Filed Pursuant to Rule 424(b)(3)
Registration No. 333-271703
PROSPECTUS SUPPLEMENT NO. 1
(to Prospectus dated May 12, 2023)
4,448,713 Shares of Common Stock
This prospectus supplement
updates, amends, and supplements the prospectus dated May 12, 2023 (the “Prospectus”), which forms a part of our Registration
Statement on Form S-1 (Registration No. 333-271703).
This prospectus supplement
is being filed to update, amend, and supplement the information in the Prospectus with the information contained in our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2023, filed with the Securities and Exchange Commission on May 15, 2023 (the “Quarterly
Report”). Accordingly, we have attached the Quarterly Report to this prospectus supplement.
This prospectus supplement
is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered
with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement
updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future
reference.
Our common stock is traded
on the Nasdaq Capital Market (“Nasdaq”) under the symbol “ATNF”. On May 12, 2023, the last reported sale
price for our common stock as reported on Nasdaq was $0.97 per share.
INVESTING IN OUR SECURITIES
INVOLVES SUBSTANTIAL RISKS. SEE THE SECTION TITLED “RISK FACTORS” BEGINNING ON PAGE 5 OF THE PROSPECTUS TO READ ABOUT FACTORS
YOU SHOULD CONSIDER BEFORE BUYING OUR SECURITIES.
NEITHER THE SECURITIES AND
EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THE PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus supplement is May
15, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-38105
180 LIFE SCIENCES CORP
(Exact name of registrant as specified in its
charter)
Delaware |
|
90-1890354 |
(State or other jurisdiction
of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
3000 El Camino Real
Bldg. 4, Suite 200
Palo Alto, CA 94306 |
|
94306 |
(Address of principal executive
offices) |
|
(Zip Code) |
(650) 507-0669
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b)
of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common Stock, par value
$0.0001 per share |
|
ATNF |
|
The NASDAQ Stock Market
LLC
(The NASDAQ Capital Market) |
Warrants to purchase Common
Stock |
|
ATNFW |
|
The NASDAQ Stock Market
LLC
(The NASDAQ Capital Market) |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
Non-accelerated filer |
☒ |
Smaller reporting company |
☒ |
|
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 15, 2023, 5,317,586 shares of common stock,
par value $0.0001 per share, were issued and outstanding.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2023
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial
Statements
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Assets | |
(unaudited) | | |
| |
Current Assets: | |
| | |
| |
Cash | |
$ | 2,646,184 | | |
$ | 6,970,110 | |
Prepaid expenses and other current assets | |
| 1,550,215 | | |
| 1,958,280 | |
Total Current Assets | |
| 4,196,399 | | |
| 8,928,390 | |
Intangible assets, net | |
| 1,663,032 | | |
| 1,658,858 | |
In-process research and development | |
| 9,063,000 | | |
| 9,063,000 | |
Total Assets | |
$ | 14,922,431 | | |
$ | 19,650,248 | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 1,208,110 | | |
$ | 1,801,210 | |
Accrued expenses | |
| 2,821,013 | | |
| 2,284,516 | |
Accrued expenses - related parties | |
| 228,581 | | |
| 188,159 | |
Loans payable - current portion | |
| 842,202 | | |
| 1,308,516 | |
Derivative liabilities | |
| 22,058 | | |
| 75,381 | |
Total Current Liabilities | |
| 5,121,964 | | |
| 5,657,782 | |
Loans payable - noncurrent portion | |
| 28,732 | | |
| 31,189 | |
Deferred tax liability | |
| 2,631,811 | | |
| 2,617,359 | |
Total Liabilities | |
| 7,782,507 | | |
| 8,306,330 | |
Commitments and contingencies (Note 8) | |
| | | |
| | |
Stockholders’ Equity: | |
| | | |
| | |
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; (see designations and shares authorized for Series A, Class C and Class K preferred stock) | |
| | | |
| | |
Class C Preferred Stock; 1 share authorized, issued and outstanding at March 31, 2023 and December 31, 2022 | |
| - | | |
| - | |
Class K Preferred Stock; 1 share authorized, issued and outstanding at March 31, 2023 and December 31, 2022 | |
| - | | |
| - | |
Common stock, $0.0001 par value; 100,000,000 shares authorized; 3,746,906 and 3,746,906 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | |
| 375 | | |
| 375 | |
Additional paid-in capital | |
| 122,195,032 | | |
| 121,637,611 | |
Accumulated other comprehensive income | |
| (2,884,860 | ) | |
| (2,885,523 | ) |
Accumulated deficit | |
| (112,170,623 | ) | |
| (107,408,545 | ) |
Total Stockholders’ Equity | |
| 7,139,924 | | |
| 11,343,918 | |
Total Liabilities and Stockholders’ Equity | |
$ | 14,922,431 | | |
$ | 19,650,248 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
(unaudited)
| |
For the Three Months Ended | |
| |
March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Operating Expenses: | |
| | |
| |
Research and development | |
$ | 578,309 | | |
$ | 658,939 | |
Research and development - related parties | |
| 216,684 | | |
| 47,718 | |
General and administrative | |
| 4,008,852 | | |
| 2,969,151 | |
General and administrative - related parties | |
| - | | |
| 5,261 | |
Total Operating Expenses | |
| 4,803,845 | | |
| 3,681,069 | |
Loss From Operations | |
| (4,803,845 | ) | |
| (3,681,069 | ) |
| |
| | | |
| | |
Other (Expense) Income: | |
| | | |
| | |
Interest expense | |
| (11,556 | ) | |
| (7,414 | ) |
Interest income - related parties | |
| - | | |
| 4,562 | |
Change in fair value of derivative liabilities | |
| 53,323 | | |
| 5,230,114 | |
Change in fair value of accrued issuable equity | |
| - | | |
| 17,520 | |
Total Other Income, Net | |
| 41,767 | | |
| 5,244,782 | |
(Loss) Income Before Income Taxes | |
| (4,762,078 | ) | |
| 1,563,713 | |
Income tax benefit | |
| - | | |
| - | |
Net (Loss) Income | |
| (4,762,078 | ) | |
| 1,563,713 | |
| |
| | | |
| | |
Other Comprehensive Income (Loss): | |
| | | |
| | |
Foreign currency translation adjustments | |
| 663 | | |
| (728,081 | ) |
Total Comprehensive (Loss) Income | |
$ | (4,761,415 | ) | |
$ | 835,632 | |
| |
| | | |
| | |
Basic and Diluted Net (Loss) Income per Common Share | |
| | | |
| | |
Basic | |
$ | (1.27 | ) | |
$ | 0.92 | |
Diluted | |
$ | (1.27 | ) | |
$ | 0.92 | |
| |
| | | |
| | |
Weighted Average Number of Common Shares Outstanding: | |
| | | |
| | |
Basic | |
| 3,747,145 | | |
| 1,702,997 | |
Diluted | |
| 3,747,145 | | |
| 1,703,439 | |
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(Expressed in US Dollars)
(unaudited)
| |
For The Three Months Ended March 31, 2023 | |
| |
| | |
| | |
Additional | | |
Accumulated Other | | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Comprehensive | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Deficit | | |
Equity | |
Balance - January 1, 2023 | |
| 3,706,469 | | |
$ | 375 | | |
$ | 121,637,611 | | |
$ | (2,885,523 | ) | |
$ | (107,408,545 | ) | |
$ | 11,343,918 | |
Stock-based compensation | |
| - | | |
| - | | |
| 557,421 | | |
| - | | |
| - | | |
| 557,421 | |
Comprehensive (loss) income: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,762,078 | ) | |
| (4,762,078 | ) |
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| 663 | | |
| - | | |
| 663 | |
Balance - March 31, 2023 | |
| 3,706,469 | | |
$ | 375 | | |
$ | 122,195,032 | | |
$ | (2,884,860 | ) | |
$ | (112,170,623 | ) | |
$ | 7,139,924 | |
| |
For The Three Months Ended March 31, 2022 | |
| |
| | |
| | |
Additional | | |
Accumulated Other | | |
| | |
Total | |
| |
Common Stock | | |
Paid-in | | |
Comprehensive | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Deficit | | |
Equity | |
Balance - January 1, 2022 | |
| 1,701,799 | | |
$ | 170 | | |
$ | 107,187,371 | | |
$ | 817,440 | | |
$ | (68,682,286 | ) | |
$ | 39,322,695 | |
Shares issued for professional services to directors | |
| 2,566 | | |
| 1 | | |
| 149,717 | | |
| - | | |
| - | | |
| 149,718 | |
Stock-based compensation | |
| - | | |
| - | | |
| 596,467 | | |
| - | | |
| - | | |
| 596,467 | |
Comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,563,713 | | |
| 1,563,713 | |
Other comprehensive loss | |
| - | | |
| - | | |
| - | | |
| (728,081 | ) | |
| - | | |
| (728,081 | ) |
Balance - March 31, 2022 | |
| 1,704,365 | | |
$ | 171 | | |
$ | 107,933,555 | | |
$ | 89,359 | | |
$ | (67,118,573 | ) | |
$ | 40,904,512 | |
The accompanying notes are an integral
part of these unaudited condensed consolidated financial statements.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in US Dollars)
(unaudited)
| |
For the Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Cash Flows From Operating Activities | |
| | |
| |
Net (Loss) Income | |
$ | (4,762,078 | ) | |
$ | 1,563,713 | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock-based compensation: | |
| | | |
| | |
Shares issued for services | |
| - | | |
| 149,718 | |
Amortization of stock options and restricted stock units | |
| 557,421 | | |
| 596,467 | |
Amortization of intangibles | |
| 21,772 | | |
| 26,462 | |
Deferred tax benefit | |
| - | | |
| (22,332 | ) |
Change in fair value of derivative liabilities | |
| (53,323 | ) | |
| (5,230,114 | ) |
Change in fair value of accrued issuable equity | |
| - | | |
| (17,520 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current assets | |
| 424,913 | | |
| (325,057 | ) |
Accounts payable | |
| (621,861 | ) | |
| 454,982 | |
Accrued expenses | |
| 526,367 | | |
| 662,880 | |
Accrued expenses – related parties | |
| 36,898 | | |
| 19,270 | |
Accrued issuable equity | |
| - | | |
| 48,600 | |
Total adjustments | |
| 892,187 | | |
| (3,636,644 | ) |
Net Cash Used In Operating Activities | |
| (3,869,891 | ) | |
| (2,072,931 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities | |
| | | |
| | |
Repayment of loans payable | |
| (469,810 | ) | |
| (515,419 | ) |
Net Cash Used In Financing Activities | |
| (469,810 | ) | |
| (515,419 | ) |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS,
continued
(Expressed in US Dollars)
(unaudited)
| |
| | | |
| | |
Effect of Exchange Rate Changes on Cash | |
| 15,775 | | |
| 32,757 | |
| |
| | | |
| | |
Net Decrease In Cash | |
| (4,323,926 | ) | |
| (2,555,593 | ) |
Cash - Beginning of Period | |
| 6,970,110 | | |
| 8,224,508 | |
Cash - End of Period | |
$ | 2,646,184 | | |
$ | 5,668,915 | |
| |
| | | |
| | |
Supplemental Disclosures of Cash Flow Information: | |
| | | |
| | |
Cash paid during the period for income taxes | |
$ | - | | |
$ | - | |
Cash paid during the period for interest | |
$ | 7,265 | | |
$ | 2,853 | |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
NOTE 1 - BUSINESS ORGANIZATION AND NATURE
OF OPERATIONS
180 Life Sciences Corp., formerly known as KBL Merger Corp. IV (“180LS”,
or together with its subsidiaries, the “Company”), was a blank check company organized under the laws of the State of Delaware
on September 7, 2016. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase,
reorganization or similar business combination with one or more businesses. On November 6, 2020, a business combination was consummated
following a special meeting of stockholders, where the stockholders of the Company considered and approved, among other matters, a proposal
to adopt a Business Combination Agreement. Pursuant to the Business Combination Agreement, KBL Merger Sub, Inc. merged with 180 Life Corp.
(f/k/a 180 Life Sciences Corp.) (“180”), with 180 continuing as the surviving entity and becoming a wholly-owned subsidiary
of the Company (the “Business Combination”). References to “KBL” refer to the Company prior to the November 6,
2020 Business Combination.
The Company is a clinical
stage biotechnology company focused on the development of therapeutics for unmet medical needs in chronic pain, inflammation, fibrosis
and other inflammatory diseases, where anti-TNF therapy will provide a clear benefit to patients, by employing innovative research, and,
where appropriate, combination therapy. We have three product development platforms:
|
● |
fibrosis and anti-tumor
necrosis factor (“TNF”); |
|
● |
drugs which are derivatives
of cannabidiol (“CBD”); and |
|
● |
alpha 7 nicotinic acetylcholine
receptor (“α7nAChR”). |
NOTE 2 - GOING CONCERN AND MANAGEMENT’S
PLANS
The Company has not generated
any revenues and has incurred significant losses since inception. As of March 31, 2023, the Company had an accumulated deficit of $112,170,623
and a working capital deficit of $925,565, and for the quarter ended March 31, 2023, a net loss of $4,762,078 and cash used in operating
activities of $3,869,891. The Company expects to invest a significant amount of capital to fund research and development. As a result,
the Company expects that its operating expenses will increase significantly, and consequently will require significant revenues to become
profitable. Even if the Company does become profitable, it may not be able to sustain or increase profitability on a quarterly or annual
basis. The Company cannot predict when, if ever, it will be profitable. There can be no assurance that the intellectual property of the
Company, or other technologies it may acquire, will meet applicable regulatory standards, obtain required regulatory approvals, be capable
of being produced in commercial quantities at reasonable costs, or be successfully marketed. The Company plans to undertake additional
laboratory studies with respect to the intellectual property, and there can be no assurance that the results from such studies or trials
will result in a commercially viable product or will not identify unwanted side effects.
The Company’s ability
to continue its operations is dependent upon obtaining new financing for its ongoing operations. Subsequent to the current period, on
April 5, 2023, the Company entered into a Securities Purchase Agreement with a certain purchaser in which the Company agreed to sell
an aggregate of 0.4 million shares of common stock, pre-funded warrants to purchase up to an aggregate of approximately 1.2 million shares
of common stock (“April 2023 Pre-Funded Warrants”), and common stock warrants to purchase up to an aggregate of approximately
1.6 million shares of common stock (the “April 2023 Common Warrants”), for gross proceeds of approximately $3.0 million (see
Note 11 – Subsequent Events below for further details).
The Company plans to continue to fund its losses from operations through
future equity offerings, debt financings or other third-party fundings. There can be no assurance that additional funds will be available
when needed from any source or, if available, will be available on terms that are acceptable to the Company. If the Company is unable
to obtain such additional financing, the Company may have to curtail its development, marketing and promotional activities, which would
have a material adverse effect on its business, financial condition and results of operations, and it could ultimately be forced to discontinue
its operations and liquidate. These matters raise substantial doubt about the Company’s ability to continue as a going concern for
a reasonable period of time, which is defined as within one year after the date that the condensed consolidated financial statements are
issued.
These condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability
to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Significant Accounting Policies
There have been no material
changes to the Company’s significant accounting policies as set forth in the Company’s audited consolidated financial statements
included in the Annual Report on Form 10-K for the year ended December 31, 2022 under Note 3 - Summary of Significant Accounting
Policies, except as disclosed in this note.
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with accounting
principles generally accepted in the United States of America (GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial
information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial
statements. Actual results could differ from those estimates. Additionally, operating results for the quarter ended March 31, 2023 are
not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31,
2023. For further information, refer to the financial statements and footnotes included in the Company’s annual financial statements
for the fiscal year ended December 31, 2022, which are included in the Company’s annual report on Form 10-K filed
with the Securities and Exchange Commission (“SEC”) on March 31, 2023.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses, together with amounts disclosed in the related notes to the condensed consolidated financial statements. The Company’s
significant estimates and assumptions used in these condensed consolidated financial statements include, but are not limited to, the collectability
of an insurance claims receivable, the fair value of financial instruments warrants, options and equity shares, the valuation of stock-based
compensation, and the estimates and assumptions related to impairment analysis of in-process research and development assets.
Certain of the Company’s
estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably
possible that these external factors could have an effect on the Company’s estimates and may cause actual results to differ from
those estimates.
Foreign Currency Translation
The Company’s reporting
currency is the United States dollar. The functional currency of certain subsidiaries was the British Pound (“GBP”) (1.2345
and 1.2098 GBP to 1 US dollar, each as of March 31, 2023 and December 31, 2022, respectively) for balance sheet accounts, while expense
accounts are translated at the weighted average exchange rate for the period (1.2138 and 1.3413 GBP to 1 US dollar for each of the three
months ended March 31, 2023 and 2022, respectively). Equity accounts are translated at historical exchange rates. The resulting translation
adjustments are recognized in stockholders’ equity as a component of accumulated other comprehensive income.
Comprehensive income (loss)
is defined as the change in equity of an entity from all sources other than investments by owners or distributions to owners and includes
foreign currency translation adjustments as described above. During the quarter ended March 31, 2023 and 2022, the Company recorded other
comprehensive income (loss) of $663 and ($728,081), respectively, as a result of foreign currency translation adjustments.
Foreign currency gains and
losses resulting from transactions denominated in foreign currencies, including intercompany transactions, are included in results of
operations. The Company recognized ($1,117) and ($142) of foreign currency transaction losses for the three months ended March 31, 2023
and 2022, respectively. Such amounts have been classified within general and administrative expenses in the accompanying condensed consolidated
statements of operations and comprehensive income (loss).
Intangible Assets and In-Process Research and
Development (“IP R&D”)
Intangible assets consist
of licensed patents held by Katexco Pharmaceuticals Corp. (“Katexco”), a wholly-owned subsidiary of the Company, as well as
technology licenses acquired in connection with the July 2019, corporate restructuring completed between the Company and each of 180 Therapeutics
L.P. (“180 LP”), Katexco and CannBioRex Pharmaceuticals Corp. (“CBR Pharma”), pursuant to which each of 180 LP,
Katexco and CBR Pharma became wholly-owned subsidiaries of the Company (the “Reorganization”). Licensed patents are
amortized over the remaining life of the patent. Technology licenses represent the fair value of licenses acquired for the development
and commercialization of certain licenses and knowledge. The technology licenses are amortized on a straight-line basis over the estimated
useful lives of the underlying patents. It will be necessary to monitor and possibly adjust the useful lives of the licensed patents and
technology licenses depending on the results of the Company’s research and development activities.
IP R&D assets represent
the fair value assigned to technologies that were acquired on July 16, 2019 in connection with the Reorganization, which have not reached
technological feasibility and have no alternative future use. IP R&D assets are considered to be indefinite-lived until the completion
or abandonment of the associated research and development projects. During the period that the IP R&D assets are considered indefinite-lived,
they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes
in circumstances that indicate that the fair value of the IP R&D assets are less than their carrying amounts. If and when development
is complete, which generally occurs upon regulatory approval, and the Company is able to commercialize products associated with the IP
R&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time.
If development is terminated or abandoned, the Company may record a full or partial impairment charge related to the IP R&D assets,
calculated as the excess of the carrying value of the IP R&D assets over their estimated fair value.
As of December 31, 2022, the
carrying amount of the IP R&D assets on the balance sheet was $12,405,084 (which consists of carrying amounts of $1,462,084 and $10,943,000
related to the Company’s CBR Pharma subsidiary and its 180 LP subsidiary, respectively). Per the valuation obtained from a third
party as of year-end, the fair market value of the Company’s IP R&D assets was determined to be $9,063,000 (which consisted
of fair values of $0 and $9,063,000 related to the Company’s CBR Pharma subsidiary and 180 LP subsidiary, respectively). As of that
measurement date, the carrying values of the CBR Pharma and 180 LP subsidiaries’ assets exceeded their fair market values by $1,462,084
and $1,880,000, respectively. As such, management determined that the consolidated IP R&D assets were impaired by $3,342,084 and,
in order to recognize the impairment, the Company recorded a loss for this amount during the fourth quarter of 2022, which appeared as
a loss on impairment to IP R&D assets on the income statement. This reduced the IP R&D asset balances of its CBR Pharma subsidiary
and its 180 LP subsidiary to zero and $9,063,000, respectively, as of December 31, 2022; and the total consolidated IP R&D asset balance
was $9,063,000 after impairment.
As of March 31, 2023, the
carrying amount of the IP R&D assets on the balance sheet was $9,063,000 (which consists of a balance related to the Company’s
180 LP subsidiary); the Company typically assesses asset impairment on an annual basis unless a triggering event or other facts or circumstances
indicate that an evaluation should be performed at an earlier date. At the end of the current period, the Company assessed general economic
conditions, industry and market considerations, the Company’s financial performance and all relevant legal, regulatory, and political
factors that might indicate the possibility of impairment and concluded that, when these factors were collectively evaluated, it is more
likely than not that the asset is not impaired. The Company and its management will continue to perform intangible assets and IP R&D
assets impairment testing on an annual basis, or as needed if there are changes to the composition of its reporting unit or facts or circumstances
are present which indicate the possibility of impairment.
Net (Loss) Income Per Common Share
Basic net income (loss) per
common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares
outstanding, plus the number of additional common shares that would have been outstanding if the common share equivalents had been issued
(computed using the treasury stock or if converted method), if dilutive.
The following table details
the net income (loss) per share calculation, reconciles between basic and diluted weighted average shares outstanding, and presents the
potentially dilutive shares that are excluded from the calculation of the weighted average diluted common shares outstanding, because
their inclusion would have been anti-dilutive:
| |
For the Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Numerator: | |
| | |
| |
Net (loss) income | |
$ | (4,762,078 | ) | |
$ | 1,563,713 | |
| |
| | | |
| | |
Weighted average shares outstanding (denominator for basic earnings per share) | |
| 3,747,145 | | |
| 1,702,997 | |
| |
| | | |
| | |
Effects of dilutive securities: | |
| | | |
| | |
Assumed exercise of stock options, treasury stock method | |
| - | | |
| 442 | |
Dilutive potential common shares | |
| - | | |
| 442 | |
| |
| | | |
| | |
Weighted average shares and assumed potential common shares (denominator for diluted earnings per share, treasury method) | |
| 3,747,145 | | |
| 1,703,439 | |
| |
| | | |
| | |
Basic earnings per share | |
$ | (1.27 | ) | |
$ | 0.92 | |
Diluted earnings per share | |
$ | (1.27 | ) | |
$ | 0.92 | |
The following common share
equivalents are excluded from the calculation of weighted average common shares outstanding, because their inclusion would have been
anti-dilutive:
| |
For the Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Options | |
| 152,045 | | |
| 134,550 | |
Warrants | |
| 3,435,728 | | |
| 557,696 | |
Total potentially dilutive shares | |
| 3,587,773 | | |
| 692,246 | |
Warrant, Option and Convertible Instrument
Valuation
The Company has computed
the fair value of warrants and options using a Black-Scholes model. The expected term used for warrants is the contractual life and the
expected term used for options issued is the estimated period of time that options granted are expected to be outstanding. The Company
utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” option grants.
The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent
to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest
rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term
of the instrument being valued.
Subsequent Events
The Company has evaluated
events that have occurred after the balance sheet date but before these condensed consolidated financial statements were issued. Based
upon that evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment
or disclosure in the financial statements, except as disclosed in Note 11 - Subsequent Events.
Recently Issued Accounting Pronouncements
Management does not believe
that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the
Company’s unaudited condensed consolidated financial statements.
NOTE 4 – PREPAID EXPENSES AND OTHER
CURRENT ASSETS
Prepaid expenses and other current assets consist of the following
as of March 31, 2023 and December 31, 2022:
| |
March 31, | | |
December 31 | |
| |
2023 | | |
2022 | |
Insurance | |
$ | 754,217 | | |
$ | 1,027,292 | |
Research and development expense tax credit receivable | |
| 322,129 | | |
| 546,563 | |
Professional fees | |
| 438,501 | | |
| 310,017 | |
Value-added tax receivable | |
| 9,734 | | |
| 48,774 | |
Taxes | |
| 25,634 | | |
| 25,634 | |
| |
$ | 1,550,215 | | |
$ | 1,958,280 | |
NOTE 5 – ACCRUED EXPENSES
Accrued expenses consist
of the following as of March 31, 2023 and December 31, 2022:
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Consulting fees | |
$ | 517,489 | | |
$ | 531,829 | |
Professional fees | |
| - | | |
| 3,945 | |
Litigation accrual (1) | |
| 764,556 | | |
| 125,255 | |
Employee and director compensation | |
| 1,305,521 | | |
| 1,558,024 | |
Research and development fees | |
| 165,395 | | |
| 22,023 | |
Interest | |
| 56,457 | | |
| 36,422 | |
Other | |
| 11,595 | | |
| 7,018 | |
| |
$ | 2,821,013 | | |
$ | 2,284,516 | |
(1) |
See Note 8 - Commitments
and Contingencies, Legal Matters. |
As of March 31, 2023 and
December 31, 2022, accrued expenses - related parties were $228,581 and $188,159, respectively. See Note 10 - Related Parties for details.
NOTE 6 - DERIVATIVE LIABILITIES
The following table sets forth a summary of the changes in the fair
value of Level 3 derivative liabilities (except the Public SPAC Warrants as defined below, which are Level 1 derivative liabilities) that
are measured at fair value on a recurring basis:
| |
Warrants | | |
| |
| |
Public | | |
Private | | |
| | |
| | |
| |
| |
SPAC | | |
SPAC | | |
PIPE | | |
Other | | |
Total | |
Balance as of January 1, 2023 | |
$ | 31,625 | | |
$ | 1,256 | | |
$ | 42,100 | | |
$ | 400 | | |
$ | 75,381 | |
Change in fair value of derivative liabilities | |
| (21,390 | ) | |
| (1,005 | ) | |
| (30,600 | ) | |
| (328 | ) | |
| (53,323 | ) |
Balance as of March 31, 2023 | |
$ | 10,235 | | |
$ | 251 | | |
$ | 11,500 | | |
$ | 72 | | |
$ | 22,058 | |
The fair value of the derivative liabilities as of March 31, 2023 and
December 31, 2022 was estimated using the Black Scholes option pricing model, with the following assumptions used:
| |
March 31, 2023 | |
Risk-free interest rate | |
| 3.71%
- 4.40 | % |
Expected term in years | |
| 1.34
– 2.90 | |
Expected volatility | |
| 103.5%
- 106.0 | % |
Expected dividends | |
| 0 | % |
Market Price | |
$ | 1.80 | |
|
|
December 31,
2022 |
|
Risk-free interest rate |
|
|
2.30% - 4.50 |
% |
Expected term in years |
|
|
1.59 – 3.90 |
|
Expected volatility |
|
|
76.0% - 105.0 |
% |
Expected dividends |
|
|
0 |
% |
Market Price |
|
$ |
3.39 |
|
SPAC Warrants
Public SPAC Warrants
Participants in KBL’s
initial public offering received an aggregate of 11,500,000 Public SPAC Warrants (“Public SPAC Warrants”). Each Public SPAC
Warrant entitles the holder to purchase one-fortieth of one share of the Company’s common stock at an exercise price of $5.75 per
1/40th of one share, or $230.00 per whole share, subject to adjustment. No fractional shares will be issued upon exercise of
the Public SPAC Warrants; the Public SPAC Warrants are currently exercisable and will expire on November 6, 2025, or earlier upon redemption
or liquidation. Management has determined that the Public SPAC Warrants contain a tender offer provision which could result in the Public
SPAC Warrants settling for the tender offer consideration (including potentially cash) in a transaction that didn’t result in a
change-in-control. This feature results in the Public SPAC Warrants being precluded from equity classification. Accordingly, the Public
SPAC Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The Public
SPAC Warrants were revalued on March 31, 2023 at $10,235, which resulted in a decrease of $21,390 in the fair value of the derivative
liabilities during the three months ended March 31, 2023.
Private SPAC Warrants
Participants in KBL’s
initial private placement received an aggregate of 502,500 Private SPAC Warrants (“Private SPAC Warrants”). Each Private Warrant
entitles the holder to purchase one-fortieth of one share of the Company’s common stock at an exercise price of $5.75 per 1/40th
of one share, or $230.00 per whole share, subject to adjustment. No fractional shares will be issued upon exercise of the Private
SPAC Warrants; the Private SPAC Warrants are currently exercisable and will expire on November 6, 2025, or earlier upon redemption or
liquidation. Management has determined that the Private SPAC Warrants contain a tender offer provision which could result in the Private
SPAC Warrants settling for the tender offer consideration (including potentially cash) in a transaction that didn’t result in a
change-in-control. This feature (amongst others) results in the Private SPAC Warrants being precluded from equity classification. Accordingly,
the Private SPAC Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in
earnings. The Private SPAC Warrants were revalued on March 31, 2023 at $251, which resulted in a decrease of $1,005 in the fair value
of the derivative liabilities during the three months ended March 31, 2023.
PIPE Warrants
On February 23, 2021, the Company issued five-year warrants (the “PIPE
Warrants”) to purchase 128,200 shares of common stock at an exercise price of $100.00 per share in connection with the private offering
(see Note 9 – Stockholders’ Equity, Common Stock). The PIPE Warrants did not meet the requirements for equity classification
due to the existence of a tender offer provision that could potentially result in cash settlement of the PIPE Warrants that didn’t
meet the limited exception in the case of a change-in-control. Accordingly, the PIPE Warrants are liability-classified and the Company
recorded the $7,294,836 fair value of the PIPE Warrants, which was determined using the Black-Scholes option pricing model, as derivative
liabilities. The PIPE Warrants were revalued on March 31, 2023 at $11,500, which resulted in a decrease of $30,600 in the fair value of
the derivative liabilities during the three months ended March 31, 2023.
Other Warrants
AGP Warrant
In connection with the closing
of the Business Combination on November 6, 2020, the Company became obligated to assume five-year warrants for the purchase of 3,183
shares of the Company’s common stock at an exercise price of $105.60 per share (the “AGP Warrant Liability”) that had
originally been issued by KBL to an investment banking firm in connection with a prior private placement.
On March 12, 2021, the Company issued a warrant to Alliance Global
Partners (“AGP” and the “AGP Warrant”) to purchase up to an aggregate of 3,183 shares of the Company’s common
stock at a purchase price of $105.60 per share, subject to adjustment, in full satisfaction of the existing AGP Warrant Liability. The
exercise of the AGP Warrant is limited at any given time to prevent AGP from exceeding beneficial ownership of 4.99% of the then total
number of issued and outstanding shares of the Company’s common stock upon such exercise. The warrant is exercisable at any time
between May 2, 2021 and May 2, 2025. The AGP Warrant did not meet the requirements for equity classification due to the existence of a
tender offer provision that could potentially result in cash settlement of the AGP Warrant that did not meet the limited exception in
the case of a change-in-control. Accordingly, the AGP Warrant will continue to be liability-classified. The AGP Warrant was revalued on
March 31, 2023 at $72, which resulted in a decrease of $328 in the fair value of the derivative liabilities during the three months ended
March 31, 2023.
Alpha Warrant
In connection with that certain Mutual Release and Settlement Agreement
dated July 31, 2021 (agreed to on July 29, 2021) between the Company and Alpha Capital Anstal (“Alpha” and the “Alpha
Settlement Agreement”), the Company issued a three-year warrant for the purchase of 1,250 shares of the Company’s common stock
at an exercise price of $141.40 per share (the “Alpha Warrant Liability” and the “Alpha Warrant”). The exercise
of shares of the Alpha Warrant is limited at any given time to prevent Alpha from exceeding a beneficial ownership of 4.99% of the then
total number of issued and outstanding shares of the Company’s common stock upon such exercise. The warrant is exercisable until
August 2, 2024. The Alpha Warrant did not meet the requirements for equity classification due to the existence of a tender offer provision
that could potentially result in cash settlement of the Alpha Warrant that did not meet the limited exception in the case of a change-in-control.
Accordingly, the Alpha Warrant is liability-classified and the Company recorded the $95,677 fair value of the Alpha Warrant, which was
determined using the Black-Scholes option pricing model, as a warrant liability. The Alpha Warrant was revalued on March 31, 2023 at $0,
which did not result in any change in the fair value of the derivative liabilities during the three months ended March 31, 2023.
Warrant Activity
As the number of liability-classified
warrants are less than 15% of the total outstanding warrants as of March 31, 2023, the summary of warrant activity is included in Note
9 – Stockholders’ Equity.
NOTE 7 - LOANS PAYABLE
Loans Payable
The following table summarizes
the activity of loans payable during the quarter ended March 31, 2023:
| |
Principal balance at December 31,
2022 | | |
Principal repaid in cash | | |
Effect of foreign exchange rates | | |
Principal balance at March 31, 2023 | |
| |
| | |
| | |
| | |
| |
Bounce Back Loan | |
$ | 43,129 | | |
$ | (3,018 | ) | |
$ | 881 | | |
$ | 40,992 | |
First Insurance - 2022 | |
| 1,060,890 | | |
| (466,792 | ) | |
| - | | |
| 594,098 | |
Other loans payable | |
| 235,686 | | |
| - | | |
| 158 | | |
| 235,844 | |
Total loans payable | |
$ | 1,339,705 | | |
$ | (469,810 | ) | |
$ | 1,039 | | |
$ | 870,934 | |
Less: loans payable – current portion | |
| 1,308,516 | | |
| | | |
| | | |
| 842,202 | |
Loans payable – noncurrent portion | |
$ | 31,189 | | |
| | | |
| | | |
$ | 28,732 | |
During the three months ended
March 31, 2023, the Company paid $466,792 and $3,018 in partial satisfaction of the First Assurance Funding loan and the Bounce Back
Loan Scheme, respectively.
Interest Expense on Loans Payable
For the three months ended
March 31, 2023 and 2022, the Company recognized interest expense associated with loans payable of $11,556 and $7,414, respectively, and
interest income — related parties associated with loans payable of $0 and $4,562, respectively.
As of March 31, 2023, the
Company had accrued interest and accrued income — related parties associated with loans payable of $56,457 and $1,227, respectively.
As of December 31, 2022, the Company had accrued interest and accrued interest — related parties associated with loans payable
of $36,422 and $16,770, respectively. See Note 10 — Related Parties for additional details.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Litigation and Other Loss Contingencies
The Company records liabilities
for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources when it is probable that a liability
has been incurred and the amount of the loss can be reasonably estimated. The Company has no liabilities recorded for loss contingencies
as of December 31, 2022.
Legal Matters
Action Against Former Executive of KBL
On September 1, 2021, the
Company initiated legal action in the Chancery Court of Delaware against Dr. Marlene Krauss, the Company’s former Chief Executive
Officer and director (“Dr. Krauss”) and two of her affiliated companies, KBL IV Sponsor, LLC and KBL Healthcare Management,
Inc. (collectively, the “KBL Affiliates”) for, among other things, engaging in unauthorized monetary transfers of the
Company’s assets, non-disclosure of financial liabilities within the Company’s Consolidated Financial Statements, issuing
shares of stock without proper authorization; and improperly allowing stockholder redemptions to take place. The Company’s complaint
alleges causes of action against Dr. Krauss and/or the KBL Affiliates for breach of fiduciary duties, ultra vires acts, unjust enrichment,
negligence and declaratory relief, and seeks compensatory damages in excess of $11,286,570, together with interest, attorneys’
fees and costs. There can be no assurance that the Company will be successful in its legal actions.
On October 5, 2021, Dr. Krauss
and the KBL Affiliates filed an Answer, Counterclaims and Third-Party Complaint (the “Krauss Counterclaims”) against the
Company and twelve individuals who are, or were, directors and/or officers of the Company, i.e., Marc Feldmann, Lawrence Steinman, James
N. Woody, Teresa DeLuca, Frank Knuettel II, Pamela Marrone, Lawrence Gold, Donald A. McGovern, Jr., Russell T. Ray, Richard
W. Barker, Shoshana Shendelman and Ozan Pamir (collectively, the “Third-Party Defendants”). On October 27, 2021,
the Company and Ozan Pamir filed an Answer to the Krauss Counterclaims, and all of the other Third-Party Defendants filed a Motion to
Dismiss as to the Third-Party Complaint.
On January 28, 2022, in lieu
of filing an opposition to the Motion to Dismiss, Dr. Krauss and the KBL Affiliates filed a Motion for leave to file amended counterclaims
and third-party complaint, and to dismiss six of the current and former directors previously named, i.e., to dismiss Teresa DeLuca,
Frank Knuettel II, Pamela Marrone, Russell T. Ray, Richard W. Barker and Shoshana Shendelman. The Motion was granted by stipulation
and, on February 24, 2022, Dr. Krauss filed an amended Answer, Counterclaims and Third-Party Complaint (the “Amended Counterclaims”).
In essence, the Amended Counterclaims allege (a) that the Company and the remaining Third-Party Defendants breached fiduciary duties
to Dr. Krauss by making alleged misstatements against Dr. Krauss in SEC filings and failing to register her shares in the Company so
that they could be traded, and (b) the Company breached contracts between the Company and Dr. Krauss for registration of such shares,
and also failed to pay to Dr. Krauss the amounts alleged to be owing under a promissory note in the principal amount of $371,178, plus
an additional $300,000 under Dr. Krauss’s resignation agreement. The Amended Counterclaims seek unspecified amounts
of monetary damages, declaratory relief, equitable and injunctive relief, and attorney’s fees and costs.
On March 16, 2022, Donald
A. McGovern, Jr. and Lawrence Gold filed a Motion to Dismiss the Amended Counterclaims against them, and the Company and the remaining
Third-Party Defendants filed an Answer to the Amended Counterclaims denying the same. On April 19, 2022, Dr. Krauss stipulated
to dismiss all of her counterclaims and allegations against both Donald A. McGovern, Jr. and Lawrence Gold, thereby mooting their Motion
to Dismiss the Amended Counterclaims against them. The Company and the Third-Party Defendants intend to continue to vigorously defend
against all of the Amended Counterclaims, however, there can be no assurance that they will be successful in the legal defense of such
Amended Counterclaims. In April 2022, Donald A. McGovern, Jr. and Lawrence Gold were dismissed from the lawsuit as parties. Discovery
has not yet commenced in the case. The Company and the Third-Party Defendants intend to continue to vigorously defend against all
of the Amended Counterclaims, however, there can be no assurance that they will be successful in the legal defense of such Amended Counterclaims.
Action Against the Company by Dr. Krauss
On August 19, 2021, Dr. Krauss
initiated legal action in the Chancery Court of Delaware against the Company. The original Complaint sought expedited relief and
made the following two claims: (1) it alleged that the Company is obligated to advance expenses including, attorney’s fees,
to Dr. Krauss for the costs of defending against the SEC and certain Subpoenas served by the SEC on Dr. Krauss; and (2) it alleged that
the Company is also required to reimburse Dr. Krauss for the costs of bringing this lawsuit against the Company. On or about
September 3, 2021, Dr. Krauss filed an Amended and Supplemental Complaint (the “Amended Complaint”) in this action, which
added the further claims that Dr. Krauss is also allegedly entitled to advancement by the Company of her expenses, including attorney’s
fees, for the costs of defending against the Third-Party Complaint in the Tyche Capital LLC action referenced below, and the costs of
defending against the Company’s own Complaint against Dr. Krauss as described above. On or about September 23, 2021,
the Company filed its Answer to the Amended Complaint in which the Company denied each of Dr. Krauss’ claims and further raised
numerous affirmative defenses with respect thereto.
On November 15, 2021, Dr.
Krauss filed a Motion for Summary Adjudication as to certain of the issues in the case, which was opposed by the Company. A hearing
on such Motion was held on December 7, 2021, and, on March 7, 2022, the Court issued a decision in the matter denying the Motion
for Summary Adjudication in part and granting it in part. The Court then issued an Order implementing such a decision on March 29,
2022. The parties are now engaging in proceedings set forth in that implementing Order. The Court granted Dr. Krauss’s request
for advancement of some of the legal fees which Dr. Krauss requested in her Motion, and the Company was required to pay a portion of
those fees while it objects to the remaining portion of disputed fees. These legal fees have been accrued on the Company’s balance
sheet.
On October 10, 2022, Dr. Krauss
filed an Application to compel the Company to pay the full amount of fees requested by Dr. Krauss for May-July 2022, and to modify the
Court’s Order. The Company filed its Opposition thereto. On January 18, 2023, Dr. Krauss filed a Second Application to
compel the Company to pay the full amount of fees requested by Dr. Krauss for August-October 2022, and to modify the Court's Order.
The Company filed its Opposition thereto. On May 3, 2023, the Court issued an Order granting both of Dr. Krauss’s Applications
for payment of the full amount of requested attorney’s fees for the months of May through October 2022. Notwithstanding
the Order, such ruling does not constitute any final adjudication as to whether Dr. Krauss will ultimately be entitled to permanently
retain such advancements, and Dr. Krauss has posted an undertaking with the Court affirmatively promising to repay all such amounts
if she is eventually found to be liable for the Company’s and/or the SEC’s claims against her. The Company is seeking payment
for a substantial portion of such amounts from its director and officers’ insurance policy, of which no assurance can be provided
that the directors and officers insurance policy will cover such amounts. See “Declaratory Relief Action Against the Company
by AmTrust International” below.
Action Against Tyche Capital LLC
The Company commenced and
filed an action against defendant Tyche Capital LLC (“Tyche”) in the Supreme Court of New York, in the County of New York,
on April 15, 2021. In its Complaint, the Company alleged claims against Tyche arising out of Tyche’s breach of its written
contractual obligations to the Company as set forth in a “Guarantee and Commitment Agreement” dated July 25, 2019, and a
“Term Sheet For KBL Business Combination With CannBioRex” dated April 10, 2019 (collectively, the “Subject Guarantee”).
The Company alleges in its Complaint that, notwithstanding demand having been made on Tyche to perform its obligations under the Subject
Guarantee, Tyche has failed and refused to do so, and is currently in debt to the Company for such failure in the amount of $6,776,686,
together with interest accruing thereon at the rate set forth in the Subject Guarantee.
On or about May 17, 2021,
Tyche responded to the Company’s Complaint by filing an Answer and Counterclaims against the Company alleging that it was the Company,
rather than Tyche, that had breached the Subject Guarantee. Tyche also filed a Third-Party Complaint against six third-party defendants,
including three members of the Company’s management, Sir Marc Feldmann, Dr. James Woody, and Ozan Pamir (collectively, the “Individual
Company Defendants”), claiming that they allegedly breached fiduciary duties to Tyche with regards to the Subject Guarantee. In
that regard, on June 25, 2021, each of the Individual Company Defendants filed a Motion to Dismiss Tyche’s Third-Party Complaint
against them.
On November 23, 2021, the
Court granted the Company’s request to issue an Order of attachment against all of Tyche’s shares of the Company’s
stock that had been held in escrow. In so doing, the Court found that the Company had demonstrated a likelihood of success on the
merits of the case based on the facts alleged in the Company’s Complaint.
On February 18, 2022, Tyche filed an Amended Answer, Counterclaims
and Third-Party Complaint. On March 22, 2022, the Company and each of the Individual Company Defendants filed a Motion to Dismiss
all of Tyche’s claims. A hearing on such Motion to Dismiss was held on August 25, 2022, and the Court granted the Motion
to Dismiss entirely as to each of the Individual Company Defendants, and also as to three of the four Counterclaims brought against the
Company, only leaving Tyche’s declaratory relief claim. On September 9, 2022, Tyche filed a Notice of Appeal as to the Court’s
decision, which has never been briefed or adjudicated. On August 26, 2022, Tyche filed a Motion to vacate or modify the Company’s
existing attachment Order against Tyche’s shares of the Company’s stock held in escrow. The Company has filed its Opposition
thereto, and the Court summarily denied such Motion without hearing on January 3, 2023. Tyche subsequently filed a Notice of Appeal
as to that denial and filed its Opening Brief on January 30, 2023. The Company filed its opposition brief on March 2, 2023,
and the matter was taken under submission by the Appellate Court. On May 4, 2023, the Appellate Court issued its decision unanimously
affirming the ruling of the lower Court in the Company’s favor.
On January 30, 2023,
the Company filed a Notice of Motion for Summary Judgment and to Dismiss Affirmative Defenses against Tyche. That motion
has been fully briefed, and the Court has scheduled a hearing thereon for June 20, 2023. The Company and the Individual Company
Defendants intend to continue to vigorously defend against all of Tyche’s claims; however, there can be no assurance that
they will be successful in the legal defense of such claims. Written discovery proceedings and depositions have occurred among the parties.
Action Against Ronald Bauer & Samantha
Bauer
The Company and two of its
wholly-owned subsidiaries, Katexco Pharmaceuticals Corp. and CannBioRex Pharmaceuticals Corp. (collectively, the “Company Plaintiffs”),
initiated legal action against Ronald Bauer and Samantha Bauer, as well as two of their companies, Theseus Capital Ltd. and Astatine
Capital Ltd. (collectively, the “Bauer Defendants”), in the Supreme Court of British Columbia on February 25, 2022. The Company
Plaintiffs are seeking damages against the Bauer Defendants for misappropriated funds and stock shares, unauthorized stock sales, and
improper travel expenses, in the combined sum of at least $4,395,000 CAD [$3,248,696 USD] plus the additional sum of $2,721,036 USD.
The Bauer Defendants filed an answer to the Company Plaintiffs’ claims on May 6, 2022. There can be no assurance that the Company
Plaintiffs will be successful in this legal action.
Declaratory Relief Action Against the Company
by AmTrust International
On June 29, 2022, AmTrust
International Underwriters DAC (“AmTrust”), which was the premerger directors’ and officers’ insurance policy
underwriter for KBL, filed a declaratory relief action against the Company in the U.S. District Court for the Northern District
of California (the “Declaratory Relief Action”) seeking declaration of AmTrust’s obligations under the directors’
and officers’ insurance policy. In the Declaratory Relief Action, AmTrust is claiming that as a result of the merger
the Company is no longer the insured under the subject insurance policy, notwithstanding the fact that the fees which the Company
seeks to recover from AmTrust relate to matters occurring prior to the merger.
On September 20, 2022, the
Company filed its Answer and Counterclaims against AmTrust for bad faith breach of AmTrust’s insurance coverage obligations to
the Company under the subject directors’ and officers’ insurance policy, and seeking damages of at least $2 million in compensatory
damages, together with applicable punitive damages. In addition, the Company brought a Third-Party Complaint against its excess insurance
carrier, Freedom Specialty Insurance Company (“Freedom”) seeking declaratory relief that Freedom will also be required to
honor its policy coverage as soon as the amount of AmTrust’s insurance coverage obligations to the Company have been exhausted.
On October 25, 2022, AmTrust filed its Answer to the Company’s Counterclaims and, on October 27, 2022, Freedom filed its Answer
to the Third-Party Complaint.
On November 22, 2022, the
Company filed a Motion for Summary Adjudication against both AmTrust and Freedom. The Motion was fully briefed, and a hearing was held
on March 9, 2023. The standard to prevail on a Motion for Summary Adjudication in the Court is high to prevail and requires a judge to
find that there are no disputed issues of fact so that they can rule on the issues as a matter of law. In this instance the judge found
three major issues could be decided as a matter of law in the Company’s favor and that one issue, the Change in Control exclusion,
requires further discovery.
On April 21, 2023, the Court
issued an Order Granting in Part and Denying in Part the Company’s Motion for Partial Summary Judgment. Specifically, the Court
granted summary adjudication in favor of the Company on the following issues: (a) that the Company is, in fact, an insured under both
the AmTrust and Freedom insurance policies; (b) that certain SEC subpoena related expenses for defendants Dr. Marlene Krauss, the Company’s
former Chief Executive Officer and Director, and George Hornig, the former Chairman of the Board, are within the basic scope of coverage
under both the AmTrust and Freedom insurance policies; and (c) that the Insured vs. Insured exclusion relied upon by AmTrust and Freedom
is not applicable to bar any such coverage.
The Court also found that
there were issues of disputed facts as to the Change in Control exclusion contained within the policies, which therefore precluded the
Court from granting the remainder of the Company’s requests for summary adjudication as a matter of law. Accordingly, the Court,
at this time, denied the Company’s further requests for summary adjudication and deemed that for the time being, the Change in Control
issue is to be determined at the time of trial, in order to find that the policies (i) provide coverage for the fees which the Company
has advanced and will advance to Dr. Marlene Krauss and George Hornig; (ii) that AmTrust has breached the policy; (iii) that AmTrust must
pay such expenses of the Company; and that, once the AmTrust policy has been exhausted, (iv) Freedom will be obligated to pay such expenses
of the Company pursuant to its policy. The Company intends to continue to vigorously pursue this final matter in order to establish the
Company’s entitlement to full payment by both AmTrust and Freedom of the subject advancement expenses of the Company.
While the Company continues to believe it has a strong case against
both AmTrust and Freedom, and believes the Court ruling in its favor in regards to the matters discussed above is a significant positive
outcome for the Company, there can be no assurance that the Company will prevail in this action.
NOTE 9 – STOCKHOLDERS’ EQUITY
Reverse Stock-Split during 2022
On December 15, 2022, at a Special Meeting of the Stockholders of the
Company, the stockholders of the Company approved an amendment to the Company’s Second Amended and Restated Certificate of Incorporation,
as amended, to effect a reverse stock split of our issued and outstanding shares of our common stock, par value $0.0001 per share, by
a ratio of between one-for-four to one-for-twenty, inclusive, with the exact ratio to be set at a whole number to be determined by our
Board of Directors or a duly authorized committee thereof in its discretion, at any time after approval of the amendment and prior to
December 15, 2023 (the “Stockholder Authority”). On December 15, 2022, the Company’s Board of Directors (the “Board”),
with the Stockholder Authority, approved an amendment to the Company’s Second Amended and Restated Certificate of Incorporation
to affect a reverse stock split of its common stock at a ratio of 1-for-20 (the “Reverse Stock Split”). Pursuant to the Certificate
of Amendment filed to affect the Reverse Stock Split, the Reverse Stock Split was effective on December 19, 2022 and the shares of the
Company’s common stock began trading on the NASDAQ Capital Market (“NASDAQ”) on a post-split basis on December
19, 2022, with new CUSIP number: 68236V203. No change was made to the trading symbol for the Company’s shares of common stock or
public warrants, “ATNF” and “ATNFW”, respectively, in connection with the Reverse Stock Split.
Because the Certificate of Amendment did not reduce the number of authorized
shares of common stock, the effect of the Reverse Stock Split was to increase the number of shares of common stock available for issuance
relative to the number of shares issued and outstanding. The Reverse Stock Split did not alter the par value of the common stock or modify
any voting rights or other terms of the common stock. Any fractional shares remaining after the Reverse Stock Split were rounded up to
the nearest whole share.
With regards to the Company’s
2020 Omnibus Incentive Plan and the 2022 Omnibus Incentive Plan, the Company’s Compensation Committee and Board deem it in the
best interests of the Company and its stockholders to (i) adjust the number of shares of Company common stock available for issuance
under the Incentive Plans downward by a factor of 20 (with any fractional shares rounded down to the nearest whole share); (ii) reduce
the number of shares of common stock issuable upon each outstanding option to purchase shares of common stock of the Company, and all
other outstanding awards, by a factor of 20 (with any fractional shares rounded down to the nearest whole share); and (iii) adjust the
exercise price of any outstanding options to purchase shares of common stock previously granted under the Incentive Plans up by a factor
of 20 (rounded up to the nearest whole cent), in each case to adjust equitably for the Exchange Ratio of the Reverse Stock Split, which
such adjustments effective automatically upon effectiveness of the Reverse Stock Split. The effects of the one-for-twenty reverse stock
split have been retroactively reflected throughout the financial statements and notes to the financial statements.
Restricted Stock Shares
During the quarter ended March
31, 2023, the Company did not issue any additional restricted shares of the Company’s common stock, or Restricted Stock Shares,
as compensation to consultants. Per the two-year consulting agreement which evidences the issuance of 600 restricted shares issued during
2022, the Restricted Stock Shares were issued at the beginning of the contract term and annually and vest monthly over a period of 24
months. The Company recognized stock-based compensation expense related to the amortization of the Restricted Stock Shares of $8,100 for
the three months ended March 31, 2023.
Below is a table summarizing
the Restricted Stock Shares granted and outstanding as of and for the quarter ended March 31, 2023:
| |
Unvested Restricted | | |
Weighted Average Grant Date | |
| |
Stock | | |
FV Price | |
Unvested as of January 1, 2023 | |
| 275 | | |
$ | 81.00 | |
Granted | |
| - | | |
| - | |
Vested | |
| (100 | ) | |
| 81.00 | |
Forfeited | |
| (55 | ) | |
| - | |
Unvested as of March 31, 2022 | |
| 120 | | |
| 81.00 | |
Total unrecognized expense remaining | |
$ | 9,720 | | |
| | |
Weighted-average years expected to be recognized over | |
| 0.75 | | |
| - | |
Stock Options
A summary of the option activity
during the quarter ended March 31, 2023 is presented below:
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
| |
| |
Number of | | |
Exercise | | |
Term | | |
Intrinsic | |
| |
Options | | |
Price | | |
(Years) | | |
Value | |
Outstanding, January 1, 2023 | |
| 162,956 | | |
$ | 84.63 | | |
| 8.6 | | |
| - | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Expired | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited | |
| (10,911 | ) | |
| - | | |
| - | | |
| - | |
Outstanding, March 31, 2023 | |
| 152,045 | | |
$ | 85.03 | | |
| 8.1 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, March 31, 2023 | |
| 101,759 | | |
$ | 84.34 | | |
| 7.9 | | |
$ | - | |
A summary of outstanding
and exercisable stock options as of March 31, 2023 is presented below:
Stock Options Outstanding | | |
Stock Options Exercisable | |
| | |
| | |
Weighted | | |
| |
| | |
| | |
Average | | |
| |
Exercise | | |
Number of | | |
Remaining | | |
Number of | |
Price | | |
Shares | | |
Life in Years | | |
Shares | |
$ | 49.80 | | |
| 2,500 | | |
| 7.7 | | |
| 2,500 | |
$ | 88.60 | | |
| 79,000 | | |
| 7.9 | | |
| 59,689 | |
$ | 151.20 | | |
| 21,800 | | |
| 8.3 | | |
| 9,083 | |
$ | 79.00 | | |
| 22,839 | | |
| 6.8 | | |
| 18,673 | |
$ | 27.20 | | |
| 25,906 | | |
| 9.1 | | |
| 11,814 | |
| | | |
| 152,045 | | |
| 7.9 | | |
| 101,759 | |
The Company recognized stock-based compensation expense of $557,421
for the three months ended March 31, 2023 related to the amortization of stock options and restricted stock shares; expense of $470,703
is included within general and administrative expenses on the condensed consolidated statements of operations for the three month period
and expense of $86,718 is included within research and development expenses on the condensed consolidated statements of operations for
the three month period. The Company recognized stock-based compensation expense of $596,467 for the three months ended March 31, 2022
related to the amortization of stock options. Expense of $514,696 is included within general and administrative expenses and expense of
$81,771 is included within research and development expenses on the condensed consolidated statements of operations. As of March 31, 2023,
there was $2,981,420 of unrecognized stock-based compensation expense related to stock options that will be recognized over the weighted
average remaining vesting period of 1.8 years, as well as $9,720 of unrecognized expense related to Restricted Stock Shares that will
be recognized over the weighted average remaining vesting period of 0.75 years.
Warrants
A summary of the warrant
activity (including both liability and equity classified instruments) during the quarter ended March 31, 2023 is presented below:
| |
Number of Warrants | | |
Weighted Average Exercise
Price | | |
Weighted Average Remaining
Life in Years | | |
Intrinsic Value | |
| |
| | |
| | |
| | |
| |
Outstanding, January 1, 2023 | |
| 3,435,728 | | |
$ | 33.94 | | |
| 5.1 | | |
$ | - | |
Issued | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Cancelled | |
| - | | |
| - | | |
| - | | |
| - | |
Expired | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding, March 31, 2023 | |
| 3,435,728 | | |
$ | 33.94 | | |
| 4.8 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, March 31, 2023 | |
| 3,435,728 | | |
$ | 33.94 | | |
| 4.8 | | |
| - | |
A summary of outstanding
and exercisable warrants as of March 31, 2023 is presented below:
Warrants Outstanding | | |
Warrants Exercisable | |
| | |
| | |
Weighted | | |
| |
| | |
| | |
Average | | |
| |
Exercise | | |
Number of | | |
Remaining | | |
Number of | |
Price | | |
Shares | | |
Life in Years | | |
Shares | |
$ | 100.00 | | |
| 128,200 | | |
| 2.9 | | |
| 128,200 | |
$ | 105.60 | | |
| 3,183 | | |
| 2.1 | | |
| 3,183 | |
$ | 141.40 | | |
| 1,250 | | |
| 1.3 | | |
| 1,250 | |
$ | 150.00 | | |
| 125,000 | | |
| 3.4 | | |
| 125,000 | |
$ | 230.00 | | |
| 300,062 | | |
| 2.6 | | |
| 300,062 | |
$ | 21.20 | | |
| 306,604 | | |
| 4.8 | | |
| 306,604 | |
$ | 3.50 | | |
| 2,571,429 | | |
| 5.2 | | |
| 2,571,429 | |
| | | |
| 3,435,728 | | |
| 4.8 | | |
| 3,435,728 | |
NOTE 10 - RELATED PARTIES
Accrued Expenses - Related Parties
Accrued expenses - related parties was $228,581 and $188,159 as of
March 31, 2023 and 2022, respectively, and consists of accrued consulting fees for services provided by certain directors and consultants,
interest accrued on loans and convertible notes due to certain officers and directors of the Company, as well as deferred compensation
for certain executives.
Research and Development Expenses - Related
Parties
Research and Development
Expenses – Related Parties of $216,684 and $47,718 during the quarters ended March 31, 2023 and 2022, respectively, are related
to consulting and professional fees paid to current or former officers, directors or greater than 5% stockholders, or affiliates thereof.
General and Administrative Expenses - Related
Parties
General and Administrative
Expenses – Related Parties during the three months ended March 31, 2023 and 2022 were $0 and $5,261, respectively. These expenses
relate to professional fees paid to current or former officers, directors or greater than 5% stockholders, or affiliates thereof.
Interest (Expense) Income - Related Parties
During the three months ended
March 31, 2023 and 2022, the Company recorded $0 and $4,562, respectively, of interest expense/income - related parties related to loans
from greater than 5% stockholders or affiliates of the Company.
NOTE 11 - SUBSEQUENT EVENTS
April 2023 Offering
On April 5, 2023, the Company entered into a Securities Purchase Agreement
with certain purchasers, pursuant to which the Company agreed to sell an aggregate of 400,000 shares of common stock, pre-funded warrants
to purchase up to an aggregate of 1,170,860 shares of common stock, and common stock warrants to purchase up to an aggregate of 1,570,680
shares of common stock, at a combined purchase price of $1.91 per share and warrant. Aggregate gross proceeds from the April 2023 Offering
were approximately $3,000,000, and the April 2023 Offering closed on April 10, 2023.
The April 2023 Pre-Funded
Warrants have an exercise price equal to $0.0001, are immediately exercisable and are subject to customary anti-dilution adjustments
for stock splits or dividends or other similar transactions. The exercise price of the April 2023 Pre-Funded Warrants will not be subject
to adjustment as a result of subsequent equity issuances at effective prices lower than the then-current exercise price. The April 2023
Pre-Funded Warrants are exercisable until they are exercised in full. The April 2023 Pre-Funded Warrants are subject to a provision prohibiting
the exercise of such April 2023 Pre-Funded Warrants to the extent that, after giving effect to such exercise, the holder of such April
2023 Pre-Funded Warrants (together with the holder’s affiliates, and any other persons acting as a group together with the holder
or any of the holder’s affiliates), would beneficially own in excess of 9.99% of the Company’s outstanding common stock (which
may be increased or decreased, with 61 days prior written notice by the holder). Although the April 2023 Pre-Funded Warrants have a tender
offer provision, the April 2023 Pre-Funded Warrants were determined to be equity-classified because they met the limited exception in
the case of a change-in-control. Because the April 2023 Pre-Funded Warrants are equity-classified, the placement agent fees and offering
expenses will be accounted for as a reduction of additional paid in capital.
The April 2023 Common Warrants
have an exercise price equal to $1.78 per share, are exercisable 6 months following the closing of the April 2023 Offering (the “Initial
Exercise Date”) and are subject to customary anti-dilution adjustments for stock splits or dividends or other similar transactions.
The exercise price of the April 2023 Common Warrants will not be subject to adjustment as a result of subsequent equity issuances at
effective prices lower than the then-current exercise price. The April 2023 Common Warrants are exercisable for 5 years following the
Initial Exercise Date. The April 2023 Common Warrants are subject to a provision prohibiting the exercise of such April 2023 Common Warrants
to the extent that, after giving effect to such exercise, the holder of such April 2023 Common Warrants (together with the holder’s
affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially
own in excess of 4.99% of the Company’s outstanding common stock (which may be increased or decreased, with 61 days prior written
notice by the holder). Although the April 2023 Common Warrants have a tender offer provision, the April 2023 Common Warrants were determined
to be equity-classified because they met the limited exception in the case of a change-in-control. Because the April 2023 Common Warrants
are equity-classified, the placement agent fees and offering expenses will be accounted for as a reduction of additional paid in capital.
On April 5, 2023, all 1,170,860,
of the April 2023 Pre-funded Warrants were exercised for a total value of $117; there are no remaining outstanding April 2023 Pre-funded
Warrants. No April 2023 Common Warrants have been exercised.
Amendment to Common Warrant Agreements for
the July 2022 and December 2022 Offerings
On April 5, 2023, the Company
entered into an Amendment to the common warrant agreements for the July 2022 and December 2022 Offerings, whereby the warrants to purchase
up to 2,571,429 (with an original exercise price of $3.50 per share) and 306,604 shares (with an original exercise price of $1.06 per
share), respectively, were amended to have an exercise price of $1.78 per share and for their expiration date to be extended to expire
on October 10, 2028.
Amendments to Executive Employment Agreements
On April 27, 2023, and effective
on January 1, 2023, the Company entered into (a) a Third Amendment to Employment Agreement with James N. Woody, M.D., Ph.D., the Chief
Executive Officer and Director of the Company, and (b) a Third Amendment to Employment Agreement with Jonathan Rothbard, Ph.D., Chief
Scientific Officer of the Company and on May 8, 2023 and effective on January 1, 2023, the Company entered into an Amended and Corrected
Third Amendment to Employment Agreement with Ozan Pamir, the Chief Financial Officer of the Company (collectively, the “Amendments”),
which each amended the compensation agreements currently in place with such individuals.
The Amendments reflect (a)
an increase in the salary of each of Dr. Woody, Mr. Pamir and Dr. Rothbard of 3.5%, effective as of January 1, 2023; and (b) in the case
of Mr. Pamir, a further increase in salary to $380,000 per annum and increase in his target bonus to 40%, effective April 1, 2023, as
well as a change in his title from Interim Chief Financial Officer to Chief Financial Officer.
The foregoing description
of the Amendments does not purport to be complete and is qualified in their entirety by reference to the Amendments, copies of which were
attached as Exhibits 10.1 through Exhibit 10.3, respectively, on a Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 28, 2023, and incorporated herein by reference.
Effective April 27, 2023, the Board of Directors, with the recommendation
of the Compensation Committee of the Board of Directors, approved the payment of $111,675 to Dr. Woody; $24,154 to Mr. Pamir; and $50,343
to Dr. Rothbard, in back pay owed to such officers.
ITEM 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on
Form 10-Q (“Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
contains forward-looking statements, within the federal securities laws, including the Private Securities Litigation Reform Act of 1995,
regarding future events and the future results of the Company that are based on current expectations, estimates, forecasts, and projections
about the industry in which the Company operates and the beliefs and assumptions of the management of the Company. Words such as “expects,”
“anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,”
“believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended
to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties
and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in
any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed
elsewhere in this Report, including under “Risk Factors”, and in other reports the Company files with the Securities and
Exchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for the year ended December
31, 2022, as filed with the SEC on March 31, 2023 (under the heading “Risk Factors” and in other parts of that report), and
include, but are not limited to, statements about:
|
● |
Expectations for the clinical
and preclinical development, manufacturing, regulatory approval, and commercialization of our product candidates; |
|
● |
the uncertainties associated
with the clinical development and regulatory approval of the Company’s drug candidates, including potential delays in the enrollment
and completion of clinical trials, issues raised by the U.S. Food and Drug Administration (FDA) and the U.K. Medicines and Healthcare
products Regulatory Agency (MHRA); |
|
|
|
|
● |
regulatory developments
in the United States and foreign countries; |
|
● |
our success in retaining
or recruiting, or changes required in, our officers, key employees or directors; |
|
● |
current negative operating
cash flows and our potential ability to obtain additional financing to advance our business and the terms of any further financing,
which may be highly dilutive and may include onerous terms; |
|
● |
the continued impact of
the COVID-19 pandemic on our business operations and our research and development initiatives; |
|
● |
the accuracy of our estimates
regarding expenses, future revenues and capital requirements; |
|
● |
the Company’s reliance on third parties
to conduct its clinical trials, enroll patients, and manufacture its preclinical and clinical drug supplies;
|
|
● |
the ability to come to mutually agreeable
terms with such third parties and partners, and the terms of such agreements;
|
|
● |
estimates of patient populations for the
Company’s planned products;
|
|
● |
unexpected adverse side effects or inadequate
therapeutic efficacy of drug candidates that could limit approval and/or commercialization, or that could result in recalls or product
liability claims;
|
|
● |
the Company’s ability
to fully comply with numerous federal, state and local laws and regulatory requirements, as well as rules and regulations outside
the United States, that apply to its product development activities; |
|
|
|
|
● |
challenges and uncertainties
inherent in product research and development, including the uncertainty of clinical success and of obtaining regulatory approvals;
uncertainty of commercial success; |
|
|
|
|
● |
the ability of the Company
to execute its plans to develop and market new drug products and the timing and costs of these development programs; |
|
|
|
|
● |
high inflation, increasing
interest rates and economic downturns, including potential recessions, as well as macroeconomic, geopolitical, health and industry
trends, pandemics, acts of war (including the ongoing Ukraine/Russian conflict) and other large-scale crises; |
|
|
|
|
● |
estimates of the sufficiency
of our existing capital resources combined with future anticipated cash flows to finance our operating requirements; |
|
● |
our ability to maintain our listing on NASDAQ; and |
|
● |
other risks and uncertainties,
including those listed under “Risk Factors”, below. |
All forward-looking statements
speak only at the date of the filing of this Report. The reader should not place undue reliance on these forward-looking statements.
Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in
this Report are reasonable, we provide no assurance that these plans, intentions or expectations will be achieved. We disclose important
factors that could cause our actual results to differ materially from our expectations under “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report and our Annual Report on
Form 10-K for the year ended December 31, 2022. These cautionary statements qualify all forward-looking statements attributable to us
or persons acting on our behalf. Except as required by law, we assume no obligation to update or revise these forward-looking statements
for any reason, even if new information becomes available in the future.
General Information
The following discussion
is based upon our unaudited Condensed Consolidated Financial Statements included elsewhere in this Report, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause
or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the
SEC, and in our most recent Annual Report on Form 10-K. All references to years relate to the calendar year ended December 31st
of the particular year.
This information should be
read in conjunction with the interim unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly
Report on Form 10-Q, and the audited financial statements and notes thereto and “Part II. Other Information – Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contained in our Annual Report
on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 31, 2023 (the “Annual
Report”).
Certain capitalized terms
used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited condensed consolidated
financial statements included above under “Part I – Financial Information” – “Item 1. Financial Statements”.
Please see the section entitled
“Glossary” beginning on page ii of our Annual Report for a list of abbreviations and definitions commonly used in the pharmaceutical
and biotechnology industry which are used throughout this Report.
Our logo and some of our
trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property
of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®,
™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will
not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective
owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do
not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship
of us by, any other companies.
The market data and certain other statistical information used throughout
this Report are based on independent industry publications, reports by market research firms or other independent sources that we believe
to be reliable sources. Industry publications and third-party research, surveys and studies generally indicate that their information
has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information
and have not commissioned any such information. We are responsible for all of the disclosures contained in this Report, and we believe
these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding
any third-party information presented in this Report, their estimates, in particular, as they relate to projections, involve numerous
assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under,
and incorporated by reference in, the section entitled “Item 1A. Risk Factors” of this Report. These and other
factors could cause our future performance to differ materially from our assumptions and estimates. Some market and other data included
herein, as well as the data of competitors as they relate to the Company, is also based on our good faith estimates.
See also “Cautionary
Statement Regarding Forward-Looking Statements”, above, which includes information on forward-looking statements used herein and
other matters which are applicable to this Report, including, but not limited to this “Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
Unless the context requires
otherwise, references to the “Company,” “we,” “us,” “our,” “180 Life”, “180LS”
and “180 Life Sciences Corp.” refer specifically to 180 Life Sciences Corp. and its consolidated subsidiaries. References
to “KBL” refer to the Company prior to the November 6, 2020 Business Combination.
In addition, unless the context
otherwise requires and for the purposes of this Report only:
“CAD” refers
to Canadian dollars;
“Exchange Act” refers to the Securities
Exchange Act of 1934, as amended;
“£” or “GBP” refers
to British pounds sterling;
“SEC” or the “Commission”
refers to the United States Securities and Exchange Commission; and
“Securities Act” refers to the Securities
Act of 1933, as amended.
Additional Information
We file annual, quarterly,
and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet
at the SEC’s website at www.sec.gov and are available for download, free of charge, soon after such reports are
filed with or furnished to the SEC, on the “Investors”—“SEC Filings”—“All
SEC Filings” page of our website at www.180lifesciences.com. Copies of documents filed by us with the SEC are also
available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number
set forth on the cover page of this Report. Our website address is www.180lifesciences.com/. The information on, or that
may be accessed through, our website is not incorporated by reference into this Report and should not be considered a part of this Report.
Going Concern and Management Liquidity Plans
As of March 31, 2023, we had
an accumulated deficit of $112,170,623 and a working capital deficit of $925,565, and for the quarter ended March 31, 2023, a net loss
of $4,762,078 and cash used in operating activities of $3,869,891. The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. As we are not generating revenues, we need to raise a significant amount
of capital in order to pay our debts and cover our operating costs. While the Company raised money in August 2021, July 2022, December
2022 and April 2023 (see Note 2 – Going Concern and Management’s Plans and Note 11 – Subsequent Events), we expect to
require additional funding in the future and there is no assurance that we will be able to raise additional needed capital or that such
capital will be available under favorable terms.
We are subject to all the
substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence
of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until
we can successfully implement our business strategy, which includes all associated revenue streams. We may never achieve profitable operations
or generate significant revenues.
We currently have a minimum monthly cash requirement of approximately
$900,000, which is required to support the Company’s operations. We believe that in the aggregate, we will require significant additional
capital funding to support and expand the research and development and marketing of our products, fund future clinical trials, repay debt
obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office space and systems
for managing the business, and cover other operating costs until our planned revenue streams from products are fully-implemented and begin
to offset our operating costs, if ever.
Since our inception, we have
funded our operations with the proceeds from equity and debt financings. We have experienced liquidity issues due to, among other reasons,
our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the issuance of equity and promissory
notes that are convertible into shares of our common stock to fund our operations and have devoted significant efforts to reduce that
exposure. We anticipate that we will need to issue equity to fund our operations and repay our outstanding debt for the foreseeable future.
If we are unable to achieve operational profitability or we are not successful in securing other forms of financing, we will have to
evaluate alternative actions to reduce our operating expenses and conserve cash.
The accompanying condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the condensed consolidated
financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern. The condensed consolidated financial statements included in
this report also include a going concern footnote.
Additionally, wherever possible, our Board of Directors will attempt
to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted
shares of our common stock, preferred stock or warrants to purchase shares of our common stock. Our Board of Directors has authority,
without action or vote of the shareholders, but subject to NASDAQ rules and regulations (which generally require shareholder approval
for any transactions which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights
representing over 20% of our then outstanding shares of stock, subject to certain exceptions), to issue all or part of the authorized
but unissued shares of common stock, preferred stock or warrants to purchase such shares of common stock. In addition, we may attempt
to raise capital by selling shares of our common stock, possibly at a discount to market in the future. These actions will result in dilution
of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such
issuances may also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued to
parties or entities committed to supporting existing management.
Organization of MD&A
Our Management’s Discussion and Analysis of Financial Condition
and Results of Operations (the “MD&A”) is provided in addition to the accompanying condensed consolidated financial
statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized
as follows:
|
● |
Business Overview and
Recent Events. A summary of the Company’s business and certain material recent events. |
|
● |
Significant Financial
Statement Components. A summary of the Company’s significant financial statement components. |
|
● |
Results of Operations.
An analysis of our financial results comparing the three months ended March 31, 2023 and 2022. |
|
● |
Liquidity and Capital
Resources. An analysis of changes in our balance sheets and cash flows and discussion of our financial condition. |
|
● |
Critical Accounting
Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated
in our reported financial results and forecasts. |
Business Overview
This MD&A and the related
financial statements for the quarter ended March 31, 2023 primarily covers the operations of 180, which is a clinical stage biotechnology
company headquartered in Palo Alto, California, focused on the development of therapeutics for unmet medical needs in chronic pain, inflammation,
fibrosis and other inflammatory diseases, where anti-TNF therapy will provide a clear benefit to patients, by employing innovative research,
and, where appropriate, combination therapy. We have three product development platforms:
|
● |
fibrosis and anti-tumor
necrosis factor (“TNF”); |
|
● |
drugs which are derivatives
of cannabidiol (“CBD”); and |
|
● |
alpha 7 nicotinic acetylcholine
receptor (“α7nAChR”). |
We have several future product candidates in development, including
one product candidate which previously completed a successful Phase 2b clinical trial in the United Kingdom for Dupuytren’s Contracture,
a condition that affects the development of fibrous connective tissue in the palm of the hand. 180 was founded by several world-leading
scientists in the biotechnology and pharmaceutical sectors.
We intend to invest resources
to successfully complete the clinical programs that are underway, discover new drug candidates, and develop new molecules to build up
on our existing pipeline to address unmet clinical needs. The product candidates are designed via a platform comprised of defined unit
operations and technologies. This work is performed in a research and development environment that evaluates and assesses variability
in each step of the process in order to define the most reliable production conditions.
We may rely on third-party
contract manufacturing organizations (“CMOs”) and other third parties for the manufacturing and processing of the
product candidates in the future. We believe the use of contract manufacturing and testing for the first clinical product candidates
is cost-effective and has allowed us to rapidly prepare for clinical trials in accordance with our development plans. We expect that
third-party manufacturers will be capable of providing and processing sufficient quantities of these product candidates to meet anticipated
clinical trial demands.
Significant Financial Statement Components
Research and Development
To
date, 180’s research and development expenses have related primarily to discovery efforts and preclinical and clinical development
of its three product platforms: fibrosis and anti-TNF; drugs which are derivatives of CBD, and α7nAChR. Research and development
expenses consist primarily of costs associated with those three product platforms, which include:
|
● |
expenses incurred under
agreements with 180’s collaboration partners and third-party contract organizations, investigative clinical trial sites that
conduct research and development activities on its behalf, and consultants; |
|
● |
costs related to production
of clinical materials, including fees paid to contract manufacturers; |
|
● |
laboratory and vendor expenses
related to the execution of preclinical and clinical trials; |
|
● |
employee-related expenses,
which include salaries, benefits and stock-based compensation; and |
|
● |
facilities and other expenses,
which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies. |
We
expense all research and development costs in the periods in which they are incurred. We accrue for costs incurred as services are provided
by monitoring the status of each project and the invoices received from our external service providers. We adjust our accrual as actual
costs become known. When contingent milestone payments are owed to third parties under research and development arrangements or license
agreements, the milestone payment obligations are expensed when the milestone results are achieved.
Research
and development activities are central to our business model. Product candidates in later stages of clinical development generally have
higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage
clinical trials. We expect that research and development expenses will increase over the next several years as clinical programs progress
and as we seek to initiate clinical trials of additional product candidates. It is also expected that increased research and development
expenses will be incurred as additional product candidates are selectively identified and developed. However, it is difficult to determine
with certainty the duration and completion costs of current or future preclinical programs and clinical trials of product candidates.
The
duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors that include,
but are not limited to, the following:
|
● |
per patient trial costs; |
|
● |
the number of patients
that participate in the trials; |
|
● |
the number of sites included
in the trials; |
|
● |
the countries in which
the trials are conducted; |
|
● |
the length of time required
to enroll eligible patients; |
|
● |
the number of doses that
patients receive; |
|
● |
the drop-out or discontinuation
rates of patients; |
|
● |
potential additional safety
monitoring or other studies requested by regulatory agencies; |
|
● |
the impact of COVID-19 on our trials; |
|
● |
the duration of patient
follow-up; and |
|
● |
the efficacy and safety
profile of the product candidates. |
In
addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing
capability and commercial viability. We will determine which programs to pursue and fund in response to the scientific and clinical success
of each product candidate, as well as an assessment of each product candidate’s commercial potential.
Because
the product candidates are still in clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate
the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when,
we may achieve profitability. Due to the early-stage nature of these programs, we do not track costs on a project-by-project basis. As
these programs become more advanced, we intend to track the external and internal cost of each program.
General and Administrative
General
and administrative expenses consist primarily of salaries and other staff-related costs, including stock-based compensation for shares
of common stock issued and options granted to founders, directors and personnel in executive, commercial, finance, accounting, legal,
investor relations, facilities, business development and human resources functions and include vesting conditions.
Other
significant general and administrative costs include costs relating to facilities and overhead costs, legal fees relating to corporate
and patent matters, litigation, SEC filings, insurance, investor relations costs, fees for accounting and consulting services, and other
general and administrative costs. General and administrative costs are expensed as incurred, and we accrue amounts for services provided
by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service
providers and adjusting our accruals as actual costs become known.
It
is expected that the general and administrative expenses will increase over the next several years to support our continued research
and development activities, manufacturing activities, potential commercialization of our product candidates and the increased costs of
operating as a public company. These increases are anticipated to include increased costs related to the hiring of additional personnel,
developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being
a public company, as well as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements,
insurance and investor relations costs.
Interest Expense
Interest expense consists
primarily of interest expense related to debt instruments.
Change in Fair Value of Accrued Issuable Equity
Change in fair value of accrued
issuable equity represents the non-cash change in fair value of accrued equity prior to its formal issuance.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities represents the non-cash
change in fair value of derivative liabilities during the reporting period. Gains resulting from change in fair value of derivative liabilities
during the three months ended March 31, 2023, were driven by decreases in stock price during the periods, resulting in a lower fair value
of the underlying liability.
CONSOLIDATED RESULTS OF OPERATIONS
For the Quarter Ended
March 31, 2023 Compared to the Quarter Ended March 31, 2022
| |
For the Three Months Ended | |
| |
March 31, | |
| |
2023 | | |
2022 | |
Operating Expenses: | |
| | |
| |
Research and development | |
$ | 578,309 | | |
$ | 658,939 | |
Research and development - related parties | |
| 216,684 | | |
| 47,718 | |
General and administrative | |
| 4,008,852 | | |
| 2,969,151 | |
General and administrative - related parties | |
| - | | |
| 5,261 | |
Total Operating Expenses | |
| 4,803,845 | | |
| 3,681,069 | |
Loss From Operations | |
| (4,803,845 | ) | |
| (3,681,069 | ) |
| |
| | | |
| | |
Other (Expense) Income: | |
| | | |
| | |
Interest expense | |
| (11,556 | ) | |
| (7,414 | ) |
Interest income - related parties | |
| - | | |
| 4,562 | |
Change in fair value of derivative liabilities | |
| 53,323 | | |
| 5,230,114 | |
Change in fair value of accrued issuable equity | |
| - | | |
| 17,520 | |
Total Other Income, Net | |
| 41,767 | | |
| 5,244,782 | |
(Loss) Income Before Income Taxes | |
| (4,762,078 | ) | |
| 1,563,713 | |
Income tax benefit | |
| - | | |
| - | |
Net (Loss) Income | |
$ | (4,762,078 | ) | |
$ | 1,563,713 | |
Research and Development
We incurred research
and development expenses of $578,309 for the three months ended March 31, 2023, compared to $658,939 for the three months ended March
31, 2022, representing a decrease of $80,630 or 12%. The decrease includes a $265,000 reduction in salaries expense due to a) the reversal
of a bonus accrual in the current period (due to an employee termination) and b) an overall reduction in executive compensation beginning
in the second quarter of 2022, as well as a decrease in expenses incurred by Oxford University of $80,000 in the current quarter. These
amounts are offset by a decrease in the R&D Tax Credit, which increased this expense by $270,000.
Research and Development – Related Parties
We incurred research and
development expenses – related parties of $216,684 for the three months ended March 31, 2023, compared to $47,718 for the three
months ended March 31, 2022, representing an increase of $168,966, or 354%. The increase is primarily attributable to a decrease to the
R&D Tax Credit which increased expense by $115,000, as well as an increase in consulting expenses of $55,000.
General and Administrative
We incurred general and administrative
expenses of $4,008,852 and $2,969,151 for the three months ended March 31, 2023 and 2022, respectively, representing an increase of $1,039,701
or 35%. The increase resulted from an increase in professional fees and salaries expense of $965,000 and $320,000, respectively, offset
by a decrease in insurance expense of $230,000 for the quarter.
Other Income, Net
We incurred other income, net of $41,767 during the three months ended
March 31, 2023, as compared to other income, net of $5,244,782 for the three months ended March 31, 2022, representing a decrease in other
income, net of $5,203,015 or 99%. The decrease is attributable to the non-cash change in fair value of the Company’s derivative
liabilities from the prior period of approximately $5.2 million (see Note 6 – Derivative Liabilities).
Liquidity and Capital Resources
As of March 31, 2023 and December
31, 2022, we had cash balances of $2,646,184 and $6,970,110, respectively, and working (deficit) capital of ($925,565) and $3,270,608,
respectively, largely due to a decrease in cash.
For the three months ended
March 31, 2023 and 2022, cash used in operating activities was $3,869,891 and $2,072,931, respectively. Our cash used in operations for
the three months ended March 31, 2023 was primarily attributable to our net loss of $4,762,078, adjusted for non-cash expenses in the
aggregate amount of $525,870, as well as $366,317 of net cash provided to fund changes in the levels of operating assets and liabilities.
Our cash used in operations for the three months ended March 31, 2022 was primarily attributable to non-cash expenses in the aggregate
amount of $4,497,319, offset by $860,675 of net cash provided to fund changes in the levels of operating assets and liabilities, offset
by our net income of $1,563,713.
For the three months ended March 31, 2023 and 2022, cash used in financing
activities was $469,810 and $515,419, respectively. Cash used in financing activities during the three months ended March 31, 2023 was
due to repayments of loans in the amount of $469,810. Cash used in financing activities during the three months ended March 31, 2022 was
due to repayments of loans in the amount of $515,419.
Our
product candidates may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future.
We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to
increase. As a result, until such time, if ever, as we are able to generate substantial product revenue, we expect to finance our cash
needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses
and other similar arrangements, which may not be available on favorable terms, if at all. The sale of additional equity or debt securities,
if accomplished, may result in dilution to our then stockholders. Our primary uses of capital are, and we expect will continue to be,
compensation and related expenses, third-party clinical research and development services, license payments or milestone obligations
that may arise, laboratory and related supplies, clinical costs, potential manufacturing costs, legal and other regulatory expenses and
general overhead costs.
Our material cash requirements and time periods of such requirements
from known contractual and other obligations include milestone and royalty payments related to license agreements with Oxford University
and Yissum, payments related to D&O insurance, payments to consultants and payments related to outside consulting firms, such as legal
counsel, auditors, accountants, etc. These cash requirements, in the aggregate, are expected to amount to approximately $7,500,000 for
the remainder of 2023 and $27,000,000 for years 2024 through 2027.
Further,
our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials
and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous
risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the
amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
We
have not yet achieved profitability and expect to continue to incur cash outflows from operations. It is expected that our research and
development and general and administrative expenses will continue to increase and, as a result, we will need to raise additional capital
to fund our operations. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or
discontinue operations or obtain funds by entering into financing agreements on unattractive terms. Our operating needs include the planned
costs to operate our business, including amounts required to fund working capital and capital expenditures. As of March 31, 2023, the
conditions outlined above indicated that there was a substantial doubt about our ability to continue as a going concern within one year
after the financial statement issuance date. However, in August 2021, July 2022, December 2022 and April 2023, the Company raised additional
capital of approximately $13.9 million, $6.0 million, $5.5 million and $3.0 million, respectively, and with current cash on hand of approximately
$2.5 million as of May 12, 2023, the Company expects to be able to continue as a going concern through May 2024.
Our condensed consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate
continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.
The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport
to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might
result from the outcome of this uncertainty.
Recent Financing
Transactions
April 2023 Offering
Subsequent to March 31, 2023,
on April 5, 2023, the Company entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company agreed
to sell an aggregate of 400,000 shares of common stock, pre-funded warrants to purchase up to an aggregate of 1,170,860 shares of common
stock, and common stock warrants to purchase up to an aggregate of 1,570,680 shares of common stock, at a combined purchase price of $1.91
per share and warrant. Aggregate gross proceeds from the April 2023 Offering were approximately $3,000,000, and the April 2023 Offering
closed on April 10, 2023.
The April 2023 Pre-Funded
Warrants have an exercise price equal to $0.0001, are immediately exercisable and are subject to customary anti-dilution adjustments
for stock splits or dividends or other similar transactions. The exercise price of the April 2023 Pre-Funded Warrants will not be subject
to adjustment as a result of subsequent equity issuances at effective prices lower than the then-current exercise price. The April 2023
Pre-Funded Warrants are exercisable until they are exercised in full. The April 2023 Pre-Funded Warrants are subject to a provision prohibiting
the exercise of such April 2023 Pre-Funded Warrants to the extent that, after giving effect to such exercise, the holder of such April
2023 Pre-Funded Warrants (together with the holder’s affiliates, and any other persons acting as a group together with the holder
or any of the holder’s affiliates), would beneficially own in excess of 9.99% of the Company’s outstanding common stock (which
may be increased or decreased, with 61 days prior written notice by the holder). Although the April 2023 Pre-Funded Warrants have a tender
offer provision, the April 2023 Pre-Funded Warrants were determined to be equity-classified because they met the limited exception in
the case of a change-in-control. Because the April 2023 Pre-Funded Warrants are equity-classified, the placement agent fees and offering
expenses will be accounted for as a reduction of additional paid in capital.
The April 2023 Common Warrants
have an exercise price equal to $1.78 per share, are exercisable 6 months following the closing of the April 2023 Offering and are subject
to customary anti-dilution adjustments for stock splits or dividends or other similar transactions. The exercise price of the April 2023
Common Warrants will not be subject to adjustment as a result of subsequent equity issuances at effective prices lower than the then-current
exercise price. The April 2023 Common Warrants are exercisable for 5 years following the Initial Exercise Date. The April 2023 Common
Warrants are subject to a provision prohibiting the exercise of such April 2023 Common Warrants to the extent that, after giving effect
to such exercise, the holder of such April 2023 Common Warrants (together with the holder’s affiliates, and any other persons acting
as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% of the Company’s
outstanding common stock (which may be increased or decreased, with 61 days prior written notice by the holder). Although the April 2023
Common Warrants have a tender offer provision, the April 2023 Common Warrants were determined to be equity-classified because they met
the limited exception in the case of a change-in-control. Because the April 2023 Common Warrants are equity-classified, the placement
agent fees and offering expenses will be accounted for as a reduction of additional paid in capital.
To date, all of the 1,170,860
April 2023 Pre-Funded Warrants have been exercised and none of the 1,570,680 April 2023 Common Warrants have been exercised; see Note
11 – Subsequent Events for further details.
Critical Accounting Policies and Estimates
The
Company’s condensed consolidated financial statements are prepared in accordance with accounting principles that are generally
accepted in the United States. The preparation of these condensed consolidated financial statements requires management to make estimates
and assumptions that affect the reported amounts of its assets, liabilities, revenue and expenses. The Company has identified certain
policies and estimates as critical to its business operations and the understanding of its past or present results of operations related
to intangible assets and in-process research and development. These policies and estimates are considered critical because they had a
material impact, or they have the potential to have a material impact, on the Company’s condensed consolidated financial statements
and because they require management to make significant judgments, assumptions or estimates. The Company believes that the estimates,
judgments and assumptions made when accounting for the items described below were reasonable, based on information available at the time
they were made. However, actual results may differ from those estimates, and these differences may be material.
Intangible Assets and In-Process Research
and Development (“IPR&D”)
As of December 31, 2022, the
carrying amount of the IP R&D assets on the balance sheet was $12,405,084 (which consists of carrying value of $1,462,084 and $10,943,000
related to the Company’s CBR Pharma subsidiary and its 180 LP subsidiary, respectively). Per the valuation obtained from a third
party as of year-end, the fair market value of the Company’s IP R&D assets was determined to be $9,063,000 (which consists of
fair market values of $0 and $9,063,000 related to the Company’s CBR Pharma subsidiary and 180 LP subsidiary, respectively). As
of this measurement date, the carrying value of the CBR Pharma and 180 LP subsidiaries’ assets exceeded their fair market values
by $1,462,084 and $1,880,000, respectively. As such, management determined that the consolidated IP R&D assets were impaired by $3,342,084
and, in order to recognize the impairment, the Company recorded a loss for this amount during the fourth quarter of 2022, which appears
as a loss on impairment of IP R&D assets on the income statement. This reduced the IP R&D asset balances of its CBR Pharma subsidiary
and its 180 LP subsidiary to zero and $9,063,000, respectively, as of December 31, 2022; the total consolidated IP R&D asset balance
is $9,063,000 after impairment.
As of March 31, 2023, the
carrying amount of the IP R&D assets on the balance sheet was $9,063,000 (which consists of a balance related to the Company’s
180 LP subsidiary); the Company typically assesses asset impairment on an annual basis unless a triggering event or other facts or circumstances
indicate that evaluation should be performed at an earlier date. At the end of the current period, the Company assessed general economic
conditions, industry and market considerations, the Company’s financial performance and all relevant legal, regulatory, and political
factors that might indicate the possibility of impairment and concluded that, when these factors were collectively evaluated, it is more
likely than not that the asset is not impaired. The Company and its management will continue to perform intangible assets and IP R&D
assets impairment testing on an annual basis, or as needed if there are changes to the composition of its reporting unit or facts or circumstances
are present which indicate the possibility of impairment.
Recently Issued Accounting Pronouncements
Note 3 – Summary of
Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q; Note 3 – Summary of Significant
Accounting Policies of our consolidated financial statements included within our 2022 Annual Report on Form 10-K, and “Critical
Accounting Policies and Estimates” in Part II, Item 7 of the 2022 Form 10-K describe the significant accounting policies and methods
used in the preparation of the Company’s financial statements. There have been no material changes to the Company’s critical
accounting policies and estimates since the 2022 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
Pursuant to Item 305(e) of
Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller
reporting company,” as defined by Rule 229.10(f)(1).
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have established and maintain
a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed
in our reports filed with the SEC pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including
our Chief Executive Officer (CEO) (principal executive officer) and Chief Financial Officer (CFO) (principal accounting/financial officer),
as appropriate, to allow timely decisions regarding required disclosures.
The Company’s management
evaluated, with the participation of our principal executive officer and principal financial and accounting officer, the effectiveness
of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period
covered by this Report.
In designing and evaluating
our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment
in evaluating the benefits of possible controls and procedures relative to their costs.
Based on their evaluation,
our principal executive officer and principal financial and accounting officer concluded that, as of March 31, 2023, our disclosure controls
and procedures were not effective to provide assurance at a reasonable level that the information we are required to disclose in reports
that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC
rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer
and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosures as of March
31, 2023.
Management’s evaluation
was based on the following material weaknesses in our internal control over financial reporting which existed as of December 31, 2022,
and which continue to exist, as discussed in the Company’s Annual Report on Form 10-K:
| ● | Ineffective
controls: The Company’s review and control procedures did not operate at the appropriate
level of precision to detect an error in fair value of warrants related to a one-time reverse
stock split and the fair value of IP R&D assets. |
A material weakness is a
control deficiency or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement
of the annual or interim financial statements will not be prevented or detected on a timely basis. As a company with limited accounting
resources, a significant amount of management’s time and attention has been and will be diverted from our business to ensure compliance
with these regulatory requirements.
Our management plans to establish
procedures to monitor and evaluate the effectiveness of our internal controls over financial reporting on an ongoing basis and is committed
to taking further action and implementing necessary enhancements or improvements. Management expects to complete its assessment of the
design and operating effectiveness of its internal controls over financial reporting during the second half of 2023. 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.
Remediation Plan
Management continues to take
steps to develop and enhance its internal controls over financial reporting, including:
|
● |
Implement an analysis of
fluctuations and variances on a quarterly basis for the Income Statement which would detect material movements in account balances
from both a dollar amount and percentage change perspective and research any differences over a defined threshold. |
|
● |
Implement an additional
layer of review over the SEC reporting process and ensure that the overall financial statements and preparation are subject to concurring
review by a member of the SEC reporting team other than the SEC reporting manager. |
Inherent Limitations on Effectiveness of Controls and Procedures
In designing and evaluating
our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control objectives. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There have been no changes
in our internal control over financial reporting that occurred during the three months ended March 31, 2023 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may
be a party to litigation that arises in the ordinary course of our business. The impact and outcome of litigation, if any, is subject
to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We
believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position,
results of operations or cash flows.
Such current litigation or
other legal proceedings are described in, and incorporated by reference in, this “Item 1. Legal Proceedings” of this Form
10-Q from, “Part I – Item 1. Financial Statements” in the Notes to Condensed Consolidated Financial Statements in “Note
8 – Commitments and Contingences”, under the heading Legal Matters. The Company believes that the resolution of currently
pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations.
However, assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known
to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible
liability or outcome of such litigation or claims.
Additionally, the outcome
of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts
in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period
could be materially adversely affected.
Item 1A. Risk Factors.
There have been no material
changes from the risk factors previously disclosed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2022, as filed with the Commission on March 31, 2023, under the heading “Risk Factors”, which risk factors
are incorporated by reference herein and investors should review the risks provided in the Form 10-K prior to making an investment in
the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently
known or unknown, including but not limited to those described in the Form 10-K for the year ended December 31, 2022, under “Risk
Factors”, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating
results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in
whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock
price.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
Recent Sales of Unregistered Securities
There have been no sales of
unregistered securities during the quarter ended March 31, 2023, and for the period from April 1, 2023, to the filing date of this report
which have not previously been reported in a Current Report on Form 8-K.
* * * * *
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
As this Quarterly Report on
Form 10-Q is being filed within four business days from the date of the reportable event discussed below, we have elected to make the
following disclosures in this Quarterly Report on Form 10-Q instead of in a Current Report on Form 8-K under Item 5.02:
Item 5.02 Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On May 9, 2023, and effective
on January 1, 2023, we entered into an Amended and Corrected Third Amendment to Employment Agreement with Ozan Pamir, our Chief Financial
Officer, which amended and corrected the prior Third Amendment to Employment Agreement entered into between the parties on April 27, 2023,
solely to correct an error in the prior agreement regarding his salary from January 1, 2023 to March 31, 2023 (which should have been
$326,025 per annum).
Item 6. Exhibits.
Exhibit
No. |
|
Description |
|
Filed/
Furnished
Herewith |
|
Form |
|
File
No. |
|
Exhibit |
|
Filing
Date |
1.1 |
|
Placement
Agent Agreement, dated April 5, 2023, between 180 Life Sciences Corp. and A.G.P./Alliance Global Partners |
|
|
|
8-K |
|
001-38105 |
|
10.1 |
|
4/10/2023 |
4.1 |
|
Form
of Pre-Funded Warrant (April 2023 Offering) |
|
|
|
8-K |
|
001-38105 |
|
4.1 |
|
4/10/2023 |
4.2 |
|
Form
of Common Warrant (April 2023 Offering) |
|
|
|
8-K |
|
001-38105 |
|
4.2 |
|
4/10/2023 |
10.1# |
|
Separation
and Release Agreement, dated January 18, 2023, by and between 180 Life Sciences Corp. and Quan Vu |
|
|
|
8-K |
|
001-38105 |
|
10.1 |
|
1/20/2023 |
10.2 |
|
Amendment
to the Warrant Agent Agreement, dated January 13, 2023, by and between 180 Life Sciences Corp. and the Warrant Agent |
|
|
|
8-K |
|
001-38105 |
|
10.1 |
|
1/18/2023 |
10.3# |
|
First
Amendment to Separation and Release Agreement, dated March 29, 2023, by and between 180 Life Sciences Corp. and Quan Vu |
|
|
|
10-K |
|
001-38105 |
|
10.59 |
|
3/31/2023 |
10.4+ |
|
Securities
Purchase Agreement, dated April 5, 2023, by and between 180 Life Sciences Corp. and the Purchaser |
|
|
|
8-K |
|
001-38105 |
|
10.1 |
|
4/10/2023 |
10.5 |
|
Warrant
Agent Agreement for Pre-Funded Warrants, dated April 10, 2023 by and between 180 Life Sciences Corp. and Continental Stock Transfer
& Trust Company |
|
|
|
8-K |
|
001-38105 |
|
10.2 |
|
4/10/2023 |
10.6 |
|
Warrant
Agent Agreement for Common Warrants, dated April 10, 2023 by and between 180 Life Sciences Corp. and Continental Stock Transfer &
Trust Company |
|
|
|
8-K |
|
001-38105 |
|
10.3 |
|
4/10/2023 |
10.7 |
|
Form of Lock-Up Agreement (April 2023 Offering) |
|
|
|
8-K |
|
001-38105 |
|
10.4 |
|
4/10/2023 |
10.8# |
|
Third
Amendment to Employment Agreement dated April 27, 2023 and effective as of January 1, 2023, between 180 Life Sciences Corp. and James
N. Woody, M.D., Ph.D. |
|
|
|
8-K |
|
001-38105 |
|
10.1 |
|
4/28/2023 |
10.9# |
|
Third
Amendment to Employment Agreement dated April 27, 2023 and effective as of January 1, 2023, between 180 Life Sciences Corp. and Ozan
Pamir |
|
|
|
8-K |
|
001-38105 |
|
10.2 |
|
4/28/2023 |
10.10# |
|
Third
Amendment to Employment Agreement dated April 27, 2023 and effective as of January 1, 2023, between 180 Life Sciences Corp. and Jonathan
Rothbard, Ph.D. |
|
|
|
8-K |
|
001-38105 |
|
10.3 |
|
4/28/2023 |
10.11* |
|
Amendment No. 1 to Common Stock Purchase Warrant between 180 Life Sciences Corp. and the warrant holder, dated April 5, 2023 |
|
X |
|
|
|
|
|
|
|
|
10.12* |
|
Amended and Corrected Third Amendment to Employment Agreement dated May 9, 2023, between 180 Life Sciences Corp. and Ozan Pamir |
|
X |
|
|
|
|
|
|
|
|
31.1* |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|
X |
|
|
|
|
|
|
|
|
31.2* |
|
Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act |
|
X |
|
|
|
|
|
|
|
|
32.1** |
|
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act |
|
X |
|
|
|
|
|
|
|
|
32.2** |
|
Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act |
|
X |
|
|
|
|
|
|
|
|
101.INS* |
|
Inline
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document |
|
X |
|
|
|
|
|
|
|
|
101.SCH* |
|
Inline
XBRL Taxonomy Extension Schema |
|
X |
|
|
|
|
|
|
|
|
101.CAL* |
|
Inline
XBRL Taxonomy Calculation Linkbase |
|
X |
|
|
|
|
|
|
|
|
101.DEF* |
|
Inline
XBRL Definition Linkbase Document |
|
X |
|
|
|
|
|
|
|
|
101.LAB* |
|
Inline
XBRL Taxonomy Label Linkbase |
|
X |
|
|
|
|
|
|
|
|
101.PRE* |
|
Inline
XBRL Definition Linkbase Document |
|
X |
|
|
|
|
|
|
|
|
104* |
|
Inline
XBRL for the cover page of this Quarterly Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set |
|
X |
|
|
|
|
|
|
|
|
| # | Indicates management contract or compensatory plan or arrangement. |
| + | Pursuant to Item 601(a)(5) of Regulation S-K, schedules have
been omitted and will be furnished on a supplemental basis to the Securities and Exchange Commission upon request. |
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
180 LIFE SCIENCES CORP. |
|
|
Date: May 15, 2023 |
By: |
/s/ James
N. Woody, M.D., Ph.D. |
|
|
James N. Woody, M.D., Ph.D.,
Chief Executive Officer
(Principal Executive Officer) |
Date:
May 15, 2023 |
By: |
/s/
Ozan Pamir |
|
|
Ozan Pamir Chief Financial Officer
(Principal Financial and Accounting Officer) |
34
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