Artelo Biosciences, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended May 31, 2020. The filing was signed July 13, 2020. Artelo is a clinical-stage biopharmaceutical company developing therapies that modulate the endocannabinoid system; it has no commercial products or revenue.
Financial performance and position
| Metric | Three months ended May 31, 2020 | Nine months ended May 31, 2020 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $951,395 | $3,658,377 |
| Net loss | $951,191 | $3,627,678 |
| Basic and diluted loss per share | $0.27 | $1.06 |
| Cash used in operating activities | Nine-month amount: $3,474,667 |
- At May 31, cash and cash equivalents were $1,279,256; current assets were $1,452,626 and current liabilities were $268,457, yielding working capital of $1,184,169.
- Total assets were $3,493,527, including a $2,039,417 intangible asset for the NEO1940 license. Stockholders’ equity was $3,225,070; accumulated deficit was $8,438,434.
- The filing reports no debt or undisclosed borrowings. No interest or income taxes were paid during the nine-month period. Profit margins are not meaningful because the company had no revenue.
Changes versus prior comparable periods
- Third-quarter operating expenses rose slightly, by $10,107, to $951,395 from $941,288. R&D increased $81,000, while general and administrative expense and professional fees declined.
- Third-quarter net loss widened to $951,191 from $344,883, mainly because the prior-year quarter included a $563,966 gain from a change in fair value of derivative liabilities; there was no such gain in 2020.
- Nine-month operating expenses increased $1,402,267 year over year, led by increases in R&D of $788,696 and general and administrative expense of $559,726. Nine-month net loss increased to $3,627,678 from $1,326,575; the prior period included a larger derivative fair-value gain.
- Cash declined $3,144,709 from August 31, 2019. Nine-month operating cash use increased from $1,731,580 to $3,474,667, while cash proceeds from common-stock issuance fell from $1,675,637 to $380,678.
Outlook, risks, and notable items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern. It has no established revenue source, requires additional capital, and says its capital resources are not expected to fund operations for at least the next 12 months. Plans include equity sales, traditional financing, and potential support from management or significant stockholders; success is not assured.
- Financing and dilution: An at-the-market program permits sales of up to $1,475,000 of common stock. After May 31, the company sold 762,762 shares at an average $1.45 for net proceeds of $1,087,118. Shares outstanding were 4,496,366 as of July 10, 2020, versus 3,733,604 at May 31.
- Development outlook: ART27.13 was being developed for cancer-related anorexia, with a Phase 1b/2a study planned subject to manufacturing and regulatory conditions. ART26.12 was in late preclinical development; the company described possible cancer studies in the second half of 2021 or first half of 2022, subject to COVID-19 effects. ART12.11, a CBD cocrystal, was preclinical. These are plans, not assured timelines.
- COVID-19: The filing says the pandemic could disrupt clinical-trial timelines, recruitment, regulatory review, manufacturing, and supply of key materials; the overall impact was uncertain.
- Controls: Management concluded disclosure controls and procedures were not effective as of May 31, 2020. No material change in internal control over financial reporting during the period was reported.
- Other items: The company issued 61,297 shares to settle the NEO1940 license stock payable and 11,363 shares to settle $100,000 of stock payable. It reported no pending material litigation.
Important facts for investors to verify
- Current cash, monthly cash use, and whether additional financing is available on acceptable terms; reported cash is as of May 31 and excludes subsequent ATM proceeds.
- Actual share count and dilution after the post-quarter ATM sales, and any further use of the remaining ATM capacity.
- Whether the stated development plans, including ART27.13 study initiation and ART26.12 timelines, changed because of COVID-19, manufacturing, or regulatory constraints.
- Progress in remediating ineffective disclosure controls and procedures.
- License obligations and milestone or contingent R&D payments, as well as the risks of losing licensed rights if obligations are not met.