Hoth Therapeutics(HOTH) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and related notes for the interim period Item 1. Financial Statements Presents the unaudited condensed consolidated financial statements and their accompanying notes Condensed Consolidated Balance Sheets Summarizes the company's financial position, showing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheet Highlights: | Metric | September 30, 2022 (Unaudited) | December 31, 2021 | | :-------------------------------- | :----------------------------- | :------------------ | | Cash | $8,935,081 | $8,538,270 | | Marketable equity securities | $330,901 | $1,892,837 | | Total current assets | $9,507,406 | $10,575,079 | | Total assets | $9,894,806 | $10,985,079 | | Total current liabilities | $1,008,427 | $867,787 | | Total liabilities | $1,283,427 | $1,102,787 | | Total stockholders' equity | $8,611,379 | $9,882,292 | Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss for the three and nine months ended September 30 Condensed Consolidated Statements of Operations and Comprehensive Loss Highlights: | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development expenses | $1,451,280 | $2,123,548 | $3,370,841 | $5,408,166 | | Total operating expenses | $2,684,413 | $3,253,196 | $7,644,654 | $10,721,325 | | Net loss | $(2,644,231) | $(3,296,048) | $(7,893,331) | $(10,833,611) | | Net loss per share (basic and diluted) | $(2.05) | $(3.45) | $(6.78) | $(12.44) | Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines changes in stockholders' equity, including stock-based compensation, stock issuance, and net loss Changes in Stockholders' Equity (Nine Months Ended September 30, 2022): | Item | Amount | | :---------------------------------------------------- | :------------- | | Balance at December 31, 2021 | $9,882,292 | | Stock-based compensation | $605,330 | | Issuance of common stock (net of offering costs) | $5,985,103 | | Foreign currency translation adjustment | $31,985 | | Net loss | $(7,893,331) | | Balance at September 30, 2022 | $8,611,379 | Condensed Consolidated Statements of Cash Flows Presents the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30): | Cash Flow Activity | 2022 | 2021 | | :------------------------------------ | :------------- | :------------- | | Net cash used in operating activities | $(6,747,791) | $(8,187,931) | | Net cash provided by (used in) investing activities | $1,169,194 | $(147,876) | | Net cash provided by financing activities | $5,985,103 | $18,194,646 | | Net change in cash | $406,506 | $9,858,839 | | Cash, end of period | $8,935,081 | $12,445,379 | Notes to the Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1-Organization and description of business operations Describes Hoth Therapeutics as a clinical-stage biopharmaceutical company and its funding and recent corporate actions - Hoth Therapeutics is a clinical-stage biopharmaceutical company developing therapies for unmet medical needs, including a topical formulation for cancer drug side effects (HT-001), treatments for mast-cell derived cancers (HT-KIT), traumatic brain injury (HT-TBI), Alzheimer's (HT-ALZ), atopic dermatitis (BioLexa), asthma/allergies (HT-004), and inflammatory bowel diseases (HT-003) and is also evaluating a peptide for SARS-CoV-2 (HT-002) and developing a diagnostic device[27][81] - The company's operations are funded by proceeds from equity and debt securities sales, with net proceeds from an April 2022 public offering totaling $6.0 million[29][31] - Management believes current cash is sufficient to fund operations for at least the next 12 months, but significant additional capital will be required for future product candidate development and regulatory approvals[30] - A 1-for-25 reverse stock split became effective on October 26, 2022, retrospectively adjusting all share and per-share data[32] Note 2-Significant accounting policies Outlines the key accounting principles and estimates used in preparing the interim financial statements - The interim financial statements are prepared in accordance with GAAP for interim financial information, reflecting normal recurring adjustments, and should be read in conjunction with the annual consolidated financial statements[33] - Significant estimates in the financial statements relate to stock-based compensation and the valuation allowance of deferred tax assets resulting from net operating losses[35] - Fair value measurements are classified into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs requiring significant judgment or estimation)[39] Note 3-License agreements Details research and development expenses related to various intellectual property license agreements Research and Development Expenses - Licenses Acquired (Including Stock-Based Compensation): | Period | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $16,953 | $38,967 | | Nine Months Ended September 30 | $94,678 | $164,812 | - Expenses include warrant grants and license maintenance fees to The George Washington University, as well as license fees to North Carolina State University, Virginia Commonwealth University, and University of Cincinnati[45][46][47][48][49] Note 4-Note Receivable Addresses the maturity and subsequent payoff of a convertible promissory note from Isoprene Pharmaceuticals - The $50,000 convertible promissory note from Isoprene Pharmaceuticals, Inc. matured on September 10, 2022, without conversion into preferred stock or common stock[50] - As of September 30, 2022, the Isoprene Note was deemed a receivable of the Company[50] - The Isoprene Note and accrued interest were paid off on October 21, 2022[50] Note 5-Investments in Marketable Securities Reports gains and losses on marketable securities, including unrealized gains/losses and dividend income Gains (Losses) on Marketable Securities: | Item | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Unrealized gain (loss) | $26,572 | $9,566 | $(132,063) | $(37,843) | | Realized loss | $- | $(41,214) | $(194,179) | $(41,798) | | Dividend income | $14,202 | $17,931 | $59,334 | $27,983 | | Total | $40,774 | $(13,717) | $(266,908) | $(51,658) | Note 6-Fair Value of Financial Assets and Liabilities Categorizes financial assets by fair value levels and details changes in Level 3 investments Fair Value Measurement of Assets (September 30, 2022): | Asset | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------- | :--------------- | :-------- | :-------- | :-------- | | Marketable securities - mutual funds | $330,901 | $330,901 | $- | $- | | Investment in joint ventures | $387,400 | $- | $- | $387,400 | | Note receivable - current | $50,000 | $- | $- | $50,000 | Changes in Fair Value of Level 3 Financial Assets (Investment in Joint Ventures): | Item | Amount | | :---------------------------------------------------- | :------------- | | Investment in joint ventures at fair value at Dec 31, 2021 | $410,000 | | Change in fair value of investments in joint ventures | $(22,600) | | Investment in joint ventures at fair value at Sep 30, 2022 | $387,400 | - The investment in Zylö was valued at $37,000 as of September 30, 2022, down from $60,000 at December 31, 2021, reflecting an approximate $23,000 unrealized loss recorded in the second quarter of 2022 based on a 409A valuation[58] Note 7-Stockholders' Equity Discusses changes in equity plans, stock-based compensation, and outstanding equity instruments - The number of shares reserved under the 2018 Equity Incentive Plan was increased to 156,878 as of February 2, 2022[60] - The 2022 Omnibus Equity Incentive Plan was adopted on March 24, 2022, reserving 96,000 shares, and became effective upon shareholder approval on June 23, 2022[61] Stock-Based Compensation Expense: | Period | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $12,354 | $40,430 | | Nine Months Ended September 30 | $605,330 | $1,196,830 | Outstanding Equity Instruments (as of September 30, 2022): | Instrument | Number of Shares/Warrants | Weighted Average Exercise Price | | :-------------------------- | :------------------------ | :------------------------------ | | Warrants | 402,840 | $49.83 | | Options | 104,651 | $49.80 | | Non-vested restricted stock awards | 36 | $75.00 | Note 8-Commitments and contingencies Covers office lease obligations and confirms the absence of material legal proceedings - The company leases office space for approximately $4,500 per month[67] Rent Expense: | Period | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | | Three Months Ended September 30 | $18,000 | $6,000 | | Nine Months Ended September 30 | $47,000 | $33,000 | - The company is not a party to any material legal proceedings and is not aware of any pending or threatened claims that could materially adversely affect its business[68] Note 9-Risk and Uncertainties Highlights significant risks and uncertainties, particularly those stemming from the COVID-19 pandemic - The COVID-19 pandemic poses substantial risks, including potential delays or interruptions to business operations, clinical trials, and research and development activities due to factors like shelter-in-place orders and hospital policy changes[69][70][71][72] - Supply chain disruptions for raw materials used in product candidate manufacturing may occur if third-party suppliers are adversely impacted by COVID-19 restrictions[73] - The pandemic may disrupt global financial markets, negatively impacting the company's ability to access capital on favorable terms, and could materially affect its business and stock value[74] - The ultimate impact of the COVID-19 pandemic is highly uncertain, and the company continues to monitor the situation closely[75] Note 10-Subsequent events Discloses significant events occurring after the reporting period, including stock issuance and employment agreement amendments - On November 2, 2022, the company created and sold 2,000,000 shares of Series B Preferred Stock for an aggregate purchase price of $1,000[77][78] - The Series B Preferred Stock are entitled to ten votes per share, exclusively for an Authorized Stock Increase, and will be redeemed for $10 upon board order or effectiveness of the Authorized Stock Increase[77] - On November 10, 2022, the employment agreement for Dr. Stefanie Johns, Chief Scientific Officer, was amended to shorten her term to no more than six months and remove her eligibility for annual bonuses or equity awards[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of the company's financial condition, operational results, liquidity, and critical accounting estimates Overview Introduces Hoth Therapeutics as a clinical-stage biopharmaceutical company developing various therapies and diagnostic devices - Hoth Therapeutics is a clinical-stage biopharmaceutical company focused on developing new generation therapies for unmet medical needs across various indications, including cancer side effects (HT-001), mast-cell derived cancers (HT-KIT), traumatic brain injury (HT-TBI), Alzheimer's (HT-ALZ), atopic dermatitis (BioLexa), asthma/allergies (HT-004), acne/inflammatory bowel diseases (HT-003), and a novel peptide for SARS-CoV-2 (HT-002)[81] - The company is also developing a diagnostic device via a mobile platform and holds interests in third-party assets for lupus (Zylö Therapeutics) and COVID-19 prevention (Voltron Therapeutics)[81] Recent Developments Summarizes key corporate events, including a reverse stock split and the issuance of Series B Preferred Stock - A 1-for-25 reverse stock split became effective on October 26, 2022, with fractional shares rounded up[82] - On November 2, 2022, the company created and sold 2,000,000 shares of Series B Preferred Stock for $1,000, which carry ten votes each exclusively for an Authorized Stock Increase and are redeemable for $10[82][83] Results of Operations Compares the company's operating expenses and financial performance for the current and prior periods Comparison of the Three Months Ended September 30, 2022 and 2021 Analyzes changes in research and development and general and administrative expenses for the quarter - Research and development expenses decreased by approximately $0.7 million to $1.5 million in Q3 2022 from $2.2 million in Q3 2021, primarily due to decreased R&D activities[85] - General and administrative expenses increased by approximately $0.1 million to $1.2 million in Q3 2022 from $1.1 million in Q3 2021, mainly due to an increase in professional fees[86] Comparison of the Nine Months Ended September 30, 2022 and 2021 Examines changes in research and development and general and administrative expenses for the nine-month period - Research and development expenses decreased by approximately $2.1 million to $3.5 million for the nine months ended September 30, 2022, from $5.6 million in the prior year, due to decreased R&D activities[87] - General and administrative expenses decreased by approximately $0.9 million to $4.2 million for the nine months ended September 30, 2022, from $5.1 million in the prior year, primarily due to a decrease in professional fees and compensation[89] - Specifically, the fair value of options granted to officers and directors decreased by approximately $0.4 million compared to the same period in 2021[89] Liquidity and Capital Resources Assesses the company's cash position, working capital, and future funding requirements Liquidity and Financial Position (as of September 30, 2022): | Metric | Amount | | :-------------------- | :------------- | | Cash | $8.9 million | | Marketable securities | $0.3 million | | Working capital | $8.5 million | | Accumulated deficit | $41.6 million | Net Cash Used in Operating Activities (Nine Months Ended September 30): | Year | Amount | | :--- | :------------- | | 2022 | $6.7 million | | 2021 | $8.2 million | - The company expects its existing cash to fund operating expenses and capital expenditure requirements for at least 12 months from the report date[90] - Additional funding will be necessary for future clinical and pre-clinical activities, potentially through equity/debt sales or strategic partnerships, with uncertainty due to the COVID-19 pandemic[93] - Future commitments include license maintenance fees, out-of-pocket expenses, development/commercialization expenses, annual/quarterly minimum payments, diligence expenses, revenue interest payments, minimum royalties (middle to high five figures), sales-based/running royalties (low single to low double digits), and milestone payments (up to approximately $17 million)[91] Critical Accounting Estimates Identifies key accounting estimates that involve significant judgment and potential impact on financial results - Critical accounting estimates require uncertain assumptions and could materially impact financial results if different estimates were used or actual results vary[99] - The most significant estimates relate to stock-based compensation and the valuation allowance of deferred tax assets resulting from net operating losses[35][99] Recently Issued Accounting Standards Not Yet Effective or Adopted States management's assessment of the impact of new accounting pronouncements - Management does not believe that any recently issued, but not yet effective accounting pronouncements, if currently adopted, would have a material impact on the Company's condensed consolidated financial statements[43][101] JOBS Act Explains the company's status as an emerging growth company and its election of certain JOBS Act exemptions - The company is an "emerging growth company" (EGC) under the JOBS Act[3][102] - The company has chosen to take advantage of extended transition periods for complying with new or revised accounting standards, which may result in financial statements not being comparable to those of companies complying with public company effective dates[103] - As an EGC, the company intends to rely on exemptions from providing an auditor's attestation report on internal controls over financial reporting and complying with mandatory audit firm rotation requirements[104] Item 3. Quantitative and Qualitative Disclosures About Market Risk States the company's exemption from market risk disclosures as a smaller reporting company - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a "smaller reporting company" under Rule 12b-2 of the Exchange Act[105] Item 4. Controls and Procedures Reports on the effectiveness of disclosure controls and internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[106] - There have been no material changes in the company's internal control over financial reporting during the most recent fiscal quarter[107] - Management recognizes that controls and procedures, no matter how well designed, cannot provide absolute assurance due to inherent limitations and resource constraints[108] PART II. OTHER INFORMATION Presents additional information not included in the financial statements, such as legal matters and exhibits Item 1. Legal Proceedings Confirms the absence of material legal proceedings affecting the company's business or financial condition - The company is not currently a party to any material legal proceedings[110] - The company is not aware of any pending or threatened legal proceedings that could have a material adverse effect on its business, operating results, cash flows, or financial condition[110] Item 1A. Risk Factors Refers to previously disclosed risk factors and notes no material changes in the current period - There have been no material changes in the company's risk factors from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021[111] - Investors should carefully consider the risks described in the Annual Report, as well as additional risks and uncertainties not currently known or deemed immaterial, which could materially adversely affect the business[111] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the issuance of common stock to directors as unregistered sales of equity securities - During the three months ended September 30, 2022, the company issued an aggregate of 72 shares of common stock to members of its board of directors for services[112] - These shares were subject to a vesting schedule and were issued as unregistered sales of equity securities, exempt from registration under Section 4(a)(2) of the Securities Act[112][113] Item 3. Defaults Upon Senior Securities Confirms that the company reported no defaults upon senior securities during the period - The company reported no defaults upon senior securities[114] Item 4. Mine Safety Disclosures States that this disclosure item is not applicable to the company's operations - This item is not applicable to the company[115] Item 5. Other Information Discloses an amendment to the Chief Scientific Officer's employment agreement - On November 10, 2022, the employment agreement for Dr. Stefanie Johns, Chief Scientific Officer, was amended[116] - The amendment shortens her employment term to no more than six months and removes her eligibility for annual bonuses or equity awards[116] - Upon separation and execution of a release of claims, Dr. Johns will receive accrued but unpaid compensation, unused vacation, reimbursement of unreimbursed expenses, and other benefits[116] Item 6. Exhibits Lists all documents filed as exhibits to the Form 10-Q report - The exhibits include an amendment to the company's bylaws, the Third Amendment to Employment Agreement with Stefanie Johns, certifications of the Principal Executive Officer and Principal Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[118] Signatures Confirms the official signing of the Quarterly Report on Form 10-Q by executive officers - The report was signed on November 10, 2022[122] - Signatories include Robb Knie, Chief Executive Officer (Principal Executive Officer), and David Briones, Chief Financial Officer (Principal Financial and Accounting Officer)[122]