Hoth Therapeutics(HOTH) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company reported a reduced net loss of $6.1 million for the nine months ended September 30, 2023, and strengthened its cash position to $11.8 million through financing activities Condensed Consolidated Balance Sheets Total assets grew to $12.1 million by September 30, 2023, driven by an increase in cash, while stockholders' equity rose to $10.5 million due to capital raises Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $11,828,242 | $6,428,611 | | Total current assets | $12,053,137 | $6,726,381 | | Total assets | $12,086,137 | $6,759,381 | | Liabilities & Equity | | | | Total current liabilities | $1,578,869 | $1,387,731 | | Total liabilities | $1,578,869 | $1,637,731 | | Total stockholders' equity | $10,507,268 | $5,121,650 | | Total liabilities and stockholders' equity | $12,086,137 | $6,759,381 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss for the nine months ended September 30, 2023, improved to $6.1 million from $7.9 million year-over-year, driven by lower operating expenses Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $1,246,061 | $1,451,280 | $2,777,865 | $3,370,841 | | Total operating expenses | $2,092,980 | $2,684,413 | $5,994,426 | $7,644,654 | | Loss from operations | $(2,092,980) | $(2,684,413) | $(5,994,426) | $(7,644,654) | | Net loss | $(2,086,583) | $(2,644,231) | $(6,143,121) | $(7,893,331) | | Net loss per share | $(0.60) | $(2.05) | $(1.99) | $(6.78) | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $10.5 million in the first nine months of 2023, primarily from $11.3 million in net proceeds from stock and warrant issuances - Stockholders' equity increased by approximately $5.4 million during the first nine months of 2023, driven by capital raises[24] Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2023) | Description | Amount | | :--- | :--- | | Balance as of Dec 31, 2022 | $5,121,650 | | Proceeds from private placement (net) | $11,314,998 | | Stock-based compensation | $210,643 | | Net loss | $(6,143,121) | | Balance as of Sep 30, 2023 | $10,507,268 | Condensed Consolidated Statements of Cash Flows Net cash from financing activities was $11.3 million for the nine months ended September 30, 2023, resulting in a net cash increase of $5.9 million Net Cash Flow Summary (Nine Months Ended) | Cash Flow Category | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,375,695) | $(6,747,791) | | Net cash provided by investing activities | $0 | $1,169,194 | | Net cash provided by financing activities | $11,317,353 | $5,985,103 | | Net change in cash | $5,941,658 | $406,506 | Notes to Unaudited Condensed Consolidated Financial Statements The company secured sufficient funding for the next 12 months through two private placements and formed a new AI-focused subsidiary, merveille.ai - The company is a clinical-stage biopharmaceutical firm focused on developing therapies for unmet medical needs, including treatments for cancer side effects, mast-cell cancers, traumatic brain injury, and Alzheimer's disease[32] - The company raised approximately $10 million in gross proceeds from a private placement in January 2023 and another $2.9 million in September 2023, which it believes is sufficient to fund operations for at least the next 12 months[35][36][37] - A gain of $275,000 was recognized during the nine months ended September 30, 2023, due to the termination of the exclusive license agreement with Virginia Commonwealth University[62][63] - On October 4, 2023, the company formed a new wholly-owned subsidiary, merveille.ai, to focus on drug discovery for rare diseases using artificial intelligence[100] Management's Discussion and Analysis of Financial Condition and Results of Operations Operating expenses decreased for the nine months ended September 30, 2023, and liquidity improved significantly with $11.8 million in cash Comparison of Operating Expenses (Nine Months Ended Sep 30) | Expense Category | 2023 | 2022 | | :--- | :--- | :--- | | Research and Development | ~$2.6 million | ~$3.5 million | | General and Administrative | ~$3.4 million | ~$4.2 million | - The decrease in R&D expenses for the nine months ended Sep 30, 2023 was mainly due to reduced spending on HT-001 and BioLexa programs and a gain from a settlement with a clinical trial vendor[108][109] - The company's cash position increased to $11.8 million as of September 30, 2023, with working capital of $10.5 million, which management believes is sufficient to fund operations for at least the next 12 months[114] - Future operations will require additional funding, which the company may seek through equity/debt sales or strategic partnerships; failure to secure funding could curtail development plans[116] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide disclosures about market risk - As a "smaller reporting company," Hoth Therapeutics, Inc. is exempt from the requirement to provide disclosures about market risk under this item[127] Controls and Procedures Management concluded that disclosure controls were not effective as of September 30, 2023, due to a material weakness in internal control over financial reporting - The company's principal executive and financial officers concluded that disclosure controls and procedures were not effective as of September 30, 2023[128] - The ineffectiveness is due to a material weakness identified as of December 31, 2022, specifically a lack of sufficient resources for adequate segregation of duties in the financial reporting process[129][130] - Remediation efforts are underway to expand controls, but the full implementation was still in process as of the end of the quarter[131] PART II - OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings - The company reports no material legal proceedings[137] Risk Factors Key risks include intense competition, new challenges related to its AI subsidiary, and cybersecurity threats - The company faces intense competition from larger, better-funded competitors in the pharmaceutical industry[139] - A new risk is identified from increased competition in the AI drug discovery space following the formation of its subsidiary, merveille.ai[140] - The company acknowledges vulnerability to cyber-attacks and security threats, which could lead to financial liability and reputational harm, and highlights the need for compliance with data privacy laws such as HIPAA[141][142] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities No unregistered sales of equity securities, use of proceeds, or issuer purchases were reported for the period - None reported for the period[143] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[144] Other Information No other information was reported under this item - None[145] Exhibits This section lists exhibits filed with the report, including warrants, incentive plans, and officer certifications - Exhibits filed include forms of warrants from the September 2023 financing, the Amended and Restated 2022 Omnibus Equity Incentive Plan, and certifications by the CEO and CFO[147]