Exhibit 99.1
| QUOIN PHARMACEUTICALS LTD. Condensed Consolidated Financial |
QUOIN PHARMACEUTICALS LTD.
Contents
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Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 | 3 |
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Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 | 6 |
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7 - 22 |
2
QUOIN PHARMACEUTICALS LTD.
Consolidated Balance Sheets
September 30, | December 31, | |||||
| 2022 |
| 2021 | |||
| (Unaudited) |
| (Audited) | |||
ASSETS | ||||||
Current assets: |
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Cash | $ | | $ | | ||
Investments | | — | ||||
Prepaid expenses |
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Total current assets |
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Intangible assets, net |
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Deferred loan costs |
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Total assets | $ | | $ | | ||
LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Accrued expenses |
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Accrued license acquisition |
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Accrued interest and financing expense |
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Due to officers – short term |
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Warrant liability |
| — |
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Total current liabilities |
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Due to officers – long term | | | ||||
Total liabilities | $ | | $ | | ||
Commitments and contingencies |
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Shareholders’ equity: |
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Ordinary shares, | $ | — | $ | — | ||
Treasury Stock, |
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Additional paid in capital |
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Accumulated deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity | $ | | $ | |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
3
QUOIN PHARMACEUTICALS LTD.
Consolidated Statements of Operations (Unaudited)
Nine months ended September 30, |
| Three months ended September 30, | ||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Operating expenses | ||||||||||||
General and administrative | $ | | $ | | $ | | $ | | ||||
Research and development |
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Total operating expenses |
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Other (income) and expenses | ||||||||||||
Forgiveness of accounts payable |
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| — | ||||
Fair value adjustment to convertible notes payable |
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Change in fair value of warrant liability |
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Financing expense |
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Unrealized loss | | — | | — | ||||||||
Interest income |
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| — |
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Interest and financing expense | | | | | ||||||||
Total other expense |
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Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Deemed dividend on warrant modification | ( | — | ( | — | ||||||||
Net loss attributable to shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Loss per ADS |
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Loss per ADS |
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Basic | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Fully-diluted | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Weighted average number of ADS's outstanding |
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Basic |
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Fully-diluted |
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The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
4
QUOIN PHARMACEUTICALS LTD.
Consolidated Statements of Shareholders’ Equity (Unaudited)
Three and Nine months ended September 30, 2021
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| Additional |
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Ordinary | Par | Treasury | Paid in | Accumulated | ||||||||||||||
| Shares |
| ADS's |
| Value |
| Stock |
| Capital |
| Deficit |
| Total | |||||
Balance at December 31, 2020 |
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| — | $ | — | $ | | $ | ( | $ | ( | ||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
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Balance at March 31, 2021 |
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| — | $ | — | $ | | $ | ( | $ | ( | ||||
Net loss |
| — |
| — |
| — |
| — |
| — |
| ( |
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Balance at June 30, 2021 |
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| — | $ | — | $ | | $ | ( | $ | ( | ||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||
Balance at September 30, 2021 | | | — | $ | — | $ | | $ | ( | $ | ( |
Three and Nine months ended September 30, 2022
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| Additional |
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| Ordinary | Par | Treasury | Paid in | Accumulated | |||||||||||||
| Shares |
| ADS's |
| Value |
| Stock |
| Capital |
| Deficit |
| Total | |||||
Balance at December 31, 2021 | — | $ | ( | $ | $ | ( | $ | |||||||||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||
Cashless exercise of warrants |
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| — |
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Reclassification of warrant liability upon issuance of Exchange warrant |
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Balance at March 31, 2022 |
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| — | $ | ( | $ | | $ | ( | $ | ( | ||||
Net loss |
| — |
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| — |
| — |
| ( |
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Stock based compensation |
| — | — | — |
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Cashless exercise of warrants |
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| — |
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Balance at June 30, 2022 |
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| — | $ | ( | $ | | $ | ( | $ | ( | ||||
Net loss | — | — | — | — | — | ( | ( | |||||||||||
Stock based compensation | — | — | — | — | | — | | |||||||||||
Issuance of ADS and Pre-Funded Warrants, net | | | — | — | | — | | |||||||||||
Cashless exercise of warrants | | | — | — | — | — | — | |||||||||||
Settlement of accrued expenses | | | — | — | | — | | |||||||||||
Deemed dividend on warrant modification | — | — | — | — | | ( | — | |||||||||||
Balance at September 30, 2022 | | | — | $ | ( | $ | | $ | ( | $ | |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
5
QUOIN PHARMACEUTICALS LTD.
Quoin Pharmaceuticals Ltd
Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30,
| 2022 |
| 2021 | |||
Cash flows provided by (used in) operating activities | ||||||
Net loss | $ | ( | $ | ( | ||
Fair value adjustment to convertible notes payable |
| — |
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Change in fair value of warrant liability |
| ( |
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Stock based compensation |
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| — | ||
Forgiveness of trade payable |
| ( |
| — | ||
Financing expense |
| — |
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Amortization of intangibles |
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Increase in accrued interest and financing expense | | | ||||
Unrealized gain on investments | ( | — | ||||
Changes in assets and liabilities: |
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Increase (decrease) in accounts payable and accrued expenses |
| ( |
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Decrease in prepaid expenses |
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Net cash used in operating activities | $ | ( | $ | ( | ||
Cash flows used in investing activities |
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Purchase of investments | ( | — | ||||
Payment for license acquisition |
| ( |
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Net cash used in investing activities | $ | ( | $ | ( | ||
Cash flows provided by financing activities: |
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Payments of offering costs |
| — |
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Payments of deferred loan costs |
| — |
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Increase in due to officers |
| — |
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Payment of amounts due to officers |
| ( |
| ( | ||
Proceeds from issuance of “Bridge Notes”, net |
| — |
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Proceeds from sale of equity securities, net | | — | ||||
Net cash provided by financing activities | $ | | $ | | ||
Net change in cash |
| ( |
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Cash - beginning of period |
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Cash - end of period | $ | | $ | | ||
Supplemental information - Non cash items: |
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Reclassification of warrant liability to equity upon issuance of “Exchange warrants” | $ | | $ | — | ||
Deemed dividend on warrant modification | $ | | $ | — | ||
Offering expenses associated with warrant modification | $ | | $ | — | ||
Settlement of accrued expenses | $ | | $ | — |
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements
6
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
NOTE 1 – ORGANIZATION AND BUSINESS
Quoin Pharmaceuticals Ltd. (“Quoin Ltd.,” or the “Company”), formerly known as Cellect Biotechnology Ltd. (“Cellect”), is the holding company for Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin Inc.”). On October 28, 2021, Cellect completed the business combination with Quoin Inc., in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of March 24, 2021 (the “Merger Agreement”), by and among Cellect, Quoin Inc. and CellMSC, Inc., a Delaware corporation and wholly-owned subsidiary of Cellect (“Merger Sub”), pursuant to which Merger Sub merged with and into Quoin Inc., with Quoin Inc. surviving as a wholly-owned subsidiary of Cellect (the “Merger”). Immediately after completion of the Merger, Cellect changed its name to “Quoin Pharmaceuticals Ltd.” Because Quoin Inc. was the accounting acquirer, its historical financial statements became the Company’s historical financial statements and such assets and liabilities continued to be recorded at their historical carrying values. The impact of the recapitalization has been retroactively applied to all periods presented.
Effective August 1, 2022, the ratio of American Depositary Shares (“ADSs”) evidencing ordinary shares changed from 1 ADS representing four hundred (
Quoin Inc. was incorporated in Delaware on March 5, 2018. Quoin Inc. is a specialty pharmaceutical company focused on developing and commercializing therapeutic products that treat rare and orphan diseases. The first lead product is QRX003, a once daily, topical lotion comprised of a broad-spectrum serine protease inhibitor, formulated with the proprietary Invisicare® technology, to treat Netherton Syndrome (NS). QRX003, is currently in clinical development in the United States under an open IND application with the U.S. Food and Drug Administration (“FDA”). The ongoing study is a randomized, double blinded assessment of two different doses of QRX003 versus a placebo vehicle in NS patients. The Company commenced opening of clinical sites in July 2022. In addition, the Company intends to pursue the clinical development of QRX003 in additional rare dermatological diseases, including Peeling Skin Syndrome, SAM Syndrome and Palmoplantar Keratoderma. To date, no products have been commercialized and revenue has not been generated.
NOTE 2 - LIQUIDITY RISKS AND OTHER UNCERTAINTIES
The Company has incurred net losses every year since inception and has an accumulated deficit of approximately $
Additional financing will still be required to complete the research and development of the Company’s therapeutic targets and its other operating requirements until it achieves commercial profitability, if ever. Such financing may not be available at acceptable terms, if at all. If the Company is unable to obtain additional funding when it becomes necessary, the development of its product candidates will be impacted and the Company would likely be forced to delay, reduce, or terminate some or all of its development programs, all of which could have a material adverse effect on the Company’s business, results of operations and financial condition.
7
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
Other risks and uncertainties:
The Company is subject to risks common to development stage biopharmaceutical companies including, but not limited to, new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, product liability, pre-clinical and clinical trial outcome risks, regulatory approval risks, uncertainty of market acceptance and additional financing requirements.
The Company’s products require approval or clearance from the FDA prior to commencing commercial sales in the United States. There can be no assurance that the Company’s products will receive all of the required approvals or clearances. Approvals or clearances are also required in foreign jurisdictions in which the Company may license or sell its products.
There can be no assurance that the Company’s products, if approved, will be accepted in the marketplace, nor can there be any assurance that any future products can be developed or manufactured at an acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed.
The Company is also dependent on several third party suppliers, in some cases single-source suppliers which include the supplier of the active pharmaceutical ingredient (API), as well as the contract manufacturer of the drug substance for the expected clinical development.
Coronavirus (“COVID-19”) created a global pandemic, which commenced in 2020. The Company’s operations, to date, have not been dramatically affected by COVID-19. However, the extent of any future impact on the Company’s operational and financial performance will depend on the possibility of a resurgence and resulting severity with respect to the Company’s access to API and drug product for clinical testing, as well as the Company’s ability to safely and efficiently conduct planned clinical trials.
Nasdaq Listing
On April 22, 2022, the Company received a letter from the Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that it is no longer in compliance with Nasdaq Listing Rule 5550(b)(1) requiring minimum stockholders’ equity of at least $
On June 10, 2022, the Company received a letter from the Staff notifying the Company that the closing bid price per ADS was below the required minimum of $
There can be no assurance that the Company will be able to maintain compliance with Nasdaq’s minimum stockholders’ equity requirement or minimum bid-price requirement for continued listing. If the Company’s ADSs are delisted from Nasdaq, it will have material negative impacts on the actual and potential liquidity of the Company’s securities, as well as material negative impacts on the Company’s ability to raise future capital.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements, reflecting the operations of Quoin Inc. since inception and include the accounts of Quoin Ltd. since the date of the Merger. In the opinion of management, such statements
8
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of September 30, 2022 and for the three and nine months then ended. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the operating results for the year or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related disclosures as of December 31, 2021 and for the year then ended which are included in the Company’s Annual Report on Form 20- F, filed with the SEC on April 14, 2022, as updated in the Company’s Form 6-K furnished to the SEC on August 11, 2022. The Company operates in
Use of estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these financial statements. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates.
Reclassification:
Certain 2021 amounts were reclassified to conform to the current year presentation. The amount reclassified included the short term portion from long term portion due to officers.
Cash and cash equivalents:
The Company considers all highly liquid investments and short-term debt instruments with original maturities of three months or less to be cash equivalents. The Company, from time to time during the periods presented, has had bank account balances in excess of federally insured limits where substantially all cash is held in the United States. The Company has not experienced losses in such accounts. The Company believes that it is not subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Warrants:
The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) provided that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
The Company assesses classification of its warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets, liabilities and equity is required. The Company evaluated the warrants to assess their proper classification using the applicable criteria enumerated under U.S. GAAP and determined that such warrants meet the criteria for equity classification in the accompanying balance sheets as of September 30, 2022.
9
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
Investments:
Investments as of September 30, 2022 consist of U.S. Treasury Bills, which are classified as trading securities, totaling $
Long-lived assets:
Long-lived assets are comprised of acquired technology and licensed rights to use technology, which are considered platform technology with alternative future uses beyond the current products in development. Such intangible assets are being amortized on a straight-line basis over their expected useful life of
The Company assesses the impairment for long-lived assets whenever events or circumstances indicate the carrying value may not be recoverable. Factors the Company considers that could trigger an impairment review include the following:
● | Significant changes in the manner of the Company's use of the acquired assets or the strategy for the Company's overall business, |
● | Significant underperformance relative to expected historical or projected development milestones, |
● | Significant negative regulatory or economic trends, and |
● | Significant technological changes which could render the platform technology obsolete. |
The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three and nine months ended September 30, 2022 and 2021, there were
Research and development:
Research and development costs are expensed as incurred. Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, conduct clinical trials and manufacture drug supplies and materials. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by third parties, patient enrollment in clinical trials when applicable, administrative costs incurred by third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.
10
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
Stock based compensation:
The Company recognizes compensation costs resulting from the issuance of stock-based awards to employees, non-employees and directors as an expense in the consolidated statements of operations over the requisite service period based on a measurement of fair value for each stock-based award. The fair value of each option grant to employees, non-employees and directors is estimated as of the date of grant using the Black-Scholes option-pricing model, net of actual forfeitures. The fair value is amortized as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.
The Company’s expected stock volatility is based on the historical data regarding the volatility of a publicly traded set of peer companies, since it has limited history of trading as a public company. The Company utilizes the simplified method to estimate the expected term. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield was assumed to be zero as the Company has not paid and dividends since its inception and does not anticipate paying dividends in the foreseeable future.
Fair value of financial instruments:
The Company considers its cash, investments, accounts payable, and accrued expenses to meet the definition of financial instruments. The carrying amounts of the remaining financial instruments approximated their fair values due to the short maturities.
The Company measures fair value as required by ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements.
Earnings (loss) per share:
The Company reports loss per share in accordance with ASC 260-10, Earnings Per Share, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net earnings (loss) per share gives effect to ordinary shares equivalents; however, potential common shares are excluded if their effect is anti-dilutive.
For the three and nine months ended September 30, 2022, the number of shares excluded from the diluted net earnings (loss) per share included outstanding options and warrants to purchase
NOTE 4 – CONVERTIBLE NOTES AND WARRANTS
On October 2, 2020, Quoin Inc. commenced an offering of promissory notes (the “2020 Notes” or “Convertible Notes Payable”) and warrants. Based upon the terms agreed to in March 2021 in the Primary Financing (see Note 5), the 2020 Notes were mandatorily convertible into
The holders of the 2020 Notes (the “2020 Noteholders”) also received warrants exercisable at any time after the issuance date for
11
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
The Noteholder Warrants have been determined to have equity classification. The change in the fair value of the warrants through the exchange date was included in other income (expense) in the accompanying statement of operations, and then reclassified from liability to additional paid in capital. On July 14, 2022, as a result of the Altium Agreement (see Note 5), the exercise price of the Noteholder Warrants was reduced to $
The ADSs issued to the 2020 Noteholders did not account for accrued interest which was estimated to be approximately $
NOTE 5 – BRIDGE FINANCING AND PRIMARY FINANCING
Bridge Financing
In connection with the Merger Agreement and the Securities Purchase Agreement (described below), Quoin Inc. entered into a “Bridge Purchase Agreement” on March 24, 2021 with the Investor, pursuant to which the Investor agreed to purchase notes (the “Bridge Notes”) in the aggregate principal amount of up to $
The Bridge Notes were issued with a
The Investor and Quoin Inc. agreed that if the Primary Financing is consummated, the Investor may, at its election, offset the purchase price related to the Primary Financing, by an amount equal to the outstanding amount under this Bridge Note, and, upon such set-off, the portion of this Bridge Note shall be deemed to have been paid in its entirety and all obligations thereunder shall be deemed to be fully satisfied.
The Bridge Notes were offset against the purchase price under the Securities Purchase Agreement related to the Primary Financing and converted into
Bridge Warrants
Upon the funding of each Bridge Note tranches described above, the Investor received warrants (the “Bridge Warrants”) to purchase a number of shares of Quoin Inc.’s common stock equal to the aggregate principal amount of the Bridge Notes. The Bridge Warrants had a term of
Following the closing date of the Merger, on each of the tenth trading day, the forty-fifth day, the ninetieth day, and the one hundred thirty-fifth day thereafter (each, a “Reset Date”), if the initial exercise price of the Bridge Warrants is greater than the arithmetic average of
12
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
to the Reset Price. Furthermore, the number of shares underlying Bridge Warrants will be adjusted such that the aggregate number of shares of common stock of Quoin Inc. issuable to the Investor reflects the Reset Price instead of the initial exercise price. Adjustments to the exercise price and number of warrant shares are available to the Investor until the second anniversary of the Registration Date, as defined in the Bridge Warrants. Upon the occurrence of a Fundamental transaction, as defined in the Bridge Warrants, the warrant holder has the right to elect a cash settlement for the value of the warrant based on the Black Scholes options pricing model.
The Company determined that the warrants met the criteria to be recorded as a liability instrument through the exchange date on the closing of the Primary Financing. The fair value of warrants was determined by a MonteCarlo simulation model to be approximately $
Upon the closing of the Primary Financing, the Bridge Warrants were exchanged for warrants to purchase
Primary Financing
On October 28, 2021, the Company completed the private placement transaction with the Investor for an aggregate purchase price of approximately $
Quoin Ltd. also was required to issue to the Investor, effective as of March 13, 2022, the 136th day following the consummation of the Merger (i) Series A Warrant to purchase
The Company had the right to require the mandatory exercise of the Series C Warrant, subject to an effective registration statement being in place for the resale of the shares underlying such warrants and the satisfaction of equity market conditions, as defined in the Series C Warrant. On April 22, 2022, a registration statement for the resale of the shares underlying Investor Warrants was declared effective by the Securities and Exchange Commission. In the period from April 22, 2022 to June 30, 2022, the Investor exercised the Series B Warrant in full pursuant to the alternate cashless exercise rights of such warrant, which gives the Investor the sole option as elected by the Investor to receive
Agreements with Altium Growth Fund, LP and Warrant Exercises
On July 14, 2022, the Company, Quoin Inc. and Altium entered into an agreement (the “Altium Agreement”), pursuant to which the parties agreed to, among other things, (i) amend certain terms of the Series A Warrant and Investor Exchange Warrants previously issued to Altium to reduce the exercise price to $
13
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
The exercise price of the Noteholder Warrants was also reduced to $
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities the Company considers the principal or most advantageous market in which it would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk.
Fair value is estimated using various valuation models, which utilize certain inputs and assumptions that market participants would use in pricing the asset or liability. The inputs and assumptions used in valuation models are classified in the fair value hierarchy as follows:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Quoted market prices for similar instruments in an active market; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations inputs of which are observable and can be corroborated by market data.
Level 3: Unobservable inputs and assumptions that are supported by little or no market activity and that are significant to the fair value of the asset and liability. The fair value hierarchy gives the lowest priority to Level 3 inputs.
In determining the appropriate hierarchy levels, the Company analyzes the assets and liabilities that are subject to fair value disclosure. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.
The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy at December 31, 2021 and September 30, 2022:
December 31, 2021 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
2020 Notes warrants |
| $ | — |
| $ | — | $ | | $ | | ||
Total Warrant Liability |
| $ | — |
| $ | — | $ | | $ | |
September 30, 2022 |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
US Treasury Bills | $ | | $ | — | $ | — | $ | | ||||
Total US Treasury Bills Asset | $ | | $ | — | $ | — | $ | |
14
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
The following shows the movement of the warrant liability balance during 2021 and the nine months ended September 30, 2022.
Bridge | ||||||
Financing | 2020 Note | |||||
| Warrants |
| Warrants | |||
Beginning Balance January 1, 2021 | $ | — | $ | — | ||
Warrant value at issuance (recorded as warrant liability expense) |
| |
| | ||
Change in fair value of warrants |
| |
| ( | ||
Reclassification of warrant liability to an equity instrument |
| ( |
| — | ||
Ending balance December 31, 2021 | $ | — | $ | | ||
Change in fair value of warrants |
| — |
| ( | ||
Reclassification of warrant liability to an equity instrument |
| — |
| ( | ||
Ending balance September 30, 2022 | $ | — | $ | — |
The Investor Exchange Warrant issued to the Investor on the Merger date was determined to be an equity-classified instrument, and accordingly the warrant liability on such date of approximately $
NOTE 7 – STOCK BASED COMPENSATION
In March 2022, the Board of Directors of the Company approved the Amended and Restated Equity Incentive Plan (the “Amended Plan”) which increased the number of ordinary shares reserved for issuance under such equity incentive plan to
On April 12, 2022, the Company granted options to acquire
The following table summarizes stock-based activities under the Amended Plan:
|
| Weighted |
| Weighted | |||
Average | Average | ||||||
ADS Underlying | Exercise | Contractual | |||||
Options | Price | Terms | |||||
Outstanding at December 31, 2021 |
| | $ | |
| ||
Granted |
| | $ | |
| ||
Forfeited/Cancelled |
| ( | $ |
| |||
Outstanding at September 30, 2022 |
| | $ | |
| ||
Exercisable options at September 30, 2022 |
| | $ | |
|
15
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
The intrinsic value of outstanding options at September 30, 2022 was $
Stock options granted during the nine months ended September 30, 2022 were valued using the Black-Scholes option-pricing model with the following weighted average assumptions:
| September 30, |
| ||
2022 |
| |||
Expected volatility |
| | % | |
Risk-free interest rate |
| | % | |
Expected dividend yield |
| % | ||
Expected life of options in years |
| |||
Exercise Price | $ | | ||
Fair value of ADS | $ | | ||
Estimated fair value of option | $ | |
Stock based compensation expense was approximately $
At September 30, 2022, the total unrecognized compensation expense related to non-vested options was approximately $
NOTE 8 – PREPAID EXPENSES
Prepaid expenses are as follows:
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
Prepaid R&D costs | $ | | $ | | ||
Prepaid insurance |
| |
| | ||
Prepaid expense |
| |
| | ||
Total | $ | | $ | |
NOTE 9 - ACCRUED EXPENSES
Accrued expenses are as follows:
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
Research contract expenses (note 13) | $ | | $ | | ||
Payroll (note 12) |
| |
| | ||
Payroll taxes (note 12) |
| |
| | ||
Investor Relation firm fees (note 13) |
| |
| | ||
Professional fees |
| |
| | ||
Other Expenses |
| |
| | ||
Total | $ | | $ | |
16
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
NOTE 10 – IN-LICENSED TECHNOLOGY
Polytherapeutics:
On March 24, 2018, Quoin Inc. entered into a securities purchase agreement (the “Acquisition Agreement”), in which it agreed to acquire all of the equity interests in Polytherapeutics, Inc. (the “Seller” or “Polytherapeutics”) for $
Quoin Inc. also entered into a research and consulting agreement which committed Quoin Inc. to pay the Seller for additional research and development consulting services (See Notes 13 and 15).
Skinvisible:
On October 17, 2019, Quoin Inc. entered into an exclusive license agreement with Skinvisible Inc. (“Skinvisible”), pursuant to which Skinvisible granted a license to use certain patented technology for the development of products for commercial sale in the orphan rare skin disease field, and for the use of a proprietary polymer deliver system technology. This technology is currently being used in the development of QRX003. In exchange for the license, Quoin Inc. agreed to pay Skinvisible $
The development milestones originally required payments upon achieving development milestones for the first Rare Skin Disease drug product developed using the licensed technology and the first two Ketamine products, as defined. On January 27, 2021, Quoin Inc. and Skinvisible entered into an amendment which modified the clinical milestone payment requirements such that $
The license fee was originally due in two equal installments of $
NOTE 11 - INTANGIBLE ASSETS
Intangible assets are as follows:
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
Acquired technology – Polytherapeutics | $ | | $ | | ||
Technology license – Skinvisible |
| |
| | ||
Total cost |
| |
| | ||
Accumulated amortization |
| ( |
| ( | ||
Net book value | $ | | $ | |
17
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
The Company recorded amortization expense of approximately $78,000 for the nine months ended September 30, 2022 and 2021. The Company recorded amortization expense of approximately $
NOTE 12 - RELATED PARTY TRANSACTIONS
Employment Agreements and Due to Officers/Founders:
In March 2018, Quoin Inc. executed employment agreements with both of its officers who are also co-founders of Quoin Inc. The employment agreements for both officers/founders allow for a onetime expense that covers the salaries they would have otherwise been paid for efforts they undertook in the periods since inception. The salaries and benefits allowances provided for under the employment agreements began to accrue as the services were being provided by the officers/founders and are included in Due to Officers on the accompanying balance sheet.
Since the Merger closing, the Company is approved to pay and has been repaying amounts due to officers/founders at a rate of $
Amounts due to officers at September 30, 2022 and December 31, 2021 consisted of the following:
| September 30, |
| December 31, | |||
2022 | 2021 | |||||
Salaries and other compensation | $ | |
| $ | | |
Invoices paid on behalf of the Company |
| |
| | ||
Total |
| |
| | ||
Less: Short-term portion |
| ( |
| ( | ||
Long-term portion | $ | | $ | |
Expenses:
Research and development expense to a related party, incurred in the three and nine months ended September 30, 2022 and 2021 was approximately $
For the nine months ended September 30, 2021, the Company paid a consulting fee of $
NOTE 13 – RESEARCH, CONSULTING AND OTHER COMMITMENTS
Research and consulting agreement:
Quoin Inc. entered into a research and consulting agreement which commits it to pay the former owner of Polytherapeutics (the “Consultant” or “Seller”) to transfer the technical know-how of Polytherapeutics with respect to (i) good manufacturing practices (“GMP”), clinical and commercial manufacturing of the Company’s PolyDur polymer and (ii) formulation development of products utilizing the Company’s PharmaDur polymer. The agreement required monthly consulting payments of $
Through September 30, 2022 and the financial statement issuance date, the Company has not made any payments, the Consultant has not performed any services and the Company has not incurred or accrued for any expenses. See Note 15 for Consultant’s notification of breach of contract.
18
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
Other research consulting agreements:
Quoin Inc. entered into
In November 2020, Quoin Inc. entered into a Master Service Agreement for an initial term of
In November 2021, the Company entered into a commitment with Queensland University of Technology for research related services associated with Netherton Syndrome of approximately $
In May 2022, the Company entered into a commitment with Queensland University of Technology for research related services associated with Scleroderma of approximately $
Consulting agreement:
Quoin Inc. entered into a consulting agreement with an Investor Relations (IR) firm, which provides for a monthly fee of $
Performance milestones and royalties:
See Note 10 for asset and in-licensed technology commitments.
Merger agreement commitment:
In consideration for the Share Transfer disclosed in Note 1, the pre-closing Cellect shareholders received a contingent value right (“CVR”) entitling the holders to earnouts during the Payment Period (as such term is defined in the Share Transfer Agreement), comprised mainly of payments upon sale, milestone payments, license fees and exit fees realized by EnCellX. In order to secure such right, shares constituting
19
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
In connection with the Share Transfer, Cellect entered into a CVR Agreement with Mr. Eyal Leibovitz, in the capacity of Representative for the holders of CVRs, and Computershare Trust Company, N.A., a federally chartered trust company (the “Rights Agent”). Under the terms of the CVR Agreement, the holders of the Cellect ADSs immediately prior to the Merger had the right to receive, through their ownership of CVRs, their pro-rata share of the net Share Transfer consideration, making such holders of CVRs the indirect beneficiaries of the net payments under the Share Transfer. CVRs were recorded in a register administered by the Rights Agent but were not certificated. Since the Company will not receive any net proceeds from the CVR’s, there is no asset or liability recorded in the consolidated financial statements.
NOTE 14 – SHAREHOLDERS’ EQUITY
The Company held a Special General Meeting on February 28, 2022, at which the Company’s shareholders adopted the Amended and Restated Articles of Association of the Company. The Company held its Annual General Meeting on April 12, 2022, at which the Company’s shareholders approved an increase to the authorized share capital to
Holders of the Company’s ordinary shares have
Under Israeli law, the Company may declare and pay dividends only if, upon the determination of our board of directors, there is no reasonable concern that the distribution will prevent the Company from being able to meet the terms of our existing and foreseeable obligations as they become due. Under the Companies Law, the distribution amount is further limited to the greater of retained earnings or earnings generated over the
The Bank of New York Mellon, as depositary, has registered and delivered American Depositary Shares, also referred to as ADSs. Following an ADS ratio adjustment effective August 1, 2022, each ADS represents five thousand (
On August 9, 2022 the Company completed an offering (the “Offering”) of
20
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
In connection with the Offering, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors. The Purchase Agreement provided that for a period of
Warrants
The following table summarizes warrant activities during the year ended December 31, 2021 and the nine months ended September 30, 2022:
|
| Weighted | |||
ADSs | Average | ||||
Underlying | Exercise Price | ||||
Warrants | Per Share | ||||
Outstanding at December 31, 2021 |
| |
| $ | |
Granted |
| | | ||
Terminated | ( | | |||
Exercised – Cashless and Pre Funded Warrants |
| ( |
| — | |
Outstanding and exercisable at September 30, 2022 |
| | $ | |
As of September 30, 2022, outstanding warrants expire in 2024 and 2027, and have an intrinsic value of $
NOTE 15 – CONTINGENCIES
From time to time, the Company may become involved in various legal matters arising in the ordinary course of business. Management is unaware of any matters requiring accrual for related losses in the financial statements.
In February 2020, the Seller of the equity interests in Polytherapeutics and party to the Research Agreement communicated with Quoin Inc. threatening litigation for non-payment and related breach of contract and immediate payment of all monthly payments in the amount of $
NOTE 16 – LICENSE AGREEMENTS
In November and December 2021, the Company entered into
21
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
September 30, 2022 and 2021
NOTE 17 - SUBSEQUENT EVENTS
On November 3, 2022, the Company held its Annual General Meeting of Shareholders, at which the Company’s shareholders approved an increase to the authorized share capital to
22