Cyclacel Pharmaceuticals, Inc. - Quarter Report: 2021 September (Form 10-Q)

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

	☐	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.

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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

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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.

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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.

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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.

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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:

The Company’s current financial condition, including its sources of liquidity;

The Company’s conditional and unconditional obligations due or anticipated within one year;

The funds necessary to maintain the Company’s operations considering its current financial condition, obligations, and other expected cash flows; and

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 1,807,143 shares of common stock, $0.001 par value per share, at a public offering price of $7.00 per share (the “Offering”) along with a 30-day overallotment option to purchase up to an additional 271,071 shares of common stock at the public offering price, less underwriting discounts and commissions.

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The closing of the offering occurred on March 16, 2021, and the net proceeds to the Company (including exercise of the over-allotment option) were approximately $13.5 million, after deducting placement agent fees and other offering expenses payable by the Company.

December 2020 Equity Financing

On December 18, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Acorn Bioventures, LP (the “Purchaser”), pursuant to which the Company agreed to offer, issue and sell to the Purchaser, (i) in a registered direct offering, (a) an aggregate of 485,912 shares (the “Common Shares”) of common stock, par value $0.001 per share (“Common Stock”), and (b) an aggregate of 237,745 shares of Series B Convertible Preferred Stock (the “Preferred Shares,” and collectively with the Common Shares, the “Shares”), par value $0.001 per share (“Series B Preferred Stock”), and (ii) in a concurrent private placement, warrants (the “Warrants”) to purchase up to an aggregate of 669,854 shares (the “Warrant Shares”) of Common Stock.

The combined purchase price for each Share, together with one Warrant to purchase 0.4 shares of Common Stock, is $4.18. Each Warrant shall be exercisable beginning on the 12-month anniversary of the date of issuance for a period of five years after the date of issuance, at an exercise price of $4.13 per Warrant Share. The exercise price of the Warrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Warrants. The Warrants may be exercised on a “cashless” basis.

Each share of Series B Convertible Preferred Stock will convert into five shares of Common Stock.

The conversion feature within the Series B Convertible Preferred Stock was determined to be beneficial as of the offering date. A beneficial conversion feature is defined as a nondetachable conversion feature that is "in-the-money" at issuance. The Company calculated the value of the beneficial conversion feature based on its intrinsic value, which is the difference between the “effective conversion price” (after allocating the proceeds of the offering between the Series B Convertible Preferred Stock, the Warrants and Common Stock issued) and the market price of the Company's common shares, multiplied by the number of shares into which the Series B Convertible Preferred Stock is convertible. The effective conversion price of $3.18 per share is different from the $4.18 per share contractual conversion price.

As the series B Preferred Stock contained no stated redemption date and the conversion feature could be exercised at any time, the discount associated with the beneficial conversion feature was immediately charged against additional paid-in-capital and treated as a deemed dividend for both financial reporting and earnings per share purposes.

The common stock, Warrants and Series B Preferred Stock are freestanding financial instruments. The Warrants are classified within equity (as a component of additional paid-in capital) in the consolidated balance sheet and are not remeasured on a recurring basis. The Series B Preferred Stock is classified within permanent equity in the consolidated balance sheet.

The closing of the offering occurred on December 22, 2020 and the net proceeds to the Company were approximately $6.9 million, after deducting offering expenses payable by the Company.

As of September 30, 2021, 237,745 shares of the Series B Preferred Stock remained issued and outstanding.

April 2020 Equity Financing

On April 21, 2020, the Company entered into a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC (the “Co-Placement Agents”) and a securities purchase agreement with certain purchasers for the purchase and sale of (i) 1,910,000 shares of common stock, (ii) pre-funded warrants to purchase up to 2,090,000 shares of common stock at an exercise price of $0.001 per share, and (iii) accompanying common stock warrants to purchase up to 4,000,000 shares of common stock at an exercise price of $5.00 per share. The shares of common stock and accompanying common stock warrants were sold at a combined public offering price of $5.00 per share and common stock warrant. Each common stock warrant sold with the shares of common stock represents the right to purchase one share of common stock at an exercise price of $5.00 per share. The common stock warrants are exercisable immediately and expire five years from the date of issuance.

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The pre-funded warrants and accompanying common stock warrants were sold at a combined public offering price of $4.999 per pre-funded warrant and common stock warrant. The pre-funded warrants were sold to purchasers whose purchase of shares of common stock in the public offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of the Company’s outstanding common stock immediately following the consummation of the public offering, in lieu of shares of common stock. Each pre-funded warrant represents the right to purchase one share of the Company’s common stock at an exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and may be exercised at any time until the pre-funded warrants are exercised in full. The shares of common stock and pre-funded warrants, and accompanying common stock warrants, were issued separately and are immediately separable upon issuance.

The closing of the offering occurred on April 24, 2020, and the net proceeds to the Company were approximately $18.3 million, after deducting placement agent fees and other offering expenses payable by the Company.

Subsequent to the closing of the offering, all of the pre-funded warrants issued in connection therewith were converted into 2,090,000 shares of common stock.

Warrants

December 2020 Warrants

As of September 30, 2021, warrants to purchase 669,854 shares of common stock remained outstanding. Each warrant shall be exercisable beginning on the 12-month anniversary of the date of issuance for a period of five years after the date of issuance, at an exercise price of $4.13 per Warrant Share. The exercise price of the Warrants will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the warrants. The warrants may be exercised on a “cashless” basis.

There were no exercises of these warrants during the three and nine months ended September 30, 2021.

April 2020 Warrants

As of September 30, 2021, 2,190,000 warrants issued in connection with the April 2020 equity financing remained outstanding, each with an exercise price of $5.00. All such warrants were issued in connection with the April 2020 co-placement agency agreement. The common warrants are immediately exercisable and will expire on the fifth anniversary of the original issuance date. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting the Company’s common stock. The common warrants were issued separately from the common stock and were eligible for transfer immediately after issuance. A common warrant to purchase one share of common stock was issued for every share of common stock purchased in this offering.

The common warrants are exercisable, at the option of each holder, in whole or in part, by delivering to the Company a duly executed exercise notice accompanied by payment in full for the number of shares of the Company’s common stock purchased upon such exercise (except in the case of a cashless exercise). A holder (together with its affiliates) may not exercise any portion of the common warrant to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, except that upon at least 61 days prior notice from the holder to the Company, the holder may increase the amount of ownership of outstanding stock after exercising the holder’s common warrants up to 9.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the common warrants. No fractional shares of common stock will be issued in connection with the exercise of a common warrant. In lieu of fractional shares, the Company will round down to the next whole share.

A total of 909,000 warrants were exercised during the nine months ended September 30, 2021.

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July 2017 Warrants

As of September 30, 2021, 374,525 warrants issued in connection with the July 2017 underwritten public offering remained outstanding, each with an exercise price of $40.00. All such warrants were issued in connection with the July 2017 underwritten public offering and are immediately exercisable. The warrants expire in 2024. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of common stock in excess of 4.99% (or, at the election of the purchaser, 9.99%) of the shares of our Common Stock then outstanding after giving effect to such exercise.

The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock. The warrant holders must pay the exercise price in cash upon exercise of the warrants, unless such warrant holders are utilizing the cashless exercise provision of the warrants. On the expiration date, unexercised warrants will automatically be exercised via the “cashless” exercise provision.

Prior to the exercise of any warrants to purchase common stock, holders of the warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including the right to vote, except as set forth therein.

There were no exercises of these warrants during the three and nine months ended September 30, 2021.

Series A Preferred Stock

8,872 shares of the Company’s Series A Preferred Stock were issued in the July 2017 underwritten public offering. During the year ended December 31, 2017, 8,608 shares of the Series A Preferred Stock were converted into 215,200 shares of common stock. As of September 30, 2021, 264 shares of the Series A Preferred Stock remained issued and outstanding which are convertible into 6,600 shares of common stock.

Each share of Series A Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing $1,000 by the initial conversion price of $40.00 per share, subject to a 4.99% blocker provision, or, upon election by a holder prior to the issuance of shares of Series A Preferred Stock, 9.99%, and is subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations. The 264 shares of Series A Preferred Stock issued and outstanding at September 30, 2021, are convertible into 6,600 shares of common stock.

In the event of a liquidation, the holders of shares of the Series A Preferred Stock shall be permitted to participate on an as-converted-to-common-stock basis in any distribution of assets of the Company. The Company shall not pay any dividends on shares of common stock (other than dividends in the form of common stock) unless and until such time as dividends on each share of Series A Preferred Stock are paid on an as-converted basis. There is no restriction on the Company’s ability to repurchase shares of Series A Preferred Stock while there is any arrearage in the payment of dividends on such shares, and there are no sinking fund provisions applicable to the Series A Preferred Stock.

Subject to certain conditions, at any time following the issuance of the Series A Preferred Stock, the Company has the right to cause each holder of the Series A Preferred Stock to convert all or part of such holder’s Series A Preferred Stock in the event that (i) the volume weighted average price of our common stock for 30 consecutive trading days (the “Measurement Period”) exceeds 300% of the initial conversion price of the Series A Preferred Stock (subject to adjustment for forward and reverse stock splits, recapitalizations, stock dividends and similar transactions), (ii) the daily trading volume on each Trading Day during such Measurement Period exceeds $500,000 per trading day and (iii) the holder is not in possession of any information that constitutes or might constitute, material non-public information which was provided by the Company. The right to cause each holder of the Series A Preferred Stock to convert all or part of such holder’s Series A Preferred Stock shall be exercised ratably among the holders of the then outstanding preferred stock.

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The Series A Preferred Stock has no maturity date, will carry the same dividend rights as the common stock, and with certain exceptions, contains no voting rights. In the event of any liquidation or dissolution of the Company, the Series A Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.

6% Convertible Exchangeable Preferred Stock

As of September 30, 2021, there were 335,273 shares of the Company’s 6% Convertible Exchangeable Preferred Stock (the “6% Preferred Stock”) issued and outstanding at an issue price of $10.00 per share. Dividends on the 6% Preferred Stock are cumulative from the date of original issuance at the annual rate of 6% of the liquidation preference of the 6% Preferred Stock, payable quarterly on the first day of February, May, August and November, commencing February 1, 2005. Any dividends must be declared by the Company’s board of directors and must come from funds that are legally available for dividend payments. The 6% Preferred Stock has a liquidation preference of $10.00 per share, plus accrued and unpaid dividends. As of September 30, 2021, accrued and unpaid dividends amounted to $50,291.

The Company may automatically convert the 6% Preferred Stock into common stock if the per share closing price of the Company’s common stock has exceeded $59,220, which is 150% of the conversion price of the 6% Preferred Stock, for at least 20 trading days during any 30 day trading period, ending within five trading days prior to notice of automatic conversion. The 6% Preferred Stock has no maturity date and no voting rights prior to conversion into common stock, except under limited circumstances. The Company may, at its option, redeem the 6% Preferred Stock in whole or in part, out of funds legally available at the redemption price of $10.00 per share. The 6% Preferred Stock is exchangeable, in whole but not in part, at the option of the Company on any dividend payment date beginning on November 1, 2005 (the “Exchange Date”) for the Company’s 6% Convertible Subordinated Debentures (the “Debentures”) at the rate of $10.00 principal amount of Debentures for each share of 6% Preferred Stock. The Debentures, if issued, will mature 25 years after the Exchange Date and have substantially similar terms to those of the 6% Preferred Stock. No such exchanges have taken place to date.

10. Subsequent Events

Dividends on 6% Preferred Stock

On September 8, 2021, the board of directors declared a quarterly cash dividend in the amount of $0.15 per share on the Company’s Preferred Stock. The cash dividend was paid on November 1, 2021 to the holders of record of the 6% Preferred Stock as of the close of business on October 15, 2021.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including, without limitation, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking statements” within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend that the forward-looking statements be covered by the safe harbor for forward-looking statements in the Exchange Act. The forward-looking information is based on various factors and was derived using numerous assumptions. All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. These forward-looking statements are usually accompanied by words such as “believe,” “anticipate,” “plan,” “seek,” “expect,” “intend” and similar expressions.

Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward looking statements due to a number of factors, including those set forth in Part I, Item 1A, entitled “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2020, as updated and supplemented by Part II, Item 1A, entitled “Risk Factors,” of our Quarterly Reports on Form 10-Q, and elsewhere in this report. In addition, while we expect the coronavirus pandemic to have an impact on our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives, our financial position and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease. These factors as well as other cautionary statements made in this Quarterly Report on Form 10-Q, should be read and understood as being applicable to all related forward-looking statements wherever they appear herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our judgment as of the date hereof. We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements. In this report, “Cyclacel,” the “Company,” “we,” “us,” and “our” refer to Cyclacel Pharmaceuticals, Inc.

Overview

Consistent with our mission of developing medicines that expand available treatment options for patients with unmet medical needs, we have three orally-available candidates in clinical development:

●	Fadraciclib (formerly CYC065), a cyclin dependent kinase (CDK) inhibitor selectively targeting CDK2 and CDK9. Oral fadraciclib is currently being evaluated in mid-stage clinical trials in both patients with solid cancers and hematological malignancies.

●

CYC140 is a novel, small molecule, selective and potent PLK-centric inhibitor, primarily targeting PLK1. We are currently planning a streamlined study with oral CYC140 in a broad range of solid tumors in multiple cohorts defined by cancer histology to be followed by a similar study in patients with hematological malignancies.

●	Sapacitabine is a nucleoside analogue with a DNA damage response (DDR) mechanism. It is being evaluated as a combination therapy with venetoclax in patients with relapsed/refractory acute myeloid leukemia (AML).

Cyclacel retains virtually all marketing rights worldwide to the compounds associated with the Company’s drug programs.

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Results of Operations

Three And Nine months Ended September 30, 2020 and 2021

Results of Continuing Operations

Revenues

Revenues for each of the three and nine months ended September 30, 2020 and 2021 were $0.

The future

There are no active collaboration, licensing, or clinical supply agreements and consequently no revenues are expected in the foreseeable future.

Research and development expenses

From our inception, we have focused on drug discovery and development programs, with a particular emphasis on orally-available anticancer agents. Our research and development expenses have represented costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for fadraciclib, CYC140, and sapacitabine. We have also incurred costs related to the advancement of product candidates through preclinical and clinical stages of development and in-house research to advance our biomarker program and technology platforms. We expense all research and development costs as they are incurred. Research and development expenses primarily include:

●

Clinical trial and regulatory-related costs;

●

Payroll and personnel-related expenses, including consultants and contract research organizations;

●

Preclinical studies and laboratory supplies and materials;

●

Technology license costs;

●

Stock-based compensation; and

●

Rent and facility expenses for our offices and laboratories.

The following table provides information with respect to our research and development expenditures for the three and nine months ended September 30, 2020 and 2021 (in $000s except percentages):


	Three Months Ended							Nine Months Ended
	September 30,				Difference			September 30,				Difference
	2020		2021		$		%	2020		2021		$		%
Transcriptional Regulation (fadraciclib)	$	854	$	3,331	$	2,477	290	$	2,592	$	7,748	$	5,156	199
Mitosis Regulation (CYC140)		127		664		537	423		399		2,480		2,081	522
DNA Damage Response (sapacitabine)		54		96		42	78		138		269		131	95
Other research and development programs and expenses		40		126		86	215		215		387		172	80
Total research and development expenses	$	1,075	$	4,217	$	3,142	292	$	3,344	$	10,884	$	7,540	225

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Total research and development expenses for the three and nine months ended September 30, 2021 represented 70% and 66% of our operating expenses respectively, an increase over respective comparative periods.

During both the three and nine months ended September 30, 2021, the increase in expenditure for the transcriptional regulation program relative to the respective comparative periods was due to clinical supply manufacturing and opening of clinical trial sites for the evaluation of fadraciclib in a Phase 1/2 studies. Research and development expenses relating to CYC140 increased during both the three and nine months ended September 30, 2021 as the pre-clinical evaluation and clinical trial supply manufacturing of CYC140 progressed.

The future

We anticipate that overall research and development expenses for the year ended December 31, 2021 will increase compared to the year ended December 31, 2020 as we progress both of our clinical development programs.

General and administrative expenses

General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the general and administrative expenses for the three and nine months ended September 30, 2020 and 2021 (in $000s except percentages):


	Three Months Ended							Nine Months Ended
	September 30,				Difference			September 30,				Difference
	2020		2021		$		%	2020		2021		$		%
Total general and administrative expenses	$	1,497	$	1,781	$	284	19	$	4,124	$	5,520	$	1,396	34

Total general and administration expenses for the three and nine months ended September 30, 2021 represented 30% and 34% of our operating expenses respectively, a decrease over respective comparative periods.

During both the three and nine months ended September 30, 2021, the increase in general and administrative expenses was primarily due to a $0.4 million reverse premium in relation to assignation of our lease facility in Dundee, Scotland and an increase in legal, professional and recruitment costs relating to expansion of the clinical team.

The future

We expect general and administrative expenditures for the year ended December 31, 2021 to increase by approximately 20% compared to our expenditures for the year ended December 31, 2020 due to lease assignation premium, legal, professional and recruitment costs.

Other income (expense), net

The following table summarizes other income for the three and nine months ended September 30, 2020 and 2021 (in $000 except percentages):


	Three Months Ended							Nine Months Ended
	September 30,				Difference			September 30,				Difference
	2020		2021		$		%	2020		2021		$		%
Foreign exchange gains (losses)	$	(25)	$	9	$	34	(136)	$	42	$	5	$	(37)	(88)
Interest income		4		4		—	—		36		12		(24)	(67)
Other income, net		56		—		(56)	(100)		891		144		(747)	(84)
Total other income	$	35	$	13	$	(22)	(63)	$	969	$	161	$	(808)	(83)

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The decrease in total other income for the nine months ended September 30, 2021 is related to royalties receivable under a December 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by the Company in March 2006) sold certain assets and intellectual property to ThermoFisher Scientific Company, or TSC (formerly Invitrogen Corporation) through the APA and other related agreements. The assets and technology were not part of the Company’s product development plan following the transaction between Xcyte and Cyclacel in March 2006. Accordingly, the company recognized $0 and $144,000 of other income arising from sales related to this transaction during the three and nine months ended September 30, 2021, respectively. We have no knowledge of TSC’s activities and cannot predict when we may receive income under the APA, if any.

The future

Other income (expense), net for the year ended December 31, 2021, will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA. As we are not in control of sales made by TSC, we are unable to estimate the level and timing of income under the APA, if any.

Because the nature of funding advanced through intercompany loans is that of a long-term investment, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income until repayment of the intercompany loan becomes foreseeable.

Income tax benefit

Credit is taken for research and development tax credits, which are claimed from the United Kingdom’s revenue and customs authority, or HMRC, in respect of qualifying research and development costs incurred.

The following table summarizes total income tax benefit for the three and nine months ended September 30, 2020 and 2021 (in $000s except percentages):


	Three Months Ended							Nine Months Ended
	September 30,				Difference			September 30,				Difference
	2020		2021		$		%	2020		2021		$		%
Total income tax benefit	$	281	$	998	$	717	255	$	858	$	2,650	$	1,792	209

The total income tax benefit comprises research and development tax credits recoverable. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year and the availability of trading losses.

The future

We expect to continue to be eligible to receive United Kingdom research and development tax credits for the foreseeable future and will continue to elect to receive payment of the tax credit. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur and could be restricted by any future cap or other restrictions or modifications introduced by UK taxation authorities. As we expect our eligible expenses to be higher in the fiscal year ended December 31, 2021, the level of tax credits recoverable is anticipated to be higher in 2021 compared to the fiscal year ended December 31, 2020.

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Liquidity and Capital Resources

The following is a summary of our key liquidity measures as of September 30, 2020 and 2021 (in $000s):



	September 30,
	2020		2021
Cash and cash equivalents	$	23,130	$	40,219
Working capital:
Current assets	$	25,934	$	43,375
Current liabilities		(1,712)		(3,591)
Total working capital	$	24,222	$	39,784

Since our inception, we have relied primarily on the proceeds from sales of common and preferred equity securities to finance our operations and internal growth. Additional funding has come through research and development tax credits, government grants, the sale of product rights, interest on investments and licensing revenue. We have incurred significant losses since our inception. As of September 30, 2021, we had an accumulated deficit of $379.7 million.

Cash Flows

Cash used in operating, investing and financing activities for the nine months ended September 30, 2020 and 2021 is summarized as follows (in $000s):


	Nine Months Ended September 30,
	2020		2021
Net cash used in operating activities	$	(6,782)	$	(13,991)
Net cash used in investing activities		(54)		(25)
Net cash provided by financing activities		18,156		20,850

Operating activities

Net cash used in operating activities increased by $7.2 million, from $6.8 million for the nine months ended September 30, 2020 to $14.0 million for the nine months ended September 30, 2021. The increase in cash used by operating activities was primarily the result of an increase in net loss of $7.9 million, a change in working capital of $0.1 million, offset by an increase of stock compensation expense of $0.6 million and change in lease liability of $0.2 million.

Investing activities

Net cash used by investing activities decreased by $29,000 for the nine months ended September 30, 2021, predominantly due to decreased capital expenditures on IT equipment.

Financing activities

Net cash provided by financing activities was $20.9 million for the nine months ended September 30, 2021 as a direct result of receiving approximately:

●	$13.5 million in net proceeds from the issuance of common stock under an underwriting agreement with Oppenheimer & Co. Inc.,

●	$4.5 million from warrant exercises associated with a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, and

●	$3.0 million from the issuance of common stock under a controlled equity offering sales agreement with Cantor Fitzgerald & Co.,

●	offset by dividend payments of approximately $0.2 million to the holders of our 6% Preferred Stock.

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Net cash provided by financing activities was $18.2 million for the nine months ended September 30, 2020 as a direct result of receiving approximately $18.3 million in net proceeds from the issuance of common stock and accompanying common stock warrants under a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, offset by dividend payments of approximately $0.1 million to the holders of our 6% Preferred Stock.

Operating Capital and Capital Expenditure Requirements

We expect to continue to incur substantial operating losses in the future and cannot guarantee that we will generate any significant product revenues until a product candidate has been approved by the Food and Drug Administration (“FDA”) or European Medicines Agency (“EMA”) in other countries and successfully commercialized.

We believe that existing funds together with cash generated from operations, such as recent financing activities and the R&D tax credit, are sufficient to satisfy our planned working capital, capital expenditures and other financial commitments through to early 2023. However, we do not currently have sufficient funds to complete development and commercialization of any of our drug candidates. Current business and capital market risks could have a detrimental effect on the availability of sources of funding and our ability to access them in the future, which may delay or impede our progress of advancing our drugs currently in the clinical pipeline to approval by the FDA or EMA for commercialization. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.

Our future funding requirements will depend on many factors, including but not limited to:

●

the rate of progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;

●

the costs associated with establishing manufacturing and commercialization capabilities;

●

the extent to which the coronavirus impacts the Company’s financial condition and operations, which will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease;

●

the costs of acquiring or investing in businesses, product candidates and technologies;

●

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

●

the costs and timing of seeking and obtaining FDA and EMA approvals;

●

the effect of competing technological and market developments; and

●

the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter.

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Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings or strategic collaborations. Although we are not reliant on institutional credit finance and therefore not subject to debt covenant compliance requirements or potential withdrawal of credit by banks, we are reliant on the availability of funds and activity in equity markets. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs or make changes to our operating plan. In addition, we may have to partner one or more of our product candidates at an earlier stage of development, which would lower the economic value of those programs to us. 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide information in response to this item.

Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness, as of September 30, 2021, of our 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. Based upon such evaluation, our chief executive officer and principal financial and accounting officer have concluded that, as of September 30, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no significant changes made in our internal controls over financial. The ‘stay at home’ orders issued by the United States, United Kingdom and overseas governments in the global fight against the coronavirus pandemic has not resulted in any significant changes in our internal controls over financial reporting.

Inherent Limitation on the Effectiveness of Internal Controls

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot ensure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II. Other Information

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2020. For a further discussion of our Risk Factors, refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Item 6. Exhibits

Exhibit Number		Description
31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from Cyclacel Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101).
	*	Filed herewith.

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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.


	CYCLACEL PHARMACEUTICALS, INC.

Date: November 12, 2021	By:	/s/ Paul McBarron
		Paul McBarron
		Chief Operating Officer, Chief Financial Officer and Executive Vice President, Finance