UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.D. C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017March 31, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission File No.file number: 001-38105

 

180 LIFE SCIENCES CORP

(Exact name of registrant as specified in its charter)

KBL MERGER CORP. IV
(Exact name of registrant as specified in its charter)

Delaware 81-383237890-1890354

(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer
Identification No.)

3000 El Camino Real

Bldg. 4, Suite 200

Palo Alto, CA 94306

 

(I.R.S. Employer

Identification No.)

94306

527 Stanton Christiana Rd.

Newark, DE

(Address of principal executive offices)
 19713(Zip Code)

(650) 507-0669

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

(AddressTitle of Principal Executive Offices)each class (Zip Code)Trading Symbol(s)

(302) 502-2727Name of each exchange on which registered
Common Stock, par value $0.0001 per shareATNFThe NASDAQ Stock Market LLC
(Registrant’s telephone number, including area code)

N/AThe NASDAQ Capital Market)
Warrants to purchase Common StockATNFWThe NASDAQ Stock Market LLC
(Former name, former address and former fiscal year, if changed since last report)The NASDAQ Capital Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company,”company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerAccelerated filer
Non-accelerated filer     (Do not check if a smaller reporting company)Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):. Yes No

 

As of November 9, 2017, there were 14,877,500May 11, 2022, 34,087,244 shares of the Company’s common stock, par value $0.0001 per share, were issued and outstanding.

 

 

 

 

KBL MERGER

180 LIFE SCIENCES CORP. IVAND SUBSIDIARIES

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2022

 

Quarterly Report on Form 10-Q

TABLE OF CONTENTS

 

Page
PART I
   
PART 1 – FINANCIAL INFORMATION1
  
Item
ITEM 1.Financial Statements (unaudited)1
Condensed Consolidated Balance Sheets as of March 31, 2022 (unaudited) and December 31, 20211
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 20212
Unaudited Condensed StatementConsolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2022 and 20213
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 20214
Notes to Unaudited Condensed Consolidated Financial Statements56
ItemITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations1320
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk31
ITEM 4. Controls and Procedures32
PART II
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk15
OTHER INFORMATION 
Item 4.Controls and Procedures15
ITEM 1. Legal Proceedings.34
PART II – OTHER INFORMATION16
ITEM 1A. Risk Factors.34
Item 1.Legal Proceedings16
Item 1A.Risk Factors16
ItemITEM 2.Unregistered Sales of Equity Securities and Use of ProceedsProceeds.1634
ItemITEM 3.Defaults Upon Senior SecuritiesSecurities.1635
ItemITEM 4.Mine Safety DisclosuresDisclosures.1635
ItemITEM 5. Other Information.Other Information1635
ItemITEM 6. Exhibits.Exhibits1736
SIGNATURESSignatures1837

 

i

 

 

PART 1 -I – FINANCIAL INFORMATION

Item 1. Financial Statements.Statements

 

KBL MERGER180 LIFE SCIENCES CORP. IVAND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Expressed in US Dollars)

(unaudited)

 

  September 30,
2017
  December 31, 2016 
Assets (unaudited)  (audited) 
Current asset:      
Cash $453,529  $67,250 
Prepaid expenses  32,482    
Total current assets  486,011   67,250 
         
Deferred offering costs     172,750 
Cash and marketable securities held in Trust Account  116,539,634    
Total Assets $117,025,645  $240,000 
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable and accrued expenses $83,056  $78,105 
Income taxes payable  106,940    
Due to related party  49,041    
Note payable – related party     140,000 
Total current liabilities  239,037   218,105 
Deferred underwriting fees  4,025,000    
Total Liabilities  4,264,037   218,105 
         
Commitments        
         
Common stock subject to possible redemption, $0.0001 par value; 10,669,466 and -0- shares as of September 30, 2017 and December 31, 2016, respectively (at redemption value of approximately $10.10 per share)  107,761,607    
         
Stockholders’ Equity:        
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding as of September 30, 2017 and December 31, 2016      
Common stock, $0.0001 par value; 35,000,000 shares authorized; 4,208,034 and 2,875,000 shares issued and outstanding (excluding 10,669,466 and -0- shares subject to possible redemption) as of September 30, 2017 and December 31, 2016, respectively  421   287 
Additional paid-in capital  4,942,536   24,713 
Retained earnings (accumulated deficit)  57,044   (3,105)
Total Stockholders’ Equity  5,000,001   21,895 
Total Liabilities and Stockholders’ Equity $117,025,645  $240,000 
  March 31,  December 31, 
  2022  2021 
  (unaudited)    
Assets      
Current Assets:      
Cash $5,668,915  $8,224,508 
Prepaid expenses and other current assets  3,287,599   2,976,583 
Total Current Assets  8,956,514   11,201,091 
Intangible assets, net  1,867,162   1,948,913 
In-process research and development  12,530,106   12,575,780 
Goodwill  36,323,533   36,987,886 
Total Assets $59,677,315  $62,713,670 
Liabilities and Stockholders’ Equity        
Current Liabilities:        
Accounts payable $1,039,068  $586,611 
Accrued expenses  2,627,461   1,964,580 
Accrued expenses - related parties  37,640   18,370 
Loans payable - current portion  1,296,466   1,828,079 
Loans payable - related parties  86,034   81,277 
Derivative liabilities  9,990,253   15,220,367 
Total Current Liabilities  15,076,922   19,699,284 
         
Accrued issuable equity  31,080   - 
Loans payable - non current portion  43,607   48,165 
Deferred tax liability  3,621,194   3,643,526 
Total Liabilities  18,772,803   23,390,975 
Commitments and contingencies (Note 8)        
Stockholders’ Equity:        
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; (see designations and shares authorized for Series A, Class C and Class K preferred stock)        
Class C Preferred Stock; 1 share authorized, issued and outstanding at March 31, 2022 and December 31, 2021  -   - 
Class K Preferred Stock; 1 share authorized, issued and outstanding at March 31, 2022 and December 31, 2021  -   - 
Common stock, $0.0001 par value; 100,000,000 shares authorized; 34,087,244 and 34,035,925 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively  3,409   3,404 
Additional paid-in capital  107,930,317   107,184,137 
Accumulated other comprehensive income  89,359   817,440 
Accumulated deficit  (67,118,573)  (68,682,286)
Total Stockholders’ Equity  40,904,512   39,322,695 
Total Liabilities and Stockholders’ Equity $59,677,315  $62,713,670 

 

The accompanying notes are an integral part of thethese unaudited condensed consolidated financial statements.


KBL MERGER

180 LIFE SCIENCES CORP. IVAND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)(Expressed in US Dollars)

(unaudited)

 

  

Three Months Ended

September 30, 2017

  

Nine Months Ended

September 30, 2017

  For the period from September 7, 2016 (inception) through September 30, 2016 
          
General and administrative expenses $140,849  $222,545  $683 
Loss from operations  (140,849)  (222,545)  (683)
             
Other income:            
Interest income  333,905   389,634    
Other income  333,905   389,634    
             
Income before provision for income taxes  193,056   167,089    
Provision from income taxes  (106,940)  (106,940)   
Net income (loss) $86,116  $60,149  $(683)
             
Weighted average shares outstanding            
Basic  4,216,561   3,195,102   2,500,000 
Diluted  14,877,500   7,600,998   2,500,000 
             
Net income (loss) per common share            
Basic $0.02  $0.02  $(0.00)
Diluted $0.01  $0.01  $(0.00)
  For the Quarter Ended 
  March 31, 
  2022  2021 
       
Operating Expenses:      
Research and development $658,939  $99,899 
Research and development - related parties  47,718   267,053 
General and administrative  2,969,151   2,542,231 
General and administrative - related parties  5,261   39,120 
Total Operating Expenses  3,681,069   2,948,303 
Loss From Operations  (3,681,069)  (2,948,303)
         
Other Income (Expense):        
Gain on settlement of liabilities  -   723,764 
Interest expense  (7,414)  (112,933)
Interest income (expense) - related parties  4,562   (13,949)
Loss on extinguishment of convertible notes payable, net  -   (9,737)
Change in fair value of derivative liabilities  5,230,114   (13,229,308)
Change in fair value of accrued issuable equity  17,520   (9,405)
Offering costs allocated to warrant liabilities  -   (604,118)
Total Other Income (Expense), Net  5,244,782   (13,255,686)
Income (Loss) Before Income Taxes  1,563,713   (16,203,989)
Income tax benefit  -   5,404 
Net Income (Loss)  1,563,713   (16,198,585)
         
Other Comprehensive Income (Loss):        
Foreign currency translation adjustments  (728,081)  189,348 
Total Comprehensive Income (Loss) $835,632  $(16,009,237)
         
Basic and Diluted Net Income (Loss) per Common Share        
Basic $0.05  $(0.58)
Diluted $0.05  $(0.58)
         
Weighted Average Number of Common Shares Outstanding:        
Basic  34,059,927   27,953,302 
Diluted  34,068,762   27,953,302 

 

The accompanying notes are an integral part of thethese unaudited condensed consolidated financial statements.

 


KBL MERGER

180 LIFE SCIENCES CORP. IVAND SUBSIDIARIES

CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)(Expressed in US Dollars)

(unaudited)

 

  Common Stock  Additional Paid-in  Retained Earnings (Accumulated  

Total

Stockholders'

 
  Shares  Amount  Capital  Deficit)  Equity 
Balance – December 31, 2017  2,875,000  $287  $24,713  $(3,105) $21,895 
                     
Sale of 11,500,000 Units, net of underwriting discount and offering expenses  11,500,000   1,150   107,653,414      107,654,564 
                     
Sale of 502,500 Private Units  502,500   51   5,024,949      5,025,000 
                     
Common stock subject to redemption  (10,669,466)  (1,067)  (107,760,540)     (107,761,607)
                     
Net income           60,149   60,149 
                     
Balance – September 30, 2017  4,208,034  $421  $4,942,536  $57,044  $5,000,001 
  For The Three Months Ended March 31, 2022 
        Additional  Accumulated
Other
     Total 
  Common Stock  Paid-in  Comprehensive  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Income  Deficit  Equity 
Balance - January 1, 2022  34,035,925  $3,404  $107,184,137  $817,440  $(68,682,286) $39,322,695 
Shares issued for directors’ and professional fees  51,319   5   149,713   -   -   149,718 
Stock based compensation:                        
Options  -   -   596,467   -   -   596,467 
Comprehensive income (loss):                        
Net income  -   -   -   -   1,563,713   1,563,713 
Other comprehensive loss  -   -   -   (728,081)  -   (728,081)
Balance - March 31, 2022  34,087,244  $3,409  $107,930,317  $89,359  $(67,118,573) $40,904,512 

 

  For The Three Months Ended March 31, 2021 
        Additional  Accumulated
Other
     Total 
  Common Stock  Paid-in  Comprehensive  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Income  Deficit  Equity 
Balance - January 1, 2021  26,171,225  $2,617  $78,005,004  $636,886  $(48,357,638) $30,286,869 
Shares issued upon conversion of KBL debt  467,123   47   1,941,078   -   -   1,941,125 
Shares issued upon conversion of 180 debt  158,383   16   432,367   -   -   432,383 
Shares issued in connection with the financing, net of financing costs (a)  2,564,000   256   10,730,814   -   -   10,731,070 
Offering costs allocated to warrant liabilities (a)  -   -   604,118   -   -   604,118 
Warrants issued in connection with private offering, reclassified to derivative liabilities  -   -   (7,294,836)  -   -   (7,294,836)
Shares issued upon exchange of common stock equivalents  959,809   96   (96)  -   -   - 
Stock based compensation:                        
Common stock  197,790   20   925,384   -   -   925,404 
Options  -   -   1,092,399   -   -   1,092,399 
Comprehensive income (loss):                        
Net loss  -   -   -   -   (16,198,585)  (16,198,585)
Other comprehensive income  -   -   -   189,348   -   189,348 
Balance - March 31, 2021  30,518,330  $3,052  $86,436,232  $826,234  $(64,556,223) $22,709,295 

(a)Consists of $11,666,200 of gross proceeds from the February 2021 PIPE offering, net of placement agent fees and other cash offering costs of $968,930. Of the $968,930 of offering costs, $364,812 was allocated to the common stock and $604,118 was allocated to the warrant liabilities and expensed immediately due to their liability classification.

The accompanying notes are an integral part of thethese unaudited condensed consolidated financial statements.

 


KBL MERGER

180 LIFE SCIENCES CORP. IVAND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)(Expressed in US Dollars)

(unaudited)

 

  Nine Months Ended September 30, 2017  For the period from September 7, 2016 (inception) through September 30, 2016 
Cash Flows from Operating Activities:      
Net income (loss) $60,149  $(683)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Interest earned on marketable securities held in Trust Account  (389,634)   
Changes in operating assets and liabilities:        
Prepaid expenses  (32,482)   
Accounts payable and accrued expenses  4,951   683 
Due to related party  28,000    
Income taxes payable  106,940    
Net cash used in operating activities  (222,076)   
         
Cash Flows from Investing Activities:        
Investment of cash in Trust Account  (116,150,000)   
Net cash used in investing activities  (116,150,000)   
         
Cash Flows from Financing Activities:        
Proceeds from issuance of Founders Shares     25,000 
Proceeds from sale of Units, net of underwriting discounts paid  112,125,000    
Proceeds from sale of Private Units  5,025,000    
Proceeds from advances from related party  82,599    
Repayment of advances from related party  (61,558)   
Proceeds from note payable – related party  51,521    
Repayment of note payable – related party  (191,521)   
Payment of offering costs  (272,686)   
Net cash provided by financing activities  116,758,355   25,000 
         
Net Change in Cash  386,279   25,000 
Cash – Beginning  67,250    
Cash – Ending $453,529  $25,000 
         
Non-Cash investing and financing activities:        
Deferred underwriting fees charged to additional paid in capital $4,025,000  $ 
Initial classification of common stock subject to possible redemption $107,662,332  $ 
Change in value of common stock subject to possible redemption $99,275  $ 
Offering costs charged to additional paid in capital $172,750  $ 
  For the Three Months Ended
March 31,
 
  2022  2021 
Cash Flows From Operating Activities      
Net Income (Loss) $1,563,713  $(16,198,585)
Adjustments to reconcile net loss to net cash used in operating activities:        
Stock-based compensation:        
Shares issued for services  149,718   925,404 
Amortization of stock options  596,467   1,092,399 
Depreciation and amortization  26,462   28,668 
Gain on settlement of payables and accrued expenses  -   (723,764)
Loss on extinguishment of convertible note payable  -   9,737 
Deferred tax benefit  (22,332)  (5,403)
Offering costs allocated to warrant liabilities  -   604,118 
Change in fair value of derivative liabilities  (5,230,114)  13,229,308 
Change in fair value of accrued issuable equity  (17,520)  9,405 
Changes in operating assets and liabilities:        
Prepaid expenses and other current assets  (325,057)  (342,045)
Accounts payable  454,982   (3,966,486)
Accrued expenses  662,880   (969,030)
Accrued expenses – related parties  19,270   28,729 
Accrued issuable equity  48,600   (52,500)
Total adjustments  (3,636,644)  9,868,540 
Net Cash Used In Operating Activities  (2,072,931)  (6,330,045)
         
Cash Flows From Financing Activities        
Shares issued for cash, net of issuance costs  -   10,731,070 
Repayment of loans payable  (515,419)  (368,532)
Net Cash (Used in) Provided By Financing Activities  (515,419)  10,362,538 

 

The accompanying notes are an integral part of thethese unaudited condensed consolidated financial statements.


180 LIFE SCIENCES CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(Expressed in US Dollars)

(unaudited)

         
Effect of Exchange Rate Changes on Cash  32,757   (88,175)
         
Net (Decrease) Increase In Cash  (2,555,593)  3,944,318 
Cash - Beginning of Period  8,224,508   2,108,544 
Cash - End of Period $5,668,915  $6,052,862 
         
Supplemental Disclosures of Cash Flow Information:        
Cash paid during the period for income taxes $-  $- 
Cash paid during the period for interest $2,853  $- 
         
Non-cash investing and financing activities:        
Warrants issued in connection with the private offering $-  $7,294,836 
Conversion of convertible debt and accrued interest into common stock $-  $1,340,185 
Conversion of notes payable and accrued interest into common stock $-  $432,383 
Security deposit applied to accounts payable $-  $7,030 
Exchange of common stock equivalents for common stock $-  $96 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


180 LIFE SCIENCES CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in US Dollars, except share amounts)

(unaudited)

NOTE 1 - BUSINESS ORGANIZATION AND NATURE OF OPERATIONS

 


KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

180 Life Sciences Corp., formerly known as KBL Merger Corp. IV (the(“180LS”, or together with its subsidiaries, the “Company”) is, was a blank check company organized under the laws of the State of Delaware on September 7, 2016. The Company was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (“Business Combination”). Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on the healthcare and related wellness industry. businesses.

The Company is an emerging growtha clinical stage biotechnology company focused on the development of therapeutics for unmet medical needs in chronic pain, inflammation, fibrosis and as such, the Company is subjectother inflammatory diseases, where anti-TNF therapy will provide a clear benefit to all of the risks associated with early stagepatients, by employing innovative research, and, emerging growth companies.where appropriate, combination therapy. We have three product development platforms:

 

fibrosis and anti-tumor necrosis factor (“TNF”);

At September 30, 2017,

drugs which are derivatives of cannabidiol (“CBD”); and

alpha 7 nicotinic acetylcholine receptor (“α7nAChR”).

NOTE 2 - GOING CONCERN AND MANAGEMENT’S PLANS

The Company has not generated any revenues and has incurred significant losses since inception. For the three months ended March 31, 2022, the Company had not yet commenced operations. All activity through September 30, 2017 relates tonet income of $1,563,713 and used cash in operations of $2,072,931. As of March 31, 2022, the Company’s formation, its initial public offering (“Initial Public Offering”), which is described below,Company has an accumulated deficit of $67,118,573 and identifying a target company for a Business Combination.working capital deficit of $6,120,408. 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 generate any operating revenues until after completion of its initial Business Combination, at the earliest.be able to sustain or increase profitability on a quarterly or annual basis. The Company cannot predict when, if ever, it will generate non-operating incomebe 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 the form of interest income from the proceeds held in trust derived from the Initial Public Offering and the Private Placement (defined below).commercial quantities at reasonable costs, or be successfully marketed. The Company has selected December 31 as its fiscal year end.

The registration statement for the Company’s Initial Public Offering was declared effective on June 1, 2017. On June 7, 2017, the Company consummated the Initial Public Offering of 10,000,000 units at $10.00 per unit (“Units” and,plans to undertake additional laboratory studies with respect to the sharesintellectual 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 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 common stock included inemployees, their families and the Units offered,Company’s communities. The ultimate impact will depend heavily on the “Public Shares”), generating gross proceedsduration of $100,000,000,the COVID-19 pandemic and public health responses, including seasonal outbreaks, the efficacy of vaccines, the effect of mutations of the virus on such efficacy, the availability of vaccines and boosters, and the willingness of individuals to receive such vaccines and boosters, as well as the substance and pace of macroeconomic recovery, all of which is described in Note 3.are uncertain and difficult to predict considering the continuing evolving landscape of the COVID-19 pandemic and the public health responses to contain it.

 

Simultaneously with


Management has evaluated, and will continue to evaluate, the closingimpact of the Initial Public Offering,COVID-19 pandemic on the Company consummatedindustry and has concluded that while it is reasonably possible that the private placement (“Private Placement”)virus could have a negative effect on the Company’s financial position or results of 450,000 units (“Private Units” and, with respect toits operations, the sharesspecific impact is not readily determinable as of the Company’s common stock included indate of these unaudited condensed consolidated financial statements (the “condensed consolidated financial statements”). The follow-up time for patient data and the Private Units offered,statistical analysis for the “Private Shares”) atPhase 2b Dupuytren’s Contracture clinical trial was delayed as a priceresult of $10.00 per Private UnitCOVID-19, but such follow-up and statistical analyses are now complete. The Company announced the top-line data results from the Phase 2b trial on December 1, 2021 and the data was published on April 29, 2022 in a private placement topeer-reviewed journal. The condensed consolidated financial statements do not include any adjustments that might result from the Company’s sponsor, KBL IV Sponsor LLC (the “Sponsor”), and the underwriters, generating gross proceedsoutcome of $4,500,000, which is described in Note 3.this uncertainty.

 

FollowingThese condensed consolidated financial statements have been prepared under the closing of the Initial Public Offering and the Private Placement, an amount of $101,000,000 ($10.10 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the Private Units was placed in a trust account (“Trust Account”) and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completionassumption of a Business Combination or (ii) the distribution of the Trust Account, as described below.

On June 23, 2017, in connection with the underwriters’ election to fully exercise their over-allotment option, the Company consummated the sale of an additional 1,500,000 Units at $10.00 per Unit and the sale of an additional 52,500 Private Units at $10.00 per Private Unit, generating total gross proceeds of $15,525,000. Following the closing, an additional $15,150,000 of net proceeds ($10.10 per Unit) was placed in the Trust Account, resulting in $116,150,000 ($10.10 per Unit) held in the Trust Account.

Transaction costs amounted to $7,345,436, consisting of $2,875,000 of underwriting fees, $4,025,000 of deferred underwriting fees (see Note 6) and $445,436 of Initial Public Offering costs.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurancegoing concern, which assumes that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial Business Combinations having an aggregate fair market value of at least 80% of therealize its assets heldand discharge its liabilities in the Trust Account (excluding the deferred underwriting commissions and taxes payable on income earned on the Trust Account) at the timenormal course of the agreementbusiness. The Company’s ability to enter into the initial Business Combination. However, the Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficientcontinue its operations is dependent upon obtaining new financing for it not to be required to register as an investment company under the Investment Company Act.

The Company will provide holders of the outstanding Public Shares (“public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($10.10 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously releasedongoing operations. Future financing options available to the Company for tax obligations). The per-share amount to be distributed to public stockholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed in Note 5). The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combinationinclude equity financings and loans and if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination.


KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its amended and restated certificate of incorporation, conduct the redemptions pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents with the SEC prior to completing a Business Combination. If, however, a stockholder approval of the transactions is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks stockholder approval in connection with a Business Combination, the initial stockholder (as defined below), officers and directors have agreed to vote their Founder Shares (as defined in Note 4), Private Shares, and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the initial stockholder, officers and directors have agreed to waive their redemption rights with respect to their Founder Shares, Private Shares and Public Shares in connection with the completion of a Business Combination.

Notwithstanding the foregoing, the Company’s amended and restated certificate of incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% or more of the Public Shares.

The Company’s Sponsor (the “initial stockholder”), officers and directors have agreed not to propose an amendment to the Company’s amended and restated article of incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their shares of the Company’s common stock in conjunction with any such amendment.

If the Company is unable to complete a Business Combination within 18 months (or 21 months, as applicable) from the closing of the Initial Public Offering (the “Combination Period”),obtain such additional financing timely, or on favorable terms, the Company will (i) cease allmay 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, except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equaland it could ultimately be forced to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of taxes payablediscontinue its operations and less up to $50,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders andliquidate. These matters raise substantial doubt about the Company’s Boardability to continue as a going concern for a reasonable period of Directors, dissolve and liquidate, subject intime, which is defined as within one year after the case of clauses (ii) and (iii) todate that the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s Rights, Warrants, Private Placement Warrants (as defined in Note 3) and the rights underlying the Private Units, which will expire worthless if the Company fails to complete its Business Combination within the Combination Period.

In connection with the redemption of 100%condensed consolidated financial statements are issued. Realization of the Company’s outstanding Public Shares for a portion ofassets may be substantially different from the funds heldcarrying amounts presented in these condensed consolidated financial statements and the Trust Account, each holder will receive a full pro rata portion of the amount then in the Trust Account, plusaccompanying condensed consolidated financial statements do not include any pro rata interest earned on the funds held in the Trust Account and not previously released toadjustments that may become necessary, should the Company for taxes payable and upbe unable to $50,000 of interest to pay dissolution expenses.

The initial stockholder, officers, directors and underwriters have agreed to waive their liquidation rights with respect to the Founder Shares and Private Shares if the Company fails to completecontinue as a Business Combination within the Combination Period. However, if they should acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 5) held in the Trust Account in the event the Company does not complete a Business Combination within in the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Company’s Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be only $10.10 per share initially held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account. This liability will not apply with respect to any claims by a third party who executed a waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust Account or to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.going concern.

 


KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

2.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 ended December 31, 2021 under Note 3 - Summary of Significant Accounting Policies, except as disclosed in this note.

Basis of presentationPresentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with accounting principles generally accepted in the United States of America (“GAAP”)(GAAP) for interim financial informationreporting and in accordance with the instructions to Form 10-Q and Article 10 ofas required by Regulation S-X, of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting.Rule 10-01. Accordingly, they do not include all of the information and footnotes necessaryrequired by GAAP for a comprehensive presentation ofcomplete financial position, results of operations, or cash flows.statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments consisting of a(including those which are normal recurring nature, which areand recurring) considered necessary for a fair presentation of the interim financial position, operating results and cash flows for the periods presented. 

The accompanying unaudited condensed financial statements should be read in conjunction with the Company's final prospectus as filed with the SEC on June 2, 2017, as well as the Company’s Form 8-K, as filed with the SEC on June 26, 2017. The interim results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results to be expected for the year ended December 31, 2017 or for any future interim periods.

Emerging growth company

The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those thatinformation have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Use of estimates

The preparation ofbeen included. When preparing financial statements in conformity with GAAP, requires management tothe Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and liabilities and disclosure of contingent assets and liabilitiesrelated disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2021. For further information, refer to the financial statements and footnotes included in the Company’s annual financial statements for the fiscal year ended December 31, 2020, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 30, 2022.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, duringtogether with amounts disclosed in the reporting periods.related notes to the condensed consolidated financial statements. The Company’s significant estimates and assumptions used in these financial statements include, but are not limited to, the fair value of financial instruments warrants, options and equity shares; the valuation of stock-based compensation; and the estimates and assumptions related to impairment analysis of goodwill and other intangible assets.

 

MakingCertain of the Company’s estimates requires managementcould be affected by external conditions, including those unique to exercise significant judgment.the Company and general economic conditions. It is at least reasonably possible that these external factors could have an effect on the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, theCompany’s estimates and may cause actual results couldto differ significantly from ourthose estimates.

 

Cash and cash equivalents


Foreign Currency Translation

 

The Company considers all short-term investments with an original maturityCompany’s reporting currency is the United States dollar. The functional currency of three months or less when purchasedcertain subsidiaries is the Canadian Dollar (“CAD”) (0.7613 and 0.7874 CAD to be cash equivalents. The Company did not have any cash equivalents1 US dollar each as of September 30, 2017March 31, 2022 and December 31, 2016.

Cash2021, respectively) or British Pound (“GBP”) (1.3133 and marketable securities held1.3510 GBP to 1 US dollar, each as of March 31, 2022 and December 31, 2021, respectively), while expense accounts are translated at the weighted average exchange rate for the period (0.7454 and 0.7896 CAD to 1 US dollar and 1.3413 and 1.3784 GBP to 1 US dollar for each of the three months ended March 31, 2022 and 2021, respectively). Equity accounts are translated at historical exchange rates. The resulting translation adjustments are recognized in Trust Account

At September 30, 2017, the assets held in the Trust Account were held in cash and U.S. Treasury Bills.stockholders’ equity as a component of accumulated other comprehensive income.

 


KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)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, 2022 and 2021, the Company recorded other comprehensive (loss) income of ($728,081) and $189,348, respectively, as a result of foreign currency translation adjustments.

 

Offering costsForeign currency gains and losses resulting from transactions denominated in foreign currencies, including intercompany transactions, are included in results of operations. The Company recognized ($142) and $11,148 of foreign currency transaction (losses) gains for the three months ended March 31, 2022 and 2021, respectively. Such amounts have been classified within general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income (loss).

 

Offering costs consisting of legal, accounting, underwriting fees and other costs amounting to $7,345,436 that were directly related to the Initial Public Offering were charged to stockholders’ equity upon the completion of the Initial Public Offering.Accrued Issuable Equity

 

Common stock subject to possible redemption

The Company accounts for its common stock subjectrecords accrued issuable equity when it is contractually obligated to possible redemptionissue shares and sometimes there are administrative delays in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) are classified as liability instrumentsissuance of such shares. Accrued issuable equity is recorded and are measuredcarried at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely withinvalue with changes in its fair value recognized in the Company’s control) are classified as temporary equity. At all other times, common stock are classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outsidecondensed consolidated statement of operations. Once the Company’s control and subject to occurrence of uncertain future events. Accordingly, at September 30, 2017, 10,669,466underlying shares of common stock subject to possible redemptionare issued, the accrued issuable equity is reclassified as of the share issuance date at the redemption amount are presented as temporary equity, outsidethen current fair market value of the stockholders’ equity section of the Company’s condensed balance sheets.common stock.

 

Net Income taxes(Loss) Per Common Share

 

The Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company’s management determined that Delaware is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of September 30, 2017 and December 31, 2016, there were no unrecognized tax benefits and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

The Company may be subject to potential examination by federal or state taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

Net income (loss) per common share

The Company complies with accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” NetBasic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding forduring the period. SharesDiluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common stock subject to possible redemption at September 30, 2017shares 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 table details the net income (loss) per share calculation, reconciles between basic and diluted weighted average shares outstanding, and presents the potentially dilutive shares that are excluded from the calculation of basic income perthe weighted average diluted common shares outstanding, because their inclusion would have been anti-dilutive:

  For the Three Months Ended
March 31,
 
  2022  2021 
Numerator:      
Net income (loss) $1,563,713  $(16,198,585)
         
Weighted average shares outstanding (denominator for basic earnings per share)  34,059,927   27,953,302 
         
Effects of dilutive securities:        
Assumed exercise of stock options, treasury stock method  8,834   - 
Assumed exercise of warrants, treasury stock method  -   - 
Dilutive potential common shares  8,834   - 
         
Weighted average shares and assumed potential common shares (denominator for diluted earnings per share, treasury method)  34,068,762   27,953,302 
         
Basic earnings per share $0.05  $(0.58)
Diluted earnings per share $0.05  $(0.58)


The following common share forequivalents are excluded from the threecalculation of weighted average common shares outstanding, because their inclusion would have been anti-dilutive:

  For the Three Months Ended
March 31,
 
  2022  2021 
Options  2,691,000   1,630,000 
Warrants  11,153,908   8,628,908 
Convertible debt (a)  -   100,361 
Total potentially dilutive shares  13,844,908   10,359,269 

a)Represents shares issuable upon conversion of debt at various conversion prices, some of which were calculated using the fair value of the Company’s common stock at the respective balance sheet date.

Warrant, Option and nine months ended September 30, 2017 since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Convertible Instrument Valuation

The Company has not consideredcomputed the effect of (1) warrants sold in the Initial Public Offering and Private Placement to purchase 6,001,250 shares of common stock and (2) rights sold in the Initial Public Offering and Private Placement that convert into 1,200,250 shares of common stock, in the calculation of diluted income (loss) per share, since the exercise of the warrants and the conversion of the rights into shares of common stock is contingent upon the occurrence of future events.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. At September 30, 2017 and December 31, 2016, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

8

KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

Fair value of financial instruments

The fair value of warrants and options using a Black-Scholes model. The expected term used for warrants is the Company’s assetscontractual life and liabilities, which qualify asthe 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 from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

Subsequent Events

The Company has evaluated events that have occurred after the balance sheet date but before these condensed consolidated financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures,” approximatesstatements were issued. Based upon that evaluation, the carrying amounts representedCompany did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the accompanying condensed balance sheets, primarily due to their short-term nature.financial statements, except as disclosed in Note 11 - Subsequent Events.

 

Recently issued accounting standardsIssued Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.

 

3. INITIAL PUBLIC OFFERING AND PRIVATE PLACEMENT


NOTE 4 - ACCRUED EXPENSES

 

Initial Public OfferingAccrued expenses consist of the following as of March 31, 2022 and December 31, 2021:

  March 31,  December 31, 
  2022  2021 
Consulting fees $427,197  $548,281 
Professional fees  195,765   252,973 
Litigation settlements (1)  1,025,122   300,000 
Employee and director compensation  786,721   725,569 
Research and development fees  159,694   91,737 
Interest  28,067   25,433 
Other  4,895   20,587 
  $2,627,461  $1,964,580 

(1)

See Note 8 - Commitments and Contingencies, Legal Matters.

As of March 31, 2022 and December 31, 2021, accrued expenses - related parties were $37,640 and $18,370, respectively. See Note 10 - Related Parties for details.

NOTE 5 – ACCRUED ISSUABLE EQUITY

Pursuant

The Company entered into five separate agreements with consultants who are members of the Scientific Advisory Board (“SAB”) and will provide for services and duties which will be requested by the Company’s Chief Scientific Officer from time to time. The agreements, which have a term of two years, provide for the Initial Public Offering,issuance of 2,400 share of common stock to each consultant annually, with each grant vesting monthly over twenty-four months. As of March 31, 2022, these shares have yet to be issued. The shares were recorded as a liability on the balance sheet at a market price of $4.05 per share for an aggregate value of $48,600; upon assessment of fair value of $2.59 per share at March 31, 2022, the Company sold 11,500,000 Units atrecorded a purchase pricechange in fair market value of $10.00 per Unit, inclusive of 1,500,000 Units sold to the underwriters on June 23, 2017 upon the underwriters’ election to fully exercise their over-allotment option, generating gross proceeds of $115,000,000. Each Unit consists of one share$17,520. A summary of the Company’s common stock, one right to receive one-tenth of one shareaccrued issuable equity activity during the three months ended March 31, 2022 is presented below:

Balance at January 1, 2022 $- 
Additions  48,600 
Mark to market  (17,520)
Balance at March 31, 2022 $31,080 


NOTE 6 - DERIVATIVE LIABILITIES

The following table sets forth a summary of the Company’s common stockchanges in the fair value of Level 3 derivative liabilities (except the Public SPAC warrants as defined below, which are Level 1 derivative liabilities) that are measured at fair value on a recurring basis:

  Warrants    
  Public  Private          
  SPAC  SPAC  PIPE  Other  Total 
Balance as of January 1, 2022   $8,048,850  $467,325  $6,516,300  $187,892  $15,220,367 
Change in fair value of derivative liabilities  (1,852,650)  (251,250)  (3,044,800)  (81,414)  (5,230,114)
Balance as of March 31, 2022 $6,196,200  $216,075  $3,471,500  $106,478  $9,990,253 

The fair value of the derivative liabilities as of March 31, 2022 and December 31, 2021 were estimated using the Black Scholes option pricing model, with the following assumptions used:

March 31,
2022
Risk-free interest rate2.30% - 2.44%
Expected term in years2.34 - 3.90
Expected volatility91.0% - 105%
Expected dividends0%

December 31, 2021
Risk-free interest rate0.85% - 1.14%
Expected term in years2.59 – 4.15
Expected volatility98.5%
Expected dividends0%

SPAC Warrants

Public SPAC Warrants

Participants in KBL’s initial public offering received an aggregate of 11,500,000 warrants (“Right”Public SPAC Warrants”), and one redeemable warrant. Each Public SPAC Warrant entitles the holder to purchase one-half of one share of the Company’s common stock (“Warrant”). Each Warrant will entitle the holder to purchase one Common stock at an exercise price of $5.75 per half share ($11.50 per whole share), until November 6, 2025, subject to adjustment. No fractional shares will be issued upon exercise of the warrants.Public SPAC Warrants. Management has determined that the Public SPAC Warrants contain a tender offer provision which could result in the Public SPAC Warrants settling for the tender offer consideration (including potentially cash) in a transaction that didn’t result in a change-in-control. This feature results in the Public SPAC Warrants being precluded from equity classification. Accordingly, the Public SPAC Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The Public SPAC Warrants will become exercisablewere revalued on March 31, 2022 at $6,196,200, which resulted in a $1,852,650 decrease in the later of (i) 30 days after the completionfair value of the initial Business Combination and (ii) 12derivative liabilities during the three months from the closing of the Initial Public Offering, and will expire five years after the completion of the initial Business Combination or earlier upon redemption or liquidation.ended March 31, 2022.

 

The Company may redeem the


Private SPAC Warrants in whole and not in part, at a price of $0.01 per Warrant upon 30 days’ notice (“30-day redemption period”), only in the event that the last sale price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement with respect to the shares of common stock underlying such Warrants and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If the Company calls the Warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” the management will consider, among other factors, the Company’s cash position, the number of Warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of common stock issuable upon the exercise of the Warrants.

 

Participants in KBL’s initial private placement in connection with its initial public offering received an aggregate of 502,500 warrants (“Private SPAC Warrants”). Each Private SPAC Warrant entitles the holder of a Right will receive one-tenth (1/10)to purchase one-half of one share of the Company’s common stock upon consummationat an exercise price of a Business Combination.$5.75 per half share ($11.50 per whole share) until November 6, 2025, subject to adjustment. No fractional shares will be issued upon exchangeexercise of the Rights. No additional consideration will be required to be paid byPrivate SPAC Warrants. Management has determined that the Private SPAC Warrants contain a holder of Rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been includedtender offer provision which could result in the Unit purchase price paidPrivate SPAC Warrants settling for by investorsthe tender offer consideration (including potentially cash) in a transaction that didn’t result in a change-in-control. This feature (amongst others) results in the Initial Public Offering. IfPrivate SPAC Warrants being precluded from equity classification. Accordingly, the Private SPAC Warrants are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The Private SPAC Warrants were revalued on March 31, 2022 at $216,075, which resulted in a $251,250 decrease in the fair value of the derivative liabilities during the three months ended March 31, 2022.

PIPE Warrants

On February 23, 2021, the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, each holder of a right will be requiredissued five-year warrants (the “PIPE Warrants”) to affirmatively convert its rights in order to receive the 1/10 sharepurchase 2,564,000 shares of common stock underlying each right (without paying any additional consideration).at an exercise price of $5.00 per share in connection with a private placement offering. 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 PIPE Warrants are liability-classified and the Company recorded the $7,294,836 fair value of the PIPE Warrants, which was determined using the Black-Scholes option pricing model, as derivative liabilities. The PIPE Warrants were revalued on March 31, 2022 at $3,471,500, which resulted in a $3,044,800 decrease in the fair value of the derivative liabilities during the three months ended March 31, 2022.

 

There will be no redemption rights or liquidating distributionsOther Warrants

AGP Warrant

In connection with respect to the Warrants and Rights, which will expire worthless iftransactions contemplated by the Company’s Business Combination Agreement (as amended, the “Business Combination Agreement”), dated as of July 25, 2019 (the “Business Combination”), on November 6, 2020, the Company failsbecame obligated to complete its Business Combination withinassume five-year warrants for the Combination Period.

Private Placement

Concurrently with the closingpurchase of the Initial Public Offering, the Sponsor and the underwriters purchased an aggregate of 450,000 Private Units at $10.00 per Private Unit, generating gross proceeds of $4,500,000 in a Private Placement. In addition, on June 23, 2017, the Company consummated the sale of an additional 52,500 Placement Units at a price of $10.00 per Unit, which were purchased by the Sponsor and underwriters, generating gross proceeds of $525,000. Of these, 377,500 Private Units were purchased by the Sponsor and 125,000 Private Units were purchased by the underwriters. The proceeds from the Private Units were added to the net proceeds from the Initial Public Offering held in the Trust Account. The Private Units (including their component securities) will not be transferable, assignable or salable until 30 days after the completion of the initial Business Combination and the warrants included in the Private Units (the “Private Placement Warrants”) will be non-redeemable so long as they are held by the Sponsor, the underwriters or their permitted transferees. If the Private Placement Warrants are held by someone other than the Sponsor, the underwriters or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the warrants included in the Units sold in the Initial Public Offering. In addition, for as long as the Private Placement Warrants are held by the underwriters or its designees or affiliates, they may not be exercised after five years from the effective date of the registration statement related to the Initial Public Offering. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the warrants being sold as part of the Units in the Initial Public Offering and have no net cash settlement provisions.

If the Company does not complete a Business Combination within the Combination Period, the proceeds of the Private Placement will be part of the liquidating distribution to the public stockholders and the Private Units and their component securities issued to the Sponsor will expire worthless.


KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

4. RELATED PARTY TRANSACTIONS

Founder Shares

In September 2016, the Company issued 2,875,00063,658 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.

On March 12, 2021, the Sponsor (the “Founder Shares”Company issued a warrant to Alliance Global Partners (“AGP” and the “AGP Warrant”) in exchange for a capital contribution of $25,000. The 2,875,000 Founder Shares includedto purchase up to an aggregate of up to 375,000 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment option was not exercised in full or in part. As a result of the underwriters’ election to exercise their over-allotment option in full on June 23, 2017, 375,000 Founder Shares were no longer subject to forfeiture.

In conjunction with their investment in the Private Units, the underwriters or their designees also purchased membership interests in the Sponsor, through which the underwriters or their designees collectively have a pecuniary interest in 230,000 Founder Shares, pursuant to a separate private placement that closed simultaneously with the closing of the Initial Public Offering and the Private Placement. The Sponsor beneficially owns the Founder Shares allocated to the underwriters or their designees and retains sole voting and dispositive power over such securities until the closing of a Business Combination, at which time the Sponsor will distribute the Founder Shares to the underwriters or their designees for no additional consideration. Upon receipt of the Founder Shares, the underwriters or their designees will no longer retain their ownership interests in the Sponsor.

The initial stockholder has agreed not to transfer, assign or sell any of the Founder Shares (except to certain permitted transferees) until the earlier to occur of (i) one year after the completion of a Business Combination, and (ii) the date following the completion of a Business Combination on which the Company completes a liquidation, merger, share exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their63,658 shares of the Company’s common stock for cash, securities or other property the (“Lock-Up Period”). Notwithstanding the foregoing, if the last saleat a purchase price of the Company’s common stock equals or exceeds $12.00$5.28 per share, (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after its initial Business Combination, then the lock-up will terminate.

Related Party Advances

As of September 30, 2017, the Company’s Sponsor advanced an aggregate of $82,599subject to be used for working capital purposes. The advances are non-interest bearing, unsecured and due on demand. As of September 30, 2017, the Company has repaid $61,558 of such advances. Advances amounting to $21,041 were outstanding as of September 30, 2017 and includedadjustment, in due to related party in the accompanying condensed balance sheet.

Note Payable – Related Party

The Sponsor loaned the Company $192,000 in the form of a promissory note to be used for the payment of costs related to the Initial Public Offering. The loan was non-interest bearing, unsecured and due on the earlier of June 30, 2017 or the closingfull satisfaction of the Initial Public Offering.AGP Warrant Liability. The Company repaid this loan from the proceedsexercise of the Initial Public Offering not placed in the Trust Account on June 8, 2017.

Administrative Service Fee

The Company has agreed, commencing on the effective dateAGP Warrant is limited at any given time to prevent AGP from exceeding beneficial ownership of 4.99% of the Initial Public Offering through the earlierthen total number of the Company’s consummation of a Business Combinationissued and its liquidation, to pay the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. For the three and nine months ended September 30, 2017, the Company incurred $30,000 and $40,000, respectively, of administrative service fees, of which $28,000 is payable and included in due to related party in the accompanying condensed balance sheet at September 30, 2017.

10

KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)

Related Party Loans

In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,000,000 of such Working Capital Loans may be convertible into units of the post Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units. There were no Working Capital Loans outstanding as of September 30, 2017.

5. COMMITMENTS AND CONTINGENCIES

Registration Rights

The holders of the Founder Shares and Private Units and warrants that maybe issued upon conversion of Working Capital Loans (and any shares of the Company’s common stock issuable upon such exercise. The warrant is exercisable at any time between May 2, 2021 and May 2, 2025. The AGP Warrant did not meet the exerciserequirements for equity classification due to the existence of a tender offer provision that could potentially result in cash settlement of the Private Units and warrantsAGP Warrant that maydid not meet the limited exception in the case of a change-in-control. Accordingly, the AGP Warrant will continue to be issued upon conversion of Working Capital Loans) are entitled to registration rights pursuant toliability-classified. The AGP Warrant was revalued on March 31, 2022 at $86,447, which resulted in a registration rights agreement signed on$57,884 decrease in the effective datefair value of the Initial Public Offering. The holders of these securities are entitled to make up toderivative liabilities during the three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable Lock-Up Period. The Company will bear the expenses incurred in connection with the filing of any such registration statements.months ended March 31, 2022.

 

Underwriting Agreement


Alpha Warrant

 

The Company granted the underwriters a 45-day option to purchase up to 1,500,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. On June 23, 2017, the underwriters elected to exercise their over-allotment option to purchase 1,500,000 Units at a purchase price of $10.00 per Unit.

In connection with that certain Mutual Release and Settlement Agreement dated July 31, 2021 (agreed to on July 29, 2021) between the closing of the Initial Public OfferingCompany and Alpha Capital Anstal (“Alpha” and the over-allotment option,“Alpha Settlement Agreement”), the underwriters were paidCompany issued a cash underwriting discountthree-year warrant for the purchase of $2,875,000. In addition, the underwriters deferred their fee of up to $4,025,000 until the completion of the initial Business Combination (the “Deferred Fee”). The Deferred Fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.

Concurrently with the closing of the Initial Public Offering, the underwriters purchased an aggregate of 125,000 Private Units at $10.00 per Private Unit.

In conjunction with their investment in the Private Units, the underwriters or their designees also purchased membership interests in the Sponsor, through which the underwriters or their designees collectively have a pecuniary interest in 230,000 Founder Shares, pursuant to a separate private placement that closed simultaneously with the closing of the Initial Public Offering and the Private Placement.

6. STOCKHOLDERS’ EQUITY

Preferred Shares — The Company is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share. At September 30, 2017 and December 31, 2016, there are no preferred shares issued or outstanding.

Common Stock — The Company is authorized to issue 35,000,00025,000 shares of the Company’s common stock with a par valueat an exercise price of $0.0001$7.07 per share. Holdersshare (the “Alpha Warrant Liability” and the “Alpha Warrant”). The exercise of shares of the Company’sAlpha Warrant is limited at any given time to prevent Alpha from exceeding a beneficial ownership of 4.99% of the then total number of issued and outstanding shares of the Company’s common stock upon such exercise. The warrant is exercisable until August 2, 2024. The Alpha 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 Alpha Warrant that did not meet the limited exception in the case of a change-in-control. Accordingly, the Alpha Warrant is liability-classified and the Company recorded the $95,677 fair value of the Alpha Warrant, which was determined using the Black-Scholes option pricing model, as a derivative liability. The Alpha Warrant was revalued on March 31, 2022 at $20,031, which resulted in a $23,530 decrease in the fair value of the derivative liabilities during the three months ended March 31, 2022. The following assumptions were used to value the Alpha Warrant at issuance:

Warrant Activity

A summary of the warrant activity (including the August 2021 PIPE Warrants, which are equity-classified) during the three months ended March 31, 2022 is presented below:

  Number of Warrants  Weighted Average Exercise Price  Weighted Average Remaining Life in Years  Intrinsic
Value
 
             
Outstanding, December 31, 2021  11,153,908   9.06   4.1           
Issued  -   -         
Exercised  -   -         
Cancelled  -   -         
Expired  -   -         
Outstanding, March 31, 2022  11,153,908  $9.06   3.8   - 
                 
Exercisable, March 31, 2022  11,153,908  $9.06   3.8   - 

A summary of outstanding and exercisable warrants as of March 31, 2022 is presented below:

Warrants Outstanding  Warrants Exercisable 
      Weighted    
      Average    
Exercise  Number of  Remaining  Number of 
Price  Shares  Life in Years  Shares 
$5.00   2,564,000   3.9   2,564,000 
$5.28   63,658   3.1   63,658 
$7.07   25,000   2.3   25,000 
$7.50   2,500,000   4.4   2,500,000 
$11.50   6,001,250   3.6   6,001,250 
     11,153,908   3.8   11,153,908 


NOTE 7 - LOANS PAYABLE

Loans Payable

The following table summarizes the activity of loans payable during the three months ended March 31, 2022:

  Principal
Balance at
December 31,
2021
  Forgiveness  Principal
Repaid in
Cash
  Adjustment  Effect of
Foreign
Exchange
Rates
  Principal
Balance at
March 31,
2022
 
Paycheck Protection Program $41,312  $         -  $(30,967) $-  $-  $10,345 
Bounce Back Loan Scheme  61,169   -   (3,131)  -   (1,710)  56,328 
First Assurance Funding  1,618,443   -   (481,321)  (14,042)(2)  -   1,123,080 
Other loans payable  155,320   -   -   (5,000)(1)  -   150,320 
Total loans payable $1,876,244  $-  $(515,419) $(19,042) $(1,710) $1,340,073 
Less: loans payable - current portion  1,828,079                   1,296,466 
Loans payable - noncurrent portion $48,165                  $43,607 

(1)Note that this amount was reclassified to related party payables.
(2)Note that this amount was related to finance charges and was reclassified.

During the three months ended March 31, 2022, the Company paid an aggregate of $481,321, $3,131 and $30,967 in partial satisfaction of the First Assurance Funding loan, the Bounce Back Loan Scheme and the Paycheck Protection Program loan, respectively.

Loans Payable – Related Parties

The below table summarizes the activities of loans payable – related parties during the three months ended March 31, 2022:

  Principal
Balance at
December 31,
2021
  Reclass
from Loans
Payable
  Effect of
Foreign
Exchange
Rates
  Principal
Balance at
March 31,
2022
 
Loans payable issued between                
September 18, 2019 through November 4, 2020 $81,277  $5,000  $(243) $86,034 

Interest Expense on Loans Payable

For the three months ended March 31, 2022, the Company recognized interest expense and interest income — related parties associated with loans of $7,415 and $4,562, respectively. During the three months ended March 31, 2021, the Company recognized interest expense and interest expense — related parties associated with loans of $8,257 and $10,103, respectively.

As of March 31, 2022, the Company had accrued interest and accrued interest — related parties associated with loans of $27,086 and $12,818, respectively. As of December 31, 2021, the Company had accrued interest and accrued interest — related parties associated with loans of $24,212 and $812, respectively. See Note 10 — Related Parties for additional details.


NOTE 8 - 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 of December 31, 2021. See Legal Matters – Action Against Former Executive of KBL below for information related to a March 31, 2022 accrual.

Legal Matters

Action Against Former Executive of KBL

On September 1, 2021, the Company initiated legal action in the Chancery Court of Delaware against Dr. Marlene Krauss (“Dr. Krauss”) and two of her affiliated companies, KBL IV Sponsor, LLC and KBL Healthcare Management, Inc. (collectively, the “KBL Affiliates”) for, among other things, engaging in monetary transfers of the Company’s assets, non-disclosure of financial liabilities in the Company’s Consolidated Financial Statements, issuing shares of stock without authorization; and allowing stockholder redemptions to take place. The Company’s complaint alleges causes of action against Dr. Krauss and/or the KBL Affiliates for breach of fiduciary duties, ultra vires acts, unjust enrichment, negligence and declaratory relief, and seeks compensatory damages in excess of $11,286,570, together with interest, attorneys’ fees and costs. There can be no assurance that the Company will be successful in its legal actions. As of December 31, 2021, the Company recorded a legal accrual of $250,000 to cover the legal expenses of the former executives of KBL.

On October 5, 2021, Dr. Krauss and the KBL Affiliates filed an Answer, Counterclaims and Third-Party Complaint (the “Krauss Counterclaims”) against the Company and twelve individuals who are, or were, directors and/or officers of the Company, i.e., Marc Feldmann, Lawrence Steinman, James N. Woody, Teresa DeLuca, Frank Knuettel II, Pamela Marrone, Lawrence Gold, Donald A. McGovern, Jr., Russell T. Ray, Richard W. Barker, Shoshana Shendelman and Ozan Pamir (collectively, the “Third-Party Defendants”).  On October 27, 2021, the Company and Ozan Pamir filed an Answer to the Krauss Counterclaims, and all of the other Third-Party Defendants filed a Motion to Dismiss as to the Third-Party Complaint.

On January 28, 2022, in lieu of filing an opposition to the Motion to Dismiss, Dr. Krauss and the KBL Affiliates filed a Motion for leave to file amended counterclaims and third-party complaint, and to dismiss six of the current and former directors previously named, i.e., to dismiss Teresa DeLuca, Frank Knuettel II, Pamela Marrone, Russell T. Ray, Richard W. Barker and Shoshana Shendelman.  The Motion was granted by stipulation and, on February 24, 2022, Dr. Krauss filed an amended Answer, Counterclaims and Third-Party Complaint (the “Amended Counterclaims”).  In essence, the Amended Counterclaims allege (a) that the Company and the remaining Third-Party Defendants breached fiduciary duties to Dr. Krauss by making alleged misstatements against Dr. Krauss in SEC filings and failing to register her shares in the Company so that they could be traded, and (b) the Company breached contracts between the Company and Dr. Krauss for registration of such shares, and also failed to pay to Dr. Krauss the amounts alleged to be owing under a promissory note in the principal amount of $371,178, plus an additional $300,000 under Dr. Krauss’s resignation agreement.  The Amended Counterclaims seek unspecified amounts of monetary damages, declaratory relief, equitable and injunctive relief, and attorney’s fees and costs.

On March 16, 2022, Donald A. McGovern, Jr. and Lawrence Gold filed a Motion to Dismiss the Amended Counterclaims against them, and the Company and the remaining Third-Party Defendants filed an Answer to the Amended Counterclaims denying the same.  The Company and the Third-Party Defendants intend to continue to vigorously defend against all of the Amended Counterclaims, however, there can be no assurance that they will be successful in the legal defense of such Amended Counterclaims. In April 2022, Donald A. McGovern, Jr. and Lawrence Gold were removed from the lawsuit as parties. Discovery has not yet commenced in the case.


Action Against the Company by Dr. Krauss

On August 19, 2021, Dr. Krauss initiated legal action in the Chancery Court of Delaware against the Company.  The original Complaint sought expedited relief and made the following two claims: (1) it alleged that the Company is obligated to advance expenses including, attorney’s fees, to Dr. Krauss for the costs of defending against the SEC and certain Subpoenas served by the SEC on Dr. Krauss; and (2) it alleged that the Company is also required to reimburse Dr. Krauss for the costs of bringing this lawsuit against the Company.  On or about September 3, 2021, Dr. Krauss filed an Amended and Supplemental Complaint (the “Amended Complaint”) in this action, which added the further claims that Dr. Krauss is also allegedly entitled to one voteadvancement by the Company of her expenses, including attorney’s fees, for the costs of defending against the Third-Party Complaint in the Tyche action referenced below, and the costs of defending against the Company’s own Complaint against Dr. Krauss as described above.  On or about September 23, 2021, the Company filed its Answer to the Amended Complaint in which the Company denied each share. At September 30, 2017of Dr. Krauss’ claims and December 31, 2016, there were 4,208,034 and 2,875,000 shares of common stock issued and outstanding, respectively (excluding 10,669,466 and 0 shares of common stock subject to possible redemption, respectively).

further raised numerous affirmative defenses with respect thereto.

 


KBL MERGER CORP. IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(Unaudited)On November 15, 2021, Dr. Krauss filed a Motion for Summary Adjudication as to certain of the issues in the case, which was opposed by the Company.  A hearing on such Motion was held on December 7, 2021, and, on March 7, 2022, the Court issued a decision in the matter denying the Motion for Summary Adjudication in part and granting it in part.  The Court then issued an Order implementing such a decision on March 29, 2022. The parties are now engaging in proceedings set forth in that implementing Order. The Court granted Dr. Krauss’s request for advancement of certain legal fees and the Company was required to pay a portion of those fees while it objects to the remaining portion of the fees. These legal fees have been accrued on the Company’s balance sheet as of March 31, 2022 (see Note 11 – Subsequent Events for more details). Notwithstanding any requirement by the Court for the Company to advance attorneys’ fees to Dr. Krauss, no adjudication has yet been made as to whether Dr. Krauss will ultimately be entitled to permanently retain such advancements. The Company is seeking payment for a substantial portion of such amounts from its director and officers’ insurance policy, of which no assurance can be provided that the directors and officers insurance policy will cover such amounts.

 

7. TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS Action Against Tyche Capital LLC

 

The Trust Account can be investedCompany commenced and filed an action against defendant Tyche Capital LLC (“Tyche”) in U.S. government securities, within the meaningSupreme Court of New York, in the County of New York, on April 15, 2021.  In its Complaint, the Company alleged claims against Tyche arising out of Tyche’s breach of its written contractual obligations to the Company as set forth in a “Guarantee And Commitment Agreement” dated July 25, 2019, and a “Term Sheet For KBL Business Combination With CannBioRex” dated April 10, 2019 (collectively, the “Subject Guarantee”).  The Company alleges in its Complaint that, notwithstanding demand having been made on Tyche to perform its obligations under the Subject Guarantee, Tyche has failed and refused to do so, and is currently in debt to the Company for such failure in the amount of $6,776,686, together with interest accruing thereon at the rate set forth in the Investment Company Act, having a maturity of 180 daysSubject Guarantee.

On or less or in any open-ended investment company that holds itself out as a money market fund selectedabout May 17, 2021, Tyche responded to the Company’s Complaint by filing an Answer and Counterclaims against the Company meetingalleging that it was the conditions of Rule 2a-7 ofCompany, rather than Tyche, that had breached the Investment Company Act.

The Company’s amended and restated certificate of incorporation provide that, other than the withdrawal of interest to pay income taxes and up to $50,000 of interest to pay dissolution expenses if any, none of the funds held in the Trust Account will be released until the earlier of: (i) the completion of the Business Combination; (ii) the redemption of Public Shares properly tendered in connection withSubject Guarantee.  Tyche also filed a stockholder vote to amend the Company’s amended and restated certificate of incorporation to modify the substance or timingThird-Party Complaint against six third-party defendants, including three members of the Company’s obligationmanagement, Sir Marc Feldmann, Dr. James Woody, and Ozan Pamir (collectively, the “Individual Company Defendants”), claiming that they allegedly breached fiduciary duties to redeem 100%Tyche with regards to the Subject Guarantee.  In that regard, on June 25, 2021, each of the Public Shares ifIndividual Company Defendants filed a Motion to Dismiss Tyche’s Third-Party Complaint against them.

On November 23, 2021, the Court granted the Company’s request to issue an Order of attachment against all of Tyche’s shares of the Company’s stock that had been held in escrow.  In so doing, the Court found that the Company does not completehad demonstrated a likelihood of success on the Business Combination within the Combination Period or (iii) the redemption of 100%merits of the Public Shares ifcase based on the facts alleged in the Company’s Complaint.

On February 18, 2022, Tyche filed an Amended Answer, Counterclaims and Third-Party Complaint.  On March 22, 2022, the Company and each of the Individual Company Defendants filed a Motion to Dismiss all of Tyche’s claims.  A hearing on such Motion to Dismiss is unablescheduled by the Court for August 17, 2022. The Company and the Individual Company Defendants intend to complete a Business Combination withincontinue to vigorously defend against all of Tyche’s claims, however, there can be no assurance that they will be successful in the Combination Period.legal defense of such claims. Written discovery proceedings have commenced among the parties.

 


Action Against Ronald Bauer & Samantha Bauer

The Company followsand two of its wholly-owned subsidiaries, Katexco Pharmaceuticals Corp. and CannBioRex Pharmaceuticals Corp. (collectively, the guidance“Company Plaintiffs”), initiated legal action against Ronald Bauer and Samantha Bauer, as well as two of their companies, Theseus Capital Ltd. and Astatine Capital Ltd. (collectively, the “Bauer Defendants”), in ASC 820the Supreme Court of British Columbia on February 25, 2022. The Company Plaintiffs are seeking damages against the Bauer Defendants for its financial assetsmisappropriated funds and liabilities that are re-measuredstock shares, unauthorized stock sales, and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair valueimproper travel expenses, in the combined sum of at least annually. $4,395,000 CAD [$3,460,584 USD] plus the additional sum of $2,721,036 USD. Service of process has been effected on each of the Bauer Defendants, and the Bauer Defendants filed an answer on May 6, 2022. There can be no assurance that the Company Plaintiffs will be successful in this legal action.

NOTE 9 – STOCKHOLDERS’ EQUITY

 

TheCommon Stock

Common Stock Issued for Services

During the three months ended March 31, 2022, the Company issued an aggregate of 51,319 immediately vested shares of the Company’s common stock as compensation to consultants, directors, and officers, with an aggregate issuance date fair value of $149,718, which was charged immediately to the Company’s financial assets and liabilities reflects management’s estimatecondensed consolidated statement of amounts thatoperations for the Company would have received in connection with the salethree months ended March 31, 2022.

Stock Options

A summary of the assets or paidoption activity during the three months ended March 31, 2022 is presented below:

     Weighted  Weighted    
     Average  Average    
  Number of  Exercise  Remaining  Intrinsic 
  Options  Price  Term (Yrs)  Value 
Outstanding, January 1, 2022  2,741,000   4.77   9.4   70,500 
Granted  -   -         
Exercised  -   -         
Expired  -   -         
Forfeited  -   -         
Outstanding, March 31, 2022  2,741,000   4.77   9.2  $5,000 
                 
Exercisable, March 31, 2022  1,105,528   4.46   9.1  $5,000 

As indicated in connection with the transfer oftable above, no options were issued for the liabilities in an orderly transaction between market participants atthree months ended March 31, 2022. For options issued during the measurement date. In connection with measuringthree months ended March 31, 2021, the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:Black Scholes valuation method were as follows:

 

Level 1:Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
  For the Three Months Ended March 31, 2022
Level 2:Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Risk-free interest rate 0.75%
Expected term in yearsLevel 3:Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.5.27 – 5.38
Expected volatility100%
Expected dividends0%

 

A summary of outstanding and exercisable stock options as of March 31, 2022 is presented below:

Stock Options Outstanding  Stock Options Exercisable 
      Weighted    
      Average    
Exercise  Number of  Remaining  Number of 
Price  Shares  Life in Years  Shares 
$2.49   50,000   8.7   50,000 
$4.43   1,580,000   8.9   772,444 
$7.56   436,000   9.3   72,667 
$3.95   675,000   9.7   210,417 
     2,741,000   9.1   1,105,528 


The following table presents information aboutCompany recognized stock-based compensation expense of $596,467 for the Company’s assetsthree months ended March 31, 2022, related to the amortization of stock options. Expense of $514,696 is included within general and administrative expenses and expense of $81,771 is included within research and development expenses on the condensed consolidated statements of operations. The full amount of stock-based compensation recognized for the period ended March 31, 2022 is considered to be related party expense. Stock-based compensation expense for the three months ended March 31, 2021 was $1,092,399; these expenses were included within general and administrative expenses on the condensed consolidated statement of operations for that are measured at fair valueperiod. The full amount of stock-based compensation recognized for the period ended March 31, 2021 was considered to be related party expense. As of March 31, 2022, there was $5,705,889 of unrecognized stock-based compensation expense that will be recognized over the weighted average remaining vesting period of 2.81 years.

NOTE 10 - RELATED PARTIES

Accrued Expenses - Related Parties

Accrued expenses - related parties was $37,640 as of March 31, 2022 and consists of $12,818 of interest accrued on loans due to a recurring basis at September 30, 2017certain investor in the Company and $24,820 of accrued consulting fees for services provided by certain directors of the Company. Accrued expenses - related parties of $18,370 as of December 31, 2021, consists of interest accrued on loans and convertible notes due to certain officers and directors of the Company.

Loans Payable - Related Parties

Loans payable - related parties consists of $86,034 and $81,277 as of March 31, 2022 and December 31, 2016,2021, respectively. See Note 7 - Loans Payable for more information.

Research and indicatesDevelopment Expenses - Related Parties

Research and Development Expenses – Related Parties were $47,718 and $267,053 during the fair value hierarchythree months ended March 31, 2022 and 2021, respectively, and are related to consulting and professional fees paid to current or former officers, directors or greater than 5% stockholders, or affiliates thereof.

General and Administrative Expenses - Related Parties

General and Administrative Expenses – Related Parties during the three months ended March 31, 2022 and 2021 were $5,261 and $39,120, respectively. These expenses relate to professional fees paid to current or former officers, directors or greater than 5% stockholders, or affiliates thereof.

Interest Expense - Related Parties

During the three months ended March 31, 2022, the Company recorded $4,562 of interest income - related parties related to loans from greater than 5% stockholders or affiliates of the valuation inputsCompany.

During the three months ended March 31, 2021, the Company utilizedrecorded $13,949 of interest expense - related parties, of which $11,526 related to determine such fair value:

Description Level September 30,
2017
  December 31, 2016 
Assets:        
Cash and marketable securities held in Trust Account 1 $116,539,634  $        - 

8. SUBSEQUENT EVENTS 

The Company evaluates subsequent eventsinterest on certain convertible notes held by officers and transactions that occur after the balance sheet date up to the date that the financial statements were issued. Based upon this review,directors of the Company did not identify any subsequent events that would have required adjustmentand $2,423 related to interest expense on loans from officers, directors greater than 5% stockholders, or disclosure inaffiliates thereof, of the financial statements.Company.


NOTE 11 - SUBSEQUENT EVENTS

 

Amendments to Employee Agreements

As disclosed in the Company’s previous filings, on April 27, 2022, the Company entered into amendments with six of its officers, executives and a consultant to revise the compensation agreements currently in place with such individuals. The agreements for three officers were amended to increase their base salaries by 3% and then, effective March 1, 2022, the base salaries of two of the officers were reduced by 20% each and the other salary was reduced by 25%; such reduced amounts (the “Accrued Amounts”) will be accrued until such time as the Company has sufficient cash on hand to pay the Accrued Amounts, which the Company expects will not be until it has raised a minimum of $15,000,000 (the “Funding Determination Date”). On the Funding Determination Date, their salaries will increase to the full new base salary and the Accrued Amounts will be paid by the Company, provided that in addition, at the discretion of the Board of Directors, the base salaries on the Funding Determination Date of each executive may be further increased by 2%.

Pursuant to the amendments for two executives’ agreements, effective March 1, 2022, each of their salaries were reduced by $225,000 (100%) and $56,250 (25%), respectively, and such reduced amounts will be accrued and paid on the Funding Determination Date.

In addition, pursuant to the consultant’s agreement, upon acceptance of the data for the Phase 2b clinical trial for Dupuytren’s Contracture for publication, which has occurred, his monthly fee increased to £23,000, provided that £4,000 of such increase will be accrued and £19,000 of such fees will be payable monthly per the payroll practices of the Company in cash effective March 1, 2022 and until the earlier of (a) November 1, 2022 or (b) the Funding Determination Date, at which time all Accrued Amounts will be due.

Legal Matter – Action against the Company by Dr. Krauss

On April 29, 2022, pursuant to the legal matter described in Note 8 – “Legal Matters – Action Against the Company by Dr. Krauss”, the Company paid $975,121 for advancement of legal fees incurred by Dr. Krauss, pursuant to a court order. The payment was made to an escrow account and the Company has objected to the amounts and nature of the expenses. Furthermore, the Company has filed a reimbursement claim for the amount advanced net of its deductible of $250,000 with its director and officers’ insurance policy carrier, of which no assurance can be provided that the directors and officers’ insurance policy will cover such amounts.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations

 

References in this report (the “Quarterly CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Report”) to “we,, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,“us” orset forth below, contains forward-looking statements, within the “Company” refer to KBL Merger Corp. IV. References to our “management” or our “management team” refer to our officersfederal securities laws, including the Private Securities Litigation Reform Act of 1995, regarding future events and directors, and references to the “sponsor” refer to KBL IV Sponsor LLC. The following discussion and analysisfuture results of the Company’s financial conditionCompany that are based on current expectations, estimates, forecasts, and results of operations should be readprojections about the industry in conjunction withwhich the financial statementsCompany operates and the notes thereto containedbeliefs and assumptions of the management of the Company. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed elsewhere in this Quarterly Report. Certain information containedReport, including under “Risk Factors”, and in other reports the discussionCompany files with the Securities and analysis set forth below includesExchange Commission (“SEC”), including the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 31, 2022 (under the heading “Risk Factors” and in other parts of that report), and include, but are not limited to, statements about:

Expectations for the clinical and preclinical development, manufacturing, regulatory approval, and commercialization of our product candidates;
regulatory developments in the United States and foreign countries;

our success in retaining or recruiting, or changes required in, our officers, key employees or directors;

current negative operating cash flows and our potential ability to obtain additional financing to advance our business and the terms of any further financing, which may be highly dilutive and may include onerous terms;

the continued impact of the COVID-19 pandemic on our business operations and our research and development initiatives;

the accuracy of our estimates regarding expenses, future revenues and capital requirements;

estimates of the sufficiency of our existing capital resources combined with future anticipated cash flows to finance our operating requirements;

our ability to maintain our listing on Nasdaq; and

other risks and uncertainties, including those listed under “Risk Factors”, below.

All forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” withinspeak only at the meaning of Section 27Adate of the Securities Actfiling of this Report. The reader should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and Section 21E ofexpectations reflected in or suggested by the Exchange Actforward-looking statements we make in this Report are reasonable, we provide no assurance that are not historical facts, and involve risks and uncertaintiesthese plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from those expectedour expectations under “Risk Factors” and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regardingand elsewhere in this Report and our Annual Report on Form 10-K for the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Suchyear ended December 31, 2021. These cautionary statements qualify all forward-looking statements relateattributable to future eventsus or future performance, but reflect management’s current beliefs, basedpersons acting on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for the Initial Public Offering filed with the SEC. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov.our behalf. Except as expressly required by applicable securities law, the Company disclaims any intention orwe assume no obligation to update or revise anythese forward-looking statements whetherfor any reason, even if new information becomes available in the future.


General Information

The following discussion is based upon our unaudited Condensed Consolidated Financial Statements included elsewhere in this Report, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, and in other reports we file with the SEC, and in our most recent Annual Report on Form 10-K. All references to years relate to the calendar year ended December 31st of the particular year.

This information should be read in conjunction with the interim unaudited condensed consolidated 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 ended December 31, 2021, filed with the Securities and Exchange Commission on March 31, 2022 (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 condensed consolidated financial statements included above under “Part I – Financial Information” – “Item 1. Financial Statements”.

Please see the section entitled “Glossary” beginning on page ii of our Annual Report for a list of abbreviations and definitions commonly used in the pharmaceutical and biotechnology industry which are 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 Statement Regarding Forward-Looking Statements”, above, which includes information on forward-looking statements 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 “180 Life Sciences Corp.” refer specifically to 180 Life Sciences Corp. and its consolidated subsidiaries. References to “KBL” refer to the Company prior to the November 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 United States Securities and Exchange Commission; and

“Securities Act” refers to the Securities Act of 1933, as amended.

Going Concern and Management Liquidity Plans

As of March 31, 2022, we had an accumulated deficit of $67,118,573 and net income for the three months ended March 31, 2022 of $1,563,713. As of March 31, 2022, we had a working capital deficit of $6,120,408. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a resultgoing concern. As we are not generating revenues, we need to raise a significant amount of new information, future eventscapital in order to pay our debts and cover our operating costs. While the Company raised money in August 2021, there is no assurance that we will be able to raise additional needed capital or otherwise.that such capital will be available under favorable terms.

 

Overview

We are subject to all the substantial risks inherent in the development of a blank check company incorporatednew business enterprise within an extremely competitive industry. Due to the absence of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy, which includes all associated revenue streams. We may never achieve profitable operations or generate significant revenues.

We currently have a minimum monthly cash requirement spend of approximately $800,000. We believe that in the aggregate, we will require significant additional capital funding to support and expand the research and development and marketing of our products, fund future clinical trials, repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office space and systems for managing the business, and cover other operating costs until our planned revenue streams from products are fully-implemented and begin to offset our operating costs, if ever.

Since our inception, we have funded our operations with the proceeds from equity and debt financings. We have experienced liquidity issues due to, among other reasons, our limited ability to raise adequate capital on September 7, 2016 in Delawareacceptable terms. We have historically relied upon the issuance of equity and formedpromissory notes that are convertible into shares of our common stock to fund our operations and have devoted significant efforts to reduce that exposure. We anticipate that we will need to issue equity to fund our operations and repay our outstanding debt for the purposeforeseeable future. If we are unable to achieve operational profitability or we are not successful in securing other forms of effectingfinancing, we will have to evaluate alternative actions to reduce our operating expenses and conserve cash.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We intendgoing concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to effectuatethe recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The consolidated financial statements included in this prospectus also include a going concern footnote.


Additionally, wherever possible, our Business Combination using cash fromBoard of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the proceedsnon-cash consideration will consist of restricted shares of our Initial Public Offeringcommon stock, preferred stock or warrants to purchase shares of our common stock. Our Board of Directors has authority, without action or vote of the shareholders, but subject to NASDAQ rules and regulations (which generally require shareholder approval for any transactions which would result in the Private Placement, our securities, debt or a combination of cash, securities and debt.

The issuance of additionalmore than 20% of our then outstanding shares of common stock or voting rights representing over 20% of our then outstanding shares of stock), to issue all or part of the authorized but unissued shares of common stock, preferred stock:stock or warrants to purchase such shares of common stock. In addition, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market in the future. These actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued to parties or entities committed to supporting existing management.

 

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:

 may significantly diluteBusiness Overview and Recent Events. A summary of the equity interest of our investors;
may subordinate the rights of holders of common stock if we issue preferred shares with rights senior to those afforded to our common stock;
could cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any,Company’s business and could result in the resignation or removal of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
may adversely affect prevailing market prices for our securities.certain material recent events.

 

Similarly, if we issue debt securities, it could result in:

 default and foreclosure on our assets if our operating revenues after our business combination are insufficient to pay our debt obligations;Significant Financial Statement Components. A summary of the Company’s significant financial statement components.

 accelerationResults of Operations. An analysis of our obligations to repayfinancial results comparing the indebtedness even if we have made all principalthree months ended March 31, 2022 and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;2021.

 our immediate paymentLiquidity and Capital Resources. An analysis of all principal and accrued interest, if any, if the debt security is payable on demand;
our inability to obtain additional financing if the debt security contains covenants restricting our ability to obtain additional financing while such security is outstanding;
our inability to pay dividends on our common stock;
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our businessbalance sheets and in the industry in which we operate;cash flows and discussion of our financial condition.

 increased vulnerabilityCritical Accounting Policies and Estimates. Accounting estimates that we believe are important to adverse changesunderstanding the assumptions and judgments incorporated in general economic, industryour reported financial results and competitive conditions and adverse changes in government regulation; andforecasts.

Business Overview and Recent Events

On November 6, 2020 (“Closing Date”), the 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, 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 effective November 6, 2020 and in connection therewith, 180 filed a Certificate of Amendment of its Certificate of Incorporation in Delaware to change its name to 180 Life Corp., and KBL changed its name to 180 Life Sciences Corp.

Following the Closing of the Business Combination, we transitioned our operations to those of 180, which is a clinical stage biotechnology company headquartered in Palo Alto, 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:

 limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategyfibrosis and other purposes and other disadvantages compared to our competitors who have less debt.anti-tumor necrosis factor (“TNF”);

 

drugs which are derivatives of cannabidiol (“CBD”); and

We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete a Business Combination will be successful.

alpha 7 nicotinic acetylcholine receptor (“α7nAChR”).


Results of Operations

 

We have neither engagedseveral future product candidates in anydevelopment, including one product candidate which has recently completed a successful Phase 2b clinical trial in the United Kingdom for Dupuytren’s Contracture, 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 on our existing pipeline to address unmet clinical needs. The product candidates are designed via a platform comprised of defined unit operations nor generated any revenuesand 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 date. Our only activities from September 7, 2016 (datedefine 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 inception) through September 30, 2017 were organizational activities, those necessarythe product candidates in the future. 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

In December 2019, a new strain of the Initial Public Offering,coronavirus (COVID-19) was reported in Mainland China and during the first quarter of 2020 the virus had spread to over 150 countries, resulting in a global pandemic. This COVID-19 pandemic and the public health responses to contain it have resulted in global recessionary conditions, which was consummateddid not exist at December 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 June 7, 2017,our ability to access capital, and identifying a target company for a Business Combination.on our business, results of operations and financial condition. We do not expecthave been closely monitoring the developments and have taken active measures to generate any operating revenues until afterprotect the completionhealth of our Business Combination. We expectemployees, their families, and our communities. The ultimate impact on the 2022 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 and social distancing mandates, as well as the substance and pace of macroeconomic recovery, all of which are uncertain and difficult to generate non-operating income inpredict considering the formrapidly evolving landscape of interest income on cashthe COVID-19 pandemic and marketable securities held in the Trust Account. We expectpublic health responses to incur increased expensescontain it.

The follow up time for patient data and the statistical analysis for the Phase 2b Dupuytren’s Contracture clinical trial was delayed as a result of COVID-19, but such follow-up and statistical analysis are now completed and the Company announced the top-line data results from the Phase 2b trial on December 1, 2021 and the data was published on April 29, 2022 in a peer-reviewed journal. Additionally, COVID-19 has delayed the initiation of certain clinical trials and may delay the initiation of other clinical trials in the future or otherwise have a material adverse effect on our future operations.


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 α7nAChR. 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.

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 impact of COVID-19 on the length of our trials;

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 and options granted to founders, directors 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, litigation, SEC filings, 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.

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, (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.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. Gains resulting from change in fair value of derivative liabilities during the three months ended March 31, 2022, were driven by decreases in stock price during the period, resulting in a lower fair value of the underlying liability.

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.

CONSOLIDATED RESULTS OF OPERATIONS

For the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

  For the Three Months Ended 
  March 31, 
  2022  2021 
Operating Expenses:        
Research and development $658,939  $99,899 
Research and development - related parties  47,718   267,053 
General and administrative  2,969,151   2,542,231 
General and administrative - related parties  5,261   39,120 
Total Operating Expenses  3,681,069   2,948,303 
Loss From Operations  (3,681,069)  (2,948,303)
         
Other Income (Expense):        
Gain on settlement of payables and accrued expenses  -   723,764 
Interest expense  (7,414)  (112,933)
Interest income (expense) - related parties  4,562   (13,949)
Loss on extinguishment of convertible notes payable, net  -   (9,737)
Offering costs allocated to warrant liabilities  -   (604,118)
Change in fair value of accrued issuable equity  17,520   (9,405)
Change in fair value of derivative liabilities  5,230,114   (13,229,308)
Total Other Income (Expense), Net  5,244,782   (13,255,686)
Income (Loss) Before Income Taxes  1,563,713   (16,203,989)
Income tax benefit  -   5,404 
Net Income (Loss) $1,563,713   $(16,198,585)

Research and Development

We incurred research and development expenses of $658,939 for the three months ended March 31, 2022, compared to $99,899 for the three months ended March 31, 2021, representing an increase of $559,040 or 560%. The increase includes a $175,000 increase in consulting expenses for the Scientific Advisory Board, an increase in salaries of $140,000, an increase in research and development expenses of $90,000 related to our agreements with Oxford University, a $50,000 increase in Anti-TNF therapies expenses and an increase in stock-based compensation expense of approximately $80,000.


Research and Development – Related Parties

We incurred research and development expenses – related parties of $47,718 for the three months ended March 31, 2022, compared to $267,053 for the three months ended March 31, 2021, representing a decrease of $219,335, or 82%. The decrease is primarily attributable to some reversals of consultancy expenses in the prior period totaling approximately $440,000, offset by increases in various other expenses.

General and Administrative

We incurred general and administrative expenses of $2,969,151 and $2,542,231 for the three months ended March 31, 2022 and 2021, respectively, representing an increase of $426,920 or 17%. The increase resulted from an increase in patents expenses of $135,000 and an increase in insurance expenses of $280,000.

General and Administrative – Related Parties

We incurred general and administrative expenses - related parties of $5,261 and $39,120 for the three months ended March 31, 2022 and 2021, respectively, representing a decrease of $33,859, or 87%. The decrease is attributable to a change in cost center for consulting fees from the prior period of approximately $35,000.

Other Income (Expenses), Net

We incurred other income, net of $5,244,782 during the three months ended March 31, 2022, as compared to other expenses, net of $13,255,686 for the three months ended March 31, 2021, representing an increase in other income of approximately $18,500,468 or 140%. The increase was primarily attributable to the change in fair value of the Company’s derivative liabilities from the prior period, which increased by approximately $18.5 million.

Liquidity and Capital Resources

As of March 31, 2022 and December 31, 2021, we had cash balances of $5,668,915 and $8,244,508, respectively, and working capital deficits of $6,120,408 and $8,498,193, respectively.

For the three months ended September 30, 2017, we had net income of $86,116, which consists of interest income on cashMarch 31, 2022 and marketable securities held in the Trust Account of $333,905, offset by operating costs of $140,849 and a provision for income taxes of $106,940.

For the nine months ended September 30, 2017, we had net income of $60,149, which consists of interest income on cash and marketable securities held in the Trust Account of $389,634, offset by operating costs of $222,545 and a provision for income taxes of $106,940.

For the period from September 7, 2016 (inception) through September 30, 2016, we had a net loss of $683, consisting of operating costs.

Liquidity and Capital Resources

The completion of the Initial Public Offering and simultaneous Private Placement, inclusive of the underwriters’ exercise of their over-allotment option in full, generated gross proceeds to the Company of $120,025,000. Related transaction costs amounted to $7,345,436, consisting of $2,875,000 of underwriting fees, $4,025,000 of deferred underwriting commissions payable (which are held in the Trust Account) and $445,436 of Initial Public Offering costs.

Following the Initial Public Offering and the exercise of the over-allotment option, a total of $116,150,000 was placed in the Trust Account and we had $798,469 of cash held outside of the Trust Account, after payment of all costs related to the Initial Public Offering and the exercise of the over-allotment option.

As of September 30, 2017, we had cash and marketable securities held in the Trust Account of $116,539,634, substantially all of which is invested in U.S. treasury bills with a maturity of 180 days or less. Interest income earned on the balance in the Trust Account may be available to us to pay taxes. Since inception, we have not withdrawn interest income from the Trust Account.

As of September 30, 2017, we had cash of $453,529 held outside the Trust Account, which is available for use by us to cover the costs associated with identifying a target business, negotiating a Business Combination, due diligence procedures and other general corporate uses. In addition, as of September 30, 2017, we had accounts payable and accrued expenses of $83,056.

For the nine months ended September 30, 2017,2021, cash used in operating activities amountedwas $2,072,931 and $6,330,045, respectively. Our cash used in operations for the three months ended March 31, 2022 was primarily attributable to $222,076, mainly resulting fromour net income of $60,149, offset by interest earned on marketable securities held$1,563,713, adjusted for non-cash expenses in the Trust Accountaggregate amount of $389,634. Changes$4,497,319 as well as $860,675 of net cash used to fund changes in ourthe levels of operating assets and liabilitiesliabilities. Our cash used cashin operations for the three months ended March 31, 2021 was primarily attributable to our net loss of $107,409.

We intend to use substantially all of the funds held$16,198,585, adjusted for non-cash expenses in the Trust Account, including any amounts representing interest earned onaggregate amount of $15,169,872 as well as $5,301,332 of net cash used to fund changes in the Trust Account (which interest shall be netlevels of taxes payableoperating assets and excluding deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay taxesliabilities.


For the three months ended March 31, 2022 and up to $50,000 for liquidation expenses, if any. To the extent that our capital stock or debt is2021, cash (used in) provided by financing activities was ($515,419) and $10,362,538, respectively. Cash used in whole or in part, as considerationfinancing activities during the three months ended March 31, 2022 was due to complete our initial business combination, the remaining proceeds heldrepayments of loans in the trust account will be used as working capitalamount of $515,419. Cash provided by financing activities during the three months ended March 31, 2021 was due to finance the operations$10,731,070 of the target business or businesses, make other acquisitions and pursue our growth strategies.

We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses (as well as pay personnel and advisors to do the forgoing), structure, negotiate and complete a business combination, and to pay taxes to the extent the interest earned on the trust account is not sufficient to pay our taxes.

In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial Business Combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial Business Combination, we would repay such loaned amounts. In the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but nonet proceeds from our Trust Account wouldoffering of common stock and warrants, partially offset by the repayment of loans in the amount of $368,532.

Our product candidates may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result, until such time, if ever, as we are able to generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements, which may not be used for such repayment. Upavailable on favorable terms, if at all. The sale of additional equity or debt securities, if accomplished, may result in dilution to $1,000,000our then stockholders. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, license payments or milestone obligations that may arise, laboratory and related supplies, clinical costs, potential manufacturing costs, legal and other regulatory expenses and general overhead costs.

Our material cash requirements and time periods of such loans will be convertible into unitsrequirements from known contractual and other obligations include milestone and royalty payments related to license agreements with Oxford University and Yissum Research Development Company of the post-business combination entity at a priceHebrew University of $10.00 per unit. The units would be identicalJerusalem, Ltd., payments related to directors and officers (“D&O”) insurance, payments to consultants and payments related to outside consulting firms, such as legal counsel, auditors, accountants, etc. These cash requirements, in the Private Units. No written agreements currently exist with respectaggregate, are expected to such loans.amount to approximately $7,100,000 for 2022 and $33,400,000 for the years 2023 through 2026.

 


We do not believe we will need to raise additional funds in order to meet the expenditures required forFurther, our operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligenceplans may change, and negotiating an initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need additional funds to obtain additional financing either to complete our Business Combinationmeet operational needs and capital requirements for clinical trials and other research and development activities. We currently have no credit facility or because we become obligated to redeem a significant numbercommitted sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our public shares upon completion of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. In the current economic environment, it has become especially difficult to obtain acquisition financing. Ifproduct candidates, we are unable to completeestimate the amounts of increased capital outlays and operating expenditures associated with our initial Business Combination because wecurrent and anticipated product development programs.

Our condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

Recent Financing and Settlement Transactions

There have sufficient funds availablebeen no financing or settlement transactions during the three months ended March 31, 2022.


Critical Accounting Policies and Estimates

The Company’s condensed consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these condensed consolidated financial statements requires management to us, we will be forcedmake estimates and assumptions that affect the reported amounts of its assets, liabilities, revenue and expenses. The Company has identified certain policies and estimates as critical to ceaseits business operations and liquidate the Trust Account. In addition, following our initial Business Combination, if cashunderstanding of its past or present results of operations related to (i) goodwill and (ii) intangible assets and in-process research and development. These policies and estimates are considered critical because they had a material impact, or they have the potential to have a material impact, on hand is insufficient, we may needthe Company’s condensed consolidated financial statements and because they require management to obtain additional financing in order to meet our obligations.

Off-balance sheet financing arrangements

We have no obligations, assetsmake significant judgments, assumptions or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactionsestimates. The Company believes that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been establishedthe estimates, judgments and assumptions made when accounting for the purposeitems described below were reasonable, based on information available at the time they were made. However, actual results may differ from those estimates, and these differences may be material.

Goodwill/Intangible Assets and In-Process Research and Development (“IPR&D”)

The Company has a significant amount of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debtgoodwill, intangible assets and IPR&D assets that are assessed at least annually for impairment. As of March 31, 2022 and December 31, 2021, goodwill, intangible assets and IPR&D assets totaled $50.7 million and $51.5 million, or commitments85% and 82%, respectively, of other entities, or purchased any non-financialthe Company’s total assets.

Contractual obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the sponsor a monthly fee The impairment analyses of $10,000 for office space, utilities and administrative support providedthese assets are considered critical because of their significance to the Company. We began incurring these feesIntangible assets arising from business combinations or acquisitions, such as goodwill, patents and IPR&D assets are initially recorded at estimated fair value. Licensed patents are amortized over the remaining life of the patent. IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects. Our goodwill was derived from acquisitions where the purchase price exceeded the fair value of the net assets acquired. The Company is required to reassign goodwill to reporting units whenever reorganizations of the internal reporting structure change the composition of its reporting units. The Company identified one reporting unit which represents its sole operating segment.

The Company is required to assess goodwill/intangible assets and IPR&D assets at least annually, or more frequently, if an event occurs or circumstances change that indicates it is more likely than not the fair value of the Company’s reporting unit was less than its carrying value. In assessing goodwill/intangible assets and IPR&D assets for impairment, the Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying value. For December 31, 2021, the Company elected to bypass the qualitative analysis and proceeded directly to the two- step test.

The first step of the goodwill/intangible assets and IPR&D assets impairment test used to identify potential impairment compares the fair value of the reporting unit with its carrying amount, including goodwill/intangible assets and IPR&D assets. The Company determined the fair market value of its single reporting unit as of December 31, 2021 to be its market capitalization of $132,760,680, which represents $3.90 per share (the market close price on June 7, 2017December 31, 2021) multiplied by 34,021,200 shares (consisting of 34,035,925 shares of common stock plus 5,275 special voting shares which are exchangeable into common stock for no additional consideration) on December 31, 2021. The carrying amount of the reporting unit as of December 31, 2021 was $39,322,695 (total assets of $62.7 million less total liabilities of $23.4 million).

Since the fair value of the Company ($132,760,680) exceeded the carrying value of the Company ($39,322,695) as of December 31, 2021, and the carrying value of the Company is greater than zero, management concluded the goodwill/intangible assets and IPR&D assets of the reporting unit was not impaired. The Company will continue to incur these fees monthly untilperform goodwill/intangible assets and IPR&D assets impairment testing on an annual basis, or as needed if there are changes to the earliercomposition of its reporting unit. As of March 31, 2022, there have been no changes to the composition of the completionreporting unit.


Derivative Liabilities

The Company evaluates its debt and equity issuances to determine if those contracts or embedded components of those contracts qualify as derivatives requiring separate recognition in the Company’s financial statements. As of March 31, 2022 and December 31, 2021, derivative liabilities totaled $10.0 million and $15.2 million, or 53% and 65%, respectively, of the Business CombinationCompany’s total liabilities. The analyses of these liabilities are considered critical because of their significance to the Company. Entities must consider whether to classify contracts that may be settled in its own stock, such as warrants, as equity of the entity or as an asset or liability. If an event that is not within the entity’s control could require net cash settlement, then the contract should be classified as an asset or a liability rather than as equity.

The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market at each balance sheet date and recorded as a liability and the change in fair value is recorded in other (expense) income, net in the consolidated statements of operations. In circumstances where there are multiple embedded instruments that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within twelve months of the balance sheet date.

If the embedded conversion options do not require bifurcation, the Company then evaluates for the existence of a beneficial conversion feature by comparing the fair value of the Company’s liquidation.underlying stock as of the commitment date to the effective conversion price of the instrument (the intrinsic value).

The Company has computed the fair value of warrants, options, convertible notes and convertible preferred stock issued using the Monte-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 from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.

The Company evaluated the terms of its AGP Warrants (see Note 6 – Derivative Liabilities) when they were originally earned and determined that the AGP Warrants should initially be liability-classified at their fair value at issuance with subsequent remeasurement (mark-to-market) at period ends. As of March 31, 2022, the Company has concluded that its warrants should remain liability-classified as of March 31, 2022 due to the presence of the Tender Offer Provision combined with the existence of the Exchangeable Shares that have voting rights consistent with common stockholders.

Recently Issued Accounting Pronouncements

See Note 3 – Summary of Significant Accounting Policies of our consolidated financial statements included within our 2021 Annual Report on Form 10-K for a summary of recently issued accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKPursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

The net proceeds of the Initial Public Offering and the sale of the Private Units held in the Trust Account are invested in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.


Item 4. Controls and Procedures.

 

ITEM 4. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and Procedures

DisclosureWe have established and maintain a system of disclosure controls and procedures are controls and other procedures that are designed to ensureprovide reasonable assurance that information required to be disclosed in our reports filed with the SEC pursuant to the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Commission and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO)(principal executive officer) and Chief Financial Officer (CFO) (principal accounting/financial officer), as appropriate, to allow timely decisions regarding required disclosures.

The Company’s management evaluated, with the participation of our principal executive officer and principal financial and accounting officer, the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Report.

In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on their evaluation, our principal executive officer and principal financial and accounting officer concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective to provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submittedsubmit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC rules and forms. Disclosure controlsforms, and procedures include, without limitation, controls and procedures designed to ensure that such information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.disclosures as of March 31, 2022.

 

EvaluationManagement’s evaluation was based on the following material weaknesses in our internal control over financial reporting which existed as of Disclosure ControlsDecember 31, 2021, and Procedureswhich continue to exist, as discussed in the Company’s Annual Report on Form 10-K:

 

Financial Reporting Systems: The Company did not maintain a fully integrated financial consolidation and reporting system throughout the period and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce financial statements for external reporting purposes.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation

Ineffective controls: Ineffective review controls over period end financial disclosure and reporting processes related to stock-based compensation and payroll expense classification.

A material weakness is a control deficiency or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As a company with limited accounting resources, a significant amount of management’s time and attention has been and will be diverted from our business to ensure compliance with these regulatory requirements.


Our management plans to establish procedures to monitor and evaluate the effectiveness of our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing necessary enhancements or improvements. Management expects to complete its assessment of the design and operationoperating effectiveness of our disclosureits internal controls andover financial reporting during the second half of 2022. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures as of September 30, 2017. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.may deteriorate.

 

Remediation Plan

Management intends to take steps to develop and enhance its internal controls over financial reporting, including:

Retaining the same accounting personnel throughout all reporting periods in 2022 to establish continuity of processes and implement sustainable improvements and efficiencies in the financial reporting and consolidation tools and procedures.

Consider opportunities for improving the consolidations and financial statement processes, including exploring migrating to NetSuite, or a similar automated consolidations application to streamline the consolidations and reporting processes and enhance efficiency and accuracy.

As part of the systems review and potential migration, our plan is to:

oStrengthen the chart of accounts to provide required roll ups

oReview current mapping and implement new procedures to enhance the controls on future changes

oAutomate reporting and calculations whenever possible

To the extent manual processes, schedules and/or adjustments exist as part of, or following implementation, Management reviews must include additional high-level steps such as mapping considerations to financial reporting and detailed reviews of annual schedules to ensure the completeness and appropriate classification of expenses in the financial disclosure and reporting process.

Changes in Internal Control Overover Financial Reporting

 

During the most recently completed fiscal quarter, there hasThere have been no changechanges in our internal control over financial reporting that hasoccurred during the quarter ended March 31, 2022 that have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

 

15


 

 

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

 

ITEMFrom time to time, we may be a party to litigation that arises in the ordinary course of its business. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We believe the ultimate resolution of any such current proceeding will not have a material adverse effect on our continued financial position, results of operations or cash flows.

Such current litigation or other legal proceedings are described in, and incorporated by reference in, this “Item 1. LEGAL PROCEEDINGS.Legal Proceedings” of this Form 10-Q from, “Part I – Item 1. Financial Statements” in the Notes to Condensed Consolidated Financial Statements in “Note 8 – Commitments and Contingences”, under the heading Legal Matters. The Company believes that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known to the Company or by judges, juries or other finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.

 

None.Additionally, the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected.

Item 1A. Risk Factors.

 

ITEM 1A. RISK FACTORS.

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our final prospectus dated June 7, 2017 filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, thereThere have been no material changes tofrom the risk factors previously disclosed in our final prospectus dated June 7, 2017Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.Commission on March 30, 2022, under the heading “Risk Factors”, which risk factors are incorporated by reference herein, except as described below, and investors should review the risks provided in the Form 10-K and below prior to making an investment in the Company. The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Form 10-K for the year ended December 31, 2021, under “Risk Factors”, and below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price.

We may experience write-downs in the carrying value of goodwill.

We face significant penalties and damages in the event registration statements we filed to register certain securities sold in our prior offerings are subsequently suspended or terminated.

Currently, there is a conflict involving Russia and Ukraine; the war between the two countries continues to evolve as military activity proceeds and additional sanctions are imposed. The war is increasingly affecting economic and global financial markets and exacerbating ongoing economic challenges, including issues such as rising inflation and global supply-chain disruption. While we do not believe this conflict currently has a material impact on our financial accounting and reporting, the degree to which we will be affected in the future largely depends on the nature and duration of uncertain and unpredictable events, and our business could be impacted.

We have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting. If not remediated, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.Recent Sales of Unregistered Securities

 

Except as set forth below, there have been no sales of unregistered securities during the quarter ended March 31, 2022 and from the period from April 1, 2022, to the filing date of this report, which have not previously been disclosed in a Current Report on Form 8-K.

In February 2022:

We issued 13,846 shares of restricted common stock to an external consultant for investor relations, advisory and consulting services to be rendered.

In March 2022:

We issued 20,000 shares of restricted common stock to an external consultant for professional relations services to be rendered.

* * * * *


We claim an exemption from registration pursuant to Section 4(a)(2) and/or Rule 506 of Regulation D of the Securities Act, for such issuances described above, since the foregoing issuances did not involve a public offering, the recipients were (a) “accredited investors”; and/or (b) had access to similar documentation and information as would be required in a Registration Statement under the Securities Act. The securities were offered without any general solicitation by us or our representatives. The securities are subject to transfer restrictions, and the certificates evidencing the securities contain an appropriate legend stating that such securities have not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 3. Defaults upon Senior Securities.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.None.

 

None.

Item 4. Mine Safety Disclosures.

 

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

Item 5. Other Information.

 

ITEM 5. OTHER INFORMATION.None.

 

None.

16


 

Item 6. Exhibits.

 

ITEM 6. EXHIBITS.

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

No. Description of Exhibit
31.1* Filed/
Furnished
Incorporated by Reference
Exhibit No.DescriptionHerewithFormFile No.ExhibitFiling Date
10.1***First Amendment to Amended and Restated Employment Agreement dated April 27, 2022, between 180 Life Sciences Corp. and James N. Woody, M.D., Ph.D.8-K001-3810510.14/28/2022
10.2***First Amendment to Employment Agreement dated April 27, 2022, between 180 Life Sciences Corp. and Quan Anh Vu8-K001-3810510.14/28/2022
10.3***First Amendment to Employment Agreement dated April 27, 2022, between 180 Life Sciences Corp. and Jonathan Rothbard, Ph.D.8-K001-3810510.14/28/2022
10.4***First Amendment to Employment Agreement dated April 27, 2022, between Cannbiorex Pharma Ltd. and Sir Marc Feldmann, Ph.D.8-K001-3810510.14/28/2022
10.5***First Amendment to Consulting Agreement dated April 27, 2022, between 180 Life Sciences Corp. and Lawrence Steinman, M.D.8-K001-3810510.14/28/2022
10.6***Second Amendment to Consulting Agreement dated April 27, 2022, between Cannbiorex Pharma Ltd. and Prof. Jagdeep Nanchahal8-K001-3810510.14/28/2022
31.1*Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley ActX
31.2*Certification of Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley ActX
32.1**Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302906 of the Sarbanes-Oxley Act of 2002
32.1** X
32.2**Certification of Principal ExecutiveAccounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS* X
101.INS*Inline XBRL Instance Document
101.CAL* - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*X 
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.DEF* X
101.CAL*Inline XBRL Taxonomy ExtensionCalculation LinkbaseX
101.DEF*Inline XBRL Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*X 
101.LAB*Inline XBRL Taxonomy Extension PresentationLabel LinkbaseX
101.PRE*Inline XBRL Definition Linkbase DocumentX
104*Inline XBRL for the cover page of this Quarterly Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document SetX

(1) Incorporated by reference to our Current Report on Form 8-K filed on June 7, 2017

*   Filed herewith.

** Furnished. 

 

*Filed herewith.

**Furnished herewith.
***Indicates management contract or compensatory plan or arrangement.


SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

KBL MERGER180 LIFE SCIENCES CORP. IV
Date: November 13, 2017May 16, 2022/s/ Marlene KraussJames N. Woody, M.D., Ph.D.
Name:By:Marlene Krauss
Title:James N. Woody, M.D., Ph.D.,
Chief Executive Officer

(Principal Executive Officer)

Date: May 16, 2022/s/ Ozan Pamir
By:Ozan Pamir
Interim Chief Financial
Officer and
(
Principal Financial and Accounting Officer)

 

 

1837

 

 

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