UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For
the Quarterly Period Ended:
For the transition period from:
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| | ||
| (Address of principal executive offices) | (Zip Code) |
Issuer’s telephone number:
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 May 9, 2023 was
Table of Contents
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q contains certain forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “believes,” “will,” “expects,” “anticipates,” “estimates,” “predicts,” “potential,” “continues” “intends,” “plans” and “would” or the negative of these terms or other comparable terminology. For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, and plans are all forward-looking statements. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:
| ● | our business strategies; |
| ● | the timing of regulatory submissions; |
| ● | our ability to obtain and maintain regulatory approval of our existing product candidates and any other product candidates we may develop, and the labeling under any approval we may obtain; |
| ● | risks relating to the timing and costs of clinical trials and the timing and costs of other expenses; |
| ● | risks related to market acceptance of products; |
| ● | the ultimate impact of any health epidemics on our business, our clinical trials, our research programs, healthcare systems or the global economy as a whole; |
| ● | intellectual property risks; |
| ● | risks associated with our reliance on third-party organizations; |
| ● | our competitive position; |
| ● | our industry environment; |
| ● | our anticipated financial and operating results, including anticipated sources of revenues; |
| ● | assumptions regarding the size of the available market, benefits of our products, product pricing and timing of product launches; |
| ● | management’s expectation with respect to future acquisitions; |
| ● | statements regarding our goals, intentions, plans and expectations, including the introduction of new products and markets; 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
March
31, | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Marketable equity securities, at fair value | ||||||||
| Prepaid expenses | ||||||||
| 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 (Note 6) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
HOTH THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| 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 income, net | ||||||||
| Unrealized gain (loss) on marketable securities | ( | ) | ||||||
| Dividend income | ||||||||
| Other income, net | ||||||||
| Total other income, net | ||||||||
| 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 March 31, 2023 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Common stock and warrants issued in private placement, net of offering costs | ||||||||||||||||||||||||
| Cumulative translation adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| For the Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income | Equity | |||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Cumulative translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
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)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Research and development-acquired license, expensed | ||||||||
| Stock-based compensation | ||||||||
| Unrealized loss (gain) on marketable securities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of research and development licenses | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance common stock, common stock warrants and prefunded warrants, net of offering costs | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Organization and Description of Business Operations
Hoth Therapeutics, Inc. (together with its wholly-owned 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 (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, the Company is developing a diagnostic device via a mobile device. The Company also has interests in certain other assets being developed by third parties (see Note 4 for a discussion of the Company’s agreement with Zylö Therapeutics, Inc. 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.
On December 29, 2022, the Company entered into
a securities purchase agreement with an accredited investor pursuant to which it sold (i)
The Company believes current cash is sufficient to fund operations for at least the next 12 months from the date of issuance of these financial statements. However, the Company will need to raise additional funding, through strategic relationships, public or private equity or debt financings, grants or other arrangements, to develop and seek regulatory approvals for the Company’s current and future product candidates. If such funding is not available, or not available on terms acceptable to the Company, the Company’s current development plan and plans for expansion of its general and administrative infrastructure may be curtailed.
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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. These unaudited interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission (the “SEC”) on March 31, 2023.
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiary, Hoth Therapeutics Australia Pty Ltd, which was incorporated under the laws of the State of Victoria in Australia on June 5, 2019. All significant intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income (loss), stockholder’s equity or cash flows as previously reported.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. The most significant estimates in the Company’s condensed consolidated financial statements relate to stock-based compensation and the valuation allowance of deferred tax assets resulting from net operating losses. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations may be affected.
Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on March 31, 2023.
Cash
Cash consists of bank accounts and total $
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 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.
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
Income taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.
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 March 31, | ||||||||
| Potentially dilutive securities | 2023 | 2022 | ||||||
| Warrants | ||||||||
| Options | ||||||||
| Non-vested restricted stock awards | ||||||||
| Total | ||||||||
7
HOTH THERAPEUTICS, INC.
NOTES TO 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 the three months ended March 31, 2023 and 2022:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| The George Washington University | $ | $ | ||||||
| North Carolina State University | ||||||||
| Virginia Commonwealth University | ||||||||
| University of Cincinnati | ||||||||
| $ | $ | |||||||
The George Washington University
During three months ended March 31, 2023, the
Company recorded an expense of $
North Carolina State University
During the three months ended March 31, 2023
and 2022, the Company recognized expenses of $
Virginia Commonwealth University
During the three months ended March 31, 2023
and 2022, the Company recognized expenses of $
Chelexa Biosciences, Inc. and the University of Cincinnati
During the three months ended March 31, 2023
and 2022, the Company recognized expenses of $
NOTE 4 – Fair Value of Financial Assets and Liabilities
The following table presents the Company’s assets and liabilities that are measured at fair value at March 31, 2023 and December 31, 2022:
| Fair value measured at March 31, 2023 | ||||||||||||||||
| Total at March 31, 2023 | Quoted
prices | Significant | Significant | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities - mutual funds | $ | $ | $ | $ | ||||||||||||
| Investment in joint ventures | $ | $ | $ | $ | ||||||||||||
8
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Fair value measured at December 31, 2022 | ||||||||||||||||
| |
|
Total at December 31, 2022 |
|
|
Quoted prices in active markets (Level 1) |
|
|
Significant other observable inputs (Level 2) |
|
|
Significant unobservable inputs (Level 3) |
|
||||
| Assets | ||||||||||||||||
| Marketable securities - mutual funds | $ | $ | $ | $ | ||||||||||||
| Investment in joint ventures | $ | $ | $ | $ | ||||||||||||
Level 3 Measurement
The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis as of March 31, 2023 and 2022:
| Investment in joint venture at March 31, 2023 | ||||
| Investment in joint ventures at fair value at December 31, 2022 | $ | |||
| Change in fair value of investments in joint ventures | ||||
| Investment in joint ventures at fair value at March 31, 2023 | $ | |||
| Investment in joint venture at March 31, 2022 | ||||
| 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 March 31, 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. The fair value of investments in joint ventures are determined based on third party 409A valuations. Under the fair value option, bifurcation of an embedded derivative is not necessary, and all related gains and losses on the host contract and derivative due to change in the fair value will be reflected in interest income and other, net in the consolidated statements of operations and comprehensive loss.
The value at which the Company’s investment in joint ventures is carried on its books is adjusted to estimated fair value at the end of each quarter, taking into account general economic and stock market conditions and those characteristics specific to the underlying investments.
Investment in 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
During the fourth quarter of 2022, the Company
identified indicators of impairment for the HaloVax investment as a result of adverse changes in HaloVax’s business operations,
including liquidity concerns. As a result, the Company recorded an impairment charge of approximately $
9
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
NOTE 5 - Stockholders Equity
Common Shares
On December 12, 2022, shareholders of the Company
approved an increase to the number of authorized shares of the Company’s common stock from
Securities Purchase Agreements
On December 29, 2022, the Company entered into a securities purchase agreement with an accredited investor pursuant to which it sold (i) 140,000 shares of common stock, (ii) December Pre-Funded Warrants to purchase up to 1,860,000 shares of common stock and (iii) December Common Stock Warrants to purchase up to 2,500,000 shares of common stock at a purchase price of $5.00 per share and accompanying warrant (less $0.001 for each December Pre-Funded Warrant) in a private placement for aggregate gross proceeds of approximately $10 million, exclusive of placement agent commission and fees and other offering expenses, and approximately $8.9 million in net proceeds. The closing of the offering occurred on January 3, 2023.
2018 Equity Incentive Plan
The compensation committee of the board of directors
increased the number of shares reserved pursuant to the Company’s 2018 Equity Incentive Plan (“2018 Plan”) by
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
10
HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Awards
A summary of the Company’s restricted stock awards granted under the equity incentive plans during the three months ended March 31, 2023 is as follows:
| Number of Restricted Stock Awards | Weighted Average Grant Day Fair Value | |||||||
| Nonvested at December 31, 2022 | ||||||||
| Granted | ||||||||
| Vested | ||||||||
| Nonvested at March 31, 2023 | ||||||||
As of March 31, 2023, approximately $
Stock Options
A summary of option activity under the Company’s stock option plan for the three months ended March 31, 2023 is presented below:
| Number of Shares | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||||||
| Employee options issued | $ | |||||||||||||||
| Outstanding as of March 31, 2023 | $ | $ | ||||||||||||||
| Options vested and exercisable as of March 31, 2023 | $ | $ | ||||||||||||||
All stock compensation associated with the amortization of employee stock option expense was recorded as a component of compensation and related expense in the condensed consolidated statements of operations and comprehensive loss. All stock compensation associated with the amortization of nonemployee stock option expense was recorded as a component of professional fees in the condensed consolidated statements of operations and comprehensive loss.
Estimated future stock-based compensation expense relating to unvested
stock options is $
Stock Based Compensation
Stock-based compensation expense for the three months ended March 31, 2023 and 2022 was as follows:
Three
Months Ended | ||||||||
| 2023 | 2022 | |||||||
| Employee stock option awards | $ | $ | ||||||
| Non-employee restricted stock awards | ||||||||
| Non-employee stock warrant awards | ||||||||
| $ | $ | |||||||
Employee and director related stock-based compensation was included in compensation and related expenses, and non-employee related stock-based compensation was included in professional fees and research and development related with licenses acquisition in the consolidated statements of operations and comprehensive loss.
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HOTH THERAPEUTICS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warrants
On December 29, 2022, the Company entered into
a securities purchase agreement with an accredited investor pursuant to which it sold (i)
The measurement of fair value of the December
Pre-Funded Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at January 3, 2023, the
date of issuance (i.e., share price of $
The measurement of fair value of the December
Common Stock Warrants was determined utilizing a Black-Scholes model considering all relevant assumptions current at January 3, 2023,
the date of issuance (i.e., share price of $
On various dates in February 2023, the investor
exercised all the December Pre-Funded Warrants for
In addition, pursuant to the terms of the offering,
the Company issued the designees of the placement agent, H.C. Wainwright & Co., LLC, the December Wainwright Warrants to purchase
up to
A summary of warrant activity for the three months ended March 31, 2023 is as follows:
| Number of Warrants | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (in years) | |||||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Expired | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding as of March 31, 2023 | ||||||||||||||||
| Warrants exercisable as of March 31, 2023 | $ | $ | ||||||||||||||
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 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - 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 7 – Subsequent Events
The Company evaluates events that have occurred after the balance sheet date through the date for which the condensed consolidated financial statements are issued. Based upon the evaluation, except as set forth herein, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On May 11, 2023, the Company provided notice to the Virginia Commonwealth University Intellectual Property Foundation (“VCU”) of its intent to terminate the exclusive license agreement (the “Agreement”) by and between the Company and VCU dated May 18, 2020. The Agreement will terminate 90 days after the date notice is provided, or August 9, 2023.
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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, 2022 as may be amended, supplemented or superseded from time to time by other reports we file with the SEC. All amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
We are a clinical-stage biopharmaceutical company focused on developing new generation therapies for unmet medical needs. We are focused on developing (i) a topical formulation for treating side effects from drugs used for the treatment of cancer (HT-001); (ii) a treatment for mast-cell derived cancers and anaphylaxis (HT-KIT); (iii) a treatment for traumatic brain injury and ischemic stroke (HT-TBI); and (iv) a treatment and/or prevention for Alzheimer’s or other neuroinflammatory diseases (HT-ALZ). We also have assets being developed for (i) atopic dermatitis (also known as eczema) (BioLexa); (ii) a treatment for asthma and allergies using inhalational administration (HT-004); and (iii) a treatment for acne as well as inflammatory bowel diseases (HT-003). We are also developing a diagnostic device via a mobile device. Furthermore, we have interests in certain other assets being developed by third parties including a treatment for patients with lupus that is being developed by Zylö Therapeutics, Inc. and potential product candidates being developed pursuant to our agreement with Voltron Therapeutics, Inc. for the prevention of COVID-19.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
Operating Costs and Expenses
Research and Development Expenses
For the three months ended March 31, 2023, research and development expenses were approximately $0.9 million, of which approximately $48 thousand was related to licenses acquired and approximately $0.9 million was related to other research and development expenses. Specifically, during the quarter ended March 31, 2023, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) BioLexa, approximately $13,000 related to manufacturing costs; (ii) HT-001, approximately $0.6 million related to manufacturing, preclinical and clinical activities; and (iii) HT-KIT, approximately $0.2 million related to manufacturing and preclinical activities. In addition to the foregoing, we also incurred fees of approximately $57,000 payable to members of our scientific advisory board for services.
For the three months ended March 31, 2022, research and development expenses were approximately $1.0 million, of which approximately $41 thousand was related to licenses acquired and approximately $0.9 million was related to other research and development expenses. Specifically, during the quarter ended March 31, 2022, our research and development costs consisted primarily of the following costs for each of our key research and development projects: (i) BioLexa, approximately $0.1 million related to clinical trial costs; (ii) HT-001, approximately $0.3 million related to manufacturing, preclinical and clinical activities; (iii) HT-003, approximately $41,000 related to preclinical studies; (iv) HT-004, approximately $37,000 related to sponsored research; (v) GW breath based diagnostic device, approximately $80,000 related to research and development with respect to the design of device; and (vi) HT-ALZ approximately $0.1 million related to sponsored research. In addition to the foregoing, we also incurred fees of approximately $59,000 payable to members of our scientific advisory board for services.
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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; |
| ● | the cost of acquiring and manufacturing clinical trial materials; and |
| ● | costs associated with non-clinical activities and regulatory approvals. |
Compensation, Professional Fees, Rent and Other (“General and Administrative Expenses”)
During the three months ended March 31, 2023, we incurred General and Administrative Expenses of approximately $1.3 million as compared to approximately $1.7 million during the three months ended March 31, 2022. The approximately $0.4 million decrease was primarily attributed to a decrease in compensation and related expenses including stock based compensation.
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 March 31, 2023, we had approximately $13.0 million in cash, marketable securities of approximately $0.2 million, working capital of approximately $12.1 million and an accumulated deficit of approximately $47.3 million. Net cash used in operating activities was $2.3 million and $2.1 million for the three months ended March 31, 2023 and 2022, respectively. We incurred losses of approximately $2.2 million and $2.6 million for the three months ended March 31, 2023 and 2022, respectively. We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future as we continue our pre-clinical and clinical development of our product candidates. We have not yet commercialized any products and have never generated any revenue from product sales. We believe that our existing cash as of March 31, 2023 will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of this Quarterly Report on Form 10-Q.
We have entered into certain license, sublicense, sponsored research and option agreements with third parties. Pursuant to such agreements, we may be required to make certain: (i) license maintenance fee payments; (ii) out-of-pocket expense payments, including, but not limited to, payments related to intellectual property and research related expenses; (iii) development and commercialization expense payments; (iv) annual and quarterly minimum payments; (v) diligence expense payments; and (vi) revenue interest payments. In addition, subject to the achievement of certain development and/or commercialization events, we may also be required to make certain: (i) minimum royalty payments, ranging from middle to high five figures, (ii) sales-based royalties and running royalties, ranging from low single digits to low double digits; and (iii) milestone payments, of up to approximately $15.2 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. If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates.
Cash Flows from Operating Activities
For the three months ended March 31, 2023, net cash used in operations was approximately $2.3 million, which primarily resulted from a net loss of approximately $2.2 million.
For the three months ended March 31, 2022, net cash used in operations was approximately $2.1 million, which primarily resulted from a net loss of approximately $2.6 million and changes in operating assets and liabilities of approximately $0.1 million, partially offset by approximately $0.6 million stock-based compensation.
Cash Flows from Investing Activities
For the three months ended March 31, 2023, there was no net cash provided by investing activities.
For the three months ended March 31, 2022, net cash used in investing activities was $25 thousand which was related to the purchase of research and development licenses.
Cash Flows from Financing Activities
For the three months ended March 31, 2023, net cash provided by financing activities was approximately $8.9 million, which primarily resulted from net proceeds from the issuance of common stock and warrants.
For the three months ended March 31, 2022, there was no net cash provided by financing activities.
Critical Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:
| ● | it requires assumptions to be made that were uncertain at the time the estimate was made; and |
| ● | changes in the estimate or different estimates that could have been selected could have material impact in our results of operations or financial condition. |
While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material.
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion of our significant accounting policies.
Recently Issued Accounting Standards Not Yet Effective or Adopted
Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on the accompanying condensed consolidated financial statements.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to take advantage of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards until those standards would otherwise apply to private companies provided under the JOBS Act. As a result, our financial statements may not be comparable to those of companies that comply with public company effective dates for complying with new or revised accounting standards.
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Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including, without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer evaluated the effectiveness of our “disclosure controls and procedures” as of March 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is accumulated and communicated to a company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of March 31, 2023, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective because of the material weakness in our internal control over financial reporting identified during the year ended December 31, 2022, as described below, and which remained in place as of March 31, 2023.
As previously disclosed, as of December 31, 2022, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework - 2013. Based on this assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was not effective because management identified a material weakness. A material weakness is a significant deficiency or a combination of significant deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Specifically, our management concluded that we lacked sufficient resources necessary to provide adequate segregation of duties related to the preparation and review of our financial information used in financial reporting and review of controls over the financial reporting process, including cutoff related to accruals and prepaids.
Status of Remediation of Material Weaknesses in Internal Control over Financial Reporting
To address the material weakness described above, we have expanded our controls related to the preparation and review of our financial information used in financial reporting, the controls over the financial reporting process and the controls over the accuracy and completeness of accruals and prepaid account balances. The full implementation of these enhanced controls remains in process as of March 31, 2023, and we will continue to monitor the effectiveness of these controls and will make any further changes management determines necessary.
In addition, management is continuing to develop the design and implementation of internal controls to require appropriate reviews as well as retain documentation of those reviews. We continuously evaluate the effectiveness of our internal control over financial reporting and may implement additional changes or remediation efforts as we implement the above actions. The weakness will be determined to be remediated when revised controls have been operating for a reasonable period of time and have been tested to determine they are operating effectively. The remediation actions are being monitored by our audit committee of our board of directors.
Changes in Internal Control
There have been no significant changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than the changes to address the remediation of the material weakness as discussed above.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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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, 2022 as filed with the SEC on March 31, 2023 (“Annual Report”). There have been no material changes in our risk factors from those previously disclosed in our Annual Report. You should carefully consider the risks described in our Annual Report, which could materially affect our business, financial condition or future results. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results. If any of the risks actually occur, our business, financial condition, and/or results of operations could be negatively affected.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On May 11, 2023, the Company provided notice to the Virginia Commonwealth University Intellectual Property Foundation (“VCU”) of its intent to terminate the exclusive license agreement (the “Agreement”) by and between the Company and VCU dated May 18, 2020. The Agreement will terminate 90 days after the date notice is provided, or August 9, 2023.
On May 10, 2023, the Company and Algorithm Sciences, Inc. mutually agreed to terminate that certain Non-Binding Confidential Term Sheet dated as of April 24, 2023.
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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: May 15, 2023 | By: | /s/ Robb Knie |
| Robb Knie, | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 15, 2023 | By: | /s/ David Briones |
| David Briones, | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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