ARTL US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a clinical stage biotech company currently focused on the development of therapeutics that target lipid-signaling pathways, including the endocannabinoid system. Our first in-licensed program, ART27.13, is being developed for cancer-related anorexia, with enrollment and dosing of the first patient of the Company’s Phase 1b/2a CAReS clinical study occurring in April 2021. We are developing our product candidates in accordance with traditional regulated drug development standards and expect to make them available to patients via prescription or physician orders only after obtaining marketing authorization from a regulatory authority, such as the FDA.

Results of Operations

The following summary of our results of operations, for the year ended December 31, 2022, four months ended December 31, 2021 and the year ended August 31, 2021 should be read in conjunction with our audited financial statements, as included in this Form 10-K.

We do not have any revenue. We classify our operating expenses into research and development, and general and administrative expenses. Research and development expense consists of expenses incurred while performing research and development activities to discover and develop our product candidates. This includes conducting preclinical studies and clinical trials, development efforts and activities related to regulatory filings for product candidates. We recognize research and development expenses as they are incurred. Our research and development expense primarily consists of costs incurred in research and development partnerships, preliminary studies, development of potential intellectual property, and research initiatives.

Year ended December 31, 2022, compared to the year ended December 31, 2021

The Company changed its fiscal year end from August 31 to December 31 effective December 31, 2021. Accordingly, the following presentation and discussion of the audited results of operations for the year ended December 31, 2022 has been compared to the unaudited results of operations for the year ended December 31, 2021 to provide a comparable year-over-year analysis and discussion of results of operations.

Years ended

December 31,

Operating Expenses (unaudited)

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Our operating expenses, for the year ended December 31, 2022, were $10.3 million compared to $9.4 million for the same period in 2021. The increase in operating expenses was primarily due to an increase in research and development, including the ongoing expenses related to the CAReS trial, and general and administrative expense related to payroll and director compensation including stock-based compensation.

We have not generated any revenues since inception through December 31, 2022.

Four months ended December 31, 2021, compared to the four months ended December 31, 2020

Four months ended

December 31,

(unaudited)

Operating Expenses

Other income 7 1 6

Our operating expenses, for the four months ended December 31, 2021, were $4.0 million compared to $2.1 million for the same period in 2020. Our operating expenses were comprised of research and development, and general and administrative expenses, including professional fees for ongoing regulatory requirements. The increase in general and administrative expenses and research and development expenses were primarily due to increases in payroll and stock-based compensation and an increase in subcontractor expenditures relating to the Company’s CAReS trials.

Year ended August 31, 2021, compared to the year ended August 31, 2020

Years ended

Operating Expenses

Our operating expenses, for the year ended August 31, 2021, were $7.4 million compared to $4.7 million for the same period in 2020. The increase in operating expenses was primarily due to an increase in research and development, including the initiation and ongoing expenses related to the ART27.13 trial, and general and administrative expense related to payroll and director compensation including stock-based compensation.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.

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The Company has incurred losses since inception and incurred a net loss of $10.1 million during the year ended December 31, 2022. However, in November 2021, the Company completed an equity offering which generated net proceeds of $18.3 million. Additionally, in May 2022, the Company entered into a purchase agreement and a registration rights agreement (the “Equity Line”) with an institutional investor, providing for the sale of up to $20.0 million worth of the Company’s common stock, over the thirty-six (36) month term of the purchase agreement. Under the terms and subject to the conditions of the purchase agreement, the Company has the right, but not the obligation, to sell to the institutional investor, and the institutional investor is obligated to purchase, up to $20.0 million worth of shares of the Company’s Common Stock. As of December 31, 2022, there have been no sales under the Equity Line. Consequently, there is substantial doubt about the Company’s ability to continue as a going concern, however, the Company’s working capital is expected to sustain operations into the second half of 2024.

Working Capital

December 31, December 31,

December 31, August 31,

Our total current assets as of December 31, 2022, were $18.3 million as compared to total current assets of $24.6 million as of December 31, 2021. The decrease in current assets was primarily due to a decrease in cash and cash equivalents as well as short-term investments funded the Company’s operating activities during the year.

Our total current liabilities as of December 31, 2022, were $1.0 million as compared to total current liabilities of $1.0 million as of December 31, 2021.

Our total current assets as of December 31, 2021, were $24.6 million as compared to total current assets of $10.3 million as of August 31, 2021. The increase in current assets is primarily due to an increase in cash and short-term investments from issuance of common stock in connection with the Company’s at-the-market equity program.

Our total current liabilities as of December 31, 2021, were $1.0 million as compared to total current liabilities of $0.5 million as of August 31, 2021.

On May 13, 2022, we entered into a purchase agreement and a registration rights agreement (together, the “Lincoln Park Agreements”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), providing for the purchase of up to $20.0 million worth of our Common Stock over the thirty-six-month term of the Lincoln Park Agreements.

Under the terms and subject to the conditions of the Lincoln Park Agreements, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $20.0 million worth of shares of our Common Stock. Such future sales of Common Stock by us, if any, will be subject to certain limitations, and may occur from time to time, at our option, over the thirty-six-month term of the Lincoln Park Agreements. In addition to regular purchases, we may also under certain circumstances direct Lincoln Park to purchase other amounts as accelerated purchases. Actual sales of shares of Common Stock to Lincoln Park under the Lincoln Park Agreements will depend on a variety of factors to be determined by us from time to time. The net proceeds under the Lincoln Park Agreements to us will depend on the frequency and prices at which we sell shares of our stock to Lincoln Park. We expect that any proceeds received from such sales to Lincoln Park will be used for working capital and general corporate purposes.

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Cash Flows

Years ended

December 31,

(unaudited)

Cash Flows used in operating activities $ (8,008 ) $ (6,938 ) $ (1,070 )

Cash Flows provided by (used in) investing activities 2,958 (12,417 ) 15,375

Cash Flows provided by financing activities - 25,795 (25,795 )

Effect of exchange rate changes on cash (224 ) (61 ) (163 )

Four months ended

December 31,

(unaudited)

Cash Flows used in operating activities $ (2,667 ) $ (1,874 ) $ (793 )

Cash Flows used in investing activities (10,033 ) (1,055 ) (8,978 )

Effect of exchange rate changes on cash (28 ) (8 ) (20 )

Years ended

Cash Flows used in operating activities $ (6,141 ) $ (4,347 ) $ (1,794 )

Cash Flows used in investing activities (3,439 ) - (3,439 )

Effect of exchange rate changes on cash (45 ) 84 (129 )

Cash Flows from Operating Activities

During the year ended December 31, 2022, cash used in operating activities was $8.0 million compared to cash used in operating activities of $6.9 million during the year ended December 31, 2021. Cash used in operating activities during the year ended December 31, 2022, of $8.0 million was primarily attributed to a net loss of $10.1 million, increases in operating assets and liabilities of $0.3 million and offset by stock-based compensation of $2.5 million. Cash used in operating activities during the year ended December 31, 2021, was $6.9 million which was primarily attributed to a net loss of $9.4 million offset by stock-based compensation of $2.4 million.

During the four months ended December 31, 2021, cash used in operating activities was $2.7 million compared to cash used in operating activities of $1.9 million during the four months period ended December 31, 2020. During the four months ended December 31, 2021, cash used in operating activities of $2.7 million was primarily attributed to net loss of $4.0 million offset by stock-based compensation of $0.9 million. During the four months ended December 31, 2020, cash used in operating activities of $1.9 million was primarily attributed to net loss of $2.1 million.

During the year ended August 31, 2021, cash used in operating activities was $6.1 million compared to cash used in operating activities of $4.3 million during the year ended August 31, 2020. Cash used in operating activities during the year ended August 31, 2021, of $6.1 million was primarily attributed to a net loss of $7.4 million, increases in operating assets and liabilities of $0.2 million and offset by stock-based compensation of $1.5 million. Cash used in operating activities during the year ended August 31, 2020, of $4.3 million was primarily attributed to a net loss of $4.7 million offset by stock-based compensation of $0.4 million.

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Cash Flows from Investing Activities

During the year ended December 31, 2022, cash flows provided by investing activities of $3.0 million was the result of $15.7 million received from dispositions of trading marketable securities and $0.5 million received from dispositions of available-for-sale securities and offset by $12.7 million from purchases of trading marketable securities and $0.5 million of available-for-sale securities. During the year ended December 31, 2021, the Company’s cash flows used in investing activities of $12.4 million was the result of purchases of securities of $17.1 million offset by $4.7 million from dispositions.

During the four months ended December 31, 2021, cash flows used in investing activities of $10.0 million was the result of a $11.2 million investment in trading marketable securities and a $1.5 million investment in available-for-sale securities, offset by proceeds of $2.7 million from dispositions. During the four months ended December 31, 2020, cash flows used in investing activities of $1.1 million was the result of a $1.8 million investment in trading marketable securities and proceeds of $0.7 million from dispositions.

During the year ended August 31, 2021, cash flows used in investing activities of $3.4 million was the result of a $6.1 million investment in trading marketable securities and offset by proceeds of $2.7 million from dispositions. The Company did not have any cash flows from or used in investing activities during the year ended August 31, 2020.

Cash Flows from Financing Activities

During the year ended December 31, 2022, cash provided by financing activities was $0.0 million. During the year ended December 31, 2021, cash provided by financing activities of $25.8 million was primarily the result of net proceeds from the issuance of common stock of $19.8 million and exercise of warrants of $6.6 million.

During the four months ended December 31, 2021 and 2020, cash flows from financing activities of $18.3 million and $6.6 million, respectively were primarily the result of net proceeds of $18.3 million and $6.6 million, respectively, from the issuance of common stock.

During the year ended August 31, 2021, cash provided by financing activities of $14.1 million was primarily the result of net proceeds from the issuance of common stock of $8.1 million and proceeds from the exercise of warrants of $6.0 million. During the year ended August 31, 2020, cash provided by financing activities of $2.0 million was primarily the result of net proceeds from the issuance of common stock of $2.0 million.

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Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

Recent Accounting Pronouncements

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, we are not required to provide the information required by this Item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ARTELO BIOSCIENCES, INC.

INDEX TO AUDITED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 206) F-2

Notes to the Consolidated Financial Statements F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Artelo Biosciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Artelo Biosciences, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2022, December 31, 2021 and August 31, 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years ended December 31, 2022 and August 31, 2021, and for the four-month transition period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, December 31, 2021 and August 31, 2021, and the results of their operations and their cash flows for the years ended December 31, 2022 and August 31, 2021, and for the four-month transition period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2015.

Houston, Texas

March 31, 2023

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ARTELO BIOSCIENCES, INC.

Consolidated Balance Sheets

(In thousands, except share data)

December 31, December 31, August 31,

ASSETS

Current Assets

Prepaid expenses and other current assets 789 496 252

Operating lease right-of-use assets 60 81 90

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and accrued liabilities $ 905 $ 975 $ 471

Due to related parties 53 21 27

Operating lease liabilities - current portion 40 31 28

Operating lease liabilities 23 57 67

STOCKHOLDERS' EQUITY

Accumulated other comprehensive income (loss) (254 ) (18 ) 18

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

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ARTELO BIOSCIENCES, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

Year ended Four months ended Year ended

December 31, December 31, August 31,

OPERATING EXPENSES

OTHER INCOME (EXPENSE)

Interest income 2 1 2

Interest expense (5 ) - -

Net change in fair value of trading marketable securities 207 6 2

Total other income 204 7 4

Provision for income taxes - - -

OTHER COMPREHENSIVE INCOME (LOSS)

Net unrealized loss on available-for-sale securities (24 ) (5 ) -

Foreign currency translation adjustments (212 ) (31 ) (46 )

Total Other Comprehensive Loss (236 ) (36 ) (46 )

Basic and Diluted Loss per Common Share $ (3.56 ) $ (1.81 ) $ (5.97 )

Basic and Diluted Weighted Average Common Shares Outstanding 2,833 2,230 1,245

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

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ARTELO BIOSCIENCES, INC.

Consolidated Statements of Stockholders’ Equity

(In thousands)

Common stock Additionalpaid-in Accumulated Accumulated Other Comprehensive

Shares Amount capital Deficit Income (loss) Total

-

Common shares issued for cash, net of issuance costs 767 1 8,102 - - 8,103

Common shares issued for exercise of warrants 535 1 6,015 - - 6,016

Common shares issued for services - officers - - 34 - - 34

Stock based compensation - - 1,497 - - 1,531

Net loss for the period - - - (7,437 ) - (7,437 )

Other comprehensive loss - - - - (46 ) (46 )

Common shares issued for cash, net of issuance costs 1,185 1 18,261 - - 18,262

Stock based compensation - - 934 - - 934

Net loss for the period - - - (4,035 ) - (4,035 )

Other comprehensive loss - - - - (36 ) (36 )

Common shares issued as commitment fee 20 - 97 - - 97

Stock based compensation - - 2,458 - - 2,458

Reverse stock split adjustment 16 - - - - -

Net loss for the period - - - (10,083 ) - (10,083 )

Other comprehensive loss - - - - (236 ) (236 )

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

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ARTELO BIOSCIENCES, INC.

Consolidated Statements of Cash Flows

(In thousands)

Year ended Four months ended Year ended

December 31, December 31, August 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in operating activities:

Net change in fair value of trading marketable securities (207 ) (6 ) 2

Non-cash lease expense 39 10 7

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (195 ) (63 ) (239 )

Accounts payable and accrued liabilities (10 ) 507 (3 )

Accounts payable - related parties 33 (7 ) -

Fixed cash payments related to operating leases (43 ) (7 ) (2 )

Net cash used in operating activities (8,008 ) (2,667 ) (6,141 )

CASH FLOWS FROM INVESTING ACTIVITIES

Investment in trading marketable securities (12,725 ) (11,243 ) (6,098 )

Investment in available-for-sale securities (499 ) (1,524 ) -

Proceeds from disposition of trading marketable securities 15,657 2,734 2,659

Proceeds from disposition of available-for-sale securities 525 - -

Net cash provided by (used in) investing activities 2,958 (10,033 ) (3,439 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common shares for cash, net - 18,262 8,103

Proceeds from exercise of warrants - - 6,016

Advances from related parties - - 1

Repayments to related parties - (1 ) (8 )

Net cash provided by financing activities - 18,261 14,112

Effect of exchange rate changes on cash (224 ) (28 ) (45 )

Cash and cash equivalents – beginning of period 12,162 6,629 2,142

Cash and cash equivalents – end of period $ 6,888 $ 12,162 $ 6,629

Supplemental Cash Flow Information

Cash paid for interest $ - $ - $ -

Cash paid for income taxes $ - $ - $ -

NON-CASH FINANCING AND INVESTING ACTIVITIES:

Initial recognition of the right-of-use asset and lease liability $ 20 $ - $ 97

Common shares issued as commitment fee $ 97 $ - $ -

Unrealized loss from available-for-sale securities $ 24 $ 5 $ -

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

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ARTELO BIOSCIENCES, INC.

Notes to the Consolidated Financial Statements

(In thousands, except share and per share data)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

ARTELO BIOSCIENCES, INC. (“we”, “us”, “our”, the “Company”) is a Nevada corporation incorporated on May 2, 2011, and based in San Diego County, California. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America, and the Company’s fiscal year end is December 31.

The Company registered fully owned subsidiaries in Ireland, Trinity Reliant Ventures Limited, on November 11, 2016, and in the UK, Trinity Research & Development Limited, on June 2, 2017. On January 8, 2020, Trinity Research and Development Limited changed its name to Artelo Biosciences Limited. The Company incorporated a wholly owned subsidiary in Canada, Artelo Biosciences Corporation, on March 18, 2020. Operations in the subsidiaries have been consolidated in the financial statements.

The Company is a clinical stage biopharmaceutical company focused on developing and commercializing treatments intended to modulate the endocannabinoid system.

Liquidity

The Company has incurred losses since inception and incurred a net loss of $10,083 during the year ended December 31, 2022. However, in November 2021, the Company completed an equity offering which generated net proceeds of $18,262. Additionally, in May 2022, the Company entered into a purchase agreement and a registration rights agreement (the “Equity Line”) with an institutional investor, providing for the sale of up to $20,000 worth of the Company’s common stock, over the thirty-six (36) month term of the purchase agreement. Under the terms and subject to the conditions of the purchase agreement, the Company has the right, but not the obligation, to sell to the institutional investor, and the institutional investor is obligated to purchase, up to $20,000 worth of shares of the Company’s Common Stock. As of December 31, 2022, there have been no sales under the Equity Line. The Company’s existing cash resources and the cash received from the November 2021 equity offering are expected to provide sufficient funds to carry out the Company’s planned operations into the second half of 2024. To continue operations beyond such time frame, the Company will be required to raise additional funds by completing additional equity or debt offerings or licensing our product candidates. There can be no assurance that the Company will be successful in acquiring additional funding, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.

Reverse stock split

On August 8, 2022, the Company, filed with the Secretary of State of the State of Nevada, a Certificate of Change, pursuant to Nevada Revised Statutes 78.209, to effect a one-for-fifteen (1-for-15) reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding Common Stock, par value $0.001 per share. The Reverse Stock Split was effective as of August 10, 2022.

As a result of the Reverse Stock Split, the number of authorized shares of Common Stock has been reduced from 750,000,000 to 50,000,000, while the number of authorized shares of the Company’s preferred stock has been reduced from 6,250,000 to 416,667.

COVID-19

As the COVID-19 pandemic is still evolving at this time and much of its impact remains unknown, the Company is not able to predict the impact it may have on the development of its product candidates and business. The severity of the COVID-19 pandemic could also negatively impact the Company’s access to its existing supply chain by delaying the delivery of key raw materials used in its product candidates and therefore delay the delivery of such products for use in its clinical trials. Any of these results could have a material adverse impact to our business.

All share and per share information in these financial statements retroactively reflect this Reverse Stock Split.

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles (“GAAP”) of the United States.

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

Basis of Consolidation

The financial statements have been prepared on a consolidated basis, with the Company’s wholly owned subsidiaries, Trinity Reliant Ventures Limited, Artelo Biosciences Limited and Artelo Biosciences Corporation. All intercompany transactions and balances have been eliminated.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed on the straight-line method.

Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.

The long-lived assets of the Company are reviewed for impairment in accordance with ASC No. 360, “Property, Plant and Equipment” (“ASC No. 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment losses were recorded during the year ended December 31, 2022, the four months ended December 31, 2021, and the year ended August 31, 2021.

Research and Development (“R&D”)

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

The Company recognizes R&D tax credits receivable from the United Kingdom government for spending on R&D as an offset of R&D expenses.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain expenses during the reporting period. Actual results could differ from these good faith estimates and judgments.

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks, money market funds, commercial paper, and certificates of term deposits with maturities of less than three months from inception, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of loss in value. The Company had $6,888, $12,162 and $6,629 in cash and cash equivalents at December 31, 2022, December 31, 2021 and August 31, 2021, respectively.

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Periodically, the Company may carry cash balances at financial institutions more than the federally insured limit of $250 per institution. The amount in excess of the FDIC insurance as of December 31, 2022, was approximately $6,388. The Company has not experienced losses on these accounts and management believes, based upon the quality of the financial institutions, that the credit risk with regard to these deposits is not significant.

Marketable Securities

Our investments in debt securities are carried at fair value. Investments in debt securities that are not classified as held-to-maturity are carried at fair value and classified as either trading or available-for-sale. Realized and unrealized gains and losses on trading debt securities are charged to income and unrealized gains and losses on available-for-sale debt securities are included in other comprehensive income or loss. The marketable securities held by the Company, classified as trading marketable securities, had an outstanding balance of $9,150, $11,951 and $3,436 as of December 31, 2022, December 31, 2021 and August 31, 2021, respectively. The Company’s holdings in US Treasury instruments, classified as available-for-sale securities had an outstanding balance of $1,495, $1,519 and $0 as of December 31, 2022, December 31, 2021 and August 31, 2021, respectively.

Intangible Assets

The Company capitalizes certain costs related to the acquisition of intangible assets; if such assets are determined to have a finite useful life they are amortized on a straight-line basis over the estimated useful life.

The Company tests its intangible assets for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates. The Company determined that there was no impairment of its intangible assets at December 31, 2022, December 31, 2021 and August 31, 2021.

Foreign Currency Transactions

The Company has operations outside of the United States, which results in exposure to market risks from changes in foreign currency rates. The financial risk arises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative instruments to reduce its exposure to foreign currency risk. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included as other comprehensive income.

Financial Instruments

The Company follows ASC 820, “Fair Value Measurements and Disclosures”, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

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Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The carrying amounts shown of the Company’s financial instruments including cash and cash equivalents and accounts payable approximate fair value due to the short-term maturities of these instruments.

Set out below are the Company’s financial instruments that are required to be remeasured at fair value on a recurring basis in the fair value hierarchy as of December 31, 2022, December 31, 2021 and August 31, 2021:

Level 1 Level 2 Level 3 Total

Marketable securities – trading securities

Available-for sale securities

Level 1 Level 2 Level 3 Total

Marketable securities

Corporate debt securities - 300 - 300

Available-for sale securities

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Level 1 Level 2 Level 3 Total

Marketable securities

Asset-backed securities - 409 - 409

Corporate debt securities - 303 - 303

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk primarily consist of its cash and cash equivalents. The Company places its cash and cash equivalents with financial institutions of high credit worthiness. At times, its cash and cash equivalents with a particular financial institution may exceed any applicable government insurance limits. The Company’s management has assessed the financial strength and credit worthiness, and will continue to do so on an ongoing basis, of any parties to which it extends funds, and as such, it believes that any associated credit risk exposures are limited.

Share-based Expenses

ASC 718 “Compensation – Stock Compensation” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

Share-based expenses were $2,458, $934 and $1,531 for the year ended December 31, 2022, the four months ended December 31, 2021, and the year ended August 31, 2021, respectively.

Deferred Income Taxes and Valuation Allowance

The Company accounts for income taxes under ASC 740 “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

Net Loss per Share of Common Stock

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and as if converted method. Dilutive potential common shares include outstanding stock options and warrants.

For the year ended December 31, 2022, four months ended December 31, 2021, and year ended August 31, 2021, the following common stock equivalents were excluded from the computation of diluted net loss per share as the result was anti-dilutive.

December 31, December 31, August 31,

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Related Parties

The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.

Commitments and Contingencies

The Company follows ASC 450-20, “Loss Contingencies,” to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Recent Accounting Pronouncements

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

NOTE 3 - RELATED PARTY TRANSACTIONS

During the year ended December 31, 2022, four months ended December 31, 2021, and the year ended August 31, 2021, a company owned by the Senior Vice President, European Operations, provided consulting services totaling $35, $20, and $60, respectively. As of December 31, 2022, December 31, 2021, and August 31, 2021, there was $1, $5, and $5 outstanding, respectively.

During the year ended December 31, 2022, and four months ended December 31, 2021, a company significantly influenced by a director of a subsidiary of the Company provided professional services totaling $111 and $46, respectively. As of December 31, 2022, and December 31, 2021, there was $30 and $11 outstanding, respectively.

During the year ended December 31, 2022, a company controlled by a director of a subsidiary of the Company provided professional services totaling $79. As of December 31, 2022, and December 31, 2021, there was $23 and $5 outstanding, respectively.

NOTE 4 - EQUITY

Preferred shares

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

During the year ended December 31, 2022, the four months ended December 31, 2021, and the year ended August 31, 2021, there were no shares of preferred stock issued or outstanding.

Common Shares

Amendment to Articles of Incorporation or Bylaws

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

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On May 13, 2022, the Company entered into a purchase agreement and a registration rights agreement (together, the “Lincoln Park Agreements”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”) providing for the purchase by Lincoln Park of up to $20,000 worth of the Company’s Common Stock, over the thirty-six (36) month term of the Lincoln Park Agreements. The Company issued to Lincoln Park 19,532 shares of its Common Stock as commitment shares in consideration for entering into the Lincoln Park Agreements and received no funds in exchange for such commitment shares, valued at $97. Upon initiation of the Lincoln Park Agreements, the Company recorded $381 as an expense within general and administrative expenses as the Company has not yet determined whether any portion of the equity line will be utilized.

During the four months ended December 31, 2021, the Company issued 1,184,959 shares of common stock at an average price of $15.90 per share in connection with the Company’s at-the-market equity program for proceeds, net of commission and fees, of $18,262. The agent of the program was entitled to compensation at a commission rate of 3.0% of the gross sales price per sold share of common stock.

During the year ended August 31, 2021, the Company issued 1,302,363 shares of common stock as follows:

Warrants

A summary of activity of the warrants during the year ended December 31, 2022, four months ended December 31, 2021, and year ended August 31, 2021 follows:

Weighted Weighted

Number of Average Average

shares Exercise Price Life (years)

Expired - - -

Granted - - -

Expired - - -

Exercised - - -

Granted - - -

Exercised - - -

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The intrinsic value of the warrants as of December 31, 2022 and 2021 is $0, and $0, respectively. All of the outstanding warrants are exercisable as of December 31, 2022.

2018 Equity Incentive Plan

On August 17, 2018, the Board of Directors of the Company approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan initially permitted the Company to issue up to 25,000 shares of common stock upon exercise of options granted to selected employees, officers, directors, consultants, and advisers. The options may be either “incentive stock options” (as such term is defined in the Internal Revenue Code of 1986) or non-statutory stock options that are not intended to qualify as “incentive stock options”. Incentive stock options may be granted only to employees. The 2018 Plan is administered by the Board or, at the discretion of the Board, a Board committee. The administrator determines who will receive options and the terms of the options, including the exercise price, expiration date, vesting and the number of shares. The exercise price of each stock option may not be less than the fair market value of the Common Stock on the date of grant, although the exercise price of any incentive stock option granted to a 10% stockholder may not be less than 110% of the fair market value on the grant date. Options may be exercisable (“vest”) immediately or in increments based on time and/or performance criteria as determined by the administrator. The term of any option may not exceed 10 years (five years for any incentive stock option granted to a 10% stockholder), and unless otherwise determined by the administrator, each option must terminate no later than three months after the termination of the optionee’s employment (one year in the event of death or disability). Subject to a few minor exceptions, options may not be transferred other than by will or by the laws of descent and distribution. The 2018 Plan will expire on August 17, 2028.

On December 3, 2020, the Company held a special meeting of stockholders and approved an amendment to increase the number of shares of Common Stock reserved for issuance by 133,334 shares and to extend the term of the 2018 Plan.

On September 1, 2021, the 2018 Plan was increased to permit the issuance of an additional 244,940 shares of common stock.

As of December 31, 2022, the 2018 Plan permits the Company to issue up to an aggregate of 622,526 shares of common stock for grant of which 309,417 shares are available to be issued.

On January 6, 2023, the 2018 Plan was increased to permit the issuance of an additional 428,353 shares of common stock, which increased the number of shares available for issuance pursuant to the 2018 Plan to a new total of 737,770 shares.

Options granted during the year ended December 31, 2022

On February 15, 2022, 17,177 shares of Common Stock were returned to the 2018 Plan and on February 18, 2022, the number of shares of Common Stock reserved for issuance under the 2018 Plan increased by 141,003 shares. Such additional shares were registered on a Registration Statement on Form S-8 filed with the Securities and Exchange Commission on April 7, 2022. On May 15, 2022, and July 20, 2022, an additional 6,077 and 1,584 shares, respectively, were returned to the 2018 Plan.

In June 2022, the Company granted options to certain directors of the Company to purchase an aggregate of 4,002 shares of the Company’s Common Stock with an exercise price of $4.89 and vesting on the earlier of the one-year anniversary of the vesting commencement date or the date prior to the date of the Company’s annual meeting following the vesting commencement date. The vesting commencement date is June 24, 2022.

Options granted during the four months ended December 31, 2021

On December 1, 2021, the Company granted 52,988 options with an exercise price of $9.45, with a term of ten (10) years to exercise from the grant date, to employees, directors, and consultants of the Company, of which 17,187 were issued to related parties. Options issued to non-employees vest as to 33% of shares subject to the option on the one-year anniversary of the vesting commencement date, and the balance of the unvested shares shall vest ratably each month thereafter for a 24-month period, on the first day of each such month. Commencing on the grant date, options issued to employees vest as to 25% of shares subject to the option on December 1, 2022, and the balance of the unvested shares shall vest ratably each month thereafter for a 36-month period, on the first day of each such month.

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On December 3, 2021, the Company granted an option to the Company’s principal executive officer to purchase 90,334 shares of the Company’s common stock, with an exercise price of $9.45, with a term of ten (10) years to exercise from the grant date, under the 2018 Plan. Commencing on the grant date, options issued vest as follows: 25% of the shares subject to the option shall vest on December 3, 2022, and the balance of the unvested shares shall vest ratably each month thereafter for a 36-month period, on the third day of each such month.

Options granted during the year ended August 31, 2021

On November 30, 2020, the Company appointed a new director and granted 8,000 options of the Company’s common stock vesting monthly over a four-year period for his service on the Board at exercise price of $9.05, expiring ten years after the grant date. The director will be eligible for equity award grants on the same terms as other non-employee members of the Board.

On February 12, 2021, the Company granted an option to the Company’s president to purchase 55,634 shares of the Company’s common stock with an exercise price of $39.90 and vesting as follows: 50% shall vest on the one-year anniversary of the grant date and 50% shall vest on the two-year anniversary of the grant date, subject to our president’s continued service to the Company.

On February 12, 2021, the Company granted an option to the Company’s directors to purchase a total of 47,036 shares of the Company’s common stock with an exercise price of $39.90 and vesting as follows: 50% shall vest on the one-year anniversary of the grant date and 50% shall vest on the two-year anniversary of the grant date, subject to our directors’ continued service to the Company.

On February 12, 2021, the Company granted an option to the Company’s employees to purchase a total of 28,001 shares of the Company’s common stock with an exercise price of $39.90 and vesting as follows: 25% shall vest on the one-year anniversary of the vesting commencement date, and 1/48th of the shares subject to the option shall vest each month thereafter on the same day of the month as the vesting commencement date.

On March 5, 2021, the Company granted an option to the Company’s president to purchase a total of 38,340 shares of the Company’s common stock with an exercise price of $22.80 and vesting as follows: 25% shall vest on the one-year anniversary of the vesting commencement date, and 1/48th of the shares subject to the option shall vest each month thereafter on the same day of the month as the vesting commencement date.

On March 5, 2021, the Company granted an option to a director of the Company to purchase 2,000 shares of the Company’s common stock with an exercise price of $22.80 and vesting as follows: one third shall vest on the one-year anniversary of the vesting commencement date, one third shall vest on the two-year anniversary of the vesting commencement date and one third shall vest on the three-year anniversary of the vesting commencement date, subject to this director’s continued service to the Company.

On July 16, 2021, the Company granted options to certain directors of the Company to purchase a total of 4,669 shares of the Company’s common stock with an exercise price of $15.00 and vesting on the earlier of the one-year anniversary of the vesting commencement date or the date prior to the date of the Company’s annual meeting following the vesting commencement date. The vesting commencement date is July 16, 2021.

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Valuation

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

Year Ended Four Month Ended Year Ended

December 31, December 31, August 31,

Expected term 5.50 years 6 - 6.25 years 5 years

Expected dividend yield - - -

During the year ended December 31, 2022, the Company granted 4,002 options valued at $18. During the year ended December 31, 2022, the Company recognized stock-based compensation expense of $2,458, of which $2,216 was for related parties, and as of December 31, 2022, $1,748 remains unamortized, of which $1,219 is for related parties. The intrinsic value of the 313,109 options outstanding as of December 31, 2022, is $0.

During the four months ended December 31, 2021, the Company granted 143,322 options valued at $1,170. During the four months ended December 31, 2021, the Company recognized stock option expense of $934, of which $811 was to related parties, and as of December 31, 2021, $4,489 remains unamortized, of which $3,717 is for related parties. The intrinsic value of the 333,945 options outstanding as of December 31, 2021, is $0.

During the year ended August 31, 2021, the Company granted 183,680 options valued at $5,760. During the year ended August 31, 2021, the Company recognized stock option expense of $1,497, of which $1,340 was to related parties, and as of August 31, 2021, $4,263 remains unamortized, of which $3,664 is with related parties. The intrinsic value of the 190,623 options outstanding as of August 31, 2021, is $37.

The following is a summary of stock option activity during the year ended December 31, 2022, the four months ended December 31, 2021, and the year ended August 31, 2021:

Options Outstanding Weighted

Number of Weighted Average AverageRemaining life

Options Exercise Price (years)

Exercised - - -

Exercised - - -

Forfeited/canceled - - -

Exercised - - -

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NOTE 5 - INCOME TAXES

The Company has not made provision for income taxes for the year ended December 31, 2022, the four months ended December 31, 2021, and the year ended August 31, 2021, since the Company has the benefit of net operating losses in these periods.

Due to uncertainties surrounding the Company’s ability to generate future taxable income to realize deferred income tax assets arising as a result of net operating losses carried forward, the Company has not recorded any deferred income tax assets as of December 31, 2022. The Company has incurred a net operating loss of $20,559, the net operating loss carry forwards will begin to expire in varying amounts beginning with the year ended December 31, 2034, subject to its eligibility as determined by respective tax regulating authorities. The Company’s net operating loss carry forwards may be subject to annual limitations, which could eliminate, reduce or defer the utilization of the losses because of an ownership change as defined in Section 382 of the Internal Revenue Code U.S. Federal tax returns are closed by statute for years through 2014. The status of state and non-U.S. tax examinations varies due to the numerous legal entities and jurisdictions in which the Company operates.

Net deferred tax assets consist of the following components as of:

December 31, December 31, August 31,

Net deferred tax asset $ - $ - $ -

NOTE 6 – INTANGIBLE ASSET

The Company has capitalized the costs associated with acquiring the exclusive worldwide license to develop and commercialize products comprising or containing the compound ART27.13 as an intangible asset at a value of $2,039 as of December 31, 2022, December 31, 2021, and August 31, 2021.

The amount capitalized consisted of a $1,500 payment and the fair value of 4,087 shares of common stock of $539. During the year ended December 31, 2022, the four months ended December 31, 2021, and the year ended August 31, 2021, no additional costs met the criteria for capitalization as an intangible asset.

NOTE 7 - LEASE

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

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

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The following summarizes right-of use asset and lease information about the Company’s operating lease as of December 31, 2022, December 31, 2021, and August 31, 2021:

Year ended Four months ended Year ended

December 31, December 31, August 31,

Lease cost

Operating lease cost $ 39 $ 10 $ 7

Other information

Cash paid for operating cash flows from operating leases $ 43 $ 7 $ 2

Weighted-average remaining lease term — operating leases (year) 1.57 2.67 3.00

Weighted-average discount rate — operating leases 2.98 % 3.00 % 3.00 %

Future minimum lease payments under the operating lease liability has non-cancelable lease payments at December 31, 2022 as follows:

Total

Year Ended December 31,

Thereafter -

Less: Imputed interest (1 )

Operating lease liabilities 63

Operating lease liability - current 40

Operating lease liability - non-current $ 23

NOTE 8 – COMMITMENTS AND CONTENGENCIES

The Company has certain financial commitments relating to research and development contracts as of December 31, 2022, as follows:

NOTE 9 – COMPARATIVE FINANCIALS (UNAUDITED)

The Company changed its fiscal year end from August 31 to December 31 effective December 31, 2021. The unaudited consolidated results of operations for the year ended December 31, 2021 is as follows:

Year ended

December 31,

(unaudited)

OPERATING EXPENSES

General and administrative $ 5,633

Research and development 3,784

Total Operating Expenses 9,417

Loss from Operations (9,417 )

OTHER INCOME

Interest income 2

Net change in market value 8

Change in fair value of derivative liabilities -

Total other income 10

Provision for income taxes -

OTHER COMPREHENSIVE INCOME (LOSS)

Net unrealized loss on available-for-sale securities (5 )

Foreign currency translation adjustments (54 )

Total Other Comprehensive Income (Loss) (59 )

TOTAL COMPREHENSIVE LOSS $ (9,466 )

Basic and Diluted Loss per Common Share $ (5.24 )

Basic and Diluted Weighted Average Common Shares Outstanding 1,795

NOTE 10 – SUBSEQUENT EVENTS

On February 1, 2023, the Company granted an option to the Company’s president to purchase a total of 85,000 shares of the Company’s common stock with an exercise price of $3.15 and vesting as follows: 25% of the shares subject to the option shall vest on the one-year anniversary of the vesting commencement date, and 1/48th of the shares subject to the option shall vest each month thereafter on the same day of the month as the vesting commencement date. The vesting commencement date is February 1, 2023.

On February 2, 2023, the Company granted options to certain employees and consultants to purchase a total of 90,000 shares of the Company’s common stock with an exercise price of $3.15 and vesting as follows: twenty-five percent (25%) of the shares subject to the option shall vest on the one (1) year anniversary of the vesting commencement date, and one forty-eighth (1/48th) of the shares subject to the option shall vest each month thereafter on the same day of the month as the vesting commencement date. The vesting commencement date is February 1, 2023.

On February 2, 2023, the Company granted an option to certain employees and consultants to purchase a total of 19,750 shares of the Company’s common stock with an exercise price of $3.15 and vesting as follows: one hundred percent (100%) of the shares subject to the option shall vest on the one (1) year anniversary of the vesting commencement date on the same day of the month as the vesting commencement date. The vesting commencement date is February 1, 2023.

On February 2, 2023, the Company granted an option to an employee to purchase a total of 746 shares of the Company’s common stock with an exercise price of $3.15 and vesting as follows: 50% of the shares subject to the option shall vest on the one (1) year anniversary of the vesting commencement date, and one twenty-forth (1/24th) of the shares subject to the option shall vest each month thereafter on the same day of the month as the vesting commencement date. The vesting commencement date is February 1, 2023.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our senior management, including our Chief Executive and Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”). Based on this evaluation, our Chief Executive and Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. With the participation of our Chief Executive and Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) 2013 Framework in Internal Control – Integrated Framework. Based upon such evaluation, our management concluded that we did maintain effective internal control over financial reporting as of December 31, 2022, based on the COSO framework criteria, as more fully described below.

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting that occurred during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations in the Effectiveness of Controls

Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

All directors of our company hold office until the next annual meeting of the security holders or until their successors have been elected and qualified. The officers of our company are appointed by our board of directors (“Board”) and hold office until their death, resignation or removal from office. Our directors and executive officers, their ages, positions held, and duration as such, are as follows:

Name Position Held with the Company Date first appointed Age

Connie Matsui(1)(2) Director, Chairperson of the Board May 2, 2017 69

Douglas Blayney, M.D.(2) Director July 31, 2017 72

R. Martin Emanuele, Ph D.(2) Director September 20, 2017 68

Greg Reyes, M.D., Ph D.(3) Director November 30, 2020 69

Tamara A. (Seymour) Favorito(1) Director March 3, 2021 64

_______________

(1) Member of the audit committee

(2) Member of the corporate governance and nominating committee

(3) Member of the compensation committee

Business Experience

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

Directors

Gregory D. Gorgas was appointed president, chief executive officer, chief financial officer, treasurer, secretary and director of our Company in April 2017. Prior to joining our Company, Mr. Gorgas was Senior Vice President, Commercial, and Corporate Officer at Mast Therapeutics from July 2011 to January 2017 with commercial leadership accountability and business development responsibilities for the hematology, oncology and cardiovascular development programs. In addition, he performed a key role in helping Mast Therapeutics raise over $50M in new capital. From November 2009 to July 2011, Mr. Gorgas was Managing Director at Theragence, Inc., a privately-held company he co-founded, that applies proprietary computational intelligence to mine and analyze clinical data. From November 2008 to July 2011, Mr. Gorgas also served as an independent consultant, providing commercial and business development consulting services to pharmaceutical, biotechnology and medical device companies. From 1997 to October 2008, Mr. Gorgas held several positions with Biogen Idec Inc., most recently, from March 2006 to October 2008, as Senior Director, Global and U.S. Marketing with responsibility for the strategic vision and operational commercialization of the company’s worldwide cancer business. In this role, he hired and led the team in marketing, operations, project management, and business development in Europe and the US. Before such time, he had increasing responsibilities in marketing, sales, commercial operations, and project team and alliance management. He holds an MBA from the University of Phoenix and a BA in economics from California State University, Northridge.

We believe Mr. Gorgas is qualified to serve as a member of our board of directors because of his extensive experience and accomplishments in the biopharmaceutical industry and his past leadership positions at successful public companies.

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Connie Matsuiwas elected to our Board in May 2017. Ms. Matsui brings to her role over 16 years of general management experience in the biotechnology industry. Ms. Matsui retired from Biogen Idec in January 2009 as Executive Vice President, Knowledge and Innovation Networks. She served as an Executive Committee member at both Biogen Idec and IDEC Pharmaceuticals, a predecessor of Biogen Idec. Among the major roles she held after joining IDEC in November 1992 were: Senior Vice President, overseeing investor relations, corporate communications, human resources, project management and strategic planning; Collaboration Chair for the late stage development and commercialization of rituximab (tradenames: Rituxan ®, MabThera ®) in partnership with Roche and Genentech; and Project Leader for Zevalin ® , the first radioimmunotherapy approved by the FDA. Prior to entering the biotechnology industry, Ms. Matsui worked for Wells Fargo Bank in general management, marketing and human resources. Ms. Matsui currently serves as the Chair of the Board at Sutro Biopharma and has been active on a number of not-for-profit boards at the local, national and global level. Ms. Matsui earned BA and MBA degrees from Stanford University.

We believe Ms. Matsui is qualified to serve as a member of our board of directors because of her extensive management experience and deep familiarity with the biotechnology industry.

Steven Kelly was elected to our Board in May 2017. Mr. Kelly brings over thirty years of experience in Pharma/Biotech at all phases of the business across multiple therapeutic categories. Mr. Kelly is currently CEO at Carisma Therapeutics, a venture backed biotech pioneering the development of CAR macrophages, a disruptive approach to immunotherapy in cancer. From 2012 to 2018, Mr. Kelly was the principal of Kelly BioConsulting, LLC, and served as an independent consultant providing strategic direction and guidance to a variety of life sciences companies. Previously, Mr. Kelly was the founding CEO of Pinteon Therapeutics, an early stage oncology and CNS development company. Prior to this he held a number of leadership positions in the biotechnology industry including: CEO, Theracrine; CCO, BioVex; CEO, Innovive Pharmaceuticals; as well as various commercial and manufacturing roles at Sanofi, IDEC Pharmaceuticals and Amgen. Mr. Kelly holds a BS from University of Oregon and an MBA from Cornell University.

We believe Mr. Kelly is qualified to serve as a member of our board of directors because of his entrepreneurial background and extensive knowledge of the biopharmaceutical and biotechnology industries.

Douglas Blayney, M.D. was elected to our Board in July 2017. Dr. Blayney is a Professor of Medicine (Oncology), Emeritus at Stanford University and former Medical Director of Stanford Cancer Center. Dr. Blayney is a past president of the American Society of Clinical Oncology (ASCO) and a founder of the ASCO Quality Symposium. He was previously a Professor of Internal Medicine and Medical Director of the Comprehensive Cancer Center at the University of Michigan, and prior to that practiced and led Wilshire Oncology Medical Group, Inc. a physician owned multidisciplinary oncology practice in southern California. Dr. Blayney served on the Food and Drug Administration’s Oncologic Drugs Advisory Committee and is Founding Editor-in-Chief and Editor-in-Chief Emeritus of ASCO’s Journal of Oncology Practice. He has over 120 scientific publications with expertise on clinical trial development, use of oncology drugs in clinical practice, and information technology use. Dr. Blayney earned a degree in electrical engineering from Stanford, is a graduate of the University of California, San Diego (UCSD) School of Medicine, and received post graduate training at UCSD and at the National Cancer Institute in Bethesda, Maryland.

We believe Dr. Blayney is qualified to serve as a member of our board of directors because of his expertise in biopharmaceutical matters and deep familiarity with clinical trials and the FDA.

R. Martin Emanuele, Ph.D. was elected to our Board in September 2017. Dr. Emanuele is currently co-founder and Chief Executive Officer of Visgenx. Inc, a private bio-pharmaceutical company. From May 2011 to October 2016, he served as Senior Vice President, Development at Mast Therapeutics Inc. (now Savara, Inc., a biopharmaceutical company), from April 2010 to April 2011, Dr. Emanuele was Vice President, Pharmaceutical Strategy at DaVita, Inc., and leading provider of dialysis and other healthcare services in the United States. Prior to DaVita, from June 2008 to April 2010, Dr. Emanuele was a co-founder and CEO of SynthRx, Inc. a private biopharmaceutical company that was acquired by Mast Therapeutics (Savara, Inc) in April 2011. From November 2006 to May 2008, Dr. Emanuele was Senior Vice President, Business Development at Kemia, Inc., a venture-backed privately-held company focused on discovering and developing small molecule therapeutics. From 2002 to 2006, Dr. Emanuele held various senior-level positions with Avanir Pharmaceuticals, Inc., most recently as Vice President, Corporate Development and Portfolio Management, and from 1988 to 2002, Dr. Emanuele held positions of increasing responsibility at CytRx Corporation, most recently as Vice President, Research and Development and Business Development. He earned a Ph.D. in pharmacology and experimental therapeutics from Loyola University of Chicago, Stritch School of Medicine and a BS in biology from Colorado State University. He also holds an MBA with an emphasis in healthcare and pharmaceutical management from the University of Colorado.

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We believe that Dr. Emanuele is qualified to serve as a member of our board of directors because of his professional background experience in the biopharmaceutical industry.

Gregory Reyes, M.D., Ph.D., was elected to our Board on November 30, 2020. Dr. Reyes has served as a Pharmaceutical and Biotech Industry Advisor and Consultant to various companies from June 2016 to present. Dr. Reyes has also served as the Co-Founder of OROX Biosciences, Inc. from June 2017 to present. Prior to that, Dr. Reyes served as the Senior Vice President, Drug Discovery & San Diego Site Head, overseeing drug discovery at Celgene from June 2011 to June 2016. Prior to that, Dr. Reyes served as Senior Vice President & San Diego Site Head, leading the oncology franchise at Biogen Idec from October 2008 to June 2011. Dr. Reyes currently serves as advisor to Cancer Research UK’s New Agents Committee and previously served on NIH’s National Advisory General Medical Sciences Council, and the Standing Review Committee for the Research Centers in Minority Institutions, National Center for Research Resources. Dr. Reyes obtained his M.D. and Ph.D. at The Johns Hopkins School of Medicine and trained in medicine at Stanford University Hospital. Dr. Reyes received his bachelor’s degree in Biology from the University of California, Santa Cruz.

We believe Dr. Reyes is qualified to serve as a member of our board of directors because of his extensive experience serving in leadership positions for biopharmaceutical companies.

Tamara A. (Seymour) Favoritowas elected to our Board in March 2021. Ms. Favorito serves as a member of the board of directors, Chair of the audit committees and member of the compensation committees of Kintara Therapeutics, Inc. a publicly-traded drug development company. In addition she serves as a member of the board of directors and Chair of the audit and compensation committees of Zevra Therapeutics, Inc. (formerly KemPharm, Inc.), a rare disease therapeutics company. Ms. Favorito served as Interim Chief Financial Officer of Immunic, Inc., clinical-stage drug development company in 2019. She was Chief Financial Officer of Signal Genetics, Inc., a publicly traded molecular diagnostics company, from 2014 to 2017. She served as Chief Financial Officer of HemaQuest Pharmaceuticals, Inc., a venture-backed clinical-stage drug development company, from 2010 to 2014. From 2001 to 2009, she served as Chief Financial Officer of Favrille, Inc., a publicly traded clinical-stage drug development company. Ms. Favorito has also served as consulting chief financial officer for a number of biotechnology companies, served as Director of Finance and Controller of Agouron Pharmaceuticals, Inc. (now Pfizer, Inc.) and spent eight years in public accounting with Deloitte & Touche LLP and PricewaterhouseCoopers LLP, including three years as audit manager. Ms. Favorito is a Certified Public Accountant (inactive). She received an MBA, emphasis in Finance, from Georgia State University, and a bachelor’s degree in Business Administration, emphasis in Accounting, from Valdosta State University. Ms. Favorito also participated in an executive management program at Kellogg Graduate School of Management at Northwestern University.

We believe Ms. Favorito is qualified to serve as a member of our board of directors because of her experience leading public companies, her financial expertise and her familiarity with the biopharmaceutical industry.

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Executive Officers

Gregory D. Gorgas. Please see biography in “Directors” section above.

Board Meetings

Since January 1, 2022, our Board has met six times. All of our directors attended at least 75% of the aggregate number of meetings of the Board and of the committees on which they served during the past fiscal year, in each case during the period that he or she served as a director.

Audit Committee

Our audit committee is currently comprised of Tamara A. (Seymour) Favorito, Steven Kelly, and Connie Matsui. Ms. Favorito serves as the chairperson of our audit committee. Our Board has determined that each member of our audit committee meets the requirements for independence and financial literacy under the applicable rules and regulations of the SEC and the listing standards of The Nasdaq Stock Market, LLC (“Nasdaq”). Our Board has also determined that Ms. Favorito is an “audit committee financial expert” as defined in the rules of the SEC and has the requisite financial sophistication as defined under the listing standards of Nasdaq. The responsibilities of our audit committee will include, among other things:

· overseeing our policies on risk assessment and risk management;

· reviewing related party transactions; and

Our audit committee operates under a written charter which satisfies the applicable rules and regulations of the SEC and the listing standards of Nasdaq, a copy of which can be found on our website at www.artelobio.com.

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Compensation Committee

Our compensation committee is currently comprised of Steven Kelly and Dr. Greg Reyes. Mr. Kelly serves as the chairperson of our compensation committee. Our Board has determined that each member of our compensation committee meets the requirements for independence under the applicable rules and regulations of the SEC and listing standards of Nasdaq. Each member of the compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act. The purpose of our compensation committee will be to oversee our compensation policies, plans and benefit programs and to discharge the responsibilities of our Board relating to compensation of our executive officers. The responsibilities of our compensation committee will include, among other things:

· administering our equity compensation plans.

Our compensation committee operates under a written charter, which satisfies the applicable rules and regulations of the SEC and the listing standards of Nasdaq, a copy of which can be found on our website at www.artelobio.com.

Corporate Governance and Nominating Committee

Our corporate governance and nominating committee is currently comprised of Douglas Blayney, M.D., and R. Martin Emanuele, Ph.D and Connie Matsui. Dr. Blayney serves as chairperson of our corporate governance and nominating committee. Our Board has determined that all members of our corporate governance and nominating committee meet the requirements for independence under the applicable rules and regulations of Nasdaq listing standards. The responsibilities of our corporate governance and nominating committee will include, among other things:

· evaluating the performance of our Board and of individual directors;

Our corporate governance and nominating committee operates under a written charter, which satisfies the listing standards of Nasdaq, a copy of which can be found on our website at www.artelobio.com.

Code of Ethics

The Board has adopted a Code of Business Conduct and Ethics that applies to our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and agents and representatives, including consultants. A copy of the Code of Business Conduct and Ethics is available on our website at www.artelobio.com. We intend to disclose future amendments to such code, or any waivers of its requirements, applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions or our directors on our website identified above.

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Family Relationships

There are no family relationships between any of our directors or executive officers.

Delinquent Section 16(a) Reports

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our shares of common stock and other equity securities, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file.

Based solely on our review of the copies of such forms received by our company, or written representations from certain reporting persons that no Form 5s were required for those persons, we believe that, during the fiscal year ended December 31, 2022, all filing requirements applicable to our officers, directors and greater than 10% beneficial owners as well as our officers, directors and greater than 10% beneficial owners of our subsidiaries were complied with.

ITEM 11. EXECUTIVE COMPENSATION

The particulars of the compensation paid to the following persons:

Principal Position Year ($) ($) ($) ($) ($) ($) ($) ($)

Gregory D. Gorgas

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information regarding equity awards granted to our named executive officer that remained outstanding as of December 31, 2022.

Option Awards Stock Awards

Executive Employment Agreements

On August 30, 2019, and effective as of June 20, 2019, the Company and Mr. Gorgas entered into an amended and restated employment agreement (the “Employment Agreement”).

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Mr. Gorgas’ current annual base salary is $475,000 per year, less applicable withholdings, and he is eligible to earn an annual target bonus of up to 50% of his base salary upon achievement of performance objectives to be determined by the Company’s board of directors or its compensation committee. Mr. Gorgas is also eligible to participate in any employee benefit plans sponsored by us.

The Employment Agreement also provides that Company shall pay the premiums for a life insurance policy for Mr. Gorgas for coverage of up to $1,000,000, and Mr. Gorgas shall be entitled to select personal beneficiaries for 100% of the proceeds of such policy. Mr. Gorgas may also choose to pay any additional premiums to increase the coverage of this life insurance policy.

The Employment Agreement also provides benefits in connection with a termination of employment under specified circumstances. Under the terms of the Employment Agreement, if we terminate Mr. Gorgas’ employment other than for cause, death, or disability, or Mr. Gorgas terminates his employment for good reason, Mr. Gorgas will be entitled to receive, subject to his timely execution and non-revocation of a release of claims, non-disparagement and his continued adherence to the non-solicitation provision of the Employment Agreement the following benefits: (A) if his termination of service occurs within the period 3 months prior to and 12 months after a change of control of the Company, (i) a lump sum severance payment equal to (x) 12 months of his then-current base salary and (y) his prorated annual bonus at the target level of achievement for the year in which the termination occurs, (ii) reimbursements for Mr. Gorgas and his eligible dependents’ COBRA premiums for up to 12 months; and (iii) accelerated vesting as to 100% of Mr. Gorgas’ then-outstanding time-based and performance-based equity awards; or (B) if his termination of service occurs outside of the period 3 months prior to and 12 months after a change of control of the Company, (i) continuing monthly payments of his then-current base salary for 12 months, (ii) a lump sum payment equal to a pro-rata portion of his then-current year target bonus, (iii) reimbursements for Mr. Gorgas and his eligible dependents’ COBRA premiums for up to 12 months; and (iv) accelerated vesting as to (x) 100% of Mr. Gorgas’ then-outstanding time-based equity awards and (y) that portion of Mr. Gorgas’ then-outstanding performance based equity awards for the performance goals that had been satisfied at the time of termination or are expected to be satisfied.

If any of the severance and other benefits provided for in the Employment Agreement or otherwise payable to Mr. Gorgas constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code and could be subject to excise tax under Section 4999 of the Internal Revenue Code, then such payments will be delivered in full or delivered as to such lesser extent which would result in no portion of such benefits being subject to excise tax, whichever results in the greater amount of after-tax benefits to Mr. Gorgas.

Director Compensation

The following table shows the compensation earned by persons who served on our Board of Directors during the year ended December 31, 2022, who are not one of our Named Executive Officers..

(1) 13,735 option awards outstanding as of December 31, 2022.

(2) 11,834 option awards outstanding as of December 31, 2022.

(3) 9,334 option awards outstanding as of December 31, 2022.

(4) 11,369 option awards outstanding as of December 31, 2022.

(5) 12,452 option awards outstanding as of December 31, 2022.

(6) 3,334 option awards outstanding as of December 31, 2022.

Non-Employee Director Compensation Policy

Effective February 12, 2021, after reviewing data provided by F.W. Cook, an independent compensation consultant, the Company adopted an Outside Director Compensation Policy which provides that each outside director is entitled to receive the following cash compensation for their services:

· $30,000 per year for service as a member of the board of directors;

· $25,000 per year additionally for service as chairperson of the board;

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· $7,500 per year additionally for service as an audit committee member;

· $4,000 per year additionally for service as a compensation committee member;

All cash payments to non-employee directors are paid quarterly in arrears on a prorated basis.

In addition, the Outside Director Compensation Policy provides that new non-employee directors receive, upon becoming a non-employee director, an initial award of stock options to purchase 2,000 shares of our common stock at a per-share exercise price equal to the fair market value of a share of our common stock on the first trading date on or after the date on which such individual first becomes a non-employee director. The initial award shall vest in three (3) equal installments on each anniversary of the date the applicable non-employee director’s service commenced, in each case subject to the non-employee director continuing to be a service provider through the applicable vesting date.

Our outside director compensation policy also provides for an annual award to continuing non-employee directors who have served as a non-employee director for at least six (6) months on the date of each annual meeting of stockholders, provided that the board may make exceptions to this requirement, of stock options to purchase 667 shares of our common stock at a per-share exercise price equal to the fair market value of a share of our common stock on the date of each annual meeting. The annual award shall vest on the earlier of the one-year anniversary of the date the annual award is granted, or the day prior to the date of the annual meeting next following the date the annual award is granted, in each case, subject to the non-employee director continuing to be a service provider through the applicable vesting date.

We also reimburse our directors for expenses associated with attending meetings of our board of directors and committees of our board of directors. Directors who are also our employees receive no additional compensation for their service as a director.

Our outside director compensation policy further provides that in any given fiscal year, a non-employee director may not receive cash compensation and equity awards with an aggregate value greater than $750,000 (determined in accordance with accounting principles generally accepted in the United States of America). Any cash compensation paid, or awards granted to an individual for his or her services as an employee or a consultant (other than as a non-employee director) will not count for purposes of this limitation.

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Equity grants to our non-employee directors provide that in the event of a merger or change in control, each outstanding equity award granted held by a non-employee director will fully vest, all restrictions on the shares subject to such award will lapse, and with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and all of the shares subject to such award will become fully exercisable, if applicable.

On February 12, 2021, the Company granted options to certain directors of the Company directors to purchase a total of 47,036 shares of the Company’s common stock with an exercise price of $39.90 and vesting as follows: 50% shall vest on the one-year anniversary of the grant date and 50% shall vest on the two-year anniversary of the grant date, subject to our directors’ continued service to the Company.

On March 5, 2021, the Company granted an option to a director of the Company to purchase 2,000 shares of the Company’s common stock with an exercise price of $22.80 and vesting as follows: one third shall vest on the one-year anniversary of the vesting commencement date, one third shall vest on the two-year anniversary of the vesting commencement date and one third shall vest on the three-year anniversary of the vesting commencement date, subject to this director’s continued service to the Company.

On July 16, 2021, the Company granted options to certain directors of the Company to purchase a total of 4,669 shares of the Company’s common stock with an exercise price of $15.00 and vesting on the earlier of the one-year anniversary of the vesting commencement date or the date prior to the date of the annual meeting of the Company’s stockholders next following the vesting commencement date. The vesting commencement date was July 16, 2021.

On June 24, 2022, the Company granted options to certain directors of the Company to purchase a total of 4,002 shares of the Company’s common stock with an exercise price of $4.89 and vesting on the earlier of the one-year anniversary of the vesting commencement date or the date prior to the date of the annual meeting of the Company’s stockholders following the vesting commencement date. The vesting commencement date was June 24, 2023.

Employee Stock Plan

2018 Equity Incentive Plan

Our Board has adopted a 2018 Equity Incentive Plan (the “2018 Plan”), and our stockholders have approved it. Our 2018 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, to our employees and any parent and subsidiary corporations’ employees, and for the grant of non-statutory stock options, restricted stock, restricted stock units, and stock appreciation rights to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.

Authorized Shares. On September 1, 2021, the 2018 Plan was increased to permit the issuance of an additional 244,940 shares of common stock awards. On February 18, 2022, the number of shares of Common Stock reserved for issuance under the 2018 Plan increased by 141,003 shares.

As of December 31, 2022, 622,526 shares of our common stock have been reserved for issuance pursuant to the 2018 Plan, of which options to purchase 313,109 shares of common stock are issued and outstanding. On January 6, 2023, the number of shares of Common Stock reserved for issuance under the 2018 Plan increased by 428,353 shares to a new total of 1,050,879 shares reserved for issuances pursuant to the 2018 Plan.

Plan Administration. Our board of directors or one or more committees appointed by our board of directors will administer the 2018 Plan. Our compensation committee of our board of directors currently administers our 2018 Plan. In addition, if we determine it is desirable to qualify transactions under the 2018 Plan as exempt under Rule 16b-3 of the Exchange Act, or Rule 16b-3, such transactions will be structured to satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of our 2018 Plan, the administrator has the power to administer the plan, including but not limited to, the power to determine the fair market value of our common stock, select the service providers to whom awards may be granted, determine the number of shares covered by each award, approve forms of award agreements for use under the 2018 Plan, determine the terms and conditions of awards (including, but not limited to, the exercise price, the time or times at which awards may be exercised, any vesting acceleration or waiver or forfeiture restrictions and any restriction or limitation regarding any award or the shares relating thereto), construe and interpret the terms of our 2018 Plan and awards granted under it, prescribe, amend and rescind rules relating to our 2018 Plan, including creating sub-plans, modify or amend each award, including but not limited to the discretionary authority to extend the post-termination exercisability period of awards (except no option or stock appreciation right will be extended past its original maximum term) and allow a participant to defer the receipt of payment of cash or the delivery of shares that would otherwise be due to such participant under an award). The administrator also has the authority to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered or cancelled in exchange for awards of the same type, which may have a higher or lower exercise price and/or different terms, awards of a different type and/or cash or by which the exercise price of an outstanding award is increased or reduced. The administrator’s decisions, interpretations and other actions are final and binding on all participants.

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Stock Options. We may grant stock options under the 2018 Plan. The exercise price of options granted under our 2018 Plan will at least be equal to 100% of the fair market value of our common stock on the date of grant. The term of an option may not exceed 10 years. With respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term of an incentive stock option granted to such participant must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, he or she may exercise his or her option, to the extent vested as of the termination date, for the period of time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for 6 months. In all other cases, in the absence of a specified time in an award agreement, the option will generally remain exercisable for 30 days following the termination of service. However, in no event may an option be exercised later than the expiration of its term. Subject to the provisions of our 2018 Plan, the administrator determines the other terms of options.

Stock Appreciation Rights. We may grant stock appreciation rights under our 2018 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director, or consultant, he or she may exercise his or her stock appreciation right for the period of time stated in his or her option agreement. In the absence of a specified time in an award agreement, if termination is due to death or disability, the stock appreciation rights will remain exercisable for 6 months. In all other cases, in the absence of a specified time in an award agreement, the stock appreciation rights will remain exercisable for 30 days following the termination of service. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of our 2018 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.

Restricted Stock. We may grant restricted stock under our 2018 Plan. Restricted stock awards are grants of shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee, director or consultant and, subject to the provisions of our 2018 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever vesting conditions it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to us), except the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

Restricted Stock Units. We may grant restricted stock units under our 2018 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2018 Plan, the administrator determines the terms and conditions of restricted stock units, including the vesting criteria and the form and timing of payment. The administrator may set vesting criteria based upon the achievement of company-wide, divisional, business unit or individual goals (including, but not limited to, continued employment or service) or any other basis determined by the administrator in its discretion. The administrator, in its sole discretion, may pay earned restricted stock units in the form of cash, in shares or in some combination thereof. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed.

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Non-Transferability of Awards. Unless the administrator provides otherwise, our 2018 Plan generally does not allow for the transfer of awards and only the recipient of an award may exercise an award during his or her lifetime. If the administrator makes an award transferrable, such award will contain such additional terms and conditions as the administrator deems appropriate.

Certain Adjustments. In the event of any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of our shares or other securities, or other change in our corporate structure affecting our shares, to prevent diminution or enlargement of the benefits or potential benefits available under our 2018 Plan, the administrator will adjust the number and class of shares that may be delivered under our 2018 Plan and/or the number, class and price of shares covered by each outstanding award and the numerical share limits set forth in our 2018 Plan.

Dissolution or Liquidation. In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and, to the extent not exercised, all awards will terminate immediately prior to the consummation of such proposed transaction.

Merger or Change in Control. Our 2018 Plan provides that in the event of a merger or change in control, as defined under our 2018 Plan, each outstanding award will be treated as the administrator determines, without a participant’s consent. The administrator is not required to treat all awards, all awards held by a participant or all awards of the same type, similarly.

If a successor corporation does not assume or substitute for any outstanding award, then the participant will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights, all restrictions on restricted stock and restricted stock units will lapse, and for awards with performance-based vesting, unless specifically provided for otherwise under the applicable award agreement or other agreement or policy applicable to the participant, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and conditions met. If an option or stock appreciation right is not assumed or substituted, the administrator will notify the participant in writing or electronically that such option or stock appreciation right will be exercisable for a period of time determined by the administrator in its sole discretion and the option or stock appreciation right will terminate upon the expiration of such period.

Clawback. Awards will be subject to any clawback policy of ours, and the administrator also may specify in an award agreement that the participant’s rights, payments, and/or benefits with respect to an award will be subject to reduction, cancellation, forfeiture, and/or recoupment upon the occurrence of certain specified events. Our board of directors may require a participant to forfeit, return, or reimburse us all or a portion of the award and/or shares issued under the award, any amounts paid under the award, and any payments or proceeds paid or provided upon disposition of the shares issued under the award in order to comply with such clawback policy or applicable laws.

Amendment; Termination. The administrator has the authority to amend, alter, suspend or terminate our 2018 Plan, provided such action does not materially impair the rights of any participant. Our 2018 Plan automatically will terminate in 2028, unless we terminate it sooner.

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Grants of Plan-Based Awards

During the year ended December 31, 2022, we granted stock options to purchase a total of 4,002 shares of common stock.

Option Exercises and Stock Vested

During the year ended December 31, 2022, there were no options exercised by our named officers.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.

Indebtedness of Directors, Senior Officers, Executive Officers and Other Management

None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years, is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 27, 2023, certain information with respect to the beneficial ownership of our common and preferred shares by each shareholder known by us to be the beneficial owner of more than 5% of our common and preferred shares, as well as by each of our current directors and executive officers as a group. Each person has sole voting and investment power with respect to the shares of common and preferred stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common and preferred stock, except as otherwise indicated.

Except as otherwise noted below, the address of each of the individuals and entities named in the table below is c/o Artelo Biosciences, Inc., 505 Lomas Santa Fe, Suite 160, Solana Beach, California 92075. Beneficial ownership representing less than 1% is denoted with an asterisk (*).

Name and Address of Beneficial Owner Shares Held within 60 Days Number %

Directors and Named Executive Officers

Gregory R. Reyes M.D., Ph.D. (6) - 5,500 5,500 *

Tamara A. (Seymour) Favorito (7) - 2,001 2,001 *

5% Stockholders

None

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* Less than 1%

Equity Compensation Plan Information

The following table summarizes information about our equity compensation plans as of December 31, 2022. All outstanding option awards relate to our common stock.

(a) (b) (c)

Equity compensation plans approved by security holders:

Equity compensation plans not approved by security holders - - -

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Changes in Control

We are unaware of any contract or other arrangement or provisions of our Articles or Bylaws the operation of which may at a subsequent date result in a change of control of our company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Related Party Transactions

None.

Director Independence

Our Board has undertaken a review of the independence of the directors and considered whether any director has a material relationship with us that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. As a result of this review, our Board has determined that Ms. Matsui, Dr. Blayney, Mr. Kelly, Dr. Emanuele, Dr. Reyes and Ms. Favorito representing six of our seven directors, are “independent directors” as defined under the rules of the Nasdaq Capital Market. Mr. Gorgas is not considered independent due to his service as an executive officer of the Company.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the aggregate fees for audit services provided by MaloneBailey, LLP for the year ended December 31, 2022, four months ended December 31, 2021 and year ended August 31, 2021:

Audit-Related Fees - - 54,000

All Other Fees - - -

Policy on Audit Committee Pre-Approval of Services Performed by Independent Registered Public Accounting Firm

Consistent with the requirements of the SEC and the Public Company Accounting Oversight Board (PCAOB) regarding auditor independence, our Audit Committee has responsibility for appointing, setting compensation, and overseeing the work of our independent registered public accounting firm. In recognition of this responsibility, our Audit Committee has established a policy for the pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services, and other services. The Audit Committee generally pre-approves particular services or categories of services on a case-by-case basis. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with these pre-approvals, and the fees for the services performed to date.]

Our audit committee pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the audit committee either before or after the respective services were rendered.

Our Board has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.

Table of Contents

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

(b) Exhibits