Artelo Biosciences(ARTL) - 2025 Q2 - Quarterly Results

Report of Independent Registered Public Accounting Firm Opinion on the Financial Statements The independent auditor issued an unqualified opinion on the financial statements, but noted a 'Going Concern' issue due to recurring losses and net capital deficiency - The auditor provided an unqualified opinion, stating the financial statements are fairly presented[4] - A 'Going Concern' issue was raised due to the Company's recurring losses from operations and net capital deficiency, creating substantial doubt about its ability to continue[5] - The auditor determined that there were no critical audit matters arising from the current period audit[10] Consolidated Financial Statements Consolidated Balance Sheets As of December 31, 2024, Artelo's total assets decreased dramatically to $4.7 million from $13.0 million in 2023, primarily due to the depletion of cash and marketable securities. Total liabilities saw a modest increase to $1.8 million. Consequently, total stockholders' equity plummeted from $11.8 million to $2.9 million, reflecting the significant net loss incurred during the year Consolidated Balance Sheets (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,338 | $2,815 | | Trading marketable securities | $0 | $7,611 | | Total Current Assets | $2,557 | $10,980 | | Total Assets | $4,698 | $13,043 | | Liabilities & Equity | | | | Total Current Liabilities | $1,772 | $1,291 | | Total Liabilities | $1,841 | $1,291 | | Total Stockholders' Equity | $2,857 | $11,752 | | Total Liabilities and Stockholders' Equity | $4,698 | $13,043 | Consolidated Statements of Operations and Comprehensive Loss For the year ended December 31, 2024, the company reported a net loss of $9.8 million, widening from a $9.3 million loss in 2023. The increased loss was primarily due to higher research and development expenses, which grew to $6.0 million. The company generated no revenue from operations Consolidated Statements of Operations (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | General and administrative | $4,115 | $4,234 | | Research and development | $5,993 | $5,696 | | Total Operating Expenses | $10,108 | $9,930 | | Loss from Operations | ($10,108) | ($9,930) | | Net Loss | ($9,826) | ($9,289) | | Basic and Diluted Loss per Common Share | ($18.30) | ($18.80) | Consolidated Statements of Stockholders' Equity Stockholders' equity declined significantly from $11.8 million at the end of 2023 to $2.9 million by the end of 2024. This $8.9 million decrease was driven by the $9.8 million net loss for the period, which was partially offset by $0.8 million in stock-based compensation and $0.1 million from the issuance of common shares Changes in Stockholders' Equity for the year ended Dec 31, 2024 (in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2023 | $11,752 | | Issuance of common shares | $112 | | Stock based compensation | $818 | | Net loss for the period | ($9,826) | | Other comprehensive income | $1 | | Balance, December 31, 2024 | $2,857 | Consolidated Statements of Cash Flows The company's cash and cash equivalents decreased by $0.5 million in 2024, ending the year at $2.3 million. A significant cash outflow of $8.4 million from operating activities was largely offset by a $7.8 million inflow from investing activities, primarily from the sale of marketable securities. Financing activities provided a small inflow of $0.1 million Consolidated Statements of Cash Flows (in thousands) | Category | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,350) | ($8,207) | | Net cash provided by investing activities | $7,769 | $3,507 | | Net cash provided by financing activities | $112 | $567 | | Net change in cash and cash equivalents | ($477) | ($4,073) | | Cash and cash equivalents - end of period | $2,338 | $2,815 | Notes to the Consolidated Financial Statements NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS Artelo Biosciences is a clinical-stage biopharmaceutical company developing therapeutics targeting lipid-signaling pathways. The note highlights a significant 'going concern' risk due to a history of losses, with a net loss of $9.8 million in 2024, and outlines management's funding plans - The company is a clinical-stage biopharmaceutical firm focused on developing therapeutics that modulate the endocannabinoid system (ECS)[25] - The company's history of losses and need for additional funding raise substantial doubt about its ability to continue as a going concern[28] - To fund operations, the company has a $20 million equity line agreement and a $75 million shelf registration statement on Form S-3[26][27] NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details the company's accounting policies, including R&D tax credit recognition, the absence of marketable securities in 2024, and the exclusion of anti-dilutive securities from EPS calculations - R&D tax credits from the UK government are recognized as an offset to R&D expenses, totaling $1,349 thousand in 2024 and $1,206 thousand in 2023[33] - The balance of trading marketable securities decreased from $7,611 thousand at the end of 2023 to $0 at the end of 2024[36] Anti-Dilutive Common Stock Equivalents Excluded from EPS | Security Type | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Stock options | 128,976 | 86,549 | | Warrants | 23,315 | 40,442 | | Total | 152,291 | 126,991 | NOTE 3 – SEGMENT REPORTING The company operates as a single 'life science' segment, with performance evaluated by the CEO based on consolidated net loss and cash forecasts, and provides a breakdown of operating expenses - The Company operates as a single reporting segment: life science[53] Breakdown of Operating Expenses (in thousands) | Expense Category | 2024 | 2023 | | :--- | :--- | :--- | | General and administrative | | | | Employee and director compensation | $1,173 | $1,091 | | Professional fees | $1,133 | $1,101 | | Total G&A | $4,115 | $4,234 | | Research and development | | | | Professional fees | $5,169 | $4,531 | | R&D tax credits | ($1,349) | ($1,206) | | Total R&D | $5,993 | $5,696 | NOTE 4 – RELATED PARTY TRANSACTIONS The company engaged in transactions with related parties, including entities owned or influenced by its Senior VP of European Operations and subsidiary directors, primarily for consulting and professional services - A company owned by the Senior VP, European Operations, provided consulting services totaling $9 thousand in 2024 and $12 thousand in 2023[59] - A company influenced by a subsidiary director provided professional services totaling $100 thousand in 2024 and $135 thousand in 2023[60] - A company controlled by a subsidiary director provided professional services totaling $78 thousand in 2024 and $77 thousand in 2023[61] NOTE 5 - EQUITY This note details the company's equity activities, including the issuance of shares under its Equity Line, changes in outstanding warrants, and the granting and repricing of stock options in 2024 - In 2024, the Company issued 15,348 shares of Common Stock for aggregate proceeds of $112 thousand under its Equity Line agreement[65] Warrant Activity | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Outstanding Warrants | 23,315 | 40,442 | | Average Exercise Price | $67.50 | $294.29 | Stock Option Activity | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Options Granted | 42,427 | 34,344 | | Outstanding Options (End of Period) | 128,976 | 86,549 | - In February 2024, 81,372 options were repriced to $9.30, which was treated as a modification resulting in $210 thousand in additional compensation expense to be amortized[79] NOTE 6 – INCOME TAXES Artelo has not provided for income taxes due to its history of net operating losses, accumulating a $27.4 million NOL carryforward, against which a full valuation allowance has been established - The company has an aggregate net operating loss carryforward of $27,433 thousand, which will begin to expire in 2034[83] Net Deferred Tax Assets (in thousands) | Component | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Net operating loss carryover | $5,678 | $5,135 | | Valuation allowance | ($5,678) | ($5,135) | | Net deferred tax asset | $0 | $0 | NOTE 7– INTANGIBLE ASSET The company holds an intangible asset valued at $2.039 million for the exclusive license to develop ART27.13, with no impairment recorded for 2024 or 2023 - The company has a capitalized intangible asset of $2,039 thousand for the exclusive license to develop and commercialize the compound ART27.13[85] - No impairment of the intangible asset was recorded at December 31, 2024, and 2023[38] NOTE 8 - LEASE This note details the company's operating leases for office space, including the extension of the U.S. lease through August 2027, resulting in total future minimum lease payments of $115 thousand - In March 2024, the company amended its U.S. office lease, extending the term to August 2027[87] Future Minimum Lease Payments (in thousands) | Year Ended Dec 31, | Total | | :--- | :--- | | 2025 | $42 | | 2026 | $43 | | 2027 | $30 | | Total | $115 | NOTE 9 – COMMITMENTS AND CONTINGENCIES The company has financial commitments for R&D contracts contingent on milestones and operates without owned properties, laboratories, or manufacturing facilities, relying on leased office spaces - The Company has financial commitments for R&D contracts where payments are dependent on the progress and milestones achieved[96] - The company does not own any properties, laboratories, or manufacturing facilities and leases its executive office in California and an administrative office in the UK[96] NOTE 10 – SUBSEQUENT EVENTS Following year-end, Artelo engaged in significant corporate and financing activities in 2025, including issuing $900 thousand in convertible notes, a 6:1 reverse stock split, a private placement, and granting stock options - On May 1, 2025, the Company issued at-market, unsecured convertible notes with gross proceeds of $900 thousand[92] - On June 13, 2025, the Company executed a 6:1 reverse stock split[93] - On June 26, 2025, the company closed a private placement for shares, pre-funded warrants, and common warrants[94] - In July 2025, the company granted options to purchase an aggregate of 98,866 shares to its CEO, employees, and consultants[95][97]