Artelo Biosciences(US:ARTL)2023-11-13 13:02markdown PART I - FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Artelo Biosciences, Inc., including the Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Stockholders' Equity, and Statements of Cash Flows, along with accompanying notes detailing the company's organization, significant accounting policies, related party transactions, equity, intangible assets, leases, commitments, and subsequent events [Condensed Consolidated Balance Sheets](index=2&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes the company's financial position, including assets, liabilities, and equity, as of September 30, 2023, and December 31, 2022 | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :-------------------------------- | :------------------------------- | | Cash and cash equivalents | $2,639 | $6,888 | | Trading marketable securities | $10,225 | $9,150 | | Total Current Assets | $13,428 | $18,322 | | TOTAL ASSETS | $15,499 | $20,424 | | Accounts payable and accrued liabilities | $840 | $905 | | Total Current Liabilities | $921 | $998 | | Total Stockholders' Equity | $14,578 | $19,403 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Details the company's financial performance, including revenues, expenses, and net loss, for the three and nine months ended September 30, 2023 and 2022 | Metric (in thousands) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | | General and administrative | $1,029 | $1,316 | | Research and development | $1,585 | $1,078 | | Total Operating Expenses | $2,614 | $2,394 | | Loss from Operations | $(2,614) | $(2,394) | | Net change in fair value of trading marketable securities | $165 | $69 | | NET LOSS | $(2,449) | $(2,330) | | Basic and Diluted Loss per Common Share | $(0.83) | $(0.82) | | Basic and Diluted Weighted Average Common Shares Outstanding | 2,949 | 2,849 | | Metric (in thousands) | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | General and administrative | $3,118 | $4,213 | | Research and development | $3,572 | $2,598 | | Total Operating Expenses | $6,690 | $6,811 | | Loss from Operations | $(6,690) | $(6,811) | | Net change in fair value of trading marketable securities | $474 | $70 | | NET LOSS | $(6,216) | $(6,744) | | Basic and Diluted Loss per Common Share | $(2.15) | $(2.38) | | Basic and Diluted Weighted Average Common Shares Outstanding | 2,887 | 2,833 | [Condensed Consolidated Statements of Stockholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Outlines changes in stockholders' equity, including common shares, additional paid-in capital, and accumulated deficit, for the nine months ended September 30, 2023 | Metric (in thousands) | Balance, Dec 31, 2022 | Balance, Sep 30, 2023 | | :-------------------------------- | :-------------------- | :-------------------- | | Common Shares | 2,856 | 3,162 | | Additional Paid-in Capital | $50,675 | $52,011 | | Accumulated Deficit | $(31,021) | $(37,237) | | Total Stockholders' Equity | $19,403 | $14,578 | - Issuance of common shares contributed **$535 thousand** to additional paid-in capital during the nine months ended September 30, 2023[14](index=14&type=chunk) - Stock-based compensation recognized during the nine months ended September 30, 2023, totaled **$801 thousand**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 | Cash Flow Activity (in thousands) | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(5,611) | $(5,715) | | Net cash provided by investing activities | $766 | $1,162 | | Net cash provided by (used in) financing activities | $535 | $(134) | | Effect of exchange rate changes on cash | $61 | $(339) | | Net change in cash and cash equivalents | $(4,249) | $(5,026) | | Cash and cash equivalents - end of period | $2,639 | $7,136 | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=5&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the financial statements, covering accounting policies, related party transactions, and subsequent events [NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS](index=5&type=section&id=NOTE%201%20%E2%80%93%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) Describes the company's corporate structure, business focus on biopharmaceutical development, and financial viability considerations - Artelo Biosciences, Inc. is a Nevada corporation, incorporated on May 2, 2011, and based in San Diego County, California[19](index=19&type=chunk) - The Company is a clinical stage biopharmaceutical company focused on developing and commercializing therapeutics that target lipid-signaling pathways, including the endocannabinoid system (ECS)[20](index=20&type=chunk) - The Company incurred a net loss of **$6,216 thousand** during the nine months ended September 30, 2023[21](index=21&type=chunk) - Existing cash resources are expected to provide sufficient funds into the **first quarter of 2025**, requiring additional funding thereafter[22](index=22&type=chunk) [NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=6&type=section&id=NOTE%202%20-%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition, R&D, and fair value measurements - The Company's financial statements are prepared in accordance with GAAP and SEC rules, with interim statements following Article 8 of Regulation S-X[24](index=24&type=chunk) - R&D expenses include clinical studies, outside services, and personnel expenses, offset by R&D tax credits from the UK government (**$1,206 thousand** in 9M 2023)[27](index=27&type=chunk) | Marketable Securities (in thousands) | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :----------------- | :---------------- | | Trading marketable securities | $10,225 | $9,150 | | Available-for-sale securities | $0 | $1,495 | | Fair Value Hierarchy (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :---------------------------------- | :------ | :--------- | :------ | :--------- | | **September 30, 2023** | | | | | | Commercial paper | $0 | $6,365 | $0 | $6,365 | | Asset-backed securities | $0 | $1,206 | $0 | $1,206 | | Corporate debt | $0 | $1,470 | $0 | $1,470 | | US Government | $0 | $1,184 | $0 | $1,184 | | Total Trading Securities | $0 | $10,225 | $0 | $10,225 | | Available-for-sale securities | $0 | $0 | $0 | $0 | | **December 31, 2022** | | | | | | Commercial paper | $0 | $9,150 | $0 | $9,150 | | Total Trading Securities | $0 | $9,150 | $0 | $9,150 | | Available-for-sale securities | $0 | $1,495 | $0 | $1,495 | | US Treasury | $0 | $1,495 | $0 | $1,495 | | Common Stock Equivalents | September 30, 2023 | September 30, 2022 | | :----------------------- | :----------------- | :----------------- | | Stock options | 519,105 | 313,109 | | Warrants | 253,319 | 270,053 | | Total | 772,424 | 583,162 | [NOTE 3 – RELATED PARTY TRANSACTIONS](index=9&type=section&id=NOTE%203%20%E2%80%93%20RELATED%20PARTY%20TRANSACTIONS) Details transactions with entities owned or influenced by company executives or directors - The Company engaged in consulting and professional services with companies owned or influenced by its Senior Vice President, European Operations, and a subsidiary director, totaling **$172 thousand** for the nine months ended September 30, 2023[40](index=40&type=chunk) [NOTE 4 - EQUITY](index=9&type=section&id=NOTE%204%20-%20EQUITY) Provides information on common stock, warrants, stock options, and stock-based compensation - As of September 30, 2023, the Company had **3,162,354 shares** of Common Stock issued and outstanding, with **306,666 shares** issued under the Equity Line for **$535 thousand**[41](index=41&type=chunk) | Warrants Activity | Number of shares | Weighted Average Exercise Price | | :---------------------------- | :--------------- | :------------------------------ | | Outstanding, December 31, 2022 | 270,053 | $64.16 | | Expired | (16,734) | $180.00 | | Outstanding, September 30, 2023 | 253,319 | $55.82 | | Stock Option Activity | Number of Options | Weighted Average Exercise Price | | :---------------------------- | :---------------- | :------------------------------ | | Outstanding, December 31, 2022 | 313,109 | $24.15 | | Granted | 205,996 | $3.09 | | Outstanding, September 30, 2023 | 519,105 | $15.79 | | Exercisable options, September 30, 2023 | 214,807 | $29.22 | - Stock-based compensation expense recognized was **$801 thousand** for the nine months ended September 30, 2023, with **$1,533 thousand** remaining unamortized[47](index=47&type=chunk) [NOTE 5 – INTANGIBLE ASSET](index=10&type=section&id=NOTE%205%20%E2%80%93%20INTANGIBLE%20ASSET) Describes the capitalization and nature of the company's exclusive license for ART27.13 - The Company capitalized **$2,039 thousand** for the exclusive worldwide license to develop and commercialize ART27.13, consisting of a **$1,500 thousand** payment and **$539 thousand** fair value of common stock[48](index=48&type=chunk) [NOTE 6 - LEASE](index=10&type=section&id=NOTE%206%20-%20LEASE) Details the company's operating lease commitments for office space, including future minimum payments - The Company has operating leases for office space, with a weighted-average remaining lease term of **0.92 years** and a weighted-average discount rate of **3.00%** as of September 30, 2023[51](index=51&type=chunk) | Future Minimum Lease Payments (in thousands) | Total | | :------------------------------------------- | :---- | | 2023 - Remaining 3 months | $9 | | 2024 | $23 | | Thereafter | $0 | | Total | $32 | [NOTE 7 – COMMITMENTS AND CONTENGENCIES](index=11&type=section&id=NOTE%207%20%E2%80%93%20COMMITMENTS%20AND%20CONTENGENCIES) Outlines financial commitments related to research and development contracts and potential additional payments - The Company has financial commitments related to research and development contracts, with monthly and quarterly invoicing[55](index=55&type=chunk) - Additional payments may be required for R&D contracts based on progress and milestones[55](index=55&type=chunk) [NOTE 8 – SUBSEQUENT EVENTS](index=11&type=section&id=NOTE%208%20%E2%80%93%20SUBSEQUENT%20EVENTS) Reports significant events occurring after the balance sheet date, specifically common stock issuance - Subsequent to September 30, 2023, the Company issued **26,605 shares** of Common Stock under the Equity Line, generating **$33 thousand** in proceeds[54](index=54&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=12&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results, detailing its biopharmaceutical focus, product pipeline, business strategy, and a comparative analysis of financial performance for the three and nine months ended September 30, 2023, alongside discussions on liquidity, capital resources, and critical accounting policies [General Overview](index=13&type=section&id=General%20Overview) Provides an executive summary of the company's biopharmaceutical focus and strategic direction - Artelo Biosciences, Inc. is a clinical stage biopharmaceutical company focused on developing therapeutics targeting lipid-signaling pathways, including the endocannabinoid system (ECS)[64](index=64&type=chunk) [Product Candidate Pipeline](index=13&type=section&id=Product%20Candidate%20Pipeline) Details the company's therapeutic product candidates, their target indications, development phases, and estimated market sizes - ART27.13, a dual cannabinoid agonist, is in a Phase 1b/2a clinical study (CAReS) for cancer-related anorexia, with regulatory approval to increase daily dose and expand Phase 2a to 40 patients[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - ART26.12, a FABP5 inhibitor, is undergoing pre-clinical research for painful neuropathies (prioritizing Chemotherapy Induced Peripheral Neuropathy, CIPN) and has potential applications in cancer, pain, inflammation, and anxiety disorders[65](index=65&type=chunk)[68](index=68&type=chunk)[70](index=70&type=chunk) - ART12.11, a proprietary synthetic CBD cocrystal, is in pre-clinical development, demonstrating improved stability, solubility, and bioavailability, with US and foreign patents, targeting anxiety, PTSD, epilepsy, insomnia, and IBD[65](index=65&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk) | Product Candidate | Target Indications | Development Phase | Estimated Global Market Size (approx.) | | :---------------- | :------------------------------------------------------------------------------------------------------ | :---------------- | :------------------------------------- | | ART27.13 | Anorexia associated with cancer | Clinical | >$2 billion | | ART26.12 | Chemotherapy Induced Peripheral Neuropathy, Diabetic Neuropathy, Prostate cancer, Breast cancer, pain, and anxiety disorders | Pre-clinical | CIPN: >$1 billion; Prostate cancer: $9 billion; Breast cancer: $18 billion; PTSD: $7 billion | | ART12.11 | Anxiety, Post-Traumatic Stress Disorder (PTSD), Inflammatory Bowel Disease (IBD), and other potential indications | Pre-clinical | Anxiety disorders: >$11 billion; PTSD: $7 billion; IBD: $7 billion | [Background (Endocannabinoid System)](index=15&type=section&id=Background%20(Endocannabinoid%20System)) Explains the Endocannabinoid System (ECS) as a key biological target for the company's therapeutic development - The Endocannabinoid System (ECS) is a widespread modulatory and lipid-signaling network involving cannabinoid receptors (CB1 and CB2), endocannabinoids, and associated enzymes, playing crucial roles in CNS, development, synaptic plasticity, and response to environmental factors[76](index=76&type=chunk)[77](index=77&type=chunk) - Modulation of the ECS can be achieved through selective or non-selective agonists, partial agonists, inverse agonists, and antagonists of CB1 and CB2 receptors, with the Company focusing on synthetic new chemical entities[77](index=77&type=chunk)[78](index=78&type=chunk) [Business Strategy](index=15&type=section&id=Business%20Strategy) Outlines the company's core objective to develop and commercialize ethical pharmaceutical products leveraging lipid signaling modulators - The Company's objective is to develop and commercialize ethical pharmaceutical products that leverage lipid signaling modulators, including those that enhance the effectiveness of the ECS, for a wide range of diseases[80](index=80&type=chunk) [Components of Our Results of Operations](index=15&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Explains the primary drivers of the company's financial performance, including operating expenses and other income - The Company has not generated any revenue to date and does not expect to in the near future[81](index=81&type=chunk) - Operating expenses are classified into research and development (R&D) and general and administrative (G&A) expenses[82](index=82&type=chunk) - Other income (expense) primarily consists of interest income and changes in the fair value of trading marketable securities[83](index=83&type=chunk) [Results of Operations (Three and Nine Months)](index=16&type=section&id=Results%20of%20Operations%20(Three%20and%20Nine%20Months)) Compares the company's financial performance, including operating expenses and net loss, for the three and nine months ended September 30, 2023 and 2022 | Metric (in thousands) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | Change | | :-------------------------------- | :------------------------------ | :------------------------------ | :----- | | General and administrative | $1,029 | $1,316 | $(287) | | Research and development | $1,585 | $1,078 | $507 | | Total Operating Expenses | $2,614 | $2,394 | $220 | | Loss from Operations | $(2,614) | $(2,394) | $(220) | | Other income | $165 | $64 | $101 | | Net Loss | $(2,449) | $(2,330) | $(119) | - The increase in operating expenses for the three months ended September 30, 2023, was due to increased R&D expenses, partially offset by decreased G&A expenses from lower stock-based compensation[85](index=85&type=chunk) | Metric (in thousands) | Nine months ended Sep 30, 2023 | Nine months ended Sep 30, 2022 | Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :------- | | General and administrative | $3,118 | $4,213 | $(1,095) | | Research and development | $3,572 | $2,598 | $974 | | Total Operating Expenses | $6,690 | $6,811 | $(121) | | Loss from Operations | $(6,690) | $(6,811) | $121 | | Other income (expense) | $474 | $67 | $407 | | Net Loss | $(6,216) | $(6,744) | $528 | - The decrease in operating expenses for the nine months ended September 30, 2023, was primarily due to lower G&A expenses from reduced stock-based compensation, partially offset by increased R&D expenses[87](index=87&type=chunk) [Liquidity and Capital Resources](index=16&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's ability to meet its financial obligations and fund future operations, including financing activities and cash projections - The Company has incurred losses since inception, with a net loss of **$6.2 million** for the nine months ended September 30, 2023[89](index=89&type=chunk) - In May 2022, the Company entered into an Equity Line agreement to sell up to **$20.0 million** of Common Stock, issuing **306,666 shares** for **$0.5 million** as of September 30, 2023[89](index=89&type=chunk) - A **$75.0 million** shelf registration statement on Form S-3 became effective in July 2023, providing flexibility to raise additional capital[90](index=90&type=chunk) - Existing cash resources are projected to fund operations into the **first quarter of 2025**, necessitating additional funding thereafter[91](index=91&type=chunk) [Working Capital](index=17&type=section&id=Working%20Capital) Analyzes the company's short-term financial health by comparing current assets and liabilities | Metric (in thousands) | September 30, 2023 | December 31, 2022 | Change | | :-------------------- | :----------------- | :---------------- | :-------- | | Current Assets | $13,428 | $18,322 | $(4,894) | | Current Liabilities | $921 | $998 | $(77) | | Working Capital | $12,507 | $17,324 | $(4,817) | - The decrease in current assets was primarily due to funding the Company's operating activities[92](index=92&type=chunk) [Cash Flows Analysis](index=17&type=section&id=Cash%20Flows%20Analysis) Examines the sources and uses of cash from operating, investing, and financing activities - Net cash used in operating activities was **$5.6 million** for the nine months ended September 30, 2023, primarily due to a net loss of **$6.2 million**, partially offset by stock-based compensation and changes in operating assets/liabilities[95](index=95&type=chunk) - Net cash provided by investing activities was **$0.8 million** for the nine months ended September 30, 2023, resulting from dispositions of marketable securities offset by purchases[96](index=96&type=chunk) - Net cash provided by financing activities was **$0.5 million** for the nine months ended September 30, 2023, from the issuance of common stock[97](index=97&type=chunk) [Critical Accounting Policies and Estimates](index=18&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Highlights key accounting policies requiring significant management judgment and estimation - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, which are evaluated on an ongoing basis[98](index=98&type=chunk)[99](index=99&type=chunk) [New Accounting Standard Adopted](index=18&type=section&id=New%20Accounting%20Standard%20Adopted) Reports on the adoption of ASU 2016-13 (CECL model) and its impact on financial statements - The Company adopted ASU 2016-13 (CECL model) on January 1, 2023, with no impact on its financial statements[100](index=100&type=chunk) [Recent Accounting Pronouncements](index=18&type=section&id=Recent%20Accounting%20Pronouncements) Discusses the potential impact of recently issued accounting standards on the company's financial reporting - The Company is currently assessing the impact of ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions), effective for fiscal years beginning after December 15, 2023[101](index=101&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=18&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Artelo Biosciences, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - As a 'smaller reporting company,' the Company is not required to provide quantitative and qualitative disclosures about market risk[102](index=102&type=chunk) [Item 4. Controls and Procedures](index=18&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2023, reports no material changes in internal control over financial reporting, and acknowledges the inherent limitations of control systems [Disclosure Controls and Procedures](index=18&type=section&id=Disclosure%20Controls%20and%20Procedures) Confirms the effectiveness of the company's disclosure controls and procedures as of September 30, 2023 - The Chief Executive Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2023[102](index=102&type=chunk) [Changes in Internal Control Over Financial Reporting](index=18&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Reports no material changes in internal control over financial reporting during the period - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the period[103](index=103&type=chunk) [Inherent Limitations on the Effectiveness of Controls](index=19&type=section&id=Inherent%20Limitations%20on%20the%20Effectiveness%20of%20Controls) Acknowledges that control systems provide reasonable, not absolute, assurance and are subject to inherent limitations - Control systems are designed to provide reasonable, not absolute, assurance, and are subject to inherent limitations such as faulty judgments, simple errors, circumvention by individuals, or unauthorized overrides[104](index=104&type=chunk) PART II - OTHER INFORMATION Presents additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=19&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations - The Company is not currently involved in any legal proceedings deemed likely to have a material adverse effect on its business, financial condition, and results of operations[105](index=105&type=chunk) [Item 1A. Risk Factors](index=19&type=page&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could materially and adversely affect the Company's business, financial condition, results of operations, and future growth prospects, categorized into risks related to business and product candidates, intellectual property, and securities [Risk Factor Summary](index=19&type=section&id=Risk%20Factor%20Summary) Provides a high-level overview of the key risks related to the company's business, intellectual property, and securities - Risks Related to our Business and Product Candidates: Need for additional financing, R&D tax credits, patent license compliance, regulatory changes, new company difficulties, no mature product candidates, resource limitations[107](index=107&type=chunk)[108](index=108&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) - Risks Related to our Intellectual Property: Inability to obtain/maintain patent protection, compliance with patent agencies, inventorship claims, limitations of IP rights, litigation[107](index=107&type=chunk)[108](index=108&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) - Risks Related to our Securities: Nasdaq delisting, dilution from future financings, price volatility, Rule 144 restrictions, deemed distribution from warrants, no dividends, public company costs[107](index=107&type=chunk)[108](index=108&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) [Risks Related to our Business and Product Candidates](index=20&type=section&id=Risks%20Related%20to%20our%20Business%20and%20Product%20Candidates) Details significant risks concerning the company's operations, product development, regulatory environment, and financial sustainability - The Company will need to raise substantial additional financing to fund operations and commercialization, with no assurance of availability on favorable terms, potentially leading to delays or termination of development programs[110](index=110&type=chunk)[111](index=111&type=chunk)[114](index=114&type=chunk) - Changes in UK R&D tax credit rules, effective April 2024, may reduce or eliminate credits for activities outside the UK, significantly increasing product development costs[116](index=116&type=chunk)[117](index=117&type=chunk) - Failure to comply with obligations under patent license agreements (e.g., with NEOMED Institute, Stony Brook University) could result in loss of vital license rights, adversely affecting business[119](index=119&type=chunk)[120](index=120&type=chunk) - Clinical trials are lengthy, expensive, and uncertain; results from earlier studies may not predict future outcomes, and unforeseen side effects or regulatory changes could cause delays or termination[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk)[144](index=144&type=chunk) - The Company relies heavily on third parties for preclinical research, clinical trials, and manufacturing, reducing control and posing risks of unsatisfactory performance or delays[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - Product candidates containing controlled substances are subject to stringent DEA and international regulations, and failure to comply or obtain necessary licenses could severely impact development and commercialization[173](index=173&type=chunk)[174](index=174&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Risks Related to our Intellectual Property](index=36&type=section&id=Risks%20Related%20to%20our%20Intellectual%20Property) Outlines risks associated with obtaining, maintaining, and enforcing the company's intellectual property rights - Inability to obtain and maintain effective patent protection for product candidates could allow competitors to commercialize similar products, adversely affecting the Company's ability to commercialize its own[212](index=212&type=chunk)[213](index=213&type=chunk) - Compliance with various procedural measures, document submissions, and fee payments to government patent agencies is critical; non-compliance could lead to reduced or eliminated patent protection[217](index=217&type=chunk)[218](index=218&type=chunk) - The Company may face claims challenging the inventorship of its patents or other intellectual property, potentially leading to litigation costs, loss of valuable rights, and distraction of management[219](index=219&type=chunk)[220](index=220&type=chunk) - Intellectual property rights have limitations and may not adequately protect the business, as competitors could develop non-infringing alternatives or patents could be challenged, invalidated, or expire[221](index=221&type=chunk) [Risks Related to our Securities](index=38&type=section&id=Risks%20Related%20to%20our%20Securities) Addresses risks related to the company's common stock, including market volatility, dilution, and listing compliance - Failure to maintain compliance with Nasdaq's continued listing requirements could result in delisting, negatively impacting stock price, liquidity, and ability to raise capital[227](index=227&type=chunk)[229](index=229&type=chunk) - Future equity financings, including sales under the Equity Line, may cause immediate dilution to existing stockholders and could lead to a decline in stock price[231](index=231&type=chunk) - The price of the Company's securities may be highly volatile, and an active, liquid, and orderly trading market may not continue, making it difficult for investors to sell shares[232](index=232&type=chunk)[233](index=233&type=chunk) - As a former 'shell company,' shares not registered under federal securities laws are subject to Rule 144 resale restrictions, including a 12-month waiting period and ongoing reporting compliance[234](index=234&type=chunk)[235](index=235&type=chunk) - The Company does not plan to declare or pay any dividends in the near future, and future dividend payments are at the discretion of the Board[239](index=239&type=chunk) - Operating as a public company incurs significant legal, accounting, and compliance costs, diverting management time and potentially impacting financial results[240](index=240&type=chunk)[241](index=241&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company reports no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds were reported[252](index=252&type=chunk) [Item 3. Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reports no defaults upon senior securities during the period - No defaults upon senior securities were reported[252](index=252&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[253](index=253&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) The Company reports no other information for this period - No other information was reported[253](index=253&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including Articles of Incorporation, Bylaws, and Section 302 and 906 Certifications | Exhibit Number | Description | Filed Herewith | | :------------- | :------------------------------------------------------------------------ | :------------- | | 3.1 | Articles of Incorporation, as amended | | | 3.2 | Amended and Restated Bylaws | | | 31.1 | Section 302 Certification | * | | 32.1 | Section 906 Certification | * | | 101.INS | Inline XBRL Instance Document | | | 104 | Cover page Interactive Data File (embedded with the Inline XBRL document) | | SIGNATURES Confirms the official signing and submission of the report by the authorized executive - The report was signed by Gregory D. Gorgas, President, Chief Executive Officer, Chief Financial Officer, Treasurer and Director, on November 13, 2023[255](index=255&type=chunk)