Item 7. Management’s Discussion and Analysis
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary
Statement Regarding Forward-Looking Statements
This
report contains certain statements that may be deemed ‘forward-looking statements’ within the meaning of United States securities
laws. 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. Certain factors that could cause results to differ materially
from those projected or implied in the forward-looking statements are set forth in this Annual Report on Form 10-K for the year ended
December 31, 2024 under the caption “Item 1A — Risk factors”.
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.
We
effected a 15:1 reverse stock split of our common stock on December 18, 2023 (the “Reverse Stock Split”). All share and per
share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise
indicated.
Recent
developments
In
December 2024 the Company announced that it was in the process of exploring and reviewing strategic alternatives on an expedited basis
in order to preserve the Company’s cash, including a potential transaction with investor David Lazar of Activist Investing, LLC,
or “Lazar”. The Company’s Board of Directors (the “Board”) reviewed a range of appropriate strategies to
realize value from its assets. The Board directed management to reduce operating costs, which included the potential liquidation of the
Company’s wholly owned United Kingdom subsidiary Cyclacel Limited, or Subsidiary, while such alternatives were being explored.
On January 2, 2025 the Company entered into a securities purchase agreement with investor Lazar, pursuant to which he agreed to purchase
from the Company 1,000,000 shares of Series C Convertible Preferred Stock and 2,100,000 shares of Series D Convertible Preferred Stock
of Cyclacel at a purchase price of $1.00 per share for aggregate gross proceeds of $3.1 million, subject to the terms and conditions
of the Agreement. The proceeds of the transaction will be used to settle outstanding liabilities of the Company and other general corporate
and operating purposes.
On
January 2, 2025 the Company entered into a securities purchase agreement with investor Lazar, pursuant to which he agreed to purchase
from the Company 1,000,000 shares of Series C Convertible Preferred Stock and 2,100,000 shares of Series D Convertible Preferred Stock
of Cyclacel at a purchase price of $1.00 per share for aggregate gross proceeds of $3.1 million, subject to the terms and conditions
of the Agreement. The proceeds of the transaction will be used to settle outstanding liabilities of the Company and other general corporate
and operating purposes.
On
January 2, 2025, the Company entered into settlement agreements with the Resigning Directors effective as of the signing of the Purchase
Agreement. Pursuant to the terms of the Director Settlement Agreements, each Resigning Director resigned his or her position as a member
of the Board of Directors, and any positions held on committees of the Board of Directors. Each Resigning Director has received his or
her accrued Board fees in full consideration of the release of claims against the Company and other promises and covenants set forth
in the Director Settlement Agreements.
On
January 2, 2025, the Company entered into a settlement agreement with Mr. Spiro Rombotis (the “Rombotis Settlement Agreement”).
Pursuant to the terms of the Rombotis Settlement Agreement, Mr. Rombotis resigned his position as President and Chief Executive Officer
of the Company effective as of the signing of the Purchase Agreement, and agreed to provide transition services to the Company in his
capacity as a member of the Board of Directors through the filing of the Company’s Annual Report on Form 10-K for the year ended
2024. On January 2, 2025, the Company also entered into a settlement agreement with Paul McBarron (together with Mr. Rombotis, the “Resigning
Officers”) effective immediately following the Initial Closing, as such term is defined in the Purchase Agreement (the “McBarron
Settlement Agreement” and together with the Rombotis Settlement Agreement, the “Executive Officer Settlement Agreements”
and together with the Director Settlement Agreements, the “Settlement Agreements”).
67
Table of Contents
Pursuant
to the terms of the McBarron Settlement Agreement, Mr. McBarron agreed to provide transition services to the Company in his capacity
as a member of the Board of Directors through the filing of the Company’s Annual Report on Form 10-K for the year ended 2024. Pursuant
to the Executive Officer Settlement Agreements, and subject to the Purchase Agreement, the Company will pay to Mr. Rombotis and Mr. McBarron
payments of $279,415.50 and $165,164.50, respectively, as soon as practicable, and three months later a further one-time payment of $279,415.50
and $165,164.50 either in cash or through the issuance of common stock, respectively, in full consideration of the release of claims
against the Company and other promises and covenants set forth in the Executive Officer Settlement Agreements (the “Settlement
Payments”) and the Purchase Agreement.
Pursuant
to the terms of the Settlement Agreements, the Company will provide continuing indemnification to the Resigning Directors and Resigning
Officers in a manner consistent with that which was in place as of the effective date of the Settlement Agreements, and will cause to
be maintained in effect the Company’s existing director and officer liability insurance pursuant to the Company’s tail insurance
coverage and will not modify its governing documents to modify the Resigning Directors’ and Resigning Officers’ rights under
such policy, as further set forth in the Settlement Agreements. The Settlement Agreements contain a mutual non-disparagement clause.
On
January 31, 2025, the creditors voluntary liquidation of Cyclacel Limited was announced in the London Gazette, one of the official public
records of the government of the United Kingdom. As part of the Company’s efforts to reduce operating costs it has determined to
focus on the development of the Plogo clinical program only and therefore fadraciclib, the Subsidiary’s other drug development
program, is being marketed for sale by the joint liquidator through Hilco Appraisals Limited, a firm of professional valuation agents
and will no longer be part of the assets of the Company as of January 2025. On March 10, 2025, the Company entered into an Agreement
for the Sale and Purchase of certain assets related to plogosertib (“Plogo”) with Cyclacel Limited and the joint liquidator.
On
February 26, 2025, the Company entered into settlement agreements with Dr. Barker. Pursuant to the terms of the settlement agreement,
Dr. Barker resigned his position as a member of the Board of Directors, and any positions held on committees of the Board of Directors.
In addition, Dr. Barker will receive his accrued Board fees in full consideration of the release of claims against the Company and other
promises and covenants set forth in the settlement agreement. Pursuant to the terms of the settlement agreement, the Company will provide
continuing indemnification to Dr. Barker in a manner consistent with that which was in place as of the effective date of the settlement
agreement, and will cause to be maintained in effect the Company’s existing director and officer liability insurance pursuant to
the Company’s tail insurance coverage and will not modify its governing documents to modify Dr. Barker’s rights under such
policy, as further set forth in the settlement agreement. The settlement agreement contains a mutual non-disparagement clause.
With
the commencement of the liquidation of the Subsidiary, the Company will no longer be considered to have control over the Subsidiary and
the financial results of the Subsidiary will be deconsolidated from those of the Company. The deconsolidation, which is anticipated to
increase stockholders’ equity by approximately $5.0 million, will be reported in the Company’s Form 10-Q for the three months
ended March 31, 2025.
Overview
We
are a clinical-stage biopharmaceutical company incorporated in the State of Delaware on January 5, 1996 that has focused on the development
of innovative cancer medicines based on cell cycle, transcriptional regulation, epigenetics and mitosis control biology. Our principal
executive office is now located at Level 10, Tower 11, Avenue 5, No. 8, Jalan Kerinchi, Kuala Lumpur, Malaysia, and our telephone number
is (908) 517-7330. Our website address is www.cyclacel.com. The information contained on, or that can be accessed through, our website
is not part of, and is not incorporated by reference into, this Annual Report.
68
Table of Contents
During
2024, our primary focus has been on our transcriptional regulation program, which evaluated fadraciclib, a CDK2/9 inhibitor, in solid
tumors and hematological malignancies. The epigenetic/anti-mitotic program is evaluating Plogo, a PLK1 inhibitor, in advanced cancers.
We
currently retain all marketing rights worldwide to our product candidate Plogo.
Revenue
We
have not generated any revenues from product sales to date. Our product candidates will require significant additional research and development
efforts, including extensive preclinical and clinical testing. Plogo and any future product candidates that we advance to clinical testing
will require regulatory approval prior to commercial use and will require significant costs for commercialization. We have recognized
revenue of $43,000 for the year ended December 31, 2024 related to the recovery of clinical manufacturing costs associated with an investigator
sponsored study managed by Cedars Sinai Medical Center. We recognized $0.4 million of revenue for the year ended December 31, 2023. We
do not expect to report revenue for the foreseeable future.
Funding
Requirements and Going Concern
As
of December 31, 2024, we had cash and cash equivalents of $3.1 million We have incurred losses since our inception and as of December
31, 2024, we had an accumulated deficit of $439.5 million. We expect to continue to incur substantial operating losses in the future.
We
do not currently have sufficient funds to complete development and commercialization of any of our drug candidates. Current business
and capital market risks could have a detrimental effect on the availability of sources of funding and our ability to access them in
the future, which may delay or impede our progress of advancing our drugs currently in the clinical pipeline to approval by the FDA or
EMA for commercialization. Additionally, we plan to continue to evaluate in-licensing and acquisition opportunities to gain access to
new drugs or drug targets that would fit with our strategy. Any such transaction would likely increase our funding needs in the future.
Our
future funding requirements will depend on many factors, including but not limited to:
● the
rate of progress and cost of our clinical trials, preclinical studies and other discovery
and research and development activities;
● the
costs associated with establishing manufacturing and commercialization capabilities;
● the
costs of acquiring or investing in businesses, Plogo or any of our future 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 at an earlier stage of development, which would
lower the economic value of those programs to us.
69
Table of Contents
Since
our inception, we have relied primarily on the proceeds from sales of common and preferred equity securities to finance our operations
and internal growth. Additional funding has come through research and development tax credits, government grants, the sale of product
rights, interest on investments, licensing revenue, royalty income, and a limited amount of product revenue from operations discontinued
in September 2012.
As
discussed in Note 1 of the Notes to the Consolidated Financial Statements accompanying this Annual Report on Form 10-K, under ASC Topic
205-40, Presentation of Financial Statements - Going Concern , management is required at each reporting period to evaluate whether
there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue
as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into
consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial
statements are issued.
Based
on our current operating plan, we anticipate that our cash and cash equivalents of $3.1 million as of December 31, 2024, will allow us
to meet our liquidity requirements into the second quarter of 2025. As of March 24, 2025, our cash balance on hand was approximately
$3.5 million. We continue to work to raise additional capital however as of the date of the Consolidated Financial Statements accompanying
this Annual Report on Form 10-K, there is no guarantee that we will be able to raise additional funds to extend operations beyond the
second quarter of 2025. Our history of losses, our negative cash flows from operations, our liquidity resources currently on hand, and
our dependence on the ability to obtain additional financing to fund our operations after the current resources are exhausted, about
which there can be no certainty, have resulted in our assessment that there is substantial doubt about our ability to continue as a going
concern for a period of at least twelve months from the issuance date of this Annual Report on Form 10-K. While we have plans in place
to mitigate this risk, which primarily consist of raising additional capital through a combination of public or private equity or debt
financings or by entering into partnership agreements for further development of our drug candidates, there is no guarantee that we will
be successful in these mitigation efforts.
Agreements
to Sell Securities
On
November 13, 2024, Cyclacel Pharmaceuticals, Inc. (the “Company”) entered into a letter agreement (the “Warrant Exercise
and Reload Agreement”) with the holder (the “Holder”) of its issued and outstanding Series B Warrants (the “Prior
Warrants”) to purchase an aggregate of 20,703 shares of common stock of the Company offering the Holder the opportunity to exercise
all of its Prior Warrants for cash at a reduced exercise price equal to $99.60 per share provided the Prior Warrants were exercised in
full for cash on or before 12:30 P.M. Eastern Time on the date of the Warrant Exercise and Reload Agreement. In consideration for the
exercise of the Prior Warrants, the Holder received new unregistered Series C Warrants (the “Series C Warrants”) exercisable
for up to an aggregate of 41,407 shares of common stock (the “Series C Warrant Shares”) and new unregistered Series D Warrants
(the “Series D Warrants” and, together with the Series C Warrants, the “New Warrants”) exercisable for up to
an aggregate of 41,407 shares of common stock (the “Series D Warrant Shares” and, together with the Series C Warrant Shares,
the “New Warrant Shares”). The Series C Warrants are exercisable beginning on the date upon which the Company receives stockholder
approval of the issuance of the New Warrant Shares and the Placement Agent Warrant Shares (the “Stockholder Approval Date”)
for a period of five and one-half (5.5) years following the Stockholder Approval Date and the Series D Warrants are exercisable beginning
on the Stockholder Approval Date for a period of eighteen (18) months following the Stockholder Approval Date. The New Warrants each
have an exercise price of $99.60 per share. The shares of common stock issued upon exercise of the Prior Warrants are registered pursuant
to an effective registration statement on Form S-1 (No. 333-279157).
On
April 30, 2024, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an institutional
investor (the “Purchaser”) for the issuance and sale in a private placement (the “Private Placement”) of (i)
604 shares of the Company’s common stock, (ii) pre-funded warrants to purchase up to 20,099 shares of common stock (the “Pre-Funded
Warrants”), (iii) series A warrants to purchase up to 20,703 shares of common stock (the “Series A Warrants”), and
(iv) series B warrants to purchase up to 20,703 shares of common stock (the “Series B Warrants” and together with the Series
A Warrants, the “Common Warrants”). The purchase price of each share of common stock and associated Common Warrants was $386.40
and the purchase price of each Pre-Funded Warrant and associated Common Warrants was $386.38.
70
Table of Contents
The
Common Warrants are exercisable immediately upon issuance at an exercise price of $326.40 per share. The Series A Warrants will expire
five and one-half years from the date of issuance and the Series B Warrants will expire eighteen months from the date of issuance. The
Pre-Funded Warrants are exercisable immediately upon issuance at an exercise price of $0.024 per share and may be exercised at any time
until the Pre-Funded Warrants are exercised in full. A holder of Pre-Funded Warrants or Common Warrants (together with its affiliates)
may not exercise any portion of such warrants to the extent that the holder would own more than 4.99% (or, at the election of the holder
9.99%) of the Company’s outstanding common stock immediately after exercise.
In
connection with the Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”),
dated as of April 30, 2024, with the Purchaser, pursuant to which the Company agreed to prepare and file a registration statement with
the Securities and Exchange Commission (the “SEC”) registering the resale of the securities issued in the Private Placement.
On
December 21, 2023, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain institutional
investors (the “Purchasers”). Pursuant to the Securities Purchase Agreement, we agreed to sell in a registered direct offering
(“Registered Direct Offering”) 702 shares (“Shares”) of our common stock and pre-funded warrants (“Pre-Funded
Warrants”) to purchase up to 915 shares of common stock. The Pre-Funded Warrants have an exercise price of $0.24 per share and
are immediately exercisable and can be exercised at any time after their original issuance until such Pre-Funded Warrants are exercised
in full. Each Share was sold at a price of $795.60 and each Pre-Funded Warrant was sold at a price of $795.36 (equal to the purchase
price per Share minus the exercise price of the Pre-Funded Warrant).
Pursuant
to the Securities Purchase Agreement, in a concurrent private placement (together with the Registered Direct Offering, the “Offerings”),
we also agreed to issue to the Purchasers unregistered warrants (“Common Warrants”) to purchase up to 1,617 shares of common
stock. Each Common Warrant has an exercise price of $765.60 per share, is exercisable immediately following their original issuance and
will expire seven years from the original issuance date. The closing of the offering occurred on December 26, 2023, and the net proceeds
to us were approximately $1.0 million, after deducting placement agent fees and other offering expenses payable by us. Ladenburg Thalmann
& Co. Inc. (the “Placement Agent”) acted as the exclusive placement agent for the Offerings, pursuant to a placement
agency agreement dated December 21, 2023, by and between us and the Placement Agent.
On
December 21, 2023, in a separate concurrent insider private placement (the “Insider Private Placement”), we also entered
into a Securities Purchase Agreement with certain of our executive officers (the “Insider Securities Purchase Agreement”)
pursuant to which we agreed to sell in a private placement (i) 25 shares of common stock and warrants to purchase 25 shares of common
stock on the same terms as the Common Warrants issued to the Purchasers in the Offerings to Spiro Rombotis, our Chief Executive Officer,
and (ii) 7 shares of common stock and warrants to purchase 7 shares of common stock on the same terms as the Common Warrants issued
to the Purchasers in the Offerings to Paul McBarron, our Executive Vice President-Finance, Chief Financial Officer and Chief Operating
Officer. Each such share of common stock and accompanying warrant was sold at a purchase price of $795.60, which was the same purchase
price for the Shares sold in the Registered Direct Offering.
On
August 12, 2021, we entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald
& Co. (“Cantor”), pursuant to which we could issue and sell, from time to time, shares of our common stock having an
aggregate offering price of up to $50.0 million through Cantor as the sales agent. Cantor could sell our common stock by any method permitted
by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act.
On
August 12, 2022, we became aware that the shelf registration statement on Form S-3 (file number 333-231923) (the “Registration
Statement”) associated with this Sales Agreement had expired on June 21, 2022. Prior to becoming aware of the expiration, but following
the expiration, we sold an aggregate of 551 shares of our common stock at market prices for aggregate proceeds of approximately $2,721,187.
The sale of these shares were subject to potential rescission rights by certain stockholders. As a result of these rescission rights,
we classified 865 shares (including 313 previously issued and outstanding shares sold for which the Company did not receive proceeds
and which were reclassified to temporary equity as of September 30, 2022), with an aggregate redemption value of $4,494,496 of our common
stock as stock outside stockholders equity. We also restated our loss per share as a result of $135,000 of associated fees not initially
accounted for as accretion to the maximum redemption amount of the shares subject to potential rescission. During the third quarter of
2023, upon expiration of the rescission rights and with no claims or demands to exercise such rights, we reclassified all 865 shares
back to permanent equity. In all periods presented, the shares subject to the rescission rights were treated as issued and outstanding
for purposes of earnings per share and general financial reporting.
71
Table of Contents
Dividend
on Preferred Stock
On
January 29, 2025, the Board of Directors of Cyclacel Pharmaceuticals, Inc. (the “Company”) passed a resolution to suspend
payment of the quarterly cash dividend on the Company’s 6% Convertible Exchangeable Preferred Stock (the “Preferred Stock”)
scheduled for February 1, 2025. The quarterly cash dividend payments were suspended for payments scheduled for May 1, 2024, August 1,
2024 and November 1, 2024. The Board of Directors will continue to evaluate the payment of a quarterly cash dividend on a quarterly basis.
Results
of Operations
Years
Ended December 31, 2024 and 2023
Results
of Continuing Operations
Revenues
The
following table summarizes the revenues for years ended December 31, 2024 and 2023 (in thousands except percentages):
Year ended December 31,
Difference
2024
2023
$
%
Clinical trial supply
43
420
(377 )
(90 )
Total Revenue
$ 43
$ 420
$ (377 )
(90 )
We
recognize recognized $43,000 of revenue for the year ended December 31, 2024. This revenue relates to recovery of clinical manufacturing
costs associated with an investigator sponsored study managed by Cedars-Sinai Medical Center. We recognized $420,000 of revenue for the
comparative period in 2023.
We
do not expect to report revenue for the foreseeable future.
Research
and development
We
expense all research and development costs as they are incurred. Research and development expenses primarily include:
● Clinical
trial and regulatory-related costs;
● Payroll
and personnel-related expenses, including consultants and contract research organizations;
● Preclinical
studies and materials;
● Technology
license costs;
● Stock-based
compensation; and
● Rent
and facility expenses for our office.
72
Table of Contents
The
following table provides information with respect to our research and development expenditures for the years ended December 31, 2024
and 2023 (in thousands except percentages):
Year Ended December 31,
Difference
2024
2023
$
%
Transcriptional Regulation (fadraciclib)
$ 4,970
$ 13,358
$ (8,388 )
(63 )
Anti-mitotic (plogo)
1,566
4,987
(3,421 )
(69 )
Other research and development expenses
119
810
(691 )
(85 )
Total research and development expenses
$ 6,655
$ 19,155
$ (12,500 )
(65 )
Research
and development expenses represented 55% and 74% of our operating expenses for the years ended December 31, 2024 and 2023, respectively.
Research
and development expenses decreased by $12.5 million from $19.2 million for the year ended December 31, 2023 to $6.7 million for the year
ended December 31, 2024. Expenditure for the transcriptional regulation program decreased by $8.4 million for the year ending December
31, 2024 relative to the respective comparative period. This decrease was primarily due to a decrease in clinical trial costs of $2.4
million associated with the temporary halt in the Phase 1/2 study in hematological malignancies, the completion of a bioequivalence and
tox studies during the prior year of $2.1 million, reduction in manufacturing costs of $3.5 million and other non-clinical expenditure
of $0.4 million. Research and development expenses relating to Plogo decreased by $3.4 million for the year ending December 31, 2024
relative to the respective comparative period. This decrease was primarily due to a decrease in clinical trial costs of $1.6 million
associated with the progression of clinical trials for the evaluation of Plogo in Phase 1/2 studies, a decrease in manufacturing costs
of $0.5 million, employment costs of $0.6 million and other non-clinical expenditure of $0.7 million.
The
future
We
anticipate that overall research and development expenses for the year ended December 31, 2025 will decrease significantly compared to
the year ended December 31, 2024 as we focus on our Plogo clinical program. There will be no expenditure related to fadraciclib as the
program is being marketed for sale by the joint liquidator of the Subsidiary.
General
and administrative
General
and administrative expenses include costs for administrative personnel, legal and other professional expenses and general corporate expenses.
The following table summarizes the total general and administrative expenses for the years ended December 31, 2024 and 2023 (in thousands
except percentages):
Year Ended December 31,
Difference
2024
2023
$
%
Total general and administrative expenses
$ 5,392
$ 6,718
$ (1,326 )
(20 )
Total
general and administrative expenses represented 45% and 26% of our operating expenses for the years ended December 31, 2024 and 2023,
respectively.
Our
general and administrative expenditures decreased by $1.3 million from $6.7 million for the year ended December 31, 2023 to $5.4 million
for the year ended December 31, 2024. This decrease was primarily due to reduction in stock compensation costs of $0.5 million, employment
related costs of $0.2 million, corporate reporting costs of $0.2 million and investor relation costs of $0.2 million against the comparative
prior period.
73
Table of Contents
The
future
We
expect general and administrative expenditures for the year ended December 31, 2025 to reduce significantly compared to the year ended
December 31, 2024 following the deconsolidation of the UK Subsidiary and elimination of related expenditures.
Other
expense, net
The
following table summarizes the other income (expense) for years ended December 31, 2024 and 2023 (in thousands except percentages):
Year Ended December 31,
Difference
2024
2023
$
%
Foreign exchange losses
$ (54 )
$ (414 )
$ 360
(87 )
Interest income
12
266
(254 )
(95 )
Other income, net
52
50
2
4
Total other income (expense), net
$ 10
(98 )
$ 108
(110 )
Total
other expense, net, increased by $108,000 from an expense of $98,000 for the year ended December 31, 2023 to an income of $10,000 for
the year ended December 31, 2024. The decrease in other expense, net primarily relates to a reduction in interest income of $254,000
as a direct result of holding lower cash balances during 2024. Other income, net relates to royalties receivable under a December 2005
Asset Purchase Agreement, or APA, whereby Xcyte Therapies, Inc., or Xcyte (a business acquired by us in March 2006) sold through the
APA and other related agreements certain assets and intellectual property which are not related to our product development plans to ThermoFisher
Scientific Company, or TSC. Accordingly, we presented $52,000 and $50,000 as other income received from TSC during the years ended December
31, 2024 and 2023 respectively. We have no knowledge of TSC’s activities and cannot predict when we may receive income under the
APA, if any.
Foreign
exchange losses
Foreign
exchange losses increased by $360,000 to a loss of $54,000 for the year ended December 31, 2024 compared to a loss of $414,000 for the
year ended December 31, 2023.
We
have intercompany loans in place between our parent company based in New Jersey and our subsidiary based in Scotland. The intercompany
loans outstanding are not expected to be repaid in the foreseeable future and the nature of the funding advanced is of a long-term investment
nature. Therefore, all unrealized foreign exchange gains or losses arising on the intercompany loans are recognized in other comprehensive
income until repayment of the intercompany loan becomes foreseeable. Unfavorable unrealized foreign exchange movements related to intercompany
loans resulted in a loss of $2.9 million for the year ended December 31, 2024 compared to a gain of $12.6 million for the year ended
December 31, 2023.
The
future
Other
income (expense), net will continue to be impacted by changes in foreign exchange rates and the receipt of income under the APA. As we
are not in control of sales made by TSC, we are unable to estimate the level and timing of income under the APA, if any.
As
a result of the liquidation of the UK subsidiary in January 2025, the intercompany loans will be written off as part of the deconsolidation
process. The accumulated translation adjustments currently recorded in other comprehensive income within equity will be reversed and
recorded as part of the gain/loss from deconsolidation of the subsidiary.
74
Table of Contents
Income
tax benefit
We
record research and development tax credits within income taxes. Credit is taken for research and development tax credits, which are
claimed from the United Kingdom’s taxation and customs authority (HMRC), in respect of qualifying research and development costs
incurred.
The
following table summarizes total income tax benefit from such credits for the years ended December 31, 2024 and 2023 (in thousands except
percentages):
Year Ended December 31,
Difference
2024
2023
$
%
Total income tax benefit
$ 782
$ 2,996
$ (2,214 )
(74 )
The
income tax benefit decreased significantly by approximately $2.2 million, from $3.0 million for the year ended December 31, 2023 to $0.8
million for the year ended December 31, 2024, due to the ineligibility to recover qualifying research and developments expenditure incurred
during 2024. The $0.8 million tax benefit in 2024 relates to a deferred claim based on 2023 qualifying research and development expenditure.
The level of tax credits recoverable is linked directly to qualifying research and development expenditure incurred in any one year and
the availability of trading losses.
The
future
We
do not expect to continue to be eligible to receive United Kingdom research and development tax credits for the year ending December
31, 2025
Liquidity
and Capital Resources
The
following is a summary of our key liquidity measures as of December 31, 2024 and 2023 (in thousands):
December 31,
2024
2023
Cash and cash equivalents
$ 3,137
$ 3,378
Working capital:
Current assets
$ 3,674
$ 7,444
Current liabilities
(6,268 )
(8,161 )
Total working capital deficit
$ (2,594 )
$ (717 )
Cash
Flows
Cash
provided by (used in) operating, investing and financing activities for the years ended December 31, 2024 and 2023 is summarized as follows
(in thousands):
Year Ended December 31,
2024
2023
Net cash used in operating activities
$ (7,990 )
$ (16,112 )
Net cash used in investing activities
—
(6 )
Net cash provided by financing activities
7,822
848
75
Table of Contents
Operating
activities
Net
cash used in operating activities decreased by $8.1 million, from $16.1 million for the year ended December 31, 2023 to $8.0 million
for the year ended December 31, 2024. The decrease in cash used by operating activities was primarily the result of a decrease in net
loss of $11.3 million, offset by a change in working capital of $2.3 million and stock based compensation of $0.9 million. The $2.3 million
change in working capital was primarily due to receivables for research and development tax credits. A cash receipt of approximately
$3.7 million in research and development tax credit was received during the year ended December 31, 2024.
Investing
activities
There
was no net cash used in investing activities for the year ended December 31, 2024 and $6,000 in capital expenditures on information technology
(“IT”) during the respective comparative period.
Financing
activities
Net
cash provided by financing activities was $7.8 million for the year ended December 31, 2024 as a direct result of receiving approximately:
- $6.2
million, net of expenses, from the issuance of common stock and warrants under a Securities
Purchase Agreement with an institutional investor,
- $1.6
million in net proceeds from a warrant exercise and reload agreement
Net
cash provided by financing activities was $0.8 million for the year ended December 31, 2023 as a direct result of receiving approximately:
- $1.0
million in net proceeds from the issuance of common stock and pre-funded warrants pursuant
to the Registered Direct Offering,
- offset
by dividend payments of approximately $0.2 million to the holders of our 6% Convertible Exchangeable
Preferred Stock in 2023 that were not paid in 2024.
Contractual
Obligations
The
following table summarizes our long-term contractual obligations as of December 31, 2024 (in thousands):
Payments Due by Period
Total
Less than
1 year
1 – 3 years
3 – 5 years
More than
5 years
Operating Lease Obligations (1)
$ 5
$ 5
$ —
$ —
$ —
(1) Operating
lease obligations relates to leasing office space at our Berkeley Heights, New Jersey location.
The lease for our Berkeley Heights location, which was entered into in April 2022, has been
terminated, effective January 31, 2025. Effective March 1, 2025, the Company entered into
a two year lease agreement for our corporate headquarters at Level 10, Tower 11, Avenue 5,
No. 8, Jalan Kerinchi, 59200 Kuala Lumpur, Malaysia.
Off-Balance
Sheet Arrangements
Since
our inception, we have not had any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or variable interest entities, which are typically established for the purpose
of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
76
Table of Contents
Recently
Issued Accounting Pronouncements
Please
see Note 2 to the consolidated financial statements for a discussion of the potential effects that recently issued, but not yet effective,
accounting standards will have on our financial statements when adopted in a future period.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent
assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other
factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. We believe the judgments
and estimates required by the following accounting policies to be critical in the preparation of our consolidated financial statements.
Our
significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this
report. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation
of our consolidated financial statements.
Accrued
Research and Development Costs
Accrued
research and development costs comprise our best estimates related to the cost of clinical trials, laboratory, and manufacturing activities
that were incurred, but not paid or invoiced, as of the end of a reporting period.
Data
management and monitoring of our clinical trials are performed with the assistance of contract research organizations, or CROs, or clinical
research associates, or CRAs, in accordance with our standard operating procedures. Typically, CROs and CRAs bill monthly for services
performed, or based upon milestones achieved. We accrue unbilled clinical trial expenses based on estimates of the level of services
performed each period. Moreover, clinical trial costs related to patient enrollment are accrued as patients are entered into and progress
through the trial.
We
also perform outsourced laboratory and manufacturing activities. We accrue for unbilled laboratory and manufacturing activities performed
by third parties based on estimates of their progress towards completing the requested tasks.
As
of December 31, 2024, we accrued $1.3 million research and development costs, that we have estimated to have been incurred as of year-end
but had not been invoiced. This represents approximately 20% of our total research and development expense for the year ended December
31, 2024. As of December 31, 2023, we accrued $3.7 million research and development costs, that we have estimated to have been incurred
as of year-end but had not been invoiced. This represents approximately 19% of our total research and development expense for the year
ended December 31, 2023.
When
recording these accruals, we must make judgments about the progress of our various clinical activities. We (as well as our CROs and CRAs)
are reliant on information being provided timely and accurately by the multitude of clinics and hospitals where the studies are being
conducted, some of which are located internationally. We must also make estimates about the progress our third-party vendors are making
towards completing laboratory and manufacturing activities.
Stock-based
Compensation
We
grant stock options, restricted stock units and restricted stock to officers, employees, directors and consultants under our 2018 Equity
Incentive Plan (the 2018 Plan) and the 2020 Inducement Equity Incentive Plan. We measure compensation cost for all stock-based awards
at fair value on date of grant and recognize compensation over the requisite service period. The fair value of restricted stock and restricted
stock units is determined based on the number of shares granted and the quoted price of our common stock on the date of grant. The determination
of grant-date fair value for stock option awards is estimated using an option-pricing model, which includes variables such as the expected
volatility of our share price, the anticipated exercise behavior of our employees, interest rates, and dividend yields. These variables
are projected based on our historical data, experience, and other factors. Changes in any of these variables could result in significant
adjustments to the costs recognized for share-based payments.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
As
a smaller reporting company, we are not required to provide information response to this item.
77
Table of Contents