How will the issuance of 640,924 new shares and the accompanying pre‑funded warrants dilute existing shareholders and affect ARTL's earnings per share?

Dilution mechanics

The offering adds 640,924 new common shares plus the right to purchase up to 40,894 pre‑funded warrants (each warrant converts into one share at a $0.001 exercise price). In total, ≈ 681,818 shares could be added to the capital base. Artelo’s most recent Form 10‑Q listed ≈ 13.0 million shares of common stock outstanding.

[
\text{Dilution %} = \frac{681,818}{13,000,000 + 681,818}\times100 \approx 5.0\%
]

Thus existing shareholders will see their ownership stake diluted by roughly 5 %. Because the pre‑funded warrants are priced essentially at the same $4.40 per share (the $0.001 exercise is negligible), the economic effect is the same as issuing ordinary shares.

Impact on earnings per share (EPS)

EPS is calculated as net earnings divided by total shares outstanding. Assuming ARTL’s net earnings stay unchanged in the near term, the 5 % rise in share count will cut EPS by a comparable margin (≈ 5 %). The $3 million gross proceeds (≈ $0.23 per existing share) are modest relative to the company’s cash‑burn rate and will not offset the EPS hit until the new capital is deployed into revenue‑generating projects or reduces financing costs.

Trading implications

• Short‑term pressure: The announced dilution and the modest cash raise are likely to weigh on the stock price, especially given the low‑volume, biotech‑risk premium. Expect a modest downward bias in the next few trading days, with support around the $4.00‑$4.10 region (≈ 10‑15 % below the offering price) and resistance near $4.40‑$4.50 (the deal price).
  
• Watch for conversion timing: The underwriters’ 45‑day option and the warrant exercise period create a near‑term “dilution window.” If the warrants are exercised early, the share count spikes faster, amplifying the EPS hit. Monitor the SEC filing for the exact warrant‑exercise schedule; a sudden increase in float can accelerate price decay.
  
• Fundamental upside: If the $3 million is earmarked for a pivotal clinical‑trial milestone that could materially lift future revenues, the longer‑term upside may outweigh the immediate EPS dilution. Traders should weigh the near‑term technical weakness against any forthcoming catalyst (e.g., data read‑out, partnership announcements) before deciding on a short‑term short or a longer‑term buy‑on‑dip.
  

Actionable take‑away: Expect a 5 % dilution‑driven EPS reduction and modest price pressure. Consider short‑term bearish positions or tight‑stop buys near $4.10–$4.15 if a clear catalyst emerges that could justify a bounce, while staying alert to the warrant‑exercise timeline that could further increase the share supply.