Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of December 31, 2022, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2022. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the desired control objectives.
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Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
● pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
● provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles;
● provide reasonable assurance that receipts and expenditures are made only in accordance with authorizations of our management and board of directors (as appropriate); and
● provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Due to its inherent limitations, any system of internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework set forth in Internal Control — Integrated Framework by The Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013). Based on this assessment using this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting because Quoin Ltd. is not an accelerated filer or a large accelerated filer, and it is not subject to the attestation requirement.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2022, there were no changes in our internal control over financial reporting] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Set forth below is certain information regarding the members of our board of directors (the “Board” or the “Board of Directors”) and our executive officers. Each director is entitled to serve until the 2023 annual meeting of shareholders and until a successor is duly elected and qualified or until his or her earlier retirement, resignation or removal.
Name
Age
Position(s)
Dr. Michael Myers
61
Chairman of the Board and Chief Executive Officer
Denise Carter
54
Director and Chief Operating Officer
Joseph Cooper (1)(3)
65
Director
James Culverwell (1)(2)
66
Director
Dr. Dennis H. Langer (2)
71
Director
Natalie Leong (1)(3)
37
Director
Michael Sember (2)
73
Director
Gordon Dunn
58
Chief Financial Officer
(1) Member of our Audit Committee.
(2) Member of our Compensation Committee.
(3) Member of our Nominating and Governance Committee.
Set forth below is a summary of the business experience of each of our directors and executive officers.
Dr. Michael Myers , Chief Executive Officer and Director . Dr. Myers is the co-founder of Quoin Inc. and has served as Chairman and Chief Executive Officer of Quoin Inc. since its inception in 2018. Dr. Myers has served as Chairman and Chief Executive Officer of Quoin Ltd. since October 28, 2021. Dr. Myers has over 35 years of industry experience in the drug delivery and specialty pharmaceutical sectors. From 2003 to October 2015, he served as Chief Executive Officer of Innocoll AG (n/k/a Innocoll Biotherapeutics N.A. Inc.), a biotherapeutics pharmaceutical company, and was responsible for taking that company public in 2014. From 2001 to 2002, he served as President of the drug delivery division of West Pharmaceutical Services, Inc. (NYSE: WST), a designer and manufacturer of injectable pharmaceutical packaging and delivery systems. From 1996 to 1999, Dr. Myers served as the President of Pharmaceutical Operations for Fuisz Technologies (Biovail), a developer of food and drug delivery systems and technologies. From 2000 to 2001, Dr. Myers served as Executive Vice President and Chief Commercial Officer of Flamel Technologies (n/k/a Avadel Pharmaceuticals PLC (Nasdaq: AVDL), a specialty pharmaceutical company. From 1987 to 1995, Dr. Myers served as the Head of Pharmaceutical Development for Elan Corporation, a biotechnology drug company. Since 2022, Dr. Myers has served as a director of Ethicann Pharmaceuticals and SquareX Pharmaceuticals, each a clinical stage pharmaceutical company. Since 2019, Dr. Myers has served as a director of Sonoran Bioscience and Wellesley Pharmaceuticals, each a specialty pharmaceutical company. Dr. Myers earned his Ph.D. in Chemistry from the University College Cork, Ireland. We believe Dr. Myers is qualified to serve on our Board due to his extensive knowledge as one of Quoin Inc.’s co-founders and Chief Executive Officer, and his extensive commercial and management experience with both public and private life sciences companies.
Denise Carter , Chief Operating Officer and Director . Ms. Carter is the co-founder of Quoin Inc. and has served as a director and Chief Operating Officer of Quoin Inc. since its inception in 2018. Ms. Carter has served as a director and Chief Operating Officer of Quoin Ltd. since October 28, 2021. Ms. Denise Carter has over 30 years of experience in the drug delivery and specialty pharmaceutical industries. From June 2003 to October 2015, Ms. Carter held various positions at Innocoll AG (n/k/ a Innocoll Biotherapeutics N.A. Inc.), including President of Innocoll Pharmaceuticals and Executive Vice President of Business Development and Corporate Affairs of Innocoll AG. From 2001 to 2003, Ms. Carter was the Vice President of Business Development of the drug delivery division of West Pharmaceuticals, Inc. (NYSE: WST). From 2000 to 2001, she was the Senior Director of Business Development of Eurand, a specialty pharmaceutical company. From 1996 to 1999, Ms. Carter was the Director of Business Development and Alliance Management of Fuisz Technologies (Biovail). From 1999 to 2000, Ms. Carter was the Director of Business Development of Cardinal Health, Inc., a multi-national health care service company. Ms. Carter earned her MBA from Wharton School of Business, University of Pennsylvania and a B.S. in Chemistry from the College of William and Mary . We believe Ms. Carter is qualified to serve on our Board due to her extensive knowledge as one of Quoin Inc.’s co-founders and Chief Operating Officer, and her extensive business development, sales and marketing and fund raising experience in the life sciences industry.
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Joseph Cooper , Director . Mr. Cooper has served as a director of Quoin Inc. since May 2021. Mr. Cooper has served as a director of Quoin Ltd. since October 28, 2021. He has significant experience in operational, corporate development and general management roles within the pharmaceutical and healthcare industry. Since 2012, Mr. Cooper has served as the President of Boulder Cove LC, a pharmaceutical and healthcare consulting company. From September 2019 to December 2022, Mr. Cooper served as the Chief of Strategy and Corporate Development for Resonea, Inc., a digital health company. From August 2018 to December 2019, Mr. Cooper served as the Chief Business Officer of NuvOx Pharmaceuticals, a clinical stage pharmaceutical company. From January 2015 to August 2018, Mr. Cooper served as Chief Financial and Operating Officer for First Place, AZ, a non-profit healthcare services organization. From 1996 to 2010, Mr. Cooper served as the Executive Vice President of Corporate and Product Development of Medicis Pharmaceutical Corp. (NYSE: MRX), a pharmaceutical and medical aesthetics company. Since January 2018, Mr. Cooper has served as a director of Sonoran Biosciences, a specialty pharmaceutical company. From 2006 to 2007, Mr. Cooper served as a director of Bioenvision (Nasdaq: BIVN) a pharmaceutical company. Mr. Cooper holds an MBA from the WP Carey School of Business at Arizona State University and a BA from Northeastern Illinois University. We believe Mr. Cooper is qualified to serve on our Board due to his extensive executive and board experience with pharmaceutical and healthcare companies.
James Culverwell , Director . Mr. Culverwell has served as a director of Quoin Inc. since April 2021. Mr. Culverwell has served as a director of Quoin Ltd. since October 28, 2021. Since May 2013, Mr. Culverwell has served as the Chief Executive Officer and is currently Chairman of the Board of Directors of HOX Therapeutics, a prostate cancer research company. In 2005, Mr. Culverwell founded Sudbrook Associates, which provided strategic advice and fund raising services for life science companies. From 1992 to 2004, Mr. Culverwell was Senior Vice President and Global Coordinator Healthcare Research at Merrill Lynch. From 1982 to 1992, Mr. Culverwell was Director of Healthcare Equity Research at ABN Amro Bank N.V., a private banking company. Since February 2022, Mr. Culverwell has served as a director and Audit Committee Chairman of TC BioPharm (Holdings) plc (Nasdaq: TCBP), a cancer treatment development company. Since January 2005, Mr. Culverwell has served as a director, Audit Committee Chairman, and member of the Compensation Committee of SafeGuard Biosystems, a high throughput molecular diagnostics company. From April 2016 to September 2019, Mr. Culverwell served as a director and Audit Committee Chairman of Amryt Pharma PLC (Nasdaq: AMYT), a commercial-stage biopharmaceutical company. From February 2013 to July 2017, Mr. Culverwell served as a director and Audit Committee Chairman of Innocoll AG. He received an MSc with honors from the University of Aberdeen. We believe Mr. Culverwell is qualified to serve on our Board due to his extensive experience serving on the audit and compensation committees for multiple public and private life sciences and healthcare companies.
Dennis H. Langer , M.D., J.D., Director . Dr. Langer has served as a director of Quoin Inc. since 2019. Dr. Langer has served as a director of Quoin Ltd. Since October 28, 2021. From 2005 to 2010, Dr. Langer served as the Managing Partner at Phoenix IP Ventures, LLC, a private equity and venture capital fund specializing in life sciences companies. From 2004 to 2005, Dr. Langer was the President, North America for Dr. Reddy’s Laboratories, Inc., a multi-national pharmaceutical company. Dr. Langer was with GlaxoSmithKline, a multi-national pharmaceutical and biotechnology company, from 1994-2004, where he served as Senior Vice President, Project, Portfolio and Alliance Management, Senior Vice President, Product Development Strategy, and Senior Vice President, Healthcare Services R&D. From 1991 to 1994, he served as President and Chief Executive Officer at Neose Technologies, Inc., a clinical stage biopharmaceutical company. From 2004 to June 2022, Dr. Langer served as a director of Myriad Genetics, Inc. (Nasdaq: MYGN), a genetic testing and precision medicine company. From 2021 to June 2022, Dr. Langer served as a director of Brooklyn ImmunoTherapeutics, Inc. (n/k/a Eterna Therapeutics Inc., Nasdaq: ERNA), a biotechnology company. From 2007 to 2019, Dr. Langer served as a director of Dicerna Pharmaceuticals Inc. (Nasdaq: DRNA), a biopharmaceutical company. Dr. Langer serves on the Dean’s Advisory Board of Harvard Law School. He received an M.D. from Georgetown University School of Medicine, a J.D. from Harvard Law School, and a B.A. in Biology from Columbia University. We believe Dr. Langer is qualified to serve on our Board due to his extensive experience as an executive and board member of public and private life sciences and healthcare companies.
Natalie Leong , Director . Ms. Leong has served as a director of Quoin Inc. since April 2021. Ms. Leong has served as a director of Quoin Ltd. since October 28, 2021. Since January 2023, Ms. Leong has been the Senior Vice President of Product Management for B.S.D. Capital, Inc. (d/b/a Lendistry), a minority-led small business lender. Ms. Leong was the Head of Finance and Product Strategy (October 2019 – October 2020) and subsequently Head of Product Management (October 2020 – November 2022) for LoanStreet Inc., a financial SaaS company. From May 2016 to July 2019, Ms. Leong served as the Lead for the Asset Liability Committee for the US at RBC Capital Markets. In addition, from August 2018 to October 2019, she served as the Lead for Global Originations FP&A for RBC Capital Markets. From October 2011 to May 2016, Ms. Leong worked as the Vice President of Capital Insights at National Australia Bank. From February 2008 to October 2011, Ms. Leong served as a Senior Auditor at National Australia Bank. Ms. Leong earned her MBA at The Wharton School, University of Pennsylvania. She earned a B.Comm degree (Finance and Economics) and a B.A. degree (French and Literature) from the University of Melbourne in 2007. We believe Ms. Leong is qualified to serve on our Board of directors due to her extensive financial and business management experience.
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Michael Sember , Director . Mr. Sember has served as a director of Quoin Inc. since May 2021. Mr. Sember has served as a director of Quoin Ltd. since October 28, 2021. Since 2015, Mr. Sember has served as the Chief Executive Officer of RaeSedo, Inc., a therapeutics company. Since 2007, he has served as a Principal of Accela Advisors, a biopharmaceutical consulting firm specializing in strategic planning, business development and coaching for startups. From January 2018 to October 2020, Mr. Sember served as the Chief Executive Officer of Regulonix Holding, Inc., a drug development company. From October 2015 to March 2019, he served as the Mentor in Residence to companies formed from inventions discovered at the University of Arizona. From 2013 to 2015, Mr. Sember was the Corporate Turnaround Specialist and Chief Executive Officer of Palyon Medical Corporation, a drug delivery system company. From 1991 to 2002, Mr. Sember was Executive Vice President of Corporate Business Development for Élan Corporation, responsible for strategic collaborations and mergers and acquisitions. From 1973 to 1991, Mr. Sember served as the Senior director of Global Program Management at Marion Laboratories (later Marion Merrell Dow). From 2013 to 2015, Mr. Sember was the Chairman of the Board of Paylon Medical Corporation, a drug delivery system company. From 2012 to 2013, Mr. Sember was the Chairman of the Board of BioIndustry Organization of Southern Arizona, a non-profit trade group. Mr. Sember earned a Bachelor of Science degree from the University of Pittsburgh and an MBA from Rockhurst University. We believe Mr. Sember is qualified to serve on our Board due to his broad executive and capital raising experience in the life sciences industry.
Gordon Dunn, Chief Financial Officer . Mr. Dunn has served as Chief Financial Officer of Quoin Ltd. since November 1, 2021. Mr. Dunn has over 30 years of finance experience. He served as Chief Financial Officer of Health Technologies Ltd. (d/b/a Qured), a UK-based healthcare provider, from March 2020 to October 2021, and as Chief Financial Officer of U-Research, an online company information platform, from July 2017 to March 2020. Mr. Dunn also served as Chief Financial Officer of Anton Corporation, a film and media finance company, from September 2016 to July 2017, and as Chief Financial Officer of Innocoll AG from 2012 to 2016. Prior to these roles, he had deep experience in investment banking and private equity, serving as Portfolio Manager of NewSmith Asset Management, a private equity fund from 2004 to 2014, and as Director of Investment Banking and Co-Head of Private Equity at Merrill Lynch, in addition to other roles, from 1994 to 2003. Mr. Dunn was an associate at Morrison & Foerster LLP from 1991 to 1993. Mr. Dunn earned his JD from New York University School of Law and a BA from Stanford University.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Legal Proceedings
There are no material legal proceedings to which any of our directors or executive officers, or any associate of any of our directors or executive officers, is a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.
Delinquent Section 16(a) Reports
Starting from January 1, 2023, our directors, officers (as defined under Rule 16a-1(f) under the Exchange Act) and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of the Exchange Act (collectively, the “Reporting Persons”) are required to file initial statements of beneficial ownership of securities and statements of changes in beneficial ownership of securities with respect to our equity securities with the SEC under Section 16(a) of the Exchange Act. Therefore, there were no late Form 3 or Form 4 filings in 2022.
Code of Ethics
We have adopted a Code of Ethics and Business Conduct (the “Code of Ethics”) that applies to all of our directors, officers and employees, including our principal executive officer and our principal financial and accounting officer. A copy of our Code of Ethics has been posted to the “Investors—Corporate Governance” section of our website www.quoinpharma.com, and it is attached as an exhibit to this Annual Report. If we make any amendment to the Code of Ethics or grant any waivers, including any implicit waiver, from a provision of the Code of Ethics, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC. We have not granted any waivers under our Code of Ethics.
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Board of Directors
The Board determined that Joseph Cooper, James Culverwell, Dr. Dennis Langer, Natalie Leong, and Michael Sember, qualify as independent directors, as such term is defined under Nasdaq listing rules. The Board of Directors has established three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Governance Committee.
Audit Committee
The Audit Committee of the Board of Directors consists of Joseph Cooper, James Culverwell, and Natalie Leong, with Mr. Culverwell chairing the committee.
Under the Nasdaq listing standards, we are required to maintain an audit committee consisting of at least three independent directors, each of whom is financially literate and one of whom has accounting or related financial management expertise. Our Board has determined that each member of the Audit Committee satisfies the independence requirements under Nasdaq listing standards and Rule 10A-3(b)(1) of the Exchange Act, has the requisite financial sophistication as required by the Nasdaq listing standards and is an audit committee financial expert, as defined by the SEC rules.
Our Board adopted the Amended and Restated Charter of the Audit Committee that sets forth the responsibilities of the audit committee under Nasdaq listing standards, as well as the requirements for such committee under the Companies Law, including the following:
● overseeing our independent registered public accounting firm and recommending the engagement, compensation or termination of engagement of our independent registered public accounting firm to the board of directors in accordance with Israeli law;
● recommending the engagement or termination of the person filling the office of our internal auditor; and
● recommending the terms of audit and non-audit services provided by the independent registered public accounting firm for pre-approval by our board of directors.
Our audit committee provides assistance to our board of directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by pre-approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal control over financial reporting. Our audit committee also oversees the audit efforts of our independent accountants and takes those actions that it deems necessary to satisfy itself that the accountants are independent of management.
Under the Companies Law, our audit committee is responsible for:
● determining whether there are deficiencies in the business management practices of our company, including in consultation with our internal auditor or the independent auditor, and making recommendations to the board of directors to improve such practices;
● determining the approval process for transactions that are ‘non-negligible’ (i.e., transactions with a controlling shareholder that are classified by the audit committee as non-negligible, even though they are not deemed extraordinary transactions), as well as determining which types of transactions would require the approval of the audit committee, which determination may be based on annually pre-determined criteria;
● determining whether to approve certain related party transactions (including transactions in which an office holder has a personal interest and whether such transaction is extraordinary or material under the Companies Law);
● examining the work plan of the internal auditor before its submission to our board of directors and proposing amendments thereto or, upon a decision of the board of directors, acting as the corporate body to approve such work plan;
● examining our internal controls and internal auditor’s performance, including whether the internal auditor has sufficient resources and tools at his disposal to fulfill his responsibilities;
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● examining the scope of our external auditor’s work and compensation and submitting a recommendation with respect thereto to our board of directors; and
● establishing procedures for the handling of employees’ complaints as to the management of our business and the protection to be provided to such employees.
Compensation Committee
The Compensation Committee of the Board consists of James Culverwell, Dennis Langer and Michael Sember, with Mr. Langer chairing the committee. The Board of Directors has determined that each member of the Compensation Committee is independent under Nasdaq listing standards.
Our Board adopted the Amended and Restated Charter of the Compensation Committee that sets forth the responsibilities of such committee under Nasdaq listing standards, as well as the requirements for such committee under the Companies Law, including the following:
● recommending to our board of directors a policy regarding the terms of engagement of the company’s office holders, to which we refer as a “compensation policy”;
● recommending whether the compensation policy should continue in effect, if the then-current policy has a term of greater than three years (approval of either a new compensation policy or the continuation of an existing compensation policy must in any case occur every three years);
● recommending to the board of directors updates to the compensation policy from time to time;
● assessing implementation of the compensation policy;
● the initial approval of transactions regarding the terms of compensation for all office holders, subject to further approvals that may be required by the board of directors and/or a general meeting of shareholders, depending on the circumstances;
● deciding, under the special circumstances set forth in the Companies Law, whether to exempt the approval of terms and conditions of a Chief Executive Officer’s service from the requirement of shareholder approval;
● approving non-material amendments to the compensation arrangement of an office holder who is not a director;
● making other determinations that the Companies Law assigns to a compensation committee;
● reviewing and recommending for approval by the board of directors the overall compensation policies with respect to our Chief Executive Officer and other executive officers;
● reviewing and recommending for approval by the board of directors the corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other executive officers;
● evaluating the performance of our Chief Executive Officer and other executive officers in light of such goals and objectives;
● reviewing and approving the granting of options and other incentive awards, including the exercise of authorities delegated by the board of directors regarding the grant of equity incentives under our equity compensation plans;
● reviewing, evaluating and making recommendations regarding the compensation and benefits for our non-employee directors;
● overseeing our compliance with SEC and Nasdaq rules related to shareholder approval of certain executive compensation matters and equity compensation plans;
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● considering and implementing policies with respect to oversight, assessment and management of risks associated with our compensation polices; and
● reviewing and establishing appropriate insurance coverage for our office holders.
Nominating and Governance Committee
Our Nominating and Governance Committee consists of Natalie Leong and Joseph Cooper, with Ms. Leong chairing the committee. The Board of Directors has determined that each member of the Nominating and Governance Committee is independent under Nasdaq listing standards.
Our Board adopted the Amended and Restated Charter of the Nominating and Governance Committee that sets forth the responsibilities of such committee under Nasdaq listing standards, as well as the requirements for such committee under the Companies Law, including the following:
● evaluating our corporate leadership structure, and reviewing important issues and developments in corporate governance, and developing appropriate recommendations for the Board; and
● overseeing and assisting our board in reviewing and recommending nominees for election as directors and members of committees of our board.
Internal Auditor
We are required to appoint an internal auditor in accordance with the recommendation of the audit committee in accordance with the Companies Law. An internal auditor may not be:
● a person (or a relative of a person) who holds more than 5% of the company’s outstanding shares or voting rights;
● a person (or a relative of a person) who has the power to appoint a director or the chief executive officer of the company;
● an office holder (including a director) of the company (or a relative thereof); or
● a member of the company’s independent accounting firm, or anyone on his or her behalf.
The role of the internal auditor is to examine, among other things, our compliance with applicable law and orderly business procedures. The audit committee is required to oversee the activities of the internal auditor and to assess his or her work plan and performance. Our internal auditor is Mr. Edo Pollack, a Certified Public Accountant and partner-in-charge of the Israel office of Eisner Advisory Group LLC.
The Chairman of the board of directors is the direct supervisor of the internal auditor, unless the board of directors determines otherwise (and, in this regard, we have not determined otherwise). The internal auditor is required to submit his or her findings to the Chairman of the Board, the Chief Executive Officer, and the Chairman of the audit committee. The internal auditor may not be dismissed or suspended without his consent, other than by a decision of the board of directors requiring a quorum of the majority of the members of the board, after the board of directors has heard the audit committee’s position on the matter, and the internal auditor has been afforded a reasonable opportunity to bring his position before the audit committee and the board of directors.
Fiduciary Duties of Directors and Executive Officers
The Companies Law codifies the fiduciary duties that office holders owe to a company. An “office holder” under the Companies Law means a director, a Chief Executive Officer, or other officer who occupies a general or chief management position, or serves in a position directly secondary to or directly reporting to the Chief Executive Officer. Each person named in the table of our directors and executive officers above is an “office holder” under the Companies Law.
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An office holder’s fiduciary duties consist of a duty of care and a duty of loyalty. The duty of care requires an office holder to act with the level of care with which a reasonable office holder in the same position would act under the same circumstances. The duty of loyalty requires that an office holder act in good faith and in the best interests of the company.
The duty of care includes a duty to use reasonable means to obtain:
● information on the advisability of a given action brought for the office holder’s approval or performed by virtue of his or her position; and
● all other important information pertaining to any such action.
The duty of loyalty includes a duty to:
● refrain from any conflict of interest between the performance of the office holder’s duties to the company and his or her other duties or personal affairs;
● refrain from any activity that is competitive with the company;
● refrain from exploiting any business opportunity of the company to receive a personal gain for himself or herself or others; and
● disclose to the company any information or documents relating to the company’s affairs which the office holder received as a result of his or her position as an office holder.
Disclosure of Personal Interests of an Office Holder and Approval of Certain Transactions
The Companies Law requires that an office holder promptly disclose to the board of directors any personal interest that he or she may be aware of concerning any existing or proposed transaction with the company, including all material information or documents related thereto. An interested office holder’s disclosure must be made promptly, and in any event no later than the first meeting of the board of directors at which the transaction is considered. As used in the context of the Companies Law, a “personal interest” includes an interest of any person in an act or transaction of a company, including a personal interest of such person’s “relative,” or of a corporate body in which such person or a relative of such person is a 5% or greater shareholder, director or chief executive officer, or in which he or she has the right to appoint at least one director or the chief executive officer, but excluding a personal interest stemming solely from an interest in shares in the company. A “personal interest” is furthermore deemed to include, in a proposal brought before a meeting of shareholders, the personal interest of a shareholder for whom a vote is being cast by power of attorney, as well as the personal interest of a person voting by virtue of a power of attorney, even if the person granting such power of attorney has no personal interest in the matter. A “relative” (in this context, and generally in the context of the Companies Law) means (a) a spouse, sibling, parent, grandparent, child or descendant, (b) a spouse’s child or descendant, parent or sibling, or (c) the spouse of any of the foregoing. An office holder is not, however, obligated to disclose a personal interest if it derives solely from the personal interest of his or her relative in a transaction that is not considered an “extraordinary transaction.”
Under the Companies Law, an “extraordinary transaction” is defined as any of the following:
● a transaction other than in the ordinary course of business;
● a transaction that is not on market terms; or
● a transaction that may have a material impact on a company’s profitability, assets or liabilities.
Generally speaking, a director and any other office holder who has a personal interest in a transaction which is considered at a meeting of the board of directors or the audit committee may not be present at such a meeting or vote on that matter (unless it is with respect to a transaction which is not an extraordinary transaction), unless a majority of the directors or members of the audit committee, as applicable, have a personal interest in the matter. If a majority of the members of the audit committee or the board of directors have a personal interest in the matter, then all of the directors may participate in the deliberations of the audit committee or board of directors
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(as the case may be) with respect to such transaction, and vote on the approval thereof; however in such case shareholder approval will be required.
Generally speaking, any transaction between the Company and an office holder, or between the Company and a person or entity in whom the office holder has a personal interest, requires approval by the board of directors; if such transaction is an extraordinary transaction, it requires approval first by the company’s audit committee, and subsequently by the board of directors.
Approvals Required for the Compensation of Directors and Executive Officers
The Companies Law requires special approvals for a transaction regarding the terms of compensation of an office holder (whether or not by way of an employment agreement), which is deemed to include the payment or issuance of any benefit to the office holder which was not already promised under an existing agreement, including any form of cash, equity, termination benefits, exculpation, insurance or indemnification, or any additional benefit or amendment not covered by a previously approved agreement or arrangement.
Approval of the compensation of an office holder who is not a director requires approval first by the company’s compensation committee, then by the company’s board of directors, and, if such compensation transaction is not consistent with the company’s compensation policy, or if the office holder is the Chief Executive Officer, the subsequent approval of a special majority for compensation matters at a general meeting of shareholders, namely, a simple majority of the company’s shareholders, provided that (1) such majority includes a majority of the votes cast by the shareholders who are not controlling shareholders and who do not have a personal interest in the matter, present and voting (abstentions are disregarded) or (2) the votes cast by shareholders who are not controlling shareholders and who do not have a personal interest in the matter and voted against the compensation policy, constitute two percent or less of the aggregate voting rights in the company (a “Special Majority for Compensation Matters”).
Arrangements regarding the terms of compensation of an office holder who is a director require the approval of the compensation committee, followed by the board of directors, followed by a simple majority at a general meeting of shareholders; however, under certain circumstances a Special Majority for Compensation Matters is required. The respective approvals of the compensation committee and the board of directors must be in line with the company’s duly approved compensation policy; however, in special circumstances, compensation terms may be approved notwithstanding an inconsistency with the compensation policy, provided that the compensation committee and the board have considered those provisions that must be included in the compensation policy under the Companies Law, and shareholder approval was obtained by a special majority.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth information concerning the compensation awarded to, earned by, or paid to our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer (collectively referred to as “named executive officers” or “Covered Office Holders”) during the years ended December 31, 2022 and 2021.
Option
All Other
Salary
Bonus (1)
Awards (2)
Compensation (3)
Total (4)
Name and Principal Position
Year
($)
($)
($)
($)
($)
Dr. Michael Myers
2022
550,000
—
1,112,187
57,112
1,719,299
Chief Executive Officer
2021
518,000
427,500
—
57,209
998,209
Denise Carter
2022
440,000
—
1,112,187
55,215
1,607,402
Chief Operating Officer
2021
416,000
342,000
—
51,009
809,009
Gordon Dunn (4)
2022
360,000
—
926,822
1,385
1,288,207
Chief Financial Officer
2021
60,000
60,000
—
120,000
(1) For bonuses earned during the year ended December 31, 2021, represents: (i) with respect to Mr. Myers, Ms. Carter and Mr. Dunn, a discretionary cash bonus under the officer’s respective employment agreement granted in recognition of the applicable officer’s promotion of our long-term goals, strategy and operating plan, the need to form appropriate incentives for our officers, and contribution to the achievement of our objectives in accordance with the officer’s respective corporate role during the year ended December 31, 2021; (ii) with respect to Mr. Myers and Ms. Carter, a transaction bonus related to the completion of the Merger and
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private placement transactions during the year ended December 31, 2021, and (iii) with respect to Mr. Dunn, a signing bonus of $30,000 upon joining the company in November 2021. The amount of bonuses earned during the year ended December 31, 2022 is not calculable through the date of this Annual Report, and such amount will be disclosed in our Current Report on Form 8-K under Item 5.02(f) after we obtain applicable approvals of our shareholders under the Companies Law at our 2023 Annual Meeting of Shareholders.
(2) Represents the grant date fair value of option awards granted to each of our named executive officers on April 12, 2022, calculated in accordance with FASB ASC Topic 718. These options have an exercise price of $17.50 per ADS and vest in four equal annual installments beginning on April 12, 2023. The option values were calculated using a Black-Scholes Model for pricing options. See Note 7 to Consolidated Financial Statements included in this Annual Report for all relevant valuation assumptions used to determine the grant date fair value of these options.
(3) Represents amounts paid as office and automobile allowance to Mr. Myers and Ms. Carter under their respective employment agreements, as well as the employer matching contribution to the executive’s 401(k) plan contributions under our Section 401(k) retirement plan (the “Section 401(k) Plan”), broken down as follows:
Office
Car
401(k)
Allowance
Allowance
Contributions
Total
($)
($)
($)
($)
Michael Myers
2022
30,000
18,000
9,112
57,112
2021
27,500
16,500
8,709
52,709
Denise Carter
2022
30,000
18,000
7,215
55,215
2021
27,500
16,500
7,009
51,009
Gordon Dunn
2022
—
—
1,385
1,385
(4) Mr. Dunn was appointed as our Chief Financial Officer on November 1, 2021.
Employment Agreements
We entered into written employment agreements with our Covered Office Holders that contain customary provisions, including non-compete and confidentiality provisions.
Dr. Myers. Pursuant to his Executive Employment Agreement with Quoin Inc., dated March 9, 2018, which was amended as of November 9, 2021 (as amended, the “Myers Agreement”), Dr. Myers is entitled to an annual base salary of $550,000, which accrued monthly until paid by Quoin Inc. Dr. Myers may also receive, subject to employment by us on the applicable date of bonus payout, an annual target discretionary bonus of not less than 45% of his annual base salary, payable at the discretion of the board of directors after approval of our compensation committee, subject to shareholder approval by a Special Majority for Compensation Matters. Pursuant to the Myers Agreement, Dr. Myers is also eligible to receive healthcare benefits as may be provided from time to time by us to our employees generally, and to receive paid time off annually in accordance with our policies in effect from time to time. Additionally, the Myers Agreement provides Dr. Myers with a monthly office allowance of $2,500 and a monthly automobile allowance of $1,500.
Ms. Carter. Pursuant to her Executive Employment Agreement with Quoin Inc., dated March 9, 2018, which was amended as of November 9, 2021 (as amended, the “Carter Agreement”), Ms. Carter is entitled to an annual base salary of $440,000, which accrued monthly until paid by Quoin Inc. Ms. Carter may also receive, subject to employment by us on the applicable date of bonus payout, an annual target discretionary bonus of not less than 45% of her annual base salary, payable at the discretion of the board of directors after approval of our compensation committee, subject to shareholder approval by a Special Majority for Compensation Matters. Pursuant to the Carter Agreement, Ms. Carter is also eligible to receive healthcare benefits as may be provided from time to time by us to our employees generally, and to receive paid time off annually in accordance with Quoin’s policies in effect from time to time. Additionally, the Carter Agreement provides Ms. Carter with a monthly office allowance of $2,500 and a monthly automobile allowance of $1,500.
Mr. Dunn. Pursuant to his Service Agreement with Quoin Inc., dated November 1, 2021 (as amended, the “Dunn Agreement”), Mr. Dunn is entitled to an annual base salary of $360,000. In addition, Mr. Dunn is entitled to receive (i) a signing bonus equal to one-twelfth of his annual base salary, and (ii) subject to employment by us on the applicable date of bonus payout, an annual target
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discretionary bonus of not less than 45% of his annual base salary, payable at the discretion of the Board, which will be prorated for 2021. Under the Dunn Agreement, upon our adoption of an option plan, we are obligated to grant an option to Mr. Dunn to purchase our ordinary shares, with $1.25 million grant date value, subject to the terms of such plan. Mr. Dunn is also eligible to receive healthcare benefits as may be provided from time to time by us to our employees generally and paid time off annually in accordance with our policies in effect from time to time.
Health and Welfare Benefits
Our named executive officers are eligible to participate in the same employee benefit plans, and on the same terms and conditions, as all other full-time, salaried U.S. employees. These benefits include medical, dental, and vision insurance, an employee assistance program, health and dependent care flexible spending accounts, basic life insurance, accidental death and dismemberment insurance, short-term and long-term disability insurance, and commuter benefits.
We also maintain the “Section 401(k) Plan that provides eligible employees, including our named executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Eligible employees are able to participate in the Section 401(k) Plan as of the first day of the month following the date they meet the plan’s eligibility requirements. Participants are able to defer up to 100% of their eligible compensation subject to applicable annual limits under the Internal Revenue Code (the “Code”). All participants’ interests in their deferrals are 100% vested when contributed. Currently, we match up to 100% of a participant’s first 1% of his or her eligible contributions to the Section 401(k) Plan, and we match up to 50% of the next 5% of his or her eligible contributions.
Outstanding Equity Awards at December 31, 2022
The following table sets forth information with respect to outstanding equity awards for each named executive officer as of December 31, 2022.
Number of
Number of
Securities
Securities
Underlying
Underlying
Option
Unexercised
Unexercised
Exercise
Option
Options (#)
Options (#)
Price (2)
Expiration
Name
Exercisable
Unexercisable (1)
($)
Date
Dr. Michael Myers
—
85,714
17.50
04/12/2032
Denise Carter
—
85,714
17.50
04/12/2032
Gordon Dunn
—
71,429
17.50
04/12/2032
(1) Represents the number of ADSs issuable upon the exercise of options. Each option vests in four equal annual installments beginning on April 12, 2023.
(2) Represents the exercise price per ADS.
Amended and Restated Equity Incentive Plan
At our annual meeting of shareholders on April 12, 2022 (“April 2022 Annual Meeting”), our shareholders approved our Amended And Restated Equity Incentive Plan (the “Plan”), which amended and restated our 2014 Global Incentive Option Scheme. The number of shares reserved for issuance under the Plan is equal to 15% of our outstanding ordinary shares on a fully-diluted basis. The purpose of the Plan is to attract, retain and motivate our employees (including prospective employees), non-employee directors and consultants. The Board has the power to administer the Plan, either directly or upon the recommendation of the Compensation Committee of the Board, in accordance with applicable law and the Company’s Articles. Options granted under the Plan are subject to applicable vesting schedules and generally expire ten years from the grant date.
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Option Grants
At our April 2022 Annual Meeting, our shareholders approved the grant an option to purchase 85,714 ADSs under the Plan to each of Dr. Myers and Ms. Carter, at an exercise price of $17.50 per ADS, vesting in four equal annual installments beginning on April 12, 2023. In addition, our Board approved the grant of an option to purchase 71,429 ADSs under the Plan to Mr. Dunn, at an exercise price of $17.50 per ADS, in four equal annual installments beginning on April 12, 2023. Under the Companies Law, shareholder approval was not required for the option grant to Mr. Dunn.
Potential Payments Upon Termination or in Connection With a Change of Control
Employment Agreements
Pursuant to each of the Myers Agreement and the Carter Agreement, Dr. Myers and Ms. Carter, respectively, are entitled to the following benefits upon termination of their employment:
● Termination for any reason: Upon the termination of such executive’s employment for any reason, such executive will receive (i) his or her Base Salary (as defined in the Myers Agreement or the Carter Agreement, as applicable) through the Exit Date (as defined in the Myers Agreement or the Carter Agreement, as applicable), (ii) any Bonuses (as defined in the Myers Agreement or the Carter Agreement, as applicable) to which he or she is entitled and has already earned for the prior fiscal year, and (iii) any other accrued or vested benefits or reimbursements through the Exit Date to which such executive is entitled to contractually or by operation of law.
● Termination upon death or Disability: In the event of the executive’s termination due to his or her death or Disability (as defined in the Myers Agreement or the Carter Agreement, as applicable), then, in addition to the payments set forth above, the executive will receive his or her pro rata portion of the Bonus such executive would have been entitled to receive for the fiscal year in which the Exit Date occurs, based upon the percentage of the fiscal year that elapsed through the Exit Date. Additionally, in the event of termination due to Disability, the executive will receive, for a period of 24 months following the Exit Date, such executive monthly COBRA premium.
● Termination without Cause or for Good Reason: In addition to the payments set forth in the first bullet above, if Dr. Myers or Ms. Carter is terminated by the Company without Cause (as defined in the Myers Agreement or the Carter Agreement, as applicable), or Dr. Myers or Ms. Carter terminates his or her employment for Good Reason (as defined in the Myers Agreement or the Carter Agreement, as applicable), he or she will be entitled to receive (i) his or her Base Salary for 2 years from the Exit Date and 2 times the current years’ Bonus, and (ii) continuation of such executive’s medical benefits for 2 years from the Exit Date (unless the executive becomes employed elsewhere during such 2 year period and is eligible to receive comparable medical benefits).
As a condition precedent to receiving any of the foregoing benefits, Dr. Myers and/or Ms. Carter, as applicable, must first sign a Release (as defined in the Myers Agreement or the Carter Agreement, as applicable).
Mr. Dunn, pursuant to the Dunn Agreement, is also entitled to the following benefits upon termination of his employment:
● Garden Leave : During any period of notice to terminate Mr. Dunn’s employment, Mr. Dunn will continue to be entitled to his basic salary and contractual benefits in the usual course.
● Payment in lieu of notice : Upon the termination of Mr. Dunn’s employment at any time, Mr. Dunn will receive payment equal to his basic salary as of the termination date which he would have been entitled to receive under the Dunn Agreement during the notice period referred to in the bullet below, less income tax and national insurance contributions. Payment in lieu of notice will not include (i) any bonus or commission payments that might otherwise have been paid to Mr. Dunn during the period for which such payment in lieu of notice is made, (ii) benefits Mr. Dunn would have been entitled to during such time, and (iii) holiday entitlement that would have accrued during such time.
● Termination : Subject to successful completion of the probationary employment period as set forth in the Dunn Agreement, and except in connection with certain “for cause” events, as set forth in Section 20.2 of the Dunn Agreement, the Company may terminate Mr. Dunn’s employment by giving at least 12 months’ prior written notice, and is obligated to continue paying Mr. Dunn his basic salary and other benefits during such notice period.
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The foregoing descriptions of the Myers Agreement, the Carter Agreement and the Dunn Agreement do not purport to be complete and are qualified in their entirety by reference to the complete text of the Myers Agreement, the Carter Agreement and the Dunn Agreement, copies of which are included as exhibits to this Annual Report.
Option Awards
Under the Plan, upon termination of employment for any reason, other than in the event of death or disability or for ”Cause” (as defined in the Plan), all unvested options will expire and all vested options at time of termination will generally be exercisable for 90 days following termination, subject to the terms of the Plan and the governing option agreement. If we terminate a grantee for Cause, the grantee’s right to exercise all vested and unvested the options granted to the grantee will expire immediately. Upon termination of employment due to death or disability, all the vested options at the time of termination will be exercisable for 12 months after date of termination, subject to the terms of the Plan and the governing option agreement.
Non-Employee Director Compensation
Under our non-employee directors’ compensation program, non-employee directors are entitled to receive the following cash compensation for their services:
● each non-employee director receives an annual base retainer of $60,000;
● each committee chairperson receives an additional retainer of $15,000 for his or her service as a chairperson; and
● each member of a standing committee receives an additional retainer of $5,000 for such service on a standing committee.
In addition to cash compensation, our non-employee directors are also entitled to equity awards under our director compensation policy. Each non-employee director is entitled to receive an annual award of options under the Plan valued at $60,000. In addition, each non-employee director who joins the Board is granted an inaugural award of options valued at $165,000.
At our April 2022 Annual Meeting, our shareholders approved, pursuant to and in line with our non-employee directors’ compensation program, the following option grants to each of our non-employee directors under the Plan:
● as an inaugural grant, an option to purchase 9,428.56 ADS, at an exercise price of $17.50 per ADS, vesting over a three-year period beginning on April 12, 2023; and
● as an annual grant for 2022, an option to purchase 3,428.56 ADS, at an exercise price of $17.50 per ADS, vesting over a three-year period beginning on April 12, 2023.
The following table sets forth information concerning the compensation awarded to, earned by or paid to non-employee directors for the year ended December 31, 2022.
Fees Earned or
Option
Paid in Cash
Awards (2)
Total
Name
($)
($)
($)
Joseph Cooper
70,000
163,570
233,570
James Culverwell
75,000
163,570
238,570
Dr. Dennis H. Langer (1)
90,000
163,570
253,570
Natalie Leong
80,000
163,570
243,570
Michael Sember
65,000
163,570
228,570
(1) Includes $15,000 Compensation Committee Chairman fee for the year ended December 30, 2021, which was paid in 2022.
(2) Represents the grant date fair value of option awards granted to each of our non-employee directors on April 12, 2022, calculated in accordance with FASB ASC Topic 718. These options have an exercise price of $17.50 per ADS and vest in three equal annual installments beginning on April 12, 2023. The option values were calculated using a Black-Scholes Model for pricing options. See Note 7 to Consolidated Financial Statements included in this Annual Report for all relevant valuation assumptions used to determine the grant date fair value of these options.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information relating to the beneficial ownership of our ordinary shares as of March 10, 2023, by:
● each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding ordinary shares;
● each of our directors and named executive officers; and
● all of our directors and officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and generally means sole or shared power to vote or direct the voting or to dispose or direct the disposition of any ordinary shares. Unless otherwise indicated in the footnotes to this table, we believe that each of the persons named in this table has sole voting and investment power with respect to the shares indicated as being beneficially owned.
Except as indicated by footnote, the beneficial ownership information is based upon 59,233,024,799 ordinary shares outstanding as of March 10, 2023. Ordinary shares that may be acquired by a person within 60 days of March 10, 2023, pursuant to the exercise of options are deemed to be outstanding for purpose of computing the percentage ownership of such person, but are not deemed to be outstanding for purposes of computing the percentage ownership of ordinary shares of any other person shown in the table. Each ADS represents 5,000 ordinary shares of Quoin Ltd.
Unless indicated otherwise below, the address of our directors and executive officers is c/o Quoin Pharmaceuticals Ltd., 42127 Pleasant Forest Court, Ashburn, VA 20148-7349.
Amount and Nature of Beneficial
Percentage
Name and Address of Beneficial Owner
Ownership
of Class
5% Beneficial Owners :
Lind Global Fund II LP (1)
4,950,000,000
8.2
%
Directors and Named Executive Officers :
Dr. Michael Myers (2)
668,622,900
1.1
%
Denise Carter (3)
668,617,900
1.1
%
Joseph Cooper (4)
21,428,533
*
James Culverwell (5)
40,498,533
*
Dr. Dennis Langer (6)
42,433,533
*
Natalie Leong (7)
21,428,533
*
Michael Sember (8)
21,428,533
*
Gordon Dunn (9)
89,285,700
*
All directors and officers as a group (8 persons) (10)
1,573,744,165
2.7
%
* Less than 1%
(1) Based on Schedule 13G filed with the SEC on March 3, 2023 by Lind Global Fund II LP, a Delaware limited partnership (“Lind Global Fund”), Lind Global Partners II LLC, a Delaware limited liability company (“Lind Global Partners”), and Jeff Easton (“Mr. Eastern” and together with Lind Global Fund and Lind Global Partners,” the “Lind Reporting Persons”), consists of 3,750,000,000 ordinary shares and 1,200,000,000 ordinary shares issuable upon the exercise warrants held by Lind Global Fund, giving effect to the provision in such warrants limiting the holder’s ability to exercise the warrants if such exercise would cause the holder to beneficially own greater than 9.99% of our outstanding shares. Lind Global Partners, the general partner of the Lind Global Fund, may be deemed to have sole voting and dispositive power with respect to the shares held by Lind Global Fund. Mr. Easton, the managing member of Lind Global Partners, may be deemed to have sole voting and dispositive power with respect to the shares held by Lind Global Fund. The address of the principal office of each of the Lind Reporting Persons is 444 Madison Ave, Floor 41 New York, NY 10022.
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(2) Consists of (i) 561,480,000 ordinary shares held directly and (ii) 107,142,900 ordinary shares issuable upon the exercise of options which will vest within 60 days .
(3) Consists of (i) 561,475,000 ordinary shares held directly and (ii) 107,142,900 ordinary shares issuable upon exercise of options which will vest within 60 days .
(4) Represents 21,428,533 ordinary shares issuable upon exercise of options which will vest within 60 days.
(5) Consists of (i) 19,070,000 ordinary shares held directly and (ii) 21,428,533 ordinary shares issuable upon exercise of options which will vest within 60 days.
(6) Consists of (i) 21,005,000 ordinary shares held directly and (ii) 21,428,533 ordinary shares issuable upon exercise of options which will vest within 60 days.
(7) Represents 21,428,533 ordinary shares issuable upon exercise of options which will vest within 60 days.
(8) Represents 21,428,533 ordinary shares issuable upon exercise of options which will vest within 60 days.
(9) Represents 89,285,700 ordinary shares issuable upon exercise of options which will vest within 60 days.
(10) Consists of (i) 1,163,030,000 ordinary shares held directly and (ii) 410,714,165 ordinary shares issuable upon the exercise of options.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of us.
Equity Compensation Plan Table
The following table summarizes our equity compensation plan information as of December 31, 2022.
Number of securities
remaining available for
Number of securities
Weighted-average
future issuance under equity
to be issued upon exercise
exercise price of
compensation plans
of outstanding options,
outstanding options,
(excluding securities reflected
Plan category
warrants and rights (1)
warrants and rights (2)
in column (a) (1)
(a)
(b)
(c)
Equity compensation plans approved by security holders
307,142
$
17.50
971,243
Equity compensation plans not approved by security holders
—
—
—
Total
307,142
$
17.50
971,243
(1) Represents the number of ADSs issuable upon the exercise of options.
(2) Represents the exercise price per ADS.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Director Independence
The Board determined that Joseph Cooper, James Culverwell, Dr. Dennis Langer, Natalie Leong, and Michael Sember, qualify as independent directors, as such term is defined under Nasdaq listing rules.
Certain Relationships and Related Transactions
In 2021, Quoin Inc. paid $100,000 of consulting expenses to a company controlled by Dennis Langer, our director, and approximately $8,000 and $48,000 were paid in 2021 and 2022, respectively, to Dr. Myers’ son, who has been consulting Quoin Inc. on research and development matters from time to time.
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Due to the limited funding of Quoin Inc. prior to the consummation of the Merger, the compensation, including salary, office and car allowances and other benefits, due to Dr. Myers and Ms. Carter under their respective employment agreements, as well as reimbursement of expenses and other amounts paid by Dr. Myers and Ms. Carter to third parties on behalf of Quoin Inc., were not paid by Quoin Inc. to Dr. Myers and Ms. Carter, and were accrued as indebtedness to Dr. Myers and Ms. Carter. Following the closing of the Merger, Quoin Inc. began making payments of $25,000 per month to each of Dr. Myers and Ms. Carter to repay the above-described non-interest-bearing indebtedness. We repaid $125,000 and $300,000 of such indebtedness to Dr. Myers and $160,000 and $300,000 to Ms. Carter in 2021 and 2022, respectively. As of December 31, 2022, there was approximately $2,259,000 and $1,865,000 of such indebtedness was outstanding to Dr. Myers and Ms. Carter, respectively.
Commencing in October 2020, Quoin Inc. issued promissory notes (the “2020 Notes”) to five noteholders, including our directors, Messrs. Langer and Culverwell (collectively, “2020 Noteholders”). The 2020 Notes were issued at a 25% original issue discount with an aggregate face value of $1,213,313 with an interest at a rate of 20% per annum. The 2020 Noteholders also received warrants exercisable at any time after the issuance date. At the closing of the Merger in October 2021, 5,183 ADSs were issued to the 2020 Noteholders upon the conversion of the principal of the 2020 Notes, of which 626 ADSs were issued to Mr. Langer and 569 ADSs were issued to Mr. Culverwell. In December 2021, we concluded that the calculation of ADSs due to the 2020 Noteholders did not account for accrued interest due when the ADSs were issued. We reached cash settlements with two 2020 Noteholders, who are not our directors, to account for this. Based on the terms of these cash settlements, we estimate the liability to the remaining three 2020 Noteholders, including our directors, to be $1,146,000 as of December 31, 2022, and we expect to settle the remaining liability in 2023. The exercise price of the warrants held by the 2020 Noteholders was reduced to $0.00 as of July 14, 2022 as a result of the Altium Agreement discussed above. The change in the exercise price of the Noteholder Warrants resulted in a deemed dividend of approximately $65,000. From July to September 2022, the 2020 Noteholders exercised all their warrants to purchase ADSs at $0.00 per ADS exercise price, and a total of 29,388 ADSs were issued to such noteholders, of which 3,575 ADSs were issued to Mr. Langer and 3,245 ADSs were issued to Mr. Culverwell.
Item 14. Principal Accountant Fees and Services
The Company’s shareholders appointed Friedman LLP (“Friedman”) as the Company’s independent registered public accounting firm for the year ended December 31, 2021. Based on information provided by Friedman, effective September 1, 2022, Friedman combined with Marcum LLP (“Marcum”). The Company’s shareholders appointed Marcum as the Company’s independent registered public accounting firm for the year ended December 31, 2022.
The following table sets forth the aggregate accounting fees paid by us to Marcum and Friedman for all services, including audit services, for the years ended December 31, 2022 and 2021, as applicable.
Year Ended
Year Ended
December 31, 2022
December 31, 2021
Type of Fees (in thousands)
Audit Fees
$
258
$
229
Audit-Related Fees
—
5
Tax Fees
—
18
All Other Fees
—
—
Total
$
258
$
252
Audit Fees refer to the aggregate fees, including expenses, billed by our principal accountant for the audit of our annual financial statements and review of financial statements included in our quarterly reports and other services that are normally provided in connection with statutory and regulatory filings or engagements during each of the fiscal years ended December 31, 2022 and 2021.
Audit-Related Fees refer to the aggregate fees, including expenses, billed by our principal accountant for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements not reported under “Audit Fees” above during the fiscal years ended December 31, 2022 and 2021.
Tax Fees refer to the aggregate fees, including expenses, billed by our principal accountant for services rendered for tax compliance, tax advice and tax planning during the fiscal years ended December 31, 2022 and 2021.
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All Other Fees refer to the aggregate fees, including expenses, billed for all other products and services provided by our principal accountant during the fiscal years ended December 31, 2022 and 2021.
Pre-Approval Policy
Our audit committee has a pre-approval policy for the engagement of our independent registered public accounting firm to perform audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the audit committee pre-approves annually a catalog of specific audit and non-audit services in the categories of audit services, audit-related services and tax services, if any, that may be performed by our independent registered public accounting firm. If a type of service, that is to be provided by our auditors, has not received such general pre-approval, it will require specific pre-approval by our audit committee.
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PART IV
Item 15. Exhibit and Financial Statement Schedules
(a)(1) Financial Statements
As part of this Annual Report, the consolidated financial statements are listed in the accompanying index to financial statements on page F-1.
(a)(2) Financial Statement Schedules.
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto.
(a)(3) Exhibits.
The following is a list of exhibits filed as part of this Annual Report.
Exhibit No.
Exhibit Description
2.1
Agreement and Plan of Merger and Reorganization, dated as of March 24, 2021, by and among Cellect Biotechnology Ltd., CellMSC, Inc. and Quoin Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1 of the Form 6-K filed with the Securities and Exchange Commission on March 24, 2021).
2.2
Amendment made as of September 24, 2021, to the Agreement and Plan of Merger and Reorganization, dated as of March 24, 2021, by and among Cellect Biotechnology Ltd., CellMSC, Inc., and Quoin Pharmaceuticals, Inc. (incorporated by reference to Exhibit 99.2 to Form 6-K filed with the SEC on September 27, 2021).
2.3
Amended and Restated Share Transfer Agreement, dated May 27, 2021 by and between Cellect Biotechnology Ltd. and EnCellX Inc. (incorporated by reference to Exhibit 2.2 to Registration Statement on Form F-4 filed with the Securities and Exchange Commission on June 16, 2021).
2.4
Amendment made as of September 26, 2021, to the Amended and Restated Share Transfer Agreement dated as of May 27, 2021, by and between EnCellX, Inc. and Cellect Biotechnology Ltd. (incorporated by reference to Exhibit 99.3 to Form 6-K filed with the SEC on September 27, 2021).
2.5
Securities Purchase Agreement, dated as of March 24, 2021, by and among Cellect Biotechnology Ltd., Quoin Pharmaceuticals, Inc. and the investors named on the Schedule of Buyers attached thereto (incorporated by reference to Exhibit 10.4 of the Form 6-K filed with the Securities and Exchange Commission on March 24, 2021).
2.6
Securities Purchase Agreement, dated as of March 24, 2021, by and among Quoin Pharmaceuticals, Inc. and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference to Exhibit 10.6 of the Form 6-K filed with the Securities and Exchange Commission on March 24, 2021).
2.7
Amendment Agreement, dated as of September 17, 2021, by and among Quoin Pharmaceuticals, Inc., Cellect Biotechnology, Ltd., and Altium Growth Fund, L.P. (incorporated by reference to Exhibit 99.1 of the Form 6-K filed with the Securities and Exchange Commission on September 17, 2021).
2.8
Letter Agreement, dated September 17, 2021, between Quoin Pharmaceuticals, Inc. and Cellect Biotechnology, Ltd. (incorporated by reference to Exhibit 99.2 of the Form 6-K filed with the Securities and Exchange Commission on September 17, 2021).
2.9
Second Amendment Agreement, dated as of March 13, 2022, by and among Quoin Pharmaceuticals, Inc., Quoin Pharmaceuticals Ltd., and Altium Growth Fund, L.P. (incorporated by reference to Exhibit 4.1 to Form 6–K filed with the SEC on March 28, 2022).
2.10
Waiver Agreement, dated June 6, 2022, by and among Quoin Pharmaceuticals Ltd., Quoin Pharmaceuticals, Inc. and Altium Growth Fund, LP (incorporated by reference to Exhibit 10.2 to Form 6-K filed with the SEC on June 6, 2022).
2.11
Agreement, dated July 14, 2022, by and among Quoin Pharmaceuticals, Inc., Quoin Pharmaceuticals Ltd. and Altium Growth Fund, LP (incorporated by reference to Exhibit 10.1 to Form 6-K filed with the SEC on July 15, 2022).
2.12
Letter of Agreement among Cellect Biotechnology Ltd, Dr. Shai Yarkoni and EnCellX, Inc. (incorporated by reference to Exhibit 2.5 to Registration Statement on Form F-4 filed with the Securities and Exchange Commission on July 16, 2021).
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2.13
Form of Representative Agreement among Cellect Biotechnology Ltd, Eyal Leibovitz, as Representative, and EnCellX, Inc. (incorporated by reference to Exhibit 2.6 to Registration Statement on Form F-4 filed with the Securities and Exchange Commission on August 6, 2021).
3.1
Amended and Restated Articles of Association of Quoin Pharmaceuticals Ltd., adopted on February 28, 2022 (incorporated by reference to Annex A included in Exhibit 99.1 to Form 6-K filed with the SEC on February 8, 2022) .
3.2
Amendment to the Amended and Restated Articles of Association of Quoin Pharmaceuticals Ltd., adopted on April 12, 2022 (incorporated by reference to Annex A included in Exhibit 99.1 to Form 6-K filed with the SEC on March 8, 2022) .
3.3
Amendment to the Amended and Restated Articles of Association of Quoin Pharmaceuticals Ltd., adopted on November 3, 2022 (incorporated by reference to Annex A included in Exhibit 99.1 to Form 6-K filed with the SEC on September 21, 2022).
4.1
Form of Deposit Agreement between Cellect Biotechnology Ltd. (n/k/a Quoin Pharmaceuticals Ltd.), The Bank of New York Mellon as Depositary, and owners and holders from time to time of ADSs issued thereunder (incorporated by reference to Exhibit 4.1 to Registration Statement on Form F-1/A as filed with the SEC on July 26, 2016) .
4.2
Specimen American Depositary Receipt (included in Exhibit 2.1) .
4.3
Form of Contingent Value Rights Agreement, by and among Cellect Biotechnology, Ltd., Eyal Leibovitz in the capacity of Representative and Computershare, Inc. in the capacity of Rights Agent (incorporated by reference to Exhibit 4.14 to Registration Statement on Form F-4 filed with the SEC on August 6, 2021).
4.4
Registration Rights Agreement, dated as of March 24, 2021, by and between Cellect Biotechnology Ltd. and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference to Exhibit 10.5 of the Form 6-K filed with the Securities and Exchange Commission on March 24, 2021).
4.5
Form of Primary Warrants for the Purchase Agreement (incorporated by reference to Exhibit B to Exhibit 10.4 to Form 6-K filed with the SEC on March 24, 2021) .
4.6
Form of Exchange Warrant (incorporated by reference to Exhibit 99.1 to Form 6-K filed with the SEC on September 17, 2021) .
4.7
Form of Series A Warrant (incorporated by reference to Exhibit 2.5 to Form 20-F filed with the SEC on April 13, 2022).
4.8
Form of Series B Warrant (incorporated by reference to Exhibit 2.6 to Form 20-F filed with the SEC on April 13, 2022).
4.9
Form of Series C Warrant (incorporated by reference to Exhibit 2.7 to Form 20-F filed with the SEC on April 13, 2022).
4.10
Form of Warrant Agent Agreement between Cellect Biotechnology Ltd. and Computershare Inc., as warrant agent, including the form of Warrant (incorporated by reference to Exhibit 4.6 of the Registration Statement on Form F-1 filed with the SEC on February 7, 2019).
4.11
Form of Securities Purchase Agreement, dated August 5, 2022 (incorporated by reference to Exhibit 4.11 of the Registration Statement on Form F-1/A filed with the SEC on August 4, 2022).
4.12
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.12 of the Registration Statement on Form F-1 filed with the SEC on August 3, 2022).
4.13
Form of Common Warrant (incorporated by reference to Exhibit 4.13 of the Registration Statement on Form F-1 filed with the SEC on August 3, 2022).
4.14
Form of Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed with the SEC on February 28, 2023).
4.15
Form of Securities Purchase Agreement, dated February 22, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 28, 2023).
4.16
Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on February 28, 2023).
4.17
Form of Common Warrant (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on February 28, 2023).
4.18
Placement Agency Agreement by and between A.G.P. / Alliance Global Partners and Quoin Pharmaceuticals Ltd. (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on February 28, 2023
10.1#
Compensation Policy for Executives and Directors of Quoin Pharmaceuticals Ltd, adopted on April 12, 2022 (incorporated by reference to Annex B included in Exhibit 99.1 to Form 6-K filed with the SEC on March 8, 2022).
10.2#
Amended and Restated Equity Incentive Plan of Quoin Pharmaceuticals Ltd., effective as of April 12, 2022 (incorporated by reference to Annex C included in Exhibit 99.1 to Form 6-K filed with the SEC on March 8, 2022).
10.3#
Form of Indemnification and Release Agreement, entered into by and between Quoin Pharmaceuticals Ltd. and each of the officers and directors of Quoin Pharmaceuticals Ltd. as of April 12, 2022 (incorporated by reference to Annex D included in Exhibit 99.1 to Form 6-K filed with the SEC on March 8, 2022 ).
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10.4#
Executive Employment Agreement, dated March 9, 2018, by and between Quoin Pharmaceuticals, Inc. and Dr. Michael Myers (incorporated by reference to Exhibit 10.1 to Form 6-K filed with the SEC on October 29, 2021).
10.5#
Executive Employment Agreement, dated March 9, 2018, by and between Quoin Pharmaceuticals, Inc. and Denise Carter (incorporated by reference to Exhibit 10.2 to Form 6-K filed with the SEC on October 29, 2021).
10.6#
Service Agreement, dated November 1, 2021, by and between Quoin Pharmaceuticals, Inc. and Gordon Dunn (incorporated by reference to Exhibit 10.1 to Form 6-K filed with the SEC on November 23, 2021).
10.7
Research Agreement, dated November 1, 2021, by and between Quoin Pharmaceuticals, Inc. and Queensland University of Technology (incorporated by reference to Exhibit 10.2 to Form 6-K filed with the SEC on November 23, 2021).
10.8
License and Distribution Agreement, dated November 5, 2021, by and between Quoin Pharmaceuticals, Inc. and AFT Pharmaceuticals Ltd. (incorporated by reference to Exhibit 10.3 to Form 6-K filed with the SEC on November 23, 2021).
10.9
Supply Agreement, dated September 15, 2021, by and between Quoin Pharmaceuticals, Inc. and AFT Pharmaceuticals Ltd. (incorporated by reference to Exhibit 10.4 to Form 6-K filed with the SEC on November 23, 2021).
10.10
License and Distribution Agreement, dated November 7, 2021, by and between Quoin Pharmaceuticals, Inc. and GenPharm Services FZ LLC (incorporated by reference to Exhibit 10.5 to Form 6-K filed with the SEC on November 23, 2021).
10.11
Supply Agreement, dated November 7, 2021, by and between Quoin Pharmaceuticals, Inc. and GenPharm Services FZ LLC (incorporated by reference to Exhibit 10.6 to Form 6-K filed with the SEC on November 23, 2021).
10.12
Distribution Agreement, dated December 15, 2021, by and between Quoin Pharmaceuticals, Inc. and Orpharm LLC (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.1 to Form 6-K filed with the SEC on December 20, 2021).
10.13
License and Distribution Agreement, dated as of January 24, 2022 between the Company and E-Log Logistica LTDA (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.1 to Form 6-K filed with the SEC on January 31, 2022).
10.14
License and Distribution Agreement, dated as of February 1, 2022, by and between Quoin Pharmaceuticals Ltd. and Er-Kim İlaç Sanayi ve Ticaret A.Ş, and the First Amendment to the License and Distribution Agreement, dated as of February 17, 2022, by and between Quoin Pharmaceuticals, Inc. and Er-Kim İlaç Sanayi ve Ticaret A.Ş (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.4 to Form 6-K filed with the SEC on March 8, 2022).
10.15
License and Distribution Agreement, dated as of February 11, 2022, by and between Quoin Pharmaceuticals Ltd. and Neopharm (Israel) 1996 Ltd. (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.5 to Form 6-K filed with the SEC on March 8, 2022).
10.16
Supply Agreement, dated as of February 11, 2022, by and between Quoin Pharmaceuticals Ltd. and Neopharm (Israel) 1996 Ltd. (incorporated by reference to Exhibit 10.6 to Form 6-K filed with the SEC on March 8, 2022).
10.17
License Agreement, dated June 14, 2022, by and between Quoin Pharmaceuticals, Inc. and WinHealth Investment (HK) Limited (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.1 to Form 6-K filed with the SEC on June 17, 2022).
10.18
License and Distribution Agreement, dated July 14, 2022, by and between Quoin Pharmaceuticals, Inc. and Endo Ventures Limited (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.2 to Form 6-K filed with the SEC on July 15, 2022).
10.19
Supply Agreement, dated July 14, 2022, by and between Quoin Pharmaceuticals, Inc. and Endo Ventures Limited (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.3 to Form 6-K filed with the SEC on July 15, 2022).
10.20
Research Agreement, dated May 20, 2022, by and between Quoin Pharmaceuticals, Inc. and Queensland University of Technology, Australia (certain provisions of this exhibit have been omitted pursuant to Instruction No. 4 to Exhibits in Form 20-F) (incorporated by reference to Exhibit 10.1 to Form 6-K filed with the SEC on June 6, 2022).
10.21
Exclusive License Agreement, dated October 17, 2019, by and between Quoin Pharmaceuticals, Inc. and Skinvisible Inc. (incorporated by reference to Exhibit 4.30 to Form 20-F filed with the SEC on April 13, 2022).
10.22
Exclusive License Agreement Renewal, dated May 8, 2020, by and between Quoin Pharmaceuticals, Inc. and Skinvisible Inc. (incorporated by reference to Exhibit 4.31 to Form 20-F filed with the SEC on April 13, 2022).
10.23
First Amendment to the Exclusive License Agreement, dated July 31, 2020, by and between Quoin Pharmaceuticals, Inc. and Skinvisible Inc. (incorporated by reference to Exhibit 4.32 to Form 20-F filed with the SEC on April 13, 2022).
10.24
Second Amendment to the Exclusive License Agreement, dated September 30, 2020, by and between Quoin Pharmaceuticals, Inc. and Skinvisible Inc. (incorporated by reference to Exhibit 4.33 to Form 20-F filed with the SEC on April 13, 2022).
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10.25
Third Amendment to the Exclusive License Agreement, dated January 27, 2021, by and between Quoin Pharmaceuticals, Inc. and Skinvisible Inc. (incorporated by reference to Exhibit 4.34 to Form 20-F filed with the SEC on April 13, 2022).
10.26
Fourth Amendment to the Exclusive License Agreement, dated April 19, 2021, by and between Quoin Pharmaceuticals, Inc. and Skinvisible Inc. (incorporated by reference to Exhibit 4.35 to Form 20-F filed with the SEC on April 13, 2022).
10.27
Fifth Amendment to the Exclusive License Agreement, dated June 14, 2021, by and between Quoin Pharmaceuticals, Inc. and Skinvisible Inc. (incorporated by reference to Exhibit 4.36 to Form 20-F filed with the SEC on April 13, 2022).
10.28
Quotation – Tech Transfer and Clinical Manufacture for QRX003 Topical Lotion, dated April 8, 2021, by Ferndale Contract Manufacturing to Quoin Pharmaceuticals, Inc. (incorporated by reference to Exhibit 4.37 to Form 20-F filed with the SEC on April 13, 2022).
10.29
Development and Supply Agreement, dated January 13, 2021, by and between TopChem Pharmaceuticals Limited and Quoin Pharmaceuticals Limited (incorporated by reference to Exhibit 4.38 to Form 20-F filed with the SEC on April 13, 2022).
10.30
Master Services Agreement, dated November 2, 2020, by and between Therapeutics, Inc. and Quoin Pharmaceuticals, Inc. (incorporated by reference to Exhibit 4.39 to Form 20-F filed with the SEC on April 13, 2022).
10.31
Term Sheet for Agreement, dated October 29, 2019, by and between Axella Research, LLC and Quoin Pharmaceuticals, Inc. (incorporated by reference to Exhibit 4.40 to Form 20-F filed with the SEC on April 13, 2022).
10.32
Term Sheet for Agreement, dated January 11, 2020, by and between Axella Research, LLC and Quoin Pharmaceuticals, Inc. (re: QRX003) (incorporated by reference to Exhibit 4.41 to Form 20-F filed with the SEC on April 13, 2022).
10.33
Term Sheet for Agreement, dated January 11, 2020, by and between Axella Research, LLC and Quoin Pharmaceuticals, Inc. (re: QRX004) (incorporated by reference to Exhibit 4.42 to Form 20-F filed with the SEC on April 13, 2022).
10.34#
Form of Non-Qualified Stock Option Award Agreement for directors (incorporated by reference to Exhibit 10.34 to Form F-1 filed with the SEC on August 3, 2022).
10.35#
Form of Non-Qualified Stock Option Award Agreement for officers (incorporated by reference to Exhibit 10.35 to Form F-1 filed with the SEC on August 3, 2022).
14.1*
Code of Ethics.
21.1
Subsidiaries of Registrant (incorporated by reference to Exhibit 8.1 to Form 20-F filed with the SEC on April 13, 2022) .
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934.
32.1*
Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350.
32.2*
Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350.
99.1*
Description of Ordinary Shares.
101*
Information formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.
104*
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)
*
Filed herewith
# Indicates management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 15, 2023
QUOIN PHARMACEUTICALS LTD.
By:
/s/ Dr. Michael Myers
Name:
Dr. Michael Myers
Title:
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Dr. Michael Myers
Chairman and Chief Executive Officer
(Principal Executive Officer)
March 15, 2023
Dr. Michael Myers
/s/ Gordon Dunn
Chief Financial Officer
Gordon Dunn
(Principal Financial Officer and Principal Accounting Officer)
March 15, 2023
/s/ Denise Carter
Denise Carter
Director and Chief Operating Officer
March 15, 2023
/s/ Joseph Cooper
Joseph Cooper
Director
March 15, 2023
/s/ James Culverwell
James Culverwell
Director
March 15, 2023
/s/ Dennis Langer
Dennis Langer
Director
March 15, 2023
/s/ Natalie Leong
Natalie Leong
Director
March 15, 2023
/s/ Michael Sember
Michael Sember
Director
March 15, 2023
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QUOIN PHARMACEUTICALS LTD.
Contents
Page
Reports of Independent Registered Public Accounting Firm (PCAOB F irm ID: Marcum LLP # 688 )
F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2022 and December 31, 2021
F-5
Consolidated Statements of Operations for the years ended December 31, 2022 and 202 1
F-6
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2022 and 2021
F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
F-8
Notes to consolidated financial statements
F-9 – F-25
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Quoin Pharmaceuticals Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Quoin Pharmaceuticals Ltd. (the “Company”) as of December 31, 2022, the related consolidated statements of operations, and stockholders’ equity and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
F-2
Table of Contents
Contracted Research & Development Cost Recognition:
Critical Audit Matter Description
As discussed in Note 3 to the financial statements, the Company records costs for clinical trial activities based upon estimates of costs incurred through the balance sheet date for services performed by contract research organizations, clinical study sites and other vendors.
Auditing the recognition of pre-clinical and clinical trial costs associated with contracted organizations is challenging due to the significant judgment required to determine the nature and level of services that have been received, including determining the progress to completion of specific tasks and activities conducted in relation to what has been invoiced and recorded.
How We Addressed the Matter in Our Audit
The primary procedures we performed to address this critical audit matter included:
●
Obtained an understanding of the design and operating effectiveness of internal controls for pre-clinical and clinical cost recognition
●
Tested the completeness and accuracy of the underlying data used in the estimates including, but not limited to, the estimated costs per project milestone and duration
●
Assessed the reasonableness of the significant assumptions, corroborated the progress of the pre-clinical and clinical trials with the Company’s operations personnel and to information obtained by the Company directly from third parties, and to information in contracts or statements of work including costs for those activities and project duration
●
Examined subsequent invoicing received from such third parties
/s/ Marcum LLP
We have served as the Company’s auditor since 2020 (such date takes into account the acquisition of certain assets of Friedman LLP effective September 1, 2022)
East Hanover, New Jersey
March 15, 2023.
F-3
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Quoin Pharmaceuticals Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Quoin Pharmaceuticals Ltd. (the “Company”) as of December 31, 2021, the related consolidated statements of operations, and stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a working capital deficiency, an accumulated deficit, has incurred significant losses and cash outflows from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Friedman LLP
PCAOB ID 711
We have served as the Company’s auditor since 2020.
East Hanover, New Jersey
April 13, 2022, except for Notes 2 and 17, as to which the date is August 2, 2022 as referenced within the financial statements filed on August 2, 2022 in Form F-1.
F-4
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Consolidated Balance Sheets
December 31,
December 31,
2022
2021
ASSETS
Current assets:
Cash
$
2,860,628
$
7,482,773
Investments
9,992,900
—
Prepaid expenses
516,584
715,474
Total current assets
13,370,112
8,198,247
Prepaid expenses - long term
383,390
300,000
Intangible assets, net
704,561
808,604
Other assets
—
50,000
Total assets
$
14,458,063
$
9,356,851
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
605,600
$
923,239
Accrued expenses
1,175,705
1,685,409
Accrued license acquisition
—
250,000
Accrued interest and financing expense
1,146,251
743,840
Due to officers - short term
600,000
600,000
Warrant liability
—
373,599
Total current liabilities
3,527,556
4,576,087
Due to officers - long term
3,523,733
4,123,732
Total liabilities
$
7,051,289
$
8,699,819
Commitments and contingencies
Shareholders’ equity:
Ordinary shares, no par value per share, 500,000,000,000 ordinary shares authorized - 24,233,024,799 ( 4,846,605 ADS’s) ordinary shares issued and outstanding at December 31, 2022 and 3,354,650,799 ( 670,930 ADS’s) at December 31, 2021
$
—
$
—
Treasury stock, 2,641,693 ordinary shares
( 2,932,000 )
( 2,932,000 )
Additional paid in capital
47,855,521
31,659,017
Accumulated deficit
( 37,516,747 )
( 28,069,985 )
Total shareholders’ equity
7,406,774
657,032
Total liabilities and shareholders’ equity
$
14,458,063
$
9,356,851
The accompanying footnotes are an integral part of these consolidated financial statements
F-5
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Consolidated Statements of Operations
Years Ended December 31,
2022
2021
Operating expenses
General and administrative
$
6,584,868
$
4,499,923
Research and development
2,672,836
1,562,927
Total operating expenses
9,257,704
6,062,850
Other (income) and expenses
Forgiveness of accounts payable
( 416,000 )
—
Fair value adjustment to convertible notes payable
—
1,250,000
Warrant liability (income) expense
( 77,237 )
12,784,329
Financing expense
—
275,000
Unrealized income
( 1,307 )
—
Interest income
( 95,745 )
—
Interest and financing expense
714,081
1,090,409
Total other expense
123,792
15,399,738
Net loss
$
( 9,381,496 )
$
( 21,462,588 )
Deemed dividend on warrant modification
( 65,266 )
—
Net loss attributable to shareholders
$
( 9,446,762 )
$
( 21,462,588 )
Loss per ADS
Loss per ADS
Basic
$
( 3.90 )
$
( 67.96 )
Fully-diluted
$
( 3.90 )
$
( 67.96 )
Weighted average number of ADS’s outstanding
Basic
2,421,916
315,801
Fully-diluted
2,421,916
315,801
The accompanying footnotes are an integral part of these consolidated financial statements
F-6
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Consolidated Statements of Shareholders’ Equity
Years Ended December 31, 2022 and 2021
Additional
Ordinary
No Par
Treasury
Paid in
Accumulated
Shares
ADS’s
Value
Stock
Capital
Deficit
Total
Balance at December 31, 2020
1,201,460,800
240,292
$
—
$
—
$
100
$
( 6,607,397 )
$
( 6,607,297 )
Net loss
—
—
—
—
—
( 21,462,588 )
( 21,462,588 )
Conversion of “2020 Notes” into ordinary shares
25,913,600
5,183
1,213,313
1,213,313
Sale of equity securities, including conversion of “Bridge Notes”
1,710,500,800
342,100
17,000,000
17,000,000
Costs associated with sale of equity securities
( 1,897,126 )
( 1,897,126 )
Merger recapitalization of Cellect
416,775,599
83,355
( 2,932,000 )
2,932,000
—
Reclassification of warrant upon issuane of Exchange warrants
12,410,730
12,410,730
Balance at December 31, 2021
3,354,650,799
670,930
—
( 2,932,000 )
31,659,017
( 28,069,985 )
657,032
Net loss
—
—
—
—
—
( 9,381,496 )
( 9,381,496 )
Stock based compensation
764,007
—
764,007
Issuance of ADS and Pre-Funded Warrants, net
16,800,000,000
3,360,000
14,877,332
—
14,877,332
Cashless exercise of warrants
3,857,439,000
771,488
—
—
—
—
—
Settlement of accrued expenses
220,935,000
44,187
—
—
193,537
—
193,537
Reclassification of warrant liability upon issuance of Exchange warrant
296,362
296,362
Deemed dividend on warrant modification
—
—
—
—
65,266
( 65,266 )
—
Balance at December 31, 2022
24,233,024,799
4,846,605
$
—
$
( 2,932,000 )
$
47,855,521
$
( 37,516,747 )
$
7,406,774
The accompanying footnotes are an integral part of these consolidated financial statements
F-7
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Consolidated Statements of Cash Flows
Years Ended December 31,
2022
2021
Cash flows used in operating activities
Net loss
$
( 9,381,496 )
$
( 21,462,588 )
Fair value adjustment to convertible notes payable
—
1,250,000
Change in fair value of warrant liability
( 77,237 )
12,784,329
Stock based compensation
764,007
—
Forgiveness of trade payable
( 416,000 )
—
Financing expense
—
275,000
Amortization of intangibles
104,043
104,043
Increase in accrued interest and financing expense
714,081
696,799
Unrealized gain on investments
( 93,779 )
—
Changes in assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses
( 217,806 )
1,347,801
Decrease in prepaid expenses & other assets
123,455
( 715,474 )
Net cash used in operating activities
$
( 8,480,732 )
$
( 5,720,090 )
Cash flows used in investing activities
Purchase of investments
( 9,899,121 )
—
Payment for license acquisition
( 250,000 )
( 625,000 )
Net cash used in investing activities
$
( 10,149,121 )
$
( 625,000 )
Cash flows provided by financing activities:
Payments of offering costs
—
141,338
Payments of deferred loan costs
42,045
( 50,000 )
Increase in due to officers
—
139,285
Payment of amounts due to officers
( 599,999 )
( 304,466 )
Proceeds from issuance of “Bridge Notes”, net
—
3,475,000
Payment of interest on “Bridge Notes”
( 311,670 )
—
Proceeds from sale of equity securities, net
14,877,332
10,102,874
Net cash provided by financing activities
$
14,007,708
$
13,504,031
Net change in cash
( 4,622,145 )
7,158,941
Cash - beginning of year
7,482,773
323,832
Cash - end of year
$
2,860,628
$
7,482,773
Supplemental information - Non cash items:
Interest paid
$
—
$
393,611
Exchange of “2020 Notes” for Ordinary shares
$
—
$
1,213,313
Exchange of “Bridge Notes” for Ordinary shares
$
—
$
5,000,000
Reclassification of warrant liability to equity upon issuance of “Exchange warrants”
$
296,362
$
12,410,730
Deemed dividend on warrant modification
$
65,266
$
—
Offering expenses associated with warrant modification
$
491,601
$
—
Settlement of accrued expenses
$
193,537
$
—
The accompanying footnotes are an integral part of these consolidated financial statements
F-8
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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.”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 ( 400 ) ordinary shares to 1 ADS representing five thousand ( 5,000 ) ordinary shares, which resulted in a one for 12.5 reverse split of the issued and outstanding ADSs (the “Ratio Change”). All ADSs and related option and warrant information presented in these financial statements and accompanying footnotes has been retroactively adjusted to reflect the reduced number of ADSs resulting from the Ratio Change. Unless otherwise indicated, ADSs outstanding presented in these financial statements and accompanying footnotes assume all outstanding ordinary shares are represented by ADSs.
Quoin Inc. was incorporated in Delaware on March 5, 2018. Quoin Inc. is clinical stage specialty pharmaceutical company dedicated to the development and commercialization of therapeutic products that treat rare and orphan diseases for which there are currently no approved treatments or cures. The Company’s initial focus is on the development of products, using proprietary owned and in-licensed drug delivery technologies, that could help address rare skin diseases. The Company’s first lead product is QRX003, a once daily, topical lotion comprised of a broad-spectrum serine protease inhibitor, formulated with the proprietary in-licensed Invisicare® technology, is under development as a potential treatment for Netherton Syndrome (“NS”), a rare hereditary genetic disease. QRX003 is currently being tested in two clinical studies in the United States (“U.S.”) under an open Investigational New Drug (“IND”) application with the Food and Drug Administration (“FDA”). Dosing of patients has commenced for the first study, and the Company is preparing to commence enrollment into the second clinical study. The Company is also developing QRX004 as a potential treatment for Recessive Dystrophic Epidermolysis Bullosa (“RDEB”). In addition, the Company has entered into Research Agreements with the Queensland University of Technology (“QUT”), which include an option for global licenses to QRX007 for the potential treatment of NS and QRX008 for the potential treatment of scleroderma. 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 $ 37.5 million at December 31, 2022. The Company has historically funded its operations through debt and equity financings. On August 9, 2022, the Company completed an offering (the “August Offering”) of ordinary shares represented by ADSs and pre-funded warrants to purchase ordinary shares represented by ADSs with each ADS and pre-funded warrant accompanied by an ordinary warrant, for aggregate gross proceeds of $ 16.8 million, resulting in net proceeds of approximately $ 14.9 million (see Note 14). On February 24, 2023, the Company completed an offering (the “February Offering”) of ordinary shares represented by ADSs and pre-funded warrants to purchase ordinary shares represented by ADSs with each ADS and pre-funded warrant accompanied by an ordinary warrant, for aggregate gross proceeds of $ 7.0 million, resulting in net proceeds of approximately $ 6.0 million (See Note 18). As a result of the completion of such Offerings, the Company believes that it has sufficient cash and liquidity to effect its business plan for at least one year from the issuance of these consolidated financial statements.
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.
F-9
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 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 a single-source supplier which includes 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 $ 2.5 million for continued listing on The Nasdaq Capital Market. Based on the Company’s Form 6-K, dated August 10, 2022, the Staff has determined that the Company complies with the minimum stockholder’s equity requirement, and the Company evidenced continued compliance for the year ended December 31, 2022.
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 $ 1.00 for a period of 30 consecutive business days and that the Company did not meet the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2). On August 15, 2022, the Staff determined that the closing bid price of the Company’s ADSs was at $ 1.00 per ADS or greater for the preceding 10 business days, and the Company regained compliance with the minimum bid price requirement.
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 consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), which have been consistently applied, reflecting the operations of Quoin Inc. since inception and include the accounts of Quoin Ltd. since the date of the Merger. All intercompany accounts and transactions have been eliminated in consolidation.
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Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 developing the estimates and assumptions that are used in the preparation of these financial statements 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. Estimates are used in the following areas, among others: settlement of debt or other obligations, fair value of debt instruments, stock-based compensation and warrants, research and development expense recognition, intangible asset estimated useful lives and impairment assessments, allowances of deferred tax assets, contingency recognition, and cash flow assumptions regarding going concern considerations.
Reclassification:
Certain 2021 amounts were reclassified to conform to the current year presentation. The amount reclassified included the short term portion of prepaid expenses from the long term portion of prepaid expenses and 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 December 31, 2022.
Investments:
Investments as of December 31, 2022 consist of U.S. Treasury Bills, which are classified as trading securities, totaling $ 9.9 million. The Company determines the appropriate balance sheet classification of its investments at the time of purchase and evaluates the classification at each balance sheet date. All of the Company’s U.S. Treasury Bills held on December 31, 2022 matured within the subsequent one month from the balance sheet date. As of December 31, 2022, the carrying value of the Company’s U.S. Treasury Bills approximates their fair value due to their short-term maturities.
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Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 10 years .
The Company assesses the impairment for long-lived assets whenever events or circumstances indicate the carrying value may not be recoverable. Factors we consider that could trigger an impairment review include the following:
● Significant changes in the manner of our use of the acquired assets or the strategy for our 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 years ended December 31, 2022 and 2021, there were no impairment indicators which required an impairment loss measurement.
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.
Income taxes:
The Company accounts for its income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company maintains a full valuation allowance on its existing deferred tax assets.
The Company also accounts for uncertain tax positions using the more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken in the Company’s income tax returns. As of December 31, 2022 and 2021, the Company had no uncertain tax positions which affected its financial position and its results of operations or its cash flows and will continue to evaluate for uncertain tax positions in the future. If at any time the Company should record interest and penalties in connection with income taxes, the interest and the penalties will be expensed within the interest and general and administrative expenses, respectively.
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
F-12
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
value for each stock-based award. The fair value of each option grant 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, accrued expenses and the convertible and bridge notes payable to meet the definition of financial instruments. The carrying amounts of these 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. ASC Topic 820 clarifies that fair value is 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.
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 year ended December 31, 2022, the number of shares excluded from the diluted net earnings (loss) per share included outstanding warrants to purchase 3,368,820 ADS or 16,844,100,000 Ordinary Shares and 307,142 in outstanding stock options as their inclusion in the denominator would be anti-dilutive.
For the year ended December 31, 2021, the number of shares excluded from the diluted net earnings (loss) per share included outstanding warrants to purchase 143,028 ADS or 715,140,000 Ordinary Shares and warrants to purchase 1,257,723 ADS or 6,288,615,000 Ordinary Shares issuable pursuant to Primary Financing as their inclusion in the denominator would be anti-dilutive.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
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 5,183 ADSs in the Primary Financing, subject to adjustment. Such notes were converted to equity in 2021.
The holders also received warrants exercisable at any time after the issuance date for 29,388 ADSs at an initial exercise price of $ 49.75 per ADS. At the time of grant, the Company determined that these warrants met the criteria to be recorded as a liability instrument. Effective March 13, 2022, each holder agreed to exchange these warrants for warrants on the substantially same terms as the Investor Exchange Warrants (See Note 5) with the same number of shares issuable upon the exercise of an Exchange Warrant as upon the exercise of the original warrant and the same exercise price with a contractual term of 5 years (the “Noteholder Warrants”).
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
F-13
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 $ 0 and the 2020 Noteholders subsequently exercised all of their warrants. The change in the exercise price of the Noteholder Warrants resulted in a deemed dividend of approximately $ 65 ,000 recorded during the year ended December 31, 2022.
The ADSs issued to the 2020 Noteholders did not include the accrued interest which was estimated to be approximately $ 744,000 at December 31, 2021 of which $ 312,000 was paid to two of the five 2020 Noteholders during the year ended December 31, 2022. Based on the terms of the cash settlement with these two 2020 Noteholders, the Company’s estimate of the liability to the remaining three 2020 Noteholders was increased to $ 1,146,000 .
Interest expense, at the stated interest rate, recognized in the year ended December 31, 2022 and 2021 was approximately $- 0 - and $ 202,000 , respectively.
NOTE 5 – BRIDGE FINANCING AND SECURITIES PURCHASE AGREEMENT (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 $ 5,000,000 in exchange for an aggregate purchase price of up to $ 3,800,000 together with warrants. The Bridge Notes were purchased in three closings: (i) the first purchase of $ 2,000,000 on March 25, 2021 (proceeds of $ 1,500,000 ); (ii) the second purchase of $ 1,700,000 in April 2021 (proceeds of $ 1,250,000 ); and (iii) a third purchase of $ 1,300,000 in May 2021 (proceeds of $ 1,000,000 ).
The Bridge Notes were issued with a 25 % original issue discount, at an interest rate of 15 % per annum and had a maturity date of the earliest to occur of: (i) December 25, 2021, (ii) the date on which Quoin Inc.’s equity is registered under the Exchange Act or is exchanged for equity so registered or (iii) immediately prior to the closing of the Merger.
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 100,618 ADSs upon the closing of the Primary Financing in October 2021. Interest expense, at the stated interest rate, recognized in the year ended December 31, 2022 and 2021 was $- 0 - and $ 394,000 , respectively.
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 five years from the date all of the shares underlying the Bridge Warrants are freely tradable. Quoin Inc. issued a total of 99,074 Bridge Warrants in the year ended December 31, 2021.
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 85 % of the three lowest weighted average prices of the post-Merger ordinary shares of the combined company during the ten trading day period immediately preceding the applicable Reset Date (the “Reset Price”), the exercise price of the Bridge Warrants will be reset to the Reset Price. 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.
F-14
Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 for the total issuances of these warrants was determined by a MonteCarlo simulation model to be approximately $ 3.8 million at the date of issuance.
Upon the closing of the Primary Financing in October 2021, the Bridge Warrants were exchanged for warrants to purchase 99,074 ADSs at a fixed per share exercise price of $ 49.75 (“Investor Exchange Warrants”), as amended, which replaced the reset provisions and modified the fundamental transaction requirements of the Bridge Warrants. On July 14, 2022, the Company and the Investor entered into an agreement amending the terms of the Investor Exchange Warrants, see below agreements with Altium Growth Fund, LP and Warrant Exercises.
Primary Financing
On October 28, 2021, the Company completed the private placement transaction with the Investor for an aggregate purchase price of approximately $ 17.0 million (comprised of the set off from approximately $ 5.0 million of Bridge Notes, and approximately $ 12.0 million in cash) (the “Primary Financing”), which resulted in the net proceeds of approximately $ 10.1 million. The Company issued 342,100 ADSs to the Investor.
Quoin Ltd. also was required to issue to the Investor, effective as of March 13, 2022, the 136 th day following the consummation of the Merger (i) Series A Warrant to purchase 342,100 ADSs (the “Series A Warrant”) (ii) Series B Warrant to purchase 342,100 ADSs (the “Series B Warrant”) and (iii) Series C Warrant to purchase 191,174 ADSs (“Series C Warrant” and, together with the Series A Warrant and Series B Warrant, the “Investor Warrants”). The exercise price for the Investor Warrants is $ 49.75 per ADS, with Series A Warrant having a five-year maturity, and Series B Warrant and Series C Warrant having a two-year maturity.
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 1.0 ADS for each warrant ADS underlying such warrant, resulting in the issuance of a total of 342,100 ADSs to the Investor. The market related conditions to require the mandatory exercise of the Series C Warrant were not met during the period up to July 14, 2022.
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 $ 0.00 per ADS with respect to a total of 399,999 ADSs, (ii) cancel the Series C Warrant and the remaining portion of the Series A Warrant previously issued to Altium, and (iii) terminate the Purchase Agreements, pursuant to which the warrants were previously issued to Altium. The incremental fair value of the modified warrants was approximately $ 491,000 , which was accounted for as an offering expense as part of the August Offering (see Note 14) as the modification was done in contemplation of the August Offering. As of August 2, 2022, Altium exercised all of its outstanding warrants to purchase ADSs at $ 0.00 per ADS exercise price and the Company issued a total of 399,999 ADSs to Altium.
The exercise price of the Noteholder Warrants was also reduced to $ 0.00 as of July 14, 2022 as a result of the Altium Agreement. The change in the exercise price of the Noteholder Warrants resulted in a deemed dividend of approximately $ 65 ,000 recorded during the year ended December 31, 2022. From July to September 2022, the 2020 Noteholders exercised all their warrants to purchase ADSs at $ 0.00 per ADS exercise price, and the Company issued a total of 29,388 ADSs to such noteholders.
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Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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. For certain instruments, including cash and cash equivalents, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.
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 table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy at December 31, 2022 and 2021:
December 31, 2022
Level 1
Level 2
Level 3
Total
US Treasury Bills
$
9,992,900
$
—
$
—
$
9,992,900
Total US Treasury Bills Asset
$
9,992,900
$
—
$
—
$
9,992,900
December 31, 2021
Level 1
Level 2
Level 3
Total
2020 Notes warrants
$
—
$
—
$
373,599
$
373,599
Total Warrant Liability
$
—
—
$
373,599
$
373,599
The following shows the movement of the warrant liability balance during the year ended December 31, 2022 and 2021.
Bridge Financing
2020 Note
Warrants
Warrants
Beginning Balance January 1, 2021
$
—
$
—
Warrant value at issuance (recorded as warrant liability expense)
3,783,079
894,113
Change in Fair value of warrants
8,627,651
( 520,514 )
Reclassification of warrant liability to an equity instrument
( 12,410,730 )
—
Ending Balance December 31, 2021
$
—
$
373,599
Change in Fair value of warrants
—
( 77,237 )
Reclassification of warrant liability to an equity instrument
—
( 296,362 )
Ending Balance December 31, 2022
$
—
$
—
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Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 $ 12.4 million was reclassified to additional paid in capital. The Exchange Warrants issued to the 2020 Noteholders effective as of March 13, 2022 were determined to be an equity-classified instrument, and accordingly the warrant liability on such date of $ 296,362 was reclassified to additional paid in capital on that date.
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 15 % of the Company’s outstanding ordinary shares on a fully-diluted basis, or 6,391,925,000 ordinary shares, represented by 1,278,385 ADSs as of December 31, 2022. Under the Amended Plan, the Company may grant options to its directors, officers, employees, consultants, advisers and service providers. The Amended Plan was approved by the shareholders at the Company’s Annual General Meeting of Shareholders held on April 12, 2022.
On April 12, 2022, the Company granted options to acquire 1,535,714,000 ordinary shares, represented by 307,142 ADSs, at $ 17.50 per share to management, directors and employees and 971,243 shares remained available for issuance as of December 31, 2022. Such options vest over a three or four year period. There were no further grants during the year ended December 31, 2022.
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
5,744
$
636.74
0.33
Granted
307,142
$
17.50
Forfeited/Cancelled
( 5,744 )
$
636.74
Outstanding at December 31, 2022
307,142
$
17.50
9.28
Exercisable options at December 31, 2022
—
$
—
—
The intrinsic value of outstanding options at December 31, 2022 was $ 0 .
Stock options granted during the year ended December 31, 2022 were valued using the Black-Scholes option-pricing model with the following weighted average assumptions:
December 31,
2022
Expected volatility
106.0
%
Risk-free interest rate
2.7
%
Expected dividend yield
0.0
%
Expected life of options in years
6.9
Exercise Price
$
17.50
Fair value of ADS
$
15.38
Estimated fair value of option
$
12.92
Stock based compensation expense was approximately $ 764,000 ($ 100,000 included in research and development expense and $ 664,000 included in general and administrative expenses) in the year ended December 31, 2022. There was no stock-based compensation in the year ended December 31, 2021.
At December 31, 2022, the total unrecognized compensation expense related to non-vested options was approximately $ 3,205,000 and is expected to be recognized over the remaining weighted average service period of approximately 3.07 years.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 8 – PREPAID EXPENSES
Prepaid expenses are as follows:
December 31,
December 31,
2022
2021
Prepaid R&D costs
$
383,390
$
329,033
Prepaid insurance
508,084
684,191
Prepaid expense
8,500
2,250
Total
$
899,974
$
1,015,474
Less: Short-term portion
( 516,584 )
( 715,474 )
Long-term portion
$
383,390
$
300,000
NOTE 9 – ACCRUED EXPENSES
Accrued expenses are as follows:
December 31,
December 31,
2022
2021
Research contract expenses (note 13)
$
105,071
$
193,537
Payroll (note 12)
788,169
557,937
Payroll taxes (note 12)
159,593
199,582
Investor Relation firm fees (note 13)
56,000
584,000
Professional fees
44,278
144,377
Other Expenses
22,594
5,976
Total
$
1,175,705
$
1,685,409
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 $ 40,833 and future royalties provided Quoin Inc. commercializes products using the technology developed by the Seller. The terms of any royalty payments to the Seller are 4.0 % of the net revenue of royalty products, as defined in the Acquisition Agreement during the ten ( 10 ) year period commencing from the date of first sale of a royalty product. If a generic product is introduced by a third party to the market, during the royalty period, the royalty fees shall be reduced from 4 % to 2 % . If, during the royalty period, two or more generic products are introduced, the royalty fees shall be reduced from 2 % to 0 % .
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:
In October 2019, Quoin Inc. entered into the Exclusive Licensing Agreement (as amended from time to time, the “License Agreement”) with Skinvisible Pharmaceuticals, Inc. (“Skinvisible”), under which Skinvisible granted the Company a exclusive royalty-bearing license relating to the production and manufacture of prescription drug products related to certain patents held by Skinvisible, including those related to QRX003 and QRX004. The Company made Skinvisible a one-time non-refundable, non-creditable license fee of $ 1 million (the “License Fee”). In addition, the Company agreed to pay Skinvisible a single digit royalty percentage of the Company’s net sales revenues for any licensed product covered by the patent rights licensed under the License Agreement. The Company also agreed
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
to pay Skinvisible 25 % of any revenues the Company receives as royalties in the event that the Company sublicense any licensed products to a third party. The License Agreement also requires that the Company make a $ 5 million payment to Skinvisible upon receiving approval in the U.S. or European Union, whichever occurs first, for the first drug product developed using intellectual property licensed thereunder.
NOTE 11 - INTANGIBLE ASSETS
Intangible assets are as follows:
December 31,
December 31,
2022
2021
Acquired technology – Polytherapeutics
$
40,433
$
40,433
Technology license – Skinvisible
1,000,000
1,000,000
Total cost
1,040,433
1,040,433
Accumulated amortization
( 335,872 )
( 231,829 )
Net book value
$
704,561
$
808,604
The Company recorded amortization expense of approximately $104,000 and $104,000 in the years ended December 31, 2022 and 2021, respectively. The annual amortization expense expected to be recorded for existing intangible assets for the years 2023 through 2026, and thereafter, is approximately $ 104,000 , $ 104,000 , $ 104,000 , 104,000 and $ 288,000 , respectively.
NOTE 12 – RELATED PARTY TRANSACTIONS
Employment Agreements and Due to Officers/Founders:
Due to the limited funding of Quoin Inc. prior to the consummation of the Merger, the compensation, including salary, office and car allowances and other benefits, due to Dr. Myers and Ms. Carter under their respective employment agreements, as well as reimbursement of expenses and other amounts paid by Dr. Myers and Ms. Carter to third parties on behalf of Quoin Inc., were not paid by Quoin Inc. to Dr. Myers and Ms. Carter, and were accrued as indebtedness to Dr. Myers and Ms. Carter. Following the closing of the Merger, Quoin Inc. began making payments of $ 25,000 per month to each of Dr. Myers and Ms. Carter to repay the above-described non-interest-bearing indebtedness. The Company repaid $ 300,000 and $ 125,000 of such indebtedness to Dr. Myers and $ 300,000 and $ 160,000 to Ms. Carter in the year ending December 31, 2022 and 2021, respectively. As of December 31, 2022, approximately $ 2,259,000 and $ 1,865,000 of such indebtedness was outstanding to Dr. Myers and Ms. Carter, respectively.
Amounts due to officers at December 31, 2022 and 2021 consisted of the following:
December 31,
December 31,
2022
2021
Salaries and other compensation
$
4,108,500
$
4,108,500
Invoices paid on behalf of the Company
15,232
615,232
Total
$
4,123,732
$
4,723,732
Less: Short-term portion
( 600,000 )
( 600,000 )
Long-term portion
$
3,523,733
$
4,123,732
Expenses:
In 2021, the Company paid $ 100,000 of consulting expenses to a company controlled by Dennis Langer, our director, and approximately $ 48,000 and $ 8,000 were paid during the years ended December 31, 2022 and 2021, respectively, to Dr. Myers’ son, who has been consulting for the Company on research and development matters from time to time.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 13 – RESEARCH, CONSULTING AGREEMENTS AND COMMITMENTS
Research and consulting agreement
Quoin Inc. entered into a research and consulting agreement (the “Research 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 (See Note 10). The agreement required monthly consulting payments of $ 20,833 beginning on July 31, 2018 and ending February 28, 2021 (the “Post-Closing Period”) for a total of $ 666,667 over the consulting period. Pursuant to an amendment, the Post-Closing Period was revised to terminate on December 31, 2020.
Through December 31, 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 16 for Consultant’s notification of breach of contract.
Other research consulting agreements
Quoin Inc. entered into three consulting agreements with Axella Research LLC (“Axella”) to provide regulatory and pre- clinical/clinical services to the Company with respect to QRX003 and QRX004. The combined fees of the three agreements are approximately $ 270,000 , payable as milestones were met. The Company incurred accrued expenses of approximately $ 194,000 in relation to Axella consulting agreements as of December 31, 2021. In August 2022, the Company issued 44,187 ADSs to one of Axella ’ s principals to settle the outstanding liability in full. To date the Company has incurred no research and development expenses in connection with these agreements, as no services have been provided.
In November 2020, Quoin Inc. entered into a Master Service Agreement for an initial term of three years with Therapeutics Inc. for managing preclinical and clinical development for new products in the field of dermatology. The agreement required the execution of individual work orders. Quoin Inc. may terminate any work order for any reason with 90 days written notice subject to costs incurred through termination and a defined termination fee, unless there is a material breach by Therapeutics Inc. A work order was entered into in June 2022 for the first QRX003 clinical study at an expected estimated cost of approximately $ 4.4 million through 2024. A further work order was entered into in December 2022 for the second QRX003 clinical study at an expected estimated cost of approximately $ 830,000 through 2024. For the years ended December 31, 2022 and 2021, the Company incurred a research and development expense under these agreements of approximately $ 1.2 million and $ 340,000 respectively.
In November 2021, the Company entered into a commitment with Queensland University of Technology for research related services associated with Netherton Syndrome of approximately $ 250,000 for an expected period of eighteen months. For the years ended December 31, 2022 and 2021, the Company incurred research and development costs related to this agreement of approximately $ 77,000 and $ 25,000 , respectively.
In May 2022, the Company entered into a commitment with Queensland University of Technology for research related services associated with Scleroderma of approximately $ 610,000 for an expected period of eighteen months. The Company incurred research and development expenses of approximately $ 276,000 for the year ended December 31, 2022.
Consulting agreement:
Quoin Inc. entered into a consulting agreement with an Investor Relations (IR) firm, which provides for a monthly fee of $ 14,000 . The agreement had an automatic annual renewal clause and has been in effect since November 2017. The Company owed the IR firm $ 584,000 as of December 31, 2021, which was included in accrued expenses in the accompanying balance sheet. In March 2022, the Company entered into a settlement agreement with the IR firm reducing the liability to $ 168,000 and recognized $ 416,000 as other income in the accompanying consolidated statement of operations. For the years ended December 31, 2022 and 2021, the Company incurred expenses of $ 112,000 and $ 70,000 , respectively.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
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 the business spun out of Cellect prior to the Merger.
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 CVRs, there is no asset or liability recorded in the consolidated financial statements.
NOTE 14 – SHAREHOLDERS’ EQUITY AND SHARE OWNERSHIP AND RIGHTS
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 50,000,000,000 ordinary shares from 12,500,000,000 , no par value. The Company held a further Annual General Meeting on November 3, 2022, at which the Company’s shareholders approved an increase to the authorized share capital to 500,000,000,000 ordinary shares from 50,000,000,000 , no par value. These ordinary shares are not redeemable and do not have any preemptive rights.
Holders of the Company’s ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders at a shareholders meeting. The board of directors shall determine and provide a record date for each shareholders meeting and all shareholders at such record date may vote. Unless stipulated differently in the Companies Law or in the articles of association, all shareholders’ resolutions shall be approved by a simple majority vote.
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 two most recent years legally available for distribution according to our then last reviewed or audited financial statements, provided that the date of the financial statements is not more than six months prior to the date of distribution. In the event that the Company does not have retained earnings or earnings generated over the two most recent years legally available for distribution, the Company may seek the approval of the court in order to distribute a dividend. The court may approve our request if it determines that there is no reasonable concern that the payment of a dividend will prevent the Company from satisfying existing and foreseeable obligations as they become due.
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 ( 5,000 ) ordinary shares (or a right to receive five thousand ( 5,000 ) ordinary shares). Each ADS will also represent any other securities, cash or other property which may be held by the depositary. ADSs may be held either (a) directly (1) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs or (2) by having uncertificated ADSs, or (b) indirectly by holding a security entitlement in ADSs through a broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC.
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
On August 9, 2022, the Company completed an offering (the “August Offering”) of 11,050,000,000 ordinary shares represented by 2,210,000 ADSs at a purchase price of $ 5.00 per ADS and pre-funded warrants (the “August Pre-Funded Warrants”) to purchase 5,750,000,000 ordinary shares represented by 1,150,000 ADSs at a per pre-funded warrant price of $ 4.9999 , with each ADS and August Pre-Funded Warrant accompanied by an ordinary warrant (the “August Common Warrant”), for aggregate gross proceeds of $ 16.8 million, resulting in net proceeds of approximately $ 14.9 million. Each August Common Warrant had an exercise price of $ 5.00 per ADS and was to expire on the fifth anniversary of the Closing Date. On the Closing Date, the holder of August Pre-Funded Warrants sold in the August Offering exercised its Pre-Funded Warrants in full. The August Common Warrant exercise price and expiration date were subsequently amended for investors who participated in both the August Offering and February Offering, see Note 18.
In connection with the August 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 180 days following the closing of the August Offering, the Company will not effect or enter into an agreement to effect a “variable rate transaction” as defined in the Purchase Agreement. Further, the Company has agreed in the Purchase Agreement not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any ADSs or ordinary shares or their equivalents, subject to certain exceptions, for a period of 90 days after the closing of the August Offering. The Purchase Agreement also contained representations, warranties, indemnification and other provisions customary for transactions of this nature.
Warrants
The following table summarizes warrant activities during the year ended December 31, 2021 and the year ended December 31, 2022:
Weighted
ADSs
Average
Underlying
Exercise Price
Warrants
Per Share
Outstanding at December 31, 2020
107,894
$
56.92
*
Granted
29,388
49.75
*
Outstanding at December 31, 2021
137,282
$
55.39
*
Granted
5,385,374
11.21
**
Terminated
( 232,349 )
49.75
*
Exercised – Cashless and Pre Funded Warrants
( 1,921,487 )
—
Outstanding and exercisable at December 31, 2022
3,368,820
$
5.35
**
As of December 31, 2022, outstanding warrants expire in 2024 and 2027, and have an intrinsic value of $ 0 .
*
Note that the exercise price of certain warrants was reduced from $ 49.75 to $ 0 on July 14, 2022 and to refer to Note 5
**
Note that the exercise price of certain warrants were reduced from $ 5.00 to $ 1.10 on February 24, 2023 and refer to Note 18
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QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 15 – INCOME TAXES
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2022 and December 31, 2021 are as follows:
(table in thousands)
2022
2021
Net operating losses
$
3,334
$
1,945
Due to Officers
—
1,411
Accrued Expenses and Other
189
212
R&D Credit Carryforward
76
102
Debt related activities
—
375
Stock Compensation
178
—
R&D Capitalization
581
—
Intangibles
34
—
Total gross deferred tax assets/(liabilities)
$
4,392
$
4,045
Less valuation allowance
( 4,392 )
( 4,045 )
Net deferred tax assets/(liabilities)
$
—
$
—
The income tax benefit for the years ended December 31, 2022 and December 31, 2021 differed from the amounts computed by applying the U.S. federal income tax rate of 21 % to loss before tax benefit as a result of nondeductible expenses, tax credits generated, utilization of net operating loss carryforwards, and increases in the Company’s valuation allowance.
(table in thousands)
2022
2021
Federal Statutory Rate
$
( 1,970 )
$
( 4,641 )
Permanent Differences
153
2,876
Research and Development
( 76 )
( 102 )
State Income Tax
388
196
Change in Valuation Allowance
347
1,671
Deferred True Up
1,158
—
Effect of Tax Act
—
—
Effective Tax
$
—
$
—
A valuation allowance is required to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of the available evidence, both positive and negative, the Company determined that valuation allowances of $ 4,392,000 and $ 4,045,000 at December 31, 2022 and December 31, 2021 were necessary to reduce the deferred tax assets to the amount that will more likely than not be realized.
At December 31, 2022 and 2021, the Company had gross U.S. Federal income tax net operating loss (“NOL”) carryforward of approximately $ 12,951,000 and $ 6,482,000 , respectively that may be used to offset future taxable income. The NOL was generated after 2017 and can be carried forward indefinitely under the Tax Cuts and Jobs Act. The company also had gross $ 12,951,000 of state net operating losses that will begin to expire in 2038. At December 31, 2022, the Company had approximately $ 76,000 of federal Research and Development (R&D) tax credit carry-forwards. If not utilized, the federal R&D credits will begin to expire in 2042.
The Internal Revenue Code (the “IRC”) contains limitations on the use of net operating loss carryforwards after the occurrence of a substantial ownership change as defined by IRC Section 382. The Company has not performed a detailed analysis, however utilization of such net operating loss carryforwards will likely be significantly limited due to the shares issued in the Primary Financing and the Merger.
The income tax benefit for the years ended December 31, 2022 and 2021 differed from the amounts computed by applying the US federal income tax rate of 21 % primarily because of the increase in the valuation allowance and the tax impact of other permanent items, which resulted in an effective tax rate of zero for both years.
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Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development for the tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Therefore, the capitalization of research and development costs in accordance with IRC 174 resulted in a gross deferred tax asset of $ 2,256,000 .
NOTE 16 - 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 total amount of $ 666,667 (See Notes 10 and 13). The Consultant has not provided any services and has not complied with other technical requirements under the Research Agreement, and therefore is considered to be in breach of contract. The Company and the Consultant have had communications with respect to the duration, commencement date and payment of the consulting services, but a revised agreement has not been reached. No lawsuits have been filed as of the financial statement issuance date. Should a formal claim or lawsuit be filed, the Company believes it has meritorious defenses.
NOTE 17 – LICENSE AGREEMENTS
During the years ended December 31 2022 and 2021 the Company entered into three and six license and supply agreements, respectively, whereby the Company will receive a royalty or other proceeds from the specified product revenues in select non-US markets from the licensor, if and when the underlying products are approved and commercialized. No royalty revenues have been received through December 31, 2022 under any of these agreements.
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Table of Contents
QUOIN PHARMACEUTICALS LTD.
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 18 - SUBSEQUENT EVENTS
On February 24, 2023 (the “February Closing Date”), the Company completed an offering (the “February Offering”) of 24,750,000,000 ordinary shares represented by 4,950,000 ADSs at a purchase price of $ 1.00 per ADS and a pre-funded warrant (the “February Pre-Funded Warrant”) to purchase 10,250,000,000 ordinary shares represented by 2,050,000 ADSs at a per pre-funded warrant price of $ 0.9999 , with each ADS and February Pre-Funded Warrant accompanied by an ordinary warrant (the “February Common Warrant”) for aggregate gross proceeds of $ 7.0 million, resulting in net proceeds of approximately $ 6.0 million, after deducting the placement agent’s fees and estimated offering expenses payable by us, and excluding the proceeds, if any, from the subsequent exercise of the February Common Warrants. Each February Common Warrant has an exercise price of $ 1.00 per ADS and expires on the fifth anniversary of the February Closing Date. On the February Closing Date, the holder of the February Pre-Funded Warrant exercised its Pre-Funded Warrant in full.
In connection with the February Offering, the Company entered into a Securities Purchase Agreement (the “February Purchase Agreement”) with certain institutional investors. Under the February Purchase Agreement, subject to certain exemptions, the Company agreed not to: (i) for a period of ninety ( 90 ) days after the closing date of the Offering, issue, enter into any agreement to issue or announce the issuance or proposed issuance of any ADSs, ordinary shares or ordinary share equivalents or (ii) file any registration statement or amendment or supplement thereto, other than a registration statement on Form S-8 in connection with any employee benefit plan or any post-effective amendment to a registration statement declared effective by the Securities and Exchange Commission (the “SEC”) and (ii) for a period of 180 days after the closing date of the Offering, enter into an agreement to effect a “variable rate transaction” as defined in the Purchase Agreement.
In connection with the February Offering, the Company entered into an Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares, dated February 24, 2023 (collectively, the “Warrant Amendments”), with each of the purchasers (the “2022 Purchasers”) who participated in both the August Offering and February Offering. The Warrant Amendments amended certain terms of the August Common Warrants issued to such 2022 Purchasers. Specifically, the Warrant Amendments reduced the exercise price of such warrants to $ 1.10 and extended the term during which those warrants could remain exercisable until February 24, 2028.
F-25
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.