180 Life Sciences Corp. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The supplied filing is for 180 Life Sciences Corp. (NASDAQ: ATNF, ATNFW), not Forum Markets Inc. The company is a clinical-stage biotechnology business developing therapies for fibrosis and anti-TNF, cannabidiol-derived drugs, and α7nAChR; it reported no revenue.
Financial performance and position
| Metric | Q3 2021 / September 30, 2021 | Comparable period / December 31, 2020 |
|---|---|---|
| Revenue | None to date | None to date |
| Operating expenses | $4.22 million | $0.73 million in Q3 2020 |
| Operating loss | $4.22 million | $0.73 million in Q3 2020 |
| Net income (loss) | $18.30 million; $0.56 basic and $0.23 diluted per share | $(0.83) million in Q3 2020 |
| Cash and cash equivalents | $11.69 million | $2.11 million |
| Working capital | $(10.59) million | $(17.41) million |
| Total liabilities | $27.93 million | $25.25 million |
| Stockholders’ equity | $37.14 million | $30.29 million |
For the first nine months of 2021, the company recorded an operating loss of $11.18 million and a net loss of $21.36 million, versus a $2.94 million net loss in the comparable 2020 period. Operating cash use was $14.34 million, compared with $0.66 million; financing provided $23.86 million, primarily from equity and warrant offerings. Cash increased by $9.58 million to $11.69 million. No meaningful revenue margin is available because the company has no revenue.
Q3 net income was driven chiefly by a $22.04 million non-cash gain from changes in derivative-liability fair value, mainly warrant valuations as the share price declined during the quarter, plus a $0.47 million gain on liability settlements. For the nine-month period, derivative remeasurement instead produced a $10.34 million loss, contributing to the reported net loss. These valuation movements make reported earnings volatile and do not reflect operating profitability.
Changes and financing
- Operating expenses rose substantially year over year. Q3 general and administrative expense was $3.52 million versus $0.21 million; nine-month expense was $8.74 million versus $1.71 million. The filing attributes the increases principally to public-company legal, accounting and compliance costs, stock compensation, insurance, payroll and settlement costs.
- The company raised approximately $11.7 million gross in a February offering and $15.0 million gross in an August offering, with reported net proceeds of approximately $10.7 million and $13.9 million, respectively. Shares outstanding increased to 33,968,735 at quarter-end from 26,171,225 at year-end 2020. Additional dilution may result from outstanding warrants, options and future fundraising.
- Most convertible notes were converted, settled or repaid during the period. At September 30, loans payable were $331,386, including $81,244 owed to related parties; no convertible notes remained outstanding. Current derivative liabilities were $20.89 million, mainly related to warrants.
- Nine-month R&D expense declined to $0.69 million from $1.21 million, in part due to research tax credits and a paused Alpha-7 project; related-party R&D expense increased to $1.29 million from $0.22 million, including stock compensation and consulting costs.
Outlook, risks and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Ongoing operations depend on obtaining additional financing; the company has no credit facility or committed capital source. Failure to raise funds could require curtailing development or discontinuing operations.
- Development outlook: The company expects operating and R&D expenses to increase and anticipates continuing losses. It gave no quantified revenue, earnings or cash-flow guidance and cannot predict when, if ever, it will become profitable. Its Phase 2b Dupuytren’s disease trial follow-up was delayed by COVID-19; follow-up was complete and statistical analysis was underway at the reporting date.
- Clinical and funding risks: Product candidates remain in clinical or preclinical development and may not prove safe or effective, receive approval, or achieve commercial viability. Clinical timelines and costs are uncertain; further financing may dilute shareholders or be unavailable on acceptable terms. COVID-19 could affect trials, operations and access to capital.
- Controls: Disclosure controls and procedures were reported ineffective as of September 30, 2021. Continuing material weaknesses include financial reporting systems, segregation of duties, written accounting policies, and controls over period-end reporting and fair-value instruments. Management described remediation plans, including hiring accounting staff and engaging advisers.
- Legal and settlement items: The company recorded a $450,000 litigation accrual at quarter-end, including $250,000 related to claims involving former KBL executives. Litigation involving former executives and Tyche continued, with outcomes uncertain. The Cantor matter was settled after quarter-end for $200,000, which had been accrued at September 30. A Mintz legal-fee settlement generated an approximately $650,000 gain during the period.
- Other unusual items: A $363,523 stock-compensation timing error from Q1 was corrected in Q2; management deemed it immaterial and did not restate prior filings. Subsequent events included issuance of 451,986 shares upon exchange of common-stock equivalents and an Oxford University license agreement for HMGB1 technology, with fees, royalties, milestones and maintenance payments.
Important facts for investors to verify
- Current cash runway, near-term funding needs and the assumptions underlying management’s going-concern assessment.
- Clinical-trial progress and results, particularly the Dupuytren’s disease statistical analysis, and the expected timing and cost of further trials.
- Warrant and option terms, derivative-liability valuations, potential share dilution and fully diluted share count.
- Status, potential financial exposure and subsequent developments in the outstanding litigation and claims.
- Progress in remediating the disclosed material weaknesses and whether disclosure controls become effective.