Filed Pursuant to Rule 424(b)(3)
Registration
No. 333-271703
PROSPECTUS
4,448,713
Shares of Common Stock
![](https://content.edgar-online.com/edgar_conv_img/2023/05/12/0001213900-23-039040_image_001.jpg)
This
prospectus relates solely to the offer and sale from time to time of up to an aggregate of 4,448,713 shares of our common stock, par
value $0.0001 per share, of 180 Life Sciences Corp., a Delaware corporation (the “Company,” “we,”
“our” or “us”), by the selling stockholder identified in this prospectus (the “Selling
Stockholder”). The shares of common stock being registered for resale hereunder consist of: (i) 306,604 shares of common stock
issuable upon the exercise of the July 2022 Common Warrants (as defined herein), (ii) 2,571,429 shares of common stock issuable upon
the exercise of the December 2022 Common Warrants (as defined herein), and (iii) 1,570,680 shares of common stock issuable upon the exercise
of the April 2023 Common Warrants (as defined herein) (together with the July 2022 Common Warrants and the December 2022 Common Warrants,
the “Warrants,” and all of the shares of common stock issuable upon exercise of the Warrants, the “Shares”)
acquired by the Selling Stockholder, in each case, pursuant to securities purchase agreements between us and the Selling Stockholder.
Each
of the July 2022 Common Warrants, the December 2022 Common Warrants and the April 2023 Common Warrants are exercisable at an exercise
price of $1.78. We are not selling any common stock under this prospectus and will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholder. However, if all of the July 2022 Common Warrants, the December 2022 Common Warrants and the April
2023 Common Warrants that are covered by this prospectus are exercised for cash, we may receive proceeds of up to approximately $545,755,
$4.6 million and $2.8 million, respectively. We intend to use those proceeds, if any, for research and development, and general corporate
purposes, including the preparation and submission of a marketing authorization application for Dupuytren’s contracture in the
UK and legal expenses. We will bear all other costs, expenses and fees in connection with the registration of the Shares. The Selling
Stockholder will bear all commissions and discounts, if any, attributable to the sales of Shares.
The
Selling Stockholder may offer such Shares from time to time as it may determine through public or private transactions or through other
means described in the section entitled “Plan of Distribution” beginning on page 136 of this prospectus, at prevailing
market prices, at prices related to prevailing market prices or at privately negotiated prices. This prospectus does not necessarily
mean that the Selling Stockholder will offer or sell the Shares. We cannot predict when or in what amounts the Selling Stockholder may
sell any of the Shares offered by this prospectus. Any Shares subject to resale hereunder will have been issued by us and acquired by
the Selling Stockholder prior to any resale of such Shares pursuant to this prospectus. Because all of the Shares offered under this
prospectus are being offered by the Selling Stockholder, we cannot currently determine the price or prices at which the Shares may be
sold under this prospectus.
Our common stock is traded on the Nasdaq Capital Market
(“Nasdaq”) under the symbol “ATNF”. On May 11, 2023, the last reported sale price for our common stock
as reported on Nasdaq was $1.04 per share.
INVESTING
IN OUR SECURITIES INVOLVES SUBSTANTIAL RISKS. SEE THE SECTION TITLED “RISK FACTORS” BEGINNING ON PAGE 5 OF THIS
PROSPECTUS TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING OUR SECURITIES.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is May
12, 2023.
TABLE
OF CONTENTS
GLOSSARY
The
items below are abbreviations and definitions of certain terms used in this prospectus, certain of which are commonly used in the pharmaceutical
and biotechnology industry.
Unless
the context requires otherwise, references to the “Company,” “we,” “us,” “our,”
“180 Life”, “180LS” and “180 Life Sciences Corp.” refer specifically to 180
Life Sciences Corp. and its consolidated subsidiaries. References to “KBL” refer to the Company prior to the Closing
(defined below).
| ● | “180”
means 180 Life Corp. (f/k/a 180 Life Sciences Corp. prior to the Closing). |
| | |
| ● | “180
LP” means 180 Therapeutics L.P. |
| | |
| ● | “180
Parties” means 180 and the 180 Subsidiaries. |
| | |
| ● | “180
Subsidiaries” means Katexco, CBR Pharma and 180 LP. |
| | |
| ● | “ACA”
means the Patient Protection and Affordable Care Act, often shortened to the Affordable Care
Act, nicknamed Obamacare, which is a U.S. federal statute which provides numerous rights
and protections that make health coverage fairer and easier to understand, along with subsidies
(through “premium tax credits” and “cost-sharing reductions”)
to make it more affordable. The law also expands the Medicaid program to cover more people
with low incomes. |
| | |
| ● | “Analgesics”
are a class of medications designed specifically to relieve pain. |
| | |
| ● | “ANDA”
means an abbreviated new drug application which contains data which is submitted to the FDA
for the review and potential approval of a generic drug product. |
| | |
| ● | “Anti-TNF”
is a pharmaceutical drug that suppresses the physiologic response to TNF. |
| | |
| ● | “April
2023 Common Warrants” means the warrants to purchase up to 1,570,680 shares of
our common stock issued pursuant to the April 2023 SPA. |
| | |
| ● | “April
2023 SPA” means that certain securities purchase agreement dated as of April 5,
2023 between our Company and the Selling Stockholder. |
| | |
| ● | “April
Warrant Amendment” means the Amendment No. 1 to the Warrants, dated April 5, 2023
by and between our Company and the Selling Stockholder. |
| | |
| ● | “BLA”
means the FDA’s Biologics License Application, which is the vehicle in the United States
through which biologic sponsors formally propose that the FDA approve a new biologic for
sale and marketing. |
| | |
| ● | “BPCIA”
means the Biologics Price Competition and Innovation Act. |
| | |
| ● | “Business
Combination” means the consummation of the transactions contemplated by the business
combination agreement. |
| | |
| ● | “Business
Combination Agreement” means the Business Combination Agreement, dated as of July
25, 2019 (as amended), by and among us, Merger Sub, the 180 Parties and Lawrence Pemble,
as the representative of the stockholders of the 180 Parties, pursuant to which Merger Sub
merged with and into 180 with 180 surviving the merger and continuing as our wholly-owned
subsidiary. |
| | |
| ● | “Cannabinoids”
mean compounds found in cannabis sativa L., and when used throughout this prospectus,
refer to compounds found in the hemp plant which do not contain THC. |
| | |
| ● | “CBD”
or cannabidiol is an active ingredient in cannabis derived from the hemp plant. CBD is a
non-psychoactive oxidative degradation product of THC. |
| | |
| ● | “CBG”
or cannabigerol is one of the compounds found in the cannabis plant. |
| | |
| ● | “CBR
Pharma” means CannBioRex Pharmaceuticals Corp. |
| | |
| ● | “CCMO”
means De Centrale Commissie Mensgebonden Onderzoek (CCMO), or the Central Committee on Research
Involving Human Subjects, the organizational responsible for reviewing and regulating medical
research involving human subjects in The Netherlands. |
| | |
| ● | “Certificate
of Amendment” means the Certificate of Amendment to our Second Amended and Restated
Certificate of Incorporation filed with the Secretary of State of the State of Delaware on
December 15, 2022 to effect the Reverse Stock Split. |
| | |
| ● | “Certificate
of Incorporation” means our Second Amended and Restated Certificate of Incorporation,
as amended by the Certificate of Amendment. |
| | |
| ● | “CHMP”
means the Committee for Medicinal Products for Human Use, formerly known as Committee for
Proprietary Medicinal Products, which is the European Medicines Agency’s committee
responsible for elaborating the agency’s opinions on all issues regarding medicinal
products for human use. |
| ● | “Closing”
means the consummation of the Business Combination, which occurred on November 6, 2020. |
| | |
| ● | “CMS”
means the Centers for Medicare & Medicaid Services, which is a federal agency within
the HHS that administers the Medicare program and works in partnership with state governments
to administer Medicaid. |
| | |
| ● | “Corticosteroids”
are a class of drug that lowers inflammation in the body. |
| | |
| ● | “CRO”
means a contract research organization which is a company that provides support to the pharmaceutical,
biotechnology, and medical device industries in the form of research services outsourced
on a contract basis. |
| | |
| ● | “CSA”
means the Controlled Substances Act, the statute establishing federal U.S. drug policy under
which the manufacture, importation, possession, use, and distribution of certain substances
is regulated. |
| | |
| ● | “CTA”
means a Clinical Trial Application, which is a submission to the competent National Regulatory
Authority(ies) for obtaining authorization to conduct a clinical trial in a specific country.
It is an application with necessary information on investigational medicinal products. The
purpose of a CTA is to provide all the important details about the clinical trial to the
health authorities in order to obtain the product approval. |
| | |
| ● | “DEA”
means the Drug Enforcement Administration, a United States federal law enforcement agency
under the United States Department of Justice, tasked with combating drug trafficking and
distribution within the United States. |
| | |
| ● | “December
2022 Common Warrants” means the warrants to purchase up to 2,571,429 shares of
our common stock issued pursuant to the December 2022 SPA, as amended by the January Warrant
Amendment and the April Warrant Amendment. |
| | |
| ● | “December
2022 SPA” means that certain securities purchase agreement dated as of December
20, 2022 between our Company and the Selling Stockholder. |
| | |
| ● | “EMA”
means the European Medicines Agency, an agency of the European Union in charge of the evaluation
and supervision of medicinal products. |
| | |
| ● | “ETASU”
means elements to assure safe use, which are one of several strategies that may be required
in order to mitigate risk of medication use pursuant to a REMS. |
| | |
| ● | “EU”
means the European Union. |
| | |
| ● | “Exchange
Act” means the Securities Exchange Act of 1934, as amended. |
| | |
| ● | “Exchangeable
Shares” means the exchangeable shares issued concurrently with the closing of the
Reorganization (as defined in the Business Combination Agreement) by (i) Katexco Purchaseco
ULC, a Canadian subsidiary of 180, to certain Canadian former shareholders of Katexco; and
(ii) CannBioRex Purchaseco ULC, a Canadian subsidiary of 180, to certain Canadian former
shareholders of CBR Pharma, which were exchangeable for common stock of 180 prior to the
Effective Time (as defined in the Business Combination Agreement) and which became exchangeable
into shares of our common stock following the Effective Time. |
| | |
| ● | “FDA”
means the U.S. Food and Drug Administration, which is a federal agency of the United States
Department of Health and Human Services. The FDA is responsible for protecting the public
health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological
products, and medical devices; and by ensuring the safety of U.S. food supply, cosmetics,
and products that emit radiation. |
| | |
| ● | “FDC
Act” means the Federal Food, Drug and Cosmetic Act, which is a set of U.S. laws
passed by Congress in 1938 giving authority to the FDA to oversee the safety of food, drugs,
medical devices, and cosmetics. |
| | |
| ● | “FS”
means Frozen Shoulder, a condition characterized by stiffness and pain in an individual’s
shoulder joint. |
| | |
| ● | “GCP”
means good clinical practice, which is an international quality standard, which governments
can then transpose into regulations for clinical trials involving human subjects. GCP follows
the International Council on Harmonisation of Technical Requirements for Registration of
Pharmaceuticals for Human Use (ICH), and enforces tight guidelines on ethical aspects of
clinical research. |
| | |
| ● | “GLP”
means good laboratory practice, which is a quality system concerned with the organization
process and the conditions under which non-clinical health and environmental safety studies
are planned, performed, monitored, recorded, archived and reported. |
| ● | “GMP”
means good manufacturing practice regulations promulgated by the FDA under the authority
of the FDC Act. These regulations, which have the force of law, require that manufacturers,
processors, and packagers of drugs, medical devices, some food, and blood take proactive
steps to ensure that their products are safe, pure, and effective. |
| | |
| ● | “HHS”
means the U.S. Department of Health and Human Services also known as the Health Department,
a cabinet-level department of the U.S. federal government with the goal of protecting the
health of all Americans and providing essential human services. |
| | |
| ● | “HIPAA”
means the Health Insurance Portability and Accountability Act of 1996, which has the goal
of making it easier for people to keep health insurance, protect the confidentiality and
security of healthcare information and help the healthcare industry control administrative
costs. |
| | |
| ● | “HMGB1”
means High Mobility Group Box 1, a protein that, in humans, is encoded by the HMGB1 gene.
Activated macrophages and monocytes secrete HMGB1 as a cytokine mediator of inflammation. |
| | |
| ● | “IBD”
means inflammatory bowel disease, an umbrella term used to describe disorders that involve
chronic inflammation of the digestive tract. |
| | |
| ● | “IND”
means investigational new drug application. Before a clinical trial can be started, the research
must be approved. An investigational new drug or IND application or request must be filed
with the FDA when researchers want to study a drug in humans. The IND application must contain
certain information, such as: results from studies so that the FDA can decide whether the
treatment is safe for testing in people; how the drug is made, who makes it, what’s
in it, how stable it is, and more; detailed outlines for the planned clinical studies, called
study protocols, are reviewed to see if people might be exposed to needless risks; and details
about the clinical trial team to see if they have the knowledge and skill to run clinical
trials. |
| | |
| ● | “Individually
identifiable health information” is defined by HIPPA to mean information that is
a subset of health information, including demographic information collected from an individual,
and: (1) is created or received by a health care provider, health plan, employer, or health
care clearinghouse; and (2) relates to the past, present, or future physical or mental health
or condition of an individual; the provision of health care to an individual; or the past,
present, or future payment for the provision of health care to an individual; and (a) that
identifies the individual; or (b) with respect to which there is reasonable basis to believe
the information can be used to identify the individual. |
| | |
| ● | “IPO”
means the sale of the units in our initial public offering, which closed on June 7, 2017. |
| | |
| ● | “IRB”
means an Institutional Review Board, which is a group that has been formally designated to
review and monitor biomedical research involving human subjects. In accordance with FDA regulations,
an IRB has the authority to approve, require modifications in (to secure approval), or disapprove
research. This group review serves an important role in the protection of the rights and
welfare of human research subjects. |
| | |
| ● | “January
Warrant Amendment” means Amendment No. 1 to the December 2022 Common Warrants,
dated January 12, 2023, by and between our Company and the Selling Stockholder. |
| | |
| ● | “July
2022 Common Warrants” means the warrants to purchase up to 306,604 shares of our
common stock issued pursuant to the July 2022 SPA, as amended by the April Warrant Amendment. |
| | |
| ● | “July
2022 SPA” means that certain securities purchase agreement dated as of July 17,
2022 between our Company and the Selling Stockholder. |
| | |
| ● | “June
2020 SPA” means that certain securities purchase agreement dated as of June 12,
2020 between our Company, the purchasers identified on the signature pages thereto, and Dominion
Capital LLC as purchaser agent. |
| | |
| ● | “Katexco”
means Katexco Pharmaceuticals Corp. |
| | |
| ● | “Medicaid”
is a federal and state health insurance program in the United States that helps with medical
costs for some people with limited income and resources. Medicaid also offers benefits not
normally covered by Medicare, including nursing home care and personal care services. |
| | |
| ● | “Medicare”
is a national health insurance program in the United States It primarily provides health
insurance for Americans aged 65 and older, but also for some younger people with disability
status as determined by the Social Security Administration, as well as people with end stage
renal disease and amyotrophic lateral sclerosis (ALS or Lou Gehrig’s disease). |
| ● | “Merger
Sub” means KBL Merger Sub, Inc. |
| | |
| ● | “MHRA”
means The Medicines and Healthcare products Regulatory Agency, an executive agency of the
Department of Health and Social Care in the United Kingdom which is responsible for ensuring
that medicines and medical devices work and are acceptably safe. |
| | |
| ● | “MRP”
means a Mutual Recognition Procedure, a market authorization which is granted in one EU member
state and is recognized in other EU member states. |
| | |
| ● | “NCE”
is a drug that does not contain any active moiety that has been approved by the FDA with
any other application. |
| | |
| ● | “NDA”
or “Full NDA” means the FDA’s New Drug Application submitted under
section 505(b)(1) of the FDC Act, which is a regulatory vehicle in the United States through
which drug sponsors formally propose that the FDA approve a new pharmaceutical for sale and
marketing, that requires the applicant to conduct all investigations necessary for approval. |
| | |
| ● | “NIHR”
means The National Institute for Health Research is a United Kingdom government agency which
funds research into health and care, and is the largest national clinical research funder
in Europe. |
| | |
| ● | “Orphan
Drug Designation” means a pharmaceutical agent developed to treat medical conditions
which, because they are so rare, would not be profitable to produce without government assistance. |
| | |
| ● | “Phase
1” trials are typically where the drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance,
absorption, metabolism, distribution and elimination. In the case of some drug candidates for severe or life-threatening diseases, such
as cancer, especially when the drug candidate may be inherently too toxic to ethically administer to healthy volunteers, the initial
human testing is often conducted in patients. |
| | |
| ● | “Phase
2” trials are generally when clinical trials are initiated in a limited patient
population intended to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the drug candidate for specific targeted diseases and to determine
dosage tolerance and optimal dosage. Phase 2 trials are sometimes further divided into: Phase
2a and Phase 2b trials - Phase 2a is focused specifically on dosing requirements. A small
number of patients are administered the drug in different quantities to evaluate whether
there is a dose-response relationship, which is an increase in response that correlates with
increasing increments of dose. In addition, the optimal frequency of dose is also explored;
and Phase 2b trials are designed specifically to rigorously test the efficacy of the drug
in terms of how successful it is in treating, preventing or diagnosing a disease. |
| | |
| ● | “Phase
3” trials are when clinical trials are undertaken to further evaluate dosage, clinical
efficacy and safety in an expanded patient population at geographically dispersed clinical
trial sites. These clinical trials are intended to establish the overall risk-benefit ratio
of the drug candidate and provide an adequate basis for regulatory approval and product labeling. |
| | |
| ● | “Phase
4” trials are studies required to be conducted as a condition of approval in order
to gather additional information on the drug’s effect in various populations and any
side effects associated with long-term use. |
| | |
| ● | “PHS
Act” means the Public Health Service Act, a set of U.S. laws passed by Congress
in 1944 which, among other things, provide statutory authority for FDA to regulate biological
products. |
| | |
| ● | “Physiotherapy”
is treatment to restore, maintain, and make the most of a patient’s mobility, function,
and well-being. |
| ● | “POCD”
means post-operative cognitive dysfunction/delirium. |
| | |
| ● | “Public
Warrants” are the warrants to purchase shares of our common stock sold as part
of the units in our IPO (whether they were purchased in such offering or thereafter in the
open market). |
| | |
| ● | “RA”
means rheumatoid arthritis. |
| | |
| ● | “REMS”
means a risk evaluation and mitigation strategy which is a drug safety program that the FDA
can require for certain medications with serious safety concerns to help ensure the benefits
of the medication outweigh its risks. |
| | |
| ● | “Reverse
Stock Split” means the one-for-twenty reverse stock split which became effective
on December 19, 2022. |
| | |
| ● | “SCA”
means Synthetic Cannabidiol Analogs, which are synthetic pharmaceutical grade molecules close
or distant analogs of non-psychoactive cannabinoids such as CBD for the treatment of inflammatory
diseases and pain. |
| | |
| ● | “SEC”
or the “Commission” means to the United States Securities and Exchange
Commission. |
| ● | “Section
505(b)(2) NDA” or “section 505(b)(2) application” means a New
Drug Application submitted under section 505(b)(2) of the FDC Act, which is a regulatory
vehicle in the United States through which drug sponsors formally propose that the FDA approve
a pharmaceutical for sale and marketing, that allows the applicant to rely on previous investigations
conducted by others and for which the sponsor does not have a right of reference or use from
the person by or for whom the investigations were conducted. |
| | |
| ● | “Securities
Act” means the Securities Act of 1933, as amended. |
| | |
| ● | “Sponsor”
means the applicant or drug sponsor, which is the person or entity who assumes responsibility
for the marketing of a new drug, including responsibility for compliance with applicable
provisions of the FSC Act and related regulations. Note that as used herein the term “Sponsor”
may also refer to the Sponsor of our IPO, KBL IV Sponsor LLC, depending on the context in
which such term is used. |
| | |
| ● | “THC”
means tetrahydrocannabinol, which is the principal psychoactive constituent of cannabis. |
| | |
| ● | “TNF”
means tumor necrosis factor, which is part of the body’s response to inflammation. |
| | |
| ● | “U.K.”
means the United Kingdom. |
| | |
| ● | “U.S.”
means the United States. |
Our
logo and some of our trademarks and tradenames are used in this prospectus. This prospectus also includes trademarks, tradenames and
service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this prospectus
may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to
indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors
if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law,
their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship
with, or endorsement or sponsorship of us by, any other companies.
The
market data and certain other statistical information used throughout this prospectus are based on independent industry publications,
reports by market research firms or other independent sources that we believe to be reliable sources; however, we have not commissioned
any of the market or survey data that is presented in this prospectus. Industry publications and third-party research, surveys and studies
generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the
accuracy or completeness of such information. We are responsible for all of the disclosures contained in this prospectus, and we believe
these industry publications and third-party research, surveys and studies are reliable. While we are not aware of any misstatements regarding
any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous
assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under
the section entitled “Risk Factors” of this prospectus. These and other factors could cause our future performance
to differ materially from our assumptions and estimates. Some market and other data included herein, as well as the data of competitors
as they relate to 180 Life Sciences Corp., is also based on our good faith estimates.
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement on Form S-1 that we filed with the SEC using a “shelf” registration process.
Under this shelf registration process, the Selling Stockholder may, from time to time, sell the shares of common stock offered by them
described in this prospectus. We will not receive any proceeds from the sale by such Selling Stockholder of the Shares offered by them
described in this prospectus. We will not receive any proceeds from the sale of Shares pursuant to this prospectus, except with respect
to amounts received by us upon the exercise of the Warrants for cash.
Neither
we nor the Selling Stockholder have authorized anyone to provide you with any information or to make any representations other than those
contained in this prospectus or any applicable prospectus supplement or any free writing prospectus prepared by or on behalf of us or
to which we have referred you. Neither we nor the Selling Stockholder take responsibility for, and can provide no assurance as to the
reliability of, any other information that others may give you. Neither we nor the Selling Stockholder will make an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date of this prospectus. Our business, financial condition, results of operations
and prospects may have changed since that date.
We
may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or
change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective
amendment to the registration statement together with the additional information to which we refer you in the section of this prospectus
entitled “Where You Can Find More Information.”
We
were originally formed as KBL Merger Corp. IV, a blank check company organized under the laws of the State of Delaware on September 7,
2016, which consummated its initial public offering on June 7, 2017. On July 25, 2019, we entered into a business combination agreement
and, on the Closing, we consummated the Business Combination and changed our name to 180 Life Sciences Corp.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements under federal securities laws, including within the meaning of the Private Securities
Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “ongoing,” “plan,” “potential,”
“predict,” “project,” “should,” or the negative of these terms or other comparable
terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future
performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will
be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and
unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially
different from the information expressed or implied by the forward-looking statements in this prospectus.
In
particular, forward-looking statements include, but are not limited to, any statements that are not statements of current or historical
facts, such as statements relating to our expectations for the clinical and preclinical development, manufacturing, regulatory approval,
and commercialization of our product candidates, the accuracy of our estimates regarding expenses, future revenues and capital requirements,
our ability to execute our plans to develop and market new drug products and the timing and costs of these development programs, and
estimates of the sufficiency of our existing capital resources combined with future anticipated cash flows to finance our operating requirements.
Such
statements are based on management’s current expectations, but actual results may differ materially due to various factors, including,
but not limited to:
| ● | the
uncertainties associated with the clinical development and regulatory approval of our drug
candidates, including potential delays in the enrollment and completion of clinical trials,
issues raised by the U.S. Food and Drug Administration and the U.K. Medicines and Healthcare
products Regulatory Agency; |
| | |
| ● | regulatory
developments in the United States and foreign countries; |
| | |
| ● | our
success in retaining or recruiting, or changes required in, our officers, key employees or
directors; |
| | |
| ● | current
negative operating cash flows and our potential ability to obtain additional financing to
advance our business and the terms of any further financing, which may be highly dilutive
and may include onerous terms; |
| | |
| ● | the
continued impact of the COVID-19 pandemic on our business operations and our research and
development initiatives; |
| | |
| ● | our
reliance on third parties to conduct our clinical trials, enroll patients, and manufacture
our preclinical and clinical drug supplies; |
| | |
| ● | our
ability to come to mutually agreeable terms with third parties and partners, and the terms
of such agreements; |
| | |
| ● | unexpected
adverse side effects or inadequate therapeutic efficacy of drug candidates that could limit
approval and/or commercialization, or that could result in recalls or product liability claims; |
| | |
| ● | our
ability to fully comply with numerous federal, state and local laws and regulatory requirements,
as well as rules and regulations outside the United States, that apply to our product development
activities; |
| | |
| ● | challenges
and uncertainties inherent in product research and development, including the uncertainty
of clinical success and of obtaining regulatory approvals; |
| | |
| ● | uncertainty
of commercial success; |
| | |
| ● | high
inflation, increasing interest rates and economic downturns, including potential recessions,
as well as macroeconomic, geopolitical, health and industry trends, pandemics, acts of war
(including the ongoing Ukraine/Russian conflict) and other large-scale crises; |
| | |
| ● | our
ability to maintain our listing on Nasdaq; and |
| | |
| ● | other
risks and uncertainties, including those described in the section entitled “Risk
Factors”. |
Any
forward-looking statements in this prospectus reflect our current views with respect to future events or to our future financial performance
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.
Given these uncertainties, you should not place undue reliance on these forward-looking statements. All forward-looking statements included
herein speak only as of the date of this prospectus. All subsequent written and oral forward-looking statements attributable to us, or
persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements above. Except as required by law,
we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available
in the future.
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information
that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire
prospectus, including our consolidated financial statements and the related notes included in this prospectus and the information set
forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
Our
Company
We
are a clinical stage biotechnology company headquartered in Palo Alto, California, focused on the development of therapeutics for unmet
medical needs in chronic pain, inflammation and fibrosis by employing innovative research, and, where appropriate, combination therapy.
We were founded by Prof. Sir Marc Feldmann, Prof. Lawrence Steinman, Prof. Raphael Mechoulam, recently deceased, Dr. Jonathan Rothbard,
and Prof. Jagdeep Nanchahal, all of whom are scientists in the biotechnology and pharmaceutical sectors with significant experience,
and previous success, in drug discovery. Our management team has extensive experience in financing and growing early-stage healthcare
companies.
We
have three different product development platforms that are focused on different diseases or medical conditions, and that target different
factors, molecules or proteins, as follows:
| ● | Anti-TNF
platform: focusing on fibrosis and anti-tumor necrosis factor (“anti-TNF”); |
| | |
| ● | SCAs
platform: focusing on drugs which are synthetic cannabidiol (“CBD”)
or cannabigerol analogs (“SCAs”); and |
| | |
| ● | α7nAChR
platform: focusing on alpha 7 nicotinic acetylcholine receptor (“α7nAChR”). |
Our
lead product candidate under the anti-TNF platform recently completed Phase 2a and Phase 2b proof-of-concept clinical trials in the United
Kingdom and the Netherlands for early-stage Dupuytren’s Contracture, a condition that affects the development of fibrous connective
tissue in the palm of the hand.
Currently,
we are planning or conducting clinical trials only for certain indications under the anti-TNF platform, such as a planned Phase 2 trial
for post-operative cognitive decline as well as a planned Phase 2 trial for frozen shoulder. We were recruiting patients for a feasibility
trial for frozen shoulder, for which we have ended such recruitment at nine patients, due to a regulatory request in the UK to end slow
recruiting trials. The result of the closure of the trial means that another trial will likely need to be undertaken in the future to
recruit additional participants.
We
were recently granted an allowance of claims for a U.S. patent with respect to the use of adalimumab for early-stage Dupuytren’s
disease which, if granted, would have a term that expires no earlier than in 2037. Of our three product development platforms, only one,
the SCAs platform, involves products that are related to cannabidiol (CBD) (and not to cannabis or tetrahydrocannabinol (THC)), and no
clinical trials for indications or products under the SCAs platform are currently being conducted in the United States or abroad. We
are currently undertaking preclinical research and development activities for the SCA and the α7nAChR platforms.
Corporate
Information
We
were originally formed as KBL Merger Corp. IV, a blank check company organized under the laws of the State of Delaware on September 7,
2016, which consummated its initial public offering on June 7, 2017. On November 6, 2020, we consummated the Business Combination and,
in connection therewith, changed our name to 180 Life Sciences Corp.
Our
principal executive offices are located at 3000 El Camino Real, Bldg. 4, Suite 200, Palo Alto, California 94306, and our telephone number
is (650) 507-0669. We maintain a website at www.180lifesciences.com. We have not incorporated by reference into this prospectus the information
in, or that can be accessed through, our website, and you should not consider it to be a part of this prospectus.
THE
OFFERING
Shares
offered by the Selling Stockholder: |
|
We are registering the resale by
the Selling Stockholder named in this prospectus, or their permitted transferees, of an aggregate of up to an aggregate of 4,448,713
Shares by the Selling Stockholder identified in this prospectus. The Shares being registered for resale hereunder consist of: (i)
306,604 Shares issuable upon the exercise of the July 2022 Common Warrants; (ii) 2,571,429 Shares issuable upon the exercise of the
December 2022 Common Warrants; and (iii) 1,570,680 Shares issuable upon the exercise the April 2023 Common Warrants. |
|
|
|
Common stock outstanding prior to this offering: |
|
5,317,586 shares of common stock as of May 4,
2023. |
|
|
|
Use of proceeds: |
|
The Selling Stockholder will receive the proceeds from
the sale of the Shares offered hereby. We will not receive any proceeds from the sale of the Shares. However, if all of the July
2022 Common Warrants, the December 2022 Common Warrants and the April 2023 Common Warrants that are covered by this prospectus are
exercised for cash, we may receive proceeds of up to approximately $545,755, $4.6 million, and $2.8 million, respectively. |
|
|
|
Risk Factors: |
|
The purchase of our securities involves a high degree
of risk. See “Risk Factors” beginning on page 5 and other information included in this prospectus for a
discussion of factors you should carefully consider before deciding to invest in our securities. |
|
|
|
Nasdaq symbol: |
|
Our common stock is listed on Nasdaq under the symbol
“ATNF”. |
The
number of shares of our common stock outstanding is based on 5,317,586 shares outstanding as of May 4, 2023, and excludes, as of
such date:
| ● | 264
shares of common stock issuable upon the conversion of the Exchangeable Shares issued concurrently
with the reorganization that occurred in connection with the Business Combination; |
| | |
| ● | 148,321
shares of common stock issuable upon the exercise of outstanding stock options; |
| | |
| ● | 16,747
additional shares of our common stock reserved for future issuance under our 2020 Omnibus
Incentive Plan; |
| | |
| ● | 113,526
additional shares of our common stock reserved for future issuance under our 2022 Omnibus
Incentive Plan; and |
| | |
| ● | 287,500
shares of common stock issuable upon the exercise of outstanding public warrants exercisable
at an exercise price of $230.00 per share, 12,563 shares of common stock issuable upon the
exercise of certain outstanding private placement warrants exercisable at an exercise price
of $230.00 per share, 128,200 shares of common stock issuable upon the exercise of certain
outstanding private placement warrants at an exercise price of $100.00 per share, 1,250 shares
of common stock issuable upon the exercise of certain outstanding private placement warrants
at an exercise price of $141.40 per share, 3,183 shares of common stock issuable upon the
exercise of certain outstanding private placement warrants at an exercise price of $105.60
per share, 125,000 shares of common stock issuable upon the exercise of certain outstanding
private placement warrants at an exercise price of $150.00 per share, 306,604 shares of common
stock issuable upon exercise of the July 2022 Common Warrants at an exercise price of $1.78
per share, 2,571,429 shares of common stock issuable upon the exercise of the December 2022
Common Warrants at an exercise price of $1.78 per share and 1,570,680 shares of common stock
issuable upon the exercise of the April 2023 Common Warrants at an exercise price of $1.78
per share. |
Unless
otherwise indicated, all share numbers in this prospectus, including shares of common stock and all securities convertible into, or exercisable
for, shares of common stock, gives effect to the Reverse Stock Split. However, documents that were filed prior to December 19, 2022,
do not give effect to the Reverse Stock Split.
Summary
Risk Factors
We
face risks and uncertainties related to our business, many of which are beyond our control. In particular, risks associated with our
business include:
| ● | we
are a clinical stage biotechnology company that had no revenue for the years ended December
31, 2022 and 2021, and do not anticipate generating revenue for the near future; |
| | |
| ● | our
need for additional financing, both near term and long term, to support our operations, our
ability to raise such financing as needed, the terms of such financing, if available, potential
significant dilution associated therewith, and covenants and restrictions we may need to
comply with in connection with such funding; |
| | |
| ● | our
dependence on the success of our future product candidates, some of which may not receive
regulatory approval or be successfully commercialized; problems in our manufacturing process
for our new products and/or our failure to comply with manufacturing regulations, or unexpected
increases in our manufacturing costs; problems with distribution of our products; and failure
to adequately market our products; |
| | |
| ● | risks
associated with the growth of our business, our ability to maintain such growth, difficulties
in managing our growth, and executing our growth strategy; |
| | |
| ● | liability
for previously restated financial statements and associated with ineffective controls and
procedures, as well as costs and expenses related to the indemnification of current and former
officers and directors; |
| | |
| ● | our
dependence on our key personnel and our ability to attract and retain employees and consultants; |
| | |
| ● | risks
from intense competition from companies with greater resources and experience than we have; |
| | |
| ● | our
ability to receive regulatory approvals for our product candidates, and the timeline and
costs associated therewith, including the uncertainties associated with the clinical development
and regulatory approval of our drug candidates, including potential delays in the enrollment
and completion of clinical trials, issues raised by the FDA and the MHRA; |
| | |
| ● | risks
that our future product candidates, if approved by regulatory authorities, may be unable
to achieve the expected market acceptance and, consequently, limit our ability to generate
revenue from new products; |
| | |
| ● | the
outcome of currently pending and future claims and litigation, future government investigations,
and other proceedings may adversely affect our business and results of operations; |
| | |
| ● | the
fact that the majority of our license agreements provide the licensors and/or counter-parties
the right to use, own and/or exploit such licensed intellectual property; |
| | |
| ● | preclinical
studies and earlier clinical trials may not necessarily be predictive of future results and
may not have favorable results; we have limited marketing experience, and our future ability
to successfully commercialize any of our product candidates, even if they are approved in
the future is unknown; and business interruptions could delay us in the process of developing
our future product candidates and could disrupt our product sales; |
| | |
| ● | third-party
payors may not provide coverage and adequate reimbursement levels for any future products; |
| | |
| ● | liability
from lawsuits (including product liability lawsuits, stockholder lawsuits and regulatory
matters), including judgments, damages, fines and penalties and including the outcome of
currently pending litigation, potential future government investigations, and other proceedings
that may adversely affect our business and results of operations; |
| | |
| ● | security
breaches, loss of data and other disruptions which could prevent us from accessing critical
information or expose us to liabilities or damages; |
| | |
| ● | risks
associated with clinical trials that are expensive, time-consuming, uncertain and susceptible
to change, delay or termination and which are open to differing interpretations, delays in
the trials, testing, application, or approval process for drug candidates and/or our ability
to obtain approval for promising drug candidates, and the costs associated therewith; |
| | |
| ● | our
ability to comply with existing and future rules and regulations, including federal, state
and foreign healthcare laws and regulations and implementation of, or changes to, such healthcare
laws and regulations; |
| | |
| ● | our
ability to adequately protect our future product candidates or our proprietary technology
in the marketplace, claims and liability from third parties regarding our alleged infringement
of their intellectual property; |
| | |
| ● | differences
in laws and regulations between countries and other jurisdictions and changes in laws or
regulations, including, but not limited to tax laws and controlled substance laws, or a failure
to comply with any laws and regulations; |
| ● | conflicts
of interest between our officers, directors, consultants and scientists; |
| | |
| ● | penalties
associated with our failure to comply with certain pre-agreed contractual obligations and
restrictions; |
| | |
| ● | dilution
caused by future fund raising, the conversion/exercise of outstanding convertible securities,
and downward pressure on the value of our securities caused by such future issuances/sales; |
| | |
| ● | negative
effects on our business from the COVID-19 pandemic and other potential future pandemics; |
| | |
| ● | the
extremely volatile nature of our securities and potential lack of liquidity thereof; |
| | |
| ● | the
fact that our Certificate of Incorporation provides for indemnification of officers and directors,
limits the liability of officers and directors, allows for the authorization of preferred
stock without stockholder approval, and includes certain other anti-takeover provisions and
exclusive forum provisions; |
| | |
| ● | our
ability to maintain the listing of our common stock and warrants on Nasdaq and the costs
of compliance with SEC and Nasdaq rules and requirements; |
| | |
| ● | failure
of our information technology systems, including cybersecurity attacks or other data security
incidents, that could significantly disrupt the operation of our business; |
| | |
| ● | the
fact that we may acquire other companies which could divert our management’s attention,
result in additional dilution to our stockholders and otherwise disrupt our operations and
harm our operating results and if we make any acquisitions, they may disrupt or have a negative
impact on our business; |
| | |
| ● | the
effect of high inflation, increasing interest rates and economic downturns, including potential
recessions, as well as macroeconomic, geopolitical, health and industry trends, pandemics,
acts of war (including the ongoing Ukraine/Russian conflict) and other large-scale crises,
as well as the potential implications of a Congressional impasse over the U.S. debt limit
or possible future U.S. governmental shutdowns over budget disagreements; |
| | |
| ● | the
fact that we may apply working capital and future funding to uses that ultimately do not
improve our operating results or increase the value of our securities; and |
| | |
| ● | our
growth depends in part on the success of our strategic relationships with third parties. |
RISK
FACTORS
You
should carefully consider all of the following risk factors and all the other information contained in this prospectus, including the
consolidated financial statements. If any of the following risks occur, our business, financial condition or results of operations may
be materially and adversely affected. The risk factors described below are not necessarily exhaustive and you are encouraged to perform
your own investigation with respect to us and our business.
Risks
Related to Our Business Operations
Our
business, financial condition and results of operations are subject to various risks and uncertainties, including those described below.
This section discusses factors that, individually or in the aggregate, could cause our actual results to differ materially from expected
and historical results. Our business, financial condition or results of operations could be materially adversely affected by any of these
risks. It is not possible to predict or identify all such factors. Consequently, the following description of Risk Factors is not a complete
discussion of all potential risks or uncertainties applicable to our business.
Our
current cash balance is only sufficient to fund our planned business operations through the second quarter of 2023. If additional capital
is not available, we may not be able to pursue our planned business operations, may be forced to change our planned business operations,
or may take other actions that could adversely impact our stockholders.
We
are a clinical stage biotechnology company that currently has no revenue. Thus, our business does not generate the cash necessary to
finance our planned business operations. We will require significant additional capital to: (i) develop FDA and/or MHRA-approved products
and commercialize such products; (ii) fund research and development activities relating to, and obtain regulatory approval for, our product
candidates; (iii) protect our intellectual property; (iv) attract and retain highly-qualified personnel; (v) respond effectively to competitive
pressures; and (vi) acquire complementary businesses or technologies.
Our
future capital needs depend on many factors, including: (i) the scope, duration and expenditures associated with our research, development
and commercialization efforts; (ii) continued scientific progress in our programs; (iii) the outcome of potential partnering or licensing
transactions, if any; (iv) competing technological developments; (v) our proprietary patent position; and (vi) the regulatory approval
process for our products.
We
will need to raise substantial additional funds through public or private equity offerings, debt financings or strategic alliances and
licensing arrangements to finance our planned business operations. We may not be able to obtain additional financing on terms favorable
to us, if at all. General market conditions, as well as the ongoing COVID-19 pandemic, raising interest rates and inflation, as well
as global conflicts which as the ongoing conflict between Ukraine and Russia, as well as the potential implications of a Congressional
impasse over the U.S. debt limit or possible future U.S. governmental shutdowns over budget disagreements, may make it difficult for
us to seek financing from the capital markets, and the terms of any financing may adversely affect the holdings or the rights of our
stockholders. For example, if we raise additional funds by issuing equity securities, further dilution to our stockholders will result,
which may substantially dilute the value of their investment. Any equity financing may also have the effect of reducing the conversion
or exercise price of our outstanding convertible or exercisable securities, which could result in the issuance (or potential issuance)
of a significant number of additional shares of our common stock. In addition, as a condition to providing additional funds to us, future
investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, may involve
restrictive covenants that could limit our flexibility to conduct future business activities and, in the event of insolvency, could be
paid before holders of equity securities received any distribution of our assets. We may be required to relinquish rights to our technologies
or product candidates, or grant licenses through alliance, joint venture or agreements on terms that are not favorable to us, in order
to raise additional funds. If adequate funds are not available, we may have to delay, reduce or eliminate one or more of our planned
activities with respect to our business, or terminate our operations. These actions would likely reduce the market price of our common
stock.
We
will need additional capital which may not be available on commercially acceptable terms, if at all, which raises questions about our
ability to continue as a going concern.
As
of December 31, 2022, we had an accumulated deficit of $107,408,545 and working capital of $3,270,608, and for the year ended December
31, 2022, a net loss of $38,726,259 and cash used in operating activities of $12,127,585. As of May 3, 2023, we had cash on hand of
approximately $3.8 million. The accompanying consolidated financial statements have been prepared assuming we will continue as a going
concern. As we are not generating revenues, we need to raise a significant amount of capital in order to pay our debts and cover our
operating costs. While we recently raised funds through the sale of equity in July 2022 ($6.5 million of gross proceeds) and December
2022 ($6.0 million of gross proceeds), there is no assurance that we will be able to raise additional needed capital or that such capital
will be available under favorable terms.
We
are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry.
Due to the absence of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating
losses until we can successfully implement our business strategy, which includes all associated revenue streams. We may never ever achieve
profitable operations or generate significant revenues.
We
currently have a monthly cash requirement spend of approximately $900,000. We believe that in the aggregate, we will require significant
additional capital funding to support and expand the research and development and marketing of our products, fund future clinical trials,
repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations, office space
and systems for managing the business, and cover other operating costs until our planned revenue streams from products are fully-implemented
and begin to offset our operating costs, if ever.
Since
our inception, we have funded our operations with the proceeds from equity and debt financings. We have experienced liquidity issues
due to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the
sale of equity and debt funding that is convertible into shares of our common stock to fund our operations and have devoted significant
efforts to reduce that exposure. We anticipate that we will need to issue equity to fund our operations and fund our operating expenses
for the foreseeable future. If we are unable to achieve operational profitability or we are not successful in securing other forms of
financing, we will have to evaluate alternative actions to reduce our operating expenses and conserve cash.
These
conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months from the date of issuance
of the auditor’s report set forth herein. The accompanying consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include
any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable
to continue as a going concern. The consolidated financial statements included herein also include a going concern footnote.
Additionally,
wherever possible, our board of directors (“Board of Directors” or “Board”))will attempt to use
non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted
shares of our common stock, preferred stock or warrants to purchase shares of our common stock. Our Board has authority, without action
or vote of the stockholders, but subject to Nasdaq rules and regulations (which generally require stockholder approval for any transactions
which would result in the issuance of more than 20% of our then outstanding shares of common stock or voting rights representing over
20% of our then outstanding shares of stock, subject to certain exceptions), to issue all or part of the authorized but unissued shares
of common stock, preferred stock or warrants to purchase such shares of common stock. In addition, we may attempt to raise capital by
selling shares of our common stock, possibly at a discount to market in the future. These actions will result in dilution of the ownership
interests of existing stockholders, may further dilute common stock book value, and that dilution may be material. Such issuances may
also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued to parties or entities
committed to supporting existing management.
We
have significant and increasing liquidity needs and require additional funding.
Research
and development, management and administrative expenses, including legal expenses, and cash used for operations will continue to be significant
and may increase substantially in the future in connection with new research and development initiatives, clinical trials, continued
product commercialization efforts and the launch of our future product candidates. We will need to raise additional capital to fund our
operations, continue to conduct clinical trials to support potential regulatory approval of marketing applications, and to fund commercialization
of our future product candidates.
The
amount and timing of our future funding requirements will depend on many factors, including, but not limited to:
| ● | the
timing of FDA and/or MHRA approval, if any, and approvals in other international markets
of our future product candidates, if at all; |
| | |
| ● | the
timing and amount of revenue from sales of our products, or revenue from grants or other
sources; |
| | |
| ● | the
rate of progress and cost of our clinical trials and other product development programs; |
| | |
| ● | costs
of establishing or outsourcing sales, marketing and distribution capabilities; |
| | |
| ● | costs
and timing of any outsourced growing and commercial manufacturing supply arrangements for
our future product candidates; |
| | |
| ● | costs
of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights associated with our future product candidates; |
| | |
| ● | the
effect of competing technological and market developments; |
| | |
| ● | personnel,
facilities and equipment requirements; and |
| | |
| ● | the
terms and timing of any additional collaborative, licensing, co-promotion or other arrangements
that we may establish. |
While
we expect to fund our future capital requirements from a number of sources, such as cash flow from operations and the proceeds from further
public and/or private offerings, we cannot assure you that any of these funding sources will be available to us on favorable terms, or
at all. Further, even if we can raise funds from all of the above sources, the amounts raised may not be sufficient to meet our future
capital requirements.
We
may need to raise additional capital, which may not be available on favorable terms, if at all, causing dilution to our stockholders,
restricting our operations or adversely affecting our ability to operate our business.
We
may not be able to obtain additional financing on terms favorable to us, if at all, including as a result of macroeconomic conditions
such as a severe or prolonged economic downturn. Disruption, uncertainty or volatility in the capital markets could increase our cost
of capital or limit our ability to raise funds needed to operate our business. Disruptions could be caused by Federal Reserve policies
and actions, currency concerns, inflation, economic downturn or uncertainty, monetary policies, failures of financial institutions, U.S.
debt management concerns, and U.S. debt limit and budget disputes, including government shutdowns, European and worldwide sovereign debt
concerns, other global or geopolitical events, or other factors. Current macroeconomic conditions have negatively impacted the U.S. banking
sector, including for example, the recent closures and FDIC receiverships of Silicon Valley Bank and Signature Bank. Although we do not
have any accounts at or business relationships with these banks, we may be negatively impacted by other disruptions to the U.S. banking
system caused by these or similar developments.
Our
results of operations may be adversely affected by fluctuations in currency values.
We
expend expenses in currencies other than the U.S. dollar. Our reporting currency is the United States dollar. The functional currency
of certain subsidiaries is the Canadian Dollar (“CAD”) or British Pound (“£” or “GBP”).
The resulting translation adjustments are recognized in stockholders’ equity as a component of accumulated other comprehensive
income. Comprehensive income is defined as the change in equity of an entity from all sources other than investments by owners or distributions
to owners and includes foreign currency translation adjustments as described above. During the years ended December 31, 2022 and 2021,
we recorded other comprehensive (loss) income of ($3,702,963) and $180,554, respectively, as a result of foreign currency translation
adjustments.
Foreign
currency gains and losses resulting from transactions denominated in foreign currencies, including intercompany transactions, are included
in results of operations. We recognized ($12,777) and ($69) of foreign currency transaction (losses) for the years ended December 31,
2022 and 2021, respectively. Such amounts have been classified within general and administrative expenses in the accompanying consolidated
statements of operations and comprehensive loss.
Changes
in the value of the currencies which we pay expenses (and in the future receive revenues), versus each other, and the U.S. dollar, could
result in an adverse charge being recorded to our income statement.
Global
economic conditions could materially adversely affect our business, results of operations, financial condition and growth.
Adverse
macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs, changes to fiscal and monetary policy,
tighter credit, higher interest rates, high unemployment and currency fluctuations, as well as the potential implications of a Congressional
impasse over the U.S. debt limit or possible future U.S. governmental shutdowns over budget disagreements, could materially adversely
affect our operations, expenses, access to capital and the market for our planned future products. In addition, consumer confidence and
spending could be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate
and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other
economic factors.
In
addition, uncertainty about, or a decline in, global or regional economic conditions could have a significant impact on our funding sources,
suppliers and partners. Potential effects include financial instability; inability to obtain credit to finance operations and purchases
of our future planned products; and insolvency.
A
downturn in the economic environment could also lead to limitations on our ability to sell equity or issue new debt; reduce liquidity;
and result in declines in the fair value of our financial instruments. These and other economic factors could materially adversely affect
our business, results of operations, financial condition and growth.
Our
industry and the broader U.S. economy have experienced higher than expected inflationary pressures during 2022, related to continued
supply chain disruptions, labor shortages and geopolitical instability. Should these conditions persist our business, future results
of operations and cash flows could be materially and adversely affected.
Calendar
2022 has seen significant increases in the costs of certain materials, products and shipping costs, as a result of availability constraints,
supply chain disruption, increased demand, labor shortages associated with a fully employed U.S. labor force, high inflation and other
factors. Supply and demand fundamentals have been further aggravated by disruptions in global energy supply caused by multiple geopolitical
events, including the ongoing conflict between Russia and Ukraine. Service, materials and shipping costs have also increased accordingly
with general supply chain and inflation issues seen throughout the U.S. leading to increased operating costs. Recent supply chain constraints
and inflationary pressures may adversely impact our operating costs and may negatively impact our future product costs, consulting costs
and expenses which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Economic
uncertainty may affect our access to capital and/or increase the costs of such capital.
Global
economic conditions continue to be volatile and uncertain due to, among other things, consumer confidence in future economic conditions,
fears of recession and trade wars, the price of energy, fluctuating interest rates, the availability and cost of consumer credit, the
availability and timing of government stimulus programs, levels of unemployment, increased inflation, tax rates, and the war between
Ukraine and Russia which began in February 2022, and the potential implications of a Congressional impasse over the U.S. debt limit or
possible future U.S. governmental shutdowns over budget disagreements. These conditions remain unpredictable and create uncertainties
about our ability to raise capital in the future. In the event required capital becomes unavailable in the future, or more costly, it
could have a material adverse effect on our business, future results of operations, and financial condition.
We
may not receive any amounts under our pre-merger directors’ and officers’ insurance policy in connection with certain litigation
matters.
On
June 29, 2022, AmTrust International Underwriters DAC (“AmTrust”), which was the premerger directors’ and officers’
insurance policy underwriter for KBL, filed a declaratory relief action against us in the U.S. District Court for the Northern District
of California (the “Declaratory Relief Action”) seeking declaration of AmTrust’s obligations under the directors’
and officers’ insurance policy. In the Declaratory Relief Action, AmTrust is claiming that as a result of the merger, we are no
longer the insured under the subject insurance policy, notwithstanding the fact that the fees which we seek to recover from AmTrust relate
to matters occurring prior to the merger. On September 20, 2022, we filed our Answer and Counterclaims against AmTrust for bad faith
breach of AmTrust’s insurance coverage obligations to us under the subject directors’ and officers’ insurance policy,
and seeking damages of at least $2 million in compensatory damages, together with applicable punitive damages. In addition, we brought
a Third-Party Complaint against our excess insurance carrier, Freedom Specialty Insurance Company (“Freedom”) seeking
declaratory relief that Freedom will also be required to honor its policy coverage as soon as the amount of AmTrust’s insurance
coverage obligations to us have been exhausted. On October 25, 2022, AmTrust filed its Answer to our Counterclaims and, on October 27,
2022, Freedom filed its Answer to the Third-Party Complaint.
On
November 22, 2022, we filed a Motion for Summary Adjudication against both AmTrust and Freedom. The Motion was fully briefed, and a hearing
was held on March 9, 2023. The standard to prevail on a Motion for Summary Adjudication in the Court is high to prevail and requires
a judge to find that there are no disputed issues of fact so that they can rule on the issues as a matter of law. In this instance the
judge found three major issues could be decided as a matter of law in our favor and that one issue, the Change in Control exclusion,
requires further discovery.
On
April 21, 2023, the Court issued an Order Granting in Part and Denying in Part our Motion for Partial Summary Judgment. Specifically,
the Court granted summary adjudication in our favor on the following issues: (a) that we are, in fact, an insured under both the AmTrust
and Freedom insurance policies; (b) that certain SEC subpoena related expenses for defendants Dr. Marlene Krauss, the Company’s
former Chief Executive Officer and Director, and George Hornig, the former Chairman of the Board, are within the basic scope of coverage
under both the AmTrust and Freedom insurance policies; and (c) that the Insured vs. Insured exclusion relied upon by AmTrust and Freedom
is not applicable to bar any such coverage.
The
Court also found that there were issues of disputed facts as to the Change in Control exclusion contained within the policies, which
therefore precluded the Court from granting the remainder of our requests for summary adjudication as a matter of law. Accordingly, the
Court, at this time, denied our further requests for summary adjudication and deemed that for the time being, the Change in Control issue
is to be determined at the time of trial, in order to find that the policies (i) provide coverage for the fees which we had advanced
and will advance to Dr. Marlene Krauss and George Hornig; (ii) that AmTrust has breached the policy; (iii) that AmTrust must pay such
expenses of the Company; and that, once the AmTrust policy has been exhausted, (iv) Freedom will be obligated to pay such expenses of
the Company pursuant to its policy. We intend to continue to vigorously pursue this final matter in order to establish our entitlement
to full payment by both AmTrust and Freedom of the subject advancement expenses of the Company.
While we continue to believe we have a strong
case against both AmTrust and Freedom, and we believe the Court ruling in our favor in regards to the matters discussed above is a significant
positive outcome for us, there can be no assurance that we will prevail in this action.
We
are dependent on the success of our future product candidates, some of which may not receive regulatory approval or be successfully commercialized.
Our
success will depend on our ability to successfully develop and commercialize our future product candidates through our development programs,
including our product candidate for the treatment of Dupuytren’s Contracture and any other product candidates developed through
our fibrosis & anti-TNF, CBD derivatives, and α7nAChR development platforms. We may never be able to develop products which
receive regulatory approval in the United States or elsewhere. There can be no assurance that the FDA, MHRA, EMA or any other regulatory
authority will approve these product candidates.
Our
ability to successfully commercialize our future product candidates will depend on, among other things, our ability to successfully complete
pre-clinical and other non-clinical studies and clinical trials and to receive regulatory approvals from the FDA, MHRA, EMA and similar
foreign regulatory authorities. Delays in the regulatory process could have a material adverse effect on our business, results of operations
and financial condition.
Our
ability to generate revenue from any of our potential products is subject to our ability to obtain regulatory approval and fulfill numerous
other requirements and we may never be successful in generating revenues or becoming profitable.
Our
ability to become and remain profitable depends on our ability to generate revenue or execute other business development arrangements.
We do not expect to generate significant revenue, if any, unless and until we are able to obtain regulatory approval for, and successfully
commercialize the product candidates we are developing or may develop. Successful commercialization, to the extent it occurs, will require
achievement of many key milestones, including demonstrating safety and efficacy in clinical trials, obtaining regulatory approval for
these product candidates, manufacturing, marketing and selling, or entering into other agreements to commercialize, those products for
which we may obtain regulatory approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from
private insurance or government payors. Because of the uncertainties and risks associated with these activities, we cannot accurately
and precisely predict the timing and amount, if any, of revenues, the extent of any further losses or when we might achieve profitability.
We may never succeed in these activities and, even if we do, we may never generate revenues that are sufficient enough for us to achieve
profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual
basis.
Our
failure to become and remain profitable may depress the market price of our common stock and could impair our ability to raise capital,
expand our business, diversify our product offerings or continue our operations.
We
have recently grown our business and will need to increase the size and complexity of our organization in the future, and we may experience
difficulties in managing our growth and executing our growth strategy.
Our
management, personnel and systems currently in place may not be adequate to support our business plan and future growth. We will need
to increase our number of full-time equivalent employees in order to conduct Phase 1, 2 and 3 clinical trials of our future products
and to establish a commercial organization and commercial infrastructure. As a result of these future activities, the complexity of our
business operations is expected to substantially increase. We will need to develop and expand our scientific, manufacturing, sales and
marketing, managerial, compliance, operational, financial and other resources to support our planned research, development, manufacturing
and commercialization activities.
Our
need to effectively manage our operations, growth and various projects requires that we:
| ● | continue
to improve our operational, financial, management and regulatory compliance controls and
reporting systems and procedures; |
| | |
| ● | attract
and retain sufficient numbers of talented employees; |
| | |
| ● | manage
our commercialization activities effectively and in a cost-effective manner (currently trial
and development for our clinical trials is very cost effective); and |
| | |
| ● | manage
our development efforts effectively while carrying out our contractual obligations to contractors
and other third parties. |
We
have utilized and continue to utilize the services of part-time outside consultants and contractors to perform a number of tasks for
our company, including tasks related to compliance programs, clinical trial management, regulatory affairs, formulation development and
other drug development functions. Our growth strategy may entail expanding our use of consultants and contractors to implement these
and other tasks going forward. If we are not able to effectively expand our organization by hiring new employees and expanding our use
of consultants and contractors, we may be unable to successfully implement the tasks necessary to effectively execute on our planned
research, development, manufacturing and commercialization activities and, accordingly, may not achieve our research, development and
commercialization goals.
We
face liability for previously restated financial statements and/or certain actions of our prior management which led to such restatements.
We
filed a Current Report on Form 8-K on December 31, 2020 and another Current Report on Form 8-K on February 3, 2021, where we announced
that due to matters we discovered which related to KBL, prior to the Business Combination, certain historical financial statements were
unreliable. As a result, we restated our financial statements for the three and six months ended June 30, 2020 and for the three and
nine months ended September 30, 2020, because of errors in such financial statements which were identified after such financial statements
were filed with the SEC in our original quarterly reports for the quarters ended June 30, 2020 and September 30, 2020. While we believe
these restatements are the result of the actions of, and are the responsibility of, the management of KBL (none of whom remain employed
by us), we may be subject to stockholder litigation, SEC actions, fines and penalties, rating downgrades, negative publicity and difficulties
in attracting and retaining key clients, employees and management personnel as a result of such restatements. Additionally, our securities
may trade at prices lower than similarly situated companies which have not had to restate their financial statements.
Our
failure to appropriately adjust processes resulting from significant one-time transactions may result in a misstatement in the financial
statements.
In
the course of our annual audit but prior to filing, we discovered that an error occurred which caused the fair value of our public warrants
to be overstated by an immaterial amount. This error was corrected before the 2022 financial statements were filed. While we believe
that the fair value of warrants in the financial statements for the year ended December 31, 2022 are correctly stated, it is possible
that similar errors which could have a material adverse effect on our financial condition and results of operations, could require us
to restate our financial statements for prior periods or in the future.
Operating
results may vary significantly in future periods.
Our
financial results are unpredictable and may fluctuate, for among other reasons, due to commercial sales of our future product candidates;
our achievement of product development objectives and milestones; clinical trial enrollment and expenses; research and development expenses;
and the timing and nature of contract manufacturing and contract research payments. A high portion of our costs are predetermined on
an annual basis, due in part to our significant research and development costs. Thus, small declines in future revenue could disproportionately
affect financial results in a quarter.
We
depend on our key personnel and our ability to attract and retain employees.
Our
future growth and success depend on our ability to recruit, retain, manage and motivate our employees. We are highly dependent on our
current management and scientific personnel, including our Chief Executive Officer, Dr. James N. Woody, our Co-Chairmen, Sir Marc Feldmann,
Ph.D., and Lawrence Steinman, M.D., our Chief Scientific Officer, Jonathan Rothbard, Ph.D., and our scientist, Jagdeep Nanchahal. The
inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm
our operating results. Due to the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract
and retain qualified scientific, technical and managerial personnel. The competition for qualified personnel in the biotechnological
field is intense and we may be unable to continue to attract and retain qualified personnel necessary for the development of our business
or to recruit suitable replacement personnel.
Problems
in our manufacturing process for our future chemical entities, failure to comply with manufacturing regulations or unexpected increases
in our manufacturing costs could harm our business, results of operations and financial condition.
We
are responsible for the manufacture and supply of our future product candidates in the CBD derivatives and α7nAChR programs for
commercial use and for use in clinical trials. The manufacturing of our future product candidates necessitates compliance with GMPs and
other regulatory requirements in international jurisdictions. Our ability to successfully manufacture our future product candidates will
involve manufacture of finished products and labeling and packaging, which includes product information, tamper proof evidence and anti-counterfeit
features, under tightly controlled processes and procedures. In addition, we will have to ensure chemical consistency among our batches,
including clinical trial batches and, if approved, marketing batches. Demonstrating such consistency may require typical manufacturing
controls as well as clinical data. We will also have to ensure that our batches conform to complex release specifications. If we are
unable to manufacture our future product candidates in accordance with regulatory specifications, or if there are disruptions in our
manufacturing process due to damage, loss or otherwise, or failure to pass regulatory inspections of our manufacturing facilities, we
may not be able to meet demand or supply sufficient product for use in clinical trials, and this may also harm our ability to commercialize
our future product candidates on a timely or cost-competitive basis, if at all.
We
may not develop and expand our manufacturing capability in time to meet demand for our product candidates, and the FDA, MHRA or other
foreign regulatory authorities may not accept our facilities or those of our contract manufacturers as being suitable for the production
of our products and product candidates. Any problems in our manufacturing process could materially adversely affect our business, results
of operations and financial condition.
Our
memorandum of understanding with Celltrion Healthcare may not result in the parties entering into a definitive agreement.
In
September 2021, we entered into a non-binding memorandum of understanding with Celltrion Healthcare, a biopharmaceutical company, for
the supply of an anti-TNF biosimilar drug used in our ongoing development of anti-TNF products. The parties have not entered into a definitive
agreement regarding such relationship to date, and such definitive agreement may not ultimately be entered into on terms contemplated,
if at all. In the event that we are unable to come to mutually agreeable definitive terms with Celltrion Healthcare, we will need to
locate an alternative supplier of the anti-TNF biosimilar drug, and we may be unable to find an alternative supplier or such alternative
supplier may require less favorable terms than are currently contemplated. Any of the above may materially adversely affect our business,
results of operations and financial condition.
We
expect to face intense competition from companies with greater resources and experience than we have; and may face competition from competitors
seeking to market our products under a Section 505(b)(2) application.
The
pharmaceutical industry is highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing
number of competitors and potential competitors enter the market. Many of these competitors and potential competitors have substantially
greater financial, technological, managerial and research and development resources and experience than our company. Some of these competitors
and potential competitors have more experience than our company in the development of pharmaceutical products, including validation procedures
and regulatory matters. In addition, our future product candidates, if successfully developed, will compete with product offerings from
large and well-established companies that have greater marketing and sales experience and capabilities than our company or our collaboration
partners have. In particular, Insys Therapeutics, Inc. is developing CBD in Infantile Spasms (“IS”), and potentially
other indications. Zogenix, Inc. has reported positive data in two Phase 3 trials of low dose fenfluramine in Dravet syndrome and has
commenced a Phase 3 trial with this product in Lennox Gastaut Syndrome. Biocodex recently received regulatory approval from the FDA for
the drug Stiripentol (Diacomit) for the treatment of Dravet syndrome. Other companies with greater resources than our company may announce
similar plans in the future. In addition, there are non-FDA approved CBD preparations being made available from companies in the medical
marijuana industry, which might attempt to compete with our future product candidates.
Many
of our competitors have significantly greater financial and technical resources, experience and expertise in:
| ● | research
and development; |
| ● | designing
and implementing clinical trials; |
| ● | regulatory
processes and approvals; |
| ● | production
and manufacturing; and |
| ● | sales
and marketing of approved products. |
Principal
competitive factors in our industry include:
| ● | the
quality and breadth of an organization’s technology; |
| ● | management
of the organization and the execution of the organization’s strategy; |
| ● | the
skill and experience of an organization’s employees and its ability to recruit and
retain skilled and experienced employees; |
| ● | an
organization’s intellectual property portfolio; |
| ● | the
range of capabilities, from target identification and validation to drug discovery and development
to manufacturing and marketing; and |
| ● | the
availability of substantial capital resources to fund discovery, development and commercialization
activities. |
Additionally,
competitors may also seek to market versions of our drug products via a section 505(b)(2) application, which is a type of NDA provided
in section 505(b)(2) of the FDC Act. A Section 505(b)(2) NDA is in contrast to an NDA under section 505(b)(1) of the FDA Act, which is
commonly known as a Full NDA because it requires the applicant to undertake all of the nonclinical and clinical investigations necessary
for the approval of the application. In contrast, a Section 505(b)(2) NDA application is one for which one or more of the investigations
relied on by the applicant for approval were not conducted by or for the applicant and for which the applicant has not obtained a right
of reference or use from the person by or for whom the investigations were conducted. Section 505(b)(2) applications may be submitted
for drug products that represent a modification, such as a new indication or new dosage form, of a previously approved drug. Section
505(b)(2) applications may rely on the FDA’s previous findings for the safety and effectiveness of the previously approved drug
in addition to information obtained by the 505(b)(2) applicant to support the modification of the previously approved drug. Preparing
Section 505(b)(2) applications may be less costly and less time-consuming than preparing a Full NDA based entirely on new data and information.
Section 505(b)(2) applications are subject to the same patent certification procedures as an ANDA.
If
we are unable to compete successfully, our commercial opportunities will be reduced and our business, results of operations and financial
conditions may be materially harmed.
Our
future product candidates, if approved, may be unable to achieve the expected market acceptance and, consequently, limit our ability
to generate revenue from new products.
Even
when product development is successful and regulatory approval has been obtained, our ability to generate sufficient revenue depends
on the acceptance of our products by physicians and patients. We cannot assure you that any of our future product candidates will achieve
the expected level of market acceptance and revenue if and when they obtain the requisite regulatory approvals. The market acceptance
of any product depends on a number of factors, including the indication statement, warnings required by regulatory authorities in the
product label and new competing products. Market acceptance can also be influenced by continued demonstration of efficacy and safety
in commercial use, physicians’ willingness to prescribe the product, reimbursement from third-party payors such as government health
care programs and private third-party payors, the price of the product, the nature of any post-approval risk management activities mandated
by regulatory authorities, competition, and marketing and distribution support. Further, our U.S. distribution depends on the adequate
performance of a reimbursement support hub and contracted specialty pharmacies in a closed-distribution network. An ineffective or inefficient
U.S. distribution model at launch may lead to inability to fulfill demand, and consequently a loss of revenue. The success and acceptance
of a product in one country may be negatively affected by its activities in another. If we fail to adapt our approach to clinical trials
in the U.S. market to meet the needs of EMA, MHRA or other European regulatory authorities, or to generate the health economics and outcomes
research data needed to support pricing and reimbursement negotiations or decisions in Europe, we may have difficulties obtaining marketing
authorization for our products from EMA/European Commission or the MHRA and may have difficulties obtaining pricing and reimbursement
approval for our products at a national level. Any factors preventing or limiting the market acceptance of our products could have a
material adverse effect on our business, results of operations and financial condition.
All
of our patents in the Anti-TNF and Fibrosis program are method of use patents, which may result in biosimilar drugs being used without
our permission.
The
success of our most advanced drug development platform depends on the enforceability of our method of use patents, as there are currently
many biosimilar anti-TNF drugs in the market. If we are unable to obtain composition of matter patents, and enforce such patents, our
ability to generate revenue from the anti-TNF platform may be significantly limited and competitors may be able to use our research to
bring competing drugs to market which would reduce our market share.
The
majority of our license agreements provide the licensors and/or counter-parties the right to use and/or exploit such licensed intellectual
property.
The
majority of our license agreements provide the licensors and/or counter-parties the right to use and/or exploit such licensed intellectual
property, and in some cases provide them ownership of such intellectual property, know-how and research results. As such, we may be in
competition with parties who we have license agreements with, will likely not have the sole right to monetize, sell or distribute our
product candidates and may be subject to restrictions on use and territory of sales. Any or all of the above may have a material adverse
effect on our results of operations and cash flows and ultimately the value of our securities.
Interim,
topline and preliminary data from our clinical trials may change as more patient data becomes available, and is subject to audit and
verification procedures that could result in material changes in the final data.
From
time to time, we may publicly disclose preliminary, interim or topline data from our preclinical studies and clinical trials, which is
based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change as
patient enrollment and treatment continues and more patient data become available. For example, any positive results from our preclinical
testing, Phase 1 and Phase 2 clinical trials of our product candidate for any product candidate may not necessarily be predictive of
the results from planned or future clinical trials for such product candidates. Many companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in clinical trials after achieving positive results in pre-clinical and early clinical
development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things,
pre-clinical findings while clinical trials were underway or safety or efficacy observations in clinical trials, including adverse events.
Adverse differences between previous preliminary or interim data and future interim or final data could significantly harm our business
prospects. We may also announce topline data following the completion of a preclinical study or clinical trial, which may be subject
to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations,
calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully
evaluate all data. As a result, the interim, topline or preliminary results that we report may differ from future results of the same
studies, or different conclusions or considerations may qualify such results, once additional data has been received and fully evaluated.
Preliminary, interim, or topline data also remains subject to audit and verification procedures that may result in the final data being
materially different from the data we previously published. As a result, preliminary, interim, and topline data should be viewed with
caution until the final data is available.
Further,
others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses
or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability
or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose
to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others
may not agree with what we determine to be material or otherwise appropriate information to include in our disclosure. Moreover, our
interpretation of clinical data or our conclusions based on the preclinical in vitro and in vivo models may prove inaccurate, as preclinical
and clinical data can be susceptible to varying interpretations and analyses, and many companies that believed their product candidates
performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA approval or a marketing authorization
granted by the European Commission.
If
we fail to produce positive results in our future clinical trials, the development timeline and regulatory approval and commercialization
prospects for such product candidates, and, correspondingly, our business and financial prospects, would be materially adversely affected.
We
have limited marketing experience, and we may not be able to successfully commercialize any of our future product candidates, even if
they are approved in the future.
Our
ability to generate revenues ultimately will depend on our ability to sell our approved products and secure adequate third-party reimbursement.
We currently have no experience in marketing and selling our products. The commercial success of our future products depends on a number
of factors beyond our control, including the willingness of physicians to prescribe our future products to patients, payors’ willingness
and ability to pay for our future products, the level of pricing achieved, patients’ response to our future products, and the ability
of our future marketing partners to generate sales. There can be no guarantee that we will be able to establish or maintain the personnel,
systems, arrangements and capabilities necessary to successfully commercialize our future products or any product candidate approved
by the FDA, MHRA or other regulatory authority in the future. If we fail to establish or maintain successful marketing, sales and reimbursement
capabilities or fail to enter into successful marketing arrangements with third parties, our product revenues may suffer.
If
the price for any of our future approved products decreases or if governmental and other third-party payors do not provide coverage and
adequate reimbursement levels, our revenue and prospects for profitability will suffer.
Patients
who are prescribed medicine for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the
costs associated with their prescription drugs. Reimbursement systems in international markets vary significantly by country and by region,
and reimbursement approvals generally must be obtained on a country-by-country basis. Coverage and adequate reimbursement from governmental
healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to new product acceptance. Coverage decisions may
depend upon clinical and economic standards that disfavor new drug products when more established or lower cost therapeutic alternatives
are already available or subsequently become available. Even if we obtain coverage for our future product candidates, the resulting reimbursement
payment rates may require co-payments that patients find unacceptably high. Patients may not use our future product candidates if coverage
is not provided or reimbursement is inadequate to cover a significant portion of a patient’s cost.
In
addition, the market for our future product candidates in the United States will depend significantly on access to third-party payors’
drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. The industry competition to
be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payors may refuse
to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic
equivalent or other alternative is available.
Third-party
payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling
healthcare costs. The current environment is putting pressure on companies to price products below what they may feel is appropriate.
Our future revenues and overall success could be negatively impacted if we sell future product candidates at less than an optimized price.
In addition, in the United States, no uniform policy of coverage and reimbursement for drug products exists among third-party payors.
Therefore, coverage and reimbursement for our future product candidates may differ significantly from payor to payor. As a result, the
coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support
for the use of our future product candidates to each payor separately, with no assurance that coverage will be obtained. If we are unable
to obtain coverage of, and adequate payment levels for, our future product candidates, physicians may limit how much or under what circumstances
they will prescribe or administer them and patients may decline to purchase them. This could affect our ability to successfully commercialize
our product candidates, and thereby adversely impact our profitability, results of operations, financial condition and future success.
In
addition, where we have chosen to collaborate with a third party on product candidate development and commercialization, our partner
may elect to reduce the price of our products to increase the likelihood of obtaining reimbursement approvals. In many countries, products
cannot be commercially launched until reimbursement is approved and the negotiation process in some countries can exceed 12 months. In
addition, pricing and reimbursement decisions in certain countries can be affected by decisions made in other countries, which can lead
to mandatory price reductions and/or additional reimbursement restrictions across a number of other countries, which may adversely affect
sales and profitability. In the event that countries impose prices that are not sufficient to allow us or our partners to generate a
profit, our partners may refuse to launch the product in such countries or withdraw the product from the market, which would adversely
affect sales and profitability.
Business
interruptions could delay us in the process of developing our future product candidates and could disrupt our product sales.
Loss
of our future manufacturing facilities, stored inventory or laboratory facilities through fire, theft or other causes, could have an
adverse effect on our ability to meet demand for our future product candidates or to continue product development activities and to conduct
our business. Failure to supply our partners with commercial products may lead to adverse consequences, including the right of partners
to assume responsibility for product supply. Even if we obtain insurance coverage to compensate us for such business interruptions, such
coverage may prove insufficient to fully compensate us for the damage to our business resulting from any significant property or casualty
loss to our inventory.
If
product liability lawsuits are successfully brought against us, we will incur substantial liabilities and may be required to limit the
commercialization of our future product candidates.
Although
we have never had any product liability claims or lawsuits brought against us, we face potential product liability exposure related to
the testing of our future product candidates in human clinical trials, and we will face exposure to claims in jurisdictions where we
market and distribute in the future. We may face exposure to claims by an even greater number of persons when we begin marketing and
distributing our products commercially in the United States and elsewhere. In the future, an individual may bring a liability claim against
us alleging that one of our future product candidates caused an injury. While we plan to take what we believe are appropriate precautions,
we may be unable to avoid significant liability if any product liability lawsuit is brought against us. Large judgments have been awarded
in class action or individual lawsuits based on drugs that had unanticipated side effects. Although we plan to purchase insurance to
cover product liability lawsuits, if we cannot successfully defend our company against product liability claims, or if such insurance
coverage is inadequate, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in
decreased demand for our products, reputational damage, withdrawal of clinical trial participation participants, litigation costs, product
recall costs, monetary awards, increased costs for liability insurance, lost revenues and business interruption.
Our
employees may have previously engaged, and/or may in the future engage, in misconduct or other improper activities, including noncompliance
with regulatory standards and legal requirements.
We
are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with
FDA, SEC or Office of Inspector General regulations, or regulations of any other applicable regulatory authority, failure to provide
accurate information to the FDA or the SEC, failure to disclose accurate information in SEC filings, failure to comply with applicable
manufacturing standards, other federal, state or foreign laws and regulations, report information or data accurately or disclose unauthorized
activities. Employee misconduct could also involve the improper use of information, including information obtained in the course of clinical
trials, or illegal appropriation of drug product, which could result in government investigations and serious harm to our reputation.
Despite our adoption of a Code of Ethics, employee misconduct is not always possible to identify and deter. The precautions we take to
detect and prevent these prohibited activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting
us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
If any such actions are instituted against our company, and we are not successful in defending our company or asserting our rights, those
actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
We
are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, customs laws, sanctions
laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties,
other remedial measures, and legal expenses, which could adversely affect our business, results of operations and financial condition.
Our
operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), and other
anti-corruption laws that apply in countries in which we do business. The FCPA and these other laws generally prohibit our company and
our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons
to obtain or retain business or gain some other business advantage. We and our commercial partners operate in a number of jurisdictions
that pose a high risk of potential FCPA violations, and we participate in collaborations and relationships with third parties whose actions
could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope
or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws
might be administered or interpreted.
We
are also subject to other laws and regulations governing our international operations, including regulations administered by the governments
of the United States, Canada, Israel, the United Kingdom and authorities in the European Union, including applicable export control regulations,
economic sanctions on countries and persons, customs requirements and currency exchange regulations, collectively referred to as the
Trade Control Laws.
However,
there is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including
the FCPA or other legal requirements, including Trade Control Laws. If we are not in compliance with the FCPA and other anti-corruption
laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures,
and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise,
any investigation of any potential violations of the FCPA, other anti-corruption laws by the United States or other authorities could
also have an adverse impact on our reputation, business, financial condition and results of operations.
Security
breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing
critical information or expose us to liability, which could adversely affect our business and our reputation.
In
the ordinary course of business, we expect to collect and store sensitive data, including legally protected patient health information,
credit card information, personally identifiable information about our employees, intellectual property, and proprietary business information.
The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy,
and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized
access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers, or viruses, breaches or
interruptions due to employee error, malfeasance or other disruptions, or lapses in compliance with privacy and security mandates. Any
such virus, breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties,
publicly disclosed, lost or stolen. We have measures in place that are designed to prevent, and if necessary, to detect and respond to
such security incidents and breaches of privacy and security mandates. However, in the future, any such access, disclosure or other loss
of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such
as HIPAA and European Union General Data Protection Regulation (“GDPR”), government enforcement actions and regulatory
penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to process samples, provide
test results, share and monitor safety data, bill payors or patients, provide customer support services, conduct research and development
activities, process and prepare company financial information, manage various general and administrative aspects of our business and
may damage our reputation, any of which could adversely affect our business, financial condition and results of operations.
GDPR,
which applies to all EU member states includes substantial fines for breaches of the data protection rules and may require us to put
in place additional mechanisms ensuring compliance with the new and changing data protection rules. GDPR is a complex law and the regulatory
guidance is still evolving, including with respect to how GDPR should be applied in the context of clinical trials or other transactions
from which we may gain access to personal data. GDPR increases our costs of compliance and results in greater legal risks.
Our
research and development programs and product candidates are in development. As a result, we are unable to predict if or when we will
successfully develop or commercialize our product candidates.
Our
clinical-stage product candidates as well as our other drug pipeline candidates will require significant further investment and regulatory
approvals prior to commercialization. Each of our product candidates will require clinical trial designs that meet the standards and
requirements of FDA, MHRA or other comparable foreign regulatory authorities, the selection of suitable end points and patients for our
clinical trials and additional clinical development, management of clinical, preclinical and manufacturing activities, obtaining regulatory
approval, obtaining manufacturing supply, building of a commercial organization, substantial investment and significant marketing efforts
before we generate any revenues from product sales. We are not permitted to market or promote any of our product candidates before we
receive regulatory approval from the FDA, MHRA or other comparable foreign regulatory authorities, and we may never receive such regulatory
approval for any of our product candidates. By such time, if ever, as we may receive necessary regulatory approvals for our product candidates,
the standard of care for the treatment of diseases associated with our product candidates may have evolved such that it would be necessary
to modify our plans for full approval and commercial acceptance of our products may be limited by a change in the standard of care.
Even
if we obtain the required financing or establish a collaboration to enable us to conduct late-stage clinical development of our product
candidates and pipeline assets, we cannot be certain that such clinical development would be successful, or that we will obtain regulatory
approval or be able to successfully commercialize any of our product candidates and generate revenue. Success in preclinical testing
and early clinical trials does not ensure that later clinical trials will be successful, and the clinical trial process may fail to demonstrate
that our product candidates are safe and effective for their proposed uses. Any such failure could cause us to abandon further development
of any one or more of our product candidates and may delay development of other product candidates. Product candidates in later stages
of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and
initial clinical trials. Any delay in, or termination of, our clinical trials will delay and possibly preclude the submission of any
NDAs with the FDA, Marketing Authorisation Applications (MAA) or Conditional Marketing Authorisations (CMA) with the MHRA, or similar
authorizations with other foreign regulatory agencies, and, ultimately, our ability to commercialize our product candidates and generate
product revenue.
We
have not previously submitted an NDA to the FDA, or MAA or CMA to the MHRA, or similar drug approval filings to comparable foreign authorities,
for any product candidate, and we cannot be certain that any of our product candidates will receive regulatory approval. Further, our
product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory
approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals
to market one or more of our product candidates, our revenues will be dependent, in part, upon our or our collaborators’ and future
collaborators’ ability to obtain regulatory approval for the companion diagnostics to be used with our product candidates, if required,
and upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets
for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales
of such products, if approved.
Further,
even if any product candidate we develop was to receive marketing approval or be commercialized for use in combination with other existing
therapies, we would continue to bear the risks that the FDA, MHRA or other similar foreign regulatory authorities could revoke approval
of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise with
these existing therapies.
The
successful commercialization of our product candidates, if approved, will depend on achieving market acceptance and we may not be able
to gain sufficient acceptance to generate significant revenue.
Even
if our product candidates are successfully developed and receive regulatory approval, they may not gain market acceptance among physicians,
patients, healthcare payors such as private insurers or governments and other funding parties and the medical community. The degree of
market acceptance for any of our products will depend on a number of factors, including:
| ● | demonstration
of the clinical efficacy and safety of our products; |
| ● | the
prevalence and severity of any adverse side effects; |
| ● | limitations
or warnings contained in the product’s approved labeling; |
| ● | cost-effectiveness
and availability of acceptable pricing; |
| ● | competitive
product profile versus alternative treatment methods and the superiority of alternative treatment
or therapeutics; |
| ● | the
effectiveness of marketing and distribution methods and support for the products; and |
| ● | the
availability of coverage and adequate reimbursement from third-party payors to the extent
that our products receive regulatory approval. |
Disease
indications may be small subsets of a disease that could be parsed into smaller and smaller indications as different subsets of diseases
are defined. This increasingly fine characterization of diseases could have negative consequences; including creating an approved indication
that is so small as not to have a viable market for us. If future technology allows characterization of a disease in a way that is different
from the characterization used for large pivotal studies, it may make those studies invalid or reduce their usefulness, and may require
repeating all or a portion of the studies. Future technology may supply better prognostic ability which could reduce the portion of patients
projected to need a new therapy. Even after being cleared by regulatory authorities, a product may later be shown to be unsafe or not
to have its purported effect, thereby preventing its widespread use or requiring withdrawal from the market.
We
may not be successful in establishing development and commercialization collaborations which could adversely affect, and potentially
prohibit, our ability to develop our product candidates.
Developing
pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing
approved products is expensive, and therefore we have, and may in the future, seek to enter into collaborations with companies that have
more resources and experience in order to continue to develop and commercialize our product candidates. We also may be required due to
financial or scientific constraints to enter into additional collaboration agreements to research and/or to develop and commercialize
our product candidates. The establishment and realization of such collaborations may not be possible or may be problematic. There can
be no assurance that we will be able to establish such additional collaborations on favorable terms, if at all, or that our current or
future collaborative arrangements will be successful or maintained for any specific product candidate or indication. If we are unable
to reach successful agreements with suitable collaboration partners for the ongoing development and commercialization of our product
candidates, we may face increased costs, we may be forced to limit the scope and number of our product candidates we can commercially
develop or the territories in which we commercialize such product candidates, and we may be unable to commercialize products or programs
for which a suitable collaboration partner cannot be found. If we fail to achieve successful collaborations, our operating results and
financial condition will be materially and adversely affected.
In
addition, the terms of any collaboration agreements may place restrictions on our activities with respect to other products, including
by limiting our ability to grant licenses or develop products with other third parties, or in different indications, diseases or geographical
locations, or may place additional obligations on us with respect to development or commercialization of our product candidates. If we
fail to comply with or breach any provision of a collaboration agreement, a collaborator may have the right to terminate, in whole or
in part, such agreement or to seek damages.
Our
collaboration and licensing agreements are, and may in the future be, complex and involve sharing or division of ownership of certain
data, know-how and intellectual property rights among the various parties. Accordingly, our collaborators could interpret certain provisions
differently than we or our other collaborators which could lead to unexpected or inadvertent disputes with collaborators. In addition,
these agreements might make additional collaborations, partnering or mergers and acquisitions difficult.
There
is no assurance that a collaborator who is acquired by a third party would not attempt to change certain contract provisions that could
negatively affect our collaboration. The acquiring company may also not accept the terms or assignment of our contracts and may seek
to terminate the agreements. Any one of our collaborators could breach covenants, restrictions and/or sub-license agreement provisions
leading us into disputes and potential breaches of our agreements with other partners.
We
will not be able to successfully commercialize our product candidates without establishing sales and marketing capabilities internally
or through collaborators.
We
may not be able to find suitable sales and marketing staff and collaborators for all of our product candidates. The development of a
marketing and sales capability will require significant expenditures, management resources and time. The cost of establishing such a
sales force may exceed any potential product revenue, or our marketing and sales efforts may be unsuccessful. If we are unable to develop
an internal marketing and sales capability in a timely fashion, or at all, or if we are unable to enter into a marketing and sales arrangement
with a third party on acceptable terms, we may be unable to effectively market and sell approved products, if any, which would prevent
us from being able to generate revenue and attain profitability. Further, we may not develop an internal marketing and sales capability
if we are unable to successfully develop and seek regulatory approval for our product candidates.
We
will rely upon third-party contractors and service providers for the execution of some aspects of our development programs. Failure of
these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our
development programs.
We
outsource certain functions, tests and services to third parties, partners, medical institutions and collaborators and plan to outsource
manufacturing to collaborators and/or contract manufacturers, and we will rely on third parties for quality assurance, clinical monitoring,
clinical data management and regulatory expertise. In particular, we rely on our partners to run our clinical trials. There is no assurance
that such individuals or organizations will be able to provide the functions, tests, drug supply or services as agreed upon or to acceptable
quality standards, and we could suffer significant delays in the development of our products or processes. In particular, certain third
party service providers may be unable to comply with their contractual obligations to us due to disruptions caused by the COVID-19 pandemic,
including reduced operations or headcount reductions, or otherwise, and in certain cases we may have limited recourse if the non-compliance
is due to factors outside of the service provider’s control.
Our
business is highly dependent on the success of our product candidates. If we are unable to successfully complete clinical development,
obtain regulatory approval for or commercialize one or more of our product candidates, or if we experience delays in doing so, our business
will be materially harmed.
Our
future success and ability to generate significant revenue from our product candidates, which we do not expect will occur for several
years, is dependent on our ability to successfully develop, obtain regulatory approval for and commercialize one or more of our product
candidates, including our Dupuytren’s Contracture product candidate, which has recently completed a successful Phase 2b clinical
trial in the United Kingdom, a condition that affects the development of fibrous connective tissue in the palm of the hand. All of our
other product candidates are in earlier stages of development and will require substantial additional investment for manufacturing, preclinical
testing, clinical development, regulatory review and approval in one or more jurisdictions. If any of our product candidates encounter
safety or efficacy problems, development delays or regulatory issues or other problems, our development plans and business would be materially
harmed.
We
may not have the financial resources to continue development of our product candidates. Even if clinical trials are completed, we may
experience other issues that may delay or prevent regulatory approval of, or our ability to commercialize, our product candidates, including:
| ● | inability
to demonstrate to the satisfaction of the FDA, MHRA or other comparable foreign regulatory
authorities that our product candidates are safe and effective; |
| ● | insufficiency
of our financial and other resources to complete the necessary clinical trials and preclinical
studies; |
| ● | negative
or inconclusive results from our clinical trials, preclinical studies or the clinical trials
of others for product candidates that are similar to ours, leading to a decision or requirement
to conduct additional clinical trials or preclinical studies or abandon a program; |
| ● | product-related
adverse events experienced by subjects in our clinical trials, including unexpected toxicity
results, or by individuals using drugs or therapeutic biologics similar to our product candidates; |
| ● | delays
in submitting an Investigational New Drug application, or IND, or comparable foreign applications
or delays or failure in obtaining the necessary approvals from regulators to commence a clinical
trial or a suspension or termination, or hold, of a clinical trial once commenced; |
| ● | conditions
imposed by the FDA, the EMA, MHRA or other comparable foreign regulatory authorities regarding
the scope or design of our clinical trials; |
| ● | poor
effectiveness of our product candidates during clinical trials; |
| ● | better
than expected performance of control arms, such as placebo groups, which could lead to negative
or inconclusive results from our clinical trials; |
| ● | delays
in enrolling subjects in clinical trials; |
| ● | high
drop-out rates of subjects from clinical trials; |
| ● | inadequate
supply or quality of product candidates or other materials necessary for the conduct of our
clinical trials; |
| ● | greater
than anticipated clinical trial or manufacturing costs; |
| ● | unfavorable
FDA, EMA, MHRA or other comparable regulatory authority inspection and review of a clinical
trial site; |
| ● | failure
of our third-party contractors or investigators to comply with regulatory requirements or
the clinical trial protocol or otherwise meet their contractual obligations in a timely manner,
or at all; |
| ● | unfavorable
FDA, EMA, MHRA or other comparable regulatory authority inspection and review of manufacturing
facilities or inability of those facilities to maintain a compliance status acceptable to
the FDA, EMA or comparable regulatory authorities; |
| ● | delays
and changes in regulatory requirements, policy and guidelines, including the imposition of
additional regulatory oversight around clinical testing generally or with respect to our
therapies in particular; or |
| ● | varying
interpretations of data by the FDA, EMA, MHRA and other comparable foreign regulatory authorities. |
Our
product candidates will require additional, time-consuming development efforts prior to commercial sale, including preclinical studies,
clinical trials and approval by the FDA, EMA, MHRA and/or other applicable foreign regulatory authorities. All product candidates are
prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that such product candidate
will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot assure stockholders
that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted
in the marketplace or be more effective than other commercially available alternatives.
Due
to the significant resources required for the development of our product pipeline, and depending on our ability to access capital, we
must prioritize the development of certain product candidates over others. Moreover, we may fail to expend our limited resources on product
candidates or indications that may have been more profitable or for which there is a greater likelihood of success.
We
have three separate programs for producing anti-inflammatory agents: (1) investigating new clinical opportunities for anti-TNF, (2) identifying
orally available, small molecules that are agonists of α7 nicotinic acetylcholine receptor, and (3) identifying patentable analogs
of CBD that initially will be used as pain medications, that are at various stages of preclinical development. Due to the significant
resources required for the development of our product candidates, we must focus on specific diseases and disease pathways and decide
which product candidates to pursue and advance and the amount of resources to allocate to each. Our decisions concerning the allocation
of research, development, collaboration, management and financial resources toward particular product candidates or therapeutic areas
may not lead to the development of any viable commercial products and may divert resources away from better opportunities. If we make
incorrect determinations regarding the viability or market potential of any of our product candidates or misinterpret trends in the pharmaceutical
industry, our business, financial condition, and results of operations could be materially adversely affected. As a result, we may (i)
fail to capitalize on viable commercial products or profitable market opportunities, (ii) be required to forego or delay pursuit of opportunities
with other product candidates or other diseases and disease pathways that may later prove to have greater commercial potential than those
we choose to pursue, or (iii) relinquish valuable rights to such product candidates through collaboration, licensing, or other royalty
arrangements in cases in which it would have been advantageous for us to invest additional resources to retain sole development and commercialization
rights.
The
timelines of our clinical trials may be impacted by numerous factors and any delays may adversely affect our ability to execute our current
business strategy.
Clinical
testing is expensive, difficult to design and implement, can take many years to complete, and is uncertain as to outcome. We may experience
delays in clinical trials at any stage of development and testing of our product candidates. Our planned clinical trials may not begin
on time, have an effective design, enroll a sufficient number of subjects, or be completed on schedule, if at all.
Events
which may result in a delay or unsuccessful completion of clinical trials include:
| ● | inability
to raise funding necessary to initiate or continue a trial; |
| ● | delays
in obtaining regulatory approval to commence a trial; |
| ● | delays
in reaching agreement with the FDA, MHRA or other foreign regulators on final trial design; |
| ● | imposition
of a clinical hold following an inspection of our clinical trial operations or trial sites
by the FDA, MHRA or other regulatory authorities; |
| ● | delays
in reaching agreement on acceptable terms with prospective CROs and clinical trial sites; |
| ● | delays
in obtaining required institutional review board approval at each site; |
| ● | delays
in having subjects complete participation in a trial or return for post-treatment follow-up; |
| ● | delays
caused by subjects dropping out of a trial due to side effects or otherwise; |
| ● | clinical
sites dropping out of a trial to the detriment of enrollment; |
| ● | time
required to add new clinical sites; and |
| ● | delays
by our contract manufacturers to produce and deliver a sufficient supply of clinical trial
materials. |
If
initiation or completion of any of our clinical trials for our product candidates are delayed for any of the above reasons or for other
reasons, our development costs may increase, our approval process could be delayed, any periods after commercial launch and before expiration
of patent protection may be reduced and our competitors may have more time to bring products to market before we do. Any of these events
could impair the commercial potential of our product candidates and could have a material adverse effect on our business.
Clinical
trials of our product candidates may not uncover all possible adverse effects that patients may experience.
Clinical
trials are conducted in representative samples of the potential patient population, which may have significant variability. Clinical
trials are by design based on a limited number of subjects and of limited duration for exposure to the product used to determine whether,
on a potentially statistically significant basis, the planned safety and efficacy of any product candidate can be achieved. As with the
results of any statistical sampling, we cannot be sure that all side effects of our product candidates may be uncovered, and it may be
the case that only with a significantly larger number of patients exposed to the product candidate for a longer duration, that a more
complete safety profile is identified. Further, even larger clinical trials may not identify rare serious adverse effects or the duration
of such studies may not be sufficient to identify when those events may occur. Patients treated with our products, if approved, may experience
adverse reactions and it is possible that the FDA, MHRA or other regulatory authorities may ask for additional safety data as a condition
of, or in connection with, our efforts to obtain approval of our product candidates. If safety problems occur or are identified after
our product candidates reach the market, we may, or regulatory authorities may require us to amend the labeling of our products, recall
our products or even withdraw approval for our products.
Failure
can occur at any stage of our drug development efforts.
We
may experience numerous unforeseen events during, or as a result of, testing that could delay or prevent us from obtaining regulatory
approval for, or commercializing our drug candidates, including but not limited to:
| ● | regulators
or Institutional Review Boards (IRBs) may not authorize us to commence a clinical trial or
conduct a clinical trial at a prospective trial site; |
| ● | conditions
may be imposed upon us by the FDA and/or MHRA regarding the scope or design of our clinical
trials, or we may be required to resubmit our clinical trial protocols to IRBs for review
due to changes in the regulatory environment; |
| ● | the
number of subjects required for our clinical trials may be larger, patient enrollment may
take longer, or patients may drop out of our clinical trials at a higher rate than we anticipate; |
| ● | we
may have to suspend or terminate one or more of our clinical trials if we, regulators, or
IRBs determine that the participants are being subjected to unreasonable health risks; |
| ● | our
third-party contractors, clinical investigators or contractual collaborators may fail to
comply with regulatory requirements or fail to meet their contractual obligations to us in
a timely manner; |
| ● | the
FDA may not accept clinical data from trials that are conducted at clinical sites in countries
where the standard of care is potentially different from the United States; |
| ● | our
tests may produce negative or inconclusive results, and we may decide, or regulators may
require us, to conduct additional testing; and |
| ● | the
costs of our pre-clinical and/or clinical trials may be greater than we anticipate. |
We
rely on third parties to conduct our pre-clinical studies and clinical studies and trials, and if they do not perform their obligations
to us, we may not be able to obtain approval for additional indications.
We
do not currently have the ability to independently conduct pre-clinical studies or clinical studies and trials, and we have to date relied
on third parties, such as third-party contract research and governmental organizations and medical institutions to conduct studies and
trials for us. Our reliance on third parties for development activities reduces our control over these activities. These third parties
may not complete activities on schedule or may not conduct our pre-clinical studies and our clinical studies and trials in accordance
with regulatory requirements or our study design. If these third parties do not successfully carry out their contractual duties or meet
expected deadlines, we may be adversely affected, and our efforts to obtain regulatory approvals for and commercialize indications may
be delayed.
If
we conduct studies with other parties, we may not have control over all decisions associated with that trial. To the extent that we disagree
with the other party on such issues as study design, study timing and the like, it could adversely affect our drug development plans.
Although
we also rely on third parties to manage the data from our studies and trials, we are responsible for confirming that each of our studies
and trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies
will require us to comply with applicable regulations and standards, including Good Laboratory Practice (GLP) and Good Clinical Practice
(GCP), for conducting, recording and reporting the results of such studies and trials to assure that the data and the results are credible
and accurate and that the human study and trial participants are adequately protected. Our reliance on third-parties does not relieve
us of these obligations and requirements, and we may fail to obtain regulatory approval for any additional indications if these requirements
are not met.
We
will need to continue to develop and maintain distribution and production capabilities or relationships to be successful.
We
may not be able to successfully manufacture any product, either independently or under manufacturing arrangements, if any, with third
party manufacturers. Moreover, if any manufacturer should cease doing business with us or experience delays, shortages of supply or excessive
demands on their capacity, we may not be able to obtain adequate quantities of product in a timely manner, or at all. Manufacturers,
and in certain situations their suppliers, are required to comply with current NDA commitments and current good manufacturing practices
(cGMP) requirements enforced by the FDA, and similar requirements of other countries. The failure by a manufacturer to comply with these
requirements could affect its ability to provide us with products. Although we intend to rely on third-party contract manufacturers,
we are ultimately responsible for ensuring that our products are manufactured in accordance with cGMP. In addition, if, during a preapproval
inspection or other inspection of our third-party manufacturers’ facility or facilities, the FDA determines that the facility is
not in compliance with cGMP, any of our marketing applications that lists such facility as a manufacturer may not be approved or approval
may be delayed until the facility comes into compliance with cGMP and completes a successful re-inspection by the FDA.
Any
manufacturing problem, natural disaster, or epidemic, affecting manufacturing facilities, or the loss of a contract manufacturer could
be disruptive to our operations and result in lost sales. Additionally, we will be reliant on third parties to supply the raw materials
needed to manufacture our products. Any reliance on suppliers may involve several risks, including a potential inability to obtain critical
materials and reduced control over production costs, delivery schedules, reliability and quality. Any unanticipated disruption to future
contract manufacture caused by problems at suppliers could delay shipment of products, increase our cost of goods sold and result in
lost sales. If our suppliers were unable to supply us with adequate supply of our drugs, it could have a material adverse effect on our
ability to successfully commercialize our drug candidates.
If
we fail to discover, develop and commercialize other product candidates, we may be unable to grow our business and our ability to achieve
our strategic objectives would be impaired. In addition, we may also seek to commercialize certain treatments that may not be proprietary
to us.
Although
the development and commercialization of our current product candidates are our initial focus, as part of our long-term growth strategy,
we plan to develop other product candidates. While we believe our planned products may have potential applicability to other uses, we
have not conducted any clinical trials on these other uses and we may not be successful in developing product candidates for other uses.
In addition, we intend to devote capital and resources for basic research to discover and identify additional product candidates. These
research programs require technical, financial and human resources, whether or not any product candidates are ultimately identified.
Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for
clinical development for many reasons, including the following:
| ● | the
research methodology used may not be successful in identifying potential product candidates; |
| ● | competitors
may develop alternatives that render our product candidates obsolete; |
| ● | product
candidates that we develop may nevertheless be covered by third parties’ patents or
other exclusive rights; |
| ● | a product
candidate may, on further study, be shown to have harmful side effects or other characteristics
that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory
criteria; |
| ● | a product
candidate may not be capable of being produced in commercial quantities at an acceptable
cost, or at all; and |
| ● | a product
candidate may not be accepted as safe and effective by patients, the medical community or
third-party payors. |
If
we do not achieve our projected development and commercialization goals within the timeframes we expect, the development and commercialization
of our product candidates may be delayed, and our business and results of operations may be harmed.
For
planning purposes, we seek to estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product
development objectives. These milestones may include our expectations regarding the commencement or completion of scientific studies
and clinical trials, the submission of regulatory filings, or commercialization objectives. From time to time, we may publicly announce
the expected timing of some of these milestones, such as the completion of an ongoing clinical trial, the initiation of other clinical
programs, receipt of marketing approval or a commercial launch of a product. The potential achievement of many of these milestones may
be outside of our control. Each of these milestones is based on a variety of assumptions which, if not realized as expected, may cause
the timing of such potential achievement of the respective milestones to vary considerably from our estimates, including:
| ● | our
available capital resources or capital constraints we experience; |
| ● | the
rate of progress, costs and results of our clinical trials and research and development activities,
including the extent of scheduling conflicts with participating clinicians and collaborators; |
| ● | our
ability to identify and enroll patients who meet clinical trial eligibility criteria; |
| ● | our
receipt of approvals by the FDA, MHRA and other regulatory authorities and the timing thereof; |
| ● | other
actions, decisions or rules issued by regulators; |
| ● | our
ability to access sufficient, reliable and affordable supplies of materials used in the manufacture
of our product candidates; |
| ● | the
efforts of our collaborators with respect to the commercialization of our product candidates;
and |
| ● | the
securing of, costs related to, and timing issues associated with, product manufacturing as
well as sales and marketing activities. |
If
we fail to achieve any announced milestones in the timeframes we expect, the development and commercialization of our product candidates
may be delayed, and our business and results of operations may be harmed, and it could negatively impact our share price performance.
Please see the section entitled “Business” in this prospectus for more information.
If
we rely on a sole source of supply to manufacture our products we could be impacted by the viability of our supplier.
We
intend to attempt to source our products from more than one supplier. We also intend to enter into contracts with any supplier of our
products to contractually obligate them to meet our requirements. However, if we are reliant on a single supplier and that supplier cannot
or will not meet our requirements (for whatever reason), our business could be adversely impacted.
We
may not be able to sufficiently scale-up manufacturing of our drug candidates.
We
may not be able to successfully increase in a sufficient manner the manufacturing capacity for our drug candidates, whether in collaboration
with third-party manufacturers or on our own, in a timely or cost-effective manner or at all. If a contract manufacturer makes improvements
in the manufacturing process for our drug candidates, we may not own, or may have to share, the intellectual property rights to those
improvements.
Significant
scale-up of manufacturing may require additional validation studies, which are costly and which the FDA must review and approve. In addition,
quality issues may arise during those scale-up activities because of the inherent properties of a drug candidate itself or of a drug
candidate in combination with other components added during the manufacturing and packaging process, or during shipping and storage of
the finished product or active pharmaceutical ingredients. If we are unable to successfully scale-up manufacture of any of our drug candidates
in sufficient quality and quantity, the development of that drug candidate and regulatory approval or commercial launch for any resulting
drug products may be delayed or there may be a shortage in supply, which could significantly harm our business.
Our
operations are subject to risks associated with ongoing and potential future global conflicts.
Currently,
there is an ongoing conflict involving Russia and Ukraine and the war between the two countries continues to evolve as military activity
proceeds and additional sanctions are imposed. The war is increasingly affecting economic and global financial markets and exacerbating
ongoing economic challenges, including issues such as rising inflation and global supply-chain disruption. While we do not believe this
conflict currently has a material impact on our financial accounting and reporting, the degree to which we will be affected in the future
largely depends on the nature and duration of uncertain and unpredictable events, and our business could be impacted. Furthermore, future
global conflicts or wars could create further economic challenges, including, but not limited to, increases in inflation and further
global supply-chain disruption. Consequently, the ongoing Russia/Ukraine conflict and/or other future global conflicts could result in
an increase in operating expenses and/or a decrease in any future revenue and could further have a material adverse effect on our results
of operations and cash flow.
Risks Related
to Development and Regulatory Approval of our Future Product Candidates
Clinical
trials are expensive, time-consuming, uncertain and susceptible to change, delay or termination. The results of clinical trials are open
to differing interpretations.
We
have three separate programs for producing anti-inflammatory agents: (1) investigating new clinical opportunities for anti-TNF, (2) identifying
orally available, small molecules that are agonists of α7 nicotinic acetylcholine receptor, and (3) identifying patentable analogs
of CBD that initially will be used as pain medications. However, these programs, including the related clinical trials, are expensive,
time consuming and difficult to design and implement.
Regulatory
agencies may not accept clinical trial designs submitted by us, and may analyze or interpret the results of clinical trials differently
than us. Even if the results of our clinical trials are favorable, the clinical trials for a number of our future product candidates
are expected to continue for several years and may take significantly longer to complete. In addition, the FDA, MHRA or other regulatory
authorities, including state, local and foreign authorities, or an IRB, with respect to a trial at our institution, may suspend, delay
or terminate our clinical trials at any time, require us to conduct additional clinical trials, require a particular clinical trial to
continue for a longer duration than originally planned, require a change to our development plans such that we conduct clinical trials
for a product candidate in a different order, e.g., in a step-wise fashion rather than running two trials of the same product candidate
in parallel, or could suspend or terminate the registrations and quota allotments we require in order to procure and handle controlled
substances, for various reasons, including the following, any of which could have a material adverse effect on our business, financial
condition and results of operations:
| ● | lack
of effectiveness of any product candidate during clinical trials; |
| ● | discovery
of serious or unexpected toxicities or side effects experienced by trial participants or
other safety issues, such as drug interactions, including those which cause confounding changes
to the levels of other concomitant medications; |
| ● | slower
than expected rates of subject recruitment and enrollment rates in clinical trials; |
| ● | difficulty
in retaining subjects who have initiated a clinical trial but may withdraw at any time due
to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical
trial process or for any other reason; |
| ● | delays
or inability in manufacturing or obtaining sufficient quantities of materials for use in
clinical trials due to regulatory and manufacturing constraints; |
| ● | inadequacy
of or changes in our manufacturing process or product formulation; |
| ● | delays
in obtaining regulatory authorization to commence a trial, including “clinical holds”
or delays requiring suspension or termination of a trial by a regulatory agency, such as
the FDA, before or after a trial is commenced; |
| ● | DEA
related recordkeeping, reporting security or other violations at a clinical site, leading
the DEA or state authorities to suspend or revoke the site’s-controlled substance license
and causing a delay or termination of planned or ongoing trials; |
| ● | changes
in applicable regulatory policies and regulation, including changes to requirements imposed
on the extent, nature or timing of studies; |
| ● | delays
or failure in reaching agreement on acceptable terms in clinical trial contracts or protocols
with prospective clinical trial sites; |
| ● | uncertainty
regarding proper dosing; |
| ● | delay
or failure to supply product for use in clinical trials which conforms to regulatory specification; |
| ● | unfavorable
results from ongoing pre-clinical studies and clinical trials; |
| ● | failure
of our CROs, or other third-party contractors to comply with all contractual requirements
or to perform their services in a timely or acceptable manner; |
| ● | failure
by our company, our employees, our CROs or their employees to comply with all applicable
FDA or other regulatory requirements relating to the conduct of clinical trials; |
| ● | scheduling
conflicts with participating clinicians and clinical institutions; |
| ● | failure
to design appropriate clinical trial protocols; |
| ● | regulatory
concerns with CBD derivative products generally and the potential for abuse, despite only
working with non-plant based non-psychoactive products; |
| ● | insufficient
data to support regulatory approval; |
| ● | inability
or unwillingness of medical investigators to follow our clinical protocols; or |
| ● | difficulty
in maintaining contact with patients during or after treatment, which may result in incomplete
data. |
We
may find it difficult to enroll patients in our clinical trials, which could delay or prevent clinical trials of our product candidates.
Identifying
and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical
trials depends on the speed at which we can recruit eligible patients to participate in testing our product candidates. We have experienced
delays in some of our clinical trials, and we may experience similar delays in the future. These delays could result in increased costs,
delays in advancing our product development, or termination of the clinical trials altogether.
We
may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics to
achieve diversity in a study, to complete our clinical trials within the expected timeframe. Patient enrollment can be impacted by factors
including, but not limited to:
| ● | design
and complexity and/or commitment of participation required in the study protocol; |
| ● | size
of the patient population; |
| ● | eligibility
criteria for the study in question; |
| ● | clinical
supply availability; |
| ● | delays
in participating site identification, qualification and subsequent activation to enroll; |
| ● | perceived
risks and benefits of the product candidate under study, including as a result of adverse
effects observed in similar or competing therapies; |
| ● | proximity
and availability of clinical trial sites for prospective patients; |
| ● | availability
of competing therapies and clinical trials; |
| ● | competition
of site efforts to facilitate timely enrollment in clinical trials; |
| ● | participating
site motivation; |
| ● | patient
referral practices of physicians; |
| ● | activities
of patient advocacy groups; |
| ● | ability
to monitor patients adequately during and after treatment; and |
| ● | severity
of the disease under investigation. |
In
particular, each of the conditions for which we plan to evaluate our product candidates are diseases with limited patient pools from
which to draw for clinical trials. The eligibility criteria of our clinical trials will further limit the pool of available study participants.
Additionally, the process of finding and diagnosing patients may prove costly. The treating physicians in our clinical trials may also
use their medical discretion in advising patients enrolled in our clinical trials to withdraw from our studies to try alternative therapies.
In addition, the ongoing COVID-19 pandemic may impact patient ability and willingness to travel to clinical trial sites as a result of
quarantines and other restrictions, which may negatively impact enrollment in our clinical trials.
We
may not be able to initiate or continue clinical trials if we cannot enroll the required eligible patients per protocol to participate
in the clinical trials required by the FDA or the EMA, MHRA or other regulatory agencies. Our ability to successfully initiate, enroll
and complete a clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries,
including:
| ● | difficulty
in establishing or managing relationships with CROs and physicians; |
| ● | different
standards for the conduct of clinical trials; |
| ● | our
inability to locate qualified local consultants, physicians and partners; |
| ● | the
potential burden of complying with a variety of foreign laws, medical standards and regulatory
requirements, including the regulation of pharmaceutical and biotechnology products and treatment; |
| ● | ability
to procure and deliver necessary clinical trial materials needed to perform the study; and |
| ● | inability
to implement adequate training at participating sites remotely when in person training cannot
be completed. |
If
we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or
terminate ongoing or planned clinical trials, any of which would have an adverse effect on our ability to complete clinical trials and
ultimately our results of operations.
Any
failure by our company to comply with existing regulations could harm our reputation and operating results.
We
are subject to extensive regulation by U.S. federal and state and foreign governments in each of the U.S., European and Canadian markets,
in which we plan to sell our products, or in markets where we have product candidates progressing through the approval process.
We
must adhere to all regulatory requirements including FDA’s GLP, GCP and GMP requirements, pharmacovigilance requirements, advertising
and promotion restrictions, reporting and recordkeeping requirements, and their European equivalents. If we or our suppliers fail to
comply with applicable regulations, including FDA pre-or post-approval requirements, then the FDA or other foreign regulatory authorities
could sanction our company. Even if a drug is approved by the FDA or other competent authorities, regulatory authorities may impose significant
restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing trials.
Any of our product candidates which may be approved in the United States will be subject to ongoing regulatory requirements for manufacturing,
labeling, packaging, storage, distribution, import, export, advertising, promotion, sampling, recordkeeping and submission of safety
and other post-market information, including both federal and state requirements. In addition, manufacturers and manufacturers’
facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures
conform to GMP. As such, we and our contract manufacturers (in the event contract manufacturers are appointed in the future) are subject
to continual review and periodic inspections to assess compliance with GMP. Accordingly, we and others with whom we work will have to
spend time, money and effort in all areas of regulatory compliance, including manufacturing, production, quality control and quality
assurance. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with
requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are
subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved
label. Similar restrictions and requirements exist in the European Union and other markets where we operate.
If
a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency,
or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of the product,
it may impose restrictions on that product or on our company, including requiring withdrawal of the product from the market. If we fail
to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may issue warning letters, impose civil
or criminal penalties, suspend regulatory approval, suspend any of our ongoing clinical trials, refuse to approve pending applications
or supplements to approved applications submitted by us, impose restrictions on our operations, or seize or detain products or require
a product recall.
In
addition, it is possible that our future products will be regulated by the DEA, under the Controlled Substances Act or under similar
laws elsewhere. DEA scheduling is a separate process that can delay when a drug may become available to patients beyond an NDA approval
date, and the timing and outcome of such DEA process is uncertain. See also “Risks Related to Controlled Substances”,
below.
In
addition, any government investigation of alleged violations of law could require us to spend significant time and resources in response
and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect
our ability to commercialize and generate revenue from our future product candidates. If regulatory sanctions are applied or if regulatory
approval is withdrawn, the value of our business and our operating results may be adversely affected.
Any
action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses,
divert our management’s attention from the operation of our business and damage our reputation. We expect to spend significant
resources on compliance efforts and such expenses are unpredictable. Changing laws, regulations and standards might also create uncertainty,
higher expenses and increase insurance costs. As a result, we intend to invest all reasonably necessary resources to comply with evolving
standards, and this investment might result in increased management and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities.
We
are subject to federal, state and foreign healthcare laws and regulations and implementation of or changes to such healthcare laws and
regulations could adversely affect our business and results of operations.
In
both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change
the healthcare system in ways that could impact our ability to sell our future product candidates. If we are found to be in violation
of any of these laws or any other federal, state or foreign regulations, we may be subject to administrative, civil and/or criminal penalties,
damages, fines, individual imprisonment, we from federal health care programs and the restructuring of our operations. Any of these could
have a material adverse effect on our business and financial results. Since many of these laws have not been fully interpreted by the
courts, there is an increased risk that we may be found in violation of one or more of their provisions. Any action against us for violation
of these laws, even if we ultimately are successful in our defense, will cause us to incur significant legal expenses and divert our
management’s attention away from the operation of our business. In addition, in many foreign countries, particularly the countries
of the European Union the pricing of prescription drugs is subject to government control.
In
some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing
drug pricing vary widely from country to country.
For
example, some EU jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement
price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials
that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies
to fix their own prices for medicines but monitor and control company profits. Such differences in national pricing regimes may create
price differentials between EU member states. There can be no assurance that any country that has price controls or reimbursement limitations
for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products
launched in the United Kingdom and European Union do not follow price structures of the United States In the United Kingdom and European
Union, the downward pressure on healthcare costs in general, particularly prescription medicines, has become intense. As a result, barriers
to entry of new products are becoming increasingly high and patients are unlikely to use a drug product that is not reimbursed by their
government. We may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceutical
products. In addition, the importation of foreign products may compete with any future product that we may market, which could negatively
impact our profitability.
Specifically,
in the United States, we expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result
in more rigorous coverage criteria and in additional downward pressure on the price that we may receive for any approved product. There
have been judicial challenges to certain aspects of the ACA and numerous legislative attempts to repeal and/or replace the ACA in whole
or in part, and we expect there will be additional challenges and amendments to the ACA in the future. At this time, the full effect
that the ACA will have on our business in the future remains unclear. An expansion in the government’s role in the U.S. healthcare
industry may cause general downward pressure on the prices of prescription drug products, lower reimbursements or any other product for
which we obtain regulatory approval, reduce product utilization and adversely affect our business and results of operations. Any reduction
in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation
of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or
commercialize any of our future product candidates for which we may receive regulatory approval.
Information
obtained from expanded access studies may not reliably predict the efficacy of our future product candidates in company-sponsored clinical
trials and may lead to adverse events that could limit approval.
The
expanded access studies we are currently supporting are uncontrolled, carried out by individual investigators and not typically conducted
in strict compliance with GCPs, all of which can lead to a treatment effect which may differ from that in placebo-controlled trials.
These studies provide only anecdotal evidence of efficacy for regulatory review. These studies contain no control or comparator group
for reference and this patient data is not designed to be aggregated or reported as study results. Moreover, data from such small numbers
of patients may be highly variable. Information obtained from these studies, including the statistical principles that we and the independent
investigators have chosen to apply to the data, may not reliably predict data collected via systematic evaluation of the efficacy in
company-sponsored clinical trials or evaluated via other statistical principles that may be applied in those trials. Reliance on such
information to design our clinical trials may lead to trials that are not adequately designed to demonstrate efficacy and could delay
or prevent our ability to seek approval of our future product candidates.
Expanded
access programs provide supportive safety information for regulatory review. Physicians conducting these studies may use our future product
candidates in a manner inconsistent with the protocol, including in children with conditions beyond those being studied in trials which
we sponsor. Any adverse events or reactions experienced by subjects in the expanded access program may be attributed to our future product
candidates and may limit our ability to obtain regulatory approval with labeling that we consider desirable, or at all.
There
is a high rate of failure for drug candidates proceeding through clinical trials.
Generally,
there is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our clinical
trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving
promising results in earlier trials. Further, even if we view the results of a clinical trial to be positive, the FDA, MHRA or other
regulatory authorities may disagree with our interpretation of the data. In the event that we obtain negative results from clinical trials
for product candidates or other problems related to potential chemistry, manufacturing and control issues or other hurdles occur and
our future product candidates are not approved, we may not be able to generate sufficient revenue or obtain financing to continue our
operations, our ability to execute on our current business plan may be materially impaired, and our reputation in the industry and in
the investment community might be significantly damaged. In addition, our inability to properly design, commence and complete clinical
trials may negatively impact the timing and results of our clinical trials and ability to seek approvals for our drug candidates.
If
we are found in violation of federal or state “fraud and abuse” laws or similar laws in other jurisdictions, we may be required
to pay a penalty and/or be suspended from participation in federal or state health care programs, which may adversely affect our business,
financial condition and results of operations.
In
the United States, we are subject to various federal and state health care “fraud and abuse” laws, including anti-kickback
laws, false claims laws and other laws intended to reduce fraud and abuse in federal and state health care programs, which could affect
our company particularly upon successful commercialization of our products in the United States The Medicare and Medicaid Patient Protection
Act of 1987, or federal Anti-Kickback Statute, makes it illegal for any person, including a prescription drug manufacturer (or a party
acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral
of business, including the purchase, order or prescription of a particular drug for which payment may be made under a federal health
care program, such as Medicare or Medicaid. Under federal law, some arrangements, known as safe harbors, are deemed not to violate the
federal Anti-Kickback Statute. Although we seek to structure our business arrangements in compliance with all applicable requirements,
it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that
our practices may be challenged under the federal Anti-Kickback Statute and Federal False Claims Act. Violations of fraud and abuse laws
may be punishable by criminal and/or civil sanctions, including fines and/or exclusion or suspension from federal and state health care
programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have
the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of
several states.
While
we believe that we have structured our business arrangements to comply with these laws, the government could allege violations of, or
convict us of violating, these laws. If we are found in violation of one of these laws, we could be required to pay a penalty and could
be suspended or excluded from participation in federal or state health care programs, and our business, results of operations and financial
condition may be adversely affected.
The
Member States of the European Union and other countries also have anti-kickback laws and can impose penalties in case of infringement,
which, in some jurisdictions, can also be enforced by competitors.
Serious
adverse events or other safety risks could require us to abandon development and preclude, delay or limit approval of our future product
candidates, limit the scope of any approved label or market acceptance, or cause the recall or loss of marketing approval of products
that are already marketed.
If
any of our future product candidates prior to or after any approval for commercial sale, cause serious or unexpected side effects, or
are associated with other safety risks such as misuse, abuse or diversion, a number of potentially significant negative consequences
could result, including:
| ● | regulatory
authorities may interrupt, delay or halt clinical trials; |
| ● | regulatory
authorities may deny regulatory approval of our future product candidates; |
| ● | regulatory
authorities may require certain labeling statements, such as warnings or contraindications
or limitations on the indications for use, and/or impose restrictions on distribution in
the form of a REMS in connection with approval or post-approval; |
| ● | regulatory
authorities may withdraw their approval, require more onerous labeling statements, impose
more restrictive REMS, or require us to recall any product that is approved; |
| ● | we
may be required to change the way the product is administered or conduct additional clinical
trials; |
| ● | our
relationships with our collaboration partners may suffer; |
| ● | we
could be sued and held liable for harm caused to patients; or |
| ● | our
reputation may suffer. The reputational risk is heightened with respect to those of our future
product candidates that are being developed for pediatric indications. |
We
may voluntarily suspend or terminate our clinical trials if at any time we believe that the products present an unacceptable risk to
participants, or if preliminary data demonstrates that our future product candidates are unlikely to receive regulatory approval or unlikely
to be successfully commercialized. Following receipt of approval for commercial sale of a product, we may voluntarily withdraw or recall
that product from the market if at any time we believe that its use, or a person’s exposure to it, may cause adverse health consequences
or death. To date, we have not withdrawn, recalled or taken any other action, voluntary or mandatory, to remove an approved product from
the market. In addition, regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent
discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical
trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk
to participants. Although we have never been asked by a regulatory agency, IRB or data safety monitoring board to temporarily or permanently
discontinue a clinical trial, if we elect or are forced to suspend or terminate a clinical trial of any of our future product candidates,
the commercial prospects for that product will be harmed and our ability to generate product revenue from that product may be delayed
or eliminated. Furthermore, any of these events may result in labeling statements such as warnings or contraindications. In addition,
such events or labeling could prevent us or our partners from achieving or maintaining market acceptance of the affected product and
could substantially increase the costs of commercializing our future product candidates and impair our ability to generate revenue from
the commercialization of these products either by our company or by our collaboration partners.
The
development of REMS for our future product candidates could cause delays in the approval process and would add additional layers of regulatory
requirements that could impact our ability to commercialize our future product candidates in the United States and reduce their market
potential.
Even
if the FDA approves our NDA for any of our future product candidates without requiring a REMS as a condition of approval of the NDA,
the FDA may, post-approval, require a REMS for any of our future product candidates if it becomes aware of new safety information that
makes a REMS necessary to ensure that the benefits of the drug outweigh the potential risks. REMS elements can include medication guides,
communication plans for health care professionals, and elements to assure safe use (“ETASU”). ETASU can include, but
are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special
monitoring and the use of patient registries. Moreover, product approval may require substantial post-approval testing and surveillance
to monitor the drug’s safety or efficacy. We may be required to adopt a REMS for our future product candidates to ensure that the
benefits outweigh the risks of abuse, misuse, diversion and other potential safety concerns. There can be no assurance that the FDA will
approve a manageable REMS for our future product candidates, which could create material and significant limits on our ability to successfully
commercialize our future product candidates in the United States Delays in the REMS approval process could result in delays in the NDA
approval process. In addition, as part of the REMS, the FDA could require significant restrictions, such as restrictions on the prescription,
distribution and patient use of the product, which could significantly impact our ability to effectively commercialize our future product
candidates, and dramatically reduce their market potential, thereby adversely impacting our business, financial condition and results
of operations. Even if initial REMS are not highly restrictive, if, after launch, our future product candidates were to be subject to
significant abuse/non-medical use or diversion from illicit channels, this could lead to negative regulatory consequences, including
a more restrictive REMS.
The
regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming and inherently unpredictable,
and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
We
are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining regulatory approval
from the FDA. Foreign regulatory authorities, such as the EMA and MHRA, impose similar requirements. The time required to obtain approval
by the FDA and comparable foreign authorities is inherently unpredictable, but typically takes many years following the commencement
of clinical trials and depends upon numerous factors, including substantial discretion of the regulatory authorities. In addition, approval
policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s
clinical development and may vary among jurisdictions. To date, we have not submitted an NDA to the FDA or similar drug approval submissions
to comparable foreign regulatory authorities for our most advanced product candidate for the early stage treatment of Dupuytren’s
Contracture, or any other product candidate. We must complete additional preclinical studies and clinical trials to demonstrate the safety
and efficacy of our product candidates in humans before we will be able to obtain these approvals.
Clinical
testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We
cannot guarantee that any clinical trial design that we submit will be accepted by FDA, MHRA or other comparable foreign regulatory authorities,
or that clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of our initial and
potential additional product candidates is susceptible to the risk of failure inherent at any stage of development, including failure
to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe
or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements, and determination
by the FDA, MHRA or any other comparable foreign regulatory authority that a product candidate may not continue development or is not
approvable. It is possible that even if any of our product candidates has a beneficial effect, that effect will not be detected during
clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or
analysis of our clinical trials. Conversely, as a result of the same factors, our clinical trials may indicate an apparent positive effect
of such product candidate that is greater than the actual positive effect, if any. Similarly, in our clinical trials, we may fail to
detect toxicity of, or intolerability caused by, such product candidate, or mistakenly believe that our product candidates are toxic
or not well tolerated when that is not in fact the case. Serious adverse events, or SAEs, or other adverse effects, as well as tolerability
issues, could hinder or prevent market acceptance of the product candidate at issue.
Our
current and future product candidates could fail to receive regulatory approval for many reasons, including the following:
| ● | the
FDA, MHRA or other comparable foreign regulatory authorities may disagree as to the design
or implementation of our clinical trials; |
| ● | we
may be unable to demonstrate to the satisfaction of the FDA, MHRA or other comparable foreign
regulatory authorities that a product candidate is safe and effective for our proposed indication; |
| ● | the
results of clinical trials may not meet the level of statistical significance required by
the FDA, MHRA or other comparable foreign regulatory authorities for approval; |
| ● | we
may be unable to demonstrate that a product candidate’s clinical and other benefits
outweigh its safety risks; |
| ● | the
FDA, MHRA or other comparable foreign regulatory authorities may disagree with our interpretation
of data from clinical trials or preclinical studies; |
| ● | the
data collected from clinical trials of our product candidates may not be sufficient to support
the submission of an NDA to the FDA or other submission or to obtain regulatory approval
in the United States, the European Union or elsewhere; |
| ● | the
FDA, MHRA or other comparable foreign regulatory authorities may find deficiencies with the
manufacturing processes of third-party manufacturers with which we contract for clinical
and commercial supplies; and |
| ● | the
approval policies or regulations of the FDA, MHRA or other comparable foreign regulatory
authorities may significantly change in a manner rendering our clinical data insufficient
for approval. |
This
lengthy approval process as well as the unpredictability of clinical trial results may result in us failing to obtain regulatory approval
to market any product candidate we develop, which would substantially harm our business, results of operations and prospects. The FDA,
MHRA or other comparable foreign authorities have substantial discretion in the approval process and determining when or whether regulatory
approval will be granted for any product candidate that we develop. Even if we believe the data collected from future clinical trials
of our product candidates are promising, such data may not be sufficient to support approval by the FDA or any other regulatory authority.
In
addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited
indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance
of costly post-marketing clinical trials, or may approve a product candidate with labeling that does not include the claims necessary
or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the
commercial prospects for our product candidates.
Risks Related
to our Reliance Upon Third Parties
Our
existing collaboration arrangements and any that we may enter into in the future may not be successful, which could adversely affect
our ability to develop and commercialize our future product candidates.
We
are a party to, and may seek additional, collaboration arrangements with pharmaceutical or biotechnology companies for the development
or commercialization of our future product candidates. We may, with respect to our future product candidates, enter into new arrangements
on a selective basis depending on the merits of retaining commercialization rights for ourselves as compared to entering into selective
collaboration arrangements with leading pharmaceutical or biotechnology companies for each product candidate, both in the United States
and internationally. To the extent that we decide to enter into collaboration agreements, we will face significant competition in seeking
appropriate collaborators and the terms of any collaboration or other arrangements that we may establish may not be favorable to us.
Any
existing or future collaboration that we enter into may not be successful. The success of our collaboration arrangements will depend
heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts
and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding development,
intellectual property, regulatory or commercialization matters, can lead to delays in the development process or commercialization of
the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult
to resolve if neither of the parties has final decision-making authority. Any such termination or expiration could harm our business
reputation and may adversely affect it financially.
We
expect to depend on a limited number of suppliers for materials and components in order to manufacture our future product candidates.
The loss of these suppliers, or their failure to supply us on a timely basis, could cause delays in our current and future capacity and
adversely affect our business.
We
expect to depend on a limited number of suppliers for the materials and components required to manufacture our future product candidates.
As a result, we may not be able to obtain sufficient quantities of critical materials and components in the future. A delay or interruption
by our suppliers may also harm our business, results of operations and financial condition. In addition, the lead time needed to establish
a relationship with a new supplier can be lengthy, and we may experience delays in meeting demand in the event we must switch to a new
supplier. The time and effort to qualify for and, in some cases, obtain regulatory approval for a new supplier could result in additional
costs, diversion of resources or reduced manufacturing yields, any of which would negatively impact our operating results. Our dependence
on single-source suppliers exposes us to numerous risks, including the following: our suppliers may cease or reduce production or deliveries,
they may be subject to government investigations and regulatory actions that limit or prevent production capabilities for an extended
period of time, raise prices or renegotiate terms; our suppliers may become insolvent; we may be unable to locate a suitable replacement
supplier on acceptable terms or on a timely basis, or at all; and delays caused by supply issues may harm our reputation, frustrate our
customers and cause them to turn to our competitors for future needs.
Risks Related
to our Intellectual Property
We
may not be able to adequately protect our future product candidates or our proprietary technology in the marketplace.
Our
success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the proprietary
rights of others. We rely upon a combination of patents, trade secret protection (i.e., know-how), and confidentiality agreements to
protect the intellectual property of our future product candidates. The strengths of patents in the pharmaceutical field involve complex
legal and scientific questions and can be uncertain. Where appropriate, we seek patent protection for certain aspects of our products
and technology. Filing, prosecuting and defending patents globally can be prohibitively expensive.
Our
policy is to look to patent technologies with commercial potential in jurisdictions with significant commercial opportunities. However,
patent protection may not be available for some of the products or technology we are developing. If we must spend significant time and
money protecting, defending or enforcing our patents, designing around patents held by others or licensing, potentially for large fees,
patents or other proprietary rights held by others, our business, results of operations and financial condition may be harmed. We may
not develop additional proprietary products that are patentable. As of the date hereof, we have an extensive portfolio of patents, including
many granted patents and patents pending approval.
The
patent positions of pharmaceutical products are complex and uncertain. The scope and extent of patent protection for our future product
candidates are particularly uncertain. Our future product candidates will be based on medicinal chemistry instead of cannabis plants.
While we have sought patent protection, where appropriate, directed to, among other things, composition-of-matter for its specific formulations,
their methods of use, and methods of manufacture, we do not have and will not be able to obtain composition of matter protection on these
previously known CBD derivatives per se. We anticipate that the products we develop in the future will be based upon synthetic compounds
we may discover. Although we have sought, and will continue to seek, patent protection in the United States, Europe and other countries
for our proprietary technologies, future product candidates, their methods of use, and methods of manufacture, any or all of them may
not be subject to effective patent protection. If any of our products are approved and marketed for an indication for which we do not
have an issued patent, our ability to use our patents to prevent a competitor from commercializing a non-branded version of our commercial
products for that non-patented indication could be significantly impaired or even eliminated.
Publication
of information related to our future product candidates by our company or others may prevent us from obtaining or enforcing patents relating
to these products and product candidates. Furthermore, others may independently develop similar products, may duplicate our products,
or may design around our patent rights. In addition, any of our issued patents may be opposed and/or declared invalid or unenforceable.
If we fail to adequately protect our intellectual property, we may face competition from companies who attempt to create a generic product
to compete with our future product candidates. We may also face competition from companies who develop a substantially similar product
to our future product candidates that is not covered by any of our patents.
Many
companies have encountered significant problems in protecting, defending and enforcing intellectual property rights in foreign jurisdictions.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other
intellectual property rights, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement
of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent
rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business.
If
third parties claim that intellectual property used by our company infringes upon their intellectual property, our operating profits
could be adversely affected.
There
is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights
in the pharmaceutical industry. We may, from time to time, be notified of claims that we are infringing upon patents, trademarks, copyrights
or other intellectual property rights owned by third parties, and we cannot provide assurances that other companies will not, in the
future, pursue such infringement claims against us, our commercial partners or any third-party proprietary technologies we have licensed.
If we were found to infringe upon a patent or other intellectual property right, or if we failed to obtain or renew a license under a
patent or other intellectual property right from a third party, or if a third party from whom we were licensing technologies was found
to infringe upon a patent or other intellectual property rights of another third party, we may be required to pay damages, including
damages of up to three times the damages found or assessed, if the infringement is found to be willful, suspend the manufacture of certain
products or reengineer or rebrand our products, if feasible, or we may be unable to enter certain new product markets. Any such claims
could also be expensive and time consuming to defend and divert management’s attention and resources. Our competitive position
could suffer as a result. In addition, if we have declined or failed to enter into a valid non-disclosure or assignment agreement for
any reason, we may not own the invention or our intellectual property, and our products may not be adequately protected. Thus, we cannot
guarantee that any of our future product candidates, or our commercialization thereof, does not and will not infringe any third party’s
intellectual property.
If
we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and
products could be significantly diminished.
We
rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or
obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with current and former employees,
consultants, outside scientific collaborators, sponsored researchers, contract manufacturers, vendors and other advisors to protect our
trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information
and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, we cannot guarantee
that we have executed these agreements with each party that may have or have had access to our trade secrets. Any party with whom we
or they have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets,
and we may not be able to obtain adequate remedies for such breaches.
Enforcing
a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome
is unpredictable. Also, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any
of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them,
or those to whom they disclose such trade secrets, from using that technology or information to compete with us. If any of our trade
secrets were to be disclosed to or independently developed by a competitor or other third-party, our competitive position would be harmed.
The
expiration or loss of patent protection may adversely affect our future revenues and operating earnings.
We
rely on patent, trademark, trade secret and other intellectual property protection in the discovery, development, manufacturing and sale
of our product candidates. In particular, patent protection is important in the development and eventual commercialization of our product
candidates. Patents covering our product candidates normally provide market exclusivity, which is important in order to improve the probability
that our product candidates are able to become profitable.
One
of our patents relating to our Fibrosis and anti-TNF program will expire in 2033; however, the majority of the patent portfolio has a
longer lifespan. While we are seeking additional patent coverage which may protect the technology underlying these patents, there can
be no assurances that such additional patent protection will be granted, or if granted, that these patents will not be infringed upon
or otherwise held enforceable. Even if we are successful in obtaining a patent, patents have a limited lifespan. In the United States,
the natural expiration of a utility patent is generally 20 years after it is filed. Various extensions may be available; however, the
life of a patent, and the protection it affords, is limited. Without patent protection of our product candidates, we may be open to competition
from generic versions of such methods and compositions.
If
we do not obtain protection under the Hatch-Waxman Amendments by extending the patent term, our business may be harmed.
Our
commercial success will largely depend on our ability to obtain and maintain patent and other intellectual property in the United States
and other countries with respect to our product candidates. Given the amount of time required for the development, testing and regulatory
review of new product candidates, patents protecting our product candidates might expire before or shortly after such candidates begin
to be commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we
are prosecuting patents.
Depending
upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible
for limited patent term extension, or PTE, under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the
Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years beyond the normal expiration
of the patent as compensation for patent term lost during development and the FDA regulatory review process, which is limited to the
approved indication (and potentially additional indications approved during the period of extension) covered by the patent. This extension
is limited to only one patent that covers the approved product, the approved use of the product, or a method of manufacturing the product.
However, the applicable authorities, including the FDA and the U.S. Patent and Trademark Office (“USPTO”) in the United
States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are
available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. We may not be granted
an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant
patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time-period or the scope of patent protection
afforded could be less than we request. Even if we are able to obtain an extension, the patent term may still expire before or shortly
after we receive FDA marketing approval. If we are unable to extend the expiration date of our existing patents or obtain new patents
with longer expiry dates, our competitors may be able to take advantage of our investment in development and clinical trials by referencing
our clinical and preclinical data to obtain approval of competing products following our patent expiration and launch their product earlier
than might otherwise be the case.
Risks Related
to Controlled Substances
Controlled
substance legislation differs between countries, and legislation in certain countries may restrict or limit our ability to sell our future
product candidates.
Most
countries are parties to the Single Convention on Narcotic Drugs 1961 and the Convention on Psychotropic Substances 1971, which governs
international trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and implement their
treaty obligations in a way that creates a legal obstacle to us obtaining marketing approval for our future products in those countries.
These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our future products to be
marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In that case, we would be unable
to market our future product candidates in those countries in the near future or perhaps at all.
The
product candidates that we are developing may be subject to U.S. controlled substance laws and regulations and failure to comply with
these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business
operations, both during clinical development and post approval, and our financial condition.
The
product candidates that we are developing may contain controlled substances as defined in The United States Federal Controlled Substances
Act of 1970 and the CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the
CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export
and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV
or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use”
in the United States, lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United
States Pharmaceutical products approved for use in the United States which contain a controlled substance are listed as Schedule II,
III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances
the lowest relative risk of abuse among such substances.
While
cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain cannabis or cannabis
extracts should be placed in Schedules II-V, since approval by the FDA satisfies the “accepted medical use” requirement.
If and when any of our future product candidates receive FDA approval, the DEA will make a scheduling determination. If the FDA, the
DEA or any foreign regulatory authority determines that our future product candidates may have potential for abuse, it may require us
to generate more clinical or other data than we currently anticipate to establish whether or to what extent the substance has an abuse
potential, which could increase the cost and/or delay the launch of that product.
Facilities
conducting research, manufacturing, distributing, importing or exporting, or dispensing controlled substances must be registered (licensed)
to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to
prevent drug loss and diversion. All these facilities must renew their registrations annually, except dispensing facilities, which must
renew every three years. The DEA conducts periodic inspections of certain registered establishments that handle controlled substances.
Obtaining the necessary registrations may result in delay of the importation, manufacturing or distribution of our future products. Furthermore,
failure to maintain compliance with the CSA, particularly non-compliance resulting in loss or diversion, can result in regulatory action
that could have a material adverse effect on our business, financial condition and results of operations. The DEA may seek civil penalties,
refuse to renew necessary registrations, or initiate proceedings to restrict, suspend or revoke those registrations. In certain circumstances,
violations could lead to criminal proceedings.
Individual
states have also established controlled substance laws and regulations. Although state-controlled substances laws often mirror federal
law, because the states are separate jurisdictions, they may separately schedule our future product candidates as well. State scheduling
may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling could have a material
adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate state registrations, permits
or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure
to meet applicable regulatory requirements could lead to enforcement and sanctions by the states in addition to those from the DEA or
otherwise arising under federal law.
Because
our products may be controlled substances in the United States, to conduct clinical trials in the United States, each of our research
sites must submit a research protocol to the DEA and obtain and maintain a DEA researcher registration that will allow those sites to
handle and dispense our products and to obtain product from our importer. If the DEA delays or denies the grant of a research registration
to one or more research sites, the clinical trial could be significantly delayed, and we could lose clinical trial sites. The importer
for the clinical trials must also obtain an importer registration and an import permit for each import.
The
legislation on cannabis in the European Union differs among the member states, as this area is not yet fully harmonized. In Germany,
for example, cannabis is regulated as a controlled substance (Betäubungsmittel) and its handling requires specific authorization.
The
legalization and use of medical and recreational cannabis in the United States and abroad may impact our business.
There
is a substantial amount of change occurring in the United States regarding the use of medical and recreational cannabis products. While
cannabis products not approved by the FDA are Schedule I substances as defined under federal law, and their possession and use is not
permitted according to federal law (except for research purposes, under DEA registration), according to worldpoplulationreview.com, at
least 39 states and the District of Columbia have enacted state laws to enable possession and use of cannabis for medical purposes, and
at least 19 states and the District of Columbia for recreational purposes. The U.S. Farm Bill, which was passed in 2018, descheduled
certain material derived from hemp plants with extremely low THC content. Although our business is quite distinct from that of online
and dispensary cannabis companies, future legislation authorizing the sale, distribution, use, and insurance reimbursement of non-FDA
approved cannabis products could affect our business.
Accounting
Risks
Our
goodwill and intangible assets have been impaired in the past and are subject to future impairment risks.
As
discussed in the following risk factor, we had material impairment charges to our goodwill and in process R&D during the year ended
December 31, 2022.
Our
intangible assets were approximately $10.7 million as of December 31, 2022, representing 55% of our total assets. We assess the potential
impairment of indefinite-lived intangible assets and goodwill at least annually and otherwise when there is evidence that events or changes
in circumstances indicate that an impairment condition may exist. Many of the factors used in assessing fair value are outside the control
of management, and it is reasonably likely that assumptions and estimates will change in future periods. These changes could result in
future impairments. Events and circumstances that we consider important which could trigger impairment include the following:
| ● | Significant
underperformance relative to historical or projected future operating results; |
| ● | Significant
changes in our strategy for its overall business or use of acquired assets; |
| ● | Significant
negative industry or economic trends; |
| ● | Significant
decline in our stock price for a sustained period; |
| ● | Decreased
market capitalization relative to net book value; |
| ● | Unanticipated
technological change or competitive activities; |
| ● | Change
in consumer demand; |
| ● | Loss
of key personnel; and |
| ● | Acts
by governments and courts. |
When
there is indication that the carrying value of intangible assets may not be recoverable based upon the existence of one or more of the
above indicators, an impairment loss is recognized if the carrying amount of the asset exceeds its fair value. When there is an indication
of impairment of goodwill, an impairment loss is recognized to the extent that the carrying amount of the goodwill exceeds its implied
fair value.
It
is possible that changes in circumstances, existing at that time or at other times in the future, or in the numerous variables associated
with the assumptions and estimates made by us in assessing the appropriate valuation of its indefinite-lived intangible assets or goodwill,
could in the future require us to record impairment charges, which would adversely affect future reported results of operations and stockholders’
equity, although such charges would not affect our cash flow.
We
have in the past, and may in the future, impair long-lived assets and intangible assets, including goodwill and acquired in-process research
and development.
We
review long-lived assets and certain identifiable assets (including intangible assets) for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be recovered. An impairment exists when the carrying value
of the long-lived or intangible asset (including goodwill and acquired in-process research and development) is not recoverable and exceeds
its estimated fair value. Goodwill represents the difference between the purchase price and the fair value of assets and liabilities
acquired in a business combination. We review goodwill yearly, or more frequently whenever circumstances and situations change such that
there is an indication that the carrying amounts may not be recovered, for impairment by initially considering qualitative factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill,
as a basis for determining whether it is necessary to perform a quantitative analysis. If it is determined that it is more likely than
not that the fair value of reporting unit is less than its carrying amount, a quantitative analysis is performed to identify goodwill
impairment.
Our
publicly traded stock closed at $78.00 per share as of December 31, 2021; during 2022, the market value of our single reporting unit
significantly declined. As of March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022, the market value of our publicly
traded stock fell to $51.80, $16.96, $13.30 and $3.39, per share, respectively, and as such, we elected to conduct a quantitative analysis
of goodwill to assess for impairment as of September 30, 2022 and December 31, 2022. We determined the fair market value of its single
reporting unit and compared that value with the carrying amount of the reporting unit and determined that goodwill was impaired as of
both measurement dates. As of September 30, 2022 and December 31, 2022, the carrying value exceeded the fair market value by $18,872,850
and $14,674,428, respectively. To recognize the impairment of goodwill, we recorded losses for these amounts at the end of the third
and fourth quarters, which appear as a loss on goodwill impairment of $33,547,278 on the income statement for the year ended December
31, 2022. See “Note 5 - Intangible Assets and Impairment of Long-lived Assets” in the consolidated financial statements
included herein beginning on page F-1, for further information.
Intangible
assets and in-process research and development (“IP R&D”) assets represent the fair value assigned to technologies
that were acquired on July 16, 2019 in connection with the Reorganization, which have not reached technological feasibility and have
no alternative future use. IP R&D assets are considered to be indefinite-lived until the completion or abandonment of the associated
research and development projects. During the period that the IP R&D assets are considered indefinite-lived, they are tested for
impairment on an annual basis, or more frequently if we become aware of any events occurring or changes in circumstances that indicate
that the fair value of the IP R&D assets are less than their carrying amounts. If and when development is complete, which generally
occurs upon regulatory approval, and we are able to commercialize products associated with the IP R&D assets, these assets are then
deemed definite-lived and are amortized based on their estimated useful lives at that point in time. If development is terminated or
abandoned, we may record a full or partial impairment charge related to the IP R&D assets, calculated as the excess of the carrying
value of the IP R&D assets over their estimated fair value.
As
of December 31, 2022, the carrying amount of the IP R&D assets on the balance sheet was $12,405,084 (which consists of carrying amounts
of $1,462,084 and $10,943,000 related to our CBR Pharma subsidiary and its 180 LP subsidiary, respectively). Per the valuation obtained
from a third party as of year-end, the fair market value of our IP R&D assets was determined to be $9,063,000 (which consists of
fair values of $0 and $9,063,000 related to our CBR Pharma subsidiary and 180 LP subsidiary, respectively). As of this measurement date,
the carrying values of the CBR Pharma and 180 LP subsidiaries’ assets exceeded their fair market values by $1,462,084 and $1,880,000,
respectively. As such, management determined that the consolidated IP R&D assets were impaired by $3,342,084 and, in order to recognize
the impairment, we recorded a loss for this amount during the fourth quarter of 2022, which appears as a loss on impairment to IP R&D
assets on the income statement. This reduced the IP R&D asset balances of its CBR Pharma subsidiary and its 180 LP subsidiary to
zero and $9,063,000, respectively, as of December 31, 2022; the total consolidated IP R&D asset balance is $9,063,000 after impairment.
See “Note 5 - Intangible Assets and Impairment of Long-lived Assets” in the consolidated financial statements included
herein beginning on page F-1, for further information.
A
continued period of low trading prices of our common stock may force us to incur further material impairments of our reporting units,
which could have a material effect on the value of our assets and cause the value of our securities to decline in value. Additionally,
we have in the past, and may in the future, determine that impairments in our intangible assets, including acquired in-process research
and development, are necessary and may be material. An impairment recognized in one period may not be reversed in a subsequent period,
even if the value of our common stock increases in the future. We have in the past and could in the future incur additional impairments
of long-lived assets and/or intangible assets, including acquired in-process research and development and goodwill, which may be material.
We
have identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting. If not remediated,
our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could
result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which
could have a material adverse effect on our financial condition and the trading price of our securities.
Our
management, including our principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial
reporting as of December 31, 2022 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”) in “Internal Control - Integrated Framework” (2013).
Management
concluded that certain aspects of our internal control over financial reporting was not effective as of December 31, 2022, based on those
criteria. Specifically, management’s conclusion was based on the following material weakness:
| ● | Our
review and control procedures did not operate at the appropriate level of precision to detect
an error in fair-value of warrants related to a one-time reverse stock split and the fair
value of IP R&D assets. |
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is
a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected
on a timely basis. Accordingly, a material weakness increases the risk that the financial information we report contains material errors.
A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect misstatements on a timely basis.
Maintaining
effective disclosure controls and procedures and effective internal control over financial reporting are necessary for us to produce
reliable financial statements and we are committed to remediating its material weaknesses in such controls as promptly as possible. However,
there can be no assurance as to when these material weaknesses will be remediated or that additional material weaknesses will not arise
in the future. Any failure to remediate the material weaknesses, or the development of new material weaknesses in our internal control
over financial reporting, could result in material misstatements in our financial statements and cause us to fail to meet our reporting
and financial obligations on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete
understanding of our operations or may lose confidence in our reported financial information. Likewise, if our financial statements are
not filed on a timely basis as required by the SEC and Nasdaq, we could face severe consequences from those authorities. In any of these
cases, it could result in a material adverse effect on our business, on our financial condition or have a negative effect on the trading
price of our common stock and warrants. Further, if we fail to remedy this deficiency (or any other future deficiencies) or maintain
the adequacy of our disclosure controls and procedures and our internal controls, we could be subject to regulatory scrutiny, civil or
criminal penalties or stockholder litigation against us or our management.
We
can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified
or that any additional material weaknesses or restatements of our financial statements will not arise in the future due to a failure
to implement and maintain adequate internal control over financial reporting or circumvention of those controls.
Further,
in the future, if we cannot conclude that we have effective internal control over our financial reporting, or if our independent registered
public accounting firm is unable to provide an unqualified opinion regarding the effectiveness of our internal control over financial
reporting (to the extent we may be required in the future), investors could lose confidence in the reliability of our financial statements,
which could lead to a decline in our stock price. Failure to comply with reporting requirements could also subject us to sanctions and/or
investigations by the SEC or Nasdaq, as applicable, or other regulatory authorities.
In
addition, even if we are successful in strengthening our controls and procedures, those controls and procedures may not be adequate to
prevent or identify irregularities or facilitate the fair presentation of our financial statements or our periodic reports filed with
the SEC. This may require us to restate prior financial statements.
We
may experience adverse impacts on our reported results of operations as a result of adopting new accounting standards or interpretations.
Our
implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely
affect our reported financial position or operating results or cause unanticipated fluctuations in our reported operating results in
future periods.
Risks
Related to our Common Stock and Warrants
The
market price of our common stock has been extremely volatile and may continue to be volatile due to numerous circumstances beyond our
control.
The
market price of our common stock has fluctuated, and may continue to fluctuate, widely, due to many factors, some of which may be beyond
our control. These factors include, without limitation:
| ● | comments
by securities analysts or other third parties, including blogs, articles, message boards
and social and other media; |
| ● | large
stockholders exiting their position in our securities or an increase or decrease in the short
interest in our securities; |
| ● | actual
or anticipated fluctuations in our financial and operating results; |
| ● | risks
and uncertainties associated with the ongoing COVID-19 pandemic; |
| ● | changes
in foreign currency exchange rates; |
| ● | the
commencement, enrollment or results of our planned or future clinical trials of our product
candidates or those of our competitors; |
| ● | the
success of competitive drugs or therapies; |
| ● | regulatory
or legal developments in the United States and other countries; |
| ● | the
success of competitive products or technologies; |
| ● | developments
or disputes concerning patent applications, issued patents or other proprietary rights; |
| ● | the
recruitment or departure of key personnel; |
| ● | the
level of expenses related to our product candidates or clinical development programs; |
| ● | litigation
matters, including amounts which may or may not be recoverable pursuant to our officer and
director insurance policies, regulatory actions affecting the Company and the outcome thereof; |
| ● | the
results of our efforts to discover, develop, acquire or in-license additional product candidates; |
| ● | actual
or anticipated changes in estimates as to financial results, development timelines or recommendations
by securities analysts; |
| ● | our
inability to obtain or delays in obtaining adequate drug supply for any approved drug or
inability to do so at acceptable prices; |
| ● | disputes
or other developments relating to proprietary rights, including patents, litigation matters
and our ability to obtain patent protection for our technologies; |
| ● | significant
lawsuits, including patent or stockholder litigation; |
| ● | variations
in our financial results or those of companies that are perceived to be similar to us; |
| ● | changes
in the structure of healthcare payment systems, including coverage and adequate reimbursement
for any approved drug; |
| ● | market
conditions in the pharmaceutical and biotechnology sectors; |
| ● | general
economic, political, and market conditions and overall fluctuations in the financial markets
in the United States and abroad; and |
| ● | investors’
general perception of us and our business. |
Stock
markets in general and our stock price in particular have recently experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of those companies and our company. For example, during 2022, the sale
prices of our common stock ranged from a post-split adjusted high of $80.70 per share (on January 5, 2022) to a low of $1.18 per share
(on December 23, 2022). During this time, we have not experienced any material changes in our financial condition or results of operations
that would explain such price volatility or trading volume; however, we have sold equity which was dilutive to existing stockholders.
These broad market fluctuations may adversely affect the trading price of our securities. Additionally, these and other external factors
have caused and may continue to cause the market price and demand for our common stock to fluctuate substantially, which may limit or
prevent our stockholders from readily selling their shares of our common stock and may otherwise negatively affect the liquidity of our
common stock.
Information
available in public media that is published by third parties, including blogs, articles, message boards and social and other media may
include statements not attributable to us and may not be reliable or accurate.
We
are aware of a large volume of information being disseminated by third parties relating to our operations, including in blogs, message
boards and social and other media. Such information as reported by third parties may not be accurate, may lead to significant volatility
in our securities and may ultimately result in our common stock or other securities declining in value.
Our
outstanding options and warrants may adversely affect the trading price of our securities.
As of May 3, 2023, we had (i) outstanding stock
options to purchase an aggregate of 148,321 shares of common stock at a weighted average exercise price of $85.19 per share; (ii) outstanding
warrants to purchase 5,006,409 shares of common stock at a weighted average exercise price of $21.78 per share. For the life of the options
and warrants, the holders have the opportunity to profit from a rise in the market price of our common stock without assuming the risk
of ownership. The issuance of shares upon the exercise of outstanding securities will also dilute the ownership interests of our existing
stockholders.
The
availability of these shares for public resale, as well as any actual resales of these shares, could adversely affect the trading price
of our common stock. We cannot predict the size of future issuances of our common stock pursuant to the exercise of outstanding options
or warrants or conversion of other securities, or the effect, if any, that future issuances and sales of shares of our common stock may
have on the market price of our common stock. Sales or distributions of substantial amounts of our common stock (including shares issued
in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our common stock to
decline.
In
addition, the common stock issuable upon exercise/conversion of outstanding convertible securities may represent overhang that may also
adversely affect the market price of our common stock. Overhang occurs when there is a greater supply of a company’s stock in the
market than there is demand for that stock. When this happens the price of our stock will decrease, and any additional shares which stockholders
attempt to sell in the market will only further decrease the share price. If the share volume of our common stock cannot absorb shares
sold by holders of our outstanding convertible securities, then the value of our common stock will likely decrease.
Our
outstanding public warrants are significantly out of the money.
Each
Public Warrant entitles the holder to purchase one-fortieth of one share of common stock at an exercise price of $5.75 per 1/40th
of one share ($230.00 per whole share), subject to adjustment. No fractional shares will be issued upon exercise of the
Public Warrants. The Public Warrants became exercisable 12 months from the closing of the IPO and expire five years after the completion
of the Business Combination (November 6, 2025). The Public Warrants are significantly out of the money and because no fractional shares
will be issued upon exercise of the Public Warrants, the Public Warrants are only exercisable in multiples of 40. As a result, the Public
Warrants may not have any significant value. Additionally, warrant holders not holding at least 40 Public Warrants or who hold Public
Warrants which would be exercisable for a fractional share of common stock, must sell any warrants to obtain value from the fractional
interest. As a result, the trading of the Public Warrants may be limited or sporadic, and such Public Warrants may not have any significant
value. Any holder of Public Warrants holding less than 40 Public Warrants or a number of Public Warrants not evenly divisible by 40 will
not receive any common stock upon the exercise of Public Warrant, as no fractional shares of common stock are issuable upon exercise
thereof.
A
significant number of our shares are eligible for sale and their sale or potential sale may depress the market price of our common stock.
Sales of a significant number of shares of our
common stock in the public market could harm the market price of our common stock. Most of our common stock is available for resale in
the public market, including (a) options to purchase 148,321 shares of common stock with a weighted average exercise price of $85.19 per
share; and (b) warrants to purchase 5,006,409 shares of common stock with a weighted average exercise price of $21.78 per share. If a
significant number of shares were sold, such sales would increase the supply of our common stock, thereby potentially causing a decrease
in its price. Some or all of our shares of common stock may be offered from time to time in the open market pursuant to effective registration
statements and/or compliance with Rule 144, which sales could have a depressive effect on the market for our shares of common stock. Subject
to certain restrictions, a person who has held restricted shares for a period of six months may generally sell common stock into the market.
The sale of a significant portion of such shares when such shares are eligible for public sale may cause the value of our common stock
to decline in value.
There
may not be sufficient liquidity in the market for our securities in order for investors to sell their shares. The market price of our
common stock may continue to be volatile.
The
market price of our common stock will likely continue to be highly volatile. Some of the factors that may materially affect the market
price of our common stock are beyond our control, such as conditions or trends in the industry in which we operate or sales of our common
stock. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown
to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume,
and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company
such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable.
As
a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared
to a mature issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse
effect on share price. It is possible that a broader or more active public trading market for our common stock will not develop or be
sustained, or that trading levels will not continue. These factors may materially adversely affect the market price of our common stock,
regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This
volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating
performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
We
face significant penalties and damages in the event registration statements we have previously filed to register certain securities sold
in our prior offerings are subsequently suspended or terminated.
Pursuant
to certain prior private offerings of securities, we entered into registration rights agreements which required us to file certain registration
statements to register the resale of the privately sold shares and certain securities issuable upon exercise/conversion thereof, and
to maintain the effectiveness of such registration statements for certain periods of time. To date, all such required registration statements
have been declared effective by the SEC. However, in the event the registration statements are subsequently suspended or terminated,
or we otherwise fail to meet certain requirements set forth in the registration rights agreements, we could be required to pay significant
penalties which could adversely affect our cash flow and cause the value of our securities to decline in value.
Provisions
of the Warrants could discourage an acquisition of us by a third party.
Certain
provisions of the Warrants could make it more difficult or expensive for a third party to acquire us. The Warrants prohibit us from engaging
in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity assumes
our obligations under each of the July 2022 Common Warrants, the December 2022 Common Warrants and the April 2023 Common Warrants, as
applicable. Further, each of July 2022 Common Warrants, the December 2022 Common Warrants and the April 2023 Common Warrants provide
that, in the event of certain transactions constituting “fundamental transactions,” with some exception, holders of such
warrants will have the right, at their option, to require us to repurchase such warrants at a price described in the applicable warrants
(based on the Black Scholes Value of such warrants). These and other provisions of the Warrants could prevent or deter a third party
from acquiring us even where the acquisition could be beneficial to stockholders.
Future
sales and issuances of our common stock or rights to purchase common stock, could result in additional dilution to our stockholders and
could cause the price of our common stock to decline.
We
may issue additional common stock, convertible securities, or other equity in the future. We also issue common stock to our employees,
directors, and other service providers pursuant to our equity incentive plans. Such issuances could be dilutive to investors and could
cause the price of our common stock to decline. New investors in such issuances could also receive rights senior to those of current
stockholders.
Resales
of our common stock in the public market may cause the market price of our common stock to fall.
Sales
of a substantial number of shares of our common stock could occur at any time. The issuance of new shares of our common stock could result
in resales of our common stock by our current stockholders concerned about the potential ownership dilution of their holdings. In turn,
these resales could have the effect of depressing the market price for our common stock.
Future
sales of our common stock could cause our stock price to decline.
If
our stockholders sell substantial amounts of our common stock in the public market, the market price of our common stock could decrease
significantly. The perception in the public market that our stockholders might sell shares of our common stock could also depress the
market price of our common stock. Up to $125,000,000 in total aggregate value of securities have been registered by us on a “shelf”
registration statement on Form S-3 that we filed with the Securities and Exchange Commission on June 3, 2022, and which was declared
effective on June 24, 2022. As of March 28, 2023, there is an aggregate of over $6.0 million in securities which are eligible for sale
in the public markets from time to time. Additionally, if our existing stockholders sell, or indicate an intention to sell, substantial
amounts of our common stock in the public market, the trading price of our common stock could decline significantly. The market price
for shares of our common stock may drop significantly when such securities are sold in the public markets. A decline in the price of
shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or
other equity securities.
Risks Associated
with Our Governing Documents and Delaware Law
Our
Certificate of Incorporation provides for indemnification of officers and directors at our expense and limits their liability, which
may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit
of officers or directors.
Our
Certificate of Incorporation provides for indemnification as follows: “To the fullest extent permitted by applicable law, the Corporation
is authorized to provide indemnification of, and advancement of expenses to, such agents of the Corporation (and any other persons to
which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or non-statutory),
with respect to actions for breach of duty to the Corporation, its stockholders and others.”
We
have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities
arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection
with our activities, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a
court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely
to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market
and price for our shares.
Our
Certificate of Incorporation contains a specific provision that limits the liability of our directors for monetary damages to us and
our stockholders and requires us, under certain circumstances, to indemnify officers, directors and employees.
The
limitation of monetary liability against our directors, officers and employees under Delaware law and the existence of indemnification
rights to them may result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our
Certificate of Incorporation contains a specific provision that limits the liability of our directors for monetary damages to us and
our stockholders. We also have contractual indemnification obligations under our employment and engagement agreements with our executive
officers and directors. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the
cost of settlement or damage awards against our directors and officers, which we may be unable to recoup. These provisions and resultant
costs may also discourage us from bringing a lawsuit against our directors and officers for breaches of their fiduciary duties and may
similarly discourage the filing of derivative litigation by our stockholders against our directors and officers, even though such actions,
if successful, might otherwise benefit us and our stockholders.
Our
directors have the right to authorize the issuance of shares of preferred stock and additional shares of our common stock.
Our
directors, within the limitations and restrictions contained in our Certificate of Incorporation and without further action by our stockholders,
have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the
relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special
rights and qualifications of any such series. Any issuance of shares of preferred stock could adversely affect the rights of holders
of our common stock. Should we issue additional shares of our common stock at a later time, each investor’s ownership interest
in our stock would be proportionally reduced.
Anti-takeover
provisions in our Certificate of Incorporation and our Amended and Restated Bylaws, as well as provisions of Delaware law, might discourage,
delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common
stock.
Our
Certificate of Incorporation and our Amended and Restated Bylaws and Delaware law contain provisions that may discourage, delay or prevent
a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares of our common stock or warrants. These provisions may also prevent or delay attempts by our
stockholders to replace or remove our management. Our corporate governance documents include the following provisions:
| ● | a classified
board of directors, as a result of which our Board is divided into two classes, with each
class serving for staggered two-year terms; |
| | |
| ● | the
removal of directors only for cause; |
| ● | requiring
advance notice of stockholder proposals for business to be conducted at meetings of our stockholders
and for nominations of candidates for election to our Board; |
| | |
| ● | prohibiting
stockholders’ ability to take action via written consents to action; |
| | |
| ● | providing
that special meeting of stockholders may be called only by the Chairman of the Board, Chief
Executive Officer, or the Board pursuant to a resolution adopted by a majority of the Board; |
| | |
| ● | authorizing
blank check preferred stock, which could be issued with voting, liquidation, dividend and
other rights superior to our common stock; and |
| | |
| ● | limiting
the liability of, and providing indemnification to, our directors and officers. |
As
a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation
Law, which limits the ability of stockholders holding shares representing more than 15% of the voting power of our outstanding voting
stock from engaging in certain business combinations with us. Any provision of our Certificate of Incorporation or our Amended and Restated
Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders
to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for
our common stock.
The
existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the
future for shares of our common stock or warrants. They could also deter potential acquirers of our company, thereby reducing the likelihood
that you could receive a premium for your common stock or warrants in an acquisition.
Our
Certificate of Incorporation contains exclusive forum provisions that may discourage lawsuits against us and our directors and officers.
Our
Certificate of Incorporation provides that unless the corporation consents in writing to the selection of an alternative forum, the Court
of Chancery of the State of Delaware, will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf
of us, (ii) any action asserting a claim for breach of a fiduciary duty owed by any current or former director, officer, employee or
stockholder of the Company to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware
General Corporation Law, our Certificate of Incorporation or Bylaws, or (iv) any action asserting a claim governed by the internal affairs
doctrine.
The
choice of forum provision in our Certificate of Incorporation does not waive our compliance with our obligations under the federal securities
laws and the rules and regulations thereunder. Moreover, the provision does not apply to suits brought to enforce a duty or liability
created by the Exchange Act or by the Securities Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all
suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of
the Securities Act creates concurrent jurisdiction for federal and state courts with respect to suits brought to enforce a duty or liability
created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to
entertain claims under the Securities Act.
These
exclusive forum provisions may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find
favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers.
Alternatively, if a court were to find one or more of these exclusive forum provisions inapplicable to, or unenforceable in respect of,
one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving
such matters in other jurisdictions or forums, which could materially and adversely affect our business, financial condition or results
of operations.
Our
Certificate of Incorporation contains provisions whereby we renounced any interest in any corporate opportunity offered to any director
or officer, subject to certain exceptions.
Our
Section Amended and Restated Certificate of Incorporation, as amended, provides that to the extent allowed by law, the doctrine of corporate
opportunity, or any other analogous doctrine, does not apply with respect to us or any of our officers or directors, or any of their
respective affiliates, and that we renounce any expectancy that any of our directors or officers will offer any such corporate opportunity
of which he or she may become aware to us, except that the doctrine of corporate opportunity shall apply with respect to any of our directors
or officers only with respect to a corporate opportunity (i) that was offered to such person solely in his or her capacity as a our director
or officer, (ii) that is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue,
and (iii) to the extent the director or officer is permitted to refer such opportunity to us without violating any legal obligation.
Additionally,
each of our officers and directors presently has, and any of them in the future may have, additional fiduciary or contractual obligations
to other entities pursuant to which such officer or director may be required to present a business opportunity to such entity, subject
to his or her fiduciary duties under applicable law. Accordingly, there may arise conflicts of interest in whether to present a potential
business combination opportunity to our company. These conflicts may not be resolved in our favor. Our renouncement of corporate opportunities
may have a material adverse effect on our results of operations moving forward and/or create conflicts of interest or perceived conflicts
of interest which may have a material adverse effect on the value of our securities.
Our
directors allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to
devote to our affairs.
Our
directors are not required to, and do not, commit their full time to our affairs, and certain of our directors hold positions, including
other directorships, with other companies in the life sciences industry, which may result in a conflict of interest in allocating their
time between our operations and others which they provide services to. If our directors’ other business affairs require them to
devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote
time to our affairs which may have a negative impact on our operations. Additionally, such persons may have conflicts of interest in
allocating their time among various business activities. These conflicts may not be resolved in our favor. Additionally, our directors
may, because of our corporate opportunity waiver, discussed above, may choose to, or be required to, provide corporate opportunities
to the other companies which they are affiliated with. Actual or perceived conflicts of interest may have a material adverse effect on
our results of operations which may have a material adverse effect on the value of our securities.
Compliance,
Reporting and Listing Risks
We
incur significant costs to ensure compliance with U.S. and Nasdaq reporting and corporate governance requirements.
We
incur significant costs associated with our public company reporting requirements and with applicable U.S. and Nasdaq corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the SEC and Nasdaq. The rules
of Nasdaq include requiring us to maintain independent directors, comply with other corporate governance requirements and pay annual
listing and stock issuance fees. All of such SEC and Nasdaq obligations require a commitment of additional resources including, but not
limited, to additional expenses, and may result in the diversion of our senior management’s time and attention from our day-to-day
operations. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs
and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more
difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our Board or as executive officers.
We
incur increased costs as a result of being a reporting company, and given our limited capital resources, such additional costs may have
an adverse impact on our profitability.
We
are an SEC-reporting company. The rules and regulations under the Exchange Act require reporting companies to provide periodic reports
with interactive data files, which require that we engage legal, accounting and auditing professionals, and eXtensible Business Reporting
Language (XBRL) and EDGAR (Electronic Data Gathering, Analysis, and Retrieval) service providers. The engagement of such services can
be costly, and we may continue to incur additional losses, which may adversely affect our ability to continue as a going concern. In
addition, the Sarbanes-Oxley Act of 2002, as well as a variety of related rules implemented by the SEC, have required changes in corporate
governance practices and generally increased the disclosure requirements of public companies. For example, as a result of being a reporting
company, we are required to file periodic and current reports and other information with the SEC and we have adopted policies regarding
disclosure controls and procedures and regularly evaluate those controls and procedures.
The
additional costs we continue to incur in connection with being a reporting company (expected to be several hundred thousand dollars per
year) will continue to further stretch our limited capital resources. Due to our limited resources, we have to allocate resources away
from other productive uses in order to continue to comply with our obligations as an SEC reporting company. Further, there is no guarantee
that we will have sufficient resources to continue to meet our reporting and filing obligations with the SEC as they come due.
We
have not been in compliance in the past with the continued listing standards of Nasdaq and may not be able to comply with Nasdaq’s
continued listing standards in the future.
Our
common stock and Public Warrants trade on Nasdaq under the symbols “ATNF” and “ATNFW,” respectively. Notwithstanding
such listing, there can be no assurance any broker will be interested in trading our securities. Therefore, it may be difficult to sell
our securities publicly. There is also no guarantee that we will be able to maintain our listings on Nasdaq for any period of time by
perpetually satisfying Nasdaq’s continued listing requirements. While we are currently in compliance with Nasdaq’s continued
listing standards, we have in the past been out of compliance with such continued listing standards and our failure to continue to meet
these requirements may result in our securities being delisted from Nasdaq.
Conditions
required for continued listing on Nasdaq include requiring that we maintain at least $2.5 million in stockholders’ equity, $35
million of market value of listed securities, or $500,000 in net income over the prior two years or two of the prior three years, having
a majority of independent directors, a three member audit committee (consisting of all independent directors), and maintaining a bid
price above $1.00 per share. Our stockholders’ equity may not remain above Nasdaq’s $2.5 million minimum, our market value
of listed securities may not remain above $35 million, we may not generate over $500,000 of yearly net income, and we may not be able
to maintain independent directors or maintain a stock price above $1.00.
If
we fail to comply with Nasdaq rules and requirements, our stock may be delisted. In addition, even if we demonstrate compliance with
the requirements above, we will have to continue to meet other objective and subjective listing requirements to continue to be listed
on Nasdaq. Delisting from Nasdaq could make trading our common stock and/or Public Warrants more difficult for investors, potentially
leading to declines in our share price and liquidity. Without a Nasdaq listing, stockholders may have a difficult time getting a quote
for the sale or purchase of our stock, the sale or purchase of our stock would likely be made more difficult and the trading volume and
liquidity of our stock could decline. Delisting from Nasdaq could also result in negative publicity and could also make it more difficult
for us to raise additional capital. The absence of such a listing may adversely affect the acceptance of our common stock and/or Public
Warrants as currency or the value accorded by other parties. Further, if we are delisted, we would also incur additional costs under
state blue sky laws in connection with any sales of our securities. These requirements could severely limit the market liquidity of our
common stock and/or Public Warrants and the ability of our stockholders to sell our common stock and/or Public Warrants in the secondary
market. If our common stock and/or Public Warrants are delisted by Nasdaq, our common stock and/or Public Warrants may be eligible to
trade on an over-the-counter quotation system, such as the OTCQB Market, where an investor may find it more difficult to sell our stock
or obtain accurate quotations as to the market value of our common stock and/or Public Warrants. In the event our common stock and/or
Public Warrants are delisted from Nasdaq, we may not be able to list our common stock and/or Public Warrants on another national securities
exchange or obtain quotation on an over-the counter quotation system.
General
Risk Factors
Provisions
in our Certificate of Incorporation and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing
to pay in the future for our common stock and could entrench management.
Our
Certificate of Incorporation contains provisions that may discourage unsolicited takeover proposals that stockholders may consider to
be in their best interests. These provisions include a staggered board of directors and the ability of our Board to designate the terms
of and issue new series of preferred shares, which may make it more difficult for the removal of management and may discourage transactions
that otherwise could involve payment of a premium over prevailing market prices for our securities. We are also subject to anti-takeover
provisions under Delaware law, which could delay or prevent a change of control of the Company. Together, these provisions may make it
more difficult for the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing
market prices for our securities.
Failure
to adequately manage our planned aggressive growth strategy may harm our business or increase our risk of failure.
For
the foreseeable future, we intend to pursue an aggressive growth strategy for the expansion of our operations through increased product
development and marketing. Our ability to rapidly expand our operations will depend upon many factors, including our ability to work
in a regulated environment, market value-added products effectively to independent pharmacies, establish and maintain strategic relationships
with suppliers, and obtain adequate capital resources on acceptable terms. Any restrictions on our ability to expand may have a materially
adverse effect on our business, results of operations, and financial condition. Accordingly, we may be unable to achieve our targets
for sales growth, and our operations may not be successful or achieve anticipated operating results.
Additionally,
our growth may place a significant strain on our managerial, administrative, operational, and financial resources and our infrastructure.
Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us
to, among other things:
| ● | implement
additional management information systems; |
| | |
| ● | further
develop our operating, administrative, legal, financial, and accounting systems and controls; |
| | |
| ● | hire
additional personnel; |
| | |
| ● | develop
additional levels of management within our company; |
| | |
| ● | locate
additional office space; |
| | |
| ● | maintain
close coordination among our engineering, operations, legal, finance, sales and marketing,
and client service and support organizations; and |
| | |
| ● | manage
our expanding international operations. |
As
a result, we may lack the resources to deploy our services on a timely and cost-effective basis. Failure to accomplish any of these requirements
could impair our ability to deliver services in a timely fashion or attract and retain new customers.
Our
proprietary information, or that of our customers, suppliers and business partners, may be lost or we may suffer security breaches.
In
the ordinary course of our business, we expect to collect and store sensitive data, including valuable and commercially sensitive intellectual
property, clinical trial data, our proprietary business information and that of our future customers, suppliers and business partners,
and personally identifiable information of our customers, clinical trial subjects and employees, patients, in our data centers and on
our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security
measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance
or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed,
lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under
laws that protect the privacy of personal information, regulatory penalties, disrupt our operations, damage our reputation, and cause
a loss of confidence in our products and our ability to conduct clinical trials, which could adversely affect our business and reputation
and lead to delays in gaining regulatory approvals for our future product candidates. Although we maintain business interruption insurance
coverage, our insurance might not cover all losses from any future breaches of our systems.
Failure
of our information technology systems, including cybersecurity attacks or other data security incidents, could significantly disrupt
the operation of our business.
Our
business increasingly depends on the use of information technologies, which means that certain key areas such as research and development,
production and sales are to a large extent dependent on our information systems or those of third-party providers. Our ability to execute
our business plan and to comply with regulators’ requirements with respect to data control and data integrity, depends, in part,
on the continued and uninterrupted performance of our information technology systems, or IT systems and the IT systems supplied by third-party
service providers. As information systems and the use of software and related applications by our company, our business partners, suppliers,
and customers become more cloud-based, there has been an increase in global cybersecurity vulnerabilities and threats, including more
sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality,
availability and integrity of data and information. In addition, our IT systems are vulnerable to damage from a variety of sources, including
telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and backup measures,
some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems.
Despite the precautionary measures we and our third-party service providers have taken to prevent unanticipated problems that could affect
our IT systems, a successful cybersecurity attack or other data security incident could result in the misappropriation and/or loss of
confidential or personal information, create system interruptions, or deploy malicious software that attacks our systems. It is also
possible that a cybersecurity attack might not be noticed for some period of time. In addition, sustained or repeated system failures
or problems arising during the upgrade of any of our IT systems that interrupt our ability to generate and maintain data, and in particular
to operate our proprietary technology platform, could adversely affect our ability to operate our business. The occurrence of a cybersecurity
attack or incident could result in business interruptions from the disruption of our IT systems, or negative publicity resulting in reputational
damage with our stockholders and other stakeholders and/or increased costs to prevent, respond to or mitigate cybersecurity events. In
addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could expose us
or other third–parties to regulatory fines or penalties, litigation and potential liability, or otherwise harm our business.
We
may acquire other companies which could divert our management’s attention, result in additional dilution to our stockholders and
otherwise disrupt our operations and harm our operating results.
We
may in the future seek to acquire businesses, products or technologies that we believe could complement or expand our product offerings,
enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention
of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not
they are consummated. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies
successfully, effectively manage the combined business following the acquisition or realize anticipated cost savings or synergies. We
also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
| ● | incurrence
of acquisition-related costs; |
| ● | diversion
of management’s attention from other business concerns; |
| ● | unanticipated
costs or liabilities associated with the acquisition; |
| ● | harm
to our existing business relationships with collaboration partners as a result of the acquisition; |
| ● | harm
to our brand and reputation; |
| ● | the
potential loss of key employees; |
| ● | use
of resources that are needed in other parts of our business; and |
| ● | use
of substantial portions of our available cash to consummate the acquisition. |
In
the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results arising from
the impairment assessment process. Acquisitions may also result in dilutive issuances of equity securities or the incurrence of debt,
which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our business,
results of operations and financial condition may be adversely affected.
If
we make any acquisitions, they may disrupt or have a negative impact on our business.
If
we make acquisitions in the future, funding permitting, which may not be available on favorable terms, if at all, we could have difficulty
integrating the acquired company’s assets, personnel and operations with our own. We do not anticipate that any acquisitions or
mergers we may enter into in the future would result in a change of control of the Company. In addition, the key personnel of the acquired
business may not be willing to work for us. We cannot predict the effect expansion may have on our core business. Regardless of whether
we are successful in making an acquisition, the negotiations could disrupt our ongoing business, distract our management and employees
and increase our expenses. In addition to the risks described above, acquisitions are accompanied by a number of inherent risks, including,
without limitation, the following:
| ● | the
difficulty of integrating acquired products, services or operations; |
| ● | the
potential disruption of the ongoing businesses and distraction of our management and the
management of acquired companies; |
| ● | difficulties
in maintaining uniform standards, controls, procedures and policies; |
| ● | the
potential impairment of relationships with employees and customers as a result of any integration
of new management personnel; |
| ● | the
potential inability or failure to achieve additional sales and enhance our customer base
through cross-marketing of the products to new and existing customers; |
| ● | the
effect of any government regulations which relate to the business acquired; |
| ● | potential
unknown liabilities associated with acquired businesses or product lines, or the need to
spend significant amounts to retool, reposition or modify the marketing and sales of acquired
products or operations, or the defense of any litigation, whether or not successful, resulting
from actions of the acquired company prior to our acquisition; and |
| ● | potential
expenses under the labor, environmental and other laws of various jurisdictions. |
Our
business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems
encountered in connection with an acquisition, many of which cannot be presently identified. These risks and problems could disrupt our
ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.
We
may apply working capital and future funding to uses that ultimately do not improve our operating results or increase the value of our
securities.
In
general, we have complete discretion over the use of our working capital and any new investment capital we may obtain in the future.
Because of the number and variety of factors that could determine our use of funds, our ultimate expenditure of funds (and their uses)
may vary substantially from our current intended operating plan for such funds.
We
intend to use existing working capital and future funding to support the development of our products and services, product purchases
in our wholesale distribution division, the expansion of our marketing, or the support of operations to educate our customers. We will
also use capital for market and network expansion, acquisitions, and general working capital purposes. However, we do not have more specific
plans for the use and expenditure of our capital. Our management has broad discretion to use any or all of our available capital reserves.
Our capital could be applied in ways that do not improve our operating results or otherwise increase the value of a stockholder’s
investment.
We
have never paid or declared any dividends on our common stock.
We
have never paid or declared any dividends on our common stock or preferred stock. Likewise, we do not anticipate paying, in the near
future, dividends or distributions on our common stock. Any future dividends on common stock will be declared at the discretion of our
Board and will depend, among other things, on our earnings, our financial requirements for future operations and growth, and other facts
as we may then deem appropriate. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if
any, will depend solely on an increase, if any, in the market value of our common stock.
Stockholders
may be diluted significantly through our efforts to obtain financing and satisfy obligations through the issuance of additional shares
of our common stock.
Wherever
possible, our Board will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash
consideration will consist of restricted shares of our common stock or where shares are to be issued to our officers, directors and applicable
consultants. Our Board of Directors has authority, without action or vote of the stockholders, but subject to Nasdaq rules and regulations
(which generally require stockholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding
shares of common stock or voting rights representing over 20% of our then outstanding shares of stock, subject to certain exceptions),
to issue all or part of the authorized but unissued shares of common stock. In addition, we may attempt to raise capital by selling shares
of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing stockholders,
which may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing
management’s ability to maintain control of the Company because the shares may be issued to parties or entities committed to supporting
existing management.
Our
growth depends in part on the success of our strategic relationships with third parties.
In
order to grow our business, we anticipate that we will need to continue to depend on our relationships with third parties, including
our technology providers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and
resources. Our competitors may be effective in providing incentives to third parties to favor their products or services, or utilization
of, our products and services. In addition, acquisitions of our partners by our competitors could result in a decrease in the number
of our current and potential customers. If we are unsuccessful in establishing or maintaining our relationships with third parties, our
ability to compete in the marketplace or to grow our revenue could be impaired and our results of operations may suffer. Even if we are
successful, we cannot assure you that these relationships will result in increased customer use of our products or increased revenue.
Claims,
litigation, government investigations, and other proceedings may adversely affect our business and results of operations.
We
are currently subject to, and expect to continue to be regularly subject to, actual and threatened claims, litigation, reviews, investigations,
and other proceedings. In addition, we have filed lawsuits against certain parties for matters we discovered which related to KBL, prior
to the Business Combination. Any of these types of proceedings may have an adverse effect on us because of legal costs, disruption of
our operations, diversion of management resources, negative publicity, and other factors. Our current legal proceedings are described
in “Certain Relationships and Related Party Transactions – Related Party Litigation” and “Note 11 - Commitments
and Contingencies”, under the heading “Litigation and Other Loss Contingencies”, in the consolidated financial statements
included herein beginning on page F-1. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties.
Determining legal reserves and possible losses from such matters involves judgment and may not reflect the full range of uncertainties
and unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded,
and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have
a material effect on our business, consolidated financial position, results of operations, or cash flows. In addition, it is possible
that a resolution of one or more such proceedings, including as a result of a settlement, could require us to make substantial future
payments, prevent us from offering certain products or services, require us to change our business practices in a manner materially adverse
to our business, requiring development of non-infringing or otherwise altered products or technologies, damaging our reputation, or otherwise
having a material effect on our operations.
Changes
in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results
of operations.
We
are subject to laws, regulations and rules enacted by national, regional and local governments. In particular, we are required to comply
with certain SEC, Nasdaq and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations
and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may
also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations.
In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse
effect on our business and results of operations.
Certain
of our executive officers and directors are now, and all of them may in the future become, affiliated with entities engaged in business
activities similar to those conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular
business opportunity should be presented.
Our
executive officers and directors are, or may in the future become, affiliated with entities that are engaged in business activities similar
to those that are conducted by us. Our officers and directors also may become aware of business opportunities which may be appropriate
for presentation to us and the other entities to which they owe certain fiduciary or contractual duties. Accordingly, they may have conflicts
of interest in determining whether a particular business opportunity should be presented to our company or to another entity. These conflicts
may not be resolved in our favor and a potential opportunity may be presented to another entity prior to its presentation to us. Our
Certificate of Incorporation provides that we renounce our interest in any corporate opportunity offered to any director or officer unless
such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity
is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue.
Our
executive officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict
with our interests.
We
have not adopted a policy that expressly prohibits our directors, executive officers, security holders or affiliates from having a direct
or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are
a party or have an interest. In fact, we may enter into a strategic transaction with a target business that is affiliated with our directors
or executive officers. Nor do we have a policy that expressly prohibits any such persons from engaging for their own account in business
activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
Certain of our officers and directors hold positions with companies which may be competitors of us. See also the biographies of our officers
and directors below under “Management”.
Our
business has been, and may continue to be, adversely affected by the COVID-19 pandemic.
In
December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. In January 2020, COVID-19 spread
to other parts of the word, including the United States and Europe, and efforts to contain its spread have intensified, with varying
degrees of success. As a result, businesses have closed and limits have been placed on travel and everyday activities. The extent to
which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence,
such as the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures
or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
Should the COVID-19 pandemic continue, our plans could be delayed or interrupted. The spread of COVID-19 has also created global economic
uncertainty, which may cause partners, suppliers and potential customers to closely monitor their costs and reduce their spending budget.
The foregoing could materially adversely affect the clinical trials, supply chain, financial condition and financial performance of our
company.
Enrollment
of patients in our clinical trials, maintaining patients in our ongoing clinical trials, doing follow up visits with recruited patients
and collecting data have been, and may continue to be, delayed or limited as certain of our clinical trial sites limit their onsite staff
or temporarily close as a result of the COVID-19 pandemic and ongoing government restrictions. In addition, patients may not be able
or willing to visit clinical trial sites for dosing or data collection purposes due to limitations on travel and physical distancing
imposed or recommended by federal or state governments or patients’ reluctance to visit the clinical trial sites during the pandemic.
These factors resulting from the COVID-19 pandemic could delay or prevent the anticipated readouts from our clinical trials, which could
ultimately delay or prevent our ability to generate revenues and could have a material adverse effect on our results of operations. The
foregoing could materially adversely affect the clinical trials, supply chain, financial condition and financial performance of our company.
Additionally,
our Frozen Shoulder trial has been adversely affected. The trial was opened to recruitment at the end of May 2022 following delays in
gaining approvals due to backlogs in the National Institute of Health Research (NIHR) system due to COVID-19 and consequential staff
vacancies. Nine participants were recruited for participation in the trial through mid-February 2023. The U.K. research system has faced
unprecedented challenges following the COVID-19 pandemic both in terms of support services and at the point of delivery of clinical care.
This has resulted in the NIHR instituting their Recovery and Reset program to identify and close trials that are facing challenges. Our
Frozen Shoulder trial was considered to be one of such trials, due to the considerable challenges we faced to open recruitment sites
and enroll sufficient participants. Therefore, the NIHR has asked the chief investigators to close the trial for further recruitment.
This closure or future closures or difficulties relating to the recruitment of participants in future studies could have a material adverse
effect on our ability to complete studies, the timeline for future drugs and our ability to generate revenues and support our operations.
We
may be adversely affected by climate change or by legal, regulatory or market responses to such change.
The
long-term effects of climate change are difficult to predict; however, such effects may be widespread. Impacts from climate change may
include physical risks (such as rising sea levels or frequency and severity of extreme weather conditions-which may affect our current
operations due to among other things, the fact that a majority of our operations we are based in California, which is prone to inclement
weather), social and human effects (such as population dislocations or harm to health and well-being), compliance costs and transition
risks (such as regulatory or technology changes) and other adverse effects. The effects of climate change could increase the cost of
certain products, commodities and energy (including utilities), which in turn may impact our ability to procure goods or services required
for the operation of our business. Climate change could also lead to increased costs as a result of physical damage to or destruction
of our facilities, loss of inventory, and business interruption due to weather events that may be attributable to climate change. These
events and impacts could materially adversely affect our business operations, financial position or results of operation.
Environmental,
social and governance matters may impact our business and reputation.
Governmental
authorities, non-governmental organizations, customers, investors, external stakeholders and employees are increasingly sensitive to
environmental, social and governance, or ESG, concerns, such as diversity and inclusion, climate change, water use, recyclability or
recoverability of packaging, and plastic waste. This focus on ESG concerns may lead to new requirements that could result in increased
costs associated with developing, manufacturing and distributing our products. Our ability to compete could also be affected by changing
customer preferences and requirements, such as growing demand for more environmentally friendly products, packaging or supplier practices,
or by failure to meet such customer expectations or demand. We risk negative stockholder reaction, including from proxy advisory services,
as well as damage to our brand and reputation, if we do not act responsibly, or if we are perceived to not be acting responsibly in key
ESG areas, including equitable access to medicines, product quality and safety, diversity and inclusion, environmental stewardship, support
for local communities, corporate governance and transparency, and addressing human capital factors in our operations. If we do not meet
the ESG expectations of our investors, customers and other stakeholders, we could experience reduced demand for our products, loss of
customers, and other negative impacts on our business and results of operations.
The
United Kingdom’s withdrawal from the European Union could result in increased regulatory and legal complexity, which may make it
more difficult for us to do business in the United Kingdom and/or Europe and impose additional challenges in securing regulatory approval
of our product candidates in the United Kingdom and/or Europe.
The
United Kingdom’s exit from the European Union as of January 31, 2020, with a transitional period up to December 31, 2020, commonly
referred to as “Brexit”, has caused political and economic uncertainty, including in the regulatory framework applicable
to our operations and product candidates in the United Kingdom and the European Union, and this uncertainty may persist for years. Brexit
could, among other outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union,
and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe. As one
of the Brexit consequences, the EMA has relocated from the United Kingdom to the Netherlands. This has led to a significant reduction
of the EMA workforce, which has resulted and could further result in significant disruption and delays in its administrative procedures,
such as granting clinical trial authorization or opinions for marketing authorization, disruption of importation and export of active
substance and other components of new drug formulations, and disruption of the supply chain for clinical trial product and final authorized
formulations.
The
cumulative effects of the disruption to the regulatory framework may add considerably to the development lead time to marketing authorization
and commercialization of products in the European Union and/or the United Kingdom It is possible that there will be increased regulatory
complexities, which can disrupt the timing of our clinical trials and regulatory approvals. In addition, changes in, and legal uncertainty
with regard to, national and international laws and regulations may present difficulties for our clinical and regulatory strategy. Any
delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing
our product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenues and achieve and
sustain profitability.
In
addition, as a result of Brexit, other European countries may seek to conduct referenda with respect to their continuing membership with
the European Union. Given these possibilities and others we may not anticipate, as well as the absence of comparable precedent, it is
unclear what financial, regulatory and legal implications the withdrawal of the United Kingdom from the European Union will have, how
such withdrawal will affect us, and the full extent to which our business could be adversely affected.
The
increasing use of social media platforms presents new risks and challenges to our business.
Social
media is increasingly being used to communicate about pharmaceutical companies’ research, product candidates, and the diseases
such product candidates are being developed to prevent. Social media practices in the pharmaceutical industry continue to evolve and
regulations relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations
applicable to our business, resulting in potential regulatory actions against us. For example, subjects may use social media channels
to comment on their experience in an ongoing blinded clinical trial or to report an alleged adverse event. When such events occur, there
is a risk that we fail to monitor and comply with applicable adverse event reporting obligations, or we may not be able to defend our
business or the public’s legitimate interests in the face of the political and market pressures generated by social media due to
restrictions on what we may say about our investigational product candidates. There is also a risk of inappropriate disclosure of sensitive
information or negative or inaccurate posts or comments about us on any social media or networking website. Certain data protection regulations,
such as the GDPR, apply to personal data contained on social media. If any of these events were to occur or we otherwise fail to comply
with applicable regulations, we could incur liability, face regulatory actions or incur harm to our business, including damage to our
reputation.
We
may incur indebtedness in the future which could reduce our financial flexibility, increase interest expense and adversely impact our
operations and our costs.
We
may incur significant amounts of indebtedness in the future. Our level of indebtedness could affect our operations in several ways, including
the following:
| ● | a
significant portion of our cash flows is required to be used to service our indebtedness; |
| ● | a
high level of debt increases our vulnerability to general adverse economic and industry conditions; |
| ● | covenants
contained in the agreements governing our outstanding indebtedness limit our ability to borrow
additional funds and provide additional security interests, dispose of assets, pay dividends
and make certain investments; |
| ● | a
high level of debt may place us at a competitive disadvantage compared to our competitors
that are less leveraged and, therefore, may be able to take advantage of opportunities that
our indebtedness may prevent us from pursuing; and |
| ● | debt
covenants may affect our flexibility in planning for, and reacting to, changes in the economy
and in our industry. |
A
high level of indebtedness increases the risk that we may default on our debt obligations. We may not be able to generate sufficient
cash flows to pay the principal or interest on our debt, and future working capital, borrowings or equity financing may not be available
to pay or refinance such debt. If we do not have sufficient funds and are otherwise unable to arrange financing, we may have to sell
significant assets or have a portion of our assets foreclosed upon which could have a material adverse effect on our business, financial
condition and results of operations.
We
may be adversely impacted by changes in accounting standards.
Our
consolidated financial statements are subject to the application of the accounting principles generally accepted in the United States
of America (“U.S. GAAP”), which periodically is revised or reinterpreted. From time to time, we are required to adopt
new or revised accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board (“FASB”)
and the SEC. It is possible that future accounting standards may require changes to the accounting treatment in our consolidated financial
statements and may require us to make significant changes to our financial systems. Such changes might have a materially adverse impact
on our financial position or results of operations.
For
all of the foregoing reasons and others set forth herein, an investment in our securities involves a high degree of risk.
USE
OF PROCEEDS
We
will not receive any of the proceeds from the sale by the Selling Stockholder of the Shares in this offering. The Selling Stockholder
will receive all of the proceeds from this offering. However, if all of the July 2022 Common Warrants, the December 2022 Common Warrants
and the April 2023 Common Warrants that are covered by this prospectus are exercised for cash, we may receive proceeds of up to approximately
$545,755, $4.6 million, and $2.8 million, respectively. We cannot predict when, or if, the Warrants will be exercised. It is possible
that the Warrants may expire and may never be exercised for cash. We intend to use any proceeds from the exercise of the Warrants for
research and development, general corporate and working capital purposes, including the preparation and submission of a marketing authorization
application for Dupuytren’s contracture in the UK and legal expenses. Our management will have broad discretion over the use of
proceeds from the exercise of the July 2022 Common Warrants, the December 2022 Common Warrants and the April 2023 Common Warrants.
The
Selling Stockholder will pay any underwriting discounts and commissions and expenses incurred by the Selling Stockholder for brokerage,
accounting, tax or legal services or any other expenses incurred by the Selling Stockholder in disposing of the Shares. We will bear
all other costs, fees and expenses incurred in effecting the registration of the Shares covered by this prospectus, including all registration
and filing fees, and fees and expenses of our counsel and our independent registered public accountants.
MARKET
PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock, Public Warrants, rights and units were previously listed on Nasdaq under the symbols “KBLM”, “KBLMW”,
“KBLMR” and “KBLMU”, respectively. Our units commenced public trading on April 7, 2017 and our common stock,
Public Warrants and rights each commenced separate public trading on May 2, 2017. Our units automatically separated into the component
securities upon consummation of the Business Combination and, as a result, no longer trade as a separate security, and our common stock
and Public Warrants began trading on Nasdaq under the symbols “ATNF” and “ATNFW,” respectively. Prior to the
Closing, each unit consisted of one share of our common stock, one right convertible into 1/10th of one share of our common stock, and
one warrant to purchase one half of one share of our common stock at an exercise price of $11.50 per whole share.
Holders
As of May 4, 2023, 5,317,586 shares of our common
stock were outstanding. As of May 4, 2023, there were 138 holders of record of our common stock.
Dividend
Policy
We
have never paid or declared any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future.
We anticipate that we will retain all of our future earnings for use in the operation of our business and for general corporate purposes.
Any determination to pay dividends in the future will be at the discretion of our Board. Accordingly, investors must rely on sales of
their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of the results of operations and financial condition of 180 Life Sciences Corp. as of and for the years
ended December 31, 2022 and 2021 should be read in conjunction with our consolidated financial statements and the notes to those consolidated
financial statements that are included elsewhere in this prospectus. This Management’s Discussion and Analysis of Financial Condition
and Results of Operations contains statements that are forward-looking. See “Cautionary Statement Regarding Forward-Looking Statements”
above. Actual results could differ materially because of the factors discussed in “Risk Factors” elsewhere in this prospectus,
and other factors that we may not know.
As
of December 31, 2022, we had an accumulated deficit of $107,408,545 and working capital of $3,270,608, and for the year ended December
31, 2022, a net loss of $38,726,259 and cash used in operating activities of $12,127,585. The accompanying consolidated financial statements
have been prepared assuming we will continue as a going concern. As we are not generating revenues, we need to raise a significant amount
of capital in order to pay our debts and cover our operating costs. While we raised capital in August 2021, July 2022 and December 2022,
there is no assurance that we will be able to raise additional needed capital or that such capital will be available under favorable
terms.
We
are subject to all the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry.
Due to the absence of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating
losses until we can successfully implement our business strategy, which includes all associated revenue streams. We may never ever achieve
profitable operations or generate significant revenues.
We
currently have a minimum monthly cash requirement spend of approximately $900,000. We believe that in the aggregate, we will require
significant additional capital funding to support and expand the research and development and marketing of our products, fund future
clinical trials, repay debt obligations, provide capital expenditures for additional equipment and development costs, payment obligations,
office space and systems for managing the business, and cover other operating costs until our planned revenue streams from products are
fully-implemented and begin to offset our operating costs, if ever.
Since
our inception, we have funded our operations with the proceeds from equity and debt financings. We have experienced liquidity issues
due to, among other reasons, our limited ability to raise adequate capital on acceptable terms. We have historically relied upon the
issuance equity and promissory notes that are convertible into shares of our common stock to fund our operations and have devoted significant
efforts to reduce that exposure. We anticipate that we will need to issue equity to fund our operations and repay our outstanding debt
for the foreseeable future. If we are unable to achieve operational profitability or we are not successful in securing other forms of
financing, we will have to evaluate alternative actions to reduce our operating expenses and conserve cash.
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability
of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern. The consolidated
financial statements included in this prospectus also include a going concern footnote.
Additionally,
wherever possible, our Board will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the
non-cash consideration will consist of restricted shares of our common stock, preferred stock or warrants to purchase shares of our common
stock. Our Board has authority, without action or vote of the stockholders, but subject to Nasdaq rules and regulations (which generally
require stockholder approval for any transactions which would result in the issuance of more than 20% of our then outstanding shares
of common stock or voting rights representing over 20% of our then outstanding shares of stock), to issue all or part of the authorized
but unissued shares of common stock, preferred stock or warrants to purchase such shares of common stock. In addition, we may attempt
to raise capital by selling shares of our common stock, possibly at a discount to market in the future. These actions will result in
dilution of the ownership interests of existing stockholders, may further dilute common stock book value, and that dilution may be material.
Such issuances may also serve to enhance existing management’s ability to maintain control of us, because the shares may be issued
to parties or entities committed to supporting existing management.
Organization
of MD&A
Our
Management’s Discussion and Analysis of Financial Condition and Results of Operations (the “MD&A”) is provided
in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations,
financial condition, and cash flows. The MD&A is organized as follows:
| ● | Business
Overview and Recent Events. A summary of our business and certain material recent events. |
| | |
| ● | Significant
Financial Statement Components. A summary of our significant financial statement components. |
| | |
| ● | Results
of Operations. An analysis of our financial results comparing the twelve months ended
December 31, 2022 and 2021. |
| | |
| ● | Liquidity
and Capital Resources. An analysis of changes in our balance sheets and cash flows and
discussion of our financial condition. |
| | |
| ● | Critical
Accounting Policies and Estimates. Accounting estimates that we believe are important
to understanding the assumptions and judgments incorporated in our reported financial results
and forecasts. |
Business
Overview and Recent Events
The
MD&A and the related financial statements for the year ended December 31, 2022 primarily covers the operations of 180, which is a
clinical stage biotechnology company headquartered in Palo Alto, California, focused on the development of therapeutics for unmet medical
needs in chronic pain, inflammation, fibrosis and other inflammatory diseases, where anti-TNF therapy will provide a clear benefit to
patients, by employing innovative research, and, where appropriate, combination therapy. We have three product development platforms:
| ● | fibrosis
and anti-tumor necrosis factor (“TNF”); |
| | |
| ● | drugs
which are derivatives of cannabidiol (“CBD”); and |
| | |
| ● | alpha
7 nicotinic acetylcholine receptor (“α7nAChR”). |
We
have several future product candidates in development, including one product candidate which has recently completed a successful Phase
2b clinical trial in the United Kingdom for Dupuytren’s Contracture, a condition that affects the development of fibrous connective
tissue in the palm of the hand. 180 was founded by several world-leading scientists in the biotechnology and pharmaceutical sectors.
We
intend to invest resources to successfully complete the clinical programs that are underway, discover new drug candidates, and develop
new molecules to build up on our existing pipeline to address unmet clinical needs. The product candidates are designed via a platform
comprised of defined unit operations and technologies. This work is performed in a research and development environment that evaluates
and assesses variability in each step of the process in order to define the most reliable production conditions.
We
may rely on third-party contract manufacturing organizations (“CMOs”) and other third parties for the manufacturing
and processing of the product candidates in the future. We believe the use of contract manufacturing and testing for the first clinical
product candidates is cost-effective and has allowed us to rapidly prepare for clinical trials in accordance with our development plans.
We expect that third-party manufacturers will be capable of providing and processing sufficient quantities of these product candidates
to meet anticipated clinical trial demands.
Significant
Financial Statement Components
Research
and Development
To
date, 180’s research and development expenses have related primarily to discovery efforts and preclinical and clinical development
of its three product platforms: (1) fibrosis and anti-TNF; (2) drugs which are derivatives of CBD, and (3) α7nAChR. Research and
development expenses consist primarily of costs associated with those three product platforms, which include:
| ● | expenses
incurred under agreements with 180’s collaboration partners and third-party contract
organizations, investigative clinical trial sites that conduct research and development activities
on its behalf, and consultants; |
| | |
| ● | costs
related to production of clinical materials, including fees paid to contract manufacturers; |
| | |
| ● | laboratory
and vendor expenses related to the execution of preclinical and clinical trials; |
| | |
| ● | employee-related
expenses, which include salaries, benefits and stock-based compensation; and |
| | |
| ● | facilities
and other expenses, which include expenses for rent and maintenance of facilities, depreciation
and amortization expense and other supplies. |
We
expense all research and development costs in the periods in which they are incurred. We accrue for costs incurred as services are provided
by monitoring the status of each project and the invoices received from our external service providers. We adjust our accrual as actual
costs become known. When contingent milestone payments are owed to third parties under research and development arrangements or license
agreements, the milestone payment obligations are expensed when the milestone results are achieved.
Research
and development activities are central to our business model. Product candidates in later stages of clinical development generally have
higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage
clinical trials. We expect that research and development expenses will increase over the next several years as clinical programs progress
and as we seek to initiate clinical trials of additional product candidates. It is also expected that increased research and development
expenses will be incurred as additional product candidates are selectively identified and developed. However, it is difficult to determine
with certainty the duration and completion costs of current or future preclinical programs and clinical trials of product candidates.
The
duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors that include,
but are not limited to, the following:
| ● | per
patient trial costs; |
| | |
| ● | the
number of patients that participate in the trials; |
| | |
| ● | the
number of sites included in the trials; |
| | |
| ● | the
countries in which the trials are conducted; |
| | |
| ● | the
length of time required to enroll eligible patients; |
| | |
| ● | the
number of doses that patients receive; |
| | |
| ● | the
drop-out or discontinuation rates of patients; |
| | |
| ● | potential
additional safety monitoring or other studies requested by regulatory agencies; |
| | |
| ● | the
impact of COVID-19 on the length of our trials; |
| | |
| ● | the
duration of patient follow-up; and |
| | |
| ● | the
efficacy and safety profile of the product candidates. |
In
addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing
capability and commercial viability. We will determine which programs to pursue and fund in response to the scientific and clinical success
of each product candidate, as well as an assessment of each product candidate’s commercial potential.
Because
the product candidates are still in clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate
the actual amounts necessary to successfully complete the development and commercialization of product candidates or whether, or when,
we may achieve profitability. Due to the early-stage nature of these programs, we do not track costs on a project-by-project basis. As
these programs become more advanced, we intend to track the external and internal cost of each program.
General
and Administrative
General
and administrative expenses consist primarily of salaries and other staff-related costs, including stock-based compensation for shares
of common stock issued and options granted to founders, directors and personnel in executive, commercial, finance, accounting, legal,
investor relations, facilities, business development and human resources functions and include vesting conditions.
Other
significant general and administrative costs include costs relating to facilities and overhead costs, legal fees relating to corporate
and patent matters, litigation, SEC filings, insurance, investor relations costs, fees for accounting and consulting services, and other
general and administrative costs. General and administrative costs are expensed as incurred, and we accrue amounts for services provided
by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service
providers and adjusting our accruals as actual costs become known.
It
is expected that the general and administrative expenses will increase over the next several years to support our continued research
and development activities, manufacturing activities, potential commercialization of our product candidates and the increased costs of
operating as a public company. These increases are anticipated to include increased costs related to the hiring of additional personnel,
developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being
a public company, as well as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements,
insurance and investor relations costs.
Other
Income
Other
income primarily represents fees earned for research and development work performed for other companies, some of which are related parties.
Interest
Expense
Interest
expense consists primarily of interest expense related to debt instruments.
Gain
(Loss) on Extinguishment of Convertible Notes
Gain
(loss) on extinguishment of convertible notes represents the shortfall (excess) of the reacquisition cost of convertible notes as compared
to their carrying value.
Loss
on Goodwill Impairment
Loss
on goodwill impairment represents the excess of the carrying value of the asset over its estimated fair market value during the reporting
period which is not recoverable.
Loss
on IP R&D assets impairment
Loss
on IP R&D assets impairment represents the excess of the carrying value of the assets over its estimated fair market value during
the reporting period which is not recoverable.
Change
in Fair Value of IR R&D assets
Change
in fair value of IP R&D assets represents the non-cash change in fair value of the assets during the reporting period.
Change
in Fair Value of Derivative Liabilities
Change
in fair value of derivative liabilities represents the non-cash change in fair value of derivative liabilities during the reporting period.
Gains/losses resulting from change in fair value of derivative liabilities during the years ended December 31, 2022 and 2021, were driven
by decreases/increases in stock price during the period, resulting in a lower/higher fair value of the underlying liability.
Offering
Costs Allocated to Warrant Liabilities
Change
in offering costs allocated to warrant liabilities represents placement agent fees and offering expenses which were allocated to the
Private Investment in Public Equity (“PIPE”) Warrants and expensed immediately as they are liability classified.
Change
in Fair Value of Accrued Issuable Equity
Change
in fair value of accrued issuable equity represents the non-cash change in fair value of accrued equity prior to its formal issuance.
CONSOLIDATED
RESULTS OF OPERATIONS
Consolidated
Results of Operations
For
the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021
| |
For
the Years Ended December
31, | |
| |
2022 | | |
2021 | |
Operating Expenses: | |
| | |
| |
Research
and development | |
$ | 2,191,834 | | |
$ | 1,000,769 | |
Research and development
- related parties | |
| 240,731 | | |
| 2,947,536 | |
General and administrative | |
| 15,459,788 | | |
| 11,230,118 | |
General
and administrative - related parties | |
| 5,612 | | |
| 462,580 | |
Total
Operating Expenses | |
| 17,897,965 | | |
| 15,641,003 | |
Loss
From Operations | |
| (17,897,965 | ) | |
| (15,641,003 | ) |
| |
| | | |
| | |
Other (Expense) Income: | |
| | | |
| | |
Gain on settlement of
liabilities | |
| - | | |
| 926,829 | |
Other expense | |
| - | | |
| (146,822 | ) |
Interest expense | |
| (28,175 | ) | |
| (135,953 | ) |
Interest expense - related
parties | |
| 1,508 | | |
| (50,255 | ) |
Loss on extinguishment
of convertible notes payable, net | |
| - | | |
| (9,737 | ) |
Loss on goodwill impairment | |
| (33,547,278 | ) | |
| - | |
Loss on IP R&D assets
impairment | |
| (3,342,084 | ) | |
| - | |
Change in fair value
of derivative liabilities | |
| 15,144,986 | | |
| (4,677,388 | ) |
Change in fair value
of accrued issuable equity | |
| - | | |
| (9,405 | ) |
Offering
costs allocated to warrant liabilities | |
| - | | |
| (604,118 | ) |
Total
Other Expense, Net | |
| (21,771,043 | ) | |
| (4,706,849 | ) |
Loss
Before Income Taxes | |
| (39,669,008 | ) | |
| (20,347,852 | ) |
Income
tax benefit | |
| 942,749 | | |
| 23,204 | |
Net
Loss | |
$ | (38,726,259 | ) | |
$ | (20,324,648 | ) |
Research
and Development
During
the year ended December 31, 2022, we incurred research and development expenses of $2,191,834 compared to $1,000,769 incurred for the
year ended December 30, 2021, representing an increase of $1,191,065 or 119%. The increase includes a $1,000,000 increase in stock-based
compensation expense, a $430,000 increase in expenses related to Oxford University agreements, a $290,000 increase in salaries expense,
a $270,000 increase in expenses related to the Scientific Advisory Board, an increase in consulting expenses of $120,000, as well as
increases of $100,000 related to patents and licenses. This activity was offset by decreases in expenses related to contracts with Yissum
Research Development Company of the Hebrew University of Jerusalem, Ltd. (“Yissum”) and Gallily Ruth of $460,000 and
$250,000, respectively, a decrease related to a tax credit of $210,000 and a decrease in related-party consulting expenses of $110,000.
Research
and Development - Related Parties
During
the year ended December 31, 2022, we incurred research and development expenses - related parties of $240,731 compared to $2,947,536
incurred for the year ended December 31, 2021, representing a decrease of $2,706,805 or 92%. The decrease includes a decrease in stock-based
compensation expense of $2,300,000; this decrease is comprised of approximately $800,000 paid to Jagdeep Nanchahal in the prior year
for his research in the Phase 2b clinical trial for Dupuytren’s Contracture (RIDD), as well as stock-based compensation expense
of approximately $1,400,000 paid to Mr. Nanchahal in the prior year as well. There was also a decrease in consulting expenses of $460,000.
General
and Administrative
During
the year ended December 31, 2022, we incurred general and administrative expenses of $15,459,788 compared to $11,230,118 incurred for
the year ended December 31, 2021, representing an increase of $4,229,670 or 38%. The increase is attributable to an increase in legal
fees of $3,700,000, an increase of $880,000 in directors’ and officers’ insurance expenses as well as an increase in salaries
expense of $550,000, offset by decreases in exchange-related penalties of $530,000, a decrease in settlement expenses of $360,000, a
decrease in stock-based compensation expense of $180,000 and a decrease in consulting expenses of $40,000.
General
and Administrative - Related Parties
During
the year ended December 31, 2022, we incurred general and administrative expenses - related parties of $5,612 compared to $462,580 incurred
for the year ended December 31, 2021, representing a decrease of $456,968, or 99%. The decrease is primarily related to a decrease in
related party consulting expenses of $125,000, as well as a decrease in bad debt expense of $300,000 incurred in connection with a receivable
from related parties.
Other
Expense, Net
During
the year ended December 31, 2022, we incurred other expenses, net of $21,771,043 compared to $4,706,849 for the year ended December 31,
2021, representing an increase in other expenses of $17,064,194 or 363%. The increase in expenses was primarily due to the following:
i) an impairment to goodwill in the current year of $33,547,278, ii) an impairment to IP R&D assets in the current year of $3,342,084
and iii) a gain on the settlement of liabilities of $926,829 in the prior year that was absent from the current year, offset by iv) a
change in the current year in the fair value of derivative liabilities of $19,822,374 and v) $604,118 of warrant costs due to an offering
in the prior year.
Liquidity
and Capital Resources
As
of December 31, 2022 and 2021, we had cash balances of $6,970,110 and $8,224,508, respectively, and working capital of $3,270,608 and
a working capital deficit of $8,498,193, respectively.
For
the years ended December 31, 2022 and 2021, cash used in operating activities was $12,127,585 and $19,371,428, respectively. Our cash
used in operations for the year ended December 31, 2022 was primarily attributable to our net loss of $38,726,259, adjusted for non-cash
expenses in the aggregate amount of $23,876,048, as well as $2,722,626 of net cash used in changes in the levels of operating assets
and liabilities. A significant portion of the non-cash expenses during the year relates to $36.9 million of non-recurring expenses associated
with the impairment of goodwill and IP R&D assets (see “Note 5 - Intangible Assets and Impairment of Long-lived Assets”),
offset by changes in fair value of derivative liabilities of $15,144,986 for the year. Our cash used in operations for the year ended
December 31, 2021 was primarily attributable to our net loss of $20,324,648, adjusted for non-cash expenses in the aggregate amount of
$9,760,161, as well as $8,806,941 of net cash used in changes in the levels of operating assets and liabilities. A significant portion
of cash used in operations during the year relates to $4.8 million of non-recurring expenses associated with the business combination.
For
the years ended December 31, 2022 and 2021, there was no cash provided by investing activities.
For
the years ended December 31, 2022 and 2021, cash provided by financing activities was $10,873,606 and $25,411,919, respectively. Cash
provided by financing activities during the year ended December 31, 2022 was primarily comprised of proceeds from the July 2022 Offering
(as defined herein) of $6,499,737, proceeds from the December 2022 Offering (as defined herein) of $5,999,851 and proceeds from loans
payable of $1,060,890, partially offset by offering costs paid in connection with our July 2022 and December 2022 Offerings of $529,982
and $484,991, respectively, and repayments of loans payable and loans payable - related parties of $1,591,035 and $81,277, respectively.
Cash provided by financing activities during the year ended December 31, 2021 was comprised of proceeds from the sale of common stock
and warrants of $26,666,200 and proceeds from loans payable in the amount of $1,618,443, partially offset by repayments of convertible
debt and loans payable of ($10,000) and ($807,594), respectively, and offering costs paid of ($2,055,130).
Our
product candidates may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future.
We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to
increase. As a result, until such time, if ever, as we are able to generate substantial product revenue, we expect to finance our cash
needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses
and other similar arrangements, which may not be available on favorable terms, if at all. The sale of additional equity or debt securities,
if accomplished, may result in dilution to our then stockholders. Our primary uses of capital are, and we expect will continue to be,
compensation and related expenses, third-party clinical research and development services, license payments or milestone obligations
that may arise, laboratory and related supplies, clinical costs, potential manufacturing costs, legal and other regulatory expenses and
general overhead costs.
Our
material cash requirements and time periods of such requirements from known contractual and other obligations include milestone and royalty
payments related to license agreements with Oxford University and Yissum, payments related to the D&O insurance, payments to consultants
and payments related to outside consulting firms, such as legal counsel, auditors, accountants, etc. These cash requirements, in the
aggregate, amount to approximately $10,000,000 for 2023 and $27,000,000 for the years 2024 through 2027.
Further,
our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials
and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous
risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the
amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
We
have not yet achieved profitability and expect to continue to incur cash outflows from operations. It is expected that our research and
development and general and administrative expenses will continue to increase and, as a result, we will eventually need to raise additional
capital to fund our operations. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail
or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. Our operating needs include the
planned costs to operate our business, including amounts required to fund working capital and capital expenditures. As of December 31,
2022, the conditions outlined above indicated that there was a substantial doubt about our ability to continue as a going concern within
one year after the financial statement issuance date. However, in August 2021, July 2022 and December 2022, we raised additional capital
of approximately $13.9 million, $6.0 million and $5.5 million, respectively, and with current cash on hand of approximately $2.7 million
as of March 29, 2023, we expect to be able to continue as a going concern through the third quarter of 2023.
Our
consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a
going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of
assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement
values. The consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Recent
Financing and Settlement Transactions
July
2022 Offering
On July 17, 2022, we entered into a securities purchase agreement with
the Selling Stockholder (the “July 2022 SPA”), pursuant to we agreed to sell an aggregate of 175,000 shares of common
stock, pre-funded warrants to purchase up to an aggregate of 131,604 shares of common stock, and common stock warrants to purchase up
to an aggregate of 306,604 shares of common stock (the “July 2022 Common Warrants”), at a combined purchase price of
$21.20 per share and warrant (the “July 2022 Offering”). Aggregate gross proceeds from the July 2022 Offering were
$6,499,737. Net proceeds to us from the offering, after deducting the placement agent fees and other estimated offering expenses payable
by us, were approximately $6.0 million. The placement agent fees and offering expenses of approximately $530,000 were accounted for as
a reduction of additional paid in capital. The July 2022 Offering closed on July 20, 2022.
December
2022 Offering
On December 20, 2022, we entered into a securities purchase agreement
with the Selling Stockholder (the “December 2022 SPA”), pursuant to we agreed to sell an aggregate of 215,000 shares
of common stock, pre-funded warrants to purchase up to an aggregate of 1,499,286 shares of common stock, and common stock warrants to
purchase up to an aggregate of 2,571,429 shares of common stock (the “December 2022 Common Warrants”), at a combined
purchase price of $3.50 per share and warrant (the “December 2022 Offering”). Aggregate gross proceeds from the December
2022 Offering were $5,999,851. Net proceeds to us from the offering, after deducting the placement agent fees and other estimated offering
expenses payable by us, were approximately $5.5 million. The placement agent fees and offering expenses of approximately $500,000 were
accounted for as a reduction of additional paid in capital. The December 2022 Offering closed on December 22, 2022.
April
2023 Offering
On April 5, 2023, we entered into a securities
purchase agreement with the Selling Stockholder (the “April 2023 SPA”), pursuant to which we agreed to issue and sell,
in a registered direct offering, an aggregate of: (i) 400,000 shares of common stock, at a price of $1.91 per share, and (ii) pre-funded
warrants to purchase up to 1,170,680 shares of common stock, at a price of $1.9099 per Pre-Funded Warrant. In a concurrent private placement,
pursuant to the April 2023 SPA, we agreed to issue and sell warrants to purchase up to 1,570,680 shares of common stock (the “April
2023 Common Warrants”) to the Selling Stockholder. Aggregate gross proceeds from the registered direct offering and the concurrent
private placement (collectively, the “April 2023 Offering”) were $2,999,881. Net proceeds to us from the offering,
after deducting the placement agent fees and other estimated offering expenses payable by us, were approximately $2.7 million. The placement
agent fees and offering expenses of approximately $280,000 were accounted for as a reduction of additional paid in capital. The April
2023 Offering closed on April 10, 2023.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements are prepared in accordance with accounting principles that are generally accepted in the United States.
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported
amounts of our assets, liabilities, revenue and expenses. We have identified certain policies and estimates as critical to our business
operations and the understanding of our past or present results of operations related to (i) goodwill and (ii) intangible assets and
in-process research and development (“IP R&D”). These policies and estimates are considered critical because they
had a material impact, or they have the potential to have a material impact, on our consolidated financial statements and because they
require management to make significant judgments, assumptions or estimates. We believe that the estimates, judgments and assumptions
made when accounting for the items described below were reasonable, based on information available at the time they were made. However,
actual results may differ from those estimates, and these differences may be material.
Goodwill/Intangible
Assets and In-Process Research and Development
We
have a significant amount of goodwill, intangible assets and IP R&D assets that are assessed at least annually for impairment. The
impairment analyses of these assets are considered critical because of their significance to us. Intangible assets arising from business
combinations or acquisitions, such as goodwill, patents and IP R&D assets are initially recorded at estimated fair value. Licensed
patents are amortized over the remaining life of the patent. IP R&D assets are considered to be indefinite-lived until the completion
or abandonment of the associated research and development projects. Our goodwill was derived from acquisitions where the purchase price
exceeded the fair value of the net assets acquired We are required to reassign goodwill to reporting units whenever reorganizations of
the internal reporting structure change the composition of our reporting units. We identified one reporting unit which represents our
sole operating segment.
We
are required to assess goodwill/intangible assets and IP R&D assets at least annually, or more frequently, if an event occurs or
circumstances change that indicates it is more likely than not the fair value of our reporting unit was less than our carrying value.
In assessing goodwill/intangible assets and IP R&D assets for impairment, we may first assess qualitative factors to determine whether
it is more likely than not that the fair value of our reporting unit is less than our carrying value.
Goodwill Impairment
The
first step of the goodwill asset impairment test used to identify potential impairment compares the fair value of the reporting unit
with our carrying amount, including goodwill assets. We determined the fair market value of our single reporting unit as of December
31, 2021 to be our market capitalization of $132,760,914, which represents $78.00 per share (the market close price) multiplied by 1,702,063
shares (consisting of 1,701,799 shares of common stock plus 264 special voting shares which are exchangeable into common stock for no
additional consideration) on December 31, 2021. The carrying amount of the reporting unit as of December 31, 2021 was $39,322,695 (total
assets of $62.7 million less total liabilities of $23.4 million).
Since
the fair value of the Company ($132,760,914) exceeded the carrying value of the Company ($39,322,695) as of December 31, 2021, and the
carrying value of the Company is greater than zero, management concluded the goodwill assets of the reporting unit was not impaired.
Our
publicly traded stock closed at $78.00 per share as of December 31, 2021; during 2022, the market value of our single reporting unit
significantly declined. As of March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022, the market value of our publicly
traded stock fell to $51.80, $16.96, $13.30 and $3.39, per share, respectively, and as such, we elected to conduct a quantitative analysis
of goodwill to assess for impairment as of September 30, 2022 and December 31, 2022. We determined the fair market value of our single
reporting unit and compared that value with the carrying amount of the reporting unit and determined that goodwill was impaired as of
both measurement dates. As of September 30, 2022 and December 31, 2022, the carrying value exceeded the fair market value by $18,872,850
and $14,674,428, respectively. To recognize the impairment of goodwill, we recorded losses for these amounts at the end of the third
and fourth quarters, which appear as a loss on goodwill impairment of $33,547,278 on the income statement for the year ended December
31, 2022. See “Note 5 - Intangible Assets and Impairment of Long-lived Assets” for further information.
IP R&D Assets Impairment
As
of December 31, 2022, the carrying amount of the IP R&D assets on the balance sheet was $12,405,084 (which consists of carrying value
of $1,462,084 and $10,943,000 related to our CBR Pharma subsidiary and our 180 LP subsidiary, respectively). Per the valuation obtained
from a third party as of year-end, the fair market value of our IP R&D assets was determined to be $9,063,000 (which consists of
fair market values of $0 and $9,063,000 related to our CBR Pharma subsidiary and 180 LP subsidiary, respectively). As of this measurement
date, the carrying value of the CBR Pharma and 180 LP subsidiaries’ assets exceeded their fair market values by $1,462,084 and
$1,880,000, respectively. As such, management determined that the consolidated IP R&D assets were impaired by $3,342,084 and, in
order to recognize the impairment, we recorded a loss for this amount during the fourth quarter of 2022, which appears as a loss on impairment
of IP R&D assets on the income statement. This reduced the IP R&D asset balances of our CBR Pharma subsidiary and our 180 LP
subsidiary to zero and $9,063,000, respectively, as of December 31, 2022; the total consolidated IP R&D asset balance is $9,063,000
after impairment. See “Note 5 - Intangible Assets and Impairment of Long-lived Assets” for further information.
We
will continue to perform goodwill/intangible assets and IP R&D assets Impairment testing on an annual basis, or as needed if there
are changes to the composition of our reporting unit.
Recently
Issued Accounting Pronouncements
See
Note 3 - Summary of Significant Accounting Policies of our consolidated financial statements included within this prospectus for a summary
of recently issued and adopted accounting pronouncements.
Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company, we are not required
to provide disclosure regarding quantitative and qualitative market risk, however, we have provided the following information below relating
to interest rate risk.
Interest Rate Risk
We are exposed to market risks in the ordinary course of its business.
These risks primarily include interest rate sensitivities. As of December 31, 2022, we had $6,970,110 in cash and cash equivalents. We
intend to hold our cash in interest-bearing money market accounts. Our primary exposure to market risk is interest rate sensitivity,
which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and
the low risk profile of its investments, an immediate 100 basis point change in interest rates would not have a material effect on the
fair market value of our cash equivalents.
BUSINESS
Company
Overview
We
are a clinical stage biotechnology company headquartered in Palo Alto, California, focused on the development of therapeutics for unmet
medical needs in chronic pain, inflammation and fibrosis by employing innovative research, and, where appropriate, combination therapy.
We were founded by several world-leading scientists in the biotechnology and pharmaceutical sectors. Our world-renowned scientists Prof.
Sir Marc Feldmann, Prof. Lawrence Steinman, Prof. Raphael Mechoulam, recently deceased, Dr. Jonathan Rothbard, and Prof. Jagdeep Nanchahal
have significant experience and significant previous success in drug discovery. The scientists are from the University of Oxford (“Oxford”),
Stanford University and Hebrew University of Jerusalem (the “Hebrew University”), and our management team has extensive
experience in financing and growing early-stage healthcare companies. Prof. Raphael Mechoulam passed away in March 2023, but his research
at Hebrew University is being carried on by other scientists as noted later in this document under the “SCAs Platform” section.
We
have three different product development platforms that are focused on different diseases or medical conditions, and that target different
factors, molecules or proteins, as follows:
| ● | Anti-TNF
platform: focusing on fibrosis and anti-tumor necrosis factor (“anti-TNF”); |
| | |
| ● | SCAs
platform: focusing on drugs which are synthetic cannabidiol (“CBD”)
or cannabigerol (“CBG”) analogues (“SCAs”); and |
| | |
| ● | α7nAChR
platform: focusing on alpha 7 nicotinic acetylcholine receptor (“α7nAChR”). |
Our lead product candidate under the anti-TNF
platform recently completed Phase 2a and Phase 2b proof-of-concept clinical trials in the United Kingdom and the Netherlands for early-stage
Dupuytren’s Contracture, a condition that affects the development of fibrous connective tissue in the palm of the hand.
Currently, we are planning or conducting clinical
trials only for certain indications under the anti-TNF platform, such as a planned Phase 2 trial for post-operative cognitive decline
as well as a planned Phase 2 trial for frozen shoulder. We were recruiting patients for a feasibility trial for frozen shoulder, for which
we have ended such recruitment at nine patients, due to a regulatory request in the UK to end slow recruiting trials. The result of the
closure of the trial means that another trial will likely need to be undertaken in the future to recruit additional participants.
We were recently granted an allowance of claims
for a U.S. patent with respect to the use of adalimumab for early-stage Dupuytren’s disease which, if granted, would have a term
that expires no earlier than in 2037. Of our three product development platforms, only one, the SCAs platform, involves products that
are related to cannabidiol (CBD) (and not to cannabis or tetrahydrocannabinol (THC)), and no clinical trials for indications or products
under the SCAs platform are currently being conducted in the United States or abroad. We are currently undertaking preclinical research
and development activities for the SCA and the α7nAChR platforms.
Business
Strategy
Our
goal is to capitalize on our research in chronic pain, inflammation and fibrosis by pursuing the following strategies:
| ● | advance
our clinical-stage product candidate for early-stage Dupuytren’s Contracture from its
current late-stage development to seek and obtain approval in the United Kingdom, European
Union and the United States for such product candidate, potentially commercialize the product
candidate in the United Kingdom, European Union and United States and identify the optimal
commercial pathway in other markets around the world; |
| | |
| ● | move
our pre-clinical product candidates into clinical trials, seek and obtain approval in the
United Kingdom, European Union and United States for such future product candidates, and
potentially commercialize such future product candidates in the United States, United Kingdom
and European Union; |
| | |
| ● | leverage
our proprietary product development platforms to discover, develop and commercialize novel
first-in-class products for the treatment of chronic pain, inflammation and fibrosis; and |
| | |
| ● | strengthen
our position in research in chronic pain, inflammation and fibrosis. |
Overview
of Product Development Platforms
The
following chart summarizes the products and indications, including those currently in clinical trial, for our three product development
platforms.
![](https://content.edgar-online.com/edgar_conv_img/2023/05/12/0001213900-23-039040_image_002.jpg)
“*Regulatory
approvals obtained from the MHRA and CCMO and the relevant accredited ethics committees to perform clinical trials in the United Kingdom
and The Netherlands. No marketing applications or requests for marketing approval have been submitted to the FDA for any products at
this time.”
On
December 1, 2021, we announced positive top line data for the Phase 2b clinical trial of Dupuytren’s Contracture.
On
February 22, 2023, we announced the closure of recruitment of patients for the feasibility trial for frozen shoulder, for which we have
ended such recruitment at nine patients, due to a regulatory request in the UK to end slow recruiting trials. The result of the closure
of the trial means that another trial will likely need to be undertaken in the future to recruit additional participants.
The
product development platforms are each described in more detail below.
Fibrosis
& Anti-TNF Platform
Our
anti-tumor necrosis factor (TNF) platform began at our wholly-owned subsidiary, 180 Therapeutics L.P. (“180 LP”).
This platform is focused on studying the molecular mechanism of inflammatory diseases and fibrosis and on the discovery of TNF as a mediator
of fibrosis, as well as other immune-driven diseases. This research was first undertaken in the 1980s by our Co-Chairman, Prof. Sir Marc
Feldmann, based on analysis of tissue from patients with rheumatoid arthritis (“RA”). We are applying this same approach
to the analysis of human disease tissue from patients with active fibrosis, research led by Prof. Jagdeep Nanchahal in Oxford (who is
also the Chairman of our Clinical Advisory Board), which has led to the identification of new therapeutic targets and approaches that
we are developing. Profs. Nanchahal and Feldmann, in collaboration with other scientists, are leveraging their experience and expertise
in developing anti-inflammatories to search for new applications for anti-TNF therapeutics. We are seeking to demonstrate that anti-TNF
drugs, such as adalimumab, have a positive effect on new indications such as Dupuytren’s Contracture, frozen shoulder and post-operative
cognitive dysfunction/delirium (“POCD”).
Our
first product candidate in clinical development is for the potential treatment of early-stage fibrosis of the hand, Dupuytren’s
Contracture, for which there is currently no approved treatment in the United Kingdom or European Union. Collagenase from Clostridium
histolyticum has been approved in the United States for late-stage Dupuytren’s Contracture. The proposed treatment will be administered
by a local injection of adalimumab, an anti-TNF antibody, into early-stage disease tissue. The results for the Phase 2a clinical trial
for Dupuytren’s Contracture, supported by the Wellcome Trust, U.K. Department of Health and us, were published in July 2018. The
study demonstrated positive tissue response indicative of anti-fibrotic mechanisms, as well as guiding dosing for follow up trials. Having
defined the most efficacious dose and preparation and based on these positive proof of concept data, we, together with the Wellcome Trust
and the U.K. Department of Health, initiated a Phase 2b trial in patients with early-stage Dupuytren’s Contracture. The initial
plan was to randomize 138 patients in a ratio of 1:1 to receive four injections of adalimumab or placebo at three-month intervals and
followed for a total of 18 months from baseline. With additional funding from the Wellcome Trust, the Phase 2b trial completed recruitment
of 174 patients in April 2019, having commenced dosing in February 2017. The final patient was enrolled in April 2019. The Phase 2b clinical
trial for early-stage Dupuytren’s Contracture has been completed. On December 1, 2021, we announced top line data from the trial,
which indicates that the primary end point of nodule hardness and the secondary end point of nodule size on ultrasound scan were met
with statistically significant differences. There were no related severe adverse events. The full results have been submitted for publication
in a peer-reviewed journal and will be disclosed upon publication. Through this fibrosis and anti-TNF product development platform, we
are also performing research for the development of potential treatments of frozen shoulder, liver and lung fibrosis and POCD.
The
following chart summarizes the timing of current and future clinical trials, based on current proposals, under the anti-TNF platform.
![](https://content.edgar-online.com/edgar_conv_img/2023/05/12/0001213900-23-039040_image_003.jpg)
We
have obtained regulatory approvals from the U.K. Medicines and Healthcare Products Regulatory Agency (MHRA) and the Dutch Centrale Commissie
Mensgebonden Onderzoek (CCMO), as well as from the relevant accredited ethics committees, in order to perform clinical trials in the
United Kingdom and The Netherlands solely for indications under the anti-TNF platform. No marketing applications or requests for marketing
approval have been submitted to, the U.S. Food and Drug Administration (“FDA”) for any indications or products under
the anti-TNF platform at this time. On March 29, 2022 we submitted a request to FDA for a Type C Meeting to discuss clinical outcome
assessment in clinical trials of the anti-TNF platform for early stage Dupuytren’s disease. On April 26, 2022, FDA granted the
meeting request and agreed to provide written responses in lieu of a meeting. On June 9, 2022, FDA provided the aforementioned written
responses in which the agency questioned whether nodule hardness and size would constitute an appropriate end point in such studies.
Specifically, FDA stated, “The proposed outcome measures of nodule hardness and nodule size do not appear to be clinical outcome
measures that measure how a patient feel, functions, or survives, which would be needed to support a demonstration of efficacy in your
future registrational studies.”
On
February 22, 2023, we announced the closure of recruitment of patients for the feasibility trial for frozen shoulder, for which we have
ended such recruitment at nine patients, due to a regulatory request in the UK to end slow recruiting trials. The result of the closure
of the trial means that another trial will likely need to be undertaken in the future to recruit additional participants.
HMGB1
Program
Our
HMGB1 program was formed with the in-licensing of the technology from the University of Oxford on November 2, 2021. Our HMGB1
program falls under the Fibrosis and Anti-TNF Platform. We have identified HMGB1 as a therapeutic target that acts on multiple endogenous
adult stem cells to accelerate the physiological regenerative response to current or future injuries. These findings have broad relevance
to the fields of stem cell biology and regenerative medicine and suggest a therapeutic approach to promote tissue repair such as in NASH
liver regeneration.
The
technology was developed by Prof. Jagdeep Nanchahal’s laboratory at the University Oxford prior to licensing. Due to the early
stage of development of HMGB1, we are still in the process of assessing milestones and development timelines. The licensing of HMGB1
included the lead development candidate for liver fibrosis. Our HMGB1 program continues to advance slowly. The molecular dynamics for
the binding of this molecule are extremely complex and potentially need more extensive research in order to identify a lead candidate.
No
regulatory approvals have been sought or obtained from appropriate authorities at this time for any products or indications under the
HMGB1 platform.
SCAs
Platform
Our
SCAs platform began at our wholly-owned subsidiary, CannBioRex Pharmaceuticals Corp. (“CBR Pharma”) with the collaborative
work of its founders Prof. Mechoulam, deceased, and Prof. Feldmann. This platform focuses on the development of synthetic pharmaceutical
grade molecules close or distant analogs of non-psychoactive cannabinoids such as CBD for the treatment of inflammatory diseases and
pain. These development efforts are a result of a 20-year collaboration between Prof. Feldmann, who discovered and commercialized anti-TNF
therapy for treatment of RA and subsequently a number of inflammatory diseases, which is currently the best-selling drug class in the
world, and Prof. Mechoulam, who was a world leading expert in cannabis chemistry who successfully identified THC, CBD and, subsequently,
the endocannabinoids. We are working with a research team based at the Kennedy Institute at Oxford, consisting of Prof. Feldmann, Prof.
Richard Williams and others, and a research team based at Hebrew University, consisting of Prof. Avi Domb, Prof. Amnon Hoffman and others,
to generate new drugs, test them, and optimize their uptake and delivery to disease targets. The aim is to develop novel, orally active
analgesic and anti-inflammatory medications based on synthetic compounds to target chronic diseases. We term these synthetic compounds
generically as “synthetic CBD analogs” (“SCAs”). Our primary development targets are arthritis
and chronic and recurrent pain, while our secondary development targets are diabetes/diabetic neuropathy, fibromyalgia, multiple sclerosis,
obesity and fatty liver disease.
No
regulatory approvals have been sought or obtained from appropriate authorities at this time for any products or indications under the
SCAs platform.
α7nAChR
Platform
Our
α7nAChR platform began at our wholly-owned subsidiary, Katexco, where its founders identified α7nAChR as a
key receptor for the amyloid proteins associated with diseases like Alzheimer’s and Parkinson’s Disease. α7nAChR
is expressed on the surface of both neuronal cells in the brain and on important cells of the immune system. The research conducted
by Dr. Jonathan Rothbard and Prof. Steinman has shown that small molecules available as drugs taken by mouth can engage this receptor
and potentially reduce inflammatory diseases. Dr. Rothbard and Prof. Steinman have also shown that α7nAChR is critical in
reducing disease animal models of multiple sclerosis and RA, as well as heart attack and stroke. Our α7nAChR product development
platform is currently focused on developing α7nAChR agonists for the treatment of inflammatory diseases, initially ulcerative
colitis induced after cessation of smoking.
No
regulatory approvals have been sought or obtained from appropriate authorities at this time for any products or indications under the
α7nAChR platform.
Product
Candidates
We
are attempting to build a broad and diverse pipeline of product candidates in chronic pain, inflammation and fibrosis. Our product candidates
are and will be selected for development based on: potential to address unmet medical needs; development feasibility as determined by
our preclinical research and development efforts; potential to rapidly achieve proof-of-concept based on easy-to-measure validated regulatory
endpoints; and significant commercial potential.
Anti-TNF
Platform Dupuytren’s Contracture
Overview
Dupuytren’s
Contracture, also referred to as hand fibrosis, is a progressive, incurable disease characterized by the development of fibrous cords
in the palm of the hand, commonly affecting the ring and/or small finger and often multiple joints, leading to contracture and the inability
to straighten the affected fingers. Symptoms, when presented to a physician, range from the appearance of nodules in the palm, which
can be painless or painful and often disconcerting to the patient, to the loss of the use of the contracted finger. There are currently
no approved treatment options for those patients who present with symptomatic, early-stage disease.
Surgery
remains the standard treatment for patients with Dupuytren’s Contractures but is associated with extended recovery periods and
risks of recurrence.
We
are developing therapies by repurposing of the anti-TNF therapeutic adalimumab, previously approved and used under the brand name Humira
for several autoimmune conditions, for the treatment of early-stage Dupuytren’s Contracture. Research at Oxford University has
indicated an anti-TNF mechanism can slow or prevent the proliferation of myoblast cells that lead to the formation and growth of the
fibrous nodules/cords in the palm and possible finger contracture. We have advanced the development program through Phase 2b clinical
trials to evaluate the impact of multiple, intralesional injections on disease progression and functional improvement.
Dupuytren’s
patients who have advanced disease are primarily treated by orthopedic or plastic surgeons, who rely on invasive interventions when the
contracture impacts hand function. Current treatment options include open surgeries (fasciotomies or fasciectomies) and the less invasive
procedures of needle aponeurotomy (NA) or collagenase injections. The less invasive procedures are designed to disrupt the integrity
of a contracted cord so the fingers can be straightened. Unfortunately, these options are associated with a high rate of recurrence.
Dissatisfaction within the medical and Dupuytren patient community with outcomes for later-stage disease and the lack of options to intervene
at an early/pre-contracture stage indicate there is an unmet medical need for early-stage intervention.
According
to the Dupuytren’s Foundation, Dupuytren’s Contracture prevalence is estimated to be up to 7% of the U.S. population. Based
on the Foundation’s estimates, approximately three million patients have contractures that should be treated but only 10% to 20%
of those patients are treated. Reasons for the lack of treatment may include the type of available interventions, poor long-term outcomes,
and reimbursement hurdles.
In
primary interviews in late 2021 with 8 orthopedic/plastic surgeons, conducted by Red Sky Partners (an independent third-party consulting
firm) on our behalf and designed to better understand the unmet need for patients with Dupuytren’s Contracture, revealed a strong
desire among hand surgeons and patients to treat this condition early, before the development of late stage contractures, in a non-invasive
manner that will limit further progression, preserve function and prevent or delay invasive surgery. Surgeons’ reactions to the
rationale for the use of adalimumab to address this unmet need were overall positive and the mechanistic concept of an anti-TNF compound
was considered compelling. In the view of the majority of surveyed hand surgeons, the non-invasive, safe product profile would potentially
position adalimumab as an important therapeutic option for a much wider range of patients than are typically treated today. Assuming
clinical efficacy and safety are supported with published data, we believe that adalimumab would become an attractive alternative to
surgery, needle aponeurotomy or collagenase. Further, we believe it has potential use in many early-stage patients who are not treated
today.
Based
on both primary (feedback from these physician interviews) and secondary research, Red Sky Partners concluded that an initial label focused
on patients with a clear contracture where adalimumab would soften nodules and limit progression would be highly differentiated from
current therapies and could generate revenues in the range of $300 million to $350 million annually in the United States More significantly,
the opportunity to offer a safe, non-invasive therapeutic leading to improved function could dramatically expand the treatable population
as more patients seek treatment and more physicians are motivated to offer their patients an alternative to waiting to see if their disease
progresses, which they cannot do today. This product positioning could generate a revenue opportunity two to three times the initial
market opportunity.
Phase
2 Clinical Trials
Our
wholly-owned subsidiary, 180 LP, contributed to the funding of a Phase 2a clinical trial for Dupuytren’s Contracture along with
the Wellcome Trust and the U.K. Department of Health, which using an experimental medicine clinical trial design demonstrated positive
tissue response, as well as guiding dosing and tolerability for follow-up trials. The data was published in June 2018.
For
the Phase 2a trial, we recruited 28 patients, eight assigned to the 15 milligrams (mg), 12 to the 35 mg and eight to the 40 mg
adalimumab cohorts. There was no change in mRNA levels for ACTA2, COL1A1, COL3A1 and CDH11. Levels of α-SMA protein
expression in patients treated with 40 mg adalimumab (1.09 ± 0.09 ng per μg of total protein) were
significantly lower (p = 0.006) compared to placebo treated patients (1.51 ± 0.09 ng/μg). The
levels of procollagen type I protein expression were also significantly lower (p = 0.019) in the subgroup treated with 40 mg
adalimumab (474 ± 84 pg/μg total protein) compared with placebo (817 ± 78 pg/μg).
There were two serious adverse events, both considered unrelated to the study drug. In this dose-ranging study, injection of 40 mg
of adalimumab in 0.4 ml resulted in down regulation of the myofibroblast phenotype as evidenced by reduction in expression of α-SMA
and type I procollagen proteins at 2 weeks.
Having
defined the most efficacious dose and preparation and based on these positive proof-of-concept data, we, together with the Wellcome Trust
and the U.K. Department of Health, initiated a Phase 2b trial in patients with early-stage Dupuytren’s Contracture. The initial
plan was to randomize 138 patients in a ratio of 1:1 to receive four injections of adalimumab or placebo at three-month intervals and
followed for a total of 18 months from baseline. The Phase 2b trial, which was funded by grants from the Wellcome Trust and the U.K.
Department of Health, with a contribution from 180 LP to purchase the drug, completed recruitment of 174 patients in April 2019 and commenced
dosing in February 2017 in the United Kingdom and Groningen, The Netherlands.
The
Phase 2b clinical trial for early-stage Dupuytren’s Contracture has been completed. On December 1, 2021, we announced top line
data from the trial, which indicates that the primary end point of nodule hardness and the secondary end point of nodule size on ultrasound
scan were met with statistically significant differences. There were no related severe adverse events. The full results have been published
in the Lancet Rheumatology publication on April 29, 2022.
Other
Product Candidates or Indications
In
addition to the potential treatment, we are developing for Dupuytren’s Contracture described above, we are seeking to repurpose
anti-TNF for use as a treatment for other fibrotic conditions such as frozen shoulder. Prof. Feldmann’s previous work in the 1980’s
demonstrated that anti-TNF is an effective anti-inflammatory with many possible uses, and it was subsequently approved for various forms
of inflammatory arthritis and inflammatory bowel disease (IBD), as well as other indications. This has since created what is currently
the best-selling drug class in the world, anti-TNF therapeutics, which, according to a Research Reports World report published on November
3, 2022, was valued at $42.7 billion in 2022. By using a well-known and extensively used therapeutic, adalimumab, the research and development
process may be truncated because of existing product information relating to safety, as the drug has been widely used over the past 20
years in millions of patients.
Frozen
Shoulder
Frozen
shoulder, also referred to as adhesive capsulitis, is an extremely painful and debilitating condition that affects an individual’s
everyday activities, including sleep. According to the National Institute of Health, frozen shoulder is most common in people between
the ages of 40 and 60. It is estimated that 2 to 5% of the population are affected by frozen shoulder at some point, and it is somewhat
more common in women than in men. People with diabetes are particularly likely to develop a frozen shoulder: About 10 to 20% of them
get it, but it is not yet known why this happens. In addition, approximately 20% of people suffering from a frozen shoulder will develop
the same problem in their other shoulder. According to an article published in Shoulder & Elbow in 2010, it is estimated that up
to 30% of patients with diabetes develop frozen shoulder, and the symptoms tend to be more persistent and recalcitrant in this group.
During
the pain predominant inflammatory phase, patients are typically treated with analgesics, physiotherapy and corticosteroid injections.
Patients with persistent stiffness may be referred to secondary care for capsular release by manipulation under anesthesia, hydrodilatation
or surgical arthroscopy. To our knowledge, there is currently no approved targeted therapy, and in conjunction with the National Institute
for Health Research (U.K.), we are investigating the feasibility of recruiting patients during the early pain-predominant inflammatory
phase of the disease and delivery of a local injection of anti-TNF. The set-up stage for this Phase 2 clinical trial for the local injection
of anti-TNF for frozen shoulder started in June 2021. A £250,000 grant has been awarded from NIHR to the University of Oxford to
support execution and clinical trial sites are being identified. We are providing additional funding to support this trial. The recruitment
of men and women across England with early-stage Frozen shoulder for a trial to determine the feasibility of conducting a large randomized
controlled trial to assess whether an intra-articular injection of anti-TNF (Adalimumab) can reduce pain and improve function in people
with pain predominant early-stage frozen shoulder, which was called the Anti-Freaze-F trial, began in May 2022. The Anti-Freaze-F trial
was being run by the University of Oxford and originally sought to recruit 84 participants. Following delays in gaining approvals due
to backlogs in the NIHR system due to COVID-19 and consequential staff vacancies, nine participants were recruited for participation
in the trial through mid-February 2023. Subsequently, the NIHR’s Research Recovery and Reset program identified the trial as slow
moving, due to the considerable challenges we faced to open recruitment sites and enroll sufficient participants during COVID-19. Therefore,
the NIHR asked the chief investigators to close the trial for further recruitment. The participants enrolled to date will receive their
injections and follow up according to the established protocol. We have previously requested a no-cost extension, which was denied. The
result of the closure of the trial means that another trial will likely need to be undertaken at a future time to recruit additional
participants.
Human
Liver Fibrosis
Fibrosis
of the liver is characterized by long-term damage to the organ caused by the replacement of normal liver tissue with scar tissue. The
condition is most commonly caused by non-alcoholic fatty liver disease (“NAFLD”), which encompasses non-alcoholic
fatty liver (“NFL”) and non-alcoholic steatohepatitis (“NASH”). NAFLD affects approximately 30%
of the U.S. population, according to an article published in Nature Reviews Gastroenterology & Hepatology in 2016. Approximately
2% of patients with NFL and approximately 15% to 20% of patients with NASH progress to cirrhosis, fibrosis of the liver with major health
issues.
To
our knowledge, there is no current approved treatment for individuals with NASH. We therefore believe that there is a large potential
market for the creation of an effective preventative treatment. According to Allied Market Research, the market for treating liver fibrosis
was approximately $13 billion in 2018 and is projected to rise to approximately $20 billion in 2022, rising at a compounded annual growth
rate (CAGR) of over 11% per year. We initiated preclinical studies for NASH based on human liver samples during the second quarter of
2020.
Post-operative
Cognitive Decline (POCD)
POCD
is a common neuropsychiatric syndrome, defined as disturbance of attention, awareness and cognition, which develops over a short period
of time and tends to fluctuate during the course of the day. Patients with hip fracture are at particularly high risk of developing POCD.
The United Kingdom’s national audit data for 2018 showed that 25% of all patients with hip fracture suffered from delirium. POCD
is associated with poor functional outcomes, reduced quality of life and longer hospital stays. People with hip fracture who developed
delirium are twice as likely to die as inpatients, and nearly four times more likely to need placement in a nursing home. POCD has also
been closely associated with long-term cognitive impairment.
Hip
fractures are one of the main challenges facing elderly patients and healthcare systems. According to an article published in The Lancet
Public Health in 2017, hip fractures are associated with an average loss of 2.7% of the healthy life expectancy in the middle-aged and
older population in the United States and Europe. People suffering hip fracture have a mean age of 83 years, are frail, and two-thirds
are women. They suffer a 30-day mortality of 7% and experience a persistent reduction in their health-related quality-of-life similar
to that of a diagnosis of Parkinson’s disease or multiple sclerosis. According to various studies, POCD is developed in 13-40%
of patients following cardiac surgery. With 500,000 open heart surgeries and 450,000 hip surgeries in the United States each year, in
advanced age patients, a beneficial therapy to treat POCD would be a significant benefit to these patients. We plan to initiate a Phase
2 study using anti-TNF for POCD and start patient recruitment during the second or third quarter of 2023. An issued patent to protect
this potential use has been licensed from The Kennedy Trust for Rheumatology Research.
SCAs
Platform
Overview
Cannabinoids
are a class of compounds derived from cannabis plants. The two major cannabinoids contained in cannabis are CBD and THC. Although one
cannabinoid, THC, is known to cause psychoactive effects associated with the use of herbal cannabis, no other cannabinoid is known to
share these properties. In recent decades, there have been major scientific advances that have led to the discovery of new plant-derived
cannabinoids and the endocannabinoid system. There are at least two types of cannabinoid receptors in the human endocannabinoid system,
cannabinoid receptor 1 (“CB1”) and cannabinoid receptor 2 (“CB2”). CB1 receptors are considered
to be among the most widely expressed G protein-coupled receptors in the brain and are particularly abundant in areas of the brain concerned
with movement and postural control, pain and sensory perception, memory, cognition, emotion, and autonomic and endocrine function. CB1
receptors are also found in peripheral tissues including peripheral nerves and non-neuronal tissues such as muscle, liver tissues and
fat. CB2 receptors are expressed primarily in tissues in the immune system and are believed to mediate the immunological effects of cannabinoids.
CBD does not interact with CB1 receptors and is only a weak agonist of CB2 receptors. CBD interacts with other important neurotransmitter
and neuromodulatory systems in the human body, including transient receptor potential channels, adenosine uptake and serotonin receptors.
The far-reaching and diverse pharmacology of the numerous cannabinoids provides significant potential for development of cannabinoid
therapeutics across many indications and disease areas, but also adds to the complexity of the research.
For
the SCA program, we have agreements in place with Hebrew University and Oxford, pursuant to which we intend to conduct research to develop
and characterize novel SCAs for the treatment of certain target indications, and to perform early-phase clinical trials. Through the
Research Agreements with Hebrew University and Oxford, we established research facilities at the Hebrew University and Oxford, in which
the development and testing of new cannabinoids designed and synthesized at the Hebrew University will be facilitated. The labs at the
Hebrew University will synthesize the chemical compounds and perform preliminary efficacy and safety studies.
Once
these initial studies are completed at the Hebrew University, the chemical compounds are sent to Prof. Richard Williams at Oxford, where
further evaluation is carried out to identify candidates which have the best potential for clinical efficacy and commercial development.
Subsequently, we will support the clinical development of the lead compound(s), culminating in Phase 2 clinical trials to establish clinical
utility in chronic pain and inflammatory indications.
The
focus of the research is the development of safe and well-tolerated compounds with analgesic and immunomodulatory activity and with the
capacity to synergize with current therapies, which target downstream inflammatory processes. After conducting initial research and development,
we selected the most promising of the chemical derivatives to move into Phase 1/2 clinical trials, pending successful toxicity studies.
In addition, we have identified two lead solid dosage oral formulations of CBD from animal studies, and preparations are underway to
facilitate pharmacokinetic analysis in healthy human volunteers.
Product
Candidates or Indications
We
believe that there are unmet needs for orally available, relatively safe anti-inflammatory drugs, especially those with analgesic properties.
We believe that SCAs have the potential to fulfill these needs and we have started to develop novel, orally available and patentable
drug candidates to treat certain diseases or conditions such as arthritis, multiple sclerosis, diabetes, psoriasis, obesity and fatty
liver, and various painful conditions. Our work on SCAs is currently in the preclinical development stage.
Because
medical cannabis is a complex mixture of compounds from plants, providing a consistent level of the active compound of interest or controlling
the level of the other natural compounds is difficult. Accordingly, we are working on orally available SCAs, not derived from plants,
to address the deleterious issues of medical cannabis described above. If successful, these SCAs could become approved drug products
that offer a robustly consistent and safe dosage that allows patient intake to be carefully controlled.
We
believe that the development and clinical study of SCAs will reveal that SCAs have several key advantages over medical cannabis, including:
| ● | use
of a pure compound (>99.5%) rather than a mixture of compounds; |
| | |
| ● | ability
to test and control dosing, which in turn controls efficacy and side effect levels; |
| | |
| ● | creation
of a reproducible product; and |
| | |
| ● | ability
to engineer novel synthetic analogs to control binding preferences to select receptors, control
agonist or antagonist effects of receptor binding (pharmacokinetics and dynamics), modify
half-life of the drug in the body, and create pro-drug forms that are only activated in specified
tissues, thereby potentially reducing off target side effects. |
In
addition to the above advantages, testing SCAs in scientific, double-blind clinical trials would help to allay physicians’ concerns
regarding the therapeutic use of marijuana-based compounds. This change could increase the number of patients that have access to these
drug therapies. If clinical trials are successful, there are a number of potential markets and indications for SCAs which we could target,
which include individuals suffering from chronic and recurrent pain, diabetes, osteoarthritis, obesity and fatty liver disease.
α7nAChR
Platform
Overview
Two
of our lead scientists, Prof. Steinman and Dr. Rothbard, previously identified a key receptor for the amyloid proteins associated with
diseases like Alzheimer’s and Parkinson’s disease, called α7nAChR. The α7nAChR is expressed on the surface of
both neuronal cells in the brain and on cells of the immune system. The research conducted by Dr. Rothbard and Prof. Steinman has shown
that small molecules available as drugs taken by mouth can engage this receptor and potently reduce inflammatory diseases. Dr. Rothbard
and Prof. Steinman have shown that this receptor is critical in reducing disease in animal models of multiple sclerosis and RA, as well
as heart attack and stroke.
Our
efforts to understand the role of the high concentration of small heat shock proteins (“sHsp”) found in the lesions
in the brains of patients with multiple sclerosis led us to realize that the protein was (i) immune suppressive and (ii) therapeutic
in animal 2 models of multiple sclerosis, cardiac and retinal ischemia, and stroke. A significant realization was that amyloid fibrils
composed of proteins or small peptides exhibited biological responses equivalent to the sHsps. The fibrils and the sHsps specifically
bound and activated macrophages (“MΦ”) and regulatory B cells. Crosslinking and precipitation experiments demonstrated
that both species bound nAChR and signaled through Jak2/Stat3. We realized that nicotine treatment of experimental autoimmune encephalomyelitis
(“EAE”) induces an identical pattern of immune suppression as our treatments and exhibits pre-clinical efficacy that
is comparable with many of the drugs that are approved for multiple sclerosis (MS) when they were tested in EAE models. Collectively,
these observations have informed our strategy to develop an orally available, small molecule agonist of α7nAChR for inflammation
and autoimmune diseases.
The
α7 subunit of α7nAChR is an integral part of an endogenous immune suppressive pathway, in which activation of the vagus nerve
stimulates acetylcholine secretion, which in turn binds α7nAChR on MΦs and regulatory B lymphocytes. Activation of the MΦs
initiates an immunosuppressive cascade of events that lead to reduction of pro-inflammatory cytokines, suppression of B and T cell activation
and control of inflammation.
In
autoimmune diseases like RA, where there is intense inflammation destroying joints, and in multiple sclerosis, where the brain is under
attack with damage to vital neurologic circuits, the body’s immune system turns against its own tissues. Other diseases ranging
from atherosclerosis to gout, also reveal manifestations of an unwanted autoimmune attack.
Activation
of the α7nAChR results in a signaling cascade involving Jak2 and Stat3 leading to the conversion of the macrophages to an immune
suppressive phenotype and the production of IL-10. IL-10 is known to reduce inflammatory cytokines, most prominently TNF, IL-1, and IL-6.
Consequently, α7nAChR agonists should complement anti-TNF therapy, which opens up the possibility of developing a new class of
orally available medicines which are anti-inflammatory but much safer than existing medications such as NSAIDS, Cox2 inhibitors, methotrexate,
and Janus kinase (JAK) inhibitors. This is because α7nAChR agonists are activating an endogenous regulatory pathway, rather than
blocking important pathways needed for diverse processes. The market opportunity arises from the complex and expensive effort by several
large and small biotechnology companies in the development of a spectrum of orally available partial agonists specific for α7nAChR.
The compounds underwent extensive preclinical assessment and were used in 18 studies comprising 2,670 subjects.
The
drugs universally were shown to be safe, but ineffective in trials for neurologic and psychiatric diseases, namely Alzheimer’s
disease and schizophrenia. In randomized, placebo-controlled clinical trials for cognitive impairment in Alzheimer’s disease and
schizophrenia, the compounds failed to meet their primary endpoint.
We
plan to use these previous studies as a foundation to potentially develop a patentable α7nAChR analog within this family to use
as an immune suppressive to treat a range of inflammatory and autoimmune indications including RA, inflammatory bowel disease (IBD),
relapsing and progressive forms of multiple sclerosis, atherosclerosis, gout and osteoarthritis. Our scientists have found that the α7
receptor on macrophages and regulatory B lymphocytes are different from the target of the drugs developed so far.
Product
Candidates or Indications
We
intend to identify, characterize, synthesize, and patent an orally available small molecular weight agonist of α7nAChR by screening
non-patented analogs of large numbers of known agonists defined by pharmaceutical companies. We intend to outsource this work to Evotec
GMBH, an integrated early discovery organization, and one which we have worked with in the past, specializing in ion channels and transporters,
offering clients specialized technologies and scientific expertise to move from target to lead compounds.
Following
a safety and efficacy assessment program, we intend to select candidates for pre-clinical development as a prelude to the potential initiation
of clinical studies, which could potentially be followed by an Investigational New Drug Application (“IND”) to the
FDA. Our first intended target indication for its α7nAChR development platform is smoking cessation induced ulcerative colitis.
Outsourcing
and Manufacturing
We
are currently outsourcing our clinical trials, which are conducted at Oxford University, Edinburgh, United Kingdom and Groningen, The
Netherlands and only involve certain indications under the anti-TNF platform. We expect to continue to outsource our clinical trials
and conduct them at (1) in the case of the anti-TNF platform, Oxford University and Groningen, The Netherlands, (2) in the case of the
SCAs platform, Hebrew University and Oxford University, and (3) in the case of the α7nAChR platform, to be determined.
We
also expect to outsource all of our manufacturing activities, including those activities at the research or clinical stage, with SCAs
to be produced at Hebrew University and α7nAChR to be produced by Evotec GMBH and the anti-TNF platform utilizing
off-the-shelf adalimumab. In addition, we expect our products to be good manufacturing practice (GMP) grade and produced by accredited
contract research organizations (CROs).
Material
Agreements
We
have entered into material research and licensing agreements (the “Research Agreements”) with various universities
and parties in order to conduct research to develop potential product candidates. We have also entered into other material consulting
and advisory services agreements with various scientists (the “Consulting Agreements”) to assist with such research.
Overview
of Research Agreements
The
Research Agreements include agreements with the Hebrew University and Oxford. For the anti-TNF platform, the Research Agreements with
Oxford allow us to contribute financially to sponsor the research being conducted for the anti-TNF platform. In return, we will receive
an exclusive option to license any intellectual property arising from the Research Agreements. There are also license agreements in place
whereby we have exclusively licensed certain intellectual property from Oxford.
For
the SCA program, we have agreements in place with Hebrew University and Oxford, pursuant to which we intend to conduct research to develop
and characterize novel SCAs for the treatment of certain target indications, and to perform early-phase clinical trials. Through the
Research Agreements with Hebrew University and Oxford, we established research facilities at the Hebrew University and Oxford, in which
the development and testing of new cannabinoids designed and synthesized at the Hebrew University will be facilitated.
The
Research Agreements are each described below.
Research
Agreements with the Hebrew University
On
May 13, 2018, our wholly-owned subsidiary CBR Pharma entered into a research and license agreement (the “2018 Hebrew Agreement”)
with Yissum, pursuant to which Yissum granted CBR Pharma a worldwide exclusive license (the “2018 Hebrew License”)
to develop and commercialize certain patents (the “2018 Hebrew Licensed Patents”), know-how and research results (collectively,
the “2018 Hebrew Licensed Technology”), in order to develop, manufacture, market, distribute or sell products, all
within the use of the 2018 Hebrew Licensed Technology for the treatment of any and all veterinary and human medical conditions, including
obesity, pain, inflammation and arthritis (the “2018 Field”).
Pursuant
to the 2018 Hebrew Agreement, notwithstanding the grant of the 2018 Hebrew License, Yissum, on behalf of Hebrew University, will retain
the right to (i) make, use and practice the 2018 Hebrew Licensed Technology for Hebrew University’s own research and educational
purposes; (ii) license or otherwise convey to other academic and not-for-profit research organizations the 2018 Hebrew Licensed Technology
for use in non-commercial research; and (iii) license or otherwise convey the 2018 Hebrew Licensed Technology to any third party for
research or commercial applications outside the 2018 Field.
The
2018 Hebrew Agreement further provides that CBR Pharma is entitled to grant one or more sublicenses to the 2018 Hebrew Licensed Technology
for exploitation in the 2018 Field.
All
right, title and interest in and to the 2018 Hebrew Licensed Technology vest solely in Yissum, and CBR Pharma will hold and make use
of the rights granted pursuant to the 2018 Hebrew License solely in accordance with the terms of the 2018 Hebrew Agreement.
As
consideration for the 2018 Hebrew License, CBR Pharma paid Yissum a license fee of $75,000 and agreed to continue to pay an annual license
maintenance fee (the “License Maintenance Fee”) of $50,000, beginning on May 1, 2019 and thereafter on the first day
of May each year. The License Maintenance Fee is non-refundable but may be credited each year against royalties on account of net sales
of products made from May 1 to April 30 of each year.
Yissum
has also agreed to undertake research and to synthesize chemical compounds that will be used by CBR Pharma, through additional research
at both Oxford and Hebrew University, to develop orally active analgesic and anti-inflammatory medications. Compounds will be shipped
from Hebrew University to Oxford for use in pre-clinical studies to establish efficacy in pain and inflammation.
Upon
the achievement of certain milestones in respect of the chemical compounds derived from the 2018 Hebrew Licensed Technology, CBR Pharma
is obligated to make certain payments to Yissum, including but not limited to the following:
Milestone |
|
Milestone Fee |
|
Submission of the first IND testing for the FDA |
|
$ |
75,000 |
|
Commencement of one Phase 1/2 trial with the FDA |
|
$ |
100,000 |
|
Commencement of one Phase 3 trial with the FDA |
|
$ |
150,000 |
|
For each product market authorization/clearance (maximum of $500,000) |
|
$ |
100,000 |
|
|
|
|
(maximum of $500,000 |
) |
For every $250 million in accumulated sales of the product until $1 billion in sales is achieved |
|
$ |
250,000 |
|
CBR
Pharma will pay Yissum royalties equal to (i) 3% of the net sales for the first annual $500 million of net sales, and (ii) 5% of the
net sales after the net sales are at or in excess of $500 million.
In
the event of a sale by CBR Pharma stockholders of their common shares or the transfer or assignment of the 2018 Hebrew Agreement, CBR
Pharma is obligated to pay Yissum a fee of 5% of the consideration received by CBR Pharma pursuant to such corporate transaction. In
the event of an initial public offering, or a go-public event, CBR Pharma was obligated to issue registered common shares to Yissum equal
to 5% of the issued and outstanding common shares, on a fully-diluted basis, concurrently with the closing of such transaction. The Business
Combination that was consummated on November 6, 2020, was considered a go-public event, pursuant to which we issued 12,028 of our common
shares to Yissum prior to the closing of the Business Combination. See Note 11 - Commitments and Contingencies and Note 12 - Stockholders’
Equity of the financial statements for the fiscal period ended December 31, 2022 included in this prospectus for more information on
the shares issued to Yissum as per the research and license agreement.
CBR
Pharma has also agreed to reimburse Yissum (to a maximum of $30,000) for costs incurred for patent expenses.
Yissum
and CBR Pharma also agreed to establish a research program for which CBR Pharma funded a $400,000 budget for the 12-month period ended
May 2019, which is in the process of being extended by an amendment.
The
2018 Hebrew Agreement will terminate upon the occurrence of the later of the following: (i) the expiration of the last of the 2018 Hebrew
Licensed Patents; (ii) the expiration of the last exclusivity on any product granted by any regulatory or government body; (iii) the
expiration of a continuous period of twenty years during which there was no commercial sale of any product in any country; or (iv) if
we elect to obtain an exclusive license to the know-how under the terms of the 2018 Hebrew Agreement, the expiration of such exclusive
license.
On
November 11, 2019, CBR Pharma entered into an additional research and license agreement (the “2019 Hebrew Agreement”)
with Yissum, pursuant to which Yissum granted CBR Pharma a worldwide sole and exclusive license (the “2019 Hebrew License”)
to develop and commercialize certain patents (the “2019 Hebrew Licensed Patents”), know-how and research results (collectively,
the “2019 Hebrew Licensed Technology,” and together with the 2018 Hebrew Licensed Technology, the “Hebrew
Licensed Technology”), in order to develop, manufacture, market, distribute, sell, repair and refurbish products, all within
the use of the 2019 Hebrew Licensed Technology for (i) Cannabinoid phenolate metal salts, including mono, di and trivalent metals such
as Li, Na, K, Ca, Mg, Zn, Fe and Al and their mixtures with native or synthetic cannabinoids, their pharmaceutical formulations, including
for oral and topical administration; and (ii) pharmaceutical formulations, for the administration of cannabinoid chemical derivatives,
including any and all veterinary and human medical conditions, including obesity, pain, inflammation and arthritis (the “2019
Field”).
Pursuant
to the 2019 Hebrew Agreement, notwithstanding the grant of the 2019 Hebrew License, Yissum, on behalf of Hebrew University, will retain
the right to (i) make, use and practice the 2019 Hebrew Licensed Technology for Hebrew University’s own research and educational
purposes, but not for commercial purposes, and subject to the maintenance of confidentiality for any know-how or unpublished patent information
contained in the 2019 Hebrew Licensed Technology; (ii) license or otherwise convey to other academic and not-for-profit research organizations
the 2019 Hebrew Licensed Technology for use in non-commercial research and subject to the maintenance of confidentiality for any know-how
or unpublished patent information contained in the 2019 Hebrew Licensed Technology; and (iii) license or otherwise convey the 2019 Hebrew
Licensed Technology to any third party for research or commercial applications outside the 2019 Field, subject to the maintenance of
confidentiality for any know-how or unpublished patent information contained in the 2019 Hebrew Licensed Technology.
The
2019 Hebrew Agreement further provides that CBR Pharma is entitled to grant one or more sublicenses to the 2019 Hebrew Licensed Technology
for exploitation in the 2019 Field.
All
right, title and interest in and to the 2019 Hebrew Licensed Technology vests solely in Yissum, and CBR Pharma will hold and make use
of the rights granted pursuant to the 2019 Hebrew License solely in accordance with the terms of the 2019 Hebrew Agreement.
The
2019 Hebrew Licensed Technology will terminate upon the occurrence of the later of the following: (i) the expiration of the last of the
2019 Hebrew Licensed Patents; (ii) the expiration of the last exclusivity on any product granted by any regulatory or government body;
(iii) the expiration of a continuous period of twenty years plus any applicable patent extension period, during which there was no commercial
sale of any product in any country; or (iv) if we elect to obtain an exclusive license to the know-how under the terms of the 2019 Hebrew
Agreement, the expiration of such exclusive license.
On
January 1, 2020, CBR Pharma and Yissum entered into the first amendment to the 2018 Hebrew Agreement (the “First Hebrew Amendment”),
which provided for additional research to be done at Yissum on new derivatives of certain molecules. Pursuant to the terms of the First
Hebrew Agreement Amendment, we will pay Yissum $200,000 per year plus 35% additional for University overhead for the additional research
performed by each professor over an 18-month period, starting May 1, 2019. The additional research ended in April 2021 and further preclinical
work is expected to be undertaken following research and development of a potentially successful drug delivery method, which is in its
late stage development.
Research
Agreements with the University of Oxford
On
November 1, 2013, our wholly-owned subsidiary 180 LP entered into an agreement (the “First Oxford Agreement”) with
Oxford, pursuant to which 180 LP will sponsor Oxford’s research and development of repurposing anti-TNF for Dupuytren’s Contracture.
Pursuant
to the First Oxford Agreement, each payment is to be made to ISIS Innovation (now Oxford University Innovation) at different milestones
of the project, outlined below:
Milestone | |
Milestone
Fee | |
Minimum
investment completed | |
£ | 10,000 | |
Initiation
of Phase 2 trial for a licensed product | |
£ | 10,000 | |
Initiation
of Phase 3 trial for a licensed product | |
£ | 10,000 | |
Registerable
Phase 3 trial primary endpoint achieved for a licensed product | |
£ | 20,000 | |
Any
issued U.S. patent of the licensed intellectual property rights | |
£ | 5,000 | |
Approval
by FDA of a New Drug Application (“NDA”) filed by 180 LP or one of its sub-licensees for a licensed product | |
£ | 30,000 | |
Approval
by EMA of an MAA filed by 180 LP or one of its sub-licensees for a licensed product | |
£ | 30,000 | |
First
commercial sale of a licensed product by 180 LP or any sub-licensee in the United States | |
£ | 50,000 | |
First
commercial sale of a licensed product by 180 LP or any sub-licensee in the European Union | |
£ | 50,000 | |
ISIS
Innovation is also eligible for royalty payments equal to 0.5% of net sales in any country where there is a valid claim, 0.25% of net
sales in other countries and a fee income royalty rate of 7.5% on all up-front, milestone and other one-off payments under or in connection
with all sub-licenses and other contracts granted by 180 LP with respect to the licensed technology. The First Oxford Agreement is effective,
unless earlier terminated, for so long as the specified patent application remains in effect as an issued patent, pending patent application
or supplementary protection certificate or for a term of 20 years, whichever is longer.
On
August 15, 2018, CannBioRex Pharma Limited, a company incorporated under the laws of England and Wales (“CannU.K.”)
and a wholly-owned subsidiary of our wholly-owned subsidiary CBR Pharma, entered into the Research Agreement (the “Second Oxford
Agreement”) with Oxford, pursuant to which CBR Pharma (through CannU.K.) has sponsored Oxford’s research and development
of SCAs developed from the Hebrew Licensed Technology. At Oxford, the SCAs generated in the Hebrew University are being tested for analgesic
and anti-inflammatory effects in established pre-clinical models.
Pursuant
to the Second Oxford Agreement, Oxford undertook a research project (the “Research Project”) based around the clinical
development of SCAs that are known to exhibit both anti-inflammatory and immunomodulatory properties. The aim of the Research Project
was to develop and characterize chemical compounds that are synthesized at Hebrew University to create treatments for chronic pain, RA
and other chronic inflammatory conditions, and to eventually obtain regulatory approval to initiate early-phase clinical trials by mid
to late 2022 or as soon as possible thereafter. The Second Oxford Agreement had an initial term of one year beginning on March 22, 2019,
but was extended by amendment to March 31, 2020, or any later date agreed to by the parties, unless terminated earlier. The Second Oxford
Agreement was not extended any further after March 31, 2020, and CannU.K.’s relationship with Oxford continued with additional
agreements with Oxford, as described below.
CannU.K.,
as the sponsor of the Research Project, made the following payments to Oxford pursuant to the Second Oxford Agreement:
Milestone | |
Milestone
Fee | |
Signature
of the Oxford Agreement | |
£ | 166,800 | |
6
months post start of the Research Project | |
£ | 166,800 | |
9
months post start of the Research Project | |
£ | 166,800 | |
12
months post start of the Research Project, after report | |
£ | 55,600 | |
On
September 18, 2020, CannU.K. entered into another research agreement with Oxford (the “Third Oxford Agreement”), pursuant
to which CannU.K. sponsors work led by Prof. Nanchahal at the University of Oxford to investigate the mechanisms underlying fibrosis.
In connection with the agreement, CannU.K. initially provided $100,000 and then at 6-month intervals further funding to support the salary
of Dr. Lynn Williams and consumables.
CannU.K.,
as the sponsor, agreed to make the following payments to Oxford pursuant to the Third Oxford Agreement:
Milestone | |
Amount
Due (excluding VAT) | |
30 days post signing of the Third
Oxford Agreement | |
£ | 80,000 | |
6 months post signing of the Third Oxford Agreement | |
£ | 178,867 | |
12 months post signing of the Third Oxford
Agreement | |
£ | 178,867 | |
24 months post signing of the Third Oxford
Agreement | |
£ | 178,867 | |
36 months post signing of the Third Oxford
Agreement | |
£ | 178,867 | |
On
September 21, 2020, CannU.K. entered into another research agreement with Oxford (the “Fourth Oxford Agreement”),
pursuant to which CannU.K. agreed to sponsor work at the University of Oxford to develop and characterize novel cannabinoid derived new
chemical entities (NCEs) for the treatment of inflammatory diseases towards initiation of early phase clinical trials in patients within
a period of 3 years.
CannU.K.,
as the sponsor, agreed to make the following payments to Oxford pursuant to the Fourth Oxford Agreement:
Milestone | |
Amount
Due (excluding VAT) | |
30 days post signing of the Fourth
Oxford Agreement | |
£ | 101,778 | |
6 months post signing of the Fourth Oxford
Agreement | |
£ | 101,778 | |
12 months post signing of the Fourth Oxford
Agreement | |
£ | 101,778 | |
18 months post signing of the Fourth Oxford
Agreement | |
£ | 101,778 | |
24 months post signing of the Fourth Oxford
Agreement | |
£ | 101,778 | |
On
March 22, 2022, CannU.K. entered into an amendment to the Fourth Oxford Agreement, to extend the research period to December 31, 2023,
at no additional cost to CannU.K.
On
May 24, 2021, CannU.K. entered into another research agreement with Oxford (the “Fifth Oxford Agreement”), pursuant
to which CannU.K. will sponsor work at the University of Oxford to conduct a multi-center, randomized, double blind, parallel group,
feasibility study of anti-TNF injection for the treatment of adults with frozen shoulder during the pain-predominant phase.
CannU.K.,
as the sponsor, agreed to make the following payments to Oxford pursuant to the Fifth Oxford Agreement:
Milestone | |
Amount
Due (excluding VAT) | |
Upon signing of the Fifth Oxford
Agreement | |
£ | 70,546 | |
6 months post signing of the Fifth Oxford Agreement | |
£ | 70,546 | |
12 months post signing of the Fifth Oxford
Agreement | |
£ | 70,546 | |
24 months post signing of the Fifth Oxford
Agreement | |
£ | 70,546 | |
Oxford License Agreement
On
November 3, 2021, we entered into an exclusive license agreement with Oxford University Innovation Limited (“Oxford License
Agreement”), pursuant to which we were granted the rights to certain patents related to the HMGB1 molecule for liver regeneration.
Pursuant
to the Oxford License Agreement, we agreed to the following payment terms:
Payment | |
Amount
Due | |
Past patent costs | |
£ | 49,207 | |
License fee | |
£ | 10,000 | |
Annual maintenance fee | |
£ | 3,000 | |
Milestone | |
Amount
Due | |
Submission
of IND | |
£ | 25,000 | |
1st
Subject dosed in Phase I studies for each product, each indication | |
£ | 25,000 | |
1st
Subject dosed in Phase II studies for each product, each indication | |
£ | 100,000 | |
1st
Subject dosed in Phase III studies for each product, each indication | |
£ | 50,000 | |
Submission
of New Drug Application for each product for each indication | |
£ | 50,000 | |
Issued
US patent, per patent | |
£ | 5,000 | |
Receipt
of Regulatory Approval in the United States for each product for each indication | |
£ | 1,250,000 | |
Receipt
of Regulatory Approval in the European Union or United Kingdom for each product for each indication | |
£ | 550,000 | |
Receipt
of Regulatory Approval in the Japan for each product for each indication | |
£ | 150,000 | |
Aggregate
Net Sales Exceed $5Bn | |
£ | 10,000,000 | |
Aggregate
Net Sales Exceed $10Bn | |
£ | 50,000,000 | |
Net
Sales (US$) | |
Royalty
Rate | |
< $250M | |
| 1.00 | % |
$250M - $1B | |
| 2.00 | % |
$1B - $10B | |
| 3.00 | % |
> $10B | |
| 3.50 | % |
Stanford License Agreement
On
May 8, 2018, Katexco Pharmaceuticals Corp, a wholly-owned subsidiary of our wholly-owned subsidiary Katexco, entered into an option agreement
(the “Stanford Option”) with the Board of Trustees of the Leland Stanford Junior University (“Stanford”),
pursuant to which Stanford granted Katexco an option to acquire an exclusive license for the development and commercialization of certain
inventions. In consideration for the Stanford Option, Katexco paid Stanford $10,000 (the “Option Payment”), creditable against
the license issue fee agreement.
On
July 25, 2018 (the “Stanford Effective Date”), Katexco exercised the Stanford Option, and entered into an exclusive
license agreement (the “Stanford License Agreement”) with Stanford, pursuant to which Katexco was granted the rights
to certain U.S. patents related to (i) alpha B-crystallin as a therapy for autoimmune demyelination and (ii) peptides as short as six
amino acids that form amyloid fibrils that activate B-1 cells and macrophages and are anti-inflammatory and therapeutic in autoimmune
and neurodegenerative diseases (the “Stanford Licensed Patents”). Through the Stanford License Agreement, Katexco
established research facilities at Stanford. We will support the clinical development of the lead compound(s), culminating in Phase 1
and Phase 2 clinical trials to establish potential clinical utility in ulcerative colitis indications.
Under
the Stanford License Agreement, no rights of Stanford, including intellectual property rights, are granted to Katexco other than those
rights granted under the Stanford Licensed Patents.
As
consideration for the grant of the Stanford Licensed Patents, Katexco paid Stanford an initial fee of $50,000, inclusive of the Option
Payment. We also issued 5,574 common shares to Stanford and provided a letter stating the value of such shares. A portion of the shares
issued to Stanford were later distributed to five individuals, including our Chief Scientific Officer and co-chairman.
Beginning
upon the first anniversary of the Stanford Effective Date and each anniversary thereafter, Katexco will pay Stanford an annual license
maintenance fee of $20,000 on the first and second anniversaries and $40,000 on each subsequent anniversary. Furthermore, Katexco is
obligated to make the following payments, including (i) $100,000 upon initiation of Phase 2 trial, (ii) $500,000 upon the first FDA approval
of a product (the “Licensed Product”) resulting from the Stanford Licensed Patents, and (iii) $250,000 upon each new
Licensed Product thereafter. Royalties, calculated at 2.5% of net sales (calculated as gross revenue received by Katexco or its sublicensees,
their distributors or designees, from the sale, transfer or other disposition of products based on the Stanford Licensed Patents minus
5%), will be payable to Stanford. In addition, Katexco has reimbursed Stanford $51,385 to offset the Stanford Licensed Patent’s
patenting expenses and will reimburse Stanford for all Stanford Licensed Patent’s patenting expenses, including any interference
and or re-examination matters, incurred by Stanford after March 3, 2018.
We
can terminate the Stanford License Agreement without cause by providing a 30-day notice. In the case of a change of control, upon the
assignment of the Stanford License Agreement, Katexco is obligated to pay Stanford a $200,000 change of control fee. The Stanford License
Agreement also provides Stanford with the right to purchase for cash up to either (i) 10% or (ii) the percentage necessary for Stanford
to maintain its pro rata ownership interest in Katexco, of Katexco’s equity securities issued in a private offering. The shares
issued to Stanford in connection with the Stanford License Agreement, gave Stanford and the five individuals who received a portion of
the shares a total ownership of 2.11% in Katexco’s stock, prior to the July 2019, corporate restructuring completed between 180
and each of 180 LP, Katexco and CBR Pharma, pursuant to which 180 LP, Katexco and CBR Pharma became wholly-owned subsidiaries of 180LS
(the “Reorganization”) under the Business Corporations Act (British Columbia).
The Evotec Agreement
On
June 7, 2018, our wholly-owned subsidiary Katexco entered into the Evotec Agreement with Evotec, a leading CRO, pursuant to which Evotec
was retained to perform certain research services. Pursuant to the Evotec Agreement, the goal of the joint project (the “Evotec
Project”) is to identify small molecules that pharmacologically stimulate the human ChrFam7a receptor and function. The Evotec
Project is being conducted in two phases over a 24-month period where resources are allocated by the steering committee, which is controlled
equally by the parties to the Evotec Agreement, on a quarterly basis.
Subject
to certain exemptions described in the Evotec Agreement, Katexco owns all intellectual property rights, conceived, invented, discovered
or made by Evotec during the performance of its services, other than intellectual property rights owned or controlled by Evotec relating
to its already existing technology and components to be used in the services to be provided under the Evotec Agreement.
The
Evotec Agreement is subject to a minimum payment of $4,937,500 and a maximum payment of $5,350,250 to Evotec. This program was paused
in mid-2019 and we expect to re-engage with Evotec in 2023. As of December 31, 2022, we have made payments to Evotec in the amount of
approximately $1.1 million.
The Petcanna Agreement
On
August 20, 2018, we entered into a sublicense agreement with Petcanna Pharma Corp. (“Petcanna”), a private company
which was founded by Prof. Sir Marc Feldmann (our Co-Executive Chairman), and Yissum (the “Petcanna Agreement”).
Under
the Petcanna Agreement, we granted Petcanna an exclusive, worldwide, non-transferable, non-sublicensable sublicense to make commercial
use of certain patents related to cyclohexenyl compounds and listed in the Petcanna Agreement (the “Petcanna IP”)
in order to develop, manufacture, market, distribute or sell products that incorporate the Petcanna IP in products that are intended
for the treatment of veterinary medical conditions, initially osteoarthritis.
As
consideration for the sublicense, Petcanna agreed to issue to us approximately 9,000,000 of Petcanna’s common shares in the fourth
quarter of 2018. As of the date of this prospectus, Petcanna has not issued shares to any stockholder and has not commenced operations.
We intend to retain 85% of such shares and transfer 15% of such shares to Yissum. In the event that Yissum does not accept such shares,
we will have an obligation to pay Yissum 15% of the-then current fair market value of such shares. Petcanna will also pay a 1% royalty
to us on Petcanna’s net sales of products that incorporate the Petcanna IP.
All
right, title and interest in and to the Petcanna IP, including any improvements to the Petcanna IP, will vest solely in our company.
Unless
the parties to the Petcanna Agreement agree otherwise in writing, the Petcanna Agreement will terminate on the occurrence of the later
of: (i) the date of expiration of the last of the Petcanna IP, (ii) the date of the final expiration of exclusivity on any Product granted
by any regulatory or government body, and (iii) the expiration of a continuous period of twenty (20) years during which there was no
First Commercial Sale of any product. The terms “Product” and “First Commercial Sale” apply as they are defined
in the Petcanna Agreement. Our ability to grant this sublicense to Petcanna is contingent upon (i) Yissum having the necessary rights
to the Hebrew Patent Applications assigned to it from all applicable parties, (ii) Yissum being able to grant a license to us per the
terms of the Hebrew Agreement, and (iii) the Hebrew Patent Applications and any related resulting patents being valid and maintained
in good standing for the respective terms of the Hebrew Licensing Agreement and the Petcanna Agreement.
Kennedy License Agreement
On
September 27, 2019, our wholly-owned subsidiary 180 LP entered into an exclusive license agreement (the “Kennedy License Agreement”)
with the Kennedy Trust For Rheumatology Research (“Kennedy”), pursuant to which Kennedy granted to 180 LP an exclusive
license in the United States, Japan and member countries of the European Union (including the United Kingdom), to certain licensed patents
(the “Kennedy Licensed Patents”), including the right to grant sublicenses, and the right to research, develop, sell
or manufacture any pharmaceutical product (i) whose research, development, manufacture, use, importation or sale would infringe on the
Kennedy Licensed Patents absent the license granted under the Kennedy License Agreement or (ii) containing an antibody that is a fragment
of or derived from an antibody whose research, development, manufacture, use, importation or sale would infringe on the Kennedy Licensed
Patents absent the license granted under the Kennedy License Agreement, for all human uses, including the diagnosis, prophylaxis and
treatment of diseases and conditions.
Under
the Kennedy License Agreement, Kennedy reserves the perpetual, irrevocable, non-exclusive, royalty-free, sublicensable, worldwide right
for the Kennedy Licensed Patents and its affiliates, employees, students and other researchers to carry out any acts which would otherwise
infringe on the Kennedy Licensed Patents for the purposes of teaching and carrying out research and development, including the right
to accept external sponsorship for such research and development and the right to grant sub-licenses for the same purposes.
As
consideration for the grant of the Kennedy Licensed Patents, 180 LP paid Kennedy an upfront fee of £60,000, and will also pay Kennedy
royalties equal to (i) 1% of the net sales for the first annual $1 billion of net sales, and (ii) 2% of the net sales after the net sales
are at or in excess of $1 billion, as well as 25% of all sublicense revenue, provided that the amount of such percentage of sublicense
revenue based on amounts which constitute royalties shall not be less than 1% on the first cumulative $1 billion of net sales of the
products sold by such sublicenses or their affiliates, and 2% on that portion of the cumulative net sales of the products sold by such
sublicenses or their affiliates in excess of $1 billion.
The
term of the royalties paid to Kennedy will expire on the later of (i) the last valid claim of a patent included in the Kennedy Licensed
Patents which covers or claims the exploitation of a product in the applicable country; (ii) the expiration of regulatory exclusivity
for the product in the country; or (iii) 10 years from first commercial sale of the product in the country.
We
may terminate the Kennedy License Agreement without cause by providing 90-days’ notice.
Kinexum Agreement
On
January 13, 2023, we entered into a contract with Kinexum in the ordinary course of business (the “MSA”). Pursuant
to the MSA, Kinexum will provide assistance to us in connection with the Conditional Marketing Authorisation (CMA) and Marketing Approval
Application (MAA) which we expect to submit to the MHRA in connection with our planned use of adalimumab to treat progressive early-stage
Dupuytren’s disease. Including the costs associated with the Kinexum contract, we anticipate that it will spend approximately $900,000
to $1,000,000, cumulative in the three quarters ending September 30, 2023 for activities associated with the MHRA filing and other regulatory
preparation.
Consulting
Agreements
The
Consulting Agreements are each described below.
Prof.
Jagdeep Nanchahal Consulting Agreement
On
February 25, 2021, we (and CannBioRex Pharma Limited, which was added as a party to the agreement later), entered into a Consultancy
Agreement dated February 22, 2021, and effective December 1, 2020, with Prof. Jagdeep Nanchahal (as amended, the “Consulting
Agreement”). Prof. Nanchahal has been providing services to us and/or our subsidiaries since 2014 and is currently a greater
than 5% stockholder of the Company and the Chairman of our Clinical Advisory Board.
On
March 31, 2021, we entered into a first amendment to Consultancy Agreement with Prof. Jagdeep Nanchahal (the “First Nanchahal
Amendment”), which amended the Consultancy Agreement entered into with Prof. Nanchahal on February 25, 2021, to include CannBioRex
Pharma Limited, a corporation incorporated and registered in England and Wales (“CannBioRex”), and an indirect wholly-owned
subsidiary of the Company, as a party thereto, and to update the prior Consultancy Agreement to provide for cash payments due to Prof.
Nanchahal to be paid by CannBioRex, for tax purposes, provide for CannBioRex to be party to certain other provisions of the agreement
and to provide for the timing of certain cash bonuses due under the terms of the agreement.
Prof.
Nanchahal is a surgeon scientist focusing on defining the molecular mechanisms of common diseases and translating his findings through
to early phase clinical trials. He undertook his Ph.D., funded by the U.K. Medical Research Council, whilst a medical student in London
and led a lab group funded by external grants throughout his surgical training. After completing fellowships in microsurgery and hand
surgery in the United States and Australia, he was appointed as a senior lecturer at Imperial College. His research is focused on promoting
tissue regeneration by targeting endogenous stem cells and reducing fibrosis. In 2013 his group identified anti-tumor necrosis factor
(TNF) as therapeutic target for Dupuytren’s Contracture, a common fibrotic condition of the hand. He is currently leading a Phase
2b clinical trial funded by the Wellcome Trust and Department of Health to assess the efficacy of local administration of anti-TNF in
patients with early-stage Dupuytren’s Contracture and a clinical trial for patients with early-stage frozen shoulder. He is a proponent
of evidence-based medicine and was the only plastic surgery member of the NICE Guidance Development Groups on complex and non-complex
fractures. He was a member of the group that wrote the Standards for the Management of Open Fractures published in 2020. This is an open-source
publication to facilitate the care of patients with these severe injuries.
Pursuant
to the Consulting Agreement, Prof. Nanchahal agreed, during the term of the agreement, to serve as a consultant to us and provide such
services as the Chief Executive Officer and/or our Board shall request from time to time, including but not be limited to: (1) conducting
clinical trials in the fields of Dupuytren’s Contracture, frozen shoulder and post-operative delirium/cognitive decline; and (2)
conducting laboratory research in other fibrotic disorders, including fibrosis of the liver and lung (collectively, the “Services”).
In
consideration for providing the Services, we (through CannBioRex Pharma Limited) agreed to pay Prof. Nanchahal 15,000 British Pounds
(GBP) per month (approximately $20,800) during the term of the agreement, increasing to GBP 23,000 (approximately $32,000) on the date
(a) of publication of the data from the phase 2b clinical trial for Dupuytren’s Contracture (RIDD) and (b) the date that we have
successfully raised over $15 million in capital. The fee will increase annually thereafter to reflect progression in other clinical trials
and laboratory research as approved by our Board. We also agreed to pay Prof. Nanchahal a bonus (“Bonus 1”) in the
sum of GBP 100,000 upon submission of the Dupuytren’s Contracture clinical trial data for publication in a peer-reviewed journal,
which submission occurred in December 2021, and which bonus was paid in December 2021. In addition, for prior work performed, including
completion of the recruitment to the RIDD (Dupuytren’s) trial, we agreed to pay Prof. Nanchahal GBP 434,673 (approximately $605,000)
(“Bonus 2”). At the election of Prof. Nanchahal, Bonus 2 shall be paid at least 50% (fifty percent) or more, as Prof.
Nanchahal elects, in shares of our common stock, at a share price of $60.00 per share, or the share price on the date of the grant, whichever
is lower, with the remainder paid in GBP. Bonus 2 shall be deemed earned and payable upon us raising a minimum of $15 million in additional
funding, through the sale of debt or equity, after December 1, 2020 (the “Vesting Date”) and shall not be accrued,
due or payable prior to such Vesting Date. Bonus 2 shall be payable by us within 30 calendar days of the Vesting Date. Finally, Prof.
Nanchahal shall receive another one-time bonus (“Bonus 3”) of GBP 5,000 (approximately $7,000) on enrollment of the
first patient to the phase 2 frozen shoulder trial, and another one-time bonus (“Bonus 4”) of GBP 5,000 (approximately
$7,000) for enrollment of the first patient to the phase 2 delirium/POCD trial. On March 30, 2021, we issued Prof. Nanchahal 5,035 shares
of our common stock in lieu of GBP 217,337 and on April 15, 2021, we issued Prof. Nanchahal 1,886 shares of our common stock in lieu
of GBP 82,588. We also waived the requirement for the Company having to raise $15 million in order for Prof. Nanchahal to agree to receive
an aggregate of GBP 300,000 via the issuance of shares. Prof. Nanchahal agreed that the remaining GBP 134,673 that is due pursuant to
Bonus 2 shall be paid after we have raised a minimum of $15 million in additional funding. On August 23, 2021, at the request of Prof.
Nanchahal, we agreed to issue Prof. Nanchahal 3,077 shares of common stock in consideration for the remaining 31% (or 134,749 GBP, or
$184,606) of Bonus 2, based on a $60.00 per share price. The shares were issued under our 2020 Omnibus Incentive Plan, which has been
approved by stockholders.
Effective
on April 27, 2022, we and CannBioRex entered into a Second Amendment to Consulting Agreement with Prof. Jagdeep Nanchahal (the “Second
Nanchahal Amendment”). Pursuant to the Second Nanchahal Amendment, Prof. Nanchahal agreed that upon acceptance of the data
for the phase 2b clinical trial for Dupuytren’s disease for publication (which occurred March 1, 2022, subject to editing and final
approvals), his monthly fee was increased to £23,000, provided that £4,000 of such increase shall be accrued and £19,000
per month of such fees shall be payable per our payroll practices in cash by us starting effective March 1, 2022, and until the earlier
of (a) November 1, 2022 or (b) such time as our Board determines that we have sufficient cash on hand to pay such accrued amounts, which
we expect will not be until it has raised a minimum of $15,000,000 (the “Funding Determination Date”), at which time
all accrued amounts shall be due.
On
December 28, 2022, we and CannBioRex, entered into a Third Amendment to Consultancy Agreement with Prof. Nanchahal (the “Third
Nanchahal Amendment”). The Third Nanchahal Amendment amended the Consultancy Agreement to provide that the monthly cash fee
payable to Prof. Nanchahal pursuant to such agreement would remain at its then current rate, £23,000 per month, through December
31, 2022, and then increase to £35,000 per month during the term of the Consultancy Agreement from January 1, 2023, until the end
of the term of the Consultancy Agreement (collectively, the “Fee”). The Third Nanchahal Amendment also provided that
the Fee will be adjusted yearly with the recommendation of our Board or the Compensation Committee of the Company, which will consider
in its determination of the amount of such increase, the U.K. consumer price index and Prof. Nanchahal’s contributions to advancing
our mission, among other things. The Third Nanchahal Amendment also provided that in the event the Consultancy Agreement is terminated
by us for any reason other than cause, Prof. Nanchahal is entitled to a lump sum payment of 12 months of his monthly fee as at the date
of termination.
Notwithstanding
the above, the Board or Compensation Committee of the Company may grant Prof. Nanchahal additional bonuses from time to time in their
discretion, in cash, stock or options.
The
Consulting Agreement has an initial term of three years, and renews thereafter for additional three-year terms, until terminated as provided
in the agreement. The Consulting Agreement can be terminated by either party with 12 months prior written notice (provided our right
to terminate the agreement may only be exercised if Prof. Nanchahal fails to perform his required duties under the Consulting Agreement),
or by us immediately if (a) Prof. Nanchahal fails or neglects efficiently and diligently to perform the Services or is guilty of any
breach of its or his obligations under the agreement (including any consent granted under it); (b) Prof. Nanchahal is guilty of any fraud
or dishonesty or acts in a manner (whether in the performance of the Services or otherwise) which, in our reasonable opinion, has brought
or is likely to bring Prof. Nanchahal, the Company or any of its affiliates into disrepute or is convicted of an arrestable offence (other
than a road traffic offence for which a non-custodial penalty is imposed); or (c) Prof. Nanchahal becomes bankrupt or makes any arrangement
or composition with his creditors. If the Consulting Agreement is terminated by us for any reason other than cause, Prof. Nanchahal is
entitled to a lump sum payment of 12 months of his fee as at the date of termination.
The
Consulting Agreement includes a 12 month non-compete and non-solicitation obligation of Prof. Nanchahal, preventing him from competing
against us in any part of any country in which he was actively engaged in our business, subject to certain exceptions, including research
conducted at the University of Oxford. The Consulting Agreement also includes customary confidentiality and assignment of inventions
provisions, in each case subject to our previously existing agreements with various universities, including the University of Oxford,
where Prof. Nanchahal serves as a Professor of Hand, Plastic and Reconstructive Surgery.
Service
Agreement with Prof. Sir Marc Feldmann
On
June 1, 2018, CannBioRex Pharma Limited (“CannBioRex”) and Prof. Sir Marc Feldmann Ph.D., our Executive Co-Chairman,
entered into a Service Agreement (the “Feldmann Employment Agreement”). Pursuant to the Feldmann Employment Agreement,
Prof. Sir Feldmann serves as the Chairman, CEO and Executive Director of CannBioRex or in such other capacity consistent with his status.
Prof. Sir Feldmann’s responsibilities include those customary for the roles in which he serves. Prof. Sir Feldmann receives compensation
of £115,000 per year, with annual compensation reviewed by the Board and eligibility for discretionary bonuses, as determined by
the Board. CannBioRex also reimburses Prof. Sir Feldmann’s travelling and other business expenses.
Pursuant
to the Feldmann Employment Agreement, all intellectual property rights created by Prof. Sir Feldmann or related to his employment belong
to and vest in CannBioRex.
The
Feldmann Employment Agreement contains a customary non-compete clause prohibiting Prof. Sir Feldmann from working for any competing businesses
during the term of his employment, or holding equity in other businesses, except he may hold or beneficially own securities of publicly-traded
companies if the aggregate beneficial interests of him and his family does not exceed 5% of that class of securities.
Prof.
Sir Feldmann is also prohibited for 12 months following termination (the “Post-Termination Period”) be involved in
any capacity with a competing business or potential joint venture in the United Kingdom or in any other country. During the Post-Termination
Period, he may not solicit business from CannBioRex and its affiliates’ customers; or any company with whom he was activity involved
in the course of his employment; or about which he holds confidential information. Prof. Sir Feldmann further covenants to not interfere
with CannBioRex’s business relationships by inducing or attempting to induce suppliers to take adverse actions during the Post-Termination
Period. He also agrees not to induce or attempt to induce any CannBioRex employee to leave the company during the Post-Termination Period.
The Feldmann Employment Agreement contains customary non-disclosure and confidentiality obligations, sick leave and vacation time.
The
Feldmann Employment Agreement does not have a fixed term. Either party may terminate the agreement by delivering written notice 9 months
in advance. CannBioRex may also terminate the Feldmann Employment Agreement at any time with immediate effect by giving written notice.
If CannBioRex terminates Prof. Sir Feldmann’s employment without providing 9 months written notice, he will become entitled to
a payment equal to his basic salary he would have been entitled to receive if 9 months’ notice were given. The governing law for
the Feldmann Employment Agreement is the law of England.
The
Board, as recommended by the Compensation Committee of the Company (and/or the Compensation Committee) or separately, may also award
Prof. Sir Feldmann bonuses from time to time (in stock, options, cash, or other forms of consideration) in its discretion.
On
November 17, 2021, the Board, as recommended by the Compensation Committee, increased the salary of Prof. Sir Feldmann to $225,000 per
annum.
Effective
on April 27, 2022, CannBioRex and Prof. Sir Feldmann entered into an amendment to the consulting agreement, pursuant to which the parties
agreed effective March 1, 2022, that Sir Feldmann’s salary would be reduced by $225,000 (100%), and that such reduced amounts would
be accrued and paid on the Funding Determination Date.
Lawrence
Steinman, M.D. Consulting Agreement
On
November 17, 2021, and effective on November 1, 2021, we entered into a Consulting Agreement with Lawrence Steinman, M.D., our Executive
Co-Chairman (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Dr. Steinman agreed to provide certain
consulting services to us, including, but not limited to, participating in defining and setting strategic objectives of the Company;
actively seeking out acquisition and merger candidates; and having primary scientific responsibility for our α7nAChR platform (collectively,
the “Services”). The term of the agreement is for one year (the “Initial Term”); provided that
the agreement automatically extends for additional one year periods after the Initial Term (each an “Automatic Renewal Term”
and the Initial Term together with all Automatic Renewal Terms, if any, the “Term”), subject to the Renewal Requirements
(described below), in the event that neither party provided the other written notice of their intent not to automatically extend the
term of the agreement at least 30 days prior to the end of the Initial Term or any Automatic Renewal Term. The Term can only be extended
for an Automatic Renewal Term, provided that (i) Dr. Steinman is re-elected to the Board at our Annual Meeting of Stockholders immediately
preceding the date that such Automatic Renewal Term begins; (ii) the Board affirms his appointment as Co-Chairman for the applicable
Automatic Renewal Term (or fails to appoint someone else as Co-Chairman prior to such applicable Automatic Renewal Term) and (iii) Dr.
Steinman is continuing in his role of having the responsibility for the scientific development for the Company’s α7nAChR
platform (the “Renewal Requirements”). The Consulting Agreement also expires immediately upon the earlier of: (i)
the date upon which Dr. Steinman no longer serves as Co-Chairman and no longer has primary scientific responsibility for our α7nAChR
platform; and (ii) any earlier date requested by either (1) us (as evidenced by a vote of a majority of the Board (excluding Dr. Steinman)
at a meeting of the Board), or (2) Dr. Steinman (as evidenced by written notice from Dr. Steinman to the Board). Additionally, we may
terminate the Consulting Agreement immediately and without prior notice if Dr. Steinman is unable or refuses to perform the Services,
and either party may terminate the Consulting Agreement immediately and without prior notice if the other party is in breach of any material
provision of the Consulting Agreement.
We
agreed to pay Dr. Steinman $225,000 per year during the term of the agreement, along with a one-time payment of $43,750, representing
the difference between his old compensation and new compensation, dating back to April 1, 2021. Pursuant to the Consulting Agreement,
Dr. Steinman agreed to not compete against us, unless approved in writing by the Board, during the term of the agreement, and also agreed
to certain customary confidentiality provisions and assignment of inventions requirements. The Consulting Agreement also has a 12-month
non-solicitation prohibition following its termination.
On
December 8, 2021, Dr. Steinman was also granted stock options to purchase 1,250 shares of our common stock, which have a term of 10 years;
an exercise price equal to the fair market value of our common stock on the date of grant, $79.00 per share, and are subject to our 2020
Omnibus Incentive Plan. In addition, beginning in calendar year 2022, for each year during the Term of the Consulting Agreement, we will,
subject to future approval by the Board, grant Dr. Steinman $125,000 of value of equity compensation. Future equity grants will vest
over a 48-month period and be in accordance with the Plan. Timing of the future grants, nature of the equity grants (e.g., RSU, PSU,
restricted stock, etc.) and any changes in the value of future equity will be recommended by our Compensation Committee and/or Audit
Committee and approved by the Board.
Effective
on April 27, 2022, the Company and Dr. Steinman entered into an amendment to the consulting agreement, pursuant to which the parties
agreed effective March 1, 2022, that Dr. Steinman’s salary would be reduced by $56,250 (25%), and that such reduced amount would
be accrued and paid on the Funding Determination Date.
Intellectual
Property
Our
success depends in significant part on our ability to protect the proprietary elements of our product candidates, technology and know-how,
to operate without infringing on the proprietary rights of others, and to defend challenges and oppositions from others and prevent others
from infringing on our proprietary rights. We have sought, and will continue to seek, patent protection in the United States, United
Kingdom, Europe and other countries for our proprietary technologies. Our intellectual property portfolio as of March 31, 2023 includes
sixteen patent families with issued and/or pending claims, pharmaceutical formulations, drug delivery and the therapeutic uses of SCAs,
as well as know-how and trade secrets, when including patents held by our partners of which we have exclusive rights.
Within
the United States, we and/or our partners have licensed twelve issued patents and twelve pending patent applications under active prosecution.
Outside of the United States, assuming the European Union as a single jurisdiction, there are an additional twelve issued patents and
23 pending patent applications under active prosecution. Our policy is to seek patent protection for the technology, inventions and improvements
that we consider important to the development of our business, but only in those cases where we believe that the costs of obtaining patent
protection is justified by the commercial potential of the technology, and typically only in those jurisdictions that we believe present
significant commercial opportunities. We also rely on trademarks, trade secrets, know-how and continuing innovation to develop and maintain
our competitive position.
The
term of individual patents depends upon the countries in which they are obtained. In most countries in which we have filed, the patent
term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may
be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO, in granting a patent, or
may be shortened if a patent is terminally disclaimed over another patent.
The
term of a patent that covers an FDA-approved drug may also be eligible for extension, which permits term restoration as compensation
for the term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman
Act) permits an extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related
to the length of time the drug is under regulatory review. Extensions cannot extend the remaining term of a patent beyond 14 years from
the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions to extend the term
of a patent that covers an approved drug are available in Europe and other non-U.S. jurisdictions.
To
protect our rights to any of our issued patents and proprietary information, we may need to litigate against infringing third parties,
avail ourselves of the courts or participate in hearings to determine the scope and validity of those patents or other proprietary rights.
We
also rely on trade secret protection for our confidential and proprietary information. Our policy requires our employees, consultants,
outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement
of employment or consulting relationships with us.
From
time to time, in the normal course of our operations, we will be a party to litigation and other dispute matters and claims relating
to intellectual property.
180LS’
Research, Development and License Agreements
180LS
has entered into research and licensing agreements with various parties, including the Hebrew University of Jerusalem and Oxford. For
information regarding these agreements, see “Material Agreements”, above.
Competition
Below
is a description of the competitive environment of each of our product candidate development platforms and potential product candidates.
Dupuytren’s
Contracture
Our
treatment is for early-stage Dupuytren’s Contracture, for which, to our knowledge, there is no approved treatment. Existing treatments
focus on late stage Dupuytren’s Contracture, when the fingers are irreversibly curled into the palm. Surgery remains the typical
standard treatment, but the relatively long post-operative rehabilitation has driven the reach for less invasive techniques. Xiaflex,
a drug developed by Auxilium, has shown effective in treating patients with developed contractures although many patients experience
relatively mild side effects. An alternative approach is disruption of the late-stage cords with a needle and data from a comparative
clinical trial published in the Journal of Bone and Joint Surgery (American) in 2018 showed similar recurrence rates between collagenase
and percutaneous needle fasciotomy at 2 years. A clinical trial funded by the National Institute for Health Research Health Technology
Assessment Programme (U.K.) is currently underway in the United Kingdom, comparing the cost efficacy of surgery for Dupuytren’s
Contracture with collagenase treatment. The aims of the study are to determine (i) whether collagenase injections are as effective and
as safe as surgery for treating this condition and (ii) the costs of both treatments.
SCAs
Following
the acquisition of GW Pharmaceuticals PLC and its Epidiolex (cannabidiol) and Sativex (THC & CBD) franchises, by Jazz Pharmaceuticals
(Ireland), Jazz Pharma has become the prominent player in the cannabidiol space. Epidiolex is an oral cannabidiol solution
approved for treating seizures in a range of childhood epileptic diseases, including Dravet’s syndrome (formerly known as severe
myoclonic epilepsy of infancy), Rett Syndrome, and Lennox-Gastaut Syndrome. Jazz Pharma is exploring whether Epidiolex is effective in
Sturge-Weber Syndrome, in which abnormal development of blood vessels leads to defects in the brain, skin, and eyes from birth, and more
broadly in Autism Spectrum Disorder. Clinical trials sponsored by Jazz Pharma testing effectiveness of Epidiolex in autoimmune diseases
such as multiple sclerosis, ulcerative colitis, and Crohn’s Disease are ongoing. Collectively, these efforts represent the most
extensive cannabidiol clinical program.
To
our knowledge, multiple companies are working in the cannabis therapeutic area and are pursuing regulatory approval for their product
candidates, including:
| ● | Cardiol
Therapeutics (Canada) which is evaluating the effectiveness of their oral CBD liquid formulation
on myocardial recovery in patients presenting with acute myocarditis. |
| | |
| ● | Zynerba
Pharmaceuticals (Pennsylvania) which focuses on pharmaceutically produced transdermal cannabinoid
therapies for rare and near-rare neuropsychiatric disorders. Zynerba currently is evaluating
ZygelTM, a patent-protected transdermal CBD gel for the treatment of Fragile X syndrome,
for which it filed an NDA with the FDA, developmental and epileptic encephalopathies, 22q
deletion syndrome, and Autism Spectrum Disorder. |
| | |
| ● | Orcosa,
(New Jersey) which is testing their CBD, Oravexx (oral disintegrating tablets), to manage
pain and inflammation with the hope of reducing clinical reliance on opioids. The particular
indication is pain associated with osteoarthritis in the knee in a Phase 2 trial. |
| | |
| ● | Stero
Biotechs (Israel) which sponsored a phase II trial in GVHD demonstrating that CBD administration
(synthetic CBD in olive oil), either enhanced the therapeutic effect of steroids or reduced
the steroid dosage while maintaining or improving the steroid’s original therapeutic
effect. Additional clinical trials are a Phase IIa, multi centered trial in steroid dependent
Crohn’s disease, a Phase IIa trial in chronic urticaia (Hives), and Phase I/II trial
in severe Covid-19. |
α7nAChR
Antibodies
selective for TNFa (Humira) or TNFa receptor (Remicade) and nucleic acid aptamers are injectable reagents, which by their inherent nature
have clinical limitations. An orally bioavailable inhibitor of TNFa is a natural complementary reagent to the antibody or aptamer strategy.
This is particularly attractive if the mode of action differs between the varying therapeutic reagents. The antibodies and aptamers both
are designed to interfere with TNFa signaling, whereas the orally bioavailable drug is an α7 nicotinic acetyl choline receptor
agonist known to activate the vagus nerve and the brain- immune system interface.
The
180LS program to develop an orally bioavailable inhibitor of TNFa secretion has significant competition. The most prominent is the collection
of Jak inhibitors (Xeljanz, Cibinqo, Olumiant, Rinvoq and Jyseleca) approved for treatment of rheumatoid arthritis, psoriatic arthritis,
juvenile idiopathic arthritis, axial spondyloarthritis, ulcerative colitis, atopic dermatitis and alopecia areata. The mode of action
is the inhibition of the Jak-Stat pathway principally in cells of the macrophage lineages known to secrete a variety of proinflammatory
cytokines including TNFa. The commercial success of these reagents provides practical support for the importance of developing an orally
bioavailable product. These drugs are not involved in acetylcholine receptor pathway. Attenua Pharma, a small biotechnology that was
using an α7nAChR agonist, bradanicline, in Phase 2 clinical trials for chronic cough was acquired by Coda therapeutics and
this program has been discontinued.
The
electroceutical companies can be viewed as competition, or a vast proof-of-concept. Because in many respects, the α7nAChR program
can be considered as a chemical stimulation of the vagus nerve, and each of the indications benefiting from electrical stimulation, should
be amenable to chemical stimulation. To our knowledge, the company closest to an approved product for inflammatory indications is SetPoint
Medical Corporation, which has active for inflammatory bowel disease and rheumatoid arthritis. Their device is a miniaturized stimulator
implant, which is surgically placed under general anesthesia on the vagus nerve through a small incision on the left side of the neck.
An unexpected result is that a short electrical pulse leads to an extended period of reduction of inflammatory cytokines, of the order
of 8-10 hours.
A
final consideration is that each of the large pharmaceutical companies that initially developed α7nAChR agonists could revitalize
their programs and use their drugs in clinical trials for inflammatory indications.
The
electroceutical companies can be viewed as competition, or a vast proof-of-concept. Because in many respects, the α7nAChR program
can be viewed as a chemical stimulation of the vagus nerve, and each of the indications benefiting from electrical stimulation, should
be amenable to chemical stimulation.
Lastly,
each of the large pharmaceutical companies that initially developed α7nAChR agonists could revitalize their programs and use their
drugs in clinical trials for inflammatory indications.
Government
Regulation
We
have obtained regulatory approvals from the U.K. Medicines and Healthcare Products Regulatory Agency (MHRA) and the Dutch Centrale Commissie
Mensgebonden Onderzoek (CCMO), as well as from the relevant accredited ethics committees, in order to perform clinical trials in the
United Kingdom and The Netherlands solely for indications under the anti-TNF platform. Following the successful results of the Phase
2b Dupuytren’s Contracture clinical trial, we are preparing a conditional marketing authorization application to be filed with
the MHRA. We have not held any meetings with, and no applications or requests for approval have been submitted to, the U.S. Food and
Drug Administration (“FDA”) for any indications or products under the anti-TNF platform at this time.
FDA
Approval Process
In
the United States, pharmaceutical products, including drugs and biologics, are subject to extensive regulation by FDA. Under the U.S.
Federal Food, Drug, and Cosmetic Act (the “FDC Act”), a “drug” is defined to include “articles
intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals” and “articles
(other than food) intended to affect the structure or any function of the body of man or other animals.” 21 USC 321(g). Like
all drugs, biological products are also used for the treatment, prevention or cure of disease in humans. However, in contrast to chemically
synthesized small molecular weight drugs, which have a well-defined structure and can be thoroughly characterized, biological products
are generally derived from living material, such as human, animal, or microorganism, are complex in structure, and thus are always fully
characterized. The U.S. Public Health Servicer Act (the “PHS Act”) defines a biological product as a “virus,
therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product …
applicable to the prevention, treatment, or cure of a disease or condition of human beings.” 42 USC 262(i). FDA regulations
and policies have established that biological products include blood-derived products, vaccines, in vivo diagnostic allergenic products,
immunoglobulin products, products containing cells or microorganisms, and most protein products. Biological products subject to the PHS
Act also meet the definition of drugs under the FDC Act. Biological products are a subset of drugs, and therefore both are regulated
under provisions of the FDC Act. However, only biological products are licensed under section 351 of the PHS Act, although some therapeutic
protein products have been approved under section 505 of the FDC Act rather than the PHS Act.
The
FDC Act, PHS Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing,
manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting,
sampling, and import and export of drugs and biologics. Failure to comply with applicable U.S. requirements may subject a company to
a variety of administrative or judicial sanctions, such as imposition of clinical holds, FDA refusal to approve pending NDAs or the FDA’s
Biologics License Application (BLAs) or supplements to approved NDAs/BLAs, withdrawal of approvals, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Drug
and biologic development in the United States typically involves pre-clinical laboratory and animal tests, the submission to the FDA
of an IND, which must become effective before clinical testing may commence. For commercial approval, the sponsor must submit adequate
tests by all methods reasonably applicable to show that the drug/biologic is safe for use under the conditions prescribed, recommended
or suggested in the proposed labeling. The sponsor must also submit substantial evidence, generally consisting of adequate, well-controlled
clinical trials to establish that the drug/biologic will have the effect it purports or is represented to have under the conditions of
use prescribed, recommended or suggested in the proposed labeling, including meeting FDA standards for safety, and efficacy for drugs
or purity and potency for biologics. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time
required may vary substantially based upon the type, complexity and novelty of the product candidate or disease.
Pre-clinical
tests include laboratory evaluation of product candidate chemistry, formulation and toxicity, as well as animal trials to assess the
characteristics and potential safety and efficacy of the product candidate. The conduct of the pre-clinical tests must comply with federal
regulations and requirements, including FDA’s Good Laboratory Practice (“GLP”), Good Clinical Practice (“GCP”),
and Good Manufacturing Practice regulations (“GMP”) regulations and the U.S. Department of Agriculture’s regulations
implementing the Animal Welfare Act of 1996. The results of pre-clinical testing are submitted to the FDA as part of an IND along with
other information, including information about product candidate chemistry, manufacturing and controls, and a proposed clinical trial
protocol. Long-term pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND
is submitted.
A
30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA
has not imposed a clinical hold on the IND or otherwise commented or questioned the IND within this 30-day period, the IND is deemed
issued, and the clinical trial proposed in the IND may begin.
Clinical
trials involve the administration of the investigational new drug/biologic to healthy volunteers or patients under the supervision of
a qualified investigator. Clinical trials must be conducted: (i) in compliance with GCP, an international standard and U.S. legal requirement
meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, (ii)
in compliance with other federal regulations, and (iii) under protocols detailing the objectives of the trial, the parameters to be used
in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent
protocol amendments must be submitted to the FDA as part of the IND.
The
FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time or impose other sanctions if it believes that
the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical
trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an Institutional
Review Board (“IRB”), for approval. An IRB may also prevent a clinical trial from beginning or require the clinical
trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or may impose
other conditions.
Clinical
trials to support NDAs/BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap or
otherwise vary in particular circumstances. In Phase 1, the initial introduction of the drug/biologic into healthy human subjects or
patients, the drug/biologic is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing
doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine
the effectiveness of the drug/biologic for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse
effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations,
Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients,
typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the
drug/biologic and to provide adequate information for the labeling of the drug/biologic. In most cases, the FDA requires two adequate
and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug/biologic. The FDA may, however, determine that a
single Phase 3 trial with other confirmatory evidence may be sufficient in some instances. In some cases, the FDA may require post-market
studies, known as Phase 4 studies, to be conducted as a condition of approval in order to gather additional information on the drug’s/biologic’s
effect in various populations and any side effects associated with long-term use. Depending on the risks posed by the drugs/biologics,
other post-market requirements may be imposed.
In
response to specific requirements set forth in the 21st Century Cures Act to address the need for greater patient participation in drug
development and evaluation, the FDA has issued its Plan for Issuances of Focused Drug Development Guidance, pursuant to which the FDA
will issue a series of guidances intended to address, in a stepwise manner, how stakeholders can collect and submit patient experience
data and other relevant information from patients and caregivers for medical product development and regulatory decision making. The
guidances are expected to facilitate the advancement and use of systematic approaches to collect and use robust and meaningful patient
and caregiver input that can better inform medical product development and regulatory decision making. To date, the FDA has issued three
of the planned four guidances on these issues. We expect the issue of patient-centric drug development and evaluation to increase in
priority and be more of a factor in clinical trial design, moving forward.
After
completion of the required clinical testing, a New Drug Application (“NDA”)/BLA is prepared and submitted to the FDA.
The FDA approval of the NDA/BLA is required before marketing of the product candidate may begin in the United States The NDA/BLA must
include the results of all pre-clinical, clinical, and other testing and a compilation of data relating to the product candidate’s
pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA/BLA is substantial. Under federal law,
the submission of most NDAs/BLAs is also subject to an application user fee, which, for the fiscal year 2023, is in the amount of approximately
$3.2 million (where clinical data is required).
The
FDA has 60 days from its receipt of an NDA/BLA to determine whether the application will be accepted for filing based on the agency’s
threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the
FDA begins an in-depth review. Under the Prescription Drug User Fee Act, the FDA has agreed to certain performance goals in the review
of NDAs/BLAs. The FDA’s current performance goals call for the FDA to complete review of 90 percent of standard (non-priority)
NDAs/BLAs within 10 months of receipt and within six months for priority NDAs/BLAs, but two additional months are added to standard and
priority NDAs/BLAs for a new molecular entity/reference biologic. A drug/biologic is eligible for priority review if it addresses an
unmet medical need in a serious or life-threatening disease or condition. The review process for both standard and priority review may
be extended by FDA for three additional months to consider certain late-submitted information, or information intended to clarify information
already provided in the submission. These timelines are not legally binding on the FDA.
The
FDA may also refer applications for novel drug/biologic products, or drug/biologic products that present difficult questions of safety
or efficacy, to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation
and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee,
but it generally follows such recommendations. Before approving an NDA/BLA, the FDA will typically inspect one or more clinical sites
to assure compliance with GCP.
Additionally,
the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product candidate
unless compliance with GMPs, is satisfactory and the NDA/BLA contains data that provide substantial evidence that the drug is safe and
effective, or the biologic meets the standards for safety, purity, and potency in the indication studied.
After
the FDA evaluates the NDA/BLA and the manufacturing facilities, the FDA issues either an approval letter or a complete response letter.
A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information,
in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction
in a resubmission of the NDA/BLA, the FDA will issue an approval letter. The FDA has committed to reviewing 90 percent of resubmissions
within two or six months depending on the type of information included. Notwithstanding the submission of any requested additional information,
the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.
An
approval letter authorizes commercial marketing of the drug/biologic with specific prescribing information for specific indications.
As a condition of NDA/BLA approval, the FDA may require a Risk Evaluation and Mitigation Strategy (“REMS”), to help
ensure that the benefits of the drug/biologic outweigh the potential risks. REMS can include medication guides, communication plans for
health care professionals, and Elements to Assure Safe Use (ETASU). ETASU can include, but are not limited to, special training or certification
for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The
requirement for a REMS can materially affect the potential market and profitability of the drug/biologic. Moreover, product candidate
approval may require substantial post approval testing and surveillance to monitor the drug’s/biologic’s safety or efficacy.
Once granted, product candidate approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are
identified following initial marketing.
During
the declaration of the COVID public health emergency FDA has been exercising enforcement discretion with respect to certain classes of
products and has provided for the issuance of Emergency Use Authorizations (EUAs) which have enabled a number of products to enter the
market without formal conventional FDA clearance or approval, and has also drawn FDA resources away from non-COVID related products.
The U.S government has since declared the termination of the public health emergency effective May 11, 2023, and thus products authorized
by EUAs or afforded enforcement discretion based on the COVID emergency will likely return to conventional clearance and approval requirements.
Disclosure
of Clinical Trial Information
Sponsors
of clinical trials of certain FDA-regulated products, including prescription drugs/biologics, are required to register and disclose certain
clinical trial information on a public website maintained by the U.S. National Institutes of Health. Information related to the product
candidate, patient population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made
public as part of the registration. Sponsors are also obligated to disclose the results of these trials after completion. The deadline
for submitting the results of these trials can be extended for up to two years if the sponsor certifies that it is seeking approval of
an unapproved product or that it will file an application for approval of a new indication for an approved product within one year. Competitors
may use the publicly available information to gain knowledge regarding the design and progress of our development programs.
Fast
Track Designation and Accelerated Approval
If
our drug/biologic candidate meets the requirements of the FDA’s fast track program, we would seek to have our drug/biologic candidate
expedited through this program. The FDA has programs to facilitate the development, and expedite the review, of drugs/biologics that
are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which
demonstrate the potential to address unmet medical needs for the condition. Under the fast-track program, the sponsor of a new drug/biologic
candidate may request that the FDA designate the drug/biologic candidate for a specific indication as a fast track drug/biologic concurrent
with, or after, the filing of the IND for the drug/biologic candidate. The FDA must determine if the drug/biologic candidate qualifies
for fast track designation within 60 days of receipt of the sponsor’s request. In addition to other benefits such as the ability
to engage in more frequent interactions with the FDA, the FDA may initiate review of sections of a fast track drug’s/biologic’s
NDA/BLA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule
for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal
for reviewing an application does not begin until the last section of the NDA/BLA is submitted. Additionally, the fast track designation
may be withdrawn by the FDA if it believes that the designation is no longer supported by data emerging in the clinical trial process.
Under
the FDA’s accelerated approval regulations, the FDA may approve a drug/biologic for a serious or life-threatening illness that
provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely
to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is
reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity,
rarity or prevalence of the condition and the availability or lack of alternative treatments.
In
clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for
a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly
than clinical endpoints. A drug/biologic candidate approved on this basis is subject to rigorous post-marketing compliance requirements,
including the completion of Phase 4 or post- approval clinical trials to confirm clinical benefit. Failure to conduct required post-approval
studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug/biologic from the market
on an expedited basis. Unless otherwise informed by the FDA, for an accelerated approval product/biologic, an applicant must submit to
the FDA for consideration during the preapproval review period copies of all promotional materials, including promotional labeling as
well as advertisements, intended for dissemination or publication within 120 days following marketing approval. After 120 days following
marketing approval, unless otherwise informed by the FDA, the applicant must submit promotional materials at least 30 days prior to the
intended time of initial dissemination of the labeling or initial publication of the advertisement.
Breakthrough
Therapy Designation
As
with the FDA’s fast track program, if our drug/biologic candidate meets the requirements to receive the FDA’s Breakthrough
Therapy designation, we would seek to have our drug/biologic candidate expedited through this program. The FDA’s Breakthrough Therapy
designation program is intended to expedite the development and review of products that treat serious or life-threatening diseases or
conditions. A Breakthrough Therapy is defined, under the Food and Drug Administration Safety and Innovation Act, as a drug/biologic that
is intended, alone or in combination with one or more other drugs/biologics, to treat a serious or life-threatening disease or condition,
and preliminary clinical evidence indicates that the drug/biologic may demonstrate substantial improvement over existing therapies on
one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation
includes all of the features of fast-track designation, as well as more intensive FDA interaction and guidance. The Breakthrough Therapy
designation is a distinct status from both accelerated approval and priority review, but these can also be granted to the same product
candidate if the relevant criteria are met. The FDA must take certain actions, such as holding timely meetings and providing advice,
intended to expedite the development and review of an application for approval of a breakthrough therapy. All requests for breakthrough
therapy designation will be reviewed within 60 days of receipt, and the FDA will either grant or deny the request.
In
addition, the 21st Century Cures Act created the Regenerative Medicine Advanced Therapy (RMAT) designation. RMAT applies to regenerative
medicines as a class. Sponsors of certain cell therapies, therapeutic tissue engineering products, human cell and tissue products, and
certain combination products may obtain the RMAT designation for their drug product if the drug is intended to treat serious or life-threatening
diseases or conditions and if there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical
needs for that disease or condition. Sponsors may make such a request with or after submission of an investigational new drug application.
Sponsors
of RMAT-designated products are eligible for increased and earlier interactions with the FDA, similar to those interactions available
to sponsors of breakthrough-designated therapies. In addition, they may be eligible for priority review and accelerated approval. The
meetings with sponsors of RMAT-designated products may include discussions of whether accelerated approval would be appropriate based
on surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit, or reliance upon data obtained from a
meaningful number of sites.
Once
approved, when appropriate, the FDA can permit fulfillment of post-approval requirements under accelerated approval through the submission
of clinical evidence, clinical studies, patient registries, or other sources of real-world evidence such as electronic health records;
through the collection of larger confirmatory datasets; or through post-approval monitoring of all patients treated with the therapy
prior to approval.
Fast
track designation, accelerated approval, priority review, and Breakthrough Therapy designation do not change the standards for approval
but may expedite the development or approval process. Even if the FDA grants one of these designations, the FDA may later decide that
the drug/biologic products no longer meet the conditions for qualification.
Orange Book Listing and Patent Certification
Based
on amendments to the FDC Act made by the Drug Price Competition and Innovation Act of 1984 (commonly known as Hatch-Waxman), in seeking
approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s
product candidate or a claimed method of use of the product candidate. Upon approval of a drug, each of the eligible patents listed in
the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly
known as the Orange Book. Drugs listed in the Orange Book must, in turn, be the subject of a special certification by the filer of an
abbreviated new drug application (“ANDA”), for a generic version of the drug, or by the applicant of a hybrid application
known as a 505(b)(2) application. An ANDA provides for marketing of a drug product candidate that has the same active ingredient(s) in
the same strengths and dosage form as the reference listed innovator drug and has been shown to be bioequivalent to the reference listed
drug. Other than the requirement for bioequivalence testing (absent a waiver), ANDA applicants are not required to conduct, or submit
results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product candidate. Drugs approved in this
way are commonly referred to as “generic equivalents” to the listed drug, are considered therapeutically equivalent to the
listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The
ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product candidate in the FDA’s
Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent
has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration;
or (iv) the listed patent is invalid or will not be infringed by the new product candidate. The ANDA applicant may also elect to submit
a “section viii statement”, certifying that its proposed ANDA labeling does not contain (or carves out) any language
regarding the patented method-of- use, rather than certify to a listed method-of-use patent.
If
the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming
the referenced product have expired.
A
certification that the new product candidate will not infringe the already approved product candidate’s listed patents, or that
such patents are invalid or unenforceable, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV
certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the
ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response
to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of notice
of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of
the patent, settlement of the lawsuit, a decision in the infringement case that is favorable to the ANDA applicant, or some other order
of the court.
Sponsors
may also seek to market versions of drug products via a section 505(b)(2) application, which is an NDA pathway that allows an applicant
to seek approval for a drug product based on full safety and efficacy documentation, some of which may be from literature or conducted
by others and for which the applicant does not have the right of reference. NDA Section 505(b)(2) applications may be submitted for drug
products that represent a modification, such as a new indication or new dosage form, of a previously approved drug. Section 505(b)(2)
applications may rely on the FDA’s previous findings for the safety and effectiveness of the previously approved drug in addition
to information obtained by the 505(b)(2) applicant to support the modification of the previously approved drug. Preparing Section 505(b)(2)
applications may be less costly and time-consuming than preparing an NDA based entirely on new data and information. Section 505(b)(2)
applications are subject to the same patent certification procedures as an ANDA.
New Chemical Entity Exclusivity and Clinical
Investigation Exclusivity
Upon
NDA approval of a new chemical entity (“NCE”), which is a drug that contains no active moiety that has been approved
by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which time the FDA cannot receive any ANDA
or 505(b)(2) application seeking approval of a drug that references a version of the NCE drug. Certain changes to a drug, such as the
addition of a new indication to the package insert with new clinical studies required for approval, are associated with a three-year
period of exclusivity during which the FDA cannot approve an ANDA or 505(b)(2) application that includes the change.
An
ANDA or 505(b)(2) application may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there
is no listed patent in the Orange Book, there may not be a Paragraph IV certification and thus no ANDA or 505(b)(2) may be filed before
the expiration of the exclusivity period.
For
a botanical drug, FDA may determine that the active moiety is one or more of the principle components or the complex mixture as a whole.
This determination would affect the utility of any five-year exclusivity as well as the ability of any potential generic competitor to
demonstrate that it is the same drug as the original botanical drug.
Five-year
and three-year exclusivities do not preclude FDA approval of a 505(b)(1) application for a version of the drug during the period of exclusivity,
provided that the 505(b)(1) conducts or obtains a right of reference to all of the pre-clinical studies and adequate and well controlled
clinical trials necessary to demonstrate safety and effectiveness.
Orphan Designation and Exclusivity
The
FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals
in the United States, or if it affects more than 200,000 individuals in the United States and there is no reasonable expectation that
the cost of developing and making the drug for this type of disease or condition will be recovered from sales in the United States
Orphan
drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical study costs, tax advantages,
and user-fee waivers. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and
approval process. In addition, the first NDA or BLA applicant to receive orphan drug designation for a particular drug is entitled to
orphan drug exclusivity, which means the FDA may not approve any other application to market the same drug for the same indication for
a period of seven years in the United States, except in limited circumstances. Orphan drug exclusivity does not prevent the FDA from
approving a different drug for the same disease or condition, or the same drug for a different disease or condition.
Pediatric Studies and Exclusivity
NDAs
and BLAs must contain data to assess the safety and effectiveness of an investigational new drug product for the claimed indications
in all relevant pediatric populations in order to support dosing and administration for each pediatric subpopulation for which the drug
is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some
or all pediatric data until after approval of the product for use in adults or full or partial waivers if certain criteria are met. Discussions
about pediatric development plans can be discussed with the FDA at any time, but usually occur any time between the end-of-Phase 2 meeting
and submission of the NDA or BLA. Unless otherwise required by regulation, the requirements for pediatric data do not apply to any drug
for an indication for which orphan designation has been granted.
Pediatric
exclusivity is another type of non-patent exclusivity in the United States that may be granted if certain FDA requirements are met, such
as the FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits,
and the applicant agrees to perform and report on FDA-requested studies within a certain time frame. Pediatric exclusivity adds a period
of six months of exclusivity to the end of all existing marketing exclusivity and patents held by the sponsor for that active moiety.
This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot accept or approve another
application relying on the NDA or BLA sponsor’s data.
Biologics Exclusivity and Biosimilars
The
ACA includes a subtitle called the Biologics Price Competition and Innovation Act of 2009, or BPCI Act, which amended the PHS Act to
create an abbreviated approval pathway under section 351(k) of the PHS Act for biological products shown to be similar to, or interchangeable
with, an FDA-licensed reference biological product originally licensed under section 351(a) of the PHS Act.
A
reference biologic is granted twelve years of marketing exclusivity from the time of first licensure of the reference product, during
which time a 351(k) application for a biosimilar of the reference product may not be approved. The reference biologic is also granted
four years of so-called data exclusivity, during which time a 351(k) application for a biosimilar of the reference product may not be
submitted for review. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable
with the reference product has exclusivity against other biologics submitting under the abbreviated approval pathway for the lesser of
(i) one year after the first commercial marketing, (ii) eighteen months after approval if there is no legal challenge, (iii) eighteen
months after the resolution in the applicant’s favor of a lawsuit challenging the biologics’ patents if an application has
been submitted, or (iv) 42 months after the application has been approved if a lawsuit is ongoing within the 42-month period.
Biologic Patent Information
In
contrast to small molecule drugs, for which applicants are required to submit patent information with their NDAs and certain supplements,
an applicant seeking licensure of a biological product need not submit patent information in its BLA or supplements. Also, unlike small
molecule drugs, for which the approvability of ANDAs and 505(b)(2) NDAs is impacted by the status of listed patents for the reference
NDA drug product, the approvability of section 351(k) applications for biosimilar products is presently delinked from the various processes
for resolving patent disputes. Biosimilar applicants have a choice whether to engage in the patent litigation provisions of the Biologics
Price Competition and Innovation Act (BPCIA), colloquially known as the “patent dance,” to identify and litigate a defined
list of patents. However, unlike the listing of small molecule reference listed drugs and patents in the “Orange Book,” there
had not been a process for listing patents in the FDA’s List of Licensed Biological Products, commonly known as the “Purple
Book.” However, in December 2020 Congress enacted the Biological Product Patent Transparency Act (“BPPT”) (originally
introduced as the Purple Book Continuity Act created section 351(k)(9) of the PHS Act). That section requires that a biological product
reference sponsor that provides a biosimilar applicant with a patent list as part of the “Patent Dance” BPCIA patent litigation
process must now submit those lists to the FDA within 30 days, and further, as of June 2021 the FDA is required to make those lists (along
with any revisions or updates) public in the Purple Book database.
Patent Term Extension
After
NDA or BLA approval, owners of relevant drug or biologic patents may apply for up to a five-year patent extension. The allowable patent
term extension is calculated as half of the product’s testing phase - the time between IND submission and NDA or BLA submission
- and all of the review phase - the time between NDA submission and approval up to a maximum of five years. The time can be shortened
if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not
exceed 14 years.
For
patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension
increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval
patent extension is reduced by one year. The director of the USPTO must determine that approval of the product covered by the patent
for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA or BLA
has not been submitted.
Advertising and Promotion
Once
an NDA or BLA is approved, a product candidate will be subject to certain post-approval requirements. For instance, FDA closely regulates
the post-approval marketing and promotion of drugs and biologics, including standards and regulations for direct-to-consumer advertising,
off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.
Drugs
and biologics may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Post-Approval Changes
Changes
to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes
or facilities, require submission and FDA approval of a new NDA/BLA or NDA/BLA supplement before the change can be implemented. An NDA
supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same
procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
Adverse Event Reporting and GMP Compliance
Adverse
event reporting on an expedited basis and submission of periodic adverse event reports is required following FDA approval of an NDA or
BLA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS and surveillance to monitor the effects of an approved
product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control,
drug manufacture, packaging, and labeling procedures must continue to conform GMPs after approval. Drug manufacturers and certain of
their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with the FDA subjects
entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance
with GMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to
maintain compliance with GMPs. Regulatory authorities may withdraw product approvals, issue warning letters, request product recalls
or take other enforcement actions if a company fails to comply with regulatory standards, if it encounters problems following initial
marketing or if previously unrecognized problems are subsequently discovered.
Special Protocol Assessment
A
sponsor may reach an agreement with the FDA under the Special Protocol Assessment (“SPA”), process as to the required
design and size of clinical trials intended to form the primary basis of an efficacy claim. According to its performance goals, the FDA
has committed to evaluating 90 percent of the protocols within 45 days of its receipt of the requests to assess whether the proposed
trial is adequate, and that evaluation may result in discussions and a request for additional information. An SPA request must be made
before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it
will be documented and made part of the administrative record. Under the FDC Act and FDA guidance implementing the statutory requirement,
an SPA is generally binding upon the FDA as to the design of the trial except in limited circumstances, such as if the FDA identifies
a substantial scientific issue essential to determining safety or efficacy after the study begins, public health concerns emerge that
were unrecognized at the time of the protocol assessment, the sponsor and FDA agree to the change in writing, or if the study sponsor
fails to follow the protocol that was agreed upon with the FDA.
Controlled Substances
The
Controlled Substances Import and Export Act, as amended (“CSA”) and the implementing regulations impose registration,
security, recordkeeping and reporting, storage, manufacturing, distribution, dispensing, importation and other requirements on controlled
substances under the oversight of the U.S. Drug Enforcement Administration (“DEA”). The DEA is the federal agency,
responsible for regulating controlled substances, and requires those individuals or entities that manufacture, import, export, distribute,
research, or dispense controlled substances to comply with the regulatory requirements in order to prevent the diversion and abuse of
controlled substances.
The
DEA regulates controlled substances as Schedule I, II, III, IV or V substances, depending on the substance’s medical effectiveness
and abuse potential. Pharmaceutical products having a currently accepted medical use that are otherwise approved for marketing may be
listed as Schedule II, III, IV or V substances, with Schedule II substances presenting the highest potential for abuse and physical or
psychological dependence, and Schedule V substances presenting the lowest relative potential for abuse and dependence. The DEA has placed
certain drug products that include cannabidiol, on Schedule V.
Following
NDA approval of a drug containing a Schedule I controlled substance, that substance must be rescheduled as a Schedule II, III, IV or
V substance before it can be marketed. The Improving Regulatory Transparency for New Medical Therapies Act enacted on November 25, 2015
and its implementing regulations has removed uncertainty associated with the timing of the DEA rescheduling process after NDA approval,
under which a manufacturer may market its product no later than 90 days after the later of: (1) the date on which DEA receives from FDA
the scientific and medical evaluation and scheduling recommendation; or (2) the date on which DEA receives from FDA notification that
FDA has approved the drug. The Act also clarifies that the seven-year orphan exclusivity period begins with the approval of the NDA or
DEA scheduling, whichever is later. This changes the previous situation whereby the orphan “clock” began to tick upon
FDA’s NDA approval, even though the product could not be marketed until DEA scheduling was complete.
The
CSA requires that facilities that manufacture, distribute, dispense, import or export any controlled substance must register annually
with the DEA. Separate registrations are required for importation and manufacturing activities, and each registration authorizes the
specific schedules of controlled substances the registrant may handle. Prior to issuance of a controlled substance registration, the
DEA inspects all manufacturing facilities to review security, recordkeeping, reporting and handling of the controlled substances. The
specific security requirements vary by, among other things, the type of business activity conducted, and the type, form, and quantity
of controlled substances handled.
In
addition, individual states have their own distinct controlled substance laws and regulations, including licensure, distribution, dispensing,
recordkeeping and reporting requirements for controlled substances. State boards of pharmacy or similar authorities regulate use of controlled
substances in each state. Failure to comply with applicable requirements, such as the loss or diversion of controlled substances, can
result in administrative fines, suspension or revocation of licenses, and civil and criminal liabilities.
United
Kingdom/Europe/Rest of World Government Regulation
In
addition to regulations in the United States, we are and will be subject, either directly or through our distribution partners, to a
variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales (including pricing
and reimbursement) and distribution of our products, if approved.
Whether
or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in non-U.S. countries
prior to the commencement of clinical trials or marketing of the product in those countries.
In
the European Union, medicinal products are subject to extensive pre- and post-marketing regulation by regulatory authorities at both
the EU and national levels. Additional rules also apply at the national level to the manufacture, import, export, storage, distribution
and sale of controlled substances. In many EU member states the regulatory authority responsible for medicinal products is also responsible
for controlled substances. Responsibility is, however, split in some member states. Generally, any company manufacturing or distributing
a medicinal product containing a controlled substance in the European Union will need to hold a controlled substances license from the
competent national authority and will be subject to specific record-keeping and security obligations. Separate import or export certificates
are required for each shipment into or out of the member state.
In
the United Kingdom, medicinal products are subject to extensive regulation by the Medicines and Healthcare products Regulatory Agency
(“MHRA”), which is an executive agency, sponsored by the Department of Health and Social Care. MHRA regulates by ensuring
that medicines, medical devices and blood components for transfusion meet applicable standards of safety, quality and efficacy, in addition
to supporting innovation and research and development that is beneficial to public health.
Clinical
Trials and Marketing Approval
Certain
countries outside of the United States have a process that requires the submission of a clinical trial application much like an IND prior
to the commencement of human clinical trials. In the European Union/European Economic Area (“EEA”), for example, a
clinical trial application (a “CTA”), must be submitted via a single-entry portal for all clinical trials conducted
in the EU/EEA (the “CTIS”). Once the CTA is approved in accordance with a country’s requirements and a company
has received favorable ethics committee approval, clinical trial development may proceed in that country.
In
April 2014, the Clinical Trials Regulation, Reg. (EU) No 536/2014 (the “New Regulation”) was adopted to replace the
Clinical Trials Directive 2001/20/EC (the “Prior Directive”). To ensure that the rules for clinical trials are identical
throughout the EU/EEA, new EU clinical trials legislation was passed as a “regulation” that is directly applicable to EU/EEA
member states. The New Regulation requires the sponsor to submit a single CTA is planned for all EU/EEA member states, which will be
submitted via the CTIS, an online portal to streamline the authorization process. The CTIS authorization procedure is composed of two
parts: member states jointly cooperate in a Part I assessment, while Part II is assessed by each member state individually. This is a
significant change, as under the Prior Directive sponsors had to seek separate approval from national authorities in each country where
the trial was to be conducted. The New Regulation became applicable on January 31, 2022 - repealing the Prior Directive as of the same
day - and introduced a one-year transition period (until January 31, 2023) during which sponsors could choose whether to submit new CTAs
under either the old regime governed by the Prior Directive or the new CTIS. Following the transition period, from January 31, 2023,
sponsors must apply for clinical trials under the New Regulation, and by January 31, 2025, all ongoing clinical trials approved under
the Prior Directive will need to be transitioned to the New Regulation.
In
the United Kingdom, the Prior Directive (implemented by Medicines for Human Use (Clinical Trials) Regulations 2004/1031) still applies.
On January 31, 2020 the United Kingdom left the European Union and the European Union (Withdrawal) Act 2018 (the “EUWA”)
came into force. Section 1 of the EUWA repealed the European Communities Act 1972 (ECA 1972), which had previously enabled EU law to
apply to the United Kingdom However, Section 1A of the EUWA immediately saved much of the effect of ECA 1972 (in modified form) for the
duration of the transition period, and Section 1B saved U.K. legislation that implemented EU requirements. The practical effect of the
EUWA was therefore that the New Regulation, which had not yet become applicable was repealed for the United Kingdom, but the Prior Directive
was retained. References to the United Kingdom in this section predominantly refer to Great Britain. Due to the Northern Ireland Protocol
at Article 182 of the EUWA certain EU/EEA derived regulatory standards in Northern Ireland were not repealed and therefore in some circumstances
still apply. Currently, new negotiations for the Northern Ireland Protocol are taking place and changes to it are expected during 2023.
In the United Kingdom, approval must be obtained from the MHRA when a clinical trial is planned. A CTA must be submitted and supported
by an investigational medicinal product dossier along with additional supporting information pursuant to the Medicines for Human Use
(Clinical Trials) Regulations 2004/1031 and other applicable guidance documents provided by the MHRA. Furthermore, a clinical trial may
only commence after a competent ethics committee has issued a favorable opinion on the clinical trial application in the United Kingdom
The
requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to
country, even though there is already some degree of legal harmonization in the EU member states resulting from the national implementation
of underlying EU legislation. In all cases, the clinical trials must be conducted in accordance with the International Conference on
Harmonization guidelines on GCP and other applicable regulatory requirements.
To
obtain regulatory approval to place a drug on the market in the United Kingdom or EU/EEA countries, we must submit a marketing authorization
application. This application is similar to the NDA in the United States, with the exception of, among other things, country-specific
document requirements. All application procedures require an application in the common technical document, format, which includes the
submission of detailed information about the manufacturing and quality of the product, and nonclinical and clinical trial information.
In addition to using national authorization procedures (leading to a marketing authorization on valid in the relevant EU/EEA member state),
drugs can be authorized in the EU/EEA by using (i) the centralized authorization procedure, (ii) the mutual recognition procedure, or
(iii) the decentralized procedure. These three authorization methods available to the EU/EEA are no longer available to the United Kingdom
Drugs can be authorized in the United Kingdom by the MHRA by using (i) the Innovative Licensing and Access Pathway, (ii) the 150-day
assessment route, (iii) a “rolling review” route of evaluation for novel products and biotechnological products, (iv) a European
Commission (EC) Decision reliance procedure, (v) a decentralized and mutual recognition reliance procedure, or (vi) an “unfettered
access” route for marketing authorization applications approved in Northern Ireland.
The
European Commission created the centralized procedure for the approval of human drugs to facilitate marketing authorizations that are
valid throughout the European Union and, by extension (after national implementing decisions) in Iceland, Liechtenstein and Norway, which,
together with the EU member states, comprise the European Economic Area. Applicants file marketing authorization applications with the
European Medicines Agency (EMA), where they are reviewed by a relevant scientific committee, in most cases the Committee for Medicinal
Products for Human Use (“CHMP”). The European Medicines Agency (“EMA”) forwards CHMP opinions to
the European Commission, which uses them as the basis for deciding whether to grant a marketing authorization. This procedure results
in a single marketing authorization granted by the European Commission that is valid across the European Union, as well as in Iceland,
Liechtenstein and Norway. The centralized procedure is compulsory for human drugs that are: (i) derived from biotechnology processes,
such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer,
diabetes, neurodegenerative diseases, autoimmune and other immune dysfunctions and viral diseases, (iii) officially designated “orphan
drugs” (drugs used for rare human diseases) and (iv) advanced-therapy medicines, such as gene-therapy, somatic cell-therapy
or tissue-engineered medicines. The centralized procedure may at the voluntary request of the applicant also be used for human drugs
that do not fall within the above-mentioned categories if the CHMP agrees that the human drug (a) contains a new active substance not
yet approved on November 20, 2004; (b) constitutes a significant therapeutic, scientific or technical innovation or (c) authorization
under the centralized procedure is in the interests of patients at the EU level. Although the United Kingdom can no longer utilize the
EU centralized procedure, until December 31, 2023 the MHRA can utilize the decentralized and mutual recognition reliance procedure to
authorize drugs by relying upon EC approvals under the EU centralized procedure. Beyond December 31, 2023, the MHRA intends to have a
new regime for an international drug reliance framework.
Under
the centralized procedure in the European Union, the maximum time frame for the evaluation of a marketing authorization application by
the EMA is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response
to questions asked by the CHMP), with adoption of the actual marketing authorization by the European Commission thereafter.
Accelerated
evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest
from the point of view of therapeutic innovation, defined by three cumulative criteria: the seriousness of the disease to be treated;
the absence of an appropriate alternative therapeutic approach, and anticipation of exceptional high therapeutic benefit. In this circumstance,
EMA ensures that the evaluation for the opinion of the CHMP is completed within 150 days and the opinion issued thereafter.
For
those medicinal products for which the centralized procedure is not available, the applicant must submit marketing authorization applications
to the national medicines regulators through one of three procedures: (i) the mutual recognition procedure (which must be used if the
product has already been authorized in at least one other EU/EEA member state, and in which the EU/EEA member states are required to
grant an authorization recognizing the existing authorization in the other EU/EEA member state, unless they identify a serious risk to
public health), (ii) the decentralized procedure (in which applications are submitted simultaneously in two or more EU/EEA member states)
or (iii) national authorization procedures (which results in a marketing authorization in a single EU/EEA member state).
Conditional
Marketing Authorization
The
European Commission may grant a conditional marketing authorization to medicines that address unmet medical needs. This marketing authorization
is “conditional” upon carrying out certain activities imposed when authorization is granted (e.g., completing ongoing or
new studies or collecting additional data). This applies when the applicant is unable to provide comprehensive data on the efficacy and
safety of the medicinal product under normal conditions of use, for objective, verifiable reasons and based on specific grounds, and
all of the following criteria are met:
| ● | the
benefit-risk balance of the medicine is positive; |
| | |
| ● | it
is likely that the applicant will be able to provide comprehensive data post-authorization; |
| | |
| ● | the
medicine fulfils an unmet medical need; and |
| | |
| ● | the
benefit of the medicine’s immediate availability to patients is greater than the risk
inherent in the fact that additional data is still required. |
Conditional
marketing authorizations are valid for one year and can be renewed annually.
In
Great Britain (England, Scotland, Wales) the MHRA has introduced and regulates a national conditional marketing authorization, effective
from January 1, 2021; in Northern Ireland, applications for conditional marketing authorization must be submitted to the EMA. The UK
scheme has the same eligibility criteria as the EU scheme.
Mutual
Recognition Procedure
The
mutual recognition procedure (“MRP”), for the approval of human drugs is an alternative approach to facilitate individual
national marketing authorizations within the EU/EEA. Basically, the MRP may be applied for all human drugs for which the centralized
procedure is not obligatory. The MRP is applicable to the majority of conventional medicinal products and must be used if the product
has already been authorized in one or more member states.
The
characteristic of the MRP is that the procedure builds on an already-existing marketing authorization in member state that is used as
a reference in order to obtain marketing authorizations in other EU/EEA member states. In the MRP, a marketing authorization for a drug
already exists in one or more member states of the EU/EEA and subsequently marketing authorization applications are made in other member
states by referring to the initial marketing authorization. The member state in which the marketing authorization was first granted will
then act as the reference member state. The member states where the marketing authorization is subsequently applied for act as concerned
member states. The concerned member states are required to grant an authorization recognizing the existing authorization in the reference
member state, unless they identify a serious risk to public health.
The
MRP is based on the principle of the mutual recognition by EU/EEA member states of their respective national marketing authorizations.
Based on a marketing authorization in the reference member state, the applicant may apply for marketing authorizations in other member
states. In such case, the reference member state is required to update its existing assessment report about the drug in 90 days. After
the assessment is completed, copies of the report are sent to all concerned member states, together with the approved summary of product
characteristics, labeling and package leaflet. The concerned member states then have 90 days to recognize the decision of the reference
member state and the summary of product characteristics, labeling and package leaflet. National marketing authorizations shall be granted
within 30 days after acknowledgement of the agreement.
Should
any member state refuse to recognize the marketing authorization by the reference member state, on the grounds of potential serious risk
to public health, the issue will be referred to a coordination group. Within a timeframe of 60 days, member states shall, within the
coordination group, make all efforts to reach a consensus. If this fails, the procedure is submitted to an EMA scientific committee for
arbitration. The opinion of this EMA Committee is then forwarded to the European Commission, for the start of the decision-making process.
As in the centralized procedure, this process entails consulting various European Commission Directorates General and the Standing Committee
on Human Medicinal Products.
Data
Exclusivity
In
the United Kingdom and European Union, marketing authorization applications for generic medicinal products do not need to include the
results of pre-clinical and clinical trials, but instead can refer to the data included in the marketing authorization of a reference
product for which regulatory data exclusivity has expired. If a marketing authorization is granted for a medicinal product containing
a new active substance, that product benefits from eight years of data exclusivity, during which generic marketing authorization applications
referring to the data of that product may not be accepted by the regulatory authorities, and a further two years of market exclusivity,
during which such generic products may not be placed on the market. The two-year period may be extended to three years if during the
first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved.
Orphan
Medicinal Products
The
EMA’s Committee for Orphan Medicinal Products (“COMP”), may recommend orphan medicinal product designation to
promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating
conditions affecting not more than five in 10,000 persons in the European Union. Additionally, orphan designation is granted for products
intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and
when, without incentives, it is unlikely that sales of the product in the European Union would be sufficient to justify the necessary
investment in developing the medicinal product. The COMP may only recommend orphan medicinal product designation when the product in
question offers a significant clinical benefit over existing approved products for the relevant indication. Following a positive opinion
by the COMP, the European Commission generally grants orphan status within 30 days. When the draft decision of the European Commission
is not aligned with the COMP opinion, the COMP will reassess orphan status in parallel with EMA review of a marketing authorization application
and orphan status may be withdrawn at if the drug no longer fulfills the orphan criteria (for instance, because a new product was approved
for the indication and no data is available to demonstrate a significant benefit over that new product). Orphan medicinal product designation
entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following
marketing authorization. During this period, the competent authorities may not accept or approve any similar medicinal product for the
same therapeutic indication, unless it offers a significant clinical benefit or if the holder of the marketing authorization for the
original orphan drug is unable to supply sufficient quantities of the drug. This period may be reduced to six years if the orphan medicinal
product designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify
maintenance of market exclusivity.
EU/EEA
orphan designations extend to Northern Ireland. Otherwise in the United Kingdom post-Brexit, applications for the designation of orphan
medicinal products are submitted to the MHRA, which applies the same substantive criteria and with the same substantive effect as in
the European Union (save that, unlike the EU procedure, it is not possible to obtain early orphan designation; the application for designation
must be made at the same time as the application for the U.K. marketing authorization). If a medicinal product has been designated orphan
in the European Union, then a Great Britain orphan marketing authorization application can be made to the MHRA; absent an EU orphan designation
a U.K.-wide (including Northern Ireland) orphan marketing authorization application can be made to the MHRA.
Pediatric
Development
In
the European Union and the United Kingdom, companies developing a new medicinal product must agree to a Pediatric Investigation Plan
(“PIP”), with the EMA or the MHRA and must conduct pediatric clinical trials in accordance with that PIP unless a
waiver applies, for example, because the relevant disease or condition occurs only in adults. The marketing authorization application
for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies,
or a deferral has been granted, in which case the pediatric clinical trials must be completed at a later date. Products that are granted
a marketing authorization on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six-month
extension of the protection under a supplementary protection certificate (if the product covered by it qualifies for one at the time
of approval). This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with
the PIP are developed and submitted.
If
we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical
trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
In
addition, most countries are parties to the Single Convention on Narcotic Drugs 1961 and the Convention on Psychotropic Substances 1971,
which governs international trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and
implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for our product candidates
in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our
product candidates to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In that
case, we would be unable to market our products in those countries in the near future or perhaps at all.
Reimbursement
Sales
of pharmaceutical products in the United States will depend, in part, on the extent to which the costs of the products will be covered
by third-party payers, such as government health programs, and commercial insurance and managed health care organizations. These third-party
payers are increasingly challenging the prices charged for medical products and services. Additionally, the containment of health care
costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government,
state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price
controls, utilization management and requirements for substitution of generic products. Adoption of price controls and cost-containment
measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net
revenue and results. If these third-party payers do not consider our future products to be cost effective compared to other available
therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not
be sufficient to allow us to sell our products on a profitable basis.
The
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), imposed requirements for the distribution
and pricing of prescription drugs for Medicare beneficiaries and included a major expansion of the prescription drug benefit under Medicare
Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage
of outpatient prescription drugs. Part D is available through both stand-alone prescription drug benefit plans and prescription drug
coverage as a supplement to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is not standardized. Part D prescription
drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies
which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic
category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part
D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs
of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our
products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the
MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations
in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments
from nongovernmental payers.
On
February 17, 2009, President Obama signed into law The American Recovery and Reinvestment Act of 2009. This law provides funding for
the federal government to compare the effectiveness of different treatments for the same illness. This research is overseen by the Department
of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports
on the status of the research and related expenditures must be made to Congress. Although the results of the comparative effectiveness
studies are not intended to mandate coverage policies for public or private payers, it is not clear how such a result could be avoided
and what if any effect the research will have on the sales of our product candidates, if any such product or the condition that it is
intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a
competitor’s product could adversely affect the sales of our product candidates. Decreases in third-party reimbursement for our
product candidates or a decision by a third-party payer to not cover our product candidates could reduce physician usage of the product
candidate and have a material adverse effect on our sales, results of operations and financial condition.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively,
the “ACA”) was enacted in March 2010. The ACA was enacted with the goal of expanding coverage for the uninsured while
at the same time containing overall health care costs. With regard to pharmaceutical products, among other things, the ACA expanded and
increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare
D program. We still cannot fully predict the impact of the ACA on pharmaceutical companies as many of the ACA reforms require the promulgation
of detailed regulations implementing the statutory provisions which has not yet been completed, and the Centers for Medicare & Medicaid
Services has publicly announced that it is analyzing the ACA regulations and policies that have been issued to determine if changes should
be made. In addition, although the U.S. Supreme Court has upheld the constitutionality of most of the ACA, some states have stated their
intentions to not implement certain sections of the ACA and some members of Congress are still working to repeal the ACA. These challenges
add to the uncertainty of the changes enacted as part of the ACA. In addition, the current legal challenges to the ACA, as well as Congressional
efforts to repeal the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.
In
addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For example, some EU jurisdictions operate positive and negative list systems
under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some
of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate
to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company
profits. Such differences in national pricing regimes may create price differentials between EU member states. There can be no assurance
that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement
and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures
of the United States In the European Union, the downward pressure on healthcare costs in general, particularly prescription medicines,
has become intense. As a result, barriers to entry of new products are becoming increasingly high and patients are unlikely to use a
drug product that is not reimbursed by their government or other public or private payers.
Other
Health Care Laws and Compliance Requirements
In
the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to
the FDA, including the CMS, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General),
the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments.
For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social
Security Act, the False Claims Act, the privacy provisions of the Health Insurance Portability and Accountability Act, and similar state
laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation
Act of 1990 and the Veterans Health Care Act of 1992 (“VHCA”), each as amended. If future products are made available
to authorized users of the federal supply schedule, additional laws and requirements apply. Under the VHCA, drug companies are required
to offer certain drugs at a reduced price to a number of federal agencies including the U.S. Department of Veteran Affairs and U.S. Department
of Defense, the Public Health Service and certain private Public Health Service-designated entities in order to participate in other
federal funding programs including Medicare and Medicaid. In addition, discounted prices must be offered for certain U.S. Department
of Defense purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and
calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts
governed by the federal acquisition regulations.
In
order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale
distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into
the state, even if such manufacturers or distributors have no place of business within the state. Several states have enacted legislation
requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public
disclosures on sales and marketing activities or register their sales representatives. Other legislation has been enacted in certain
states prohibiting certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer
protection and unfair competition laws. Likewise, these activities are subject to authorization or license requirements, or other legal
requirements, under EU or EU member states’ law, or the law of other countries where we operate or have products manufactured or
distributed.
Cost
of Compliance with Environmental Laws
Our
operations are subject to regulations under various federal, state, local and foreign laws concerning the environment, including laws
addressing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, and the
cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions and third-party
damage or personal injury claims, if in the future we were to violate or become liable under environmental laws. We are not aware of
any costs or effects of our compliance with environmental laws.
Climate
Change Related Regulation
Our
operations are focused on research and development of pharmaceutical products, and a significant portion of such research and development
is conducted outside of our facilities and by outsourced contract research organizations or universities. As a result, we do not anticipate
any regulation surrounding climate change to impact our operations.
However,
there is potential for more frequent and severe weather events and water availability challenges that may impact the facilities of our
partners and our future suppliers. We cannot provide assurance that physical risks to the facilities of our partners and future suppliers
and supply chain due to climate change will not occur in the future. We periodically review our vulnerability to potential weather-related
risks and other natural disasters and update our assessments accordingly. Based on our reviews, we do not believe these potential risks
are material to our operations at this time.
Employees
and Human Capital Management
As
of March 31, 2023, we and our subsidiaries had five full-time employees. One of these employees is located in the United Kingdom, and
four are located in the United States.
In
addition, we employ a limited number of part-time employees on a temporary basis, as well as scientific advisors, consultants and service
providers, mainly through academic institutions and contract research organizations.
We
have never had a work stoppage and none of our employees are covered by collective bargaining agreements or represented by a labor union.
We believe that we have good relationships with our employees.
Our
human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing, and integrating our existing
and new employees, advisors, and consultants. The principal purposes of our equity and cash incentive plans are to attract, retain and
reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the
success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Properties
Our
headquarters are located in Palo Alto, California. We believe our existing leased office space is suitable for the conduct of our business.
Legal
Proceedings
From
time to time, we may be a party to litigation that arises in the ordinary course of our business.
Such
current litigation or other legal proceedings are described in, and incorporated by reference from, “Note 11 - Commitments and
Contingencies”, under the heading “Litigation and Other Loss Contingencies”, in the consolidated financial
statements included herein beginning on page F-1. We believe that the resolution of currently pending matters will not individually or
in the aggregate have a material adverse effect on our financial condition or results of operations. However, assessment of the current
litigation or other legal claims could change in light of the discovery of facts not presently known to us or by judges, juries or other
finders of fact, which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or
claims.
Additionally,
the outcome of litigation is inherently uncertain. If one or more legal matters were resolved against us in a reporting period for amounts
in excess of management’s expectations, our financial condition and operating results for that reporting period could be materially
adversely affected.
Corporate
History
Formation
We
were formed as a blank check company organized under the laws of the State of Delaware on September 7, 2016. We were formed for the purpose
of effecting a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination with one or more
operating businesses. Since formation, we focused our efforts on acquiring an operating company in the healthcare and related wellness
industry although our efforts in identifying a prospective target business were not limited to a particular industry.
Initial
Public Offering
On
June 7, 2017, pursuant to our Initial Public Offering (the “IPO”), we 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” consisted of one-twentieth
of a share of our common stock, one right to receive one-200th of one share of our common stock upon the consummation of a business combination
(“Right”), and one redeemable warrant to purchase one-fortieth of one share of our common stock (the “Public
Warrants”). Each Public Warrant entitles the holder to purchase one-fortieth of one share of common stock at an exercise price
of $5.75 per 1/40th of one share ($230.00 per whole share), subject to adjustment. No fractional shares will be issued upon
exercise of the Public Warrants. The Public Warrants became exercisable 12 months from the closing of the IPO, and expire five years
after the completion of the Business Combination (November 6, 2025).
We
may redeem the Public Warrants, in whole and not in part, at a price of $0.01 per Public 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 $360.00 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 Public Warrants
and a current prospectus relating to those shares of common stock is available throughout the 30-day redemption period. If we call the
Public Warrants for redemption as described above, our management will have the option to require all holders that wish to exercise Public
Warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their Public Warrants
on a “cashless basis,” management will consider, among other factors, our cash position, the number of Public Warrants
that are outstanding and the dilutive effect on our stockholders of issuing the maximum number of shares of common stock issuable upon
the exercise of the Public Warrants. Each holder of a Right received one-200th (1/200) of one share of common stock upon consummation
of the Business Combination. No fractional shares were issued upon exchange of the Rights.
Private
Placement
Concurrent
with the closing of the IPO, KBL IV Sponsor LLC (the “Sponsor”) and the underwriters purchased an aggregate of 450,000
unregistered Units (“Private Units”) at $10.00 per Unit, generating gross proceeds of $4,500,000 in a private placement.
In addition, on June 23, 2017, we consummated the sale of an additional 52,500 Private 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 IPO held in a Trust Account (the “Trust Account”). The Private Units (including their component securities)
were not transferable, assignable or salable until 30 days after the completion of the Business Combination (defined below) 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 us and exercisable by such holders
on the same basis as the warrants included in the Units sold in the IPO. 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 IPO. Otherwise, the Private Placement Warrants have terms and provisions that are identical to those of the
warrants sold as part of the Units in the IPO and have no net cash settlement provisions.
Business
Combination
On
July 25, 2019, we entered into a Business Combination Agreement (as amended from time to time, the “Business Combination Agreement”),
with KBL Merger Sub, Inc. (“Merger Sub”), 180 Life Corp. (f/k/a 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 Life Sciences Corp., the “180 Parties”), and Lawrence Pemble, in his capacity as representative
of the stockholders of the 180 Parties. The business combination described in the Business Combination Agreement (the “Business
Combination”), closed and became effective on November 6, 2020 (the “Closing”). 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”). In connection with, and prior to, the Closing, 180 Life Sciences Corp. filed
a Certificate of Amendment of its Certificate of Incorporation in Delaware to change its name to 180 Life Corp., and our company (which
was known as of our entry into the Business Combination as KBL Merger Corp. IV, changed our name to 180 Life Sciences Corp.).
180
was incorporated in Delaware on January 28, 2019. Prior to the Closing of the Business Combination, 180 operated through three subsidiaries:
180 LP, a Delaware limited partnership formed on September 6, 2013; Katexco, a company incorporated in British Columbia, Canada on March
7, 2018; and CBR Pharma, a company incorporated in British Columbia, Canada on March 8, 2018.
In
July 2019, 180 and each of 180 LP, Katexco and CBR Pharma completed a corporate restructuring, pursuant to which 180 LP, Katexco and
CBR Pharma became wholly-owned subsidiaries of 180LS (the “Reorganization”). The corporate restructuring arrangements
with respect to Katexco and CBR Pharma were completed under the Business Corporations Act (British Columbia).
On
November 6, 2020 (the “Closing Date”), we consummated the Business Combination following a special meeting of stockholders
held on November 5, 2020, where the stockholders of the Company considered and approved, among other matters, a proposal to adopt the
Business Combination. Pursuant to the Business Combination Agreement, among other things, Merger Sub merged with and into 180, with 180
continuing as the surviving entity and as a wholly-owned subsidiary of the Company. 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 approximately 8.41892 shares of the common stock, par value $0.0001 per share, of the Company (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 874,737 shares of common stock have been issued to date to the common stockholders of 180 as Merger Consideration Shares,
including the Escrow Shares (as defined below). Also at the Effective Time, each share underlying the 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 264 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, 52,500 of the Merger Consideration Shares (such shares, the “Escrow Shares”)
were deposited into an escrow account to serve as security for, and the exclusive source of payment of, our indemnity rights under the
Business Combination Agreement, all of which were planned to be released to the same stockholders 12 months following the Closing of
the Business Combination, but for a claim made by Dr. Krauss against these shares which is pending.
As
a result of the Business Combination, the former stockholders of 180 became the controlling stockholders of the Company and 180 became
a wholly-owned 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.
In
connection with the Closing, we withdrew $9,006,493 of funds from the Trust Account (as defined below) to fund the redemptions of 40,824
shares.
Reverse
Stock Split
On
December 15, 2022, at a Special Meeting of the Stockholders of 180 Life Sciences Corp., our stockholders approved an amendment to our
Certificate of Incorporation to effect a reverse stock split of our issued and outstanding shares of our common stock, par value $0.0001
per share, by a ratio of between one-for-four to one-for-twenty, inclusive, with the exact ratio to be set at a whole number to be determined
by our Board or a duly authorized committee thereof in its discretion, at any time after approval of the amendment and prior to December
15, 2023 (the “Stockholder Authority”). On December 15, 2022, our Board, with the Stockholder Authority, approved
an amendment to our Second Amended and Restated Certificate of Incorporation to affect a reverse stock split of our common stock at a
ratio of 1-for-20 (the “Reverse Stock Split”).
Immediately
after the Special Meeting and the approval thereof by the Board, on December 15, 2022, we filed a Certificate of Amendment to our Second
Amended and Restated Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of
the State of Delaware to effect the Reverse Stock Split. A copy of the Certificate of Amendment is attached hereto as Exhibit 3.1 and
is incorporated by reference herein.
Pursuant
to the Certificate of Amendment, the Reverse Stock Split became effective on December 19, 2022 at 12:01 a.m. Eastern Time (the “Effective
Time”). No change was made to the trading symbol for our shares of common stock or public warrants, “ATNF” and
“ATNFW”, respectively, in connection with the Reverse Stock Split.
The
Certificate of Amendment did not reduce the number of authorized shares of our common stock, nor alter the par value of our common stock
or modify any voting rights or other terms of our common stock.
No
fractional shares were issued in connection with the Reverse Stock Split and stockholders of record who otherwise would be entitled to
receive fractional shares, were instead entitled to have their fractional shares rounded up to the nearest whole share.
The
effects of the 1-for-20 Reverse Stock Split have been retroactively reflected throughout this prospectus.
Corporate
Structure
The
chart below shows our current organizational structure:
![](https://content.edgar-online.com/edgar_conv_img/2023/05/12/0001213900-23-039040_image_004.jpg)
About
Us
Our
principal executive offices are located at 3000 El Camino Real, Bldg. 4, Suite 200, Palo Alto, CA 94306, and our telephone number is
(650) 507-0669. We maintain a website at www.180lifesciences.com. We have not incorporated by reference into this prospectus the
information in, or that can be accessed through, our website, and you should not consider it to be a part of this prospectus.
Jumpstart
Our Business Startups Act
In
April 2012, the Jumpstart Our Business Startups Act (“JOBS Act”) was enacted into law. The JOBS Act provides, among
other things, exemptions for “emerging growth companies” from certain financial disclosure and governance requirements for
up to five years and provides a new form of financing to small companies. We ceased being an “emerging growth company” on
December 31, 2022.
MANAGEMENT
Executive
Officers
The
following table sets forth certain information, including ages as of April 28, 2023, of our executive officers:
Name | |
Position | |
Age |
James N. Woody, M.D., Ph.D. | |
Chief Executive Officer and Director | |
80 |
Ozan Pamir | |
Chief Financial Officer and Secretary | |
32 |
Jonathan Rothbard, Ph.D. | |
Chief Scientific Officer | |
71 |
Below
is information regarding each executive officer’s biographical information, including their principal occupations or employment
for at least the past five years, and the names of other public companies in which such persons hold or have held directorships during
the past five years.
JAMES
N. WOODY, M.D., Ph.D. - CHIEF EXECUTIVE OFFICER AND DIRECTOR - Dr. Woody has served as our Chief Executive Officer and as a director
since the Closing of the Business Combination in November 2020. Dr. Woody has served as the CEO of 180 since July 2020, and as a director
of 180 since September 2020. Dr. Woody was a founder and served as Chairman of the Board of Directors for Viracta Pharmaceuticals, a
lymphoma therapeutic company (July 2014 to December 2020). With the company undergoing a reverse merger into a public company, he resigned
his Board member position and continues as a Board observer. He served as a General Partner of Latterell Venture Partners (February 2006
to December 2019) then moved to a Venture Partner position, for the one remaining LVP legacy company, PerceptiMed, a Pharmacy management
company, where he continues to serve on the Board as they plan their IPO. He served as an interim CEO for MaraBio Systems Inc., a startup
autism diagnostic company, from November 2018 to December 2022, when a new full time CEO was selected and he continues to serve as Vice
Chairman, on the Board of Directors. He also serves as Chairman of the Board for Enosi Life Sciences, a next generation TNF inhibitor
company, which position he has held since July 2020. He served as a Board member of IntegenX Inc. (2012 to 2018), and Neuraltus Pharmaceuticals,
Inc. (February 2009 to December 2019). Dr. Woody was the founding CEO and Chairman of the Board of OncoMed Pharmaceuticals, Inc. (2004
to 2014), a Nasdaq listed company with a focus on antibodies targeting cancer stem cells. He previously served as a member of the Board
of Directors of Protein Simple, formerly Cell Biosciences (2005 to 2014), acquired by Bio-Techne; Forte Bio Corporation, acquired by
PALL in 2012 (2005 to 2012); Bayhill Therapeutics, Inc. (2004 to 2012); Femta Pharmaceuticals (2008 to 2012); and Proteolix, Inc. (2005
to 2009), acquired by Onyx for the multiple myeloma drug Carfilzomib. Dr. Woody also served on the Board of Directors of Talima Therapeutics,
Inc. (2007 to 2011); HemaQuest Pharmaceuticals, Inc. (2009 to 2013); Calistoga (2009 to 2011), acquired by Gilead for the lymphoma drug
Idelalisib (Zydelig); Tetralogic (2008 to 2014), a Nasdaq listed company; and Avidia (2003 to 2006), acquired by Amgen. From 1996 to
2004, He was President and General Manager of Roche Biosciences, Palo Alto, California (formerly Syntex), where he had responsibility
for all bioscience research and development, ranging from genetics and genomics to clinical development of numerous new pharmaceuticals,
as well as former Syntex administrative matters. From 1991 to 1996, Dr. Woody served as Senior Vice President of Research and Development
and Chief Scientific Officer of Centocor, Inc., Malvern, Pennsylvania, where he assisted in the development of several new major antibody-based
therapeutics in the fields of oncology and autoimmune and cardiovascular disease, including Remicade®, a multi-billion dollar pharmaceutical.
Prior to that time, he served as a Medical Officer in the U.S. Navy, retiring as a CAPT (06) and as Commanding Officer of the Naval Medical
Research and Development Command in 1991. Dr. Woody and his colleagues, with U.S. Navy and Congressional approval, founded the National
Marrow Donor Program. He is a member of the Research Advisory Committee for the Veterans Gulf War Illness. Dr. Woody was a member of
the Board of Directors of the Lucille Packard (Stanford) Children’s Hospital (LPCH) in Palo Alto, California, (July 2002 to December
2020), serving as Chairman of the LPCH Quality Service and Safety Committee and a Member of the Patient Safety Oversight Committee. Dr.
Woody also is a member of the Stanford Medical School Dean’s Research Committee and Stanford “SPARK” research
initiatives program. Dr. Woody received a B.S. in Chemistry from Andrews University, Berrien Springs, Michigan, an M.D. from Loma Linda
University and Pediatric Subspecialty Training at Duke University School of Medicine and Harvard University School of Medicine. He received
a Ph.D. in Immunology from the University of London, England. We believe that his expertise and experience in the life sciences and venture
capital industries and his educational background make him qualified to serve as a director.
OZAN
PAMIR - CHIEF FINANCIAL OFFICER AND SECRETARY - Ozan Pamir has served as our Chief Financial Officer since April 2023, and prior
to that, as Interim Chief Financial Officer from November 2020 to April 2023. Mr. Pamir has also served as the Chief Financial Officer
and as a member of the Board of Directors of 180, our wholly-owned subsidiary following the Closing of the Business Combination, since
October 2018. Mr. Pamir has also served as the Chief Financial Officer and as a member of the Board of Directors of Unify Pharmaceuticals
between August 2019 and July 2021, and as the Chief Financial Officer of Enosi Life Sciences between May 2020 and April 2021, both of
which are pre-clinical companies focused on autoimmune diseases. Previously, Mr. Pamir served in various positions with Echelon Wealth
Partners, a leading Canadian investment bank, from June 2014 to October 2018, including Investment Banking Analyst (June 2014 - June
2015), Senior Associate, Investment Banking (June 2015 - September 2017) and Vice President of Investment Banking (September 2017 - October
2018), as well as Investment Banking Analyst of OCI Groups from October 2013 to June 2014. Mr. Pamir holds an Economics and Finance degree
from McGill University and is a CFA Charterholder.
JONATHAN
ROTHBARD, PH.D. - CHIEF SCIENTIFIC OFFICER - Jonathan Rothbard, Ph.D. has served as our Chief Scientific Officer since the Closing
of the Business Combination in November 2020. Dr. Rothbard has served as the Chief Executive Officer and Chief Scientific Officer of
Katexco since November 2018. Previously, he was a founder of ImmuLogic Pharmaceutical Corp., in Palo Alto, California, where he served
as Chief Scientific Officer from 1989 to 1995, a founder of Amylin Corporation in San Diego, California in 1989, and CellGate Incorporated
in Redwood City, California, where he served as Chief Scientific Officer from 1998 to 2004. Dr. Rothbard served on the faculty in the
Departments of Neurology (2007-2018), Chemistry (2005-2006), Medicine-division of Rheumatology (1996-1998) at Stanford University School
of Medicine. His first academic faculty position was as the head of the Molecular Immunology Laboratory at the Imperial Cancer Research
Fund in London from 1985-1989. Dr. Rothbard received his BA from Hamilton College in 1973 and his Ph.D. from Columbia University in 1977
and completed post-doctoral fellowships at The Rockefeller University and Stanford University Medical School.
The
following table sets forth certain information, including ages as of April 28, 2023, of our directors:
Name | |
Age | |
Position
With Company | |
Date
First Appointed
as Officer
or Directors | |
Director
Class* |
Class
I Directors | |
| |
| |
| |
|
Lawrence
Steinman, M.D. | |
75 | |
Executive Co-Chairman | |
November 2020 | |
Class I |
James
N. Woody, M.D., Ph.D. | |
80 | |
Chief Executive Officer and Director | |
November 2020 | |
Class I |
Russell
T. Ray, MBA | |
76 | |
Director | |
July 2021 | |
Class I |
Francis
Knuettel II, MBA | |
57 | |
Director | |
July 2021 | |
Class I |
Class
II Directors | |
| |
| |
| |
|
Sir
Marc Feldmann, Ph.D. | |
78 | |
Executive Co-Chairman, and Chairman, CEO and
Executive Director of CannBioRex | |
November 2020 | |
Class II |
Larry
Gold, Ph.D. | |
81 | |
Director | |
November 2020 | |
Class II |
Donald
A. McGovern, Jr., MBA | |
72 | |
Director | |
November 2020 | |
Class II |
Teresa
M. DeLuca, M.D., MBA | |
58 | |
Director | |
July 2021 | |
Class II |
Pamela
G. Marrone, Ph.D. | |
66 | |
Director | |
July 2021 | |
Class II |
* | Terms
expire at the 2023 annual meeting of stockholders (Class I) and the annual meeting of stockholders
to be held in 2024 (Class II). |
LAWRENCE
STEINMAN – CO-EXECUTIVE CHAIRMAN AND CLASS I DIRECTOR
Lawrence
Steinman, M.D. has served as Co-Executive Chairman since the Closing of the Business Combination in November 2020. He also has primary
scientific responsibility for our α7nAChR platform. Dr. Steinman served as Co-Chairman of 180 and as a member of its board of directors
since April 2019. Prior to joining 180, he served on the Board of Directors of Centocor Biotech, Inc., from 1989 to 1998, the Board of
Directors of Neurocine Biosciences from 1997 to 2005, the Board of Directors of Atreca from 2010 - 2019, the Board of Directors of BioAtla,
Inc. (NASDAQ:BCAB) from July 2020 to present (he also serves on the Compensation Committee and Nominating and Corporate Governance Committee
of BioAtla), the Board of Directors of Tolerion, Inc. from 2013 to 2020 and the Board of Directors of Alpha5 Integrin from November 2020
to June 2022, and the Board of Directors of Pasithea Therapeutics Corp. (NASDAQ:KTTA) from August 2020 to the present. He is currently
the George A. Zimmermann Endowed Chair in the Neurology Department at Stanford University and previously served as the Chair of the Interdepartmental
Program in Immunology at Stanford University Medical School from 2003 to 2011. He is a member of the National Academy of Medicine and
the National Academy of Sciences. He also founded the Steinman Laboratory at Stanford University, which is dedicated to understanding
the pathogenesis of autoimmune diseases, particularly multiple sclerosis and neuromyelitis optica. He received the Frederic Sasse Award
from the Free University of Berlin in 1994, the Sen. Jacob Javits Award from the U.S. Congress from 1988 through 2002, the John Dystel
Prize in 2004 from the National MS Society in the U.S., the Charcot Prize for Lifetime Achievement in Multiple Sclerosis Research in
2011 from the International Federation of MS Societies and the Anthony Cerami Award in Translational Medicine by the Feinstein Institute
of Molecular Medicine in 2015. In 2023, he was honored as a Pioneer in Medicine by the Society for Brain Mapping and Therapeutics. He
also received an honorary Ph.D. from the Hasselt University in 2008, and from the University of Buenos Aires in 2022. He received his
BA (physics) from Dartmouth College in 1968 and his MD from Harvard University in 1973. He also completed a fellowship in chemical immunology
at the Weizmann Institute (1974 - 1977) and was an intern and resident at Stanford University Medical School. We believe Dr. Steinman’s
extensive experience leading the research and development of numerous therapeutics qualify him to serve as a director.
PROF.
SIR MARC FELDMANN, PH.D. – EXECUTIVE CO-CHAIRMAN AND CLASS II DIRECTOR CHAIRMAN, CEO AND EXECUTIVE DIRECTOR OF CANNBIOREX
Prof.
Sir Marc Feldmann, Ph.D. FRS has served as Co-Executive Chairman since the Closing of the Business Combination in November 2020.
He also has primary scientific responsibility for our synthetic cannabidiol (“CBD”) analogues programs. Prof. Sir
Feldmann has served as Co-Chairman of 180 and as a member of its board of directors since April 2018. Since June 1, 2018, Prof. Sir Feldmann
has served as Chairman, CEO and Executive Director of CannBioRex. Since August 2018, Prof. Sir Feldmann has also served as a director
of Enosi Therapeutics Corp., a company which he founded that is a pre-clinical company focused on cancer and autoimmune deficiencies.
He is an Emeritus Prof. at the Kennedy Institute of Rheumatology, Department of Orthopedics, Rheumatology and Musculoskeletal Sciences
at the University of Oxford. He is renowned as an expert in the development of anti-inflammatory therapeutics and has published over
700 papers reflecting a long-term commitment to the cellular and molecular aspects of inflammatory autoimmune diseases, cytokines and
their therapeutic applications. In 1983, he published a new hypothesis explaining the mechanism of induction of autoimmune diseases,
highlighting the role of cytokines, potent signaling proteins which drive the important processes of inflammation, immunity and cell
growth. In collaboration with Sir Ravinder Maini, he showed that tumor necrosis factor (“TNF”) was a key driver of
rheumatoid arthritis, and that blocking it was beneficial, first in novel test tube systems (in vitro) using human disease tissue from
rheumatoid joints, then animal models and in a series of clinical trials. Maini and Feldmann developed a key patent for the optimal use
of antibodies for TNF, which was licensed to Centocor and AbbVie, and eventually led to the acquisition of Centocor by Johnson &
Johnson. Medically he is a Fellow of the Royal College of Physicians, the Royal College of Pathologists of London. In recognition of
his scientific work, which has led to anti-TNF currently being the best-selling drug class in the world, Prof. Sir Feldmann was elected
to the Academy of Medical Sciences and the Royal Society in London, is a Fellow of the Australian Academy of Science, and is an International
Member of the National Academy of Sciences, USA. He was knighted by Queen Elizabeth II in 2010 for his outstanding services to medicine,
and also received the Australian equivalent, the Companion of Honour (AC). He was awarded the Crafoord Prize in 2000, the Albert Lasker
Award for Clinical Medical Research in 2003, the Cameron Prize for Therapeutics by the University of Edinburgh in 2004, the John Curtin
Medal of the Australian National University in 2007 and the Dr. Paul Janssen Award for Biomedical Research in 2008, the Ernst Schering
Prize in 2010 and the Gairdner International Award in 2014, together with Sir Ravinder Maini, and separately the European Inventor Award
(Lifetime Achievement) by the European Patent Office in 2007, and the Tang Prize in 2020. He graduated with an MBBS degree from the University
of Melbourne in 1967 and earned a Ph.D. in Immunology at the Walter and Eliza Hall Institute of Medical Research in 1972. He undertook
postdoctoral research at the Imperial Cancer Research Fund’s Tumour Immunology Unit in 1972 before moving to the Charing Cross
Sunley Research Centre in 1985, which later merged with the Kennedy Institute of Rheumatology which then joined the Faculty of Medicine
at Imperial College in 2000 and was transferred to the University of Oxford in 2011.
JAMES
N. WOODY, M.D., PH.D. – CHIEF EXECUTIVE OFFICER AND CLASS I DIRECTOR
Information
regarding Dr. Woody is set forth above under “Executive Officers”.
RUSSELL
T. RAY, MBA – CLASS I DIRECTOR
Russell
T. Ray, MBA has served as a director of our Company since July 9, 2021. Mr. Ray was a Senior Advisor to HLM Venture Partners, a health
care venture capital firm, from February 2017 to December 2017 and from January 2014 to December 2015. From January 2016 to February
2017, Mr. Ray was a Managing Director and Vice Chairman of Healthcare Investment Banking at Stifel, Nicolaus & Company, Incorporated,
an investment banking firm, with a focus on health care investments. From September 2003 to September 2015, Mr. Ray served as a Partner
and Senior Advisor with HLM Venture Partners, a health care focused venture capital firm that invests in health care services, health
care information technology and medical technology companies. Prior to his work with HLM, he served as Managing Director and President
of Chesapeake Strategic Advisors (2002 to 2003), which invested in health care services, health care information technology and medical
technology companies. Mr. Ray was formerly Managing Director and Co-Head of Global Health Care Investment Banking at Credit Suisse First
Boston Corporation (1999 to 2002) where he led a 50-person team with offices in Baltimore, Chicago, London, New York and San Francisco
focused on providing corporate finance and M&A advisory services to private and public companies in the biotechnology, health care
services and health care information technology sectors. From 1987 to 1999, Mr. Ray was a Managing Director and Global Co-Head of Healthcare
Investment Banking at Deutsche Bank and its predecessor entities, BT Alex. Brown and Alex. Brown & Sons. Mr. Ray served on the board
of directors of Allergan, Inc. from 2003 to 2015. Mr. Ray also served as Chairman of the Audit and Finance Committee of Merrimack Pharmaceuticals,
Inc. (NASDAQ:MACK) (which position he held between January 2015 and June 2022), which specializes in developing drugs for the treatment
of cancer.
Mr.
Ray is a former Captain in the United States Army and recipient of the Bronze Star Medal, two Air Medals and two Army Commendation Medals
for Meritorious Service. He obtained a Bachelor’s of Science degree in Engineering from the United States Military Academy at West
Point, a Bachelor’s of Science degree in Ecology and Evolutionary Biology from the University of Washington, a Master of Science
degree from the University of Pennsylvania in Ecology and Evolutionary Biology and received a Master of Business Administration degree
in Finance from the Wharton School of Business at the University of Pennsylvania.
FRANCIS
KNUETTEL II, MBA – CLASS I DIRECTOR
Francis
Knuettel II, MBA has been a director of our Company since July 2, 2021. Mr. Knuettel has over 25 years of management experience in
venture and private-equity backed public companies, and has advised public and private companies on financial management and controls,
mergers and acquisitions, capital markets transactions and operating and financial restructurings. Since April 2022, he has been managing
Camden Capital LLC, where he provides fractional and Interim Chief Financial Officer and board services, including serving as Chief Financial
Officer of OceanTech Acquisition Corp (Nasdaq:OTEC) since March 2023. From December 2020 to July 2021, Mr. Knuettel served as the President
of Unrivaled Brands, Inc. (OTCQX:UNRV), a vertically integrated company focused on the cannabis sector with operations in California
and Nevada, from December 2020 to March 2021, he served as the Interim Chief Executive Officer of Unrivaled and he served as Chief Executive
Officer of Unrivaled from March 2021 to March 2022 and as a director from December 2020 through April 2022. Mr. Knuettel has served as
a member of the Board of Directors, Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee of Murphy
Canyon Acquisition Corp. (MURF) since February 2022, and as a member of the Board of Directors, Audit Committee and Nominations and Corporate
Governance Committee of Relativity Acquisition Corp. (NASDAQ:RACY), since February 2022, both Special Purpose Acquisition Companies.
Mr. Knuettel was formerly Director of Capital and Advisory at Viridian Capital Advisors, a position he held from June 2020 to January
2021, following the sale but prior to the close of the acquisition of One Cannabis Group, Inc. (“OCG”) by an OTCQX
listed company. At OCG, Mr. Knuettel served from June 2019 to January 2021 as Chief Financial Officer of the company, a leading cannabis
dispensary franchisor, with over thirty cannabis dispensaries across seven states. Prior to joining OCG, Mr. Knuettel was Chief Financial
Officer at MJardin Group, Inc. (“MJardin”) (August 2018 to January 2019), a Denver-based cannabis cultivation and
dispensary management company, where he led the company’s IPO on the Canadian Securities Exchange. Following the IPO, Mr. Knuettel
managed the merger with GrowForce, a Toronto-based cannabis cultivator, after which he moved over to the Chief Strategy Role (January
2019 to June 2019). In his role as CSO, he managed the acquisition of several private companies before recommending and executing the
consolidation of management and other operations to Toronto and the closure of the executive office in Denver. From April to August 2018,
Mr. Knuettel served as Chief Financial Officer of Aqua Metals, Inc. (NASDAQ:AQMS), an advanced materials firm that developed technology
in battery recycling. Prior to that, from April 2014 to April, 2018, Mr. Knuettel served as Chief Financial Officer at Marathon Patent
Group, Inc. (NASDAQ:MARA), a patent enforcement and licensing company. Before that, Mr. Knuettel held numerous CFO and CEO positions
at early-stage companies where he had significant experience both building and restructuring businesses. In addition to the Board of
Director positions set forth above, he currently serves as the Chairman of the Board of Directors of a MedTech company focused on smart
intubation devices. Mr. Knuettel graduated cum laude from Tufts University with a B.A. degree in Economics and from The Wharton School
at the University of Pennsylvania with an M.B.A. in Finance and Entrepreneurial Management.
LARRY
GOLD, PH.D. – CLASS II DIRECTOR
Larry
Gold, Ph.D. has served as a director of our Company since the Closing of the Business Combination in November 2020. Dr. Gold is the
Founder and Chairman Emeritus of the Board, and former CEO of SomaLogic, Inc. Prior to SomaLogic, he also founded and was the Chairman
of NeXagen, Inc., which later became NeXstar Pharmaceuticals, Inc. In 1999, NeXstar merged with Gilead Sciences, Inc. to form a global
organization committed to the discovery, development and commercialization of novel products that treat infectious diseases. During his
nearly 10 years at NeXstar, Dr. Gold held numerous executive positions including Chairman of the Board, Executive Vice President of R&D,
and Chief Science Officer. Before forming NeXagen, he also co-founded and served as Co-Director of Research at Synergen, Inc., a biotechnology
company later acquired by Amgen, Inc. Dr. Gold became the Chairman of Lab79, a new biotech company in Boulder, Colorado in 2014. Since
1970, Dr. Gold has been a professor at the University of Colorado at Boulder. While at the University, he served as the Chairman of the
Molecular, Cellular and Developmental Biology Department from 1988 to 1992. Between 1995 and 2013, Dr. Gold received the CU Distinguished
Lectureship Award, the National Institutes of Health Merit Award, the Career Development Award, the Lifetime Achievement Award from the
Colorado Biosciences Association, and the Chiron Prize for Biotechnology. Dr. Gold was also awarded the 8th International Steven Hoogendijk
Prize by the Dutch Batavian Society of Experimental Philosophy in 2018. In addition, Dr. Gold has been a member of the American Academy
of Arts and Sciences since 1993 and the National Academy of Sciences since 1995. He is a fellow of the National Academy of Inventors.
Dr. Gold also serves on the Board of Directors for Lab79, Deck Therapeutics, COLS (a charitable foundation) and a new pain company, TenZero,
each private companies. Dr. Gold established the Gold Lab at the University of Colorado Boulder in 1971. Starting with basic research
on bacteria and bacteriophage, the lab shifted its focus to human disease following the invention of the SELEX process in 1989. The Gold
Lab today focuses on the utilization of biological and information technology to improve healthcare. Dr. Gold also began holding the
GoldLab Symposia in 2010, an annual event that tackles big questions in healthcare. He is determined to change healthcare for the better
through teaching, research, and debate among scientists and citizens throughout the world. Dr. Gold received a BA in 1963 in Biochemistry
from Yale University, a Ph.D. in 1967 in Biochemistry from the University of Connecticut, and was an NIH Postdoctoral Fellow until 1969
at Rockefeller University.
DONALD
A. MCGOVERN, JR., MBA – CLASS II DIRECTOR
Donald
A. McGovern, Jr., MBA has served as a director of our Company since the Closing of the Business Combination in November 2020 and
became our lead director on March 30, 2021. Mr. McGovern is a retired Vice Chairman, Global Assurance, of PricewaterhouseCoopers LLP
(PwC). Through decades of leadership at PwC and board experience, Mr. McGovern brings wide-ranging operational, financial, accounting
and audit and public company experience. He currently serves on the board of Cars.com (NYSE: CARS). Mr. McGovern joined the Board of
Cars.com in May 2017 upon the spinout of Cars.com from Tegna creating a new public company listed on the NYSE. Cars.com is a leading
two-sided digital automotive marketplace. Mr. McGovern is chair of the Audit Committee, an audit committee financial expert under SEC
regulations, and a member of the Compensation Committee of Cars.com. His past public board experience has been with CRH, plc. Mr. McGovern
served two three-year terms (2013 - 2019) on the board of directors of CRH. During his tenure, he was Senior Independent Director, chair
of the Remuneration Committee, a member of the Nomination Committee and of the Audit Committee and an audit committee financial expert
under U.S. SEC and U.K. FRC regulations. CRH is headquartered in Dublin, Ireland and listed on the London, Irish and New York Stock Exchanges.
His past private company board experience includes Neuraltus Pharmaceuticals (2014 - 2019) and eASIC Corp (2016 - 2018). Mr. McGovern
joined the Board of Neuraltus in preparation for Neuraltus doing a potential IPO. Neuraltus was a privately held, venture capital backed
biopharmaceutical company dedicated to the development of therapeutics to treat neurological disorders. Mr. McGovern was chair of the
Audit Committee and Compensation Committee. Mr. McGovern joined the Board of eASIC as the Company was in the process of filing a Form
S-1 registration statement for an IPO. eASIC, a privately held, venture capital backed, fabless semiconductor company, was acquired by
Intel Corporation. Mr. McGovern was chair of the Audit Committee and member of the Nomination Committee.
He
is by background a High Technology Industry Assurance partner and served as the global engagement partner, lead audit partner, or concurring
partner, for numerous Silicon Valley and other U.S. public companies such as Cisco Systems, Applied Materials, Schlumberger, Ltd., Hewlett-Packard,
Agilent Technologies, Nvidia, eBay, and Varian Medical. He also has served Silicon Valley pre-IPO companies and during his career had
been involved in over 35 IPOs. He has extensive experience for SEC current reporting and securities filings related to initial public
offerings and other SEC registration statements, due diligence, mergers and acquisitions, restructurings, divestitures and risk management.
Mr.
McGovern spent 39 years at PwC including 26 years as a partner. Mr. McGovern was Vice Chairman, Global Assurance Leader and a member
of the PwC Global Network Executive Team, from July 2008 until his retirement from PwC on June 30, 2013. He had been the Managing Partner
of the firm’s Silicon Valley Office from July 2001 to June 2007 and previously held other operating roles. In April 2001, Mr. McGovern
was elected to the PwC Board of Partners and Principals of the U.S. firm as well as to PwC’s Global Board. He was the first ever
lead director for the U.S. Board (2001 - 2005) and was elected to serve 2 terms on each Board.
Mr.
McGovern is a member of the American Institute of Certified Public Accountants and has an active CPA license to practice in California,
Illinois and New York. He received a BA from Marquette University in 1972 and received an MBA from DePaul University in 1975. He also
attended the Executive Program for Growing Companies of the Stanford University Graduate School of Business in 1992.
TERESA
M. DELUCA, M.D., MBA – CLASS II DIRECTOR
Teresa
M. DeLuca, M.D., MBA, has served as a director of our Company since July 9, 2021. Dr. DeLuca is a physician executive and psychiatrist
in New York, New York, resuming her own practice, since January 2020. Dr. DeLuca previously served as a Managing Director at Columbia
University’s NY Life Science Venture Fund from January 2018 to December 2019. Her responsibilities as Managing Director included
leading a consortium of 12 private/public institutions (Cold Spring Harbor Laboratory, Columbia, CUNY, Einstein, Hospital for Special
Surgery, Memorial Sloan Kettering Cancer Center, Mount Sinai, NYU, Rockefeller University, SUNY Downstate Medical Center, Stony Brook,
Weil Cornell), and providing due diligence support for potential investments, partnerships, acquisitions, commercialization, licensing,
and IPOs. Before that she served as Assistant Clinical Professor of Psychiatry at the Icahn School of Medicine at Mount Sinai in New
York City from August 2014 to December 2017 and as the Chief Medical Officer of Magellan Pharmacy Solutions at Magellan Health from December
2012 to July 2014. Prior to that, she served as SVP of Pharmacy Health Solutions at Humana, VP of Clinical Sales Solutions & National
Medical Director at Walgreen Co., and VP of Personalized Medicine as well as VP of Medical Policy & Clinical Quality at Medco. Prior
to taking on these executive leadership roles, Dr. DeLuca was a Senior Medical Scientist at GlaxoSmithKline. Dr. DeLuca served as a director
at North Bud Farms, Inc., a pharmaceutical company from May 2018 to February 2020 (CSE:NBUD) and has served as a director of Surgery
Partners, Inc. (NASDAQ:SGRY), a leading operator of surgical facilities and ancillary services, since September 2016, and also currently
serves on the Audit Committee and Chair Compliance and Ethics Committee of the Board of Directors of Surgery Partners, Inc. In March
2022, Dr. DeLuca joined the Board of Directors of Rejuveron, a private Swiss drug discovery company and serves on the Audit Committee
and Chair of Governance and Remuneration Committees of such company.
Dr.
DeLuca received a Bachelor’s degree from the University of Rochester / LIU. Dr. DeLuca received her M.B.A. from Drexel University
and her M.D. from St. Georges University School of Medicine, before undertaking her residency at Thomas Jefferson University Medical
School. A strong advocate for good board governance, in 2016, Dr. DeLuca earned the Carnegie Mellon Cybersecurity certificate and in
2022 passed the Digital Directors Network Cyber Risk Masterclass examination. She continues to maintain good standing with the National
Association of Corporate Directors (NACD) as a Board Leadership Fellow (Masters Level), and in 2020 Dr. DeLuca passed the NACD’s
“Directorship Certified” examination (NACD.DC). In addition, in 2022, Dr. DeLuca became a NACD “Subject Matter Expert”
in examination development and a Board Advisory Faculty Member and also earned the American College of Corporate Directors (ACCD) “Advanced
Professional Director” credential. Dr. DeLuca was also named “2020 Director to Watch” in the Directors & Board
Annual Report and named “2022 Director of the Month” in Chief Executive Magazine. Dr. DeLuca is also the Co-Chair and Leadership
Council Member for the international organization, Women Corporate Directors (WCD).
PAMELA
G. MARRONE, PH.D. – CLASS II DIRECTOR
Pamela
G. Marrone, Ph.D. has been a director of our Company since July 2, 2021. Dr. Marrone is currently co-founder and Executive Chair
of the Invasive Species Corporation, bringing biological solutions to control difficult invasive species in water, forestry and agriculture.
She was founder and was Chief Executive Officer of Marrone Bio Innovations, Inc. (NASDAQ:MBII), a natural products company producing
pest management and plant health products, from April 2006 until her retirement in August 2020, and then served on the Board of Directors
until its sale to Bioceres Crop Solutions in July 2022. In July 2022, she was elected Chair of the Board of Directors of Elicit Plant,
a French venture capital-backed company developing and selling plant natural products to reduce crop stress. In July 2021, she was appointed
as senior fellow of Arizona State University’s Swette Center for Sustainable Food Systems. She also currently serves on the board
of Stem Express LLC. Prior to founding Marrone Bio, in 1995 Dr. Marrone founded AgraQuest, Inc. (acquired by Bayer), where she served
as board member, president and chief executive officer until May 2004 and as board member, president or chair from such time until March
2006 and she remained on the board until March 2007. While there, she led teams that discovered and commercialized several bio-based
pest management products. She served as founding president and business unit head for Entotech, Inc., a biopesticide subsidiary of Denmark-based
Novo Nordisk A/S (acquired by Abbott Laboratories), from 1990 to 1995, and held various positions at the Monsanto Company from 1983 until
1990, where she led the Insect Biology Group, which was involved in pioneering projects in transgenic crops, natural products and microbial
pesticides. Dr. Marrone is an author of over twenty invited publications, an inventor on more than 400 patents and is in demand as a
speaker and has served on the boards and advisory councils of numerous professional and academic organizations. In 2016, Dr. Marrone
was elected to the Cornell University Board of Trustees and completed her four-year term in July 2020. In 2013, Dr. Marrone was named
the Sacramento region’s “Executive of the Year” by the Sacramento Business Journal and “Cleantech Innovator of
the Year” by the Sacramento Area Regional Technology Alliance and Best Manager with Strategic Vision by Agrow in 2014. In January
2019, she was awarded the “Sustie” award by the Ecological Farming Association for her decades-long leadership in sustainable
agriculture. In March 2020, she was awarded the Most Admired CEO, Distinguished Career Award by the Sacramento Business Journal. In 2022,
she was the first woman to receive the Kathryn C. Hach Award for Entrepreneurial Success from the American Chemical Society. Dr. Marrone
earned a B.S. in Entomology from Cornell University and a Ph.D. in Entomology from North Carolina State University.
Director
Qualifications
The
Board believes that each of our directors is highly qualified to serve as a member of the Board. Each of the directors has contributed
to the mix of skills, core competencies and qualifications of the Board. When evaluating candidates for election to the Board, the Board
seeks candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment,
and leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success
in what we believe are highly relevant positions.
Corporate
Governance
We
promote accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable
disclosure in reports and documents that we file with the SEC and in other public communications made by us; and strives to be compliant
with applicable governmental laws, rules and regulations.
Family Relationships
There
are no family relationships among executive officers and directors.
Arrangements between Officers and Directors
There
is no arrangement or understanding between our directors and executive officers and any other person pursuant to which any director or
officer was or is to be selected as a director or officer. There are also no arrangements, agreements or understandings to our knowledge
between non-management stockholders that may directly or indirectly participate in or influence the management of our affairs.
Other Directorships
None
of the directors of our Company are also directors of issuers with a class of securities registered under Section 12 of the Exchange
Act (or which otherwise are required to file periodic reports under the Exchange Act), other than:
| ● | Mr.
McGovern (who serves on the Board of Directors of Cars.com and as the Chairman of the Audit
Committee and Member of the Compensation Committee of Cars.com), |
| | |
| ● | Prof.
Steinman (who serves on the Board of Directors of BioAtla, Inc. (NASDAQ:BCAB), on the Compensation
Committee and Nominating and Corporate Governance Committee of BioAtla and on the Board of
Directors of Pasithea Therapeutics Corp. (NASDAQ:KTTA), and also on the Compensation Committee
and Nominating and Corporate Governance Committee of Pasithea), |
| | |
| ● | Dr.
DeLuca (who serves on the Board of Directors of Surgery Partners, Inc. (NASDAQ:SGRY) and
on the Audit Committee and Chair Compliance and Ethics Committee of the Board of Directors
of Surgery Partners, Inc.), and |
| | |
| ● | Mr.
Knuettel (who serves as a member of the Board of Directors, Audit Committee, Nominating and
Corporate Governance Committee and Compensation Committee of Murphy Canyon Acquisition Corp.
(MURF), as a member of the Board of Directors, Audit Committee and Nominations and Corporate
Governance Committee of Relativity Acquisition Corp. (NASDAQ:RACY)). |
Involvement in Certain Legal Proceedings
To
the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following:
(1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at
the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being a named subject
to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining,
barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (4) being found
by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal
or state securities or commodities law; (5) being the subject of, or a party to, any Federal or State judicial or administrative order,
judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (i) any Federal or
State securities or commodities law or regulation; (ii) any law or regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary
or permanent cease-and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or (6) being the subject of, or a party to, any sanction or order, not subsequently reversed,
suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity
(as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that
has disciplinary authority over its members or persons associated with a member.
Board Committee Membership
Our
Board of Directors has four standing committees: an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance
Committee, and a Risk, Safety and Regulatory Committee. All four committees are composed solely of independent directors. We filed a
copy of our Audit Committee charter and our Compensation Committee charter as exhibits to the registration statement that we filed in
connection with our IPO. We filed a copy of our Nominating and Corporate Governance Committee charter as an exhibit to our Current Report
on Form 8-K that we filed with the SEC on November 12, 2020. We filed a copy of our Risk, Safety and Regulatory Committee charter as
an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that we filed with the SEC on July 9, 2021.
You can review the charters for our standing committees by accessing our public filings at the SEC’s web site at www.sec.gov or
on our website at https://ir.180lifesciences.com/corporate-governance/board-committees.
The
current members of the committees of our Board of Directors are as follows:
Director
Name | |
Independent | | |
Audit Committee | | |
Compensation Committee | | |
Nominating and Corporate Governance Committee | | |
Risk, Safety
and Regulatory Committee | |
Lawrence Steinman,
M.D.(1) | |
| | | |
| | | |
| | | |
| | | |
| | |
Sir Marc Feldmann, Ph.D.(1) | |
| | | |
| | | |
| | | |
| | | |
| | |
James N. Woody, M.D., Ph.D. | |
| | | |
| | | |
| | | |
| | | |
| | |
Larry Gold, Ph.D. | |
| X | | |
| M | | |
| | | |
| C | | |
| | |
Donald A. McGovern, Jr., MBA(2) | |
| X | | |
| C | | |
| M | | |
| | | |
| M | |
Russell T. Ray, MBA | |
| X | | |
| M | | |
| M | | |
| M | | |
| | |
Teresa DeLuca, M.D., MBA | |
| X | | |
| | | |
| C | | |
| M | | |
| | |
Francis Knuettel II, MBA | |
| X | | |
| M | | |
| | | |
| | | |
| M | |
Pamela G. Marrone, Ph.D. | |
| X | | |
| | | |
| M | | |
| | | |
| C | |
(1) |
Co-Executive
Chairman of the Board of Directors. |
(2) |
Lead
independent director. |
C |
Chairperson
of the Committee. |
M |
Member
of the Committee. |
EXECUTIVE
AND DIRECTOR COMPENSATION
Summary
Executive Compensation Table
The
following table sets forth certain information concerning compensation earned by or paid to certain persons who we refer to as our “Named
Executive Officers” for services provided for the fiscal years ended December 31, 2022 and 2021. Our Named Executive Officers
include persons who (i) served as our, or 180’s, principal executive officer or acted in a similar capacity during the years ended
December 31, 2022 and 2021, (ii) were serving at fiscal year-end as our two most highly compensated executive officers, other than the
principal executive officer, whose total compensation exceeded $100,000, and (iii) if applicable, up to two additional individuals for
whom disclosure would have been provided as a most highly compensated executive officer, but for the fact that the individual was not
serving as an executive officer at fiscal year-end.
Name
and Principal Position | |
Year | | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards ($) | | |
Option
Awards ($) | | |
Non-Equity
Incentive Plan Compensation | | |
All
Other Compensation ($) | | |
Total
($) | |
James
N. Woody | |
2022 | | |
$ | 463,500 | | |
$ | (*) | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 463,500 | |
CEO
and Director | |
2021 | | |
$ | 448,270 | | |
$ | 50,000 | | |
$ | - | | |
$ | 4,262,492 | (a) | |
$ | - | | |
$ | - | | |
$ | 4,760,762 | |
Ozan
Pamir | |
2022 | | |
$ | 309,000 | | |
$ | (*) | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 309,000 | |
CFO | |
2021 | | |
$ | 304,355 | | |
$ | 52,500 | | |
$ | - | | |
$ | 548,035 | (b) | |
$ | - | | |
$ | - | | |
$ | 904,890 | |
Quan
Anh Vu(1) | |
2022 | | |
$ | 401,700 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 333,490 | (2) | |
$ | 735,190 | |
Former
COO and CBO | |
2021 | | |
$ | 65,000 | | |
$ | - | | |
$ | - | | |
$ | 846,573 | (c) | |
$ | - | | |
$ | - | | |
$ | 911,573 | |
Jonathan
Rothbard | |
2022 | | |
$ | 268,906 | | |
$ | (*) | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 268,906 | |
Chief
Scientific Officer | |
2021 | | |
$ | 372,034 | | |
$ | 10,000 | | |
$ | 160,671 | (d) | |
$ | 923,534 | (e) | |
$ | - | | |
$ | - | | |
$ | 1,466,239 | |
Does
not include perquisites and other personal benefits or property, unless the aggregate amount of such compensation is more than $10,000.
No executive officer earned non-equity incentive plan compensation or nonqualified deferred compensation during the periods reported
above. Option Awards and Stock Awards represent the aggregate grant date fair value of awards computed in accordance with Financial Accounting
Standards Board Accounting Standard Codification Topic 718. For additional information on the valuation assumptions with respect to the
restricted stock grants, refer to “Note 12 - Stockholders’ Equity” to the audited financial statements included herein.
No executive officer serving as a director received any compensation for services on the Board of Directors separate from the compensation
paid as an executive for the periods above.
* |
The amount of each executive’s
2022 bonuses has not yet been determined by the Compensation Committee and/or the Board of Directors as of the date of this prospectus,
and are therefore not included in the table above. The amount of each executive’s bonuses for fiscal 2022, if any, will be
disclosed in a separate filing under Item 5.02(f) of Form 8-K within four days of the date finalized by the Compensation Committee
and/or the Board of Directors. Such bonuses may be in the form of cash or equity or a combination of cash and equity. |
(1) |
On October 29, 2021, the Board
of Directors appointed Mr. Quan Anh Vu as Chief Operating Officer/Chief Business Officer (“COO/CBO”) of
the Company. On October 27, 2021, and effective on November 1, 2021, we entered into an Employment Agreement with Quan Ahn Vu. In
consideration for performing services under the agreement, we agreed to pay Mr. Vu a starting salary of $390,000 per year. As of
the date of this proxy statement, all of the amounts owed to Mr. Vu have been fully paid. Mr. Vu’s employment agreement was
terminated effective January 15, 2023. |
(2) |
Represents amounts paid to
Mr. Vu for the termination of his employment agreement. |
(a) |
Represents the value of ten
year options to purchase 70,000 shares of common stock with an exercise price of $88.60 per share which were granted on February
26, 2021. |
(b) |
Represents the value of ten
year options to purchase 9,000 shares of common stock with an exercise price of $88.60 per share which were granted on February 26,
2021. |
(c) |
Represents the value of ten
year options to purchase 13,750 shares of common stock with an exercise price of $79.00 per share which were granted on December
8, 2021. |
(d) |
Represents the value of 1,215
shares of common stock issued to Dr. Rothbard in consideration for services rendered to us as Chief Scientific Officer on April 7,
2021. |
(e) |
Represents the value of ten
year options to purchase 15,000 shares of common stock with an exercise price of $79.00 per share which were granted on December
8, 2021. |
Bonuses
No
bonuses were paid to the officers named in the table above during the fiscal years ended December 31, 2022 or 2021, except as disclosed
in the table above.
Outstanding
Equity Awards at Fiscal Year End
| |
Option
awards |
Name | |
Number
of securities underlying unexercised options
(#) exercisable | | |
Number
of securities underlying unexercised options
(#) unexercisable | | |
Option exercise price ($) | | |
Option expiration date |
James N. Woody | |
| 48,222 | | |
| 21,778 | (1) | |
$ | 88.60 | | |
2/26/2031 |
Ozan Pamir | |
| 6,200 | | |
| 2,800 | (1) | |
$ | 88.60 | | |
2/26/2031 |
Quan Anh Vu* | |
| 3,724 | | |
| 10,026 | (2) | |
$ | 79.00 | | |
12/8/2031 |
Jonathan Rothbard | |
| 10,417 | | |
| 4,583 | (3) | |
$ | 79.00 | | |
12/8/2031 |
* |
Employment terminated effective
January 15, 2023. |
(1) |
(a) 1/5th of such
options vesting on the grant date (February 26, 2021); and (b) 4/5ths of such options vesting ratably on a monthly basis over the
following 36 months on the last day of each calendar month. |
(2) |
The options vest in 48 equal
monthly installments, beginning on the last day of November 2021, and continuing on the last day of each calendar month thereafter,
subject to the holder’s continued service to us on such vesting dates. |
(3) |
The options vest at the rate
of 1/3rd of such options at the date of grant (December 8, 2021) with the remaining options vesting at the rate of 24
equal monthly installments, beginning on the last day of December 31, 2021, and continuing on the last day of each calendar month
thereafter, subject to the Reporting Person’s continued service to us on such vesting dates. |
There
were no outstanding unvested stock awards as of December 31, 2022.
Executive
and Other Compensation Agreements
General
Upon
the Closing of the Business Combination, James N. Woody, M.D., Ph.D., the Chief Executive Officer of 180, was appointed to serve as the
Chief Executive Officer of our Company, and Jonathan Rothbard, Ph.D., the Chief Executive Officer and Chief Scientific Officer of Katexco,
was appointed to serve as the Chief Scientific Officer of our Company. Also following the Closing of the Business Combination, Ozan Pamir,
the Chief Financial Officer of 180, continued to serve in that position for 180, and on November 27, 2020, he was appointed to serve
as the Interim Chief Financial Officer of our Company. In April 2023, Mr. Pamir was appointed as Chief Financial Officer of the Company.
Effective on October 29, 2021, the Board of Directors appointed Mr. Quan Anh Vu as Chief Operating Officer/Chief Business Officer (“COO/CBO”)
of the Company and he served in that role until his resignation on January 18, 2023.
A
description of the employment or services agreements with each of the foregoing persons is set forth below.
Description
of Employment Agreements
Each
of the salaries of the executives described below and certain of the compensation payable to the consultants described below, are subject
to the increases in salary and the temporary salary accruals discussed below under “Salary Increases and Temporary Salary and
Compensation Accruals”.
James
N. Woody 180 Employment Agreement
James
N. Woody, M.D., Ph.D. and 180 entered into an employment agreement on July 1, 2020 (which agreement was amended on September 18, 2020),
effective as of July 1, 2020, whereby Dr. Woody served as the Chief Executive Officer of 180 and began serving as our Chief Executive
Officer following the Closing of the Business Combination. The initial term of the employment agreement started on July 1, 2020, was
for a period of one (1) year, and was subject to automatic renewal for consecutive one (1) year terms unless either party provided 60
days’ notice. Dr. Woody’s annual base salary was initially $250,000 per year from July 1, 2020 to September 1, 2020, and
increased to $360,000 per year on September 1, 2020. The agreement provided that Dr. Woody’s salary was to be renegotiated with
the completion of the next qualified financing of over $20 million. Dr. Woody is eligible to participate in any stock option plans and
receive other equity awards, as determined from time to time.
James
N. Woody Amended and Restated Employment Agreement
On
February 25, 2021, we entered into an Amended and Restated Employment Agreement with James N. Woody (the “A&R Agreement”),
dated February 24, 2021, and effective November 6, 2020, which replaced and superseded the July 2020 agreement with 180 as discussed
above. Pursuant to the A&R Agreement, Dr. Woody agreed to serve as the Chief Executive Officer of the Company. The A&R Agreement
has a term of three years from its effective date (through November 6, 2023) and is automatically renewable thereafter for additional
one-year periods, unless either party provides the other at least 90 days written notice of their intent to not renew the agreement.
Dr. Woody’s annual base salary under the agreement was initially increased to $450,000 per year, subject to automatic 5% yearly
increases. For the 2021 year, Dr. Woody’s salary was $450,000, for 2022, Dr. Woody’s salary was $463,500, and for the 2023
year, Dr. Woody’s salary will be $490,000 (see also “Payment of Back Pay; 2021 Bonuses and Increases in Salaries”,
below). The Board of Directors, as recommended by the Compensation Committee, may increase Dr. Woody’s salary from time to time,
which increases do not require an amendment to his agreement.
Dr.
Woody is also eligible to receive an annual bonus, with a target bonus equal to 45% of his then-current base salary, based upon our achievement
of performance and management objectives as set and approved by the Board of Directors and/or Compensation Committee in consultation
with Dr. Woody. At Dr. Woody’s option, the annual bonus can be paid in cash or the equivalent value of our common stock or a combination
therefore. The Board of Directors, as recommended by the Compensation Committee or separately, may also award Dr. Woody bonuses from
time to time (in stock, options, cash, or other forms of consideration) in its discretion.
Under
the employment agreement, Dr. Woody is eligible to participate in any stock option plans and receive other equity awards, as determined
by the Board of Directors from time to time.
The
agreement can be terminated any time by us for cause (subject to the cure provisions of the agreement), or without cause (with 60 days
prior written notice to Dr. Woody), by Dr. Woody for good reason (as described in the agreement, and subject to the cure provisions of
the agreement), or by Dr. Woody without good reason. The agreement also expires automatically at the end of the initial term or any renewal
term if either party provides notice of non-renewal as discussed above.
In
the event the A&R Agreement is terminated without cause by us, or by Dr. Woody for good reason, we agreed to pay him the lesser of
18 months of salary or the remaining term of the agreement, the payment of any accrued bonus from the prior year, his pro rata portion
of any current year’s bonus and health insurance premiums for the same period that he is to receive severance payments (as discussed
above).
The
A&R Agreement contains standard and customary invention assignment, indemnification, confidentiality and non-solicitation provisions,
which remain in effect for a period of 24 months following the termination of his agreement.
Dr.
Rothbard’s Employment Agreement
On
August 21, 2019, 180 entered into an Employment Agreement with Dr. Rothbard which replaced a prior agreement, which was not effective
until the Closing Date, but became effective on such date. The Employment Agreement has a term of three years from the Closing Date (i.e.,
until November 6, 2023), automatically extending for additional one-year terms thereafter unless either party terminates the agreement
with at least 90 days prior written notice before the next renewal date.
The
Employment Agreement provides for Dr. Rothbard to be paid a salary of $375,000 per year, with automatic increases in salary, on the first
anniversary of the effective date, and each anniversary thereafter, of 10%. For the 2021 year, Dr. Rothbard’s salary was $375,000,
for the 2022 year, Dr. Rothbard’s salary was $268,906, and for 2023, Dr. Rothbard’s salary will be $200,000 (see also “Payment
of Back Pay; 2021 Bonuses and Increases in Salaries”, below). The salary for the 2023 year represents Dr. Rothbard’s
commitment of 50% of his work-related time to us. The Board of Directors, as recommended by the Compensation Committee, may increase
Dr. Rothbard’s salary from time to time, which increases do not require an amendment to his agreement.
The
Employment Agreement provides for Dr. Rothbard to receive an annual bonus subject to meeting certain objectives set by the Board of Directors,
with a targeted bonus amount of 50% of his then salary, payable on or before February 15th
of each year.
The
Employment Agreement also provides for Dr. Rothbard to earn equity compensation in the discretion of the Board of Directors. Dr. Rothbard
may also be issued bonuses, from time to time, in the discretion of the Board of Directors, which may be payable in cash, stock or options.
In
the event Dr. Rothbard’s employment is terminated by us without cause, by Dr. Rothbard for good reason (as discussed in the employment
agreement), or the agreement is not renewed by us, he is required to be paid 36 months of severance pay (if such termination occurs during
the first year of the term); 24 months of severance pay (if such termination occurs during the second year of the term); and 12 months
of severance pay (if such termination occurs after the second year of the term), along with any accrued bonus amount and a pro rata annual
bonus based on the targeted bonus, as well as the payment of health insurance premiums for the same period over which he is required
to be paid severance pay.
The
Employment Agreement was amended effective January 1, 2022, to override the automatic annual salary increases of 10% per annum and instead
provide for future increases in the sole determination of the Board of Directors. The Employment Agreement was further amended effective
June 1, 2022, to adjust the base salary of Dr. Rothbard to $193,125.
Ozan
Pamir Katexco Employment Agreement
Our
indirect wholly-owned subsidiary Katexco entered into an employment agreement with Mr. Pamir on October 22, 2018. The agreement provides
for an indefinite term that continues until termination. The initial annual base salary set forth in the agreement was CAD $120,000,
with annual increases as determined by the Board of Directors. The agreement also provided Mr. Pamir with a CAD $20,000 signing bonus.
Any bonuses, including stock options, are in the sole discretion of Katexco, depending on financial circumstances and the performance
of the services under the agreement. In 2019, the compensation was increased to $120,000 per annum in US dollars.
On
February 1, 2020, there was an amendment to Mr. Pamir’s consulting agreement with Katexco, whereby the contract was transferred
from Katexco to Katexco Pharmaceuticals Corp. - US.
Ozan
Pamir Company Employment Agreement
On
February 25, 2021, we entered into an Employment Agreement dated February 24, 2021, and effective November 6, 2020, which agreement was
amended and corrected on March 1, 2021, to be effective as of the effective date of the original agreement (which amendment and correction
is retroactively updated in the discussion of the agreement), with Ozan Pamir, our then Interim Chief Financial Officer, which replaced
and superseded Mr. Pamir’s agreement with Katexco, as discussed above. Pursuant to the agreement, Mr. Pamir agreed to serve as
the Interim Chief Financial Officer of the Company; and we agreed to pay Mr. Pamir $300,000 per year for 2021, which was increased to
$309,000 for the 2022 year, and, based on his appointment as Chief Financial Officer in April 2023, and $380,000 for the 2023 year (see
also “Payment of Back Pay; 2021 Bonuses and Increases in Salaries”, below). Such salary is to be increased to a mutually
determined amount upon the closing of a new financing, and shall also be increased on a yearly basis. The Board of Directors, as recommended
by the Compensation Committee, may increase Mr. Pamir’s salary from time to time, which increases do not require an amendment to
his agreement.
Under
the agreement, Mr. Pamir is eligible to receive an annual bonus, in a targeted amount of 30% of his then salary for the 2021 and 2022
years, and 40% for the 2023 year (see also “Payment of Back Pay; 2021 Bonuses and Increases in Salaries”, below),
based upon our achievement of performance and management objectives as set and approved by the Chief Executive Officer, in consultation
with Mr. Pamir. The bonus amount is subject to adjustment. The Board of Directors, as recommended by the Compensation Committee of the
Company (and/or the Compensation Committee) or separately, may also award Mr. Pamir bonuses from time to time (in stock, options, cash,
or other forms of consideration) in its discretion.
Under
the employment agreement, Mr. Pamir is also eligible to participate in any stock option plans and receive other equity awards, as determined
by the Board of Directors from time to time.
The
agreement can be terminated at any time by us with or without cause with 60 days prior written notice and may be terminated by Mr. Pamir
at any time with 60 days prior written notice. The agreement may also be terminated by us with sixty days’ notice in the event
the agreement is terminated for cause under certain circumstances. Upon the termination of Mr. Pamir’s agreement by us without
cause or by Mr. Pamir for good reason, we agreed to pay him three months of severance pay.
The
agreement contains standard and customary invention assignment, indemnification, confidentiality and non-solicitation provisions, which
remain in effect for a period of 24 months following the termination of his agreement.
On
May 27, 2021, we entered into a Second Amendment to Employment Agreement with Ozan Pamir (the “Second Pamir Amendment”).
The Second Pamir Amendment amended the terms of Mr. Pamir’s employment solely to provide that all compensation payable to Mr. Pamir
under such agreement would be paid directly by us.
On
September 14, 2021, the Board of Directors authorized a discretionary bonus of $30,000 to Mr. Pamir in consideration for services rendered.
Quan
Anh Vu Executive Employment Agreement (terminated); and Separation Agreement
On
October 27, 2021, and effective on November 1, 2021, we entered into an Employment Agreement with Quan Anh Vu, its then Chief Operating
Officer/Chief Business Officer.
Pursuant
to the employment agreement, Mr. Vu agreed to serve as Chief Operating Officer/Chief Business Officer for the Company. In consideration
therefore, we agreed to pay Mr. Vu a starting salary of $390,000 per year, subject to annual increases of up to 5% (on each November
1st, but effective as of the following January 1st, including a 3% increase to $401,700 for 2022, as discussed
below under “Salary Increases and Temporary Salary and Compensation Accruals”). In addition to the base salary, Mr.
Vu was eligible to receive an annual bonus, with a target bonus opportunity of 50% of the then-current base salary, based on achievement
of performance and management objectives established by the CEO and the Compensation Committee, in consultation with Mr. Vu, payable
on or before March 31st of the year following the year in which the bonus is earned. Mr. Vu could elect the Annual Bonus to
be paid in cash or the equivalent value in our common stock, or a combination of the two.
The
Employment Agreement contains standard and customary invention assignment, indemnification, confidentiality and non-solicitation provisions,
which remain in effect for a period of 24 months following the termination of the agreement.
On
January 18, 2023, Mr. Vu resigned as Chief Operating/Chief Business Officer of the Company effective January 15, 2023, and entered into
a Separation and Release Agreement with us (as amended, the “Separation Agreement”).
Under
the Separation Agreement, we agreed to pay Mr. Vu (a) $297,440, less all applicable withholdings and required deductions; and (b) reimburse
up to $1,100 a month for eight months for Mr. Vu’s health insurance expenses, whether under COBRA or otherwise (collectively, (a)
and (b), the “Severance Payment”). The Severance Payment (except for the amounts payable pursuant to (b) which shall
be paid by the 15th day of each calendar month during the applicable eight-month period) is required to be paid within 30 days of the
Separation Date (the “Payment Date”). In addition to the Severance Payment, by the Payment Date, we agreed to pay
Mr. Vu $73,645 for accrued backpay and $36,050 for accrued paid time off. Under the Separation Agreement, Mr. Vu agreed that his resignation
was voluntary, provided a customary general release to us and also agreed to certain confidentiality, non-disclosure, non-solicitation,
non-disparagement, and cooperation covenants in favor of us.
On
March 29, 2023, an error in the Separation Agreement was corrected by the parties’ entry into the first amendment to Separation
Agreement (the “First Separation Agreement Amendment”), effective as of the date of the original agreement, which
clarified that none of the amount received by Mr. Vu pursuant to the Separation Agreement related to a bonus for 2021.
Description
of Material Consulting Agreements
Service
Agreement with Prof. Sir Marc Feldmann
See
“Service Agreement with Prof. Sir Marc Feldmann” under “Material Agreements — Consulting Agreements”,
in the section entitled “Business”, above.
Consultancy
Agreement and Consulting Agreement with Prof. Lawrence Steinman
See
“Consultancy Agreement with Prof. Lawrence Steinman” and “Lawrence Steinman, M.D. Consulting Agreement”
under “Material Agreements — Consulting Agreements”, in the section entitled “Business”, above.
Prof.
Jagdeep Nanchahal Consulting Agreement
See
“Prof. Jagdeep Nanchahal Consulting Agreement” under “Material Agreements — Consulting Agreements”,
in the section entitled “Business”, above.
Salary
Increases and Temporary Salary and Compensation Accruals
Effective
on April 27, 2022, we (directly or through an indirectly wholly-owned subsidiary of the Company) entered into (a) a First Amendment to
Amended and Restated Employment Agreement with Dr. Woody (the “First Woody Amendment”); (b) a First Amendment to Employment
Agreement with Mr. Vu (the “First Vu Amendment”); (c) a First Amendment to Employment Agreement with Dr. Rothbard
(“First Rothbard Amendment”); (d) a First Amendment to Employment Agreement with Prof. Sir Feldmann (the “First
Feldmann Amendment”); (e) a First Amendment to Consulting Agreement with Prof. Steinman (the “First Steinman Amendment”);
and (f) a Second Amendment to Consulting Agreement with Prof. Nanchahal (the “Second Nanchahal Amendment”), which
each amended the agreements currently in place with such individuals as discussed above.
Pursuant
to the First Woody Amendment, First Vu Amendment and First Rothbard Amendment, each of Dr. Woody, Mr. Vu and Dr. Rothbard, agreed that
effective January 1, 2022, their base salaries of $450,000, $390,000 and $375,000, respectively (their “Base Salaries”)
(as provided for in their employment agreements) were amended to increase such amounts by 3% (the “Increase in Salary”)
and effective March 1, 2022, their base salaries were reduced by 20% each ($92,700, $80,340 and $96,563, respectively) and that such
reduced amounts (the “Accrued Amounts”) shall be accrued until such time as the Board of Directors determines that
we have sufficient cash on hand to pay such Accrued Amounts, which we expect will not be until we have raised a minimum of $15,000,000
(the “Funding Determination Date”); and that $370,800, $321,360, and $289,688 of such base salaries, shall be payable
per our payroll practices in cash by us to each of Dr. Woody, Mr. Vu and Dr. Rothbard, respectively, starting effective March 1, 2022
until the Funding Determination Date, and that on the Funding Determination Date, their salaries shall increase to the new base salary
taking into account the Increase in Salary (with no accrual) ($463,500, $401,700 and $386,250, respectively) and the Accrued Amounts
shall be paid by us, provided that in addition, at the discretion of the Board of Directors, the base salaries on the Funding Determination
Date of each executive may be further increased by 2%. Additionally, Mr. Rothbard agreed that any future increases to salary will be
determined on an annual basis by our Board of Directors at the recommendation of the Compensation Committee, and the annual 10% increases
provided in his agreement shall be overridden by such future determinations by the Board of Directors.
Pursuant
to the First Feldmann Amendment and First Steinman Amendment, Prof. Sir Feldmann and Prof. Steinman agreed effective March 1, 2022, that
their salary would be reduced by $225,000 (100%) and $56,250 (25%), respectively, and that such reduced amounts shall be accrued and
paid on the Final Determination Date.
Pursuant
to the Second Nanchahal Amendment, Prof. Nanchahal agreed that upon acceptance of the data for the phase 2b clinical trial for Dupuytren’s
disease for publication (which occurred March 1, 2022, subject to editing and final approvals), his monthly fee was increased to £23,000,
provided that £4,000 of such increase shall be accrued and £19,000 per month of such fees shall be payable per our payroll
practices in cash by us starting effective March 1, 2022, and until the earlier of (a) November 1, 2022 and (b) the Funding Determination
Date, at which time all Accrued Amounts shall be due.
On
May 26, 2022, and effective on June 1, 2022, we entered into (a) a Second Amendment to Employment Agreement with James N. Woody, M.D.,
Ph.D., the Chief Executive Officer and Director of the Company; (b) a Second Amendment to Employment Agreement with Quan Anh Vu, the
former Chief Operating Officer and Chief Business Officer of the Company; (c) a Second Amendment to Employment Agreement with Jonathan
Rothbard, Ph.D., Chief Scientific Officer of the Company; and (d) a Second Amendment to Consulting Agreement with Lawrence Steinman,
M.D., the Executive Co-Chairman of the Company (collectively, the “Second Amendments”).
Pursuant
to the Second Amendments, each of Dr. Woody, Mr. Vu, Dr. Steinman, and Dr. Rothbard, effective as of June 1, 2022, agreed to a further
reduction of the base salaries set forth in their respective amended employment and consulting agreements (the “Base Salaries”)
by an amount which, after taking into account the First Accrued Amounts, equals 50% of their respective Base Salaries ($231,750, $200,850,
$112,500, and $193,125, in total respectively). The reductions to the base salaries of Dr. Woody, Mr. Vu, and Dr. Steinman as affected
by the Second Amendments ($139,050, $120,510, $56,250, respectively), are to accrue until such time as we have raised a minimum of $1,000,000.
There will be no accrual of the $96,562.50 reduction to the base salary of Dr. Rothbard which was affected by his Second Amendment, provided
that Dr. Rothbard’s accrued salary through the effective date of his Second Amendment will continue to remain accrued and will
be paid on the Funding Determination Date.
Payment
of Back Pay; 2021 Bonuses and Increases in Salaries
On
April 27, 2023, and effective on January 1, 2023, we entered into (a) a Third Amendment to Employment Agreement with James N. Woody,
M.D., Ph.D., the Chief Executive Officer and Director of the Company; (b) a Third Amendment to Employment Agreement with Ozan Pamir,
the Chief Financial Officer of the Company; and (c) a Third Amendment to Employment Agreement with Jonathan Rothbard, Ph.D., Chief Scientific
Officer of the Company (collectively, the “Third Amendments”), which each amended the compensation agreements currently
in place with such individuals.
The
Third Amendments reflected (a) an increase in the salary of each of Dr. Woody, Mr. Pamir and Dr. Rothbard of 3.5%, effective as of January
1, 2023; and (b) in the case of Mr. Pamir, a further increase in salary to $380,000 per annum and an increase in his target bonus to
40%, effective April 1, 2023, as well as a change in his title to Chief Financial Officer.
On
April 27, 2023, based on the recommendation of the Compensation Committee, the Board of Directors determined discretionary bonus compensation
for the year ended December 31, 2021 for Dr. Woody ($50,000); Mr. Pamir ($22,500, which is in addition to $30,000 previously paid during
2021); and Dr. Rothbard ($10,000). The Board of Directors also determined that no other bonuses would be paid to any executive officer
of the Company for fiscal 2021.
Effective
April 27, 2023, the Board of Directors, with the recommendation of the Compensation Committee of the Board of Directors, approved the
payment of $111,675 to Dr. Woody; $24,154 to Mr. Pamir; and $50,343 to Dr. Rothbard, in back pay owed to such officers. As a result,
no back pay is currently owed to Dr. Woody, Mr. Pamir or Dr. Rothbard.
Potential
Payments Upon Termination
Pursuant
to the employment agreements for Dr. Woody, Dr. Rothbard, and Mr. Pamir, severance benefits will be paid in the event of a termination
without “just cause” (as defined in such agreements). Dr. Woody, in the event of such termination, is entitled to severance
payments in the form of continued base salary, for the lesser of eighteen (18) months or the then remaining term of the agreement, (ii)
payment of any accrued and unpaid annual bonus for any year preceding the year in which the employment terminates; (iii) payment of a
pro rata annual bonus for the year in which the employment terminates calculated by multiplying the target bonus amount by a fraction,
the numerator of which is the number of calendar days elapsed in the year as of the effective date of termination of employment and the
denominator of which is 365; and (iv) payment by us of Dr. Woody’s monthly health insurance premiums. For Dr. Rothbard, in the
event of such termination during his first year, Dr. Rothbard would be entitled to his then base salary for a period of 36 months, during
his second year, Dr Rothbard would be entitled to his then base salary for a period of 24 months, and 12 months if the termination happens
in the third year of Dr. Rothbard’s employment or thereafter; (ii) payment of any accrued and unpaid annual bonus for any year
preceding the year in which the employment terminates; (iii) payment of a pro rata annual bonus for the year in which the employment
terminates calculated by multiplying the target bonus amount by a fraction, the numerator of which is the number of calendar days elapsed
in the year as of the effective date of termination of employment and the denominator of which is 365; and (iv) payment by us of monthly
health insurance premiums. For Mr. Pamir, in the event of such termination, he would be entitled to an amount equal to his then current
base salary for a period of (3) months.
Director
Compensation
The
following table sets forth compensation information with respect to our non-employee directors during our fiscal year ended December
31, 2022:
Name | |
Fees
earned or
paid in
cash
($) | | |
Stock
awards
($)(4) | | |
Option
Awards
($)(4) | | |
All
other
compensation
($) | | |
Total
($) | |
Lawrence Steinman | |
$ | 225,000 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 225,000 | |
Sir Marc Feldmann, Ph.D., M.D. | |
$ | 225,000 | (5) | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 225,000 | |
Larry Gold, Ph.D. | |
$ | 14,375 | | |
$ | 43,125 | (6) | |
$ | 15,255 | (1) | |
$ | - | | |
$ | 72,755 | |
Donald A. McGovern, Jr., MBA | |
$ | 16,875 | | |
$ | 50,625 | (6) | |
$ | 145,254 | (1)(3) | |
$ | - | | |
$ | 212,754 | |
Russell T. Ray, MBA | |
$ | 14,375 | | |
$ | 43,125 | (6) | |
$ | 21,357 | (2) | |
$ | - | | |
$ | 78,857 | |
Teresa DeLuca, M.D., MBA | |
$ | 55,000 | | |
$ | - | | |
$ | 21,357 | (2) | |
$ | - | | |
$ | 76,357 | |
Francis Knuettel II, MBA | |
$ | 55,000 | | |
$ | - | | |
$ | 21,357 | (2) | |
$ | - | | |
$ | 76,357 | |
Pamela G. Marrone, Ph.D. | |
$ | 15,000 | | |
$ | 45,000 | (6) | |
$ | 21,357 | (2) | |
$ | - | | |
$ | 81,357 | |
* |
The table above does not include
the amount of any expense reimbursements paid to the above directors. No directors received any Non-Equity Incentive Plan Compensation
or Nonqualified Deferred Compensation. Does not include perquisites and other personal benefits, or property, unless the aggregate
amount of such compensation is more than $10,000. |
(1) |
On May 19, 2022, we granted
to each of Dr. Gold and Mr. McGovern, options to purchase up to 750 shares of our common stock at an exercise price of $20.34 per
share. The options vest in equal monthly instalments over the 39 months beginning on May 31, 2022, subject to such director’s
continued service to our company on such vesting dates. |
(2) |
On May 19, 2022, we granted
to each of Mr. Ray, Dr. DeLuca, Mr. Knuettel, and Dr. Marrone, options to purchase up to 1,050 shares of our common stock at an exercise
price of $20.34 per share. The options vest in equal monthly instalments over the 39 months beginning on May 31, 2022, subject to
such director’s continued service to our company on such vesting dates. |
(3) |
On May 19, 2022, we granted
to Mr. McGovern options to purchase up to 6,706 shares of our common stock at an exercise price of $27.20 per share. The options
vested immediately upon grant. |
(4) |
Represents the aggregate grant
date fair value of the award computed in accordance with the provisions of Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC) Topic 718. The assumptions used in calculating the aggregate grant date fair value of the awards reported
in this column are set forth in our consolidated financial statements included in this prospectus. The values provided for these
awards are based on applicable accounting standards and do not necessarily reflect the actual amounts realized or realizable. As
of December 31, 2022, the aggregate number of option awards outstanding held by each non-employee director (including vested and
unvested awards) serving on that date was as follows: Lawrence Steinman - 1,250; Prof. Sir Marc Feldmann - 1,250; Larry Gold - 5,000;
Donald A. McGovern, Jr. - 11,706; Russell T. Ray - 5,000; Teresa DeLuca - 5,000; Francis Knuettel II - 5,000; and Pamela G. Marrone
- 5,000. None of the non-executive directors held any unvested stock awards as of December 31, 2021. |
(5) |
Amounts paid were for services
rendered as the Chairman, CEO and Executive Director of CannBioRex, pursuant to the June 2018 Service Agreement (as amended). See
“Service Agreement with Prof. Sir Marc Feldmann” under “Material Agreements — Consulting
Agreements”, in the section entitled “Business”, for more information. |
(6) |
On May 19, 2022, we issued
529 shares of common stock to Dr. Gold, 621 shares of common stock to Mr. McGovern, 529 shares of common stock to Mr. Ray, and 552
shares of common stock to Dr. Marrone, in lieu of quarterly cash fees earned by each director for the quarter ended March 31, 2022.
On July 27, 2022, we issued 654 shares of common stock to Dr. Gold, 767 shares of common stock to Mr. McGovern, 654 shares of common
stock to Mr. Ray, and 682 shares of common stock to Dr. Marrone, in lieu of quarterly cash fees earned by each director for the quarter
ended June 30, 2022. On October 31, 2022, we issued 1,536 shares of common stock to Dr. Gold, 1,803 shares of common stock to Mr.
McGovern, 1,536 shares of common stock to Mr. Ray, and 1,602 shares of common stock to Dr. Marrone, in lieu of quarterly cash fees
earned by each director for the quarter ended September 30, 2022. |
In
connection with each of Mr. Ray’s, Dr. DeLuca’s, Mr. Knuettel’s and Dr. Marrone’s appointment to the Board of
Directors, such persons entered into offer letters with us, dated on or around May 21, 2021 (collectively, the “Offer Letters”).
The Offer Letters set forth the compensation that Mr. Ray, Dr. DeLuca, Mr. Knuettel and Dr. Marrone are entitled to receive, including
a grant of options to purchase $425,000 of value of shares of our common stock (value per share and number of shares determined by the
Black-Scholes calculation on the date of grant)(i.e., options to purchase 3,950 shares of common stock) (the “Initial Option
Grant”), which have been granted to date, and which will vest as to 1/48 of the balance of the option shares upon each month
of service after the date of grant and have an exercise price per share equal to the closing sales price of a share of common stock on
the grant date.
Board
of Director Fees
The
current policy of the Board of Directors is to pay each independent Board Member, in addition to equity compensation as may be approved
from time to time by the Board of Directors and/or Compensation Committee, $40,000 per compensation year as an annual retainer fee payable
to each member of the Board of Directors, plus additional committee fees of $5,000 for each member of the Compensation Committee or Nomination
and Corporate Governance Committee, and $7,500 for each member of the Audit Committee or Risk Committee; $10,000 for the Chairperson
of the Compensation Committee and the Nomination and Corporate Governance Committee and $15,000 for the Chairperson of the Audit Committee
and of the Risk Committee. Additionally, the Lead Director (currently Mr. McGovern) is to receive an additional equity grant each year
valued at $30,000. For independent directors, cash fees are earned and paid one quarter in arrears. The Board of Directors also currently
grants each new independent director an option to purchase 5,000 shares of common stock, at the exercise price equal to the fair market
value on the date of grant as calculated pursuant to the Plan, and such options vesting in equal monthly installments over the 48 months
after the grant date, subject to the holder’s continued service to us on such vesting dates. Due to limitations on the amount of
compensation that can be paid to directors in a compensation year, as defined, new independent directors in 2021 were issued an option
to purchase 3,950 shares of common stock in 2021 and were issued options to purchase an additional 1,050 shares of common stock in 2022
as part of the new independent director grant. In addition, in 2022 Dr. Gold and Mr. McGovern were issued an option to purchase 750 shares
of common stock in 2022 representing the remaining balance of their initial new independent director grant.
The
Board of Directors has not yet initiated a recurring yearly equity compensation grant for independent directors.
BENEFICIAL
OWNERSHIP OF SECURITIES
Security
Ownership of Management and Certain Beneficial Owners and Management
The
following table contains information regarding the beneficial ownership of our voting stock as of April 28, 2023 (the “Date
of Determination”), held by (i) each stockholder known by us to beneficially own more than 5% of the outstanding shares of
any class of voting stock; (ii) our directors; (iii) our Named Executive Officers as defined in the paragraph preceding the Summary Executive
Compensation Table contained elsewhere in this Amendment No. 1 and our current executive officers; and (iv) all current directors and
executive officers as a group. Except where noted, all holders listed below have sole voting power and investment power over the shares
beneficially owned by them. Unless otherwise noted, the address of each person listed below is c/o 180 Life Sciences Corp., 3000 El Camino
Real, Bldg. 4, Suite 200, Palo Alto, California 94306.
Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to
be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares).
In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon
exercise of an option or warrant or upon conversion of a convertible security) within 60 days of the date as of which the information
is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially
owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in
the following table does not necessarily reflect the person’s actual voting power at any particular date.
Beneficial
ownership as set forth below is based on our review of our record stockholders list and public ownership reports filed by certain of
our stockholders, and may not include certain securities held in brokerage accounts or beneficially owned by the stockholders described
below.
Name
and Address of Beneficial Owners | |
Number
of Common Stock Shares Beneficially Owned | | |
Percent
of Common Stock | |
Directors, Executive Officers
and Named Executive Officers | |
| | |
| |
James N.
Woody | |
| 59,443 | (1) | |
| 1.1 | % |
Jonathan Rothbard | |
| 40,939 | (2) | |
| * | |
Ozan Pamir | |
| 11,221 | (3) | |
| * | |
Quan
Anh Vu(a) | |
| 1,025 | | |
| * | |
Lawrence Steinman | |
| 31,379 | (4) | |
| * | |
Marc Feldmann | |
| 141,747 | (4) | |
| 2.7 | % |
Donald A. McGovern,
Jr. | |
| 14,761 | (5) | |
| * | |
Larry Gold | |
| 6,246 | (6) | |
| * | |
Francis Knuettel II | |
| 2,269 | (7) | |
| * | |
Pamela G. Marrone | |
| 5,278 | (7) | |
| * | |
Teresa M. DeLuca | |
| 2,894 | (7)(8) | |
| * | |
Russell T. Ray | |
| 5,223 | (7) | |
| * | |
All
officers and directors as a group (11 persons)(9) | |
| 321,400 | | |
| 5.9 | % |
5% Stockholders | |
| | | |
| | |
None. | |
| | | |
| | |
* |
Less than one percent. |
** |
Percentages based upon 5,317,586
shares of our common stock issued and outstanding at April 28, 2023. |
(a) |
Resigned effective January
15, 2023, but included as a “Named Executive Officer” for fiscal 2022. |
(1) | Includes
options to purchase 57,555 shares of common stock at an exercise price of $88.60 per share,
which have vested, and/or which vest within 60 days of the Date of Determination. |
(2) | Includes
options to purchase 12,916 shares of common stock at an exercise price of $79.00 per share,
which have vested, and/or which vest within 60 days of the Date of Determination. |
(3) | Includes
options to purchase 7,400 shares of common stock at an exercise price of $88.60 per share,
which have vested, and/or which vest within 60 days of the Date of Determination. |
(4) | Includes
options to purchase 1,250 shares of common stock at an exercise price of $79.00 per share,
which have vested, and/or which vest within 60 days of the Date of Determination. |
(5) | Includes
options to purchase 1,250 shares of common stock at an exercise price of $49.80 per share,
options to purchase 1,438 shares of common stock at an exercise price of $7.56, and options
to purchase 6,707 shares of common stock at an exercise price of $27.20 per share, in each
case which have vested, and/or which vest within 60 days of the Date of Determination. |
(6) | Includes
options to purchase 1,250 shares of common stock at an exercise price of $49.80 per share,
and options to purchase 1,438 shares of common stock at an exercise price of $7.56, and options
to purchase 250 shares of common stock at an exercise price of $27.20 per share, in each
case which have vested, and/or which vest within 60 days of the Date of Determination. |
(7) | Includes
options to purchase 1,893 shares of common stock at an exercise price of $151.20 per share,
and options to purchase 350 shares of common stock at an exercise price of $27.20 per share,
in each case which have vested, and/or which vest within 60 days of the Date of Determination. |
(8) | Includes
125 shares of common stock held by Teresa M. DeLuca’s spouse, 125 shares of common
stock held by The Santina Iraggi Irrvoc TR, U/A 11/2/20, an irrevocable trust, of which Teresa
M. DeLuca is beneficiary and trustee, and 125 shares of common stock held by the REV TR FBO
Teresa M Deluca, a revocable trust, of which Teresa M. DeLuca is beneficiary and trustee,
all of which shares Teresa M. DeLuca is deemed to beneficially own. |
(9) | Does
not include the ownership of Quan Vu, who is a Named Executive Officer, but who resigned
from the Company effective January 18, 2023. |
Equity
Compensation Plan Information
The
following table sets forth information, as of December 31, 2022, with respect to our compensation plans under which common stock is authorized
for issuance.
Plan
Category | |
Number
of securities to be issued upon exercise of outstanding options, warrants and rights (A) | | |
Weighted-
average exercise price of outstanding options, warrants and rights (B) | | |
Number
of securities remaining available for future issuance under equity compensation plans (excluding
securities reflected in Column A) (C) | |
Equity compensation
plans approved by stockholders(1) | |
| 149,207 | | |
$ | 85.15 | | |
| 129,388 | |
Equity
compensation plans not approved by stockholders(2) | |
| 3,183 | | |
$ | 105.60 | | |
| - | |
Total | |
| 179,703 | | |
| | | |
| 129,388 | |
(1) | Options
granted and awards available for future issuance under the 2020 OIP (defined below) and 2022
OIP (defined below), each discussed below. |
(2) | This
relates to five-year warrants granted on March 12, 2021, for the purchase of 3,183 shares
of our common stock at an exercise price of $105.60 held by Alliance Global Partners. |
2020
Omnibus Incentive Plan
We
have reserved 185,907 shares of our common stock for grant under our 2020 Omnibus Incentive Plan (“2020 OIP”), of
which 15,861 shares are available for future awards as of the date of this Amendment No. 1.
The
purpose of the 2020 OIP is to promote the interests of the Company and its subsidiaries and its stockholders by (i) attracting and retaining
directors, executive officers, employees and consultants of outstanding ability; (ii) motivating such individuals by means of performance-related
incentives to achieve the longer-range performance goals of the Company and its subsidiaries; and (iii) enabling such individuals to
participate in the long-term growth and financial success of the Company.
Awards
under the 2020 OIP may be made in the form of performance awards, restricted stock, restricted stock units, stock options, which may
be either incentive stock options or non-qualified stock options, stock appreciation rights, other stock-based awards and dividend equivalents.
Awards are generally non-transferable.
2022
Omnibus Incentive Plan
We
have reserved 120,000 shares of our common stock for grant under our 2022 Omnibus Incentive Plan (“2022 OIP”), of
which 113,526 shares are available for future awards as of the date of this Amendment No. 1.
The
purpose of the 2022 OIP is to promote the interests of the Company and its subsidiaries and its stockholders by (i) attracting and retaining
directors, executive officers, employees and consultants of outstanding ability; (ii) motivating such individuals by means of performance-related
incentives to achieve the longer-range performance goals of the Company and its subsidiaries; and (iii) enabling such individuals to
participate in the long-term growth and financial success of the Company.
Awards
under the 2022 OIP may be made in the form of performance awards, restricted stock, restricted stock units, stock options, which may
be either incentive stock options or non-qualified stock options, stock appreciation rights, other stock-based awards and dividend equivalents.
Awards are generally non-transferable.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Except
as discussed below or otherwise disclosed above under “Executive and Director Compensation”, there have been no transactions
over the last two fiscal years, and there is not currently any proposed transaction, in which the Company was or is to be a participant,
where the amount involved exceeds the lesser of (a) $120,000 or (b) one percent of our total assets at year-end for the last two completed
fiscal years, and in which any officer, director, or any stockholder owning greater than five percent (5%) of our outstanding voting
shares, nor any member of the above referenced individual’s immediate family, had or will have a direct or indirect material interest.
Related
Party Agreements
360
Life Sciences Corp. Agreement - Related Party (Acquisition of ReFormation Pharmaceuticals Corp.)
On
July 1, 2020, we entered into an amended agreement with ReFormation Pharmaceuticals, Corp. (“ReFormation”) and 360
Life Sciences Corp. (“360”), whereby 360 has entered into an agreement to acquire 100% ownership of ReFormation, on
or before July 31, 2020 (“Closing Date”). We used to share a director with each of ReFormation and 360. On March 25,
2022, our director resigned from serving on the Board of 360 and he had previously resigned from serving on the Board of Reformation.
Upon the Closing Date, 360 agreed to make tranche payments in tranches to 180 LP in the aggregate amount of $300,000. The parties agreed
that the obligations will be paid by 360 to 180 LP by payments of $100,000 for every $1,000,000 raised through the financing activities
of 360, up to a total of $300,000, however, not less than 10% of all net financing proceeds received by 360 shall be put towards the
obligation to us until paid in full. This transaction closed on July 31, 2020.
On
February 26, 2019, 180 LP entered into a one-year agreement (the “Pharmaceutical Agreement”) with ReFormation, a related
party that shares directors and officers of 180 LP, pursuant to which ReFormation agreed to pay 180 LP $1.2 million for rights of first
negotiation to provide for an acquisition of any arising intellectual property or an exclusive licensing, partnering, or collaboration
transaction to use any arising intellectual property with respect to a contemplated research agreement between us and Oxford (see Oxford
University Agreements, above), which was signed on March 22, 2019 and therefore is the start date of the project. Of the $1.2 million
receivable from Reformation pursuant to the Pharmaceutical Agreement, $0.9 million was received by us on March 14, 2019 and the remaining
$0.3 million was expected to be received over the one-year term of the agreement.
180
LP is recognizing the income earned in connection with the Pharmaceutical Agreement on a straight-line basis over the term of the agreement.
During the years ended December 31, 2022 and 2021, 180 LP recognized no income related to the Pharmaceutical Agreement, which is included
in other income in the accompanying consolidated statement of operations and other comprehensive income loss. As of December 31, 2021,
we charged the $300,000 receivable to bad debt expense.
On
November 17, 2021, we provided notice to 360, which initiated the right of first negotiation term, which expired unexercised on February
1, 2022. As such, we are no longer under any obligation to negotiate with 360.
Notice
of Acceleration
On
December 29, 2020, we received notice from Marlene Krauss, M.D., the former Chief Executive Officer and director of KBL, alleging the
occurrence of an event of default of the terms of a certain promissory note in the amount of $371,178, dated March 15, 2019, evidencing
amounts owed by us to KBL IV Sponsor LLC (of which Dr. Krauss serves as sole managing member), for failure to repay such note within
five days of the release of funds from escrow in connection with the terms of a purchase agreement. Dr. Krauss has declared the entire
amount of the note to be immediately due and payable. The note, pursuant to its terms, accrues damages of $2,000 per day until paid in
full (subject to a maximum amount of damages equal to the principal amount of the note upon the occurrence of the event of default thereunder).
There are continuing disputes regarding amounts that may be due to Dr. Krauss under the note.
Service
Agreement with Prof. Sir Marc Feldmann
See
“Service Agreement with Prof. Sir Marc Feldmann” under “Material Agreements — Consulting
Agreements”, in the section entitled “Business”, above.
Prof.
Jagdeep Nanchahal Consulting Agreement
See
“Prof. Jagdeep Nanchahal Consulting Agreement” under “Material Agreements — Consulting Agreements”,
in the section entitled “Business”, above.
During
the year ended December 31, 2022, we incurred research and development expenses - related parties of $240,731 compared to $2,947,536
incurred for the year ended December 31, 2021, representing a decrease of $2,706,805 or 92%. The decrease includes a decrease in stock-based
compensation expense of $2,300,000; this decrease is comprised of approximately $800,000 paid to Jagdeep Nanchahal in the prior year
for his research in the Phase 2b clinical trial for Dupuytren’s Contracture (RIDD), as well as stock-based compensation expense
of approximately $1,400,000 paid to Mr. Nanchahal in the prior year as well. There was also a decrease in consulting expenses of $460,000.
Prof.
Lawrence Steinman Consultancy Agreement and Consulting Agreement
See
“Consultancy Agreement with Prof. Lawrence Steinman” and “Lawrence Steinman, M.D. Consulting Agreement”
under “Material Agreements — Consulting Agreements”, in the section entitled “Business”,
above.
General
and Administrative - Related Parties
During
the year ended December 31, 2022, we incurred general and administrative expenses - related parties of $5,612 compared to $462,580 incurred
for the year ended December 31, 2021, representing a decrease of $456,968, or 99%. Of the expenses incurred during 2022, these primarily
relate to professional fees paid to current or former officers, directors or greater than 10% investors, or affiliates thereof. Of the
expenses incurred during 2021, approximately $338,000 represents bad debt expense incurred in connection with a receivable from related
parties, and approximately $124,000 represents professional fees paid to current or former officers, directors or greater than 10% investors,
or affiliates thereof.
Interest
Expense on Loans Payable
For
the year ended December 31, 2022, we recognized interest expense and interest income - related parties associated with outstanding loans,
of $14,156 and $1,490, respectively.
For
the year ended December 31, 2021, we recognized interest expense and interest expense - related parties associated with outstanding loans,
of $24,019 and $38,874, respectively.
As
of December 31, 2022, we accrued interest and accrued interest - related parties associated with outstanding loans, of $37,960 and $16,770,
respectively.
As
of December 31, 2021, we accrued interest and accrued interest - related parties associated with outstanding loans, of $24,212 and $812,
respectively.
Accrued
Expenses - Related Parties
Accrued
expenses - related parties was $188,159 as of December 31, 2022 and consists of deferred compensation for certain executives. Accrued
expenses - related parties was $18,370 as of December 31, 2021 and consists of interest accrued on loans and convertible notes due to
certain officers and directors of the Company.
The
aggregate amount of accrued expenses due to related parties as of December 31, 2022, is comprised of amounts due to Prof. Feldmann, Dr.
Steinman, Dr. Rothbard, Dr. Woody and Mr. Pamir for deferred compensation.
Research
and Development Expenses - Related Parties
Research
and Development Expenses - Related Parties of $240,731 and $2,947,536 during the years ended December 31, 2022 and 2021, respectively,
is related to consulting and professional fees paid to current or former officers, directors, or affiliates thereof.
Interest
Expense - Related Parties
During
the year ended December 31, 2022, we recorded $1,508 of interest expense - related parties, which related to interest expense on loans
with officers and directors of the Company.
During
the year ended December 31, 2021, we recorded $50,255 of interest expense - related parties, of which $11,380 related to the convertible
notes with officers and directors of the Company and $38,875 related to interest expense on loans with officers, directors and a greater
than 10% investor of the Company.
Exchanges
of Related Party Loans and Convertible Notes
On
September 30, 2021, Dr. Lawrence Steinman and Prof. Sir Marc Feldmann, Ph.D., each of whom serve as Co-Executive Chairmen of our Board
of Directors, agreed with us to convert amounts owed under outstanding loans with an aggregate principal balance of $693,371 and an aggregate
accrued interest balance of $157,741 into an aggregate of 7,093 shares of our common stock at the conversion price of $120.00 per share,
pursuant to the terms of the agreement, which conversion rate was above the closing consolidated bid price of our common stock on the
date the binding agreement was entered into.
Notes
and Debt Conversion Agreement
We
assumed $270,000 of debt related to convertible notes payable; during the second quarter of 2021 in connection with a reorganization,
we repaid the former CEO of 180 Therapeutics L.P., our wholly-owned subsidiary, a convertible note payable in cash for the principal
amount of $10,000 and $1,873 of accrued interest. During the third quarter of 2021, the $260,000 remaining principal balance of convertible
notes payable owed to an Executive Co-Chairman of the Company, plus $96,208 of related accrued interest, was converted into 2,969 shares
of our common stock, pursuant to a debt conversion agreement dated September 30, 2021.
On
February 10, 2021, we entered into amended loan agreements to modify the terms of certain loan agreements in the aggregate principal
amount of $432,699, previously entered into with Prof. Sir Marc Feldmann and Dr. Lawrence Steinman, the Co-Executive Chairmen of the
Board of Directors. The loan agreements were extended and modified to be paid back at our discretion, either by 1) repayment in cash,
or 2) by converting the outstanding amounts into shares of common stock at the same price per share as the next financing transaction.
Subsequently, on February 25, 2021, and effective as of the date of the original February 10, 2021 amendments, we determined that such
amendments were entered into in error and each of Prof. Sir Feldmann and Dr. Steinman rescinded such February 10, 2021 amendments pursuant
to their entry into Confirmations of Rescission acknowledgements. On April 12, 2021, we entered into amended loan agreements with each
of Prof. Sir Feldmann and Dr. Steinman, which extended the date of all of their outstanding loan agreements to September 30, 2021. On
September 30, 2021, we entered into a Debt Conversion Agreement with Dr. Steinman and Prof. Sir Feldmann, pursuant to which: (x) we and
Dr. Steinman agreed to convert an aggregate of $31,297 owed by us to Dr. Steinman into an aggregate of 261 shares of our common stock;
and (y) we and Prof. Sir Feldmann agreed to convert an aggregate of $819,818 owed by us to Prof. Sir Feldmann into an aggregate of 6,832
shares of our common stock. Pursuant to the Debt Conversion Agreement, each of Dr. Steinman and Prof. Sir Feldmann agreed that the shares
of common stock issuable in connection therewith were in full and complete satisfaction of amounts owed to such persons.
During
the years ended December 31, 2021, we recorded interest expense of $109,767 related to convertible notes payable, In November 2020, 3,164
restricted shares of common stock were issued to insiders (Prof. Sir Feldmann and Dr. Lawrence Steinman) as a result of conversion of
$239,320 of convertible debt.
As
of December 31, 2021, a total of $81,277 of related party loans were outstanding.
Registration
Rights
The
holders of the founder shares and private placement units (and their component securities) and their permitted transferees are entitled
to registration rights pursuant to a registration rights agreement signed on the effective date of our initial public offering (“IPO”).
The holders of these securities and their permitted transferees are entitled to make up to three demands, excluding short form demands,
that we register such securities. In addition, the holders and their permitted transferees have certain “piggy-back” registration
rights with respect to registration statements filed subsequent to our completion of our initial business combination and rights to require
us to register for resale such securities pursuant to Rule 415 under the Securities Act. Notwithstanding the foregoing, the underwriters
may not exercise their demand and “piggyback” registration rights after five (5) and seven (7) years after the effective
date of the registration statement relating to our IPO and may not exercise their demand rights on more than one occasion. Further, the
holders and their permitted transferees have certain “piggy-back” registration rights regarding the shares of our common
stock issuable upon the conversion of a promissory note with respect to the registration statement(s) that we may file pursuant to the
Registration Rights Agreement that we entered into in connection with the June 2020 offering. We satisfied the foregoing registration
rights through the filing of a Registration Statement on Form S-1 (No. 333-248539), which registration statement was declared effective
on November 2, 2020; provided, however, that such registration statement became stale and an updated registration went effective on August
24, 2021. We have an obligation to register shares held by KBL IV Sponsor LLC which shares have not been registered.
Related
Party Litigation
Action
Against Former Executive of KBL
On
September 1, 2021, we initiated legal action in the Chancery Court of Delaware against Dr. Marlene Krauss, the Company’s former
Chief Executive Officer and director (“Dr. Krauss”) and two of her affiliated companies, KBL IV Sponsor, LLC and KBL
Healthcare Management, Inc. (collectively, the “KBL Affiliates”) for, among other things, engaging in unauthorized
monetary transfers of the Company’s assets, non-disclosure of financial liabilities within the Company’s Consolidated Financial
Statements, issuing shares of stock without proper authorization; and improperly allowing stockholder redemptions to take place. Our
complaint alleges causes of action against Dr. Krauss and/or the KBL Affiliates for breach of fiduciary duties, ultra vires acts, unjust
enrichment, negligence and declaratory relief, and seeks compensatory damages in excess of $11,286,570, together with interest, attorneys’
fees and costs. There can be no assurance that we will be successful in our legal actions. As of December 31, 2022, we have a legal accrual
of $125,255 recorded to cover the legal expenses of the former executives of KBL.
On
October 5, 2021, Dr. Krauss and the KBL Affiliates filed an Answer, Counterclaims and Third-Party Complaint (the “Krauss Counterclaims”)
against our Company and twelve individuals who are, or were, directors and/or officers of our Company, i.e., Marc Feldmann, Lawrence
Steinman, James N. Woody, Teresa DeLuca, Frank Knuettel II, Pamela Marrone, Lawrence Gold, Donald A. McGovern, Jr., Russell T. Ray, Richard
W. Barker, Shoshana Shendelman and Ozan Pamir (collectively, the “Third-Party Defendants”). On October 27, 2021, we
and Ozan Pamir filed an Answer to the Krauss Counterclaims, and all of the other Third-Party Defendants filed a Motion to Dismiss as
to the Third-Party Complaint.
On
January 28, 2022, in lieu of filing an opposition to the Motion to Dismiss, Dr. Krauss and the KBL Affiliates filed a Motion for leave
to file amended counterclaims and third-party complaint, and to dismiss six of the current and former directors previously named, i.e.,
to dismiss Teresa DeLuca, Frank Knuettel II, Pamela Marrone, Russell T. Ray, Richard W. Barker and Shoshana Shendelman. The Motion was
granted by stipulation and, on February 24, 2022, Dr. Krauss filed an amended Answer, Counterclaims and Third-Party Complaint (the “Amended
Counterclaims”). In essence, the Amended Counterclaims allege (a) that we and the remaining Third-Party Defendants breached
fiduciary duties to Dr. Krauss by making alleged misstatements against Dr. Krauss in SEC filings and failing to register her shares in
the Company so that they could be traded, and (b) we breached contracts between us and Dr. Krauss for registration of such shares, and
also failed to pay to Dr. Krauss the amounts alleged to be owing under a promissory note in the principal amount of $371,178, plus an
additional $300,000 under Dr. Krauss’s resignation agreement. The Amended Counterclaims seek unspecified amounts of monetary damages,
declaratory relief, equitable and injunctive relief, and attorney’s fees and costs.
On
March 16, 2022, Donald A. McGovern, Jr. and Lawrence Gold filed a Motion to Dismiss the Amended Counterclaims against them, and we and
the remaining Third-Party Defendants filed an Answer to the Amended Counterclaims denying the same. On April 19, 2022, Dr. Krauss stipulated
to dismiss all of her counterclaims and allegations against both Donald A. McGovern, Jr. and Lawrence Gold, thereby mooting their Motion
to Dismiss the Amended Counterclaims against them. The Company and the Third-Party Defendants intend to continue to vigorously defend
against all of the Amended Counterclaims, however, there can be no assurance that they will be successful in the legal defense of such
Amended Counterclaims. In April 2022, Donald A. McGovern, Jr. and Lawrence Gold were dismissed from the lawsuit as parties. Discovery
has not yet commenced in the case. The Company and the Third-Party Defendants intend to continue to vigorously defend against all of
the Amended Counterclaims, however, there can be no assurance that they will be successful in the legal defense of such Amended Counterclaims.
Action
Against the Company by Dr. Krauss
On
August 19, 2021, Dr. Krauss initiated legal action in the Chancery Court of Delaware against us. The original Complaint sought expedited
relief and made the following two claims: (1) it alleged that we are obligated to advance expenses including, attorney’s fees,
to Dr. Krauss for the costs of defending against the SEC and certain Subpoenas served by the SEC on Dr. Krauss; and (2) it alleged that
we are also required to reimburse Dr. Krauss for the costs of bringing this lawsuit against us. On or about September 3, 2021, Dr. Krauss
filed an Amended and Supplemental Complaint (the “Amended Complaint”) in this action, which added the further claims
that Dr. Krauss is also allegedly entitled to advancement by us of her expenses, including attorney’s fees, for the costs of defending
against the Third-Party Complaint in the Tyche Capital LLC action referenced below, and the costs of defending against our own Complaint
against Dr. Krauss as described above. On or about September 23, 2021, we filed our Answer to the Amended Complaint in which we denied
each of Dr. Krauss’ claims and further raised numerous affirmative defenses with respect thereto.
On
November 15, 2021, Dr. Krauss filed a Motion for Summary Adjudication as to certain of the issues in the case, which was opposed by us.
A hearing on such Motion was held on December 7, 2021, and, on March 7, 2022, the Court issued a decision in the matter denying the Motion
for Summary Adjudication in part and granting it in part. The Court then issued an Order implementing such a decision on March 29, 2022.
The parties are now engaging in proceedings set forth in that implementing Order. The Court granted Dr. Krauss’s request for advancement
of some of the legal fees which Dr. Krauss requested in her Motion, and we were required to pay a portion of those fees while we objected
to the remaining portion of disputed fees. These legal fees have been accrued on our balance sheet.
On
October 10, 2022, Dr. Krauss filed an Application to compel us to pay the full amount of fees requested by Dr. Krauss for May-July 2022,
and to modify the Court’s Order. We filed our Opposition thereto. On January 18, 2023, Dr. Krauss filed a Second Application to
compel us to pay the full amount of fees requested by Dr. Krauss for August-October 2022, and to modify the Court’s Order. We filed
our Opposition thereto. Although the Court has indicated that it would consider and rule on both of such Applications concurrently, no
hearing has yet been scheduled by the Court. Notwithstanding any requirement by the Court for us to advance attorneys’ fees to
Dr. Krauss, no adjudication has yet been made as to whether Dr. Krauss will ultimately be entitled to permanently retain such advancements.
We are seeking payment for a substantial portion of such amounts from its director and officers’ insurance policy, of which no
assurance can be provided that the directors and officers insurance policy will cover such amounts. See “Declaratory Relief
Action Against the Company by AmTrust International” below.
On
April 29, 2022 and May 24, 2022, we made payments of $975,122 and $849,122, respectively ($1,824,244 in aggregate) to our former Chief
Executive Officer, Dr. Marlene Krauss, a then greater than 5% stockholder, in settlement of certain claims by Dr. Krauss for the advancement
of expenses incurred by Dr. Krauss in certain pending legal matters to which Dr. Krauss, pursuant to our organizational documents and
Delaware law, was determined to be owed indemnification for. We are seeking payment for a substantial portion of such amounts from its
director and officers’ insurance policy, of which no assurance can be provided that the directors and officers insurance policy
will cover such amounts.
Action
Against Tyche Capital LLC
We
commenced and filed an action against defendant Tyche Capital LLC (“Tyche”) in the Supreme Court of New York, in the
County of New York, on April 15, 2021. In its Complaint, we alleged claims against Tyche arising out of Tyche’s breach of its written
contractual obligations to us as set forth in a “Guarantee And Commitment Agreement” dated July 25, 2019, and a “Term
Sheet For KBL Business Combination With CannBioRex” dated April 10, 2019 (collectively, the “Subject Guarantee”).
We alleges in our Complaint that, notwithstanding demand having been made on Tyche to perform its obligations under the Subject Guarantee,
Tyche has failed and refused to do so, and is currently in debt to us for such failure in the amount of $6,776,686, together with interest
accruing thereon at the rate set forth in the Subject Guarantee.
On
or about May 17, 2021, Tyche responded to our Complaint by filing an Answer and Counterclaims against us alleging that it was us, rather
than Tyche, that had breached the Subject Guarantee. Tyche also filed a Third-Party Complaint against six third-party defendants, including
three members of our management, Prof. Sir Marc Feldmann, Dr. James Woody, and Ozan Pamir (collectively, the “Individual Company
Defendants”), claiming that they allegedly breached fiduciary duties to Tyche with regards to the Subject Guarantee. In that
regard, on June 25, 2021, each of the Individual Company Defendants filed a Motion to Dismiss Tyche’s Third-Party Complaint against
them.
On
November 23, 2021, the Court granted our request to issue an Order of attachment against all of Tyche’s shares of our stock that
had been held in escrow. In so doing, the Court found that we had demonstrated a likelihood of success on the merits of the case based
on the facts alleged in our Complaint.
On
February 18, 2022, Tyche filed an Amended Answer, Counterclaims and Third-Party Complaint. On March 22, 2022, we and each of the Individual
Company Defendants filed a Motion to Dismiss all of Tyche’s claims. A hearing on such Motion to Dismiss was held on August 25,
2022, and the Court granted the Motion to Dismiss entirely as to each of the Individual Company Defendants, and also as to three of the
four Counterclaims brought against us, only leaving Tyche’s declaratory relief claim. On September 9, 2022, Tyche filed a Notice
of Appeal as to the Court’s decision, which has not yet been briefed or adjudicated. On August 26, 2022, Tyche filed a Motion to
vacate or modify our existing attachment Order against Tyche’s shares of the our common stock held in escrow. We have filed our
Opposition thereto, and the Court summarily denied such Motion without hearing on January 3, 2023. Tyche subsequently filed a Notice
of Appeal as to that denial and filed its Opening Brief on January 30, 2023. We filed our opposition brief on March 2, 2023, and no hearing
date has been set. On April 12, 2023, we filed a Motion for Summary Judgment against Tyche. The Court has scheduled a hearing in New
York on such Motion for June 20, 2023.
On
January 30, 2023, we filed a Notice of Motion for Summary Judgment and to Dismiss Affirmative Defenses against Tyche. Tyche has not yet
filed its opposition thereto, and no hearing has yet been set on this matter. We and the Individual Company Defendants intend to continue
to vigorously defend against all of Tyche’s claims, however, there can be no assurance that they will be successful in the legal
defense of such claims. Written discovery proceedings and depositions have occurred among the parties.
Action
Against Ronald Bauer & Samantha Bauer
We
and two of its wholly-owned subsidiaries, Katexco Pharmaceuticals Corp. and CannBioRex Pharmaceuticals Corp. (collectively, the “Company
Plaintiffs”), initiated legal action against Ronald Bauer and Samantha Bauer, as well as two of their companies, Theseus Capital
Ltd. and Astatine Capital Ltd. (collectively, the “Bauer Defendants”), in the Supreme Court of British Columbia on
February 25, 2022. The Company Plaintiffs are seeking damages against the Bauer Defendants for misappropriated funds and stock shares,
unauthorized stock sales, and improper travel expenses, in the combined sum of at least $4,395,000 CAD [$3,178,025 USD] plus the additional
sum of $2,721,036 USD. The Bauer Defendants filed an answer to the Company Plaintiffs’ claims on May 6, 2022. There can be no assurance
that the Company Plaintiffs will be successful in this legal action.
Declaratory
Relief Action Against the Company by AmTrust International
On
June 29, 2022, AmTrust International Underwriters DAC (“AmTrust”), which was the premerger directors’ and officers’
insurance policy underwriter for KBL, filed a declaratory relief action against us in the U.S. District Court for the Northern District
of California (the “Declaratory Relief Action”) seeking declaration of AmTrust’s obligations under the directors’
and officers’ insurance policy. In the Declaratory Relief Action, AmTrust is claiming that as a result of the merger we are no
longer the insured under the subject insurance policy, notwithstanding the fact that the fees which we seek to recover from AmTrust relate
to matters occurring prior to the merger.
On
September 20, 2022, we filed our Answer and Counterclaims against AmTrust for bad faith breach of AmTrust’s insurance coverage
obligations to us under the subject directors’ and officers’ insurance policy, and seeking damages of at least $2 million
in compensatory damages, together with applicable punitive damages. In addition, we brought a Third-Party Complaint against our excess
insurance carrier, Freedom Specialty Insurance Company (“Freedom”) seeking declaratory relief that Freedom will also
be required to honor its policy coverage as soon as the amount of AmTrust’s insurance coverage obligations to us have been exhausted.
On October 25, 2022, AmTrust filed its Answer to our Counterclaims and, on October 27, 2022, Freedom filed its Answer to the Third-Party
Complaint.
On
November 22, 2022, we filed a Motion for Summary Adjudication against both AmTrust and Freedom. The Motion was fully briefed, and a hearing
was held on March 9, 2023. The standard to prevail on a Motion for Summary Adjudication in the Court is high to prevail and requires
a judge to find that there are no disputed issues of fact so that they can rule on the issues as a matter of law. In this instance the
judge found three major issues could be decided as a matter of law in our favor and that one issue, the Change in Control exclusion,
requires further discovery.
On
April 21, 2023, the Court issued an Order Granting in Part and Denying in Part our Motion for Partial Summary Judgment. Specifically,
the Court granted summary adjudication in our favor on the following issues: (a) that we are, in fact, an insured under both the AmTrust
and Freedom insurance policies; (b) that certain SEC subpoena related expenses for defendants Dr. Marlene Krauss, the Company’s
former Chief Executive Officer and Director, and George Hornig, the former Chairman of the Board of Directors, are within the basic scope
of coverage under both the AmTrust and Freedom insurance policies; and (c) that the Insured vs. Insured exclusion relied upon by AmTrust
and Freedom is not applicable to bar any such coverage.
The
Court also found that there were issues of disputed facts as to the Change in Control exclusion contained within the policies, which
therefore precluded the Court from granting the remainder of our requests for summary adjudication as a matter of law. Accordingly, the
Court, at this time, denied our further requests for summary adjudication and deemed that for the time being, the Change in Control issue
is to be determined at the time of trial, in order to find that the policies (i) provide coverage for the fees which we have advanced
and will advance to Dr. Marlene Krauss and George Hornig; (ii) that AmTrust has breached the policy; (iii) that AmTrust must pay such
expenses of the Company; and that, once the AmTrust policy has been exhausted, (iv) Freedom will be obligated to pay such expenses of
the Company pursuant to its policy. We intend to continue to vigorously pursue this final matter in order to establish our entitlement
to full payment by both AmTrust and Freedom of the subject advancement expenses of the Company.
While we continue to believe we have a strong
case against both AmTrust and Freedom, and we believe the Court ruling in our favor in regards to the matters discussed above is a significant
positive outcome for us, there can be no assurance that we will prevail in this action.
Indemnification
Agreements
We
have entered into indemnification agreements with each of our directors and officers. The indemnification agreements and our Certificate
of Incorporation and Bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law.
Related
Party Transaction Policy
Our
Audit Committee must review and approve any related party transaction we propose to enter into. Our Audit Committee charter details the
policies and procedures relating to transactions that may present actual, potential or perceived conflicts of interest and may raise
questions as to whether such transactions are consistent with the best interest of our company and our stockholders. A summary of such
policies and procedures is set forth below.
Any
potential related party transaction that is brought to the Audit Committee’s attention will be analyzed by the Audit Committee,
in consultation with outside counsel or members of management, as appropriate, to determine whether the transaction or relationship does,
in fact, constitute a related party transaction. At its meetings, the Audit Committee will be provided with the details of each new,
existing or proposed related party transaction, including the terms of the transaction, the business purpose of the transaction and the
benefits to us and to the relevant related party.
In
determining whether to approve a related party transaction, the Audit Committee must consider, among other factors, the following factors
to the extent relevant:
| ● | whether
the terms of the transaction are fair to us and on the same basis as would apply if the transaction
did not involve a related party; |
| | |
| ● | whether
there are business reasons for us to enter into the transaction; |
| | |
| ● | whether
the transaction would impair the independence of an outside director; and |
| | |
| ● | whether
the transaction would present an improper conflict of interest for any director or executive
officer. |
Any
member of the Audit Committee who has an interest in the transaction under discussion must abstain from any voting regarding the transaction,
but may, if so, requested by the Chairman of the Audit Committee, participate in some or all of the Audit Committee’s discussions
of the transaction. Upon completion of its review of the transaction, the Audit Committee may determine to permit or to prohibit the
transaction.
Director
Independence
In
evaluating the independence of each of our directors and director nominees, the Board of Directors considers transactions and relationships
between each director or nominee, or any member of his or her immediate family, and us and our subsidiaries and affiliates. The Board
of Directors also examines transactions and relationships between directors and director nominees or their known affiliates and members
of our senior management and their known affiliates. The purpose of this review is to determine whether any such relationships or transactions
are inconsistent with a determination that the director is independent under applicable laws and regulations and Nasdaq listing standards.
Our
Board of Directors has affirmatively determined that each of Donald A. McGovern, Jr., MBA, Larry Gold, Ph.D., Russell T. Ray, MBA, Teresa
M. DeLuca, M.D., MBA, Pamela G. Marrone, Ph.D. and Francis Knuettel II, MBA is an independent director as defined under the Nasdaq rules
governing members of boards of directors and as defined under Rule 10A-3 of the Exchange Act, and has no relationship that would interfere
with the exercise of independent judgment in carrying out the responsibilities of a director.
Furthermore,
the Board of Directors has determined that each of the members of our Audit Committee, Compensation Committee, Nominating and Corporate
Governance Committee, and Risk, Safety and Regulatory Committee is independent within the meaning of Nasdaq director independence standards
applicable to members of such committees, as currently in effect.
The
Compensation Committee members also qualify as “non-employee directors” within the meaning of Section 16 of the Exchange
Act.
SELLING
STOCKHOLDER
The
Shares being offered by the Selling Stockholder consists of: (i) 306,604 Shares issuable upon the exercise of the July 2022 Common Warrants;
(ii) 2,571,429 Shares issuable upon the exercise of the December 2022 Common Warrants; and (iii) 1,570,680 Shares issuable upon the exercise
the April 2023 Common Warrants. For additional information regarding the July 2022 Common Warrants, the December 2022 Common Warrants
and the April 2023 Common Warrants, see the section entitled “Description of Securities” below. We are registering
the Shares in order to permit the Selling Stockholder to offer the Shares for resale from time to time.
The table below lists the Selling Stockholder
and other information regarding the beneficial ownership of the shares of our common stock by the Selling Stockholder. The second column
lists the number of shares of common stock beneficially owned by the Selling Stockholder, based on their ownership of the shares of common
stock and Warrants, as of May 4, 2023, assuming exercise of the Warrants held by the Selling Stockholder on that date, if any, without
regard to any limitations on exercises. The third column lists the shares of common stock being offered by this prospectus by the Selling
Stockholder. The fourth column assumes the sale of all of the Shares offered by the Selling Stockholder pursuant to this prospectus.
Under
the terms of each of the Warrants, the Selling Stockholder may not exercise the warrants to the extent such exercise would cause the
Selling Stockholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which
would exceed 4.99%, of our then outstanding common stock following such exercise, excluding for purposes of such determination shares
of common stock issuable upon exercise of such Warrants which have not been exercised. The number of shares of common stock in the second
and fourth columns do not reflect this limitation.
The
Selling Stockholder may sell all, some or none of their Shares in this offering. See “Plan of Distribution.”
Name
of Selling Stockholder | |
Number
of Shares of Common Stock Owned Prior to
this Offering | | |
Maximum
Number of Shares of Common to be Sold Pursuant to this Prospectus | | |
Number
of Shares of Common Stock Owned After this Offering | |
Armistice Capital Master Fund Ltd.(1) | |
| 4,448,713 | | |
| 4,448,713 | | |
| 0 | |
(1) | The
shares of common stock being offered pursuant to this prospectus consist of (i) 306,604 Shares
issuable upon the exercise of the July 2022 Common Warrants, (ii) 2,571,429 Shares issuable
upon the exercise of the December 2022 Common Warrants, and (iii) 1,570,680 Shares issuable
upon the exercise the April 2023 Common Warrants, all of which are directly held by Armistice
Capital Master Fund Ltd., a Cayman Islands exempted company (the “Master Fund”),
and may be deemed to be indirectly beneficially owned by: (i) Armistice Capital, LLC (“Armistice
Capital”), as the investment manager of the Master Fund; and (ii) Steven Boyd,
as the Managing Member of Armistice Capital. Armistice Capital and Steven Boyd disclaim beneficial
ownership of the securities except to the extent of their respective pecuniary interests
therein. Each of the July 2022 Common Warrants, the December 2022 Common Warrants and the
April 2023 Common Warrants are subject to a beneficial ownership limitation of 4.99% (in
each case, the “beneficial ownership limitation”), which limitations preclude
the Master Fund from exercising any portion of such Warrants to the extent that, following
such exercise, the Master Fund’s ownership of our common stock would exceed the applicable
beneficial ownership limitation. The address of the Master Fund is c/o Armistice Capital,
LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022. |
PLAN
OF DISTRIBUTION
The
Selling Stockholder and any of their pledgees, assignees, transferees and successors-in-interest may, from time to time, sell any or
all of the Shares covered hereby on Nasdaq or any other stock exchange, market or trading facility on which the securities are traded
or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the
following methods when selling securities:
| ● | ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| | |
| ● | block
trades in which the broker-dealer will attempt to sell the securities as agent but may position
and resell a portion of the block as principal to facilitate the transaction; |
| | |
| ● | purchases
by a broker-dealer as principal and resale by the broker-dealer for its account; |
| | |
| ● | an
exchange distribution in accordance with the rules of the applicable exchange; |
| | |
| ● | privately
negotiated transactions; |
| | |
| ● | settlement
of short sales; |
| | |
| ● | in
transactions through broker-dealers that agree with the Selling Stockholder to sell a specified
number of such securities at a stipulated price per security; |
| | |
| ● | through
the writing or settlement of options or other hedging transactions, whether through an options
exchange or otherwise; |
| | |
| ● | a
combination of any such methods of sale; or |
| | |
| ● | any
other method permitted pursuant to applicable law. |
The
Selling Stockholder may also sell the Shares under Rule 144 or any other exemption from registration under the Securities Act, if available,
rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser)
in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in
excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or
markdown in compliance with FINRA Rule 2121.
In
connection with the sale of the Shares or interests therein, the Selling Stockholder may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the Shares in the course of hedging the positions they assume.
The Selling Stockholder may also sell the Shares short and deliver the Shares to close out their short positions, or loan or pledge the
securities to broker-dealers that in turn may sell the Shares. The Selling Stockholder may also enter into option or other transactions
with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer
or other financial institution of the Shares offered by this prospectus, which Shares such broker-dealer or other financial institution
may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The
Selling Stockholder and any broker-dealers or agents that are involved in selling the Shares may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the Shares purchased by them may be deemed to be underwriting commissions or discounts under
the Securities Act. The Selling Stockholder has informed us that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the Shares.
We
are required to pay certain fees and expenses incurred by us incident to the registration of the Shares. We have agreed to indemnify
the Selling Stockholder against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
We
agreed to keep this prospectus effective until the earlier of (i) the date on which the Shares underlying the April 2023 Common Warrants
may be resold by the Selling Stockholder without registration and without regard to any volume or manner-of-sale limitations by reason
of Rule 144, without the requirement for our company to be in compliance with the current public information requirement under Rule 144
under the Securities Act or any other rule of similar effect or (ii) all of the Shares underlying the April 2023 Common Warrants have
been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities
will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition,
in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously
engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common
stock by the Selling Stockholder or any other person. We will make copies of this prospectus available to the Selling Stockholder and
have informed it of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
DESCRIPTION
OF SECURITIES
Authorized
Capital Stock
The
following summary of the material terms of our capital stock is not intended to be a complete summary of the rights and preferences of
such securities. We urge you to read our Certificate of Incorporation in its entirety for a complete description of the rights and preferences
of our securities.
On December 15, 2022, we filed a Certificate of
Amendment to our Certificate of Incorporation to effect the Reverse Stock Split. The number
of shares of authorized stock remained unchanged at 100,000,000 shares of our common stock and 5,000,000 shares of our preferred stock,
par value $0.0001. As of May 4, 2023, 5,317,586 shares of our common stock were outstanding. As of May 4, 2023, 1,000,000 shares of preferred
stock have been designated as Series A Convertible Preferred Stock (of which none are outstanding, and of which 1,000,000 shares were
previously issued and subsequently converted into an aggregate of 1,619,144 shares of common stock in 2020), one share of preferred stock
has been designated as a Class C Special Voting Share, of which one is outstanding, and one share of preferred stock has been designated
as a Class K Special Voting Share, of which one is outstanding. As of May 4, 2023, there were 138 holders of record of our common stock.
The following description summarizes the material terms of our securities. Because it is only a summary, it may not contain all the information
that is important to you.
Common
Stock
Except
as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders
of our common stock possess all voting power for the election of our directors and all other matters requiring stockholder action and
will at all times vote together as one class on all matters submitted to a vote of our stockholders. Holders of common stock are entitled
to one vote per share on matters to be voted on by stockholders and do not have the right to cumulate votes in the election of directors.
Holders
of common stock will be entitled to receive dividends and other distributions, if any, in amounts declared from time to time by our Board
of Directors in its discretion out of funds legally available therefor and shall share equally on a per share basis in these dividends
and distributions.
In
the event of our voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock
will be entitled to receive an equal amount per share of all of our assets of whatever kind available for distribution to stockholders,
after the rights of the holders of the preferred stock, if any, have been satisfied.
Our
stockholders have no preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to our
common stock.
Our
Board of Directors is divided into two classes, with only one class of directors being elected in each year and each class generally
serving a two-year term.
Preferred
Stock
Our
Certificate of Incorporation provides that shares of preferred stock may be issued from time to time in one or more series. Our Board
of Directors will be authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional
or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. Our Board
of Directors will be able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect
the voting power and other rights of the holders of the common stock and could have anti-takeover effects. The ability of our Board of
Directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of
control of the Company or the removal of existing management.
Warrants
The following
summaries of the material terms of the July 2022 Common Warrants, the December 2022 Common Warrants and the April 2023 Common Warrants
are not intended to be complete summaries of the rights and preferences of such Warrants. We urge you to read each of the Warrants in
their entirety for a complete description of the rights and preferences of each of the Warrants.
July
2022 Common Warrants
On
July 17, 2022, we entered into the July 2022 SPA with the Selling Stockholder pursuant to which we agreed, among other things, to sell
the July 2022 Common Warrants to purchase up to 306,604 shares of common stock. The resale of the 306,604 Shares issuable upon the exercise
of the July 2022 Common Warrants is being registered by the registration statement of which this prospectus forms a part. The July 2022
Common Warrants, as amended, have an exercise price equal to $1.78, became immediately exercisable on January 20, 2023 and remain exercisable
until October 10, 2028. The exercise price and number of shares of common stock issuable upon exercise of the July 2022 Common Warrants
is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our common
stock and the exercise price. The July 2022 Common Warrants are subject to a provision prohibiting the exercise of such July 2022 Common
Warrants to the extent that, after giving effect to such exercise, the holder of such July 2022 Common Warrants (together with the holder’s
affiliates, and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially
own in excess of 4.99% of the outstanding common stock (which may be increased to 9.99% on a holder by holder basis, with 61 days prior
written consent of the applicable holder).
December
2022 Common Warrants
On
December 20, 2022, we entered into the December 2022 SPA with the Selling Stockholder pursuant to which we agreed, among other things,
to sell the December 2022 Common Warrants to purchase up to 2,571,429 shares of common stock The
resale of the 2,571,429 Shares issuable upon the exercise of the December 2022 Common Warrants is being registered by the registration
statement of which this prospectus forms a part. The December 2022 Common Warrants, as amended, have an exercise price equal to
$1.78, became exercisable on January 12, 2023 and remain exercisable until October 10, 2028. The exercise price and number of shares
of common stock issuable upon exercise of the December 2022 Common Warrants is subject to appropriate adjustment in the event of stock
dividends, stock splits, reorganizations or similar events affecting our common stock and the exercise price. The December 2022 Common
Warrants are subject to a provision prohibiting the exercise of such December 2022 Common Warrants to the extent that, after giving effect
to such exercise, the holder of such December 2022 Common Warrants (together with the holder’s affiliates, and any other persons
acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% of the
outstanding common stock (which may be increased to 9.99% on a holder by holder basis, with 61 days prior written consent of the applicable
holder).
April
2023 Common Warrants
On
April 5, 2022, we entered into the April 2023 SPA with the Selling Stockholder pursuant to which we agreed, among other things, to sell,
in a private placement, the April 2023 Common Warrants to purchase up to 1,570,680 shares of common stock. The resale of the 1,570,680
Shares issuable upon the exercise of the April 2023 Common Warrants is being registered by the registration statement of which this prospectus
forms a part. The April 2023 Common Warrants have an exercise price equal to $1.78, were immediately exercisable and remain exercisable
until October 10, 2028. The exercise price and number of shares of common stock issuable upon exercise of the April
2023 Common Warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar
events affecting our common stock and the exercise price. The April 2023 Common Warrants are subject to a provision prohibiting the exercise
of such April 2023 Common Warrants to the extent that, after giving effect to such exercise, the holder of such April 2023 Common Warrants
(together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the holder’s
affiliates), would beneficially own in excess of 4.99% of the outstanding common stock (which may be increased to 9.99% on a holder by
holder basis, with 61 days prior written consent of the applicable holder). Pursuant to the April 2023 SPA, we also agreed to file a
registration statement with the SEC to register the resale of the 1,570,680 Shares issuable upon exercise of the April 2023 Common Warrants.
Our
Transfer Agent and Warrant Agent
The
transfer agent for our common stock and warrant agent for our Warrants is Continental Stock Transfer & Trust Company. We have agreed
to indemnify Continental Stock Transfer & Trust Company in its roles as transfer agent and warrant agent, its agents and each of
its stockholders, directors, officers and employees against all liabilities, including judgments, costs and reasonable counsel fees that
may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence,
willful misconduct or bad faith of the indemnified person or entity.
Certain
Anti-Takeover Provisions of Delaware Law and our Certificate of Incorporation and Bylaws
We
are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”) regulating corporate
takeovers. This statute prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination”
with:
| ● | a
stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an “interested
stockholder”); |
| | |
| ● | an
affiliate of an interested stockholder; or |
| | |
| ● | an
associate of an interested stockholder, for three years following the date that the stockholder
became an interested stockholder. |
A
“business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of Section
203 do not apply if:
| ● | our
Board of Directors approves the transaction that made the stockholder an “interested
stockholder,” prior to the date of the transaction; |
| | |
| ● | after
the completion of the transaction that resulted in the stockholder becoming an interested
stockholder, that stockholder owned at least 85% of our voting stock outstanding at the time
the transaction commenced, other than statutorily excluded shares of common stock; or |
| | |
| ● | on
or subsequent to the date of the transaction, the business combination is approved by our
Board of Directors and authorized at a meeting of our stockholders, and not by written consent,
by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by
the interested stockholder. |
Our
Certificate of Incorporation provides that our Board of Directors be classified into two classes of directors. As a result, in most circumstances,
a person can gain control of our Board of Directors only by successfully engaging in a proxy contest at two or more annual meetings.
Our
authorized but unissued common stock and preferred stock are available for future issuances without stockholder approval and could be
utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit
plans. The existence of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage
an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Securities
Eligible for Future Sale
Rule
144
Pursuant
to Rule 144, a person who has beneficially owned restricted shares of our common stock or warrants for at least six months would be entitled
to sell their securities provided that (i) such person is not deemed to have been one of our affiliates at the time of, or at any time
during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three
months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such
shorter period as we were required to file reports) preceding the sale.
Persons
who have beneficially owned restricted shares of our common stock or warrants for at least six months but who are our affiliates at the
time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person
would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
| ● | 1%
of the total number of shares of common stock then outstanding; or |
| | |
| ● | the
average weekly reported trading volume of the common stock during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to the sale. |
Sales
by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current
public information about us.
Restrictions
on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule
144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell
companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to
this prohibition if the following conditions are met:
| ● | the
issuer of the securities that was formerly a shell company has ceased to be a shell company; |
| | |
| ● | the
issuer of the securities is subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act; |
| | |
| ● | the
issuer of the securities has filed all Exchange Act reports and material required to be filed,
as applicable, during the preceding 12 months (or such shorter period that the issuer was
required to file such reports and materials), other than Form 8-K reports; and |
| | |
| ● | at
least one year has elapsed from the time that the issuer filed current Form 10 type information
with the SEC reflecting its status as an entity that is not a shell company. |
Stock
Exchange Listing
Our
common stock is currently listed on Nasdaq under the symbol “ATNF”.
LEGAL
MATTERS
Certain
legal matters relating to the validity of the Shares offered by this prospectus will be passed upon for us by DLA Piper LLP (US), Philadelphia,
Pennsylvania.
EXPERTS
The
consolidated financial statements of 180 Life Sciences Corp. and its subsidiaries as of December 31, 2022 and 2021 and for each of the
two years in the period ended December 31, 2022, included in this prospectus for the year ended December 31, 2022, have been so included
in reliance on the report, which includes an explanatory paragraph as to the 180 Life Sciences Corp.’s ability to continue as a
going concern, of Marcum LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing
and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the
public over the Internet at the SEC’s website at http://www.sec.gov. Copies of certain information filed by us with the SEC are
also available, free of charge, on our website at www.180lifesciences.com. Our website is not a part of this prospectus and is not incorporated
by reference in this prospectus.
This
prospectus is part of a registration statement that we filed with the SEC. This prospectus omits some information contained in the registration
statement in accordance with SEC rules and regulations. You should review the information and exhibits in the registration statement
for further information about us and our subsidiaries and the securities we are offering. Statements in this prospectus concerning any
document we filed as an exhibit to the registration statement or that we otherwise filed with the SEC are not intended to be comprehensive
and are qualified by reference to these filings. You should review the complete document to evaluate these statements.
180
LIFE SCIENCES CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2022 AND 2021
TABLE
OF CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
180 Life Sciences Crop.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of 180
Life Sciences Crop. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive
income (loss), changes in stockholders equity and cash flows for each of the two years in the period ended December 31, 2022, and the
related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United
States of America.
Explanatory Paragraph Going Concern
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency,
has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions
raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Valuation of In Process Research and Development assets and impairment
Description of the Matter
As discussed in Note 3 and 5 to the consolidated financial statements,
the Company tests In-Process Research and Development assets (IPR&D) for impairment annually (or under certain circumstances, more
frequently) at each IPR&D component level using either a qualitative or quantitative approach. In assessing IPR&D assets for impairment,
the Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of its IPR&D
assets is less than its carrying value. Under the quantitative approach to test for IPR&D assets impairment, the Company compares
the fair value of IPR&D assets at each asset components level to their net carrying value. Generally, the Company estimates
the fair value of its IPR&D at each asset components level using a Multi-Period Excess Earnings Method.
Auditing the Companys quantitative impairment tests involved subjective
auditor judgment due to the significant estimation required in managements determination of the fair value of the IPR&D. The significant
estimation was primarily due to the sensitivity of the underlying assumptions including projected revenue based on market projections,
probability of approval, EBITDA margins and the weighted average cost of capital, discount rate, royalty rate, contributory charges. These
assumptions relate to the expected future earnings of the Companys IPR&D assets, are forward-looking, and are sensitive to and affected
by economic, industry and company-specific qualitative factors.
How We Addressed the Matter in Our Audit
To evaluate the estimated fair value of the Companys IPR&D assets,
we performed audit procedures that included, among others, evaluating the valuation methodologies used and testing the significant assumptions
discussed above used by the Company in its analysis. We involved our valuation specialists to assist in testing the significant assumptions
and complex valuation method used by the Company. We also compared the significant assumptions to the companys historical estimate, actual
performance, current industry, market and economic trends.
/s/ Marcum llp
Marcum llp
We have served as the Companys auditor since 2019
San Francisco, CA
March 31, 2023
PCAOB ID #688
180 LIFE SCIENCES CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in US Dollars)
|
|
December 31, |
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Assets |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash |
|
$ |
6,970,110 |
|
|
$ |
8,224,508 |
|
Prepaid expenses and other current assets |
|
|
1,958,280 |
|
|
|
2,976,583 |
|
Total Current Assets |
|
|
8,928,390 |
|
|
|
11,201,091 |
|
Intangible assets, net |
|
|
1,658,858 |
|
|
|
1,948,913 |
|
In-process research and development |
|
|
9,063,000 |
|
|
|
12,575,780 |
|
Goodwill |
|
|
- |
|
|
|
36,987,886 |
|
Total Assets |
|
$ |
19,650,248 |
|
|
$ |
62,713,670 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,801,210 |
|
|
$ |
586,611 |
|
Accrued expenses |
|
|
2,284,516 |
|
|
|
1,964,580 |
|
Accrued expenses - related parties |
|
|
188,159 |
|
|
|
18,370 |
|
Loans payable - current portion |
|
|
1,308,516 |
|
|
|
1,828,079 |
|
Loans payable - related parties |
|
|
- |
|
|
|
81,277 |
|
Derivative liabilities |
|
|
75,381 |
|
|
|
15,220,367 |
|
Total Current Liabilities |
|
|
5,657,782 |
|
|
|
19,699,284 |
|
Loans payable - noncurrent portion |
|
|
31,189 |
|
|
|
48,165 |
|
Deferred tax liability |
|
|
2,617,359 |
|
|
|
3,643,526 |
|
Total Liabilities |
|
|
8,306,330 |
|
|
|
23,390,975 |
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 5,000,000 shares authorized; (see designations and shares authorized for Series A, Class C and Class K preferred stock) |
|
|
|
|
|
|
|
|
Class C Preferred Stock; 1 share authorized, issued and outstanding at December 31, 2022 and 2021 |
|
|
- |
|
|
|
- |
|
Class K Preferred Stock; 1 share authorized, issued and outstanding at December 31, 2022 and 2021 |
|
|
- |
|
|
|
- |
|
Common stock, $0.0001 par value; 100,000,000 shares authorized; 3,746,906 and 1,701,799 shares issued and outstanding at December 31, 2022 and 2021, respectively |
|
|
375 |
|
|
|
170 |
|
Additional paid-in capital |
|
|
121,637,611 |
|
|
|
107,187,371 |
|
Accumulated other comprehensive income |
|
|
(2,885,523 |
) |
|
|
817,440 |
|
Accumulated deficit |
|
|
(107,408,545 |
) |
|
|
(68,682,286 |
) |
Total Stockholders’ Equity |
|
|
11,343,918 |
|
|
|
39,322,695 |
|
Total Liabilities and Stockholders’ Equity |
|
$ |
19,650,248 |
|
|
$ |
62,713,670 |
|
The accompanying notes are an integral part of
these consolidated financial statements.
180 LIFE SCIENCES CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(Expressed in US Dollars)
| |
For the Year Ended | |
| |
December
31, | |
| |
2022 | | |
2021 | |
Operating Expenses: | |
| | |
| |
Research and development | |
$ | 2,191,834 | | |
$ | 1,000,769 | |
Research and development - related
parties | |
| 240,731 | | |
| 2,947,536 | |
General and administrative | |
| 15,459,788 | | |
| 11,230,118 | |
General and
administrative - related parties | |
| 5,612 | | |
| 462,580 | |
Total Operating
Expenses | |
| 17,897,965 | | |
| 15,641,003 | |
Loss From
Operations | |
| (17,897,965 | ) | |
| (15,641,003 | ) |
| |
| | | |
| | |
Other (Expenses) Income: | |
| | | |
| | |
Gain on settlement of liabilities | |
| - | | |
| 926,829 | |
Other expense | |
| - | | |
| (146,822 | ) |
Interest expense | |
| (26,667 | ) | |
| (186,208 | ) |
Loss on extinguishment of convertible
notes payable, net | |
| - | | |
| (9,737 | ) |
Loss on goodwill impairment | |
| (33,547,278 | ) | |
| - | |
Loss on IP R&D impairment | |
| (3,342,084 | ) | |
| - | |
Change in fair value of derivative
liabilities | |
| 15,144,986 | | |
| (4,677,388 | ) |
Change in fair value of accrued issuable
equity | |
| - | | |
| (9,405 | |
Offering costs
allocated to warrant liabilities | |
| - | | |
| (604,118 | |
Total Other
Expense, Net | |
| (21,771,043 | ) | |
| (4,706,849 | ) |
Loss Before
Income Taxes | |
| (39,669,008 | ) | |
| (20,347,852 | ) |
Income tax
benefit | |
| 942,749 | | |
| 23,204 | |
Net
Loss Attributable to Common Stockholders | |
$ | (38,726,259 | ) | |
$ | (20,324,648 | ) |
| |
| | | |
| | |
Other Comprehensive (Loss) Income: | |
| | | |
| | |
Foreign currency
translation adjustments | |
| (3,702,963 | ) | |
| 180,554 | |
Total
Comprehensive Loss | |
$ | (42,429,222 | ) | |
$ | (20,144,094 | ) |
| |
| | | |
| | |
Basic and Diluted
Net Loss per Common Share | |
$ | (20.38 | ) | |
$ | (12.96 | ) |
| |
| | | |
| | |
Weighted Average Number of Common
Shares Outstanding: | |
| 1,900,397 | | |
| 1,567,772 | |
The accompanying notes are an integral part of
these consolidated financial statements.
180 LIFE SCIENCES CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
(Expressed in US Dollars)
|
|
For The Year Ended December 31, 2022 |
|
|
|
|
|
|
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated
Other
Comprehensive |
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Deficit |
|
|
Equity |
|
Balance - January 1, 2022 |
|
|
1,701,799 |
|
|
$ |
170 |
|
|
$ |
107,187,371 |
|
|
$ |
817,440 |
|
|
$ |
(68,682,286 |
) |
|
$ |
39,322,695 |
|
Adjustments related to reverse stock-split |
|
|
9,591 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of July 2022 pre-funded warrants |
|
|
- |
|
|
|
- |
|
|
|
2,562,265 |
|
|
|
- |
|
|
|
- |
|
|
|
2,562,265 |
|
Shares issued from exercise of July 2022 pre-funded warrants |
|
|
131,604 |
|
|
|
13 |
|
|
|
250 |
|
|
|
- |
|
|
|
- |
|
|
|
263 |
|
Shares issued in connection with July 2022 Offering |
|
|
175,000 |
|
|
|
18 |
|
|
|
3,407,472 |
|
|
|
- |
|
|
|
- |
|
|
|
3,407,490 |
|
Issuance of December 2022 pre-funded warrants |
|
|
- |
|
|
|
- |
|
|
|
4,823,187 |
|
|
|
- |
|
|
|
- |
|
|
|
4,823,187 |
|
Shares issued from exercise of December 2022 pre-funded warrants |
|
|
1,499,286 |
|
|
|
150 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
150 |
|
Shares issued in connection with December 2022 Offering |
|
|
215,000 |
|
|
|
22 |
|
|
|
691,651 |
|
|
|
- |
|
|
|
- |
|
|
|
691,673 |
|
Shares issued for professional services to directors |
|
|
14,026 |
|
|
|
1 |
|
|
|
331,590 |
|
|
|
- |
|
|
|
- |
|
|
|
331,591 |
|
Stock-based compensation |
|
|
600 |
|
|
|
- |
|
|
|
2,633,826 |
|
|
|
- |
|
|
|
- |
|
|
|
2,633,826 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(38,726,259 |
) |
|
|
(38,726,259 |
) |
Other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,702,963 |
) |
|
|
- |
|
|
|
(3,702,963 |
) |
Balance - December 31, 2022 |
|
|
3,746,906 |
|
|
$ |
375 |
|
|
$ |
121,637,611 |
|
|
$ |
(2,885,523 |
) |
|
$ |
(107,408,545 |
) |
|
$ |
11,343,918 |
|
The accompanying notes are an integral part of
these consolidated financial statements.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY, continued
(Expressed in US Dollars)
| |
For The Year Ended December 31,
2021 | |
| |
Common Stock | | |
Additional Paid-in | | |
Accumulated Other Comprehensive | | |
Accumulated | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Deficit | | |
Equity | |
Balance - January 1, 2021 | |
| 1,308,562 | | |
$ | 131 | | |
$ | 78,007,490 | | |
$ | 636,886 | | |
$ | (48,357,638 | ) | |
$ | 30,286,869 | |
Shares issued upon conversion of KBL debt (Note 10) | |
| 23,357 | | |
| 2 | | |
| 1,941,123 | | |
| - | | |
| - | | |
| 1,941,125 | |
Shares issued upon conversion of 180 debt (Note 10) | |
| 7,920 | | |
| 1 | | |
| 432,382 | | |
| - | | |
| - | | |
| 432,383 | |
Shares issued in connection with the financing, net of financing
costs (Note 12) | |
| 128,200 | | |
| 13 | | |
| 10,731,057 | | |
| - | | |
| - | | |
| 10,731,070 | |
Offering costs allocated to warrant liabilities (Note 12) | |
| - | | |
| - | | |
| 604,118 | | |
| - | | |
| - | | |
| 604,118 | |
Warrants issued in connection with private offering, reclassified
to derivative liabilities (Note 8) | |
| - | | |
| - | | |
| (7,294,836 | ) | |
| - | | |
| - | | |
| (7,294,836 | ) |
Shares issued upon exchange of common stock equivalents (Note
12) | |
| 87,253 | | |
| 9 | | |
| (9 | ) | |
| - | | |
| - | | |
| - | |
Shares issued to settle accounts payable (Note 11) | |
| 11,250 | | |
| 1 | | |
| 1,973,249 | | |
| - | | |
| - | | |
| 1,973,250 | |
Shares issued in connection with the August 2021 Offering,
net of financing costs (Note 12) | |
| 125,000 | | |
| 13 | | |
| 13,879,987 | | |
| - | | |
| - | | |
| 13,880,000 | |
Shares issued to settle convertible debt and derivative liabilities
with Alpha Capital (Note 10) | |
| 7,500 | | |
| 1 | | |
| 1,060,499 | | |
| - | | |
| - | | |
| 1,060,500 | |
Shares issued in connection with the repayment of related party
loans and convertible notes (Note 12) | |
| 7,093 | | |
| 1 | | |
| 851,111 | | |
| - | | |
| - | | |
| 851,112 | |
Stock based compensation (Note 12): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock | |
| 15,878 | | |
| 2 | | |
| 2,148,887 | | |
| - | | |
| - | | |
| 2,148,889 | |
Options | |
| - | | |
| - | | |
| 2,852,309 | | |
| - | | |
| - | | |
| 2,852,309 | |
Shares Cancelled | |
| (20,214 | ) | |
| (4 | ) | |
| 4 | | |
| - | | |
| - | | |
| - | |
Comprehensive income (loss): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (20,324,648 | ) | |
| (20,324,648 | ) |
Other comprehensive income | |
| - | | |
| - | | |
| - | | |
| 180,554 | | |
| - | | |
| 180,554 | |
Balance - December 31, 2021 | |
| 1,701,799 | | |
$ | 170 | | |
$ | 107,187,371 | | |
$ | 817,440 | | |
$ | (68,682,286 | ) | |
$ | 39,322,695 | |
The accompanying notes are an integral part of
these consolidated financial statements.
180 LIFE SCIENCES
CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Expressed in US Dollars)
| |
For the Years Ended | |
| |
December
31, | |
| |
2022 | | |
2021 | |
Cash Flows From Operating Activities | |
| | |
| |
Net loss | |
$ | (38,726,259 | ) | |
$ | (20,324,648 | ) |
Adjustments to reconcile net loss
to net cash used in operating activities: | |
| | | |
| | |
Stock-based compensation | |
| | | |
| | |
Shares issued for services | |
| 331,591 | | |
| 2,148,889 | |
Amortization of stock options and
restricted stock units | |
| 2,633,826 | | |
| 2,852,309 | |
Impairment of goodwill | |
| 33,547,278 | | |
| - | |
Impairment of IP R&D assets | |
| 3,342,084 | | |
| | |
Amortization of intangibles | |
| 109,004 | | |
| 109,947 | |
Bad debt expense - related parties | |
| - | | |
| 300,000 | |
Gain on settlement of liabilities,
net | |
| - | | |
| (926,829 | ) |
Loss on extinguishment of convertible
note payable | |
| - | | |
| 9,737 | |
Deferred tax liability | |
| (942,749 | ) | |
| (24,803 | ) |
Offering costs allocated to warrant
liabilities | |
| - | | |
| 604,118 | |
Change in fair value of derivative
liabilities | |
| (15,144,986 | ) | |
| 4,677,388 | |
Change in fair value of accrued
issuable equity | |
| - | | |
| 9,405 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses and other current
assets | |
| 1,018,303 | | |
| (1,377,247 | ) |
Accounts payable | |
| 1,214,599 | | |
| (5,515,042 | ) |
Accounts payable – related
parties | |
| - | | |
| (215,495 | ) |
Accrued expenses | |
| 319,936 | | |
| (1,210,076 | ) |
Accrued expenses – related
parties | |
| 169,788 | | |
| (436,581 | ) |
Accrued
issuable equity | |
| - | | |
| (52,500 | ) |
Total adjustments | |
| 26,598,674 | | |
| 953,220 | |
Net Cash
Used In Operating Activities | |
| (12,127,585 | ) | |
| (19,371,428 | ) |
| |
| | | |
| | |
Cash Flows From Financing Activities | |
| | | |
| | |
Shares issued for cash, net of issuance
costs | |
| - | | |
| 26,666,200 | |
Offering costs in connection with
2021 sale of stock and warrants | |
| - | | |
| (2,055,130 | ) |
Offering costs in connection with
July 2022 sale of common stock and common stock warrants | |
| (529,982 | ) | |
| - | |
Offering costs in connection with
December 2022 sale of common stock and common stock warrants | |
| (484,991 | ) | |
| - | |
Proceeds from loans payable | |
| 1,060,890 | | |
| 1,618,443 | |
Repayment of convertible debt –
related parties | |
| - | | |
| (10,000 | ) |
Repayment of loans payable, net of
adjustments (Note 9) | |
| (1,591,035 | ) | |
| (375,789 | ) |
Repayment of loans payable –
related parties | |
| (81,277 | ) | |
| (431,805 | ) |
Proceeds from sale of July 2022 common
stock and common stock warrants | |
| 6,499,737 | | |
| - | |
Proceeds from sale of December 2022
common stock and common stock warrants | |
| 5,999,851 | | |
| - | |
Proceeds from exercise of July 2022 pre-funded warrants | |
| 263 | | |
| - | |
Proceeds from exercise of December
2022 pre-funded warrants | |
| 150 | | |
| - | |
Net Cash Provided
By Financing Activities | |
| 10,873,606 | | |
| 25,411,919 | |
The accompanying notes are an integral part of
these consolidated financial statements.
180 LIFE SCIENCES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS, continued
(Expressed in US Dollars)
| |
For the Years Ended | |
| |
December
31, | |
| |
2022 | | |
2021 | |
Effect of Exchange
Rate Changes on Cash | |
| (419 | ) | |
| 75,473 | |
| |
| | | |
| | |
Net (Decrease) Increase In Cash | |
| (1,254,398 | ) | |
| 6,115,964 | |
Cash - Beginning of Period | |
| 8,224,508 | | |
| 2,108,544 | |
Cash - End of Period | |
$ | 6,970,110 | | |
$ | 8,224,508 | |
| |
| | | |
| | |
Supplemental Disclosures of Cash Flow Information: | |
| | | |
| | |
Cash paid during the period
for income taxes | |
$ | - | | |
$ | - | |
Cash paid during the period
for interest | |
$ | 15,060 | | |
$ | 35,351 | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
Common stock issued upon conversion of KBL debt | |
$ | - | | |
$ | 1,931,388 | |
Common stock issued upon conversion of 180 debt | |
$ | - | | |
$ | 432,383 | |
Common stock
issued in connection with repayment of related party loans and convertible notes | |
$ | - | | |
$ | 851,112 | |
Shares and warrants issued for Alpha Settlement | |
$ | - | | |
$ | 1,013,331 | |
Exchange of common stock equivalents for common stock | |
$ | - | | |
$ | 146 | |
Shares issued to settle accounts payable | |
$ | - | | |
$ | 1,750,000 | |
Reclassification of accrued issuable equity | |
$ | - | | |
$ | 43,095 | |
The accompanying notes are an integral part of
these consolidated financial statements.
180 LIFE SCIENCES CORP.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in US Dollars, except share amounts)
NOTE 1 - BUSINESS ORGANIZATION AND NATURE
OF OPERATIONS
180 Life Sciences Corp.,
formerly known as KBL Merger Corp. IV (“180LS”, or together with its subsidiaries, 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.
180 Life Corp. (“180”,
f/k/a 180 Life Sciences Corp. and CannBioRx Life Sciences Corp.) is a wholly-owned subsidiary of the Company and was incorporated in
the State of Delaware on January 28, 2019. The Company is located in the United States (“U.S.”) and is a medical pharmaceutical
company focused upon unmet medical needs in the areas of inflammatory diseases, fibrosis, and chronic pain by employing innovative research
and, where appropriate, combination therapies, through 180’s three wholly-owned subsidiaries, 180 Therapeutics L.P. (“180
LP”), CannBioRex Pharmaceuticals Corp. (“CBR Pharma”), and Katexco Pharmaceuticals Corp. (“Katexco”). 180
LP, CBR Pharma and Katexco are together, the “180 Subsidiaries.” Katexco was incorporated on March 7, 2018 under the provisions
of the British Corporation Act of British Columbia. Additionally, 180’s wholly-owned subsidiaries Katexco Callco, ULC, Katexco
Purchaseco, ULC, CannBioRex Callco, ULC, and CannBioRex Purchaseco, ULC were formed in the Canadian Province of British Columbia on May
31, 2019 to facilitate the acquisition of Katexco, CBR Pharma and 180 LP. On July 1, 2021, the assets and liabilities of the Canadian
companies (Katexco and CBR Pharma) were transferred to their respective subsidiaries, which are Katexco Pharmaceuticals Corp. (“Katexco
U.S.”) and CannBioRex Pharma Limited (“CBR Pharma U.K.”).
The Company is a clinical
stage biotechnology company focused on the development of therapeutics for unmet medical needs in chronic pain, inflammation, fibrosis
and other inflammatory diseases, where anti-TNF therapy will provide a clear benefit to patients, by employing innovative research, and,
where appropriate, combination therapy. We have three product development platforms:
|
● |
fibrosis and anti-tumor
necrosis factor (“TNF”); |
|
● |
drugs which are derivatives
of cannabidiol (“CBD”); and |
|
● |
alpha 7 nicotinic acetylcholine
receptor (“α7nAChR”). |
Reverse Stock-Split during 2022
On December 15, 2022, the
Company held a special meeting of stockholders of the Company whereby the Company’s stockholders approved an amendment to the Second
Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of the issued and outstanding shares of
common stock, par value $0.0001 per share, in a range of between one-for-four and one-for-twenty shares, in the discretion of the Board
of Directors. The Board of Directors subsequently approved a reverse stock split in a ratio of one-for-twenty shares (the “Reverse
Stock Split”). Pursuant to the Certificate of Amendment filed with the Secretary of State of Delaware to affect the Reverse Stock
Split, with new CUSIP number: 68236V203. No change was made to the trading symbol for the Company’s shares of common stock or public
warrants, “ATNF” and “ATNFW”, respectively, in connection with the Reverse Stock Split.
Because the Certificate of
Amendment did not reduce the number of authorized shares of common stock, the effect of the Reverse Stock Split was to increase the number
of shares of common stock available for issuance relative to the number of shares issued and outstanding. The Reverse Stock Split did
not alter the par value of the common stock or modify any voting rights or other terms of the common stock. Any fractional shares remaining
after the Reverse Stock Split were rounded up to the nearest whole share.
With regards to the Company’s
2020 Omnibus Incentive Plan and the 2022 Omnibus Incentive Plan, the Company’s Compensation Committee and Board deemed it in the
best interests of the Company and its stockholders to (i) adjust the number of shares of Company common stock available for issuance
under the Incentive Plans downward by a factor of 20 (with any fractional shares rounded down to the nearest whole share); (ii) reduce
the number of shares of common stock issuable upon each outstanding option to purchase shares of common stock of the Company, and all
other outstanding awards, by a factor of 20 (with any fractional shares rounded down to the nearest whole share); and (iii) adjust the
exercise price of any outstanding options to purchase shares of common stock previously granted under the Incentive Plans up by a factor
of 20 (rounded up to the nearest whole cent), in each case to adjust equitably for the exchange ratio of the Reverse Stock Split, which
such adjustments effective automatically upon effectiveness of the Reverse Stock Split. The effects of the one-for-twenty reverse stock
split have been retroactively reflected throughout the financial statements and notes to the financial statements.
Risks and Uncertainties
Management continues to evaluate
the impact of the COVID-19 pandemic and Russia-Ukraine war on the economy and the capital markets and has concluded that, while it is
reasonably possible that such events could have negative effects on the Company’s financial position, the specific impacts are
not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
The current challenging economic
climate may lead to adverse changes in cash flows, working capital levels and/or debt balances, which may also have a direct impact on
the Company’s future operating results and financial position. The ultimate duration and magnitude of the impact and the efficacy
of government interventions on the economy and the financial effect on the Company is not known at this time. The extent of such impact
will depend on future developments, which are highly uncertain and not in the Company’s control.
NOTE 2 - GOING CONCERN AND MANAGEMENT’S
PLANS
The Company has not generated
any revenues and has incurred significant losses since inception. As of December 31, 2022, we had an accumulated deficit of $107,408,545
and working capital of $3,270,608 and for the year ended December 31, 2022, a net loss of $38,726,259 and cash used in operating activities
of $12,127,585. The Company expects to invest a significant amount of capital to fund research and development. As a result, the Company
expects that its operating expenses will increase significantly, and consequently will require significant revenues to become profitable.
Even if the Company does become profitable, it may not be able to sustain or increase profitability on a quarterly or annual basis. The
Company cannot predict when, if ever, it will be profitable. There can be no assurance that the intellectual property of the Company,
or other technologies it may acquire, will meet applicable regulatory standards, obtain required regulatory approvals, be capable of being
produced in commercial quantities at reasonable costs, or be successfully marketed. The Company plans to undertake additional laboratory
studies with respect to the intellectual property, and there can be no assurance that the results from such studies or trials will result
in a commercially viable product or will not identify unwanted side effects.
These consolidated financial
statements have been prepared under the assumption of a going concern, which assumes that the Company will be able to realize its assets
and discharge its liabilities in the normal course of business. The Company’s ability to continue its operations is dependent upon
obtaining new financing for its ongoing operations. Future financing options available to the Company include equity financings and loans
and if the Company is unable to obtain such additional financing timely, or on favorable terms, the Company may have to curtail its development,
marketing and promotional activities, which would have a material adverse effect on its business, financial condition and results of
operations, and it could ultimately be forced to discontinue its operations and liquidate. These matters raise substantial doubt about
the Company’s ability to continue as a going concern for a reasonable period of time, which is defined as within one year after
the date that the consolidated financial statements are issued. Realization of the Company’s assets may be substantially different
from the carrying amounts presented in these consolidated financial statements and the accompanying consolidated financial statements
do not include any adjustments that may become necessary, should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the Unites States of America (“U.S.
GAAP”).
Principles of Consolidation
The consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries 180 LP, CBR Pharma, Katexco and 180 Life Corp. (“180LC”).
All inter-company balances and transactions among the companies have been eliminated upon consolidation. The consolidated financial statements
are presented in U.S. Dollars.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, together with amounts disclosed in the related notes to the consolidated financial statements.
The Company’s significant estimates and assumptions used in these financial statements include, but are not limited to, the fair
value of financial instruments, warrants, options and derivative liabilities; R&D tax credits and accruals, and the estimates and
assumptions related to the impairment analysis of goodwill and other intangible assets. Certain of the Company’s estimates could
be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible
that these external factors could have an effect on the Company’s estimates and may cause actual results to differ from those estimates.
Foreign Currency Translation
The Company’s reporting
currency is the United States dollar. The functional currency of certain subsidiaries is the Canadian Dollar (“CAD”) or British
Pound (“GBP”). Assets and liabilities are translated based on the exchange rates at the balance sheet date (0.7369 and 0.7874
for the CAD, 1.2098 and 1.3510 for the GBP as of December 31, 2022 and 2021, respectively), while expense accounts are translated at
the weighted average exchange rate for the period (0.7689 and 0.7977 for the CAD, and 1.2173 and 1.3753 for the GBP for the years ended
December 31, 2022 and 2021, respectively). Equity accounts are translated at historical exchange rates. The resulting translation adjustments
are recognized in stockholders’ equity as a component of accumulated other comprehensive income.
Comprehensive income is defined
as the change in equity of an entity from all sources other than investments by owners or distributions to owners and includes foreign
currency translation adjustments as described above. During the years ended December 31, 2022 and 2021, the Company recorded other comprehensive
(loss) income of ($3,702,963) and $180,554, respectively, as a result of foreign currency translation adjustments.
Foreign currency gains and
losses resulting from transactions denominated in foreign currencies, including intercompany transactions, are included in results of
operations. The Company recognized ($12,777) and ($69) of foreign currency transaction (losses) for the years ended December 31, 2022
and 2021, respectively. Such amounts have been classified within general and administrative expenses in the accompanying consolidated
statements of operations and comprehensive loss.
Cash and Cash Equivalents
The Company considers all
highly liquid investments with an original maturity of three months or less to be cash equivalents in the financial statements. The Company
had no cash equivalents at December 31, 2022 or 2021. As of December 31, 2022, the Company had bank accounts in the United States and
the United Kingdom; of its available cash balance, $25,079 is restricted cash. The Company’s cash deposits in United States and
English financial institutions may at times be in excess of the Federal Deposit Insurance Corporation (“FDIC”) or the Financial
Services Compensation Scheme (“FSCS”) insurance limits, respectively. The Company has not experienced losses in such accounts
and periodically evaluates the creditworthiness of its financial institutions.
Goodwill
Goodwill represents the difference
between the purchase price and the fair value of assets and liabilities acquired in a business combination. The Company reviews goodwill
yearly, or more frequently whenever circumstances and situations change such that there is an indication that the carrying amounts may
not be recovered, for impairment by initially considering qualitative factors to determine whether it is more likely than not that the
fair value of a reporting unit is less than its carrying amount, including goodwill, as a basis for determining whether it is necessary
to perform a quantitative analysis. If it is determined that it is more likely than not that the fair value of a reporting unit is less
than its carrying amount, a quantitative analysis is performed to identify goodwill impairment. If it is determined that it is not more
likely than not that the fair value of the reporting unit is less than its carrying amount, it is unnecessary to perform a quantitative
analysis. The Company may elect to bypass the qualitative assessment and proceed directly to performing a quantitative analysis. See
“Note 5 – Intangible Assets and Impairment of Long-lived Assets” for further information.
Intangible Assets and In-Process Research
and Development (“IP R&D”)
Intangible assets consist
of licensed patents held by Katexco as well as technology licenses acquired in connection with the Reorganization. Licensed patents are
amortized over the remaining life of the patent. Technology licenses represent the fair value of licenses acquired for the development
and commercialization of certain licenses and knowledge. The technology licenses are amortized on a straight-line basis over the estimated
useful lives of the underlying patents. It will be necessary to monitor and possibly adjust the useful lives of the licensed patents
and technology licenses depending on the results of the Company’s research and development activities.
IP R&D assets represent
the fair value assigned to technologies that were acquired on July 16, 2019 in connection with the Reorganization, which have not reached
technological feasibility and have no alternative future use. IP R&D assets are considered to be indefinite-lived until the completion
or abandonment of the associated research and development projects. During the period that the IP R&D assets are considered indefinite-lived,
they are tested for impairment on an annual basis, or more frequently if the Company becomes aware of any events occurring or changes
in circumstances that indicate that the fair value of the IP R&D assets are less than their carrying amounts. If and when development
is complete, which generally occurs upon regulatory approval, and the Company is able to commercialize products associated with the IP
R&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in
time. If development is terminated or abandoned, the Company may record a full or partial impairment charge related to the IP R&D
assets, calculated as the excess of the carrying value of the IP R&D assets over their estimated fair value. See “Note 5 –
Intangible Assets and Impairment of Long-lived Assets” for further information.
Fair Value of Financial Instruments
The Company measures the
fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification (“ASC”) 820 “Fair
Value Measurements” (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements.
ASC 820 defines fair value
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes
a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
|
● |
Level 1 - Quoted prices
in active markets for identical assets or liabilities; |
|
|
|
|
● |
Level 2 - Quoted prices
for similar assets and liabilities in active markets or inputs that are observable; and |
|
|
|
|
● |
Level 3 - Inputs that are
unobservable (for example, cash flow modeling inputs based on assumptions). |
The carrying amounts of certain
of the Company’s financial instruments, consisting primarily of loans payable, approximate their fair values as presented in these
consolidated financial statements due to the short-term nature of those instruments. The Company’s derivative liabilities were
valued using level 3 inputs (see Note 8 – Derivative Liabilities for additional information).
Accrued Issuable Equity
The Company records accrued
issuable equity when it is contractually obligated to issue shares and there has been a delay in the issuance of such shares. Accrued
issuable equity is recorded and carried at fair value with changes in its fair value recognized in the Company’s consolidated statements
of operations. Once the underlying shares of common stock are issued, the accrued issuable equity is reclassified as of the share issuance
date at the then current fair market value of the common stock.
Stock-Based Compensation
The Company measures the
cost of services received in exchange for an award of equity instruments based on the fair value of the award. The fair value of the
award is measured on the grant date and is estimated by management based on observations of the recent cash sales prices of common stock.
The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award,
usually the vesting period. Upon the exercise of an option or warrant, the Company issues new shares of common stock out of its authorized
but unissued shares.
Derivative Liabilities and Convertible
Instruments
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. Entities must consider whether to classify contracts that may be settled
in its own stock, such as warrants, as equity of the entity or as an asset or liability. If an event that is not within the entity’s
control could require net cash settlement, then the contract should be classified as an asset or a liability rather than as equity.
The result of this accounting
treatment is that the fair value of the embedded derivative is marked-to-market at each balance sheet date and recorded as a liability
and the change in fair value is recorded in other (expense) income, net in the consolidated statements of operations. In circumstances
where there are multiple embedded instruments that are required to be bifurcated, the bifurcated derivative instruments are
accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Equity instruments that are initially
classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the
reclassification date. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement of the derivative instrument is expected within twelve months of the balance sheet date.
If the embedded conversion
options do not require bifurcation, the Company then evaluates for the existence of a beneficial conversion feature by comparing the
fair value of the Company’s underlying stock as of the commitment date to the effective conversion price of the instrument (the
intrinsic value).
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 consolidated statements of operations. Preferred stock discounts are only accreted to their redemption value if redemption becomes
probable.
Amendments to convertible
instruments are evaluated as to whether they should be accounted for as a modification of the original instrument with no change to the
accounting or, if the terms are substantially changed, as an extinguishment of the original instrument and the issuance of a new instrument.
The Company has computed
the fair value of warrants and options issued using the Black-Scholes option pricing model. The expected term used for warrants, convertible
notes and convertible preferred stock are the contractual life and the expected term used for options issued is the estimated period
of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate
of the expected term of “plain vanilla” option grants. The Company is utilizing an expected volatility figure based on a
review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly
positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury
zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
Net Loss Per Common Share
Basic net loss per common
share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net (loss)
per common share is computed by dividing net (loss) by the weighted average number of common shares outstanding, plus the number of additional
common shares that would have been outstanding if the common share equivalents had been issued (computed using the treasury stock or
if converted method), if dilutive.
The following common share
equivalents are excluded from the calculation of weighted average common shares outstanding, because their inclusion would have been
anti-dilutive:
| |
For the Years Ended December
31, | |
| |
2022 | | |
2021 | |
Options | |
| 162,956 | | |
| 137,050 | |
Warrants | |
| 3,435,728 | | |
| 557,695 | |
Total potentially dilutive shares | |
| 3,598,684 | | |
| 694,745 | |
Research and Development
Research and development
expenses are charged to operations as incurred. During the years ended December 31, 2022 and 2021, the Company incurred $2,191,834 and
$1,000,769, respectively, of research and development expenses. As of December 31, 2022 and 2021, research and development expenses –
related parties were $240,731 and $2,947,536, respectively. See Note 14 – Related Parties for more information on research and
development expenses – related parties.
Income Taxes
The Company accounts for
income taxes under the provisions of ASC Topic 740 “Income Taxes” (“ASC 740”).
The Company recognizes deferred
tax assets and liabilities for the expected future tax consequences of items that have been included or excluded in the financial statements
or tax returns. Deferred tax assets and liabilities are determined on the basis of the difference between the tax basis of assets and
liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for
the years in which the temporary differences are expected to reverse.
The Company utilizes a recognition
threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties
as general and administrative expenses in the consolidated statements of operations and comprehensive loss.
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2020, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06 “Debt with Conversion
and Other Options (Topic 470) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Topic 815). The amendments in ASU 2020-06
are intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity by eliminating
certain accounting models in Subtopic 470-20, for convertible debt instruments. Under the amendments in this update, the embedded conversion
features no longer are separated from the host contract for convertible instruments with conversion features that are not required to
be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for
as paid-on capital. A convertible debt instrument will be accounted for as a single liability measured at its amortized cost and convertible
preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features require
bifurcation and recognition as derivatives. By removing the separation models, the interest rate of convertible debt instruments typically
will be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. These amendments to the derivatives scope
exception for contracts in an entity’s own equity change the population of contracts that are recognized as assets or liabilities.
For a freestanding instrument, an entity should record it in equity if the instrument qualifies for the derivatives scope exception under
the amendments. For an embedded feature, if the feature qualifies for the derivatives scope exception under the amendments, an entity
should no longer separate the feature and account for it individually. The Company adopted ASU 2020-06 upon issuance did not have a material
impact on the Company’s consolidated financial statements.
On May 3, 2021, the FASB
issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock
Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s
Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This standard provided clarification
and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options
(such as warrants) that remain equity classified after modification or exchange. This standard was effective for fiscal years beginning
after December 15, 2021, including interim periods within those fiscal years. Issuers should apply the new standard prospectively to
modifications or exchanges occurring after the effective date of the new standard. Early adoption was permitted, including adoption in
an interim period. If an issuer elected to early adopt the new standard in an interim period, the guidance should be applied as of the
beginning of the fiscal year that includes that interim period. The Company adopted ASU 2021-04 effective for January 1, 2022, and its
adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.
On July 19, 2021, the FASB
issued Accounting Standards Update (ASU) 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. As part
of the postimplementation review (PIR) of leases (FASB Accounting Standards Codification (FASB ASC) 842), the FASB was made aware of an
issue being encountered by lessors wherein following the guidance in FASB ASC 842 requiring them to recognize a loss at lease commencement
for certain sales-type lease with variable payments, even if the lessor expects the arrangement will be profitable overall. The Company
adopted ASU 2021-05 effective for January 1, 2022, and its adoption did not have a material impact on the Company’s consolidated
financial statements and related disclosures.
NOTE 4 - PREPAID EXPENSES AND OTHER CURRENT
ASSETS
Prepaid expenses consist
of the following as of December 31, 2022 and 2021:
|
|
December 31, |
|
|
|
2022 |
|
|
2021 |
|
Insurance (1) |
|
$ |
1,027,292 |
|
|
$ |
1,937,693 |
|
Research and development expense tax credit receivable |
|
|
546,563 |
|
|
|
644,513 |
|
Professional fees (1) |
|
|
310,017 |
|
|
|
294,577 |
|
Value-added tax receivable |
|
|
48,774 |
|
|
|
24,411 |
|
Taxes |
|
|
25,634 |
|
|
|
25,634 |
|
Other |
|
|
- |
|
|
|
49,755 |
|
|
|
$ |
1,958,280 |
|
|
$ |
2,976,583 |
|
(1) | In the previously filed Annual Report
on Form 10-K for the year ended December 31, 2021, the Insurance line item above included
$213,974 of expenses related to Oxford agreements for our CBR Pharma subsidiary. In the current
year, those same expenses are grouped into the Professional fees grouping. As such,
for comparative purposes, that amount has been moved from the Insurance grouping to the Professional
fees grouping for the 2021 period. |
NOTE 5 - INTANGIBLE ASSETS AND IMPAIRMENT
OF LONG-LIVED ASSETS
Intangible assets consist
of the following as of December 31, 2022 and 2021:
| |
Remaining Amortization Period | |
As of December 31, 2022 | | |
As of December 31, 2021 | |
| |
in Years at
December 31, 2022 | |
Gross Asset Value | | |
Accumulated Amortization | | |
Net Carrying Value | | |
Gross Asset Value | | |
Accumulated Amortization | | |
Net Carrying Value | |
Licensed patents | |
13.5 | |
$ | 596,259 | | |
$ | (142,654 | ) | |
$ | 453,605 | | |
$ | 603,919 | | |
$ | (110,759 | ) | |
$ | 493,160 | |
Technology license | |
16.6 | |
| 1,485,159 | | |
| (279,906 | ) | |
| 1,205,253 | | |
| 1,658,550 | | |
| (202,797 | ) | |
| 1,455,753 | |
| |
| |
$ | 2,081,418 | | |
$ | (422,560 | ) | |
$ | 1,658,858 | | |
$ | 2,262,469 | | |
$ | (313,556 | ) | |
$ | 1,948,913 | |
Changes in the gross asset
value of licensed patents and technology licenses from the dates acquired are the result of changes in the foreign currency exchange
rate.
The Company recorded amortization
expense of $109,004 and $116,297 during the years ended December 31, 2022 and 2021, respectively, related to intangible assets, which
is included in general and administrative expense on the accompanying consolidated statements of operations and comprehensive loss.
Future amortization related
to intangible assets is as follows:
For the Years Ending December 31, | |
| |
2023 | |
$ | 109,489 | |
2024 | |
| 109,489 | |
2025 | |
| 109,489 | |
2026 | |
| 109,489 | |
2027 | |
| 109,489 | |
Thereafter | |
| 1,111,413 | |
| |
$ | 1,658,858 | |
Goodwill Impairment
The Company’s publicly
traded stock closed at $78.00 per share as of December 31, 2021; during 2022, the market value of the Company’s single reporting
unit significantly declined. As of March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022, the market value of the Company’s
publicly traded stock fell to $51.80, $16.96, $13.30 and $3.39, per share, respectively, and as such, the Company elected to conduct
a quantitative analysis of goodwill to assess for impairment as of September 30, 2022 and December 31, 2022. The Company determined the
fair market value of its single reporting unit and compared that value with the carrying amount of the reporting unit and determined
that goodwill was impaired as of both measurement dates. As of September 30, 2022 and December 31, 2022, the carrying value exceeded
the fair market value by $18,872,850 and $14,674,428, respectively. To recognize the impairment of goodwill, the Company recorded losses
for these amounts at the end of the third and fourth quarters, which appear as a loss on goodwill impairment of $33,547,278 on the income
statement for the year ended December 31, 2022.
The following is a summary
of goodwill activity for the year ended December 31, 2022 for the Company’s single reporting unit, which includes the recorded
losses on goodwill impairment described above.
| |
CBR
Pharma
Goodwill | | |
180 LP
Goodwill | | |
Consolidated
Goodwill | |
Balance, December 31, 2021 | |
$ | 23,749,631 | | |
$ | 13,238,255 | | |
$ | 36,987,886 | |
Currency translation | |
| (664,353 | ) | |
| - | | |
| (664,353 | ) |
| |
| | | |
| | | |
| | |
Balance, March 31, 2022 | |
| 23,085,278 | | |
| 13,238,255 | | |
| 36,323,533 | |
Currency translation | |
| (1,734,582 | ) | |
| - | | |
| (1,734,582 | ) |
| |
| | | |
| | | |
| | |
Balance, June 30, 2022 | |
| 21,350,696 | | |
| 13,238,255 | | |
| 34,588,951 | |
Currency translation | |
| (1,750,386 | ) | |
| - | | |
| (1,750,386 | ) |
Balance before impairment | |
| 19,600,310 | | |
| 13,238,255 | | |
| 32,838,565 | |
Impairment of goodwill | |
| (11,264,612 | ) | |
| (7,608,238 | ) | |
| (18,872,850 | ) |
| |
| | | |
| | | |
| | |
Balance, September 30, 2022 | |
| 8,335,698 | | |
| 5,630,017 | | |
| 13,965,715 | |
Currency translation | |
| 708,713 | | |
| - | | |
| 708,713 | |
Balance before impairment | |
| 9,044,411 | | |
| 5,630,017 | | |
| 14,674,428 | |
Impairment of goodwill | |
| (9,044,411 | ) | |
| (5,630,017 | ) | |
| (14,674,428 | ) |
| |
| | | |
| | | |
| | |
Balance, December 31, 2022 | |
$ | - | | |
$ | - | | |
$ | - | |
IP R&D Assets Impairment
As of December 31, 2022,
the carrying amount of the IP R&D assets on the balance sheet was $12,405,084 (which consists of carrying amounts of $1,462,084 and
$10,943,000 related to the Company’s CBR Pharma subsidiary and its 180 LP subsidiary, respectively). Per the valuation obtained
from a third party as of year-end, the fair market value of the Company’s IP R&D assets was determined to be $9,063,000 (which
consists of fair values of $0 and $9,063,000 related to the Company’s CBR Pharma subsidiary and 180 LP subsidiary, respectively).
As of this measurement date, the carrying values of the CBR Pharma and 180 LP subsidiaries’ assets exceeded their fair market values
by $1,462,084 and $1,880,000, respectively. As such, management determined that the consolidated IP R&D assets were impaired by $3,342,084
and, in order to recognize the impairment, the Company recorded a loss for this amount during the fourth quarter of 2022, which appears
as a loss on impairment to IP R&D assets on the income statement. This reduced the IP R&D asset balances of its CBR Pharma subsidiary
and its 180 LP subsidiary to zero and $9,063,000, respectively, as of December 31, 2022; the total consolidated IP R&D asset balance
is $9,063,000 after impairment.
The following is a summary
of IP R&D activity for the year ended December 31, 2022 for the Company, which includes the recorded loss for the IP R&D assets
described above.
| |
CBR
Pharma IP R&D Assets | | |
180 LP
IP R&D Assets | | |
Consolidated
IP R&D Assets | |
Balance, December 31, 2021 | |
$ | 1,632,780 | | |
$ | 10,943,000 | | |
$ | 12,575,780 | |
Currency translation | |
| (45,674 | ) | |
| - | | |
| (45,674 | ) |
| |
| | | |
| | | |
| | |
Balance, March 31, 2022 | |
| 1,587,106 | | |
| 10,943,000 | | |
| 12,530,106 | |
Currency translation | |
| (119,252 | ) | |
| - | | |
| (119,252 | ) |
| |
| | | |
| | | |
| | |
Balance, June 30, 2022 | |
| 1,467,854 | | |
| 10,943,000 | | |
| 12,410,854 | |
Currency translation | |
| (120,338 | ) | |
| - | | |
| (120,338 | ) |
| |
| | | |
| | | |
| | |
Balance, September 30, 2022 | |
| 1,347,516 | | |
| 10,943,000 | | |
| 12,290,516 | |
Currency translation | |
| 114,568 | | |
| - | | |
| 114,568 | |
Balance before impairment | |
| 1,462,084 | | |
| 10,943,000 | | |
| 12,405,084 | |
Impairment of
IP R&D assets | |
| (1,462,084 | ) | |
| (1,880,000 | ) | |
| (3,342,084 | ) |
| |
| | | |
| | | |
| | |
Balance, December 31, 2022 | |
$ | - | | |
$ | 9,063,000 | | |
$ | 9,063,000 | |
NOTE 6 - ACCRUED EXPENSES
Accrued expenses consist
of the following as of December 31, 2022 and 2021:
| |
December 31, | |
| |
2022 | | |
2021 | |
Consulting fees | |
$ | 531,829 | | |
$ | 548,281 | |
Professional fees | |
| 3,945 | | |
| 252,973 | |
Litigation accrual (1) | |
| 125,255 | | |
| 300,000 | |
Employee and director compensation | |
| 1,558,024 | | |
| 725,569 | |
Research and development fees | |
| 22,023 | | |
| 91,737 | |
Interest | |
| 36,422 | | |
| 25,433 | |
Other | |
| 7,018 | | |
| 20,587 | |
| |
$ | 2,284,516 | | |
$ | 1,964,580 | |
(1) |
See Note 11 - Commitments
and Contingencies, Potential Legal Matters. |
As of December 31, 2022 and
2021, accrued expenses - related parties were $188,159 and $18,370, respectively. See Note 11 – Commitments & Contingencies
and Note 14 - Related Parties for details.
NOTE 7 - ACCRUED ISSUABLE EQUITY
A summary of the accrued
issuable equity activity during the year ended December 31, 2021 is presented below:
Balance at January 1, 2021 | |
$ | 43,095 | |
Reclassification to equity | |
| (43,095 | ) |
Balance at December 31, 2021 | |
$ | - | |
During the year ended December
31, 2020, the Company entered into a contractual arrangement for services in exchange for shares of common stock of the Company for fixed
dollar amounts. Pursuant to the contractual agreement, the Company will issue an aggregate value of $5,000 of common shares on a monthly
basis and an aggregate of $30,000 of common shares at the end of each quarter. As of December 31, 2020, the Company recorded $43,095
of accrued issuable equity related to services. During the first quarter of 2021, this balance was reclassified to equity and as of December
31, 2021, there was no accrued issuable equity.
NOTE 8 - DERIVATIVE LIABILITIES
The following table sets
forth a summary of the changes in the fair value of Level 3 derivative liabilities (except the Public Special Purpose Acquisition Companies
(“SPAC”) warrants as defined below, which are Level 1 derivative liabilities) that are measured at fair value on a recurring
basis:
| |
For the Year Ended December 31,
2022 | |
| |
Warrants | | |
| | |
| |
| |
Public | | |
Private | | |
| | |
| | |
Convertible | | |
| |
| |
SPAC | | |
SPAC | | |
PIPE | | |
Other | | |
Notes | | |
Total | |
Balance as of January 1, 2022 | |
$ | 8,048,850 | | |
$ | 467,325 | | |
$ | 6,516,300 | | |
$ | 187,892 | | |
$ | - | | |
$ | 15,220,367 | |
Change in fair value of derivative liabilities | |
| (8,017,225 | ) | |
| (466,069 | ) | |
| (6,474,200 | ) | |
| (187,492 | ) | |
| - | | |
| (15,144,986 | ) |
Balance as of December 31, 2022 | |
$ | 31,625 | | |
$ | 1,256 | | |
$ | 42,100 | | |
$ | 400 | | |
$ | - | | |
$ | 75,381 | |
| |
For the Year Ended December 31,
2021 | |
| |
Warrants | | |
| | |
| |
| |
Public | | |
Private | | |
| | |
| | |
Convertible | | |
| |
| |
SPAC | | |
SPAC | | |
PIPE | | |
Other | | |
Notes | | |
Total | |
Balance
as of January 1, 2021 | |
$ | 3,795,000 | | |
$ | 256,275 | | |
$ | - | | |
$ | 165,895 | | |
$ | 225,800 | | |
$ | 4,442,970 | |
Extinguishment
of derivative liabilities in connection with conversion of debt (1) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (591,203 | ) | |
| (591,203 | ) |
Warrants issued in connection with the financing | |
| - | | |
| - | | |
| 7,294,836 | | |
| - | | |
| - | | |
| 7,294,836 | |
Warrants
issued relates to Alpha settlement (1) | |
| - | | |
| - | | |
| - | | |
| 95,677 | | |
| - | | |
| 95,677 | |
Extinguishment
of derivative liabilities in connection with the Alpha settlement (1) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (699,301 | ) | |
| (699,301 | ) |
Change in fair value of derivative liabilities | |
| 4,253,850 | | |
| 211,050 | | |
| (778,536 | ) | |
| (73,680 | ) | |
| 1,064,704 | | |
| 4,677,388 | |
Balance as of December 31, 2021 | |
$ | 8,048,850 | | |
$ | 467,325 | | |
$ | 6,516,300 | | |
$ | 187,892 | | |
$ | - | | |
$ | 15,220,367 | |
(1) |
See Note 10 – Convertible
Notes Payable |
The fair value of the derivative
liabilities as of December 31, 2022 and 2021 were estimated using the Black Scholes option pricing model, with the following assumptions
used:
| |
December 31,
2022 | |
Risk-free interest rate | |
| 2.30% - 4.50 | % |
Expected term in years | |
| 1.59
– 3.90 | |
Expected volatility | |
| 76.0%
– 105.0 | % |
Expected dividends | |
| 0 | % |
SPAC Warrants
Public SPAC Warrants
Participants in KBL’s
initial public offering received an aggregate of 11,500,000 Public SPAC Warrants (“Public SPAC Warrants”). Each Public SPAC Warrant
entitles the holder to purchase one-fortieth of one share of the Company’s common stock at an exercise price of $5.75 per 1/40th
of one share, or $230.00 per whole share, subject to adjustment. No fractional shares will be issued upon exercise of the Public Warrants.
The Public Warrants are currently exercisable and will expire on November 6, 2025, or earlier upon redemption or liquidation. The Company
may redeem the Public Warrants, in whole and not in part, at a price of $0.01 per Public 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 $360.00 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 Public 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 Public Warrants for redemption as described above, the Company’s management will have the option to require all holders that
wish to exercise Public Warrants to do so on a “cashless basis.” Management has determined that the Public Warrants contain
a tender offer provision which could result in the Public Warrants settling for the tender offer consideration (including potentially
cash) in a transaction that didn’t result in a change-in-control. This feature results in the Public Warrants being precluded from
equity classification. Accordingly, the Public Warrants are classified as liabilities measured at fair value, with changes in fair value
each period reported in earnings. The fair value of the Public SPAC Warrants on the date of the issuance was $1,978,000. At December 31,
2022 and 2021 the Public SPAC Warrants were revalued at $31,625 and $8,048,850, respectively, which resulted in a $8,017,225 decrease
in fair value and a $4,253,850 increase in the fair value of the derivative liabilities during the years ended December 31, 2022 and 2021,
respectively. The decrease and increase in fair value of these derivative liabilities were recorded in the accompanying consolidated statement
of operations.
Private SPAC Warrants
Participants in KBL’s
initial private placement received an aggregate of 502,500 Private SPAC Warrants (“Private SPAC Warrants”). Each Private Warrant
entitles the holder to purchase one-fortieth of one share of the Company’s common stock at an exercise price of $5.75 per 1/40th
of one share, or $230.00 per whole share, subject to adjustment. No fractional shares will be issued upon exercise of the warrants.
The Private Warrants are currently exercisable and will expire five years after the completion of the Business Combination or earlier
upon redemption or liquidation. The Private Warrants are non-redeemable so long as they are held by original holders or their permitted
transferees. If the Private Warrants are held by other parties, the Company may redeem the Private 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 $360.00 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 Private Warrants for redemption as described above, the Company’s
management will have the option to require all holders that wish to exercise Private Warrants to do so on a “cashless basis.”
Management has determined that the Private Warrants contain a tender offer provision which could result in the Private Warrants settling
for the tender offer consideration (including potentially cash) in a transaction that didn’t result in a change-in-control. This
feature (amongst others) results in the Private Warrants being precluded from equity classification. Accordingly, the Private Warrants
are classified as liabilities measured at fair value, with changes in fair value each period reported in earnings. The fair value of
the Private SPAC Warrants on the date of the issuance was $587,925. At December 31, 2022 and 2021, the Private SPAC Warrants were revalued
at $1,256 and $467,325, respectively, which resulted in a $466,069 decrease and a $211,050 increase in the fair value of the derivative
liabilities during the years ended December 31, 2022 and 2021, respectively. The decrease and increase in fair value of these derivative
liabilities were recorded in the accompanying consolidated statement of operations.
PIPE Warrants
On February 23, 2021, the
Company issued five-year warrants (the “PIPE Warrants”) to purchase 128,200 shares of common stock at an exercise price of
$100.00 per share in connection with the private offering (see Note 12 – Stockholders’ Equity, Common Stock). The PIPE Warrants
did not meet the requirements for equity classification due to the existence of a tender offer provision that could potentially result
in cash settlement of the PIPE Warrants that didn’t meet the limited exception in the case of a change-in-control. Accordingly,
the PIPE Warrants are liability-classified and the Company recorded the $7,294,836 fair value of the PIPE Warrants, which was determined
using the Black-Scholes option pricing model, as derivative liabilities. The PIPE Warrants were revalued on December 31, 2022 and 2021
at $42,100 and $6,516,300, respectively, which resulted in decreases in the fair value of the derivative liabilities of $6,474,200 and
$778,536 during the years ended December 31, 2022 and 2021, respectively.
The following assumptions
were used to value the PIPE Warrants at issuance:
| |
February 23, 2021 | |
Risk-free interest rate | |
| 0.59 | % |
Expected term in years | |
| 5.00 | |
Expected volatility | |
| 85 | % |
Expected dividends | |
| 0 | % |
Other Warrants
AGP Warrant
In connection with the closing
of the Business Combination on November 6, 2020, the Company became obligated to assume five-year warrants for the purchase of 3,183
shares of the Company’s common stock at an exercise price of $105.60 per share (the “AGP Warrant Liability”) that had
originally been issued by KBL to an investment banking firm in connection with a prior private placement.
On March 12, 2021, the Company
issued a warrant to AGP (the “AGP Warrant”) to purchase up to an aggregate of 3,183 shares of the Company’s common
stock at a purchase price of $105.60 per share, subject to adjustment, in full satisfaction of the existing AGP Warrant Liability. The
exercise of the AGP Warrant is limited at any given time to prevent AGP from exceeding beneficial ownership of 4.99% of the then total
number of issued and outstanding shares of the Company’s common stock upon such exercise. The warrant is exercisable at any time
between May 2, 2021 and May 2, 2025. The newly issued AGP Warrant did not meet the requirements for equity classification due to the
existence of a tender offer provision that could potentially result in cash settlement of the AGP Warrant that did not meet the limited
exception in the case of a change-in-control. Accordingly, the AGP Warrant will continue to be liability-classified. The AGP Warrant
was revalued on December 31, 2022 and 2021 at $400 and $144,331, respectively, which resulted in decreases in the fair value of the derivative
liabilities of $143,931 and $21,564 during the years ended December 31, 2022 and 2021, respectively.
The following assumptions
were used to value the AGP Warrant at issuance:
| |
March 12, 2021 | |
Risk-free interest rate | |
| 0.68 | % |
Expected term in years | |
| 3.84 | |
Expected volatility | |
| 85 | % |
Expected dividends | |
| 0 | % |
Alpha Capital Anstalt (“Alpha”)
Warrant
In connection with the Alpha
Settlement Agreement (see Note 10 – Convertible Notes Payable) that was agreed to on July 29, 2021 (signed on July 31, 2021), the
Company issued a three-year warrant for the purchase of 1,250 shares of the Company’s common stock at an exercise price of $141.40
per share (the “Alpha Warrant Liability” and the “Alpha Warrant”). The exercise of shares of the Alpha Warrant
is limited at any given time to prevent Alpha from exceeding a beneficial ownership of 4.99% of the then total number of issued and outstanding
shares of the Company’s common stock upon such exercise. The warrant is exercisable until August 2, 2024. The newly issued Alpha
Warrant did not meet the requirements for equity classification due to the existence of a tender offer provision that could potentially
result in cash settlement of the Alpha Warrant that did not meet the limited exception in the case of a change-in-control. Accordingly,
the Alpha Warrant is liability-classified and the Company recorded the $95,677 fair value of the Alpha Warrant, which was determined
using the Black-Scholes option pricing model, as a derivative liability. The Alpha Warrant was revalued on December 31, 2022 and 2021
at $0 and $43,561, respectively, which resulted in decreases in the fair value of the derivative liabilities of $43,561 and $52,116 during
the years ended December 31, 2022 and 2021, respectively.
The following assumptions
were used to value the Alpha Warrant at issuance:
| |
July 29, 2021 | |
Risk-free interest rate | |
| 0.37 | % |
Expected term in years | |
| 3.00 | |
Expected volatility | |
| 85 | % |
Expected dividends | |
| 0 | % |
Convertible Notes
The convertible notes issued
in 2020 had embedded features that were bifurcated and recorded as derivative liabilities. Between January 15, 2021 and February 5, 2021,
the fair value of derivative liabilities extinguished in connection with the conversion of debt (see Note 10 – Convertible Notes
Payable) was estimated using the Black Scholes option pricing model with the following assumptions used:
| |
January 15,
2021
to | |
| |
February 5,
2021 | |
Risk-free interest rate | |
| 0.00%
- 0.14 | % |
Expected term in years | |
| 0.02
- 0.18 | |
Expected volatility | |
| 120%
- 161 | % |
Expected dividends | |
| 0 | % |
At the end of the second
quarter of 2021, the Alpha Capital Note (see Note 10 – Convertible Notes Payable) that was the only convertible note with an outstanding
balance and the full amount of the July 31, 2021 Alpha Settlement Agreement was accrued as of that date. On July 31, 2021, the Company
recorded the extinguishment of the Alpha Capital Note, the related derivative liabilities and the balance of the settlement accrual.
See Note 10 - Convertible Notes Payable for additional details.
Warrant Activity
A summary of the warrant
activity (including certain warrants granted in August 2021, July 2022 and December 2022 as part of private offerings, all of which are
equity-classified; see Note 12 - Stockholders’ Equity) during the years ended December 31, 2022 and 2021 is presented below:
|
|
Number
of
Warrants |
|
|
Weighted
Average Exercise Price |
|
|
Weighted
Average Remaining Life in Years |
|
Intrinsic
Value |
Outstanding,
January 1, 2021 |
|
|
303,245 |
|
|
$ |
228.69 |
|
|
|
4.9 |
|
|
- |
Issued |
|
|
254,450 |
|
|
|
124.77 |
|
|
|
|
|
|
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Cancelled |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Expired |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Outstanding, December 31, 2021 |
|
|
577,695 |
|
|
$ |
181.20 |
|
|
|
4.1 |
|
|
- |
Issued |
|
|
4,508,923 |
|
|
|
3.44 |
|
|
|
5.4 |
|
|
|
Exercised |
|
|
(1,630,890 |
) |
|
|
0.0001 |
|
|
|
- |
(1) |
|
|
Cancelled |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
Expired |
|
|
|
- |
|
|
- |
|
|
|
|
|
|
|
Outstanding, December 31,
2022 |
|
|
3,435,728 |
|
|
$ |
33.94 |
|
|
|
5.1 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2022 |
|
|
577,695 |
|
|
$ |
181.28 |
|
|
|
3.1 |
|
|
- |
| (1) | Note that
the warrants are exercisable until they are exercised in full and have no expiration date;
as such, they have been excluded from this calculation. |
A summary of outstanding
and exercisable warrants as of December 31, 2022 is presented below:
Warrants Outstanding | | |
Warrants Exercisable | |
| | |
| | |
Weighted | | |
| |
| | |
| | |
Average | | |
| |
Exercise | | |
Number of | | |
Remaining | | |
Number of | |
Price | | |
Shares | | |
Life in Years | | |
Shares | |
$ | 100.00 | | |
| 128,200 | | |
| 3.2 | | |
| 128,200 | |
$ | 105.60 | | |
| 3,183 | | |
| 2.3 | | |
| 3,183 | |
$ | 141.40 | | |
| 1,250 | | |
| 1.6 | | |
| 1,250 | |
$ | 150.00 | | |
| 125,000 | | |
| 3.6 | | |
| 125,000 | |
$ | 230.00 | | |
| 300,062 | | |
| 2.9 | | |
| 300,062 | |
$ | 21.20 | | |
| 306,604 | | |
| - | | |
| - | |
$ | 3.50 | | |
| 2,571,429 | | |
| - | | |
| - | |
| | | |
| 3,435,728 | | |
| 3.1 | | |
| 577,695 | |
A summary of outstanding
and exercisable warrants as of December 31, 2021 is presented below:
Warrants Outstanding | | |
Warrants Exercisable | |
| | |
| | |
Weighted | | |
| |
| | |
| | |
Average | | |
| |
Exercise | | |
Number of | | |
Remaining | | |
Number of | |
Price | | |
Shares | | |
Life in Years | | |
Shares | |
$ | 100.00 | | |
| 128,200 | | |
| 4.2 | | |
| 128,200 | |
$ | 105.60 | | |
| 3,183 | | |
| 3.3 | | |
| 3,183 | |
$ | 141.40 | | |
| 1,250 | | |
| 2.6 | | |
| 1,250 | |
$ | 150.00 | | |
| 125,000 | | |
| 4.6 | | |
| 125,000 | |
$ | 230.00 | | |
| 300,062 | | |
| 3.9 | | |
| 300,062 | |
| | | |
| 577,695 | | |
| 4.1 | | |
| 577,695 | |
NOTE 9 - LOANS PAYABLE
The following tables summarize
the activity of loans payable during the years ended December 31, 2022 and 2021:
| |
Principal Balance at January 1,
2022 | | |
Adjustments | | |
Principal Repaid in
Cash | | |
New Issuances | | |
Effect of Foreign Exchange
Rates | | |
Principal Balance at December 31,
2022 | |
Paycheck Protection Program | |
$ | 41,312 | | |
$ | - | | |
$ | (41,312 | ) | |
$ | - | | |
$ | - | | |
$ | - | |
Bounce Back Loan Scheme | |
| 61,169 | | |
| - | | |
| (11,646 | ) | |
| - | | |
| (6,394 | ) | |
| 43,129 | |
First Assurance – 2021 | |
| 1,618,443 | | |
| (14,042 | )(1) | |
| (1,604,401 | ) | |
| - | | |
| | | |
| - | |
First Assurance – 2022 | |
| - | | |
| - | | |
| - | | |
| 1,060,890 | | |
| - | | |
| 1,060,890 | |
Other loans payable | |
| 155,320 | | |
| 80,366 | (2) | |
| | | |
| - | | |
| - | | |
| 235,686 | |
Total loans payable | |
| 1,876,244 | | |
$ | 66,324 | | |
$ | (1,657,359 | ) | |
$ | 1,060,890 | | |
$ | (6,394 | ) | |
| 1,339,705 | |
Less: loans payable – current portion | |
| 1,828,079 | | |
| | | |
| | | |
| | | |
| | | |
| 1,308,516 | |
Loans payable – non-current
portion | |
$ | 48,165 | | |
| | | |
| | | |
| | | |
| | | |
$ | 31,189 | |
| (1) | Note that
this amount was related to finance charges and was reclassified. |
| (2) | Note that
this amount was reclassified from related party payables. |
| |
Principal Balance at January 1,
2021 | | |
Forgiveness/ Adjusted to Other
Income | | |
Principal Repaid in
Cash | | |
New Issuances | | |
Effect of Foreign Exchange
Rates | | |
Principal Balance at December 31,
2021 | |
Kingsbrook | |
$ | 150,000 | | |
$ | - | | |
$ | (150,000 | ) | |
$ | - | | |
$ | - | | |
$ | - | |
Paycheck Protection Program | |
| 53,051 | | |
| (11,670 | ) | |
| (69 | ) | |
| - | | |
| - | | |
| 41,312 | |
Bounce Back Loan Scheme | |
| 68,245 | | |
| - | | |
| (4,724 | ) | |
| - | | |
| (2,352 | ) | |
| 61,169 | |
First Assurance - 2020 | |
| 655,593 | | |
| - | | |
| (655,593 | ) | |
| 1,618,443 | | |
| - | | |
| 1,618,443 | |
Other loans payable | |
| 155,320 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 155,320 | |
Total loans payable | |
| 1,082,209 | | |
$ | (11,670 | ) | |
$ | (810,386 | ) | |
$ | 1,618,443 | | |
$ | (2,352 | ) | |
| 1,876,244 | |
Less: loans payable - current portion | |
| 968,446 | | |
| | | |
| | | |
| | | |
| | | |
| 1,828,079 | |
Loans payable - non-current portion | |
$ | 113,763 | | |
| | | |
| | | |
| | | |
| | | |
$ | 48,165 | |
Loans Payable, Current Portion
| |
Simple Interest Rate | | |
December 31, 2022 | | |
December 31, 2021 | |
Loan payable issued September 18, 2019 | |
| 8 | % | |
$ | 50,000 | | |
$ | 50,000 | |
Loan payable issued September 18, 2019 | |
| 8 | % | |
| 50,000 | | |
| - | |
Loan payable issued October 8, 2019 | |
| 0 | % | |
| 4,000 | | |
| - | |
Loan payable issued October 29, 2019 | |
| 8 | % | |
| 69,250 | | |
| 69,250 | |
Loan payable issued December 31, 2019 | |
| 0 | % | |
| 5,000 | | |
| - | |
Loan payable issued February 5, 2020 | |
| 8 | % | |
| 3,500 | | |
| 3,500 | |
Loan payable issued February 5, 2020 | |
| 8 | % | |
| 3,500 | | |
| - | |
Loan payable issued March 31, 2020 | |
| 8 | % | |
| 4,537 | | |
| 4,537 | |
Loan payable issued March 31, 2020 | |
| 8 | % | |
| 4,537 | | |
| - | |
Loan payable issued June 8, 2020 | |
| 8 | % | |
| - | | |
| 5,000 | |
Loan payable issued June 8, 2020 | |
| 0 | % | |
| 5,000 | | |
| 5,000 | |
Loan payable issued June 17, 2020 | |
| 8 | % | |
| 485 | | |
| - | |
Loan payable issued July 15, 2020 * | |
| 8 | % | |
| 4,695 | | |
| 4,695 | |
Loan payable issued July 15, 2020 | |
| 8 | % | |
| 5,503 | | |
| - | |
Loan payable issued October 8, 2020 * | |
| 8 | % | |
| 7,798 | | |
| - | |
Loan payable issued October 13, 2020 | |
| 8 | % | |
| 13,337 | | |
| 13,337 | |
Loan payable issued October 14, 2020 | |
| 8 | % | |
| 4,544 | | |
| - | |
Current portion of PPP Loans
(1) | |
| 1 | % | |
| - | | |
| 41,312 | |
Current portion of Bounce
Back Loans (1) (2) | |
| 1 | % | |
| 11,940 | | |
| 13,005 | |
First
Assurance Funding payable issued December 10, 2021(2) | |
| 2 | % | |
| 1,060,890 | | |
| 1,618,443 | |
| |
| | | |
$ | 1,308,516 | | |
$ | 1,828,079 | |
| * | These
loans are denominated in currencies other than USD. |
| (1) | See
Loans Payable, Non-Current Portion for a description of the PPP Loans and the Bounce Back
Loans. |
| (2) | Note that
these loans are not currently in default. |
Loans Payable, Non-Current Portion
The non-current portion of
the Company’s loans payable as of December 31, 2022 and 2021 are as follows:
| |
Simple Interest Rate | | |
December 31, 2022 | | |
December 31, 2021 | | |
Maturity Date |
PPP loan payable issued May 5, 2020 | |
| 1.0 | % | |
| - | | |
$ | 41,312 | | |
5/4/2022 |
BBLS loan payable issued June 10, 2020 | |
| 2.5 | % | |
| 43,129 | | |
| 61,170 | | |
6/10/2026 |
Subtotal | |
| | | |
| 43,129 | | |
| 102,482 | | |
|
Less: Current portions of BBLS/PPP loans, respectively (see above) | |
| | | |
| (11,940 | ) | |
| (54,317 | ) | |
|
Non-current portion | |
| | | |
$ | 31,189 | | |
$ | 48,165 | | |
|
During April and May 2020,
Katexco received loans in the aggregate amount of $53,051 (the “PPP Loans”), under the Payroll Protection Program (“PPP”),
to support continuing employment during the COVID-19 pandemic.
Effective March 27, 2020,
legislation referred to as the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was passed to benefit
companies in the U.S. that were significantly impacted by the pandemic. Under the terms of the CARES Act, as amended by the Paycheck
Protection Program Flexibility Act of 2020, the Company is eligible to apply for and receive forgiveness for all or a portion of their
respective PPP Loans. Such forgiveness will be determined, subject to limitations, based on the use of the loan proceeds for certain
permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest,
rent or utility costs (collectively, “Qualifying Expenses”) incurred during the 24 weeks subsequent to funding, and on the
maintenance of employee and compensation levels, as defined, following the funding of the PPP Loan. The Company believes it used the
proceeds of the PPP Loans for Qualifying Expenses. Any amounts not forgiven incur interest at 1.0% per annum and monthly repayments of
principal and interest are deferred for six months after the date of disbursement.
On May 19, 2021, the Company
applied for loan forgiveness for the amount of $51,051 in connection with amounts borrowed by Katexco under the Paycheck Protection Program.
On August 5, 2021, the Company was notified that $9,670 was forgiven in connection with the PPP Loans.
On September 30, 2021, the
Company adjusted a portion of the PPP Loans in the amount of $2,000 to other income since such amount was a grant to 180LS by the government,
and it did not need to be repaid.
As of December 31, 2021,
the Company recorded accrued interest of $163 related to the PPP loans and interest expense of $1,636. On May 27, 2022, the Company repaid
in full the remainder of the PPP Loans in the amount of $41,312.
On June 10, 2020, the Company
received GBP £50,000 (USD $64,353) of cash proceeds pursuant to the Bounce Back Loan Scheme (“BBLS”), which provides
financial support to businesses across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19
outbreak. The BBLS is unsecured and bears interest at 2.5% per annum. The maximum loan amount is GBP £50,000 and the length of
the loan is six years, with payments beginning 12 months after the date of disbursement. Early repayment is allowed, without early repayment
fees. As of December 31, 2022 and 2021, the Company recorded accrued interest of GBP £778 (USD $1,051) and GBP £514 (USD
$702), respectively, related to the BBLS loan. During the years ended December 31, 2021 and 2020, the Company recorded interest expense
of GBP £778 (USD $1,051) and GBP£514 (USD $702), respectively, related to the BBLS loan.
On June 12, 2020, the Company
entered into a promissory note agreement with Kingsbrook Opportunities Master Fund LP for the borrowing of the aggregate principal sum
of $150,000, which bears interest at 15% per annum and matures on August 31, 2021. On March 3, 2021, the Company repaid the Kingsbrook
loans payable in cash for an aggregate of $162,452, which included the principal amount of $150,000 and accrued interest of $12,452.
During the year ended December
31, 2021, the Company paid an aggregate of $655,593 in full satisfaction of the 2020 directors and officers insurance policy and $4,724
in partial satisfaction of the Bounce Back Loan Scheme.
On December 10, 2021, the
Company entered into a financing arrangement for a Directors and Officers Insurance Policy (the “D&O Insurance”) with
First Assurance Funding to finance $1,618,443 of a total D&O Insurance amount of $2,005,502 inclusive of premiums, taxes, and fees.
As of December 31, 2022, a total of $1,060,890 remains financed in loans payable, due in monthly installments of $161,844.
Loans Payable – Related Parties
Loans payable to related
parties (the “Related Party Loans”) consist of loans payable to certain of the Company’s officers, directors and a
greater than 10% stockholder. The Company had the following loans payable to related parties outstanding as of December 31, 2022 and
2021:
| |
Simple Interest
Rate | | |
December 31,
2022(1) | | |
December 31, 2021 | |
Loan payable issued September 18, 2019 | |
| 8 | % | |
$ | - | | |
$ | 50,000 | |
Loan payable issued October 8, 2019 | |
| 0 | % | |
| - | | |
| 4,000 | |
Loan payable issued February 5, 2020 | |
| 8 | % | |
| - | | |
| 3,500 | |
Loan payable issued March 31, 2020 | |
| 8 | % | |
| - | | |
| 4,537 | |
Loan payable issued June 17, 2020 | |
| 8 | % | |
| - | | |
| 485 | |
Loan payable issued July 15, 2020 | |
| 8 | % | |
| - | | |
| 5,503 | |
Loan payable issued October 8, 2020 * | |
| 8 | % | |
| - | | |
| 8,708 | |
Loan payable issued October 14, 2020 | |
| 8 | % | |
| - | | |
| 4,544 | |
| |
| | | |
$ | - | | |
$ | 81,277 | |
| * | These are loans denominated
in currencies other than USD. |
| (1) | The loan payables
listed belong to holders that are no longer considered related parties as of this date. |
At issuance, the Related
Party Loans provided for a maturity date upon the earliest of (a) the consummation of the Business Combination; (b) June 30, 2020; or
(c) 60 days after the respective issuance date. On July 1, 2020, the Company amended the terms of the Related Party Loans to extend the
maturity terms to the earlier of (a) the closing of a qualified financing; or (b) November 1, 2020. The terms of all loan extensions
were reviewed and were deemed to be modifications, rather than extinguishments.
On February 10, 2021, the
Company entered into amended loan agreements to modify the terms of certain loan agreements in the aggregate principal amount of $432,699,
previously entered into with Sir Marc Feldmann and Dr. Lawrence Steinman, the Co-Executive Chairmen of the Board of Directors. The loan
agreements were extended and modified to be paid back at the Company’s discretion, either by 1) repayment in cash, or 2) by converting
the outstanding amounts into shares of common stock at the same price per share as the next financing transaction. Subsequently, on February
25, 2021, and effective as of the date of the original February 10, 2021 amendments, the Company determined that such amendments were
entered into in error and each of Sir Feldmann and Dr. Steinman rescinded such February 10, 2021 amendments pursuant to their entry into
Confirmations of Rescission acknowledgements. As such, the amendments to allow Sir Feldmann and Dr. Steinman the option to convert such
loans into shares of common stock were never effective.
On April 12, 2021, the Company
entered into amended loan agreements with Sir Marc Feldmann and Dr. Lawrence Steinman, the Co-Executive Chairman of the Board of Directors,
which extended the maturity date of all of their outstanding loan agreements to September 30, 2021.
On that day, they elected
to exchange an aggregate principal of $433,374 and aggregate accrued interest of $61,530 into an aggregate of 4,124 shares of the Company’s
common stock at a price of $120.00 per share, pursuant to the terms of the agreement (see Note 12 - Stockholders’ Equity).
Interest Expense on Loans Payable
For the year ended December
31, 2022, the Company recognized interest expense and interest income — related parties associated with outstanding loans, of $14,156
and $1,490, respectively.
For the year ended December
31, 2021, the Company recognized interest expense and interest expense — related parties associated with outstanding loans, of
$24,019 and $38,874, respectively.
As of December 31, 2022,
the Company had accrued interest and accrued interest — related parties associated with outstanding loans, of $37,960 and $16,770,
respectively. See Note 14 — Related Parties for additional details.
As of December 31, 2021,
the Company had accrued interest and accrued interest — related parties associated with outstanding loans, of $24,212 and $812,
respectively. See Note 14 — Related Parties for additional details.
NOTE 10 - CONVERTIBLE NOTES PAYABLE
The table below details the
convertible notes payable activity during the year ended December 31, 2021 (there was no activity during 2022, as all convertible notes
payable balances were zero as of December 31, 2021):
| |
| |
Maturity | |
| | |
| | |
| | |
| | |
| |
| |
| |
Date | |
| | |
| | |
| | |
| | |
| |
| |
| |
(as amended, | |
01/01/21 | | |
Impact | | |
Conversions | | |
Common | | |
12/31/21 | |
| |
Effective | |
if | |
Principal | | |
of | | |
to Common | | |
Shares | | |
Principal | |
| |
Date | |
applicable) | |
Balance | | |
Extinguishment | | |
Stock | | |
Issued | | |
Balance | |
Dominion | |
06/12/20 | |
02/11/21 | |
$ | 833,334 | | |
$ | - | | |
$ | (833,334 | ) | |
| 16,920 | | |
$ | - | |
Kingsbrook | |
06/12/20 | |
02/11/21 | |
| 101,000 | | |
| - | | |
| (101,000 | ) | |
| 1,689 | | |
| - | |
Alpha Capital | |
06/12/20 | |
02/11/21 | |
| 616,111 | | |
| (316,111 | ) | |
| (300,000 | ) | |
| 4,748 | | |
| - | |
Bridge Note | |
12/27/19 | |
08/28/21 | |
| 365,750 | | |
| - | | |
| (365,750 | ) | |
| 7,915 | | |
| - | |
Total | |
| |
| |
$ | 1,916,195 | | |
$ | (316,111 | ) | |
$ | (1,600,084 | ) | |
| 31,272 | | |
$ | - | |
The following table details
the convertible notes payable – related party activities during the years ended December 31, 2021 (there was no activity during
2022, as the balance was zero as of December 31, 2021):
| |
For the Year Ended December 31,
2021 |
| |
Effective Date | |
Maturity Date (as amended, if applicable) | |
01/01/21 Principal Balance | | |
Debt Issued | | |
Unpaid Interest Capitalized to Principal | | |
Settlement Debt | | |
Conversions to Common Stock | | |
12/31/21 Principal Balance | |
180 LP Convertible Note | |
09/24/13 | |
09/25/15 | |
| 160,000 | | |
| - | | |
| - | | |
| - | | |
| (160,000 | ) | |
| - | |
180 LP Convertible Note | |
06/16/14 | |
06/16/17 | |
| 10,000 | | |
| - | | |
| - | | |
| (10,000 | ) | |
| - | | |
| - | |
180 LP Convertible Note | |
07/08/14 | |
07/08/17 | |
| 100,000 | | |
| - | | |
| - | | |
| - | | |
| (100,000 | ) | |
| - | |
Total | |
| |
| |
$ | 270,000 | | |
$ | - | | |
$ | - | | |
$ | (10,000 | ) | |
$ | (260,000 | ) | |
$ | - | |
Dominion, Kingsbrook and Alpha Convertible
Promissory Note
Upon closing of the Business
Combination, the Dominion (defined below), Kingsbrook and Alpha (defined below) Convertible Promissory Notes were assumed.
Dominion Convertible Promissory Notes
| |
Dominion | |
| |
Principal | | |
Debt Discount | | |
Net | |
Balance at January 1, 2021 | |
$ | 833,334 | | |
$ | - | | |
$ | 833,334 | |
Impact of conversion | |
| (833,334 | ) | |
| - | | |
| (833,334 | ) |
Balance at December 31, 2021 | |
$ | - | | |
$ | - | | |
$ | - | |
On June 12, 2020 (the “Dominion
Issue Date”), KBL 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 Promissory Notes”) with Dominion Capital LLC (“Dominion”),
which was issued to Dominion in conjunction with 20,000 shares of common stock (the “Dominion Commitment Shares”) and assumed
a discount of $722,996, which has been amortized to interest expense over the term of the debt. The Company agreed to pay the principal
amount with interest, which was due and payable on February 11, 2021, unless converted under terms and provisions as set forth within
the Dominion Convertible Promissory Notes. The Dominion Convertible Promissory Notes provided Dominion 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 $105.60 per share.
During the year ended December
31, 2021, the Company recorded interest expense of $31,080 as of December 31, 2021 associated with the Dominion Convertible Promissory
Notes. See Convertible Debt Conversions of the Dominion, Kingsbrook and Alpha Convertible Promissory Notes further on in this note for
the details related to the 2021 conversions of the notes.
Kingsbrook Convertible Promissory Note
| |
Kingsbrook | |
| |
Principal | | |
Debt Discount | | |
Net | |
Balance at January 1, 2021 | |
$ | 101,000 | | |
$ | - | | |
$ | 101,000 | |
Impact of conversion | |
| (101,000 | ) | |
| - | | |
| (101,000 | ) |
Balance at December 31, 2021 | |
$ | - | | |
$ | - | | |
$ | - | |
On June 12, 2020 (the “Kingsbrook
Issue Date”), KBL entered into a $1,657,522 10% Secured Convertible Promissory Note and $138,889 10% Senior Secured Convertible
Extension Promissory Note (together with “Kingsbrook Convertible Promissory Notes”) with Kingsbrook Opportunities Master
Fund LP (“Kingsbrook”), which was issued to Kingsbrook in conjunction with 1,250 shares of common stock (the “Kingsbrook
Commitment Shares”) and an assumed debt discount of $685,615, which has been amortized to interest expense over the term of the
debt. The Company has agreed to pay the principal amount with guaranteed interest, which was due and payable on February 11, 2021,
unless converted under terms and provisions as set forth within the Kingsbrook Convertible Promissory Notes. The Kingsbrook Convertible
Promissory Notes provide Kingsbrook 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 $105.60 per share.
During the year ended December
31, 2021, the Company recorded interest expense of $10,010 as of December 31, 2021 associated with the Kingsbrook Convertible Promissory
Notes. See Convertible Debt Conversions of the Dominion, Kingsbrook and Alpha Convertible Promissory Notes further on in this note for
the details related to the 2021 conversions of the notes.
Alpha Convertible Promissory Note
| |
Alpha | |
| |
Principal | | |
Debt Discount | | |
Net | |
Balance at January 1, 2021 | |
$ | 616,111 | | |
$ | - | | |
$ | 616,111 | |
Impact of extinguishment | |
| (316,111 | ) | |
| - | | |
| (316,111 | ) |
Impact of conversion | |
| (300,000 | ) | |
| - | | |
| (300,000 | ) |
Balance at December 31, 2021 | |
$ | - | | |
$ | - | | |
$ | - | |
On September 8, 2020 (the
“Alpha Issue Date”), KBL entered into a $1,111,111 10% Secured Convertible Promissory Note (the “Alpha Convertible
Promissory Note”) with Alpha Capital Anstalt (“Alpha”), which was issued to the Holder in conjunction with 5,000 shares
of common stock and an assumed debt discount of $800,421, which has been amortized to interest expense over the term of the debt. The
Company has promised to pay the principal and guaranteed interest, which was due and payable on April 7, 2021 unless converted under
terms and provisions as set forth within the Alpha Capital Anstalt Convertible Note. The Alpha Convertible Promissory Note provides Alpha
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 $105.60 per share.
During the year ended December
31, 2021, the Company recorded interest expense of $58,510 as of December 31, 2021 associated with the Alpha Convertible Promissory Notes.
See Convertible Debt Conversions of the Dominion, Kingsbrook and Alpha Convertible Promissory Notes further on in this note for the details
related to the 2021 conversions of the notes.
2021 Convertible Debt Conversion/Extinguishment
of the Dominion, Kingsbrook and Alpha Convertible Promissory Notes
The holders of the Secured
Convertible Promissory Notes elected to convert principal and interest into shares of the Company’s common stock during 2021 as
follows:
| |
| | |
| | |
| | |
| | |
| | |
| | |
Loss on | |
| |
| | |
| | |
| | |
| | |
| | |
Fair Value | | |
Extinguishment | |
| |
Principal | | |
| | |
Derivative | | |
Total | | |
Common | | |
of | | |
of | |
| |
Balance | | |
Interest | | |
Liabilities | | |
Amount | | |
Shares | | |
Shares | | |
Convertible | |
| |
Converted | | |
Converted | | |
Converted | | |
Converted | | |
Issued | | |
Issued | | |
Notes | |
Dominion Convertible Promissory Note | |
$ | 833,333 | | |
$ | 83,333 | | |
$ | 133,033 | | |
$ | 1,049,700 | | |
| 16,920 | | |
$ | 1,255,037 | | |
$ | (205,337 | ) |
Kingsbrook Convertible Promissory Note | |
| 101,000 | | |
| 10,100 | | |
| 136,800 | | |
| 247,900 | | |
| 1,689 | | |
| 174,253 | | |
| 73,647 | |
Alpha Capital Convertible Promissory Note | |
| 300,000 | | |
| 12,417 | | |
| 321,370 | | |
| 633,787 | | |
| 4,748 | | |
| 511,834 | | |
| 121,953 | |
Total | |
$ | 1,234,333 | | |
$ | 105,850 | | |
$ | 591,203 | | |
$ | 1,931,387 | | |
| 23,357 | | |
$ | 1,941,124 | | |
$ | (9,737 | ) |
During the third quarter
of 2021, certain noteholders elected to convert certain convertible notes payable with an aggregate principal balance of $1,234,333 and
an aggregate accrued interest balance of $105,850 into an aggregate of 23,357 shares of the Company’s common stock at conversion
prices ranging from $49.00-$65.80 per share. The shares issued upon the conversion of the convertible promissory notes had a fair value
at issuance of $1,941,124.
Alpha – Extinguishment
On February 3, 2021, an event
of default was triggered under a convertible note held by Alpha Capital Anstalt (“Alpha” and the “Alpha Capital Note”);
on July 29, 2021, the Company reached a settlement agreement with Alpha (the “Alpha Settlement Agreement”) which provided
for Alpha to convert the remaining principal and accrued interest associated with the convertible note in exchange for 7,500 shares of
the Company’s common stock plus a three-year warrant to purchase 1,250 additional shares of the Company’s common stock at
an exercise price of $141.40 per share. The Company determined that the shares and warrants had an aggregate value of $1,156,177 as of
July 29, 2021. On July 29, 2021, the $1,156,177 aggregate carrying value of the principal, accrued interest, derivative liability and
settlement accrual associated with the Alpha Capital Note were extinguished while the $1,060,500 fair value of the common stock was recorded
within equity and the $95,677 fair value of the Alpha Warrant was recorded as a derivative liability (see Note 8, Derivative Liabilities
for additional information).
Bridge Notes
On January 3, 2020 and December
27, 2019, the Company issued convertible bridge notes in the aggregate amount of $82,500 and $250,000 under the same terms. The total
outstanding principal amount of convertible bridge notes of $332,500 (the “Bridge Notes”) and the respective accrued interest
will automatically convert into a portion of the 17.5 million shares of KBL common stock to be received upon the consummation of the Business
Combination Agreement at a conversion price equal to the lesser of $6.00 per KBL share or 60% of the implied valuation at such time, as
defined. The Bridge Notes accrue interest at 15% per annum. On July 7, 2020, the Company entered into an amendment agreement with each
Bridge Noteholder (the “Amended Bridge Notes”). Pursuant to the terms of the Amended Bridge Notes, the principal under each
Amended Bridge Note is increased by 10%, which can be converted; the number of conversion shares is equal to (A) the outstanding principal
amount plus interest being converted, divided by (B) the lesser of (i) $4.23 per share or (ii) the per share price equal to 0.60 multiplied
by the per share price of one share of common stock sold by the Company as part of a PIPE transaction. On October 7, 2020, the Company
entered into an additional amendment with each Amended Bridge Noteholder pursuant to which the Amended Bridge Notes will no longer mature
upon the date that the Registration Statement is declared effective by the SEC. Since the change in cash flows was not more than 10%,
this amendment was deemed to be a modification. On March 8, 2021, the holders of the Company’s convertible bridge notes, which were
issued on December 27, 2019 and January 3, 2020 to various purchasers, converted an aggregate of $432,384, which included accrued interest
of $66,633 owed under such convertible bridge notes, into an aggregate of 7,920 shares of common stock pursuant to the terms of such notes,
as amended, at a conversion price of $54.60 per share.
180 LP Convertible Notes
In connection with the Reorganization,
the Company assumed $270,000 of debt related to convertible notes payable (the “Notes”); during the second quarter of 2021,
the Company repaid a certain related party convertible note payable in cash for the principal amount of $10,000 and $1,873 of accrued
interest. During the third quarter of 2021, the $260,000 remaining principal balance of convertible notes payable owed to a related party,
plus $96,208 of related accrued interest, was converted into 2,969 shares of the Company’s common stock, pursuant to a debt conversion
agreement dated September 30, 2021.
Interest on Convertible Notes
During the years ended December
31, 2021, the Company recorded interest expense of $109,767 related to convertible notes payable, and recorded interest expense - related
parties of $42,529 related to convertible notes payable - related parties.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Litigation and Other Loss Contingencies
The Company records liabilities
for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources when it is probable that a liability
has been incurred and the amount of the loss can be reasonably estimated. The Company has no liabilities recorded for loss contingencies
as of December 31, 2022. See Potential Legal Matters – Action Against Former Executives of KBL and Cantor Fitzgerald & Co.
Breach of Contract below for information related to a December 31, 2022 accrual.
Potential Legal Matters
Action Against Former Executive of KBL
On September 1, 2021, the
Company initiated legal action in the Chancery Court of Delaware against Dr. Marlene Krauss, the Company’s former Chief Executive
Officer and director (“Dr. Krauss”) and two of her affiliated companies, KBL IV Sponsor, LLC and KBL Healthcare Management,
Inc. (collectively, the “KBL Affiliates”) for, among other things, engaging in unauthorized monetary transfers of the
Company’s assets, non-disclosure of financial liabilities within the Company’s Consolidated Financial Statements, issuing
shares of stock without proper authorization; and improperly allowing stockholder redemptions to take place. The Company’s complaint
alleges causes of action against Dr. Krauss and/or the KBL Affiliates for breach of fiduciary duties, ultra vires acts, unjust enrichment,
negligence and declaratory relief, and seeks compensatory damages in excess of $11,286,570, together with interest, attorneys’
fees and costs. There can be no assurance that the Company will be successful in its legal actions. As of December 31, 2022, the Company
has a legal accrual of $125,255 recorded to cover the legal expenses of the former executives of KBL.
On October 5, 2021, Dr. Krauss
and the KBL Affiliates filed an Answer, Counterclaims and Third-Party Complaint (the “Krauss Counterclaims”) against the
Company and twelve individuals who are, or were, directors and/or officers of the Company, i.e., Marc Feldmann, Lawrence Steinman, James
N. Woody, Teresa DeLuca, Frank Knuettel II, Pamela Marrone, Lawrence Gold, Donald A. McGovern, Jr., Russell T. Ray, Richard
W. Barker, Shoshana Shendelman and Ozan Pamir (collectively, the “Third-Party Defendants”). On October 27, 2021,
the Company and Ozan Pamir filed an Answer to the Krauss Counterclaims, and all of the other Third-Party Defendants filed a Motion to
Dismiss as to the Third-Party Complaint.
On January 28, 2022, in lieu
of filing an opposition to the Motion to Dismiss, Dr. Krauss and the KBL Affiliates filed a Motion for leave to file amended counterclaims
and third-party complaint, and to dismiss six of the current and former directors previously named, i.e., to dismiss Teresa DeLuca,
Frank Knuettel II, Pamela Marrone, Russell T. Ray, Richard W. Barker and Shoshana Shendelman. The Motion was granted by stipulation
and, on February 24, 2022, Dr. Krauss filed an amended Answer, Counterclaims and Third-Party Complaint (the “Amended Counterclaims”).
In essence, the Amended Counterclaims allege (a) that the Company and the remaining Third-Party Defendants breached fiduciary duties
to Dr. Krauss by making alleged misstatements against Dr. Krauss in SEC filings and failing to register her shares in the Company so
that they could be traded, and (b) the Company breached contracts between the Company and Dr. Krauss for registration of such shares,
and also failed to pay to Dr. Krauss the amounts alleged to be owing under a promissory note in the principal amount of $371,178, plus
an additional $300,000 under Dr. Krauss’s resignation agreement. The Amended Counterclaims seek unspecified amounts
of monetary damages, declaratory relief, equitable and injunctive relief, and attorney’s fees and costs.
On March 16, 2022, Donald
A. McGovern, Jr. and Lawrence Gold filed a Motion to Dismiss the Amended Counterclaims against them, and the Company and the remaining
Third-Party Defendants filed an Answer to the Amended Counterclaims denying the same. On April 19, 2022, Dr. Krauss stipulated
to dismiss all of her counterclaims and allegations against both Donald A. McGovern, Jr. and Lawrence Gold, thereby mooting their Motion
to Dismiss the Amended Counterclaims against them. The Company and the Third-Party Defendants intend to continue to vigorously defend
against all of the Amended Counterclaims, however, there can be no assurance that they will be successful in the legal defense of such
Amended Counterclaims. In April 2022, Donald A. McGovern, Jr. and Lawrence Gold were dismissed from the lawsuit as parties. Discovery
has not yet commenced in the case. The Company and the Third-Party Defendants intend to continue to vigorously defend against all
of the Amended Counterclaims, however, there can be no assurance that they will be successful in the legal defense of such Amended Counterclaims.
Action Against the Company by Dr. Krauss
On August 19, 2021, Dr. Krauss
initiated legal action in the Chancery Court of Delaware against the Company. The original Complaint sought expedited relief and
made the following two claims: (1) it alleged that the Company is obligated to advance expenses including, attorney’s fees,
to Dr. Krauss for the costs of defending against the SEC and certain Subpoenas served by the SEC on Dr. Krauss; and (2) it alleged that
the Company is also required to reimburse Dr. Krauss for the costs of bringing this lawsuit against the Company. On or about
September 3, 2021, Dr. Krauss filed an Amended and Supplemental Complaint (the “Amended Complaint”) in this action, which
added the further claims that Dr. Krauss is also allegedly entitled to advancement by the Company of her expenses, including attorney’s
fees, for the costs of defending against the Third-Party Complaint in the Tyche Capital LLC action referenced below, and the costs of
defending against the Company’s own Complaint against Dr. Krauss as described above. On or about September 23, 2021,
the Company filed its Answer to the Amended Complaint in which the Company denied each of Dr. Krauss’ claims and further raised
numerous affirmative defenses with respect thereto.
On November 15, 2021, Dr.
Krauss filed a Motion for Summary Adjudication as to certain of the issues in the case, which was opposed by the Company. A hearing
on such Motion was held on December 7, 2021, and, on March 7, 2022, the Court issued a decision in the matter denying the Motion
for Summary Adjudication in part and granting it in part. The Court then issued an Order implementing such a decision on March 29,
2022. The parties are now engaging in proceedings set forth in that implementing Order. The Court granted Dr. Krauss’s request
for advancement of some of the legal fees which Dr. Krauss requested in her Motion, and the Company was required to pay a portion of
those fees while it objects to the remaining portion of disputed fees. These legal fees have been accrued on the Company’s balance
sheet.
On October 10, 2022, Dr. Krauss
filed an Application to compel the Company to pay the full amount of fees requested by Dr. Krauss for May-July 2022, and to modify the
Court’s Order. The Company filed its Opposition thereto. On January 18, 2023, Dr. Krauss filed a Second Application to
compel the Company to pay the full amount of fees requested by Dr. Krauss for August-October 2022, and to modify the Court’s Order.
The Company filed its Opposition thereto. On March 13, 2023, the Court telephonically informed the attorneys for the parties
that it intended to grant both of Dr. Krauss’ Applications; however, to date, the Court has not yet issued such ruling. Notwithstanding
such apparent decision and any requirement therein by the Court for the Company to advance attorneys’ fees to Dr. Krauss, such
a ruling will not constitute any final adjudication as to whether Dr. Krauss will ultimately be entitled to permanently retain
such advancements. The Company is seeking payment for a substantial portion of such amounts from its director and officers’ insurance
policy, of which no assurance can be provided that the directors and officers insurance policy will cover such amounts. See “Declaratory
Relief Action Against the Company by AmTrust International” below.
Action Against Tyche Capital LLC
The Company commenced and
filed an action against defendant Tyche Capital LLC (“Tyche”) in the Supreme Court of New York, in the County of New York,
on April 15, 2021. In its Complaint, the Company alleged claims against Tyche arising out of Tyche’s breach of its written
contractual obligations to the Company as set forth in a “Guarantee And Commitment Agreement” dated July 25, 2019, and a
“Term Sheet For KBL Business Combination With CannBioRex” dated April 10, 2019 (collectively, the “Subject Guarantee”).
The Company alleges in its Complaint that, notwithstanding demand having been made on Tyche to perform its obligations under the Subject
Guarantee, Tyche has failed and refused to do so, and is currently in debt to the Company for such failure in the amount of $6,776,686,
together with interest accruing thereon at the rate set forth in the Subject Guarantee.
On or about May 17, 2021,
Tyche responded to the Company’s Complaint by filing an Answer and Counterclaims against the Company alleging that it was the Company,
rather than Tyche, that had breached the Subject Guarantee. Tyche also filed a Third-Party Complaint against six third-party defendants,
including three members of the Company’s management, Sir Marc Feldmann, Dr. James Woody, and Ozan Pamir (collectively, the “Individual
Company Defendants”), claiming that they allegedly breached fiduciary duties to Tyche with regards to the Subject Guarantee. In
that regard, on June 25, 2021, each of the Individual Company Defendants filed a Motion to Dismiss Tyche’s Third-Party Complaint
against them.
On November 23, 2021, the
Court granted the Company’s request to issue an Order of attachment against all of Tyche’s shares of the Company’s
stock that had been held in escrow. In so doing, the Court found that the Company had demonstrated a likelihood of success on the
merits of the case based on the facts alleged in the Company’s Complaint.
On February 18, 2022, Tyche
filed an Amended Answer, Counterclaims and Third-Party Complaint. On March 22, 2022, the Company and each of the Individual Company
Defendants filed a Motion to Dismiss all of Tyche’s claims. A hearing on such Motion to Dismiss was held on August 25,
2022, and the Court granted the Motion to Dismiss entirely as to each of the Individual Company Defendants, and also as to three of the
four Counterclaims brought against the Company, only leaving Tyche’s declaratory relief claim. On September 9, 2022, Tyche filed
a Notice of Appeal as to the Court’s decision, which has not yet been briefed or adjudicated. On August 26, 2022, Tyche filed a
Motion to vacate or modify the Company’s existing attachment Order against Tyche’s shares of the Company’s stock held
in escrow. The Company has filed its Opposition thereto, and the Court summarily denied such Motion without hearing on January 3, 2023.
Tyche subsequently filed a Notice of Appeal as to that denial and filed its Opening Brief on January 30, 2023. The Company
filed its opposition brief on March 2, 2023, and no hearing date has been set.
On January 30, 2023,
the Company filed a Notice of Motion for Summary Judgment and to Dismiss Affirmative Defenses against Tyche. Tyche has
recently filed its Opposition, and the Company will now file a reply. No hearing has yet been set on this matter. The Company and the
Individual Company Defendants intend to continue to vigorously defend against all of Tyche’s claims, however, there can
be no assurance that they will be successful in the legal defense of such claims. Written discovery proceedings and depositions have occurred
among the parties.
Action Against Ronald Bauer & Samantha
Bauer
The Company and two of its
wholly-owned subsidiaries, Katexco Pharmaceuticals Corp. and CannBioRex Pharmaceuticals Corp. (collectively, the “Company Plaintiffs”),
initiated legal action against Ronald Bauer and Samantha Bauer, as well as two of their companies, Theseus Capital Ltd. and Astatine
Capital Ltd. (collectively, the “Bauer Defendants”), in the Supreme Court of British Columbia on February 25, 2022. The Company
Plaintiffs are seeking damages against the Bauer Defendants for misappropriated funds and stock shares, unauthorized stock sales, and
improper travel expenses, in the combined sum of at least $4,395,000 CAD [$3,178,025 USD] plus the additional sum of $2,721,036 USD.
The Bauer Defendants filed an answer to the Company Plaintiffs’ claims on May 6, 2022. There can be no assurance that the Company
Plaintiffs will be successful in this legal action.
Declaratory Relief Action Against the Company
by AmTrust International
On June 29, 2022, AmTrust
International Underwriters DAC (“AmTrust”), which was the premerger directors’ and officers’ insurance policy
underwriter for KBL, filed a declaratory relief action against the Company in the U.S. District Court for the Northern District
of California (the “Declaratory Relief Action”) seeking declaration of AmTrust’s obligations under the directors’
and officers’ insurance policy. In the Declaratory Relief Action, AmTrust is claiming that as a result of the merger
the Company is no longer the insured under the subject insurance policy, notwithstanding the fact that the fees which the Company
seeks to recover from AmTrust relate to matters occurring prior to the merger.
On September 20, 2022, the
Company filed its Answer and Counterclaims against AmTrust for bad faith breach of AmTrust’s insurance coverage obligations to
the Company under the subject directors’ and officers’ insurance policy, and seeking damages of at least $2 million in compensatory
damages, together with applicable punitive damages. In addition, the Company brought a Third-Party Complaint against its excess insurance
carrier, Freedom Specialty Insurance Company (“Freedom”) seeking declaratory relief that Freedom will also be required to
honor its policy coverage as soon as the amount of AmTrust’s insurance coverage obligations to the Company have been exhausted.
On October 25, 2022, AmTrust filed its Answer to the Company’s Counterclaims and, on October 27, 2022, Freedom filed its Answer
to the Third-Party Complaint.
On November 22, 2022,
the Company filed a Motion for Summary Adjudication against both AmTrust and Freedom. The Motion was fully briefed and a hearing
was held on March 9, 2023. The Court took the matter under submission and has not yet issued a ruling. While the Company believes
it has a strong case against AmTrust, there can be no assurance that the Company will prevail in this action.
Yissum Research and License Agreement
On May 13, 2018, CBR Pharma
entered into a worldwide research and license agreement with Yissum Research Development Company of the Hebrew University of Jerusalem,
Ltd. (“Yissum Agreement”) allowing CBR Pharma to utilize certain patent (the “Licensed Patents”). The Licensed
Patents shall expire, if not earlier terminated pursuant to the provisions of the Yissum Agreement, on a country-by-country, product-by-product
basis, upon the later of: (i) the date of expiration in such country of the last to expire Licensed Patent included in the Licensed Technology;
(ii) the date of expiration of any exclusivity on the product granted by a regulatory or government body in such country; or (iii) the
end of a period of twenty (20) years from the date of the First Commercial Sale in such country. Should the periods referred to in items
(i) or (ii) above expire in a particular country prior to the period referred to in item (iii), above, the license in that country or
those countries shall be deemed a license to the Know-How during such post-expiration period.
Royalties will be payable
to Yissum if sales of any products which use, exploit or incorporate technology covered by the Licensed Patents (“Net Sales”)
are US $500,000,000 or greater, calculated at 3% for the first annual $500,000,000 of Net Sales and at 5% of Net Sales thereafter.
Pursuant to the Yissum Agreement,
if Yissum achieves the following milestones, CBR Pharma will be obligated to make the following payments:
i) $75,000 for successful
point of care in animals;
ii) $75,000 for submission
of the first investigational new drug testing;
iii) $100,000 for commencement
of one phase I/II trial;
iv) $150,000 for commencement
of one phase III trial;
v) $100,000 for each product
market authorization/clearance (maximum of $500,000); and
vi) $250,000 for every $250,000,000
in accumulated sales of the product until $1,000,000,000 in sales is achieved.
In the event of an exit event
(“Event”), which may be defined as either, a transaction or series of transactions under which the receipt of any consideration,
monetary or otherwise by the Company or its shareholders is received in consideration for the sale of shares of the Company or shareholders,
or an initial public offering (“IPO”) of the Company, but for greater certainty excludes a reorganization of the Company
where the ultimate equity holders of the reorganized entity remain substantially the same as that of the Company, the Company will issue
5% of the issued and outstanding shares, on a fully diluted basis, to Yissum prior to the closing of an Event. These shares will be subject
to: (a) as to half of such shares, a lock-up period ending 12 months from the Event date and as to the other half of such shares, a lock-up
period ending 24 months from the Event date, and (b) in any event, any resale restrictions (including lock-ups and hold periods). See
Note 12 – Stockholders’ Equity for more information on the shares issued to Yissum as part of the business combination.
CBR Pharma is also party
to consulting agreements with Yissum, whereby Yissum has agreed to provide two of its employees as consultants to the Company for $100,000
per annum per person for a term of three years, commencing May 13, 2018. As of December 31, 2022, these consulting agreements have not
been renewed.
On January 1, 2020, CBR Pharma
entered into a first amendment to the Yissum Agreement (“First Amendment”) with Yissum, allowing CBR Pharma to sponsor additional
research performed by two Yissum professors. Pursuant to the terms of the First Amendment, the Company will pay Yissum $200,000 per year
plus 35% additional for University overhead for the additional research performed by each professor over an 18-month period, starting
May 1, 2019. As of December 31, 2021, the Company owes no outstanding balance in connection with the Yissum Agreement (as amended). During
the years ended December 31, 2022 and 2021, the Company recognized research and development expenses of $0 and $443,151, respectively,
related to this agreement.
Additional Yissum Agreement
On November 11, 2019 (the
“Effective Date”), CBR Pharma entered into a new worldwide research and license agreement with Yissum (the “Additional
Yissum Agreement”), allowing CBR Pharma to obtain a license and perform the research, development and commercialization of the
licensed patents (the “Licensed Patents”) in the research of cannabinoid salts relating to arthritis and pain management.
Within 60 days after the end of the first anniversary of the Effective Date, Yissum will present the Company with a detailed written
report summarizing the results of their research.
The Licensed Patents shall
expire, if not earlier terminated pursuant to the provisions of the Additional Yissum Agreement, on a country-by-country, product-by-
product basis, upon the later of: (i) the date of expiration in such country of the last to expire Licensed Patent included in the Licensed
Technology; (ii) the date of expiration of any exclusivity on the product granted by a regulatory or government body in such country;
or (iii) the end of a period of twenty (20) years from the date of the first commercial sale in such country. Should the periods referred
to in items (i) or (ii) above expire in a particular country prior to the period referred to in item (iii), above, the license in that
country or those countries shall be deemed a license to the know-how during such post-expiration period.
Pursuant to the terms of
the Additional Yissum Agreement, CBR Pharma paid Yissum a non-refundable license fee of $70,000 and will pay an aggregate of $398,250
of research, development and consulting fees over the term of the Additional Yissum Agreement, as well as an annual license maintenance
fee of $25,000, beginning on the first anniversary of the Effective Date.
The Company shall pay Yissum
the following amounts in connection with the achievement of the following milestones:
| ● | Submission
of the first Investigational New Drug application: $75,000 |
| ● | Dosing
of first patient in phase II trial: $100,000 |
| ● | Dosing
of first patient in phase Ill trial: $150,000 |
| ● | Upon
first market authorization/clearance: $150,000 |
| ● | Upon
second market authorization/clearance: $75,000 |
| ● | For
every $250,000,000.00 US in accumulated Net Sales of the Product until $1,000,000,000.00
US in sales: $250,000 |
Upon the commercialization
of the license, the Company shall pay Yissum a royalty equal to 3% of the first aggregate $500,000,000 of annual net sales and 5% thereafter.
As of December 31, 2022 and 2021, the Company had no balances in either accounts payable and accrued expenses, respectively, relating
to the Additional Yissum Agreement. During the years ended December 31, 2022 and 2021, the Company recorded $0 and $246,753, respectively,
of research and development expenses.
Stanford License Agreement
On May 8, 2018, Katexco entered
into a six-month option agreement (the “Stanford Option”) with Stanford University (“Stanford”) under which Stanford
granted the Company a six-month option to acquire an exclusive license for patents (the “Licensed Patents”) which are related
to biological substances used to treat auto- immune diseases. In consideration for the Stanford Option, the Company paid Stanford $10,000
(the “Option Payment”), which was creditable against the first anniversary license maintenance fee payment.
On July 25, 2018, Katexco
exercised their six-month option and entered into an exclusive license agreement (the “Stanford License Agreement”)
with Stanford. Pursuant to the Stanford License Agreement, beginning upon the first anniversary of the effective date, and each anniversary
thereafter, the Company will pay Stanford, in advance, a yearly license maintenance fee of $20,000, on each of the first and second anniversaries
and $40,000 on each subsequent anniversary, which will be expensed on a straight-line basis annually.
Furthermore, the Company
will be obligated to make the following milestone payments:
i) $100,000 upon initiation
of Phase II trial,
ii) $500,000 upon the first U.S. Food
and Drug Administration approval of a product (the “Licensed Product”) resulting from the Licensed Patents; and
iii) $250,000 upon each new
Licensed Product thereafter.
The Stanford License Agreement
is cancellable by the Company with 30 days’ notice. Royalties, calculated at 2.5% of 95% of net product sales, will be payable
to Stanford. Also, the Company will reimburse Stanford for patent expenses as per the agreement. The Company paid Stanford $20,000 for
the annual license maintenance fee that was recorded to prepaid expenses and is being expensed on a straight-line basis over 12 months,
which had a zero balance as of December 31, 2021. During the years ended December 31, 2022 and 2021, the Company recorded patent and
license fees of $69,278 and $78,245, respectively, related to the Stanford License Agreement, which is included in general and administrative
expenses on the accompanying statements of operations and comprehensive loss.
Oxford University Agreements
On September 18, 2020, CBR
Pharma entered into a 3 year research and development agreement (the “3 Year Oxford Agreement”) with Oxford to research and
investigate the mechanisms underlying fibrosis in exchange for aggregate consideration of $1,085,738 (£795,468), of which $109,192
(£80,000) is to be paid 30 days after the project start date and the remaining amount is to be paid in four equal installments
of $244,136 (£178,867) on the six month anniversary and each of the annual anniversaries of the project start date. The agreement
can be terminated by either party upon written notice or if the Company remains in default on any payments due under this agreement for
more than 30 days. During the year ended December 31, 2022 and 2021, the Company recognized $322,767 (£265,156) and $364,673 (£264,938),
respectively, of research and development expenses in connection with the 3 Year Oxford Agreement.
On September 21, 2020, CBR
Pharma entered into a 2 year research and development agreement (the “2 Year Oxford Agreement”) with Oxford University for
the clinical development of cannabinoid drugs for the treatment of inflammatory diseases in exchange for aggregate consideration of $625,124
(£458,000), of which $138,917 (£101,778) is to be paid 30 days after the project start date and the remaining amount is to
be paid every 6 months after the project start date in 4 installments, whereby $138,917 (£101,778) is to be paid in the first 3
installments and $69,456 (£50,888) is to be paid as the final installment. The agreement can be terminated by either party upon
written notice or if the Company remains in default on any payments due under this agreement for more than 30 days. During the years
ended December 31, 2022 and 2021, the Company recognized $123,891 (£101,778) and $139,977 (£101,778) of research and development
expenses, respectively, in connection with the 2 Year Oxford Agreement, which is reflected within accrued expenses on the accompanying
consolidated balance sheet.
As of December 31, 2022 and
2021, the Company owed Oxford no monies for the 2-year agreement.
On May 24, 2021, the Company
entered into a research agreement with the University of Oxford (“Oxford” and the “Fifth Oxford Agreement”),
pursuant to which the Company will sponsor work at the University of Oxford to conduct a multi-center, randomized, double blind, parallel
group, feasibility study of anti-TNF injection for the treatment of adults with frozen shoulder during the pain-predominant phase. As
consideration, the Company agreed to make the following payments to Oxford:
| |
Amount Due | |
Milestone | |
(excluding VAT) | |
| |
| |
Upon signing of the Fifth Oxford Agreement | |
£ | 70,546 | |
| |
| | |
6 months post signing of the Fifth Oxford Agreement | |
£ | 70,546 | |
| |
| | |
12 months post signing of the Fifth Oxford Agreement | |
£ | 70,546 | |
| |
| | |
24 months post signing of the Fifth Oxford Agreement | |
£ | 70,546 | |
The Company paid the first
milestone of $97,900 (£70,546) on September 3, 2021, which was due upon signing of the Fifth Oxford Agreement, which was recorded
to prepaid expenses and will be amortized over the term of the agreement on a straight-line basis. During the years ended December 31,
2022 and 2021, the Company recorded $271,931 (£223,394) and $210,215 (£152,848), respectively, of research and development
expenses and has prepaid balances of $14,233 (£11,756) and $80,852 (£58,788), respectively, related to the Fifth Oxford Agreement.
On November 2, 2021, the
Company and Oxford University entered into a twenty-year licensed technology agreement of the HMGB1 molecule, which is related to tissue
regeneration, whereby Oxford University agreed to license the technology to the Company for research, development and use of the licensed
patents. The Company agreed to pay Oxford University for past patent costs $66,223 (£49,207), an initial License fee of $13,458
(£10,000), future royalties based on sales and milestones, and an annual maintenance fee of $4,037 (£3,000). The Company
has the option to terminate the agreement after the third anniversary of the agreement. During the year ended December 31, 2022, the
Company recorded $10,581 of research and development expenses related to this agreement.
Kennedy License Agreement
On September 27, 2019, 180
LP entered into a license agreement (the “Kennedy License Agreement”) with the Kennedy Trust for Rheumatology Research (“Kennedy”)
exclusively in the U.S., Japan, United Kingdom and countries of the EU, for certain licensed patents (the “Kennedy Licensed Patents”),
including the right to grant sublicenses, and the right to research, develop, sell or manufacture any pharmaceutical product (i) whose
research, development, manufacture, use, importation or sale would infringe the Kennedy Licensed Patents absent the license granted under
the Kennedy License Agreement or (ii) containing an antibody that is a fragment of or derived from an antibody whose research, development,
manufacture, use, importation or sale would infringe the Kennedy Licensed Patents absent the license granted under the Kennedy License
Agreement, for all human uses, including the diagnosis, prophylaxis and treatment of diseases and conditions.
As consideration for the
grant of the Kennedy Licensed Patents, 180 LP paid Kennedy an upfront fee of GBP £60,000, (USD $74,000) on November 22, 2019, which
was recognized as an intangible asset for the purchase of the licensed patents and is being amortized over the remaining life of the
patents. 180 LP will also pay Kennedy royalties equal to (i) 1% of the net sales for the first annual GBP £1 million (USD $1,283,400)
of net sales, and (ii) 2% of the net sales after the net sales are at or in excess of GBP £1 million, as well as 25% of all sublicense
revenue, provided that the amount of such percentage of sublicense revenue based on amounts which constitute royalties shall not be less
than 1% on the first cumulative GBP £1 million of net sales of the products sold by such sublicenses or their affiliates, and 2%
on that portion of the cumulative net sales of the products sold by such sublicenses or their affiliates in excess of GBP £1 million.
The term of the royalties
paid by the Company to Kennedy will expire on the later of (i) the last valid claim of a patent included in the Kennedy Licensed Patents
which covers or claims the exploitation of a product in the applicable country; (ii) the expiration of regulatory exclusivity for the
product in the country; or (iii) 10 years from the first commercial sale of the product in the country. The Kennedy License Agreement
may be terminated without cause by providing a 90-day notice.
Petcanna Sub-License Agreement
On August 20, 2018, CBR Pharma
entered into a sub-license agreement (the “Sub-License Agreement”) with its wholly owned subsidiary, Petcanna Pharma Corp.
(“Petcanna”), of which the Company’s former Chief Financial Officer is a director. Petcanna is a private company with
one common principal with the Company.
Pursuant to the terms of
the Sub-license Agreement, the Company has granted a sub-license on the Licensed Patents to pursue development and commercialization
for the treatment of any and all veterinary conditions. In consideration, Petcanna will (a) issue 450,000 common shares of its share
capital (the “Petcanna Shares”) 30 days after the effective date; and (b) pay royalties of 1% of net sales. The Company will
be issued 85% and Yissum will be issued 15% of the 450,000 common shares of the Petcanna subsidiary. The Petcanna shares are deemed to
be founders shares with no value. The Petcanna shares have not been issued as of December 31, 2022.
360 Life Sciences Corp. Agreement - Related
Party (Acquisition of ReFormation Pharmaceuticals Corp.)
On July 1, 2020, the Company
entered into an amended agreement with ReFormation Pharmaceuticals, Corp. (“ReFormation”) and 360 Life Sciences Corp. (“360”),
whereby 360 has entered into an agreement to acquire 100% ownership of ReFormation, on or before July 31, 2020 (“Closing Date”).
The Company shares officers and directors with each of ReFormation and 360. Upon the Closing Date, 360 will make tranche payments in
tranches to 180 LP in the aggregate amount of $300,000. The parties agree that the obligations will be paid by 360 to 180 LP by payments
of $100,000 for every $1,000,000 raised through the financing activities of 360, up to a total of $300,000, however, not less than 10%
of all net financing proceeds received by 360 shall be put towards the obligation to the Company until paid in full. This transaction
closed on July 31, 2020.
On February 26, 2019, 180
LP entered into a one-year agreement (the “Pharmaceutical Agreement”) with ReFormation, a related party that shares directors
and officers of 180 LP, pursuant to which the ReFormation agreed to pay 180 LP $1.2 million for rights of first negotiation to provide
for an acquisition of any arising intellectual property or an exclusive licensing, partnering, or collaboration transaction to use any
arising intellectual property with respect to a contemplated research agreement between the Company and Oxford (see Oxford University
Agreements, above), which was signed on March 22, 2019 and therefore is the start date of the project. Of the $1.2 million receivable
from Reformation pursuant to the Pharmaceutical Agreement, $0.9 million was received by the Company on March 14, 2019 and the remaining
$0.3 million will be received over the one-year term of the agreement.
180 LP is recognizing the
income earned in connection with the Pharmaceutical Agreement on a straight-line basis over the term of the agreement. During the years
ended December 31, 2022 and 2021, 180 LP recognized no income related to the Pharmaceutical Agreement, which is included in other income
in the accompanying consolidated statement of operations and other comprehensive income loss. As of December 31, 2021, the Company charged
the $300,000 receivable to bad debt expense.
Operating Leases
In February 2016, the FASB
issued ASU 2016-02, Leases, and the related Accounting Standards Codification Topic 842, Leases (“ASC 842”).
The new standard requires most leases to be recognized on the balance sheet as a right-of-use (“ROU”) asset and a lease liability.
The right-of-use asset is initially measured at the present value of amounts expected to be paid over the lease term. Recognition of
the costs of these leases on the income statement will be disaggregated and recognized as both operating expense (for the amortization
of the right-of-use asset) and interest expense (for the portion of the lease payment related to interest). This standard was adopted
by the Company upon issuance.
In accordance with ASC 842,
the Company can elect (by asset class) not to record on the balance sheet a lease whose term is 12 months or less and does not include
a purchase option that the lessee is reasonably certain to exercise. If elected, the lease would be treated like an operating lease under
previous GAAP; payments would be recognized on a straight-line basis over the lease term. When determining whether the lease qualifies
for this election, the Company would include renewal options only if they are considered part of the lease term, i.e., those options
the Company is reasonably certain to exercise. If the lease term increases to more than 12 months, or if it is reasonably certain the
Company will exercise a purchase option, the Company would no longer be able to apply this practical expedient and would apply ASC 842
guidance.
With regards to the Company
and its leases (of which it currently has none), the Company expects to use the practical expedient for short-term operating leases that
are 12 months or less. This practical expedient has been elected as a package and will be applied consistently to all leases. Additionally,
if the Company’s leases are considered operating in nature and therefore not reflected on the balance sheet, the Company will recognize
the short-term lease payments as rent/lease expense on a monthly basis on the income statement.
As of December 31, 2022 and
2021, the Company had no active leases and no lease or rent expense as of those dates.
Consulting Agreements
Nanchahal Consulting Agreement
On February 22, 2021, the
Company entered into a consultancy agreement (as amended, the “Consulting Agreement”) with a related party, Prof. Jagdeep
Nanchahal (the “Consultant”). The Consulting Agreement was effective December 1, 2020.
Pursuant to the Consulting
Agreement, the Company agreed to pay the Consultant 15,000 British Pounds (GBP) per month (approximately $20,800) during the term of
the agreement, increasing to 23,000 GBP per month (approximately $32,000) on the date (a) of publication of the data from the phase 2b
clinical trial for Dupuytren’s Contracture (RIDD) and (b) the date that the Company has successfully raised over $15 million in
capital. The Company also agreed to pay the Consultant the following bonus amounts:
|
● |
the sum of £100,000
(approximately $138,000) upon submission of the Dupuytren’s Contracture clinical trial data for publication in a peer-reviewed
journal (“Bonus 1”); |
|
● |
the sum of £434,673
GBP (approximately $605,000) (“Bonus 2”), which is earned and payable upon the Company raising a minimum of $15 million
in additional funding, through the sale of debt or equity, after December 1, 2020 (the “Vesting Date”). Bonus 2 is payable
within 30 days of the Vesting Date and shall not be accrued, due or payable prior to the Vesting Date. Bonus 2 is payable, at the
election of the Consultant, at least 50% (fifty percent) in shares of the Company’s common stock, at the lower of (i) $60.00
per share, or (ii) the trading price on the date of the grant, with the remainder paid in GBP; |
|
● |
the sum of £5,000
(approximately $7,000) on enrollment of the first patient to the phase 2 frozen shoulder trial (“Bonus 3”); and |
|
● |
the sum of £5,000
(approximately $7,000) for enrollment of the first patient to the phase 2 delirium/POCD trial (“Bonus 4”). |
The Consulting Agreement
has an initial term of three years, and renews thereafter for additional three-year terms, until terminated as provided in the agreement.
The Consulting Agreement can be terminated by either party with 12 months prior written notice (provided the Company’s right to
terminate the agreement may only be exercised if the Consultant fails to perform his required duties under the Consulting Agreement),
or by the Company immediately under certain conditions specified in the Consulting Agreement if (a) the Consultant fails or neglects
efficiently and diligently to perform the services required thereunder or is guilty of any breach of its or his obligations under the
agreement (including any consent granted under it); (b) the Consultant is guilty of any fraud or dishonesty or acts in a manner (whether
in the performance of the services or otherwise) which, in the reasonable opinion of the Company, has brought or is likely to bring the
Consultant, the Company or any of its affiliates into disrepute or is convicted of an arrestable offence (other than a road traffic offence
for which a non-custodial penalty is imposed); or (c) the Consultant becomes bankrupt or makes any arrangement or composition with his
creditors. If the Consulting Agreement is terminated by the Company for any reason other than cause, the Consultant is entitled to a
lump sum payment of 12 months of his fee as of the date of termination.
Effective March 30, 2021,
in satisfaction of amounts owed to the Consultant for 50% of Bonus 2, the Company issued 5,035 shares of the Company’s common stock
to the Consultant. Additionally, on April 15, 2021, in satisfaction of amounts owed to the Consultant for an additional 19% of Bonus
2, the Company issued 1,886 of the Company’s common stock to the Consultant.
Effective August 27, 2021,
in satisfaction of amounts owed to the Consultant for the remainder of Bonus 2, the Company issued 3,077 shares of the Company’s
common stock to the Consultant since the Company raised $15 million in a financing transaction, as per the agreement. All issuances were
made under the Company’s 2020 Omnibus Incentive Plan. See Note 12 – Stockholders’ Equity.
In December 2021, the Dupuytren’s
Contracture clinical trial data was submitted for publication in a peer-reviewed journal and Bonus 1 was paid to the Consultant.
On April 27, 2022, the Company
entered into an Amendment to the Consulting Agreement, whereby upon acceptance of the data for the Phase 2b clinical trial for Dupuytren’s
Contracture for publication, the Consultant’s monthly fee will increase to £23,000, provided that £4,000 of such increase
will be accrued and £19,000 of such fees will be payable monthly per the payroll practices of the Company in cash effective March
1, 2022 and until the earlier of (a) November 1, 2022 or (b) the date upon which the Company has sufficient cash on hand to pay the accrued
amount, which the Company expects will not be until it has raised a minimum of $15,000,000 (the “Funding Determination Date”),
at which time the accrued amount will be due.
On December 28, 2022, the
Company entered into an Amendment to the Consulting Agreement, whereby the Consultant’s monthly fee will increase to £35,000
beginning on January 1, 2023 until the end of the term of the agreement; if the agreement is terminated by the Company for any reason
other than cause, the consultant will be entitled to a lump sum payment of 12 months of his monthly fee as of the date of termination.
Larsen Consulting Agreements
On April 29, 2021, the Company
entered into a consulting agreement with Glenn Larsen, the former Chief Executive Officer of 180 LP, to act in the capacity as negotiator
for the licensing of four patents. In consideration for services provided, the Company agreed to compensate Mr. Larsen with $50,000 of
its restricted common stock (valued based on the closing sales price of the Company’s common stock on the date the Board of Directors
approved the agreement, which shares have not been issued to date). The fully vested shares will be issued to Mr. Larsen pursuant to
the 2020 Omnibus Incentive Plan, upon the Company entering into a licensing transaction with the assistance of Mr. Larsen. On November
2, 2021, the Company and Oxford University entered into a license agreement and therefore 272 shares were issued to Mr. Larsen on November
3, 2021 pursuant to the Company’s 2020 Omnibus Incentive Plan.
On February 22, 2023, the
Company entered into a second consulting agreement with Glenn Larsen to provide consulting services; in consideration for the services
provided, the Company agreed to compensate Mr. Larsen in the amount of $10,000 per month; the amounts owed may be settled in cash or
shares of the Company’s common stock (which will be subject to the Company’s 2022 Omnibus Incentive Plan or another approved
equity compensation plan) or a combination of both at the option of Mr. Larsen. No shares may be issued and cash will be the default
payment method for fees until an increase in shares available in the Plan is approved and any issuance is conditioned upon the Company
having sufficient shares in the Plan to be issued. Mr. Larsen is also eligible to participate in the Company’s stock option plan,
subject to approval from the Board of Directors. The initial term of the agreement is for three years from the effective date of the
contract and shall automatically extend for additional one-year periods. As of December 31, 2022, the Company has accrued a balance of
$60,000 for consulting services payable to Mr. Larsen.
Steinman Consulting Agreement
On
November 17, 2021, and effective on November 1, 2021, the Company entered into a Consulting Agreement with Lawrence Steinman, M.D., the
Company’s Executive Co-Chairman (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Dr. Steinman
agreed to provide certain consulting services to the Company, including, but not limited to, participating in defining and setting strategic
objectives of the Company; actively seeking out acquisition and merger candidates; and having primary scientific responsibility for the
Company’s á7nAChR platform (collectively, the “Services”). The term of the agreement is for one year (the
“Initial Term”); provided that the agreement automatically extends for additional one year periods after the Initial
Term (each an “Automatic Renewal Term” and the Initial Term together with all Automatic Renewal Terms, if any, the
“Term”), subject to the Renewal Requirements (described below), in the event that neither party provided the other
written notice of their intent not to automatically extend the term of the agreement at least 30 days prior to the end of the Initial
Term or any Automatic Renewal Term. The Term can only be extended for an Automatic Renewal Term, provided that (i) Dr. Steinman is re-elected
to the Board of Directors (the “Board”) at the Annual Meeting of Stockholders of the Company immediately preceding
the date that such Automatic Renewal Term begins; (ii) the Board affirms his appointment as Co-Chairman for the applicable Automatic
Renewal Term (or fails to appoint someone else as Co-Chairman prior to such applicable Automatic Renewal Term) and (iii) Dr. Steinman
is continuing in his role of having the responsibility for the scientific development for the Company’s á7nAChR platform
(the “Renewal Requirements”). The Consulting Agreement also expires immediately upon the earlier of: (i) the date
upon which Dr. Steinman no longer serves as Co-Chairman and no longer has primary scientific responsibility for our á7nAChR platform;
and (ii) any earlier date requested by either (1) the Company (as evidenced by a vote of a majority of the Board (excluding Dr. Steinman)
at a meeting of the Board), or (2) Dr. Steinman (as evidenced by written notice from Dr. Steinman to the Board). Additionally, the Company
may terminate the Consulting Agreement immediately and without prior notice if Dr. Steinman is unable or refuses to perform the Services,
and either party may terminate the Consulting Agreement immediately and without prior notice if the other party is in breach of any material
provision of the Consulting Agreement.
The
Company agreed to pay Dr. Steinman $225,000 per year during the term of the agreement, along with a one-time payment of $43,750, representing
the difference between his old compensation and new compensation, dating back to April 1, 2021. Pursuant to the Consulting Agreement,
Dr. Steinman agreed to not compete against the Company, unless approved in writing by the Board of Directors, during the term of the
agreement, and also agreed to certain customary confidentiality provisions and assignment of inventions requirements. The Consulting
Agreement also has a 12-month non-solicitation prohibition following its termination.
Employment Agreement of Chief Executive Officer
On February 25, 2021, the
Company entered into an amended agreement with Dr. James Woody, the Chief Executive Officer of the Company (the “CEO”) (the
“A&R Agreement”), dated February 24, 2021, and effective November 6, 2020, which replaced the CEO’s prior agreement
with the Company. Pursuant to the A&R Agreement, the CEO agreed to serve as an officer of the Company for a term of three years,
which is automatically renewable thereafter for additional one-year periods, unless either party provides the other at least 90 days
written notice of their intent to not renew the agreement. The CEO’s annual base salary under the agreement will initially be $450,000
per year, with automatic increases of 5% per annum.
As additional consideration
for the CEO agreeing to enter into the agreement, the Company awarded him options to purchase 70,000 shares of the Company’s common
stock, which have a term of 10 years, and an exercise price of $88.60 per share (the closing sales price on the date the board of directors
approved the grant (February 26, 2021)). The options as subject to the Company’s 2020 Omnibus Incentive Plan and vest at the rate
of (a) 1/5th of such options on the grant date; and (b) 4/5th of such options vesting ratably on a monthly basis over the following
36 months on the last day of each calendar month; provided, however, that such options vest immediately upon the CEO’s death or
disability, termination without cause or a termination by the CEO for good reason (as defined in the agreement), a change in control
of the Company or upon a sale of the Company.
The CEO is also eligible
to receive an annual bonus, with a target bonus equal to 45% of his then-current base salary, based upon the Company’s achievement
of performance and management objectives as set and approved by the Board of Directors and/or Compensation Committee in consultation
with the CEO. At the CEO’s option, the annual bonus can be paid in cash or the equivalent value of the Company’s common stock
or a combination. The Board of Directors, as recommended by the Compensation Committee, may also award the CEO bonuses from time to time
(in stock, options, cash, or other forms of consideration) in its discretion. Under the A&R Agreement, the CEO is also eligible to
participate in any stock option plans and receive other equity awards, as determined by the Board of Directors from time to time. As
of December 31, 2022 and 2021, the Company had accrued bonus balances of $313,875 and $205,500, respectively, payable to the CEO.
The A&R agreement can
be terminated any time by the Company for cause (subject to the cure provisions of the agreement), or without cause (with 60 days prior
written notice to the CEO), by the CEO for good reason (as described in the agreement, and subject to the cure provisions of the agreement),
or by the CEO without good reason. The agreement also expires automatically at the end of the initial term or any renewal term if either
party provides notice of non-renewal as discussed above.
In the event the A&R
Agreement is terminated without cause by the Company, or by the CEO for good reason, the Company agreed to pay him the lesser of 18 months
of salary or the remaining term of the agreement, the payment of any accrued bonus from the prior year, his pro rata portion of any current
year’s bonus and health insurance premiums for the same period that he is to receive severance payments (as discussed above).
The A&R Agreement contains
standard and customary invention assignment, indemnification, confidentiality and non-solicitation provisions, which remain in effect
for a period of 24 months following the termination of his agreement.
On April 27, 2022, the Company
entered into an Amendment to the Employment Agreement, whereby the Company will provide a 3% increase in salary and a 20% accrual of
salary, until such time as the Board of Directors determines that the Funding Determination Date has occurred.
Employment Agreement of Chief Financial Officer
On February 25, 2021, the
Company entered into an Employment Agreement (the “CFO Agreement”) dated February 24, 2021, and effective November 6, 2020,
with the Company’s Interim Chief Financial Officer, Ozan Pamir. Pursuant to the agreement, the CFO agreed to serve as the Interim
Chief Financial Officer (“CFO”) of the Company for an initial salary of $300,000 per year, subject to increase to a mutually
determined amount upon the closing of a new financing as well as annual increases.
As additional consideration
for the CFO agreeing to enter into the agreement, the Company awarded him options to purchase 9,000 shares of the Company’s common
stock, which have a term of 10 years, and an exercise price of $88.60 per share (the closing sales price on the date the board of directors
approved the grant (February 26, 2021)). The options are subject to the Company’s 2020 Omnibus Incentive Plan and vest at the rate
of (a) 1/5th of such options upon the grant date; and (b) 4/5th of such options vesting ratably on a monthly basis over the
following 36 months on the last day of each calendar month; provided, however, that such options vest immediately upon the CFO’s
death or disability, termination without cause or a termination by the CFO for good reason (as defined in the agreement), a change in
control of the Company or upon a sale of the Company.
Under the agreement, the
CFO is eligible to receive an annual bonus, in a targeted amount of 30% of his then salary, based upon the Company’s achievement
of performance and management objectives as set and approved by the CEO, in consultation with the CFO. The bonus amount is subject to
adjustment. The Board of Directors, as recommended by the Compensation Committee of the Company (and/or the Compensation Committee),
may also award the CFO bonuses from time to time (in stock, options, cash, or other forms of consideration) in its discretion. Under
the CFO Agreement, the CFO is also eligible to participate in any stock option plans and receive other equity awards, as determined by
the Board of Directors from time to time. As of December 30, 2022 and 2021, the Company had accrued bonus balances of $139,500 and $90,000,
respectively, payable to the CFO.
The agreement can be terminated
any time by the Company with or without cause with 60 days prior written notice and may be terminated by the CFO at any time with 60
days prior written notice. The agreement may also be terminated by the Company with six days’ notice in the event the agreement
is terminated for cause under certain circumstances. Upon the termination of the CFO’s agreement by the Company without cause or
by the CFO for good reason, the Company agreed to pay him three months of severance pay.
The agreement contains standard
and customary invention assignment, indemnification, confidentiality and non-solicitation provisions, which remain in effect for a period
of 24 months following the termination of his agreement.
Employment Agreement of Chief Operating Officer/Chief
Business Officer
On October 29, 2021, the
Company entered into an Employment Agreement (the “COO/CBO Agreement”) dated October 27, 2021, and effective November 1,
2021, with Quan Vu. Pursuant to the agreement, Mr. Vu agreed to serve as the Chief Operating Officer/Chief Business Officer (“COO/CBO”)
of the Company for an initial salary of $390,000 per year, subject to a $10,000 increase upon completion of a $50 Million financing and
a yearly increase of five percent (5%) on each start-day anniversary.
As additional consideration
for the COO/CBO agreeing to enter into the agreement, the Company awarded him options to purchase 13,750 shares of the Company’s
common stock, which have a term of 10 years, and an exercise price of $79.00 per share. The options are subject to the Company’s
2020 Omnibus Incentive Plan and vest ratably on a monthly basis over the following 48 months on the last day of each calendar month;
provided, however, that such options vest immediately upon the COO/CBO death or disability, termination without cause or a termination
by the COO/CBO for good reason (as defined in the agreement), a change in control of the Company or upon a sale of the Company.
Under the agreement, the
COO/CBO is eligible to receive an annual bonus, in a targeted amount of 50% of his then salary, based upon the Company’s achievement
of performance and management objectives as set and approved by the CEO, in consultation with the CFO. The annual bonus shall be paid
on or before March 31 of the year following the year in which the bonus is earned. At the choice of the Executive, the annual bonus can
be paid in cash or the equivalent value of the Company’s common stock or a combination of both. For calendar 2021, such Bonus payment,
if any, will be prorated for approximately 2 months after the Start Date. The CEO, as approved by the Compensation Committee, may also
award the Executive a bonus from time to time (in stock, options, cash, or other forms of consideration) in his discretion.
The agreement can be terminated
any time by the Company with or without cause with 30 days prior written notice and may be terminated by the COO/CBO at any time with
30 days prior written notice. The agreement may also be terminated by the Company with ten days’ notice in the event the agreement
is terminated for cause under certain circumstances. Upon the termination of the COO/CBO’s agreement by the Company without cause
or by the COO/CBO for good reason, the Company agreed to pay him twelve months of severance pay, except if Executive separates from the
Company prior to a one-year anniversary.
The agreement contains standard
and customary invention assignment, indemnification, confidentiality and non-solicitation provisions, which remain in effect for a period
of 24 months following the termination of his agreement.
On April 27, 2022, the Company
entered into an Amendment to the Employment Agreement, whereby the Company will provide a 3% increase in salary and a 20% accrual of
salary, until such time as the Board of Directors determines that the Funding Determination Date has occurred. As of December 31, 2022,
the Company had an accrued bonus balance of $221,000 payable to the COO/CBO. In January 2023, Mr. Vu’s services with the Company
and the agreement were terminated. See Note 15 – Subsequent Events for additional information.
NOTE 12 - STOCKHOLDERS’ EQUITY
Reverse Stock-Split during 2022
On December 15, 2022, at
a Special Meeting of the Stockholders of 180 Life Sciences Corp., the stockholders of the Company approved an amendment to the Company’s
Second Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of our issued and outstanding shares
of our common stock, par value $0.0001 per share, by a ratio of between one-for-four to one-for-twenty, inclusive, with the exact ratio
to be set at a whole number to be determined by our Board of Directors or a duly authorized committee thereof in its discretion, at any
time after approval of the amendment and prior to December 15, 2023 (the “Stockholder Authority”). On December 15, 2022,
the Company’s Board of Directors (the “Board”), with the Stockholder Authority, approved an amendment to our Second
Amended and Restated Certificate of Incorporation to affect a reverse stock split of our common stock at a ratio of 1-for-20 (the “Reverse
Stock Split”). Pursuant to the Certificate of Amendment filed to affect the Reverse Stock Split, the Reverse Stock Split was effective
on December 19, 2022 and the shares of the Company’s common stock began trading on the NASDAQ Capital Market (“NASDAQ”)
on a post-split basis on December 19, 2022, with new CUSIP number: 68236V203. No change was made to the trading symbol for the Company’s
shares of common stock or public warrants, “ATNF” and “ATNFW”, respectively, in connection with the Reverse Stock
Split.
Because the Certificate of
Amendment did not reduce the number of authorized shares of common stock, the effect of the Reverse Stock Split was to increase the number
of shares of common stock available for issuance relative to the number of shares issued and outstanding. The Reverse Stock Split did
not alter the par value of the common stock or modify any voting rights or other terms of the common stock. Any fractional shares remaining
after the Reverse Stock Split will be rounded up to the nearest whole share.
With regards to the Company’s
2020 Omnibus Incentive Plan and the 2022 Omnibus Incentive Plan, the Company’s Compensation Committee and Board deem it in the
best interests of the Company and its stockholders to (i) adjust the number of shares of Company common stock available for issuance
under the Incentive Plans downward by a factor of 20 (with any fractional shares rounded down to the nearest whole share); (ii) reduce
the number of shares of common stock issuable upon each outstanding option to purchase shares of common stock of the Company, and all
other outstanding awards, by a factor of 20 (with any fractional shares rounded down to the nearest whole share); and (iii) adjust the
exercise price of any outstanding options to purchase shares of common stock previously granted under the Incentive Plans up by a factor
of 20 (rounded up to the nearest whole cent), in each case to adjust equitably for the Exchange Ratio of the Reverse Stock Split, which
such adjustments effective automatically upon effectiveness of the Reverse Stock Split. The effects of the one-for-twenty reverse stock
split have been retroactively reflected throughout the financial statements and notes to the financial statements.
Preferred Stock
Pursuant to the Company’s
Second Amended and Restated Certificate of Incorporation filed on November 6, 2020, the Company has 5,000,000 preferred shares authorized
at a par value of $0.0001 per share, of which 1,000,000 shares are designated as Series A Convertible Preferred Stock (“Series
A Preferred”), 1 share is designated as the Class K Special Voting Share and 1 share is designated as the Class C Special Voting
Share. The Class K Special Voting Share and the Class C Special Voting Share are together, the “Special Voting Shares” (see
Item 5 – Special Voting Shares). As of December 31, 2022, there is no Series A Preferred issued or outstanding; there is one Class
K Special Voting Share and one Class C special Voting Share issued and outstanding.
Common Stock
The Company is authorized
to issue 100,000,000 shares of the Company’s common stock with a par value of $0.0001 per share. Holders of the Company’s
shares of the Company’s common stock are entitled to one vote for each share.
Sale of Common Stock and Warrants in the February
2021 Private Offering
On February 19, 2021, the
Company entered into a Securities Purchase Agreement with certain purchasers (the “Purchasers”), pursuant to which the Company
agreed to sell an aggregate of 128,200 shares of common stock (the “PIPE Shares”) and warrants to purchase up to an aggregate
of 128,200 shares of common stock (the “PIPE Warrants”), at a combined purchase price of $91.00 per share and PIPE Warrant
(the “Offering”). Aggregate gross proceeds from the offering were approximately $11.7 million. Net proceeds to the Company
from the offering, after deducting the placement agent fees and estimated offering expenses payable by the Company, were approximately
$10.7 million.
The PIPE Warrants have an
exercise price equal to $100.00 per share, were immediately exercisable and are subject to customary anti-dilution adjustments for stock
splits or dividends or other similar transactions. However, the exercise price of the PIPE Warrants will not be subject to adjustment
as a result of subsequent equity issuances at effective prices lower than the then-current exercise price. The PIPE Warrants are exercisable
for 5 years following the closing date. The PIPE Warrants are subject to a provision prohibiting the exercise of such PIPE Warrants to
the extent that, after giving effect to such exercise, the holder of such PIPE Warrant (together with the holder’s affiliates,
and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in
excess of 4.99% of the Company’s outstanding common stock (which may be increased to 9.99% on a holder by holder basis, with 61
days prior written consent of the applicable holder). The PIPE Warrants were determined to be liability-classified (see Note 8, Derivative
Liabilities). Of the $968,930 of placement agent fees and offering expenses, $364,812 was allocated to the PIPE Shares and $604,118 was
allocated to the PIPE Warrant. Because the PIPE Warrants are liability classified, the $604,118 allocated to the warrants was immediately
expensed.
In connection with the offering,
the Company also entered into a Registration Rights Agreement, dated as of February 23, 2021, with the Purchasers (the “Registration
Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement with the
SEC on or prior to April 24, 2021 to register the resale of the PIPE Shares and the shares of common stock issuable upon exercise of
the PIPE Warrants (the “PIPE Warrant Shares”), and to cause such registration statement to be declared effective on or prior
to June 23, 2021 (or, in the event of a “full review” by the SEC, August 22, 2021). The Company was in default of the
terms of the Registration Rights Agreement as the registration statement to register the PIPE Shares and PIPE Warrant Shares was not
filed by April 24, 2021; provided that such registration statement has since been filed. As a result of this default, the Company was
required to pay damages to the Purchasers in the aggregate amount of $174,993 each month, up to a maximum of $583,310. The Company incurred
$524,979 of damages during the year ended December 31, 2021, which amount was paid, and such registration statement was subsequently
filed and declared effective, and as a result the Company is no longer in default.
Bridge Note Conversions
During the first quarter
of 2021, certain noteholders elected to convert bridge notes with an aggregate principal balance of $365,750 and an aggregate accrued
interest balance of $66,633 into an aggregate of 7,920 shares of the Company’s common stock at a conversion price of $54.60 per
share, pursuant to the terms of such notes (see Note 10 - Convertible Notes Payable).
Convertible Note Conversions
During the first quarter
of 2021, certain noteholders elected to convert certain convertible notes payable with an aggregate principal balance of $1,234,333 and
an aggregate accrued interest balance of $105,850 into an aggregate of 23,357 shares of the Company’s common stock at conversion
prices ranging from $49.00-$65.80 per share, pursuant to the terms of such notes (see Note 10 - Convertible Notes Payable).
EarlyBird Settlement
On April 23, 2021, the Company
settled the amounts due pursuant to a certain finder agreement entered into with EarlyBird Capital, Inc. (“EarlyBird”) on
October 17, 2017 (the “Finder Agreement”). The Company’s Board of Directors determined it was in the best interests
to settle all claims which had been made or could be made with respect to the Finder Agreement and entered into a settlement agreement
(the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid EarlyBird a cash payment of $275,000
and issued 11,250 shares of the Company’s restricted common stock with a grant date value of $1,973,250 to EarlyBird, in full satisfaction
of accounts payable in the amount of $1,750,000. The Company recorded a loss of $223,250 in connection with the Settlement Agreement,
which is included in (loss) gain on settlement of liabilities in the accompanying consolidated statements of operations.
Sale of Common Stock and Warrants in the August
2021 Offering
On August 23, 2021, the Company
entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company agreed to sell an aggregate of 125,000
shares of common stock and warrants to purchase up to an aggregate of 125,000 shares of common stock (the “August 2021 PIPE Warrants”),
at a combined purchase price of $120.00 per share and August 2021 PIPE Warrant (the “August 2021 Offering”). Aggregate gross
proceeds from the August 2021 Offering were approximately $15,000,000. Net proceeds to the Company from the August 2021 Offering, after
deducting the placement agent fees and estimated offering expenses payable by the Company, were approximately $13.9 million.
The August 2021 PIPE Warrants
have an exercise price equal to $150.00 per share, are immediately exercisable and are subject to customary anti-dilution adjustments
for stock splits or dividends or other similar transactions. However, the exercise price of the August 2021 PIPE Warrants will not be
subject to adjustment as a result of subsequent equity issuances at effective prices lower than the then-current exercise price. The
August 2021 PIPE Warrants are exercisable for 5 years following the closing date. The August 2021 PIPE Warrants are subject to a provision
prohibiting the exercise of such August 2021 PIPE Warrants to the extent that, after giving effect to such exercise, the holder of such
August 2021 PIPE Warrant (together with the holder’s affiliates, and any other persons acting as a group together with the holder
or any of the holder’s affiliates), would beneficially own in excess of 4.99% of the Company’s outstanding common stock (which
may be increased to 9.99% on a holder by holder basis, with 61 days prior written consent of the applicable holder). Although the PIPE
Warrants have a tender offer provision, the August 2021 PIPE Warrants were determined to be equity-classified because they met the limited
exception in the case of a change-in-control. Because the August 2021 PIPE Warrants are equity-classified, the $1,120,000 of placement
agent fees and offering expenses were fully accounted for as a reduction of additional paid in capital.
In connection with the August
2021 Offering, the Company also entered into a Registration Rights Agreement, dated as of August 23, 2021, with the purchasers (the “August
2021 Registration Rights Agreement”). Pursuant to the August 2021 Registration Rights Agreement, the Company agreed to file a registration
statement with the SEC on or prior to September 12, 2021 to register the resale of the shares and the shares of common stock issuable
upon exercise of the August 2021 PIPE Warrants (the “Warrant Shares”) sold in the August 2021 Offering, and to cause such
registration statement to be declared effective on or prior to October 22, 2021 (or, in the event of a “full review” by the
SEC, November 21, 2021). The registration statement was filed on August 31, 2021 and the SEC declared it effective on September
9, 2021, prior to the deadline set forth in the August 2021 Registration Rights Agreement.
Exchanges of Related Party Loans and Convertible
Notes
On September 30, 2021, Dr.
Lawrence Steinman and Sir Marc Feldmann, Ph.D., each of whom serve as Co-Executive Chairmen of the Company’s Board of Directors,
agreed with the Company to convert amounts owed under outstanding loans with an aggregate principal balance of $693,371 and an aggregate
accrued interest balance of $157,741 into an aggregate of 7,093 shares of the Company’s common stock at the conversion price of
$120.00 per share, pursuant to the terms of the agreement, which conversion rate was above the closing consolidated bid price of the
Company’s common stock on the date the binding agreement was entered into (see Note 9 - Loans Payable and Note 10 - Convertible
Notes Payable for more information).
Alpha Capital Settlement
During the third quarter
of 2021, the Company issued 7,500 shares of common stock and warrants to purchase 1,250 shares in connection with a settlement entered
into with Alpha Capital (see Note 10 - Convertible Notes Payable).
Common Stock Issued for Services during 2021
During the year ended December
31, 2021, the Company issued an aggregate of 15,878 shares of the Company’s common stock, respectively, as compensation to consultants,
directors, and officers, with an aggregate issuance date fair value of $1,785,366, respectively, which was charged immediately to the
consolidated statement of operations for the year ended December 31, 2021.
July 2022 Offering
On July 17, 2022, the Company
entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company agreed to sell an aggregate of 175,000
shares of common stock, pre-funded warrants to purchase up to an aggregate of 131,604 shares of common stock (“July 2022 Pre-Funded
Warrants”), and common stock warrants to purchase up to an aggregate of 306,604 shares of common stock (the “July 2022 Common
Warrants”), at a combined purchase price of $21.20 per share and warrant (the “July 2022 Offering”). Aggregate gross
proceeds from the July 2022 Offering were $6,499,737. The July 2022 Offering closed on July 20, 2022.
The July 2022 Pre-Funded
Warrants have an exercise price equal to $0.0001, are immediately exercisable and are subject to customary anti-dilution adjustments
for stock splits or dividends or other similar transactions. The exercise price of the July 2022 Pre-Funded Warrants will not be subject
to adjustment as a result of subsequent equity issuances at effective prices lower than the then-current exercise price. The July 2022
Pre-Funded Warrants are exercisable until they are exercised in full. The July 2022 Pre-Funded Warrants are subject to a provision prohibiting
the exercise of such July 2022 Pre-Funded Warrants to the extent that, after giving effect to such exercise, the holder of such July
2022 Pre-Funded Warrants (together with the holder’s affiliates, and any other persons acting as a group together with the holder
or any of the holder’s affiliates), would beneficially own in excess of 9.99% of the Company’s outstanding common stock (which
may be increased or decreased, with 61 days prior written notice by the holder). Although the July 2022 Pre-Funded Warrants have a tender
offer provision, the July 2022 Pre-Funded Warrants were determined to be equity-classified because they met the limited exception in
the case of a change-in-control. Because the July 2022 Pre-Funded Warrants are equity-classified, the placement agent fees and offering
expenses will be accounted for as a reduction of additional paid in capital.
The July 2022 Common Warrants
have an exercise price equal to $21.20 per share, are exercisable 6 months following the closing of the July 2022 Offering (the “Initial
Exercise Date”) and are subject to customary anti-dilution adjustments for stock splits or dividends or other similar transactions.
The exercise price of the July 2022 Common Warrants will not be subject to adjustment as a result of subsequent equity issuances at effective
prices lower than the then-current exercise price. The July 2022 Common Warrants are exercisable for 5 years following the Initial Exercise
Date. The July 2022 Common Warrants are subject to a provision prohibiting the exercise of such July 2022 Common Warrants to the extent
that, after giving effect to such exercise, the holder of such July 2022 Common Warrants (together with the holder’s affiliates,
and any other persons acting as a group together with the holder or any of the holder’s affiliates), would beneficially own in
excess of 4.99% of the Company’s outstanding common stock (which may be increased or decreased, with 61 days prior written notice
by the holder). Although the July 2022 Common Warrants have a tender offer provision, the July 2022 Common Warrants were determined to
be equity-classified because they met the limited exception in the case of a change-in-control. Because the July 2022 Common Warrants
are equity-classified, the placement agent fees and offering expenses will be accounted for as a reduction of additional paid in capital.
As of December 31, 2022,
all 131,604 of the July 2022 Pre-Funded Warrants have been exercised for a value of $263; there are no unexercised July 2022 Pre-Funded
Warrants remaining as of the end of the year. No July 2022 Common Warrants have been exercised as of December 31, 2022.
December 2022 Offering
On December 20, 2022, the
Company entered into a Securities Purchase Agreement with certain purchasers, pursuant to which the Company agreed to sell an aggregate
of 215,000 shares of common stock, pre-funded warrants to purchase up to an aggregate of 1,499,286 shares of common stock (“December
2022 Pre-Funded Warrants”), and common stock warrants to purchase up to an aggregate of 2,571,429 shares of common stock (the “December
2022 Common Warrants”), at a combined purchase price of $3.50 per share and warrant (the “December 2022 Offering”).
Aggregate gross proceeds from the December 2022 Offering were approximately $6,000,000, and the December 2022 Offering closed on December
22, 2022.
The December 2022 Pre-Funded
Warrants have an exercise price equal to $0.0001, are immediately exercisable and are subject to customary anti-dilution adjustments
for stock splits or dividends or other similar transactions. The exercise price of the December 2022 Pre-Funded Warrants will not be
subject to adjustment as a result of subsequent equity issuances at effective prices lower than the then-current exercise price. The
December 2022 Pre-Funded Warrants are exercisable until they are exercised in full. The December 2022 Pre-Funded Warrants are subject
to a provision prohibiting the exercise of such December 2022 Pre-Funded Warrants to the extent that, after giving effect to such exercise,
the holder of such December 2022 Pre-Funded Warrants (together with the holder’s affiliates, and any other persons acting as a
group together with the holder or any of the holder’s affiliates), would beneficially own in excess of 4.99% of the Company’s
outstanding common stock (which may be increased or decreased, with 61 days prior written notice by the holder). Although the December
2022 Pre-Funded Warrants have a tender offer provision, the December 2022 Pre-Funded Warrants were determined to be equity-classified
because they met the limited exception in the case of a change-in-control. Because the December 2022 Pre-Funded Warrants are equity-classified,
the placement agent fees and offering expenses will be accounted for as a reduction of additional paid in capital.
The December 2022 Common
Warrants have an exercise price equal to $3.50 per share, are exercisable 6 months following the closing of the December 2022 Offering
(the “Initial Exercise Date”) (see Note 15 – Subsequent Events, “Amendment to Common Warrant Agreement for
the December 2022 Offering”) and are subject to customary anti-dilution adjustments for stock splits or dividends or other
similar transactions. The exercise price of the December 2022 Common Warrants will not be subject to adjustment as a result of subsequent
equity issuances at effective prices lower than the then-current exercise price. The December 2022 Common Warrants are exercisable for
5 years following the Initial Exercise Date. The December 2022 Common Warrants are subject to a provision prohibiting the exercise of
such December 2022 Common Warrants to the extent that, after giving effect to such exercise, the holder of such December 2022 Common
Warrants (together with the holder’s affiliates, and any other persons acting as a group together with the holder or any of the
holder’s affiliates), would beneficially own in excess of 4.99% of the Company’s outstanding common stock (which may be increased
or decreased, with 61 days prior written notice by the holder). Although the December 2022 Common Warrants have a tender offer provision,
the December 2022 Common Warrants were determined to be equity-classified because they met the limited exception in the case of a change-in-control.
Because the December 2022 Common Warrants are equity-classified, the placement agent fees and offering expenses will be accounted for
as a reduction of additional paid in capital.
As of December 31, 2022,
all 1,499,286 of the December 2022 Pre-Funded Warrants have been exercised for a value of $150; there are no unexercised December 2022
Pre-Funded Warrants remaining as of the end of the year. No December 2022 Common Warrants have been exercised as of December 31, 2022.
Common Stock Issued for Services during 2022
During the year ended December
31, 2022, the Company issued an aggregate of 14,026 of immediately vested shares of the Company’s common stock as compensation
to consultants, directors, and officers, with an aggregate issuance date fair value of $331,591, which was charged immediately to the
consolidated statement of operations for the year ended December 31, 2022.
Restricted Stock Shares Issued during 2022
During the year ended December
31, 2022, the Company issued 600 restricted shares of the Company’s common stock, or Restricted Stock Shares as compensation to
consultants with an issuance date fair value $48,600, or $81.00 per share. Per the two-year consulting agreement, the Restricted Stock
Shares are issued at the beginning of the contract term and annually and vest monthly over a period of 24 months. The Company recognized
stock-based compensation expense related to the amortization of the Restricted Stock Shares of $26,325 for the year ended December 31,
2022.
Below is a table summarizing
the Restricted Stock Shares granted and outstanding as of and for the year ended December 31, 2022:
| |
Unvested Restricted | | |
Weighted Average Grant Date | |
| |
Stock | | |
FV Price | |
Unvested as of January 1, 2022 | |
| - | | |
$ | - | |
Granted | |
| 600 | | |
| 81.00 | |
Vested | |
| 325 | | |
| 81.00 | |
Unvested as of December 31, 2022 | |
| 275 | | |
| 81.00 | |
Total unrecognized expense remaining | |
$ | 22,275 | | |
| | |
Weighted-average years expected to be recognized over | |
| 1.0 | | |
| - | |
Special Voting Shares
The Special Voting Shares
were issued to the former shareholders of CBR Pharma and Katexco in connection with the reorganization of 180 prior to the Business Combination.
The Special Voting Shares are exchangeable by the holder for shares of the Company’s common stock and vote together as a single
class with the Company’s common stockholders. Special Voting Shares are not entitled to receive any dividend of distributions.
During the year ended December
31, 2022, no shares were issued upon the exchange of common stock equivalents associated with the Special Voting Shares.
During the year ended December
31, 2021, 73,224 shares were issued upon the exchange of common stock equivalents associated with the Special Voting Shares.
The following table summarizes
the Special Voting Shares activity during the years ended December 31, 2022 and 2021:
Balance, January 1, 2021 | |
| 73,488 | |
Shares issued | |
| - | |
Shares exchanged | |
| (73,224 | ) |
Balance, December 31, 2021 | |
| 264 | |
Shares issued | |
| - | |
Shares exchanged | |
| - | |
Balance, December 31, 2022 | |
| 264 | |
Stock Options
A summary of the option activity
during the years ended December 31, 2022 and 2021 is present below:
| |
Number
of Options | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Term (in
Years) | | |
Intrinsic Value | |
Outstanding, January 1, 2021 | |
| 2,500 | | |
| 49.80 | | |
| 9.92 | | |
| - | |
Granted | |
| 134,550 | | |
| 96.34 | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Expired | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding, December 31, 2021 | |
| 137,050 | | |
| 95.49 | | |
| 9.41 | | |
| 3,525 | |
Granted | |
| 25,906 | | |
| 27.20 | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Expired | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding, December 31, 2022 | |
| 162,956 | | |
| 84.63 | | |
| 8.60 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, December 31, 2022 | |
| 93,336 | | |
| 83.47 | | |
| 8.50 | | |
$ | - | |
A summary of outstanding
and exercisable stock options as of December 31, 2022 is presented below:
Stock Options Outstanding | | |
Stock Options Exercisable | |
| | |
| | |
Weighted | | |
| |
| | |
| | |
Average | | |
| |
Exercise | | |
Number of | | |
Remaining | | |
Number of | |
Price | | |
Shares | | |
Life in Years | | |
Shares | |
$ | 49.80 | | |
| 2,500 | | |
| 7.9 | | |
| 2,500 | |
$ | 88.60 | | |
| 79,000 | | |
| 8.2 | | |
| 54,422 | |
$ | 151.20 | | |
| 21,800 | | |
| 8.6 | | |
| 7,721 | |
$ | 79.00 | | |
| 33,750 | | |
| 8.9 | | |
| 17,318 | |
$ | 27.20 | | |
| 25,906 | | |
| 9.4 | | |
| 11,375 | |
| | | |
| 162,956 | | |
| 8.5 | | |
| 93,337 | |
On February 26, 2021, the
Company issued ten-year options to purchase an aggregate of 79,000 shares of the Company’s common stock to two officers of the
Company, pursuant to the 2020 Omnibus Incentive Plan. The options have an exercise price of $88.60 per share and vest at the rate of
20% on the date of grant and the remaining 80% on a monthly basis thereafter over the following 36 months. The options had a grant date
fair value of $4,810,527, which will be recognized over the vesting term.
On August 4, 2021, the Company
granted ten-year options for the purchase of an aggregate of 21,800 shares of common stock at an exercise price of $151.20 per share,
to six independent directors of the Company, pursuant to the 2020 Omnibus Incentive Plan. The options had an aggregate grant date value
of $2,180,375, and vest monthly over four years.
On December 8, 2021, the
Company granted ten-year options for the purchase of an aggregate of 33,750 shares of common stock at an exercise price of $79.00 per
share to six officers of the Company, pursuant to the 2020 Omnibus Incentive Plan. The options had an aggregate grant date value of $2,077,953
and vest at various periods over four years.
The assumptions used in the
Black-Scholes valuation method for these options which were issued in 2021 were as follows:
Risk free interest rate |
|
0.75% - 0.99% |
Expected term (years) |
|
5.62 - 6.01 |
Expected volatility |
|
84% - 98.5% |
Expected dividends |
|
0% |
These assumptions listed
above for 2021and below for 2022 were derived using i) the risk free interest rate published by the federal reserve on the date of grant,
ii) the expected term used is the average of the contractual term plus the weighted average vesting term, iii) the volatility was derived
using rates from third-party valuation reports of other financial instruments for the applicable quarter and iv) the expected dividends
rate used is taken from the applicable option award agreement.
On May 19, 2022, the Company
granted ten-year options for the purchase of an aggregate of 5,700 shares of common stock at an exercise price of $27.20 per share to
six officers of the Company, pursuant to the 2022 Omnibus Incentive Plan. The options had an aggregate grant date value of $115,936.
On May 19, 2022, the Company
also granted ten-year options for the purchase of 6,707 shares and 13,500 shares of common stock at an exercise price of $27.20 per share
to two individuals (one a director and the other, a consultant), respectively, pursuant to the 2022 Omnibus Incentive Plan; the 6,707
shares had a grant date value of $130,000 and vested immediately, while the 13,500 shares had a grant date value of $261,704 and vest
depending on the achievement of certain milestones.
The assumptions used in the
Black-Scholes valuation method for these options which were issued in 2022 were as follows:
Risk free interest rate |
|
2.88% |
Expected term (years) |
|
5.00 – 5.77 |
Expected volatility |
|
91.0% |
Expected dividends |
|
0% |
The Company recognized stock-based
compensation expense of $2,607,501 and $2,852,309 for the years ended December 31, 2022 and 2021, respectively, related to the amortization
of stock options. The expense is included within general and administrative expenses or research and development expenses on the consolidated
statements of operations. As of December 31, 2021, there was $4,202,495 of unrecognized stock-based compensation expense that will be
recognized over the weighted average remaining vesting period of 2.19 years.
NASDAQ Compliance
On September 30, 2022, we
received written notice (the “Notification Letter”) from the Listing Qualifications Department of The NASDAQ Stock Market
LLC (“NASDAQ”) notifying the Company that it is not in compliance with the minimum bid price requirements set forth in NASDAQ
Listing Rule 5550(a)(2) for continued listing on The NASDAQ Capital Market. NASDAQ Listing Rule 5550(a)(2) requires listed securities
to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price
requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of
the Company’s common stock for the thirty (30) consecutive business days from August 18, 2022 to September 29, 2022, the Company
no longer meets the minimum bid price requirement. The Notification Letter stated that the Company has 180 calendar days or until March
29, 2023, to regain compliance with NASDAQ Listing Rule 5550(a)(2). To regain compliance, the bid price of the Company’s common
stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. The Company implemented
a reverse stock-split in December 2022 to assist in regaining compliance with NASDAQ standards. On January 4, 2023, NASDAQ notified the
Company that it had regained full compliance with the minimum bid price for continued listing on the NASDAQ pursuant to NASDAQ Listing
Rule 5550(a)(2).
NOTE 13 - INCOME TAXES
The Company is subject to
federal and state/provincial income taxes in the United States, Canada, and the United Kingdom and each legal entity files on a non-
consolidated basis. The benefit of the pre-reorganization net operating losses of 180 LP were passed through to its owners.
The losses before income
taxes consist of the following domestic and international components:
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2022 |
|
|
2022 |
|
Domestic |
|
$ |
(37,727,021 |
) |
|
$ |
(15,078,170 |
) |
International |
|
|
(1,941,987 |
) |
|
|
(5,269,682 |
) |
|
|
$ |
(39,669,008 |
) |
|
$ |
(20,347,852 |
) |
The provision for income taxes consists of the following benefits
(provisions):
| |
For the Years Ended | |
| |
December
31, | |
| |
2022 | | |
2021 | |
Deferred tax benefits: | |
| | |
| |
Domestic: | |
| | |
| |
Federal | |
$ | 4,057,936 | | |
$ | 1,503,577 | |
State | |
| 1,343,123 | | |
| 499,136 | |
International | |
| 353,038 | | |
| 547,944 | |
| |
| 5,754,097 | | |
| 2,550,657 | |
Change in valuation allowance | |
| (4,811,348 | ) | |
| (2,527,453 | ) |
Net income tax benefit | |
$ | 942,749 | | |
$ | 23,204 | |
Certain deferred tax liabilities
are denominated in currencies other than the US dollar and are subject to foreign currency translation adjustments. The provision for
income taxes differs from the United States Federal statutory rate as follows:
| |
For the Years Ended | |
| |
December
31, | |
| |
2022 | | |
2021 | |
US Federal statutory rate | |
| 21.0 | % | |
| 21.0 | % |
Difference between domestic and foreign federal rates | |
| (0.1 | )% | |
| (0.5 | )% |
State and provincial taxes, net of federal benefits | |
| 6.6 | % | |
| 5.2 | % |
Permanent differences: | |
| | | |
| | |
Goodwill impairment | |
| (23.7 | )% | |
| - | |
Stock-based compensation | |
| - | | |
| (5.8 | )% |
Change in the fair value of derivatives
and accrued issuable equity | |
| 10.7 | % | |
| (6.4 | )% |
Other | |
| - | | |
| (0.8 | )% |
Change in valuation allowance | |
| (12.1 | )% | |
| (12.4 | )% |
Effective income tax rate | |
| 2.4 | % | |
| 0.3 | % |
Deferred tax assets and liabilities
consist of the following:
| |
As
of December 31, | |
| |
2022 | | |
2021 | |
Deferred tax assets: | |
| | |
| |
Net operating loss carryforwards | |
$ | 13,399,384 | | |
$ | 9,395,986 | |
Amortization | |
| 165,476 | | |
| - | |
Accrued compensation not currently
deductible | |
| 343,787 | | |
| 169,222 | |
Stock compensation | |
| 1,588,866 | | |
| - | |
Accrued interest | |
| 150,502 | | |
| 146,636 | |
Other | |
| 8,125 | | |
| (1 | ) |
| |
| 15,656,140 | | |
| 9,711,843 | |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Difference between book and tax
basis related to: | |
| | | |
| | |
Technology license | |
| (368,587 | ) | |
| (375,671 | ) |
Acquired in-process research and
development | |
| (2,332,618 | ) | |
| (3,267,854 | ) |
Other | |
| (555,880 | ) | |
| (639,726 | ) |
| |
| (3,257,085 | ) | |
| (4,283,251 | ) |
| |
| | | |
| | |
Deferred tax assets and liabilities | |
| 12,399,055 | | |
| 5,428,592 | |
Valuation allowance | |
| (15,016,414 | ) | |
| (9,072,118 | ) |
Deferred tax
assets and liabilities, net | |
$ | (2,617,359 | ) | |
$ | (3,643,526 | ) |
The change in the valuation
reserve for deferred tax assets consists of the following:
| |
For the Years Ended | |
| |
December
31, | |
| |
2022 | | |
2021 | |
Beginning of period | |
$ | (9,072,118 | ) | |
$ | (9,709,220 | ) |
Change in valuation pursuant to
the tax provision | |
| (4,811,348 | ) | |
| (2,527,453 | ) |
True-up to
a prior year’s tax return | |
| (1,132,948 | ) | |
| 3,164,555 | |
End of period | |
$ | (15,016,414 | ) | |
$ | (9,072,118 | ) |
As of December 31, 2022,
the Company had net operating loss (“NOL”) carryforwards that may be available to offset future taxable income in various
jurisdictions as follows:
|
● |
Approximately $32,400,000 of domestic federal and state NOLs. The federal NOLs have no expiration date and are subject to 80% of taxable income; the state NOLs will begin to expire in 2039; |
|
● |
Approximately $8,100,000 each of Canadian federal and provincial NOLs. Those NOLs will begin to expire in 2038; and |
|
● |
Approximately $10,600,000 of United Kingdom federal NOLs. Those NOLs have no expiration date. |
The utilization of the domestic
NOLs to offset future taxable income may be subject to annual limitations under Section 382 of the Internal Revenue Code and similar
state statutes as a result of ownership changes.
The Company has assessed the
likelihood that deferred tax assets will be realized in accordance with the provisions of ASC 740 Income Taxes (“ASC 740”).
ASC 740 requires that such a review considers all available positive and negative evidence, including the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies. ASC 740 requires that a valuation allowance be established
when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. After the performance
of such reviews as of December 31, 2022 and 2021, management believes that uncertainty exists with respect to future realization of its
deferred tax assets and has, therefore, established a full valuation allowance. The Company recorded increases in the valuation allowance
of $4,811,348 and $2,527,453 in connection with the tax provisions for the years ended December 31, 2022 and 2021, respectively.
Management has evaluated
and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial
statements as of December 31, 2022 and 2021. The Company does not expect any significant changes in its unrecognized tax benefits within
twelve months of the reporting date.
No tax audits were commenced
or were in process during the years ended December 31, 2022 and 2021 nor were any tax related interest or penalties incurred during those
periods. The Company’s tax returns filed in the United States, Canada, and the United Kingdom since inception remain subject to
examination.
NOTE 14 - RELATED PARTIES
Accrued Expenses - Related Parties
Accrued expenses - related
parties was $188,159 as of December 31, 2022 and consists of interest accrued on loans and convertible notes due to certain officers
and directors of the Company, as well as deferred compensation for certain executives. Accrued expenses - related parties was $18,370
as of December 31, 2021 and consists of interest accrued on loans and convertible notes due to certain officers and directors of the
Company.
Loans Payable - Related Parties
Loans payable - related parties
consists of $0 and $81,277 as of December 31, 2022 and 2021, respectively. See Note 9 - Loans Payable for more information.
Research and Development Expenses - Related
Parties
Research and Development
Expenses – Related Parties of $240,731 and $2,947,536 during the years ended December 31, 2022 and 2021, respectively, is related
to consulting and professional fees paid to current or former officers, directors or greater than 10% investors, or affiliates thereof.
General and Administrative Expenses - Related
Parties
General and Administrative
Expenses – Related Parties during the years ended December 31, 2022 and 2021, were $5,612 and $462,580, respectively. Of the expenses
incurred during 2022, these primarily relate to professional fees paid to current or former officers, directors or greater than 10% investors,
or affiliates thereof. Of the expenses incurred during 2021, approximately $338,000 represents bad debt expense incurred in connection
with a receivable from related parties, and approximately $124,000 represents professional fees paid to current or former officers, directors
or greater than 10% investors, or affiliates thereof.
Interest Expense - Related Parties
During the year ended December
31, 2022, the Company recorded $1,508 of interest income – related parties, which related to interest expense on loans with officers
and directors of the Company.
During the year ended December
31, 2021, the Company recorded $50,255 of interest expense – related parties, of which $11,380 related to the convertible notes
with officers and directors of the Company and $38,875 related to interest expense on loans with officers, directors and a greater than
10% investor of the Company.
NOTE 15 - SUBSEQUENT EVENTS
The Company has evaluated
events and transactions subsequent to December 31, 2022 through the date the financial statements were issued. Except for the following,
there are no subsequent events identified that would require disclosure in the financial statements.
Compliance Notification from NASDAQ
On January 4, 2023, NASDAQ
notified the Company that it had regained full compliance with the minimum bid price for continued listing on the Nasdaq pursuant to
Nasdaq Listing Rule 5550(a)(2) (see Note 12 for further information.
Amendment to Common Warrant Agreement for
the December 2022 Offering
On January 12, 2023, the
Company entered into an Amendment to the Common Stock Purchase Warrant Agreement dated December 22, 2022, whereby the holder was issued
warrants to purchase up to 2,571,429 shares of common stock at an exercise price of $3.50 per share. Per the Warrant Agreement, the initial
exercise date was June 22, 2023; per the Amendment, the exercise date was changed to January 12, 2023.
Kinexum Agreement
On January 13, 2023, the Company entered into an agreement with Kinexum,
which agreed to provide assistance to the Company in connection with the Conditional Marketing Authorization (CMA) and Marketing Approval
Application (MAA) which the Company expects to submit to the UK Medicines and Healthcare products Regulatory Agency (MHRA) in connection
with the Company’s planned use of adalimumab to treat progressive early-stage Dupuytren’s disease. Including the costs associated
with the Kinexum contract, the Company anticipates that it will spend approximately $900,000 to $1,000,000, cumulative in the three quarters
ending September 30, 2023 for activities associated with the MHRA filing and other regulatory preparation.
Quan Vu Separation
Effective January 15, 2023,
the Company and Quan Vu (the Company’s former Chief Operating Officer/Chief Business Officer) mutually agreed to terminate Vu’s
employment with 180LS. In accordance with the termination, the parties entered into a separation agreement, whereby the Company agreed
to pay Vu an agreed-upon severance payment including accrued back-pay, agreed-upon health insurance expenses and accrued paid time-off
for a total amount of $407,135.
Glenn Larsen Consulting Agreements
On February 22, 2023, the
Company entered into a consulting agreement with Glenn Larsen to provide consulting services; in consideration for the services provided,
the Company agrees to compensate Mr. Larsen in the amount of $10,000 per month; the amounts owed may be settled in cash or shares of the
Company’s common stock (which will be subject to the Company’s 2022 Omnibus Incentive Plan (“Plan”) or another
approved equity compensation plan) or a combination of both at the option of Mr. Larsen. No shares may be issued and cash will be the
default payment method for fees until an increase in shares available in the Plan is approved and any issuance is conditioned upon the
Company having sufficient shares in the Plan to be issued. Mr. Larsen is also eligible to participate in the Company’s stock option
plan, subject to approval from the Board of Directors. The initial term of the agreement is for three years from the effective date of
the contract and shall automatically extend for additional one-year periods.
KBL Merger Corporation IV (NASDAQ:KBLM)
過去 株価チャート
から 5 2024 まで 6 2024
KBL Merger Corporation IV (NASDAQ:KBLM)
過去 株価チャート
から 6 2023 まで 6 2024