Artelo Biosciences, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended May 31, 2018; comparative income and cash-flow figures are for the corresponding 2017 periods. Balance-sheet comparisons are with August 31, 2017. The company is an early-stage biopharmaceutical business focused on licensing and developing therapies targeting the endocannabinoid system. It reported no revenue.
Financial performance and position
| Metric | Three months ended May 31, 2018 | Nine months ended May 31, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $577,857 | $1,653,378 |
| Net loss | $577,857 | $1,653,378 |
| Loss per share, basic and diluted | $0.05 | $0.14 |
| Operating cash used | $(1,096,148) for the nine-month period |
For the nine months, operating expenses included $917,388 of research and development, $463,719 of professional fees, and $272,052 of general and administrative expense. No profit or meaningful operating margin was reported because the company had no revenue.
| Balance-sheet metric | May 31, 2018 | August 31, 2017 |
|---|---|---|
| Cash and cash equivalents | $326,023 | $572,775 |
| Total assets | $400,983 | $574,275 |
| Current liabilities | $492,328 | $29,438 |
| Working capital | $(91,983) | $544,837 |
| Stockholders’ equity (deficit) | $(91,345) | $544,837 |
Cash used in investing activities was $887; financing activities provided $862,656, principally from common-stock issuance. Cash decreased by $246,752 over the nine months. The balance sheet lists no notes payable or other interest-bearing debt at May 31; accounts payable and accrued liabilities were $489,628.
Material changes and business developments
- Compared with the nine months ended May 31, 2017, operating expenses rose from $117,237 to $1,653,378, and net loss increased from $119,160 to $1,653,378. Management attributed the expense increase primarily to research and development.
- Quarterly operating expenses increased from $95,725 to $577,857 versus the prior-year quarter, including newly reported R&D expense of $236,845.
- Accounts payable and accrued liabilities rose to $489,628 from $28,576 at August 31, 2017. The filing attributes the increase in total liabilities primarily to this item and related-party amounts.
- The company raised $850,786 in a private placement for 1,308,893 common shares at $0.65 per unit; units included five-year warrants exercisable at $1.50. It reported 12,781,195 common shares outstanding as of May 31, 2018, and the cover reports the same number as of July 9.
- The company entered into a NEOMED agreement providing a time-limited option for an exclusive worldwide license to a compound, subject to research and diligence. It also entered into an exclusive license agreement with Stony Brook University, with upfront and maintenance fees and potential royalties. The company said it had discontinued development of the two provisional patents licensed from Analog Biosciences.
Outlook, risks, and other notable items
- Going concern: Management reported no established revenue source sufficient to cover operating costs and stated that additional capital is needed. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management expects to seek financing, including equity or debt, but gives no assurance of obtaining adequate capital or achieving profitability.
- Outlook: No quantified financial or operating guidance is provided. Management described research, diligence, and licensing plans, but noted that the company was not yet developing treatments under its revised business plan.
- Risks: The filing highlights financing needs, early-stage drug-development uncertainty, and risks of losing licensed rights if the company fails to meet license obligations. Patent protection, regulatory approval, and commercialization are uncertain.
- Controls: Management concluded that disclosure controls and procedures were not effective as of May 31, 2018. No material changes in internal control over financial reporting were reported during the period.
- Other items: Stock-based compensation was $168,751 for the nine-month period. No pending legal proceedings considered materially adverse were disclosed. Foreign-currency translation contributed a $12,341 comprehensive loss for the nine months.
Important facts for investors to verify
- Cash runway, near-term obligations, and whether subsequent financing was obtained; the filing identifies substantial doubt about continuing as a going concern.
- The composition, timing, and settlement of the $489,628 in accounts payable and accrued liabilities.
- Progress and costs under the NEOMED and Stony Brook agreements, including option deadlines, license fees, diligence requirements, and potential royalties.
- Outstanding warrants and potential dilution: the filing reports 3,261,196 Series A warrants outstanding, but its stated weighted-average life and average exercise-price text is unclear.
- Remediation plans for ineffective disclosure controls and any subsequent changes in controls.