180 Life Sciences (US:ATNF)2024-11-14 21:41PART I – FINANCIAL INFORMATION Item 1. Financial Statements Unaudited financial statements as of September 30, 2024, show increased assets and reduced net loss due to an acquisition and non-recurring impairment, despite ongoing going concern doubts Condensed Consolidated Balance Sheets As of September 30, 2024, total assets increased to $10.5 million due to intangible assets, cash decreased, liabilities rose, and stockholders' equity shifted to $3.7 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | Sep 30, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash | $194,920 | $1,975,799 | ($1,780,879) | | Total Current Assets | $1,225,381 | $3,639,906 | ($2,414,525) | | Intangible assets, net | $9,244,475 | $1,619,570 | $7,624,905 | | Total Assets | $10,469,856 | $5,259,476 | $5,210,380 | | Liabilities & Equity | | | | | Total Current Liabilities | $6,383,830 | $5,062,616 | $1,321,214 | | Total Liabilities | $6,736,082 | $5,387,209 | $1,348,873 | | Total Stockholders' Equity (Deficit) | $3,733,774 | ($127,733) | $3,861,507 | - A new liability for Class B Convertible Preferred stock of $2,772,695 was recorded, related to the asset acquisition7 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the nine months ended September 30, 2024, net loss significantly decreased to $1.9 million from $18.7 million in 2023, primarily due to the absence of a $9.1 million impairment charge and $2.9 million in other income Statement of Operations Highlights (Unaudited) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Total Operating Expenses | $4,918,299 | $12,025,012 | ($7,106,713) | | Loss From Operations | ($4,918,299) | ($12,025,012) | $7,106,713 | | Loss on IP R&D asset impairment | $0 | ($9,063,000) | $9,063,000 | | Other income, net | $3,023,616 | ($9,028,020) | $12,051,636 | | Net Loss | ($1,894,683) | ($18,708,007) | $16,813,324 | | Basic and Diluted Net Loss per Share | ($2.24) | ($62.81) | $60.57 | - The company recorded $2.87 million in Other Income for the nine months ended Sep 30, 2024, which was not present in the prior year, primarily from insurance proceeds related to litigation889 Condensed Consolidated Statements of Changes in Stockholders' (Deficit) Equity Stockholders' equity improved from a ($127,733) deficit to $3.7 million positive equity by September 30, 2024, primarily due to $4.8 million in warrants issued for an asset acquisition - Total Stockholders' Equity increased from a deficit of ($127,733) on January 1, 2024, to a positive balance of $3,733,774 on September 30, 20249 - The company issued warrants for an asset acquisition valued at $4,849,346, which was recorded as additional paid-in capital9 Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operations significantly reduced to $529,906, while financing activities used $1.0 million, leading to a cash balance of $194,920 Cash Flow Summary (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | ($529,906) | ($8,762,209) | | Net cash provided by (used in) financing activities | ($1,005,367) | $4,439,526 | | Net Decrease In Cash | ($1,780,879) | ($4,307,590) | | Cash – End of Period | $194,920 | $2,662,520 | - The company engaged in significant non-cash investing and financing activities, issuing $7.6 million in warrants and preferred stock for an asset acquisition and $523,251 in common stock to settle liabilities12 Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the company's strategic pivot to online blockchain casino, a going concern warning, the $7.6 million iGaming asset acquisition, ongoing litigation, a reverse stock split, and a subsequent $3.3 million cash raise - The company is a clinical-stage biotech that has slowed R&D and is now entering the online blockchain casino business after acquiring assets from Elray Resources, Inc. on September 29, 2024161719 - There is substantial doubt about the company's ability to continue as a going concern due to an accumulated deficit of $129.2 million and a working capital deficit of $5.2 million as of September 30, 20242122 - In Q3 2023, the company fully impaired its remaining IP R&D assets, recording a loss of $9,063,000, which reduced the asset's carrying value to zero33 - The company acquired online casino source code and IP from Elray for 1 million shares of Series B Convertible Preferred Stock and warrants for 3 million shares of common stock, valued at a combined $7.6 million3944 - Subsequent to the quarter end, on October 16-17, 2024, the company received $3.3 million in cash from a warrant inducement agreement, exercising 950,069 existing warrants142 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic pivot to iGaming, reduced net loss to $1.9 million due to non-recurring impairment and insurance proceeds, and expects $3.3 million cash to fund operations through December 2025, with $3-5 million needed for iGaming commercialization Business Overview and Recent Events The company strategically pivoted to the online gaming industry by acquiring a blockchain casino platform, slowing biotech R&D, and plans to launch a B2C casino by Q1 2025, with an estimated $3-5 million commercialization cost - The company acquired a 'back-end' online blockchain casino platform from Elray Resources on September 29, 2024, signaling a strategic pivot into the iGaming industry173 - The company's plan includes launching a B2C online casino, expanding into a B2B platform provider, and pursuing a consolidation strategy in the iGaming sector189224232 - Management is targeting the end of Q1 2025 to have the first online casino operational, but this is subject to funding and other dependencies217 - The estimated initial cost to fully commercialize the Gaming Technology Platform is between $3 million and $5 million223245 Results of Operations For the nine months ended September 30, net loss decreased 90% to $1.9 million from $18.7 million, driven by reduced G&A and R&D expenses, non-recurring impairment, and $2.9 million in other income Comparison of Operations for the Nine Months Ended September 30 | Metric | 2024 | 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Research and development expense | $1,105,086 | $2,339,863 | -53% | | General and administrative | $3,357,868 | $9,204,122 | -64% | | Loss From Operations | ($4,918,299) | ($12,025,012) | -59% | | Total other income (expense), net | $3,023,616 | ($9,028,020) | 133% | | Net Loss | ($1,894,683) | ($18,708,007) | -90% | - The decrease in G&A expenses was due to reduced legal fees (~$1.1M), professional fees (~$2.0M), salaries (~$857k), and stock-based compensation (~$1.2M)261 - The significant swing in 'Other Income (Expense), Net' is primarily due to a $9.1M IP R&D asset impairment in 2023 and $2.9M in income from litigation proceeds and liability settlements in 2024262 Liquidity and Capital Resources As of September 30, 2024, cash was $194,920 with a $5.2 million working capital deficit, but a subsequent $3.3 million cash raise in October 2024 is expected to fund operations through December 2025, though more capital is needed - The company had only $194,920 in cash as of September 30, 2024, with a working capital deficit of $5.2 million263 - In October 2024, the company received approximately $3.3 million in cash from a warrant inducement agreement270277 - With the cash raised in October, management believes it has sufficient funds to continue as a going concern through December 2025270 - Material cash requirements for the remainder of 2024 are estimated at $750,000 and $2,000,000 for 2025, primarily for iGaming asset development267 Critical Accounting Estimates The primary critical accounting estimate relates to intangible assets, specifically the valuation and amortization of newly acquired online casino technology and existing licensed patents, requiring significant management judgment - The primary critical accounting estimate relates to intangible assets, specifically the valuation and amortization of the newly acquired online casino technology and existing licensed patents285286 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the registrant is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is exempt from providing quantitative and qualitative disclosures about market risk288 Controls and Procedures As of September 30, 2024, disclosure controls and procedures were ineffective due to a material weakness in classifying bonus accrual reversals, with a remediation plan involving additional technical review implemented - The company's disclosure controls and procedures were determined to be ineffective as of September 30, 2024292 - A material weakness was identified related to ineffective controls over the classification of a liability forgiveness, which was incorrectly recorded as a reduction to R&D expense instead of Other Income293 - A remediation plan is in place, which involves implementing an additional layer of internal technical review for significant accounting entries296 PART II - OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, detailed in Note 10, including actions against a former CEO and an insurer, with management not expecting a material adverse effect, but acknowledging litigation uncertainty - The company refers to Note 10 of the financial statements for details on its current legal proceedings302 - Management does not expect the outcome of current litigation to have a material adverse effect, but acknowledges that an adverse result could harm the business301303 Risk Factors Key risks include substantial doubt about going concern, need for capital, lack of iGaming experience, intense competition, regulatory challenges, significant stockholder dilution from preferred stock and warrants, illiquid stock, and potential Nasdaq delisting or IP license termination General Business and Funding Risks General business and funding risks include cash sufficiency only until December 2025, substantial doubt about going concern, significant past-due payables to Oxford potentially terminating IP licenses, lack of iGaming experience, and reliance on key personnel - The company's cash is only sufficient to fund operations until approximately December 2025, and it will need to raise substantial additional capital309312 - The company has no experience in the gaming industry and must purchase or develop a 'front end' for its newly acquired online casino IP, which may be costly and time-consuming325326327 - The company owes approximately $1.3 million to the University of Oxford, which has threatened legal action and may terminate key license agreements, especially given the company's entry into the gambling industry334 Risks Relating to our Planned Online Casino Operations Risks in online casino operations include intense competition, lack of operating history, complex and evolving regulations, licensing challenges, cybersecurity threats, fraud, and reliance on third-party infrastructure, all posing significant financial and reputational harm - The online gaming industry is highly competitive, and the company may not be able to compete effectively against established players with greater resources352353 - The business is subject to extensive and evolving gaming regulations, and failure to obtain or maintain licenses in any jurisdiction could prevent operations and have a material adverse effect366367368 - The company faces significant cybersecurity risks, including data breaches, denial-of-service attacks, and fraud, which could damage its reputation and result in fines and lawsuits380381 Risks Relating to our Common Stock and other Securities Risks include highly volatile and illiquid common stock, Nasdaq delisting risk due to non-compliance with audit committee rules, significant dilution from Series B Preferred Stock with $17.3 million liquidation preference and warrants, and potential 40% voting power for preferred holder - The company's stock is illiquid and highly volatile, and it may be delisted from Nasdaq as it is under a one-year mandatory panel monitor and is not in compliance with audit committee requirements384407420 - The Series B Convertible Preferred Stock has a $17.3 million liquidation preference, which would be paid before any distribution to common stockholders in a liquidation event428 - The Series B Convertible Preferred Stock has anti-dilution protection and will be convertible into 40% of the company's common stock upon stockholder approval, causing significant dilution to existing shareholders429432 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or purchases of equity securities occurred during the third quarter of 2024 that were not previously reported - No unregistered sales of equity securities occurred during the quarter ended September 30, 2024, that were not previously disclosed443 Defaults upon Senior Securities The company reported no defaults upon senior securities - The company reported no defaults upon senior securities443 Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company444 Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the third quarter of 2024 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the third quarter of 2024445 Exhibits This section lists exhibits filed with the Form 10-Q, including the Asset Purchase Agreement with Elray, Series B Preferred Stock designation, warrant agreements, and officer certifications - Key exhibits filed include the Asset Purchase Agreement with Elray, the Series B Preferred Stock designation, and the warrant inducement agreement447