeable preferred stock

 

85

 

85

Series A preferred stock

 

6,600

 

6,600

Series B preferred stock

 

 

1,188,725

Common stock warrants

 

4,370,525

 

3,234,379

Total shares excluded from calculation

 

4,531,804

 

5,150,577

5.            Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in $000s):

 

December 31, 

September 30, 

    

2020

    

2021

Research and development tax credit receivable

$

1,313

$

2,514

Prepayments and VAT receivable

684

 

530

Other current assets

 

66

112

$

2,063

$

3,156

6.            Accrued and Other Liabilities

Accrued and other current liabilities consisted of the following (in $000s):

 

December 31, 

September 30, 

    

2020

    

2021

Accrued research and development

$

781

$

1,651

Accrued legal and professional fees

 

325

 

300

Other current liabilities

 

866

 

125

$

1,972

$

2,076

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Other current liabilities as at 31 December 2020 include accrued compensation and the current portion of the lease liability for the Company’s facility in Dundee, Scotland. This lease was assigned on May 4, 2021 (see note 7).

7.            Leases

The Company currently has one lease, relating to its facility in Berkeley Heights, New Jersey. On May 4, 2021, the Company assigned the operating lease relating to its facility in Dundee, Scotland to the University of Dundee, Scotland for a reverse premium of approximately $400,000, of which 50% was payable on assignment. The remaining 50% is due on May 4, 2022 and is recorded as a payable for the period ended September 30, 2021. The Company has no further obligations, liabilities or commitments in relation to this facility.

As of and for the nine months ended September 30, 2021:

The Company recognized operating lease expenses of $159,898. Cash payments made during the nine months ended September 30, 2021 totaled $166,376 and were presented as cash outflows from operating activities. The remaining lease term as of September 30, 2021 is approximately 1.1 years for the Berkeley Heights facility. The discount rate used by the Company in determining the lease liability was 12%.

Remaining lease payments under the lease are (in $000’s):

2021

    

$

15

2022

36

2023

2024

2025

Thereafter

 

$

51

8.            Stock Based Compensation

ASC 718 requires compensation expense associated with share-based awards to be recognized over the requisite service period, which for the Company is the period between the grant date and the date the award vests or becomes exercisable. Most of the awards granted by the Company (and still outstanding) vest ratably over one to four years. The Company recognizes all share-based awards under the straight-line attribution method, assuming that all granted awards will vest. Forfeitures are recognized in the periods when they occur.

 

Stock based compensation has been reported within expense line items on the consolidated statement of operations for the three and nine months ended September 30, 2020 and 2021 as shown in the following table (in $000s):

    

Three Months Ended

    

Nine Months Ended

    

 

September 30, 

 

September 30, 

 

    

2020

    

2021

    

2020

    

2021

General and administrative

$

85

$

223

$

192

$

587

Research and development

28

$

96

$

97

$

266

Stock-based compensation costs before income taxes

$

113

$

319

$

289

$

853

2018 Plan

In May 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”), under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. The 2018 Plan replaces the 2015 Equity Incentive Plan (the “2015 Plan”).

The 2018 Plan allows for various types of award grants, including stock options and restricted stock units.

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As of September 30, 2021, the Company has reserved 891,015 shares of the Company’s common stock under the 2018 Plan for future issuances, including shares that were available under the 2015 Plan and carried forward to the 2018 Plan. Stock option awards granted under the Company’s equity incentive plans have a maximum life of 10 years and generally vest over a one to four-year period from the date of grant.

2020 Inducement Equity Incentive Plan 

In October 2020, the Inducement Equity Incentive Plan (the “Inducement Plan”) became effective. Under the Inducement Plan, Cyclacel may make equity incentive grants to new senior level Employees (persons to whom the Company may issue securities without stockholder approval). The Inducement Plan allows for the issuance of up to 200,000 shares of the Company’s common stock or the equivalent of such number. As of September 30, 2021, 120,000 shares under the Inducement Plan have been issued, leaving a remaining reserve of 80,000 shares.

Option Grants and Exercises

There were 154,653 options granted during the nine months ended September 30, 2021. These options had a grant date fair value ranging between $3.44-$6.14 per option. There were 56,400 options granted during the nine months ended September 30, 2020. These options had a grant date fair value ranging between $2.48-$3.95 per option. The fair value of the stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718 using the following assumptions:

Nine months ended

Nine months ended

 

September 30, 2020

 

September 30, 2021

Expected term (years)

 

5  6

 

5  6

Risk free interest rate

 

0.270% – 0.425%

0.420% – 1.000%

Volatility

 

100% – 114%

96 – 102%

Expected dividend yield over expected term

 

0.00%

0.00%

There were no stock options exercised during each of the nine months ended September 30, 2020 and 2021, respectively. The Company does not expect to be able to benefit from the deduction for stock option exercises that may occur because the company has tax loss carryforwards from prior periods that would be expected to offset any potential taxable income.

Outstanding Options

A summary of the share option activity and related information is as follows:

    

    

    

Weighted

    

 

 

Weighted

 

Average

 

 

Number of

 

Average

 

Remaining

 

Aggregate

Options

 

Exercise

 

Contractual

Intrinsic

Outstanding

Price Per Share

 

Term (Years)

Value ($000)

Options outstanding at December 31, 2020

 

602,683

$

11.01

 

9.39

$

1,861

Granted

 

154,653

$

6.29

 

 

Exercised

 

 

 

Cancelled/forfeited

 

(36,548)

$

11.03

 

 

Options outstanding at September 30, 2021

 

720,788

$

10.00

 

8.47

$

547

Unvested at September 30, 2021

 

503,910

$

4.72

 

9.25

$

444

Vested and exercisable at September 30, 2021

 

216,878

$

22.25

 

6.65

$

104

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The Company issued 14,000 restricted stock units to employees during the year ended December 31, 2019. The Company issued 3,938 additional restricted stock units to employees during the year ended December 31, 2020, of which 1,491 units have been forfeited. The vesting of the remaining 16,447 outstanding restricted stock units is dependent upon certain clinical performance criteria being met. The Company determined that the satisfaction of the clinical conditions was not probable at September 30, 2021 and, as a result, recorded no compensation expense related to restricted stock units for the quarter ended September 30, 2021.

The Company issued 18,992 restricted stock units to its directors during the nine months ended September 30, 2021. These restricted stock units will vest over a period of one or three years. Each restricted stock unit was valued at $6.69 based on their fair value at the date of grant, which is equivalent to the market price of a share of the Company’s common stock. Summarized information for restricted stock units as of September 30, 2021 is as follows:

 

 

Weighted

Weighted

 

 

Average

Average

Restricted

 

Grant Date

Remaining

Stock Units

Value Per Share

Term

Restricted Stock Units outstanding at September 30, 2021

 

35,439

$

8.82

9.01 years

Unvested at September 30, 2021

 

35,439

$

8.82

9.01 years

Vested and exercisable at September 30, 2021

 

$

9.01 years

9.            Stockholders Equity

August 2021 Controlled Equity Offering Sales Agreement

On August 12, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which it may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $50.0 million through Cantor as the sales agent. Cantor may sell the Company’s common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act.

Subject to the terms and conditions of the Sales Agreement, Cantor will use commercially reasonable efforts consistent with its normal trading and sales practices to sell shares of the Company’s common stock from time to time, based upon the Company's instructions, including any price, time or size limits specified by the Company. The Company has provided Cantor with customary indemnification rights, and Cantor will be entitled to a commission at a fixed rate equal to 3.0% of the gross proceeds per share sold. The Company has no obligation to sell any of the shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement. The Sales Agreement will terminate upon the sale of all of the shares under the Sales Agreement unless terminated earlier by either party as permitted under the Sales Agreement.

During the three and nine months ended September 30, 2021, the Company sold 563,625 shares under the Sales Agreement for net proceeds of approximately $3.0 million. An additional 170,800 shares have been sold subsequent to September 30, 2021 for net proceeds of approximately $0.9 million.

March 2021 Equity Financing

On March 12, 2021, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Oppenheimer & Co. Inc., as representative of the underwriters identified therein (collectively, the “Underwriters”), pursuant to which the Company agreed to issue and sell