Full Press Release Details
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
On October 28, 2021, Quoin Pharmaceuticals, Ltd.
(the "Company" or "Quoin Ltd."), formerly known as Cellect Biotechnology Ltd. ("Cellect"), completed
the business combination with Quoin Pharmaceuticals, Inc., a Delaware corporation ("Quoin"), 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
the Company, Quoin and CellMSC, Inc., a Delaware corporation and wholly-owned subsidiary of the Company ("Merger Sub"). Pursuant
to the Merger Agreement, Merger Sub merged with and into Quoin, with Quoin surviving as a wholly-owned subsidiary of the Company (the
"Merger"). Immediately after completion of the Merger, the Company changed its name to "Quoin Pharmaceuticals, Ltd."
and began trading on the Nasdaq Capital Market under the symbol "QNRX" on October 29, 2021.
Pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"), including Regulation S-X, set forth below is the pro forma financial position and results
of operations of the combined companies based upon the historical data of Cellect and Quoin (collectively the "Companies"
or the "Combined Company") and after giving effect to the pro forma events as follows:
merger of Cellect and Quoin, accounted for as a reverse recapitalization in which Quoin is the accounting acquirer;
Share Transfer Agreement, pursuant to which Cellect transferred the shares of its subsidiary, Cellect Biotherapeutics Ltd, the operating
entity to EnCellX Inc., a newly formed U.S. privately held company based in San Diego, CA with no affiliation to Quoin or Quoin Ltd. ("EnCellX").
There is no cash received by Quoin or Quoin Ltd. in this transaction, however, the then shareholders of Cellect received a Contingent
Value Rights Agreement ("CVR") described in more detail below.
(iii) The bridge notes
("Bridge Notes") issued in 2020 of approximately $1.2 million were converted into shares of common stock.
investment by Altium Growth Fund LP ("Altium" or the "Investor") of $17,000,000 ("Primary Financing")
to purchase common stock pursuant to the Securities Purchase Agreement, inclusive of the $5,000,000 of debt ("Bridge Financing")
pursuant to the bridge loan proceeds previously received from Altium.
Those events took place concurrently on October
28, 2021 ("Merger Date"). In this pro forma financial information, it was assumed that the Merger of Cellect with Quoin occurs
briefly before the Share Transfer Agreement due to the fact that Quoin, as the accounting acquirer, took upon itself, as part of the merger
agreement, to pass through the CVR proceeds to the former shareholders of Cellect.
At the conclusion of all events described above,
Quoin's operations will remain the only operation in the Combined Company with the additional capital raise from Altium of $17,000,000,
including the proceeds from the previously issued Bridge Notes converted into shares of the Combined Company. The net cash received from
this transaction at the Merger Date was approximately $11.7 million. Because Quoin will be treated as the acquirer under the reverse recapitalization,
Quoin's and Cellect's assets and liabilities will be recorded at their pre-combination carrying amounts in the unaudited pro
forma condensed combined financial information.
The unaudited pro forma combined balance sheet
as of June 30, 2021 assumes that the pro forma events occurred on June 30, 2021. The unaudited pro forma combined statement of operations
for the six months ended June 30, 2021 presents pro forma effect to the pro forma events as if they had been completed on January 1, 2021.
The unaudited pro forma combined statement of operations for the year ended December 31, 2020 presents pro forma effect to the pro forma
events as if they had been completed on January 1, 2020.
Description of the Transaction
Completion of Merger
Under the terms of the Merger Agreement, Cellect
issued American Depository Shares ("ADS's") to the holders of common stock of Quoin. Immediately after the Merger, there
were approximately 8,386,627 ADS's issued and outstanding which include 64,784 (subject to adjustment - see below) ADS's
from the conversion of the Convertible Promissory Notes ("2020 Notes"), 3,003,652 for the Quoin shareholders, 1,041,939 for
the Cellect shareholders immediately prior to the Merger, and an aggregate of 4,276,252 for the Investor, consisting of 1,069,063 initial
purchased shares and 3,207,189 held in an escrow account for the Investor subject to price resets, which were released and delivered in
the 4th quarter of 2021. The Company has not yet issued ADS's and warrants to holders of the 2020 Notes for the accrued interest
portion of amounts due.
The holders of common stock of Quoin (including
shares delivered to the Investor and the escrow account for the Investor) owned, in the aggregate, approximately 88% of the ADS's,
with Cellect's stockholders owning approximately 12%. The number of ADS's issued to the holders of Quoin common stock outstanding
immediately prior to the Merger was calculated using an exchange ratio (the "Exchange Ratio") of approximately 12.0146 ADS's
for each share of Quoin common stock.
In addition, Quoin Ltd. issued to the Investor
warrants to purchase 1,238,429 ADS's (the "Exchange Warrants") at an exercise price of $3.98 per ADS, in exchange of
Warrants issued by Quoin to the Investor in connection with the Bridge Financing. The Exchange Warrants and ordinary shares underlying
the Exchange Warrants were registered with the SEC on the Registration Statement on Form F-4.
Pursuant to the terms of the 2020 Notes, the Company
is obligated to exchange the existing warrants for warrants on the same terms as the Investor Series A Warrants, exercisable for 300,485
ADS's at an initial exercise price of $3.98 per ADS, subject to adjustment (the "Noteholder Warrants").
Private Placement Transaction (Primary Financing)
On October 28, 2021, the private placement transaction
with the Investor for an aggregate purchase price of approximately $17.0 million (comprised of (x) conversion of approximately $5 million
principal amount of Bridge Notes, and (y) approximately $11.5 million in cash from the Investor, net of Bridge Note accrued interest and
expenses) was closed.
In addition, Quoin Ltd. will issue to the Investor,
on the 136th day following the consummation of the Merger (i) 4,276,252 Series A Warrants to purchase ADS's (the "Series A
Warrants") (ii) 4,276,252 Series B Warrants to purchase ADS's (the "Series B Warrants"), (iii) 2,389,670 Series
C Warrants to purchase ADS's ("Series C Warrants") and (iv) upon exercise of the Series C Warrants, Quoin Ltd. will
issue to the Investor an additional 2,389,670 Series A Warrants and an additional 2,389,670 Series B Warrants (Series A Warrants, Series
B Warrants and Series C Warrants collectively, the "Investor Warrants").
Share Transfer Agreement
Concurrently with the Merger, Cellect completed
the sale of its subsidiary, Cellect Biotherapeutics Ltd., to EnCellX, Inc. (the "Share Transfer") and entered into a Contingent
Value Rights Agreement dated as of October 28, 2021 (the "CVR Agreement").
Upon the closings of the Merger and Share Transfer,
the holders of Cellect's ordinary shares immediately prior to the Merger, including the Depositary for the Company's ADS,
became entitled to one CVR for each ordinary share outstanding. On November 5, 2021, pursuant to the Deposit Agreement governing the ADS,
the Depositary distributed the CVRs pro rata to the holders of record of the ADS as of the close of business on October 27, 2021.
Holders of CVRs have the right to receive their
pro-rata share of the following payments which may be due from EnCellX to the Company, all as further outlined in the Share Transfer Agreement:
(i) during the Payment Period (as such term is defined in the Share Transfer Agreement), an amount equal to 3.5% of all Net Sales of Products
(as defined in the Share Transfer Agreement); (ii) a milestone payment of $6,000,000 upon attainment of the first regulatory approval
for the commercial manufacture, marketing and sale of the Product in the United States; (iii) a milestone payment of $6,000,000 upon receipt
of the first regulatory approval for the commercial manufacture, marketing and sale of the Product in the European Union; (iv) during
the Payment Period, 20% of all License Revenues (as defined in the Share Transfer Agreement) in excess of $10,000,000, subject to a cap
of $16,000,000 in the aggregate and reduction by the amount of any milestone payment(s) previously paid; and (v) an exit fee of 33% of
the consideration to be paid to Dr. Yarkoni and Mr. Mohanty in connection with an Exit Transaction (as defined in the Share Transfer Agreement),
in the event an Exit Transaction occurs before February 28, 2023 (the "Share Transfer Consideration"). There is no assurance
that any of the Share Transfer Consideration will be paid. The Company will not receive benefit from the Share Transfer Consideration
as any payments received from EnCellX will be passed onto the holders of CVRs. The Company's liability under the CVRs only accrues
if and when it has received, and will not exceed, payments of Share Transfer Consideration made by EnCellX.
Accounting for as a Reverse Recapitalization
It has been determined that Quoin will be the
accounting acquirer based on evaluation of the following facts and circumstances:
In accordance with the guidance under accounting
principles generally accepted in the United States ("US GAAP"), this transaction is accounted for as a reverse recapitalization
involving only the exchange of equity. Accordingly, the pro forma information presents the Quoin financial statements at their historical
Basis of Pro Forma Presentation
The historical financial information has been