UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ________________ to ________________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer 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 | ||
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 November 9, 2022 was
Table of Contents
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 and the timing and costs of other expenses; |
| ● | risks related to market acceptance of products; |
| ● | the ultimate impact of the Coronavirus pandemic, or any other health epidemic, 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; 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 CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Marketable equity securities, at fair value | ||||||||
| Prepaid expenses | ||||||||
| Note receivable - current | ||||||||
| Total current assets | ||||||||
| Investment in joint ventures at fair value | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Accrued license fee - current portion | ||||||||
| Total current liabilities | ||||||||
| Accrued license fee - less current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ | ||||||||
| Series A Convertible Preferred Stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive gain | ||||||||
| 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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Research and development - licenses acquired (including stock-based compensation) | ||||||||||||||||
| Compensation and related expenses (including stock-based compensation) | ||||||||||||||||
| Professional fees (including stock-based compensation) | ||||||||||||||||
| Rent | ||||||||||||||||
| Other general and administrative expenses | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense | ||||||||||||||||
| Gains (losses) on marketable securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Change in fair value of investments in joint ventures | ( | ) | ||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive 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.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
For the Three Months Ended September 30, 2022
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
For the Three Months Ended September 30, 2021
| Common Stock | Additional Paid-in | Accumulated | Cumulative Translation | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Adjustment | Equity | |||||||||||||||||||
| Balance at June 30, 2021 | $ | | $ | $ | ( | ) | $ | | $ | |||||||||||||||
| Offering cost related with issuance of common stock, common stock warrants and prefunded warrants (net of offering costs of $ | - | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Prepaid stock-based compensation | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
For the Nine Months Ended September 30, 2022
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance at December 31, 2021 | $ | | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Issuance of common stock (net of offering costs of $ | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
For the Nine Months Ended September 30, 2021
| Common Stock | Additional Paid-in | Accumulated | Cumulative Translation | Total Stockholders' | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Adjustment | Equity | |||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock, common stock warrants and prefunded warrants (net of offering costs of $ | ||||||||||||||||||||||||
| Issuance of common stock and warrants (net of offering costs of $ | ||||||||||||||||||||||||
| Warrant exercise | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Prepaid stock-based compensation | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
HOTH THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| 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 | ||||||||
| Change in fair value of investments in joint ventures | ||||||||
| Stock-based compensation | ||||||||
| Amortization of prepaid stock-based compensation | ||||||||
| Realized loss on marketable securities | ||||||||
| Unrealized loss on marketable securities | ||||||||
| Loss on foreign currency exchange | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of research and development licenses | ( | ) | ( | ) | ||||
| Purchase of marketable securities | ( | ) | ||||||
| Sale of marketable securities | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance common stock, common stock warrants and prefunded warrants, net of offering cost | ||||||||
| Proceeds from issuance common stock and warrants, net of offering cost | ||||||||
| Proceeds from issuance common stock, net of offering cost | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ( | ) | ||||
| Net change in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Non-cash investing and financing activities | ||||||||
| Prepaid stock-based compensation | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Organization and description of business operations
Hoth Therapeutics, Inc. (together with its wholly owned subsidiary, Hoth Therapeutics Australia Pty Ltd., 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; (ii) a treatment for mast-cell derived cancers and anaphylaxis; (iii) a treatment for traumatic brain injury and ischemic stroke; and (iv) a treatment and/or prevention for Alzheimer’s or other neuroinflammatory diseases. The Company also has assets being developed for (i) atopic dermatitis (also known as eczema); (ii) a treatment for asthma and allergies using inhalational administration; and (iii) a treatment for inflammatory bowel diseases. In addition, the Company is developing a diagnostic device via a mobile device. The Company also has interests in certain other assets being developed by third parties (See Note 6 for a discussion of the Company’s agreement with Zylö Therapeutics, Inc. and Voltron 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 consolidated financial statements are required if management concludes that substantial doubt exists or that its plans alleviate the substantial doubt that was raised.
The Company has funded its operations from proceeds from the sale of equity and debt securities. The Company will require significant additional capital to make the investments it needs to execute its longer-term business plan. The Company’s ability to successfully raise sufficient funds through the sale of debt or equity securities when needed is subject to many risks and uncertainties and, even if it were successful, future equity issuances may result in dilution to its existing shareholders and future debt securities may contain covenants that limit the Company’s operations or ability to enter into certain transactions.
The Company believes current cash is sufficient to fund operations for at least the next 12 months from the 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 14, 2022, the Company closed an underwritten
public offering of
Reverse Stock Split
On October 20, 2022, the Company filed a Certificate of Change (the “Certificate of Change”) with the Secretary of State of the State of Nevada to effectuate a 1-for-25 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding and authorized shares of common stock. The Reverse Stock Split became effective on October 26, 2022. Shareholders who otherwise would have been entitled to receive fractional shares of common stock had their holdings rounded up to the next whole share. All references to common stock, convertible preferred stock conversion ratio, warrants to purchase common stock, options to purchase common stock, restricted stock units, restricted stock awards, share data, per share data and related information contained in the condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.
5
HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2-Significant accounting policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 30, 2022.
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company’s wholly owned subsidiary, Hoth Therapeutics Australia Pty Ltd, which was incorporated under the laws of the State of Victoria in Australia on June 5, 2019. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. The most significant estimates in the Company’s condensed consolidated financial statements relate to stock-based compensation and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations 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, 2021 as filed with the SEC on March 30, 2022.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, approximates the carrying amounts represented in the balance sheet, primarily due to their short-term nature.
Fair Value Measurement
FASB ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
6
HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. |
| Level 2: | Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace. |
| Level 3: | Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Fair value option - Note receivable
The guidance in ASC 825, Financial Instruments, provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to this guidance are required to be reported separately in the Company’s consolidated balance sheets from those instruments using another accounting method.
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
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. 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 | 2022 | 2021 | ||||||
| Warrants | ||||||||
| Options | ||||||||
| Non-vested restricted stock awards | ||||||||
| Total | ||||||||
7
HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recent accounting pronouncements
Currently, management does not believe that any other recently issued, but not yet effective accounting pronouncements, if currently adopted, would have a material impact on the Company’s condensed consolidated financial statements.
Note 3-License agreements
The following summarizes the Company’s research and development expenses for licenses acquired (including stock-based compensation) during three and nine months ended September 30, 2022 and 2021:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| The George Washington University | $ | $ | $ | $ | ||||||||||||
| Isoprene Pharmaceuticals, Inc. | ||||||||||||||||
| North Carolina State University | ||||||||||||||||
| Virginia Commonwealth University | ||||||||||||||||
| University of Cincinnati | ||||||||||||||||
| Adjustment | ( | ) | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The George Washington University
During the three and nine months ended September
30, 2022, the Company recorded an expense of approximately $
North Carolina State University
During the three and nine months ended September
30, 2022, the Company paid $
Virginia Commonwealth University
On May 18, 2020, the Company entered into an Exclusive
License Agreement with the Virginia Commonwealth University Intellectual Property Foundation, as amended on June 22, 2022. Pursuant to
such agreement, the Company accrued $
During the three and nine months ended September
30, 2022, the Company paid $
University of Cincinnati
During the three and nine months ended September
30, 2022, the Company paid $
8
HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4-Note Receivable
Pursuant to the sublicense agreement dated July 30,
2020 by and between the Company and Isoprene Pharmaceuticals, Inc. (“Isoprene”), the Company made an investment of $
Note 5-Investments in Marketable Securities
The realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the three and nine months ended September 30, 2022 and 2021, which are recorded as a component of other (expense) income, net on the condensed consolidated statements of operations and comprehensive loss, are as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Unrealized gain (loss) | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Realized loss | - | ( | ) | ( | ) | ( | ) | |||||||||
| Dividend income | ||||||||||||||||
| $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Note 6-Fair Value of Financial Assets and Liabilities
The following table presents the Company’s assets and liabilities that are measured at fair value at September 30, 2022 and December 31, 2021:
| Fair value measured at September 30, 2022 | ||||||||||||||||
| Total at September 30, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - mutual funds | $ | $ | $ | $ | ||||||||||||
| Investment in joint ventures | $ | $ | $ | $ | ||||||||||||
| Note receivable - current | $ | $ | $ | $ | ||||||||||||
| Fair value measured at December 31, 2021 | ||||||||||||||||
| Total at December 31, | Quoted prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| 2021 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - mutual funds | $ | $ | $ | $ | ||||||||||||
| Investment in joint ventures | $ | $ | ||||||||||||||
| Note receivable - current | $ | $ | ||||||||||||||
9
HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Level 3 Measurement
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis:
| Investment in joint ventures at fair value at December 31, 2021 | $ | |||
| Change in fair value of investments in joint ventures | ( | ) | ||
| Investment in joint ventures at fair value at September 30, 2022 | $ |
Investment in joint ventures
The Company has elected to measure the investment in joint ventures using the fair value option at each reporting date. Under the fair value option, bifurcation of an embedded derivative is not necessary, and all related gains and losses on the host contract and derivative due to change in the fair value will be reflected in interest income and other, net in the consolidated statements of operations.
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 HaloVax
On March 23, 2020, the Company entered into a
Development and Royalty Agreement (the “Development and Royalty Agreement”) with Voltron Therapeutics, Inc. (“Voltron”)
to form a joint venture entity named HaloVax, LLC (“HaloVax”) to jointly develop potential product candidates for the prevention
of COVID-19 based upon certain technology that had been exclusively licensed by Voltron from The General Hospital Corporation (d/b/a Massachusetts
General Hospital). Pursuant to the Development and Royalty Agreement, the Company is entitled to receive sales-based royalties. In addition,
pursuant to the terms of the Development and Royalty Agreement, on March 23, 2020, the Company and HaloVax entered into a Membership Interest
Purchase Agreement pursuant to which the Company purchased
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
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HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note receivable
As of September 30, 2022, the fair value of the
Isoprene Note was measured at $
Note 7-Stockholders’ Equity
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
A summary of the Company’s restricted stock awards granted under the 2018 Plan during the nine months ended September 30, 2022 is as follows:
| Number of Restricted Stock Awards | Weighted Average Grant Day Fair Value | |||||||
| Nonvested at December 31, 2021 | $ | |||||||
| Vested | ( | ) | ||||||
| Nonvested at September 30, 2022 | $ | |||||||
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HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2022, approximately $
Stock Options
A summary of option activity under the Company’s stock option plan for nine months ended September 30, 2022 is presented below:
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2021 | $ | $ | ||||||||||||||
| Employee options issued | ||||||||||||||||
| Outstanding as of September 30, 2022 | $ | $ | ||||||||||||||
| Options vested and exercisable as of September 30, 2022 | $ | $ | ||||||||||||||
Stock Based Compensation
Stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 was as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Employee stock option awards | $ | $ | $ | $ | ||||||||||||
| Employee restricted stock awards | ||||||||||||||||
| Non-employee restricted stock awards | - | - | ||||||||||||||
| Non-employee stock warrant awards | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Employee related stock-based compensation is recognized as “compensation and related expenses (including stock-based compensation)” and non-employee related stock-based compensation is recognized as “professional fees (including stock-based compensation)” or “research and development - licenses acquired (including stock-based compensation)” in the condensed consolidated statements of operations and comprehensive loss.
Warrants
A summary of warrant activity for the nine months ended September 30, 2022 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, 2021 | $ | $ | ||||||||||||||
| Outstanding as of September 30, 2022 | $ | $ | ||||||||||||||
| Warrants exercisable as of September 30, 2022 | $ | $ | ||||||||||||||
The Company has determined that the warrants should be accounted as a component of stockholders’ equity.
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HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8-Commitments and contingencies
Office lease
The Company leases office space for approximately
$
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 9-Risk and Uncertainties
The outbreak of the novel Coronavirus (COVID-19) evolved into a global pandemic. COVID-19 has spread to many regions of the world. The extent to which COVID-19 impacts the Company’s business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
As a result of the spread of COVID-19, certain aspects of the Company’s business operations have been delayed, and the Company may be subject to additional delays or interruptions. Specifically, if shelter-in-place orders and other mandated local travel restrictions are imposed, among other things, the research and development activities of certain of the Company’s partners may be affected, which may result in delays to the Company’s clinical trials, and the Company can provide no assurance as to when such trials, if delayed, will resume or the revised timeline to complete trials once resumed.
Furthermore, site initiation, participant recruitment and enrollment, participant dosing, distribution of clinical trial materials, study monitoring and data analysis may be paused or delayed due to changes in hospital or university policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related to the pandemic. If COVID-19 continues to spread, some participants and clinical investigators may not be able to comply with clinical trial protocols. For example, quarantines or other travel limitations (whether voluntary or required) may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, and the Company may be unable to conduct its clinical trials. Further, COVID-19 continues to spread and the Company’s operations are adversely impacted, the Company risks a delay, default and/or nonperformance under its existing agreements which may increase its costs. These cost increases may not be fully recoverable or adequately covered by insurance.
Moreover, infections and deaths related to COVID-19 may disrupt the healthcare and healthcare regulatory systems in both the United States and globally, including in Australia. Such disruptions could divert healthcare resources away from, or materially delay review and/or approval with respect to the Company’s clinical trials by the U.S. Food and Drug Administration and foreign regulatory authorities, including the Belberry Human Research Ethics Committee in Australia. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of the Company’s clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of the Company’s product candidates.
The Company currently utilizes third parties to, among other things, manufacture raw materials. If any third-party in the supply chain for materials used in the production of the Company’s product candidates are adversely impacted by restrictions resulting from the ongoing COVID-19 outbreak, the Company’s supply chain may be disrupted, limiting the Company’s ability to manufacture its product candidates for its clinical trials and research and development.
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HOTH THERAPEUTICS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The spread of COVID-19, which caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material economic effect on the Company’s business. While the potential economic impact brought by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and may result in further disruption of global financial markets, which may negatively impact the Company’s ability to access capital on favorable terms, if at all. In addition, a recession, depression or other sustained adverse market event resulting from the spread of COVID-19 could materially and adversely affect the Company’s business and the value of its common stock.
The ultimate impact of the ongoing COVID-19 pandemic, or any other health epidemic, is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, its clinical trials, its research programs, healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s operations, and the Company will continue to monitor the situation closely.
Note 10-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, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements except as set forth herein.
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 $
On November
2, 2022,
On November 10, 2022, the Company entered into a Third Amendment (the “Amendment”) to Employment Agreement by and between the Company and Stefanie Johns, the Company’s Chief Scientific Officer, originally dated August 28, 2020, as amended on January 29, 2021 and June 25, 2021. Pursuant to the Amendment, among other things, the term of Dr. Johns’ employment shall be for a period of no more than six months from the date of the Amendment; provided, however, the Company or Dr. Johns may terminate Dr. Johns’ employment prior to the expiration of such six month period for any reason upon 10 days prior notice. In addition, Dr. Johns shall no longer be eligible to receive any annual bonus or equity awards. Furthermore, pursuant to the Amendment, upon separation of Dr. Johns’ employment from the Company for any reason, the Company shall provide Dr. Johns with all accrued but unpaid compensation earned through her final day of employment, all accrued but unused vacation and reimbursement of all documented, unreimbursed expenses incurred prior to her separation. Moreover, upon Dr. Johns’ execution of a release of claims after her final day of employment, as set forth in the Amendment, the Company shall provide Dr. Johns with certain benefits as set forth therein.
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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 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, 2021 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). In addition, we are continuing to evaluate a novel peptide that may be used to slow the transmission of SARS-CoV-2 (HT-002). We are also developing a diagnostic device via a mobile device. Furthermore, we have interests in certain other assets being developed by third parties including a treatment for patients with lupus that is being developed by Zylö Therapeutics, Inc. and potential product candidates being developed pursuant to our agreement with Voltron Therapeutics, Inc. for the prevention of COVID-19.
Recent Developments
On October 20, 2022, we filed a Certificate of Change with the Secretary of State of the State of Nevada to effectuate a 1-for-25 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding and authorized shares of common stock. The Reverse Stock Split became effective on October 26, 2022, and shareholders who otherwise would have been entitled to receive fractional shares of common stock had their holdings rounded up to the next whole share. On November 2, 2022, we 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 $0.0001 per share (the “Series B Preferred Stock”). The Certificate of Designation designates 2,000,000 shares of authorized preferred stock as Series B Preferred Stock. The Series B Preferred Stock are not entitled to receive dividends or any other distributions. The Series B Preferred Stock are entitled to ten votes per share and shall vote together with our issued and outstanding shares of common stock as a single class exclusively with respect to the Authorized Stock Increase (as defined in the Certificate of Designation). The Series B Preferred Stock have no rights as to any distribution or assets of our Company upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of our Company. The outstanding shares of Series B Preferred Stock shall be redeemed in whole, but not in part for an aggregate price of $10 (i) if such redemption is ordered by our board of directors, in its sole discretion, or (ii) automatically and effective immediately after the effectiveness of the Authorized Stock Increase.
On November 2, 2022, we entered into a Subscription and Investment Representation Agreement with an investor pursuant to which we issued and sold 2,000,000 shares of our newly designated Series B Preferred Stock to such purchaser for an aggregate purchase price of $1,000.
15
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
Operating Costs and Expenses
Research and Development Expenses
During the three months ended September 30, 2022, we incurred research and development expenses of approximately $1.5 million as compared to approximately $2.2 million during the three months ended September 30, 2021. The approximately $0.7 million decrease was primarily attributed to the decreased number of research and development activities undertaken by us during the three months ended September 30, 2022.
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; |
| ● | costs of acquiring and manufacturing clinical trial materials; and |
| ● | costs associated with non-clinical activities and regulatory approvals. |
Compensation, Professional Fees, Rent and Other (“General and Administrative Expenses”)
During the three months ended September 30, 2022, we incurred General and Administrative Expenses of approximately $1.2 million as compared to approximately $1.1 million during the three months ended September 30, 2021. The approximately $0.1 million increase was primarily attributed to an increase in professional fees.
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. |
Comparison of the Nine Months Ended September 30, 2022 and 2021
Operating Costs and Expenses
Research and Development Expenses
During the nine months ended September 30, 2022, we incurred research and development expenses of approximately $3.5 million as compared to approximately $5.6 million during the nine months ended September 30, 2021. The approximately $2.1 million decrease was primarily attributed to the decreased number of research and development activities undertaken by us during the nine months ended September 30, 2022.
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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; |
| ● | costs of acquiring and manufacturing clinical trial materials; and |
| ● | costs associated with non-clinical activities and regulatory approvals. |
General and Administrative Expenses
During the nine months ended September 30, 2022, we incurred General and Administrative Expenses of approximately $4.2 million as compared to approximately $5.1 million during the nine months ended September 30, 2021. The approximately $0.9 million decrease was primarily attributed to a decrease in professional fees and compensation and related expenses. Specifically, the fair value of options granted to our officers and directors during the nine months ended September 30, 2022 decreased by approximately $0.4 million as compared September 30, 2021.
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. |
Liquidity and Capital Resources
To date we have funded our operations primarily through the sale of equity and debt securities. As of September 30, 2022, we had approximately $8.9 million in cash, marketable securities of approximately $0.3 million, working capital of approximately $8.5 million and an accumulated deficit of approximately $41.6 million. Net cash used in operating activities was $6.7 million and $8.2 million for the nine months ended September 30, 2022 and 2021, respectively. We incurred losses of approximately $7.9 million and $10.8 million for the nine months ended September 30, 2022 and 2021, respectively. We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future as we continue our pre-clinical and clinical development of our product candidates. We have not yet commercialized any products and have never generated any revenue from product sales. We believe that our existing cash as of September 30, 2022 will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of this Quarterly Report on Form 10-Q.
We have entered into certain license, sublicense, sponsored research and option agreements with third parties. Pursuant to such agreements, we may be required to make certain: (i) license maintenance fee payments; (ii) out-of-pocket expense payments, including, but not limited to, payments related to intellectual property and research related expenses; (iii) development and commercialization expense payments; (iv) annual and quarterly minimum payments; (v) diligence expense payments; and (vi) revenue interest payments. In addition, subject to the achievement of certain development and/or commercialization events, we may also be required to make certain: (i) minimum royalty payments, ranging from middle to high five figures, (ii) sales-based royalties and running royalties, ranging from low single digits to low double digits; and (iii) milestone payments, of up to approximately $17 million (if all milestones in all of our current agreements are achieved).
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Additional funding will be necessary to fund our future clinical and pre-clinical activities. We may obtain additional financing through sales of our equity and debt securities or entering into strategic partnership arrangements, or a combination of the foregoing. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all, particularly in light of the economic downturn and uncertainty related to the COVID-19 pandemic. 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. In addition, the magnitude and duration of the COVID-19 pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Quarterly Report on Form 10-Q, as the COVID-19 pandemic continues to evolve globally.
Cash Flows from Operating Activities
For the nine months ended September 30, 2022, net cash used in operations was approximately $6.7 million, which primarily resulted from a net loss of approximately $7.9 million and changes in operating assets and liabilities of approximately $0.1 million, partially offset by approximately $0.6 million in stock-based compensation, $0.2 million realized loss on marketable securities and $0.1 million unrealized loss on marketable securities.
For the nine months ended September 30, 2021, net cash used in operations was approximately $8.2 million, which primarily resulted from a net loss of approximately $10.8 million, and was partially offset by changes in operating assets and liabilities of approximately $1.2 million and approximately $1.2 million stock-based compensation.
Cash Flows from Investing Activities
For the nine months ended September 30, 2022, net cash provided by investing activities was approximately $1.2 million which was primarily related to the sale of marketable securities.
For the nine months ended September 30, 2021, net cash provided used in investing activities was approximately $0.1 million, which was primarily related to the sale of marketable securities of approximately $2.5 million, and was partially offset by the purchase of marketable securities of approximately $2.6 million.
Cash Flows from Financing Activities
For the nine months ended September 30, 2022, net cash provided by financing activities was approximately $6.0 million, which primarily resulted from net proceeds from the issuance of common stock.
For the nine months ended September 30, 2021, net cash provided by financing activities was approximately $18.2 million, which was primarily resulted from net proceeds from the issuance of common stock, warrants and pre-funded warrants.
Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:
| ● | it requires assumptions to be made that were uncertain at the time the estimate was made; and |
| ● | changes in the estimate or different estimates that could have been selected could have material impact in our results of operations or financial condition. |
While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material.
See Note 2 to our condensed consolidated financial statements for a discussion of our significant accounting policies.
Recently Issued Accounting Standards Not Yet Effective or Adopted
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying condensed consolidated financial statements.
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JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of September 30, 2022, the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that our disclosure controls and procedures were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter 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, 2021 as filed with the SEC on March 30, 2022 (“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.
During the three months ended September 30, 2022, the Company issued an aggregate of 72 shares of the Company’s common stock, which shares were subject to a vesting schedule, to members of the Company’s board of directors for services.
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 10, 2022, the Company entered into a Third Amendment (the “Amendment”) to Employment Agreement by and between the Company and Stefanie Johns, the Company’s Chief Scientific Officer, originally dated August 28, 2020, as amended on January 29, 2021 and June 25, 2021. Pursuant to the Amendment, among other things, the term of Dr. Johns’ employment shall be for a period of no more than six months from the date of the Amendment; provided, however, the Company or Dr. Johns may terminate Dr. Johns’ employment prior to the expiration of such six month period for any reason upon 10 days prior notice. In addition, Dr. Johns shall no longer be eligible to receive any annual bonus or equity awards. Furthermore, pursuant to the Amendment, upon separation of Dr. Johns’ employment from the Company for any reason, the Company shall provide Dr. Johns with all accrued but unpaid compensation earned through her final day of employment, all accrued but unused vacation and reimbursement of all documented, unreimbursed expenses incurred prior to her separation. Moreover, upon Dr. Johns’ execution of a release of claims after her final day of employment, as set forth in the Amendment, the Company shall provide Dr. Johns with certain benefits as set forth therein.
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ITEM 6. EXHIBITS.
| * | Filed herewith. |
| ** | Furnished herewith. |
| + | 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 10, 2022 | By: | /s/ Robb Knie |
| Robb Knie, Chief Executive Officer (Principal Executive Officer) | ||
| Date: November 10, 2022 | By: | /s/ David Briones |
| David Briones, Chief Financial Officer (Principal Financial and Accounting Officer) | ||
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