Artelo Biosciences, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended November 30, 2019; comparative results are for the three months ended November 30, 2018. The filing is dated January 14, 2020. Artelo is a clinical-stage biopharmaceutical company developing therapies that modulate the endocannabinoid system. It had no revenue and no approved products.
Financial performance and liquidity
| Metric | Quarter ended Nov. 30, 2019 | Comparable 2018 quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $666,938 | $184,039 |
| General and administrative expense | $403,159 | $205,501 |
| Professional fees | $266,227 | $167,293 |
| Total operating expenses / operating loss | $1,336,448 | $556,903 |
| Net loss | $1,306,361 | $556,903 |
| Basic / diluted loss per share | $0.39 / $0.40 | $0.32 / $0.32 |
| Cash used in operating activities | $1,051,649 | $401,152 |
Revenue and profit margins are not meaningful because the company had no revenue and incurred losses. The $29,501 gain from remeasuring derivative liabilities reduced the quarter’s net loss; the liability was zero at November 30, 2019.
At November 30, 2019, cash and cash equivalents were $3,374,683, down $1,049,282 from August 31, 2019. Current assets were $3,507,903 and current liabilities were $584,554, yielding working capital of $2,923,349. Total assets were $5,547,918 and stockholders’ equity was $4,963,364. The filing reports no undisclosed borrowings or debt; liabilities shown are current, including accounts payable and accrued liabilities of $574,530 and related-party amounts of $10,024. No cash was raised through common-share issuance during the quarter.
Changes and notable items
- Operating expenses rose $779,545 year over year, with R&D increasing $482,899. Net loss increased $749,458.
- Operating cash use increased $650,497 year over year. Cash declined from $4,423,965 at August 31, 2019 to $3,374,683 at quarter-end.
- Current liabilities fell $436,959, principally because $639,417 of stock payable outstanding at August 31 was settled through share issuance. During the quarter, 72,660 shares were issued, including 61,297 shares for the NEO1940 license and 11,363 shares to settle $100,000 of stock payable.
- The company capitalized a $2,039,417 intangible asset for the NEO1940 worldwide license. Stock-based compensation was $168,019 for the quarter, including $155,019 of option expense.
- Subsequent to quarter-end, 7,373 shares were issued under Series D subscription terms, 6,250 shares previously issued to a departing director were cancelled, and 50,000 options were granted to a director. Common shares outstanding were 3,427,399 as of January 14, 2020.
Outlook, risks, and controls
- Management stated that available capital was not expected to fund operations for at least the next 12 months. The filing identifies substantial doubt about the company’s ability to continue as a going concern. Management plans to seek equity, debt, or funding from management and significant stockholders, but gives no assurance that financing will be available. Without adequate capital, operations could be curtailed or cease.
- No financial guidance was provided. Development milestones described as expectations—not guarantees—include initiating an ART27.13 Phase 1b/2a study for cancer-related anorexia in the second quarter of 2020, with initial data expected by year-end; ART26.12 clinical studies were anticipated to begin in 2021 after further development; and ART12.11 CBD cocrystal remained preclinical.
- Key risks include clinical and regulatory uncertainty, financing needs, dependence on third-party research and manufacturing, controlled-substance licensing requirements, intellectual-property and license obligations, and the ability to retain key personnel. R&D contracts may also require additional milestone-based payments; amounts are not specified.
- Management concluded disclosure controls and procedures were not effective as of period-end. No material change in internal control over financial reporting was reported during the quarter. The filing reports no pending material legal proceedings.
Investor verification priorities
- Verify the company’s financing plans, cash runway, and progress addressing the stated going-concern doubt.
- Track actual R&D spending, operating cash burn, and any milestone or contract commitments not quantified in the filing.
- Confirm regulatory, manufacturing, and enrollment progress for the planned ART27.13 trial and subsequent pipeline timelines.
- Review share issuance, option and warrant terms, and potential dilution; verify post-quarter share count and the effects of subsequent issuances and cancellations.
- Ask for details on remediation of ineffective disclosure controls and whether those controls have since improved.