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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, 2020

OR

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

For the transition period from __________________ to __________________

Commission file number 000-50626

CYCLACEL PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

91-1707622

(State or Other Jurisdiction
of Incorporation or Organization)

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

200 Connell Drive, Suite 1500
Berkeley Heights, New Jersey

07922

(Address of principal executive offices)

(Zip Code)

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

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

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.001 per share

CYCC

The Nasdaq Stock Market LLC

Preferred Stock, $0.001 par value

CYCCP

The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer

    

Accelerated filer

Non-accelerated filer

Smaller reporting filer

 

Emerging growth company

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

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

As of November 11, 2020 there were 4,863,984 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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

Part II.      Other Information

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

SIGNATURE PAGE

32

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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, 

    

2019

    

2020

ASSETS

Current assets:

 

  

 

  

Cash and cash equivalents

$

11,885

$

23,130

Prepaid expenses and other current assets

 

2,132

 

2,804

Total current assets

 

14,017

 

25,934

Property and equipment, net

 

27

 

64

Right-of-use lease asset

1,264

1,215

Total assets

$

15,308

$

27,213

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

890

$

455

Accrued and other current liabilities

 

1,530

 

1,257

Total current liabilities

 

2,420

 

1,712

Lease liability

1,191

1,063

Total liabilities

 

3,611

 

2,775

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2019 and September 30, 2020;

 

  

 

  

6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2019 and September 30, 2020. Aggregate preference in liquidation of  $4,006,512 as of December 31, 2019 and September 30, 2020.

 

 

Series A convertible preferred stock, $0.001 par value; 264 shares issued and outstanding at December 31, 2019 and September 30, 2020.

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2019 and September 30, 2020; 859,998 and 4,863,984 shares issued and outstanding at December 31, 2019 and September 30, 2020.

 

1

 

5

Additional paid-in capital

 

370,142

 

388,583

Accumulated other comprehensive loss

 

(819)

 

(881)

Accumulated deficit

 

(357,627)

 

(363,269)

Total stockholders’ equity

 

11,697

 

24,438

Total liabilities and stockholders’ equity

$

15,308

$

27,213

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, 

    

2019

    

2020

    

2019

    

2020

Revenues

$

$

$

$

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

1,063

 

1,075

 

3,227

 

3,344

General and administrative

 

1,285

 

1,497

 

3,661

 

4,124

Total operating expenses

 

2,348

 

2,572

 

6,888

 

7,468

Operating loss

 

(2,348)

 

(2,572)

 

(6,888)

 

(7,468)

Other income (expense):

 

  

 

  

 

  

 

  

Foreign exchange gains (losses)

 

79

 

(25)

 

115

 

42

Interest income

 

42

 

4

 

177

 

36

Other income, net

 

53

 

56

 

223

 

891

Total other income, net

 

174

 

35

 

515

 

969

Loss before taxes

 

(2,174)

 

(2,537)

 

(6,373)

 

(6,499)

Income tax benefit

 

273

 

281

 

848

 

858

Net loss

 

(1,901)

 

(2,256)

 

(5,525)

 

(5,641)

Dividend on convertible exchangeable preferred shares

 

(50)

 

(50)

 

(151)

 

(151)

Net loss applicable to common shareholders

$

(1,951)

$

(2,306)

$

(5,676)

$

(5,792)

Basic and diluted earnings per common share:

 

  

 

  

 

  

 

  

Net loss per share – basic and diluted

$

(2.27)

$

(0.47)

$

(7.08)

$

(1.81)

Weighted average common shares outstanding

 

859,998

 

4,863,984

 

801,282

 

3,197,508

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, 

    

2019

    

2020

    

2019

    

2020

Net loss

$

(1,901)

$

(2,256)

$

(5,525)

$

(5,641)

Translation adjustment

 

5,434

 

(8,066)

 

5,990

 

3,704

Unrealized foreign exchange gain on intercompany loans

 

(5,540)

 

8,119

 

(6,143)

 

(3,765)

Comprehensive loss

$

(2,007)

$

(2,203)

$

(5,678)

$

(5,702)

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, 2018

335,537

$

 

624,872

$

1

$

365,828

$

(760)

$

(349,797)

$

15,272

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

 

 

 

235,126

 

0

 

4,111

 

 

 

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

$

 

859,999

$

1

$

369,974

$

(781)

$

(351,639)

$

17,555

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

 

 

 

 

 

(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

$

 

859,999

$

1

$

369,960

$

(808)

$

(353,422)

$

15,731

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

 

 

 

 

 

(6.00)

 

 

 

(6)

Stock-based compensation

 

 

 

 

 

184.00

 

 

 

184

Preferred stock dividends

 

 

 

 

 

(50.00)

 

 

 

(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

$

 

859,999

$

1

$

370,088

$

(914)

$

(355,323)

$

13,852

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

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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

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, 

    

2019

    

2020

Operating activities:

  

  

Net loss

$

(5,525)

$

(5,641)

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

  

  

Depreciation

15

16

Gain on disposal of property and equipment

(29)

Stock-based compensation

361

289

Changes in lease liability

(61)

(81)

Changes in operating assets and liabilities:

Prepaid expenses and other assets

(676)

(711)

Accounts payable and other current liabilities

(2,415)

(654)

Net cash used in operating activities

(8,330)

(6,782)

Investing activities:

  

  

Purchase of property, plant and equipment

(7)

(54)

Proceeds from sale of property and equipment

29

Net cash provided by (used in) investing activities

22

(54)

Financing activities:

  

  

Proceeds, net of issuance costs, from issuing common stock (issuance costs paid)

4,049

18,307

Payment of preferred stock dividend

(151)

(151)

Net cash provided by financing activities

3,898

18,156

Effect of exchange rate changes on cash and cash equivalents

(126)

(75)

Net increase in cash and cash equivalents

(4,536)

11,245

Cash and cash equivalents, beginning of period

17,504

11,885

Cash and cash equivalents, end of period

$

12,968

$

23,130

Supplemental cash flow information:

  

  

Cash received during the period for:

  

  

Interest

177

36

Taxes

Non cash activities on transition to ASC 842: Leases

Lease liability

(1,505)

Right-of-use asset

1,385

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 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, 2020, 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, 2020, the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, and all related disclosures contained in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2019 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020. 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, 2020, and the results of operations and comprehensive loss for the three and nine months ended September 30, 2020, and cash flows for the nine months ended September 30, 2020, have been made. The interim results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 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, 2019 that are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 26, 2020.

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. No fractional shares were issued in connection with the reverse stock split. Stockholders who otherwise held fractional shares of the Company’s common stock as a result of the reverse stock split received a cash payment in lieu of such 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 $23.1 million as of September 30, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements through the end of 2022.

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

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

The future viability of the Company beyond the end of 2022 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 to many other countries, including the United States and United Kingdom, where the Company has its primary bases of operation. The World Health Organization has declared the coronavirus outbreak a pandemic, and during the nine-month period ending September 30, 2020, many governments issued “stay at home” orders. 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. At this time, the Company is unable to estimate the impact of this event on its financial condition or 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, 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.

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The Company transitioned to the new guidance on a cumulative catch-up basis effective January 1, 2019, 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.

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.

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.

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.

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 three months ended September 30, 2019 and 2020.

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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.

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.

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

Effective from January 1, 2019, the Company accounts for lease contracts in accordance with ASC 842. As of September 30, 2020, all of the Company’s leases are classified as operating leases.

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.

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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, 2019 and 2020 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 weighted average number of shares of common stock for nine months ended September 30, 2020 reflects pre-funded warrants to purchase up to 2,090,000 shares of common stock issued in April 2020 (see Note 9) as outstanding from the date of issuance through exercise.

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, 2019 and 2020, as the result would be anti-dilutive:

 

September 30, 

September 30, 

    

2019

    

2020

Stock options

 

113,301

 

154,594

6% convertible exchangeable preferred stock

 

85

 

85

Series A preferred stock

 

6,600

 

6,600

Common stock warrants

 

374,525

 

4,370,525

Total shares excluded from calculation

 

494,511

 

4,531,804

5.            Prepaid Expenses and Other Current Assets

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

 

December 31, 

September 30, 

    

2019

    

2020

Research and development tax credit receivable

$

1,326

$

2,166

Prepayments and VAT receivable

 

703

 

498

Other current assets

 

103

 

140

$

2,132

$

2,804

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Receivables of $56,000 are included in other current assets as at September 30, 2020. 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 $891,000 of other income related to this transaction during the nine months ended September 30, 2020.

6.            Accrued and Other Liabilities

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

 

December 31, 

September 30, 

    

2019

    

2020

Accrued research and development

$

617

$

518

Accrued legal and professional fees

 

235

 

264

Other current liabilities

 

678

 

475

$

1,530

$

1,257

7.            Leases

The Company currently has two leases relating to its facilities in Dundee, Scotland and Berkeley Heights, New Jersey.

As of and for the nine months ended September 30, 2020:

The Company recognized operating lease expenses of $271,969. Cash payments made during the nine months ended September 30, 2020 totaled $284,936 and were presented as cash outflows from operating activities. The remaining lease term as of September 30, 2020 is approximately 5.1 years for the Dundee facility and approximately 1.8 years for the Berkeley Heights facility. The discount rate used by the Company in determining the lease liability was 12% for both outstanding leases.

Remaining lease payments under the leases are:

2020

    

$

98

2021

394

2022

367

2023

328

2024

326

Thereafter

262

 

$

1,775

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.

 

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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, 2019 and 2020 as shown in the following table (in $000s):

    

Three Months Ended

    

Nine Months Ended

    

 

September 30, 

 

September 30, 

 

    

2019

    

2020

    

2019

    

2020

Research and development

$

61

$

28

$

126

$

97

General and administrative

123

85

235

 

192

Stock-based compensation costs before income taxes

$

184

$

113

$

361

$

289

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 replaced the 2015 Equity Incentive Plan (the “2015 Plan”).

The 2018 Plan allows for the issuance of up to 775,000 shares of the Company’s common stock pursuant to various types of award grants, including stock options and restricted stock units. In addition, the 2018 Plan allows up to 35,494 additional shares to be issued if awards outstanding under the 2018 Plan are cancelled or expire on or after the date of the Company’s 2018 annual meeting of stockholders.

As of September 30, 2020, the Company has reserved 656,124 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.

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. There were 77,513 options granted during the nine months ended September 30, 2019. These options had a grant date fair value ranging between $10.36-$12.13 per option. 

There were no stock options exercised during each of the nine months ended September 30, 2019 and 2020, 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.

In September 2020, the Company modified certain outstanding stock option awards for two of its former longstanding directors, both of whose service terminated in September 2020. Specifically, a total of 10,400 options that otherwise would have been forfeited were accelerated. In addition, the Company extended the period during which these directors’ outstanding vested awards could be exercised from ninety (90) days to three years (but not beyond the contractual term of the awards). The Company recognized a charge of approximately $20,000 during the three months ended September 30, 2020 related to these modifications.

 

 

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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, 2019

 

100,278

$

54.40

 

$

Granted

 

56,400

$

4.22

 

  

 

  

Cancelled/forfeited

 

(2,084)

$

176.56

 

  

 

  

Options outstanding at September 30, 2020

 

154,594

$

34.41

 

8.01

$

6

Unvested at September 30, 2020

 

78,114

$

8.65

 

9.19

$

6

Vested and exercisable at September 30, 2020

 

76,480

$

60.72

 

6.82

$

Restricted Stock Units

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 quarter ended March 31, 2020, of which 850 units have been forfeited. The vesting of the remaining 17,088 outstanding restricted stock units is dependent upon the fulfillment of certain clinical study objectives. The Company determined that the satisfaction of the clinical conditions was not probable at September 30, 2020 and, as a result, recorded no compensation expense related to restricted stock units for the quarter ended September 30, 2020. The restricted stock units were valued 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 unit activity for the quarter ended September 30, 2020 is as follows:

 

 

Restricted Stock
Units

 

 

Weighted Average
Grant
Date Value Per Share

 

Restricted Stock Units outstanding at September 30, 2020

 

 

17,088

 

 

$

11.43

 

Unvested at September 30, 2020

17,088

$

11.43

Vested and exercisable at September 30, 2020

 

 

0

 

$

11.43

 

9.            Stockholders Equity

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 and within the nine months ended September 30, 2020, all of the pre-funded warrants issued in connection therewith were converted into 2,090,000 shares of common stock. Following such conversions, 4,863,984 shares of common stock are outstanding as of November 11, 2020.

October 2018 At Market Issuance

On October 4, 2018, the Company entered into a Common Stock Sales Agreement, or the Sales Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, as sales agent, pursuant to which Wainwright was authorized to sell shares of common stock, par value $0.001 per share, having an aggregate offering price of up to $5,000,000, by any method that is deemed to be an “at the market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. Shares sold under the Sales Agreement were offered and sold pursuant to the Company’s previously filed and effective Registration Statement on Form S-3 and a prospectus supplement and accompanying base prospectus. The Company paid Wainwright a commission of 3.0% of the gross sales price per share sold. The Sales Agreement was terminated automatically by its terms during the first quarter of 2019, pursuant to which the Company sold 235,126 shares for gross proceeds of approximately $4.3 million. Aggregate net proceeds to the Company were approximately $4.7 million, after deducting commissions and other expenses.

Warrants

April 2020 Warrants

As of September 30, 2020, 3,996,000 warrants issued in the April 2020 offering 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.

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A total of 4,000 warrants were exercised during the nine months ended September 30, 2020.

July 2017 Warrants

As of September 30, 2020, 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 was no exercise of warrants during the three and nine months ended September 30, 2020.

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, 2020, 264 shares of the Series A Preferred Stock remained issued and outstanding.

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, 2020, 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.

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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.

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, 2020, 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, 2020, 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 10, 2020, the board of directors declared a quarterly cash dividend in the amount of $0.15 per share on the Company’s 6% Preferred Stock. The cash dividend was paid on November 1, 2020 to the holders of record of the 6% Preferred Stock as of the close of business on October 16, 2020.

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2020 Inducement Plan

On October 22, 2020, the Company adopted the 2020 Inducement Equity Incentive Plan (the “2020 Inducement Plan”) pursuant to which it reserved an aggregate of 200,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company as a material inducement to such individuals’ entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2020 Inducement Plan are substantially similar to those of the 2018 Plan. Unless otherwise stated in an applicable stock option agreement, one-third of the shares subject to an option grant under the 2020 Inducement Plan will typically vest upon the first anniversary of the vesting start date, with the balance of the shares vesting in a series of twenty-four successive equal monthly installments as of the first day of each month measured from the first anniversary of the vesting start date, subject to the new employee’s continued service with the Company through the applicable vesting dates. Stock options generally terminate 10 years from the date of grant.

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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, 2019, 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

Through September 30, 2020, our primary focus has been on our transcriptional regulation program, where we are evaluating fadraciclib (also known as CYC065), our cyclin dependent kinase, or CDK, inhibitor, as a single agent and in combination with venetoclax in Phase 1 studies in patients with solid tumors and hematological malignancies. In our anti-mitotic program, we are evaluating CYC140, a polo-like kinase inhibitor, in a Phase 1 study in patients with hematological malignancies. In our DNA damage response, or DDR, program, we are evaluating sapacitabine in combination with venetoclax in Phase 1 studies in patients with hematological malignancies and in combination with our CDK inhibitor seliciclib in Phase 1 studies in patients with solid tumors. Cyclacel’s strategy is to build a diversified biopharmaceutical business focused in hematology and oncology based on a pipeline of novel drug candidates.

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

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Results of Operations

Three Months Ended September 30, 2019 and 2020

Results of Continuing Operations

Revenues

Revenues for the three months ended September 30, 2019 and 2020 were $0 and $0.

The future

There are no active collaboration, licensing, or clinical supply agreements and there will be no revenues for 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, and our research and development expenses have represented costs incurred to discover and develop novel small molecule therapeutics, including clinical trial costs for fadraciclib, CYC140, sapacitabine, and seliciclib. We have also incurred costs in the advancement of product candidates toward clinical and preclinical trials and the development of 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 months ended September 30, 2019 and 2020 (in $000s except percentages):

Three Months Ended

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Transcriptional Regulation (fadraciclib)

$

728

$

852

$

124

17

Anti-mitotic (CYC140)

132

129

(3)

(2)

DNA Damage Response (sapacitabine)

79

54

(25)

(32)

Other research and development programs and expenses

124

40

(84)

(68)

Total research and development expenses

$

1,063

$

1,075

$

12

1

Total research and development expenses represented 45% and 42% of our operating expenses for the three months ended September 30, 2019 and 2020, respectively.

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Research and development expenses remained flat at $1.1 million for the three months ended September 30, 2019 and 2020. Research and development expenses relating to transcriptional regulation increased by approximately $0.1 million for the three months ended September 30, 2020 as progress continues in the clinical evaluation of fadraciclib.

The future

We anticipate that overall research and development expenses for the year ended December 31, 2020 will remain relatively flat compared to the year ended December 31, 2019, as we progress the clinical development of fadraciclib and our other clinical-stage drugs.

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 months ended September 30, 2019 and 2020 (in $000s except percentages):

Three Months Ended

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Total general and administrative expenses

$

1,285

$

1,497

$

212

16

Total general and administration expenses represented 55% and 58% of our operating expenses for the three months ended September 30, 2019 and 2020, respectively. General and administrative expenses increased by $0.2 million for the three months ended September 30, 2019 and 2020 due to an increase in professional costs.

The future

We expect general and administrative expenditures for the year ended December 31, 2020 to increase slightly compared to our expenditures for the year ended December 31, 2019 due to increased legal and professional costs.

Other income (expense), net

The following table summarizes other income for the three months ended September 30, 2019 and 2020 (in $000 except percentages):

Three Months Ended

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Foreign exchange gains (losses)

$

79

$

(25)

$

(104)

(132)

Interest income

 

42

 

4

 

(38)

(90)

Other income, net

 

53

 

56

 

3

6

Total other income

$

174

$

35

$

(139)

(80)

Total other income decreased by approximately $140,000 from $174,000 for the three months ended September 30, 2019 to $35,000 for the three months ended September 30, 2020. Other income relates 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 $53,000 and $56,000 of other income arising from sales related to this transaction during the three months ended September 30, 2019 and 2020 respectively.

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Foreign exchange gains (losses)

Foreign exchange gains decreased by approximately $104,000, from a gain of $79,000 for the three months ended September 30, 2019, to a loss of $25,000 for the three months ended September 30, 2020.

The future

Other income (expense), net for the year ended December 31, 2020, 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 months ended September 30, 2019 and 2020 (in $000s except percentages):

Three Months Ended

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Total income tax benefit

$

273

$

281

$

8

3

The total income tax benefit, which comprised of research and development tax credits recoverable, remained flat at $0.3 million for each of the three months ended September 30, 2019 and 2020. 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 elect to do so. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur and having sufficient trading losses. We expect our qualifying research and development expenditure for the year ended December 31, 2020 to remain relatively flat, in comparison to the year ended December 31, 2019, in line with our planned research and development expenditure.

Nine months Ended September 30, 2019 and 2020

Results of Continuing Operations

Revenues

Revenues for the nine months ended September 30, 2019 and 2020 were $0 and $0.

The future

There are no active collaboration, licensing, or clinical supply agreements and there will be no revenues for the foreseeable future.

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Research and development expenses

The following table provides information with respect to our research and development expenditures for the nine months ended September 30, 2019 and 2020 (in $000s except percentages):

Nine Months Ended

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Transcriptional Regulation (fadraciclib)

$

2,038

$

2,589

$

551

27

Anti-mitotic (CYC140)

493

402

(91)

(18)

DNA Damage Response (sapacitabine)

349

138

(211)

(60)

Other research and development programs and expenses

347

215

(132)

(38)

Total research and development expenses

$

3,227

$

3,344

$

117

4

Total research and development expenses represented 47% and 45% of our operating expenses for the nine months ended September 30, 2019 and 2020, respectively.

Research and development expenses increased by $0.1 million from $3.2 million for the nine months ended September 30, 2019 to $3.3 million for the nine months ended September 30, 2020. Research and development expenses relating to transcriptional regulation increased by $0.6 million from $2.0 million for the nine months ended September 30, 2019 to $2.6 million for the nine months ended September 30, 2020, as the clinical evaluation of fadraciclib progressed. Research and development expenses relating to CYC140 decreased by $0.1 million from $0.5 million for the nine months ended September 30, 2019 to $0.4 million for the nine months ended September 30, 2020, primarily as a result of a reduction in expenditures associated with drug supply manufacturing which were not required in 2020. Research and development expenses relating to DNA Damage Response decreased by $0.2 million from $0.3 million for the nine months ended September 30, 2019 to $0.1 million for the nine months ended September 30, 2020, primarily as a result of a reduction in expenditures associated with drug supply manufacturing which were not required in 2020. Research and development expenses relating to other research and development decreased by $0.1 million for the nine months ended September 30, 2020, due to a reduction in consultancy costs.

The future

We anticipate that overall research and development expenses for the year ended December 31, 2020 will remain relatively flat compared to the year ended December 31, 2019, as we progress the clinical development of fadraciclib and our other clinical-stage drugs.

General and administrative expenses

The following table summarizes the general and administrative expenses for the nine months ended September 30, 2019 and 2020 (in $000s except percentages):

Nine Months Ended

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Total general and administrative expenses

$

3,661

$

4,124

$

463

13

Total general and administration expenses represented 53% and 55% of our operating expenses for the nine months ended September 30, 2019 and 2020, respectively. General and administrative expenses increased by $0.4 million from $3.7 million for the nine months ended September 30, 2019 to $4.1 million for the nine months ended September 30, 2020 due to an increase in legal, professional and recruitment costs.

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The future

We expect general and administrative expenditures for the year ended December 31, 2020 to increase slightly compared to our expenditures for the year ended December 31, 2019 due to legal and professional costs.

Other income (expense), net

The following table summarizes other income, net for the nine months ended September 30, 2019 and 2020 (in $000 except percentages):

Nine Months Ended

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Foreign exchange gains (losses)

$

115

$

42

$

(73)

63

Interest income

 

177

 

36

 

(141)

(80)

Other income, net

 

223

 

891

 

668

300

Total other income

$

515

969

$

454

88

Total other income increased by approximately $0.5 million, from $0.5 million for the nine months ended September 30, 2019 to $1.0 million for the nine months ended September 30, 2020. The increase in other income is primarily related to royalty payments receivable under a December 2005 APA, whereby Xcyte sold certain assets and intellectual property to TSC through an APA and other related agreements. Accordingly, the company recognized $223,000 and $891,000 of other income arising from sales related to this transaction during the nine months ended September 30, 2019 and 2020 respectively.

Foreign exchange losses

Foreign exchange gains decreased by approximately $73,000, from a gain of $115,000 for the nine months ended September 30, 2019, to a gain of $42,000 for the nine months ended September 30, 2020.

The future

Other income (expense), net for the year ended December 31, 2020 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 in nature, 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

The following table summarizes total income tax benefit for the nine months ended September 30, 2019 and 2020 (in $000s except percentages):

    

Nine Months Ended

    

September 30, 

Difference

    

2019

    

2020

    

$

    

%

Total income tax benefit

$

848

$

858

$

10

1

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The total income tax benefit, which comprised of research and development tax credits recoverable, remained flat at approximately $0.9 million for each of the nine months ended September 30, 2019 and 2020. 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 elect to do so. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur and having sufficient trading losses. We expect our qualifying research and development expenditure for the year ended December 31, 2020 to remain relatively flat, in comparison to the year ended December 31, 2019 in line with our planned research and development expenditure.

Liquidity and Capital Resources

The following is a summary of our key liquidity measures as of September 30, 2019 and 2020 (in $000s):

Nine Months Ended

September 30, 

    

2019

    

2020

Cash and cash equivalents

$

12,967

$

23,130

Working capital:

Current assets

$

15,836

$

25,934

Current liabilities

 

(2,071)

 

(1,712)

Total working capital

$

13,765

$

24,222

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, 2020, we had an accumulated deficit of $ 363.3 million.

Cash Flows

Cash used in operating, investing and financing activities for the nine months ended September 30, 2019 and 2020 is summarized as follows (in $000s):

Nine Months Ended September 30, 

    

2019

    

2020

Net cash used in operating activities

$

(8,330)

$

(6,782)

Net cash provided by (used in) investing activities

 

22

 

(54)

Net cash provided by (used in) financing activities

 

3,898

 

18,156

Operating activities

Net cash used in operating activities decreased by $1.5 million, from $8.3 million for the nine months ended September 30, 2019 to $6.8 million for the nine months ended September 30, 2020. The decrease in cash used by operating activities was primarily the result of a change in working capital of $1.6 million and an increase in net loss of $0.1 million. The change in working capital was due to settlement of large trade payables during the nine months ended September 30, 2019.

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Investing activities

Net cash used by investing activities increased by approximately $76,000 for the nine months ended September 30, 2020 due to proceeds from sale of property and equipment for the nine months ended September 30, 2019 not repeated in 2020 and increased capital expenditure in 2020 of $47,000.

Financing activities

Net cash provided by financing activities increased by $14.3 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 payments of preferred dividends. Net cash provided by financing activities for the nine months ended September 30, 2019 was a direct result of receiving approximately $4.1 million in net proceeds from the issuance of common stock under the Sales Agreement with H C Wainwright, offset by payments of preferred dividends.

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 the end of 2022. 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;

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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.

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. At this time, the Company is unable to estimate the impact of the COVID-19 pandemic on its financial condition or 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, 2020, 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, 2020, 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 recent ‘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.

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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.

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, 2019 and as amended on Form 10-Q for the three months ended March 31, 2020 and for the six months ended June 30, 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, 2019.

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

For a discussion regarding the 2020 Inducement Plan, please see Note 10 “Subsequent Events” of the Unaudited Condensed Consolidated Financial Statements included in Item 1 of Part I within this Quarterly Report.

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Item 6. Exhibits

Exhibit
Number

    

Description

10.1*

Cyclacel Pharmaceuticals, Inc. 2020 Inducement Equity Incentive Plan

10.2*

Form of Stock Option Grant Notice and Stock Option Agreement under the Cyclacel Pharmaceuticals, Inc. 2020 Inducement Equity Incentive Plan

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, 2020, formatted in XBRL (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.

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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, 2020

By:

/s/ Paul McBarron

Paul McBarron

Chief Operating Officer, Chief Financial Officer and Executive Vice President, Finance

32


 EXHIBIT 10.1

CYCLACEL PHARMACEUTICALS, INC. 

2020 INDUCEMENT EQUITY INCENTIVE PLAN

 

Effective October 22, 2020

 

1.

DEFINITIONS.

 

Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Cyclacel Pharmaceuticals, Inc. 2020 Inducement Equity Incentive Plan, have the following meanings:

 

Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the term Administrator means the Committee.

 

Affiliate means a corporation or other entity which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.

 

Agreement means a written or electronic document setting forth the terms of a Stock Right delivered pursuant to the Plan in such form as the Administrator shall approve.

 

Board of Directors means the Board of Directors of the Company.

 

Cause means, with respect to a Participant (a) dishonesty with respect to the Company or any Affiliate, (b) insubordination, substantial malfeasance or non-feasance of duty, (c) unauthorized disclosure of confidential information, (d) breach by a Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company or any Affiliate, and (e) conduct substantially prejudicial to the business of the Company or any Affiliate; provided, however, that any provision in an agreement between a Participant and the Company or an Affiliate, which contains a conflicting definition of Cause for termination and which is in effect at the time of such termination, shall supersede this definition with respect to that Participant. The determination of the Administrator as to the existence of Cause will be conclusive on the Participant and the Company.

 

Change of Control means the occurrence of any of the following events: (a) any person, partnership, joint venture, corporation or other entity, or two or more of any of the foregoing acting as a group (or any “person” within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than the Company, an Affiliate, or an employee benefit plan (or related trust) of the Company or an Affiliate, become(s) the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of 30% or more of the then-outstanding voting stock of the Company; (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors (together with any new director whose election by the Board of Directors or whose nomination for election by the Company’s stockholders, was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; (c) all or substantially all of the business of the Company is disposed of pursuant to a merger, consolidation or other transaction in which the Company is not the surviving corporation or the Company combines with another company and is the surviving corporation (unless the stockholders of the Company immediately following such merger, consolidation, combination, or other transaction beneficially own, directly


or indirectly, more than 50% of the aggregate voting stock or other ownership interests of  (x) the entity or entities, if any, that succeed to the business of the Company or (y) the combined company); (d) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which the Board of Directors in office immediately prior to such transaction or event constitutes less than a majority of the Board of Directors thereafter; or (e) the stockholders of the Company approve a sale of all or substantially all of the assets of the Company or a liquidation or dissolution of the Company; provided, that if any payment or benefit payable hereunder upon or following a Change of Control would be required to comply with the limitations of Section 409A(a)(2)(A)(v) of the Code in order to avoid an additional tax under Section 409A of the Code, such payment or benefit shall be made only if such Change of Control constitutes a change in ownership or control of the Company, or a change in ownership of the Company’s assets in accordance with Section 409A of the Code.

  

Code means the United States Internal Revenue Code of 1986, as amended including any successor statute, regulation and guidance thereto.

 

Committee means the Company’s compensation committee (as constituted in compliance with Rule 5605(d)(2) of the Nasdaq Listing Rules) in order to comply with the exemption from the stockholder approval requirement for “inducement grants” provided under Rule 5635(c)(4) of the Nasdaq Listing Rules.

 

Common Stock means shares of the Company’s common stock, $0.001 par value per share.

 

Company means Cyclacel Pharmaceuticals, Inc., a Delaware corporation.

 

Consultant means any natural person who is an advisor or consultant who provides bona fide services to the Company or its Affiliates, provided that such services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the Company’s or its Affiliates’ securities.

 

Corporate Transaction means a merger, consolidation, or sale of all or substantially all of the Company’s assets or the acquisition of all of the outstanding voting stock of the Company in a single transaction or a series of related transactions by a single entity other than a transaction to merely change the state of incorporation.

 

Disability or Disabled means permanent and total disability as defined in Section 22(e)(3) of the Code.

 

Employee means any employee of the Company or of an Affiliate, designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.

 

Exchange Act means the United States Securities Exchange Act of 1934, as amended.

 

Fair Market Value of a Share of Common Stock means:

 

(1)If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or, if not applicable, the last price of the Common Stock on the composite tape or other comparable reporting system for the trading day on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date;

 

(2)If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the

trading day referred to in clause (1), and if bid and asked prices for the Common Stock are regularly reported, the mean between the bid and the asked price for the Common Stock at the close of trading in the over-the-counter market for the most recent trading day on which Common Stock was traded on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date; and 

 

(3)If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine in compliance with applicable laws.

 

ISO means an option intended to qualify as an incentive stock option under Section 422 of the Code.

 

Non-Qualified Option means an option which is not intended to qualify as an ISO.

 

Option means a Non-Qualified Option granted under the Plan.

 

Participant means an Employee of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” where the context requires.

Performance-Based Award means a Stock Grant or Stock-Based Award which vests based on the attainment of written Performance Goals as set forth in Paragraph 9 hereof.

 

Performance Goals means performance goals determined by the Committee in its sole discretion and set forth in an Agreement. The satisfaction of Performance Goals shall be subject to certification by the Committee. The Committee has the authority to take appropriate action with respect to the Performance Goals (including, without limitation, making adjustments to the Performance Goals or determining the satisfaction of the Performance Goals in connection with a Corporate Transaction) provided that any such action does not otherwise violate the terms of the Plan.

 

Plan means this Cyclacel Pharmaceuticals, Inc. 2020 Inducement Equity Incentive Plan.

 

Securities Act means the United States Securities Act of 1933, as amended.

 

Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both.

 

Stock-Based Award means a grant by the Company under the Plan of an equity award or an equity based award, which is not an Option or a Stock Grant.

 

Stock Grant means a grant by the Company of Shares under the Plan.

 

Stock Right means a right to Shares or the value of Shares of the Company granted pursuant to the Plan – a No