180 Life Sciences (ATNF) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company reported a working capital deficit and accumulated deficit, achieving net income in Q2 2024, but faces substantial doubt about its going concern ability and is exploring strategic alternatives Condensed Consolidated Balance Sheets As of June 30, 2024, total assets and liabilities decreased, while the total stockholders' deficit worsened compared to year-end 2023 Condensed Consolidated Balance Sheets (in USD) | Balance Sheet Items | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash | $1,146,288 | $1,975,799 | | Total Current Assets | $2,347,490 | $3,639,906 | | Total Assets | $3,911,445 | $5,259,476 | | Liabilities & Stockholders' Deficit | | | | Total Current Liabilities | $4,016,127 | $5,062,616 | | Total Liabilities | $4,329,432 | $5,387,209 | | Total Stockholders' Deficit | ($417,987) | ($127,733) | | Total Liabilities and Stockholders' Deficit | $3,911,445 | $5,259,476 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q2 2024, the company reported net income, a significant improvement from a prior-year net loss, driven by reduced operating expenses and substantial other income Statement of Operations Highlights (Unaudited, in USD) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $488,323 | $789,441 | $853,509 | $1,367,750 | | General and administrative | $1,224,750 | $2,762,076 | $2,781,490 | $6,770,928 | | Total Operating Expenses | $1,846,738 | $3,682,980 | $3,939,206 | $8,486,825 | | Loss From Operations | ($1,846,738) | ($3,682,980) | ($3,939,206) | ($8,486,825) | | Other income, net | $1,858,519 | $2,811 | $2,881,243 | $44,578 | | Net Income (Loss) | $11,781 | ($3,680,169) | ($1,057,963) | ($8,442,247) | | Basic and Diluted EPS | $0.01 | ($13.37) | ($1.42) | ($42.81) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly decreased for the six months ended June 30, 2024, primarily due to lower net loss and favorable changes in working capital, while cash used in financing activities increased Cash Flow Summary (Unaudited, in USD) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($306,247) | ($6,986,733) | | Net cash provided by (used in) financing activities | ($529,302) | $1,992,463 | | Net Decrease In Cash | ($829,511) | ($4,961,504) | | Cash – End of Period | $1,146,288 | $2,008,606 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail substantial doubt about the company's going concern ability, slowed R&D, strategic alternatives exploration, legal settlements, insurance reimbursements, management changes, and ongoing Nasdaq non-compliance - The company is a clinical-stage biotech focused on inflammation and pain but has significantly slowed R&D activities and is now exploring strategic alternatives, including a potential merger, acquisition, or sale of assets[22][23] - There is substantial doubt about the company's ability to continue as a going concern due to a history of significant losses, an accumulated deficit of $128.4 million, and a working capital deficit of $1.7 million as of June 30, 2024[24][25] - In June 2024, the company settled litigation with Tyche Capital and the Bauers, resulting in the forgiveness of loans and accrued interest and the release of a bond, recognizing a gain of $156,891[63] - The company received $1.71 million in insurance reimbursements from AmTrust in Q2 2024 related to legal fees advanced to former officers, which was recorded as other income[70] - On May 7, 2024, the CEO and CSO resigned, a new Interim CEO was appointed, and several executive compensation agreements were amended to reduce or defer cash payments to conserve capital[75][78][83] - The company is non-compliant with Nasdaq's minimum stockholders' equity rule and has received a delisting determination, with Nasdaq granting an extension until September 30, 2024, to regain compliance[96] Management's Discussion and Analysis of Financial Condition and Results of Operations Management expresses significant doubt about the company's going concern ability, with limited cash runway, slowed R&D, and ongoing strategic alternatives exploration, while Q2 2024 saw net income due to insurance reimbursement and reduced expenses Going Concern and Management Liquidity Plans Management has substantial doubt about the company's ability to continue as a going concern due to significant deficits and high monthly cash requirements, necessitating additional dilutive equity financing - The company has a minimum monthly cash requirement of approximately $250,000 to support operations[132] - Management has concluded there is substantial doubt about the company's ability to continue as a going concern, as it needs to raise significant capital to pay debts and cover operating costs[130][134] Consolidated Results of Operations Q2 2024 saw a shift to net income from a prior-year net loss, driven by significant other income and substantial reductions in both General & Administrative and R&D expenses Comparison of Operations for the Three Months Ended June 30 (in USD) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Research and development | $488,323 | $789,441 | -38% | | General and administrative | $1,224,750 | $2,762,076 | -56% | | Other income, net | $1,858,519 | $2,811 | +66,019% | | Net Income (Loss) | $11,781 | ($3,680,169) | +100% | Comparison of Operations for the Six Months Ended June 30 (in USD) | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Research and development | $853,509 | $1,367,750 | -38% | | General and administrative | $2,781,490 | $6,770,928 | -59% | | Other income, net | $2,881,243 | $44,578 | +6,363% | | Net Loss | ($1,057,963) | ($8,442,247) | -87% | Liquidity and Capital Resources As of June 30, 2024, the company had limited cash and a working capital deficit, with current funds expected to last only through October 2024, necessitating urgent additional funding - As of June 30, 2024, the company had a cash balance of $1,146,288 and a working capital deficit of $1,668,637[168] - With approximately $0.5 million in cash as of August 5, 2024, the company expects its funds to last only through October 2024, reinforcing the going concern issue[175] - The company anticipates material cash requirements of approximately $1.125 million for the remainder of 2024 and $3.0 million for 2025 for contractual obligations, including milestone payments and consulting fees[173] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, 180 Life Sciences Corp. is exempt from providing quantitative and qualitative disclosures about market risk - The company is a "smaller reporting company" and is therefore not required to provide the information for this item[186] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2024, due to a material weakness in internal control over financial reporting, with a remediation plan underway - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were not effective[189] - A material weakness was identified due to ineffective controls over the accounting for reversals of year-end bonus accruals, which should have been recorded as forgiveness of a liability (Other Income) instead of a reduction to R&D expense[189] - The remediation plan involves implementing an added layer of technical review by an internal financial reporting director for significant, non-recurring entries to ensure proper classification[194] PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, detailed in Note 8, which management does not currently expect to have a material adverse effect on financial condition or operations - Details of current litigation are incorporated by reference from Note 8 of the financial statements[196] Risk Factors The company faces significant risk of delisting from Nasdaq due to non-compliance with minimum stockholders' equity and audit committee requirements, which could severely harm liquidity and capital raising ability - The company is not in compliance with Nasdaq's minimum stockholders' equity requirement of $2.5 million (the "Equity Rule")[200] - On May 14, 2024, the company received a delist determination letter from Nasdaq, and after an appeal, was granted an extension until September 30, 2024, to regain compliance with the Equity Rule[203] - The company is also non-compliant with Nasdaq's audit committee requirement for at least three independent directors and has a cure period until its next annual meeting or May 7, 2025[205] - Failure to regain compliance could result in the delisting of the company's securities, which would likely lead to declines in share price and liquidity, and make it more difficult to raise capital[209] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the quarter ended June 30, 2024, that were not previously reported - No unregistered sales of equity securities occurred during the quarter that were not previously disclosed[210] Defaults Upon Senior Securities None - None[210] Mine Safety Disclosures Not applicable - Not applicable[210] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2024 - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the second quarter of 2024[211] Exhibits This section lists exhibits filed with the Form 10-Q, including agreements related to management changes and officer certifications