Item 7. Management’s Discussion and Analysis
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
You should read the following discussion and
analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes
appearing elsewhere in this Annual Report on Form 10-K. 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 elsewhere in this Annual Report on Form 10-K. 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); and (iii) 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 obesity, and obesity-related diseases and
conditions (HT-VA).
Results
of Operations
Comparison
of Our Results of Operations for the Years Ended December 31, 2024 and 2023
Operating
Costs and Expenses
Research
and Development Expenses
For the year ended December 31, 2024, research
and development expenses were approximately $3.2 million. Specifically, during the year ended December 31, 2024, our research and development
costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $2.1
million related to manufacturing and clinical activities; (ii) HT-KIT, approximately $0.6 million related to manufacturing and preclinical
activities; (iii) HT-ALZ, approximately $0.2 million related to preclinical studies; and (iv) HT-004, approximately $0.1 million related
to sponsored research. In addition to the foregoing, we also incurred fees of approximately $0.2 million payable to members of our scientific
advisory board for services.
For the year ended December 31, 2023, research
and development expenses were approximately $3.9 million. Specifically, during the year ended December 31, 2023, our research and development
costs consisted primarily of the following costs for each of our key research and development projects: (i) HT-001, approximately $2.0
million related to manufacturing and clinical activities; (ii) HT-KIT, approximately $1.6 million related to manufacturing and preclinical
activities; (iii) HT-ALZ, approximately $65,000 related to preclinical studies; (iv) BioLexa, approximately $56,000 related to manufacturing;
and (v) HT-004, approximately $59,000 related to sponsored research. In addition to the foregoing, we also incurred fees of approximately
$0.2 million payable to members of our scientific advisory board for services.
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 CROs, 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.
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General
and Administrative Expenses
For the year ended December 31, 2024, general
and administrative expenses amounted to approximately $5.0 million as compared to $4.2 million for the year ended December 31, 2023, an
increase of $0.8 million, or 17.9%. For the years ended December 31, 2024 and 2023, general and administrative expenses consisted of the
following (rounded to the nearest $1,000):
Year Ended
December 31,
2024
2023
Compensation and related expenses
$ 2,251,000
$ 1,570,000
Professional and consulting expenses
1,902,000
2,089,000
Rent expense
53,000
39,000
Other general and administrative expenses
760,000
514,000
Total
$ 4,966,000
$ 4,212,000
During the year ended December 31, 2024, the increase
in general and administrative expenses of approximately $754,000 was primarily attributed to an increase other general and administrative
expenses of approximately $246,000, which primarily consisted of an increase in conference fees of approximately $154,000, and an increase
in travel expenses of approximately $32,000, an increase in compensation and related expenses of approximately $681,000, comprising of
an increase in stock-based compensation of approximately $612,000 related to the issuance of stock options to executives and board of
director members and an increase in health insurance, and an increase in rent of approximately $14,000, offset by a decrease in professional
and consulting expenses of approximately $187,000.
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 regulatory requirements that we are subject to.
Other
Income (Expenses), net
For the year ended December 31, 2024, net other
income was approximately $27,000, which primarily resulted from $27,000 of dividend and interest income.
For
the year ended December 31, 2023, net other expenses were approximately $0.1 million, which primarily resulted from $0.2 million of unrealized
losses on marketable securities, partially offset by approximately $0.1 million of dividend income.
Net
Loss
For
the year ended December 31, 2024 and 2023, we incurred a net loss of approximately $8.2 million, or $1.28 per common share (basic and
diluted), and $8.1 million, or $2.38 per common share (basic and diluted), respectively.
Liquidity
and Capital Resources
To date we have funded our operations primarily
through the sale of equity and debt securities. As of December 31, 2024, we had approximately $7.0 million in cash and cash equivalents,
working capital of approximately $6.8 million and an accumulated deficit of approximately $60.4 million. Net cash used in operating activities
was $7.0 million and $8.4 million for the years ended December 31, 2024 and 2023, respectively. We incurred net losses of approximately
$8.2 million and $8.1 million for the years ended December 31, 2024 and 2023, 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 December 31, 2024 plus cash proceeds we received of $5,625,000 from exercise
of warrants in January 2025 and cash proceeds we received of $1,470,435 from the sale of our common shares under the ATM Agreement during
the period from January 7, 2025 to March 28, 2025 will enable us to fund our operating expenses and capital expenditure requirements for
at least 12 months from the date that our audited financial statements are available to be issued.
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During
the year ended December 31, 2024, we issued 2,500,000 shares (the “Warrant Shares”) of our common stock upon the exercise
of the 2,500,000 January 2023 Existing Warrants (as defined herein) for net proceeds of approximately $3.7 million, after deducting placement
agent fees and other offering expenses of approximately $0.4 million. The Warrant Shares were issued as a result of a March 27, 2024
inducement offer agreement, which closed on April 1, 2024, with a holder (the “Holder”) of certain of our existing warrants
(“January 2023 Existing Warrants”) to immediately exercise, for cash, an aggregate of 2,500,000 January 2023 Existing Warrants
to purchase shares of our common stock at a reduced exercise price of $1.6775 per share.
On November 8, 2024, we entered into an At The
Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”) under
which we may offer and sell shares of our common stock having an aggregate sales price of up to $2,700,000 through Wainwright as the sales
manager pursuant to our effective shelf registration statement on Form S-3, including an accompanying prospectus (File No. 333-272620),
and a prospectus supplement dated November 8, 2024. Sales of shares of the Company’s common stock through Wainwright, if any, will
be made by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities
Act of 1933, as amended. Wainwright will use commercially reasonable efforts to sell shares of the Company’s common stock from time
to time, based on instructions from us (including any price, time or size limits or other parameters or conditions we may impose). We
will pay Wainwright a commission equal to 3.0% of the aggregate gross proceeds from the sales of shares of the Company’s common
stock sold through Wainwright under the ATM Agreement and will also reimburse Wainwright for certain specified expenses in connection
with the ATM Agreement. The offering of shares pursuant to the ATM Agreement will terminate on the earlier of (1) the sale, pursuant
to the ATM Agreement, of shares having an aggregate offering price of $2,700,000 and (2) the termination of the ATM Agreement by
either us or Wainwright, as set forth therein. From November 8, 2024 to December 31, 2024 we issued 1,137,250 shares of our common stock
for net proceeds of approximately $1.0 million pursuant to the ATM Agreement.
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 $30 million (if all milestones in all of our current agreements
are achieved).
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 year ended December 31, 2024, net cash used in operating activities was approximately $7.0 million, which primarily resulted from
a net loss of approximately $8.2 million, offset by $0.8 million in stock-based compensation, a decrease in prepaid expense of $0.2 million
and an increase in accounts payable and accrued expenses of $0.2 million.
For
the year ended December 31, 2023, net cash used in operating activities was approximately $8.4 million, which primarily resulted from
a net loss of approximately $8.1 million, a $0.3 million gain on termination of license agreement, offset by $0.2 million unrealized
loss on marketable securities, $0.2 million stock-based compensation and changes in operating assets and liabilities of approximately
$0.5 million.
Cash
Flows from Investing Activities
The
Company did not have any cash flows from investing activities for the years ended December 31, 2024 or December 31, 2023.
Cash
Flows from Financing Activities
For
the year ended December 31, 2024, net cash provided by financing activities was approximately $4.7 million, which primarily resulted
from net proceeds from the issuance of common stock, common stock warrants, and prefunded warrants of $1.0 million and proceeds from
the exercise of warrants of approximately $3.7 million.
For
the year ended December 31, 2023, net cash provided by financing activities was approximately $11.3 million, which primarily resulted
from net proceeds from the issuance of common stock, common stock warrants, and prefunded warrants.
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Our
ultimate success is dependent on our ability to obtain additional financing and generate sufficient cash flow to meet our obligations
on a timely basis. We will require significant amounts of capital to sustain operations, and we will need to make the investments we
need to execute our longer-term business plan to support new technologies and help advance innovation. Absent generation of sufficient
revenue from the execution of our long-term business plan, we will need to obtain debt or equity financing, especially if we experience
downturns in our business that are more severe or longer than anticipated, or if we experience significant increases in expense levels
resulting from being a publicly traded company or from operations. Such additional debt or equity financing may not be available to us
on favorable terms, if at all.
We
plan to pursue our plans with respect to the research and development of our pre-clinical products which will require resources beyond
those that we currently have, ultimately requiring additional capital from third-party sources. We currently do not expect to generate
any revenue.
Critical
Accounting Estimates
The
preparation of consolidated 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 a 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 consolidated financial statements included elsewhere in this Annual Report on Form 10-K for an additional discussion of
our significant accounting policies.
Stock-based
compensation
The
Company accounts for stock-based payment awards exchanged for services at the estimated grant date fair value of the award. Stock options
issued under the Company’s long-term incentive plans are granted with an exercise price equal to no less than the market price
of the Company’s stock at the date of grant and expire up to ten years from the date of grant. Options are generally issued fully
vested. The Company accounts for forfeited awards as they occur.
The
Company estimates the fair value of stock option grants using the Black-Scholes option pricing model and the assumptions used in calculating
the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application
of management’s judgment.
Expected
Term - The expected term of options represents the period that the Company’s stock-based awards are expected to be outstanding
based on the simplified method, which is the half-life from vesting to the end of its contractual term.
Expected
Volatility - The Company computes stock price volatility over expected terms based on its historical common stock trading prices.
Risk-Free
Interest Rate - The Company bases the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues
with an equivalent remaining term.
Expected
Dividend - The Company has never declared or paid any cash dividends on its common shares and does not plan to pay cash dividends
in the foreseeable future, and, therefore, uses an expected dividend yield of zero in its valuation models.
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The
Company grants restricted stock awards under its equity incentive plan. Restricted stock awards are granted to employees and non-employees.
The restricted stock awards are measured based on the grant-date fair value. In general, the restricted stock awards vest over a service
period of zero to three years. Stock-based compensation expense is generally recognized based on the straight-line basis over the requisite
service period and forfeitures are accounted for as they occur.
The
Company has issued warrants to non-employees. The warrants are measured based on the grant-date fair value. In general, the warrants
vest over a term of zero to ten years. Stock-based compensation expense is generally recognized based on the straight-line basis over
the vesting term.
Income
taxes
Income
taxes are recorded in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”)
which provides for deferred taxes using an asset and liability approach. We recognize deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in our consolidated financial statements or tax returns. Deferred tax assets
and liabilities are determined based on the difference between our 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.
We
account for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, we recognize the
tax benefit of tax positions to the extent that the benefit would more likely than not be realized. 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.
Recently
Issued Accounting Standards Not Yet Effective or Adopted
Income
Taxes (Topic 740)
In
December 2023, the Financial Accounting Standards Board (“FASB”) issued guidance within Accounting Standards Update (“ASU”)
2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amendments in the ASU are intended to provide more
transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation
and income taxes paid information. The ASU requires disclosure in the rate reconciliation of specific categories as well as additional
information for reconciling items that meet a quantitative threshold.
The
ASU requires disclosure of the following information about income taxes paid on an annual basis:
●
Income
taxes paid (net of refunds received), disaggregated by federal and state taxes and by individual jurisdictions in which income taxes
paid (net of refunds received) is equal to or greater than five percent of total income taxes paid (net of refunds received).
●
Income
tax expense (or benefit) from continuing operations disaggregated by federal and state jurisdictions.
The
ASU is effective for annual periods beginning after December 15, 2024. The amendments should be applied on a prospective basis. The Company
is evaluating the impact that the adoption of this ASU will have on the Company’s consolidated financial statements, as it may
require additional disclosures in the notes to our condensed consolidated financial statements.
ITEM
7A. 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.
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