UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction | (I.R.S. Employer | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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.
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).
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 ☐ |
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
As of November 7, 2022 there were
CYCLACEL PHARMACEUTICALS, INC.
INDEX
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | ||
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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)
| September 30, | December 31, | ||||
| 2022 |
| 2021 | |||
ASSETS | ||||||
Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right-of-use lease asset | | | ||||
Non-current deposits | | | ||||
Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued and other current liabilities |
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Total current liabilities |
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Lease liability | | | ||||
Total liabilities |
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Redeemable common stock, $ | ||||||
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Stockholders’ equity: | ||||||
Preferred stock, $ |
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Series A convertible preferred stock, $ |
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Series B convertible preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
| ( |
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Accumulated deficit |
| ( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
3
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In $000s, except share and per share amounts)
(Unaudited)
Three Months Ended |
| Nine Months Ended | |||||||||
September 30, | September 30, | ||||||||||
2022 |
| 2021 | 2022 |
| 2021 | ||||||
Revenues | $ | | $ | | | | |||||
Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Operating loss |
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Other income (expense): |
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Foreign exchange gains (losses) |
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Interest income |
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Other income, net |
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Total other income, net |
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Loss before taxes |
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Income tax benefit |
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Net loss |
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Dividend on convertible exchangeable preferred shares |
| ( |
| ( |
| ( |
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Net loss applicable to common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | |||
Basic and diluted earnings per common share: |
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Net loss per share – basic and diluted | ( | ( | ( | ( | |||||||
Weighted average common shares outstanding |
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The accompanying notes are an integral part of these consolidated financial statements.
4
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In $000s)
(Unaudited)
Three Months Ended |
| Nine Months Ended | |||||||||
September 30, | September 30, | ||||||||||
2022 |
| 2021 | 2022 |
| 2021 | ||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||
Translation adjustment |
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Unrealized foreign exchange gain (loss) on intercompany loans |
| ( |
| ( |
| ( |
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Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these consolidated financial statements.
5
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In $000s, except share amounts)
(Unaudited)
| Accumulated | |||||||||||||||||||||
| Additional |
| Other |
| Total | |||||||||||||||||
| Preferred Stock |
| Common Stock |
| Paid-in |
| Comprehensive |
| Accumulated |
| Stockholders’ | |||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Loss |
| Deficit |
| Equity | |||||||
Balances at December 31, 2020 | | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Issue of common stock and associated warrants on underwritten offering, net of expenses |
| — |
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Warrant Exercises | — |
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Stock-based compensation |
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Preferred stock dividends |
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| ( |
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Unrealized foreign exchange on intercompany loans |
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Translation adjustment |
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| ( |
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Loss for the period |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
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Balances at March 31, 2021 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Stock-based compensation |
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Preferred stock dividends |
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Unrealized foreign exchange on intercompany loans |
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Translation adjustment |
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Loss for the period |
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Balances at June 30, 2021 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Issue of common stock on At Market Issuance sales agreement, net of expenses |
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Stock-based compensation |
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Preferred stock dividends |
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| ( |
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Unrealized foreign exchange on intercompany loans |
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| ( |
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Translation adjustment |
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Loss for the period |
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| ( |
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Balances at September 30, 2021 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Balances at December 31, 2021 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Stock-based compensation |
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Preferred stock dividends |
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| ( |
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Unrealized foreign exchange on intercompany loans |
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Translation adjustment |
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Loss for the period |
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| ( |
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Balances at March 31, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Issue of common stock on At Market issuance sales agreement, net of expenses | — |
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Stock-based compensation |
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Stock-based awards |
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Preferred stock dividends |
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Unrealized foreign exchange on intercompany loans |
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Translation adjustment |
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Loss for the period |
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Balances at June 30, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Issue of common stock on At Market issuance sales agreement, net of expenses | — |
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Reclassification of redeemable common stock |
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Stock-based compensation |
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Preferred stock dividends | — |
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Unrealized foreign exchange on intercompany loans |
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Translation adjustment |
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Loss for the period |
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Balances at September 30, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | |
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, | ||||||
| 2022 |
| 2021 | |||
Operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation | | | ||||
Stock-based compensation | | | ||||
Changes in lease liability | | | ||||
Changes in operating assets and liabilities: | ||||||
Prepaid expenses and other assets | ( | ( | ||||
Accounts payable, accrued and other current liabilities | ( | | ||||
Net cash used in operating activities | ( | ( | ||||
Investing activities: |
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Purchase of property, plant and equipment | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Financing activities: |
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Proceeds, net of issuance costs, from issuing common stock and warrants | | | ||||
Payment of preferred stock dividend | ( | ( | ||||
Net cash provided by financing activities | | | ||||
Effect of exchange rate changes on cash and cash equivalents | ( | ( | ||||
Net (decrease) increase in cash and cash equivalents | ( | | ||||
Cash and cash equivalents, beginning of period | | | ||||
Cash and cash equivalents, end of period | $ | | $ | | ||
Supplemental cash flow information: |
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Cash received during the period for: |
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Interest | | | ||||
Research & Development Tax Credits | | | ||||
Non cash financing activities: |
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Accrual of preferred stock dividends | | |
The accompanying notes are an integral part of these consolidated financial statements.
7
CYCLACEL PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Company Overview
Nature of Operations
Cyclacel Pharmaceuticals, Inc. (“Cyclacel” or the “Company”) is a clinical-stage biopharmaceutical company developing innovative cancer medicines based on cell cycle, transcriptional regulation and mitosis control biology. Cyclacel is a pioneer in the field of cancer cell cycle biology with a vision to improve patient healthcare by translating insights in cancer biology into medicines that can overcome resistance and ultimately increase a patient’s overall survival rate.
Through September 30, 2022, 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, 2022, the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2022 and 2021 and the consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021, and all related disclosures contained in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2021 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2022. 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 GAAP 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, 2022, and the results of operations and, comprehensive loss for the three and nine months ended September 30, 2022, and cash flows for the nine months ended September 30, 2022, have been made. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 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, 2021 that are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2022.
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 $
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 |
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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 2023 is dependent on its ability to raise additional capital to finance its operations. The Company does not currently have sufficient funds to complete development and commercialization of any of its drug candidates. Additional funding may not be available to the Company on favorable terms, or at all. If the Company is not able to secure additional funding when needed, it may have to delay, reduce the scope of or eliminate one or more of its clinical trials or research and development programs or make changes to its operating plan. In addition, it may have to partner one or more of its product candidate programs at an earlier stage of development, which would lower the economic value of those programs to the Company. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.
Accounting Standards Adopted in the Period
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This ASU requires business entities to make annual disclosures about transactions with a government they account for by analogizing to a grant or contribution accounting model under ASC 958-605 or based on International Accounting Standard No. 20. ASU 2021-10 which became effective for us on January 1, 2022. The Company has evaluated the effect that this guidance has on its Consolidated Financial Statements and has determined it does not have a material impact.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment became effective for us on January 1, 2022. This new guidance does not have a material impact on our financial statements for any past transactions, but it could change the way that the Company accounts for subsequent amendments to its outstanding warrants, if any.
Recently Issued Accounting Pronouncements
The FASB has issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform initiatives that would replace interbank offered rates, including the London Interbank Offered Rate (“LIBOR”). For example, modifications of lease contracts within the scope of ASC 842 solely for changes in reference rates would be accounted for as a continuation of the existing contracts with no reassessments of the lease classification and the discount rate. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not currently have any contracts affected by this guidance.
Fair Value of Financial Instruments
Financial instruments consist of cash equivalents, accounts payable and accrued liabilities. The carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to the nature of the accounts, notably their short maturities.
Comprehensive Income (Loss)
All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments, are reported, net of any related tax effect, to arrive at comprehensive income (loss).
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(loss). There were
Revenue Recognition
When the Company enters into contracts with customers, 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. Moreover, other inflows that are not a result of the Company’s ongoing and central operations are presented as other income, net.
Leases
The Company accounts for lease contracts in accordance with ASC 842. As of September 30, 2022, the Company’s only outstanding facilities lease is classified as an operating lease.
The Company recognizes an asset for the right to use an underlying leased asset for the lease term and records lease liabilities based on the present value of the Company’s obligation to make lease payments under the lease. As the
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Company’s lease does not specify an implicit rate, the Company uses a best estimate of its incremental borrowing rate to discount the future lease payments. The Company estimates its incremental borrowing rate based on observable information about risk-free interest rates that are the same tenure as the lease term, adjusted for various factors, including the effects of assumed collateral, the nature of how the loan is repaid (e.g., amortizing versus bullet), and the Company’s credit risk.
The Company evaluates options included in its lease agreement 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 operating leases is recognized on a straight-line basis over the lease term. Variable lease payments, if any, are recognized in the period when the obligation to make those payments is incurred. Lease incentives received prior to lease commencement are recorded as a reduction in the right-of-use asset. Fixed lease incentives received after lease commencement reduce both the lease liability and the right-of-use asset.
The Company has elected an accounting policy to account for the lease and non-lease components as a single lease component.
3. Revenue
Revenue recognized in the three and nine months ended September 30, 2021 and 2022 was $
4. Net Loss per Common Share
The Company calculates net loss per common share in accordance with ASC 260 “Earnings Per Share” (“ASC 260”). Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during the period.
The following potentially dilutive securities have not been included in the computation of diluted net loss per share for the three months ended September 30, 2021 and 2022, as the result would be anti-dilutive:
| September 30, | September 30, | ||
| 2022 |
| 2021 | |
Stock options |
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Restricted Stock Units |
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Series A preferred stock |
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Series B preferred stock |
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Common stock warrants |
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Total shares excluded from calculation |
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5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in $000s):
| September 30, | December 31, | ||||
| 2022 |
| 2021 | |||
Research and development tax credit receivable | $ | | $ | | ||
Prepayments and VAT receivable | |
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Other current assets |
| | | |||
$ | | $ | |
6. Non-Current Assets
As of September 30, 2022, the Company had non-current assets of $
7. Accrued and Other Liabilities
Accrued and other current liabilities consisted of the following (in $000s):
| September 30, | December 31, | ||||
| 2022 |
| 2021 | |||
Accrued research and development | $ | | $ | | ||
Accrued legal and professional fees |
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Other current liabilities |
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$ | | $ | |
Other current liabilities for the year ended December 31, 2021 were largely attributed to accrued payroll costs.
8. Leases
The Company currently has
As of and for the nine months ended September 30, 2022 and 2021:
The Company recognized operating lease expenses of $
12
Remaining lease payments under the lease are (in $000’s):
2022 |
| $ | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter | | ||
| $ | |
9. 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
to . The Company recognizes all share-based awards under the straight-line attribution method, assuming that all granted awards will vest. Forfeitures are recognized in the periods when they occur.
Stock based compensation has been reported within expense line items on the consolidated statement of operations for the three and nine months ended September 30, 2021 and 2022 as shown in the following table (in $000s):
| Three Months Ended |
| Nine Months Ended |
| |||||||||
| September 30, |
| September 30, |
| |||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
General and administrative | $ | | $ | | $ | | $ | | |||||
Research and development | | $ | | $ | | $ | | ||||||
Stock-based compensation costs before income taxes | $ | | $ | | $ | | $ | |
2018 Plan
In May 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”), under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. The 2018 Plan replaces the 2015 Equity Incentive Plan (the “2015 Plan”).
The 2018 Plan allows for various types of award grants, including stock options and restricted stock units.
On June 14, 2022, the Company’s stockholders approved an amendment to the 2018 Plan to increase the number of shares of common stock available for grant under the 2018 Plan by
2020 Inducement Equity Incentive Plan
In October 2020, the Inducement Equity Incentive Plan (the “Inducement Plan”), became effective. Under the Inducement Plan, Cyclacel may make equity incentive grants to new senior level Employees (persons to whom the Company may issue securities without stockholder approval). The Inducement Plan allows for the issuance of up to
13
Option Grants and Exercises
There were
Nine months ended | Nine months ended | |||
| September 30, 2022 |
| September 30, 2021 | |
Expected term (years) |
| 5 – 6 |
| 5 – 6 |
Risk free interest rate |
| 1.370% – 3.605% | 0.420% – 1.000% | |
Volatility |
| 86% – 93% | 96% – 102% | |
Expected dividend yield over expected term |
| |||
There were
In the second quarter of 2022, the Company amended the terms of
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, 2021 |
| | $ | |
| $ | | |||
Granted |
| | $ | |
| — |
| — | ||
Cancelled/forfeited |
| ( | $ | |
|
| ||||
Options outstanding at September 30, 2022 |
| | $ | |
| $ | | |||