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: June 30, 2023

☐	TRANSITION REPORT PERSUANT TO 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 Nasdaq Stock 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 ☒

As of August 8, 2023, the registrant had 2,885,688 shares of Common Stock, $0.001 par value per share, outstanding.

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	15
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	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	49

SIGNATURES		50

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ARTELO BIOSCIENCES, INC.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

	June 30,			December 31,
	2023			2022

ASSETS
Current Assets
Cash and cash equivalents	$	5,719		$	6,888
Trading marketable securities		8,272			9,150
Available-for-sale securities (amortized cost of $0 and $1,502, respectively)		-			1,495
Prepaid expenses and other current assets		611			789
Total Current Assets		14,602			18,322
Operating lease right-of-use assets		39			60
Intangible asset		2,039			2,039
Other assets		197			3
TOTAL ASSETS	$	16,877		$	20,424

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	523		$	905
Due to related parties		46			53
Operating lease liabilities - current portion		34			40
Total Current Liabilities		603			998

Operating lease liabilities		6			23
TOTAL LIABILITIES		609			1,021

STOCKHOLDERS’ EQUITY
Preferred Stock, par value $0.001, 416,667 shares authorized,
0 shares issued and outstanding as of June 30, 2023 and December 31, 2022		-			-
Common Stock, par value $0.001, 50,000,000 shares authorized, as of June 30, 2023 and December 31, 2022
2,855,688 and 2,855,688 shares issued and outstanding as of June 30, 2023 and December 31, 2022		3			3
Additional paid-in capital		51,254			50,675
Accumulated deficit		(34,788	)		(31,021	)
Accumulated other comprehensive loss		(201	)		(254	)
TOTAL STOCKHOLDERS’ EQUITY		16,268			19,403

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	16,877		$	20,424

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

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ARTELO BIOSCIENCES, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share data)

	Three months ended						Six months ended
	June 30,						June 30,
	2023			2022			2023			2022

OPERATING EXPENSES
General and administrative	$	1,032		$	1,415		$	2,089		$	2,897
Research and development		752			1,056			1,987			1,520
Total Operating Expenses		1,784			2,471			4,076			4,417

Loss from Operations		(1,784	)		(2,471	)		(4,076	)		(4,417	)

OTHER INCOME (EXPENSE)
Interest income		-			1			-			2
Net change in fair value of trading marketable securities		185			21			309			1
Total other income		185			22			309			3

Provision for income taxes		-			-			-			-

NET LOSS	$	(1,599	)	$	(2,449	)	$	(3,767	)	$	(4,414	)

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized loss on available-for-sale securities		(29	)		(7	)		-			(29	)
Foreign currency translation adjustments		33			(105	)		53			(129	)
Total Other Comprehensive Income (Loss)		4			(112	)		53			(158	)

TOTAL COMPREHENSIVE LOSS	$	(1,595	)	$	(2,561	)	$	(3,714	)	$	(4,572	)

Basic and Diluted Loss per Common Share	$	(0.56	)	$	(0.87	)	$	(1.32	)	$	(1.56	)

Basic and Diluted Weighted Average Common Shares Outstanding		2,856			2,830			2,856			2,825

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

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ARTELO BIOSCIENCES, INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

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

Balance, December 31, 2022		2,856	$	3	$	50,675	$	(31,021	)	$	(254	)	$	19,403

Stock based compensation		-		-		354		-			-			354
Net loss for the period		-		-		-		(2,168	)		-			(2,168	)
Other comprehensive income		-		-		-		-			49			49
Balance, March 31, 2023		2,856	$	3	$	51,029	$	(33,189	)	$	(205	)	$	17,638

Stock based compensation		-		-		225		-			-			225
Net loss for the period		-		-		-		(1,599	)		-			(1,599	)
Other comprehensive income		-		-		-		-			4			4
Balance, June 30, 2023		2,856	$	3	$	51,254	$	(34,788	)	$	(201	)	$	16,268

										Accumulated
					Additional					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

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

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ARTELO BIOSCIENCES, INC.

Consolidated Statements of Cash Flows

(In thousands)

	Six months ended
	June 30,
	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,767	)	$	(4,414	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		579			1,243
Net change in fair value of trading marketable securities		(309	)		(1	)
Non-cash lease expense		21			19
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		101			(330	)
Accounts payable and accrued liabilities		(402	)		(543	)
Accounts payable - related parties		(9	)		29
Fixed cash payments related to operating leases		(23	)		(22	)
Net cash used in operating activities		(3,809	)		(4,019	)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in trading marketable securities		(8,154	)		(2,687	)
Investment in available-for-sale securities		-			(499	)
Proceeds from disposition of marketable securities		9,240			7,428
Proceeds from disposition of available-for-sale securities		1,512			-
Net cash provided by investing activities		2,598			4,242

CASH FLOWS FROM FINANCING ACTIVITIES
Payment of stock issuance costs		-			(134	)
Net cash provided by (used in) financing activities		-			(134	)

Effect of exchange rate changes on cash		42			(129	)

Net change in cash and cash equivalents		(1,169	)		(40	)
Cash and cash equivalents - beginning of period		6,888			12,162
Cash and cash equivalents - end of period	$	5,719		$	12,122

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 and lease liability	$	-		$	20
Unrealized loss from available-for-sale securities	$	-		$	(29	)

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

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ARTELO BIOSCIENCES, INC.

Notes to the Unaudited Consolidated Financial Statements

(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 incorporated on May 2, 2011, and based in San Diego County, California. The accounting and reporting policies of the Company conform to accounting principles generally accepted 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 developing and commercializing therapeutics that target lipid-signaling pathways, including treatments intended to modulate the endocannabinoid system (the “ECS”), a family of receptors and neurotransmitters that form a biochemical communication network throughout the body.

Liquidity

The Company has incurred losses since inception and incurred a net loss of $3,767 during the six months ended June 30, 2023. However, in November 2021, the Company completed an equity offering which generated net proceeds of $18,262. 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 June 30, 2023, there have been no sales under the Equity Line. In July 2023, the Company filed a $75,000 in aggregate value shelf registration statement on Form S-3 which became effective on July 14, 2023. The shelf registration statement is effective for three years and permits the Company to sell, from time to time, up to $75,000 of the Company’s Common Stock, preferred stock, debt securities, warrants, and/or units. The Company’s existing cash resources are expected to provide sufficient funds to carry out the Company’s planned operations into the second half of 2024. To continue operations beyond such time frame, the Company will be required to raise additional funds by completing additional equity or debt offerings or licensing our product candidates. There can be no assurance that the Company will be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Negative Global or National Events

Businesses have been and will continue to be impacted by a number of challenging global and national events and circumstances that continue to evolve, including the COVID-19 pandemic, extreme weather conditions, increased economic uncertainty, inflation, rising interest rates, recent and any potential future financial institution failures, and conflicts in Eastern Europe and in other countries. The extent of the impact of these events and circumstances on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and scope of the events and their impact on our development activities, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. We have been and continue to actively monitor the potential impacts that these various events and circumstances may have on our business and we take steps, where warranted, to minimize any potential negative impacts on our business resulting from these events and circumstances. The ultimate impact of these global and national events and circumstances, either individually or in aggregate, is highly uncertain and subject to change.

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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 six months ended June 30, 2023, 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 year ended December 31, 2022, contained in the Company’s Form 10-K filed with the SEC on March 31, 2023.

All amounts in these financial statements, notes and tables have been rounded to the nearest thousand dollars, except share and per share amounts, unless otherwise indicated.

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.

Research and Development (“R&D”)

R&D expenses consist primarily of costs related to clinical studies and outside services, personnel expenses, and other R&D expenses. Clinical studies and outside services costs relate primarily to services performed by clinical research organizations and related clinical or development manufacturing costs, materials, and supplies, filing fees, regulatory support, and other third-party fees. Personnel expenses relate primarily to salaries and benefits. R&D expenditures are charged to operations as incurred.

The Company recognizes R&D tax credits received from the United Kingdom government for spending on R&D as an offset of R&D expenses. The Company received R&D tax credits of $1,206 and $1,041 during the six months ended June 30, 2023 and 2022, respectively.

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 $5,719 and $6,888 in cash and cash equivalents at June 30, 2023, and December 31, 2022, 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 June 30, 2023, was approximately $5,219. 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.

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 marketable securities, had an outstanding balance of $8,272 and $9,150 as of June 30, 2023, and December 31, 2022, respectively. The Company’s holdings in US Treasury instruments, classified as available-for-sale securities had an outstanding balance of $0 and $1,495 as of June 30, 2023, and December 31, 2022, respectively.

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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 shown 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 in the fair value hierarchy as of June 30, 2023, and December 31, 2022:

	June 30, 2023
	Level 1		Level 2		Level 3		Total
Marketable securities – trading securities
Commercial paper	$	-	$	7,351	$	-	$	7,351
Asset-backed securities		-		244		-		244
US Government		-		677		-		677
		-		8,272		-		8,272

Available-for-sale securities		-		-		-		-

	$	-	$	8,272	$	-	$	8,272

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Marketable securities – trading securities
Commercial paper	$	-	$	9,150	$	-	$	9,150
		-		9,150		-		9,150

Available-for sale securities
US Treasury		-		1,495		-		1,495
		-		1,495		-		1,495

	$	-	$	10,645	$	-	$	10,645

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Net Loss per Share of Common Stock

Basic 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 six months ended June 30, 2023, and 2022, the following Common Stock equivalents were excluded from the computation of diluted net loss per share as the result was anti-dilutive.

	June 30,		June 30,
	2023		2022
Stock options		512,607		314,679
Warrants		258,821		270,088
		771,428		584,767

New Accounting Standard Adopted

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. These amendments permit the use of an impairment model known as the current expected credit loss (CECL) model when assessing financial instruments for impairment. There was no impact on the Company’s financial statements as a result of the adoption of the standard.

Recent Accounting Pronouncements

In June 2022, the FASB issued ASU 2022-03, ASC Subtopic “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments in this update are effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

NOTE 3 – RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2023, and 2022, a company owned by the Senior Vice President, European Operations, provided consulting services totaling $6 and $20, respectively. As of June 30, 2023, and December 31, 2022, there was $2 and $1, outstanding, respectively.

During the six months ended June 30, 2023, and 2022, a company significantly influenced by a director of a subsidiary of the Company provided professional services totaling $84 and $65, respectively. As of June 30, 2023, and December 31, 2022, there was $20 and $30 outstanding, respectively.

During the six months ended June 30, 2023, and 2022, a company controlled by a director of a subsidiary of the Company provided professional services totaling $41 and $45, respectively. As of June 30, 2023, and December 31, 2022, there was $24 and $23 outstanding, respectively.

NOTE 4 - EQUITY

Preferred shares

The Company has authorized 416,667 shares of preferred stock with a par value of $0.001 per share.

As of June 30, 2023, there were no shares of preferred stock issued or outstanding.

Common Shares

The Company has authorized 50,000,000 shares of Common Stock with a par value of $0.001 per share. Each share of Common Stock entitles the holder to one vote, in person or proxy, on any matter on which an action of the stockholders of the Company is sought.

As of June 30, 2023, there were 2,855,688 shares of Common Stock issued and outstanding.

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Warrants

A summary of activity of the warrants during the six months ended June 30, 2023, is follows:

						Weighted
	Number of			Weighted Average		Average
	shares			Exercise Price		Life (years)
Outstanding, December 31, 2022		270,053		$	64.16		2.05
Granted		-			-		-
Expired		(11,232	)		180.89		-
Exercised		-			-		-
Outstanding, June 30, 2023		258,821		$	64.16		1.56

The intrinsic value of the warrants as of June 30, 2023, is $0. All of the outstanding warrants are exercisable as of June 30, 2023.

2018 Equity Incentive Plan, as amended

On January 1, 2023, the number of shares available under the Company’s 2018 Equity Incentive Plan, as amended (the “2018 Plan”) was increased by 428,353 shares of Common Stock.

As of June 30, 2023, the 2018 Plan permits the Company to issue up to an aggregate of 1,050,879 shares of Common Stock of which 538,272 shares are available to be issued.

Options granted during the six months ended June 30, 2023

The following is a summary of stock option activity during the six months ended June 30, 2023:

	Options Outstanding				Weighted Average
	Number of		Weighted Average		Remaining life
	Options		Exercise Price		(years)
Outstanding, December 31, 2022		313,109	$	24.15		8.41
Granted		199,498		3.13		10.00
Exercised		-		-		-
Forfeited/canceled		-		-		-
Outstanding, June 30, 2023		512,607	$	15.97		8.57

Exercisable options, June 30, 2023		207,824	$	29.55		7.75

Valuation

The Company utilizes the Black-Scholes model to value its stock options. The Company utilized the following assumptions:

	Six Months Ended
	June 30,
	2023
Expected term	5.50 - 6.25 years
Expected average volatility	114 - 150		%
Expected dividend yield		-
Risk-free interest rate	3.43 - 4.13		%

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During the six months ended June 30, 2023, the Company granted 199,498 options valued at $576. During the six months ended June 30, 2023, and 2022, the Company recognized stock-based compensation expense of $579 and $1.2 million, respectively, of which $428 and $1.1 million was for related parties, respectively, and as of June 30, 2023, $1,745 remains unamortized, of which $1,207 is for related parties. The intrinsic value of options outstanding as of June 30, 2023, is $0.

NOTE 5 – INTANGIBLE ASSET

The Company has capitalized the costs associated with acquiring the exclusive worldwide license to develop and commercialize products comprising or containing the compound ART27.13 as an intangible asset at a value of $2,039 as of June 30, 2023, and December 31, 2022.

The amount capitalized consisted of a $1,500 payment and the fair value of 4,087 shares of Common Stock of $539. During the six months ended June 30, 2023, no additional costs met the criteria for capitalization as an intangible asset.

NOTE 6 - LEASE

On May 12, 2021, the Company entered into a lease arrangement for office space with Beckman/Lomas LLC, an entity controlled by a close family member of a director. Effective June 1, 2022, the related party divested its interests in the property, and as such, the lease agreement no longer constitutes a related party transaction.

On April 19, 2022, the Company entered into a lease arrangement for office space with an annual rent of $13 (£11) with the term of April 2022 through September 2023.

The following summarizes right-of use asset and lease information about the Company’s operating lease as of June 30, 2023:

	Six months ended
	June 30,
	2023			2022

Lease cost
Operating lease cost	$	21		$	19

Other information
Cash paid for operating cash flows from operating leases	$	23		$	22
Right-of-use assets obtained in exchange for new operating lease liability	$	-		$	20

Weighted-average remaining lease term — operating leases (year)		1.17			2.03
Weighted-average discount rate — operating leases		3.00	%		2.98	%

Future minimum lease payments under the operating lease liability have non-cancellable lease payments at June 30, 2023 as follows:

	Total
Year Ended December 31,
2023 - Remaining 6 months	$	17
2024		24
Thereafter		-
		41
Less: Imputed interest		(1	)
Operating lease liabilities		40

Operating lease liability - current		34
Operating lease liability - non-current	$	6

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NOTE 7 – COMMITMENTS AND CONTENGENCIES

The Company has certain financial commitments relating to research and development contracts as of June 30, 2023, as follows:

	·	The Company is invoiced monthly and quarterly in connection with several research and development contracts.
	·	The Company may be obligated to make additional payments related to research and development contracts entered into, dependent on the progress and milestones achieved through the programs.
	·	The Company’s principal executive office is currently located at 505 Lomas Santa Fe Drive, Suite 160, Solana Beach, CA, US. Additionally, we have an office outside Manchester, UK, which serve as administrative spaces for managing our subsidiaries, Trinity Reliant Ventures, Ltd (Ireland) and Artelo Biosciences Limited (UK). We do not currently own any properties, laboratories, or manufacturing facilities. All leases for our office space, other than for the principal executive office, are month-to-month.

NOTE 8 – SUBSEQUENT EVENTS

In July 2023, the Company filed a $75,000 shelf registration statement on Form S-3 which became effective on July 14, 2023. The shelf registration statement is effective for three years and permits the Company to sell, from time to time, up to $75,000 in aggregate value of the Company’s Common Stock, preferred stock, debt securities, warrants and/or units.

On August 4, 2023, the Company granted options to directors of the Company to purchase an aggregate total of 6,498 shares of the Company’s common stock with an exercise price of $2.01, all of which vest on the earlier of the one (1) year anniversary of the grant date or the day prior to the date of the next annual meeting of the Company’s stockholders following the grant date.

Subsequent to June 30, 2023, in accordance with the Equity Line, the Company issued 30,000 shares of the Company’s Common Stock with aggregate proceeds to the Company of $56.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. Some of the statements in the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and elsewhere contain forward-looking statements. In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these terms.

These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

	·	our plans to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our product candidates;
	·	our ability to raise any current or future funding to meet our capital requirements;
	·	the expected timing of the initiation and completion of our clinical studies for our product candidates;
	·	the size and growth of the markets for our product candidates;
	·	our commercialization, marketing, and manufacturing capabilities and strategies;
	·	any impact of the global COVID‑19 pandemic, or responses to the pandemic, on our business, clinical trials or personnel;
	·	geopolitical tensions, including the war in Ukraine, that can disrupt investment, supply chains and the economy generally;
	·	our ability to compete with companies currently producing alternative treatment methods;
	·	the cost, timing and outcomes of any potential litigation involving our product candidates;
	·	regulatory developments in the US and internationally;
	·	the development, regulatory approval, efficacy and commercialization of competing product candidates;
	·	our ability to attract and retain key scientific or management personnel;
	·	the scope of protection we are able to establish and maintain for intellectual property rights covering our products and technology;
	·	the terms and conditions of licenses granted to us and our ability to license additional intellectual property related to our product candidates, as appropriate;
	·	our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
	·	potential claims related to our intellectual property;
	·	the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
	·	our ability to maintain compliance with Nasdaq listing requirements;
	·	our ability to develop and maintain our corporate infrastructure, including our internal controls;
	·	our ability to develop innovative new product candidates; and
	·	our financial performance.

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Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, statements that include terms such as “we believe” and similar terms reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this filing, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Our interim financial statements are stated in United States Dollars (“USD”) and are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this annual report.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in USD and all references to “Common Shares” refer to shares of our common stock.

As used in this annual report, the terms “we”, “us”, “our” and “our company” mean Artelo Biosciences, Inc., and our wholly-owned subsidiaries, Trinity Reliant Ventures Limited, in Ireland, Artelo Biosciences Limited, in England and Wales, and Artelo Biosciences Corporation, in Canada, unless otherwise indicated.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of Artelo Biosciences, Inc.’s (“Artelo” or the “Company”) condensed consolidated results of operations and financial condition. The discussion should be read together with the condensed consolidated financial statements and the accompanying notes to those statements that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements for the year ended December 31, 2022, and the related notes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2023. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Artelo’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” in Part II, Item 1A as set forth in this Quarterly Report on Form 10-Q.

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General Overview

We incorporated in the State of Nevada on May 2, 2011, and are presently based in the County of San Diego, California. We are a clinical stage biopharmaceutical company focused on the development and commercialization 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.

Our product candidate pipeline broadly leverages leading scientific methodologies and balances risk across mechanism of action and stages of development. Our programs represent a comprehensive approach in utilizing the power and promise of lipid signaling to develop pharmaceuticals for patients with unmet healthcare needs. We are currently developing a dual cannabinoid agonist. This synthetic small molecule program is a G protein-coupled receptor (“GPCR”) designated ART27.13. We are developing ART27.13 as a potential treatment for anorexia associated with cancer in a Phase 1b/2a trial, titled the Cancer Appetite Recovery Study (“CAReS”). Our second program, ART26.12 is a small molecule and the lead product candidate from our chemical library of inhibitors of fatty acid binding proteins, notably Fatty Acid Binding Protein 5 (“FABP5”), undergoing pre-clinical research as a potential treatment for painful neuropathies. In addition, ART26.12 may have broad applications as a cancer therapeutic, a treatment for pain and inflammation, and potential use in anxiety-related disorders, including post-traumatic stress disorder. We are also developing our own invention ART12.11 (the “CBD cocrystal”). ART 12.11 is our patented solid-state composition of cannabidiol (“CBD”) and tetramethylpyrazine (“TMP”). TMP serves as the coformer in the CBD cocrystal. ART12.11 is considered a new chemical entity (“NCE”).

We obtained two of our patent protected product candidates through our in-licensing activities. Our first in-licensed program, ART27.13, is being developed for cancer-related anorexia. ART27.13 is a peripherally-restricted high-potency dual CB₁ and CB₂ receptor full-receptor agonist, which was originally invented at AstraZeneca plc (“AstraZeneca”). We exercised our option to exclusively license this GPCR product candidate through the NEOMED Institute (“NEOMED”), a Canadian not-for-profit corporation, renamed adMare Bioinnovations (“adMare”) in June 2019, which had obtained rights to ART27.13. In Phase 1, single dose studies in healthy volunteers and a multiple ascending dose study in individuals with chronic low back pain conducted by AstraZeneca, ART27.13 exhibited an attractive pharmacokinetic and absorption, distribution, metabolism, and excretion profile and was well tolerated within the target exposure range. It also exhibited dose-dependent and potentially clinically meaningful increases in body weight. Importantly, the changes in body weight were not associated with fluid retention or other adverse effects and occurred at exposures without central nervous system (“CNS”) side effects. Discussions with UK, US and Canadian regulators indicate there is a potential pathway for development of ART27.13 for the treatment of cancer-related anorexia, which affects approximately 60% of advanced stage cancer patients.

We commenced enrollment and dosed the first patient in CAReS, our Phase 1b/2a clinical study of cancer-related anorexia with ART27.13 in April 2021 and we completed enrolling patients in the Phase 1b during the first quarter 2023. Data from the Phase 1b stage was used to determine the most effective and safe dose selected for the Phase 2a portion of CAReS. We received approval from the regulatory authorities in the UK to expand the Phase 2a to 40 patients with a 3:1 randomization of ART27:13 to placebo. We initiated the larger Phase 2a portion of CAReS during April 2023 in the UK and are planning for up to 18 sites from five countries to participate in the Phase 2a. We experienced minor delays due to COVID-19; however, we do not foresee significant ongoing impacts. We are aware the situation could change and we are working to mitigate any adverse effects that may materialize due to the pandemic or its aftermath or any other global disruption.

Our second in-licensed patented program is from our platform of small-molecule inhibitors of fatty acid binding proteins, notably FABP5 acquired from Stony Brook University (“SBU”). Our lead program FABP5 is designated ART26.12. To date, SBU has received approximately $8.0 million in funding from the National Institutes of Health to develop these candidates including a $4.2 million grant in 2020 to advance research of FABP5 inhibition in prostate cancer. Fatty acid binding proteins (“FABPs”) are attractive therapeutic targets, however, the high degree of sequence and structural similarities among family members have made the creation of drugs targeting specific FABPs challenging. FABP5 is believed to specifically target and regulate one of the body’s endogenous cannabinoids, anandamide (“AEA”). While searching for a FABP5 inhibitor to regulate AEA, researchers at SBU discovered the chemistry for creating a large library of compounds which we believe to be highly specific and potent small molecule inhibitors of FABP5 and other isoforms. In addition to its potential as a synthetic endocannabinoid modulator with development targeting pain, inflammation, and anxiety, FABP5 is understood to play an important role in lipid signaling and is believed to be an attractive strategy for cancer drug development. Large amounts of human biomarker and animal model data support FABP5 as an oncology target, including triple negative breast cancer, ovarian cancer, cervical cancer, and castration-resistant prostate cancer. We licensed exclusive world-wide rights to these inhibitors from SBU in all fields. Through our sponsored research we have subsequently identified a potential role for FABP5 inhibition to treat anxiety disorders, such as Post Traumatic Stress Disorder (“PTSD”). We have also been awarded a research grant in Canada to expand on our earlier research at the University of Western Ontario in this new development area.

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Based upon recently disclosed positive pre-clinical evidence of promising activity and a differentiated mechanism-of-action for the prevention and treatment of Chemotherapy Induced Peripheral Neuropathy (“CIPN”), we have prioritized CIPN as the initial indication for development of our lead product candidate among our library of FABP5 inhibitor compounds, ART26.12. Treatment and/or prevention of CIPN is a significant unmet need, often resulting in anti-cancer treatment delays or discontinuations, and there are currently no approved treatments for CIPN by the regulatory authorities in the US, UK or EU. The ART26.12 program is in the early stages of regulatory-enabling studies. We anticipate first-in-human studies could begin in the second half of 2024 depending, in part, on the ability of selected contract research organizations to source materials and resources, including animals, in order to perform required studies, the review and approval process with the regulatory authorities, such as the US Food and Drug Administration (the “FDA”), and any lingering consequences of the global COVID-19 pandemic. The COVID-19 pandemic has created uncertainties in the expected timelines for clinical stage biopharmaceutical companies such as us, and because of such uncertainties, we are unable to predict our expected timelines with any degree of certainty at this time.

In addition to our in-licensed programs, we have internal discovery research initiatives which resulted in ART12.11, a proprietary cocrystal composition of CBD. The crystal structure of CBD is known to exhibit solid polymorphism, or the ability to manifest in different forms. Polymorphism can adversely affect stability, dissolution, and bioavailability of a drug product and thus may affect its quality, safety, and efficacy. Based upon our research, we believe our CBD cocrystal exists as a single crystal form and as such is anticipated to have advantages over other solid forms of CBD that exhibit polymorphism. Emerging data demonstrates potential advantages of this single crystal structure, including improved stability, solubility, and a more consistent absorption profile. We believe these features have contributed to a more consistent and improved bioavailability profile and, as already demonstrated in animal studies, may ultimately lead to improved safety and efficacy in human therapeutics.

Presently, we have two US patents, one pending US patent application, two foreign patents (Mexico and Taiwan) and seven pending foreign patent applications (Australia, Brazil, Canada, China, Europe, South Korea, and Japan) directed to our cocrystal composition of CBD. Composition claims are generally known in the pharmaceutical industry as the most desired type of intellectual property and should provide for long lasting market exclusivity for our synthetic CBD cocrystal drug product candidate. In addition, due to the reasons outlined above, we believe that our synthetic CBD cocrystal will continue to demonstrate a superior set of pharmaceutical properties compared to non-cocrystal CBD compositions. We plan to develop ART12.11 for multiple potential indications where CBD has shown activity of such anxiety disorders, including PTSD, depression, and Inflammatory Bowel Disease (“IBD”).

We are developing our product candidates in accordance with traditional regulated drug development standards and expect to make them available to patients via prescription or physician orders only after obtaining marketing authorization from a regulatory authority, such as the FDA. Our management team has experience developing, commercializing, and partnering ethical pharmaceutical products, including several first-in-class therapeutics. Based upon our current management’s capabilities and the future talent we may attract, we expect to retain rights to internally develop and commercialize products; however, we may seek collaborations with partners in the biopharmaceutical industry when that strategy serves to maximize value for our stockholders.

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Product Candidate Pipeline:

Product Candidate	Target Indications	Development Phase	Estimated Market Size
ART27.13 – Synthetic Dual Cannabinoid GPCR Agonist	Anorexia associated with cancer	Clinical	Cancer anorexia cachexia syndrome: >$2 billion
ART26.12 – FABP5 inhibitor	Chemotherapy Induced Peripheral Neuropathy, Prostate cancer and Breast cancer, pain, and anxiety disorders	Pre-clinical	CIPN: >$1 billion Prostate cancer: approximately $9 billion Breast cancer: approximately $18 billion PTSD: approximately $7 billion
ART12.11 – Synthetic CBD Cocrystal	Inflammatory Bowel Disease (IBD), Post-Traumatic Stress Disorder (PTSD), and other potential indications	Pre-clinical	IBD: approximately $7 billion PTSD: approximately $7 billion

Background

The ECS is composed of cannabinoid receptors, endogenous receptor ligands (“endocannabinoids”) and their associated transporter mechanisms, as well as enzymes responsible for the synthesis and degradation of endocannabinoids and has emerged as a considerable target for pharmacotherapy approaches of numerous human diseases. As a widespread modulatory and lipid-signaling system, the ECS plays important roles in the CNS, development, synaptic plasticity, and the response to endogenous and environmental factors.

The modulation of the ECS can be affected by using selective or non-selective agonists, partial agonists, inverse agonists, and antagonists of the cannabinoid receptors, CB₁and CB₂. The CB₁ receptor is distributed in brain areas associated with motor control, emotional responses, motivated behavior and energy homeostasis. In the periphery, CB₁ is ubiquitously expressed in the adipose tissue, pancreas, liver, gastrointestinal tract, skeletal muscles, heart and the reproductive system. The CB₂ receptor is mainly expressed in the immune system regulating its functions and is upregulated in response to tissue stress or damage in most cell types. The ECS is therefore involved in pathophysiological conditions in both the central and peripheral tissues.

The actions of endogenous ligands can be enhanced or attenuated by targeting mechanisms that are associated with their transport within the cellular and extra cellular matrix as well as their synthesis and breakdown. Small molecule chemical modulators of the ECS can be derived from plants (phytocannabinoids), can be semi-synthetic derivatives of phytocannabinoids or endocannabinoids, or can be completely synthetic new chemical entities. We plan to develop approaches within our portfolio that address receptor binding and endocannabinoid transport modulation using only synthetic new chemical entities. Future approaches may also involve targeting synthesis or breakdown enzymes.

ECS targeting cannabinoid-based medicines are already approved and used to treat numerous medical conditions. The ECS is further implicated in many disease states within the peer reviewed literature including conditions which involve the regulation of food intake, central nervous system, pain, cardiovascular, gastrointestinal, immune and inflammation, behavioral, antiproliferative and reproductive functions. These areas of ECS pathophysiology are aligned with our therapeutic areas of focus: anxiety, pain, inflammation, anorexia, and cancer.

Business Strategy

Our objective is to develop and commercialize ethical pharmaceutical products that provide physicians access to the therapeutic potential lipid signaling of modulators, including modulating the ECS. We intend to pursue technologies and compounds that offer promising therapeutic approaches to known and validated signaling pathways, specifically lipid signaling which includes compounds that promote the effectiveness of the ECS. While many of our programs are directed towards improving the lives of people suffering with cancer and cancer treatments, the Company’s portfolio may ultimately be used to treat a wide range of diseases and conditions where leveraging the ECS is particularly useful.

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Components of Our Results of Operations

Revenue

To date, we have not generated any revenue and we may not generate any revenue from the sale of products or from other sources in the near future.

Operating Expenses

We classify our operating expenses into research and development, and general and administrative expenses. Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates. This includes conducting preclinical studies and clinical trials, development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily consists of costs incurred in research and development partnerships, preliminary studies, development of potential intellectual property, and research initiatives. General and administrative expense consists of professional fees, stock-based compensation, executive and director compensation and other administrative costs.

Other Income (expense)

Our other income (expense) consists of interest income and changes in fair value of the Company’s trading marketable securities.

Results of Operations

Three months ended June 30, 2023, compared to the three months ended June 30, 2022

	Three months ended
	June 30,
(In thousands)	2023			2022			Change
Operating Expenses
General and administrative	$	1,032		$	1,415		$	(383	)
Research and development		752			1,056			(304	)
Total Operating Expenses		1,784			2,471			(687	)
Loss from Operations		(1,784	)		(2,471	)		687
Other income		185			22			163
Net Loss	$	(1,599	)	$	(2,449	)	$	850

Our operating expenses, for the three months ended June 30, 2023, were $1.8 million compared to $2.5 million for the same period in 2022. The decrease in operating expenses for the three months ended June 30, 2023, was related to a decrease in general and administrative expenses primarily associated with a decrease in the year-over-year service cost of stock-based compensation, a non-cash expense, along with a decrease in research and development expenses primarily driven by an increase in tax credits received from the United Kingdom government, compared to the same period in the prior year, offset by an increase in research and development expense as a result of increased salaries to internal research and development staff along with increased payments to third-party service providers.

Six months ended June 30, 2023, compared to the six months ended June 30, 2022

	Six months ended
	June 30,
(In thousands)	2023			2022			Change
Operating Expenses
General and administrative	$	2,089		$	2,897		$	(808	)
Research and development		1,987			1,520			467
Total Operating Expenses		4,076			4,417			(341	)
Loss from Operations		(4,076	)		(4,417	)		341
Other income		309			3			306

SEC Form 10-Q filed by Artelo Biosciences Inc.