Business Context and Reporting Period
This Form 8-K is filed by 180 Life Sciences Corp. (formerly KBL Merger Corp. IV) on December 14, 2020, regarding events occurring through December 31, 2020. The Company consummated a business combination on November 6, 2020. The filing primarily addresses a material restatement of financial statements for the period ended September 30, 2020, due to undisclosed liabilities and errors identified by current management.
Key Financial Metrics and Obligations
- Debt and Liabilities: A promissory note of $371,178 to KBL IV Sponsor LLC has been declared in default, with the full amount deemed immediately due. The note accrues damages of $2,000 per day up to the principal amount.
- Convertible Notes: Approximately $3,162,633 of principal and interest on convertible notes was converted into 1,519,628 shares of common stock between November 27 and December 23, 2020. The remaining balance of these notes is approximately $1,550,444.
- Equity Conversions: 1,000,000 shares of Series A Convertible Preferred Stock (conversion value $3,666,666.66) were converted into 1,619,144 shares of common stock. This action released $3 million in escrow funds to the Company.
- Unrecorded Liabilities: The filing identifies previously unrecorded liabilities including service invoices totaling approximately $1,496,600 and a contingent finders' fee of $1,750,000.
Material Changes and Restatement
The Board of Directors concluded that the consolidated financial statements for the interim period ended September 30, 2020, should no longer be relied upon. The filing details specific errors requiring restatement:
- Understated Liabilities: Two invoices totaling approximately $1,496,600 for services performed prior to September 30, 2020, were not recorded, resulting in an understatement of accrued liabilities and net loss.
- Undisclosed Contingent Liabilities: A $1,750,000 finders' fee contingent on the Closing was not disclosed in the footnotes of the September 30, 2020 financial statements.
- Undisclosed Equity Issuances: The issuance of 250,000 shares of common stock to investment banking firms for professional services (contingent on Closing) was not summarized as a contingent liability.
Outlook, Risks, and Management Commentary
- Legal Action: The Company plans to initiate legal action against former KBL executives for non-disclosure of the identified transactions and intends to seek damages to cover unrecorded liabilities and legal fees. Success is not assured.
- Restatement Timeline: The Company is working to complete the restatement of the September 30, 2020 financial statements and intends to file the restated statements as soon as practicable.
- Investor Warning: Investors are cautioned not to rely on previously issued financial statements, press releases, or investor presentations covering the period ended September 30, 2020, until the restatement is filed.
- Board Changes: On December 24, 2020, the Board appointed Larry Gold, Ph.D., to the Compensation Committee and Donald A. McGovern, Jr., to the Nominating and Governance Committee and as Chairman of the Compensation Committee.
Key Facts for Investor Verification
- Verify the status of the $371,178 promissory note default and the calculation of accrued damages.
- Monitor the filing of the restated Form 10-Q for the period ended September 30, 2020, to understand the full impact on net equity and liabilities.
- Track the progress of legal proceedings against former executives regarding the undisclosed liabilities.
- Confirm the final impact of the $1,750,000 finders' fee and the 250,000 shares issued to investment bankers on the Company's capital structure.