UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

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 incorporation or organization)	(I.R.S. Employer 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)

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 11, 2019 was 10,119,150.

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION		1
Item 1.	Financial Statements
	Condensed Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018	1
	Condensed Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	2
	Condensed Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	3
	Condensed Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)	5
	Notes to the Condensed Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II. OTHER INFORMATION		18
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	19
Signatures		20

i

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains 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”). These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. 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. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and 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, the timing and costs of other expenses;

● risks related to market acceptance of products;

● 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, timing of product launches;

● management’s expectation with respect to future acquisitions;

● statements regarding our goals, intensions, plans and expectations, including the introduction of new products and markets; 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.

Condensed Balance Sheets

	September 30			December 31
	2019			2018
	(Unaudited)
ASSETS
Current assets
Cash	$	3,214,945		$	282,621
Marketable securities		804,398		$	-
Prepaid expenses		113,896			12,356
Deferred offering cost		-			206,671
Total current assets		4,133,239			501,648
Property and equipment, net		1,352			2,268
Restricted cash		200,000			-
Total assets	$	4,334,591		$	503,916
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	17,703		$	142,280
Accrued expenses		7,610			206,671
Total current liabilities		25,313			348,951
Total liabilities		25,313			348,951
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.0001 par value, 5,000,000 shares authorized at September 30, 2019 and December 31, 2018; 0 shares issued and outstanding at September 30, 2019 and December 31, 2018		-			-
Series A Preferred Stock, $0.0001 par value, 5,000,000 shares authorized at September 30, 2019 and December 31, 2018; 0 and 3,102,480 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		-			310
Common stock, 0.0001 par value, 75,000,000 shares authorized at September 30, 2019 and December 31, 2018; 10,117,762 and 5,071,400 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively		1,012			507
Additional paid-in-capital		12,612,255			4,665,154
Accumulated deficit		(8,303,989	)		(4,511,006	)
Total stockholders’ equity		4,309,278			154,965
Total liabilities and stockholders’ equity	$	4,334,591		$	503,916

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

1

Hoth Therapeutics, Inc.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Operating costs and expenses
Research and development	$	490,266		$	299,485		$	1,013,950		$	557,392
Research and development - license acquired		50,000			66,501			70,000			230,693
Compensation and related expenses (including stock-based compensation)		336,838			96,297			791,773			415,779
Professional fees		643,311			107,715			1,481,675			529,874
Rent		8,354			8,263			23,617			20,702
Other expenses		171,675			41,972			416,380			156,759
Total operating expenses		1,700,444			620,233			3,797,395			1,911,199
Loss from operations		(1,700,444	)		(620,233	)		(3,797,395	)		(1,911,199	)
Other income
Other income , net		4,412			-			4,412			-
Total other income		4,412			-			4,412			-
Net loss	$	(1,696,032	)	$	(620,233	)	$	(3,792,983	)	$	(1,911,199	)
Weighted average number of common shares outstanding, basic and diluted		9,886,759			5,079,517			8,842,905			5,017,718
Net loss per share, basic and diluted	$	(0.17	)	$	(0.12	)	$	(0.43	)	$	(0.38	)

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

2

Hoth Therapeutics, Inc.

Condensed Statements of Changes in Stockholders’ Equity

(Unaudited)

For the Three Months Ended September 30, 2019

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity
Balance  at June 30, 2019		-	$	-		9,668,256	$	967	$	10,795,410	$	(6,607,957	)	$	4,188,420
Issuance common stock and warrants, net of offering cost						407,424		41		1,610,089		-			1,610,130
Stock-based compensation		-		-		42,082		4		206,756		-			206,760
Net loss		-		-		-		-		-		(1,696,032	)		(1,696,032	)
Balance at September 30, 2019		-	$	-		10,117,762	$	1,012	$	12,612,255	$	(8,303,989	)	$	4,309,278

For the Three Months Ended September 30, 2018

	Convertible Preferred Stock				Common Stock						Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital			Deficit			Equity
Balance at June 30,  2018		3,102,480	$	310		5,086,943		$	508		$	4,673,614		$	(3,306,447	)	$	1,367,985
Stock-based compensation		-		-		1,388			1			5,588			-			5,589
Stock issued for research and development		-		-		12,500			1			12,499			-			12,500
Repurchase of restricted stock to pay for employee withholding taxes		-		-		(31,513	)		(3	)		(31,510	)		-			(31,513	)
Net loss		-		-		-			-			-			(620,233	)		(620,233	)
Balance at September 30, 2018		3,102,480		310		5,069,318		$	507		$	4,660,191		$	(3,926,680	)	$	734,328

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

3

Hoth Therapeutics, Inc.

Condensed Statements of Changes in Stockholders’ Equity - Continued

(Unaudited)

For the Nine Months Ended September 30, 2019

	Convertible Preferred Stock						Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares			Amount			Shares		Amount		Capital			Deficit			Equity
Balance at  December  31,  2018		3,102,480		$	310			5,071,400	$	507	$	4,665,154		$	(4,511,006	)	$	154,965
Conversion of preferred stock to common stock upon completion of the IPO		(3,102,480	)		(310	)		3,102,480		310		-			-			-
Issuance common stock in the IPO, net of offering cost		-			-			1,250,000		125		5,840,042			-			5,840,167
Issuance common stock and warrants, net of offering cost								407,424		41		1,610,089			-			1,610,130
Cashless warrant exercise		-			-			223,877		22		(22	)		-			-
Warrant exercise								16,333		2		161			-			163
Stock-based compensation		-			-			46,248		5		496,831			-			496,836
Net loss		-			-			-		-		-			(3,792,983	)		(3,792,983	)
Balance at September 30, 2019		-		$	-			10,117,762	$	1,012	$	12,612,255		$	(8,303,989	)	$	4,309,278

For the Nine Months Ended September 30, 2018

	Convertible Preferred Stock				Common Stock						Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Shares			Amount			Capital			Deficit			Equity
Balance at December  31, 2017		1,725,980	$	173		4,706,277		$	470		$	3,199,304		$	(2,015,481	)	$	1,184,466
Issuance of Series A Convertible Preferred Stock and warrants for cash in an offering (net of offering costs of $190,180)		1,376,500		137		-			-			1,021,417			-			1,021,554
Warrant value related to Issuance of Series A Convertible Preferred Stock		-		-		-			-			164,766			-			164,766
Stock-based compensation		-		-		143,888			15			138,075			-			138,090
Stock issued for research and development		-		-		37,500			4			35,996			-			36,000
Stock issued for acquired license		-		-		213,166			21			132,143			-			132,164
Repurchase of restricted stock to pay for employee withholding taxes		-		-		(31,513	)		(3	)		(31,510	)		-			(31,513	)
Net loss		-		-		-			-			-			(1,911,199	)		(1,911,199	)
Balance at September 30, 2018		3,102,480		310		5,069,318		$	507		$	4,660,191		$	(3,926,680	)	$	734,328

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

4

Hoth Therapeutics, Inc.

Condensed Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities
Net loss	$	(3,792,983	)	$	(1,911,199	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		916			916
Research and development-acquired license, expensed		70,000			132,164
Stock issued for research and development		-			36,000
Stock-based compensation		496,836			138,090
Unrealized gain on marketable securities		(4,398	)		-
Changes in assets and liabilities:
Prepaid expenses		(101,540	)		(19,770	)
Accrued salaries and benefits		-			(1,542	)
Accounts payable		(116,967	)		(22,223	)
Net cash used in operating activities		(3,448,136	)		(1,647,564	)
Cash flows from investing activities
Purchase of marketable securities		(800,000	)		-
Purchase of research and development licenses		(70,000	)		-
Net cash used in investing activities		(870,000	)		-
Cash flows from financing activities
Proceeds from issuance of Series A Convertible Preferred Stock and warrants for cash in an offering, net		-			1,186,320
Cash from issuance of common stock in the IPO, net of offering cost		5,840,167			-
Cash from issuance common stock and warrants, net of offering cost		1,610,130			-
Proceeds from exercise of warrants		163			-
Payment of employee withholdings for vested restricted stock		-			(31,513	)
Net cash provided by financing activities		7,450,460			1,154,807
Net increase (decrease) in cash		3,132,324			(492,757	)
Cash and restricted cash, beginning of period		282,621			1,230,440
Cash and restricted cash, end of period	$	3,414,945		$	737,683
Non-cash investing and financing activities
Conversion of preferred stock to common stock upon completion of the IPO	$	310		$	-
Common stock issued for acquired license				$	132,164
Cashless warrant exercise	$	22		$	-

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

5

Hoth Therapeutics, Inc.

Notes to Condensed Financial Statements  

(Unaudited)

Note 1-Organization and description of business operations

Hoth Therapeutics, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on May 16, 2017. The Company’s primary asset is a sublicense agreement with Chelexa Biosciences, Inc. (“Chelexa”) pursuant to which Chelexa has granted the Company an exclusive sublicense to use its BioLexa Platform (as defined herein), a proprietary, patented, drug compound platform developed at the University of Cincinnati. The license enables the Company to develop the platform for all indications in humans. The Company’s initial focus will be on the treatment of eczema. The BioLexa Platform combines a U.S. Food and Drug Administration (“FDA”) approved zinc chelator with one or more approved antibiotics in a topical dosage form to address unchecked eczema flare-ups by preventing the formation of infectious biofilms and the resulting clogging of sweat ducts which trigger symptoms. To the Company’s knowledge, it is the first product candidate intended to prevent the symptom triggering flare-ups rather than simply treating symptoms when they occur.

On May 26, 2017, the Company entered into a sublicense agreement with Chelexa, as amended on August 22, 2018 and August 29, 2018, pursuant to which Chelexa granted the Company an exclusive sublicense to make, use, have made, import, offer for sale, and sell products based upon or involving the use of (i) topical compositions comprising a zinc chelator and gentamicin and (ii) zinc chelators to inhibit biofilm formation (the “BioLexa Platform” or “BioLexa”), which rights were originally granted to Chelexa pursuant to an exclusive license agreement with the University of Cincinnati. In addition, Chelexa granted the Company the right to issue exclusive and nonexclusive sublicenses (with the right to further sublicense to third parties) to make, use, have made, import, offer for sale, and sell products based upon the BioLexa Platform.

Company’s IPO

On February 15, 2019, the Company announced the pricing of its initial public offering (the “IPO”) of 1,250,000 shares of its common stock at an initial offering price to the public of $5.60 per share.  In addition, the Company granted the underwriters a 45-day option to purchase up to an additional 187,500 shares of common stock at the initial public offering price, less the underwriting discount, to cover over-allotments (the “Green-shoe”), if any. The underwriters did not exercise any portion of the Green-shoe. Therefore, the Company issued 1,250,000 shares of common stock and received net proceeds of $5.8 million from the IPO.

The Company’s common stock commenced trading on The Nasdaq Capital Market, on February 15, 2019 under the ticker symbol “HOTH”. The IPO closed on February 20, 2019.

On February 14, 2019, the Company entered into an underwriting agreement with Laidlaw & Co. (UK) Ltd. (“Laidlaw”) pursuant to which the Company paid Laidlaw a fee in the amount of 7% of the gross proceeds of the IPO, or $490,000. The Company also reimbursed Laidlaw for certain out-of-pocket expenses, including the fees and disbursements of their counsel, up to an aggregate of $0.2 million. In addition, Laidlaw received five-year warrants to purchase 50,000 shares of common stock of the Company at an exercise price of $7.00 per share.

Liquidity and capital resources

Accounting Standards Update, or 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 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 substantial operating losses since inception and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2019, the Company had cash of approximately $3.2 million, marketable securities of $0.8 million, working capital of approximately $4.1 million and an accumulated deficit of approximately $8.3 million.

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 would result in dilution to its existing stockholders and any future debt securities may contain covenants that limit the Company’s operations or ability to enter into certain transactions.

6

Hoth Therapeutics, Inc.

Notes to Condensed Financial Statements  

(Unaudited)

The Company’s current cash is sufficient to fund operations for at least the next 12 months; 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 existing and new 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. 

Note 2-Significant accounting policies

Basis of presentation

The accompanying unaudited interim condensed 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 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 financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed 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 financial statements should be read in conjunction with the audited 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 April 1, 2019.

Use of estimates

The preparation of 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 financial statements and the reported amounts of expenses during the reporting periods. The most significant estimates in the Company’s financial statements relate to the valuation of preferred and common stock, 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 will 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, 2018 as filed with the SEC on April 1, 2019.

Restricted Cash

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), which clarifies the presentation of restricted cash in the statements of cash flows. Under ASU 2016-18, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The Company adopted ASU 2016-18 during the nine months ended September 30, 2019 on a retrospective basis. The following is a summary of the Company’s cash and restricted cash total as presented in the consolidated statements of cash flows for the nine months ended September 30, 2019:

Cash	$	3,214,945
Restricted cash		200,000
Total cash and restricted cash	$	3,414,945

The $0.2 million restricted cash has been deposited into a third-party escrow account in order to provide a source of funding for certain indemnification obligations the Company has pursuant to its Qualified Independent Underwriter Engagement Agreement.

7

Hoth Therapeutics, Inc.

Notes to Condensed Financial Statements  

(Unaudited)

Stock-based compensation

The Company expenses stock-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company records the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date. All stock-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying employees’ or non-employees’ roles within the Company.

Net loss per share

Net loss per share is computed by dividing net loss by the weighted average number 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. 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:

	As of September 30,
Potentially dilutive securities	2019		2018
Series A Convertible Preferred Stock (Common Stock Equivalent)		-		3,102,480
Warrants		1,032,692		991,367
Non-vested restricted stock units		15,282		-
Total		1,047,974		4,093,847

Recent accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes FASB Accounting Standards Codification (“ASC”) Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company does not have any long-term leases, therefore the adoption of this standard on January 1, 2019 did not have an impact on the Company’s condensed financial position and results of operations.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 simplifies several aspects of the accounting for non-employee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company adopted ASU 2018-07 on January 1, 2019.  Subsequent to the adoption of ASU 2018-07, the Company recognizes non-employee compensation costs over the requisite service period based on a measurement of fair value for each stock award.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if currently adopted, would have an effect on the Company’s financial statements.

Note 3-License agreements

Chelexa BioSciences, Inc.

On May 26, 2017, the Company entered into a sublicense agreement with Chelexa as amended on August 22, 2018 and August 29, 2018. The term of such agreement will expire on the later of April 16, 2034 and the last to expire patent in the patent rights granted to the Company (the “Term”). The Company shall, in its sole discretion, have the first right of refusal to renew the Term. The Company is subject to total milestone payments of $3.5 million and has agreed to fund all development and commercialization costs related to the licensed products. In addition, during the Term, the Company shall pay royalty payments which shall be based on a percentage of annual aggregate net sales.

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Hoth Therapeutics, Inc.

Notes to Condensed Financial Statements  

(Unaudited)

The George Washington University

Effective as of June 1, 2019, the Company and The George Washington University (“GWU”) entered into a sponsored research agreement (the “Sponsored Research Agreement”), as amended on July 29, 2019, with respect to the exploration of the potential use of Aprepitant for topical and/or systemic therapy to counter the dermatological related side-effects of Erlotinib therapy in cancer patients. Pursuant to the terms of the Sponsored Research Agreement, GWU granted the Company a non-exclusive, license to certain of GWU’s intellectual property. The Company has agreed to pay GWU for all costs incurred in connection with the research; provided, however, such costs shall not exceed approximately $0.3 million. The Sponsored Research Agreement shall terminate on June 30, 2020 unless extended by the parties. The Sponsored Research Agreement may be terminated by either party upon 30 days written notice.

On June 28, 2019 (the “Effective Date”), the Company and GWU entered into a research option agreement (the “Research Option Agreement”) pursuant to which GWU granted the Company an option during the Option Exercise Period (as defined herein) to acquire an exclusive license to certain products made or used by the Company (the “GWU Licensed Product”) that involve certain patents owned by GWU (the “Licensed Patents”). On the Effective Date, the Company paid GWU $2,500, and if the Company enters into a definitive license agreement with GWU, the Company shall pay GWU an additional $10,000 as a license initiation fee. Furthermore, the Company shall issue GWU ten-year warrants (the “GWU Warrants”) to purchase such number of shares of common stock equal to $100,000 upon the date of issuance at an exercise price equal to the closing price of the Company’s common stock as reported on The Nasdaq Capital Market on the date of grant. The GWU Warrants shall vest as follows: 20% upon the date of issuance and 20% each year thereafter for a period of 4 years. Until the first commercial sale of the GWU Licensed Product, the Company shall pay (i) $75,000 per year for the development and commercialization of the GWU Licensed Product, (ii) $2,000 for license maintenance fees on the first anniversary of the Effective Fate and (iii) $5,000 for license maintenance fees commencing on the second anniversary of the Effective Date and thereafter. Furthermore, the Company shall be required to pay GWU a sublicense fee equal to a certain percentage of the sum of all payments plus the fair market value of all other consideration of any kind received by the Company from sublicensees during each quarter as follows: a 40% sublicense fee until the first anniversary of the Effective Date, a 30% sublicense fee until the third anniversary of the Effective Date and a 20% sublicense fee after the third anniversary of the Effective Date; provided, however, such sublicense fee shall exclude certain fees paid to the Company such as certain royalties, loan proceeds and sponsored research funding. Subject to the execution of a definitive license agreement with GWU, the Company shall also pay GWU milestone payments of up to $90,000 in the aggregate and a 2% royalty on net sales, subject to certain minimum royalty requirements. In addition, during each Option Exercise Period and Renewal Period (as defined) the Company shall pay GWU, on a quarterly basis, for all costs and expenses related to the GWU Licensed Patents (the “Patent Costs”). Unless the Research Option Agreement is earlier terminated, it shall expire upon the later of (1) the last day of the Option Exercise Period, (2) the last day of the last Renewal Period for which the Company has timely paid the appropriate Renewal Fee and (3) the last day of the License Negotiation Period. The Company may terminate the Research Option Agreement at any time upon 30 days prior notice. GWU may terminate the Research Option Agreement immediately and without further notice upon the Company’s failure to make payments pursuant to the agreement, the Company’s breach of such agreement or if the Company fails to reimburse GWU for the Patent Costs. “Option Exercise Period” means the period from May 1, 2019 until April 30, 2020. “Renewal Period” means each 12 month renewal of the Option Exercise Period beyond April 30, 2020. “Renewal Fee” means $2,500. “License Negotiation Period” means the period that is 60 days after the receipt by GWU of an option exercise notice delivered by the Company.

University of Maryland and Isoprene Pharmaceuticals, Inc.

On March 8, 2019, the Company, the University of Maryland, Baltimore (“UMD”) and Isoprene Pharmaceuticals, Inc. (“Isoprene”) entered into a commercial evaluation sublicense and option agreement. In consideration of the rights granted under the agreement, the Company paid an initial option and material access fee of $5,000 to UMD and $5,000 to Isoprene. In the event that Isoprene enters into a master license agreement with UMD (the “MLA”), UMD shall permit Isoprene to grant an exclusive option to the Company to negotiate and obtain an exclusive sublicensable, worldwide royalty-bearing license to the subject technology (the “Isoprene-Hoth Option”); provided, however, in the event Isoprene does not enter into the MLA, UMD may grant the Company an option to negotiate and obtain an exclusive sublicensable, worldwide royalty-bearing license to the subject technology (the “UMD-Hoth Option”). If the Company exercises the Isoprene-Hoth Option, it shall pay Isoprene an option exercise fee of $20,000. If the Company exercises the UMD-Hoth Option, it shall pay UMD an option exercise fee of $20,000.

University of Cincinnati

On May 18, 2018, the Company entered into an exclusive license agreement with the University of Cincinnati for a patented, novel genetic marker for food allergies. The genetic marker licensed by the Company from the University of Cincinnati (i) is used to identify at risk infants in predicting food allergies, including peanut and milk allergies, (ii) may be used to identify a person’s predisposition to an allergic reaction, thereby avoiding such reaction and (iii) may also determine an individual’s propensity to develop atopic dermatitis, such as eczema. The Company intends to utilize the genetic marker for purposes of determining an individual’s propensity to develop eczema as well as to identify and treat allergies in at-risk infants.

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Hoth Therapeutics, Inc.

Notes to Condensed Financial Statements  

(Unaudited)

Pursuant to the terms of the license agreement, the Company agreed to pay the University of Cincinnati a one-time initial fee of $5,000 within 30 days of the date of the agreement in addition to an annual license fee of $5,000. In addition, the Company agreed to pay the University of Cincinnati a yearly minimum annual royalty of $5,000 and certain milestone payments upon successful proof of concept of determining an individual’s propensity to food allergy and within 30 days of a marketing approval in the U.S. The license agreement will continue until the later of the date upon which a valid claim pursuant to the terms of the license agreement expires or 10 years after the first commercial sale or until earlier terminated pursuant to the terms of the license agreement.

Zylö Therapeutics Inc.

On August 19, 2019 (the “Zylö Effective Date”), the Company entered into an exclusive sublicense agreement (the “Sublicense Agreement”) with Zylö Therapeutics, Inc. (“Zylö”) pursuant to which Zylö granted to the Company an exclusive sublicense to the Licensed Patent Rights (as defined in the Sublicense Agreement) and the Licensed Technology (as defined in the Sublicense Agreement) to, among other things, develop, make and sell the Licensed Products (as defined in the Sublicense Agreement) and to practice the Licensed Technology in the United States and Canada for any and all uses within the Field. “Field” means all therapeutic uses related to lupus in human beings, subject to the Field Expansion Rights (as defined in the Sublicense Agreement). The term of the Sublicense Agreement shall commence on the Zylö Effective Date and shall continue until the latest of (i) ten years from the date of First Commercial Sale (as defined in the Sublicense Agreement) of the Licensed Product in such country and (ii) expiration of the last to expire Valid Claim (as defined in the Sublicense Agreement) of the Licensed Patent Rights that would be infringed by the composition, use or sale of such Licensed Product in such country. Pursuant to the terms of the Sublicense Agreement, the Company and Zylö shall establish a joint development committee to plan, review, coordinate and oversee the Company’s development activities with respect to the Licensed Products in the Field. Pursuant to the Sublicense Agreement, the Company shall pay Zylö (i) an upfront license fee of $50,000 (less the $10,000 previously paid by the Company); (ii) sales-based royalties at percentages which range from high single digits to low double digits, with low sales volumes being subject to lower royalty rates; and total milestone payments of up to $13.5 million. In addition, within 45 days of the Company’s next equity financing pursuant to which the Company receives gross proceeds of at least $1 million, the Company shall purchase equity securities of Zylö in an amount equal to $60,000.

Note 4-Stockholders’ Equity 

Preferred Stock

The Company is authorized to issue up to 10,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, and shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by its board of directors without further action by shareholders. As of September 30, 2019, 5,000,000 shares of the Company’s preferred stock has been designated as Series A Preferred Stock. At the time of the IPO, 3,102,480 shares of Series A Preferred Stock which were previously issued were converted into common stock and 1,897,520 shares of Series A Preferred Stock remained authorized.

Common Shares

On February 15, 2019, the Company announced the pricing of its initial public offering of 1,250,000 shares of its common stock at an initial offering price to the public of $5.60 per share. The Company issued an aggregate of 1,250,000 shares of common stock and received net proceeds of $5.8 million from the IPO.

Private Placement of Securities

On August 16, 2019 (the “Closing Date”), the Company entered into subscription agreements (the “Subscription Agreements”) and unit purchase agreements (the “Purchase Agreements”) with certain accredited investors (the “Investors”) pursuant to which it sold units (the “Units”) for aggregate gross proceeds of $2,037,120, exclusive of placement agent commission and fees and offering and transaction expenses (the “Offering”). Each Unit was sold at an offering price of $5.00 per Unit and consisted of (i) one share of the Company’s common stock, par value $0.0001 per share and (ii) a warrant (the “Warrant”) to purchase one-half share of common stock.

Each Warrant is exercisable for a period of two years beginning six months from the Closing Date at an exercise price of $8.00 per whole share, subject to adjustment. The Company is prohibited from effecting an exercise of the Warrant to the extent that, as a result of such exercise, the holder together with the holder’s affiliates, would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the Warrant, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%.

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Hoth Therapeutics, Inc.

Notes to Condensed Financial Statements  

(Unaudited)

In addition, pursuant to the terms of the Offering, the Company issued Laidlaw & Company (UK) Ltd. warrants (the “Placement Agent Warrants”) to purchase up to 61,113 shares of common stock. The Placement Agent Warrants are exercisable for a period of five years from the Closing Date (the “Initial Exercise Date”) at an exercise price of $5.00 per share, subject to adjustment. The Warrants may be exercised at any time after the Initial Exercise Date on a cashless basis and contain piggy-back registration rights.

Pursuant to the Offering, the Company received $1.6 million in net proceeds from the issuance of 407,424 Units.

Restricted Stock Awards

During the nine months ended September 30, 2019, 40,000 shares of restricted common stock with a fair value of approximately $0.2 million were granted to consultants.

A summary of the Company’s restricted stock grants under the Company’s 2018 Equity Incentive Plan (the “2018 Plan”) during the nine months ended September 30, 2019 is as follows:

	Number of Units			Weighted Average Grant Day Fair Value
Nonvested at December 31, 2018		21,530		$	0.25
Granted		40,000			5.11
Vested		(46,248	)		4.46
Nonvested at September 30, 2019		15,282		$	0.25

As of September 30, 2019, the Company had approximately $6,000 of unrecognized stock-based compensation expense which was related to restricted stock awards. The weighted average remaining contractual terms of unvested restricted stock awards is approximately 0.9 years at September 30, 2019.

Stock Options

On March 6, 2019, the Company granted 50,000 options to purchase common stock of the Company to its CFO pursuant to the 2018 Plan. The aggregate grant date fair value of these options was approximately $0.2 million. The stock options vested in full upon grant.

Warrants

A summary of warrant activity for the nine months ended September 30, 2019 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, 2018		991,367		$	1.00	$	-		5.9
Issued		331,155			6.90		71,816		4.4
Exercised		(289,830	)		0.94		-		-
Outstanding as of September 30, 2019		1,032,692		$	2.91	$	2,445,783		4.5
Warrants exercisable as of September 30, 2019		1,032,692		$	2.91	$	2,445,783		4.5

On February 20, 2019, Laidlaw received five-year warrants to purchase 50,000 shares of the Company’s common stock at an exercise price of $7.00 per share. These warrants were not exercisable prior to August 13, 2019.

On April 17, 2019, the Company entered into a Master Service Agreement (the “MSA”) with a consultant (the “Consultant”). In consideration for services provided by the Consultant, the Company issued the Consultant a two year warrant to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $0.01 per share (the “Consultant Warrant”). On May 22, 2019, the Company and Consultant agreed to terminate the MSA and number of shares of the Company’s common stock issuable upon exercise of the Consultant Warrant was reduced to 16,333. On June 27, 2019, the Company issued 16,333 shares of common stock upon exercise of the Consultant Warrant which resulted in gross proceeds of approximately $163.

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Hoth Therapeutics, Inc.

Notes to Condensed Financial Statements  

(Unaudited)

On April 16, 2019, the Company issued 176,272 shares of common stock upon the cashless exercise of warrants to purchase up to 215,747 shares of common stock. Those warrants were issued by the Company to Laidlaw pursuant to the terms of its engagement letter with Laidlaw with respect to the private placement of its securities through October 2017 to December 2017.

On June 6, 2019, the Company issued 47,605 shares of common stock upon the cashless exercise of warrants to purchase up to 57,750 shares of common stock.

On August 16, 2019, in connection with the Offering, the Company issued the Investors Warrants to purchase up to 203,709 shares of the Company’s common stock at an exercise price of $8.00 per whole share. In addition, pursuant to the terms of the Offering, the Company issued Laidlaw the Placement Agent Warrants to purchase up to 61,113 shares of common stock. The Placement Agent Warrants are exercisable for a period of five years from the Closing Date at an exercise price of $5.00 per share.

The Company has determined that the warrants should be accounted as a component of stockholders’ equity.

Stock Based Compensation

Stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018 was as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2019		2018		2019		2018
Employee common stock awards	$	-	$	-	$	-	$	107,500
Directors common stock awards		-		-		-		25,000
Employee stock option awards		-		-		199,182		-
Employee restricted stock awards		2,210		5,589		8,499		5,590
Non-employee restricted stock awards		204,550		-		204,550		-
Non-employee warrant awards		-		-		84,605		-
	$	206,760	$	5,589	$	496,836	$	138,090

In addition, the Company recorded $0 and $13,000 of stock issued for research and development services for the three months ended September 30, 2019 and 2018, respectively, and $0 and $36,000 of stock issued for research and development services for the nine months ended September 30, 2019 and 2018, respectively.

Employee related stock-based compensation is recognized as “compensation and related expenses” and non-employee related stock-based compensation is recognized as “professional fees” in the condensed statements of operations. 

Note 5-Commitments and contingencies

Office lease

The Company leases office space that commenced on July 15, 2017, for approximately $2,000 a month. Rent expense for the nine months ended September 30, 2019 and 2018 was approximately $24,000 and $21,000, respectively. The term of the lease expires on July 31, 2020. In accordance with ASC 842, this lease meets the definition of a short-term lease and accordingly, is not subject to capitalization.

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 6-Subsequent events

On October 3, 2019 and November 3, 2019, the Company issued an aggregate of 1,388 shares of the Company’s common stock to a member of the Company’s Board for services rendered.

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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 and 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, 2018. All amounts in this report are in U.S. dollars, unless otherwise noted.

Overview

We are a biopharmaceutical company formed in May 2017 focused on targeted therapeutics for patients suffering from conditions such as atopic dermatitis, also known as eczema.

Our primary asset is a sublicense agreement with Chelexa Biosciences, Inc. (“Chelexa”) pursuant to which Chelexa has granted us an exclusive sublicense to use its BioLexa Platform (as defined herein), a proprietary, patented, drug compound platform developed at the University of Cincinnati. The license enables us to develop the platform for any indications in humans. Our initial focus will be on the treatment of eczema through the application of a topical cream. Although our initial focus will be on the treatment of eczema, we intend to develop a second topical cream which, upon application, is intended to reduce post-procedure infections, accelerate healing and improve clinical outcomes for patients undergoing aesthetic dermatology procedures. The BioLexa Platform combines a U.S. Food and Drug Administration (“FDA”) approved zinc chelator with one or more approved antibiotics in a topical dosage form to address unchecked eczema flare-ups by preventing the formation of infectious biofilms and the resulting clogging of sweat ducts which trigger symptoms. It is the first product candidate intended to prevent the symptom triggering flare-ups rather than simply treating symptoms when they occur.

On May 26, 2017, we entered into a sublicense agreement with Chelexa, as amended on August 22, 2018 and August 29, 2018, pursuant to which Chelexa granted us an exclusive sublicense to make, use, have made, import, offer for sale, and sell products based upon or involving the use of (i) topical compositions comprising a zinc chelator and gentamicin and (ii) zinc chelators to inhibit biofilm formation (the “BioLexa Platform” or “BioLexa”), which rights were originally granted to Chelexa pursuant to an exclusive license agreement with the University of Cincinnati. In addition, Chelexa granted us the right to issue exclusive and nonexclusive sublicenses (with the right to further sublicense to third parties) to make, use, have made, import, offer for sale, and sell products based upon the BioLexa Platform.

We intend to initially use the BioLexa Platform to develop two different topical cream products: (i) a product to treat eczema and (ii) a product that reduces post-procedure infections, accelerates healing and improves clinical outcomes for patients undergoing aesthetic dermatology procedures. Eczema is a disease that results in inflammation of the skin and is characterized by rash, red skin, and itchiness. Eczema is also referred to as atopic dermatitis. We are concentrating our effort and resources to develop the BioLexa Platform, utilizing our novel formulation and approach for these two markets.

The BioLexa Platform has achieved positive results in its initial clinical studies conducted at the University of Miami. BioLexa’s formulation is a new topical dosage form “repurposing” the antibiotic, enabling it to be developed for use in patients following a special regulatory pathway codified in Section 505(b)(2) of the FDA rules. Section 505(b)(2) of the U.S. Federal Food, Drug and Cosmetic Act was enacted to enable sponsors to seek New Drug Application (“NDA”) approval for novel repurposed drugs without the need for such sponsors to undertake time consuming and expensive pre-clinical safety studies and Phase 1 safety studies. Proceeding under this regulatory pathway, we will be able to rely upon all of the publicly available safety and toxicology data with respect to gentamicin and zinc chelator in our FDA submissions. We will be required to conduct a Phase 2 study to show the safety of the combination in humans and after such Phase 2 study will be required to proceed to Phase 3 pivotal clinical trials. We believe that this path will dramatically reduce the required clinical development effort, costs and risks as compared to what would be required of us if we were required to conduct pre-clinical safety, toxicology and animal studies together with Phase 1 human safety trials required for new chemical entities which are not eligible to be reviewed pursuant to the Section 505(b)(2) regulatory pathway. We estimate that by using the Section 505(b)(2) regulatory pathway, that the clinical development process may be five to six years shorter than is required for a new chemical entity, and the FDA approval process may be six to nine months shorter than the typical eighteen month period, which we believe may result in lower development costs and shorter development time. As of the date hereof, we have not submitted an NDA to the FDA. In September 2018, we attended the first of a planned series of meetings with the FDA to review the requirements for submission and activation of an investigational new drug application (“IND”) with respect to the BioLexa Platform for use in eczema. In preparation for such pre-IND meeting, we prepared and presented to the FDA our proposed Phase 2 clinical trial plan for the treatment of eczema in patients over the age of one year old. As part of our pre-IND meeting, the FDA provided us with general guidance with respect to specific animal studies, dosing schedules and suggested human safety studies before we commence clinical trials in pediatric or adult patients. We are currently investigating multiple potential venues for conducting such trial both in and outside of the U.S. We have engaged Camargo Pharmaceutical Services, LLC (“Camargo”) to assist us with the FDA process required for Section 505(b)(2) applications and with the evaluation of potential clinical trial venues for the proof of concept study should we determine to undertake such study. Specifically, Camargo has provided and will continue to provide advice and guidance relative to the IND preparation phase for the BioLexa Platform. Camargo will assist us with the refinement of our non-clinical, clinical, clinical pharmacology and biopharmaceutics strategy incorporating the preliminary feedback we received from the FDA during our pre-IND meeting.

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We intend to conduct our first Phase 1 study in healthy adults with an immediate transition to a randomized, vehicle controlled Phase 1b trial in adolescent eczema patients comparing BioLexa to the base vehicle. This Phase 1b trial is intended to examine both safety and efficacy. We will assess the formulation of Ca-DTPA and Gentamicin 0.1% in our proprietary topical lotion delivered by a metered pump system. We will also assess the ability of BioLexa to clear harmful staph aureus bacterial from the skin of atopic dermatitis patients.

Following our Phase 1b trial, we intend to conduct up to two Phase 2 trials in atopic dermatitis patients comparing BioLexa to the base vehicle. Subject numbers and allocation will be informed by the results of the Phase 1b trial. We expect the clinical program to be completed, subject to receipt of funding by us, by the end of 2020 or early 2021 with an NDA submission targeted for mid to late 2021.

In addition, we conducted an initial pilot study on the efficacy of BioLexa to accelerate diabetic wound healing and intend to conduct additional studies with respect to the regenerative effects of the BioLexa Platform in the context of chronic diabetic ulcers, with and without substantial bacterial burden.

We believe that the key elements for our market success include:

● the proprietary formulation of two FDA-approved drugs to treat bacterial proliferation reduces development time and costs by giving us the ability to rely on safety and efficacy data from the two approved drugs;

● our proprietary formulation is not a topical corticosteroid, and may not be subject to the same FDA black box warning issues as most commonly prescribed treatments currently in use; and

● a recent peer-reviewed publication titled “Staphylococcal Bacteria May Cause Eczema, Study Reveals”, published by Dr. Herbert B. Allen, highlights that staph-induced biofilms are the root cause of flare-ups in eczema. Our BioLexa product candidate has been demonstrated to prevent the formation of these biofilms with the promise of delaying or completely arresting flare-ups, rather than merely treating symptoms of a flare-up already underway.

In addition to our sublicense agreement with Chelexa, we entered into an exclusive license agreement with the University of Cincinnati for a patented, novel genetic marker for food allergies. The genetic marker licensed by us from the University of Cincinnati (i) may be used to identify at risk infants in predicting food allergies, including peanut and milk allergies, (ii) may be used to identify a person’s predisposition to an allergic reaction, thereby avoiding such reaction and (iii) may also determine an individual’s propensity to develop atopic dermatitis, such as eczema. We intend to utilize the genetic marker for purposes of determining an individual’s propensity to develop eczema as well as to identify and treat allergies in at-risk infants.

We also entered into an exclusive sublicense agreement (the “Zylö Sublicense Agreement”) with Zylö Therapeutics, Inc. (“Zylö”) pursuant to which Zylö granted us an exclusive sublicense to certain patent rights and technology to, among other things, develop, make and sell the certain licensed products and to practice certain licensed technology in the United States and Canada for all therapeutic uses related to lupus in human beings.

In order to generate revenue from our product candidates, we will need to sell our product candidates either through distribution partnerships or through our own sales efforts. Prior to selling our product candidates, we will need to receive FDA approval of our NDA for each indication that we intend to treat. The first indication we are seeking approval for is the BioLexa Platform for treating eczema. We intend to submit our NDA for such indication by the end of 2021 with approval of such NDA anticipated to be in 2022; however, no assurances can be given that we will receive approval of the NDA in a timely manner, if at all.  

Results of Operations

Comparison of the Three Months Ended September 30, 2019 and 2018

Operating Costs and Expenses

Research and Development Expenses

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For the three months ended September 30, 2019, research and development expenses were approximately $0.5 million, of which $40,000 was related to the Zylö Sublicense Agreement and approximately $0.5 million was related to other research and development expenses.

During the three months ended September 30, 2018, research and development expenses were approximately $0.4 million, which primarily consisted of approximately $8,000 related to the acquisition of a license from University of Cincinnati and approximately $0.3 million related to other research and development expenses.

We expect our research and development activities to increase as we develop our existing product candidate and potentially acquire new product candidates, reflecting increasing costs associated with the following:

● employee-related expenses, which include salaries and benefits, and rent expenses;

● license fees and milestone payments 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 preclinical 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”)

For the three months ended September 30, 2019, General and Administrative Expenses were approximately $1.2 million, which primarily consisted of approximately $0.3 million related to payroll expenses and stock-based compensation, $0.6 million for professional fees and $0.2 million for other expenses.

During the three months ended September 30, 2018, General and Administrative Expenses were approximately $0.3 million, which primarily consisted of approximately $96,000 related to payroll expenses, approximately $0.1 million for professional fees and approximately $50,000 for other 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 the regulatory requirements and increased compliance associated with being a public reporting company.

Other Income

For the three months ended September 30, 2019, other income was approximately $4,000, which primarily related to unrealized gain on marketable securities.

For the three months ended September 30, 2018, other income was $0.

Comparison of the Nine Months Ended September 30, 2019 and 2018

Operating Costs and Expenses

Research and Development Expenses

For the nine months ended September 30, 2019, research and development expenses were approximately $1.1 million which primarily consisted of $50,000 related to the Zylö Sublicense Agreement, an aggregate of $10,000 related to a license acquired from the University of Maryland and Isoprene Pharmaceuticals Inc., and approximately $1.0 million related to other research and development expenses.

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During the nine months ended September 30, 2018, research and development expenses were approximately $0.8 million, of which approximately $0.2 million related to license acquired, including the issuance of 213,166 shares of our common stock valued at approximately $132,000 or $0.42 per share related to our sublicense agreement with Chelexa. Additionally, we incurred approximately $0.6 million of expense related to other research and development expenses.

Compensation, Professional Fees, Rent and Other

For the nine months ended September 30, 2019, General and Administrative Expenses were approximately $2.7 million, which primarily consisted of approximately $0.8 million related to payroll expenses and stock-based compensation, approximately $1.5 million for professional fees and $0.4 million for other expenses.

During the nine months ended September 30, 2018, General and Administrative Expenses were $1.1 million, which primarily consisted of $0.3 million related to payroll expenses, approximately $133,000 related to the issuance of 142,500 shares of our common stock to two employees and two directors and approximately $0.5 million for professional fees.

Other Income

For the nine months ended September 30, 2019, other income was approximately $4,000, which primarily related to unrealized gain on marketable securities.

For the nine months ended September 30, 2018, other income was $0.

Liquidity and Capital Resources

We have incurred substantial operating losses since inception, and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2019, we had cash of approximately $3.2 million, marketable securities of approximately $0.8 million, working capital of approximately $4.1 million and an accumulated deficit of approximately $8.3 million.

We have funded our operations from proceeds from the sale of equity and debt securities. We will require significant additional capital to make the investments we need to execute our longer-term business plan. Our 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 we are successful, future equity issuances would result in dilution to its existing stockholders and any future debt securities may contain covenants that limit our operations or ability to enter into certain transactions.

Our current cash is sufficient to fund operations for at least the next 12 months; however, we 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 our existing and new product candidates. If such funding is not available, or not available on terms acceptable to us, our current development plan and plans for expansion of our general and administrative infrastructure may be curtailed. 

Cash Flows from Operating Activities

For the nine months ended September 30, 2019, net cash used in operations was approximately $3.4 million, which primarily resulted from a net loss of approximately $3.8 million and changes in operating assets and liabilities of approximately $0.2 million, partially offset by approximately $0.5 million stock-based compensation.

For the nine months ended September 30, 2018, net cash used in operations was approximately $1.6 million, which primarily resulted from a net loss of approximately $1.9 million, partially offset by approximately $0.1 million of non-cash research and development expense related to a license acquisition.

Cash Flows from Investing Activities

For the nine months ended September 30, 2019, net cash used in investing activities was approximately $0.9 million, which was related to the purchase of marketable securities of $0.8 million and the purchase of research and development licenses of $70,000.

For the nine months ended September 30, 2018, there were no investing activities.

Cash Flows from Financing Activities

For the nine months ended September 30, 2019, net cash provided by financing activities was approximately $7.5 million, including approximately $0.2 million restricted cash. The cash provided by financing activities primarily resulted from approximately $5.8 million in net proceeds from the Company’s initial public offering (the “IPO”) and approximately $1.6 million in net proceeds from a private offering of an aggregate of 407,474 units with each unit consisting of one share of the Company’s common stock and a warrant to purchase one-half share of the Company’s common stock. On February 20, 2019, we closed the IPO pursuant to which we issued 1,250,000 shares of our common stock for net proceeds of approximately $5.8 million, after deducting underwriting discounts and commissions and offering expenses. The $0.2 million restricted cash has been deposited into a third-party escrow account in order to provide a source of funding for certain indemnification obligations the Company has pursuant to its Qualified Independent Underwriter Engagement Agreement.

For the nine months ended September 30, 2018, net cash provided by financing activities was approximately $1.2 million, which relates to the net proceeds from an offering pursuant to which the Company issued 13.77 units of its securities.

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Off-Balance Sheet Arrangements; Commitments and Contractual Obligations

As of September 30, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

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 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 $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the IPO; (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 229.10(f)(1).

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits 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 or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2019, our disclosure controls and procedures were effective.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that 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, can provide only reasonable assurance of achieving the desired control objectives. 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.

The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 229.10(f)(1).

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

From July 1, 2019 to September 30, 2019, the Company issued an aggregate of 2,082 shares of the Company’s common stock granted in 2018 to a member of the Company’s Board of Directors (the “Board”) for services rendered as a result of such shares vesting during such time period. 

On September 23, 2019, the Company issued an aggregate of 40,000 shares of common stock to consultants.

The foregoing issuances were exempt from registration under Section 4(a)(2) of the Securities Act. 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

On November 12, 2019, the Company entered into an Amended and Restated Employment Agreement (the “Employment Agreement”) with Jane Behrmann pursuant to which Ms. Behrmann will continue to serve as Vice President of Operations of the Company. The term of the Employment Agreement will continue for a period of one year from the date of execution and automatically renews for successive one year periods at the end of each term until either party delivers written notice of their intent not to review at least 30 days prior to the expiration of the then effective term. Pursuant to the terms of the Employment Agreement, Ms. Behrmann’s base salary was increased to $175,000, and Ms. Behrmann shall continue be entitled to earn a bonus, subject to the sole discretion of the Company’s Board. In addition, Ms. Behrmann shall continue be eligible to receive awards pursuant to the Company’s equity incentive plans, subject to the sole discretion of the Company’s Compensation Committee. Ms. Behrmann is also entitled to participate in any and all Employee Benefit Plans (as defined in the Employment Agreement), from time to time, that are then in effect along with vacation, sick and holiday pay in accordance with the Company’s policies established and in effect from time to time.

The Employment Agreement may be terminated by either the Company or Ms. Behrmann at any time and for any reason upon 10 days prior written notice. Upon termination of the Employment Agreement, Ms. Behrman shall be entitled to (i) any equity award that has vested prior to the termination date, (ii) reimbursement of expenses incurred on or prior to such termination date and (iii) such employee benefits to which Ms. Behrmann may be entitled as of the termination date (collectively, the “Accrued Amounts”). The Employment Agreement shall also terminate upon Ms. Behrmann’s death or the Company may terminate Ms. Behrmann’s employment upon her Disability (as defined in the Employment Agreement). Upon the termination of Ms. Behrmann’s employment for death or Disability, Ms. Behrmann shall be entitled to receive the Accrued Amounts. The Employment Agreement also contains covenants prohibiting Ms. Behrmann from disclosing confidential information with respect to the Company.

The foregoing description of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement, a copy of which is attached hereto as Exhibit 10.7 and is incorporated herein by reference.

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ITEM 6. EXHIBITS.

Exhibit No.	Description
3.1	Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Form S-1 filed on December 14, 2018)
3.2	Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.2 to the Company’s Form S-1 filed on December 14, 2018)
3.3	Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock (Incorporated by reference to Exhibit 3.3 to the Company’s Form S-1 filed on December 14, 2018)
3.4	Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on February 20, 2019)
3.5	Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed on February 20, 2019)
10.1	Form of Subscription Agreement (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 21, 2019)
10.2	Form of Unit Purchase Agreement (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on August 21, 2019)
10.3	Form of Warrant (Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on August 21, 2019)
10.4	Form of Registration Rights Agreement (Incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on August 21, 2019)
10.5	Form of Placement Agent Warrant (Incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed on August 21, 2019)
10.6#	Exclusive Sublicense Agreement between the Company and Zylö Therapeutics, Inc. (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 21, 2019)
10.7+	Amended and Restated Employment Agreement by and between the Company and Jane Behrmann
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*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.
#	Pursuant to Item 601(b)(10) of Regulation S-K, certain confidential portions of this exhibit were omitted by means of marking such portions with an asterisk because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
+	Indicates a management contract or any compensatory plan, contract or arrangement.

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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:  November 12, 2019	By:	/s/ Robb Knie
		Robb Knie, Chief Executive Officer (Principal Executive Officer)
Date:  November 12, 2019	By:	/s/ David Briones
		David Briones, Chief Financial Officer (Principal Financial and Accounting Officer)

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