BGMS 10-Q
Bio Green Med Solution, Inc. (BGMS)
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 9, 2023 there were
CYCLACEL PHARMACEUTICALS, INC.
INDEX
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||
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2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In $000s, except share, per share, and liquidation preference amounts)
(Unaudited)
| September 30, | December 31, | ||||
| 2023 |
| 2022 | |||
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 |
| ( |
| ( | ||
Accumulated deficit |
| ( |
| ( | ||
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, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Revenues: |
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Clinical trial supply | $ | | $ | — | $ | | $ | — | ||||
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 |
| ( |
| ( |
| ( |
| ( | ||||
Other income (expense): |
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Foreign exchange gains (losses) |
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| ( |
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Interest income |
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Other income (expense), net |
| ( |
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Total other income (expense), net |
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Loss before taxes |
| ( |
| ( |
| ( |
| ( | ||||
Income tax benefit |
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Net loss |
| ( |
| ( |
| ( |
| ( | ||||
Dividend on convertible exchangeable preferred shares |
| ( |
| ( |
| ( |
| ( | ||||
Net loss applicable to common shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Basic and diluted earnings per common share: |
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Net loss per share – basic and diluted (common shareholders) | ( | ( | ( | ( | ||||||||
Net loss per share – basic and diluted (redeemable common shareholders) | ( | ( | ( | ( | ||||||||
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, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Translation adjustment |
| |
| |
| ( |
| | ||||
Unrealized foreign exchange gain (loss) on intercompany loans |
| ( |
| ( |
| |
| ( | ||||
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, 2021 | | — | | | | ( | ( |
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Stock-based compensation |
| — |
| — |
| — |
| — |
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| — |
| — |
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Preferred stock dividends |
| — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||
Unrealized foreign exchange on intercompany loans |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | ||||||
Translation adjustment |
| — |
| — |
| — |
| — |
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Loss for the period |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balances at March 31, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Issue of common stock on At Market issuance sales agreement, net of expenses |
| — |
| — |
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| — |
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| — |
| — |
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Accretion on 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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| ( |
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| ( | ||||||||
Translation adjustment |
| — |
| — |
| — |
| — |
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Loss for the period |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balances at June 30, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Reclassification of redeemable common stock |
| — |
| — |
| ( |
| ( |
| ( |
| — |
| — |
| ( | ||||||
Accretion on redeemable common stock | — | — | — | — | ( | — | — | ( | ||||||||||||||
Stock-based compensation |
| — |
| — |
| — |
| — |
| |
| — |
| — |
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Preferred stock dividends | — |
| — |
| — |
| — |
| ( |
| — |
| — |
| ( | |||||||
Unrealized foreign exchange on intercompany loans | — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( | |||||||
Translation adjustment |
| — |
| — |
| — |
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Loss for the period |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balances at September 30, 2022 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Balances at December 31, 2022 | | — | | | | ( | ( |
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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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| ( |
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| ( | ||||||||
Loss for the period |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balances at March 31, 2023 (restated) |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Reclassification of redeemable common stock | — |
| — |
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| — |
| — |
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Stock-based compensation |
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Preferred stock dividends |
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| — |
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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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| — |
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| — |
| — |
| ( |
| ( | ||||||
Balances at June 30, 2023 (restated) |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Reclassification of redeemable common stock |
| — |
| — |
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| — |
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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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| ( |
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| ( | ||||||
Translation adjustment |
| — |
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Loss for the period |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balances at September 30, 2023 |
| | $ | — |
| | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
CYCLACEL PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In $000s)
(Unaudited)
Nine Months Ended | ||||||
September 30, | ||||||
| 2023 |
| 2022 | |||
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 (used in) provided by financing activities | ( | | ||||
Effect of exchange rate changes on cash and cash equivalents | ( | ( | ||||
Net (decrease) 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 | $ | | $ | | ||
Cash paid during the period for: | ||||||
Taxes | $ | | $ | | ||
Non cash financing activities: |
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Accrual of preferred stock dividends | $ | | $ | | ||
Accretion on redeemable common stock | $ | | $ | | ||
The accompanying notes are an integral part of these consolidated financial statements.
7
CYCLACEL PHARMACEUTICALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Restatement of Prior Financial Information.
As previously summarized in our Current Report on Form 8-K filed with the SEC on November 15, 2023, during recent contract renegotiations with a contract counterparty related to the Company’s 065-102 study and the related return to the Company of the original contract deposit of $1.0 million and the subsequent preparation of the Company’s financial statements for the period ended September 30, 2023, the Company identified an error in the accounting treatment of contract deposit-related invoices during the period September 2021 to November 2021. Vendor invoices totaling $549,295 related to contractually required deposits received during September 2021 and November 2021 were incorrectly expensed to the income statement instead of being capitalized on the balance sheet as non-current deposits. The amounts were contractually required to remain on deposit until the end of the related contract. This resulted in an overstatement of operating loss of $293,845 for the quarter ended September 30, 2021 and $255,450 for the quarter ended December 31, 2021 and a corresponding understatement of non-current deposits in the same periods. In addition, the Company’s UK research and development tax credits were consequentially overstated by $64,000 for the quarter ended September 30, 2021 and $55,000 for the quarter ended December 31, 2021.
On August 12, 2022, we became aware that our shelf registration statement on Form S-3 had expired on June 21, 2022. Prior to becoming aware of the expiration, but following the expiration, we sold an aggregate of 1,987,100 shares of our common stock at market prices for aggregate proceeds of approximately $2,721,187. The sale of these shares were subject to potential rescission rights by certain stockholders. As a result of these rescission rights, we classified 3,117,100 shares (including 1,130,000 previously issued and outstanding shares sold for which the Company did not receive proceeds and which were reclassified to temporary equity as of September 30, 2022), with an aggregate redemption value of $4,494,496 of our common stock as stock outside stockholders equity. In connection with the third quarter financial statement close process, the Company determined that it should have recorded 798,200 shares subject to potential rescission rights as temporary equity as of June 30, 2022 and these should have been reclassified out of temporary equity as of June 30, 2023 upon expiration of the rescission rights. The Company had recorded reclassification of these 798,200 shares sold in the second quarter of 2022, which had a redemption value of $1,105,507 to temporary equity as of September 30, 2022. Moreover, the Company has determined that it did not properly account for the $135,000 of aggregate fees paid in connection with the sale of those shares as a dividend to those stockholders. The $135,000 of fees should be accounted for as accretion to the maximum redemption amount of the shares subject to potential rescission in the computation of loss per share as of June 30, 2022 and September 30, 2022 and the year ended December 31, 2022, as well as of March 31, 2023 and June 30, 2023, as is required by ASC 480-10-S99-3A(20).
The effect of the error corrections affecting the unaudited consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023 and June 30, 2023
are as follows (in thousands, except per share amounts):
(Unaudited) | |||||||||
| March 31, 2023 |
| March 31, 2023 | ||||||
CONSOLIDATED BALANCE SHEETS | As previously reported | Adjustments | As Restated | ||||||
ASSETS | |||||||||
Non-current deposits | $ | | $ | | $ | | |||
Total assets | $ | | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
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Accrued and other current liabilities | $ | | $ | | $ | | |||
Total current liabilities |
| |
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Total liabilities |
| |
| | | ||||
Accumulated deficit |
| ( |
| | ( | ||||
Total stockholders’ equity | $ | | $ | | $ | | |||
Total liabilities and stockholders’ equity | $ | | $ | | $ | | |||
8
(Unaudited) | |||||||||
Three Months Ended March 31, | |||||||||
| 2023 |
| 2023 | ||||||
CONSOLIDATED STATEMENTS OF INCOME | As previously reported | Adjustments | As Restated | ||||||
Net loss applicable to common shareholders | $ | ( | $ | — | $ | ( | |||
Basic and diluted earnings per common share: | |||||||||
Net Loss per share - basic and diluted (common shareholders) | ( | $ | — | ( | |||||
Net Loss per share - basic and diluted (redeemable common shareholders) | $ | — | ( | ( | |||||
(Unaudited) | |||||||||
| March 31, 2023 |
| March 31, 2023 | ||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY | As previously reported | Adjustments | As Restated | ||||||
Accumulated Deficit (Balances at December 31, 2022) | $ | ( | $ | | $ | ( | |||
Accumulated Deficit (Balances at March 31, 2023) | $ | ( | $ | | $ | ( | |||
Total Stockholders' Equity (Balances at March 31, 2023) | $ | | $ | | $ | | |||
| (Unaudited) | ||||||||
| June 30, 2023 |
| June 30, 2023 | ||||||
As previously | |||||||||
CONSOLIDATED BALANCE SHEETS | reported | Adjustments | As Restated | ||||||
ASSETS | |||||||||
Non-current deposits | $ | | $ | | $ | | |||
Total assets | $ | | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
| |||||
Accrued and other current liabilities | $ | | $ | | $ | | |||
Total current liabilities |
| |
| |
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Total liabilities |
| |
| |
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Temporary equity | $ | | $ | ( | $ | | |||
Common Stock | 9 | 1 | 10 | ||||||
Additional Paid-In Capital | |
| |
| | ||||
Accumulated deficit |
| ( |
| |
| ( | |||
Total stockholders’ equity |
| |
| |
| | |||
Total liabilities and stockholders’ equity | $ | | $ | | $ | | |||
(Unaudited) | ||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| 2023 |
| 2023 |
| 2023 |
| 2023 | |||||||||||
CONSOLIDATED STATEMENTS OF INCOME | As previously reported | Adjustments | As Restated | As previously reported | Adjustments | As Restated | ||||||||||||
Net loss applicable to common shareholders | $ | ( | $ | — | $ | ( | $ | ( | $ | — | $ | ( | ||||||
Basic and diluted earnings per common share: | ||||||||||||||||||
Net Loss per share - basic and diluted (common shareholders) | ( | $ | — | ( | ( | $ | — | ( | ||||||||||
Net Loss per share - basic and diluted (redeemable common shareholders) | $ | — | ( | ( | $ | — | ( | ( | ||||||||||
9
| (Unaudited) | ||||||||
| June 30, 2023 |
| June 30, 2023 | ||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY | As previously reported | Adjustments | As Restated | ||||||
Accumulated Deficit (Balances at December 31, 2022) | $ | ( | $ | | $ | ( | |||
Accumulated Deficit (Balances at March 31, 2023) | $ | ( | $ | | $ | ( | |||
Total Stockholders' Equity (Balances at March 31, 2023) | $ | | $ | | $ | | |||
Common Stock - Issue of common stock on At Market, net of expenses | $ | — | $ | | $ | | |||
Common Stock (Balances at June 30, 2023) | $ | | $ | | $ | | |||
Additional Paid-In Capital - Issue of common stock on At Market, net of expenses | $ | — | $ | | $ | | |||
Additional Paid-In Capital (Balances at June 30, 2023) | $ | | $ | | $ | | |||
Accumulated Deficit (Balances at June 30, 2023) | $ | ( | $ | | $ | ( | |||
Total Stockholders' Equity (Balances at June 30, 2023) | $ | 5,136 | $ | 1,535 | $ | 6,671 | |||
Common Stock No. Shares (Reclassification of redeemable common stock) | — | 798,200 | 798,200 | ||||||
Common Stock No. Shares (Balance at June 30, 2023) | 9,422,089 | 798,200 | 10,220,289 | ||||||
The correction of the errors did not change the reported net loss in 2023 or the 2022 comparative periods.
2. 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, epigenetics and mitosis control biology. Cyclacel is a pioneer company 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.
Through September 30, 2023, 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.
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated balance sheet as of September 30, 2023, the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 and the consolidated statements of cash flows for the nine months ended September 30, 2023 and 2022, and all related disclosures contained in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, 2022 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2023. 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, 2023, and the results of operations and, comprehensive loss for the three and nine months ended September 30, 2023, and cash flows for the nine months ended September 30, 2023, have been made. The interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 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, 2022 that are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2023.
10
Going Concern
Pursuant to the requirements of Accounting Standard Codification (“ASC”) 205-40, Presentation of Financial Statements-Going Concern, management is required at each reporting period to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effects of its plans sufficiently alleviate the substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern for one year after the date that these financial statements are issued. In performing its analysis, management excluded certain elements of its operating plan that cannot be considered probable. Under ASC 205-40, the future receipts of potential funding from future equity or debt issuances or by entering into partnership agreements cannot be considered probable at this time because these plans are not entirely within the Company’s control nor have they been approved by the Board of Directors as of the date of these consolidated financial statements.
Based on the Company’s current operating plan, it is anticipated that cash and cash equivalents of $
Accounting Standards Adopted in the Period
In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This Accounting Standards Update (“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 became effective on January 1, 2022. The adoption of this guidance had no material effect on the Company’s Consolidated Financial Statements.
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 on January 1, 2022. The adoption of this new guidance did 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.
11
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. Following the issuance of ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, the relief remains effective for all entities as of March 12, 2020 through December 31, 2024. 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).
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
12
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 partially 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 partially satisfied) performance obligations. Once a right to receive consideration is unconditional, that amount is presented as a receivable.
Grant revenue received from organizations that are not the Company’s customers, such as charitable foundations or government agencies, is presented as a reduction against the related research and development expenses.
Leases
The Company accounts for lease contracts in accordance with ASC 842. As of September 30, 2023, the Company’s outstanding 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.
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 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.
4. Revenue
The Company recognized $
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5. 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. During 2022 and 2023, the Company calculated loss per share using the two-class method. The two-class method is an allocation formula that determines loss per share for each share of common stock and redeemable common stock (see note 11), a participating security, according to dividends declared and participation rights in undistributed earnings.
| Three Months Ended | |||||
| March 31, 2023 |
| ||||
As restated (see Note 1) | ||||||
Numerator: | ||||||
Net loss | $ | ( |
| |||
Dividend on convertible exchangeable preferred shares | ( |
| ||||
Net loss attributable to common shareholders | $ | ( |
| |||
Deemed dividend on accretion of redeemable common stock | — | |||||
Remaining undistributed loss | ( | |||||
Three Months Ended March 31, 2023 | ||||||
Common Shareholders |
| Redeemable Common Shareholders | ||||
Allocation of undistributed loss | $ | ( | $ | ( | ||
Deemed dividend on accretion of redeemable common stock | — | |||||
Net loss attributable to common shareholders | ( | ( | ||||
Denominator: | ||||||
Weighted-average number of common shares used in loss per share – basic and diluted | | | ||||
Loss per share - basic and diluted | ( |
| ( | |||
Distributed earnings | — | — | ||||
Undistributed loss | ( | ( | ||||
Net loss per share | ( | ( | ||||
14
| Three And Six Months Ended June 30, 2023 | |||||||||||
| Three Months |
| Six Months | |||||||||
As restated (see Note 1) | As restated (see Note 1) | |||||||||||
Numerator: | ||||||||||||
Net loss | $ | ( |
| $ | ( | |||||||
Dividend on convertible exchangeable preferred shares | ( |
| ( | |||||||||
Net loss attributable to common shareholders | $ | ( |
| $ | ( | |||||||
Deemed dividend on accretion of redeemable common stock | — | — | ||||||||||
Remaining undistributed loss | ( | ( | ||||||||||
Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | |||||||||||
Common Shareholders |
| Redeemable Common Shareholders | Common Shareholders |
| Redeemable Common Shareholders | |||||||
Allocation of undistributed loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Deemed dividend on accretion of redeemable common stock | — | — | ||||||||||
Net loss attributable to common shareholders | ( | ( | ( | ( | ||||||||
Denominator: | ||||||||||||
Weighted-average number of common shares used in loss per share – basic and diluted | | | | | ||||||||
Loss per share - basic and diluted | ( |
| ( | ( |
| ( | ||||||
Distributed earnings | — | — | — | — | ||||||||
Undistributed loss | ( | ( | ( | ( | ||||||||
Net loss per share | ( | ( | ( | ( | ||||||||
15
| Three And Nine Months Ended September 30, 2023 | |||||||||||
| Three Months |
| Nine Months | |||||||||
Numerator: | ||||||||||||
Net loss | $ | ( |
| $ | ( | |||||||
Dividend on convertible exchangeable preferred shares | ( |
| ( | |||||||||
Net loss attributable to common shareholders | $ | ( |
| $ | ( | |||||||
Deemed dividend on accretion of redeemable common stock | — | — | ||||||||||
Remaining undistributed loss | ( | ( | ||||||||||
Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||
Common Shareholders |
| Redeemable Common Shareholders | Common Shareholders |
| Redeemable Common Shareholders | |||||||
Allocation of undistributed loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Deemed dividend on accretion of redeemable common stock | — | — | ||||||||||
Net loss attributable to common shareholders | (5,726) | (356) | (14,237) | (3,198) | ||||||||
Denominator: | ||||||||||||
Weighted-average number of common shares used in loss per share – basic and diluted | | | | | ||||||||
Loss per share - basic and diluted | ( |
| ( | ( |
| ( | ||||||
Distributed earnings | — | — | — | — | ||||||||
Undistributed loss | ( | ( | ( | ( | ||||||||
Net loss per share | ( | ( | ( | ( | ||||||||
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| Three And Nine Months Ended September 30, 2022 | |||||||||||
| Three Months |
| Nine Months | |||||||||
Numerator: | ||||||||||||
Net loss | $ | ( |
| $ | ( | |||||||
Dividend on convertible exchangeable preferred shares | ( |
| ( | |||||||||
Net loss attributable to common shareholders | $ | ( |
| $ | ( | |||||||
Deemed dividend on accretion of redeemable common stock | (102) | (135) | ||||||||||
Remaining undistributed loss | ( | ( | ||||||||||
Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||
Common Shareholders |
| Redeemable Common Shareholders | Common Shareholders |
| Redeemable Common Shareholders | |||||||
Allocation of undistributed loss | $ | (4,235) | $ | (1,013) | $ | (13,040) | $ | (1,025) | ||||
Deemed dividend on accretion of redeemable common stock | 102 | — | 135 | |||||||||
Net loss attributable to common shareholders | (4,235) | (911) | (13,040) | (890) | ||||||||
Denominator: | ||||||||||||
Weighted-average number of common shares used in loss per share – basic and diluted | | | | | ||||||||
Loss per share - basic and diluted | $ | (0.43) |
| $ | (0.38) | $ | (1.30) |
| $ | (1.10) | ||
Distributed earnings | — | 0.04 | — | 0.17 | ||||||||
Undistributed loss | ( | ( | ( | ( | ||||||||
Net loss per share | $ | (0.43) | $ | (0.38) | $ | (1.30) | $ | (1.10) | ||||
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, 2023 and 2022, as the result would be anti-dilutive:
| September 30, | September 30, | ||
| 2023 |
| 2022 | |
Stock options |
| |
| |
Restricted Stock Units |
| |
| |
| |
| | |
Series A preferred stock |
| |
| |
Series B preferred stock |
| |
| |
Common stock warrants |
| |
| |
Total shares excluded from calculation |
| |
| |
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in $000s):
| September 30, | December 31, | ||||
| 2023 |
| 2022 | |||
Research and development tax credit receivable | $ | | $ | | ||
Prepayments and VAT receivable | |
| | |||
Other current assets |
| | | |||
$ | | $ | | |||
17
Other current assets as of September 30, 2023 include reclassification of approximately $
7. Non-Current Assets
As of September 30, 2023, the Company had non-current assets of $
8. Accrued and Other Liabilities
Accrued and other current liabilities consisted of the following (in $000s):
| September 30, | December 31, | ||||
| 2023 |
| 2022 | |||
Accrued research and development | $ | | $ | | ||
Accrued legal and professional fees |
| |
| | ||
Other current liabilities |
| |
| | ||
$ | | $ | | |||
Other current liabilities for the year ended December 31, 2022 were largely attributed to accrued payroll costs.
9. Leases
The Company currently has an operating lease liability relating to its facilities in Berkeley Heights, New Jersey.
For the nine months ended September 30, 2023 and 2022, the Company recognized operating lease expenses of $
Remaining lease payments for both facilities are as follows (in $000s):
2023 |
| $ | |
2024 | | ||
2025 | | ||
Thereafter | | ||
| $ | |
10. 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. 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.
18
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, 2023 and 2022 as shown in the following table (in $000s):
| Three Months Ended |
| Nine Months Ended |
| |||||||||
| September 30, |
| September 30, |
| |||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
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 replaced 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
19
Option Grants and Exercises
There were
Of the options granted during the nine months ended September 30, 2023,
The fair value of the stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718 using the following assumptions:
Nine months ended | Nine months ended | |||
| September 30, 2023 |
| September 30, 2022 | |
Expected term (years) |
|
| ||
Risk free interest rate |
| |||
Volatility |
| |||
Expected dividend yield over expected term |
|
There were
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, 2022 |
| | $ | |
| $ | — | |||
Granted |
| | $ | |
| — |
| — | ||
Cancelled/forfeited |
| ( | $ | |
| — |
| — | ||
Options outstanding at September 30, 2023 |
| | $ | |
| $ | — | |||
Unvested at September 30, 2023 |
| | $ | |
| $ | — | |||
Vested and exercisable at September 30, 2023 |
| | $ | |
| $ | — | |||
Restricted Stock Units
The Company issued
The
The
20
The Company issued
Summarized information for restricted stock units as of September 30, 2023 is as follows:
|
| Weighted | Weighted | ||||
|
| Average | Average | ||||
Restricted |
| Grant Date | Remaining | ||||
Stock Units | Value Per Share | Term | |||||
Restricted Stock Units outstanding at September 30, 2023 | | $ | | ||||
Unvested at September 30, 2023 |
| | $ | | |||
Vested and exercisable at September 30, 2023 |
| | $ | | |||
11. Stockholders Equity
August 2021 Controlled Equity Offering Sales Agreement
On August 12, 2021, the Company entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. ("Cantor"), pursuant to which the Company could issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $
On August 12, 2022, the Company became aware that the shelf registration statement on Form S-3 (file number 333-231923) (the “Registration Statement”) associated with this Sales Agreement had expired on June 21, 2022. Prior to becoming aware of the expiration, the Company sold an aggregate of
On August 15, 2022, due to expiry of the Registration Statement, the Sales Agreement was mutually terminated. Since the start of the agreement on August 12, 2021, a total of
Warrants
December 2020 Warrants
As of September 30, 2023, warrants to purchase
There were
21
April 2020 Warrants
As of September 30, 2023,
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
There were
July 2017 Warrants
As of September 30, 2023,
The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock. The warrant holders must pay the exercise price in cash upon exercise of the warrants, unless such warrant holders are utilizing the cashless exercise provision of the warrants. On the expiration date, unexercised warrants will automatically be exercised via the “cashless” exercise provision.
Prior to the exercise of any warrants to purchase common stock, holders of the warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including the right to vote, except as set forth therein.
There were
Series B Preferred Stock
22
subject to adjustment in accordance with the Certificate of Designation. As of September 30, 2023,
Holders of Series B Preferred Stock are entitled to receive dividends on shares of Series B Preferred Stock equal, on an as-if-converted-to-common-stock basis, and in the same form as dividends actually paid on shares of the Company’s common stock. Except as otherwise required by law, the Series B Preferred Stock does not have voting rights. However, as long as any shares of Series B Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred Stock, (b) alter or amend the Certificate of Designation, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series B Preferred Stock, (d) increase the number of authorized shares of Series B Preferred Stock, (e) pay certain dividends or (f) enter into any agreement with respect to any of the foregoing. The Series B Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company. The Series B Preferred Stock may be converted into shares of common stock if and solely to the extent that such conversion would not result in the holder beneficially owning in excess of
Series A Preferred Stock
Each share of Series A Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing $
In the event of a liquidation, the holders of shares of the Series A Preferred Stock shall be permitted to participate on an as-converted-to-common-stock basis in any distribution of assets of the Company. The Company shall not pay any dividends on shares of common stock (other than dividends in the form of common stock) unless and until such time as dividends on each share of Series A Preferred Stock are paid on an as-converted basis. There is no restriction on the Company’s ability to repurchase shares of Series A Preferred Stock while there is any arrearage in the payment of dividends on such shares, and there are no sinking fund provisions applicable to the Series A Preferred Stock.
Subject to certain conditions, at any time following the issuance of the Series A Preferred Stock, the Company has the right to cause each holder of the Series A Preferred Stock to convert all or part of such holder’s Series A Preferred Stock in the event that (i) the volume weighted average price of our common stock for consecutive trading days (the “Measurement Period”) exceeds
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
23
Series A Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.
As of September 30, 2023, there were
The
The Company may, at its option, redeem the
The
12. Subsequent Events
Dividends on 6% Preferred Stock
On
24
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, 2022, 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. 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
We are a clinical-stage biopharmaceutical company developing innovative cancer medicines based on cell cycle, transcriptional regulation and mitosis control biology. We are a pioneer company 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. Our primary focus has been on our transcriptional regulation program, which is evaluating fadraciclib, a CDK2/9 inhibitor, in solid tumors and lymphoma. Separately, our epigenetic/anti-mitotic program is evaluating plogosertib, a PLK1 inhibitor, in solid tumors and lymphoma.
We are evaluating oral fadraciclib and plogosertib in our Phase 1/2 streamlined studies, the aim of which is to assess safety and identify signals of clinical activity which may lead to registration-enabling outcomes.
Fadraciclib Phase 1/2 Study in Advanced Solid Tumors and Lymphoma (065-101; NCT#04983810)
In this ongoing study, twenty-six evaluable patients have been treated in six dose escalation levels so far. The proof-of-concept stage includes seven histologically defined cohorts thought to be sensitive to the drug’s mechanism: breast, colorectal (including KRAS mutant), endometrial/uterine, hepatobiliary, ovarian cancers and lymphomas. An additional basket cohort will enroll patients regardless of histology with biomarkers relevant to the drug’s mechanism, including MCL1, MYC and/or cyclin E amplified.
25
Plogosertib Phase 1/2 Study in Advanced Solid Tumors and Lymphoma (140-101; NCT#05358379)
In this ongoing study, fourteen evaluable patients have been treated at five dose escalation levels with no dose limiting toxicities observed. The proof-of-concept stage includes seven mechanistically relevant cohorts including patients with bladder, breast, colorectal (including KRAS mutant), hepatocellular and biliary tract, and lung cancers (both small cell and non-small cell), as well as lymphomas. An additional basket cohort will enroll patients with biomarkers relevant to the drug’s mechanism, including MYC amplified tumors. The protocol allows for expansion of individual cohorts based on response which may allow acceleration of the clinical development and registration plan for plogosertib.
We currently retain all marketing rights worldwide to the compounds associated with our drug programs.
Going Concern
For the three months ended September 30, 2023, we used net cash of $4.2 million to fund our operating activities. We have cash and cash equivalents of $5.9 million as of September 30, 2023, which will allow us to meet our liquidity requirements through the remainder of 2023. However, the current operating plan includes discretionary expenditures, which if not incurred and taken together with the anticipated receipt of research & development tax credits of approximately $3.1 million in the first quarter of 2024 could extend liquidity requirements into the second quarter of 2024. Nonetheless, these factors raise substantial doubt about our ability to continue as a going concern. We are currently investigating ways to raise additional capital through a combination of public or private equity, debt financing or by entering into partnership agreements for further development of our drug candidates. Please refer to the following Liquidity and Capital Resources section for additional information.
Liquidity and Capital Resources
The following is a summary of our key liquidity measures as of September 30, 2023 and 2022 (in $000s):
September 30, | ||||||
| 2023 |
| 2022 | |||
Cash and cash equivalents | $ | 5,944 | $ | 23,706 | ||
Working capital: | ||||||
Current assets | $ | 11,113 | $ | 27,915 | ||
Current liabilities |
| (8,148) |
| (4,472) | ||
Total working capital | $ | 2,965 | $ | 23,443 | ||
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 a limited amount of revenue. We have incurred significant losses since our inception. As of September 30, 2023, we had an accumulated deficit of $423.0 million.
Cash Flows
Cash from operating, investing and financing activities for the nine months ended September 30, 2023 and 2022 is summarized as follows (in $000s):
Nine Months Ended September 30, | ||||||
| 2023 |
| 2022 | |||
Net cash used in operating activities | $ | (12,202) | $ | (15,658) | ||
Net cash used in investing activities |
| (6) |
| (7) | ||
Net cash (used in) provided by financing activities |
| (151) |
| 2,956 | ||
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Operating activities
Net cash used in operating activities decreased by $3.5 million, from $15.7 million for the nine months ended September 30, 2022 to $12.2 million for the nine months ended September 30, 2023. The decrease in cash used by operating activities was primarily the result of a change in working capital of $7.1 million, offset by an increase in net loss of $3.6 million. The $7.1 million change in working capital was due to increased balances in clinical trial deposits and receivables for research and development tax credits. A cash receipt of approximately $4.8 million in research and development tax credit was received during the nine months ended September 30, 2023.
Investing activities
Net cash used by investing activities decreased by $1,000 for the nine months ended September 30, 2023 due to slightly higher capital expenditures on information technology (“IT”) during the respective comparative period.
Financing activities
Net cash used in financing activities was $0.2 million for the nine months ended September 30, 2023 as a result of dividend payments of approximately $0.2 million to the holders of our 6% Preferred Stock.
Net cash provided by financing activities was $2.9 million for the nine months ended September 30, 2022 as a direct result of receiving approximately $3.1 million, net of expenses, from the issuance of common stock under the Sales Agreement, offset by dividend payments of approximately $0.2 million to the holders of our 6% Preferred Stock.
Funding Requirements and Going Concern
As of September 30, 2023, we had cash and cash equivalents of $5.9 million. We have incurred losses since our inception and as of September 30, 2023, we had an accumulated deficit of $423.0 million. We expect to continue to incur substantial operating losses in the future.
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 costs of acquiring or investing in businesses, product candidates and technologies; |
| ● | the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; |
| ● | the costs and timing of seeking and obtaining FDA and EMA approvals; |
| ● | the effect of competing technological and market developments; and |
| ● | the economic and other terms and timing of any collaboration, licensing or other arrangements into which we may enter. |
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
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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 candidate programs at an earlier stage of development, which would lower the economic value of those programs to us.
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, licensing revenue, royalty income, and a limited amount of product revenue from operations discontinued in September 2012.
As discussed in Note 3 of the Notes to the Consolidated Financial Statements accompanying this Quarterly Report on Form 10-Q, under ASC Topic 205-40, Presentation of Financial Statements - Going Concern, management is required at each reporting period to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.
Based on our current operating plan, we anticipate that our cash and cash equivalents of $5.9 million as of September 30, 2023 will allow us to meet our liquidity requirements through the end of 2023. However, the current operating plan includes discretionary expenditures, which if not incurred and taken together with the anticipated receipt of research & development tax credits of approximately $3.1 million in the first quarter of 2024 could extend liquidity requirements into the second quarter of 2024. Our history of losses, our negative cash flows from operations, our liquidity resources currently on hand, and our dependence on the ability to obtain additional financing to fund our operations after the current resources are exhausted, about which there can be no certainty, have resulted in our assessment that there is substantial doubt about our ability to continue as a going concern for a period of at least twelve months from the issuance date of this Quarterly Report on Form 10-Q. While we have plans in place to mitigate this risk, which primarily consist of raising additional capital through a combination of public or private equity or debt financings or by entering into partnership agreements for further development of our drug candidates, there is no guarantee that we will be successful in these mitigation efforts.
Results of Operations
Three and Nine Months Ended September 30, 2023 and 2022
Revenues
We recognized $16,000 and $389,000 of revenue for the three and nine months ended September 30, 2023. This related to recovery of clinical manufacturing costs associated with an investigator sponsored study managed by Cedars-Sinai Medical Center. There were no revenues recognized for the comparative periods in 2022.
The future
We expect to completely fulfill our obligations under this agreement by the fourth quarter of 2023. The associated clinical manufacturing costs are presented as a component of research & development.
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 and plogosertib. We have also incurred costs in the advancement of product candidates toward clinical and preclinical trials and the
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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, supplies and materials; |
| ● | Technology license costs; |
| ● | Stock-based compensation; and |
| ● | Rent and facility expenses for our offices. |
The following table provides information with respect to our research and development expenditures for the three and nine months ended September 30, 2023 and 2022 (in $000s except percentages):
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
September 30, | Difference | September 30, | Difference | ||||||||||||||||||
2023 |
| 2022 |
| $ |
| % | 2023 |
| 2022 |
| $ |
| % | ||||||||
Transcriptional Regulation (fadraciclib) | $ | 3,554 | $ | 2,512 | $ | 1,042 | 41 | $ | 10,683 | $ | 8,740 | $ | 1,943 | 22 | |||||||
Epigenetic/anti-mitotic (plogosertib) | 1,540 | 1,707 | (167) | (10) | 4,249 | 4,289 | (40) | (1) | |||||||||||||
Other research and development expenses | 142 | 194 | (52) | (27) | 705 | 543 | 162 | 30 | |||||||||||||
Total research and development expenses | $ | 5,236 | $ | 4,413 | $ | 823 | 19 | $ | 15,637 | $ | 13,572 | $ | 2,065 | 15 | |||||||
Total research and development expenses represented 76% and 76% of our operating expenses for the three and nine months ended September 30, 2023 respectively.
Research and development expenses increased by approximately $2.0 million from $13.6 million for the nine months ended September 30, 2022 to $15.6 million for the nine months ended September 30, 2023. Expenditure for the transcriptional regulation program increased by $1.9 million for the nine months ended September 30, 2023, relative to the respective comparative period. This was due to an increase in non-clinical expenditure of $3.0 million, offset by reduction in clinical trial costs of $1.1 million associated with the progression of clinical trials for the evaluation of fadraciclib in Phase 1/2 studies. Research and development expenses relating to plogosertib remained flat for each of the nine months ended September 30, 2023 and 2022.
The future
We continue to anticipate that overall research and development expenses for the year ended December 31, 2023 will decrease compared to the year ended December 31, 2022 as we temporarily halt our Phase 1/2 study in hematological malignancies and progress clinical development of our Phase 1/2 studies in advanced solid tumors and lymphomas.
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General and Administrative Expenses
General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the general and administrative expenses for the three and nine months ended September 30, 2023 and 2022 (in $000s except percentages):
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
September 30, | Difference | September 30, | Difference | ||||||||||||||||||
2023 |
| 2022 |
| $ |
| % |
| 2023 |
| 2022 |
| $ |
| % | |||||||
Total general and administrative expenses | $ | 1,625 | $ | 2,054 | $ | (429) | (21) | $ | 4,845 | $ | 5,239 | $ | (394) | (8) | |||||||
Total general and administrative expenses represented 24% and 24% of our operating expenses for the three and nine months ended September 30, 2023 respectively.
General and administrative expenses decreased by approximately $0.4 million for both the three and nine months ended September 30, 2023 due to a non-recurring $0.4 million cost associated with the Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. (the “Sales Agreement”) in the comparative prior periods.
The future
We expect general and administrative expenditures for the year ended December 31, 2023 to be lower than our expenditures for the year ended December 31, 2022, due to management efforts to lower professional costs.
Other income (expense), net
The following table summarizes other income for the three and nine months ended September 30, 2023 and 2022 (in $000 except percentages):
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
September 30, | Difference | September 30, | Difference | ||||||||||||||||||
2023 |
| 2022 |
| $ |
| % | 2023 |
| 2022 |
| $ |
| % | ||||||||
Foreign exchange gains (losses) | $ | 104 | $ | 276 | $ | (172) | (62) | $ | (58) | $ | 514 | $ | (572) | (111) | |||||||
Interest income |
| 50 |
| 67 |
| (17) | (25) |
| 243 |
| 88 |
| 155 | 176 | |||||||
Other income (expense), net |
| (9) |
| 14 |
| (23) | (164) |
| 50 |
| 1,294 |
| (1,244) | (96) | |||||||
Total other income (expense), net | $ | 145 | 357 | $ | (212) | (59) | $ | 235 | 1,896 | $ | (1,661) | (88) | |||||||||
Total other income decreased by approximately $1.7 million from $1.9 million for the nine months ended September 30, 2022 to $0.2 million for the nine months ended September 30, 2023. Other income for the nine months ended September 30, 2022 relates largely to royalties receivable under a December 2005 Asset Purchase Agreement (“APA”) whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by us 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 our product development plan following the transaction between Xcyte and Cyclacel in March 2006. Accordingly, we presented $0.1 million and $1.3 million as other income arising from sales related to this transaction during the nine months ended September 30, 2023 and 2022 respectively.
Foreign exchange gains (losses)
Foreign exchange gains decreased by $0.6 million, from a gain of $0.5 million for the nine months ended September 30, 2022, to a loss of $0.1 million for the nine months ended September 30, 2023.
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The future
Other income (expense), net for the year ended December 31, 2023, 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 any intercompany loan becomes foreseeable.
Income Tax Benefit
Credit is taken for research and development tax credits, which are claimed from the United Kingdom’s revenue and customs authority, or HMRC, in respect of qualifying research and development costs incurred.
The following table summarizes total income tax benefit for the three and nine months ended September 30, 2023 and 2022 (in $000s except percentages):
Three Months Ended | Nine Months Ended | ||||||||||||||||||||
September 30, | Difference | September 30, | Difference | ||||||||||||||||||
2023 |
| 2022 |
| $ |
| % | 2023 |
| 2022 |
| $ |
| % | ||||||||
Total income tax benefit | $ | 668 | $ | 1,014 | $ | (346) | (34) | $ | 2,574 | $ | 3,136 | $ | (562) | (18) | |||||||
The total income tax benefit, which comprised of research and development tax credits recoverable, decreased by approximately $0.6 million from $3.1 million for the nine months ended September 30, 2022 to $2.5 million for the nine months ended September 30, 2023 due to legislative changes that took effect in April 2023. 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 year ended December 31, 2023 and will continue to elect to receive payment of the tax credit. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we incur and could be restricted by any future cap introduced by HMRC. Beyond 2023, we cannot be certain of our eligibility to receive this tax credit or if eligible, the amount that may be received, due to proposed changes by HMRC to the eligibility criteria.
Critical Accounting Policies and Estimates
Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our consolidated financial statements. We evaluate our estimates, judgments, and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 3 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There have been no material changes to our critical accounting policies during the three months ended September 30, 2023.
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.
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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, 2023, 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 our disclosure controls and procedures to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, evaluated and reported, as applicable, 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures were not effective at the reasonable assurance level due to the material weakness in internal control over financial reporting.
Material Weakness in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual and interim financial statements will not be detected or prevented on a timely basis. Management has identified material weaknesses in our internal control over financial reporting associated with the design of our controls over the accounting treatment of contractually required deposits and the accounting treatment for complex non-routine equity transactions. Specifically, the Company did not effectively design controls to properly account for contractually required deposits and complex non-routine equity transactions. This control deficiency resulted in, among other things, errors to the following as of and for the years ended December 31, 2022 and 2021 and for the quarters ended March 31, 2023 and June 30, 2023.
| ● | An overstatement of operating loss of $549,000 for the year ended December 31, 2021 |
| ● | An overstatement of research and development tax credits of $119,000 for the year ended December 31, 2021 |
| ● | An understatement of non-current deposits of $549,000 for the years ended December 31, 2021 and 2022 and for the quarters ended March 31, 2023 and June 30, 2023 |
| ● | An overstatement of research and development tax receivable of $119,000 for the years ended December 31, 2021 and 2022 and for the quarters ended March 31, 2023 and June 30, 2023 |
| ● | An understatement of 798,200 shares subject to potential rescission rights with a redemption value of 1,105,507 in the second quarter of 2022. |
| ● | The non recognition within earnings per share calculations of $135,000 fees paid in connection with shares subject to rescission rights which should have been accounted for as accretion. |
In connection with the disclosure above relating to prior period adjustments as set forth in Note 1 to our consolidated financial statements, the Company has concluded that such earlier reporting reflected a material weakness. After discovery of the errors, the Company has re-evaluated its controls and is in the process of implementing additional financial and accounting controls and review procedures to prevent a recurrence of such errors.
Remediation Plan
Our ongoing remediation efforts related to the above include the following actions:
| ● | we have expanded available resources of experienced operational personnel providing qualitative review procedures of third party vendor invoices; |
| ● | we are designing and implementing additional monitoring controls necessary to detect incorrect billing and allocation of invoices received from third parties; |
| ● | we have implemented more frequent meetings with key vendors specifically for financial and accounting matters; |
| ● | we are engaging third parties to support the Company in the evaluation and treatment of technically complex non-routine equity transactions; |
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| ● | we are performing a regular review with the Company’s legal counsel to ensure all registration statements are current to prevent the sale of unregistered shares. |
This remediation process is currently ongoing and cannot be considered complete at this time. There can be no assurance that we will be successful in remediating the material weaknesses. We plan to continue to assess internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters as they are identified. Notwithstanding the identified material weaknesses, we have concluded that the restated consolidated financial statements in this Annual Report on Form 10 K fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with GAAP.
Changes in Internal Control over Financial Reporting
Except for actions related to the Remediation Plan described above in this Part I, Item 4, there has been no change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot ensure that such improvements will be sufficient to provide us with effective internal control over financial reporting.
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PART II. Other Information
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to our risk factors contained in our Annual Report on Form 10-K/A for the year ended December 31, 2022. For a further discussion of our Risk Factors, refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on November 20, 2023.
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
None.
Item 6. Exhibits
Exhibit |
| Description |
101 | The following materials from Cyclacel Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements. | |
104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline eXtensible Business Reporting Language (included with Exhibit 101). | |
* | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
| CYCLACEL PHARMACEUTICALS, INC. | ||
Date: November 28, 2023 | By: | /s/ Paul McBarron | |
Paul McBarron | |||
Chief Operating Officer, Chief Financial Officer and Executive Vice President, Finance | |||
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