180 Life Sciences Corp. — Q2 2023 Form 10-Q
Filing identity: The supplied filing is for 180 Life Sciences Corp. (NASDAQ: ATNF/ATNFW), not Forum Markets Inc. It covers the quarter and six months ended June 30, 2023; financial statements are unaudited.
Business context
180 Life Sciences is a clinical-stage biotechnology company developing therapeutics for chronic pain, inflammation, fibrosis and related diseases. Its platforms focus on fibrosis/anti-TNF, cannabidiol derivatives and alpha 7 nicotinic acetylcholine receptors. The company reported no revenue and has not generated revenue since inception.
Key financial metrics
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 reported; no revenue generated since inception |
| Operating expenses | $3.68 million for Q2; $8.49 million for first half | $4.52 million for Q2 2022; $8.20 million for first half 2022 |
| Operating loss | $3.68 million for Q2; $8.49 million for first half | $4.52 million for Q2 2022; $8.20 million for first half 2022 |
| Net loss / income | Net loss of $3.68 million for Q2; $8.44 million for first half | Net income of $2.94 million for Q2 2022; $4.50 million for first half 2022 |
| Cash and cash flows | Cash $2.01 million; first-half operating cash use $6.99 million | Cash $6.97 million at Dec. 31, 2022; first-half 2022 operating cash use $5.60 million |
| Liquidity | Working capital deficit of $1.34 million | Working capital of $3.27 million at Dec. 31, 2022 |
| Debt | Loans payable of $614,530, including $588,216 current | $1.34 million total at Dec. 31, 2022 |
| Total liabilities / equity | $6.95 million / $6.72 million | $8.31 million / $11.34 million at Dec. 31, 2022 |
Margins are not meaningful because the company had no revenue. Basic and diluted loss per share was $0.70 for Q2 and $1.88 for the first half, compared with income per share of $1.72 and $2.64 in the respective 2022 periods. The filing reports no income tax benefit.
Material changes versus prior periods
- Q2 operating expenses fell 19% year over year, principally from lower general and administrative costs, including legal, insurance, stock-based compensation and professional fees. First-half operating expenses increased 3%.
- Research and development expense rose 77% in Q2 and 24% in the first half. Management cited lower R&D tax credits and increased Oxford University costs; first-half increases were partly offset by lower salaries and bonuses.
- Net results swung from profit in 2022 to losses in 2023. The prior-year profit included noncash gains from reductions in the fair value of derivative liabilities: $7.49 million in Q2 2022 and $12.72 million in the first half of 2022. Corresponding gains in 2023 were only $14,417 and $67,740.
- Cash declined by $4.96 million during the first half. Financing provided $1.99 million, including approximately $2.72 million of net proceeds from the April offering, partly offset by $727,542 of loan repayments.
- Common shares outstanding rose from 3.75 million at year-end to 5.32 million at June 30, primarily reflecting the April financing and exercise of its pre-funded warrants.
Outlook, liquidity, risks and unusual items
- Going concern: The company reported a $115.85 million accumulated deficit, negative working capital, continuing losses and substantial operating cash use. It states that substantial doubt exists about its ability to continue as a going concern within one year after issuance of the statements. It depends on additional financing and warns that financing may be unavailable or highly dilutive.
- Management cited a minimum monthly cash requirement of approximately $800,000 and expected contractual and other cash requirements of about $5 million for the remainder of 2023 and $27 million for 2024–2027. It also stated that, after the August financing, it expects to continue as a going concern through August 2024. This outlook remains dependent on cash needs, financing and operating plans.
- After quarter-end, the company closed an August 2023 offering for approximately $3 million, involving 666,925 common shares, pre-funded warrants for 3,948,460 shares and common warrants for 4,615,385 shares. These instruments create potential dilution. The filing also reports a subsequent reduction of certain July and December 2022 warrant exercise prices to $0.83.
- In April, the company amended July and December 2022 warrants, lowering their exercise prices to $1.78 and extending expiration dates; it recorded approximately $0.8 million of equity issuance costs from the modification. April-offering common warrants remained unexercised at June 30.
- Management identified clinical, regulatory, manufacturing, commercialization and financing uncertainties, reliance on third parties, possible adverse effects or inadequate efficacy, Nasdaq listing risk, and potential dilution from outstanding warrants and future equity sales. As of August 14, the filing reported 3.95 million outstanding pre-funded warrants and 9.62 million other warrants.
- Litigation: The company is pursuing multiple claims, including a claim against Tyche Capital for $6.78 million and claims against former executives and affiliates. It also faces counterclaims and an action concerning advancement of a former CEO’s legal fees; $714,557 in requested fees was ordered paid in May 2023. In an insurance dispute, a court ruled for the company on certain coverage issues, but a change-in-control issue remains unresolved. The filing cautions that outcomes and insurance recovery are uncertain.
- Controls: Disclosure controls were assessed as ineffective at June 30, 2023 because a previously reported material weakness continued. The weakness involved insufficiently precise review controls that failed to detect errors in warrant fair value and in-process R&D valuation. Management described remediation steps and expected to assess controls during the second half of 2023.
- Asset valuation: The company carried $9.06 million of in-process R&D assets at June 30 and concluded they were not impaired at that date. A $3.34 million impairment had been recorded in Q4 2022.
Important facts for investors to verify
- Confirm the registrant identity: this filing is 180 Life Sciences Corp., despite the request metadata naming Forum Markets Inc.
- Assess cash runway against operating cash use, the stated $800,000 monthly cash requirement and expected contractual obligations; verify subsequent cash balances and financing availability.
- Review the August financing and total outstanding warrants/pre-funded warrants for potential dilution, resale overhang and warrant-related transaction restrictions.
- Track clinical-program progress, regulatory milestones and whether the company can fund development without materially curtailing operations.
- Monitor litigation, the disputed insurance coverage and potential future legal-fee advances or recoveries.
- Follow remediation and independent testing of the material weakness in financial reporting controls.