Quoin Pharmaceuticals, Ltd. 10-Q

Item 1. Financial Statements. QUOIN PHARMACEUTICALS LTD. Condensed Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2023 2022 ​ (unaudited) ​ ASSETS ​ ​ ​ ​ ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 3,371,854 ​ $ 2,860,628 Investments ​ ​ 13,618,026 ​ ​ 9,992,900 Prepaid expenses ​ 398,906 ​ 516,584 Total current assets ​ 17,388,786 ​ 13,370,112 ​ ​ ​ ​ ​ ​ ​ Prepaid expenses - long term ​ ​ 383,390 ​ ​ 383,390 Intangible assets, net ​ 678,550 ​ 704,561 Total assets ​ $ 18,450,726 ​ $ 14,458,063 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS’ EQUITY ​ ​ Current liabilities: ​ ​ Accounts payable ​ ​ 281,094 ​ $ 605,600 Accrued expenses ​ 2,085,205 ​ 1,175,705 Accrued interest and financing expense ​ 1,146,251 ​ 1,146,251 Due to officers – short term ​ 650,000 ​ 600,000 Total current liabilities ​ 4,162,550 ​ 3,527,556 ​ ​ ​ ​ ​ ​ ​ Due to officers – long term ​ ​ 3,373,733 ​ ​ 3,523,733 Total liabilities ​ $ 7,536,283 ​ $ 7,051,289 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity: ​ ​ Ordinary shares, no par value per share, 500,000,000,000 ordinary shares authorized – 59,233,024,799 ( 11,846,532 ADS's) ordinary shares issued and outstanding at March 31, 2023 and 24,233,024,799 ( 4,846,605 ADS's) at December 31, 2022 ​ $ — ​ $ — Treasury stock, 2,641,693 , ordinary shares ​ ( 2,932,000 ) ​ ( 2,932,000 ) Additional paid in capital ​ 53,966,259 ​ 47,855,521 Accumulated deficit ​ ( 40,119,816 ) ​ ( 37,516,747 ) Total shareholders’ equity ​ 10,914,443 ​ 7,406,774 ​ ​ ​ ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 18,450,726 ​ $ 14,458,063 ​ The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements ​ 2 Table of Contents QUOIN PHARMACEUTICALS LTD. Condensed Consolidated Statements of Operations (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2023 2022 Operating expenses ​ ​ ​ ​ ​ ​ General and administrative ​ $ 1,683,817 ​ $ 1,588,470 Research and development ​ 1,091,733 ​ 587,569 ​ ​ ​ ​ ​ ​ ​ Total operating expenses ​ 2,775,550 ​ 2,176,039 ​ ​ ​ ​ ​ ​ ​ Other (income) and expenses ​ ​ ​ ​ ​ ​ Forgiveness of accounts payable ​ — ​ ( 416,000 ) Warrant liability (income) expense ​ ​ — ​ ​ ( 77,237 ) Unrealized gain ​ ​ ( 20,427 ) ​ ​ — Interest income ​ ( 152,054 ) ​ — Total other (income) and expenses ​ ( 172,481 ) ​ ( 493,237 ) Net loss ​ $ ( 2,603,069 ) ​ $ ( 1,682,802 ) ​ ​ ​ ​ ​ ​ ​ Loss per ADS ​ ​ ​ Loss per ADS ​ ​ Basic ​ $ ( 0.34 ) ​ $ ( 2.51 ) Fully-diluted ​ $ ( 0.34 ) ​ $ ( 2.51 ) ​ ​ ​ ​ ​ ​ ​ Weighted average number of ADS's outstanding ​ ​ Basic ​ 7,646,605 ​ 670,930 Fully-diluted ​ 7,646,605 ​ 670,930 ​ The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements ​ 3 Table of Contents QUOIN PHARMACEUTICALS LTD. Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) Three months ended March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ No ​ ​ Additional ​ ​ ​ ​ ​ ​ Ordinary ​ ​ ​ Par ​ Treasury ​ Paid in ​ Accumulated ​ ​ ​ ​ Shares ADS’s Value Stock Capital Deficit Total Balance at January 1, 2022 3,354,650,799 670,930 — ​ $ ( 2,932,000 ) ​ $ 31,659,017 ​ $ ( 28,069,985 ) ​ $ 657,032 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss — — — ​ — ​ — ​ ( 1,682,802 ) ​ ( 1,682,802 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cashless exercise of warrants ​ 3,200 ​ 1 ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reclassification of warrant liability upon issuance of Exchange warrant ​ — ​ — ​ — ​ ​ — ​ ​ 296,362 ​ ​ — ​ ​ 296,362 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at March 31, 2022 ​ 3,354,653,999 ​ 670,931 ​ — ​ $ ( 2,932,000 ) ​ $ 31,955,379 ​ $ ( 29,752,787 ) ​ $ ( 729,408 ) ​ Three months ended March 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ No ​ ​ Additional ​ ​ ​ ​ ​ Ordinary ​ ​ ​ Par ​ Treasury ​ Paid in ​ Accumulated ​ ​ ​ ​ Shares ADS’s Value Stock Capital Deficit Total Balance at January 1, 2023 ​ 24,233,024,799 ​ 4,846,605 ​ — ​ $ ( 2,932,000 ) ​ $ 47,855,521 ​ $ ( 37,516,747 ) ​ $ 7,406,774 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ — ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 2,603,069 ) ​ ​ ( 2,603,069 ) Issuance of ADS and Pre-Funded Warrants, net 35,000,000,000 7,000,000 — ​ — ​ 5,849,266 ​ — ​ 5,849,266 Stock based compensation — — — ​ — ​ 261,472 ​ — ​ 261,472 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at March 31, 2023 59,233,024,799 11,846,605 — ​ $ ( 2,932,000 ) ​ $ 53,966,259 ​ $ ( 40,119,816 ) ​ $ 10,914,443 ​ The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements ​ 4 Table of Contents QUOIN PHARMACEUTICALS LTD. Condensed Consolidated Statements of Cash Flows (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ 2023 2022 Cash flows used in operating activities: ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 2,603,069 ) ​ $ ( 1,682,802 ) Change in fair value of warrant liability ​ — ​ ( 77,237 ) Stock based compensation ​ 261,472 ​ — Forgiveness of trade payable ​ — ​ ( 416,000 ) Amortization of intangibles ​ 26,011 ​ 26,010 Increase in accrued interest and financing expense ​ ​ — ​ ​ ( 311,670 ) Unrealized gain and accrued interest on investments ​ ​ ( 133,621 ) ​ ​ — Changes in assets and liabilities: ​ ​ ​ ​ Increase in accounts payable and accrued expenses ​ 584,994 ​ 162,133 Decrease in prepaid expenses & other assets ​ 117,678 ​ 206,008 Net cash used in operating activities ​ $ ( 1,746,535 ) ​ $ ( 2,093,558 ) ​ ​ ​ ​ ​ ​ ​ Cash flows used in investing activities: ​ ​ Purchase of investments ​ ​ ( 13,491,505 ) ​ $ — Proceeds from maturity of investments ​ ​ 10,000,000 ​ ​ — Payment for license acquisition ​ — ​ ( 50,000 ) Net cash used in investing activities ​ $ ( 3,491,505 ) ​ $ ( 50,000 ) ​ ​ ​ ​ ​ ​ ​ Cash flows provided by (used in) financing activities: ​ ​ Payment of amounts due to officers ​ ( 100,000 ) ​ ( 150,000 ) Proceeds from sale of equity securities, net ​ ​ 5,849,266 ​ ​ — Net cash provided by (used in) financing activities ​ $ 5,749,266 ​ $ ( 150,000 ) ​ ​ ​ ​ ​ ​ ​ Net change in cash and cash equivalents: ​ 511,226 ​ ( 2,293,558 ) Cash and cash equivalents - beginning of period ​ 2,860,628 ​ 7,482,773 Cash and cash equivalents - end of period ​ $ 3,371,854 ​ $ 5,189,215 ​ ​ ​ ​ ​ ​ ​ Supplemental information - Non cash items: ​ ​ Reclassification of warrant liability to equity upon issuance of “Exchange warrants” ​ $ — ​ $ 296,362 Offering expenses associated with warrant modification ​ $ 238,231 ​ $ — ​ The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements ​ ​ 5 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ NOTE 1 – ORGANIZATION AND BUSINESS Quoin Pharmaceuticals Ltd. (“Quoin Ltd.,” or the “Company”), formerly known as Cellect Biotechnology Ltd. (“Cellect”), is the holding company for Quoin Pharmaceuticals, Inc., a Delaware corporation (“Quoin Inc.”). On October 28, 2021, Cellect completed the business combination with Quoin Inc., 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.” 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 both studies. 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 unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“U.S. GAAP”), which contemplates continuation of the Company as a going concern. The Company has incurred net losses every year since inception and has an accumulated deficit of approximately $ 40.1 million at March 31, 2023. The Company has limited operating history and has historically funded its operations through debt and equity financings. The Company incurred net losses of approximately $ 2.6 million, and negative cash flows from operations of $ 1.8 million for the three months ended March 31, 2023. At March 31, 2023, the Company had cash balances totaling $ 3.4 million and investments of $ 13.6 million. The Company has determined that it has sufficient cash and liquidity to effect its business plan for at least one year from the issuance of these unaudited condensed 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 and financial condition. 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. 6 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ 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. See Note 16, Subsequent Events. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2023 and for the three months then ended. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the operating results for the year or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related disclosures as of December 31, 2022 and for the year then ended which are included in the Company’s Annual Report on Form 10- K, filed with the SEC on March 15, 2023. The Company operates in one segment. 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: stock-based compensation and warrants, research and development expense recognition, intangible asset estimated useful lives and impairment assessments, allowances of deferred tax assets, and cash flow assumptions regarding going concern considerations. 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 7 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ 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 unaudited condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively. Investments: Investments as of March 31, 2023 and December 31, 2022 consist of U.S. Treasury Bills, which are classified as trading securities, totaling $ 13.6 million and $ 10.0 million, respectively. 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. 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 the Company’s use of the acquired assets or the strategy for its overall business, ● Significant underperformance relative to expected historical or projected development milestones, ● Significant negative regulatory or economic trends, and ● Significant technological changes which could render the platform technology obsolete. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. During the three months ended March 31, 2023, 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 expenses in future periods as the related services are rendered. Income taxes: 8 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ 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 March 31, 2023 and December 31, 2022, 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 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 a 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 and cash equivalents, investments, accounts payable, accrued expenses 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 three months ended March 31, 2023 and 2022, the number of shares excluded from the diluted net earnings (loss) per share included outstanding warrants to purchase 10,368,820 ADS and outstanding stock options to purchase 307,142 ADS, and outstanding warrants to purchase 1,395,005 ADS and outstanding stock options to purchase 4,655 ADS, respectively, as their inclusion in the denominator would be anti-dilutive. 9 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ NOTE 4 – CONVERTIBLE NOTES PAYABLE On October 2, 2020, Quoin Inc. commenced an offering of promissory notes (the “2020 Notes”) and warrants to certain investors (“2020 Noteholders”). 2020 Notes were mandatorily convertible into 5,183 ADSs in 2021. 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 $ 1,146,000 as of March 31, 2023 and December 31, 2022. There was no interest expense recognized in both the three month periods ended March 31, 2023 and 2022. NOTE 5 - 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 March 31, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ Level 1 ​ Level 2 Level 3 Total US Treasury Bills $ 13,618,026 $ — ​ $ — ​ $ 13,618,026 Total US Treasury Bills Asset $ 13,618,026 $ — ​ $ — ​ $ 13,618,026 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ 10 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ ​ NOTE 6 – 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 was approved by the shareholders at the Company’s Annual General Meeting of Shareholders held on April 12, 2022. The Amended Plan 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 16,891,925,220 ordinary shares represented by 3,378,385 ADSs as of March 31, 2023. Under the Amended Plan, the Company may grant options to its directors, officers, employees, consultants, advisers and service providers. As of March 31, 2023, 3,071,243 ADSs remained available for grant under the Amended Plan. 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, 2022 307,142 ​ $ 17.50 9.28 Granted — ​ $ — ​ Forfeited/Cancelled — ​ $ — ​ Outstanding at March 31, 2023 307,142 ​ $ 17.50 9.03 ​ ​ ​ ​ ​ ​ ​ ​ Exercisable options at March 31, 2023 — ​ $ — — ​ The intrinsic value of outstanding options at March 31, 2023 was $ 0 . Stock based compensation expense was approximately $ 261,000 ($ 34,000 included in research and development expense and $ 227,000 included in general and administrative expenses) in the three months ended March 31, 2023. There was no stock-based compensation in the three months ended March 31, 2022. At March 31, 2023, the total unrecognized compensation expense related to non-vested options was approximately $ 2,944,000 and is expected to be recognized over the remaining weighted average service period of approximately 2.83 years. NOTE 7 – PREPAID EXPENSES Prepaid expenses are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 ​ 2022 Prepaid R&D costs ​ $ 383,390 ​ $ 383,390 Prepaid insurance ​ 355,156 ​ 508,084 Prepaid expense ​ 43,750 ​ 8,500 Total ​ $ 782,296 ​ $ 899,974 Less: Short-term portion ​ ​ ( 398,906 ) ​ ​ ( 516,584 ) Long-term portion ​ $ 383,390 ​ $ 383,390 ​ ​ ​ 11 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ NOTE 8 - ACCRUED EXPENSES Accrued expenses are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 ​ 2022 Research contract expenses (note 12) ​ $ 483,830 ​ $ 105,071 Payroll (note 11) ​ 976,306 ​ 788,169 Payroll taxes (note 11) ​ 153,552 ​ 159,593 Professional fees ​ 346,891 ​ 44,278 Other Expenses ​ 124,626 ​ 78,594 Total ​ $ 2,085,205 ​ $ 1,175,705 ​ ​ ​ NOTE 9 – 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 %. 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 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 10 - INTANGIBLE ASSETS Intangible assets are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 ​ 2022 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 ​ ( 361,883 ) ​ ( 335,872 ) Net book value ​ $ 678,550 ​ $ 704,561 ​ 12 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ The Company recorded amortization expense of approximately $26,000 in the three months ended March 31, 2023 and 2022, respectively. The annual amortization expense expected to be recorded for existing intangible assets for the years 2023 through 2026, and thereafter, is approximately $ 78,000 , $ 104,000 , $ 104,000 , 104,000 and $ 288,000 , respectively. NOTE 11 - 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 $ 75,000 and $ 75,000 of such indebtedness to Dr. Myers and $ 25,000 and $ 75,000 to Ms. Carter in the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, approximately $ 2,184,000 and $ 1,840,000 of such indebtedness was outstanding to Dr. Myers and Ms. Carter, respectively. Amounts due to officers at March 31, 2023 and December 31, 2022 consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 ​ 2022 Salaries and other compensation ​ $ 4,023,732 $ 4,108,500 Invoices paid on behalf of the Company ​ — ​ 15,232 Total ​ $ 4,023,732 $ 4,123,732 Less: Short-term portion ​ ( 650,000 ) ​ ( 600,000 ) Long-term portion ​ $ 3,373,733 ​ $ 3,523,733 ​ Expenses: Research and development expenses in the amount of $ 12,000 were paid during the three months ended March 31, 2023 and 2022, respectively, to the CEO Dr. Myers’ son, who had been consulting for the Company on research and development matters from time to time. As of March 31, 2023, Dr. Myers’ son no longer provides consulting services to the Company. Interest Payable: See Note 4 for interest payable on the 2020 Notes. ​ ​ NOTE 12 – RESEARCH, CONSULTING AGREEMENTS AND COMMITMENTS Research agreements 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 three months ended March 31, 2023 and 2022, the Company incurred a research and development expense under these agreements of approximately $ 599,000 and $ 185,000 respectively. 13 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ 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 three months ended March 31, 2023 and 2022, the Company incurred research and development costs related to this agreement of approximately $ 50,000 and $- 0 -, 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 $ 88,000 for the three months ended March 31, 2023. 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. 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. No expenses were incurred in both the three months ended March 31, 2023 and 2022, respectively. Performance milestones and Royalties See Note 9 for asset and in-licensed technology commitments. NOTE 13 – SHAREHOLDERS’ EQUITY The Company held a Special General Meeting on February 28, 2022, at which the Company’s shareholders adopted the Amended and Restated Articles of Association of the Company. The Company held its Annual General Meeting on April 12, 2022, at which the Company’s shareholders approved an increase to the authorized share capital to 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 its board of directors, there is no reasonable concern that the distribution will prevent the Company from being able to meet the terms of its 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 the Company’s 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 the Company’s 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. Effective August 1, 2022, the ratio of 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 14 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ 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. 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. February 2023 Offering 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 $ 5.8 million, after deducting the placement agent’s fees and offering expenses. 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 February 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 February 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 Company’s offering completed in August 2022 (the “August Offering”) and February Offering. The Warrant Amendments amended certain terms of the Common Warrants issued in the August Offering to such 2022 Purchasers. Specifically, the Warrant Amendments reduced the exercise price of Common Warrants to purchase 2,830,000 ADSs out of the total 3,360,000 issued in the August Offering from $ 5.00 to $ 1.10 and extended the term during which those warrants could remain exercisable until February 24, 2028. The incremental fair value of the modified warrants was approximately $ 238,000 , which was accounted for as an offering expense in connection with the February Offering. Warrants The 2020 Noteholders received warrants exercisable at any time after the issuance date for 29,388 ADSs at an initial exercise price of $ 49.75 per ADS. Effective March 13, 2022, each holder agreed to exchange these warrants for warrants with the same number of shares issuable upon the exercise of the original warrant and the same exercise price with a contractual term of 5 years (the “Exchange Warrants”). 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. None of these warrants were outstanding as of December 31, 2022. 15 Table of Contents QUOIN PHARMACEUTICALS LTD. ​ Notes to Consolidated Financial Statements March 31, 2023 and 2022 ​ The following table summarizes warrant activities during the three months ended March 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ADSs ​ Average ​ ​ Underlying ​ Exercise Price ​ ​ Warrants ​ Per ADS ​ Outstanding at December 31, 2022 3,368,820 $ 5.35 ​ Granted Common and Pre-Funded Warrants 9,050,000 ​ ​ 0.77 ​ Exercised Pre-Funded Warrants ( 2,050,000 ) ​ 0.00 ​ Outstanding and exercisable at March 31, 2023 10,368,820 ​ $ 1.35 * ​ * For investors who participated in both the Company’s August Offering and February Offering, the exercise price of Common Warrants to purchase 2,830,000 ADSs out of the total 3,360,000 issued in the August offering was reduced from $ 5.00 per ADS to $ 1.10 per ADS, see above. NOTE 14 – 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. NOTE 15 – LICENSE AGREEMENTS As of March 31, 2023, the Company has entered into eight license and supply agreements, 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 March 31, 2023 under any of these agreements. NOTE 16 - SUBSEQUENT EVENTS On April 5, 2023, the Company received a letter from the Listing Qualifications staff (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that the closing bid price per ADS of the Company 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 Rule 5550(a)(2). Pursuant to Nasdaq Rule 5810(c)(3)(A), the Company has a period of one hundred eighty ( 180 ) calendar days, or until October 2, 2023 (the “Compliance Period”), to regain compliance with Nasdaq’s minimum bid price requirement. If at any time during the Compliance Period, the closing bid price per ADS is at least $ 1.00 for a minimum of ten ( 10 ) consecutive business days, Nasdaq will provide the Company a written confirmation of compliance and the matter will be closed. In the event the Company does not regain compliance by October 2, 2023, the Company may be eligible for an additional 180 calendar day grace period. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held ADSs and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period. Although Nasdaq notification letter described above has no immediate effect on the Company’s listing on The Nasdaq Capital Market, and the Company is working on implementing plans to regain compliance with Nasdaq listing standards, there can be no assurance that the Company will be able to regain compliance with Nasdaq’s 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. ​ ​ 16 Table of Contents ​