SEC Form 10-Q filed by Hoth Therapeutics Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the Quarterly Period Ended:
For the transition period from:
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(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 | ||
| The |
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.
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).
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 | ☐ |
| ☒ | 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 August 8, 2024 was
Table of Contents
i
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 approval 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 and geopolitical conditions including, but not limited to, the conflict between Russia and the Ukraine and the conflict between Israel and Gaza; 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.
ii
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Investment in joint ventures at fair value | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Operating lease liability, current portion | ||||||||
| Total Current Liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Operating lease liability, less current portion | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $ | ||||||||
| Series A Convertible Preferred Stock, $ | ||||||||
| Series B Preferred Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| NET REVENUES | $ | $ | $ | $ | ||||||||||||
| OPERATING COSTS AND EXPENSES: | ||||||||||||||||
| Research and development expense | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSES), NET: | ||||||||||||||||
| Unrealized loss on marketable securities | ( | ) | ( | ) | ||||||||||||
| Change in fair value of investment in joint venture | ( | ) | ||||||||||||||
| Dividend income | ||||||||||||||||
| Total other income (expenses), net | ( | ) | ( | ) | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER COMMON SHARE: | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||||||||||
| COMPREHENSIVE LOSS: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive (loss) income: | ||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(Unaudited)
| For the Three and Six Months Ended June 30, 2024 | ||||||||||||||||||||||||
| Additional | Accumulated other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of pre-funded warrants | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Deferred offering cost related to warrant inducement | - | |||||||||||||||||||||||
| Cumulative translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2024 | ( | ) | ||||||||||||||||||||||
| Exercise of pre-funded warrants | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Common shares issued and issuable for exercise of warrants (1) | ||||||||||||||||||||||||
| Deferred offering cost related to warrant inducement | - | ( | ) | ( | ) | |||||||||||||||||||
| Cumulative translation adjustment | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| For the Three and Six Months Ended June 30, 2023 | ||||||||||||||||||||||||
| Additional | Accumulated other | Total | ||||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Equity | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Common stock and warrants issued in private placement, net of offering costs | ||||||||||||||||||||||||
| Cumulative translation adjustment | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Cumulative translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| (1) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Research and development-acquired license, expensed | ||||||||
| Stock-based compensation | ||||||||
| Unrealized loss on marketable securities | ||||||||
| Change in fair value of investment in joint ventures | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| NET CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance common stock, common stock warrants and prefunded warrants, net of offering costs | ||||||||
| Proceeds from exercise of warrants | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| CASH AND CASH EQUIVALENTS - beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS - end of period | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Increase in deferred offering cost and additional paid-in capital | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
NOTE 1 – Organization and Description of Business Operations
Hoth Therapeutics, Inc. (together with its wholly-owned subsidiaries, merveille.ai and Hoth Therapeutics Australia Pty Ltd, collectively, 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). The Company also has 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. and potential product candidates being developed pursuant to our agreement with Voltron Therapeutics, Inc. for the prevention of COVID-19 (see Note 4 to the unaudited condensed consolidated financial statements 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 unaudited 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 incurred losses and generated
negative cash flows from operations since its inception. At June 30, 2024, the Company had an accumulated deficit of $
The Company believes its current cash is sufficient to fund operations for at least the next 12 months from the issuance date 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.
On April 1, 2024, in connection with the
March 27, 2024 inducement offer agreement with a holder (the “Holder”) of certain of the Company’s existing
warrants (the “January 2023 Existing Warrants”) to exercise, for cash, an aggregate of
5
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
NOTE 2 – Summary of Significant Accounting Policies
Basis of presentation and principles of consolidation
The accompanying unaudited 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 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 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 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 28, 2024.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, merveille.ai, which was incorporated under the laws of Nevada on October 4, 2023, and 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 line items on the unaudited condensed
consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 have been reclassified to
conform to the current period presentation. For the three months ended June 30, 2023, research and development - licenses acquired (including
stock-based compensation) of $
Emerging growth company
As an emerging growth company, the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in its periodic reports, proxy statements and registration statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
Further, Section 107 of the Jumpstart Our Business
Startups Act of 2012 (“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 of 1933, as amended (“Securities Act”), for complying
with new or revised accounting standards until private companies (that is, those that have not had a Securities Act registration statement
declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required
to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt
out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election
to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard
is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company,
can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the
Company’s financial statements with another public company that is neither an emerging growth company nor an emerging growth company
that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used. The Company will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal
year in which it has total annual gross revenues of $
Use of estimates
The preparation of unaudited 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 unaudited condensed consolidated financial statements relate to stock-based compensation, the valuation of modified warrants, 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.
6
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
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, 2023 as filed with the SEC on March 28, 2024.
Cash and cash equivalents
The Company considers all highly liquid investments
purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents consist of bank
accounts and highly liquid money funds and totaled $
Concentrations of credit risk and off-balance sheet risk
The Company has significant cash balances at financial
institutions which, throughout the year, regularly exceed the federally insured limit of $
Leases
The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use (“ROU”) assets and the corresponding lease liabilities are included in operating lease liability, current and lease liability, on the Company’s unaudited condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset, and lease liabilities represent the Company’s obligation to make lease payments in exchange for the ability to use the asset for the duration of the lease term.
The Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease component. As such, minimum lease payments include fixed payments for non-lease components within a lease agreement but exclude variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period. Certain of the leases contain an option to extend the term of the lease. The option to extend a lease is included in the lease term only when it is reasonably certain that the Company will elect that option. Additionally, the Company does not record ROU assets or lease liabilities for short-term leases that have a term of twelve months or less at lease commencement.
ROU assets and lease liabilities are recognized at the commencement date and determined using the present value of the future minimum lease payments over the lease term. The Company uses an incremental borrowing rate based on an estimated rate of interest for collateralized borrowing since the Company’s leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic environment, and the lease term at commencement date.
Fair value of financial instruments
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 fair value of the Company’s assets and liabilities, which would qualify as financial instruments under ASC Topic 820, approximates the carrying amounts represented in the Company’s unaudited condensed consolidated balance sheets, primarily due to their short-term nature.
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. |
7
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
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. During the six months ended June 30, 2024 and 2023, there were no changes in valuation techniques or transfers between Level 1, Level 2, and Level 3.
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 unaudited condensed consolidated financial statements.
Research and development costs
Research and development costs, including acquired in-process research and development expenses for which there is no alternative future use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Stock-based compensation
The Company accounts for stock-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. Options are generally issued fully vested. The Company accounts for forfeited awards as they occur.
The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.
Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
The Company grants restricted stock awards under its equity incentive plan. Restricted stock awards are granted to employees and non-employees. The restricted stock awards are measured based on the grant-date fair value. In general, the restricted stock awards vest over a service period of zero to three years. Stock-based compensation expense is generally recognized based on the straight-line basis over the requisite service period and forfeitures are accounted for as they occur.
The Company has issued warrants to non-employees. The warrants are measured based on the grant-date fair value. In general, the warrants vest over a term of zero to ten years. Stock-based compensation expense is generally recognized based on the straight-line basis over the vesting term.
8
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
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 unaudited 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.
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 the periods
presented, basic and diluted net loss per common share are the same.
| As of June 30, | ||||||||
| Potentially dilutive securities | 2024 | 2023 | ||||||
| Warrants | ||||||||
| Options | ||||||||
| Non-vested restricted stock awards | ||||||||
| Total | ||||||||
Recent accounting pronouncements
Income Taxes (Topic 740)
In December 2023, the FASB issued guidance within ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in the ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU requires disclosure in the rate reconciliation of specific categories as well as additional information for reconciling items that meet a quantitative threshold.
The ASU requires disclosure of the following information about income taxes paid on an annual basis:
| ● | Income
taxes paid (net of refunds received), disaggregated by federal and state taxes and by individual jurisdictions in which income taxes
paid (net of refunds received) is equal to or greater than |
| ● | Income tax expense (or benefit) from continuing operations disaggregated by federal and state jurisdictions. |
The ASU is effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. The Company is evaluating the impact that the adoption of this ASU will have on the Company’s consolidated financial statements, as it may require additional disclosures in the notes to the Company’s condensed consolidated financial statements.
9
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
Segment Reporting (Topic 280)
In November 2023, the FASB issued guidance within ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing disclosures in Topic 280. The Company has determined that its current business and operations consist of a single business segment and a single reporting unit.
The amendments in this ASU are intended to improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments included in this ASU:
| ● | Require disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and are included within each reported measure of segment profit and loss. |
| ● | Require disclosure on an annual and interim basis, an amount for other segment items (defined in this ASU) and a description of its composition. |
| ● | Clarify that if the CODM uses more than one measure of the segment’s profit or loss in assessing performance, one or more of those additional measures may be reported. |
| ● | Require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance. |
This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this ASU on the Company’s condensed consolidated financial statements as the Company has a single reportable segment.
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 unaudited condensed consolidated financial statements.
NOTE 3 - License Agreements
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| The George Washington University | $ | $ | $ | $ | ||||||||||||
| North Carolina State University | — | — | ||||||||||||||
| Virginia Commonwealth University | — | — | — | |||||||||||||
| University of Cincinnati | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
10
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
The George Washington University
During the three and six months ended June 30,
2024, the Company recorded expenses of $
During the three and six months ended June 30,
2023, the Company recorded expenses of $
North Carolina State University
During the three and six months ended June 30, 2024, the Company recorded
expenses of $
Virginia Commonwealth University
During the three and six months ended June 30,
2024, the Company did recognize any expenses for license fees associated with the exclusive license agreement (the “VCU License
Agreement”) by and between the Company and VCU dated May 18, 2020 that was terminated August 9 2023. During the three and six months
ended June 30, 2023, the Company recognized expenses of $
Chelexa Biosciences, Inc. and the University of Cincinnati
During the three and six months ended June 30,
2024, the Company recognized expenses of $
NOTE 4 – Fair Value of Financial Assets and Liabilities
| Fair value measured on June 30, 2024 | ||||||||||||||||
| Total at June 30, 2024 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Investment in joint ventures | $ | $ | $ | $ | ||||||||||||
| Fair value measured on December 31, 2023 | ||||||||||||||||
| Total at December 31, 2023 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Investment in joint ventures | $ | $ | $ | $ | ||||||||||||
11
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
Level 3 Measurement
| Investment in joint venture for the three months ended June 30, 2024 and 2023 | ||||||||
| For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Investment in joint ventures at fair value – beginning of period | $ | $ | ||||||
| Change in fair value of investments in joint ventures | ||||||||
| Investment in joint ventures at fair value – end of period | $ | $ | ||||||
| Investment in joint venture for the six months ended June 30, 2024 and 2023 | ||||||||
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Investment in joint ventures at fair value – beginning of period | $ | $ | ||||||
| Change in fair value of investments in joint ventures | ( | ) | ||||||
| Investment in joint ventures at fair value – end of period | $ | $ | ||||||
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 unaudited condensed 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
On February 23, 2024, the Company acquired
The valuations reflect a probability-weighted present value of expected future investment returns considering certain possible outcomes and the rights of each class of Zylö’s and Atticus Pharma’s equity. The future values of the common stock under the various outcomes are discounted back to the valuation date at a risk-adjusted discount rate and probability weighted to determine the value for the Class B common stock. Significant unobservable inputs in the valuation include: (i) probabilities of each scenario, (ii) timing of occurrence, (iii) future valuation; (iv) and the risk-adjusted discount rate.
The consolidated investment in Zylö was valued
at $
12
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
NOTE 5 - Stockholders’ Equity
Preferred Stock
The Company is authorized to issue up to
Series A Convertible Preferred Stock
The shares of Series A Convertible Preferred Stock,
par value $
Series B Preferred Stock
On November 2, 2022, the Company filed a Certificate
of Designation of the Series B Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State
of Nevada to create a new class of Series B Preferred Stock, par value $
Warrants
2023
On December 29, 2022, the Company entered into
a securities purchase agreement with an accredited investor pursuant to which it sold (i)
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 $
13
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
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 $
On various dates in February 2023, the investor
exercised all the December Pre-Funded Warrants for
In addition, pursuant to the terms of the offering,
the Company issued the designees of the placement agent, H.C. Wainwright & Co., LLC, warrants to purchase up to
2024
On January 8, 2024, the Company issued
On March 27, 2024, the Company entered into an
inducement offer agreement with the Holder of the January 2023 Existing Warrants to immediately exercise for cash an aggregate
As an inducement to such exercise, the Company
agreed to issue new unregistered warrants to purchase up to
The amendment to the January 2023 Existing Warrants on March 27, 2024 to lower the exercise price thereof, was considered a modification of the January 2023 Existing Warrants under the guidance of ASU 2021-04. The modification is consistent with the “Equity Issuance” classification under that guidance as the reason for the modification was to induce the holders to cash exercise their warrants, resulting in the exercise of the January 2023 Existing Warrants on April 1, 2024.
On March 27, 2024, the Company calculated the
total fair value of the consideration for the modification of the January 2023 Existing Warrants, which includes the incremental fair
value of the January 2023 Existing Warrants (determined by comparing the fair values immediately prior to and immediately after the modification).
The fair values were calculated using the Black-Scholes option-pricing model, and the Company determined that the total fair value of
the consideration related to the modification of the January 2023 Existing Warrants amounted to $
14
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
On April 1, 2024, in connection with the
March 27, 2024 inducement offer agreement with the Holder of the January 2023 Existing Warrants, the Holder exercised the January
2023 Existing Warrants for cash at a reduced exercise price of $
On April 1, 2024, in connection with the issuance
of the April 2024 Inducement Warrants and the placement agent warrants, the Company calculated the fair value of such warrants using the
Black-Scholes option-pricing model, and the Company determined that the aggregate total fair value of the April 2024 Inducement Warrant
and placement agent warrants amounted to $
| March 27, 2024 to April 1, 2024 |
||||
| Exercise price | $ |
|||
| Term (years) | ||||
| Expected stock price volatility | ||||
| Risk-free rate of interest | ||||
| Number of Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding as of June 30, 2024 | ||||||||||||||||
| Warrants exercisable as of June 30, 2024 | $ | $ | ||||||||||||||
The Company has determined that the warrants should be accounted for as a component of stockholders’ equity.
Common Shares
On various dates in February 2023, the investor
exercised all the December Pre-Funded Warrants for
On January 8, 2024, the Company issued
During the three months ended June 30, 2024, the
Company issued
15
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
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
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
Restricted Stock Awards
| Number of Restricted Stock Awards | Weighted Average Grant Day Fair Value | |||||||
| Nonvested on December 31, 2023 | ||||||||
| Granted | ||||||||
| Vested | ||||||||
| Nonvested on June 30, 2024 | ||||||||
As of June 30, 2024, approximately $
Stock Options
On January 5, 2024, pursuant to and subject to
the available number of shares reserved under the 2022 Plan, the Company issued options to the Company’s employees and directors
to purchase up to
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Exercise price | $ | $ | ||||||
| Term (years) | ||||||||
| Expected stock price volatility | % | % | ||||||
| Risk-free rate of interest | % | % | ||||||
16
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Employee options issued | $ | |||||||||||||||
| Expired | ( | ) | ||||||||||||||
| Outstanding as of June 30, 2024 | $ | $ | ||||||||||||||
| Options vested and exercisable as of June 30, 2024 | $ | $ | ||||||||||||||
All stock compensation associated with the amortization of employee stock option expense was recorded as a component of general and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive loss.
Estimated future stock-based compensation expense relating to unvested
stock options is $
Stock Based Compensation
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Employee stock option awards | $ | $ | $ | $ | ||||||||||||
| Non-employee restricted stock awards | ||||||||||||||||
| Non-employee stock warrant awards | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
NOTE 6 - Commitments and Contingencies
Office lease
Effective November 2023, the Company leased office space for a two-year term. The Company’s office lease contains a renewal option. The Company has evaluated several factors in assessing whether there is reasonable certainty that the Company will exercise its contractual renewal option concluding that it is not reasonably certain to exercise such option. As it is not reasonably certain to be exercised, the Company excluded the renewal term in determining the lease term used in calculating the right-of-use asset and lease liability. Prior to entering into this lease, the Company has not entered into any lease arrangements in excess of 12 months.
17
HOTH THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Short term lease expense | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Office lease right-of-use asset | $ | $ | ||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Total right-of-use asset, net | $ | $ | ||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Current portion of operating lease liability | $ | $ | ||||||
| Long-term portion of operating lease liability | ||||||||
| Total operating lease liability | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||
| Operating cash flows for operating leases | $ | |||
The weighted-average remaining lease term for
the operating lease is
| 2025 | $ | |||
| 2026 | ||||
| Total minimum lease payments | $ | |||
| Less: effects of discounting | ( | ) | ||
| Present value of future minimum lease payments | $ |
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 unaudited condensed consolidated financial statements.
On July 24, 2024, the Company issued
An increase to the number of shares of common
stock reserved for issuance under the 2022 Plan by
18
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, 2023 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). 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. and potential product candidates being developed pursuant to our agreement with Voltron Therapeutics, Inc. for the prevention of COVID-19.
Results of Operations
Comparison of the Three Months Ended June 30, 2024 and 2023
Operating Costs and Expenses
Research and Development Expenses
For the three months ended June 30, 2024, research and development expenses decreased by approximately $86,000, or 13.2%, as compared to the three months ended June 30, 2023.
For the three months ended June 30, 2024, research and development expenses were approximately $0.6 million, of which approximately $4,000 was related to licenses acquired and approximately $0.6 million was related to other research and development expenses. Specifically, during the quarter ended June 30, 2024, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $360,000 related to manufacturing, preclinical and clinical activities; (ii) HT-KIT, approximately $133,000 related to manufacturing and preclinical activities; and (iii) HT-004, approximately $26,000 in sponsored research activities. In addition to the foregoing, we also incurred fees of approximately $37,000 payable to members of our scientific advisory board for services.
For the three months ended June 30, 2023, research and development expenses were approximately $0.7 million, of which approximately $11,000 was related to licenses acquired and approximately $0.6 million was related to other research and development expenses. Specifically, during the quarter ended June 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 $13,000 related to manufacturing costs; (ii) HT-001, approximately $0.6 million related to manufacturing, preclinical and clinical activities; and (iii) HT-KIT, approximately $0.2 million related to manufacturing and preclinical activities. In addition to the foregoing, we also incurred fees of approximately $57,000 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. |
19
General and Administrative Expenses
For the three months ended June 30, 2024, general and administrative expenses amounted to approximately $1.1 million as compared to $1.1 million for the three months ended June 30, 2023, an increase of $23,077, or 2.2%. For the three months ended June 30, 2024 and 2023, general and administrative expenses consisted of the following:
| Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Compensation and related expenses | $ | 369,183 | $ | 380,976 | ||||
| Professional and consulting expenses | 461,477 | 483,883 | ||||||
| Rent expense | 11,455 | 7,897 | ||||||
| Other general and administrative expenses | 237,389 | 183,671 | ||||||
| Total | $ | 1,079,504 | $ | 1,056,427 | ||||
During the three months ended June 30, 2024, the increase in general and administrative expenses of approximately $23,000 was primarily attributed to an increase other general and administrative expenses of approximately $53,700, which was attributable to an increase in conference expense offset by a decrease in insurance expense, and an increase in rent expense of approximately $3,600, offset by a decrease in compensation and related expenses of approximately $11,800 and a decrease in professional and consulting expenses of approximately $22,400.
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. |
Other income (expenses)
For the three months ended June 30, 2024 and 2023, we recorded other income (expenses), net of approximately $13,000 and $(164,000), respectively. During the three months ended June 30, 2023, we recorded an unrealized loss of marketable securities of approximately $166,000 as compared to $0 for the three months ended June 30, 2024.
Net Loss
For the three months ended June 30, 2024 and 2023, we incurred a net loss of approximately $1.6 million, or $0.24 per common share (basic and diluted), and $1.9 million, or $0.57 per common share (basic and diluted), respectively, a decrease of approximately $0.3 million.
Comparison of the Six Months Ended June 30, 2024 and 2023
Operating Costs and Expenses
Research and Development Expenses
For the six months ended June 30, 2024, research and development expenses decreased by approximately $559,000, or 35.1%, as compared to the six months ended June 30, 2023.
For the six months ended June 30, 2024, research and development expenses were approximately $1.0 million, of which approximately $13,000 was related to licenses acquired and approximately $1.0 million was related to other research and development expenses. Specifically, during the six months ended June 30, 2024, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $641,000 related to manufacturing, preclinical and clinical activities; (ii) HT-ALZ, approximately $16,000 related to preclinical studies; (iii) HT-KIT, approximately $209,000 related to manufacturing and preclinical activities; and (iv) HT-004, approximately $77,000 in sponsored research activities. In addition to the foregoing, we also incurred fees of approximately $75,000 payable to members of our scientific advisory board for services.
For the six months ended June 30, 2023, research and development expenses were approximately $1.6 million, of which approximately $0.1 million was related to licenses acquired and approximately $1.5 million was related to other research and development expenses. Specifically, during the six months ended June 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 $40,000 related to manufacturing costs; (ii) HT-001, approximately $1.0 million related to manufacturing, preclinical and clinical activities; and (iii) HT-KIT, approximately $0.2 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. Additionally, 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.
20
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. |
General and Administrative Expenses
For the six months ended June 30, 2024, general and administrative expenses amounted to $2,667,766 as compared to $2,310,366 for the six months ended June 30, 2023, an increase of $357,400, or 15.5%. For the six months ended June 30, 2024 and 2023, general and administrative expenses consisted of the following:
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Compensation and related expenses | $ | 1,217,402 | $ | 814,040 | ||||
| Professional and consulting expenses | 1,015,913 | 1,100,258 | ||||||
| Rent expense | 24,725 | 23,017 | ||||||
| Other general and administrative expenses | 409,726 | 373,051 | ||||||
| Total | $ | 2,667,766 | $ | 2,310,366 | ||||
During the six months ended June 30, 2024, the increase in general and administrative expenses of approximately $357,000 was primarily attributed to an increase other general and administrative expenses of approximately $38,000 and an increase in compensation and related expenses of approximately $403,000, which consisted of an increase in stock-based compensation of approximately $510,000 related to the issuance of stock options to executives and board of director members, offset by a decrease in other compensation and related expenses of approximately $107,000, and a decrease in professional and consulting expenses of approximately $84,000.
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. |
Other income (expenses)
For the six months ended June 30, 2024 and 2023, we recorded other income (expenses), net of approximately $27,000 and $(155,000), respectively. During the six months ended June 30, 2023, we recorded an unrealized loss of marketable securities of approximately $185,000 as compared to $0 for the six months ended June 30, 2024.
Net Loss
For the six months ended June 30, 2024 and 2023, we incurred a net loss of approximately $3.7 million, or $0.65 per common share (basic and diluted), and $4.1 million, or $1.40 per common share (basic and diluted), respectively, a decrease of approximately $0.4 million.
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Liquidity and Capital Resources
To date we have funded our operations primarily through the sale of equity and debt securities. As of June 30, 2024, we had approximately $9.7 million in cash and cash equivalents, working capital of approximately $9.3 million and an accumulated deficit of approximately $56.6 million. Net cash used in operating activities was $3.3 million and $3.7 million for the six months ended June 30, 2024 and 2023, respectively. We incurred net losses of approximately $3.7 million and $4.1 million for the six months ended June 30, 2024 and 2023, 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 June 30, 2024 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.
On April 1, 2024, in connection with a March 27, 2024 inducement offer agreement with a holder (the “Holder”) of certain of our existing warrants (“January 2023 Existing Warrants”) to immediately exercise, for cash, an aggregate 2,500,000 January 2023 Existing Warrants to purchase shares of our common stock at a reduced exercise price of $1.6775 per share, we were to issue up to 2,500,000 shares (the “Warrant Shares”) of our common stock upon the exercise of the 2,500,000 January 2023 Existing Warrants for net proceeds of approximately $3.8 million, after deducting placement agent fees and other offering expenses of approximately $0.4 million. As of June 30, 2024, 1,545,000 of the Warrant Shares were held in abeyance and were not reflected as issued and outstanding common shares on the accompanying condensed consolidated balance sheet, in accordance with the terms of the inducement offer agreement. Pursuant to the inducement offer agreement, we issued such number of Warrant Shares to the Holder that would not cause the Holder to exceed the maximum number of Warrant Shares permitted thereunder, as directed by the Holder, with the balance of the Warrant Shares held in abeyance until notice from the Holder that the balance (or portion thereof) may be issued in compliance with the limitations set forth in the inducement offer agreement, which abeyance shall be evidenced through the January 2023 Existing Warrants which shall be deemed prepaid thereafter (including the cash payment in full of the exercise price), and exercised pursuant to a Notice of Exercise in the January 2023 Existing Warrants (provided no additional exercise price shall be due and payable). As of June 30, 2024, we issued 955,000 Warrant Shares to the Holder and 1,545,000 Warrant Shares were held in abeyance for future issuance. On July 24, 2024, the Company issued the remaining 1,545,000 Warrant Shares being held in abeyance.
As an inducement to such exercise, we issued new unregistered warrants to the warrant holder to purchase up to 3,750,000 shares of our common stock at an exercise price of $1.50 per share. The warrants are exercisable immediately upon issuance and will expire on July 3, 2028. Additionally, in connection with this exercise, we issued 125,000 placement agent warrants at an exercise price of $2.0969 per share. The placement agent warrants are exercisable immediately upon issuance and will expire on July 3, 2028.
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 $12 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, entering into strategic partnerships, grants or other 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 six months ended June 30, 2024, net cash used in operations was approximately $3.3 million, which primarily resulted from a net loss of approximately $3.7 million, adjusted for the add back of stock-based compensation of approximately $0.5 million, and changes in operating assets and liabilities consisting of an increase in prepaid expenses and other current assets of approximately $0.1 million.
For the six months ended June 30, 2023, net cash used in operations was approximately $3.7 million, which primarily resulted from a net loss of approximately $4.1 million.
Cash Flows from Investing Activities
For the six months ended June 30, 2024 and 2023, there was no net cash provided by or used in investing activities.
Cash Flows from Financing Activities
For the six months ended June 30, 2024, net cash provided by financing activities was approximately $3.7 million, which resulted from net proceeds from the exercise of warrants.
For the six months ended June 30, 2023, net cash provided by financing activities was approximately $8.9 million, which primarily resulted from net proceeds from the issuance of common stock and warrants.
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Critical Accounting Estimates
The preparation of consolidated 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 unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of our significant accounting policies.
Stock-based compensation
The Company accounts for stock-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. Options are generally issued fully vested. The Company accounts for forfeited awards as they occur.
The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.
Expected Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding based on the simplified method, which is the half-life from vesting to the end of its contractual term.
Expected Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
Expected Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
The Company grants restricted stock awards under its equity incentive plan. Restricted stock awards are granted to employees and non-employees. The restricted stock awards are measured based on the grant-date fair value. In general, the restricted stock awards vest over a service period of zero to three years. Stock-based compensation expense is generally recognized based on the straight-line basis over the requisite service period and forfeitures are accounted for as they occur.
The Company has issued warrants to non-employees. The warrants are measured based on the grant-date fair value. In general, the warrants vest over a term of zero to ten years. Stock-based compensation expense is generally recognized based on the straight-line basis over the vesting term.
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Recently Issued Accounting Standards Not Yet Effective or Adopted
Income Taxes (Topic 740)
In December 2023, the Financial Accounting Standards Board (“FASB”) issued guidance within Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in the ASU are intended to provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU requires disclosure in the rate reconciliation of specific categories as well as additional information for reconciling items that meet a quantitative threshold.
The ASU requires disclosure of the following information about income taxes paid on an annual basis:
| ● | Income taxes paid (net of refunds received), disaggregated by federal and state taxes and by individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received). |
| ● | Income tax expense (or benefit) from continuing operations disaggregated by federal and state jurisdictions. |
The ASU is effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. The Company is evaluating the impact that the adoption of this ASU will have on the Company’s consolidated financial statements, as it may require additional disclosures in the notes to our condensed consolidated financial statements.
Segment Reporting (Topic 280)
In November 2023, the FASB issued guidance within ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing disclosures in Topic 280. The Company has determined that its current business and operations consist of a single business segment and a single reporting unit.
The amendments in this ASU are intended to improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments included in this ASU:
| ● | Require disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and are included within each reported measure of segment profit and loss. |
| ● | Require disclosure on an annual and interim basis, an amount for other segment items (defined in this ASU) and a description of its composition. |
| ● | Clarify that if the CODM uses more than one measure of the segment’s profit or loss in assessing performance, one or more of those additional measures may be reported. |
| ● | Require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing performance. |
This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this ASU on the Company’s condensed consolidated financial statements as the Company has a single reportable segment.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying unaudited 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.
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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, which would be December 31, 2024; (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 June 30, 2024, 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 June 30, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control
There have been no significant changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
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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, 2023 as filed with the SEC on March 28, 2024 (“Annual Report”). 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 which could materially affect our business, financial condition or future results. The risks described in our Annual Report 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
During the fiscal quarter ended June 30, 2024,
ITEM 6. EXHIBITS
| * | Filed herewith. |
| ** | Furnished herewith. |
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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: August 9, 2024 | By: | /s/ Robb Knie |
| Robb Knie, | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 9, 2024 | By: | /s/ David Briones |
| David Briones, | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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