artl_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

	For the quarterly period ended: September 30, 2022

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ___________ to ___________

Commission File Number: 001-38951

ARTELO BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

Nevada		33-1220924
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

505 Lomas Santa Fe, Suite 160, Solana Beach, CA USA		92075
(Address of principal executive offices)		(Zip Code)

(858) 925-7049

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on

which registered

Common Stock, $0.001 par value per share

ARTL

The NasdaqStock Market, LLC

Warrants

ARTLW

The Nasdaq Stock Market, LLC

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

2,855,688 shares of common stock issued and outstanding as of November 7, 2022.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53

SIGNATURES		54

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ARTELO BIOSCIENCES, INC.

Consolidated Balance Sheets

(In thousands, except share data)

	September 30,			December 31,
	2022			2021
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	7,136		$	12,162
Trading marketable securities		10,859			11,951
Available-for-sale securities (amortized cost of $1,524 and $0, respectively)		1,488			-
Prepaid expenses and other current assets		686			496
Deferred offering costs		134			-
Total Current Assets		20,303			24,609
Intangible asset		2,039			2,039
Available-for-sale securities (amortized cost of $0 and $1,524, respectively)		-			1,519
Operating lease right-of-use assets		70			81
Other assets		3			3
TOTAL ASSETS	$	22,415		$	28,251

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	411		$	975
Due to related parties		27			21
Operating lease liabilities - current portion		42			31
Total Current Liabilities		480			1,027

Operating lease liabilities		32			57
TOTAL LIABILITIES		512			1,084

STOCKHOLDERS' EQUITY
Preferred Stock, par value $0.001, 416,667 shares authorized, 0 shares issued and outstanding		-			-
Common Stock, par value $0.001, 50,000,000 shares authorized, 2,855,688 and 2,820,068 shares issued and outstanding, respectively		3			3
Additional paid-in capital		49,970			48,120
Accumulated deficit		(27,682	)		(20,938	)
Accumulated other comprehensive loss		(388	)		(18	)
Total Stockholders' Equity		21,903			27,167

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	22,415		$	28,251

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

Table of Contents

ARTELO BIOSCIENCES, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021

OPERATING EXPENSES
General and administrative	$	1,316		$	1,211		$	4,213		$	3,884
Research and development		1,078			1,034			2,598			2,311
Total Operating Expenses		2,394			2,245			6,811			6,195

Loss from Operations		(2,394	)		(2,245	)		(6,811	)		(6,195	)

OTHER INCOME (EXPENSE)
Interest income		-			-			2			1
Interest expense		(5	)		-			(5	)		-
Net change in fair value of marketable securities		69			-			70			2
Total other income		64			-			67			3

Provision for income taxes		-			-			-			-

NET LOSS	$	(2,330	)	$	(2,245	)	$	(6,744	)	$	(6,192	)

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized loss on available-for-sale securities		(2	)		-			(31	)		-
Foreign currency translation adjustments		(210	)		(12	)		(339	)		(28	)
Total Other Comprehensive Loss		(212	)		(12	)		(370	)		(28	)

TOTAL COMPREHENSIVE LOSS	$	(2,542	)	$	(2,257	)	$	(7,114	)	$	(6,220	)

Basic and Diluted Loss per Common Share	$	(0.82	)	$	(1.37	)	$	(2.38	)	$	(3.97	)

Basic and Diluted Weighted Average Common Shares Outstanding		2,849			1,635			2,833			1,561

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

Table of Contents

ARTELO BIOSCIENCES, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

					Additional					Accumulated Other
	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Income (loss)			Total

Balance, December 31, 2021		2,820	$	3	$	48,120	$	(20,938	)	$	(18	)	$	27,167

Stock based compensation		-		-		624		-			-			624
Net loss for the period		-		-		-		(1,965	)		-			(1,965	)
Other comprehensive loss		-		-		-		-			(46	)		(46	)
Balance, March 31, 2022		2,820	$	3	$	48,744	$	(22,903	)	$	(64	)	$	25,780

Common shares issued for commitment fee		20		-		-		-			-			-
Stock based compensation		-		-		619		-			-			619
Net loss for the period		-		-		-		(2,449	)		-			(2,449	)
Other comprehensive loss		-		-		-		-			(112	)		(112	)
Balance, June 30, 2022		2,840	$	3	$	49,363	$	(25,352	)	$	(176	)	$	23,838

Reverse stock split adjustment		16		-		-		-			-			-
Stock based compensation		-		-		607		-			-			607
Net loss for the period		-		-		-		(2,330	)		-			(2,330	)
Other comprehensive loss		-		-		-		-			(212	)		(212	)
Balance, September 30, 2022		2,856	$	3	$	49,970	$	(27,682	)	$	(388	)	$	21,903

					Additional					Accumulated Other
	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Income (loss)			Total

Balance, December 31, 2020		1,008	$	1	$	19,924	$	(11,531	)	$	41		$	8,435

Common shares issued for exercise of warrant		535		1		6,015		-			-			6,016
Common shares issued for services - officers		-		-		11		-			-			11
Stock based compensation		-		-		519		-			-			519
Net loss for the period		-		-		-		(1,695	)		-			(1,695	)
Other comprehensive income		-		-		-		-			2			2
Balance, March 31, 2021		1,543	$	2	$	26,469	$	(13,226	)	$	43		$	13,288

Common shares issued for cash, net of share issuance costs		73		-		1,204		-			-			1,204
Common shares issued for services - officers		-		-		7		-			-			7
Stock based compensation		-		-		609		-			-			609
Net loss for the period		-		-		-		(2,252	)					(2,252	)
Other comprehensive loss		-		-		-		-			(18	)		(18	)
Balance, June 30, 2021		1,616	$	2	$	28,289	$	(15,478	)	$	25		$	12,838

Common shares issued for cash		28		-		397		-			-			397
Common shares issued for services - officers		-		-		3		-			-			3
Stock based compensation		-		-		502		-			-			502
Net loss for the period		-		-		-		(2,245	)		-			(2,245	)
Other comprehensive loss		-		-		-		-			(12	)		(12	)
Balance, September 30, 2021		1,644	$	2	$	29,191	$	(17,723	)	$	13		$	11,483

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

Table of Contents

ARTELO BIOSCIENCES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine months ended
	September 30,
	2022			2021

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(6,744	)	$	(6,192	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation		1,850			1,651
Net change in fair value of marketable securities		(70	)		(2	)
Non-cash lease expense		28			10
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(191	)		17
Accounts payable and accrued liabilities		(562	)		(342	)
Accounts payable - related parties		6			5
Fixed cash payments related to operating leases		(32	)		(2	)
Net cash used in operating activities		(5,715	)		(4,855	)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in trading marketable securities		(10,542	)		(5,029	)
Investment in available-for-sale securities		(499	)		-
Proceeds from disposition of marketable securities		11,678			3,100
Proceeds from disposition of available-for-sale securities		525			-
Net cash provided by (used in) investing activities		1,162			(1,929	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares for cash, net		-			1,601
Payment of stock issuance costs		(134	)		-
Proceeds from exercise of warrants		-			6,016
Repayments to related parties		-			(7	)
Net cash provided by (used in) financing activities		(134	)		7,610

Effect of exchange rate changes on cash		(339	)		(23	)

Net change in cash and cash equivalents		(5,026	)		803
Cash and cash equivalents - beginning of period		12,162			5,783
Cash and cash equivalents - end of period	$	7,136		$	6,586

Supplemental Cash Flow Information
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

NON-CASH FINANCING AND INVESTING ACTIVITIES:
Initial recognition of the right-of-use asset	$	20		$	97
Unrealized loss from available-for-sale securities	$	31		$	-

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

Table of Contents

ARTELO BIOSCIENCES, INC.

Notes to the Unaudited Consolidated Financial Statements

September 30, 2022

(In thousands, except share and per share data)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

ARTELO BIOSCIENCES, INC. (“we”, “us”, “our”, the “Company”) is a Nevada corporation. The Company was incorporated on May 2, 2011, and is currently based in San Diego County, California. The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America (“GAAP”), and the Company’s fiscal year end is December 31.

The Company registered wholly-owned subsidiaries in Ireland, Trinity Reliant Ventures Limited, on November 11, 2016, and in the UK, Trinity Research & Development Limited, on June 2, 2017. On January 8, 2020, Trinity Research and Development Limited changed its name to Artelo Biosciences Limited. The Company incorporated a wholly-owned subsidiary in Canada, Artelo Biosciences Corporation, on March 18, 2020. Operations in the subsidiaries have been consolidated in the financial statements.

The Company is a clinical stage biopharmaceutical company focused on the development of therapeutics that target lipid-signaling pathways, including the endocannabinoid system (the “ECS”), a family of receptors and neurotransmitters that form a biochemical communication network throughout the body.

COVID-19

As the COVID-19 pandemic is still evolving at this time and much of its impact remains unknown, the Company is not able to predict the impact it may have on the development of its product candidates and business. The severity of the COVID-19 pandemic could also negatively impact the Company’s access to its existing supply chain by delaying the delivery of key raw materials used in its product candidates and therefore delay the delivery of such products for use in its clinical trials. Any of these results could have a material adverse impact to our business.

Liquidity

The Company has incurred losses since inception and a net loss of $6,744 during the nine months ended September 30, 2022. However, in November 2021, the Company completed an equity offering which generated net proceeds of $18,262. Consequently, the Company’s existing cash resources and the cash received from the equity offering are expected to provide sufficient funds to carry out the Company’s planned operations through the first half of 2024. Additionally, in May 2022, the Company entered into a purchase agreement and a registration rights agreement (the “Equity Line”) with an institutional investor, providing for the sale of up to $20,000 worth of the Company’s common stock, over the thirty-six (36) month term of the purchase agreement. Under the terms and subject to the conditions of the purchase agreement, the Company has the right, but not the obligation, to sell to the institutional investor, and the institutional investor is obligated to purchase, up to $20,000 worth of shares of the Company’s Common Stock. As of September 30, 2022, there have been no sales under the Equity Line.

Reverse stock split

On August 8, 2022, the Company, filed with the Secretary of State of the State of Nevada a Certificate of Change, pursuant to Nevada Revised Statutes 78.209, to effect a one-for-fifteen (1-for-15) reverse stock split (the “Reverse Split”) of the Company’s issued and outstanding Common Stock, par value $0.001 per share. The Reverse Split was effective as of August 10, 2022.

As a result of the Reverse Split, the number of authorized shares of Common Stock has been reduced from 750,000,000 to 50,000,000, while the number of authorized shares of the Company’s preferred stock has been reduced from 6,250,000 to 416,667.

All share and per share information in these financial statements retroactively reflect this Reverse Stock Split.

Table of Contents

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company prepares its financial statements in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and GAAP in the United States of America. The accompanying interim financial statements have been prepared in accordance with GAAP for interim financial information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2022, are not necessarily indicative of the results for the full year. While management of the Company believes that the disclosures presented herein are adequate and not misleading, these interim financial statements should be read in conjunction with the audited financial statements and the footnotes thereto for the four-month transition period ended December 31, 2021, contained in the Company’s Form 10-KT filed on March 21, 2022.

Basis of Consolidation

The financial statements have been prepared on a consolidated basis, with the Company’s wholly-owned subsidiaries, Trinity Reliant Ventures Limited, Artelo Biosciences Limited and Artelo Biosciences Corporation. All intercompany transactions and balances have been eliminated.

Net Loss per Share of Common Stock

Basic (loss) earnings per share (“EPS”) is computed based on the weighted average number of shares of Common Stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of Common Stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and as if converted method. Dilutive potential Common Shares include outstanding stock options and warrants.

For the nine months ended September 30, 2022, and 2021, respectively, the following Common Stock equivalents were excluded from the computation of diluted net loss per share as the result was anti-dilutive.

	September 30,		September 30,
	2022		2021
Stock options		313,109		190,613
Warrants		270,053		295,601
		583,162		486,214

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks, money market funds, commercial paper, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $7,136 and $12,162 in cash and cash equivalents at September 30, 2022, and December 31, 2021, respectively.

Periodically, the Company may carry cash balances at financial institutions more than the federally insured limit of $250 per institution. The amount in excess of the FDIC insurance as of September 30, 2022, was approximately $6,600. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.

Table of Contents

Marketable Securities

Our investments in debt securities are carried at fair value. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading debt securities are charged to income and unrealized gains and losses on available-for-sale debt securities are included in other comprehensive income or loss. The marketable securities held by the Company, classified as trading securities, had an outstanding balance of $10,859 and $11,951 as of September 30, 2022, and December 31, 2021, respectively. The Company’s holdings in US Treasury instruments, classified as available-for-sale investments had an outstanding balance of $1,488 and $1,519 as of September 30, 2022, and December 31, 2021, respectively.

Financial Instruments

The Company follows ASC 820, “Fair Value Measurements and Disclosures”, which 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 that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The carrying amounts of the Company’s financial instruments including cash and cash equivalents and accounts payable approximate fair value due to the short-term maturities of these instruments.

Set out below are the Company’s financial instruments that are required to be remeasured at fair value on a recurring basis and their fair value hierarchy as of September 30, 2022, and December 31, 2021:

	September 30, 2022
	Level 1		Level 2		Level 3	Total
Trading marketable securities
Commercial paper	$	-	$	10,859	$

SEC Form 10-Q filed by Artelo Biosciences Inc.