Artelo Biosciences, Inc S-1, filed Sep 28, 2020

Artelo Biosciences, Inc. (ARTL)

S-1 2020-09-28

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Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

Title of each class of securities to be registered	Proposed maximum aggregate offering price(1)		Amount of registration fee

Units consisting of shares of Common Stock, par value $0.001 per share, and warrants to purchase shares of Common Stock, par value $0.001 per share	$	-	$	-
Common Stock included as part of the Units		-		-

Common Stock issuable upon exercise of the warrants	$	-	$	-
Underwriter’s warrants (3)		-		-
Common Stock underlying underwriter’s warrants (3)	$	-	$	-
Total	$	4,000,000.00	$	519.20

(1)	Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).
(2)	No separate fee is required pursuant to Rule 457(g) under the Securities Act.
(3)	We have agreed to issue upon the closing of this offering, warrants to Ladenburg Thalmann & Co. Inc. entitling it to purchase up to ________% of the aggregate shares of common stock sold in this offering. The exercise price of the warrants is equal to 125% of the public offering price of the common stock offered hereby. The warrants will be exercisable beginning on the effective date of our stockholders’ approval of either an increase in the number of our authorized shares of common stock or a reverse stock split, in either case in an amount sufficient to permit the exercise in full of the warrants, and will expire on the five (5) year anniversary of the original issuance date.

	Per Share	Total
Public offering price	$	$
Underwriter discounts and commissions (1)	$	$
Proceeds, before expenses, to us	$	$

	Page
Prospectus Summary		1
Risk Factors		8
Special Notes Regarding Forward-Looking Statements		32
Market, Industry and Other Data		33
Use of Proceeds		33
Dividend Policy		34
Capitalization		34
Dilution		35
Management’s Discussion and Analysis of Financial Condition and Results of Operations		37
Business		44
Management		60
Executive Compensation		64
Certain Relationships and Related Party Transactions		69
Security Ownership of Certain Beneficial Owners and Management		71
Underwriting		73
Description of Securities		76
Material U.S. Federal Income Tax Considerations		81
Description of Securities We are Offering		81
Legal Matters		88
Experts		88
Where You Can Find More Information		88
Index to Consolidated Financial Statements		F-1

Our second in-licensed program is a platform of small-molecule inhibitors for fatty acid binding protein 5 (“FABP5”), based upon scientific developments achieved at Stony Brook University (“SBU”) which we have designated ART26.12. To date, SBU has received nearly $4 million in funding from the National Institutes of Health to begin developing these candidates. Fatty acid binding proteins (“FABPs”) are attractive therapeutic targets, however, their high degree of similarity among the various types has proven challenging to the creation of drugs targeting specific FABPs. 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, we believe researchers at SBU discovered the chemistry for creating a highly specific and potent small molecule inhibitor for FABP5. In addition to its potential as a synthetic endocannabinoid modulator, FABP5 is also an attractive target for cancer drug development. Large amounts of human clinical epidemiological and animal model data support FABP5 as a well validated oncology therapeutic target, especially for triple negative breast cancer and castration-resistant prostate cancer. We licensed exclusive world-wide rights to these inhibitors from SBU. The program is in the final stages of lead optimization, and we plan to initiate regulatory enabling studies thereafter. We anticipate clinical studies in cancer could begin in the second half of 2021 or the first half of 2022, depending on the impact of COVID-19. The COVID-19 global 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 accurately predict our expected timelines at this time. We are developing our product candidates in accordance with traditional drug development standards and will make them available to the general public via prescription or physician orders only after obtaining marketing authorization from a regulatory authority, such as the U.S. Food and Drug Administration (the “FDA”). Our management team has experience developing and commercializing 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. Product Candidate Pipeline:

Product Candidate	Target Indications	Development Phase	Market Size
ART27.13 – Synthetic Cannabinoid Agonist	Anorexia associated with cancer	Phase 1	Cancer anorexia cachexia syndrome: $2 billion
ART26.12 – FABP5 inhibitor	Prostate cancer and Breast cancer	Pre-clinical	Prostate cancer: $9 billion Breast cancer: $18 billion
ART12.11 – Synthetic CBD Cocrystal	Inflammatory Bowel Disease (IBD) and Post-Traumatic Stress Disorder (PTSD)	Pre-clinical	IBD: $7 billion PTSD: $7 billion
Therapeutics market size based upon total global annual prescription drug sales in 2016, 2017 or 2018. 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 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 effected 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 the cannabis plant (“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: pain, inflammation, anorexia, and cancer.

	·	if we fail to comply with our obligations under our patent licenses with third parties, we could lose license rights that are vital to our business;
	·	our ability to continue our operations requires that we raise additional capital and our operations could be curtailed if we are unable to obtain the additional funding as or when needed;
	·	we face many of the risks and difficulties frequently encountered by relatively new companies with respect to our operations;
	·	we do not have any therapeutic products that are approved for commercial sale. Our ability to generate revenue from product sales and become profitable depends significantly on our success in a number of factors;
	·	we have no mature product candidates and may not be successful in licensing any;
	·	we are very early in our development efforts and our product candidates may not be successful in later stage clinical trials. Results obtained in our preclinical studies and clinical trials to date are not necessarily indicative of results to be obtained in future clinical trials. As a result, our product candidates may never be approved as marketable therapeutics;
	·	we will need to raise additional financing to support our business objectives. We cannot be sure we will be able to obtain additional financing on terms favorable to us when needed, or at all. If we are unable to obtain additional financing to meet our needs, our operations may be adversely affected or terminated;
	·	we have very limited operating history and capabilities;
	·	if we are unable to obtain and maintain patent protection for our products, our competitors could develop and commercialize products and technology similar or identical to our product candidates, and our ability to successfully commercialize any product candidates we may develop, and our science may be adversely affected;
	·	obtaining and maintaining our patent protection depends on compliance with various procedural measures, document submissions, fee payments and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements;
	·	we may be subject to claims challenging the inventorship of our patents and other intellectual property;
	·	intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities;
	·	our executive officers and certain stockholders possess the majority of our voting power, and through this ownership, control the Company and our corporate actions; and
	·	shares of our common stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”
Corporate and other Information We were incorporated in the State of Nevada on May 2, 2011 as Knight Knox Development Corp. On January 19, 2017 we changed our name to Reactive Medical, Inc. and on April 14, 2017 we changed our name to Artelo Biosciences, Inc. Our principal executive offices are located at 888 Prospect Street, Suite 210, La Jolla, California 92037 and our telephone number is (760) 943-1689. Our corporate website address is www.artelobio.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

THE OFFERING

Securities offered by Artelo		_________units (“Units”), each Unit consisting of one (1) share of our common stock and one (1) warrant to purchase one (1) share of our common stock at an exercise price of $___________ (or 125% of the price of each Unit sold in the offering) and will be exercisable beginning on the effective date of our stockholders’ approval of either an increase in the number of our authorized shares of common stock or a reverse stock split, in either case in an amount sufficient to permit the exercise in full of the warrants, and will expire on the five (5) year anniversary of the original issuance date. The Units will not be certificated and the shares of common stock and the warrants are immediately separable and will be issued separately in this offering. We do not have a sufficient number of authorized shares to permit exercise of the warrants. In the event that we are unable to effect an increase in our authorized shares of common stock or a reverse split, in either case in an amount sufficient to permit the exercise in full of the warrants, the warrants will not be exercisable and therefore have no value. In no event will the warrants have any cash value other than in connection with a fundamental transaction as described therein.

Common stock offered by Artelo		Up to _______________ shares

Common stock outstanding after this offering		Up to ______________ shares

Underwriters’ option to purchase additional shares and/or warrants		We have granted the underwriters an option, exercisable for forty-five (45) days after the date of this prospectus, to purchase up to an additional ___________ shares of common stock and/or __________ warrants to be offered by us pursuant to this offering at $_____ per share of common stock and/or $_____ per warrant, which may be purchased in any combination of common stock and/or warrants solely for the purpose of covering over-allotments.

Use of proceeds		We estimate that we will receive net proceeds from the sale of our Units in this offering of approximately $_____ million based upon an assumed public offering price of $_____ per Unit, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds to us from this offering to advance our product candidates in the context of general corporate purposes, including manufacturing, research and technical development, clinical studies, capital expenditures, and working capital. We may also use our net proceeds to acquire and invest in complementary products, technologies or businesses; however, we currently have no agreements or commitments to complete any such transaction and are not involved in negotiations to do so. Pending these uses, we intend to invest our net proceeds from this offering primarily in investment-grade, interest-bearing instruments. See “Use of Proceeds” on page 33.

Underwriters' warrants		Upon the closing of this offering, we will issue to Ladenburg Thalmann & Co. Inc. (“Ladenburg”) warrants entitling it to purchase up to 5% of the number of shares of common stock sold in this offering at an exercise price of 125% of the public offering price of the Units in this offering will be exercisable beginning on the effective date of our stockholders’ approval of either an increase in the number of our authorized shares of common stock or a reverse stock split, in either case in an amount sufficient to permit the exercise in full of the warrants, and will expire on the five (5) year anniversary of the original issuance date.

Lock-Up			Our directors, executive officers, and certain stockholders have agreed with the underwriters not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of 90 days commencing on the date of this prospectus. See “Underwriting” beginning on page 73.

Risk Factors			You should carefully read the “Risk Factors” section of this prospectus beginning on page 8 for a discussion of factors that you should consider before deciding to invest in our common stock.

Market and Trading symbol			Our shares of common stock are traded on The Nasdaq Capital Market under the symbol “ARTL” and certain of our warrants are traded on the Nasdaq Capital Market under the symbol “ARTLW.” There is no established trading market for the Warrants being offered, and we do not expect a market to develop. In addition, we do not intend to apply for the listing of the Warrants on any national securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants will be limited.

		The table and discussion above are based on 4,991,587 shares of common stock outstanding as of September 25, 2020, and excludes the following:

	•	281,834 shares of our common stock issuable upon the exercise of options or restricted stock awards granted under our 2018 Equity Incentive Plan (the “2018 Plan”), with a weighted-average exercise price of $3.57 per share;
	•	2,334,937 shares of our common stock issuable upon the exercise of warrants, with a weighted-average exercise price of $8.12 per share; and
	•	518,166 shares of our common stock reserved for future issuance under our 2018 Plan.

		Unless otherwise noted, the information in this prospectus assumes:

	•	no exercise of outstanding options subsequent to September 25, 2020; and
	•	no exercise by the underwriters of their option to purchase up to an additional ________ shares of common stock and/or _________ warrants in this offering, which may be purchased in any combination of common stock and/or warrants.

	Three months ended						Nine months ended
	May 31,						May 31,
	2020			2019			2020			2019
	(Unaudited)
OPERATING EXPENSES
General and administrative	$	382,543		$	402,803		$	1,225,952		$	666,226
Professional fees		303,524			354,038			785,133			731,277
Research and development		265,204			184,204			1,646,920			858,224
Depreciation		124			243			372			383
Total Operating Expenses		951,395			941,288			3,658,377			2,256,110

Loss from Operations		(951,395	)		(941,288	)		(3,658,377	)		(2,256,110	)

OTHER INCOME (EXPENSE)
Other income		204			32,439			1,198			32,439
Change in fair value of derivative liabilities		-			563,966			29,501			897,096
Total other income		204			596,405			30,699			929,535

Provision for income taxes		-			-			-			-

NET LOSS	$	(951,191	)	$	(344,883	)		(3,627,678	)	$	(1,326,575	)

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments		34,547			771			60,310			2,053
Total Other Comprehensive Income (Loss)		34,547			771			60,310			2,053

TOTAL COMPREHENSIVE LOSS	$	(916,644	)	$	(344,112	)	$	(3,567,368	)	$	(1,324,522	)

Basic and Diluted Loss per Common Share	$	(0.27	)	$	(0.17	)	$	(1.06	)	$	(0.70	)

Basic and Diluted Weighted Average Common Shares Outstanding		3,466,385			2,058,929			3,418,148			1,898,263

	As of
Balance Sheet Data:	May 31, 2020			August 31, 2019			August 31, 2018
	(Unaudited)

Cash and cash equivalents	$	1,279,256		$	4,423,965		$	337,424
Working capital (deficiency)		1,184,169			3,421,075			(135,537	)
Total assets		3,493,527			6,482,726			396,998
Total liabilities		268,457			1,021,513			531,972
Additional paid-in capital		11,609,266			10,278,421			2,514,136
Accumulated deficit		(8,438,434	)		(4,810,756	)		(2,638,580	)
Accumulated other comprehensive loss		50,504			(9,806	)		(12,280	)
Total stockholders’ equity (deficit)	$	3,225,070		$	5,461,213		$	(134,974	)

	·	the costs related to initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates;

	·	any change in the clinical development plans for these product candidates;

	·	the number and characteristics of product candidates that we develop or acquire;

	·	our ability to establish and maintain strategic collaborations, licensing or other commercialization arrangements and the terms and timing of such arrangements;

	·	the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of other products or treatments;

	·	the events related to the outcome, timing and cost of meeting regulatory requirements established by the U.S. Drug Enforcement Agency (the “DEA”), the FDA or other comparable foreign regulatory authorities;

	·	the potential costs of filing, prosecuting, defending and enforcing our patent claims and other intellectual property;

	·	the expenses needed to attract and retain skilled personnel;

	·	the costs associated with being a public company;

	·	the cost of defending intellectual property disputes; and

	·	the cost of marketing and generating revenues for any of our product candidates.

	·	our research and development efforts, including preclinical studies and clinical trials of our product candidates;

	·	developing sustainable, scalable, reliable and cost-effective manufacturing and distribution processes for our product candidates, including establishing and maintaining commercially viable supply relationships with third parties and establishing our own current good manufacturing processes (cGMPs), manufacturing facilities and processes;

	·	addressing any competing technological and industry developments;

	·	identifying, assessing, acquiring and/or developing new technology platforms and product candidates across numerous therapeutic areas;

	·	obtaining regulatory approvals and marketing authorizations for product candidates;

	·	launching and commercializing any approved products, either directly or with a collaborator or distributor;

	·	obtaining market acceptance of and acceptable reimbursement for any approved products;

	·	completing collaborations, licenses and other strategic transactions on favorable terms, if at all;

	·	maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and

	·	attracting, hiring and retaining qualified personnel.

	·	Identifying, licensing and obtaining development programs and lead candidates;

	·	Conducting initial research required to identify a lead candidate as the result of intellectual property we have licensed;

	·	Initiating preclinical, clinical or other required studies for future product candidates;

	·	Adding manufacturers and suppliers required to advance our programs;

	·	Obtaining regulatory and marketing approvals for our product candidates that successfully complete clinical studies;

	·	Making milestone or other payments under any license agreements;

	·	Expanding, maintaining and protecting our intellectual property portfolio;

	·	Attracting and retaining skilled personnel; and

	·	Creating and maintaining an infrastructure required to support our operations as a public company.

	·	generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials;

	·	obtain regulatory approval, or feedback on clinical trial design, to commence a clinical trial;

	·	identify, recruit and train suitable clinical investigators;

	·	reach agreement on acceptable terms with prospective clinical research organizations (“CROs”) and clinical trial sites;

	·	obtain and maintain institutional review board (“IRB”), approval at each clinical trial site;

	·	identify, recruit and enroll suitable patients to participate in a clinical trial;

	·	have a sufficient number of patients complete a clinical trial or return for post-treatment follow-up;

	·	ensure clinical investigators observe clinical trial protocol or continue to participate in a clinical trial;

	·	address any patient safety concerns that arise during the course of a clinical trial;

	·	address any conflicts with new or existing laws or regulations;

	·	add a sufficient number of clinical trial sites;

	·	timely manufacture sufficient quantities of a product candidate for use in clinical trials; or

	·	raise sufficient capital to fund a clinical trial.

	•	lack of effectiveness of any formulation or delivery system during clinical trials;

	•	discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues;

	•	slower than expected rates of subject recruitment and enrollment rates in clinical trials;

	•	delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing constraints;

	•	delays in obtaining regulatory authorization to commence a trial, including IRB approvals, licenses required for obtaining and using cannabinoids for research, either before or after a trial is commenced;

	•	unfavorable results from ongoing pre-clinical studies and clinical trials;

	•	patients or investigators failing to comply with study protocols;

	•	patients failing to return for post-treatment follow-up at the expected rate;

	•	sites participating in an ongoing clinical study withdraw, requiring us to engage new sites;

	•	third-party clinical investigators decline to participate in our clinical studies, do not perform the clinical studies on the anticipated schedule, or act in ways inconsistent with the established investigator agreement, clinical study protocol, good clinical practices, and other IRB requirements;

	•	third-party entities do not perform data collection and analysis in a timely or accurate manner or at all; or

	•	regulatory inspections of our clinical studies require us to undertake corrective action or suspend or terminate our clinical studies.

	•	others may be able to make products that are similar to our product candidates or utilize similar science or technology but that are not covered by the claims of the patents that we may own or license from our licensors or that incorporate certain research in our product candidates that is in the public domain;

	•	we, or our licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that we or our licensors own now or in the future;

	•	we, or our licensors or collaborators, might not have been the first to file patent applications covering certain of our or their inventions;

	•	others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

	•	it is possible that our or our licensors’ current or future pending patent applications will not lead to issued patents;

	•	issued patents that we or our licensors hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors or other third parties;

	•	our competitors or other third parties might conduct research and development activities in countries where we or our licensors do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

	•	we may not develop additional proprietary product candidates that are patentable;

	•	the patents of others may harm our business if, for example, we or our licensors are found to have infringed those patents or if those patents serve as prior art to our or our licensors’ patents which could potentially invalidate our or our licensors’ patents; and

	•	we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property, which could ultimately result in public disclosure of the intellectual property if the third party’s patent application is published or issues to a patent.

	•	providing for a single class of directors where each member of the board shall serve for a one year term and may be elected to successive terms;

	•	authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

	•	limiting the liability of, and providing indemnification to, our directors, including provisions that require the company to advance payment for defending pending or threatened claims;

	•	limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;

	•	requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our Board;

	•	controlling the procedures for the conduct and scheduling of board and stockholder meetings;

	•	limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our Board then in office; and

	•	providing that directors may be removed by stockholders at any time.

	·	our plans to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our product candidates;
	·	the size and growth of the markets for our product candidates;
	·	our commercialization, marketing, and manufacturing capabilities and strategy;
	·	our ability to compete with companies currently producing alternative treatment methods;
	·	the cost, timing and outcomes of any potential litigation involving our product candidates;
	·	our expectation that our capital resources will not be sufficient to fund our operations for at least the next 12 months;
	·	regulatory developments in the U.S. and in non-U.S. countries;
	·	the development, regulatory approval, efficacy and commercialization of competing product candidates;
	·	our ability to 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 develop and maintain our corporate infrastructure, including our internal controls;
	·	our ability to develop innovative new product candidates; and
	·	our financial performance.

	·	approximately percent in research and development for our product candidate pipeline, including in preclinical research, manufacturing, and clinical studies;
	·	approximately percent to advance our research in areas such as new product development, additional inventions, intellectual property, and manufacturing; and
	·	the balance of the proceeds may be used to support other regulatory activities, working capital, and general corporate purposes.

	·	on an actual basis; and

	·	on a pro forma as adjusted basis to give effect to the issuance and sale of ______________Units in this offering at an assumed public offering price of $7.20 per Unit, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

	As of
	May 31, 2020
	Actual		Pro Forma As Adjusted⁽¹⁾

Cash and cash equivalents	$	1,279,256	$	______

Capitalization:
Equipment financing		-		-
Stockholders’ equity:
Preferred Stock, par value $0.001, 6,250,000 shares authorized, 0 shares issued and outstanding		-		-
Common stock, $0.001 par value: 18,750,000 shares authorized, actual; 3,733,604 shares issued and outstanding, pro forma as adjusted; _____shares issued and outstanding		3,734		_____
Additional paid-in capital		11,609,266		_____
Accumulated deficit		(8,438,434)		_____
Accumulated other comprehensive income (loss)		50,504		_____
Total stockholders’ equity		3,225,070		_____

Total capitalization	$	3,225,070	$	_____

	·	281,834 shares of our common stock issuable upon the exercise of options or restricted stock awards granted under our 2018 Equity Incentive Plan (the “2018 Plan”), with a weighted-average exercise price of $3.57 per share;
	·	2,334,937 shares of our common stock issuable upon the exercise of warrants, with a weighted-average exercise price of $8.12 per share; and
	·	93,166 shares of our common stock reserved for future issuance under our 2018 Plan.

Assumed public offering price per share	$	______
Net tangible book value (deficit) per share at May 31, 2020	$	______
Increase to net tangible book value per share attributable to investors purchasing our common stock in this offering	$	______
Pro forma net tangible book value per share as of May 31, 2020, after giving effect to this offering	$	______
Dilution of pro forma net tangible book value per share to investors purchasing our common stock in this offering	$	______

	May 31,			August 31,
	2020			2019
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	1,279,256		$	4,423,965
Prepaid expenses and other current assets		74,655			18,623
Deferred offering costs		98,715			-
Total Current Assets		1,452,626			4,442,588
Equipment, net of accumulated depreciation of $1,144 and $792, respectively		1,484			721
Intangible asset		2,039,417			2,039,417
TOTAL ASSETS		3,493,527			6,482,726

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities	$	255,632		$	348,863
Due to related party		12,825			3,732
Derivative liability		-			29,501
Stock payable		-			639,417
Total Current Liabilities		268,457			1,021,513

STOCKHOLDERS’ EQUITY
Preferred Stock, par value $0.001, 6,250,000 shares authorized, 0 and 0 shares issued and outstanding, respectively		-			-
Common Stock, par value $0.001, 18,750,000 shares authorized, 3,733,604 and 3,353,616 shares issued and outstanding, respectively		3,734			3,354
Additional paid-in capital		11,609,266			10,278,421
Accumulated deficit		(8,438,434	)		(4,810,756	)
Accumulated other comprehensive income (loss)		50,504			(9,806	)
Total Stockholders’ Equity		3,225,070			5,461,213

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUIITY	$	3,493,527		$	6,482,726

	Year ended
	August 31,
	2019			2018			Change

General and administrative expense	$	952,334		$	508,278		$	444,056
Professional fees		1,164,695			585,069			579,626
Research and development		1,091,992			1,249,854			(157,862	)
Depreciation		510			290			220
Total Operating Expenses		3,209,531			2,343,491			866,040
Loss from Operations		(3,209,531	)		(2,343,491	)		(866,040	)
Other Income		31,256			-			31,256
Change in fair value of derivative liabilities		1,006,099			-			1,006,099
Net Loss	$	(2,172,176	)	$	(2,343,491	)	$	171,315

Product Candidate	Patent Status	License
ART27.13 – Synthetic Cannabinoid Agonist	Two (2) issued patents (US) including composition of matter, terms 11/3/24 and 9/22/25, not including any PTE; 31 issued (Intl) patents.	Worldwide exclusive license
ART26.12 – FABP5 inhibitor	Three (3) patents issued (US), terms 6/18/31 (includes PTA) and 7/19/33, not including any PTE. Covers the target, composition of matter, and utility claims. One (1) pending (US) and eleven (11) pending (Intl) applications, and two (2) pending (US) provisional applications	Worldwide exclusive license
ART12.11 – Synthetic CBD Cocrystal	Issued (1) composition of matter patent (US) with a term through 12/10/38. Pending applications (US & Intl).	N/A (wholly owned by Artelo)

Year	Full Title	Schedule	Primary Endpoint	Secondary Endpoints
2007	Phase I, First Time in Man, Single-Centre, Randomised, Double-Blind (within panels), Placebo-Controlled Study to Investigate Safety, Tolerability and Pharmacokinetics of NEO1940 after Administration of Oral Single Ascending Doses in Healthy Volunteers	Single dose	Safety and tolerability	CNS effects; PK profile
2007-2008	A Phase I, Single-Centre, Randomised, Double-Blind (within panels), Placebo-Controlled Study to Investigate Safety, Tolerability and Pharmacokinetics of NEO1940 after Administration of Oral Single Ascending Doses in Japanese Healthy Male Volunteers	Single dose	Safety and tolerability	CNS effects; PK profile
2007-2008	A Phase I, Single-centre, Randomised, Double-blind, Placebo-controlled Crossover Study in Healthy Volunteers to Evaluate Effects of a Single Oral Dose of NEO1940 on Intradermal and Topical Capsaicin-evoked Pain Symptoms⁽¹⁾	Single dose	Effects on intradermal capsaicin injection-evoked pain response by assessment of pain intensity (continuous VAS rating) and to evaluate the effect on heat pain threshold in skin exposed to topical	Other pain parameters; safety and tolerability; CNS effects; PK profile, PK/PD effects
2008	A Randomised, Double Blind, Placebo-Controlled Study to Investigate the Analgesic Efficacy of a Single Dose of NEO1940, in Patients Undergoing Impacted Mandibular Third Molar Extraction⁽²⁾	Single dose	To investigate the analgesic effect compared to placebo in dental surgery patients following impacted mandibular third molar extraction.	safety and tolerability; CNS effects; PK profile, PK/PD effects
2008	A Phase I, Multi-Centre, Randomised, Double-blind, Placebo-controlled Study to Investigate the Safety, Tolerability and Pharmacokinetics of NEO1940, Including an Interaction Study, After Administration of Oral Multiple Ascending Doses in Adult Subjects with Chronic Low Back Pain⁽³⁾	Multiple dose	Safety and tolerability	CNS effects; PK profile, CYP450 induction

(1)	Kalliomäki J, et al. Clin Exp Pharmacol Physiol. 2013 Mar;40(3):212-8.

(2)	http://clinicaltrials.gov/ct2/show/NCT00659490?term=AZD1940&rank=2

(3)	http://clinicaltrials.gov/ct2/show/NCT00689780?term=AZD1940&rank=1

Milestone	Milestone Payment ($US)
Lead candidate selection (milestone one of the Commercialization business plan) or second anniversary of SBU Effective Date, whichever comes first	$	25,000.00
Initiation of a Phase II Clinical Trial for the first Indication of each active pharmaceutical ingredient that results from the grant of rights in Section 2 to Licensed Subject Matter (as defined in the Stony Brook Agreement)	$	150,000.00
Initiation of a Phase III clinical trial for the first indication of each active pharmaceutical ingredient that results from the grant of rights in Section 2 to Licensed Subject Matter	$	250,000.00
Upon First Commercial Sale based upon FDA or European Medicines Agency (“EMA”) regulatory approval for the first Indication of each active pharmaceutical ingredient that results from the grant of rights in Section 2 to Licensed Subject Matter	$	1,500,000.00
Receiving FDA or EMA approval for the second and each subsequent Indication of each active pharmaceutical ingredient that results from the grant of rights in Section 2 to Licensed Subject Matter	$	1,000,000.00
First time annual Net Sales (as defined in the Stony Brook Agreement) greater than $100,000,000.00	$	1,000,000.00
First time annual Net Sales greater than $500,000,000.00	$	5,000,000.00

	·	Synthetics and Mimetics. We plan to acquire rights to intellectual property for research and clinical stage assets developed within the pharmaceutical industry and leading research institutions which utilize synthetically developed mimetics or alternatives to plant-based cannabinoids. Our efforts to secure rights to synthetics and novel compounds led us to the NEOMED Agreement with NEOMED for the Compound.

	·	New Chemical Entities. We expect to license intellectual property rights for research stage platforms and new chemical entities developed within leading academic institutions under which we may develop programs that modulate the ECS or related signaling pathways. These programs may involve the use of compounds which are neither plant based nor synthetically-derived cannabinoids, but are instead compounds that have been shown to have promising potential for modulating the ECS. Our initiatives for this strategy led us to the license novel technology from Stony Brook University, which we expect to be a core program for the Company.

	·	ART27.13 – ART27.13 is our name for the synthetic compound formerly known as NEO1940 and AZD1940. We intend to develop a synthetic formulation suitable for treatment of anorexia/weight loss associated with cancer. ART27.13 has been in 205 subjects in prior clinical studies and is clinic-ready for a Phase 1b/2a study in anorexia associated with cancer.

	·	ART26.12 – Our FABP5 inhibitor program is intended for treatment of breast cancer, prostate cancer, and neuropathic and nociceptive pain. Our near-term goal is to identify a lead development compound and assess its activity in models of cancer and pain. Once one or more lead compound(s) are selected, we intend to initiate regulatory-enabling studies.

	·	ART12.11 – Our novel solid-state CBD composition is targeted for development in Inflammatory Bowel Disease, Post-Traumatic Stress Disorder (“PTSD”), and rare/orphan diseases. The rare/orphan disease strategy is supported by recent FDA actions with other company programs containing CBD, however, we intend to prioritize pain conditions associated with inflammation and neurologic conditions such as epilepsy and PTSD.

	·	completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s Good Laboratory Practice regulations;

	·	submission to the FDA of an IND application, which must take effect before human clinical trials may begin;

	·	approval by an institutional review board representing each clinical site before each clinical trial may be initiated;

	·	performance of adequate and well-controlled human clinical trials in accordance with GCPs to establish the safety and efficacy of the proposed drug product for each indication;

	·	preparation and submission to the FDA of an NDA requesting marketing approval for one or more proposed indications, including the payment of application user fees;

	·	review by an FDA advisory committee, where appropriate or if applicable;

	·	satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with current Good Manufacturing Practice requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

	·	satisfactory completion of FDA audits of one or more clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;

	·	securing FDA approval of the NDA; and

	·	compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy and the potential requirement to conduct post-approval studies.

	·	the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a U.S. healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the U.S. federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act;

	·	U.S. federal civil and criminal false claims laws and civil monetary penalties laws, including the federal civil False Claims Act, which, among other things, impose criminal and civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making a false statement to avoid, decrease or conceal an obligation to pay money to the U.S. government. Persons and entities can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label;

	·	the U.S. Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the health care fraud statute implemented under HIPAA or specific intent to violate it in order to have committed a violation;