Rocket One Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Hoth Therapeutics, Inc. Consolidated Financial Statements TABLE OF CONTENTS Page No. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-6 Notes to Consolidated Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Hoth Therapeutics, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Hoth Therapeutics, Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion Thee consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ WithumSmith+Brown, PC We have served as the Company’s auditor since 2018. New York, New York March 16, 2021 F- 2 Hoth Therapeutics, Inc. Consolidated Balance Sheets December 31, December 31, 2020 2019 ASSETS Current assets Cash $ 2,629,670 $ 1,690,866 Marketable equity securities, at fair value 2,063,236 803,664 Prepaid expenses 89,836 110,072 Deferred offering cost - 30,484 Total current assets 4,782,742 2,635,086 Note receivable 50,000 - Property and equipment, net - 1,043 Investment in joint venture 410,000 - Restricted cash - 200,000 Total assets $ 5,242,742 $ 2,836,129 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 129,469 $ 403,885 Accrued expenses 128,180 36,236 Accrued license fee - current portion 54,500 - Total current liabilities 312,149 440,121 Accrued license fee 285,000 - Total liabilities 597,149 440,121 Commitments and contingencies Stockholders’ equity Preferred stock, $0.0001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2020 and 2019, respectively - - Series A Convertible Preferred Stock, $0.0001 par value, 1,897,250 and 5,000,000 shares authorized, 0 shares issued and outstanding at December 31, 2020 and 2019, respectively - - Common stock, $0.0001 par value, 75,000,000 shares authorized, 13,438,535 and 10,119,844 shares issued and outstanding at December 31, 2020 and 2019, respectively 1,343 1,012 Additional paid-in-capital 24,073,059 14,610,638 Accumulated deficit (19,413,458 ) (12,215,642 ) Accumulated other comprehensive loss (15,351 ) - Total stockholders’ equity 4,645,593 2,396,008 Total liabilities and stockholders’ equity $ 5,242,742 $ 2,836,129 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Hoth Therapeutics, Inc. Consolidated Statements of Operations and Comprehensive Loss For the years ended December 31, 2020 2019 Operating costs and expenses Research and development $ 2,281,363 $ 2,025,120 Research and development - licenses acquired (including stock-based compensation) 607,562 95,000 Compensation and related expenses (including stock-based compensation) 1,454,478 2,932,933 Professional fees (including stock-based compensation) 2,478,493 2,091,745 Rent 25,871 31,622 Other expenses 454,207 538,577 Total operating expenses 7,301,974 7,714,997 Loss from operations (7,301,974 ) (7,714,997 ) Other income Other income, net 104,158 10,636 Loss on foreign currency exchange - (275 ) Total other income 104,158 10,361 Net loss $ (7,197,816 ) $ (7,704,636 ) Other comprehensive loss Foreign currency translation adjustment (15,351 ) - Total comprehensive loss $ (7,213,167 ) $ (7,704,636 ) Net loss per share applicable to common stockholders - basic and diluted $ (0.58 ) $ (0.84 ) Weighted average number of common shares outstanding, basic and diluted 12,362,833 9,164,577 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Hoth Therapeutics, Inc. Consolidated Statements of Changes in Stockholders’ Equity Common Stock Additional Paid-in Accumulated Cumulative Translation Total Stockholders’ Shares Amount Capital Deficit Adjustment Equity Balance at December 31, 2018 5,071,400 $ 507 $ 4,665,154 $ (4,511,006 ) $ - $ 154,965 Conversion of preferred stock to common stock upon completion of the IPO 3,102,480 310 - - - - Issuance of common stock in the IPO (net of offering costs of $1,159,833) 1,250,000 125 5,840,042 - - 5,840,167 Issuance of common stock and warrants (net of offering costs of $426,990) 407,424 41 1,610,089 - - 1,610,130 Cashless warrant exercise 223,877 22 (22 ) - - - Warrant exercise 16,333 2 161 - - 163 Stock-based compensation 48,330 5 2,495,214 - - 2,495,219 Net loss - - - (7,704,636 ) - (7,704,636 ) Balance at December 31, 2019 10,119,844 $ 1,012 $ 14,610,638 $ (12,215,642 ) $ - $ 2,396,008 Issuance of common stock and warrants (net of offering costs of $806,243) 1,449,275 145 4,193,611 - - 4,193,756 Issuance of common stock (net of offering costs of $525,000) 1,818,182 182 4,474,818 - - 4,475,000 Cancellation of common stock (15,000 ) (2 ) 2 - - - Warrant exercise 56,250 6 56,244 - - 56,250 Stock-based compensation 9,984 - 737,746 - - 737,746 Cumulative translation adjustment - - - - (15,351 ) (15,351 ) Net loss - - - (7,197,816 ) - (7,197,816 ) Balance at December 31, 2020 13,438,535 $ 1,343 $ 24,073,059 $ (19,413,458 ) $ (15,351 ) $ 4,645,593 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Hoth Therapeutics, Inc. Consolidated Statements of Cash Flows Years Ended Ended December 31, 2020 2019 Cash flows from operating activities Net loss $ (7,197,816 ) $ (7,704,636 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 1,043 1,225 Research and development-acquired license, expensed 506,957 95,000 Stock-based compensation 737,746 2,495,219 Realized loss on marketable securities 1,177 - Unrealized gain on marketable securities (50,553 ) (3,664 ) Changes in assets and liabilities: Prepaid expenses 20,236 (97,716 ) Accounts payable (151,988 ) 267,357 Net cash used in operating activities (6,133,198 ) (4,947,215 ) Cash flows from investing activities Purchase of investments in joint venture (410,000 ) - Purchase of research and development licenses (167,457 ) (95,000 ) Purchase of marketable securities (2,300,015 ) (800,000 ) Purchase of convertible promissory note in Isoprene (50,000 ) - Sale of marketable securities 1,089,819 - Net cash used in investing activities (1,837,653 ) (895,000 ) Cash flows from financing activities Proceeds from issuance of common stock in the IPO, net of offering cost - 5,840,167 Proceeds from issuance common stock and warrants, net of offering cost 4,193,756 1,610,130 Proceeds from issuance common stock, net of offering cost 4,475,000 - Proceeds from exercise of warrants 56,250 163 Net cash provided by financing activities 8,725,006 7,450,460 Effect of exchange rate changes on cash and cash equivalents (15,351 ) - Net increase in cash 738,804 1,608,245 Cash and restricted cash, beginning of period 1,890,866 282,621 Cash and restricted cash, end of period $ 2,629,670 $ 1,890,866 Non-cash investing and financing activities Conversion of preferred stock to common stock upon completion of the IPO $ - $ 310 Cancellation and retirement of common stock $ 2 $ - Cashless warrant exercise $ - $ 22 Offering cost included in accrued expenses $ - $ 30,484 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Hoth Therapeutics, Inc. Notes to 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 which was formed to initially focus on developing new generation therapies for dermatological disorders including atopic dermatitis (also known as eczema), chronic wounds, psoriasis, asthma and acne. Since its formation, the Company expanded its business to also focus on developing a topical formulation for treating side effects from drugs used for the treatment of cancer; a treatment for asthma and allergies using inhalational administration; a topical treatment for patients with lupus; a treatment for mast-cell derived cancers and anaphylaxis; and a treatment for lung diseases resulting from bacterial infections. The Company is focused on potentially developing a COVID-19 treatment as well as a diagnostic device for the detection of SARS-CoV-2 via a mobile device. 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 would result in dilution to its existing stockholders and future debt securities may contain covenants that limit the Company’s operations or ability to enter into certain transactions. The Company’s current cash is sufficient to fund operations for at least the next 12 months from the date that these financial statements are available to be issued. 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 existing and new 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. Note 2—Significant accounting policies Basis of presentation and principles of consolidation The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying 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. F- 7 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Use of estimates The preparation of 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 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 will be affected. Cash and cash equivalents The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. There were no cash equivalents as of December 31, 2020 and 2019. Restricted cash In November 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-18 , Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) , which clarifies the presentation of restricted cash in the statements of cash flows. Under ASU 2016-18, restricted cash is included with cash when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The Company adopted ASU 2016-18 during the year ended December 31, 2019 on a retrospective basis. The following is a summary of the Company’s cash and restricted cash total as presented in the consolidated statements of cash flows for the years ended December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Cash $ 2,629,670 $ 1,690,866 Restricted cash - 200,000 Total cash and restricted cash $ 2,629,670 $ 1,890,866 The $0.2 million restricted cash was deposited into a third-party escrow account in order to provide a source of funding for certain indemnification obligations the Company has pursuant to its Qualified Independent Underwriter Engagement Agreement. On May 29, 2020, the $0.2 million restricted cash in the escrow account was returned to the Company. Marketable securities Marketable securities are classified as trading and are carried at fair value. The Company’s marketable securities consist of a mutual fund which is valued at a quoted market price. Concentrations of credit risk and off-balance sheet risk Cash is a financial instrument that is potentially subject to concentrations of credit risk. The Company’s cash is deposited in accounts at large financial institutions, and amounts may exceed federally insured limits. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held. The Company has no financial instruments with off-balance sheet risk of loss. Deferred offering costs Deferred offering costs, which primarily consist of direct, incremental professional fees incurred in connection with the Company’s initial public offering (“IPO”) as well as other private equity offerings are capitalized as current assets on the consolidated balance sheet. Upon the closing of the offerings, the deferred offering costs are offset against the offering proceeds. Approximately $0 and $30,000 of such offering costs were accrued but unpaid at December 31, 2020 and 2019, respectively. F- 8 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Investment in joint venture 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 Accounting Standards Codification (“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 3% to 5% are considered more than minor and, therefore, should be accounted for using the equity method or fair value option. Investments accounted for using the equity method may be reported on a lag up to three months if financial statements of the investee are not available in sufficient time for the investor to apply the equity method as of the current reporting date. The determination of whether an investee’s results are recorded on a lag is made on an investment-by-investment basis. This investment in joint venture is further described in Note of 7 these consolidated financial statements. Research and development costs Research and development costs, including acquired in-process research and development expenses for which there is no alternative future use, are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. 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. 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. The following table presents the Company’s assets and liabilities that are measured at fair value at December 31, 2020 and 2019: Fair value measured at December 31, 2020 Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2020 (Level 1) (Level 2) (Level 3) Assets Marketable securities - mutual funds $ 2,063,236 $ 2,063,236 $ - $ - Fair value measured at December 31, 2019 Total at December 31, Quoted prices in active markets Significant other observable inputs Significant unobservable inputs 2019 (Level 1) (Level 2) (Level 3) Assets Marketable securities - mutual funds $ 803,664 $ 803,664 $ - $ - F- 9 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Stock-based compensation The Company accounts for share-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. These options generally vest over a one to five year period. 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. Effective January 1, 2017, the Company elected to account for forfeited awards as they occur, as permitted by ASU 2016-09. Ultimately, the actual expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures. 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 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 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 December 31, Potentially dilutive securities 2020 2019 Warrants 1,235,266 1,032,692 Options 689,212 525,000 Non-vested restricted stock awards 9,882 13,200 Total 1,934,360 1,570,892 F- 10 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Recent accounting pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying virtually all leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. On January 1, 2019, the Company adopted ASU No. 2016-02, and the adoption did not have a material impact on its consolidated financial statements and related disclosures due to the short-term nature of its operating leases. In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation—Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. On January 1, 2019, the Company adopted ASU 2018-07, and the adoption did not have a material impact on its consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2019-12 effective January 1, 2021, and the adoption did not have a material impact on its consolidated financial statements. Note 3—License agreements The following summarizes the Company’s research and development expenses for licenses acquired during the years ended December 31, 2020 and 2019: For the years ended December 31, 2020 2019 Chelexa Biosciences, Inc. and the University of Cincinnati $ 10,000 $ - The George Washington University 169,012 2,500 University of Maryland and Isoprene Pharmaceuticals, Inc. 35,000 10,000 North Carolina State University - 25,000 University of Cincinnati 26,550 7,500 U.S. Army Medical Research and Development Command 2,000 - Virginia Commonwealth University 365,000 - Zylö Therapeutics, Inc. - 50,000 $ 607,562 $ 95,000 Chelexa Biosciences, Inc. and the University of Cincinnati On May 14, 2020, the Company entered into an Assignment and Assumption Agreement (the “Assignment Agreement”) with Chelexa Biosciences, Inc. (“Chelexa”) pursuant to which Chelexa assigned to the Company its rights and obligations in and liabilities under its license agreement with the University of Cincinnati dated February 27, 2013, as amended (the “University of Cincinnati License Agreement”). In consideration for the assignment, the Company agreed to forgive all amounts due to it by Chelexa and to pay to Chelexa certain royalty payments. F- 11 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements In connection with the Assignment Agreement, on May 14, 2020, the Company entered into a novation agreement (the “Novation Agreement”) with Chelexa and the University of Cincinnati pursuant to which the parties agreed that the Company would be substituted in place of Chelexa with respect to the rights and obligations of Chelexa set forth in the University of Cincinnati License Agreement. In connection with the Assignment Agreement, on May 14, 2020, the Company entered into a royalty agreement (the “Royalty Agreement”) with Chelexa pursuant to which the Company shall pay Chelexa sales-based royalties at percentages which range from mid to high single digits, with high sales volumes being subject to lower royalty rates and total milestone payments of $3.5 million. Pursuant to the University of Cincinnati License Agreement, the Company was granted an exclusive license to make, use, have made, import, offer for sale, and sell products based upon or involving the use of (i) topical compositions comprising a zinc chelator and gentamicin and (ii) zinc chelators to inhibit biofilm formation (the “BioLexa Platform” or “BioLexa”). In addition, the University of Cincinnati granted the Company the right to issue exclusive and nonexclusive sublicenses (with the right to further sublicense to third parties) to make, use, have made, import, offer for sale, and sell products based upon the BioLexa Platform. The term of such agreement will expire on the later of April 16, 2034 and the last to expire patent in the patent rights granted to the Company (the “Term”). The Company shall, in its sole discretion, have the first right of refusal to renew the Term. The Company is subject to total milestone payments of $6,000, royalty payments, annual license maintenance fees, and has agreed to pay the University of Cincinnati for certain out-of-pocket expenses including, but not limited to, payments for patent prosecution. During the year ended December 31, 2020 the Company paid $5,000 for the annual license maintenance fee and $5,000 for the yearly minimum annual royalty fee. The George Washington University Effective as of June 1, 2019, the Company and The George Washington University (“GW”) entered into a sponsored research agreement (the “Sponsored Research Agreement”), as amended on July 29, 2019 and May 29, 2020, with respect to the exploration of the potential use of HT-001 for topical and/or systemic therapy to counter the dermatological related side-effects of Erlotinib therapy in cancer patients. Pursuant to the terms of the Sponsored Research Agreement, GW granted the Company a non-exclusive license to certain of GW’s intellectual property. The Company has agreed to pay GW for all costs incurred in connection with the research; provided, however, such costs shall not exceed approximately $0.5 million. The Sponsored Research Agreement shall terminate on June 30, 2021. The Sponsored Research Agreement may be terminated by either party upon 30 days written notice. On June 28, 2019 (the “Effective Date”), the Company and GW entered into a research option agreement (the “Research Option Agreement”) pursuant to which GW granted the Company an option (the “Option”) until April 30, 2020 to acquire an exclusive license to certain products made or used by the Company (the “GW Licensed Product”) that involve certain patents owned by GW (the “Licensed Patents”). On February 1, 2020, the Company exercised the Option and entered into a patent license agreement (the “Patent License Agreement”) with GW. On the Effective Date, the Company paid GW $2,500, and on February 27, 2020, the Company paid GW $10,000 as a license initiation fee. Until the first commercial sale of the GW Licensed Product, the Company shall pay (i) $75,000 per year for the development and commercialization of the GW Licensed Product, (ii) $2,000 for license maintenance fees on the first anniversary of the Effective Date and (iii) $5,000 for license maintenance fees commencing on the second anniversary of the Effective Date and thereafter. Furthermore, the Company shall be required to pay GW a sublicense fee equal to a certain percentage of the sum of payments plus the fair market value of all other consideration of any kind received by the Company from sublicensees during each quarter as follows: a 40% sublicense fee until the first anniversary of the Effective Date, a 30% sublicense fee until the third anniversary of the Effective Date and a 20% sublicense fee after the third anniversary of the Effective Date; provided, however, such sublicense fee shall exclude certain fees paid to the Company such as certain royalties, equity investments, loan proceeds and sponsored research funding. The Company shall also pay GW milestone payments of up to an aggregate of $90,000 and sales-based royalties at a low single digit percentage, subject to certain minimum royalty requirements. In addition, during each Option Exercise Period and Renewal Period (as defined in the Research Option Agreement) the Company shall pay GW, on a quarterly basis, for all costs and expenses related to the Licensed Patents. F- 12 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements On August 7, 2020 (the “GW Effective Date”), the Company entered into a Patent License Agreement (the “GW Patent License Agreement”) with the GW. Pursuant to the GW Patent License Agreement, GW granted the Company an exclusive, worldwide, royalty bearing license to certain intellectual property that can be used to develop a device designed to detect the presence of SARS-CoV-2. Specifically, the GW Patent License Agreement permits the Company to make, have made, use, import, offer for sale and sell Licensed Products (as defined in the GW Patent License Agreement) in the field of virus sensing and detection. The GW Patent License Agreement shall commence on the GW Effective Date and shall continue until the later of: (a) the expiration or abandonment of the last patent to expire or become abandoned of the Patent Rights (as defined in the GW Patent License Agreement); or (b) ten years after the first Sale (as defined in the GW Patent License Agreement) of the first Licensed Product if no patent has issued from the Patent Rights, unless terminated earlier pursuant to the terms of the agreement. Pursuant to the GW Patent License Agreement, the Company shall pay GW: (i) an upfront license initiation fee, (ii) annual maintenance fees commencing on the first anniversary of the GW Effective Date, (iii) milestone payments ranging from the low to mid five figures, (iv) running royalty payments at a middle single digit percentage of Net Sales (as defined in the GW License Agreement), (iv) quarterly minimum payments ranging from the low four figures for the first four quarters after the first sale to low five figures commencing three years after the first sale and (v) an annual diligence fee of high five figures. In addition, the Company has agreed to reimburse GW for certain past and future patent filing and prosecution costs. On September 17, 2020, the Company entered into a Sponsored Research Agreement (the “Agreement”) with GW effective as of September 1, 2020 (the “Agreement Effective Date”). The Agreement relates to the development of a diagnostic device for the detection of SARS-CoV-2 via a mobile device as an aid in the diagnosis of the COVID-19 infection. The Agreement commences on the Agreement Effective Date and terminates on July 31, 2021 unless such term is extended or terminated by the parties. Pursuant to the Agreement, the Company shall pay GW up to a mid-six figure fee for all research costs. During the year ended December 31, 2020 the Company paid $10,000 for license initiation fee, $10,000 for option exercise fee and approximately $15,000 patent related expense. The Company also recorded an expense of approximately $134,000 related with warrants granted to GW pursuant to Patent License Agreement. University of Maryland and Isoprene Pharmaceuticals, Inc. On March 8, 2019, the Company entered into a commercial evaluation sublicense and option agreement (the “Commercial Evaluation Sublicense and Option Agreement”) with the University of Maryland, Baltimore (“UMB”) and Isoprene Pharmaceuticals, Inc. (“Isoprene”). Pursuant to the agreement, the Company paid an initial option and material access fee of $5,000 to UMB and $5,000 to Isoprene. In the event that Isoprene enters into a master license agreement with UMB (the “MLA”), UMB shall permit Isoprene to grant an exclusive option to the Company to negotiate and obtain an exclusive sublicensable, worldwide royalty-bearing license to the subject technology (the “Isoprene-Hoth Option”); provided, however, in the event Isoprene does not enter into the MLA, UMB may grant the Company an option to negotiate and obtain an exclusive sublicensable, worldwide royalty-bearing license to the subject technology (the “UMB-Hoth Option”). If the Company exercises the Isoprene-Hoth Option, it shall pay Isoprene an option exercise fee of $20,000. If the Company exercises the UMB-Hoth Option, it shall pay UMB an option exercise fee of $20,000. On July 30, 2020 (the “Isoprene Effective Date”), the Company entered into a Sublicense Agreement (the “Isoprene Sublicense Agreement”) with Isoprene pursuant to the Commercial Evaluation Sublicense and Option Agreement. Pursuant to the Isoprene Sublicense Agreement, Isoprene granted the Company an exclusive sublicense to certain intellectual property (i) to make, have made, use, sell, offer to sell and import certain licensed products, (ii) in connection therewith, to use certain inventions and licensed materials and (iii) to practice the Patent Rights (as defined in the Isoprene Sublicense Agreement) for the treatment of dermatological conditions or diseases. The Isoprene Sublicense Agreement will continue on a country-by-country basis until the expiration of the last to expire of the Patent Rights in such country, unless earlier terminated pursuant to the Isoprene Sublicense Agreement (the “Isoprene Term”). Pursuant to the Isoprene Sublicense Agreement, the Company shall pay Isoprene, among other things, (i) a license fee, (ii) a royalty rate at a middle single digit percentage, (iii) milestone payments of up to $1,375,000 and (iv) revenue interest at a low single digit percentage based on the net revenue of covered products sold by Isoprene during the Isoprene Term. F- 13 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements In March 2019, the Company recorded an expense of an aggregate of $10,000 for the initial option and materials access fee. During the year ended 2020, the Company paid a total of $30,000 for the license fee. At December 31, 2020, the Company accrued a $5,000 for an upfront license payment. On December 2, 2020, Hoth Therapeutics, Inc. (the “Company”) entered into an option agreement (the “Option Agreement”) with Isoprene Pharmaceutics, Inc. (“Isoprene”), pursuant to which the Company will have an exclusive option, until June 2, 2021, to negotiate an exclusive, royalty-bearing and limited term license with respect to certain previously sublicensed intellectual property for the diagnosis and treatment of inflammatory bowel diseases, including Crohn’s disease and ulcerative colitis. This Option Agreement is based upon, and potentially expands, the fields of use in which the Company can license certain Isoprene intellectual property that is the subject of the Company’s existing Sublicense Agreement, dated July 30, 2020, with Isoprene, and the Master License Agreement, dated July 8, 2020, by and between Isoprene and the University of Maryland, Baltimore. During the year ended December 31, 2020 the Company paid $10,000 for license fee and $20,000 for the option exercise fee. As of December 31, 2020, the Company accrued a $5,000 for an upfront license payment. North Carolina State University On November 20, 2019 (the “NC State Effective Date”), the Company entered into a license agreement with North Carolina State University (“NC State”) pursuant to which NC State granted the Company an exclusive license to, among other things, develop, make, use, offer and sell certain licensed products throughout the world with respect to HT-004 for treating allergic diseases. The term of the license agreement shall commence on the NC State Effective Date and shall continue until the date of the expiration of the last to expire patent right granted pursuant to the license agreement unless terminated earlier pursuant to the terms of the agreement. Pursuant to the terms of the license agreement, the Company paid NC State a one-time license fee $25,000 and is also required to pay (i) sales-based royalties at a low single digit percentage, (ii) minimum royalties ranging from $0 to $50,000 and (iii) milestone payments of up to $585,000. University of Cincinnati On May 18, 2018, the Company entered into an exclusive license agreement with the University of Cincinnati for a patented, novel genetic marker for food allergies. The genetic marker licensed by the Company from the University of Cincinnati may be used to (i) identify at risk infants in predicting food allergies, including peanut and milk allergies, (ii) identify a person’s predisposition to an allergic reaction, thereby avoiding such reaction and (iii) determine an individual’s propensity to develop atopic dermatitis, such as eczema. The Company intends to utilize the genetic marker for purposes of determining an individual’s propensity to develop eczema as well as to identify and treat allergies in at-risk infants. Pursuant to the terms of the exclusive license agreement, the Company paid the University of Cincinnati a minimum annual royalty fee of $5,000 and has agreed to pay the University of Cincinnati an annual license fee of $5,000 initially due and payable within 30 days of the one year anniversary of the exclusive license agreement and every year thereafter and milestone payments of up to $120,000. The exclusive license agreement will continue until the later of (i) the date upon which a valid claim pursuant to the terms of the exclusive license agreement expires or (ii) ten years after the first commercial sale or unless earlier terminated pursuant to the terms of the exclusive license agreement. During the year ended December 31, 2020, the Company paid a total of $2,500 for the annual license maintenance fee, $5,000 for the yearly minimum annual royalty fee and approximately $2,000 for patent expense reimbursement. As of December 31, 2020, the Company accrued a $17,500 for an upfront license payment. U.S. Army Medical Research and Development Command On December 11, 2020, the Company entered into a commercial evaluation license agreement with U.S. Army Medical Research and Development Command (“USAMRDC”). This agreement was amended on January 12, 2021 to clarify that the license entered into is with Walter Reed Army Institute of Research, a subsidiary of USAMRDC. As of December 31, 2020, the Company accrued a $2,000 for an upfront license payment. F- 14 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Virginia Commonwealth University On May 18, 2020 (the “VCU Effective Date”), the Company entered into an Exclusive License Agreement (the “VCU License Agreement”) with the Virginia Commonwealth University Intellectual Property Foundation (“VCU”). Pursuant to the VCU License Agreement, VCU granted the Company an exclusive, royalty bearing license to a novel peptide developed by researchers at VCU that may be used to slow the transmission of SARS-CoV-2 (the “VCU Licensed Patent”) and a non-exclusive royalty bearing, worldwide license with respect to the Licensed Technical Information Patents (as defined in the VCU License Agreement) to make, have made, use, offer to sell, sell and import the Licensed Products (as defined in the VCU License Agreement) and perform the Licensed Services (as defined in the VCU License Agreement). The VCU License Agreement commenced on the VCU Effective Date and shall continue until the expiration of the last to expire VCU Licensed Patent unless terminated earlier pursuant to the terms of the agreement. Pursuant to the VCU License Agreement, the Company shall pay VCU: (i) an upfront license issue fee, (ii) running royalty payments at a low single digit percentage of Net Sales (as defined in the VCU License Agreement), (iii) annual maintenance fees commencing on the first anniversary of the VCU Effective Date, (iv) annual minimum payments ranging from the mid five figures to low six figures commencing on the second anniversary of the VCU Effective Date and (v) milestone payments ranging from the mid five figures to low six figures. In addition, the Company has agreed to reimburse VCU for certain patent filing and prosecution costs. On June 29, 2020, the Company entered into a Sponsored Project Agreement (the “VCU Sponsored Project Agreement”) with VCU for the development of a potential COVID-19 treatment using the license to a novel peptide granted to the Company by VCU. The VCU Sponsored Project Agreement shall terminate on January 9, 2021, unless earlier terminated pursuant to the terms thereof. In May 2020, the Company paid the signing fee of $50,000 upon execution of the VCU License Agreement. The Company also accrued $285,000 for five years of annual minimum payments and $30,000 for annual maintenance fees. Zylö Therapeutics Inc. On August 19, 2019 (the “Zylö Effective Date”), the Company entered into an exclusive sublicense agreement (the “Sublicense Agreement”) with Zylö Therapeutics, Inc. (“Zylö”) pursuant to which Zylö granted to the Company an exclusive sublicense to the Licensed Patent Rights (as defined in the Sublicense Agreement) and the Licensed Technology (as defined in the Sublicense Agreement) to, among other things, develop, make and sell the Licensed Products (as defined in the Sublicense Agreement) and to practice the Licensed Technology in the United States and Canada for any and all uses within the Field. “Field” means all therapeutic uses related to lupus in human beings, subject to the Field Expansion Rights (as defined in the Sublicense Agreement). The term of the Sublicense Agreement shall commence on the Zylö Effective Date and shall continue until the latest of (i) ten years from the date of First Commercial Sale (as defined in the Sublicense Agreement) of the Licensed Product in such country and (ii) expiration of the last to expire Valid Claim (as defined in the Sublicense Agreement) of the Licensed Patent Rights that would be infringed by the composition, use or sale of such Licensed Product in such country. Pursuant to the terms of the Sublicense Agreement, the Company and Zylö shall establish a joint development committee to plan, review, coordinate and oversee the Company’s development activities with respect to the Licensed Products in the Field. Pursuant to the Sublicense Agreement, the Company paid Zylö an upfront license fee of $50,000 and is required to pay Zylö (i) sales-based royalties at percentages which range from high single digits to low double digits, with low sales volumes being subject to lower royalty rates; and (ii) total milestone payments of up to $13.5 million. In addition, in connection with the Company’s March 2020 underwritten public offering of shares of its common stock, on May 4, 2020, the Company purchased 30,000 shares of Zylö’s Class B common stock for $60,000. Effective January 1, 2018, the Company adopted ASU 2016-01 concerning recognition and measurement of financial assets and financial liabilities. In adopting this new guidance, the Company has made an accounting policy election to adopt an adjusted cost method measurement alternative for its investment in Zylö. Note 4—Note Receivable Pursuant to Isoprene Sublicense Agreement dated July 30, 2020, the Company made an investment of $50,000 in Isoprene in the form of a convertible promissory note (the “Isoprene Note”) on September 10, 2020. The Isoprene Note matures on September 10, 2022 and accrues interest at a rate equal to the lower of: (i) the highest lawful rate permitted under applicable law and (ii) 6% per annum. The Isoprene Note may not be prepaid without the prior written consent of the Company. In the event a Qualified Financing (as defined below) occurs before the Isoprene Note is repaid in full or the conversion of such note pursuant to a Change of Control (as defined in the Isoprene Note) transaction, the Isoprene Note may be converted into such number of convertible preferred stock issued in the Qualified Financing equal to the balance of such note divided by the Capped Conversion Price (as defined below). “Qualified Financing” means the first sale of Isoprene’s convertible preferred in a private financing that results in gross proceeds of at least $5 million. “Capped Conversion Price” means the lesser of (i) the per share or unit price in the Qualified Financing and (ii) an amount determined by dividing (A) $15 million by (B) the fully diluted capitalization Isoprene immediately prior to the conversion of the Isoprene Note. In the event a Change of Control occurs before the Isoprene Note is repaid in full or the conversion of such note pursuant to a Qualified Financing, the Isoprene Note may be converted into such number of shares of Isoprene’s common stock equal to the quotient obtained by dividing (i) the balance of the Isoprene Note by (ii) two times the fair market value of a share of Isoprene common stock as set for in the acquisition agreement pertaining to such Change of Control. F- 15 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Note 5—Related Party A former director of the Company, is also the Executive Chairman of Chelexa. During the year ended December 31, 2020, that director received $22,500 in cash compensation for services provided as a member of the Company’s board of directors. On September 30, 2020, this director resigned as a member of the Company’s board of directors. Options issued to him expired on December 30, 2020. During the year ended December 31, 2019, that director received $30,000 in cash compensation for services provided as a board member and $5,000 cash compensation for his services as a member of the Company’s Scientific Advisory Board. The Company also granted him options to purchase up to 35,000 of the Company’s common stock pursuant to the Company’s 2018 Equity Incentive Plan. A former director of the Company, is also the Chief Executive Officer, Principal Accounting and Financial Officer and a member of the board of directors of AIkido Pharma Inc. During the year ended December 31, 2020, that director received $8,736 in cash compensation for services provided as a member of the Company’s board of directors. On April 15, 2020, this director resigned as a member of the Company’s board of directors. Options issued to him expired on July 15, 2020. During the year ended December 31, 2019, that director received $30,000 in cash compensation for services provided as a board member. The Company also granted such director options to purchase up to 35,000 shares of the Company’s common stock pursuant to the Company’s 2018 Equity Incentive Plan. Note 6—Investments in Marketable Securities The realized gain or loss, unrealized gain or loss, and dividend income related to marketable securities for the years ended December 31, 2020 and 2019, which are recorded as a component of other income (expenses) on the consolidated statements of operations, are as follows: For the years ended December 31, 2020 2019 Unrealized gain $ 50,553 $ 3,664 Realized loss (1,177 ) - Dividend income 31,152 6,947 Interest income 8 25 $ 80,536 $ 10,636 Note 7—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 5% of HaloVax’s outstanding membership interests for $250,000 on March 27, 2020 (the “Initial Closing Date”) and had the option to purchase up to an additional 25% of HaloVax’s membership interests (for $3,000,000 (inclusive of the $250,000)), which option expired 30 days after the Initial Closing Date. On May 28, 2020, the Company entered into a membership interest purchase agreement to purchase 1% of HaloVax’s outstanding membership interest for a purchase price of $100,000. The Company accounts for the foregoing investments under the equity method. There was no significant change in HaloVax’s operations from March 23, 2020 to December 31, 2020. F- 16 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Note 8—Stockholders’ Equity Preferred Stock The Company is authorized to issue up to 10,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, and shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be determined at the time of issuance by the Company’s board of directors without further action by the Company’s shareholders. As of December 31, 2020, 5,000,000 shares of the Company’s preferred stock has been designated as Series A Convertible Preferred Stock of which 3,102,480 shares which were previously issued were converted into common stock at the time of the Company’s IPO. The shares of Series A Convertible Preferred Stock are not mandatorily redeemable and do not embody an unconditional obligation to settle in a variable number of equity shares. As such, the shares of Series A Convertible Preferred Stock are classified as permanent equity on the balance sheets. The holders’ contingent redemption right in the event of certain deemed liquidation events does not preclude permanent equity classification. Further, the shares of Series A Convertible Preferred Stock are considered an equity-like host for purposes of assessing embedded derivative features for potential bifurcation. The embedded conversion feature is considered to be clearly and closely related to the associated convertible preferred stock host instrument and therefore was not bifurcated from the equity host. Common Shares On February 15, 2019, the Company announced the pricing of its IPO of 1,250,000 shares of its common stock at an initial offering price to the public of $5.60 per share. The Company issued an aggregate of 1,250,000 shares of common stock and received net proceeds of $5.8 million from the IPO. On January 15, 2020, pursuant to the termination and general release agreement between the Company and FON Consulting LLC dated January 7, 2020, 15,000 of the shares of common stock originally issued to FON Consulting LLC were cancelled. On February 5, 2020, the Company issued 12,500 shares of common stock upon exercise of warrants issued to an investor on January 19, 2018, which resulted in gross proceeds of $12,500. On March 6, 2020, the Company issued 25,000 shares of common stock upon exercise of warrants issued to an investor on December 14, 2017, which resulted in gross proceeds of $25,000. On May 18, 2020, the Company issued 6,250 shares of common stock upon exercise of warrants issued to an investor on February 2, 2018, which resulted in gross proceeds of $6,250. On June 3, 2020, the Company issued 12,500 shares of common stock upon exercise of warrants issued to an investor on November 20, 2017, which resulted in gross proceeds of $12,500. During the year ended December 31, 2020, the Company issued an aggregate of 9,984 shares of the Company’s common stock to members of the Company’s Board for services rendered. Public Offering of Securities On March 24, 2020 (the “UA Effective Date”), the Company entered into an underwriting agreement with Laidlaw & Company (UK) Ltd. (“Laidlaw”), the representative of the underwriters, relating to a best efforts underwritten public offering of 1,449,275 shares (the “Shares”) of the Company’s common stock at a public offering price of $3.45 per Share. The Company received net proceeds of approximately $4.2 million, after deducting the underwriting discount and offering expenses. In connection with the offering, on March 26, 2020, the Company issued Laidlaw warrants to purchase up to 72,464 shares of the Company’s common stock. The warrants are exercisable for a period of five years from the UA Effective Date at a price per share equal to $4.14, subject to adjustment, and may be exercised on a cashless basis. The Company reimbursed Laidlaw for certain of its out-of-pocket expenses incurred in connection with the offering. F- 17 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements On May 21, 2020, the Company entered into an underwriting agreement with The Benchmark Company, LLC (“Benchmark”), as representative of the several underwriters, relating to the public offering of 1,818,182 shares of the Company’s common stock at a price to the public of $2.75 per share. The Company received net proceeds of approximately $4.5 million, after deducting the underwriting discount and offering expenses. In connection with the offering, on May 27, 2020 (the “Benchmark Issue Date”), the Company issued Benchmark warrants to purchase up to 90,909 shares of the Company’s common stock. The warrants are exercisable for a period of five years commencing six months from the Benchmark Issue Date at a price per share equal to $2.75, subject to adjustment, and may be exercised on a cashless basis. Private Placement of Securities On August 16, 2019 (the “Closing Date”), the Company entered into subscription agreements (the “Subscription Agreements”) and unit purchase agreements (the “Purchase Agreements”) with certain accredited investors (the “Investors”) pursuant to which it sold units (the “Units”) for aggregate gross proceeds of $2,037,120, exclusive of placement agent commission and fees and offering and transaction expenses (the “Offering”). Each Unit was sold at an offering price of $5.00 per Unit and consisted of (i) one share of the Company’s common stock and (ii) a warrant (the “2019 Warrant”) to purchase one-half share of common stock. Each Warrant is exercisable for a period of two years beginning six months from the Closing Date at an exercise price of $8.00 per whole share, subject to adjustment. The Company is prohibited from effecting an exercise of the Warrant to the extent that, as a result of such exercise, the holder together with the holder’s affiliates, would beneficially own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the Warrant, which beneficial ownership limitation may be increased by the holder up to, but not exceeding, 9.99%. In addition, pursuant to the terms of the Offering, the Company issued Laidlaw warrants (the “Placement Agent Warrants”) to purchase up to 61,113 shares of the Company’s common stock. The Placement Agent Warrants are exercisable for a period of five years from the Closing Date (the “Initial Exercise Date”) at an exercise price of $5.00 per share, subject to adjustment. The Warrants may be exercised at any time after the Initial Exercise Date on a cashless basis and contain piggy-back registration rights. Pursuant to the Offering, the Company received $1.6 million in net proceeds from the issuance of 407,424 Units. The Company has determined that the 2019 Warrants should be accounted as a component of stockholders’ equity. For the 2019 Warrants issued on August 16, 2019, the Company estimated the relative fair value of the warrants at $0.8 million using the Black-Scholes option pricing model using the following primary assumptions: fair value of common stock underlying the warrants ranges from $2.55 to $4.33, expected life ranges from 2.0 to 5.0 years, volatility rate ranges from 107.30% to 110.08%, risk-free interest rate ranges from 1.42% to 1.48% and expected dividend rate of 0%. 2018 Equity Incentive Plan The Company’s 2018 Equity Incentive Plan (the “2018 Plan”) was adopted by the Company’s board of directors on May 4, 2018 and by its shareholders on May 4, 2018. The Company has reserved 1,000,000 shares of common stock for issuance pursuant to the 2018 Plan. F- 18 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Restricted Stock Awards A summary of the Company’s restricted stock awards granted under the 2018 Plan during the years ended December 31, 2020 and 2019 is as follows: Number of Restricted Stock Awards Weighted Average Grant Day Fair Value Nonvested at December 31, 2018 21,530 $ 0.25 Granted 40,000 5.11 Vested (48,330 ) 3.97 Nonvested at December 31, 2019 13,200 $ 0.25 Granted 6,666 3.00 Vested (9,984 ) 0.49 Nonvested at December 31, 2020 9,882 $ 1.86 As of December 31, 2020, approximately $9,000 of unrecognized stock-based compensation expense related to restricted stock awards. The weighted average remaining contractual terms of unvested restricted stock awards is approximately 1.9 years at December 31, 2020. Stock Options The fair value of options granted in 2020 and 2019 was estimated using the following assumptions: For the years ended December 31, 2020 2019 Exercise price $2.54-3.05 $5.26-$5.88 Term (years) 9.52-9.56 4.18-9.98 Expected stock price volatility 114.2%-114.5% 111.2%-112.1% Risk-free rate of interest 0.29% 1.75%-2.52% A summary of option activity under the Company’s stock option plan for years ended December 31, 2020 and 2019 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, 2019 525,000 $ 5.32 $ 457,250 9.4 Employee options issued 200,000 3.05 - 8.8 Non - employee options issued 49,212 2.54 - 9.5 Forfeited (85,000 ) - - - Outstanding as of December 31, 2020 689,212 $ 4.52 $ - 8.8 Options vested and exercisable 689,212 $ 4.52 $ - 8.8 F- 19 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Stock Based Compensation Stock-based compensation expense for the years ended December 31, 2020 and 2019 was approximately $0.7 million and $2.5 million, respectively, and comprised of the following: For the years ended December 31, 2020 2019 Employee stock option awards $ 487,963 $ 2,195,812 Non-employee stock option awards 100,104 - Employee restricted stock awards 15,510 10,252 Non-employee restricted stock awards - 204,550 Non-employee stock warrant awards 134,169 84,605 $ 737,746 $ 2,495,219 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 on the consolidated statements of operations. Warrants Pursuant to the Patent License Agreement between the Company and GW dated February 1, 2020, on February 27, 2020 (the “February Warrant Date of Issuance”), the Company issued GW ten year warrants (the “February Warrants”) to purchase up to 22,988 shares of the Company’s common stock at an exercise price of $4.35 per share. The February Warrants vest as follows: 20% on the February Warrant Date of Issuance and the balance, or 80% of the February Warrants, vest in four equal annual installments of 20% on each anniversary of the February Warrant Date of Issuance. Pursuant to the GW Patent License Agreement between the Company and GW dated August 7, 2020, on August 10, 2020 (the “August Warrant Date of Issuance”), the Company issued GW ten year warrants (the “August Warrants”) to purchase up to 72,463 shares of the Company’s common stock at an exercise price of $2.76 per share. The August Warrants vest as follows: 20% on the August Warrant Date of Issuance and the balance, or 80% of the August Warrants, shall vest in four equal annual installments of 20% on each anniversary of the August Warrant Date of Issuance. In connection with the public offering of securities discussed above, the Company granted to Laidlaw and Benchmark warrants to purchase up to 72,464 and 90,909 shares of the Company’s common stock, respectively. A summary of warrant activity for the years ended December 31, 2020 and 2019 is presented below: Number of Warrants Weighted Average Exercise Price Total Intrinsic Value Weighted Average Remaining Contractual Life (in years) Outstanding as of December 31, 2018 991,367 $ 1.00 $ - 5.9 Issued 331,155 6.90 100,938 4.1 Exercised (289,830 ) 0.94 - - Outstanding as of December 31, 2019 1,032,692 $ 2.91 $ 3,725,745 4.2 Issued 258,824 3.28 - 4.9 Exercised (56,250 ) 1.00 - - Outstanding as of December 31, 2020 1,235,266 $ 3.07 $ 696,334 3.4 Warrants exercisable as of December 31, 2020 1,158,906 $ 3.07 $ 696,334 3.5 F- 20 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Note 9—Commitments and contingencies Office lease The Company leases office space for approximately $2,500 a month. Rent expense for the years ended December 31, 2020 and 2019 was approximately $25,000 and $32,000, respectively. The Company is not a party to a lease that is in excess of 12 months. 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 10—Income taxes The table below presents the components of the provision for taxes: As of December 31, 2020 2019 Current US Federal $ - $ - US State - - Total current provision - - Deferred US Federal 1,489,095 1,686,735 US State - - Total deferred benefit 1,489,095 1,686,735 Change in valuation allowance (1,489,095 ) (1,686,735 ) Total provision for income taxes $ - $ - At December 31, 2020 and 2019, the tax effects of the temporary differences and carryforwards that give rise to deferred tax assets consist of the following: As of December 31, 2020 2019 Deferred tax assets: Net operating loss carryforward $ 3,336,268 $ 1,975,501 License acquired 139,487 133,182 Stock Compensation 549,387 427,558 Total deferred income tax assets 4,025,142 2,536,241 Deferred income tax assets liabilities: Prepaids - - Depreciation fixed assets 63 (132 ) Total deferred income tax liabilities 63 (132 ) Net deferred income tax assets 4,025,205 2,536,109 Valuation allowance (4,025,205 ) (2,536,109 ) Deferred tax asset, net of allowance $ - $ - F- 21 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements A reconciliation of the statutory income tax rates and the Company’s effective tax rate for the year ended December 31, 2020 and 2019 is as follows: Years Ended December 31, 2020 2019 Statutory federal income tax rate (21.0 )% (21.0 )% State taxes, net of federal tax benefit 0.0 % 0.0 % Return to Provison 0.0 % (1.3 )% Other 0.3 % 0.4 % Change in valuation allowance 20.7 % 22.0 % Income taxes provision (benefit) - % - % The Company has determined, based upon available evidence, that it is more likely than not that the net deferred tax assets will not be realized and, accordingly, has provided a full valuation allowance against its net deferred tax assets. As of December 31, 2020, the Company has net operating loss carryforwards of approximately $15.9 million available to reduce future taxable income, if any, for Federal and state income tax purposes. Approximately $1.5 million of Federal net operating losses can be carried forward to future tax years and expire in 2037. The Federal net operating loss generated during the years ended December 31, 2018 and 2019 of approximately $14.4 million can be carried forward indefinitely. However, the deduction for net operating losses incurred in tax years beginning after January 1, 2018 is limited to 80% of annual taxable income. At December 31, 2020 and 2019, the Company did not have any significant uncertain tax positions. The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2020 and 2019, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months. All of the Company’s tax years will remain open for examination by the Federal and state tax authorities from the date of utilization of the net operating loss. Note 10—Risk and Uncertainties The outbreak of the novel Coronavirus (COVID-19) evolved into a global pandemic. The Coronavirus has spread to many regions of the world. The extent to which the Coronavirus impacts the Company’s business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning the Coronavirus and the actions to contain the Coronavirus or treat its impact, among others. As a result of the continuing spread of the Coronavirus, certain aspects of the Company’s business operations have been delayed, and the Company may be subject to additional delays or interruptions. Specifically, as a result of the shelter-in-place orders and other mandated local travel restrictions, among other things, the research and development activities of certain of the Company’s partners may be affected, which may result in delays to the Company’s clinical trials, and the Company can provide no assurance as to when such trials, if delayed, will resume at this time or the revised timeline to complete trials once resumed. Furthermore, site initiation, participant recruitment and enrollment, participant dosing, distribution of clinical trial materials, study monitoring and data analysis may be paused or delayed due to changes in hospital or university policies, federal, state or local regulations, prioritization of hospital resources toward pandemic efforts, or other reasons related to the pandemic. If the Coronavirus continues to spread, some participants and clinical investigators may not be able to comply with clinical trial protocols. For example, quarantines or other travel limitations (whether voluntary or required) may impede participant movement, affect sponsor access to study sites, or interrupt healthcare services, and the Company may be unable to conduct its clinical trials. Further, if the spread of the Coronavirus pandemic continues and the Company’s operations are adversely impacted, the Company risks a delay, default and/or nonperformance under existing agreements which may increase its costs. These cost increases may not be fully recoverable or adequately covered by insurance. F- 22 Hoth Therapeutics, Inc. Notes to Consolidated Financial Statements Infections and deaths related to the pandemic may disrupt the United States’ healthcare and healthcare regulatory systems. Such disruptions could divert healthcare resources away from, or materially delay FDA review and/or approval with respect to, the Company’s clinical trials. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of the Company’s clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of the Company’s product candidates. The Company currently utilizes third parties to, among other things, manufacture raw materials. If any third-party party in the supply chain for materials used in the production of the Company’s product candidates are adversely impacted by restrictions resulting from the Coronavirus outbreak, the Company’s supply chain may be disrupted, limiting the Company’s ability to manufacture its product candidates for its clinical trials and research and development. The spread of the Coronavirus, which has caused a broad impact globally, including restrictions on travel and quarantine policies put into place by businesses and governments, may have a material economic effect on the Company’s business. While the potential economic impact brought by and the duration of the pandemic may be difficult to assess or predict, it has already caused, and is likely to result in further, significant disruption of global financial markets, which may reduce our ability to access capital either at all or on favorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the Coronavirus could materially and adversely affect the Company’s business and the value of its common stock. The ultimate impact of the current pandemic, or any other health epidemic, is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, its clinical trials, its research programs, healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s operations, and the Company will continue to monitor the situation closely. Note 12—Subsequent Events The compensation committee of the board of directors increased the number of shares reserved pursuant to the Company’s 2018 Plan by 671,926 shares effective as of January 1, 2021 such that as of January 1, 2021, the Company had an aggregate of 1,671,926 shares of common stock reserved for issuance pursuant to the 2018 Plan. On January 5, 2021, the Company entered into a Securities Purchase Agreement with certain accredited investors identified on the signature pages thereto (the “Purchasers”) pursuant to which the Company offered and sold to the Purchasers an aggregate of 2,475,248 shares of its common stock and warrants to purchase up to 1,237,624 shares of common stock in a private placement for aggregate gross proceeds to the Company of $5 million, before deducting estimated offering expenses payable by the Company. The combined purchase price for each share of common stock and accompanying warrant to purchase 0.5 of a share of common stock was $2.02. The closing of the offering occurred on January 7, 2021.Each warrant is immediately exercisable for a period of five years at an exercise price of $2.25 per Warrant Share, subject to adjustment, and may be exercised on a cashless basis. In addition, pursuant to the terms of the offering, the Company issued Benchmark Company, LLC warrants to purchase up to 185,644 shares of common stock. Benchmark’s warrants are exercisable for a period of five years from the closing date of the offering at an exercise price of $2.25 per share, subject to adjustment. On February 25, 2021, the Company entered into an exclusive, worldwide, royalty bearing license with NC State pursuant to which NC State granted the Company an exclusive, worldwide, royalty bearing license to certain intellectual property to, among other things, discover, develop, make, have made, use and sell certain licensed products and sell, use and practice certain licensed services with respect to cancer and anaphylaxis. On March 8, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors pursuant to which it offered and sold to the purchaser 6,826,962 shares of common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 767,975 shares of common stock and warrants (the “Common Stock Warrants”) to purchase up to 7,594,937 shares of common stock. in a private placement for aggregate gross proceeds to the Company of $15 million, before deducting estimated offering expenses payable by the Company. The combined purchase price for each share of common stock and accompanying warrant was $1.975. The closing of the offering occurred on March 10, 2021. Each warrant is immediately exercisable for a period of five years at an exercise price of $2.25 per warrant share, subject to adjustment, and may be exercised on a cashless basis. Each Pre-Funded Warrant is exercisable until exercised in full at an exercise price of $0.001 per share and may be exercised by means of a cashless exercise. In addition, pursuant to the terms of the offering, the Company issued H.C. Wainwright & Co., LLC warrants to purchase up to 379,747 shares of common stock. The warrants are exercisable for a period of three years from the issuance date at an exercise price of $2.4688 per share, subject to adjustment and may be exercised by means of a cashless exercise. F- 23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE None.