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 (PCAOB ID: 100) F-2 Consolidated Balance Sheets as of December 2023 and 2022 F-3 Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2023 and 2022 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These 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 28, 2024 PCAOB ID No. 100 F- 2 Hoth Therapeutics, Inc. Consolidated Balance Sheets December 31, 2023 December 31, 2022 ASSETS Current assets: Cash $ 9,292,352 $ 6,428,611 Marketable equity securities, at fair value — 209,320 Prepaid expenses and other current assets 135,361 88,450 Total current assets 9,427,713 6,726,381 Right of use asset – operating lease 55,165 — Investment in joint ventures at fair value 37,400 33,000 Total assets $ 9,520,278 $ 6,759,381 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 35,592 $ 694,989 Accrued expenses 614,226 667,742 Accrued license fee - current portion — 25,000 Lease liability, current 28,839 — Total current liabilities 678,657 1,387,731 Lease liability, noncurrent 26,326 — Accrued license fee - less current portion — 250,000 Total liabilities 704,983 1,637,731 Commitments and Contingencies (See Note 7) Stockholders’ equity: Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized; 3,000,000 shares undesignated; 0 shares issued and outstanding as of December 31, 2023 and December 31, 2022 — — Series A Convertible Preferred Stock, $ 0.0001 par value, 5,000,000 shares designated; 0 shares issued and outstanding at December 31, 2023 and December 31, 2022 — — Series B Preferred Stock, $ 0.0001 par value, 2,000,000 shares designated; 0 shares issued and outstanding as of December 31, 2023 and December 31, 2022 — — Common stock, $ 0.0001 par value, 50,000,000 shares authorized, 4,348,129 and 1,302,113 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 435 130 Additional paid-in capital 61,732,106 50,198,630 Accumulated deficit ( 52,944,506 ) ( 45,099,116 ) Accumulated other comprehensive income 27,260 22,006 Total stockholders’ equity 8,815,295 5,121,650 Total liabilities and stockholders’ equity $ 9,520,278 $ 6,759,381 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 Year Ended December 31, 2023 2022 Operating costs and expenses Research and development $ 3,480,053 $ 4,931,164 General and administrative expenses 4,212,189 6,134,390 Total operating expenses 7,692,242 11,065,554 Loss from operations ( 7,692,242 ) ( 11,065,554 ) Other income (expense), net Unrealized gain (loss) on marketable securities ( 209,320 ) 119,870 Realized loss on marketable securities — ( 567,692 ) Change in fair value of investments in joint ventures 4,400 ( 377,000 ) Interest income 781 6,370 Dividend income 50,991 60,913 Other income, net — 451,140 Total other income (expense), net ( 153,148 ) ( 306,399 ) Net loss $ ( 7,845,390 ) $ ( 11,371,953 ) Deemed dividend to Series B Preferred Stock being redeemed — 990 Net Loss Attributable to Common Stockholders $ ( 7,845,390 ) $ ( 11,370,963 ) Net loss per share - basic and diluted $ ( 2.30 ) $ ( 9.50 ) Weighted average number of common shares outstanding, basic and diluted 3,409,190 1,197,521 Comprehensive loss: Net loss $ ( 7,845,390 ) $ ( 11,371,953 ) Other comprehensive income Foreign currency translation adjustment 5,254 4,420 Total comprehensive loss $ ( 7,840,136 ) $ ( 11,367,533 ) The accompanying notes are an integral part of these consolidated financial statements. F- 4 Hoth Therapeutics, Inc. Consolidated Statements of Changes in Stockholders’ Equity Series B Preferred Stock Common Stock Additional Paid-in Accumulate Accumulated Other Comprehensive Total Stockholders’ Shares Amount Shares Amount Capital Deficit Income (Loss) Equity Balance as of December 31, 2021 — $ — 959,009 $ 96 $ 43,591,773 $ ( 33,727,163 ) $ 17,586 $ 9,882,292 Stock-based compensation — — 10 — 620,798 — — 620,798 Vesting of restricted stock — — 1,791 — — — — — Issuance of common stock (net of offering costs of $ 1,014,896 ) — — 329,412 33 5,985,070 — — 5,985,103 Issuance of Series B preferred stock 2,000,000 1,000 — — — — — 1,000 Redemption of Series B preferred stock ( 2,000,000 ) ( 1,000 ) — — 990 — — ( 10 ) Fractional shares adjusted for reverse split — — 11,891 1 ( 1 ) — — — Cumulative translation adjustment — — — — — — 4,420 4,420 Net loss — — — — — ( 11,371,953 ) — ( 11,371,953 ) Balance as of December 31, 2022 — $ — 1,302,113 $ 130 $ 50,198,630 $ ( 45,099,116 ) $ 22,006 $ 5,121,650 Exercise of warrants — — 2,355,050 236 2,119 — — 2,355 Stock-based compensation — — — — 216,428 — — 216,428 Common stock and warrants issued in private placement (net of offering costs of $ 1,575,645 ) — — 689,275 69 11,314,929 — — 11,314,998 Vesting of restricted stock awards — — 1,691 — — — — — Cumulative translation adjustment — — — — — — 5,254 5,254 Net loss — — — — — ( 7,845,390 ) — ( 7,845,390 ) Balance as of December 31, 2023 — $ — 4,348,129 $ 435 $ 61,732,106 $ ( 52,944,506 ) $ 27,260 $ 8,815,295 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Hoth Therapeutics, Inc. Consolidated Statements of Cash Flows Year Ended December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 7,845,390 ) $ ( 11,371,953 ) Adjustments to reconcile net loss to net cash used in operating activities: Research and development-acquired license, expensed — 34,000 Gain on termination of license agreement ( 275,000 ) — Change in fair value of investments in joint ventures ( 4,400 ) 377,000 Stock-based compensation 216,428 620,798 Realized loss on marketable securities — 567,692 Unrealized (gain) loss on marketable securities 209,320 ( 119,870 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 47,300 ) 3,847 Accounts payable and accrued expenses ( 700,752 ) 590,632 Net cash used in operating activities ( 8,447,094 ) ( 9,297,854 ) Cash flows from investing activities Purchase of research and development licenses — ( 74,000 ) Sale of marketable securities — 1,235,695 Net cash provided by investing activities — 1,161,695 Cash flows from financing activities Proceeds from issuance common stock, common stock warrants and prefunded warrants, net of offering costs 11,314,998 — Proceeds from exercise of warrants 2,355 — Proceeds from issuance common stock, net of offering costs — 5,985,103 Proceeds from issuance of Series B Preferred Stock — 1,000 Redemption of Series B Preferred Stock — ( 10 ) Proceeds from repayment of note receivable and interest received — 50,000 Net cash provided by financing activities 11,317,353 6,036,093 Effect of exchange rate changes on cash and cash equivalents ( 6,518 ) ( 9,593 ) Net change in cash 2,870,259 ( 2,100,066 ) Cash, beginning of year 6,428,611 8,538,270 Cash, end of year $ 9,292,352 $ 6,428,611 Supplemental disclosure of cash flow information: ROU assets obtained in exchange for lease liability $ 59,698 $ — 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 subsidiaries, merveille.ai and 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 focused on developing new generation therapies for unmet medical needs. The Company is 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); (iii) a treatment for traumatic brain injury and ischemic stroke (HT-TBI); and (iv) 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 acne as well as inflammatory bowel diseases (HT-003). The Company also has interests in certain other assets being developed by third parties (see Note 5 to the consolidated financial statements for a discussion of the Company’s agreement with Zylö Therapeutics, Inc. and Voltron Therapeutics, Inc.). 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 may result in dilution to its existing shareholders and future debt securities may contain covenants that limit the Company’s operations or ability to enter into certain transactions. The Company believes its current cash is sufficient to fund operations for at least the next 12 months from the issuance date of these financial statements. 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 current and future 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. On September 13, 2023, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which it sold (i) 549,275 shares of common stock and (ii) pre-funded warrants (the “September Pre-Funded Warrants”) to purchase up to 550,725 shares of common stock at a purchase price of $ 2.63 per share of common stock and a purchase price of $ 2.629 per September Pre-Funded Warrant. Concurrently with the sale of common stock and/or the September Pre-Funded Warrants, pursuant to the securities purchase agreement, in a private placement, the Company issued and sold warrants (the “September Common Stock Warrants”) to purchase up to 1,100,000 shares of common stock. Proceeds from the offering were approximately $ 2.9 million, prior to deducting placement agent’s fees and other offering expenses payable by the Company . The closing of the offering occurred on September 15, 2023. Each September Common Stock Warrant is exercisable for a period of five years from the issuance date at an exercise price of $ 2.505 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. Each September Pre-Funded Warrant is exercisable until exercised in full at an exercise price of $ 0.001 per share and may be exercised on a cashless basis. In addition, pursuant to the terms of the offering, the Company issued to designees of H.C. Wainwright & Co., LLC warrants (“September Wainwright Warrants”) to purchase up to 55,000 shares of the Company’s common stock. The September Wainwright Warrants are exercisable for a period of five years from the commencement of sales pursuant to the offering at an exercise price of $ 3.2875 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. F- 7 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 subsidiaries, merveille.ai which was incorporated under the laws of Nevada on October 4, 2023 and 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. Reclassifications Certain line items on the statement of operations and comprehensive loss for the year ended December 31, 2022 have been reclassified to conform to the current period presentation. Research and development - licenses acquired (including stock-based compensation) of $ 0.1 million was reclassified to research and development. Compensation and related expenses (including stock-based compensation) of $ 2.6 million, professional fees (including stock-based compensation) of $ 2.5 million, rent of $ 0.1 million, and other general and administrative expense of $ 1.0 million were consolidated into one general and administrative line item. Dividend income and realized and unrealized gains and losses have been separately presented within other income (expense), net. These reclassifications did not change our reported net loss or comprehensive loss for the year ended December 31, 2022. Emerging growth company As an emerging growth company, the Company may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statement with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. However, beginning December 31, 2024, we will no longer be an “emerging growth company,” and will no longer have the ability to delay adoption of these new or revised accounting standards, or to take advantage of reduced corporate governance disclosures. 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. F- 8 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, 2023 and December 31, 2022, respectively. Cash held in foreign bank accounts totaled $ 0.1 million and $ 0.4 million as of December 31, 2023 and December 31, 2022, respectively. 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 The Company has significant cash balances at financial institutions which, throughout the year, regularly exceed the federally insured limit of $ 250,000 . Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s financial condition, results of operations, and cash flows. Fair Value of Financial Instruments Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 fair value of the Company’s assets and liabilities, which would qualify as financial instruments under ASC Topic 820, approximates the carrying amounts represented in the Company’s balance sheet, primarily due to their short-term nature. 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. During the years ended December 31, 2023 and December 31, 2022, there were no changes in valuation techniques or transfers between Level 1, Level 2, and Level 3. Leases The Company determines if an arrangement is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use (“ROU”) assets and the corresponding lease liabilities are included in lease liability, current and lease liability, on the Company’s balance sheets. ROU assets represent the Company’s right to use an underlying asset, and lease liabilities represent the Company’s obligation to make lease payments in exchange for the ability to use the asset for the duration of the lease term. F- 9 The Company has lease agreements which contain both lease and non-lease components, which it has elected to account for as a single lease component. As such, minimum lease payments include fixed payments for non-lease components within a lease agreement but exclude variable lease payments not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to fluctuation from period to period. Certain of the leases contain an option to extend the term of the lease. The option to extend a lease is included in the lease term only when it is reasonably certain that the Company will elect that option. Additionally, the Company does not record ROU assets or lease liabilities for short-term leases that have a term of twelve months or less at lease commencement. ROU assets and lease liabilities are recognized at the commencement date and determined using the present value of the future minimum lease payments over the lease term. The Company uses an incremental borrowing rate based on an estimated rate of interest for collateralized borrowing since the Company’s leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic environment, and the lease term at commencement date. Investment in joint ventures 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 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 ventures is further described in Note 5 of these consolidated financial statements. Accounts Payable For the year ended December 31, 2023, the Company’s subsidiary Hoth Therapeutics Australia Pty Ltd, recorded approximately a $ 260,000 gain due to a settlement agreement on a payable balance with Novotech, a clinical trial management vendor. The gain is recognized in the consolidated statements of operations and comprehensive loss following a manner consistent with how the expense was originally recorded. 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. 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. Options are generally issued fully vested. The Company accounts for forfeited awards as they occur. F- 10 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. 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 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. 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: Year Ended December 31, Potentially dilutive securities 2023 2022 Warrants 4,213,515 402,840 Options 169,362 104,651 Non-vested restricted stock awards 1,693 3,384 Total 4,384,570 510,875 F- 11 Recent accounting pronouncements Currently, management does not believe that any recently issued, but not yet effective accounting pronouncements, if currently adopted, would have a material impact on the Company’s 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, 2023 and 2022: Year Ended December 31, 2023 2022 The George Washington University $ 66,172 $ 66,586 North Carolina State University — 27,500 Virginia Commonwealth University ( 275,000 ) — University of Cincinnati 7,500 7,500 Adjustment — ( 15,000 ) $ ( 201,328 ) $ 86,586 The George Washington University During the year ended December 31, 2023, the Company recorded an expense of approximately $ 29,000 related to warrants granted to The George Washington University (“GW”) pursuant to the patent license agreement with GW dated February 1, 2020 (“GW Patent License Agreement”) and the patent license agreement with GW dated August 7, 2020 (“Second GW Patent License Agreement”). The Company recorded an expense of $ 30,000 for a milestone payment pursuant to GW Patent License Agreement. The Company also recorded $ 7,500 the year ended December 31, 2023 for license maintenance fees. During the year ended December 31, 2022, the Company recorded an expense of approximately $ 53,000 related to warrants granted to The George Washington University (“GW”) pursuant to the patent license agreement with GW dated February 1, 2020 (“GW Patent License Agreement”) and the patent license agreement with GW dated August 7, 2020 (“Second GW Patent License Agreement”). The Company also recorded $ 14,000 the year ended December 31, 2022 for license maintenance fees. North Carolina State University During the year ended December 31, 2023, the Company paid $ 0 for the license fee associated with the license agreement by and between the Company and North Carolina State University dated February 25, 2021. During the year ended December 31, 2022, the Company paid approximately $ 28,000 for the license fee associated with the license agreement by and between the Company and North Carolina State University dated February 25, 2021. Virginia Commonwealth University On August 16, 2023, the Company terminated its license agreement by and between the Company and Virginia Commonwealth University dated May 18, 2020. As of December 31, 2023, the Company reversed its prior accrual of $ 150,000 for five years of annual minimum payments and $ 125,000 for annual maintenance fees. As of December 31, 2022, the Company accrued $ 150,000 for five years of annual minimum payments and $ 125,000 for annual maintenance fees. F- 12 Chelexa Biosciences, Inc. and the University of Cincinnati During the year ended December 31, 2023, the Company paid $ 2,500 for the annual license maintenance fee and $ 5,000 for the minimum royalty fee to the University of Cincinnati associated with the Assignment and Assumption Agreement by and between the Company and Chelexa Biosciences dated May 14, 2020. During the year ended December 31, 2022, the Company paid $ 2,500 for the annual license maintenance fee and $ 5,000 for the minimum royalty fee associated to the University of Cincinnati with the Assignment and Assumption Agreement by and between the Company and Chelexa Biosciences dated May 14, 2020. Note 4-Note Receivable Pursuant to the sublicense agreement dated July 30, 2020 by and between the Company and Isoprene Pharmaceuticals, Inc. (“Isoprene”), 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 was due to mature on September 10, 2022 and accrued 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 could not be prepaid without the prior written consent of the Company; provided, however, that if the Isoprene Note had not been converted in connection with a Qualified Financing (as defined or a Change of Control (as defined) by the two year anniversary of the date of the issuance of the Isoprene Note, Isoprene could elect, in its sole discretion, to repay the Isoprene Note and any accrued interest thereon. As of the maturity date of the Isoprene Note, neither a Qualified Financing nor a Change of Control had occurred, and the Isoprene Note of $ 50,000 and accrued interest of approximately $ 6,000 was paid off on October 21, 2022. Note 5-Fair Value of Financial Assets and Liabilities The following tables present the Company’s assets and liabilities that are measured at fair value at December 31, 2023 and 2022: Fair value measured at December 31, 2023 Total at December 31, 2023 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Marketable securities - mutual fund $ — $ — $ — $ — Investment in joint ventures $ 37,400 $ — $ — $ 37,400 Fair value measured at December 31, 2022 Total at December 31, 2022 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets Marketable securities - mutual fund $ 209,320 $ 209,320 $ — $ — Investment in joint ventures $ 33,000 $ — $ — $ 33,000 Level 3 Measurement The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial assets that are measured at fair value on a recurring basis: Investment in joint ventures at fair value at December 31, 2021 $ 410,000 Change in fair value of investments in joint ventures ( 377,000 ) Investment in joint ventures at fair value at December 31, 2022 33,000 Change in fair value of investments in joint ventures 4,400 Investment in joint ventures at fair value at December 31, 2023 $ 37,400 F- 13 Investment in joint ventures The Company has elected to measure the investment in joint ventures using the fair value option at each reporting date. Under the fair value option, bifurcation of an embedded derivative is not necessary, and all related gains and losses on the host contract and derivative due to change in the fair value will be reflected in interest income and other income (expense), net in the consolidated statements of operations and comprehensive loss. The value at which the Company’s investment in joint ventures is carried on its books is adjusted to estimated fair value at the end of each quarter, taking into account general economic and stock market conditions and those characteristics specific to the underlying investments. 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 . During the fourth quarter of 2022, the Company identified indicators of impairment for the HaloVax investment as a result of adverse changes in HaloVax’s business operations, including liquidity concerns. As a result, the Company recorded an impairment charge of approximately $ 0.4 million in the fourth quarter of 2022. The investment in HaloVax was valued at $ 0 as of December 31, 2023 and 2022. Investment in Zylö In connection with the Company’s March 2020 underwritten public offering of shares of its common stock, on May 4, 2020, the Company purchased 120,000 shares of Zylö’s Class B common stock for $ 60,000 . On December 8, 2021, the Company entered into a third amendment (the “Zylö Amendment”) to the Exclusive Sublicense Agreement with Zylö originally dated August 19, 2019, pursuant to which the Company licensed its novel cannabinoid therapeutic, HT-005 for lupus patients, back to Zylö. Pursuant to the Zylö Amendment, on December 6, 2021, Zylö issued the Company 100,000 shares of its Class B common stock. In addition, pursuant to the Zylö Amendment, within 90 days following a sale by Zylö of all of its assets and rights related to HT-005 to a third-party (a “Sale”), Zylö shall pay the Company a low single digit percent of the net proceeds received by it attributable to HT-005 in the United States and Canada and their respective territories (collectively, the “Territory”) for the purposes of therapeutic uses related to lupus in humans (the “Field”). After the Sale, any and all rights of the Company pursuant to the Exclusive Sublicense Agreement, including all amendments thereto, shall terminate. Furthermore, pursuant to the Zylö Amendment, following the date of the first commercial sale of HT-005 in the Territory, in the Field, Zylö shall pay the Company (i) a low single digit percent of the Net Sales (as defined in the Exclusive Sublicense Agreement) of HT-005 in the event HT-005 is sold in the Territory and (ii) a low double digit percent of any royalty that Zylö receives through the sublicense to a third-party based on Net Sales of HT-005 in the Territory which payments shall continue in each country in the Territory until expiration of the last-to-expire Valid Claim (as defined in the Exclusive Sublicense Agreement). During December 2022, Zylö conducted a 409A valuation of their Class B common stock and valued its share price at $ 0.15 per share. This value was ratified by Zylö’s board of directors in December 2022. In December 2023, Zylö conducted a 409A valuation of their Class B common stock and valued its share price at $ 0.17 per share. This value was ratified by Zylö’s board of directors in December 2023. The valuation reflects a probability-weighted present value of expected future investment returns considering certain possible outcomes and the rights of each class of Zylö’s equity. The future values of the common stock under the various outcomes are discounted back to the valuation date at a risk-adjusted discount rate and probability weighted to determine the value for the Class B common stock. Significant unobservable inputs in the valuation include: (i) probabilities of each scenario, (ii) timing of occurrence, (iii) future valuation; (iv) and the risk-adjusted discount rate. During the years ended December 31, 2023 and 2022, the Company recorded approximately $ 4,400 in unrealized gain on this investment and $ 27,000 in unrealized loss on this investment, respectively. The investment in Zylö was valued at $ 37,400 and $ 33,000 as of December 31, 2023 and 2022, respectively. F- 14 Note 6-Stockholder’s 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, 2023, 5,000,000 shares of the Company’s preferred stock has been designated as Series A Convertible Preferred Stock and 2,000,000 shares of the Company’s preferred stock has been designated as Series B Preferred Stock. Series A Convertible Preferred Stock The shares of Series A Convertible Preferred Stock, par value $ 0.0001 per share, 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 consolidated 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. Series B Preferred Stock On November 2, 2022, the Company filed a Certificate of Designation of the Series B Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada to create a new class of Series B Preferred Stock, par value $ 0.0001 per share (the “Series B Preferred Stock”). The Certificate of Designation designated 2,000,000 shares of authorized preferred stock as Series B Preferred Stock. The Series B Preferred Stock were not entitled to receive dividends or any other distributions. The Series B Preferred Stock were entitled to ten votes per share and voted together with the Company’s issued and outstanding shares of common stock as a single class exclusively with respect to the Authorized Stock Increase (as defined herein). The Series B Preferred Stock had no rights as to any distribution or assets of the Company upon a liquidation, bankruptcy, reorganization, merger, acquisition, sale, dissolution or winding up of the Company. On November 2, 2022, the Company entered into a Subscription and Investment Representation Agreement with an investor pursuant to which the Company issued and sold 2,000,000 shares of its newly designated Series B Preferred Stock to such purchaser for an aggregate purchase price of $ 1,000 . On December 12, 2022, the Company’s shareholders approved an increase to the number of authorized shares of the Company’s common stock from 3,000,000 to 50,000,000 shares (the “Authorized Stock Increase”). On December 13, 2022, upon filing a Certificate of Amendment to its Articles of Incorporation, as amended, to increase its authorized shares of common stock, the outstanding shares of Series B Preferred Stock were redeemed in whole for an aggregate price of $ 10 automatically and effective immediately after the effectiveness of the Authorized Stock Increase. Common Shares On December 12, 2022, shareholders of the Company approved an increase to the number of authorized shares of the Company’s common stock from 3,000,000 shares to 50,000,000 shares, and on December 13, 2022, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, to effectuate such increase. F- 15 Securities Purchase Agreements On September 13, 2023, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which it sold (i) 549,275 shares of common stock and (ii) pre-funded warrants (the “September Pre-Funded Warrants”) to purchase up to 550,725 shares of common stock at a purchase price of $ 2.63 per share of common stock and a purchase price of $ 2.629 per September Pre-Funded Warrant. Concurrently with the sale of common stock and/or the September Pre-Funded Warrants, pursuant to the securities purchase agreement, in a private placement, the Company issued and sold warrants (the “September Common Stock Warrants”) to purchase up to 1,100,000 shares of common stock. Proceeds from the offering were approximately $ 2.9 million, prior to deducting placement agent’s fees and other offering expenses payable by the Company . The closing of the offering occurred on September 15, 2023. Each September Common Stock Warrant is exercisable for a period of five years from the issuance date at an exercise price of $ 2.505 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. Each September Pre-Funded Warrant is exercisable until exercised in full at an exercise price of $ 0.001 per share and may be exercised on a cashless basis. In addition, pursuant to the terms of the offering, the Company issued to designees of H.C. Wainwright & Co., LLC warrants (“September Wainwright Warrants”) to purchase up to 55,000 shares of the Company’s common stock. The September Wainwright Warrants are exercisable for a period of five years from the commencement of sales pursuant to the offering at an exercise price of $ 3.2875 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. On December 29, 2022, the Company entered into a securities purchase agreement with an accredited investor pursuant to which it agreed to sell an aggregate of (i) 140,000 shares of common stock, (ii) December Pre-Funded Warrants to purchase up to 1,860,000 shares of common stock and (iii) December Common Stock Warrants to purchase up to 2,500,000 shares of common stock at a purchase price of $ 5.00 per share and accompanying warrant (less $ 0.001 for each December Pre-Funded Warrant and accompanying warrant) in a private placement for aggregate gross proceeds of approximately $ 10 million, exclusive of placement agent commission and fees and other offering expenses. The closing of the offering occurred on January 3, 2023. Each December Common Stock Warrant is exercisable for a period of five and one-half years from the issuance date at an exercise price of $5.00 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. Each December Pre-Funded Warrant is exercisable until exercised in full at an exercise price of $ 0.001 per share and may be exercised on a cashless basis. In addition, pursuant to the terms of the offering, the Company issued H.C. Wainwright & Co., LLC the December Wainwright Warrants to purchase up to 100,000 shares of the Company’s common stock. The December Wainwright Warrants are exercisable for a period of five and one-half years from the issuance date at an exercise price of $6.25 per share, subject to adjustment, and may, under certain circumstances, be exercised on a cashless basis. Public Offering of Securities On April 14, 2022, the Company closed an underwritten public offering of 329,412 shares of the Company’s common stock at a price to the public of $ 21.25 per share (the “Offering Price”). Pursuant to the terms of an underwriting agreement dated April 11, 2022 between the Company and EF Hutton, division of Benchmark Investments, LLC, as representative of the several underwriters (the “Underwriters”), the Company granted the Underwriters a 45-day option to purchase up to an additional 49,412 shares of the Company’s common stock to cover over-allotments, if any, at the Offering Price less the underwriting discounts and commissions. The net proceeds to the Company from the sale of the shares, after deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were $ 6.0 million. The Underwriters did not exercise their over-allotment option. 2018 Equity Incentive Plan The compensation committee of the board of directors increased the number of shares reserved pursuant to the Company’s 2018 Equity Incentive Plan (“2018 Plan”) by 26,878 shares effective as of January 1, 2021, such that as of January 1, 2021, the Company had an aggregate of 66,878 shares of common stock reserved for issuance pursuant to the 2018 Plan. On June 24, 2021, at the annual meeting of shareholders, shareholders of the Company approved an amendment to the 2018 Plan to further increase the number of shares reserved for issuance thereunder from 66,878 shares to 146,878 shares. On February 2, 2022, the compensation committee of the board of directors further increased the number of shares reserved for issuance under the 2018 Plan from 146,878 shares to 156,878 shares. On January 11, 2023, the compensation committee of the board of directors further increased the number of shares reserved for issuance under the 2018 Plan from 156,878 shares to 166,878 shares. On January 4, 2024, the compensation committee of the board of directors further increased the number of shares reserved for issuance under the 2018 Plan from 166,878 shares to 176,878 shares. F- 16 2022 Equity Incentive Plan On March 24, 2022, the Company’s board of directors adopted the Hoth Therapeutics, Inc. 2022 Omnibus Equity Incentive Plan (the “2022 Plan”) initially reserving 96,000 shares of the Company’s common stock for issuance thereunder. The 2022 Plan became effective on June 23, 2022 upon approval of the 2022 Plan by the Company’s shareholders at the Company’s annual meeting of shareholders. On June 2, 2023, the Company’s board of directors approved the Hoth Therapeutics, Inc. Amended and Restated 2022 Omnibus Equity Incentive Plan (the “Amended and Restated 2022 Plan”) which was approved by stockholders on August 18, 2023. Under the Amended and Restated 2022 Plan there are 591,317 shares of Company common stock available for grant. Restricted Stock Awards A summary of the Company’s restricted stock awards granted under the equity incentive plans during the years ended December 31, 2023 and 2022 is as follows: Number of Restricted Stock Awards Weighted Average Grant Day Fair Value Nonvested at December 31, 2021 100 $ 75.00 Granted 5,075 3.16 Vested ( 1,791 ) 7.17 Nonvested at December 31, 2022 3,384 $ 3.16 Vested ( 1,691 ) 3.16 Nonvested at December 31, 2023 1,693 $ 3.16 As of December 31, 2023, approximately $ 3,000 of unrecognized stock-based compensation expense was related to restricted stock awards. The weighted average remaining contractual term of unvested restricted stock awards was approximately 1.0 year at December 31, 2023. Stock Options During the year ended December 31, 2023, pursuant to and subject to the available number of shares reserved under the 2022 Plan, the Company issued an aggregate of 90,000 options to the Company’s employees and directors. The aggregate grant date fair value of these options was approximately $ 0.2 million. During the year ended December 31, 2022, pursuant to and subject to the available number of shares reserved under the 2018 Plan, the Company issued an aggregate of 51,800 options to the Company’s directors. The aggregate grant date fair value of these options was approximately $ 0.6 million. The fair value of options granted in 2023 and 2022 was estimated using the following assumptions: Year Ended December 31, 2023 2022 Exercise price $ 2.59 $ 14.75 Term (years) 10 10 Expected stock price volatility 105.00 % 96.10 % Risk-free rate of interest 4.02 % 2.10 % F- 17 A summary of option activity under the Company’s stock option plan for the years ended December 31, 2023 and 2022 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, 2021 52,851 84.15 — 8.6 Options issued 51,800 14.75 — 9.2 Outstanding as of December 31, 2022 104,651 49.80 — 8.3 Options expired ( 25,289 ) 46.10 — — Options issued 90,000 2.59 — 9.5 Outstanding as of December 31, 2023 169,362 26.78 — 8.4 Options vested and exercisable as of December 31, 2023 169,362 26.78 — 8.4 All outstanding stock options are fully vested. Stock Based Compensation Stock-based compensation expense for the years ended December 31, 2023 and 2022 was as follows: Year Ended December 31, 2023 2022 Employee and director stock option awards $ 182,522 $ 560,376 Employee and director restricted stock awards 7,734 7,836 Non-employee stock warrant awards 26,173 52,586 $ 216,428 $ 620,798 For the years ended December 31, 2023 and 2022, the amount of stock-based compensation expense included within research and development and general and administrative expenses was as follows: Year Ended December 31, 2023 2022 Research and development $ 26,172 $ 52,586 General and administrative 190,256 568,212 $ 216,428 $ 620,798 Warrants A summary of warrant activity for the years ended December 31, 2023 and 2022 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, 2021 402,840 49.83 — 2.3 Outstanding as of December 31, 2022 402,840 49.83 — 1.4 Issued 6,165,725 2.61 — 4.5 Exercised ( 2,355,050 ) 0.00 — — Outstanding as of December 31, 2023 4,213,515 7.01 — 4.5 Warrants exercisable as of December 31, 2023 4,212,751 6.99 — 4.5 The Company has determined that the warrants should be accounted as a component of stockholders’ equity. F- 18 Note 7-Commitments and Contingencies Office lease Effective November 2023, the Company leased office space for a two year term. The Company’s office lease contains a renewal option. The Company has evaluated several factors in assessing whether there is reasonable certainty that the Company will exercise its contractual renewal option concluding that it is not reasonably certain to exercise such option. As it is not reasonably certain to be exercised, the Company excluded the renewal term in determining the lease term used in calculating the right-of-use asset and lease liability. Prior to entering into this lease, the Company has not entered into any lease arrangements in excess of 12 months. The table below presents certain information related to the Company’s lease cost: Year Ended December 31, 2023 2022 Operating lease expense $ 5,464 $ — Short term lease expense $ 33,351 $ 66,834 Total lease cost $ 38,815 $ 66,834 Right-of-use asset and lease liability for operating leases were recorded in the consolidated balance sheets as follows: As of December 31, 2023 Assets Lease right of use assets $ 55,165 Total lease assets $ 55,165 Liabilities Current liabilities: Lease liability - current portion $ 28,839 Noncurrent liabilities: Lease liability, net of current portion $ 26,326 Total lease liability $ 55,165 Supplemental cash flow information related to the Company’s leases for the year ended December 31, 2023 were as follows: Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for operating leases $ 5,464 The weighted-average remaining lease term for the operating lease is 1.8 years and the weighted-average incremental borrowing rate is 10 % as of December 31, 2023. F- 19 As of December 31, 2023, future minimum lease payments required under operating leases are as follows: 2024 $ 32,784 2025 27,320 Total minimum lease payments $ 60,104 Less: effects of discounting ( 4,939 ) Present value of future minimum lease payments $ 55,165 Litigation The Company is not currently 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 8-Income taxes The table below presents the components of the provision for taxes: The Company’s provision is primarily driven by the full valuation allowance in 2023 and 2022. As of December 31, 2023 2022 Current U.S. Federal $ - $ - U.S. State - - U.S. Foreign - - Total current provision Deferred - - U.S. Federal - - U.S. State - - U.S. Foreign - - Total deferred benefit - Change in valuation allowance - - Total provision for income taxes $ - $ - At December 31, 2023 and 2022, the tax effects of the temporary differences and carryforwards that give rise to deferred tax assets consist of the following: As of December 31, 2023 2022 Deferred tax assets Net operating loss carryforwards $ 11,926,158 $ 10,378,471 Research and development credits - - Capitalized research costs 2,272,029 1,211,477 Equity based compensation 549,587 670,035 Licenses acquired 266,091 338,239 Depreciation - - Accruals and other temporary differences 297,949 215,152 Total deferred tax assets 15,311,814 12,813,374 Less valuation allowance ( 15,311,814 ) ( 12,813,374 ) Deferred tax assets, net of allowance $ - $ - F- 20 A reconciliation of the statutory income tax rates and the Company’s effective tax rate for the years ended December 31, 2023 and 2022 is as follows: Years Ended December 31, 2023 2022 Statutory federal income tax rate 21.0 % 21.0 % State taxes, net of federal benefit 10.3 % 9.5 % Impact of non-U.S. earnings 0.0 % 0.0 % Permanent items 0.0 % ( 0.9 )% Credits 0.8 % 0.0 % Equity compensation 0.0 % ( 0.1 )% Rate changes 0.0 % 0.0 % Foreign rate differential 0.1 % 0.0 % Previous tax year adjustment ( 0.2 )% 10.0 % Other 0.0 % 0.0 % Change in valuation allowance ( 32.0 )% ( 39.6 )% Total 0.0 % 0.0 % 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, 2023 and December 31, 2022, the Company has Federal net operating loss carryforwards of approximately $ 37.7 million and $ 32.9 million available to reduce future taxable income, if any, for Federal 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 after December 31, 2017 of approximately $ 36.0 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. In addition, the Company had approximately $ 0.5 million and $ 0.3 million of net operating losses at its subsidiary located in Australia, as of December 31, 2023 and December 31, 2022, respectively. As required by the 2017 Tax Cuts and Jobs Act and effective in 2022, the deferred tax asset as of December 31, 2023 and December 31, 20222, included $ 2.3 million and $ 1.2 million related to the mandatory capitalization of research and development expenses. On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA increased and modified the qualified small business (“QSB”) payroll tax credit for increasing research activities. Provision 13902 of the IRA of 2022 increased the maximum amount of payroll tax research credit that a QSB can elect to apply against payroll tax liability from $ 250,000 to $ 500,000 for tax years beginning after December 31, 2022. This payroll tax credit is a creditable tax credit against the employer’s portion of social security taxes, and the IRA also modified IRC 3111(f) to allow a portion of the payroll tax credit to apply against the employer’s portion of Medicare tax. For the year ended December 31, 2023, the Company recorded $ 0.1 million of other income for the payroll tax credit and $ 0.2 million is still outstanding. The remaining research credit carryforward of $ 0.2 million will be utilized in the future as an offset against payroll taxes at the time the payroll tax is incurred. The utilization of the Company’s net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state tax provisions, due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383 of the Code, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has not conducted an analysis of an ownership change under Section 382 of the Code. To the extent that a study is completed and an ownership change is deemed to occur, the Company’s net operating losses and tax credits could be limited. F- 21 At December 31, 2023 and 2022, the Company did not have any significant uncertain tax positions. The Company will recognize interest and penalties related to uncertain tax positions, as applicable, in income tax expense. As of December 31, 2023 and 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements 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. Management asserts that its foreign earnings are permanently reinvested, and therefore, have not provided deferred taxes on foreign cash. Additionally, no additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis differences inherent in our foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. The company will continue to monitor the foreign cash position as they maintain the assertion that foreign earnings are permanently reinvested. Note 9-Subsequent Events The Company has evaluated subsequent events and transactions that occurred up to the date the consolidated financial statements were issued. Based upon this review, except for as noted below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the consolidated financial statements. On January 4, 2024, the compensation committee of the board of directors increased the number of shares reserved for issuance under the 2018 Plan from 166,878 shares to 176,878 shares. On January 26, 2024, the Company provided 60 days notice to the George Washington University of its termination of the license agreement for its breath based diagnostic device. The license agreement terminated on March 26, 2024. On February 6, 2024, the Company received notice that its office lease was to be terminated. The Company and its landlord agreed to relocate its office space to another location under substantially the same terms and conditions as its existing lease. Monthly payments for the new office lease are unchanged and term of the lease expires in February 2026. On March 27, 2024, the Company entered into a warrant inducement agreement with a holder of certain of its existing warrants to immediately exercise for cash an aggregate 2,500,000 warrants to purchase shares of the Company’s common stock at a reduced exercise price of $ 1.6675 per share for gross proceeds to the Company of approximately $ 4.2 million. The exercised warrants were issued pursuant to a securities purchase agreement dated December 29, 2022, by and between the Company and a certain accredited investor. Each warrant was exercisable for a period of five and one-half years from the issuance date at an original exercise price of $ 5.00 per share. As an inducement to such exercise, the Company agreed to issue new unregistered warrants to purchase up to 3,750,000 shares of the Company’s common stock at an exercise price of $ 1.50 per share. The warrants are exercisable immediately upon issuance and will expire on July 3, 2028. F- 22 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE None.