Business context and reporting period
This Form 10-Q covers the three and nine months ended September 30, 2020. Although filed under the name 180 Life Sciences Corp., the financial statements report the pre-merger entity, KBL Merger Corp. IV, a blank-check company. Its activity through quarter-end was primarily seeking and completing a business combination; the filing does not report operating results for the acquired life-sciences business.
The merger with 180 closed on November 6, 2020, after the reporting period. The combined company was renamed 180 Life Sciences Corp.; the statements here do not reflect the merger.
Financial performance and position
| Metric | 2020 period | Comparable 2019 period |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| General and administrative expense | Q3: $403,397; nine months: $1,039,028 | Q3: $225,699; nine months: $786,980 |
| Net income (loss) | Q3: $(1,884,446); nine months: $(4,413,245) | Q3: $(21,790); nine months: $198,975 |
| Interest expense | Q3: $1,504,319; nine months: $1,774,576 | None reported |
| Loss on convertible-note issuance | Nine months: $1,657,522 | None reported |
| Operating cash flow | Nine months: $(1,055,768) | Nine months: $(1,160,205) |
Margins are not meaningful because no revenue was reported. Q3 2020 loss per share was $0.36; nine-month loss per share was $0.94.
At September 30, 2020, total assets were $11.02 million, including $10.30 million held in the Trust Account. Cash outside the Trust Account was $473,851, with restricted cash of $179,014. Current assets totaled $721,163; current liabilities were $4.00 million. Total liabilities were $4.00 million, excluding $2.02 million of common stock classified as subject to possible redemption. Stockholders’ equity was $5.00 million.
Convertible notes had $4.71 million aggregate principal outstanding and a net carrying value of $1.84 million after discounts. Their principal was due in 2021, subject to conversion provisions. Related-party advances of $795,003 and advances from 180 of $667,315 were also outstanding at quarter-end. Nine-month cash and restricted cash ended at $652,865.
Material changes versus the prior comparable period
- The company moved from a small nine-month 2019 net profit to a $4.41 million loss for the first nine months of 2020, primarily reflecting convertible-note interest and issuance accounting, alongside higher general and administrative expense.
- Trust Account investments declined to $10.30 million from $11.88 million at December 31, 2019; cash outside the Trust Account was $473,851 versus $546,636.
- Convertible debt and a $256,670 derivative liability were recorded in 2020. Conversely, the underwriters waived $4.025 million of deferred fees, reducing reported liabilities.
- After quarter-end, the merger closing included withdrawal of $9,006,493 from the Trust Account to fund redemptions of 816,461 shares. The business combination issued or made issuable 15,736,438 merger-consideration shares, with additional exchangeable shares reserved.
Outlook, risks, contingencies, and unusual items
- The filing gives no operating guidance or quantified outlook. Management noted that the interim results are not necessarily indicative of future periods.
- Management said the COVID-19 pandemic could adversely affect financial position, results, or completion of the business combination, but the impact was not determinable.
- The convertible notes carry 10% interest, conversion at $5.28 per share, mandatory prepayment provisions tied to subsequent financings, and substantial default penalties. Some notes include minimum-interest provisions; default rates and penalties can increase materially.
- A proposed purchase of up to $3 million of Series A convertible preferred stock was conditional on a second closing and other conditions. The preferred shares could become redeemable for cash after the business combination; the filing says the redemption-feature value was indeterminable.
- The company had a full valuation allowance against approximately $1.334 million of deferred tax assets. Management reported effective disclosure controls and no material control changes; no legal proceedings or defaults upon senior securities were reported.
Most important facts for investors to verify
- Post-merger capitalization, including shares issued to former 180 holders, redemptions, exchangeable shares, warrants, and any subsequent dilution.
- Cash available after the merger, redemptions, transaction expenses, and liquidation of the Trust Account.
- Repayment, conversion, or refinancing status of the convertible notes and related-party balances, including any default or mandatory-prepayment triggers.
- Whether the proposed preferred-stock financing closed and the resulting conversion and cash-redemption obligations.
- The acquired life-sciences business’s subsequent financial results, financing needs, and the effects of COVID-19; these are not reflected in this pre-merger quarter’s results.