cycc_Current_Folio_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, 2019

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, or a smaller reporting 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 ☐

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b‑2 of the Securities Exchange Act of 1934 (§240.12b‑2 of this chapter):

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 13, 2019, there were 17,199,974 shares of the registrant’s common stock outstanding.

 

 

 

 

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

 

19

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4. 

Controls and Procedures

 

28

Part II.      Other Information 

 

 

Item 1. 

Legal Proceedings

 

29

Item 1A. 

Risk Factors

 

29

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

Item 3. 

Defaults Upon Senior Securities

 

29

Item 4. 

Mine Safety Disclosures

 

29

Item 5. 

Other Information

 

29

Item 6. 

Exhibits

 

29

 

 

 

 

SIGNATURE PAGE 

 

30

 

 

2

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, 

 

    

2018

    

2019

ASSETS

 

 

 

 

 

 

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

17,504

 

$

12,967

Prepaid expenses and other current assets

 

 

2,283

 

 

2,869

Total current assets

 

 

19,787

 

 

15,836

Property and equipment, net

 

 

36

 

 

28

Right-of-use lease asset

 

 

 —

 

 

1,213

Total assets

 

$

19,823

 

$

17,077

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

2,719

 

$

887

Accrued and other current liabilities

 

 

1,732

 

 

1,184

Total current liabilities

 

 

4,451

 

 

2,071

Lease liability

 

 

 —

 

 

1,154

Other liabilities

 

 

100

 

 

 —

Total liabilities

 

 

4,551

 

 

3,225

Stockholders’ equity:

 

 

  

 

 

  

Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2018 and September 30, 2019;

 

 

  

 

 

  

6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2018 and September 30, 2019. Aggregate preference in liquidation of  $4,006,512 as of December 31, 2018 and September 30, 2019.

 

 

 —

 

 

 —

Series A convertible preferred stock, $0.001 par value; 264 shares issued and outstanding at December 31, 2018 and September 30, 2019.

 

 

 —

 

 

 —

Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2018 and September 30, 2019; 12,497,447 and 17,199,974 shares issued and outstanding at December 31, 2018 and September 30, 2019.

 

 

12

 

 

17

Additional paid-in capital

 

 

365,817

 

 

370,071

Accumulated other comprehensive loss

 

 

(760)

 

 

(913)

Accumulated deficit

 

 

(349,797)

 

 

(355,323)

Total stockholders’ equity

 

 

15,272

 

 

13,852

Total liabilities and stockholders’ equity

 

$

19,823

 

$

17,077

 

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

3

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, 

 

 

    

2018

    

2019

    

2018

    

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Research and development

 

 

1,205

 

 

1,063

 

 

3,185

 

 

3,227

 

General and administrative

 

 

1,250

 

 

1,285

 

 

3,898

 

 

3,661

 

Total operating expenses

 

 

2,455

 

 

2,348

 

 

7,083

 

 

6,888

 

Operating loss

 

 

(2,455)

 

 

(2,348)

 

 

(7,083)

 

 

(6,888)

 

Other income (expense):

 

 

  

 

 

  

 

 

  

 

 

  

 

Foreign exchange gains (losses)

 

 

 1

 

 

79

 

 

(42)

 

 

115

 

Interest income

 

 

85

 

 

42

 

 

238

 

 

177

 

Other income, net

 

 

 —

 

 

53

 

 

632

 

 

223

 

Total other income, net

 

 

86

 

 

174

 

 

828

 

 

515

 

Loss before taxes

 

 

(2,369)

 

 

(2,174)

 

 

(6,255)

 

 

(6,373)

 

Income tax benefit

 

 

301

 

 

273

 

 

985

 

 

848

 

Net loss

 

 

(2,068)

 

 

(1,901)

 

 

(5,270)

 

 

(5,525)

 

Dividend on convertible exchangeable preferred shares

 

 

(50)

 

 

(50)

 

 

(151)

 

 

(151)

 

Net loss applicable to common shareholders

 

$

(2,118)

 

$

(1,951)

 

$

(5,421)

 

$

(5,676)

 

Basic and diluted earnings per common share:

 

 

  

 

 

  

 

 

  

 

 

  

 

Net loss per share – basic and diluted

 

$

(0.18)

 

$

(0.11)

 

$

(0.45)

 

$

(0.35)

 

Weighted average common shares outstanding

 

 

11,997,447

 

 

17,199,974

 

 

11,997,447

 

 

16,025,786

 

 

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

4

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In $000s)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2018

    

2019

    

2018

    

2019

 

Net loss

 

$

(2,068)

 

$

(1,901)

 

$

(5,270)

 

$

(5,525)

 

Translation adjustment

 

 

2,266

 

 

5,434

 

 

5,559

 

 

5,990

 

Unrealized foreign exchange gain on intercompany loans

 

 

(2,261)

 

 

(5,540)

 

 

(5,562)

 

 

(6,143)

 

Comprehensive loss

 

$

(2,063)

 

$

(2,007)

 

$

(5,273)

 

$

(5,678)

 

 

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

5

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, 2017

 

335,537

 

$

 —

 

11,997,447

 

$

12

 

$

365,057

 

$

(794)

 

$

(342,509)

 

$

21,766

Issue of common stock on At Market Issuance sales agreement

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

79

 

 

 —

 

 

 —

 

 

79

Preferred stock dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

 —

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

6,276

 

 

 —

 

 

6,276

Translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(6,328)

 

 

 —

 

 

(6,328)

Loss for the period

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,348)

 

 

(1,348)

Balances at March 31, 2018

 

335,537

 

$

 —

 

11,997,447

 

$

12

 

$

365,086

 

$

(846)

 

$

(343,857)

 

$

20,395

Issue of common stock on At Market Issuance sales agreement

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

87

 

 

 —

 

 

 —

 

 

87

Preferred stock dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

 —

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(9,578)

 

 

 —

 

 

(9,578)

Translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

9,623

 

 

 —

 

 

9,623

Loss for the period

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,853)

 

 

(1,853)

Balances at June 30, 2018

 

335,537

 

$

 —

 

11,997,447

 

$

12

 

$

365,123

 

$

(801)

 

$

(345,710)

 

$

18,624

Issue of common stock on At Market Issuance sales agreement

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

87

 

 

 —

 

 

 —

 

 

87

Preferred stock dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

 —

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(2,261)

 

 

 —

 

 

(2,261)

Translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

2,266

 

 

 —

 

 

2,266

Loss for the period

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,068)

 

 

(2,068)

Balances at September 30, 2018

 

335,537

 

$

 —

 

11,997,447

 

$

12

 

$

365,160

 

$

(796)

 

$

(347,778)

 

$

16,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

335,537

 

$

 —

 

12,497,447

 

$

12

 

$

365,817

 

$

(760)

 

$

(349,797)

 

$

15,272

Issue of common stock on At Market Issuance sales agreement

 

 —

 

 

 —

 

4,702,527

 

 

 5

 

 

4,106

 

 

 —

 

 

 —

 

 

4,111

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

85

 

 

 —

 

 

 —

 

 

85

Preferred stock dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

 —

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

3,876

 

 

 —

 

 

3,876

Translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(3,897)

 

 

 —

 

 

(3,897)

Loss for the period

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,842)

 

 

(1,842)

Balances at March 31, 2019

 

335,537

 

$

 —

 

17,199,974

 

$

17

 

$

369,958

 

$

(781)

 

$

(351,639)

 

$

17,555

Expenses from issue of common stock on At Market Issuance sales agreement

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(56)

 

 

 —

 

 

 —

 

 

(56)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

93

 

 

 —

 

 

 —

 

 

93

Preferred stock dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

 —

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(4,480)

 

 

 —

 

 

(4,480)

Translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

4,453

 

 

 —

 

 

4,453

Loss for the period

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,783)

 

 

(1,783)

Balances at June 30, 2019

 

335,537

 

$

 —

 

17,199,974

 

$

17

 

$

369,944

 

$

(808)

 

$

(353,422)

 

$

15,731

Expenses from issue of common stock on At Market Issuance sales agreement

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(6)

 

 

 —

 

 

 —

 

 

(6)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

184

 

 

 —

 

 

 —

 

 

184

Preferred stock dividends

 

 —

 

 

 —

 

 —

 

 

 —

 

 

(50)

 

 

 —

 

 

 —

 

 

(50)

Unrealized foreign exchange on intercompany loans

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

(5,540)

 

 

 —

 

 

(5,540)

Translation adjustment

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

5,434

 

 

 —

 

 

5,434

Loss for the period

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,901)

 

 

(1,901)

Balances at September 30, 2019

 

335,537

 

$

 —

 

17,199,974

 

$

17

 

$

370,071

 

$

(913)

 

$

(355,323)

 

$

13,852

 

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

7

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In $000s)

(Unaudited)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2018

    

2019

Operating activities:

 

 

  

 

 

  

Net loss

 

$

(5,270)

 

$

(5,525)

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

 

 

  

 

 

  

Depreciation

 

 

22

 

 

15

Gain on disposal of property and equipment

 

 

 —

 

 

(29)

Stock-based compensation

 

 

255

 

 

361

Changes in lease liability

 

 

 —

 

 

(61)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

320

 

 

(676)

Accounts payable and other current liabilities

 

 

 8

 

 

(2,415)

Net cash used in operating activities

 

 

(4,665)

 

 

(8,330)

Investing activities:

 

 

  

 

 

  

Purchase of property, plant and equipment

 

 

(33)

 

 

(7)

Proceeds from sale of property and equipment

 

 

 —

 

 

29

Net cash provided by (used in) investing activities

 

 

(33)

 

 

22

Financing activities:

 

 

  

 

 

  

Proceeds from issuance of common stock, net of issuance costs

 

 

 —

 

 

4,049

Payment of preferred stock dividend

 

 

(151)

 

 

(151)

Net cash provided by (used in) financing activities

 

 

(151)

 

 

3,898

Effect of exchange rate changes on cash and cash equivalents

 

 

(88)

 

 

(126)

Net (decrease) in cash and cash equivalents

 

 

(4,937)

 

 

(4,536)

Cash and cash equivalents, beginning of period

 

 

23,910

 

 

17,504

Cash and cash equivalents, end of period

 

$

18,973

 

$

12,968

Supplemental cash flow information:

 

 

  

 

 

  

Cash received during the period for:

 

 

  

 

 

  

Interest

 

 

238

 

 

177

Taxes

 

 

1,158

 

 

 —

Non cash financing activities:

 

 

  

 

 

  

Accrual of preferred stock dividends

 

 

50

 

 

50

 

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

8

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 using cell cycle control, transcriptional regulation and DNA damage response biology to develop innovative, targeted medicines for cancer and other proliferative diseases. Cyclacel is a pioneer company in the field of cell cycle biology with a vision to improve patient healthcare by translating cancer biology into medicines.

As of September 30, 2019, 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, 2019, the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and the consolidated statements of cash flows for the nine months ended September 30, 2019 and 2018, and all related disclosures contained in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2018 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”). 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, 2019, and the results of operations and, comprehensive loss for the three and nine months ended September 30, 2019, and cash flows for the nine months ended September 30, 2019, have been made. The interim results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 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, 2018 that are included in the Company’s Annual Report on Form 10-K filed with the SEC.

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 $13.0 million as of September 30, 2019 will be sufficient to fund its operating expenses and capital expenditure requirements through the end of 2020.

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 that, when considered in conjunction with the above, may adversely affect the Company’s ability to meet its obligations.

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The future viability of the Company beyond the end of 2020 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.

Accounting standards adopted in the period

On January 1, 2019, the Company adopted the guidance on accounting for leases (“ASC 842”) in Accounting Standards Update No, 2016‑02, Leases, as amended by subsequent updates issued in 2018 and 2019. The guidance requires that lessees recognize both a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term at the commencement date.

The Company has elected the package of practical expedients permitted in ASC 842. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, or (c) whether any unamortized initial direct costs would have met the definition of initial direct costs in ASC 842 at lease commencement.

The Company transitioned to the new guidance at the adoption date by recognizing a lease liability of $1.5 million for the present value of the remaining minimum rental payments, as defined under prior accounting rules, and a corresponding right-of-use asset. In addition, the Company reclassified an existing deferred rent obligation of $120,000 created under prior accounting rules against the opening right-of-use asset. Because the Company adopted the new leasing guidance on a cumulative catch-up basis effective January 1, 2019, the Company has not recast prior period financial statements for the effects of this new standard. Accordingly, the Company’s financial condition as of December 31, 2018 and September 30, 2019 may not be comparable.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018‑15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” 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. The effective date of this pronouncement is for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and early adoption is permitted. The standard can be adopted either using the prospective or retrospective transition approach. The Company is currently evaluating the impact of this pronouncement on the Company’s consolidated financial statements and disclosures.

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

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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 three months ended September 30, 2018 and 2019.

Revenue recognition

With effect from January 1, 2018, 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.

The transaction price includes 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.

With effect from January 1, 2018, grant revenue is presented as a reduction against the related research and development expenses.

Leases

Effective from January 1, 2019, the Company accounts for lease contracts in accordance with ASC 842. As of September 30, 2019, all of the Company’s leases are classified as operating leases.

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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.

Lease expense for lease payments 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, 2018 and 2019 was $0.

The aggregate transaction price that is allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2019 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 and nine months ended September 30, 2018 and 2019, as the result would be anti-dilutive:

 

 

 

 

 

 

 

September 30, 

 

September 30, 

 

    

2018

    

2019

Stock options

 

836,849

 

2,266,017

Convertible preferred stock

 

1,698

 

1,698

Series A preferred stock

 

132,000

 

132,000

Common stock warrants

 

7,490,500

 

7,490,500

Total shares excluded from calculation

 

8,461,048

 

9,890,215

 

 

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5.            Prepaid Expenses and Other Current Assets

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

 

 

 

 

 

 

 

 

 

December 31, 

 

September 30, 

 

    

2018

    

2019

Research and development tax credit receivable

 

$

1,148

 

$

1,929

Prepayments and VAT receivable

 

 

899

 

 

821

Other current assets

 

 

236

 

 

119

 

 

$

2,283

 

$

2,869

 

$53,000 of receivables are included in other current assets as at September 30, 2019. This relates to royalty payments 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 $223,000 of other income related to this transaction during the nine months ended September 30, 2019.

6.            Accrued and Other Liabilities

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

 

 

 

 

 

 

 

 

 

December 31, 

 

September 30, 

 

    

2018

    

2019

Accrued research and development

 

$

1,110

 

$

753

Accrued legal and professional fees

 

 

259

 

 

233

Other current liabilities

 

 

363

 

 

198

 

 

$

1,732

 

$

1,184

 

 

7.            Leases

The Company has a single lease related to its facility in Dundee, Scotland.

As of and for the nine months ended September 30, 2019

The Company recognized operating lease expenses of $227,853. Cash payments made during the nine months ended September 30, 2019 totaled $240,846 and were presented as cash outflows from operating activities. The remaining lease term is approximately 6.1 years as of September 30, 2019. The discount rate used by the Company in determining the lease liability was 12%.

Remaining lease payments under the lease are:

 

 

 

 

2019

    

$

79,318

2020

 

 

317,272

2021

 

 

317,272

2022

 

 

315,988

2023

 

 

313,421

Thereafter

 

 

562,463

 

 

$

1,905,734

 

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As of and for the twelve months ended December 31, 2018

Prior to January 1, 2019, the Company accounted for its Dundee facility lease under ASC 840, Leases. Rent expense, which includes lease payments related to the Company’s research and development facilities and corporate headquarters and other rent related expenses, was $0.5 and $0.4 million for each of the years ended December 31, 2017 and 2018, respectively.

The following is a summary of the Company’s future contractual obligations and commitments relating to its facilities leases as at December 31, 2018:

 

 

 

 

 

 

Operating

 

 

Lease

 

    

Obligation

2019

 

$

321,000

2020

 

 

321,000

2021

 

 

321,000

2022

 

 

321,000

2023

 

 

321,000

thereafter

 

 

581,000

Total future minimum lease obligations

 

$

2,186,000

 

 

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, 2018 and 2019 as shown in the following table (in $000s):