Artelo Biosciences, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Equity

Equity

9 Months Ended

May 31, 2020

Equity [Abstract]

EQUITY

NOTE 6 - EQUITY

Preferred shares

The Company has authorized 6,250,000 shares of preferred stock with a par value of $0.001 per share.

During the nine months ended May 31, 2020, there were no issuances of preferred stock.

Common Shares

The Company has authorized 18,750,000 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.

During the nine months ended May 31, 2020, the Company issued 386,238 shares of common stock as follows:

	•	61,297 shares of common stock were issued for the exercise of an option for an exclusive worldwide license to develop and commercialize products comprising or containing the compound NEO1940
	•	11,363 shares of common stock were issued for the settlement of stock payable of $100,000
	•	7,373 shares of common stock were issued for additional issuance of Series D per the terms of the subscription agreements.
	•	306,205 shares of common stock were issued for cash of $380,678, of which 45,834 shares were issued to our officers and directors for $55,000 and 260,371 shares were sold in connection with the Company’s at -the-market equity program (see below) for proceeds net of offering costs of $358,198. The Company also deferred offering costs of $98,715 and incurred stock issuance costs of $15,151 related to shares sold in the prior period.

On December 2, 2019, 6,250 shares of common stock previously issued to a director of the Company were cancelled upon the resignation of the director from the Company. As a result, the Company reversed an expense of $2,500 which was recorded in prior quarter.

During the nine months ended May 31, 2020, the Company recorded $31,500 of stock compensation expense for four members of the Company’s Board of Directors. The unamortized value of the stock-based compensation as of May 31, 2020 is $44,333.

Equity Distribution

On April 13, 2020, the Company entered into an Equity Distribution Agreement with Maxim Group LLC (the “Agent”) to create an at-the-market equity program under which it may sell up to an aggregate of $1,475,000 of shares of the Company’s common stock (the “Shares”) from time to time through the Agent, as sales agent, subject to any applicable limits when using Form S-3. The Agent will be entitled to compensation at a commission rate of 2.0% of the gross sales price per sold share of common stock.

Warrants

A summary of activity during the nine months ended May 31, 2020 follows:

			Weighted		Weighted
	Number of		Average		Average
	shares		Exercise Price		Life (years)
Outstanding, August 31, 2019		2,334,937	$	8.12		4.31
Granted		—		—		—
Forfeited		—		—		—
Exercised		—		—		—
Outstanding, May 31, 2020		2,334,937	$	8.12		3.55

The intrinsic value of the warrants as of May 31, 2020 is $0. All of the outstanding warrants are exercisable as of May 31, 2020.

Stock Options

2018 Equity Incentive Plan

On December 2, 2019, 22,250 shares of common stock previously granted to a director of the Company in the form of a stock option were cancelled upon the resignation of the director from the board of directors.

On December 6, 2019, the Company granted 10,000 shares of common stock to a director of the Company in the form of a stock option valued at $24,401. The exercise price per share is $2.65 and the stock options expire on December 6, 2029. The shares vest 1/24th monthly over a period of two years from the grant date.

On December 6, 2019, the Company granted 40,000 shares of common stock to a director of the Company in the form of a stock option valued at $97,606. The exercise price per share is $2.65 and the stock options expire on December 6, 2029. The shares vest 1/48th monthly over a period of four years from the grant date.

On January 1, 2020, the Company granted 24,000 shares of common stock to a consultant in the form of a stock option valued at $67,976 in connection with the Company further amending and restating the consultant’s a prior amended and restated Consulting Agreement dated as of August 17, 2018. The exercise price per share is $2.12 and the stock options expire on December 13, 2029. The shares vest 1/48th monthly over a period of four years, beginning on January 31, 2020 and on the last day of each month thereafter.

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

	Nine Months Ended			Year Ended
	May 31,			August 31,
	2020			2019
Expected term	4.34 - 5 years			5 years
Expected average volatility		155	%		158	%
Expected dividend yield		—			—
Risk-free interest rate	1.66% - 1.67		%	1.40 - 1.78		%

During the nine months ended May 31, 2020, $294,898 was expensed, and as of May 31, 2020, $449,833 remains unamortized. The intrinsic value of the 281,834 options as of May 31, 2020 is $0, and the weighted average value of the remaining life of the options is 9.15 years.

The following is a summary of stock option activity during the nine months ended May 31, 2020:

	Options Outstanding
	Number of			Weighted Average		Weighted Average
	Options			Exercise Price		Remaining life
						(years)
Outstanding, August 31, 2019		234,000		$	3.88	$	9.78
Granted		74,000			2.48		10.00
Exercised		—			—		—
Forfeited/canceled		(26,166	)	$	3.31	$	9.10
Outstanding, May 31, 2020		281,834		$	3.57	$	9.15

The following table summarizes information relating to exercisable stock options as of May 31, 2020:

Options Outstanding						Options Exercisable
Number		Weighted Average		Weighted		Number		Weighted
of		Remaining		Average		of		Average
Options		Contractual life (in years)		Exercise Price		Shares		Exercise Price
	46,084		8.22	$	10.80		30,244	$	10.80
	2,500		9.14	$	3.12		2,500	$	3.12
	159,250		9.25	$	1.99		98,317	$	1.99
	50,000		9.52	$	2.65		6,250	$	2.65
	24,000		9.54	$	2.12		2,500	$	2.12
	281,834		9.15		3.57		139,811		3.95