Artelo Biosciences, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended February 29, 2020; filed April 13, 2020. Artelo is a clinical-stage biopharmaceutical company developing therapies that modulate the endocannabinoid system. It reported no revenue and has no approved products.
Financial results and position
| Metric | Three months ended Feb. 29, 2020 | Prior-year quarter | Six months ended Feb. 29, 2020 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $1.371 million | $758,000 | $2.707 million | $1.315 million |
| Net loss | $1.370 million | $425,000 | $2.676 million | $982,000 |
| Operating cash used | Not presented quarterly | Not presented quarterly | $2.454 million | $1.142 million |
- Quarterly R&D expense was $715,000, up from $490,000; general and administrative expense was $440,000, compared with $58,000. For the six-month period, R&D was $1.382 million versus $674,000, and general and administrative expense was $843,000 versus $263,000. Professional fees were $215,000 for the quarter and $482,000 for six months.
- Prior-year quarterly net loss was reduced by a $333,000 gain from a change in derivative fair value. The comparable 2020 quarter had no such gain; the six-month 2020 period included a $30,000 gain. No meaningful operating margin is reported because the company had no revenue.
- Cash and cash equivalents were $1.983 million at February 29, 2020, down from $4.424 million at August 31, 2019. Working capital was $1.667 million, down from $3.421 million. Total assets were $4.152 million and stockholders’ equity was $3.708 million.
- Current liabilities were $444,000, compared with $1.022 million at fiscal year-end. They included $432,000 of accounts payable and accrued liabilities and $12,000 due to related parties. The filing reports no undisclosed borrowings or debt; it does not report interest expense or cash paid for interest.
- Cash used in investing activities was $1,176, primarily for equipment. Financing activities used $11,888, including $15,151 in stock issuance costs; the company received no cash from common-stock issuance during the six months.
Changes, outlook and material risks
- Operating expenses rose substantially year over year, especially R&D and general and administrative costs. Six-month operating cash use increased by $1.312 million versus the prior-year period.
- The company issued 80,033 common shares during the six months, including 61,297 shares for its NEO1940 license and 11,363 shares to settle $100,000 of stock payable. Outstanding shares were 3,427,399 as of April 10, 2020. Stock-based compensation expense was $273,000 for the six-month period.
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It has an accumulated deficit of $7.487 million, has never generated revenue, and needs additional capital. Management expected available capital to be insufficient for operations for at least the next 12 months; planned funding sources include equity, debt and support from management or significant stockholders, with no assurance of success.
- COVID-19 created uncertainty around development schedules. The planned Phase 1b/2a ART27.13 cancer-anorexia study depended on manufacturing study material and U.K. authorities permitting new studies, which were paused at the time. ART26.12 clinical studies were anticipated for the second half of 2021 or first half of 2022, subject to pandemic impacts. The filing gives no formal financial guidance.
- Pipeline programs are ART27.13 for cancer-related anorexia, ART12.11 CBD cocrystal for indications including IBD and PTSD, and ART26.12 FABP5 inhibitors for prostate and breast cancer. Development, regulatory approval, manufacturing, licensing, intellectual-property protection and financing all remain uncertain.
- Disclosure controls and procedures were assessed as ineffective as of period-end. Management reported no material change in internal control over financial reporting during the period. The company reported no pending material legal proceedings.
Important facts for investors to verify
- Near-term financing needs, available cash, subsequent financing activity, and the company’s ability to fund planned operations and trials.
- Clinical, manufacturing and regulatory progress for ART27.13, ART12.11 and ART26.12, including the effects of COVID-19 on trial timing and supply.
- The filing’s investing-cash-flow narrative says there were no investing cash flows, while the cash-flow statement reports a $1,176 equipment purchase.
- Whether disclosure-control deficiencies were remediated and whether subsequent filings provide updated liquidity and going-concern information.
- Potential dilution and share overhang from equity financing, outstanding options and 2,334,937 outstanding warrants.