HOTH THERAPEUTICS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-Q)

You should read the following discussion and analysis of our financial condition and results of operations and our financial statements and 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 financial year closed
December 31, 2021 as they may be modified, supplemented or replaced from time to time by other reports that we file with the SECOND. All amounts in this report are in
WE dollars, unless otherwise specified.


Overview


We are a clinical-stage biopharmaceutical company focused on developing next-generation therapies for unmet medical needs. We are focused on the development of (i) a topical formulation for the treatment of side effects of 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) treatment and/or prevention of Alzheimer’s disease or other neuroinflammatory diseases (HT-ALZ). We also have actives in development for (i) atopic dermatitis (also known as eczema) (BioLexa); (ii) a treatment of asthma and allergies by inhalation (HT-004); and (iii) a treatment for inflammatory bowel disease (HT-003). Additionally, we continue to evaluate HT-002, a novel peptide that may be used to slow the transmission of SARS-CoV-2, and HT-006 for the treatment of lung disease resulting from bacterial infections. We are also developing diagnostic device via mobile device. In addition, we have interests in certain other assets developed by third parties, including a treatment for lupus patients developed by Zylö Therapeutics, Inc. and potential product candidates under development 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, 2022 and 2021


Operating Costs and Expenses


Research and development costs

In the three months ended March 31, 2022we incurred research and development expenses of approximately $1.0 million compared to $1.6 million
in the three months ended March 31, 2021. the $0.6 million decrease is mainly attributable to the decrease in the number of research and development activities that we have undertaken during the three months ended March 31, 2022.

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

? employee-related expenses, which include salaries and benefits, and rent

   expenses;



? fees related to licensed products and technologies;

? expenses incurred under agreements with research organizations under contract,

investigational sites and consultants who conduct our clinical trials and a

substantial part of our preclinical activities;

? the costs of acquiring and manufacturing clinical trial materials; and

? costs associated with non-clinical activities and regulatory approvals.

Remuneration, Professional Fees, Rent and Other (“General and Administrative Expenses”)

In the three months ended March 31, 2022we incurred general and administrative expenses of approximately $1.7 million compared to $2.6 million in the three months ended March 31, 2021. the $0.9 million This decrease is mainly attributable to a decrease in compensation and related expenses. Specifically, the fair value of options granted to our officers and directors during the three months ended March 31, 2022 decreased by $0.5 million compared with March 31, 2021.

We expect our general and administrative expenses to increase in future periods, reflecting the ongoing and increasing costs associated with:

? supporting our research and development activities;

? stock-based compensation granted to key employees and non-employees;

? support for business development activities; and

? increased professional fees and other regulatory costs

   requirements.




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Cash and capital resources

We have incurred substantial operating losses since inception and expect to continue to incur significant operating losses for the foreseeable future and never become profitable. From March 31, 2022we had about $6.4 million in cash, securities of $1.9 millioncurrent liabilities of
$0.8 million and a cumulative deficit of approximately $36.3 million.

We have entered into certain license, sublicense, sponsored search and option agreements with third parties. Pursuant to such agreements, we may be required to make certain: (i) license maintenance fee payments; (ii) disbursements, including but not limited to intellectual property payments and research expenses; (iii) payment of development and marketing costs; (iv) annual and quarterly minimum payments; (v) payments of due diligence fees; and (vi) income interest payments. In addition, subject to the achievement of certain development and/or commercialization events, we may also be required to secure: (i) minimum royalty payments, ranging from mid to high five digits, (ii) royalties based on current sales and royalties, ranging from low single digits to low double digits; and (iii) milestone payments, up to approximately $21 million (if all milestones of all our current agreements are achieved).

Cash flow from operating activities

For the three months ended March 31, 2022net cash used in operations was approximately $2.1 millionwhich resulted mainly from a net loss of approximately $2.6 million and changes in operating assets and liabilities of approximately $0.1 millionpartially offset by approximately $0.6 million
stock-based compensation.

For the three months ended March 31, 2021net cash used in operations was approximately $2.7 millionwhich resulted mainly from a net loss of approximately $4.3 millionpartially offset by changes in operating assets and liabilities of approximately $0.4 million and about $1.1 million stock-based compensation.

Cash flow from investing activities

For the three months ended March 31, 2022the net cash used in investing activities was $25,000 which was related to the purchase of research and development licenses.

For the three months ended March 31, 2021net cash from investing activities was approximately $1.0 millionmainly related to the purchase of marketable securities of approximately $1.0 million.

Cash flow from financing activities

For the three months ended March 31, 2022net cash provided by financing activities was $0.

For the three months ended March 31, 2021net cash provided by financing activities was approximately $18.4 million which resulted mainly from approximately $18.1 million the net proceeds from the issuance of common shares, common share purchase warrants and/or prefunded warrants.


JOBS Act


On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was signed into law. Section 107 of the Jobs Act provides that an “emerging growth company” may take advantage of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act securities to comply with new or revised accounting standards. In other words, an “emerging growth company” may delay the adoption of certain accounting standards until those standards otherwise apply to private companies.

We have elected to take advantage of the extended transition periods offered to emerging growth companies under the JOBS Act to comply with new or revised accounting standards until such standards otherwise apply to private companies under the JOBS Act. . Accordingly, our financial statements may not be comparable to those of companies that adhere to the public company effective dates to comply with new or revised accounting standards.

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company”, we intend to avail ourselves of certain of these exemptions, including, without limitation, (i) providing a auditor’s attestation report on our system of internal control over financial report pursuant to section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and (ii) comply with any requirements that can be adopted by the Public Company Accounting Oversight Council 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’s report 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 financial year following the fifth anniversary of the date of our initial public offering; (iii) the date on which we issued more than $1 billion in non-convertible debt over the previous three years; or (iv) the date we are deemed to be an expedited large filer under the rules of the SECOND.


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Critical Accounting Estimates


The preparation of financial statements in accordance with generally accepted accounting principles in The United States of America requires management to make estimates and assumptions that affect reported amounts and related information 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.



Although we base our estimates and judgments on our experience and various other factors we believe are 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 that have not yet become effective or adopted

Management does not believe that the 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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