The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
The accompanying notes are an integral
part of the unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
180 Life Sciences
Corp., formerly known as KBL Merger Corp. IV (the “Company”), 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
On November 6, 2020
(the “Closing Date”), the Company consummated the previously announced business combination (the “Business
Combination”) following a special meeting of stockholders held on November 5, 2020, where the stockholders of KBL Merger
Corp. IV (the “Company” or, prior to the closing of the Business Combination, sometimes referred to herein
as “KBL”) considered and approved, among other matters, a proposal to adopt that certain Business Combination
Agreement (as amended, the “Business Combination Agreement”), dated as of July 25, 2019, entered into by and
among the Company, KBL Merger Sub, Inc. (“Merger Sub”), 180 Life Sciences Corp. (“180”),
Katexco Pharmaceuticals Corp. (“Katexco”), CannBioRex Pharmaceuticals Corp. (“CBR Pharma”),
180 Therapeutics L.P. (“180 LP” and together with Katexco and CBR Pharma, the “180 Subsidiaries”
and, together with 180, the “180 Parties”), and Lawrence Pemble, in his capacity as representative of the stockholders
of the 180 Parties (the “Stockholder Representative”). Pursuant to the Business Combination Agreement, among
other things, Merger Sub merged with and into 180, with 180 continuing as the surviving entity and a wholly-owned subsidiary of
the Company (the “Merger”). The Merger became effective on November 6, 2020 (such time, the “Effective
Time”, and the closing of the Merger being referred to herein as the “Closing”). In connection with,
and prior to, the Closing, 180 filed a Certificate of Amendment of its Certificate of Incorporation in Delaware to change its
name to 180 Life Corp. and KBL Merger Corp. IV changed its name to 180 Life Sciences Corp.
At the Effective
Time, each share of 180 common stock issued and outstanding prior to the Effective Time was automatically converted into the right
to receive 168.3784 shares of the common stock, par value $0.0001 per share, of the Company (“Common Stock”;
and such shares of Common Stock issuable to the common stockholders of 180 pursuant to the Business Combination Agreement, the
“Merger Consideration Shares”). An aggregate of 15,736,438 shares of Common Stock are issuable to the common
stockholders of 180 as Merger Consideration Shares, including the Escrow Shares (as defined below). Also at the Effective Time,
each share of 180 preferred stock issued and outstanding prior to the Effective Time was converted into the right to receive one
Class C Special Voting Share of the Company, or one Class K Special Voting Share of the Company, as applicable (such shares, the
“Special Voting Shares”). The Special Voting Shares entitle the holder thereof to an aggregate number of votes,
on any particular matter, proposition or question, equal to the number of Exchangeable Shares (as defined below) of each of CannBioRex
Purchaseco ULC and Katexco Purchaseco ULC, Canadian subsidiaries of 180, respectively, that are outstanding from time to time.
As a result of the
Merger, the existing exchangeable shares (collectively, the “Exchangeable Shares”) of CannBioRex Purchaseco
ULC and/or Katexco Purchaseco ULC were adjusted in accordance with the share provisions in the articles of CannBioRex Purchaseco
ULC or Katexco Purchaseco ULC, as applicable, governing the Exchangeable Shares such that they were multiplied by the exchange
ratio for the Merger and became exchangeable into shares of Common Stock. The Exchangeable Shares entitle the holders to dividends
and other rights that are substantially economically equivalent to those of holders of Common Stock, and holders of Exchangeable
Shares have the right to vote at meetings of the stockholders of the Company. An aggregate of 1,763,562 shares of Common Stock
are reserved for issuance to the holders of the Exchangeable Shares upon the exchange thereof.
Pursuant to the Business
Combination Agreement, 1,050,000 of the Merger Consideration Shares (such shares, the “Escrow Shares”) were
deposited into an escrow account (the “Escrow Account”) to serve as security for, and the exclusive source of
payment of, the Company’s indemnity rights under the Business Combination Agreement.
As a result of the
Business Combination, the former shareholders of 180 became the controlling shareholders of the Company and 180 became a subsidiary
of the Company. The Business Combination was accounted for as a reverse merger, whereby 180 is considered the acquirer for accounting
and financial reporting purposes.
Further information
regarding the Business Combination is set forth in (i) the proxy statement / prospectus included in the registration statement
on form S-4 (File No. 333-234650), as amended and supplemented, originally filed with the SEC on November 12, 2019 and declared
effective by the SEC on October 9, 2020; and (ii) the Current Report on Form 8-K filed with the SEC on November 12, 2020.
In connection with the Closing, the Company withdrew $9,006,493
of funds from the Trust Account (as defined below) to fund the redemptions of 816,461 shares.
In addition, advances
made to the Company by the 180 Parties totalling $667,315 as of September 30, 2020 remain outstanding.
Business Prior to the Business Combination
Prior to the Closing,
the Company had one wholly owned subsidiary, KBL Merger Sub, Inc., incorporated in Delaware on July 3, 2019 (“Merger Sub”).
As of September 30, 2020, the Merger Sub had no activity.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
All activity through
September 30, 2020 relates to the Company’s formation, its initial public offering (“Initial Public Offering”),
which is described below, identifying a target company for a Business Combination, and consummating the acquisition of 180.
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, with respect to the shares
of the Company’s common stock included in the Units offered, the “Public Shares”), generating gross proceeds
of $100,000,000, which is described in Note 3.
Simultaneously with
the closing of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of 450,000
units (“Private Units” and, with respect to the shares of the Company’s common stock included in the Private
Units offered, the “Private Shares”) at a price of $10.00 per Private Unit in a private placement to the Company’s
sponsor, KBL IV Sponsor LLC (the “Sponsor”), and the underwriters, generating gross proceeds of $4,500,000, which
is described in Note 3.
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 a trust account (“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 9) and
$445,436 of Initial Public Offering costs.
Following the closing
of the Initial Public Offering and the Private Placement, an amount of $116,150,000 ($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 the 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions
to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“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. Accordingly, they do not include all the information
and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion
of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a
normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows
for the periods presented.
The accompanying
unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2019 as filed with the SEC on April 7, 2020, which contains the audited financial statements
and notes thereto. The financial information as of December 31, 2019 is derived from the audited financial statements presented
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The interim results for the three and
nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December
31, 2020 or for any future interim periods.
Principles of Consolidation
The accompanying
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in consolidation.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
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 that 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 consolidated
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 of
condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making estimates
requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a
condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management
considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly,
the actual results could differ significantly from our estimates.
Cash and Marketable Securities Held in Trust Account
At September 30,
2020 and December 31, 2019, assets held in the Trust Account were comprised of $10,303,227 and $11,877,654, respectively, in money
market funds which are invested in U.S. Treasury Securities.
Common Stock Subject to Possible Redemption
The Company accounts
for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption are classified as
liability instruments and are measured 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 within the Company’s control) are classified as temporary equity. At all other times, common stock is classified
as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside
of the Company’s control and subject to occurrence of uncertain future events. Accordingly, 190,970 and 33,618 shares of
common stock subject to possible redemption at September 30, 2020 and December 31, 2019, respectively, are presented as temporary
equity, outside of the stockholders’ equity section of the Company’s condensed consolidated balance sheets.
Income Taxes
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 consolidated 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.
As of September 30, 2020, and December 31, 2019, the Company had a deferred tax asset of approximately $1,334,000 and $407,000,
respectively, which had a full valuation allowance recorded against it of approximately $1,334,000 and $407,000, respectively.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
The
Company’s currently taxable income primarily consists of interest income on the Trust Account. The Company’s
general and administrative costs are generally considered start-up costs and are not currently deductible. During the three
and nine months ended September 30, 2020, the Company recorded income tax benefit (expense) of approximately $3,827 and $0,
respectively, primarily related to interest income earned on the Trust Account. During the three and nine months ended
September 30, 2019, the Company recorded income tax expense of approximately $51,000 and $218,000, respectively, primarily
related to interest income earned on the Trust Account. The Company’s effective tax rate for the three and nine months
ended September 30, 2020 was approximately (0.2%) and 0.0%, respectively, which differs from the expected income tax rate due
to the start-up costs (discussed above) which are not currently deductible, as well as permanent differences due to the
non-cash interest and the non-cash loss on the issuance of the convertible promissory notes. The Company’s effective
tax rate for the three and nine months ended September 30, 2019 was approximately 173.7% and 52.2%, respectively, which
differs from the expected income tax rate due to the start-up costs (discussed above) which are not currently deductible.
ASC Topic 740 prescribes
a recognition threshold and a measurement attribute for the consolidated 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
major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax
expense. As of September 30, 2020 and December 31, 2019, 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.
In assessing the
realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies
in making this assessment. After consideration of all of the information available, management believes that significant uncertainty
exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance.
Net (Loss) Income Per Common Share
Net (loss) income
per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period.
Shares of common stock subject to possible redemption at September 30, 2020 and 2019 have been excluded from the calculation of
basic (loss) income per share for the three and nine months ended September 30, 2020 and 2019 since such shares, if redeemed,
only participate in their pro rata share of the Trust Account earnings. The Company has not considered 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 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 and the inclusion of such warrants and rights would be anti-dilutive under the treasury stock
method.
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. The result of this accounting treatment is that the
fair value of the embedded derivative is marked-to-market 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.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
When the Company
has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company records,
when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based
upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and
the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the
related debt to their stated date of redemption and are classified in interest expense in the condensed consolidated statements
of operations.
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, 2020 and December 31, 2019, the
Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on
such account.
Fair Value of Financial Instruments
The fair value of
the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,”
approximates the carrying amounts represented in the accompanying condensed consolidated balance sheets, primarily due to their
short-term nature.
Recently Issued Accounting Standards
Management does not
believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect
on the Company’s condensed consolidated financial statements.
3. INITIAL PUBLIC OFFERING AND PRIVATE PLACEMENT
Initial Public Offering
On June 7, 2017,
pursuant to the Initial Public Offering, the Company sold 11,500,000 Units at a purchase price 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 of the Company’s common stock, one right
to receive one-tenth of one share of the Company’s common stock upon the consummation of a Business Combination (“Right”),
and one redeemable warrant to purchase one-half of one share of the Company’s common stock (“Warrant”). Each
Warrant will entitle the holder to purchase one-half of one share of common stock at an exercise price of $5.75 per half share
($11.50 per whole share), subject to adjustment. No fractional shares will be issued upon exercise of the warrants. The Warrants
will become exercisable on the later of (i) 30 days after the completion of the initial Business Combination and (ii) 12 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.
The Company may redeem
the 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.
Each holder of a
Right received one-tenth (1/10) of one share of common stock upon consummation of the Business Combination. No fractional shares
will be issued upon exchange of the Rights. No additional consideration will be required to be paid by a holder of Rights in order
to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included
in the Unit purchase price paid for by investors in the Initial Public Offering. If 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 required to affirmatively
convert its rights in order to receive the 1/10 share of common stock underlying each right (without paying any additional consideration).
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
Private Placement
Concurrently
with the closing 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.
4. RELATED PARTY TRANSACTIONS
Founder Shares
In September 2016,
the Company issued 2,875,000 shares of the Company’s common stock to the Sponsor (the “Founder Shares”) in exchange
for a capital contribution of $25,000. The 2,875,000 Founder Shares included 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 Sponsor 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 their shares of the Company’s common stock for cash, securities or other property
(the “Lock-Up Period”). Notwithstanding the foregoing, if the last sale price of the Company’s common stock equals
or exceeds $12.00 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.
In connection with
the Business Combination Agreement, the Sponsor deposited in escrow with a third-party escrow agent 1,406,250 of its Founder Shares
that it acquired prior to the Company's Initial Public Offering (the “Escrowed Shares”), of which 500,000 were released
back to the Sponsor prior to the Closing of the Business Combination.
Related Party Advances
As of December 31,
2019, the Sponsor advanced an aggregate of $1,209,512 to fund working capital purposes and Business Combination expenses, of which
$840,482 was advanced during the year ended December 31, 2019. During the year ended December 31, 2019, the Company repaid an
aggregate amount of $100,000 of such advances and an aggregate amount of $314,509 was converted into loans under the March Promissory
Note described below. As of September 30, 2020 and December 31, 2019, advances of $795,003 were outstanding. Upon the Closing
of the Business Combination, the Company issued 198,751 shares of commons stock to the Sponsor upon conversion of the advances
in the principal amount of $795,003.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
Administrative Service Fee
The Company agreed,
commencing on the effective date of the Initial Public Offering through the earlier of the Company’s consummation of a Business
Combination and its liquidation, to pay the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative
support. For each of the three months ended September 30, 2020 and 2019, the Company incurred $30,000 of administrative service
fees and for each of the nine months ended September 30, 2020 and 2019, the Company incurred $90,000 of administrative service
fees. As of September 30, 2020, and December 31, 2019, an aggregate of $276,000 and $286,000, respectively, is payable. As
of September 30, 2020 and December 31, 2019, $286,000 of the amounts due for such fees are included as loans under the March Promissory
Note described below and included in the convertible promissory note related party in the accompanying condensed consolidated balance
sheets. The Company ceased paying these monthly fees upon the Closing.
Convertible Promissory Note
On March 15, 2019,
the Company issued the Sponsor the March Promissory Note, pursuant to which outstanding advances in the aggregate amount of $314,509
were converted into loans under the March Promissory Note and including the $573,433 Initial Loan from the Sponsor. The March
Promissory Note is unsecured, non-interest bearing and due on the earlier of (i) the consummation of a Business Combination or
(ii) the liquidation of the Company. Up to $1,000,000 of the loans under the March Promissory Note may be converted, at the Sponsor’s
discretion, 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. Through September 30, 2020, the Sponsor advanced the Company $371,696 under the Expense Reimbursement Agreement
(as defined in Note 5), of which $33,877 was advanced during the nine months ended September 30, 2020. Through September 30, 2020,
the Company repaid $522,337 of the March Promissory Note, of which $312,922 was repaid during the nine months ended September
30, 2020. In September 2020, the Company amended and restated the March
Promissory Note, effective upon the Closing of the Business Combination, to remove the conversion feature and to provide that such
note would be due upon the “Second Closing” under the Securities Purchase Agreement that the Company entered into in
June 2020.
In connection with
the Term Sheet entered into on April 10, 2019, Tyche paid the Sponsor $650,000 to purchase such obligations owed to the Sponsor
under the March Promissory Note (see Note 8). In December 2019, the Tyche Note was transferred to 180.
As of September 30,
2020, and December 31, 2019, there was $87,301 and $366,346, respectively, outstanding under the March Promissory Note and no
amounts outstanding under the Tyche Note.
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, and subject to the amendment of the March Promissory Note, 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. As of September 30, 2020, and December 31, 2019, the Company had $87,301 and
$366,346, respectively, outstanding under the March Promissory Note.
5. EXPENSE REIMBURSEMENT AGREEMENT
On March 15, 2019,
the Company entered into an expense reimbursement agreement (the “Expense Reimbursement Agreement”) with the Sponsor
and KBL Healthcare Management, LLC (“KBL Management”), an affiliate of the Sponsor and its Chief Executive Officer,
in recognition of the compensation expense incurred by KBL Management for services provided by one of their employees on behalf
of the Sponsor to the Company. The Expense Reimbursement Agreement is effective January 1, 2019 until the earlier of (i) the consummation
of a Business Combination or (ii) the Company’s liquidation. Under the Expense Reimbursement Agreement, the Company will
reimburse the Sponsor for the compensation expense incurred by KBL Management for its employee in the amount of $180,000 per year
plus health insurance costs of $1,139 per month. At the Company’s election, the Company may pay amounts due pursuant to
a non-interest bearing, unsecured promissory note. As of September 30, 2020, and December 31, 2019, amounts due under the Expense
Reimbursement Agreement totaled $87,301 and $337,819, respectively, and has been included in the March Promissory Note (see Note
4).
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
6. DOMINION CONVERTIBLE PROMISSORY
NOTES
|
|
Principal
|
|
|
Unamortized
debt discount
|
|
|
Net book value,
September 30,
2020
|
|
Dominion Convertible Promissory Note
|
|
$
|
1,805,556
|
|
|
$
|
(449,425
|
)
|
|
$
|
1,356,131
|
|
Kingsbrook Convertible Promissory Note (see Note 7)
|
|
|
1,796,411
|
|
|
|
(937,282
|
)
|
|
|
859,129
|
|
Alpha Convertible Promissory Note (see Note 8)
|
|
|
1,111,111
|
|
|
|
(995,261
|
)
|
|
|
115,850
|
|
Leak-out shares
|
|
|
|
|
|
|
|
|
|
|
(492,992
|
)
|
Total convertible promissory note outstanding
|
|
|
4,713,078
|
|
|
|
(2,381,968
|
)
|
|
|
1,838,118
|
|
On June 12, 2020
(the “Issue Date”), the Company entered into a $1,666,667 10% Secured Convertible Promissory Note and $138,889 10%
Senior Secured Convertible Extension Promissory Note (together the “Dominion Convertible Notes”) with Dominion Capital
LLC (the “Holder”), which was issued to the Holder in conjunction with 400,000 shares of common stock (the “Dominion
Commitment Shares”). In conjunction with the SPA, the Company entered into a series of Leak Out Agreements in which certain
parities agreed that they would not sell, dispose or otherwise transfer, in aggregate more than 5% of the composite daily trading
volume of the common stock of the Company. Pursuant to the Leak-Out Agreement between the Company and Caravel CAD Fund Ltd., the
Company issued 404,245 restricted shares of common stock (“Leak-Out Shares”).
The Company received
$1,625,000 in cash from the Holder with the remainder retained by the Holder for the Original Issue Discount of $180,556. The Company
incurred $90,072 in third-party fees directly attributed to the issuance of the Dominion Convertible Notes, debt discount related
to the Dominion Commitment Shares and Leak-Out Shares pursuant to the transaction of $980,807 and a beneficial conversion feature
of $358,899. The beneficial conversion feature of $358,899 was recorded as a debt discount with an offsetting entry to
additional paid-in capital decreasing the Dominion Notes and increasing debt discount. The debt discount is being amortized to
interest expense over the term of the debt. The Company agreed to pay the principal amount, together with guaranteed interest at
the annual rate of 10% (unless the Company defaults, which increases the interest rate to 15%), with principal and accrued interest
on the Dominion Convertible Notes due and payable on February 11, 2021 (the “Maturity Date”), unless converted under
terms and provisions as set forth within the Dominion Convertible Notes. The Dominion Convertible Notes provide the Holder with
the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of
the Company’s common stock at a conversion price of $5.28 per share. The Dominion Convertible Notes require the Company to
reserve at least 868,056 and 114,584 shares of common stock from its authorized and unissued common stock to provide for all issuances
of common stock under the 10% Secured Convertible Promissory Note and 10% Senior Secured Convertible Extension Promissory Note,
respectively. However, the Dominion Convertible Notes provide that the aggregate number of shares of common stock issued to the
Holder under the Dominion Convertible Notes shall not exceed 4.99% of the total number of shares of common stock outstanding as
of the closing date unless the Company has obtained stockholder approval of the issuance (the “the Beneficial Ownership Limitation”).
The Holder, upon not less than sixty-one (61) days’ prior notice to the Company, may increase or decrease the Beneficial
Ownership Limitation; provided, that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the
common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the Dominion
Convertible Notes held by the Holder.
On the 10th day following
the Company consummating any public or private offering of any securities or other financing or capital-raising transaction of
any kind (each a “Subsequent Offering”) on any date other than the Maturity Date, the Company shall, subject to the
Holder’s conversion rights set forth herein, pay to the Holder in cash an amount equal to the Mandatory Prepayment Amount
but in no event greater than fifty percent (50%) of the gross proceeds from the Subsequent Offering.
The Company shall
pay a late fee (the “Late Fees”) on any amount required to be paid under any transaction document and not paid when
due, at a rate equal to the lesser of an additional 10% of such amount or the maximum rate permitted by applicable law which shall
be due and owing daily from the date such amount is due hereunder through the date of actual payment in full of such amount in
cash.
Immediately on and
after the occurrence of any Event of Default, without need for notice or demand all of which are waived, interest on this Note
shall accrue and be owed daily at an increased interest rate equal to the lesser of two percent (2.0%) per month (twenty-four
percent (24.0%) per annum) or the maximum rate permitted under applicable law. In addition, in any Event of Default, the Company
must pay a mandatory default amount equal to one hundred thirty percent (130%) of the sum of the outstanding principal amount
of the Dominion Convertible Notes at such time and all accrued interest unpaid at such time (including any Minimum Interest Amount
remaining outstanding on such principal amount as of such time) and (b) all other amounts, costs, fees (including Late Fees),
expenses, indemnification and liquidated and other damages and other amounts due to the Holder or any other party in respect of
the Dominion Convertible Notes.
The Dominion Convertible
Notes also contain a provision whereby the Holder is due a minimum interest amount or make whole amount meaning on any date and
with respect to any principal amount owing under the Dominion Convertible Notes, the difference between (a) 10% of such principal
amount, representing a full year of interest payments thereunder and (b) any payment of interest made prior to such date with
respect to such principal amount. To be free from doubt, the minimum interest amount is only applicable for the initial 12 month
period from the Issue Date.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
The Company assessed
each of the above provisions in the Dominion Convertible Notes under ASC Topic 815-15. The derivative component of the obligation
is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been
amortized to interest expense over the respective term of the related note. The following are the key assumptions that were used
in connection with the valuation of the derivative identified during the period ending September 30, 2020:
Fair market value of stock
|
|
$
|
7.37
|
|
Exercise price
|
|
$
|
5.28
|
|
Volatility
|
|
|
94
|
%
|
Risk-free interest rate
|
|
|
0.10
|
%
|
Derivative life (years)
|
|
|
0.36
|
|
The total derivative
liability associated with these notes was $97,706 at September 30, 2020. The Company recorded a change in the fair value of the
derivative liability of $8,003 during the three and nine months ended September 30, 2020, which is reflected in the unaudited
condensed consolidated statements of operations.
Principal of $1,805,556
remained outstanding as of September 30, 2020. Interest expense and amortization of debt discount, associated with the Dominion
Convertible Notes during the three and nine months ended September 30, 2020 amounted to $692,773 and $828,270, respectively. The
unamortized discount related to the Dominion Convertible Notes was $449,425 at September 30, 2020.
7. KINGSBROOK CONVERTIBLE PROMISSORY
NOTES
On June 12, 2020
(the “Issue Date”), the Company entered into a $1,657,522 10% Secured Convertible Promissory Note and $138,889 10%
Senior Secured Convertible Extension Promissory Note (together the “Kingsbrook Convertible Notes”) with Kingsbrook
Opportunities Master Fund LP (the “Holder”), which was issued to the Holder in conjunction with 250,000 shares of
common stock (the “Kingsbrook Commitment Shares”).
The Company received
$125,000 in cash from the Holder with the remainder retained by the Holder for the Original Issue Discount of $13,889. The Company
incurred $6,929 in third-party fees directly attributed to the issuance of the Kingsbrook Convertible Notes, debt discount related
to the Kingsbrook Commitment Shares pursuant to the transaction of $25 and a beneficial conversion feature of $1,577,350. The beneficial
conversion feature of $1,577,350 was recorded as a debt discount with an offsetting entry to additional paid-in capital decreasing
the Kingsbrook Notes and increasing debt discount. The debt discount is being amortized to interest expense over the term of the
debt. The Company recognized a $1,657,522 loss in earnings pursuant to the transaction. This amount was calculated as the excess
of fair value of the liabilities recognized over the proceeds received of $1,657,522. The Company agreed to pay the principal
amount, together with guaranteed interest at the annual rate of 10% (unless the Company defaults, which increases the interest
rate to 15%), with principal and accrued interest on the Kingsbrook Convertible Notes due and payable on February 11, 2021 (the
“Maturity Date”), unless converted under terms and provisions as set forth within the Kingsbrook Convertible Notes.
The Kingsbrook Convertible Notes provide the Holder with the right to convert, at any time, all or any part of the outstanding
principal and accrued but unpaid interest into shares of the Company’s common stock at a conversion price of $5.28 per share.
The Kingsbrook Convertible Notes require the Company to reserve at least 1,823,275 and 114,584 shares of common stock from its
authorized and unissued common stock to provide for all issuances of common stock under the 10% Secured Convertible Promissory
Note and 10% Senior Secured Convertible Extension Promissory Note, respectively. However, the Kingsbrook Convertible Notes provide
that the aggregate number shares of common stock issued to the Holder under the Kingsbrook Convertible Notes shall not exceed
4.99% of the total number of shares of common stock outstanding as of the closing date unless the Company has obtained stockholder
approval of the issuance (the “the Beneficial Ownership Limitation”). The Holder, upon not less than sixty-one (61)
days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation; provided, that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the common stock outstanding immediately after giving
effect to the issuance of shares of common stock upon conversion of the Kingsbrook Convertible Notes held by the Holder.
On the 10th day following
the Company consummating any public or private offering of any securities or other financing or capital-raising transaction of
any kind (each a “Subsequent Offering”) on any date other than the Maturity Date, the Company shall, subject to the
Holder’s conversion rights set forth herein, pay to the Holder in cash an amount equal to the Mandatory Prepayment Amount
but in no event greater than fifty percent (50%) of the gross proceeds from the Subsequent Offering.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
Immediately on and
after the occurrence of any Event of Default, without need for notice or demand all of which are waived, interest on this Note
shall accrue and be owed daily at an increased interest rate equal to the lesser of two percent (2.0%) per month (twenty-four
percent (24.0%) per annum) or the maximum rate permitted under applicable law. In addition, in any Event of Default, the Company
must pay a mandatory default amount equal to one hundred thirty percent (130%) of the sum of the outstanding principal amount
of the Kingsbrook Convertible Notes at such time and all accrued interest unpaid at such time (including any Minimum Interest
Amount remaining outstanding on such principal amount as of such time) and (b) all other amounts, costs, fees (including Late
Fees), expenses, indemnification and liquidated and other damages and other amounts due to the Holder or any other party in respect
of the Kingsbrook Convertible Notes.
The Kingsbrook Convertible
Notes also contain a provision whereby the Holder is due a minimum interest amount or make whole amount meaning on any date and
with respect to any principal amount owing under the Kingsbrook Convertible Notes, the difference between (a) 10% of such principal
amount, representing a full year of interest payments thereunder and (b) any payment of interest made prior to such date with respect
to such principal amount. To be free from doubt, the minimum interest amount is only applicable for the initial 12 month period
from the Issue Date.
The Company assessed
each of the above provisions in the Kingsbrook Convertible Notes under ASC Topic 815-15. The derivative component of the obligation
is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been
amortized to interest expense over the respective term of the related note. The following are the key assumptions that were used
in connection with the valuation of the derivative identified during the period ending September 30, 2020:
Fair market value of stock
|
|
$
|
8.37
|
|
Exercise price
|
|
$
|
5.28
|
|
Volatility
|
|
|
94.5
|
%
|
Risk-free interest rate
|
|
|
0.10
|
%
|
Derivative life (years)
|
|
|
0.36
|
|
The total derivative
liability associated with these notes was $102,066 at September 30, 2020. The Company recorded a change in the fair value of the
derivative liability of $6,413 during the three and nine months ended September 30, 2020, which is reflected in the unaudited
condensed consolidated statements of operations.
Principal of $1,796,411
remained outstanding as of September 30, 2020. Interest expense and amortization of debt discount, associated with the Kingsbrook
Convertible Notes during the three and nine months ended September 30, 2020 amounted to $688,989 and $823,758, respectively. The
unamortized discount related to the Kingsbrook Convertible Notes was $937,282 at September 30, 2020.
8. ALPHA CAPITAL ANSTALT CONVERTIBLE NOTE
On September 8, 2020
(the “Issue Date”), the Company entered into a $1,111,111 10% Secured Convertible Promissory Note (the “Alpha
Capital Anstalt Convertible Note”) with Alpha Capital Anstalt (the “Holder”), which was issued to the Holder
in conjunction with 100,000 shares of common stock (the “Alpha Capital Anstalt Commitment Shares”).
The
Company collected $1,000,000 in cash from the Holder with the remainder retained by the Holder for the Original Issue Discount
of $111,111. The Company recorded a debt discount related to the Alpha Capital Anstalt Commitment Shares pursuant to the transaction
of $324,726 and a beneficial conversion feature of $613,615. The beneficial conversion feature of $613,615 was recorded as a debt
discount with an offsetting entry to additional paid-in capital decreasing the Alpha Capital Anstalt Convertible Note and increasing
debt discount. The debt discount is being amortized to interest expense over the term of the debt. The Company promised to pay
the principal amount, together with guaranteed interest at the annual rate of 10% (unless the Company defaults, which increases
the interest rate to 15%), with principal and accrued interest on the Alpha Capital Anstalt Convertible Note due and payable on
April 7, 2021 (the “Maturity Date”), unless converted under terms and provisions as set forth within the Alpha Capital
Anstalt Convertible Note. The Alpha Capital Anstalt Convertible Note provides the Holder with the right to convert, at any time,
all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company’s common stock at
a conversion price of $5.28 per share. The Alpha Capital Anstalt Convertible Note provides that the aggregate number
shares of common stock issued to the Holder under the Alpha Capital Anstalt Convertible Note shall not exceed 4.99% of the total
number of shares of common stock outstanding as of the closing date unless the Company has obtained stockholder approval of the
issuance (the “the Beneficial Ownership Limitation”). The Holder, upon not less than sixty-one (61) days’ prior
notice to the Company, may increase or decrease the Beneficial Ownership Limitation; provided, that the Beneficial Ownership Limitation
in no event exceeds 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance
of shares of common stock upon conversion of the Alpha Capital Anstalt Convertible Note held by the Holder.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
On the 10th day following
the Company consummating any public or private offering of any securities or other financing or capital-raising transaction of
any kind (each a “Subsequent Offering”) on any date other than the Maturity Date, the Company shall, subject to the
Holder’s conversion rights set forth herein, pay to the Holder in cash an amount equal to the Mandatory Prepayment Amount
but in no event greater than fifty percent (50%) of the gross proceeds from the Subsequent Offering.
Immediately on and
after the occurrence of any Event of Default, without need for notice or demand all of which are waived, interest on this Note
shall accrue and be owed daily at an increased interest rate equal to the lesser of two percent (2.0%) per month (twenty-four
percent (24.0%) per annum) or the maximum rate permitted under applicable law. In addition, in any Event of Default, the Company
must pay a mandatory default amount equal to one hundred thirty percent (130%) of the sum of the outstanding principal amount
of the Alpha Capital Anstalt Convertible Note at such time and all accrued interest unpaid at such time (including any Minimum
Interest Amount remaining outstanding on such principal amount as of such time) and (b) all other amounts, costs, fees (including
Late Fees), expenses, indemnification and liquidated and other damages and other amounts due to the Holder or any other party
in respect of the Alpha Capital Anstalt Convertible Note.
The Alpha Capital
Anstalt Convertible Note also contains a provision whereby the Holder is due a minimum interest amount or make whole amount meaning
on any date and with respect to any principal amount owing under the Alpha Capital Anstalt Convertible Note, the difference between
(a) 10% of such principal amount, representing a full year of interest payments thereunder and (b) any payment of interest made
prior to such date with respect to such principal amount. To be free from doubt, the minimum interest amount is only applicable
for the initial 12 month period from the Issue Date.
The Company assessed
each of the above provisions in the Alpha Capital Anstalt Convertible Note under ASC Topic 815-15. The derivative component of
the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts
have been amortized to interest expense over the respective term of the related note. The following are the key assumptions that
were used in connection with the valuation of the derivative identified during the period ending September 30, 2020:
Fair market value of stock
|
|
$
|
7.36
|
|
Exercise price
|
|
$
|
5.28
|
|
Volatility
|
|
|
207
|
%
|
Risk-free interest rate
|
|
|
0.11
|
%
|
Derivative life (years)
|
|
|
0.52
|
|
The total derivative
liability associated with the Alpha Capital Anstalt Convertible Note was $56,898 at September 30, 2020. The Company recorded a
change in the fair value of the derivative liability of $4,761 during the three and nine months ended September 30, 2020, which
is reflected in the unaudited condensed consolidated statements of operations.
Principal of $1,111,111
remained outstanding as of September 30, 2020. Interest expense and amortization of debt discount, associated with the Alpha Capital
Anstalt Convertible Note during the three and nine months ended September 30, 2020 amounted to $ $122,548. The unamortized discount
related to the Alpha Capital Anstalt Convertible Note was $995,261 as of September 30, 2020.
9. COMMITMENTS AND CONTINGENCIES
Convertible Preferred Stock
On June 26, 2020, the
Company entered into a Securities Purchase Agreement (the “SPA”) dated June 12, 2020, whereby upon the second closing
pursuant to the SPA, upon the registration statement becoming effective, as well as certain other conditions being satisfied, the
Company shall have the right to have a certain investor purchase all of the authorized Series A Convertible Preferred Stock (1,000,000
shares) of the Company for an aggregate purchase price of $3,000,000. The Preferred Stock shall be convertible into common stock
at a conversion price of $5.28 per share at the election of the holder at any time following issuance, subject to adjustment. At
any time following the three month anniversary of the Business Combination, the holder of the Preferred Stock has the right to
force the Company to redeem all or any portion of the Preferred Stock then owned by the holder in cash. The Series A Convertible
Preferred Stock redemption features require bifurcation, however the value is indeterminable as of the date of this filing as certain
of the key terms will become known at issuance. As a result, the Company did not recognize a separated component at its fair value
related to the redemption features in these pro forma financial statements. The financial statements should be read in conjunction
with the SPA as filed on July 2, 2020.
Risks and Uncertainties
Management continues
to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the
virus could have a negative effect on the Company’s financial position, results of its operations and/or completion of business
combination, the specific impact is not readily determinable as of the date of these condensed consolidated financial statements.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
The holders of the
Founder Shares and Private Units and warrants that may be issued upon conversion of Working Capital Loans (and any shares of the
Company’s common stock issuable upon the exercise of the Private Units and warrants that may be issued upon conversion of
Working Capital Loans) are entitled to registration rights pursuant to a registration rights agreement signed on the effective
date of the Initial Public Offering. The holders of these securities are entitled to make up to 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. The Company satisfied the foregoing registration rights through the filing of a Registration
Statement on Form S-1 with the SEC on October 19, 2020, which registration statement was declared effective by the SEC on November
2, 2020 (No. 333-249539).
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
Underwriting Agreement
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
the closing of the Initial Public Offering and the over-allotment option, the underwriters were paid a cash underwriting discount
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”). In June 2020, the underwriters waived their right to receive the $4,025,000 deferred
fee which had been held in the Trust Account. The Company recorded the waiver of the Deferred Fee as a credit to additional paid
in capital in the accompanying statement of stockholders’ equity.
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.
10. STOCKHOLDERS’ EQUITY
Preferred Stock
— The Company is authorized to issue 1,000,000 preferred shares with a par value of $0.0001 per share. Subsequent to Sept
30, 2020, the Company filed a Second Amended and Restated Certificate of Incorporation, pursuant to which the Company is now authorized
to issue 5,000,000 shares of preferred stock. At September 30, 2020 and December 31, 2019, there are no preferred shares issued
or outstanding.
Common Stock
— The Company is authorized to issue 35,000,000 shares of the Company’s common stock with a par value of $0.0001 per
share. Subsequent to Sept 30, 2020, the Company filed a Second Amended and Restated Certificate of Incorporation, pursuant to which
the Company is now authorized to issue 100,000,000 shares of common stock. Holders of the Company’s shares of the Company’s
common stock are entitled to one vote for each share. At September 30, 2020 and December 31, 2019, there were 5,276,946 and 4,458,149
shares of common stock issued and outstanding, respectively, excluding 190,970 and 33,618 shares of common stock subject to possible
redemption, respectively.
11. TRUST ACCOUNT AND FAIR VALUE MEASUREMENTS
The Trust Account
can be invested in U.S. government securities, within the meaning set forth in the Investment Company Act, having 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.
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
with a stockholder vote to amend the Company’s amended and restated certificate of incorporation to modify the substance
or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete the Business
Combination within the Combination Period or (iii) the redemption of 100% of the Public Shares if the Company is unable to complete
a Business Combination within the Combination Period.
The Company classifies
its U. S. Treasury and equivalent securities as held-to-maturity in accordance with ASC 320 “Investments - Debt and Equity
Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until
maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying condensed consolidated balance
sheets and adjusted for the amortization or accretion of premiums or discounts.
180 LIFE SCIENCES CORP.
(formerly known as KBL MERGER CORP. IV)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMEBER 30, 2020
(unaudited)
The following table
presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2020
and December 31, 2019 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair
value:
Description
|
|
Level
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
|
|
|
|
Marketable securities held in Trust Account – U.S. Treasury Securities Money Market Fund
|
|
1
|
|
$
|
10,303,227
|
|
|
$
|
11,877,654
|
|
Derivative liability
|
|
3
|
|
$
|
256,670
|
|
|
$
|
—
|
|
The Company follows
the guidance in ASC 820 for its financial assets and liabilities that are re-measured at fair value at each reporting period,
and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of
the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have
received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction
between market participants at the measurement date. In connection with measuring 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:
|
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.
|
|
|
|
|
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.
|
|
|
|
|
Level 3:
|
Unobservable inputs
based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
Level 3 liabilities
are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of
the derivative liability. Level 3 financial liabilities consisted of the derivative liability for which the determination of fair
value required significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value
hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
At September 30,
2020 and December 31, 2019 there were no transfers in or out between the levels in the fair value hierarchy.
The following table
provides a reconciliation of the beginning and ending balances for the derivative liability measured using significant unobservable
inputs (Level 3):
|
|
(in millions)
|
|
Balance – January 1, 2020
|
|
$
|
-
|
|
Initial classification of derivative liability
|
|
|
214,188
|
|
Additional derivative liability
|
|
|
61,659
|
|
Change in fair value of derivative liability
|
|
|
(19,177
|
)
|
Balance – September 30, 2020
|
|
$
|
256,670
|
|
In connection with
the Business Combination, the Company liquidated the Trust Account to fund the Business Combination and related expenses.
12. SUBSEQUENT EVENTS
The Company evaluates
subsequent events and transactions that occur after the balance sheet date up to the date that the condensed financial statements
were issued. Based upon this review, except as describes in these condensed financial statements and as noted below, the Company
did not identify subsequent events that would have required adjustment or disclosure in the condensed financial statements.
As described in Notes
1 and 4, the Company completed the Merger on November 6, 2020.