UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30,
2023
or
☐ TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from:
Commission File Number: 001-38803
Hoth Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
Nevada | | 82-1553794 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
1 Rockefeller Plaza, Suite 1039 | | |
New York, NY | | 10020 |
(Address of principal executive offices) | | (Zip Code) |
(646) 756-2997
(Registrant’s telephone number, including area
code)
Not applicable
(Former name, former address and former fiscal
year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.0001 par value | | HOTH | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The number of shares of the issuer’s common
stock, $0.0001 par value per share, outstanding at November 10, 2023 was 4,346,438.
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains certain
forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events
or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the
use of words or phrases such as “may,” “should,” “believes,” “will,” “expects,”
“anticipates,” “estimates,” “predicts,” “potential,” “continues” “intends,”
“plans” and “would” or the negative of these terms or other comparable terminology. For example, statements concerning
financial condition, possible or assumed future results of operations, growth opportunities, and plans are all forward-looking statements.
Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not
guarantees of future results or performance and involve substantial risks and uncertainty. They involve known and unknown risks, uncertainties
and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results,
levels of activity, performance or achievements expressed or implied by any forward-looking statement. We may not actually achieve the
plans, intentions or expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve
substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | our business strategies; |
| ● | the timing of regulatory submissions; |
| ● | our ability to obtain and maintain regulatory approvals of our existing product candidates and any other
product candidates we may develop, and the labeling under any approval we may obtain; |
| ● | risks relating to the timing and costs of clinical trials and the timing and costs of other expenses; |
| ● | risks related to market acceptance of our products; |
| ● | the ultimate impact of any health epidemics on our business, our clinical trials, our research programs,
healthcare systems or the global economy as a whole; |
| ● | intellectual property risks; |
| ● | risks associated with our reliance on third-party organizations; |
| ● | our competitive position; |
| ● | our industry environment; |
| ● | our anticipated financial and operating results, including anticipated sources of revenues; |
| ● | assumptions regarding the size of the available market, benefits of our products, product pricing and
timing of product launches; |
| ● | management’s expectation with respect to future acquisitions; |
| ● | statements regarding our goals, intentions, plans and expectations, including the introduction of new
products and markets; |
| ● | general business and economic conditions, such as inflationary pressures, geopolitical conditions including, but not limited to, the conflict
between Russia and the Ukraine, the conflict between Israel and Gaza, and the effects and duration of outbreaks of public health emergencies,
such as COVID-19; and |
| ● | our cash needs and financing plans. |
All of our forward-looking statements are as of
the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information.
We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material
adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included
in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the U.S. Securities
and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and
results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements
to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking
statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear
that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report
on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed
to modify or supersede such statements in this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q may include
market data and certain industry data and forecasts, which we may obtain from internal company surveys, market research, consultant surveys,
publicly available information, reports of governmental agencies and industry publications, articles and surveys. Industry surveys, publications,
consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be
reliable, but the accuracy and completeness of such information is not guaranteed. While we believe that such studies and publications
are reliable, we have not independently verified market and industry data from third-party sources.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HOTH THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| |
September 30,
2023 | | |
December 31,
2022 | |
ASSETS | |
(Unaudited) | | |
| |
Current assets: | |
| | |
| |
Cash | |
$ | 11,828,242 | | |
$ | 6,428,611 | |
Marketable equity securities, at fair value | |
| 24,567 | | |
| 209,320 | |
Prepaid expenses | |
| 200,328 | | |
| 88,450 | |
Total current assets | |
| 12,053,137 | | |
| 6,726,381 | |
| |
| | | |
| | |
Investment in joint ventures at fair value | |
| 33,000 | | |
| 33,000 | |
Total assets | |
$ | 12,086,137 | | |
$ | 6,759,381 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 707,185 | | |
$ | 694,989 | |
Accrued expenses | |
| 871,684 | | |
| 667,742 | |
Accrued license fee - current portion | |
| — | | |
| 25,000 | |
Total current liabilities | |
| 1,578,869 | | |
| 1,387,731 | |
| |
| | | |
| | |
Accrued license fee - less current portion | |
| — | | |
| 250,000 | |
Total liabilities | |
| 1,578,869 | | |
| 1,637,731 | |
| |
| | | |
| | |
Commitments and contingencies (Note 6) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022 | |
| — | | |
| — | |
Common stock, $0.0001 par value, 50,000,000 shares authorized, 4,346,438 and 1,302,113 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | |
| 435 | | |
| 130 | |
Additional paid-in capital | |
| 61,726,321 | | |
| 50,198,630 | |
Accumulated deficit | |
| (51,242,237 | ) | |
| (45,099,116 | ) |
Accumulated other comprehensive income | |
| 22,749 | | |
| 22,006 | |
Total stockholders’ equity | |
| 10,507,268 | | |
| 5,121,650 | |
Total liabilities and stockholders’ equity | |
$ | 12,086,137 | | |
$ | 6,759,381 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
HOTH THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(UNAUDITED)
| |
For the Three Months Ended
September 30, | | |
For the Nine Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Operating costs and expenses | |
| | |
| | |
| | |
| |
Research and development | |
$ | 1,246,061 | | |
$ | 1,451,280 | | |
$ | 2,777,865 | | |
$ | 3,370,841 | |
Research and development - licenses acquired (including stock-based compensation) | |
| (271,687 | ) | |
| 16,953 | | |
| (212,411 | ) | |
| 94,678 | |
Compensation and related expenses (including stock-based compensation) | |
| 566,139 | | |
| 348,754 | | |
| 1,380,179 | | |
| 1,821,613 | |
Professional fees (including stock-based compensation) | |
| 478,614 | | |
| 498,034 | | |
| 1,578,872 | | |
| 1,508,330 | |
Rent | |
| 6,752 | | |
| 17,625 | | |
| 29,769 | | |
| 47,112 | |
Other general and administrative expenses | |
| 67,101 | | |
| 351,767 | | |
| 440,152 | | |
| 802,080 | |
Total operating expenses | |
| 2,092,980 | | |
| 2,684,413 | | |
| 5,994,426 | | |
| 7,644,654 | |
Loss from operations | |
| (2,092,980 | ) | |
| (2,684,413 | ) | |
| (5,994,426 | ) | |
| (7,644,654 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense), net | |
| | | |
| | | |
| | | |
| | |
Unrealized loss on marketable securities | |
| — | | |
| — | | |
| (184,753 | ) | |
| (194,179 | ) |
Realized gain (loss) on marketable securities | |
| — | | |
| 26,572 | | |
| — | | |
| (132,063 | ) |
Change in fair value of investments in joint ventures | |
| — | | |
| — | | |
| — | | |
| (22,600 | ) |
Dividend income | |
| 5,611 | | |
| 14,202 | | |
| 35,272 | | |
| 59,334 | |
Other income (expense) | |
| 786 | | |
| (592 | ) | |
| 786 | | |
| 40,831 | |
Total other income (expense), net | |
| 6,397 | | |
| 40,182 | | |
| (148,695 | ) | |
| (248,677 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (2,086,583 | ) | |
$ | (2,644,231 | ) | |
| (6,143,121 | ) | |
| (7,893,331 | ) |
Other comprehensive income | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| 46,461 | | |
| 21,485 | | |
| 743 | | |
| 31,985 | |
Total comprehensive loss | |
$ | (2,040,122 | ) | |
$ | (2,622,746 | ) | |
$ | (6,142,378 | ) | |
$ | (7,861,346 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share - basic and diluted | |
$ | (0.60 | ) | |
$ | (2.05 | ) | |
$ | (1.99 | ) | |
$ | (6.78 | ) |
Weighted average number of common shares outstanding, basic and diluted | |
| 3,483,735 | | |
| 1,288,481 | | |
| 3,093,224 | | |
| 1,164,174 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
HOTH THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
For the Three Months Ended September 30, 2023 | |
| |
| |
Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Accumulated Other Comprehensive | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income (Loss) | | |
Equity | |
Balance as of June 30, 2023 | |
| 3,302,113 | | |
$ | 330 | | |
$ | 59,130,198 | | |
$ | (49,155,654 | ) | |
$ | (23,712 | ) | |
$ | 9,951,162 | |
Exercise of warrants | |
| 495,050 | | |
| 50 | | |
| 445 | | |
| — | | |
| — | | |
| 495 | |
Stock-based compensation | |
| — | | |
| — | | |
| 190,265 | | |
| — | | |
| — | | |
| 190,265 | |
Common stock and warrants issued in private placement, net of offering costs | |
| 549,275 | | |
| 55 | | |
| 2,405,413 | | |
| — | | |
| — | | |
| 2,405,468 | |
Cumulative translation adjustment | |
| — | | |
| — | | |
| — | | |
| — | | |
| 46,461 | | |
| 46,461 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (2,086,583 | ) | |
| — | | |
| (2,086,583 | ) |
Balance as of September 30, 2023 | |
| 4,346,438 | | |
$ | 435 | | |
$ | 61,726,321 | | |
$ | (51,242,237 | ) | |
$ | 22,749 | | |
$ | 10,507,268 | |
For
the Three Months Ended September 30, 2022 | |
| |
| |
Common
Stock | | |
Additional
Paid-in | | |
Accumulated | | |
Accumulated
Other Comprehensive | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income | | |
Equity | |
Balance
as of June 30, 2022 | |
| 1,288,469 | | |
$ | 129 | | |
$ | 50,169,819 | | |
$ | (38,976,263 | ) | |
$ | 28,086 | | |
$ | 11,221,771 | |
Stock-based
compensation | |
| 24 | | |
| — | | |
| 12,354 | | |
| — | | |
| — | | |
| 12,354 | |
Cumulative
translation adjustment | |
| — | | |
| — | | |
| — | | |
| — | | |
| 21,485 | | |
| 21,485 | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| (2,644,231 | ) | |
| — | | |
| (2,644,231 | ) |
Balance
as of September 30, 2022 | |
| 1,288,493 | | |
$ | 129 | | |
$ | 50,182,173 | | |
$ | (41,620,494 | ) | |
$ | 49,571 | | |
$ | 8,611,379 | |
For
the Nine Months Ended September 30, 2023
| |
Common Stock | | |
Additional Paid-in | | |
Accumulated | | |
Accumulated Other Comprehensive | | |
Total Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income (Loss) | | |
Equity | |
Balance as of December 31, 2022 | |
| 1,302,113 | | |
$ | 130 | | |
$ | 50,198,630 | | |
$ | (45,099,116 | ) | |
$ | 22,006 | | |
$ | 5,121,650 | |
Exercise of warrants | |
| 2,355,050 | | |
| 236 | | |
| 2,119 | | |
| — | | |
| — | | |
| 2,355 | |
Stock-based compensation | |
| — | | |
| — | | |
| 210,643 | | |
| — | | |
| — | | |
| 210,643 | |
Common stock and warrants issued in private placement, net of offering costs | |
| 689,275 | | |
| 69 | | |
| 11,314,929 | | |
| — | | |
| — | | |
| 11,314,998 | |
Cumulative translation adjustment | |
| — | | |
| — | | |
| — | | |
| — | | |
| 743 | | |
| 743 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (6,143,121 | ) | |
| — | | |
| (6,143,121 | ) |
Balance as of September 30, 2023 | |
| 4,346,438 | | |
$ | 435 | | |
$ | 61,726,321 | | |
$ | (51,242,237 | ) | |
$ | 22,749 | | |
$ | 10,507,268 | |
For
the Nine Months Ended September 30, 2022 | |
| |
| |
Common
Stock | | |
Additional
Paid-in | | |
Accumulated | | |
Accumulated
Other Comprehensive | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Income | | |
Equity | |
Balance
as of December 31, 2021 | |
| 959,009 | | |
$ | 96 | | |
$ | 43,591,773 | | |
$ | (33,727,163 | ) | |
$ | 17,586 | | |
$ | 9,882,292 | |
Stock-based
compensation | |
| 72 | | |
| — | | |
| 605,330 | | |
| — | | |
| — | | |
| 605,330 | |
Issuance of common stock (net of offering costs of $1,014,896) | |
| 329,412 | | |
| 33 | | |
| 5,985,070 | | |
| — | | |
| — | | |
| 5,985,103 | |
Cumulative
translation adjustment | |
| — | | |
| — | | |
| — | | |
| — | | |
| 31,985 | | |
| 31,985 | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| (7,893,331 | ) | |
| — | | |
| (7,893,331 | ) |
Balance
as of September 30, 2022 | |
| 1,288,493 | | |
$ | 129 | | |
$ | 50,182,173 | | |
$ | (41,620,494 | ) | |
$ | 49,571 | | |
$ | 8,611,379 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
HOTH THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
Nine Months Ended
September 30, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities | |
| | |
| |
Net loss | |
$ | (6,143,121 | ) | |
$ | (7,893,331 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Research and development-acquired license, expensed | |
| (25,000 | ) | |
| 51,500 | |
Change in fair value of investments in joint ventures | |
| — | | |
| 22,600 | |
Stock-based compensation | |
| 210,643 | | |
| 605,330 | |
Realized loss on marketable securities | |
| — | | |
| 194,179 | |
Unrealized loss on marketable securities | |
| 184,753 | | |
| 132,063 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| (141,085 | ) | |
| (105,428 | ) |
Accounts payable and accrued expenses | |
| 538,115 | | |
| 245,296 | |
Net cash used in operating activities | |
| (5,375,695 | ) | |
| (6,747,791 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchase of research and development licenses | |
| — | | |
| (66,500 | ) |
Sale of marketable securities | |
| — | | |
| 1,235,694 | |
Net cash provided by investing activities | |
| — | | |
| 1,169,194 | |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from issuance common stock, common stock warrants and prefunded warrants, net of offering costs | |
| 11,314,998 | | |
| — | |
Proceeds from issuance common stock, net of offering costs | |
| — | | |
| 5,985,103 | |
Proceeds from exercise of warrants | |
| 2,355 | | |
| — | |
Net cash provided by financing activities | |
| 11,317,353 | | |
| 5,985,103 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash and cash equivalents | |
| (542,027 | ) | |
| (9,695 | ) |
| |
| | | |
| | |
Net change in cash | |
| 5,941,658 | | |
| 406,506 | |
Cash, beginning of period | |
| 6,428,611 | | |
| 8,538,270 | |
| |
| | | |
| | |
Cash, end of period | |
$ | 11,828,242 | | |
$ | 8,935,081 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – Organization and Description
of Business Operations
Hoth Therapeutics, Inc. (together with its wholly-owned
subsidiaries, Hoth Therapeutics Australia Pty Ltd and merveille.ai, the “Company”) was incorporated under the laws of the
State of Nevada on May 16, 2017. The Company is a clinical-stage biopharmaceutical company focused on developing new generation therapies
for unmet medical needs. The Company is focused on developing (i) a topical formulation for treating side effects from drugs used for
the treatment of cancer (HT-001); (ii) a treatment for mast-cell derived cancers and anaphylaxis (HT-KIT); (iii) a treatment for traumatic
brain injury and ischemic stroke (HT-TBI); and (iv) a treatment and/or prevention for Alzheimer’s or other neuroinflammatory diseases
(HT-ALZ). The Company also has assets being developed for (i) atopic dermatitis (also known as eczema) (BioLexa); (ii) a treatment for
asthma and allergies using inhalational administration (HT-004); and (iii) a treatment for acne as well as inflammatory bowel diseases
(HT-003). In addition, the Company is developing a diagnostic device via a mobile device. The Company also has interests in certain other
assets being developed by third parties (see Note 4 for a discussion of the Company’s agreement with Zylö Therapeutics, Inc.).
Liquidity and capital resources
Accounting Standards Update (“ASU”)
No. 2014-15, Presentation of Financial Statements - Going Concern, requires management to evaluate the Company’s ability
to continue as a going concern one year beyond the filing date of the given financial statements. This evaluation requires management
to perform two steps. First, management must evaluate whether there are conditions and events that raise substantial doubt about the entity’s
ability to continue as a going concern. Second, if management concludes that substantial doubt is raised, management is required to consider
whether it has plans in place to alleviate that doubt. Disclosures in the notes to the condensed consolidated financial statements are
required if management concludes that substantial doubt exists or that its plans alleviate the substantial doubt that was raised.
The Company has funded its operations from proceeds
from the sale of equity and debt securities. The Company will require significant additional capital to make the investments it needs
to execute its longer-term business plan. The Company’s ability to successfully raise sufficient funds through the sale of debt
or equity securities when needed is subject to many risks and uncertainties and, even if it were successful, future equity issuances may
result in dilution to its existing shareholders and future debt securities may contain covenants that limit the Company’s operations
or ability to enter into certain transactions.
On December 29, 2022, the Company entered into
a securities purchase agreement with an accredited investor pursuant to which it sold (i) 140,000 shares of common stock, (ii) warrants
(the “December Pre-Funded Warrants”) to purchase up to 1,860,000 shares of common stock and (iii) warrants (the “December
Common Stock Warrants”) to purchase up to 2,500,000 shares of common stock at a purchase price of $5.00 per share and accompanying
warrant (less $0.001 for each December Pre-Funded Warrant) in a private placement for aggregate gross proceeds of approximately $10 million,
exclusive of placement agent commission and fees and other offering expenses. The closing of the offering occurred on January 3, 2023.
Each December Common Stock Warrant is exercisable for a period of five and one-half years from the issuance date at an exercise price
of $5.00 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. Each December Pre-Funded
Warrant is exercisable until exercised in full at an exercise price of $0.001 per share and may be exercised on a cashless basis. In addition,
pursuant to the terms of the offering, the Company issued to designees of H.C. Wainwright & Co., LLC warrants (“December Wainwright
Warrants”) to purchase up to 100,000 shares of the Company’s common stock. The December Wainwright Warrants are exercisable
for a period of five and one-half years from the issuance date at an exercise price of $6.25 per share, subject to adjustment, and may,
under certain circumstances, be exercised on a cashless basis.
On September 13, 2023, the Company entered into
a securities purchase agreement with certain institutional investors pursuant to which it sold (i) 549,275 shares of common stock and
(ii) pre-funded warrants (the “September Pre-Funded Warrants”) to purchase up to 550,725 shares of common stock at
a purchase price of $2.63 per share of common stock and a purchase price of $2.629 per September Pre-Funded Warrant. Concurrently with
the sale of common stock and/or the September Pre-Funded Warrants, pursuant to the securities purchase agreement, in
a private placement, the Company issued and sold warrants (the “September Common Stock Warrants”) to purchase up to
1,100,000 shares of common stock. Proceeds from the offering were approximately $2.9 million, prior
to deducting placement agent’s fees and other offering expenses payable by the Company. The closing of the offering occurred
on September 15, 2023. Each September Common Stock Warrant is exercisable for a period of five years from the issuance date at an exercise
price of $2.505 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. Each September
Pre-Funded Warrant is exercisable until exercised in full at an exercise price of $0.001 per share and may be exercised on a cashless
basis. In addition, pursuant to the terms of the offering, the Company issued to designees of H.C. Wainwright & Co., LLC warrants
(“September Wainwright Warrants”) to purchase up to 55,000 shares of the Company’s common stock. The September Wainwright
Warrants are exercisable for a period of five years from the commencement of sales pursuant to the offering at an exercise price of $3.2875
per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis.
The Company believes current cash is sufficient
to fund operations for at least the next 12 months from the date of issuance of these financial statements. However, the Company will
need to raise additional funding, through strategic relationships, public or private equity or debt financings, grants or other arrangements,
to develop and seek regulatory approvals for the Company’s current and future product candidates. If such funding is not available,
or not available on terms acceptable to the Company, the Company’s current development plan and plans for expansion of its general
and administrative infrastructure may be curtailed.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 2 – Significant Accounting Policies
Basis of Presentation and Principles of
Consolidation
The accompanying unaudited interim condensed consolidated
financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”)
for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim
condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the
fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in
the Company’s annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited
interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal
year or any future period. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed
by the Company with the Securities and Exchange Commission (the “SEC”) on March 31, 2023.
The accompanying unaudited interim condensed consolidated
financial statements include the accounts of the Company’s wholly-owned subsidiary, Hoth Therapeutics Australia Pty Ltd, which was
incorporated under the laws of the State of Victoria in Australia on June 5, 2019. All significant intercompany balances and transactions
have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to prior
year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income
(loss), stockholder’s equity or cash flows as previously reported. The reclassifications relate to separating dividend income from
gain on marketable securities within the condensed consolidated statements of operations and comprehensive loss.
Use of estimates
The preparation of condensed consolidated financial
statements in conformity with GAAP 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 consolidated financial statements and the reported
amounts of expenses during the reporting periods. The most significant estimates in the Company’s condensed consolidated financial
statements relate to stock-based compensation and the valuation allowance of deferred tax assets resulting from net operating losses.
These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from
these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results
of operations may be affected.
Significant Accounting Policies
There have been no material changes to the Company’s
significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2022 as filed with the SEC on March 31, 2023.
Cash
Cash consists of bank accounts and total $11,828,242
and $6,428,611 as of September 30, 2023 and December 31, 2022, respectively.
Concentrations of credit risk and off-balance
sheet risk
Financial instruments that potentially subject
the Company to concentration of credit risk consist principally of cash deposits at the two financial institutions the Company utilizes
for its banking requirements. Accounts at each financial institution are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000. The Company has significant cash balances at financial institutions which, throughout the period, regularly exceed the
federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the
Company’s financial condition, results of operations, and cash flows. The Company’s cash deposits above the FDIC insured amounts
totaled $11,173,702 and $5,542,838 as of September 30, 2023 and December 31, 2022, respectively. The Company’s foreign bank accounts
are not subject to FDIC insurance. Cash held in the Company’s Australian bank accounts as of September 30, 2023 and December 31, 2022
was $154,540 and $385,771 in U.S. dollars, respectively.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Fair Value of Financial Instruments
The fair value of the Company’s assets and
liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 820, Fair Value Measurements, approximates the carrying amounts represented in the balance sheet,
primarily due to their short-term nature.
Fair Value Measurement
FASB ASC 820, Fair Value Measurements,
provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined
as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based
on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance classifies fair value
measurements in one of the following three categories for disclosure purposes:
Level 1: | Quoted prices in active markets for identical assets or liabilities. |
Level 2: | Inputs other than Level 1 prices for similar assets or liabilities
that are directly or indirectly observable in the marketplace. |
Level 3: | Unobservable inputs which are supported by little or no market
activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments
for which the determination of fair value requires significant judgment or estimation. |
In some circumstances, the inputs used to measure
fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is
categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Investment in joint ventures
Ownership interests in entities for which the
Company has significant influence that are not consolidated are accounted for as equity method investments. SEC Staff Announcement: Accounting
for Limited Partnership Investments (codified in ASC 323-30-S99-1) guidance requires the use of the equity method unless the investor’s
interest “is so minor that the limited partner may have virtually no influence over partnership operating and financial policies.”
The SEC staff’s position is that investments in limited partnerships of greater than 3% to 5% are considered more than minor and,
therefore, should be accounted for using the equity method or fair value option. Investments accounted for using the equity method may
be reported on a lag up to three months if financial statements of the investee are not available in sufficient time for the investor
to apply the equity method as of the current reporting date. The determination of whether an investee’s results are recorded on
a lag is made on an investment-by-investment basis. This investment in joint ventures is further described in Note 4 of these consolidated
financial statements.
Accounts Payable
For the nine months ended September 30, 2023,
our subsidiary Hoth Therapeutics Australia Pty Ltd, recorded approximately a $260,000 gain due to a settlement agreement on a payable
balance with Novotech, a clinical trial management vendor. The gain is recognized in the condensed consolidated statements of operations
and comprehensive loss following a manner consistent with how the expense was originally recorded.
Income taxes
Income taxes are recorded in accordance with ASC
740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated
financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions
in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions
to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination
as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as
consideration of the available facts and circumstances.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Net loss per share
Net loss per share is computed by dividing net
loss by the weighted average number of shares of common stock outstanding during the period. Since the Company had a net loss in each
of the periods presented, basic and diluted net loss per common share are the same. The following were excluded from the computation of
diluted shares outstanding due to the losses for each period presented, as they would have had an anti-dilutive impact on the Company’s
net loss:
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
Potentially dilutive securities | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Warrants | |
| 4,213,515 | | |
| 402,840 | | |
| 4,213,515 | | |
| 402,840 | |
Options | |
| 169,360 | | |
| 104,651 | | |
| 169,360 | | |
| 104,651 | |
Non-vested restricted stock awards | |
| 3,384 | | |
| 36 | | |
| 3,384 | | |
| 36 | |
Total | |
| 4,386,259 | | |
| 507,527 | | |
| 4,386,259 | | |
| 507,527 | |
Recent accounting pronouncements
Currently, management does not believe that any
other recently issued, but not yet effective accounting pronouncements, if currently adopted, would have a material impact on the Company’s
condensed consolidated financial statements.
NOTE 3 – License Agreements
The following summarizes the Company’s research
and development expenses for licenses acquired (including stock-based compensation) during three and nine months ended September 30, 2023
and 2022:
| |
For the Three Months Ended
September
30, | | |
For the Nine Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
The George Washington University | |
$ | 8,938 | | |
$ | 16,953 | | |
$ | 60,714 | | |
$ | 57,178 | |
North Carolina State University | |
| — | | |
| — | | |
| — | | |
| 20,000 | |
Virginia Commonwealth University | |
| (281,250 | ) | |
| — | | |
| (275,000 | ) | |
| 10,000 | |
University of Cincinnati | |
| 625 | | |
| — | | |
| 1,875 | | |
| 7,500 | |
| |
$ | (271,687 | ) | |
$ | 16,953 | | |
$ | (212,411 | ) | |
$ | 94,678 | |
The George Washington University
During the nine months ended September 30, 2023,
the Company recorded an expense of $30,000 related to the initiation of a clinical trial. In addition, during the three and nine months
ended September 30, 2023, the Company recorded expenses of $8,938 and $60,714, respectively, for license fees. The Company also recorded
an expense of $5,729 and $22,141 for the three and nine months ended September 30, 2023, respectively, related to warrants granted to
The George Washington University (“GW”) pursuant to the patent license agreement with GW dated February 1, 2020 and the patent
license agreement with GW dated August 7, 2020.
North Carolina State University
During the three and nine months ended September
30, 2023, the Company did not recognize any expenses for license fees associated with the license agreement by and between the Company
and North Carolina State University dated February 25, 2021.
Virginia Commonwealth University
On May 11, 2023, the Company provided notice to
the Virginia Commonwealth University Intellectual Property Foundation (“VCU”) of its intent to terminate the exclusive license
agreement (the “VCU Agreement”) by and between the Company and VCU dated May 18, 2020. The VCU Agreement terminated on August
9, 2023.
During the three and nine months ended September
30, 2023, the Company recognized gains of $281,250 and $275,000, respectively, for license fees associated with the VCU License Agreement.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Chelexa Biosciences, Inc. and the University of Cincinnati
During the three and nine months ended September
30, 2023, the Company recognized expenses of $625 and $1,875, respectively, for license fees associated with the Assignment and Assumption
Agreement by and between the Company and Chelexa Biosciences, Inc. dated May 14, 2020.
NOTE 4 – Fair Value of Financial Assets
and Liabilities
The following table presents the Company’s
assets and liabilities that are measured at fair value at September 30, 2023 and December 31, 2022:
| |
Fair value measured at September 30, 2023 | |
| |
Total at
September 30,
2023 | | |
Quoted
prices in
active
markets (Level 1) | | |
Significant
other
observable
inputs (Level 2) | | |
Significant
unobservable
inputs (Level 3) | |
Assets | |
| | |
| | |
| | |
| |
Marketable securities - mutual funds | |
$ | 24,567 | | |
$ | 24,567 | | |
$ | — | | |
$ | — | |
Investment in joint ventures | |
$ | 33,000 | | |
$ | — | | |
$ | — | | |
$ | 33,000 | |
| |
Fair value measured at December 31, 2022 | |
| |
Total at
December 31,
2022 | | |
Quoted
prices in
active
markets (Level
1) | | |
Significant
other
observable
inputs (Level
2) | | |
Significant
unobservable
inputs (Level
3) | |
Assets | |
| | |
| | |
| | |
| |
Marketable securities - mutual funds | |
$ | 209,320 | | |
$ | 209,320 | | |
$ | — | | |
$ | — | |
Investment in joint ventures | |
$ | 33,000 | | |
$ | — | | |
$ | — | | |
$ | 33,000 | |
Level 3 Measurement
The following table sets forth a summary of the
changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis as of September
30, 2023 and 2022:
Investment in joint venture for the three months
ended September 30, 2023 | |
| | |
Investment in joint ventures at fair value at June 30, 2023 | |
$ | 33,000 | |
Change in fair value of investments in joint ventures | |
| — | |
Investment in joint ventures at fair value at September 30, 2023 | |
$ | 33,000 | |
Investment in joint venture for the nine months ended
September 30, 2023 | |
| | |
Investment in joint ventures at fair value at December 31, 2022 | |
$ | 33,000 | |
Change in fair value of investments in joint ventures | |
| — | |
Investment in joint ventures at fair value at September 30, 2023 | |
$ | 33,000 | |
Investment in joint venture
for the three months ended September 30, 2022 | |
| | |
Investment in joint ventures at fair value at June 30, 2022 | |
$ | 387,400 | |
Change in fair value of investments in joint ventures | |
| — | |
Investment in joint ventures at fair value at September 30, 2022 | |
$ | 387,400 | |
Investment in joint venture for the nine months ended
September 30, 2022 | |
| | |
Investment in joint ventures at fair value at December 31, 2021 | |
$ | 410,000 | |
Change in fair value of investments in joint ventures | |
| (22,600 | ) |
Investment in joint ventures at fair value at September 30, 2022 | |
$ | 387,400 | |
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Investment in joint ventures
The Company has elected to measure the investment
in joint ventures using the fair value option at each reporting date. Under the fair value option, bifurcation of an embedded derivative
is not necessary, and all related gains and losses on the host contract and derivative due to change in the fair value will be reflected
in interest income and other, net in the consolidated statements of operations and comprehensive loss.
The value at which the Company’s investment
in joint ventures is carried on its books is adjusted to estimated fair value at the end of each quarter, taking into account general
economic and stock market conditions and those characteristics specific to the underlying investments.
Investment in Zylö
In connection with the Company’s March 2020
underwritten public offering of shares of its common stock, on May 4, 2020, the Company purchased 120,000 shares of Zylö’s
Class B common stock for $60,000. On December 8, 2021, the Company entered into a third amendment (the “Zylö Amendment”)
to the Exclusive Sublicense Agreement with Zylö originally dated August 19, 2019, pursuant to which the Company licensed its novel
cannabinoid therapeutic, HT-005 for lupus patients, back to Zylö. Pursuant to the Zylö Amendment, on December 6, 2021, Zylö
issued the Company 100,000 shares of its Class B common stock. In addition, pursuant to the Zylö Amendment, within 90 days following
a sale by Zylö of all of its assets and rights related to HT-005 to a third-party (a “Sale”), Zylö shall pay the
Company a low single digit percent of the net proceeds received by it attributable to HT-005 in the United States and Canada and their
respective territories (collectively, the “Territory”) for the purposes of therapeutic uses related to lupus in humans (the
“Field”). After the Sale, any and all rights of the Company pursuant to the Exclusive Sublicense Agreement, including all
amendments thereto, shall terminate. Furthermore, pursuant to the Zylö Amendment, following the date of the first commercial sale
of HT-005 in the Territory, in the Field, Zylö shall pay the Company (i) a low single digit percent of the Net Sales (as defined
in the Exclusive Sublicense Agreement) of HT-005 in the event HT-005 is sold in the Territory and (ii) a low double digit percent of any
royalty that Zylö receives through the sublicense to a third-party based on Net Sales of HT-005 in the Territory which payments shall
continue in each country in the Territory until expiration of the last-to-expire Valid Claim (as defined in the Exclusive Sublicense Agreement).
Zylö conducted a 409A valuation of their Class B common stock and valued its share price at $0.15 per share. This value was ratified
by Zylö’s board of directors in December 2022. Therefore, the Company recorded approximately $27,000 in unrealized loss on
this investment during the fourth quarter of 2022. The investment in Zylö was valued at $33,000 as of September 30, 2023 and December
31, 2022.
NOTE 5 – Stockholders Equity
Securities Purchase Agreement
On September 13, 2023, the Company entered into
a securities purchase agreement with certain institutional investors pursuant to which it sold (i) 549,275 shares of common stock and
(ii) September Pre-Funded Warrants to purchase up to 550,725 shares of common stock at a purchase
price of $2.63 per share of common stock and a purchase price of $2.629 per September Pre-Funded Warrant. Concurrently with the sale of
common stock and/or the September Pre-Funded Warrants, pursuant to the securities purchase agreement, in
a private placement, the Company issued and sold the September Common Stock Warrants to purchase up to 1,100,000 shares of common
stock. Gross proceeds from the offering were approximately $2.9 million, prior to deducting placement agent’s fees and other offering
expenses payable by the Company, with aggregate net proceeds of approximately $2.4 million. The closing of the offering occurred on September
15, 2023.
2018 Equity Incentive Plan
The compensation committee of the board of directors
increased the number of shares reserved pursuant to the Company’s 2018 Equity Incentive Plan (“2018 Plan”) by 26,878
shares effective as of January 1, 2021, such that as of January 1, 2021, the Company had an aggregate of 66,878 shares of common stock
reserved for issuance pursuant to the 2018 Plan. On June 24, 2021, at the annual meeting of shareholders, shareholders of the Company
approved an amendment to the 2018 Plan to further increase the number of shares reserved for issuance thereunder from 66,878 shares to
146,878 shares. On February 2, 2022, the compensation committee of the board of directors further increased the number of shares reserved
for issuance under the 2018 Plan from 146,878 shares to 156,878 shares. On January 11, 2023, the compensation committee of the board of
directors further increased the number of shares reserved for issuance under the 2018 Plan from 156,878 shares to 166,878 shares.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
2022 Equity Incentive Plan
On March 24, 2022, the Company’s board of
directors adopted the Hoth Therapeutics, Inc. 2022 Omnibus Equity Incentive Plan (the “2022 Plan”) initially reserving 96,000
shares of the Company’s common stock for issuance thereunder. The 2022 Plan became effective on June 23, 2022 upon approval of the
2022 Plan by the Company’s shareholders at the Company’s annual meeting of shareholders. On June 2, 2023, the Company’s
board of directors approved the Hoth Therapeutics, Inc. Amended and Restated 2022 Omnibus Equity Incentive Plan (the “Amended and
Restated 2022 Plan”) which was approved by stockholders on August 18, 2023. Under the Amended and Restated 2022 Plan there are 2,895,317 shares
of Company common stock available for grant.
Restricted Stock Awards
A summary of the Company’s restricted stock
awards granted under the equity incentive plans during the nine months ended September 30, 2023 is as follows:
| |
Number of
Restricted
Stock
Awards | | |
Weighted
Average
Grant Day
Fair Value | |
Nonvested at December 31, 2022 | |
| 3,384 | | |
$ | 3.16 | |
Nonvested at September 30, 2023 | |
| 3,384 | | |
$ | 3.16 | |
As of September
30, 2023, approximately $4,000 of unrecognized stock-based compensation expense was related to restricted stock awards. The weighted average
remaining contractual terms of unvested restricted stock awards was approximately 0.7 year at September 30, 2023.
Stock Options
A summary of option activity under the Company’s
stock option plan for the nine months ended September 30, 2023 is presented below:
| |
Number of
Shares | | |
Weighted
Average
Exercise
Price | | |
Total
Intrinsic
Value | | |
Weighted
Average
Remaining
Contractual
Life (in years) | |
Outstanding as of December 31, 2022 | |
| 104,651 | | |
$ | 49.80 | | |
$ | — | | |
| 8.3 | |
Options issued | |
| 90,000 | | |
| 2.59 | | |
| — | | |
| 9.8 | |
Options expired | |
| (25,291 | ) | |
| 46.1 | | |
| — | | |
| 7.7 | |
Outstanding as of September 30, 2023 | |
| 169,360 | | |
$ | 26.80 | | |
$ | — | | |
| 8.7 | |
Options vested and exercisable as of September 30, 2023 | |
| 169,360 | | |
$ | 26.80 | | |
$ | — | | |
| 8.7 | |
All stock compensation associated with the amortization
of employee stock option expense was recorded as a component of compensation and related expense in the condensed consolidated statements
of operations and comprehensive loss. All stock compensation associated with the amortization of nonemployee stock option expense was
recorded as a component of professional fees in the condensed consolidated statements of operations and comprehensive loss.
Estimated future stock-based compensation expense relating to unvested
stock options is $0.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Stock Based Compensation
Stock-based compensation expense for the three
and nine months ended September 30, 2023 and 2022 was as follows:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Employee stock option awards | |
$ | 182,520 | | |
$ | — | | |
| 182,520 | | |
| 560,376 | |
Employee restricted stock awards | |
| — | | |
| 401 | | |
| — | | |
| 1,776 | |
Non-employee restricted stock awards | |
| 2,016 | | |
| — | | |
| 5,982 | | |
| — | |
Non-employee stock warrant awards | |
| 5,729 | | |
| 11,953 | | |
| 22,141 | | |
| 43,178 | |
| |
$ | 190,265 | | |
$ | 12,354 | | |
$ | 210,643 | | |
$ | 605,330 | |
Employee and director related stock-based compensation
of $184,536 and $188,502 for the three and nine months ended September 30, 2023, respectively, was included in compensation and related
expenses in the consolidated statements of operations and comprehensive loss. Non-employee related stock-based compensation of $5,729
and $22,141 for the three and nine months ended September 30, 2023, respectively, was included in research and development related with
licenses acquisition in the consolidated statements of operations and comprehensive loss.
Warrants
On December 29, 2022, the Company entered into
a securities purchase agreement with an accredited investor pursuant to which it sold (i) 140,000 shares of common stock, (ii) December
Pre-Funded Warrants to purchase up to 1,860,000 shares of common stock and (iii) December Common Stock Warrants to purchase up to 2,500,000
shares of common stock at a purchase price of $5.00 per share and accompanying warrant (less $0.001 for each December Pre-Funded Warrant),
in a private placement, for aggregate gross proceeds of approximately $10 million, exclusive of placement agent commission and fees and
other offering expenses, and aggregate net proceeds of approximately $9 million. The closing of the offering occurred on January 3, 2023.
Each December Common Stock Warrant is exercisable for a period of five and one-half years from the issuance date at an exercise price
of $5.00 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. Each December Pre-Funded
Warrant is exercisable until exercised in full at an exercise price of $0.001 per share and may be exercised on a cashless basis.
The measurement of fair value of the December
Pre-Funded Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at January 3, 2023, the
date of issuance (i.e., share price of $6.56, exercise price of $0.001, term of 30 years beginning January 3, 2023 (as these do
not have an expiration date), volatility of 135.07%, risk-free rate of 3.88%, and expected dividend rate of 0%). The
grant date fair value of the December Pre-Funded Warrants was estimated to be $12.2 million on January 3, 2023 and is reflected
within additional paid-in capital as of March 31, 2023 as the Pre-Funded Warrants were determined to be equity classified.
The measurement of fair value of the December
Common Stock Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at January 3, 2023,
the date of issuance (i.e., share price of $6.56, exercise price of $5.00, term of five and a half years beginning January
3, 2023, volatility of 135.07%, risk-free rate of 3.94%, and expected dividend rate of 0%). The grant date fair value
of these December Common Stock Warrants was estimated to be $15.0 million on January 3, 2023 and is reflected within additional
paid-in capital as of March 31, 2023 as the December Common Stock Warrants were determined to be equity classified.
On various dates in February 2023, the investor
exercised all the December Pre-Funded Warrants for 1,860,000 shares of the Company’s common stock for proceeds to the Company of
$1,860.
In addition, pursuant to the terms of the offering,
the Company issued the designees of the placement agent, H.C. Wainwright & Co., LLC, the December Wainwright Warrants to purchase
up to 100,000 shares of the Company’s common stock. The December Wainwright Warrants had a determined fair value of $591,090 as
of the date of issuance. The December Wainwright Warrants are exercisable for a period of five and one-half years from the issuance date
at an exercise price of $6.25 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis.
As these December Wainwright Warrants were issued for services provided in facilitating the private placement, the Company recorded the
fair value of such December Wainwright Warrants as a cost of capital on the issuance date. The measurement of fair value was determined
utilizing a Black-Scholes model considering all relevant assumptions current at January 3, 2023, the date of issuance (i.e., share price
of $6.56, exercise price of $6.25, term of five and a half years beginning January 3, 2023, volatility of 135.07%, risk-free
rate of 3.94%, and expected dividend rate of 0%).
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
As discussed above, on September 13, 2023, the
Company entered into a securities purchase agreement with certain institutional investors (“the September Investors”) pursuant
to which it sold (i) 549,275 shares of common stock and (ii) September Pre-Funded warrants to purchase up to 550,725 shares of common
stock at a purchase price of $2.63 per share of common stock and a purchase price of $2.629 per
September Pre-Funded Warrant. Concurrently with the sale of common stock and/or the September Pre-Funded Warrants, pursuant to the securities
purchase agreement, in a private placement, the Company issued and sold September Common Stock Warrants
to purchase up to 1,100,000 shares of common stock. Gross proceeds from the offering were approximately $2.9 million, prior to deducting
placement agent’s fees and other offering expenses payable by the Company, with aggregate net proceeds of approximately $2.4 million.
The closing of the September offering occurred on September 15, 2023. Each September Common Stock Warrant is exercisable for a period
of five years from the issuance date at an exercise price of $2.505 per share, subject to adjustment, and may, under certain circumstances,
be exercised on a cashless basis. Each September Pre-Funded Warrant is exercisable until exercised in full at an exercise price of $0.001
per share and may be exercised on a cashless basis.
The measurement of fair value of the September
Pre-Funded Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at September 15, 2023,
the date of issuance (i.e., share price of $1.84, exercise price of $0.001, term of 30 years beginning September 15, 2023 (as these
do not have an expiration date), volatility of 146.89%, risk-free rate of 4.42%, and expected dividend rate of 0%).
The grant date fair value of the September Pre-Funded Warrants was estimated to be $1.0 million on September 15, 2023 and is reflected
within additional paid-in capital as of September 30, 2023 as the September Pre-Funded Warrants were determined to be equity classified.
The measurement of fair value of the September
Common Stock Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at September 15, 2023,
the date of issuance (i.e., share price of $1.84, exercise price of $2.505, term of five years beginning September 15, 2023,
volatility of 146.89%, risk-free rate of 4.45%, and expected dividend rate of 0%). The grant date fair value of these
September Common Stock Warrants was estimated to be $1.8 million on September 15, 2023 and is reflected within additional paid-in
capital as of September 30, 2023 as the September Common Stock Warrants were determined to be equity classified.
On various dates in September 2023, the September
Investors exercised 495,050 of the September Pre-Funded Warrants for 495,050 shares of common stock for proceeds to the Company of $495.
At September 30, 2023, 55,675 September Pre-Funded Warrants remained unexercised.
In addition, pursuant to the terms of the September
offering, the Company issued designees of the placement agent, H.C. Wainwright & Co., LLC., the September Wainwright warrants to purchase
up to 55,000 shares of the Company’s common stock. The September Wainwright Warrants are exercisable for a period of five years
from the from the commencement of sales, at an exercise price of $3.2875 per share, subject to adjustment, and may, under certain circumstances,
be exercised on a cashless basis. As the September Wainwright Warrants were issued for services provided in facilitating the September
offering, the Company recorded the fair value of such September Wainwright Warrants as a cost of capital on the issuance date. The measurement
of fair value was determined utilizing a Black-Scholes model considering all relevant assumptions current at September 15, 2023, the date
of issuance (i.e., share price of $1.84, exercise price of $3.2875, term of five years beginning September 15, 2023, volatility
of 146.89%, risk-free rate of 4.45%, and expected dividend rate of 0%).
A summary of warrant activity for the nine months
ended September 30, 2023 is as follows:
| |
Number of
Warrants | | |
Weighted
Average
Exercise
Price | | |
Total
Intrinsic
Value | | |
Weighted
Average
Remaining
Contractual
Life (in years) | |
Outstanding as of December 31, 2022 | |
| 402,840 | | |
$ | 49.73 | | |
$ | — | | |
| 1.4 | |
Issued | |
| 6,165,725 | | |
| 2.61 | | |
| — | | |
| 14.4 | |
Exercised | |
| (2,355,050 | ) | |
| 0.00 | | |
| — | | |
| 29.4 | |
Outstanding as of September 30, 2023 | |
| 4,213,515 | | |
| 8.57 | | |
| — | | |
| 4.7 | |
Warrants exercisable as of September 30, 2023 | |
| 4,213,515 | | |
$ | 8.57 | | |
$ | — | | |
| 4.7 | |
The Company has determined that the warrants should
be accounted as a component of stockholders’ equity.
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 – Commitments and Contingencies
Office lease
The Company leases office space for approximately
$2,500 per month. Rent expense for the three months ended September 30, 2023 and 2022 was approximately $6,752 and $17,625, respectively.
Rent expense for the nine months ended September 30, 2023 and 2022 was approximately $29,769 and $47,112, respectively. The Company is
not a party to a lease that is in excess of 12 months.
Litigation
The Company is not a party to any material legal
proceedings and is not aware of any pending or threatened claims. From time to time, the Company may be subject to various legal proceedings
and claims that arise in the ordinary course of its business activities.
NOTE 7 – Subsequent Events
The Company
evaluates events that have occurred after the balance sheet date through the date for which the condensed consolidated financial statements
are issued. Based upon the evaluation, except as set forth herein, the Company did not identify any recognized or non-recognized subsequent
events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On October
4, 2023 the Company filed Articles of Incorporation with the State of Nevada for the formation of a new wholly-owned subsidiary, merveille.ai
(“merveille”). The focus of merveille will be on drug discovery for rare diseases utilizing artificial intelligence.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and
analysis of our financial condition and results of operations together with our financial statements and the related notes appearing elsewhere
in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could
cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled
“Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as may be amended, supplemented
or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise
noted.
Overview
We are a clinical-stage biopharmaceutical company
focused on developing new generation therapies for unmet medical needs. We are focused on developing (i) a topical formulation for treating
side effects from drugs used for the treatment of cancer (HT-001); (ii) a treatment for mast-cell derived cancers and anaphylaxis (HT-KIT);
(iii) a treatment for traumatic brain injury and ischemic stroke (HT-TBI); and (iv) a treatment and/or prevention for Alzheimer’s
or other neuroinflammatory diseases (HT-ALZ). We also have assets being developed for (i) atopic dermatitis (also known as eczema) (BioLexa);
(ii) a treatment for asthma and allergies using inhalational administration (HT-004); and (iii) a treatment for acne as well as inflammatory
bowel diseases (HT-003). We are also developing a diagnostic device via a mobile device. Furthermore, we have interests in certain other
assets being developed by third parties including a treatment for patients with lupus that is being developed by Zylö Therapeutics,
Inc.
Results of Operations
Comparison of the Three Months Ended September
30, 2023 and 2022
Operating Costs and Expenses
Research and Development Expenses
For the three months ended September 30, 2023,
research and development expenses were approximately $1.0 million, of which approximately $1.2 million was related to research and development
expenses, with an offsetting gain of approximately $0.3 million related to a gain recognized on the settlement of a license agreement
with Virginia Commonwealth University. Specifically, during the quarter ended September 30, 2023, our research and development costs consisted
primarily of the following costs for each of our key research and development projects: (i) BioLexa, approximately $11 thousand related
to manufacturing costs; (ii) HT-001, approximately $0.4 million related to manufacturing, preclinical and clinical activities; (iii) HT-KIT,
approximately $0.8 million related to manufacturing and preclinical activities; and (iv) HT-004, approximately $12 thousand related to
sponsored research. In addition to the foregoing, we also incurred fees of approximately $42 thousand payable to members of our scientific
advisory board for services.
For the three months ended September 30, 2022,
research and development expenses were approximately $1.5 million, of which approximately $17 thousand was related to licenses acquired
and approximately $1.5 million was related to other research and development expenses. Specifically, during the quarter ended September
30, 2022 our research and development costs consisted primarily of the following costs for each of our key research and development projects:
(i) HT-001, approximately $0.8 million related to manufacturing, preclinical and clinical activities; (ii) HT-004, approximately $42 thousand
related to sponsored research; (iii) HT-ALZ approximately $49 thousand related to sponsored research; (iv) HT-TBI approximately $0.2 million
related to manufacturing; and (v) HT-KIT, approximately $0.1 million related to manufacturing and preclinical activities. In addition
to the foregoing, we also incurred fees of approximately $0.1 million payable to members of our scientific advisory board for services.
We expect our research and development activities
to increase as we develop our existing product candidates and potentially acquire new product candidates, reflecting increasing costs
associated with the following:
|
● |
employee-related expenses, which include salaries and benefits, and rent expenses; |
|
● |
fees related to in-licensed products and technology; |
|
● |
expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our pre-clinical activities; |
|
● |
the cost of acquiring and manufacturing clinical trial materials; and |
|
● |
costs associated with non-clinical activities and regulatory approvals. |
Compensation, Professional Fees, Rent and
Other (“General and Administrative Expenses”)
During the three months ended September 30, 2023,
we incurred General and Administrative Expenses of approximately $1.1 million as compared to approximately $1.2 million during the three
months ended September 30, 2022. The approximately $0.1 million decrease was primarily attributed to the receipt of a research and development
tax credit, a decrease in patent costs, a decrease in directors’ and officers’ insurance and a decrease in legal and professional fees,
partially offset by an increase in stock-based compensation expenses.
We anticipate that our General and Administrative
Expenses will increase in future periods, reflecting continued and increasing costs associated with:
|
● |
support of our research and development activities; |
|
● |
stock compensation granted to key employees and non-employees; |
|
● |
support of business development activities; and |
|
● |
increased professional fees and other costs associated with regulatory requirements that we are subject to. |
Comparison of the Nine Months Ended September
30, 2023 and 2022
Operating Costs and Expenses
Research and Development Expenses
For the nine months ended September 30, 2023,
research and development expenses were approximately $2.6 million, of which approximately $2.8 million was related to research and development
expenses, with an offsetting gain of approximately $0.2 million related to licenses acquired. Specifically, during the nine months ended
September 30, 2023, our research and development costs consisted primarily of the following costs for each of our key research and development
projects: (i) BioLexa, approximately $52 thousand related to manufacturing costs; (ii) HT-001, approximately $1.3 million related to manufacturing,
preclinical and clinical activities; (iii) HT-KIT, approximately $1.4 million related to manufacturing and preclinical activities; (iii)
HT-ALZ approximately $49 thousand related to sponsored research; (iv) HT-004, approximately $26 thousand related to sponsored research;
and (v) HT-TBI credit of approximately $12 thousand related to manufacturing. In addition to the foregoing, we also incurred fees of approximately
$0.1 million payable to members of our scientific advisory board for services. Additionally, our subsidiary, Hoth Therapeutics Australia
Pty Ltd, recorded a gain of approximately $0.3 million due to a settlement agreement on a payable balance with Novotech, a clinical trial
management vendor.
For the nine months ended September 30, 2022,
research and development expenses were approximately $3.5 million, of which approximately $0.1 million was related to licenses acquired
and approximately $3.4 million was related to other research and development expenses. Specifically, during the nine months ended September
30, 2022, our research and development costs consisted primarily of the following costs for each of our key research and development projects:
(i) BioLexa, approximately $0.1 million related to manufacturing; (ii) HT-001, approximately $1.8 million related to manufacturing, preclinical
and clinical activities; (iii) HT-003, approximately $41 thousand related to preclinical studies; (iv) HT-004, approximately $0.1 million
related to sponsored research; (v) GW breath based diagnostic device, approximately $0.1 million related to research and development with
respect to the design of device; (vi) HT-ALZ approximately $0.2 million related to sponsored research; (vii) HT-TBI approximately $0.2
million related to manufacturing; and (viii) HT-KIT, approximately $0.1 million related to manufacturing and preclinical activities. In
addition to the foregoing, we also incurred fees of approximately $0.2 million payable to members of our scientific advisory board for
services.
Compensation, Professional Fees, Rent and
Other
During the nine months ended September 30, 2023,
we incurred General and Administrative Expenses of approximately $3.4 million as compared to approximately $4.2 million during the nine
months ended September 30, 2022. The approximately $0.8 million decrease was primarily attributed to a decrease in compensation and related
expenses, including stock-based compensation, and other general administrative expenses. Specifically, the fair value of options granted
to our officers and directors during the nine months ended September 30, 2023 decreased by approximately $0.4 million as compared September
30, 2022. We anticipate that our General and Administrative Expenses will increase in future periods, reflecting continued and increasing
costs associated with:
|
● |
support of our research and development activities; |
|
● |
stock compensation granted to key employees and non-employees; |
|
● |
support of business development activities; and |
|
● |
increased professional fees and other costs associated with regulatory requirements that we are subject to. |
Liquidity and Capital Resources
To date we have funded our operations primarily
through the sale of equity and debt securities. As of September 30, 2023, we had approximately $11.8 million in cash, marketable equity
securities of approximately $25,000, working capital of approximately $10.5 million and an accumulated deficit of approximately $51.2
million. Net cash used in operating activities was $5.4 million and $6.7 million for the nine months ended September 30, 2023 and 2022,
respectively. We incurred losses of approximately $6.1 million and $7.9 million for the nine months ended September 30, 2023 and 2022,
respectively. We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses
for the foreseeable future as we continue our pre-clinical and clinical development of our product candidates. We have not yet commercialized
any products and have never generated any revenue from product sales. We believe that our existing cash as of September 30, 2023 will
enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of this Quarterly Report
on Form 10-Q.
We have entered into certain license, sublicense,
sponsored research and option agreements with third parties. Pursuant to such agreements, we may be required to make certain: (i) license
maintenance fee payments; (ii) out-of-pocket expense payments, including, but not limited to, payments related to intellectual property
and research related expenses; (iii) development and commercialization expense payments; (iv) annual and quarterly minimum payments; (v)
diligence expense payments; and (vi) revenue interest payments. In addition, subject to the achievement of certain development and/or
commercialization events, we may also be required to make certain: (i) minimum royalty payments, ranging from middle to high five figures,
(ii) sales-based royalties and running royalties, ranging from low single digits to low double digits; and (iii) milestone payments, of
up to approximately $13.8 million (if all milestones in all of our current agreements are achieved).
Additional funding will be necessary to fund our
future clinical and pre-clinical activities. We may obtain additional financing through sales of our equity and debt securities or entering
into strategic partnership arrangements, or a combination of the foregoing. There are no assurances that we will be successful in obtaining
an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light
of the economic downturn. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay,
scale back or discontinue the development and commercialization of one or more of our product candidates.
Cash Flows from Operating Activities
For the nine months ended September 30, 2023,
net cash used in operations was approximately $5.4 million, which primarily resulted from a net loss of approximately $6.1 million.
For the nine months ended September 30, 2022,
net cash used in operations was approximately $6.7 million, which primarily resulted from a net loss of approximately $7.9 million and
changes in operating assets and liabilities of approximately $0.1 million, partially offset by approximately $0.6 million stock-based
compensation, $0.2 million realized loss on marketable securities and $0.1 million unrealized loss on marketable securities.
Cash Flows from Investing Activities
For the nine months ended September 30, 2023,
there was no net cash provided by investing activities.
For the nine months ended September 30, 2022,
net cash provided by investing activities was approximately $1.2 million which was primarily related to the sale of marketable securities.
Cash Flows from Financing Activities
For the nine months ended September 30, 2023,
net cash provided by financing activities was approximately $11.3 million, which primarily resulted from net proceeds from the issuance
of common stock and warrants and proceeds from the exercise of warrants.
For the nine months ended September 30, 2022, net cash provided by
financing activities was approximately $6.0 million which resulted from net proceeds from the issuance of common stock.
Critical Accounting Estimates
The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical
if:
|
● |
it requires assumptions to be made that were uncertain at the time the estimate was made; and |
|
● |
changes in the estimate or different estimates that could have been selected could have material impact in our results of operations or financial condition. |
While we base our estimates and judgments on our
experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those
estimates and the differences could be material.
See Note 2 to our condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of our significant accounting policies.
Recently Issued Accounting Standards Not Yet
Effective or Adopted
Management does not believe that any recently
issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying condensed consolidated
financial statements.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company”
can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised
accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended
transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until
those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not
be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
Subject to certain conditions set forth in the
JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation,
(i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b)
of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with any requirement that may be adopted by the Public Company Accounting
Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information
about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company”
until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii)
the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we
have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be
a large accelerated filer under the rules of the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not required to provide the information
required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal
financial officer evaluated the effectiveness of our “disclosure controls and procedures” as of September 30, 2023, the end
of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files
under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure
controls and procedures as of September 30, 2023 our Chief Executive Officer and our Chief Financial Officer concluded that, as of such
date, our disclosure controls and procedures were not effective because of the material weakness in our internal control over financial
reporting, as described below.
Status of Remediation of Material Weaknesses
in Internal Control over Financial Reporting
As previously disclosed, as of December 31, 2022,
under the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated Framework - 2013. Based on this assessment, our management concluded
that, as of December 31, 2022, our internal control over financial reporting was not effective because management identified a material
weakness. A material weakness is a significant deficiency or a combination of significant deficiencies in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will
not be prevented or detected on a timely basis.
Specifically, our management concluded that we lack sufficient resources
necessary to provide adequate segregation of duties related to the preparation and review of our financial information used in financial
reporting and review of controls over the financial reporting process, including cutoff related to accruals and prepaids.
To address the material weakness described above,
we are expanding our controls related to the preparation and review of our financial information used in financial reporting, the controls
over the financial reporting process and the controls over the accuracy and completeness of accruals and prepaid account balances. The
full implementation of these enhanced controls remains in process as of September 30, 2023, and we will continue to monitor the effectiveness
of these controls and will make any further changes management determines necessary.
In addition, management is continuing to develop
the design and implementation of internal controls to require appropriate reviews as well as proper documentation of those controls. We
continuously evaluate the effectiveness of our internal control over financial reporting and may implement additional changes or remediation
efforts as we implement the above actions. The weakness will be determined to be remediated when revised controls have been operating
for a reasonable period of time and have been tested to determine they are operating effectively. The remediation actions are being monitored
by our audit committee of our board of directors.
Changes in Internal Control
There have been no significant changes in our
internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting other than the changes to address the remediation of the material
weakness as discussed above.
Limitations on Effectiveness of Controls and
Procedures
In designing and evaluating the disclosure controls
and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures
must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits
of possible controls and procedures relative to their costs.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to litigation
and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware
of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating
results, cash flows or financial condition.
ITEM 1A. RISK FACTORS
Risk factors that affect our business and financial
results are discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31,
2022 as filed with the SEC on March 31, 2023 (“Annual Report”). Except as set forth herein, there have been no material changes
in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual
Report and this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition or future results. The
risks described in our Annual Report and this Quarterly Report on Form 10-Q are not the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition,
and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be
negatively affected.
Our products will face significant competition,
and if they are unable to compete successfully, our business will suffer.
Our product candidates face, and will continue
to face, intense competition from large pharmaceutical companies, as well as academic and research institutions. We compete in an industry
that is characterized by: (i) rapid technological change, (ii) evolving industry standards, (iii) emerging competition and (iv) new product
introductions. Our competitors have and may develop products and technologies that will compete with our products and technologies. Because
several competing companies and institutions have greater financial resources than us, they may be able to: (i) provide broader services
and product lines, (ii) make greater investments in research and development and (iii) carry on larger research and development initiatives.
Our competitors also have greater development capabilities than we do and have substantially greater experience in undertaking pre-clinical
and clinical testing of products, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. They also have
greater name recognition and better access to customers than us.
In addition,
in October 2023, we formed a new wholly-owned subsidiary, merveille.ai, to focus on drug discovery for rare diseases utilizing artificial
intelligence (“AI”). We face increased competition from other companies that are utilizing AI and other computational approaches
for drug discovery. Some of these competitors are involved in drug discovery themselves and/or with partners, and others develop software
or other tools utilizing AI which can be used, directly or indirectly, in drug discovery. To the extent these other AI approaches to drug
discovery prove to be more successful than our approaches, we may not be successful in identifying potential targets.
Security threats to our information technology
infrastructure and/or our physical buildings could expose us to liability and damage our reputation and business.
It is essential to our business strategy that
our technology and network infrastructure and our physical buildings remain secure and are perceived by our customers and corporate partners
to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks by hackers and other security
threats. We may face cyber-attacks that attempt to penetrate our network security, sabotage or otherwise disable our research, products
and services, misappropriate our or our customers’ and partners’ proprietary information, which may include personally identifiable
information, or cause interruptions of our internal systems and services. Despite security measures, we also cannot guarantee security
of our physical buildings. Physical building penetration or any cyber-attacks could negatively affect our reputation, damage our network
infrastructure and our ability to deploy our products and services, harm our relationship with customers and partners that are affected,
and expose us to financial liability.
Additionally, there are a number of state, federal
and international laws protecting the privacy and security of health information and personal data. For example, the Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”) imposes limitations on the use and disclosure of an individual’s
healthcare information by healthcare providers, healthcare clearinghouses, and health insurance plans, or, collectively, covered entities,
and also grants individuals rights with respect to their health information. HIPAA also imposes compliance obligations and corresponding
penalties for non-compliance on individuals and entities that provide services to healthcare providers and other covered entities. As
part of the American Recovery and Reinvestment Act of 2009 (“ARRA”) the privacy and security provisions of HIPAA were amended.
ARRA also made significant increases in the penalties for improper use or disclosure of an individual’s health information under
HIPAA and extended enforcement authority to state attorneys general. As amended by ARRA and subsequently by the final omnibus rule adopted
in 2013, HIPAA also imposes notification requirements on covered entities in the event that certain health information has been inappropriately
accessed or disclosed, notification requirements to individuals, federal regulators, and in some cases, notification to local and national
media. Notification is not required under HIPAA if the health information that is improperly used or disclosed is deemed secured in accordance
with encryption or other standards developed by the U.S. Department of Health and Human Services. Most states have laws requiring notification
of affected individuals and/or state regulators in the event of a breach of personal information, which is a broader class of information
than the health information protected by HIPAA. Many state laws impose significant data security requirements, such as encryption or mandatory
contractual terms, to ensure ongoing protection of personal information. Activities outside of the U.S. implicate local and national data
protection standards, impose additional compliance requirements and generate additional risks of enforcement for non-compliance. Furthermore,
our use of AI may be subject to laws and evolving regulations regarding the use of AI, controlling for data bias, and antidiscrimination.
We may be required to expend significant capital and other resources to ensure ongoing compliance with applicable privacy and data security
laws, to protect against security breaches and hackers or to alleviate problems caused by such breaches.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS
AND ISSUER PURCHASES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER
None.
ITEM 6. EXHIBITS
Exhibit No. |
|
Description |
4.1 |
|
Form of Pre-Funded Warrant (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2023) |
|
|
|
4.2 |
|
Form of Warrant (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2023) |
|
|
|
4.3 |
|
Form of Placement Agent Warrant (Incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2023) |
|
|
|
10.1 + |
|
Hoth Therapeutics, Inc. Amended and Restated 2022 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-8 filed with the SEC on August 21, 2023) |
|
|
|
10.2 + |
|
Form of Incentive Stock Option Award pursuant to the Hoth Therapeutics, Inc. Amended and Restated 2022 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-8 filed with the SEC on August 21, 2023) |
|
|
|
10.3 + |
|
Form of Nonqualified Stock Option Award pursuant to the Hoth Therapeutics, Inc. Amended and Restated 2022 Omnibus Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-8 filed with the SEC on August 21, 2023) |
|
|
|
10.4 |
|
Form of Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 15, 2023) |
|
|
|
31.1* |
|
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2* |
|
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1** |
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2** |
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
101.INS* |
|
Inline XBRL Instance Document |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104* |
|
Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 is formatted in Inline XBRL included in the Exhibit 101 Inline XBRL Document Set |
+ |
Indicates a management contract or any compensatory plan, contract or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
HOTH THERAPEUTICS, INC. |
|
|
Date: November 13, 2023 |
By: |
/s/ Robb Knie |
|
|
Robb Knie, |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
Date: November 13, 2023 |
By: |
/s/ David Briones |
|
|
David Briones, |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
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Pursuant to Section 1350 of Title 18 of the United
States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Robb Knie, Chief Executive Officer
of Hoth Therapeutics, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge:
Pursuant to Section 1350 of Title 18 of the United
States Code as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, David Briones, Chief Financial Officer
of Hoth Therapeutics, Inc. (the “Company”), hereby certifies that based on the undersigned’s knowledge: