PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(In $000s, except share, ~~and~~ per share, and liquidation preference amounts)

(Unaudited)


	December 31,		September 30,
	2019		2020
ASSETS
Current assets:
Cash and cash equivalents	$	11,885	$	23,130
Prepaid expenses and other current assets		2,132		2,804
Total current assets		14,017		25,934
Property and equipment, net		27		64
Right-of-use lease asset		1,264		1,215
Total assets	$	15,308	$	27,213
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	890	$	455
Accrued and other current liabilities		1,530		1,257
Total current liabilities		2,420		1,712
Lease liability		1,191		1,063
Total liabilities		3,611		2,775
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2019 and September 30, 2020;
6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2019 and September 30, 2020. Aggregate preference in liquidation of $4,006,512 as of December 31, 2019 and September 30, 2020.		—		—
Series A convertible preferred stock, $0.001 par value; 264 shares issued and outstanding at December 31, 2019 and September 30, 2020.		—		—
Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2019 and September 30, 2020; 859,998 and 4,863,984 shares issued and outstanding at December 31, 2019 and September 30, 2020.		1		5
Additional paid-in capital		370,142		388,583
Accumulated other comprehensive loss		(819)		(881)
Accumulated deficit		(357,627)		(363,269)
Total stockholders’ equity		11,697		24,438
Total liabilities and stockholders’ equity	$	15,308	$	27,213

December 31, September 30,
2016 2017
ASSETS
Current assets:
Cash and cash equivalents $ 16,520 $ 26,025
Prepaid expenses and other current assets 3,097 1,792
Total current assets 19,617 27,817
Property, plant and equipment (net) 45 34
Total assets $ 19,662 $ 27,851
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 2,497 $ 1,973
Accrued and other current liabilities 2,762 2,292
Total current liabilities 5,259 4,265
Other liabilities 130 128
Total liabilities 5,389 4,393
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized at December 31, 2016 and September 30, 2017; 6% Convertible Exchangeable preferred stock; 335,273 shares issued and outstanding at December 31, 2016 and September 30, 2017. Aggregate preference in liquidation of $4,006,512 at December 31, 2016 and September 30, 2017. — —
Series A convertible preferred stock; 0 shares and 664 shares issued and outstanding at December 31, 2016 and September 30, 2017, respectively. — —
Common stock, $0.001 par value; 100,000,000 shares authorized at December 31, 2016 and September 30, 2017; 4,256,829 and 11,697,021 shares issued and outstanding at December 31, 2016 and September 30, 2017, respectively. 4 12
Additional paid-in capital 350,051 364,843
Accumulated other comprehensive loss (743 ) (762 )
Accumulated deficit (335,039 ) (340,635 )
Total stockholders’ equity 14,273 23,458
Total liabilities and stockholders’ equity $ 19,662 $ 27,851

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

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In $000s, except share and per share amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2020		2019		2020

Revenues	$	—	$	—	$	—	$	—

Operating expenses:
Research and development		1,063		1,075		3,227		3,344
General and administrative		1,285		1,497		3,661		4,124
Total operating expenses		2,348		2,572		6,888		7,468
Operating loss		(2,348)		(2,572)		(6,888)		(7,468)
Other income (expense):
Foreign exchange gains (losses)		79		(25)		115		42
Interest income		42		4		177		36
Other income, net		53		56		223		891
Total other income, net		174		35		515		969
Loss before taxes		(2,174)		(2,537)		(6,373)		(6,499)
Income tax benefit		273		281		848		858
Net loss		(1,901)		(2,256)		(5,525)		(5,641)
Dividend on convertible exchangeable preferred shares		(50)		(50)		(151)		(151)
Net loss applicable to common shareholders	$	(1,951)	$	(2,306)	$	(5,676)	$	(5,792)
Basic and diluted earnings per common share:
Net loss per share – basic and diluted	$	(2.27)	$	(0.47)	$	(7.08)	$	(1.81)
Weighted average common shares outstanding		859,998		4,863,984		801,282		3,197,508

Three Months Ended
September 30, Nine months Ended
September 30,
2016 2017 2016 2017
Revenues:
Grant revenue $ 205 $ - $ 566 $ -
Operating expenses:
Research and development 2,409 958 7,545 3,491
General and administrative 1,273 1,154 4,002 3,802
Total operating expenses 3,682 2,112 11,547 7,293
Operating loss (3,477 ) (2,112 ) (10,981 ) (7,293 )
Other income (expense):
Foreign exchange gains (losses) 51 (22 ) 369 (65 )
Interest income 8 30 31 59
Other income, net 18 28 56 907
Total other income 77 36 456 901
Loss before taxes (3,400 ) (2,076 ) (10,525 ) (6,392 )
Income tax benefit 454 219 1,573 793
Net loss (2,946 ) (1,857 ) (8,952 ) (5,599 )
Dividend on convertible exchangeable preferred shares (50 ) (50 ) (150 ) (151 )
Beneficial conversion feature of Series A convertible preferred stock - (3,638 ) - (3,638 )
Conversion of Series A convertible preferred stock - (3,373 ) - (3,373 )
Net loss applicable to common shareholders $ (2,996 ) $ (8,918 ) $ (9,102 ) $ (12,761 )

Basic and diluted earnings per common share:
Net loss per share – basic and diluted $ (0.86 ) $ (0.91 ) $ (2.89 ) $ (2.06 )
Weighted average common shares outstanding 3,473,696 9,835,441 3,145,730 6,200,783

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

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In $000s)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2020		2019		2020
Net loss	$	(1,901)	$	(2,256)	$	(5,525)	$	(5,641)
Translation adjustment		5,434		(8,066)		5,990		3,704
Unrealized foreign exchange gain on intercompany loans		(5,540)		8,119		(6,143)		(3,765)
Comprehensive loss	$	(2,007)	$	(2,203)	$	(5,678)	$	(5,702)

Three Months Ended
September 30, Nine months Ended
September 30,
2016 2017 2016 2017
Net loss $ (2,946 ) $ (1,857 ) $ (8,952 ) $ (5,599 )
Translation adjustment 4,839 (4,882 ) 19,604 (13,435 )
Unrealized foreign exchange gain on intercompany loans (4,860 ) 4,856 (19,766 ) 13,417
Comprehensive loss $ (2,967 ) $ (1,883 ) $ (9,114 ) $ (5,617 )

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

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(In ~~$000s)~~$000s, except share amounts)

(Unaudited)


									Accumulated
							Additional		Other				Total
	Preferred Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Equity
Balances at December 31, 2018	335,537	$	—	624,872	$	1	$	365,828	$	(760)	$	(349,797)	$	15,272
Issue of common stock on At Market Issuance sales agreement, net of expenses	—		—	235,126		0		4,111		—		—		4,111
Stock-based compensation	—		—	—		—		85		—		—		85
Preferred stock dividends	—		—	—		—		(50)		—		—		(50)
Unrealized foreign exchange on intercompany loans	—		—	—		—		—		3,876		—		3,876
Translation adjustment	—		—	—		—		—		(3,897)		—		(3,897)
Loss for the period	—		—	—		—		—		—		(1,842)		(1,842)
Balances at March 31, 2019	335,537	$	—	859,999	$	1	$	369,974	$	(781)	$	(351,639)	$	17,555
Issue of common stock on At Market Issuance sales agreement, net of expenses	—		—	—		—		(56)		—		—		(56)
Stock-based compensation	—		—	—		—		93		—		—		93
Preferred stock dividends	—		—	—		—		(50)		—		—		(50)
Unrealized foreign exchange on intercompany loans	—		—	—		—		—		(4,480)		—		(4,480)
Translation adjustment	—		—	—		—		—		4,453		—		4,453
Loss for the period	—		—	—		—		—		—		(1,783)		(1,783)
Balances at June 30, 2019	335,537	$	—	859,999	$	1	$	369,960	$	(808)	$	(353,422)	$	15,731
Issue of common stock on At Market Issuance sales agreement, net of expenses	—		—	—		—		(6.00)		—		—		(6)
Stock-based compensation	—		—	—		—		184.00		—		—		184
Preferred stock dividends	—		—	—		—		(50.00)		—		—		(50)
Unrealized foreign exchange on intercompany loans	—		—	—		—		—		(5,540)		—		(5,540)
Translation adjustment	—		—	—		—		—		5,434		—		5,434
Loss for the period	—		—	—		—		—		—		(1,901)		(1,901)
Balances at September 30, 2019	335,537	$	—	859,999	$	1	$	370,088	$	(914)	$	(355,323)	$	13,852


Balances at December 31, 2019	335,537	$	—	859,998	$	1	$	370,142	$	(819)	$	(357,627)	$	11,697
Stock-based compensation	—		—	—		—		90		—		—		90
Preferred stock dividends	—		—	—		—		(50)		—		—		(50)
Unrealized foreign exchange on intercompany loans	—		—	—		—		—		(11,187)		—		(11,187)
Translation adjustment	—		—	—		—		—		11,060		—		11,060
Loss for the period	—		—	—		—		—		—		(1,220)		(1,220)
Balances at March 31, 2020	335,537	$	—	859,998	$	1	$	370,182	$	(946)	$	(358,847)	$	10,390
Issue of common stock, pre-funded warrants and warrants on equity financing, net of expenses	—		—	4,003,986		4		18,302		—		—		18,306
Stock-based compensation	—		—	—		—		86		—		—		86
Preferred stock dividends	—		—	—		—		(50)		—		—		(50)
Unrealized foreign exchange on intercompany loans	—		—	—		—		—		(697)		—		(697)
Translation adjustment	—		—	—		—		—		709		—		709
Loss for the period	—		—	—		—		—		—		(2,166)		(2,166)
Balances at June 30, 2020	335,537	$	—	4,863,984	$	5	$	388,520	$	(934)	$	(361,013)	$	26,578
Stock-based compensation	—		—	—		—		113		—		—		113

Nine months Ended
September 30,
2016 2017
Operating activities:
Net loss $ (8,952 ) $ (5,599 )
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation 109 25
Stock-based compensation 614 200
Changes in operating assets and liabilities:
Prepaid expenses and other assets 629 1,464
Accounts payable and other current liabilities 464 (1,350 )
Net cash used in operating activities (7,136 ) (5,260 )

Investing activities:
Purchase of property, plant and equipment — (11 )
Net cash used in investing activities — (11 )

Financing activities:
Proceeds from issuance of common stock, net of issuance costs 5,241 14,751
Payment of preferred stock dividend (150 ) (151 )
Net cash provided by financing activities 5,091 14,600

Effect of exchange rate changes on cash and cash equivalents (366 ) 176
Net increase / (decrease) in cash and cash equivalents (2,411 ) 9,505
Cash and cash equivalents, beginning of period 20,440 16,520
Cash and cash equivalents, end of period $ 18,029 $ 26,025

Supplemental cash flow information:
Cash received during the period for:
Interest 31 60
Taxes 1,965 1,815

Non cash financing activities:
Accrual of preferred stock dividends 50 50
Receivable from issuance of common stock 1,518 —

Preferred stock dividends	—		—	—		—		(50)		—		—		(50)
Unrealized foreign exchange on intercompany loans	—		—	—		—		—		8,119		—		8,119
Translation adjustment	—		—	—		—		—		(8,066)		—		(8,066)
Loss for the period	—		—	—		—		—		—		(2,256)		(2,256)
Balances at September 30, 2020	335,537	$	—	4,863,984	$	5	$	388,583	$	(881)	$	(363,269)	$	24,438

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

6 7

CYCLACEL PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In $000s)

(Unaudited)


	Nine Months Ended
	September 30,
	2019		2020
Operating activities:
Net loss	$	(5,525)	$	(5,641)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		15		16
Gain on disposal of property and equipment		(29)		—
Stock-based compensation		361		289
Changes in lease liability		(61)		(81)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(676)		(711)
Accounts payable and other current liabilities		(2,415)		(654)
Net cash used in operating activities		(8,330)		(6,782)
Investing activities:
Purchase of property, plant and equipment		(7)		(54)
Proceeds from sale of property and equipment		29		—
Net cash provided by (used in) investing activities		22		(54)
Financing activities:
Proceeds, net of issuance costs, from issuing common stock (issuance costs paid)		4,049		18,307
Payment of preferred stock dividend		(151)		(151)
Net cash provided by financing activities		3,898		18,156

Effect of exchange rate changes on cash and cash equivalents		(126)		(75)
Net increase in cash and cash equivalents		(4,536)		11,245
Cash and cash equivalents, beginning of period		17,504		11,885
Cash and cash equivalents, end of period	$	12,968	$	23,130
Supplemental cash flow information:
Cash received during the period for:
Interest		177		36
Taxes		—		—

Non cash activities on transition to ASC 842: Leases
Lease liability		(1,505)		—
Right-of-use asset		1,385		—

Non cash financing activities:
Accrual of preferred stock dividends		50		50

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

CYCLACEL PHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Company Overview

Nature of Operations

Cyclacel Pharmaceuticals, Inc. (“Cyclacel” or “the Company”), is aclinical-stage biopharmaceutical companyusing cell cycle control, transcriptional regulation and DNA damage response biology to develop innovative, targeted medicines for cancer and other proliferative diseases. Cyclacel is a pioneer company in the field of cell cycle biology with a vision to improve patient healthcare by translating cancer biology into medicines.

As of September 30, ~~2017,~~2020, substantially all efforts of the Company to date have been devoted to performing research and development, conducting clinical trials, developing and acquiring intellectual property, raising capital and recruiting and training personnel.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated balance sheet as of September 30, ~~2017,~~2020, the consolidated statements of operations, comprehensive loss, and stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019, and all related disclosures contained in the accompanying notes, are unaudited. The consolidated balance sheet as of December 31, ~~2016~~2019 is derived from the audited consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~2019 filed with the Securities and Exchange Commission (“SEC”). on February 26, 2020. The consolidated financial statements are presented on the basis of accounting principles that are generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the consolidated balance sheet as of September 30, ~~2017,~~2020, and the results of operations and comprehensive loss for the three and nine months ended September 30, ~~2017~~2020, and cash flows for the nine months ended September 30, ~~2017,~~2020, have been made. The interim results for the three and nine months ended September 30, ~~2017~~2020 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2017~~2020 or for any other ~~year.~~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, ~~2016~~2019 that are included in the Company’s Annual Report on Form 10-K filed with the ~~SEC.~~SEC on February 26, 2020.

Reverse Stock Split

~~Use~~On April 14, 2020 the Company completed a one-for-twenty reverse stock split, which reduced the number of ~~Estimates~~

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and related disclosures of contingent assets and liabilities at the dateshares of the ~~financial statements~~Company’s common stock that were issued and outstanding immediately prior to the effectiveness of the reverse stock split. The number of shares of the Company’s authorized common stock was not affected by the reverse stock split and the ~~reported amounts of revenues and expenses during the reporting period. Critical estimates include inputs used to determine the fair~~par value of ~~warrants issued during~~Cyclacel’s common stock remained unchanged at $0.001 per share. The reverse stock split reduced the ~~reporting period, clinical trial accruals, research and development expenditures, stock-based compensation expense and the recognition~~number of ~~revenue, each~~shares of which Cyclacel reviews on an ongoing basis. The estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates.

~~Risks and Uncertainties~~

Drug candidates developed by the Company typically will require approvals or clearances from the Food and Drug Administration (“FDA”), European Medicines Agency (“EMA”) or other international regulatory agencies prior to commercial sales. There can be no assurance that the Company’s ~~drug candidates will receive any~~common stock that were outstanding at April 14, 2020 from 17,199,974 to 859,998, after the cancellation of 14 fractional shares. No fractional shares were issued in connection with the reverse stock split. Stockholders who otherwise held fractional shares of the ~~required approvals or clearances. If~~Company’s common stock as a result of the ~~Company was denied approval or clearance or~~reverse stock split received a cash payment in lieu of such ~~approval was delayed, or is unable~~fractional shares. All amounts related to ~~obtain the necessary financing to complete the development~~number of shares and ~~approval processes, there will be a material adverse impact on the Company’s~~per share amounts have been retroactively restated in these consolidated financial condition and results of operations. The Company has relied upon government grants to fund certain of its earlier stage programs and does not expect to be able to continue to be successful in obtaining government grants to fund the Company’s research and development activities.statements.

7 9

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 ~~$26.0~~approximately $23.1 million as of September 30, ~~2017,~~2020 will be sufficient to fund its operating expenses and capital expenditure requirements through to the end of ~~2019.~~

2022.

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

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

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

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

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

The future viability of the Company beyond the end of ~~2019~~2022 is dependent on its ability to raise additional capital to finance its operations. The Company ~~will need~~does not currently have sufficient funds to raise substantial additional capital to pursue the transcriptional regulation program evaluating CYC065, a CDK inhibitor, in patients with advanced cancers, or the DNA damage response program evaluating a sequential regimencomplete development and commercialization of ~~sapacitabine and CDK inhibitors, in patients with BRCA positive, advanced solid cancers.~~any of its drug candidates. Additional funding may not be available to the Company on favorable terms, or at all. If the Company is ~~unable~~not able to ~~obtain~~secure additional ~~funds,~~funding when needed, it ~~will need~~may have to reduce operating expenses, enter into a collaboration or other similar arrangement with respect to development and/or commercialization rights to its CDK inhibitors or sapacitabine, if available, or be forced to delay, or reduce the scope of or eliminate one or more of its ~~CDK inhibitors~~clinical trials or research and ~~sapacitabine~~ development programs ~~including any potential regulatory filings related~~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 ~~SEAMLESS study, and/or limit or cease its operations.~~Company. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. It has now spread to many other countries, including the United States and United Kingdom, where the Company has its primary bases of operation. The World Health Organization has declared the coronavirus outbreak a pandemic, and during the nine-month period ending September 30, 2020, many governments issued “stay at home” orders. The extent to which the coronavirus impacts the Company’s financial condition and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the pandemic, the emergence of new geographic hotspots, the emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States, the United Kingdom and other countries, and the effectiveness of actions taken globally to contain and treat the disease. At this time, the Company is unable to estimate the impact of this event on its financial condition or operations, but it could materially affect the ability of the Company to raise future capital or to conduct clinical studies on a timely basis.

~~Segments~~

Accounting standards adopted in the period

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

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

The Company transitioned to the new guidance on a cumulative catch-up basis effective January 1, 2019, recognizing a lease liability of $1.5 million for the present value of the remaining minimum rental payments, as defined under prior accounting rules, and a corresponding right-of-use asset. In addition, the Company reclassified an existing deferred rent obligation of $120,000 created under prior accounting rules against the opening right-of-use asset.

On January 1, 2020, the Company adopted the guidance issued in ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is ~~managed~~a Service Contract.” As permitted by the ASU, the Company will apply the new guidance on a prospective basis to any new cloud computing arrangements. ASU 2018-15 requires implementation costs incurred by customers in cloud computing arrangements to be deferred over the non-cancellable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the customer or (2) for which exercise of the renewal option is controlled by the cloud service provider. There has been no impact of this pronouncement on the Company’s consolidated financial statements and ~~operated as one business which is focused on using cell cycle, transcriptional regulation,~~disclosures.

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued ASU 2020-04, “Reference Rate Reform (Topic 848)”. This standard provides optional expedients and ~~DNA damage response biology~~exceptions for applying generally accepted accounting principles (GAAP) to ~~develop innovative, targeted medicines for cancer~~contracts, hedging relationships, and other ~~proliferative diseases.The entire business is managed~~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 ~~single management team that reports to~~continuation of the ~~Chief Executive Officer.~~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 ~~operate separate lines~~currently have any contracts affected by this guidance.

The FASB has issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This standard simplifies the accounting for convertible instruments, such as convertible debt or convertible preferred stock, by eliminating two potential methods in accounting for the embedded conversion feature. The standard also removes certain conditions previously used to evaluate whether a freestanding financial instrument, or certain types of ~~business~~embedded features, are considered to be settled in the issuer’s own equity. Finally, ASU 2020-06 requires that an entity use the if-converted method in calculating the effects of convertible instruments on diluted earnings per share, with ~~respect to any of its products or product candidates and~~one limited exception. As a smaller reporting company, the amendments in this ASU are effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those years. Early adoption is permitted, but no earlier than for fiscal years beginning after December 15, 2020. The Company does not ~~prepare discrete financial information with respect to separate products or product candidates or~~currently have any contracts affected by ~~location. Accordingly, the Company views its business as one reportable operating segment with development operations in two geographic areas, namely the United States and the United Kingdom.~~this guidance.

~~Cash and Cash Equivalents~~

The Company considers all highly liquid investments with an original maturity of three months or less at the time of initial purchase to be cash equivalents. The objectives of the Company’s cash management policy are to safeguard and preserve funds, to maintain liquidity sufficient to meet Cyclacel’s cash flow requirements and to attain a market rate of return.

The Company’s cash and cash equivalents balance at September 30, 2017 was $26.0 million and it maintains its cash accounts both within the United States and the United Kingdom. Cash held in the United States is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per account. The Company has cash balances exceeding the balance insured by the FDIC that totalled approximately $24.3 million at September 30, 2017. Cash held in the United Kingdom is insured by the UK Government Financial Services Compensation Scheme (“FSCS”) up to £75,000 per account. The Company has cash balances exceeding the balance insured by the FSCS that totalled approximately $1.4 million at September 30, 2017.

Fair Value of Financial Instruments

Financial instruments consist of cash equivalents, accounts payable and accrued liabilities. The carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to the nature of the accounts, notably their short maturities.

Comprehensive Income (Loss)

All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), including foreign currency translation adjustments, are reported, net of any related tax effect, to arrive at comprehensive income (loss). No taxes were recorded on items of other comprehensive income (loss). There were no reclassifications out of other comprehensive income (loss) during the three months ended September 30, 2019 and 2020.

Revenue recognition

The Company recognizes revenue using the five step-model provided in ASC 606, Revenue from Contracts with Customers (“ASC 606”):

(1)

identify the contract with a customer;

(2)

identify the performance obligations in the contract;

(3)

determine the transaction price;

(4)

allocate the transaction price to the performance obligations in the contract and

(5)

recognize revenue when, or as, the Company satisfies a performance obligation.

The transaction price includes fixed payments and an estimate of variable consideration, including milestone payments. The Company determines the variable consideration to be included in the transaction price by estimating the most likely amount that will be received and then applies a constraint to reduce the consideration to the amount which is probable of being received. When applying the constraint, the Company considers:

●

Whether achievement of a development milestone is highly susceptible to factors outside the entity’s influence, such as milestones involving the judgment or actions of third parties, including regulatory bodies;

●

Whether the uncertainty about the achievement of the milestone is not expected to be resolved for a long period of time;

●

Whether the Company can reasonably predict that a milestone will be achieved based on previous experience; and.

●

The complexity and inherent uncertainty underlying the achievement of the milestone.

The transaction price is allocated to each performance obligation based on the relative selling price of each performance obligation. The best estimate of the selling price is determined after considering all reasonably available information, including market data and conditions, entity-specific factors such as the cost structure of the deliverable and internal profit and pricing objectives.

The revenue allocated to each performance obligation is recognized as or when the Company satisfies the performance obligation.

The Company recognizes a contract asset, when the value of satisfied (or part satisfied) performance obligations is in excess of the payment due to the Company, and deferred revenue when the amount of unconditional consideration is in excess of the value of satisfied (or part satisfied) performance obligations. Once a right to receive consideration is unconditional, that amount is presented as a receivable.

Grant revenue received from organizations that are not the Company’s customers, such as charitable foundations or government agencies, is presented as a reduction against the related research and development expenses.

Leases

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

The Company recognizes an asset for the right to use an underlying leased asset for the lease term and records lease liabilities based on the present value of the Company’s obligation to make lease payments under the lease. As the Company’s leases do not indicate an implicit rate, the Company uses a best estimate of its incremental borrowing rate to discount the future lease payments. The Company estimates its incremental borrowing rate based on observable information about risk-free interest rates that are the same tenure as the lease term, adjusted for various factors, including the effects of assumed collateral, the nature of how the loan is repaid (e.g., amortizing versus bullet), and the Company’s credit risk.

The Company evaluates options included in its lease agreements to extend or terminate the lease. The Company will reflect the effects of exercising those options in the lease term when it is reasonably certain that the Company will exercise that option. In assessing whether it is reasonably certain that the Company will exercise an option, the Company considers factors such as:

●

The lease payments due in any optional period;

●

Penalties for failure to exercise (or not exercise) the option;

●

Market factors, such as the availability of similar assets and current rental rates for such assets;

●

The nature of the underlying leased asset and its importance to the Company’s operations; and

●

The remaining useful lives of any related leasehold improvements.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. Variable lease payments, if any, are recognized in the period when the obligation to make those payments is incurred. Lease incentives received prior to lease commencement are recorded as a reduction in the right-of-use asset. Fixed lease incentives received after lease commencement reduce both the lease liability and the right-of-use asset.

The Company has elected an accounting policy to account for the lease and non-lease components as a single lease component.

3. Revenue

Revenue recognized in the three and nine months ended September 30, ~~2016~~2019 and ~~2017.~~2020 was $0.

~~Recently Issued Accounting Pronouncements~~

In July 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-11, Accounting for Certain Financial Instruments with Down Round Features (“ASU 2017-11), which simplifies the accounting for certain financial instruments with down-round features. ASU 2017-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. ASU 2017-11 should be adopted retrospectively for each prior reporting period presented or retrospectively as of the beginning of the year of adoption. The Company~~anticipates this standard will not have a material impact onits consolidated financial statements.~~

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory (‘‘ASU 2016-16’’), which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company~~anticipates this standard will not have a material impact onits consolidated financial statements.~~

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company~~anticipates this standard will not have a material impact on~~ ~~its consolidated financial statements.~~

In February 2016, the FASB issued guidance on accounting for leases in ASU No, 2016-02. The guidance requires that lessees recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term at the commencement date. The guidance is effective for fiscal years beginning after December 15, 2018. Early application is permitted. The guidance must be adopted on a modified retrospective transition approach for leases existing, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the impact of the guidance on the consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (‘‘ASU 2014-09’’), which supersedes existing revenue recognition guidance. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to achieve this principle; (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. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The guidance is effective for annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. ASU 2014-09 was amended by multiple accounting standards updates from 2014-2016.

The Company anticipates this standard will not have a material impact on its consolidated financial statements. While the Company is continuing to assess all potential impacts of the standard, the Company currently believes the most significant impact relates to its accounting for revenues related to grants received from government agencies or nonprofit organizations and revenues from contingent “milestone” based payments. Under the new standard, the Company expects to report grant revenue, if new grants are obtained, in other income (or in some cases as a contra-expense). Historically, grants have been reported in revenue. As the grantor is not likely to be receiving a good or service in exchange for the payment, the grant cannot be reported in revenue under ASU 2014-09. The Company also expects to recognize revenue associated with contingent milestone-based payments at the time the contingent event is probable to be met, rather than when the milestone is achieved. However, given the limited number of potential milestones owed to Cyclacel, and the inherent risk involved in developing drugs, the timing of revenue recognition associated with contingent milestones is unlikely to be impacted.

ASU 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently intends to use the modified retrospective method when it adopts the new accounting standard, and does not anticipate recording a material adjustment to opening accumulated deficit as of the date of adoption.

~~Net Loss Per~~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 ~~(adjusted for conversion and beneficial conversion feature of preferred stock)~~ by the weighted average number of shares of common stock outstanding during the period.

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

The following potentially dilutive ~~shares of common stock~~securities have not been included in the computation of diluted net loss per share for the three and nine months ended September 30, ~~2016~~2019 and ~~2017,~~2020, as the result would be anti-dilutive:


	September 30,	September 30,
	2019	2020
Stock options	113,301	154,594
6% convertible exchangeable preferred stock	85	85
Series A preferred stock	6,600	6,600
Common stock warrants	374,525	4,370,525
Total shares excluded from calculation	494,511	4,531,804

September 30,
2016

September 30,
2017

Stock options 393,723 381,786
6% Convertible Exchangeable preferred stock 1,698 1,698
Series A convertible preferred stock - 332,000
Common stock warrants - 7,590,000
Total shares excluded from calculation 395,421 8,305,484

5. Prepaid Expenses and Other Current Assets

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


	December 31,		September 30,
	2019		2020
Research and development tax credit receivable	$	1,326	$	2,166
Prepayments and VAT receivable		703		498
Other current assets		103		140
	$	2,132	$	2,804

December 31, September 30,
2016 2017
Research and development tax credit receivable $ 1,730 $ 845
Prepayments 867 365
VAT receivable 327 376
Other current assets 173 206
$ 3,097 $ 1,792

Receivables of $56,000 are included in other current assets as at September 30, 2020. This relates to royalty payments receivable under a December 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by the Company in March 2006), sold certain assets and intellectual property to ThermoFisher Scientific Company, or TSC (formerly Invitrogen Corporation), through the APA and other related agreements. The assets and technology were not part of the Company’s product development plan following the transaction between Xcyte and Cyclacel in March 2006. Accordingly, the company recognized $891,000 of other income related to this transaction during the nine months ended September 30, 2020.

6. Accrued and Other ~~Current~~ Liabilities

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


	December 31,		September 30,
	2019		2020
Accrued research and development	$	617	$	518
Accrued legal and professional fees		235		264
Other current liabilities		678		475
	$	1,530	$	1,257

December 31, September 30,
2016 2017
Accrued research and development $ 2,138 $ 1,881
Accrued legal and professional fees 194 227
Other current liabilities 430 184
$ 2,762 $ 2,292

7. Leases

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

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

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

Remaining lease payments under the leases are:


2020	$	98
2021		394
2022		367
2023		328
2024		326
Thereafter		262
	$	1,775

8. Stock Based Compensation

ASC 718 requires compensation expense associated with share-based awards to be recognized over the requisite service period, which for the Company is the period between the grant date and the date the award vests or becomes exercisable. Most of the awards granted by the Company (and still outstanding) vest ratably over one to four ~~years and have a maximum life of ten years from the date of grant.~~

~~Effective January 1, 2016, the~~years. The Company recognizes all share-based awards under the straight-line attribution method, assuming that all granted awards will vest. Forfeitures ~~will be~~are recognized in the periods when they occur. ~~The actual expense recognized over the vesting period is based on only those shares that vest.~~

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, ~~2016~~2019 and ~~2017~~2020 as shown in the following table (in $000s):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2017		2016		2017

									Three Months Ended				Nine Months Ended
									September 30,				September 30,
									2019		2020		2019		2020
Research and development									$	61	$	28	$	126	$	97
General and administrative	$	113	$	48	$	376	$	146		123		85		235		192
Research and development		79		17		238		54
Stock-based compensation costs before income taxes	$	192	$	65	$	614	$	200	$	184	$	113	$	361	$	289

On2018 Plan

In May ~~22, 2015,~~2018, the Company’s stockholders approved the ~~2015~~2018 Equity Incentive Plan (the ~~“2015~~“2018 Plan”), under which Cyclacel may make equity incentive grants to its officers, employees, directors and consultants. ~~On May 30, 2017,~~The 2018 Plan replaced the 2015 Equity Incentive Plan (the “2015 Plan”).

The 2018 Plan allows for the issuance of up to 775,000 shares of the Company’s ~~stockholders approved~~common stock pursuant to various types of award grants, including stock options and restricted stock units. In addition, the ~~amendment~~2018 Plan allows up to 35,494 additional shares to be issued if awards outstanding under the 2018 Plan are cancelled or expire on or after the date of the ~~2015 Plan to increase the number~~Company’s 2018 annual meeting of ~~shares of common stock available for such equity incentive grants. The 2015 Plan replaces the 2006 Equity Incentive Plan.~~ stockholders.

As of September 30, ~~2017, there~~2020, the Company has reserved 656,124 shares of the Company’s common stock under the 2018 Plan for future issuances, including shares that were ~~approximately 612,500 reserved~~available under the 2015 Plan and carried forward to the 2018 Plan. Stock option awards ~~available to be~~ granted under the ~~2015 plan.~~Company’s equity incentive plans have a maximum life of 10 years and generally vest over a one to four-year period from the date of grant.

There were ~~12,000~~56,400 options granted during the nine months ended September 30, ~~2017.~~

~~In 2016, the Company granted certain performance based options. As of September 30, 2017, 184,924 such options remain outstanding.~~2020. These options ~~will vest upon~~had a grant date fair value ranging between $2.48-$3.95 per option. There were 77,513 options granted during the fulfillment of certain clinical outcome conditions and will terminate automatically if they have not vested by December 31, 2020. The Company determined that the satisfaction of the vesting criteria was not probable as of September 30, 2017 and, as a result, did not record any expense related to these awards for the three and nine months ended September 30, ~~2017.~~2019. These options had a grant date fair value ranging between $10.36-$12.13 per option.

There were no stock options exercised during each of the nine months ended September 30, ~~2016~~2019 and ~~2017,~~2020, respectively. The Company does not expect to be able to benefit from the deduction for stock option exercises that may occur ~~during the year ended December 31, 2017~~ because the company has tax loss carryforwards from prior periods that would be expected to offset any potential taxable ~~income~~income.

In September 2020, the Company modified certain outstanding stock option awards for two of its former longstanding directors, both of whose service terminated in September 2020. Specifically, a total of 10,400 options that otherwise would have been forfeited were accelerated. In addition, the ~~year~~Company extended the period during which these directors’ outstanding vested awards could be exercised from ninety (90) days to three years (but not beyond the contractual term of the awards). The Company recognized a charge of approximately $20,000 during the three months ended ~~December 31, 2017.~~September 30, 2020 related to these modifications.

Outstanding Options

A summary of the share option activity and related information is as follows:


				Weighted
		Weighted		Average
	Number of	Average		Remaining	Aggregate
	Options	Exercise		Contractual	Intrinsic
	Outstanding	Price Per Share		Term (Years)	Value ($000)
Options outstanding at December 31, 2019	100,278	$	54.40	—	$	—
Granted	56,400	$	4.22
Cancelled/forfeited	(2,084)	$	176.56
Options outstanding at September 30, 2020	154,594	$	34.41	8.01	$	6

Unvested at September 30, 2020	78,114	$	8.65	9.19	$	6
Vested and exercisable at September 30, 2020	76,480	$	60.72	6.82	$	—

Restricted Stock Units

Number of
Options
Outstanding Weighted
Average
Exercise
Price Per Share Weighted
Average
Remaining
Contractual
Term (Years) Aggregate
Intrinsic
Value ($000)
Options outstanding at December 31, 2016 389,379 $ 25.80 5.83 $ 121
Granted 12,000 $ 4.38
Cancelled/forfeited (19,593 ) $ 108.73
Options outstanding at September 30, 2017 381,786 $ 20.87 5.24 $ —
Unvested at September 30, 2017 (236,962 ) $ 5.06 4.41 $ —
Vested and exercisable at September 30, 2017 144,824 $ 46.73 6.60 $ —

The Company issued 14,000 restricted stock units to employees during the year ended December 31, 2019. The Company issued 3,938 additional restricted stock units to employees during the quarter ended March 31, 2020, of which 850 units have been forfeited. The vesting of the remaining 17,088 outstanding restricted stock units is dependent upon the fulfillment of certain clinical study objectives. The Company determined that the satisfaction of the clinical conditions was not probable at September 30, 2020 and, as a result, recorded no compensation expense related to restricted stock units for the quarter ended September 30, 2020. The restricted stock units were valued based on their fair value at the date of grant, which is equivalent to the market price of a share of the Company’s common stock. Summarized information for restricted stock unit activity for the quarter ended September 30, 2020 is as follows:

	Restricted Stock Units		Weighted Average Grant Date Value Per Share
Restricted Stock Units outstanding at September 30, 2020		17,088	$	11.43
Unvested at September 30, 2020		17,088	$	11.43
Vested and exercisable at September 30, 2020		0	$	11.43

9. Stockholders Equity

April 2020 equity financing

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

11 16

The ~~fair value~~pre-funded warrants and accompanying common stock warrants were sold at a combined public offering price of $4.999 per pre-funded warrant and common stock warrant. The pre-funded warrants were sold to purchasers whose purchase of shares of common stock in the public offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the ~~stock options granted is calculated using the Black-Scholes option-pricing model as prescribed by ASC 718.~~

~~The expected term assumption is estimated using past history of early exercise behavior and expectations about future behaviors.~~

The weighted average risk-free interest rate represents interest rate for treasury constant maturities published by the Federal Reserve Board. If the term of available treasury constant maturity instruments is not equal to the expected term of an employee option, Cyclacel uses the weighted averagepurchaser, 9.99%) of the ~~two Federal Reserve securities closest to~~Company’s outstanding common stock immediately following the ~~expected term~~consummation of the ~~employee option.~~

~~Volatility is based on~~public offering, in lieu of shares of common stock. Each pre-funded warrant represents the ~~Company’s historical volatility over the same period as the expected term for a given award.~~

~~Commitments and Contingencies~~

~~Distribution, Licensing and Research Agreements~~

~~The Company has entered into licensing agreements with academic and research organizations. Under the terms of these agreements, the Company has received licenses~~right to ~~certain technology and patent applications. The Company is required to pay royalties on future sales of products employing the technology or falling under claims of patent applications.~~

Pursuant to the Daiichi Sankyo license under which the Company licenses certain patent rights for sapacitabine, its lead drug candidate, the Company has agreed to pay Daiichi Sankyo an up-front fee, to reimburse Daiichi Sankyo for certain enumerated expenses, and to make milestone payments and pay royalties on a country-by-country basis. The up-front fee, the Phase 3 entry milestone, and certain past reimbursements have been paid. A further $10.0 million in aggregate milestone payments could be payable subject to achievement of all the specific contractual milestones, which are primarily related to regulatory approval in various territories and the Company’s decision to continue with these projects. Royalties are payable in each country for the term of patent protection in the country or for ten years following the first commercial sale of licensed products in the country, whichever is later. Royalties are payable on net sales. Net sales are defined as the gross amount invoiced by the Company or its affiliates or licensees, less discounts, credits, taxes, shipping and bad debt losses. The agreement extends from its commencement date to the date on which no further amounts are owed under it. If the Company wishes to appoint a third party to develop or commercialize any sapacitabine-based products in Japan, within certain limitations, Daiichi Sankyo must be notified and given a right of first refusal, with such right ending sixty days after notification, to develop and/or commercialize in Japan. In general, the license may be terminated by the Company for technical, scientific, efficacy, safety, or commercial reasons on six months’ notice, or twelve months’ notice, if after a launch of a sapacitabine-based product, or by either party for material default.

~~Stockholders’ Equity~~

~~July 2017 Underwritten Public Offering~~

~~On July 21, 2017, the Company issued (i) 3,154,000 Class A Units for $2 per unit, each consisting of~~purchase one share of the Company’s common stock at an exercise price of $0.001 per share. The pre-funded warrants are exercisable immediately and ~~a warrant to purchase one share~~may be exercised at any time until the pre-funded warrants are exercised in full. The shares of common stock ~~(the “Class A Warrants”),~~ and ~~(ii) 8,872 Class B Units, each consisting of one share~~pre-funded warrants, and accompanying common stock warrants, were issued separately and are immediately separable upon issuance.

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

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

October 2018 At Market Issuance

On October 4, 2018, the Company entered into a Common Stock Sales Agreement, or the Sales Agreement, with H.C. Wainwright & Co., LLC, or Wainwright, as sales agent, pursuant to which Wainwright was authorized to sell shares of common stock, par value $0.001 per share, (the “Series A Preferred Stock”), convertible into 500 shares of Common Stock at the initial conversion price, and a warrant to purchase a number of shares of common stock equal to $1,000.00 divided by the conversion price (the “Class B Warrants”) for $1,000 per unit. The net proceeds to the Company after the underwriters’ exercise in full of the over-allotment option were approximately $13,700,000, after deducting underwriting discounts, commissions and other estimated offering expenses. The Class A Units and Class B Units have no stand-alone rights and the shares of common stock, Series A Preferred Stock and the Class A and Class B Warrants comprising those units were immediately separable.

The common stock, Class A Warrants and Class B Warrants (together the “Warrants”) and Series A Preferred Stock are freestanding financial instruments. The Warrants are classified within equity in the consolidated balance sheet and are not remeasured on a recurring basis. The Series A Preferred Stock is classified within equity in the consolidated balance sheet.

The proceeds from the Class A Units were allocated to common stock and Class A Warrants on a relative fair value basis. Similarly, the proceeds from the Class B Units were allocated to the Series A Preferred Stock and the Class B Warrants based on their relative fair values. Following the allocation of the offering proceeds associated with the Class B units, the Company determined that the Series A Preferred Stock had a beneficial conversion feature withhaving an aggregate ~~intrinsic value~~offering price of approximately $3,638,000. As the Series A Preferred Stock contained no stated redemption date, and the conversion feature could be exercised at any time, the discount associated with the beneficial conversion feature was immediately charged against additional paid-in capital and treated as a deemed dividend for both financial reporting and earnings per share purposes. See Note 3 for additional information.

~~June 2016 At Market Issuance~~

~~On June 23, 2016, the Company entered into an At Market Issuance Sales Agreement (the “FBR Sales Agreement”) with FBR Capital Markets & Co. (”FBR”), under which the Company was authorized~~up to ~~issue and sell shares of its common stock, from time to time, through FBR, acting as its sales agent. Under the FBR Sales Agreement, FBR was authorized to sell such shares of common stock~~$5,000,000, by any method that is deemed to be an “at the market offering”. as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. Shares sold under the Sales Agreement were offered and sold pursuant to the Company’s previously filed and effective Registration Statement on Form S-3 and a prospectus supplement and accompanying base prospectus. The Company ~~was not obligated to make any sales of common stock under the FBR Sales Agreement, and the Company was required to pay FBR~~paid Wainwright a commission of 3.0% of the gross ~~proceeds of the sale of any shares of common stock sold through FBR. In the nine months ended September 30, 2017, the Company sold 183,118 shares of common stock under the FBR~~sales price per share sold. The Sales ~~agreement for net proceeds of approximately $1.1 million, and the FBR Sales~~ Agreement was terminated automatically by its ~~terms.~~

terms during the first quarter of 2019, pursuant to which the Company sold 235,126 shares for gross proceeds of approximately $4.3 million. Aggregate net proceeds to the Company were approximately $4.7 million, after deducting commissions and other expenses.

Warrants

April 2020 Warrants

As of September 30, ~~2017, there were 7,590,000~~2020, 3,996,000 warrants issued in the April 2020 offering remained outstanding, each with an exercise price of ~~$2.00.~~$5.00. All such warrants were issued in connection with the April 2020 co-placement agency agreement. The common warrants are immediately exercisable and will expire on the fifth anniversary of the original issuance date. The exercise price and number of shares of common stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting the Company’s common stock. The common warrants were issued separately from the common stock and were eligible for transfer immediately after issuance. A common warrant to purchase one share of common stock was issued for every share of common stock purchased in this offering.

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

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

July 2017 Warrants

As of September 30, 2020, 374,525 warrants issued in connection with the July 2017 underwritten public offering remained outstanding, each with an exercise price of $40.00. All such warrants were issued in connection with the July 2017 ~~Underwritten Public Offering~~underwritten public offering and are immediately exercisable. The ~~Warrants~~warrants expire in 2024. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of its warrants if the holder (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of common stock in excess of 4.99% (or, at the election of the purchaser, 9.99%) of the shares of our Common Stock then outstanding after giving effect to such exercise.

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

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

There was no exercise of warrants during the three and nine months ended September 30, ~~2016 and 2017 respectively.~~

2020.

Series A Preferred Stock

8,872 shares of the Company’s Series A Preferred Stock were issued in the July 2017 ~~Underwritten Public Offering.~~underwritten public offering. During the ~~three months~~year ended ~~September 30,~~December 31, 2017, ~~8,208~~8,608 shares of the Series A Preferred Stock were converted into ~~4,104,000~~215,200 shares of common stock. As of September 30, ~~2017, 664~~2020, 264 shares of the Series A Preferred Stock ~~remain~~remained issued and outstanding.

Each share of Series A Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing $1,000 by the initial conversion price of ~~$2.00~~$40.00 per share, subject to a 4.99% blocker provision, or, upon election by a holder prior to the issuance of shares of Series A Preferred Stock, 9.99%, and is subject to adjustment for stock splits, stock dividends, distributions, subdivisions and combinations. The ~~664~~264 shares of Series A Preferred Stock issued and outstanding at September 30, ~~2017,~~2020, are convertible into ~~332,000~~6,600 shares of common stock.

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

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

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

6% Convertible Exchangeable Preferred Stock

As of September 30, ~~2017,~~2020, there were 335,273 shares of the Company’s 6% Convertible Exchangeable Preferred Stock ~~(“6%~~(the “6% Preferred Stock”) issued and outstanding at an issue price of $10.00 per share. Dividends on the 6% Preferred Stock are cumulative from the date of original issuance at the annual rate of 6% of the liquidation preference of the 6% Preferred Stock, payable quarterly on the first day of February, May, August and November, commencing February 1, 2005. Any dividends must be declared by the Company’s ~~Board~~board of directors and must come from funds that are legally available for dividend payments. The 6% Preferred Stock has a liquidation preference of $10.00 per share, plus accrued and unpaid dividends.

As of September 30, 2020, accrued and unpaid dividends amounted to $50,291.

The Company may automatically convert the 6% Preferred Stock into common stock if the per share closing price of the Company’s common stock has exceeded ~~$2,961,~~$59,220, which is 150% of the conversion price of the 6% Preferred Stock, for at least 20 trading days during any 30-day trading period, ending within five trading days prior to notice of automatic conversion.

The 6% Preferred Stock has no maturity date and no voting rights prior to conversion into common stock, except under limited circumstances.

The Company may, at its option, redeem the 6% Preferred Stock in whole or in part, out of funds legally available at the redemption price of $10.00 per share.

The 6% Preferred Stock is exchangeable, in whole but not in part, at the option of the Company on any dividend payment date beginning on November 1, 2005 (the “Exchange Date”) for the Company’s 6% Convertible Subordinated Debentures ~~(“Debentures”~~(the “Debentures”) at the rate of $10.00 principal amount of Debentures for each share of 6% Preferred Stock. The Debentures, if issued, will mature 25 years after the Exchange Date and have ~~terms~~ substantially similar terms to those of the 6% Preferred Stock. No such exchanges have taken place to date.

10. Subsequent Events

Dividends on 6% Preferred Stock

On September ~~7, 2017,~~10, 2020, the ~~Board~~board of directors declared a quarterly cash dividend in the amount of $0.15 per share on the Company’s 6% Preferred Stock. The cash dividend was paid on November 1, ~~2017~~2020 to the holders of record of the 6% Preferred Stock as of the close of business on October ~~13, 2017.~~16, 2020.

2020 Inducement Plan

~~Subsequent Events~~

On October ~~17 2017, 400 shares~~22, 2020, the Company adopted the 2020 Inducement Equity Incentive Plan (the “2020 Inducement Plan”) pursuant to which it reserved an aggregate of ~~Series A preferred stock were converted into~~ 200,000 shares of its common ~~stock. 264 shares~~stock to be used exclusively for grants of ~~Series A preferred stock remain outstanding and are convertible~~awards to individuals who were not previously employees or directors of the Company as a material inducement to such individuals’ entry into ~~132,000 shares of common stock. On October 23 2017, 7,500 warrants connected~~employment with the ~~July 2017 Underwritten Public Offering were exercised, resulting~~Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The terms and conditions of the 2020 Inducement Plan are substantially similar to those of the 2018 Plan. Unless otherwise stated in ~~cash proceeds~~an applicable stock option agreement, one-third of ~~$15,000.~~the shares subject to an option grant under the 2020 Inducement Plan will typically vest upon the first anniversary of the vesting start date, with the balance of the shares vesting in a series of twenty-four successive equal monthly installments as of the first day of each month measured from the first anniversary of the vesting start date, subject to the new employee’s continued service with the Company through the applicable vesting dates. Stock options generally terminate 10 years from the date of grant.

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, ~~2016,~~2019, as updated and supplemented by Part II, Item 1A, entitled “Risk Factors,” of our Quarterly Reports on Form 10-Q, and elsewhere in this report. In addition, while we expect the coronavirus pandemic to have an impact on our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives, our financial position and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, the emergence of new geographic hotspots, the re-emergence of subsequent outbreaks, travel restrictions, quarantines, social distancing and business closure requirements in the United States and in other countries, and the effectiveness of actions taken globally to contain and treat the disease. These factors as well as other cautionary statements made in this Quarterly Report on Form 10-Q, should be read and understood as being applicable to all related forward-looking statements wherever they appear herein. The forward-looking statements contained in this Quarterly Report on Form 10-Q represent our judgment as of the date hereof. We encourage you to read those descriptions carefully. We caution you not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless an earlier date is indicated) and we undertake no obligation to update or revise the statements except as required by law. Such forward-looking statements are not guarantees of future performance and actual results will likely differ, perhaps materially, from those suggested by such forward-looking statements. In this report, “Cyclacel,” the “Company,” “we,” “us,” and “our” refer to Cyclacel Pharmaceuticals, Inc.

Overview

Through ~~the third quarter of 2017,~~September 30, 2020, our primary focus has been on our transcriptional regulation program, ~~pursuant to which~~where we are evaluating fadraciclib (also known as CYC065), our cyclin dependent kinase, or CDK, inhibitor, as a single agent and in combination with venetoclax in Phase 1 studies in patients with solid tumors and hematological malignancies. In our anti-mitotic program, we are evaluating CYC140, a polo-like kinase inhibitor, in a Phase 1 study in patients with hematological malignancies. In our DNA damage response, or DDR, program,~~, in which~~ we are evaluating sapacitabine in combination with venetoclax in Phase 1 studies in patients with hematological malignancies and in combination with our CDK inhibitor seliciclib in ~~solid tumors in a Phase1 study. Additionally, we are completing the analysis of data fromSEAMLESS, the Phase 3 study in acute myeloid leukemia, or “AML”.~~

~~Transcriptional Regulation Program, CDK inhibitors~~

~~We are progressing clinical development of our CDK inhibitor CYC065 in an ongoing, first-in-human,~~ Phase 1 ~~trial~~studies in patients with ~~advanced~~ solid tumors.

~~CDKs are~~ Cyclacel’s strategy is to build a ~~family of enzymes first discovered as regulators of the cell cycle, but which are now understood to also provide pivotal functions~~diversified biopharmaceutical business focused in ~~the regulation of transcription, DNA repair~~hematology and metastatic spread. The precise selectivity of an individual CDK inhibitor molecule for specific CDK enzymes is key to targeting particular tumor types and minimizing undesirable side effects through non-specific antiproliferative activity.

In general, cell cycle regulation is less well controlled in cancer cells than in normal cells, which explains in part why cancer cells divide uncontrollably. Different CDKs are responsible for control of different aspects of proliferation, and when dysregulated, can be drivers of particular cancer sub-sets. Modulating CDK activity with targeted therapies is an attractive strategy to reinforce cell cycle control and decrease the rate of abnormal proliferation of cancer cells. The first Food and Drug Administration or “FDA” approval in March 2015 of a CDK4/6 inhibitor for palbociclib, and in 2017, ribociclib and abemaciclib, all for a type of breast cancer, has led to great interest in the development of this class of drugs as oncology ~~therapeutics.~~

Cyclacel’s founding scientist, Professor Sir David Lane, is a globally recognized authority in cell cycle biology, who discovered p53, a key tumor suppressor gene that malfunctions in about two-thirds of human cancers. Under his guidance, Cyclacel’s drug discovery and development programs concentrated on the CDK2/9 isoforms, which operate as key components of the p53 pathway. These efforts resulted in bringing two molecules into clinical trials: seliciclib, our first-generation CDK inhibitor, and CYC065, our second-generation CDK inhibitor, which has benefited from the Company’s clinical experience with seliciclib.

~~CYC065 is being evaluated in an on-going~~ ~~Phase 1 first-in-human clinical trial. The objective of Part 1 of the clinical trial was to assess the safety and recommended dosing for Phase 2 (RP2D) of CYC065 in advanced cancer patients,~~ based on ~~determination~~a pipeline of the biologically effective dose through measurement of CYC065's effects on the Mcl-1 biomarker. Part 1 is now complete and the RP2D has been selected, Part 2 of the study will focus on patients with advanced solid tumors with amplification of cyclin E, or CCNE, Mcl-1 and/or MYC. The trial is being conducted at the Dana Farber Cancer Institute in Boston.

Seliciclib, is being evaluated in an all-oral Phase 1 combination study with our sapacitabine in patients with BRCA mutations. In total seliciblib has been evaluated to date in approximately 450 patients with various liquid and solid cancers.

Similar to the approved CDK4/6 inhibitors, abemaciclib, palbociclib, and ribociclib, CYC065 may be most useful in combination with other anticancer agents. CDK2/9 inhibitors, such as CYC065 may be useful as treatments for patients with either liquid or solid tumors, in combination with Bcl-2 antagonists, such as venetoclax, or HER2 inhibitors, such as trastuzumab.

~~DNA Damage Response, or DDR, Program~~

~~In our DNA damage response program we are evaluating sapacitabine in combination with our first-generation CDK inhibitor seliciclib in solid tumors.~~

Cancer cells with modified DNA damage response, or DDR, mechanisms can accumulate additional genetic changes and continue to proliferate. Cancer cells that are deficient in such DDR pathways are more susceptible to DNA damage, a property exploited by traditional cancer treatments, such as DNA-damaging chemotherapy and radiotherapy. However, such treatments are often associated with significant and unwanted side effects. Developing treatments which target specific DDR deficiencies to preferentially kill cancer cells, while minimizing the impact on normal cells, is a promising strategy which could result in more selective, better tolerated therapies with the aim of improving survival in various types of cancer.

We have focused on developing treatments targeting DNA damage pathways, such as evaluating sapacitabine in a Phase 1 combination study with seliciclib in patients with BRCA mutations. Sapacitabine is an oral nucleoside analogue prodrug whose metabolite, CNDAC, generates single-strand DNA breaks, or SSB, either leading to arrest of the cell cycle at G2 phase or development of double-strand DNA breaks, or DSB. Repair of CNDAC-induced DSB is dependent on the homologous recombination, or HR repair pathway. BRCA mutations in cancer cells are a cause of HR deficiency, making such cancer cells susceptible to cell death induced by sapacitabine.

In addition to these development programs, we are completing analysis of data from SEAMLESS, the Phase 3 study in AML, in the elderly, in an alternating schedule with decitabine and closing the last remaining clinical trial sites. Dependent on the outcome of this analysis, we will seek meetings with regulatory authorities to discussing potential regulatory submissions. In parallel we also plan to present SEAMLESS data at an oral presentation at the 59th American Society of Hematology Annual Meeting in Atlanta, Georgia.

novel drug candidates.

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

~~On July 21, 2017, the Company issued (i) 3,154,000 Class A Units for $2 per unit, each consisting~~Table of one share of the Company’s common stock, and a warrant to purchase one share of common stock (the “Class A Warrants”), and (ii) 8,872 Class B Units, each consisting of one share of the Company’s Series A Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), and a warrant to purchase a number of shares of common stock equal to $1,000.00 divided by the conversion price (the “Class B Warrants”) for $1,000 per unit. The net proceeds to the Company were approximately $13,700,000, after deducting underwriting discounts, commissions and other estimated offering expenses. The Class A Units and Class B Units have no stand-alone rights and the shares of common stock, Series A Preferred Stock and the Class A and Class B Warrants comprising those units were immediately separable.Contents

~~Subsequent Events~~

On October 17 2017, 400 shares of Series A preferred stock were converted into 200,000 shares of common stock. 264 shares of Series A preferred stock remain outstanding and are convertible into 132,000 shares of common stock. On October 23 2017, 7,500 warrants connected with the July 2017 Underwritten Public Offering were exercised, resulting in cash proceeds of $15,000.

Results of Operations

Three Months Ended September 30, ~~2016~~2019 and ~~2017~~2020

Results of Continuing Operations

Revenues

Revenues

~~The following table summarizes the components of our revenues~~ for the three months ended September 30, ~~2016~~2019 and ~~2017 (in $000s, except percentages):~~2020 were $0 and $0.

Three Months
Ended September 30, Difference
2016 2017 $ %
Grant revenue $ 205 $ - $ (205 ) (100 )
The future
16
~~Table of Contents~~
~~We recognized $0.2 million~~There are no active collaboration, licensing, or clinical supply agreements and ~~$0 in grant revenue~~there will be no revenues for the ~~three months ended September 30, 2016 and 2017, respectively, from the European Union and the Biomedical Catalyst of the United Kingdom government.~~foreseeable future.
~~The future~~
We will not recognize further grant revenue for the CYC140 program, as the grant from the Biomedical Catalyst of the United Kingdom government ended in November 2016. Although we may apply for additional grants in 2017, we will not recognize grant revenue for the remainder of 2017 and we are not certain of our ability to obtain grant revenue in 2018.
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 ~~our CDK inhibitors,~~fadraciclib, CYC140, sapacitabine, and ~~sapacitabine in combination with~~ seliciclib. We have also incurred costs in the advancement of product candidates toward clinical and ~~pre-clinical~~preclinical trials and the development of in-house research to advance our biomarker program and technology platforms. We expense all research and development costs as they are incurred. Research and development expenses primarily include:
·● Clinical trial and regulatory-related costs;
·● Payroll and personnel-related expenses, including consultants and contract ~~research;~~research organizations;
·● Preclinical studies and laboratory supplies and materials;
·● Technology license costs;
● Stock-based compensation; and
·● Rent and facility expenses for our offices and laboratories.
The following table provides information with respect to our research and development expenditures for the three months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000s except percentages):

Three Months Ended

September 30,

Difference


2019

2020

$

%
Transcriptional Regulation (fadraciclib)

$
728

$
852

$
124

17
Anti-mitotic (CYC140)

132

129

(3)

(2)
DNA Damage Response (sapacitabine)

79

54

(25)

(32)
Other research and development programs and expenses

124

40

(84)

(68)
Total research and development expenses

$
1,063

$
1,075

$
12

1
Three Months
Ended September 30, Difference
2016 2017 $ %
Sapacitabine $ 1,510 $ 603 $ (907 ) (60 )
Other costs related to research and development programs, management and exploratory research 899 355 (544 ) (61 )
Total research and development expenses $ 2,409 $ 958 $ (1,451 ) (60 )

Total research and development expenses represented ~~65%~~45% and ~~45%~~42% of our operating expenses for the three months ended September 30, ~~2016~~2019 and ~~2017,~~2020, respectively.

Research and development ~~expenditures decreased by $1.5 million from $2.4~~expenses remained flat at $1.1 million for the three months ended September 30, ~~2016~~2019 and 2020. Research and development expenses relating to ~~$1.0~~transcriptional regulation increased by approximately $0.1 million for the three months ended September 30, ~~2017. Research and development expenses relating to sapacitabine decreased by $0.9 million from $1.5 million for~~2020 as progress continues in the ~~three months ended September 30, 2016 to $0.6 million for the three months ended September 30, 2017, primarily as a result~~clinical evaluation of ~~a reduction in expenditures associated with the SEAMLESS Phase 3 trial as clinical sites are closed.~~fadraciclib.

~~Table of Contents~~

The future

We anticipate that overall research and development ~~expenditures~~expenses for the year ended December 31, ~~2017~~2020 will ~~decrease~~remain relatively flat compared to the year ended December 31, ~~2016,~~2019, as we ~~close~~progress the ~~remaining~~ clinical ~~study sites for SEAMLESS. The timing~~development of fadraciclib and extent of any future SEAMLESS expenditure, including the possibility of registration submissions to regulatory authorities in Europe and the U.S., are dependent upon final clinical data and regulatory authority input.our other clinical-stage drugs.

General and administrative expenses

General and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses. The following table summarizes the general and administrative expenses for the three months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000s except percentages):

Three Months Ended

September 30,

Difference


2019

2020

$

%
Total general and administrative expenses

$
1,285

$
1,497

$
212

16

Three Months Ended
September 30, Difference
2016 2017 $ %
Total general and administrative expenses $ 1,273 $ 1,154 $ (119 ) (9 )

Total general and administration expenses represented ~~35%~~55% and ~~55%~~58% of our operating expenses for the three months ended September 30, ~~2016~~2019 and ~~2017,~~2020, respectively. General and administrative expenses ~~remained relatively flat at $1.3 million and $1.2~~increased by $0.2 million for the three months ended September 30, ~~2016~~2019 and ~~2017.~~2020 due to an increase in professional costs.
The future
We expect general and administrative expenditures for the year ended December 31, ~~2017~~2020 to increase slightly compared to our expenditures for the year ended December 31, ~~2016~~2019 due to ~~remain relatively flat.~~increased legal and professional costs.
Other income (expense), net
The following table summarizes other income ~~(expense)~~ for the three months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000 except percentages):

Three Months Ended

September 30,

Difference


2019

2020

$

%
Foreign exchange gains (losses)

$
79

$
(25)

$
(104)

(132)
Interest income

42

4

(38)

(90)
Other income, net

53

56

3

6
Total other income

$
174

$
35

$
(139)

(80)
Three Months Ended
September 30, Difference
2016 2017 $ %
Foreign exchange gains (losses) $ 51 $ (22 ) $ (73 ) (143 )
Interest income 8 30 22 275
Other income, net 18 28 (10 ) (56 )
Total other income $ 77 $ 36 $ (41 ) (53 )

~~Foreign exchange gains (losses)~~
~~Foreign exchange gains (losses)~~Total other income decreased by approximately ~~$73,000~~$140,000 from ~~a gain of $51,000~~$174,000 for the three months ended September 30, ~~2016,~~2019 to ~~a loss of $22,000~~$35,000 for the three months ended September 30, ~~2017.~~2020. Other income relates to royalties receivable under a December 2005 Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by the Company in March 2006) sold certain assets and intellectual property to ThermoFisher Scientific Company, or TSC (formerly Invitrogen Corporation) through the APA and other related agreements. The assets and technology were not part of the Company’s product development plan following the transaction between Xcyte and Cyclacel in March 2006. Accordingly, the company recognized $53,000 and $56,000 of other income arising from sales related to this transaction during the three months ended September 30, 2019 and 2020 respectively.

Foreign exchange gains (losses)

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

The future

Other income (expense), net for the year ended December 31, ~~2017~~2020, will continue to be impacted by changes in foreign exchange rates and the receipt of income under the Asset Purchase Agreement, or APA, with Life Technologies Corporation, or LTC, (formerly Invitrogen Corporation), in respect of certain assets and intellectual property owned by Xcyte Therapies, Inc., or Xcyte, and sold to LTC in December 2005. The assets and technology were not part of our product development plan following the transaction between Xcyte and Cyclacel in March 2006.APA. As we are not in control of sales made by ~~LTC~~TSC, we are unable to estimate the level and timing of income under the APA, if any.

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

~~Table of Contents~~

Income tax benefit

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

The following table summarizes total income tax benefit for the three months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000s except percentages):

Three Months Ended

September 30,

Difference


2019

2020

$

%
Total income tax benefit

$
273

$
281

$
8

3

Three Months Ended
September 30, Difference
2016 2017 $ %
Total income tax benefit $ 454 $ 219 $ (235 ) (52 )

The total income tax benefit, which is comprised of research and development tax credits recoverable, ~~decreased by $0.2~~remained flat at $0.3 million ~~from an income tax benefit~~for each of ~~$0.5 million for~~ the three months ended September 30, ~~2016 to an income tax benefit of $0.2 million for the three months ended September 30, 2017.~~2019 and 2020. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one ~~year.~~year and the availability of trading losses.
The future
We expect to continue to be eligible to receive United Kingdom research and development tax credits for the foreseeable future and will elect to do so. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we ~~incur.~~incur and having sufficient trading losses. We expect our qualifying research and development expenditure ~~to decrease~~ for the year ended December 31, ~~2017~~2020 to remain relatively flat, in comparison to the year ended December 31, ~~2016.~~2019, in line with our planned research and development expenditure.
Nine ~~Months~~months Ended September 30, ~~2016~~2019 and ~~2017~~
2020
Results of Continuing Operations
Revenues
Revenues
~~The following table summarizes the components of our revenues~~ for the nine months ended September 30, ~~2016~~2019 and ~~2017 (in $000s, except percentages):~~2020 were $0 and $0.
Nine Months
Ended September 30, Difference
2016 2017 $ %
Grant revenue $ 566 $ - $ (566 ) (100 )
The future
~~We recognized $0.6 million~~There are no active collaboration, licensing, or clinical supply agreements and ~~$0 in grant revenue~~there will be no revenues for the ~~nine months ended September 30, 2016 and 2017, respectively, from the European Union and the Biomedical Catalyst of the United Kingdom government.~~foreseeable future.
~~The future~~
We will not recognize further grant revenue for the CYC140 program, as the grant from the Biomedical Catalyst of the United Kingdom government ended in November 2016. Although we may apply for additional grants in 2017, we will not recognize grant revenue for the remainder of 2017 and we are not certain of our ability to obtain grant revenue in 2018.
~~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 our CDK inhibitors, sapacitabine and sapacitabine in combination with seliciclib. We have also incurred costs in the advancement of product candidates toward clinical and pre-clinical trials and the development of in-house research to advance our biomarker program and technology platforms. We expense all research and development costs as they are incurred. Research and development expenses primarily include:

19 24

~~Clinical trial and regulatory-related costs;~~

~~Payroll and personnel-related~~Research and development expenses ~~including consultants and contract research;~~

~~Preclinical studies and laboratory supplies and materials;~~

~~Technology license costs; and~~

~~Rent and facility expenses for our laboratories.~~

The following table provides information with respect to our research and development expenditures for the nine months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000s except percentages):

Nine Months Ended

September 30,

Difference


2019

2020

$

%
Transcriptional Regulation (fadraciclib)

$
2,038

$
2,589

$
551

27
Anti-mitotic (CYC140)

493

402

(91)

(18)
DNA Damage Response (sapacitabine)

349

138

(211)

(60)
Other research and development programs and expenses

347

215

(132)

(38)
Total research and development expenses

$
3,227

$
3,344

$
117

4

Nine Months
Ended September 30, Difference
2016 2017 $ %
Sapacitabine $ 5,206 $ 2,331 $ (2,875 ) (55 )
Other costs related to research and development programs, management and exploratory research 2,339 1,160 (1,179 ) (50 )
Total research and development expenses $ 7,545 $ 3,491 $ (4,054 ) (54 )

Total research and development expenses represented ~~65%~~47% and ~~48%~~45% of our operating expenses for the nine months ended September 30, ~~2016~~2019 and ~~2017,~~2020, respectively.
Research and development ~~expenditures decreased~~expenses increased by ~~$4.1~~$0.1 million from ~~$7.5~~$3.2 million for the nine months ended September 30, ~~2016~~2019 to ~~$3.5~~$3.3 million for the nine months ended September 30, ~~2017.~~2020. Research and development expenses relating to ~~sapacitabine decreased~~transcriptional regulation increased by ~~$2.9~~$0.6 million from ~~$5.2~~$2.0 million for the nine months ended September 30, ~~2016~~2019 to ~~$2.3~~$2.6 million for the nine months ended September 30, ~~2017,~~2020, as the clinical evaluation of fadraciclib progressed. Research and development expenses relating to CYC140 decreased by $0.1 million from $0.5 million for the nine months ended September 30, 2019 to $0.4 million for the nine months ended September 30, 2020, primarily as a result of a reduction in expenditures associated with drug supply manufacturing which were not required in 2020. Research and development expenses relating to DNA Damage Response decreased by $0.2 million from $0.3 million for the ~~SEAMLESS Phase 3 trial~~nine months ended September 30, 2019 to $0.1 million for the nine months ended September 30, 2020, primarily as ~~clinical sites are closed.~~a result of a reduction in expenditures associated with drug supply manufacturing which were not required in 2020. Research and development expenses relating to other research and development decreased by $0.1 million for the nine months ended September 30, 2020, due to a reduction in consultancy costs.
The future
We anticipate that overall research and development ~~expenditures~~expenses for the year ended December 31, ~~2017~~2020 will ~~decrease~~remain relatively flat compared to the year ended December 31, ~~2016,~~2019, as we ~~close~~progress the ~~remaining~~ clinical ~~study sites for SEAMLESS. The timing~~development of fadraciclib and ~~extent of any future SEAMLESS expenditure, including the possibility of registration submissions to regulatory authorities in Europe and the U.S., are dependent upon final clinical data.~~
~~General and administrative expenses~~
our other clinical-stage drugs.
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 nine months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000s except percentages):

Nine Months Ended

September 30,

Difference


2019

2020

$

%
Total general and administrative expenses

$
3,661

$
4,124

$
463

13
Nine Months Ended
September 30, Difference
2016 2017 $ %
Total general and administrative expenses $ 4,002 $ 3,802 $ (200 ) (5 )

Total general and administration expenses represented ~~35%~~53% and ~~52%~~55% of our operating expenses for the nine months ended September 30, ~~2016~~2019 and ~~2017,~~2020, respectively. General and administrative expenses ~~remained flat at $4.0~~increased by $0.4 million ~~and $3.8~~from $3.7 million for the nine months ended September 30, ~~2016~~2019 to $4.1 million for the nine months ended September 30, 2020 due to an increase in legal, professional and ~~2017, respectively.~~recruitment costs.

20 25

The future

We expect general and administrative expenditures for the year ended December 31, ~~2017~~2020 to increase slightly compared to our expenditures for the year ended December 31, ~~2016~~2019 due to ~~remain relatively flat.~~legal and professional costs.

Other income (expense), net

The following table summarizes other income, ~~(expense)~~net for the nine months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000 except percentages):

Nine Months Ended

September 30,

Difference


2019

2020

$

%
Foreign exchange gains (losses)

$
115

$
42

$
(73)

63
Interest income

177

36

(141)

(80)
Other income, net

223

891

668

300
Total other income

$
515

969

$
454

88

Nine Months Ended
September 30, Difference
2016 2017 $ %
Foreign exchange gains / (losses) $ 369 $ (65 ) $ (434 ) (118 )
Interest income 31 59 28 90
Other income, net 56 907 851 1,520
Total other income $ 456 $ 901 $ 445 98

Total other income increased by approximately ~~$0.4~~$0.5 million, from $0.5 million for the nine months ended September 30, ~~2016~~2019 to ~~$0.9~~$1.0 million for the nine months ended September 30, ~~2017.~~2020. The increase in other income is primarily related to ~~income received~~royalty payments receivable under ~~the~~a December 2005 APA, ~~with LTC, in respect of~~whereby Xcyte sold certain assets and intellectual property ~~owned by Xcyte,~~to TSC through an APA and ~~sold~~other related agreements. Accordingly, the company recognized $223,000 and $891,000 of other income arising from sales related to ~~LTC in December 2005. The assets~~this transaction during the nine months ended September 30, 2019 and technology were not part of our product development plan following the transaction between Xcyte and Cyclacel in March 2006. We have no knowledge of LTC’s activities and cannot predict when we may receive income under the APA, if any.2020 respectively.
Foreign exchange ~~gains~~
losses
Foreign exchange gains decreased by approximately ~~$0.4 million,~~$73,000, from a gain of ~~$0.4 million~~$115,000 for the nine months ended September 30, ~~2016,~~2019, to a ~~loss~~gain of ~~$65,000~~$42,000 for the nine months ended September 30, ~~2017.~~2020.
The future
Other income (expense), net for the year ended December 31, ~~2017~~2020 will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA. As we are not in control of sales made by ~~LTC~~TSC we are unable to estimate the level and timing of income under the APA, if any.
Because the nature of funding advanced through intercompany loans is that of a long-term investment in nature, unrealized foreign exchange gains and losses on such funding will be recognized in other comprehensive income until repayment of the intercompany loan becomes foreseeable.
Income tax benefit
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 nine months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in $000s except percentages):


Nine Months Ended


September 30,

Difference


2019

2020

$

%
Total income tax benefit

$
848

$
858

$
10

1

Nine Months Ended
September 30, Difference
2016 2017 $ %
Total income tax benefit $ 1,573 $ 793 $ (780 ) (50 )

The total income tax benefit, which comprised of research and development tax credits recoverable, ~~decreased by $0.8~~remained flat at approximately $0.9 million ~~from an income tax benefit~~for each of ~~$1.6 million for~~ the nine months ended September 30, ~~2016 to an income tax benefit of $0.8 million for the nine months ended September 30, 2017.~~2019 and 2020. The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one ~~year.~~year and the availability of trading losses.

~~Table of Contents~~

The future

We expect to continue to be eligible to receive United Kingdom research and development tax credits for the foreseeable future and will elect to do so. The amount of tax credits we will receive is entirely dependent on the amount of eligible expenses we ~~incur.~~incur and having sufficient trading losses. We expect our qualifying research and development expenditure ~~to decrease~~ for the year ended December 31, ~~2017~~2020 to remain relatively flat, in comparison to the year ended December 31, ~~2016.~~2019 in line with our planned research and development expenditure.

Liquidity and Capital Resources

The following is a summary of our key liquidity measures as of September 30, ~~2016~~2019 and ~~2017~~2020 (in ~~thousands)~~$000s):

Nine Months Ended

September 30,

2019

2020
Cash and cash equivalents

$
12,967

$
23,130
Working capital:

Current assets

$
15,836

$
25,934
Current liabilities

(2,071)

(1,712)
Total working capital

$
13,765

$
24,222

Nine Months Ended
September 30,

2016 2017
Cash and cash equivalents $ 18,029 $ 26,025
Working capital:
Current assets 22,579 27,817
Current liabilities (5,570 ) (4,265 )
Total working capital $ 17,009 $ 23,552

Since our inception, we have relied primarily on the proceeds from sales of common and preferred equity securities to finance our operations and internal growth. Additional funding has come through research and development tax credits, government grants, the sale of product rights, interest on investments and licensing ~~revenue, and a limited amount of product revenue from operations discontinued in September 2012.~~revenue. We have incurred significant losses since our inception. ~~The increase in the cash balance during the year is primarily as a result of the approximately $13.7 million in net proceeds from the July 2017 underwritten public offering.~~ As of September 30, ~~2017,~~2020, we had an accumulated deficit of ~~$340.6~~$ 363.3 million.
Cash Flows
Cash used in operating, investing and financing activities for the nine months ended September 30, ~~2016~~2019 and ~~2017~~2020 is summarized as follows (in ~~thousands)~~$000s):

Nine Months Ended September 30,

2019

2020
Net cash used in operating activities

$
(8,330)

$
(6,782)
Net cash provided by (used in) investing activities

22

(54)
Net cash provided by (used in) financing activities

3,898

18,156
Nine months ended
September 30,
2016 2017
Net cash used in operating activities $ (7,136 ) $ (5,260 )
Net cash used in investing activities — (11 )
Net cash provided by financing activities 5,091 14,600

Operating activities
Net cash used in operating activities decreased by ~~$1.9~~$1.5 million, from ~~$7.1~~$8.3 million for the nine months ended September 30, ~~2016~~2019 to ~~$5.3~~$6.8 million for the nine months ended September 30, ~~2017.~~2020. The decrease in cash used by operating activities was primarily the result of a ~~reduction in net loss of $3.3 million, offset by a~~ change in working capital of ~~$1.7~~$1.6 million and ~~stock compensation~~an increase in net loss of ~~$0.4~~$0.1 million.
~~Investing activities~~
~~Net cash used~~ The change in ~~investing activities increased by $11,000 as a result~~working capital was due to settlement of ~~capital expenditure on IT equipment.~~large trade payables during the nine months ended September 30, 2019.

22 27

Table of ~~progress and cost of our clinical trials, preclinical studies and other discovery and research and development activities;~~Contents

Investing activities

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

Financing activities

Net cash provided by financing activities ~~was $14.6~~increased by $14.3 million, for the nine months ended September 30, ~~2017, primarily~~2020 as a direct result of ~~the~~receiving approximately ~~$13.7~~$18.3 million in net proceeds from the ~~July 2017 underwritten public offering~~issuance of common stock and accompanying common stock warrants under a co-placement agency agreement with Roth Capital Partners, LLC, Ladenburg Thalmann & Co. Inc., and Brookline Capital Markets, a division of Arcadia Securities, LLC, offset by payments of preferred dividends. Net cash provided by financing activities for the nine months ended September 30, 2019 was a direct result of receiving approximately ~~$1.1~~$4.1 million in net proceeds from the issuance of common stock under the FBR Sales Agreement entered into in June 2016 offset by dividend payments of approximately $0.2 million to the holders of our 6% Preferred Stock. Net cash provided by financing activities was $5.1 million for the nine months ended September 30, 2016, primarily as a result of approximately $5.1 million in net proceeds from the issuance of common stock under the FBR Sales Agreement entered into in June 2016 and approximately $0.2 million in net proceeds from a~~Controlled Equity Offering~~^SMSales Agreement with~~Cantor Fitzgerald & Coentered into in July 2015~~ H C Wainwright, offset by ~~dividend~~ payments of ~~approximately $0.2 million to the holders of our 6% Preferred Stock.~~preferred dividends.

Operating Capital and Capital Expenditure Requirements

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

We believe that existing funds together with cash generated from operations, such as recent financing activities and the R&D tax credit, ~~and recent financing activities,~~ are sufficient to satisfy our planned working capital, capital expenditures and other financial commitments through ~~2019.~~to the end of 2022. However, we do not currently have sufficient funds to complete development and commercialization of any of our drug candidates. Current business and capital market risks could have a detrimental effect on the availability of sources of funding and our ability to access them in the future, which may delay or impede our progress of advancing our drugs currently in the clinical pipeline to approval by the FDA or EMA for commercialization. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.

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

●

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

●

the costs associated with establishing manufacturing and commercialization capabilities;

●

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

●

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

●

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

~~the costs associated with establishing manufacturing and commercialization capabilities;~~
● 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.
~~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 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~~candidates at an earlier stage of development, which would lower the economic value of those programs to us.At this time, the Company is unable to estimate the impact of the COVID-19 pandemic on its financial condition or operations, but it could materially affect the ability of the Company to raise future capital or to conduct clinical studies on a timely basis.

Item 3. Quantitative and Qualitative Disclosures ~~About~~about Market Risk
As a smaller reporting company, we are not required to provide information in response to this item.
23
~~Table of Contents~~
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, ~~2017,~~2020, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon such evaluation, our chief executive officer and principal financial and accounting officer have concluded that, as of September 30, ~~2017,~~2020, our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the Securities and Exchange Commission, or SEC, under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control ~~Over~~over Financial Reporting
There ~~have been~~were no significant changes made in our internal controls over financial. The recent ‘stay at home’ orders issued by the United States, United Kingdom and overseas governments in the global fight against the coronavirus pandemic has not resulted in any significant changes in our internal ~~control over financial reporting during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control~~controls over financial reporting.

Inherent Limitation on the Effectiveness of Internal Controls

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

PART II. Other Information

Item 1. Legal Proceedings

None.

Item ~~Item~~ 1A. Risk Factors

There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019 and as amended on Form 10-Q for the three months ended March 31, 2020 and for the six months ended June 30, 2020. For a further discussion of our Risk Factors, refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

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

~~None.~~

24 30

Item 6. Exhibits

~~3.1~~ Exhibit Number		~~Certificate of Designation of Series A Preferred Stock, incorporated herein by reference to Exhibit 3.5 to the Company’s Registration Statement on Form S-1 (No. 333-218305) effective July 28, 2017.~~ Description
10.1*
~~4.1~~		~~Form of Warrant to purchase shares of~~ Cyclacel Pharmaceuticals, Inc. ~~Common Stock, incorporated herein by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 (No. 333-218305) effective July 28, 2017.~~2020 Inducement Equity Incentive Plan
10.2*		Form of Stock Option Grant Notice and Stock Option Agreement under the Cyclacel Pharmaceuticals, Inc. 2020 Inducement Equity Incentive Plan
~~31.1~~31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~31.2~~31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a) As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~32.1~~32.1*		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~32.2~~32.2*		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101~~ 101*		The following materials from Cyclacel Pharmaceuticals, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, ~~2017,~~2020, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Consolidated Financial Statements.

25 31