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QUOIN PHARMACEUTICALS LTD.
QUOIN PHARMACEUTICALS LTD.
| Condensed Financial Statements (Unaudited) | |
| Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 | 3 |
| Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 | 4 |
| Consolidated Statements of Shareholders' Deficit as of March 31, 2022 and March 31, 2021 | 5 |
| Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 | 6 |
| Notes to consolidated financial statements | 7 - 21 |
QUOIN PHARMACEUTICALS LTD.
Quoin Pharmaceuticals Ltd.
Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2022 (unaudited) | 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 5,189,215 | $ | 7,482,773 | ||||
| Prepaid expenses | 809,466 | 1,015,474 | ||||||
| Total current assets | 5,998,681 | 8,498,247 | ||||||
| Intangible assets, net | 782,594 | 808,604 | ||||||
| Other assets | 50,000 | 50,000 | ||||||
| Total assets | 6,831,275 | $ | 9,356,851 | |||||
| LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 214,684 | $ | 923,239 | ||||
| Accrued expenses | 2,140,096 | 1,685,409 | ||||||
| Accrued license acquisition | 200,000 | 250,000 | ||||||
| Accrued interest | 432,170 | 743,840 | ||||||
| Due to officers - short term | 600,000 | 600,000 | ||||||
| Warrant liability | - | 373,599 | ||||||
| Total current liabilities | 3,586,950 | 8,699,819 | ||||||
| Due to officers - long term | 3,973,733 | 4,123,732 | ||||||
| Total liabilities | 7,560,683 | 8,699,819 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity (deficit): | ||||||||
| Ordinary shares, no par value per share, 12,500,000,000 ordinary shares authorized; | $ | - | $ | - | ||||
| 3,354,653,999 (8,386,635 ADSs) ordinary shares issued and outstanding at March 31, 2022 and 3,354,650,799 (8,386,627 ADSs) at December 31, 2021 | ||||||||
| Treasury Stock, 2,641,693 ordinary shares | (2,932,000 | ) | (2,932,000 | ) | ||||
| Additional paid in capital | 31,955,379 | 31,659,017 | ||||||
| Accumulated deficit | (29,752,787 | ) | (28,069,985 | ) | ||||
| Total shareholders' equity (deficit) | (729,408 | ) | 657,032 | |||||
| Total liabilities and shareholders' equity (deficit) | $ | 6,831,275 | $ | 9,356,851 |
QUOIN PHARMACEUTICALS
Quoin Pharmaceuticals Ltd
Consolidated Statements of Operations (Unaudited)
Three months ended March 31,
| 2022 | 2021 | |||||||
| Operating expenses | ||||||||
| General and administrative | $ | 1,588,470 | $ | 744,973 | ||||
| Research and development | 587,569 | 56,788 | ||||||
| Total operating expenses | 2,176,039 | 801,761 | ||||||
| Other expenses (income) | ||||||||
| Forgiveness of trade payable | (416,000 | ) | - | |||||
| Fair value adjustment to convertible notes payable | - | 500,000 | ||||||
| Change in fair value of warrant liability | (77,237 | ) | 2,446,513 | |||||
| Financing expense | - | 90,000 | ||||||
| Interest expense | - | 65,597 | ||||||
| Total other expense (income) | (493,237 | ) | 3,102,110 | |||||
| Net loss | $ | (1,682,802 | ) | $ | (3,903,871 | ) | ||
| Loss per ADS and ordinary share | ||||||||
| Loss per ADS | ||||||||
| Basic | $ | (0.20 | ) | $ | (1.30 | ) | ||
| Fully-diluted | $ | (0.20 | ) | $ | (1.30 | ) | ||
| Weighted average number of ADSs outstanding | ||||||||
| Basic | 8,386,629 | 3,003,652 | ||||||
| Fully-diluted | 8,386,629 | 3,003,652 | ||||||
| Loss per ordinary share | ||||||||
| Basic | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Fully-diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||
| Weighted average number of ordinary shares outstanding | ||||||||
| Basic | 3,354,651,784 | 1,201,460,800 | ||||||
| Fully-diluted | 3,354,651,784 | 1,201,460,800 |
QUOIN PHARMACEUTICALS LTD.
Quoin Pharmaceuticals Ltd
Consolidated Statements of Shareholders' Deficit (unaudited)
Three months ended March 31, 2022 and 2021
| Ordinary Shares | ADSs | No Par Value | Treasury Stock | Additional Paid in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2020 | 1,201,460,800 | 3,003,652 | - | - | 100.00 | (6,607,397 | ) | (6,607,297 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | (3,903,871 | ) | (3,903,871 | ) | |||||||||||||||||||
| Balance at March 31, 2021 | 1,201,460,800 | 3,003,652 | - | $ | - | $ | 100 | (10,511,268 | ) | $ | (10,511,168 | ) | ||||||||||||||||
| Balance at December 31, 2021 | 3,354,650,799 | 8,386,627 | - | $ | (2,932,000 | ) | $ | 31,659,017 | (28,069,986 | ) | $ | 657,032 | ||||||||||||||||
| Net loss | - | - | - | - | - | (1,682,802 | ) | (1,682,802 | ) | |||||||||||||||||||
| Cashless warrant exercise | 3,200 | 8 | - | - | - | - | ||||||||||||||||||||||
| Reclassification of warrant liability upon issuance of Exchange warrant | - | - | - | 296,362 | - | 296,362 | ||||||||||||||||||||||
| Balance at March 31, 2022 | 3,354,653,999 | 8,386,635 | - | $ | (2,932,00 | ) | $ | 31,955,379 | $ | (29,752,787 | ) | $ | (729,408 | ) |
QUOIN PHARMACEUTICALS LTD.
Quoin Pharmaceuticals Ltd
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31,
| 2022 | 2021 | |||||||
| Cash flows provided by (used in) operating activities | ||||||||
| Net loss | $ | (1,682,802 | ) | $ | (3,903,871 | ) | ||
| Fair value adjustment to convertible notes payable | - | 500,000 | ||||||
| Change in fair value of warrant liability | (77,237 | ) | 2,446,513 | |||||
| Forgiveness of trade payable | (416,000 | ) | - | |||||
| Financing expense | - | 90,000 | ||||||
| Amortization of intangibles | 26,010 | 26,011 | ||||||
| Changes in assets and liabilities: | ||||||||
| Increase in accounts payable and accrued expenses | 162,133 | 410,533 | ||||||
| Decrease in accrued interest | (311,670 | ) | (48,510 | ) | ||||
| Increase in prepaid expenses | 206,008 | 65,598 | ||||||
| Net cash used in operating activities | (2,093,588 | ) | (413,726 | ) | ||||
| Cash flows used in investing activities | ||||||||
| Payment for license acquisition | (50,000 | ) | (142,500 | ) | ||||
| Net cash used in investing activities | (50,000 | ) | (142,500 | ) | ||||
| Cash flows provided by (used in) financing activities: | ||||||||
| Decrease in deferred offering costs | - | (104,309 | ) | |||||
| Increase in due to officers | - | 139,286 | ||||||
| Payments of amounts due to officers | (150,000 | ) | (135,000 | ) | ||||
| Proceeds from issuance of "Bridge Notes", net | - | 1,410,000 | ||||||
| Net cash provided by (used in) financing activities | (150,000 | ) | 1,309,977 | |||||
| Net change in cash | (2,293,558 | ) | 753,751 | |||||
| Cash - beginning of period | 7,482,773 | 323,832 | ||||||
| Cash - end of period | $ | 5,189,215 | $ | 1,077,583 | ||||
| Supplemental information: | ||||||||
| Reclassification of warrant liability to equity upon issuance of "Exchange Warrants" | $ | 296,362 | - |
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
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." The Company has accounted for the transaction as a reverse recapitalization with Quoin Inc.
as the accounting acquirer. Because Quoin Inc. is 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. Immediately after the closing of the Merger, there were
approximately 8,386,627 American Depositary Shares ("ADSs") issued and outstanding, with one ADS representing 400 ordinary
shares of the Company. The former holders of common stock of Quoin Inc. (including shares delivered to the Investor and the escrow account
for the Investor) owned, in the aggregate, approximately 88% of the ordinary shares, with Cellect's shareholders immediately prior
to the Merger owning approximately 12% of ordinary shares.
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). 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. The majority of the operating expenses
since inception have been associated with completing due diligence on various technologies, asset technology acquisitions, negotiating
and finalizing potential funding agreements, costs related to the Merger and building the pipeline of preclinical product candidates.
The founders of Quoin Inc. funded all related expenditures through September 2020.
On October 28, 2021, Cellect sold the entire
share capital of its subsidiary, Cellect Biotherapeutics Ltd., which essentially included all of Cellect's then existing net assets,
to EnCellX Inc. ("EnCellX"), a newly formed U.S. privately held company based in San Diego, CA (the "Share Transfer"),
pursuant to an Amended and Restated Share Transfer Agreement. Quoin Ltd. has no interests in EnCellX subsequent to the closing of the
Merger. See Note 12.
On October 28, 2021, the Company completed
the private placement transaction with an investor (the "Investor") for an aggregate purchase price of approximately $17.0
million (comprised of the set off of approximately $5 million of senior secured notes issued in connection with the bridge loan that the
Investor previously made to Quoin Inc. and approximately $12 million in cash from the Investor) (the "Primary Financing").
NOTE 2 - LIQUIDITY RISKS AND UNCERTAINTIES AND GOING CONCERN
The Company has incurred net losses every year
since inception and had an accumulated deficit of approximately $30.5 million at March 31, 2022. The Company funded its operations
through the issuance of the 2020 Notes (as defined below) and the Bridge Financing (as defined below) prior to the Merger and the Primary
Financing completed on October 28, 2021, whereby the Company received funding of approximately $12 million ($10.1 million after offering
costs) at the closing of the Merger. Further, the Company expects to receive additional funding through the mandatory exercise provision
of the Series C Warrant issued to the Investor effective as of March 13, 2022 which would result in proceeds of approximately
$9.5 million. In the event the requirements of the mandatory exercise provision of such warrant are not met (see Note 5), the Company
has a written commitment from the Investor to provide funding equal to the $9.5 million expected upon exercise of the Series C Warrant,
at prevailing market rates. As such, the Company believes that it has sufficient resources to affect its business plan for at least one
year from the issuance of these consolidated financial statements. The Company is also in the process of discussing a line of credit with
a bank which has not yet been closed as of the financial statement filing date and is likely to be conditional on additional equity funding
which could be satisfied by the aforementioned Investor funding, as well as the achievement of clinical development milestones.
Additional financing will be required to complete
the research and development of the Company's therapeutic targets and its other operating requirements, which may not be available
at acceptable terms, if at all. If the Company is unable to obtain the 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.
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
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 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 March 31, 2022 and for the three months then ended. The results of operations for the three months ended March 31, 2022
are not necessarily indicative of the operating results for the full year ending December 31, 2022 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 for
the year ended December 31, 2021. The Company operates in one segment.
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.
Certain 2021 amounts were reclassified to conform to the current year