180 LIFE SCIENCES CORP. The Company has not generated any revenues and has incurred significant losses since inception. During the three months endedMarch 31, 2021 , the Company incurred a net loss of$16,198,585 and used$6,330,045 of cash in operations. As ofMarch 31, 2021 , the Company has an accumulated deficit of$64,556,223 and a working capital deficit of$25,324,166 . 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. A continuation or worsening of the levels of market disruption and volatility seen in the recent past as the result of the COVID-19 pandemic could have an adverse effect on the Company's ability to access capital, on the Company's business, results of operations and financial condition. Management continues to monitor the developments and has taken active measures to protect the health of the Company's employees, their families and the Company's communities. The ultimate impact will depend heavily on the duration of the COVID-19 pandemic and public health responses, the efficacy of vaccines, the availability thereof, and the willingness of individuals to receive such vaccines, as well as the substance and pace of macroeconomic recovery, all of which are uncertain and difficult to predict considering the continuing evolving landscape of the COVID-19 pandemic and the public health responses to contain it. Management has evaluated, and will continue to evaluate, the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company's financial position or results of its operations, the specific impact is not readily determinable as of the date of these condensed consolidated financial statements. To date, only the follow-up time for patient data for the Phase 2b Dupuytren's disease clinical trial has been delayed as a result of COVID-19, but such follow-up is now completed. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 5
These condensed consolidated financial statements have been prepared under the assumption of a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company's ability to continue its operations is dependent upon obtaining new financing for its ongoing operations. Future financing options available to the Company include equity financings and loans and if the Company is unable to obtain such additional financing timely, or on favorable terms, 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. Realization of the Company's assets may be substantially different from the carrying amounts presented in these condensed consolidated financial statements and the accompanying condensed consolidated financial statements do not include any adjustments that may become necessary, should the Company be unable 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 endedDecember 31, 2020 , except as disclosed in this note.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance withU.S. GAAP for interim financial information. Accordingly, they do not include all of the information and disclosures required byU.S. GAAP for annual consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as ofMarch 31, 2021 , and for the three months endedMarch 31, 2021 and 2020. The results of operations for the three months endedMarch 31, 2021 are not necessarily indicative of the operating results for the full year endingDecember 31, 2021 or any other period. For additional information, these condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements of and notes thereto included in the Company's Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onJuly 9, 2021 . OnNovember 6, 2020 (the "Closing Date"), the Company consummated a business combination (the "Business Combination") pursuant to which, among other things, a subsidiary of the Company merged with and into 180, with 180 continuing as the surviving entity and a wholly-owned subsidiary of the Company (the "Merger", and the Company prior to the Merger sometimes referred to herein as "KBL"). The Business Combination was accounted for as a reverse recapitalization, and 180 is deemed to be the accounting acquirer. Consequently, the assets and liabilities and the historical operations that are reflected in these condensed consolidated financial statements prior to the Business Combination are those of 180 Life Corp. and its subsidiaries. The preferred stock, common stock, additional paid in capital and earnings per share amount in these consolidated financial statements for the period prior to the Business Combination have been restated to reflect the recapitalization in accordance with the shares issued to the shareholders of the former parent, 180 Life Corp. as a result of the Business Combination. The condensed consolidated financial statements include the historical accounts of 180 Life Corp. as accounting acquirer along with its wholly owned subsidiaries, and, effective with the closing of the Business Combination, 180LS as the accounting acquiree. All intercompany transactions and balances have
been
eliminated in consolidation.
6
Foreign Currency Translation
The Company's reporting currency is the United States dollar. The functional
currency of certain subsidiaries is the Canadian Dollar ("CAD") or British Pound
("GBP"). Assets and liabilities are translated based on the exchange rates at
the balance sheet date (0.7941 and 0.7056 for the CAD, 1.3766 and 1.2373 for the
GBP, each as of March 31, 2021 and 2020, respectively), while expense accounts
are translated at the weighted average exchange rate for the period (0.7896 and
0.7455 for the CAD and 1.3784 and 1.2805 for the GBP for each of the three
months ended March 31, 2021 and 2020, 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
three months ended March 31, 2021 and 2020, the Company recorded other
comprehensive gain (loss) of $189,348 and ($1,844,205 ), 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 recorded $11,148 and $5,334 of foreign currency
transaction gains for the three months ended March 31, 2021 and 2020,
respectively. Such amounts have been classified within general and
administrative expenses in the accompanying consolidated statements of
operations and comprehensive loss.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss attributable to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted net loss per common share is computed by dividing net
loss attributable to common shareholders 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 common share equivalents are excluded from the calculation of weighted average common shares outstanding, because their inclusion would have been anti-dilutive:
March 31,
2021 2020
Options 1,630,000 -
Warrants 8,628,908 -
Convertible debt (a) 100,361 888,187
Total 10,359,269 888,187
(a) Represents shares issuable upon conversion of debt at variable conversion
prices, which were calculated using the fair value of the Company's common
stock at the respective balance sheet date.
Warrant, Option and Convertible Instrument Valuation
The Company has computed the fair value of warrants, options, convertible notes and convertible preferred stock issued using theMonte-Carlo and Black-Scholes option pricing models. The expected term used for warrants, convertible notes and convertible preferred stock are 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 fromU.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued. 7 Subsequent Events
The Company has evaluated events that have occurred after the balance sheet date but before these 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 12, Subsequent Events. Reclassification
Certain prior year balances have been reclassified in order to conform to current year presentation. These reclassifications have no effect on previously reported results of operations or loss per share.
NOTE 4 - ACCRUED EXPENSES Accrued expenses consist of the following as ofMarch 31, 2021 andDecember 31, 2020 : March 31, December 31, 2021 2020 Consulting fees$ 1,391,923 $ 1,718,559 Professional fees 658,069 1,261,751 Employee and director compensation 582,878 878,292 Research and development fees 134,072 17,817 Interest 104,434 184,576 Patent costs 8,974 - Travel expenses 4,600 4,600 Other - 45,321$ 2,884,950 $ 4,110,916 As ofMarch 31, 2021 andDecember 31, 2020 , accrued expenses - related parties were$512,992 and$454,951 , respectively. As ofMarch 31, 2021 , accrued expenses - related parties consisted primarily of professional fees and services. See Note 11 - Related Parties for details.
NOTE 5 - ACCRUED ISSUABLE EQUITY
A summary of the accrued issuable equity activity during the three months ended
Balance at January 1, 2021$ 43,095 Reclassification to equity (43,095 ) Balance at March 31, 2021 $ -
There was no accrued issuable equity activity during the three months ended
8
NOTE 6 - DERIVATIVE LIABILITIES
The following table sets forth a summary of the changes in the fair value of
Level 3 derivative liabilities that are measured at fair value on a recurring
basis:
For the Three Months Ended
March 31, 2021
Convertible
Warrants Notes TotalBeginning balance as of January 1, 2021$ 4,217,170 $ 225,800 $ 4,442,970 Extinguishment of derivative liabilities in connection with conversion of debt - (591,203 ) (591,203 ) Warrants issued in private offering 7,294,836 - 7,294,836 Change in fair value of derivative liabilities 12,573,904 665,404 13,229,308 Ending balance as of March 31, 2021$ 24,085,910 $
290,001$ 24,375,911 The fair value of the derivative liabilities as ofMarch 31, 2021 was estimated using theMonte-Carlo and Black Scholes option price models, with the following assumptions used: For the Three Months EndedMarch 31, 2021 Risk-free interest rate 0.00% - 0.92% Expected term (years) 0.02 - 4.90 Expected volatility 85% - 192% Expected dividends 0%
Between
January 15, 2021 toFebruary 5, 2021 Risk-free interest rate 0.00% - 0.14% Expected term (years) 0.02 - 0.18 Expected volatility 120% - 161% Expected dividends 0% AGP Warrants In connection with the closing of the Business Combination onNovember 6, 2020 , the Company became obligated to assume five-year warrants for the purchase of 63,658 shares of the Company's common stock at an exercise price of$5.28 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. OnMarch 12, 2021 , the Company issued a warrant to AGP (the "AGP Warrant") to purchase up to an aggregate of 63,658 shares of the Company's common stock at a purchase price of$5.28 per share, subject to adjustment, in full satisfaction of the AGP Warrant Liability. The purchase of shares pursuant to the AGP Warrant is limited at any given time not to exceed a beneficial ownership of 4.99% of the then total number of issued and outstanding shares of the Company's common stock. The AGP Warrant is exercisable at any time betweenMay 2, 2021 andMay 2, 2025 . The newly issued 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 onMarch 31, 2021 at$403,332 which resulted in a$237,436 increase in the fair value of the derivative liabilities.
Warrants Issued in Private Offering
OnFebruary 23, 2021 , the Company issued five-year warrants (the "PIPE Warrants") to purchase 2,564,000 shares of common stock at an exercise price of$5.00 per share in connection with the private offering (see Note 10 - 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 Company reclassified the$7,294,836 fair value of the PIPE Warrants, which was determined using the Black-Scholes option pricing model, from additional paid-in-capital to derivative liabilities. The PIPE Warrants were revalued onMarch 31, 2021 at$11,876,704 which resulted in a$4,581,868 change in the fair value of derivative liabilities. The following assumptions were used to value the PIPE Warrants at issuance: February 23, 2021 Risk-free interest rate 0.59% Expected term (years) 5.00 Expected volatility 85.0% Expected dividends 0.0% 9 NOTE 7 - LOANS PAYABLE Loans Payable The below table summarizes the activity of loans payable during the three months endedMarch 31, 2021 : Principal Effect of Principal Balance at Foreign Balance at December 31, Exchange March 31, 2020 Repayments Rates 2021 Kingsbrook$ 150,000 $ (150,000 ) $ - $ -
Paycheck Protection Program 53,051 - - 53,051 Bounce back loan scheme 68,245 - 582 68,827 Other loans payable 810,913 (218,532 ) - 592,381 Total loans payable 1,082,209 (368,532 ) 582 714,259 Less: loans payable - current portion 968,446 (362,151 ) - 606,295
Loans payable - non-current portion
$ 582 $ 107,964
On
During the three months ended
Loans Payable- Related Parties
The below table summarizes the activity of loans payable - related parties
during the three months ended
Principal Effect of Principal
Balance at Foreign Balance at
December 31, Exchange March 31,
2020 Rates 2021
Loans payable issued between
September 18, 2019 through November 4, 2020 $ 513,082 $ 1,058$ 514,140 OnFebruary 10, 2021 , the Company entered into amended loan agreements to modify the terms of certain loan agreements in the aggregate principal amount of$432,699 , previously entered into with SirMarc Feldmann and Dr.Lawrence Steinman , the Co-Executive Chairmen of the Board of Directors. The loan agreements were extended and modified to be paid back at the Company's discretion, either by 1) repayment in cash, or 2) by converting the outstanding amounts into shares of common stock at the same price per share as the next financing transaction. Subsequently, onFebruary 25, 2021 , and effective as of the date of the originalFebruary 10, 2021 amendments, the Company determined that such amendments were entered into in error and each ofSir Feldmann andDr. Steinman rescinded suchFebruary 10, 2021 amendments. See Note 12 - Subsequent Events.
Interest Expense on Loans Payable
For the three months endedMarch 31, 2021 , the Company recognized interest expense and interest expense - related parties associated with the loans of$8,257 and$10,103 , respectively. During the three months endedMarch 31, 2020 , the Company recognized interest expense and interest expense - related parties associated with the loans of$14,885 and$6,638 , respectively. As ofMarch 31, 2021 , the Company had accrued interest and accrued interest - related parties associated with the loans of$16,946 and$47,694 , respectively. As ofDecember 31, 2020 , the Company had accrued interest and accrued interest - related parties associated with the loans of$24,824 and$37,539 , respectively. See Note 11 - Related Parties for additional details. 10
NOTE 8 - CONVERTIBLE NOTES PAYABLE
The below table summarizes the activity of convertible notes payable during the
three months ended
Principal Principal
Balance Balance
December 31, Converted March 31,
2020 to Equity 2021
Dominion $ 833,334 $ (833,334 ) $ -
Kingsbrook 101,000 (101,000 ) -
Alpha Capital 616,111 (300,000 ) 316,111
Convertible bridge notes 365,750 (365,750 ) -Total Convertible Notes Payable$ 1,916,195 $
(1,600,084 )$ 316,111
Dominion, Kingsbrook and Alpha Convertible Promissory Notes
During the three months endedMarch 31, 2021 , certain noteholders elected to convert certain convertible notes payable with an aggregate principal balance of$1,234,334 and an aggregate accrued interest balance of$105,850 into an aggregate of 467,123 shares of the Company's common stock at conversion prices ranging from$2.45-$3.29 per share. The shares issued upon the conversion of the convertible promissory notes had a fair value at issuance of$1,941,125 . In connection with the conversion of convertible notes payable, derivative liabilities in the amount of$591,203 related to the bifurcated embedded conversion feature of such notes were extinguished. The Company recorded a loss on extinguishment of convertible notes payable of$9,737 during the three months endedMarch 31, 2021 as a result of the conversion of debt and the extinguishment of the related derivative liabilities. Bridge Notes
During the three months ended
Default on Convertible Notes OnFebruary 3, 2021 , there was an event of default in connection with theAlpha Capital convertible note (the "Alpha Capital Note"), which resulted in an increase in the settlement value of the Alpha Capital Note. The additional liability is accounted for as a bifurcated derivative. See Note 6, Derivative Liabilities, and Note 12, Subsequent Events.
Interest on Convertible Notes
During the three months endedMarch 31, 2021 and 2020, the Company recorded interest expense of$104,676 and$138,031 , respectively, related to convertible notes payable, and recorded interest expense - related parties of$3,846 and$13,210 , respectively, related to convertible notes payable - related parties. As ofMarch 31, 2021 andDecember 31, 2020 , accrued interest related to convertible notes payable was$85,087 and$182,181 , respectively, and accrued interest expense - related parties related to convertible notes payable - related parties was$90,845 and$124,833 , which is included in accrued expenses and accrued expenses - related parties, respectively, on the accompanying condensed consolidated balance sheets. 11
NOTE 9 - 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 ofMarch 31, 2021 orDecember 31, 2020 . Potential Legal Matters
Action against former executives of KBL
The Company may initiate legal action against former executives of KBL for non-disclosure in the KBL originalJune 30, 2020 andSeptember 30, 2020 Quarterly Reports on Form 10-Q of the matters disclosed in Note 14 (as restated) of theSeptember 30, 2020 financial statements in the amended Quarterly Report on Form 10-Q filed onFebruary 5, 2021 . If such legal action is initiated, the Company would seek damages to cover, at a minimum, the unrecorded and contingent liability obligations and legal fees. There can be no assurance that, if such legal action is initiated, the Company will be successful in its legal actions.
Action against
The Company has initiated legal action againstTyche Capital LLC ("Tyche") for breaching its obligations under a term sheet entered into between KBL,KBL IV Sponsor, LLC , 180 and Tyche onApril 10, 2019 and for breaching its obligations under the Guarantee and Commitment Agreement entered into between KBL and Tyche onJuly 25, 2019 . The Company is seeking damages to bring the net tangible asset balance of KBL as ofNovember 6, 2020 , the closing date of the Business Combination, to$5,000,001 . There can be no assurance that the Company will be successful in its legal actions. OnMay 17, 2021 , Tyche filed a counterclaim against the Company alleging that it was the Company, rather than Tyche, that had breached the Guarantee and Commitment Agreement entered into between KBL and Tyche onJuly 25, 2019 . Tyche also filed a complaint against six third-party defendants, including three members of the Company's management, SirMarc Feldman , Dr.James Woody , andOzan Pamir , claiming that they allegedly breached fiduciary duties to Tyche with regards to the Guarantee and Commitment Agreement. The Company denies all of such claims, as do the three individual members of the Company's management, and will vigorously defend against all of Tyche's claims.
OnFebruary 27, 2018 , KBL entered into a service contract withCantor Fitzgerald & Co. ("CF&CO") whereby CF&CO would receive a transaction fee in cash arising out of any contemplated business combination by the Company. OnJuly 25, 2019 , KBL entered into the Business Combination Agreement whereby CF&CO became entitled to a transaction fee of$1,500,000 (the "Transaction Fee"). OnNovember 6, 2020 , the Company and CF&CO entered into a settlement agreement (the "Settlement Agreement") whereby CF&CO agreed to release the Company from the obligation to pay the Transaction Fee in cash and to instead accept 150,000 fully paid shares of the Company's common stock, but only if the Company would take all necessary action to permit the sale of the Shares by filing with theSecurities and Exchange Commission (the "SEC") a shelf registration statement within 30 days following the closing of the merger. OnNovember 6, 2020 , the Company closed the merger and in breach of the Settlement Agreement, did not file a registration statement with theSEC within 30 days of theNovember 6, 2020 closing, due to the need to restate the previously filed KBL financial statements. InApril 2021 ,Cantor Fitzgerald & Co. ("Cantor") filed a complaint against the Company in theSupreme Court of the State of New York , County ofNew York (Index No. 652709/2021), alleging causes of action against the Company relating to the claimed breach of a fee agreement between the parties fromFebruary 2018 which required the Company to pay Cantor a transaction fee in cash in the event the Company completed a business transaction, as well as the alleged breach of a settlement agreement subsequently entered into with Cantor as described above. The complaint seeks$1,500,000 in damages, pre-and-post judgment interest and attorneys' fees. OnApril 4, 2021 , the Company received a court summons in connection with the alleged breach of the settlement agreement pursuant to which Cantor is currently pursuing litigation. The Company plans to file a response with the court pursuant to an extension that was granted to file an answer. The Company believes it has meritorious defenses to the allegations, and the Company intends to continue to vigorously defend against the litigation. Further, the Company believes that it has counterclaims against Cantor and plans to plead such counterclaims in defense of claims raised. The outcome of the matter is currently unknown. The Company is in discussions with Cantor regarding the registration of the 150,000 shares that have been issued to Cantor and hopes to resolve this dispute by registering the shares that have been issued to Cantor, of which there is no assurance. Convertible Promissory Note
The holder of the Alpha Convertible Note has alleged that the default event
described in Note 9, Convertible Notes Payable, also applies to
12
Operating Leases
The Company leased office space in London, UK through an operating lease
agreement, which was terminated pursuant to the terms of the lease in August
2020 . Total operating lease expenses were $0 and $17,397 for each of the three
months ended March 31, 2021 and 2020 and is recorded in general and
administrative expenses on the condensed consolidated statements of operations.
Consulting Agreement
On
Pursuant to the Consulting Agreement, the Company agreed to pay the Consultant15,000 British Pounds (GBP) per month (approximately$20,800 ) during the term of the agreement, increasing to23,000 GBP per month (approximately$32,000 ) on the date (a) of publication of the data from the phase 2b clinical trial for Dupuytren's disease (RIDD) and (b) the date that the Company has successfully raised over$15 million in capital. The Company also agreed to pay the Consultant the following bonus amounts:
? The sum of £100,000 (approximately
disease clinical trial data for publication in a peer-reviewed journal ("Bonus
1");
? The sum of £434,673 GBP (approximately
and payable upon the Company raising a minimum of
funding, through the sale of debt or equity, after
"Vesting Date"). Bonus 2 is payable within 30 days of the Vesting Date and
shall be and shall not be accrued, due or payable prior to the Vesting Date.
Bonus 2 is payable, at the election of the Consultant, at least 50% (fifty
percent) in shares of the Company's common stock, at the lower of (i)
share, or (ii) the trading price on the date of the grant, with the remainder
paid in GBP.
? The sum of £5,000 (approximately
the phase 2 frozen shoulder trial ("Bonus 3"); and
? The sum of £5,000 (approximately
the phase 2 delirium/POCD trial ("Bonus 4").
The Consulting Agreement has an initial term of three years, and renews
thereafter for additional three-year terms, until terminated as provided in the
agreement. The Consulting Agreement can be terminated by either party with 12
months prior written notice (provided the Company's right to terminate the
agreement may only be exercised if the Consultant fails to perform his required
duties under the Consulting Agreement), or by the Company immediately under
certain conditions specified in the Consulting Agreement if (a) the Consultant
fails or neglects efficiently and diligently to perform the services required
thereunder or is guilty of any breach of its or his obligations under the
agreement (including any consent granted under it); (b) the Consultant is guilty
of any fraud or dishonesty or acts in a manner (whether in the performance of
the services or otherwise) which, in the reasonable opinion of the Company, has
brought or is likely to bring the Consultant, the Company or any of its
affiliates into disrepute or is convicted of an arrestable offence (other than a
road traffic offence for which a non-custodial penalty is imposed); or (c) the
Consultant becomes bankrupt or makes any arrangement or composition with his
creditors. If the Consulting Agreement is terminated by the Company for any
reason other than cause, the Consultant is entitled to a lump sum payment of 12
months of his fee as at the date of termination.
Effective March 30, 2021 , in satisfaction of amounts owed to the Consultant for
50% of Bonus 2, the Company issued 100,699 shares of the Company's common stock
to the Consultant. Additionally, on April 15, 2021 , in satisfaction of amounts
owed to the Consultant for an additional 19% of Bonus 2, the Company issued
37,715 of the Company's common stock to the Consultant. The remainder of Bonus 2
will be due to the Consultant at such time as the Company has raised $15
million , which obligation was waived by the Company in connection with the
issuance of the shares described above.
Employment Agreement of Chief Executive Officer
OnFebruary 25, 2021 , the Company entered into an amended agreement with the Chief Executive Officer of the Company (the "CEO") (the "A&R Agreement"), datedFebruary 24, 2021 , and effectiveNovember 6, 2020 , which replaced the CEO's prior agreement with the Company. Pursuant to the A&R Agreement, the CEO agreed to serve as an officer of the Company for a term of three years, which is automatically renewable thereafter for additional one-year periods, unless either party provides the other at least 90 days written notice of their intent to not renew the agreement. The CEO's annual base salary under the agreement will initially be$450,000 per year, with automatic increases of 5% per annum. 13 The CEO is also eligible to receive an annual bonus, with a target bonus equal to 45% of his then-current base salary, based upon the Company's achievement of performance and management objectives as set and approved by the Board of Directors and/or Compensation Committee in consultation with the CEO. At the CEO's option, the annual bonus can be paid in cash or the equivalent value of the Company's common stock or a combination. The Board of Directors, as recommended by the Compensation Committee, may also award the CEO bonuses from time to time (in stock, options, cash, or other forms of consideration) in its discretion. Under the A&R Agreement, the CEO is also eligible to participate in any stock option plans and receive other equity awards, as determined by the Board of Directors from time to time. The A&R agreement can be terminated any time by the Company for cause (subject to the cure provisions of the agreement), or without cause (with 60 days prior written notice to the CEO), by the CEO for good reason (as described in the agreement, and subject to the cure provisions of the agreement), or by the CEO without good reason. The agreement also expires automatically at the end of the initial term or any renewal term if either party provides notice of non-renewal as discussed above.
In the event the A&R Agreement is terminated without cause by the Company, or by the CEO for good reason, the Company agreed to pay him the lesser of 18 months of salary or the remaining term of the agreement, the payment of any accrued bonus from the prior year, his pro rata portion of any current year's bonus and health insurance premiums for the same period that he is to receive severance payments (as discussed above).
The A&R Agreement contains standard and customary invention assignment, indemnification, confidentiality and non-solicitation provisions, which remain in effect for a period of 24 months following the termination of his agreement.
Employment Agreement of Chief Financial Officer
OnFebruary 25, 2021 , the Company entered into an Employment Agreement (the "CFO Agreement") datedFebruary 24, 2021 , and effectiveNovember 6, 2020 , with the Company's Interim Chief Financial Officer. Pursuant to the agreement, the CFO agreed to serve as the Interim Chief Financial Officer ("CFO") of the Company for an initial salary of$300,000 per year, subject to increase to a mutually determined amount upon the closing of a new financing as well as annual increases. Under the agreement, the CFO is eligible to receive an annual bonus, in a targeted amount of 30% of his then salary, based upon the Company's achievement of performance and management objectives as set and approved by the CEO, in consultation with the CFO. The bonus amount is subject to adjustment. The Board of Directors, as recommended by theCompensation Committee of the Company (and/or the Compensation Committee), may also award the CFO bonuses from time to time (in stock, options, cash, or other forms of consideration) in its discretion. Under the CFO Agreement, the CFO is also eligible to participate in any stock option plans and receive other equity awards, as determined by the Board of Directors from time to time. As ofMarch 31, 2021 , the Company recorded$15,750 of accrued bonus payable to the CFO. The agreement can be terminated any time by the Company with or without cause with 60 days prior written notice and may be terminated by the CFO at any time with 60 days prior written notice. The agreement may also be terminated by the Company with six days' notice in the event the agreement is terminated for cause under certain circumstances. Upon the termination of the CFO's agreement by the Company without cause or by the CFO for good reason, the Company agreed to pay him three months of severance pay.
The agreement contains standard and customary invention assignment, indemnification, confidentiality and non-solicitation provisions, which remain in effect for a period of 24 months following the termination of his agreement.
14
NOTE 10 - STOCKHOLDERS' EQUITY
Common Stock
Sale of Common Stock in Private Offering
OnFebruary 19, 2021 , the Company entered into a Securities Purchase Agreement with certain purchasers (the "Purchasers"), pursuant to which the Company agreed to sell an aggregate of 2,564,000 shares of common stock (the "Shares") and warrants to purchase up to an aggregate of 2,564,000 shares of common stock (the "PIPE Warrants"), at a combined purchase price of$4.55 per share and PIPE Warrant (the "Private Offering"). The Private Offering closed onFebruary 23, 2021 . Aggregate gross proceeds from the Private Offering were approximately$11.7 million . Net proceeds to the Company from the Private Offering, after deducting the placement agent fees and estimated offering expenses payable by the Company, were$10.7 million . The placement agent fees and offering expenses were accounted for as a reduction of additional paid in capital. The PIPE Warrants have an exercise price equal to$5.00 per share, are immediately exercisable and are subject to customary anti-dilution adjustments for stock splits or dividends or other similar transactions. However, the exercise price of the PIPE 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 PIPE Warrants are exercisable for 5 years following the closing date. The PIPE Warrants are subject to a provision prohibiting the exercise of such Warrants to the extent that, after giving effect to such exercise, the holder of such Warrant (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 to 9.99% on a holder by holder basis, with 61 days prior written consent of the applicable holder). The PIPE Warrants were determined to be liability-classified (see Note 6 - Derivative Liabilities - Warrants Issued in Private Offering). Of the$968,930 of placement agent fees and offering expenses,$364,812 was allocated to the common stock and$604,118 was allocated to the warrant liabilities. Because the PIPE Warrants are liability classified, the$604,118 allocated to the warrants was immediately expensed. In connection with the Private Offering, the Company also entered into a Registration Rights Agreement, dated as ofFebruary 23, 2021 , with the Purchasers (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement with theSecurities and Exchange Commission (the "SEC") on or prior toApril 24, 2021 to register the resale of the Shares and the shares of common stock issuable upon exercise of the Warrants (the "Warrant Shares"), and to cause such registration statement to be declared effective on or prior toJune 23, 2021 (or, in the event of a "full review" by theSEC ,August 22, 2021 ). The Company is currently in default of the terms of the Registration Rights Agreement as the registration statement to register the Shares and Warrant Shares was not filed byApril 24, 2021 . As a result of this default, the Company is required to pay damages to the Purchasers in the aggregate amount of$174,993 each month, up to a maximum of$583,310 , beginning onApril 24, 2021 and until such date that the registration statement is filed with theSEC .
Common Stock Issued for Services
During the three months endedMarch 31, 2021 , the Company issued an aggregate 197,790 of immediately vested shares of the Company's common stock as compensation to consultants, directors, and officers, with an aggregate issuance date fair value of$925,404 which was charged immediately to the condensed consolidated statement of operations for the three months endedMarch 31, 2021 .
Common Stock Issued Upon Exchange of Common Stock Equivalents
During the three months ended
Convertible Note Conversions
During the three months endedMarch 31, 2021 , certain noteholders elected to convert certain convertible notes payable with an aggregate principal balance of$1,234,334 and an aggregate accrued interest balance of$105,850 into an aggregate of 467,123 shares of the Company's common stock at conversion prices ranging from$2.45-$3.29 per share, pursuant to the terms of such notes. (See Note 8 - Convertible Notes Payable). Bridge Note Conversions During the three months endedMarch 31, 2021 , certain noteholders elected to convert bridge notes with an aggregate principal balance of$365,750 and an aggregate accrued interest balance of$66,633 into an aggregate of 158,383 shares of the Company's common stock at a conversion price of$2.73 per share, pursuant to the terms of such notes. (see Note 8 - Convertible Notes Payable). Stock Options OnFebruary 26, 2021 , the Company issued ten-year options to purchase an aggregate of 1,580,000 shares of the Company's common stock to two officers of the Company. The options have an exercise price of$4.43 per share and shall vest at the rate of (a) 1/5th of such Options on the date of grant; and (b) the remaining 4/5th of such options ratably on a monthly basis over the following 36 months on the last day of each calendar month; provided, however, that the equity awards will vest immediately upon executive's death or disability. The options had a grant date fair value of$5,280,632 , which will be recognized
over
the vesting term.
15
The assumptions used in the Black-Scholes valuation method were as follows:
For the
Three Months Ended
March 31,
2021
Risk free interest rate 0.75%
Expected term (years) 5.27 - 5.38
Expected volatility 100%
Expected dividends 0%
The Company recognized stock-based compensation expense related to the stock
options for the three months ended March 31, 2021 and 2020 of $1,092,399 and $0 ,
respectively, which is included within general and administrative expenses on
the condensed consolidated statements of operations. As of March 31, 2021 , there
was $3,803,903 of unrecognized stock-based compensation expense that will be
recognized over the weighted average remaining vesting period of 2.88 years.
NOTE 11 - RELATED PARTIES
Due from Related Parties
Due from related parties was
Accounts Payable - Related Parties
Accounts payable - related parties was$236,534 as ofMarch 31, 2021 and consists of$217,189 for professional services provided by the Company's directors and$19,345 for accounting fees for services provided by a director and his company. Accounts payable - related parties was$215,495 as ofDecember 31, 2020 and consists of$196,377 for professional services provided by the Company's directors and$19,118 for accounting fees for services provided by a director and his company.
Accrued Expenses - Related Parties
Accrued expenses - related parties was$512,992 as ofMarch 31, 2021 and consists of$138,538 of interest accrued on loans and convertible notes due to certain officers and directors of the Company and$374,454 of accrued professional fees for services provided by certain directors of the Company. Accrued expenses - related parties of$454,951 as ofDecember 31, 2020 , consists of$124,833 of interest accrued on loans and convertible notes due to certain officers and directors of the Company and$330,118 of accrued professional fees for services provided by certain directors of the Company.
Loans Payable - Related Parties
Loans payable - related parties consists of
Convertible Notes Payable - Related Parties
Convertible notes payable - related parties of$270,000 and$270,000 as ofMarch 31, 2021 andDecember 31, 2020 , respectively, represents the principal balance of convertible notes owed to certain officers and directors of the Company.
Research and Development Expenses - Related Parties
During the three months endedMarch 31, 2021 , the Company incurred$267,056 of research and development expenses in connection with professional fees paid to current or former officers, directors or greater than 10% investors, or affiliates thereof. During the three months endedMarch 31, 2020 , the Company incurred$30,605 of research and development expenses related to professional fees paid to current or former officers, directors or greater than 10% investors, or affiliates thereof.
General and Administrative Expenses - Related Parties
During the three months endedMarch 31, 2021 , the Company incurred$39,120 of general and administrative expenses related to professional fees paid to current or former officers, directors or greater than 10% investors, or affiliates
thereof.
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During the three months endedMarch 31, 2020 , the Company incurred$68,067 of general and administrative expenses related to professional fees paid to current or former officers, directors or greater than 10% investors, or affiliates thereof.
Other Income - Related Parties
During the three months endedMarch 31, 2021 and 2020, the Company recorded$0 and$240,000 , respectively, of other income related to a one-year research and development agreement with a companywho shares common officers and directors with the Company.
Interest Expense - Related Parties
During the three months ended
During the three months ended
NOTE 12 - SUBSEQUENT EVENTS
Common Stock Issued DuringApril 2021 , the Company issued 37,715 shares of common stock in partial satisfaction of bonuses earned by the Consultant pursuant to the terms of the Consulting Agreement. See Note 9 - Commitments and Contingencies, Consulting Agreement.
Extension of the Loan Agreements
OnApril 12, 2021 , the Company entered into amended loan agreements with SirMarc Feldmann and Dr.Lawrence Steinman , the Co-Executive Chairman of the Board of Directors, which extended the date of all of their outstanding loan agreements toSeptember 30, 2021 (see Note 7 - Loans Payable, Loans Payable
- Related Parties).
On
OnApril 23, 2021 , the Company settled the amounts due pursuant to a certain finder agreement entered into withEarlyBird Capital, Inc. ("EarlyBird") onOctober 17, 2017 (the "Finder Agreement"). The Company's Board of Directors determined it was in the best interests to settle all claims which had been made or could be made with respect to the Finder Agreement and entered into a settlement agreement (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the Company paid EarlyBird a cash payment of$275,000 and issued 225,000 shares of the Company's restricted common stock to EarlyBird. Larsen Consulting Agreement OnApril 29, 2021 , the Company entered into a consulting agreement withGlenn Larsen , the former Chief Executive Officer of 180Therapeutics LP , to act in the capacity as negotiator for the licensing of four patents. In consideration for services provided, the Company agreed to compensateMr. Larsen with$50,000 of its restricted common stock (valued based on the closing sales price of the Company's common stock on the date the Board of Directors approved the agreement, which shares have not been issued to date) which vests upon the Company entering into a licensing transaction with the assistance ofMr. Larsen . 17 Legal Action OnMay 17, 2021 ,Tyche Capital LLC ("Tyche")who had previously entered into a Guarantee and Commitment Agreement with the Company, filed counterclaims against the Company claiming breaches of fiduciary duties, and is seeking compensatory damages. See Note 9 - Commitments and Contingencies, Potential Legal Matters.
Application for Forgiveness of the Paycheck Protection Program Loan
On
OnMay 24, 2021 , the Company entered into another research agreement with Oxford (the "Fifth Oxford Agreement"), pursuant to which the Company will sponsor work at theUniversity of Oxford to conduct a multi-center, randomized, double blind, parallel group, feasibility study of anti-TNF injection for the treatment of adults with frozen shoulder during the pain-predominant phase. As consideration, the Company agreed to make the following payments to Oxford: Amount Due Milestone (excluding VAT) Upon signing of the Fifth Oxford Agreement £ 70,546
6 months post signing of the Fifth Oxford Agreement £ 70,546 12 months post signing of the Fifth Oxford Agreement £ 70,546 24 months post signing of the Fifth Oxford Agreement £ 70,546
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
General Information This information should be read in conjunction with the interim unaudited 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 endedDecember 31, 2020 , filed with theSecurities and Exchange Commission onJuly 9, 2021 (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 consolidated financial statements included above under "Part I - Financial Information" - "Item 1. Financial Statements".
Please see the section entitled "Glossary" in our Annual Report for a list of abbreviations and definitions 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. 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 Note Regarding Forward-Looking Statements", above, which includes information on forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, 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 "180Life Sciences Corp. " refer specifically to180 Life Sciences Corp. and its consolidated subsidiaries. References to "KBL" refer to the Company prior to theNovember 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
Commission; and
? "Securities Act" refers to the Securities Act of 1933, as amended.
19
Where You Can Find Other Information
We file annual, quarterly, and current reports, proxy statements and other information with theSEC . OurSEC filings are available to the public over the Internet at theSEC's website at www.sec.gov and are available for download, free of charge, soon after such reports are filed with or furnished to theSEC , on the "Investors"-"SEC Filings"-"All SEC Filings" page of our website at www.180lifesciences.com. Copies of documents filed by us with theSEC 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.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 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 recent events;
? Significant Financial Statement Components. A summary of the Company's
significant financial statement components;
? Consolidated Results of Operations. An analysis of our financial results
comparing the three months ended
? Liquidity and Capital Resources. An analysis of changes in our balance sheets
and cash flows and discussion of our financial condition; and
? Critical Accounting Policies. Accounting estimates that we believe are
important to understanding the assumptions and judgments incorporated in our
reported financial results and forecasts.
Business Overview and Recent Events
OnNovember 6, 2020 (the "Closing Date"), the previously announced Business Combination was consummated following a special meeting of stockholders, where the stockholders of KBL considered and approved, among other matters, a proposal to adopt the Business Combination Agreement. Pursuant to the Business Combination Agreement,KBL Merger Sub, Inc. merged with 180 Life Corp (f/k/a180 Life Sciences Corp. ), with 180 continuing as the surviving entity and becoming a wholly-owned subsidiary of KBL. As part of the Business Combination, KBL issued 17,500,000 shares of common stock and equivalents to the stockholders of 180, in exchange for all of the outstanding capital stock of 180. The Business Combination became effectiveNovember 6, 2020 and 180 filed a Certificate of Amendment of its Certificate of Incorporation inDelaware to change its name to 180 Life Corp., and KBL changed its name to180 Life Sciences Corp. This MD&A and the related financial statements for the three months endedMarch 31, 2021 included herein includes the combined operations of KBL and 180 because the results are combined after the Closing Date. This MD&A and the related financial statements for the three months endedMarch 31, 2020 includes the combined operations of 180 and its three operating entities, but does not include KBL because this period precedes the Business Combination. Following the Closing of the Business Combination, we transitioned our operations to those of 180, which is a clinical stage pharmaceutical company headquartered inMenlo Park, 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");
20
? drugs which are derivatives of cannabidiol ("CBD"); and
? alpha 7 nicotinic acetylcholine receptor ("?7nAChR").
We have several future product candidates in development, including one product candidate in a Phase 2b/3 clinical trial in theUnited Kingdom for Dupuytren's disease, 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 our existing pipeline with the goal of addressing 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 our product candidates in the future, to the extent we determine to move forward with the manufacturing of such candidates, and subject to applicable approvals. 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. COVID-19 Pandemic InDecember 2019 , a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported inWuhan, China . TheWorld Health Organization declared COVID-19 a "Public Health Emergency of International Concern" onJanuary 30, 2020 and a global pandemic onMarch 11, 2020 . The COVID-19 pandemic and the public health responses to contain it have resulted in global recessionary conditions, which did not exist atDecember 31, 2019 . Among other effects, government-mandated closures, stay-at-home orders and other related measures have significantly impacted global economic activity and business investment in general. A continuation or worsening of the levels of market disruption and volatility seen in the recent past could have an adverse effect on our ability to access capital, and on our business, results of operations and financial condition. We have been closely monitoring the developments and have taken active measures to protect the health of our employees, their families, and our communities. The ultimate impact of the pandemic on the 2021 fiscal year and beyond will depend heavily on the duration of the COVID-19 pandemic and public health responses, including government-mandated closures, stay-at-home orders, vaccine availability and efficacy and social distancing mandates, as well as the substance and pace of macroeconomic recovery, all of which are uncertain and difficult to predict considering the rapidly evolving landscape of the pandemic and the public health responses to contain it. As ofMarch 31, 2021 , only the follow-up time for patient data for the Phase 2b Dupuytren's disease clinical trial has been delayed as a result of COVID-19, but such follow-up is now completed. However, COVID-19 may delay the initiation of certain clinical trials. Close of Business Combination As described above, onNovember 6, 2020 (the "Closing Date"), the Company consummated the previously announced business combination The Business Combination was accounted for as a reverse recapitalization of 180. All of 180's capital stock outstanding immediately prior to the merger was exchanged for (i) 15,736,348 shares of 180LS common stock, (ii) 2 shares of Class C and Class K Special Voting Shares exchangeable into 1,763,652 shares of 180LS common stock which are presented as outstanding in the accompanying Statement of Changes in Stockholders' Equity due to the reverse recapitalization. KBL's 6,928,645 outstanding shares of common stock are presented as being issued on the date of the Business Combination. 21 Financing OnFebruary 19, 2021 , the Company entered into a Securities Purchase Agreement with a number of institutional investors (the "Purchasers") pursuant to which the Company agreed to sell to the Purchasers an aggregate of 2,564,000 shares (the "Shares") of the Company's common stock and warrants to purchase up to an aggregate of 2,564,000 shares of the Company's common stock (the "SPA Warrants"), at a combined purchase price of$4.55 per Share and accompanying SPA Warrant (the "Offering"). Aggregate gross proceeds from the Offering were approximately$11.7 million , prior to deducting placement agent fees and estimated offering expenses payable by the Company. Net proceeds to the Company from the Offering, after deducting the placement agent fees and offering expenses payable by the Company, were approximately$10.8 million . The Offering closed onFebruary 23, 2021 .
Maxim Group LLC (the "Placement Agent") acted as exclusive placement agent in connection with the Offering pursuant to an Engagement Letter between the Company and the Placement Agent datedJanuary 26, 2021 (as amended onFebruary 18, 2021 ). Pursuant to the Engagement Letter, the Placement Agent received a commission equal to seven percent (7%) of the aggregate gross proceeds of the Offering, or$816,634 . Conversion of Bridge Notes OnMarch 8, 2021 , the holders of the Company's convertible bridge notes, which were issued inDecember 27, 2019 andJanuary 3, 2020 to various purchasers, converted an aggregate of$432,383 , which included accrued interest of$66,633 owed under such convertible bridge notes, into an aggregate of 158,383 shares of common stock pursuant to the terms of such notes, as amended, at a conversion price of$2.73 per share. Convertible Debt Conversions FromNovember 27, 2020 toFebruary 5, 2021 , the holders of the Company's convertible promissory notes converted an aggregate of$4,782,107 owed under such convertible notes into an aggregate of 1,986,751 shares of common stock, pursuant to the terms of such notes, as amended, at conversion prices of between$2.00 and$3.29 per share.
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 ?7nAChR. 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.
22
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 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 to founders 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, 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.
23
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.
Other Income
Other income primarily represents fees earned for research and development work performed for other companies, some of which are related parties.
Interest Expense
Interest expense consists primarily of interest expense related to debt instruments.
Gain (Loss) on Extinguishment of Convertible Notes
Gain (loss) on extinguishment of convertible notes represents the shortfall (excess) of the reacquisition cost of convertible notes as compared to their carrying value.
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.
Offering Costs Allocated to Warrant Liabilities
Change in offering costs allocated to warrant liabilities represents placement agent fees and offering expenses which were allocated to the PIPE Warrants and expensed immediately as they are liability classified.
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.
24
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