Quoin Pharmaceuticals, Ltd. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and related notes to those statements included in this Annual Report. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), reflect the operations of Quoin Pharmaceuticals Inc. (“Quoin Inc.”) since inception and include the accounts of Quoin Ltd. since the closing of the Merger (as defined below). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Important factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in Part I, Item 1A. “Risk Factors” and the section entitled “Cautionary Note Regarding Forward-Looking Statements and Summary of Risk Factors.” Overview We are a 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. Our initial focus is on the development of products, using our proprietary owned and in-licensed drug delivery technologies, that could help address rare skin diseases. Our 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”). We are also developing QRX004 as a potential treatment for Recessive Dystrophic Epidermolysis Bullosa (“RDEB”). In addition, we entered into Research Agreements with the Queensland University of Technology (“QUT”), under which we have obtained an option for global licenses to QRX007 for the potential treatment of NS and QRX008 for the potential treatment of scleroderma. Our objective is to develop and commercialize proprietary therapeutic drug products. To this effect, we intend to develop and seek marketing approvals from the FDA and other worldwide regulatory bodies for rare and orphan diseases. To achieve these objectives, we plan to: ● complete the late-stage clinical testing of QRX003 and, if successful, file for marketing approval in the United States and other territories; ● prepare to commercialize QRX003 by establishing our own sales infrastructure in the U.S. and Europe and entering into distribution partnerships in other territories such as those currently established for Canada, Australia/New Zealand, the Middle East, China, Hong Kong, Taiwan, Latin America, Central and Eastern Europe, Turkey and Singapore; and ● pursue business development activities by seeking partnering, licensing, merger and acquisition opportunities or other transactions to further expand our pipeline and drug-development capabilities. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of QRX003 or any other product candidate. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue our operations. See “Liquidity and Capital Resources”. ADS Ratio Change and Ordinary Share Reverse Split 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. Effective July 18, 2023, the ratio of ADSs evidencing ordinary shares changed from 1 ADS representing five thousand (5,000) ordinary shares to 1 ADS representing sixty thousand (60,000) ordinary shares, which resulted in a 1 for 12 reverse 44 Table of Contents split of the issued and outstanding ADSs. Effective November 8, 2023, the Company completed a 1 for 60,000 reverse split of the ordinary shares which resulted in the ratio of ADSs evidencing ordinary shares to be changed from 1 ADS representing sixty thousand (60,000) ordinary shares to 1 ADS representing one (1) ordinary share. Except as specifically provided, all ordinary share, ADS and related option and warrant information presented herein, including our financial statements and accompanying footnotes, has been retroactively adjusted to reflect the number of ordinary shares and ADSs resulting from the aforementioned ordinary share reverse split and ADS ratio changes. Key Events Merger On October 28, 2021, Cellect completed the business combination with Quoin Inc. in accordance with the terms of the Merger Agreement, by and among Cellect, Quoin Inc. and Merger Sub, which was a wholly-owned subsidiary of Cellect, pursuant to which Merger Sub merged with and into Quoin Inc., with Quoin Inc. surviving as a wholly-owned subsidiary of Cellect. Immediately after completion of the Merger, Cellect changed its name to “Quoin Pharmaceuticals, Ltd.” We have accounted for the transaction as a reverse recapitalization with Quoin Inc. as the accounting acquirer. Because Quoin Inc. is the accounting acquirer, its historical financial statements became our 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. In addition, on October 28, 2021, Cellect sold the entire share capital of its subsidiary, Cellect Biotherapeutics Ltd., which essentially included all of Cellect’s then existing net assets, to EnCellX Inc. (“EnCellX”), a newly formed U.S. privately held company based in San Diego, CA (the “Share Transfer”), pursuant to an Amended and Restated Share Transfer Agreement. We have no interests in EnCellX subsequent to the closing of the Merger. Clinical Development Quoin’s lead asset, QRX003, is currently in late-stage clinical development in the U.S. under an open IND application with the FDA. Five clinical sites in the U.S. have been opened for our initial study, patients are actively being screened and recruited into the study and dosing commenced in December 2022. This study originally was designed as a randomized, double blinded assessment of two different doses of QRX003 versus a placebo vehicle in 18 adult NS patients. The test materials are applied once daily, over a twelve-week period, to pre-selected areas of the patient’s body. Based on discussions with the FDA, a number of different clinical endpoints are being assessed in the study, including but not limited to, an Investigators Global Assessment (IGA), Patient’s Global Assessment (PaGA) and Pruritis. In November 2022, we submitted a protocol for our second clinical study in NS patients to the FDA under our currently open IND (the “Open Label Study”). This study was cleared by the FDA to initiate in December 2022. This study originally was designed to be conducted in ten adult NS patients who are currently receiving, and will continue to do so throughout the study, off-label systemic therapy, primarily systemic biologic therapy. This is an open-label study with no placebo control and is being conducted at the same clinical sites as our other ongoing study. Both of our NS clinical studies are running concurrently and utilize the same clinical trial sites and investigators. While there is no assurance regarding the final results of the open label study, on October 24, 2023, we released positive initial clinical results obtained from the first six evaluable subjects in our open-label study. As a result of this positive initial data and the absence of any safety concerns from both studies, on November 8, 2023 we submitted a number of protocol amendments to the FDA, under our open IND, with a view to optimizing both studies and potentially leading to even better clinical outcomes and a more rapid regulatory approval. These protocol amendments included eliminating the lower dose from the double-blinded study, modifying the dosing frequency from once-daily to twice-daily and increasing the number of subjects from 18 to 30. For the open-label study, the number of subjects was increased from 10 to 20 and dosing was modified from once-daily to twice-daily. On December 13, 2023, we announced that we were cleared by the FDA to implement these protocol amendments. 45 Table of Contents Agreements with Altium Growth Fund, LP and Warrant Exercises On October 28, 2021, we completed the private placement transaction with Altium Growth Fund, LP (“Altium” or the “Investor”) for an aggregate purchase price of approximately $17.0 million (comprised of the set off of approximately $5.0 million of bridge notes from bridge financing earlier in 2021 (the “Bridge Notes”), and approximately $12.0 million in cash) (the “Primary Financing”), which resulted in the net proceeds of approximately $10.1 million. We issued 28,508 ADSs to the Investor. We also issued to the Investor, effective as of March 13, 2022 (i) a Series A Warrant to purchase 28,508 ADSs (the “Series A Warrant”) (ii) a Series B Warrant to purchase 28,508 ADSs (the “Series B Warrant”) and (iii) a Series C Warrant to purchase 15,931 ADSs (the “Series C Warrant” and, together with the Series A Warrant and the Series B Warrant, the “Investor Warrants”). The exercise price for the Investor Warrants is $597 per ADS, with the Series A Warrant having a five-year maturity, and the Series B Warrant and the Series C Warrant having a two-year maturity. We 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 warrant and the satisfaction of equity market conditions, as defined in the Series C Warrant. 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, resulting in the issuance of a total of 28,508 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. On July 14, 2022, we entered into an agreement with Quoin Inc. and Altium (the “Altium Agreement”), pursuant to which the parties agreed to, among other things, (i) amend certain terms of the Series A Warrant and the Investor Exchange Warrants previously issued to Altium to reduce the exercise price to $0.00 per ADS with respect to a total of 33,333 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 charged against the gross proceeds of the 2022 Offering (see below) as the modification was done in contemplation of the offering. As of August 2, 2022, Altium exercised all of its warrants to purchase ADSs at $0.00 per ADS exercise price, and we issued a total of 33,333 ADSs to Altium. Noteholder Warrant Exercises Commencing in October 2020, Quoin Inc. issued promissory notes (the “2020 Notes”) to five noteholders, including our directors, Messrs. Langer and Culverwell (collectively, the “2020 Noteholders”). The 2020 Notes were issued at a 25% original issue discount with an aggregate face value of $1,213,313 with interest at a rate of 20% per annum. The 2020 Notes were mandatorily convertible into ADSs based on the valuation negotiated in the Primary Financing. The 2020 Noteholders also received warrants exercisable at any time after the issuance date for a number of shares of Quoin Inc.’s common stock equal to 100% of the “as if converted” shares as if the 2020 Notes principal and interest were convertible at the lowest price any securities are sold, convertible, or exercisable into in the Primary Financing or the next round of financing (whichever is lower). At the closing of the Merger, ADSs were issued to the 2020 Noteholders upon the conversion of the principal of the 2020 Notes. In addition, effective as of March 13, 2022, Quoin Ltd. exchanged Quoin Inc. warrants held by the 2020 Noteholders for warrants on substantially the same terms as the Investor Exchange Warrants, exercisable for 2,449 ADSs, in the aggregate, at the exercise price of $597 per ADS (the “Noteholder Warrants”). The Noteholder Warrants became exercisable immediately upon issuance and expire five years from March 13, 2022. The exercise price of the warrants held by the 2020 Noteholders 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. 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 2,449 ADSs were issued to such noteholders. Public Offerings On August 9, 2022 (the “2022 Closing Date”), we completed an offering (the “2022 Offering”) of 184,167 ordinary shares represented by 184,167 ADSs at a purchase price of $60.00 per ADS and a pre-funded warrant (the “2022 Pre-Funded Warrant”) to purchase 95,833 ordinary shares represented by 95,833 ADSs at a per pre-funded warrant price of $59.9988, with each ADS and 2022 Pre-Funded Warrant accompanied by an ordinary warrant (the “2022 Common Warrant”), for aggregate gross proceeds of $16.8 million, resulting in net proceeds of approximately $14.9 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 2022 Common Warrants. Each 2022 Common Warrant had an exercise price of $60.00 per ADS and was to expire on the fifth anniversary of the 2022 Closing Date. On the 2022 Closing Date, the holder of the 2022 Pre-Funded Warrant exercised its Pre-Funded Warrant in full. 46 Table of Contents On February 24, 2023 (the “2023 Closing Date”), we completed an offering (the “2023 Offering”) of 412,500 ordinary shares represented by 412,500 ADSs at a purchase price of $12.00 per ADS and a pre-funded warrant (the “2023 Pre-Funded Warrant”) to purchase 170,833 ordinary shares represented by 170,833 ADSs at a per pre-funded warrant price of $11.9988, with each ADS and 2023 Pre-Funded Warrant accompanied by an ordinary warrant (the “2023 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 paid by us, and excluding the proceeds, if any, from the subsequent exercise of the 2023 Common Warrants. Each 2023 Common Warrant has an exercise price of $12.00 per ADS and expires on the fifth anniversary of the 2023 Closing Date. On the 2023 Closing Date, the holder of the 2023 Pre-Funded Warrant exercised its Pre-Funded Warrant in full. In connection with the 2023 Offering, we entered into an Amendment No. 1 to Warrant to Purchase Ordinary Shares Represented by American Depositary Shares, dated February 24, 2023 (collectively, the “2023 Warrant Amendments”), with each of the purchasers (the “2022 Purchasers”) who participated in both the 2022 Offering and the 2023 Offering. The 2023 Warrant Amendments amended certain terms of the common warrants issued to such 2022 Purchasers in the 2022 Offering. Specifically, the 2023 Warrant Amendments reduced the exercise price of such warrants to $13.20 and extended the term during which those warrants could remain exercisable until February 24, 2028. On March 7, 2024, (the “2024 Closing Date”) we completed an offering (the “2024 Offering”) of the following securities (i) 811,250 ordinary shares represented by ADSs, (ii) 4,062,500 Series D warrants (the “Series D Warrants”) to purchase 4,062,500 ordinary shares represented by ADSs, (iii) 4,062,500 Series E warrants (the “Series E Warrants” and together with the Series D Warrants, the “2024 Warrants”) to purchase 4,062,500 ordinary shares represented by ADSs, and (iv) 3,251,250 pre-funded warrants (the “2024 Pre-Funded Warrants”) to purchase 3,251,250 ordinary shares represented by ADSs for aggregate gross proceeds of approximately $6.5 million, resulting in net proceeds of approximately $5.6 million, after deducting the placement agent’s fees and offering expenses paid by us. Each ADS (or 2024 Pre-Funded Warrant to purchase one ADS in lieu thereof) was sold together with a Series D Warrant to purchase one ADS and a Series E Warrant to purchase one ADS. The ADSs and accompanying 2024 Warrants were sold at a combined public offering price of $1.60 and the 2024 Pre-Funded Warrants and accompanying 2024 Warrants were sold at a combined public offering price of $1.5999, which is equal to the combined purchase price per ADS and accompanying 2024 Warrants, minus the exercise price of each 2024 Pre-Funded Warrant of $0.0001. The Series D Warrants and the Series E Warrants have an exercise price of $1.60 per share, are exercisable immediately following the closing of the 2024 Offering and expire in two years and five years, respectively, from the closing of the 2024 Offering. In connection with the 2024 Offering, we entered into a Securities Purchase Agreement (the “2024 Purchase Agreement”) dated March 4, 2024, with certain institutional investors signatory thereto, pursuant to which we agreed to issue and sell to such investors, certain of the ADSs, 2024 Pre-Funded Warrants and 2024 Warrants sold in the 2024 Offering. Pursuant to the terms of the 2024 Purchase Agreement, we agreed, subject to certain exceptions, (i) to not enter into variable rate financings for a period of 180 days following the closing of the 2024 Offering, and (ii) to not enter into any equity financings for 90 days from the closing of the 2024 Offering. On March 7, 2024, we also entered into privately negotiated agreements with the holders of certain existing outstanding warrants to purchase up to 638,834 ADSs (the “Prior Warrants”) to, among other things, reduce the exercise price of such Prior Warrants to $1.60 and to extend the current expiration date of the Prior Warrants until March 7, 2029. Alumni Equity Line and Purchase Agreement On January 25, 2024, we entered into a Purchase Agreement (the “Alumni Purchase Agreement”) with Alumni Capital LP (“Alumni”). Pursuant to the Alumni Purchase Agreement, we have the right to sell to Alumni up to $8,000,000 (the “Commitment Amount”) of newly issued ordinary shares that are represented by ADS (the “Purchase Notice Securities”), subject to certain conditions and limitations, from time to time during the term of the Alumni Purchase Agreement. We do not have the right to commence any sales of ordinary shares represented by ADSs to Alumni under the Alumni Purchase Agreement until the date, which we refer to as the Commencement Date, that all of the conditions set forth in the Alumni Purchase Agreement have been satisfied, including that the registration statement we agreed to file with the Securities and Exchange Commission (“SEC”) pursuant to the Alumni Purchase Agreement is declared effective by the SEC, and our shareholders have approved of the issuance of ADSs under the Alumni Purchase Agreement. If shareholder approval of the issuance of ADSs under the Purchase Agreement is not obtained by April 30, 2024, we may terminate the Alumni Purchase Agreement by written notice to Alumni and neither party shall have any obligation or liability to the other party. 47 Table of Contents From and after the Commencement Date, we may, from time to time and at our sole discretion for a period of three months, which we at our sole discretion may increase by an additional three months (such period, including any extension, the “Commitment Period”), on any business day that we select, direct Alumni to purchase ordinary shares represented by ADSs. The purchase price for the ordinary shares represented by ADSs we may sell to Alumni will be based upon formulas set forth in the Alumni Purchase Agreement based on the then current market price of the ADSs as computed under the Alumni Purchase Agreement and will depend on the type of purchase notice we submit to Alumni from time to time. There is no upper limit on the price per share that Alumni could be obligated to pay for the ADSs under the Alumni Purchase Agreement; provided, however at no time can the purchase price be below a floor price of $1.00 per share (subject to adjustment). We agreed to issue purchase notices for an aggregate of at least $4,000,000 of the Commitment Amount prior to the end of the Commitment Period. As consideration for Alumni’s irrevocable commitment to purchase ADSs under the Alumni Purchase Agreement, we agreed to issue to Alumni, at the times set forth in the Alumni Purchase Agreement beginning with the trading day after the Commencement Date, a number of ADSs with a value at the time of issuance not to exceed $240,000 in the aggregate (the “Commitment Securities”). The ADSs to be issued will be valued at the average of the closing prices of the ADSs on Nasdaq for the five trading days immediately prior to the date such ADSs are issued. We may pay cash in lieu of issuing all or any portion of the Commitment Securities. In connection with the 2024 Offering, we agreed not to sell any ADS to Alumni under the Alumni Purchase agreement for a period of 180 days from the 2024 Closing Date. Nasdaq Listing On April 5, 2023, we received a letter from Listing Qualifications staff of The Nasdaq Stock Market, LLC notifying us 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 we did not meet the minimum bid price requirements set forth in Nasdaq Rule 5550(a)(2). Pursuant to Nasdaq Rule 5810(c)(3)(A), we had 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. On August 1, 2023, we received a letter from Nasdaq stating that the closing bid price per ADS was at $1.00 or greater for the last 10 consecutive business days. Accordingly, we regained compliance with Listing Rule 5550(a)(2) and the matter was closed. Components of Our Results of Operations Operating Expenses Our current operating expenses consist of two components - research and development expenses, and general and administrative expenses. Research and Development Expenses 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. We utilize outside consultants and third parties to conduct the majority of our research and development, under the supervision of our management team. Future research and development expenses may include: ● employee-related expenses, such as salaries, bonuses and benefits, consultant-related expenses, share-based compensation, overhead related expenses and travel related expenses for our research and development personnel; ● expenses incurred under agreements with CROs, as well as consultants that support the implementation of the clinical studies described above; ● manufacturing and packaging costs in connection with conducting clinical trials and for stability and other studies required to support the NDA filing as well as manufacturing drug product for commercial launch; 48 Table of Contents ● formulation, research and development expenses related to QRX003; and other product candidates we may choose to develop; and ● costs for sponsored research. Research and development activities will continue to be central to our business plan. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to be significant over the next several years as personnel and compensation costs increase and we conduct late-stage clinical studies and prepare to seek regulatory approval for QRX003 and any other future product candidate. The duration, costs and timing of clinical trials of QRX003 and any other future product candidate will depend on a variety of factors that include, but are not limited to: ● the number of trials required for approval; ● the per patient trial costs; ● the number of patients that participate in the trials; ● the number of sites included in the trials; ● the countries in which the trial is conducted; ● the length of time required to enroll eligible patients; ● the number of doses that patients receive; ● the drop-out or discontinuation rates of patients; ● the potential additional safety monitoring or other studies requested by regulatory agencies; ● the duration of patient follow-up; ● the timing and receipt of regulatory approvals; and ● the efficacy and safety profile of our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of compensation and employee related expenses including non-cash stock-based compensation, professional fees and other corporate expenses. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities. These increases will likely include compensation and employee-related expenses including stock-based compensation, increased costs related to the potential hiring of personnel, travel costs and fees to outside consultants, lawyers and accountants. Other Expenses (income) Other expenses (income) consist primarily of non cash fair value adjustments of warrants, forgiveness of trade payable, interest income and unrealized loss on investments. 49 Table of Contents Results of Operations - Year ended December 31, 2023 compared to Year ended December 31, 2022 The following table sets forth our results of operations for the year ended December 31, 2023, compared to the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ ​ ​ ​ 2023 2022 Change Operating Expenses ​ ​ ​ General and administrative ​ $ 6,070,517 ​ $ 6,584,868 ​ $ (514,351) Research and development ​ 3,307,987 ​ 2,672,836 ​ 635,151 Total operating expenses ​ 9,378,504 ​ 9,257,704 ​ 120,800 Other (income) and expenses ​ ​ ​ Forgiveness of trade payable ​ — ​ (416,000) ​ 416,000 Warrant liability (income) expense ​ — ​ (77,237) ​ 77,237 Unrealized income ​ ​ 2,683 ​ ​ (1,307) ​ ​ 3,990 Realized and accrued interest income ​ (694,614) ​ (95,745) ​ (598,869) Interest and financing expense ​ ​ — ​ ​ 714,081 ​ ​ (714,081) Total other expense ​ (691,931) ​ 123,792 ​ (815,723) Net loss ​ $ (8,686,573) ​ $ (9,381,496) ​ $ 694,923 ​ General and Administrative Expenses General and administrative expenses were approximately $6,071,000 and $6,585,000, in the year ended December 31, 2023 and 2022, respectively, representing a decrease of $514,000, or 7.8%. The decrease was primarily due to a decrease in legal fees and other public company expenses of $574,000, a decrease in insurance of $197,000, offset by an increase of $278,000 in non-cash stock-based compensation expense. Research and Development Expenses Our research and development expenses during the year ended December 31, 2023 and 2022 were approximately $3,308,000 and $2,673,000, respectively, representing an increase of $635,000, or approximately 23.8%. The increase was primarily due to an increase of $566,000 worth of expenditures on our development programs, including work related to the clinical studies for the development of QRX003 and our research collaborations with Queensland University of Technology, and manufacturing costs for material used in our clinical studies. The increase also included approximately $52,000 in non-cash stock-based compensation expense. We expect to continue our research and development efforts by conducting the remaining studies necessary for the development and approval of QRX003, see “Components of Our Results of Operations - Research and Development Expenses” above. We amortize licensed or acquired intellectual property over its expected useful life, included in research and development expenses set out above. The license from Skinvisible was obtained in October 2019, see “Research and Development, Patents and Licenses.” Amortization of intangible assets was approximately $104,000 and $104,000 in each of the years ended December 31, 2023 and 2022. As of December 31, 2023 we determined that the Polytherapeutics asset was no longer of use and reduced the carrying value to zero. Other Expenses: Forgiveness of Trade Payable In our balance sheet as of December 31, 2021 we had a liability of $584,000 representing amounts due to an investor relations firm for services commencing in 2017. Effective March 31, 2022, we entered into a settlement with such firm to decrease the liability to $168,000 which resulted in approximately $416,000 of income recognized in the year ended December 31, 2022. There was no additional forgiveness of trade payable during the year ended December 31, 2023. Warrant liability expense We determined our warrants issued to investors in our 2020 Notes (the “2020 Noteholder Warrants”) required liability treatment at fair value, which was remeasured at each reporting period up to March 2022. The 2020 Noteholder Warrants were exchanged for new 50 Table of Contents warrants and reclassified as an equity instrument in March 2022. In the year ended December 31, 2022, we incurred a fair value gain of ($77,000) related to the 2020 Noteholder Warrants. The Company had no recorded warrant liability as of December 31, 2023. Interest and financing expense We earned approximately $695,000 in interest income and incurred approximately $3,000 in unrealized loss, and earned approximately $96,000 in interest income and incurred approximately $1,000 in unrealized loss, in the year ended December 31, 2023 and December 31 2022, respectively, from our cash and cash equivalents and investments in marketable debt securities. The increase in interest income in the year ending December 31, 2023 is the result of higher average investment balances. Interest expense on the 2020 Notes was approximately $714,000 in the year ended December 31, 2022. The Company had no interest expense during the year ended December 31, 2023. Liquidity and Capital Resources We have incurred net losses every year since inception. We believe that we have sufficient resources to effect our business plan for at least one year from the issuance of the audited consolidated financial statements included in this report; however, the Company is subject to risks common to development stage biopharmaceutical companies including, but not limited to, unanticipated clinical trial costs and the ability to estimate such occurrences, if any, on the Company’s cash, liquidity, additional financing requirements, and availability. Accordingly, we may need to raise additional funds sooner than planned. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Additional financing will be required to complete the research and development of our therapeutic targets and our other operating requirements, which may not be available at acceptable terms, if at all. If we are unable to obtain additional funding when it becomes necessary, the development of our product candidates will be impacted and we would likely be forced to delay, reduce, or terminate some or all of our development programs, all of which could have a material adverse effect on our business, results of operations and financial condition. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of planned clinical trials and our expenditures on other research and development activities. Future Funding Requirements We will need to obtain further funding through public or private offerings of our capital stock, debt financing, collaboration and licensing arrangements or other sources, the requirements for which will depend on many factors, including: ● the scope, timing, rate of progress and costs of our drug development efforts, preclinical development activities, the timing of laboratory testing and clinical trials for our product candidates; ● the number and scope of clinical programs we decide to pursue; ● the cost, timing and outcome of preparing for and undergoing regulatory review of our product candidates; ● the scope and costs of development and commercial manufacturing activities; ● the cost and timing associated with commercializing our product candidates, if they receive marketing approval; ● the extent to which we acquire or in-license other product candidates and technologies; ● the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; ● our ability to establish and maintain collaborations on favorable terms, if at all; ● our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval; 51 Table of Contents ● our implementation of operational, financial and management systems; and ● the costs associated with being a public company. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of QRX003, any future product candidate, or potentially discontinue operations. To the extent that we raise additional capital through the sale of our equity or convertible debt securities, and pursuant to the exercise of the warrants issued to our investors in the 2022 Offering, the 2023 Offering and the 2024 Offering, the ownership interest of our equity holders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our equity holders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or proposed products, or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market any future product that we would otherwise prefer to develop and market ourselves. Summary Statement of Cash Flows – Year ended December 31, 2023 compared to Year ended December 31, 2022 As of December 31, 2023, we had approximately $10,695,000 in cash and investments in marketable securities. The table below presents our cash flows for the year ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ 2023 2022 Net cash used in operating activities ​ $ (7,864,429) ​ $ (8,480,732) Net cash provided by (used in) investing activities ​ 2,188,316 ​ (10,149,121) Net cash provided by financing activities ​ 5,216,683 ​ 14,007,708 Net change in cash and cash equivalents ​ $ (459,430) ​ $ (4,622,145) ​ Operating Activities Net cash used in operating activities was approximately $7,864,000 and $8,481,000 for the year ended December 31, 2023 and 2022, respectively. The decrease in 2023 was primarily due to a decrease in operating expense, an increase in stock based compensation and an increase in accounts payable and accrued expenses for the year ended December 31, 2023. Investing Activities Net cash provided by investing activities in the year ended December 31, 2023 was approximately $2,188,000 and net cash used in investing activities in the year ended December 31, 2022 was approximately $10,149,000. The cash provided in investing activities for the year December 31, 2023 consisted of net purchases of short maturity US Treasury Bills from the proceeds of the 2023 Offering, and the cash used in investing activities in the year ended December 31, 2022 consisted of net purchases of short maturity US Treasury Bills from the proceeds of the 2022 Offering and payments of remaining amounts due under our license agreement with Skinvisible, see “Research and Development Commitments” below. Financing Activities Net cash provided by financing activities was approximately $5,217,000 for the year ended December 31, 2023. The net cash provided decreased due to the receipt of approximately $5,849,000 in net proceeds from the 2023 Offering partially offset by repayments of amounts due to officers of $600,000 and $33,000 in deferred financing costs. Net cash provided by financing activities in the year ended December 31, 2022 was approximately $14,545,000, representing net proceeds of $14,900,000 from the 2022 Offering, offset by repayments of amounts due to officers of approximately $600,000 and the repayment of approximately $312,000 of bridge notes. 52 Table of Contents Research and Development Commitments 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 us an 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. We made Skinvisible a one-time non-refundable, non-creditable license fee of $1 million (the “License Fee”). In addition, we agreed to pay Skinvisible a single digit royalty percentage of our net sales revenues for any licensed product covered by the patent rights licensed under the License Agreement. We also agreed to pay Skinvisible 25% of any revenues we receive as royalties in the event that we sublicense any licensed products to a third party. The License Agreement also requires that we 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. In November 2020, Quoin Inc. entered into a Master Service Agreement with Therapeutics Inc. for the management of the preclinical and clinical development of QRX003 for Netherton Syndrome. The initial term of the agreement was three years with automatic one year extensions, and 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. An additional work order was entered into in December 2022 for a second QRX003 clinical study at an expected estimated cost of approximately $830,000. In the years ended December 31, 2023 and 2022, we incurred research and development costs under these agreements of approximately $1.5 million and $1.2 million, respectively. During the year ended December 31, 2023, we received a credit of approximately $278,000 applied to prior expenses incurred during the period of March 2023 to July 2023. In November 2021, we entered into a research agreement with Queensland University of Technology (QUT) for a pre-clinical research program for the development of a product to treat Netherton Syndrome of approximately $250,000. In May 2022, we entered into a second research agreement with QUT for the development of a product to treat Scleroderma of approximately $610,000. Each agreement remains in place until the completion of the research program, which in each case was initially anticipated to be 18 months from execution. For the years December 31, 2023 and 2022, we incurred research and development costs related to these agreements of approximately $361,000 and $353,000 respectively. Critical Accounting Estimates Critical accounting estimates are those that, in management’s view, are most important to the portrayal of a company’s financial condition and results of operations and most demanding on their calls on judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. We believe our most critical accounting estimates relate to: 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. We accrue 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, we 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. Stock based compensation: We recognize 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. Since we have a limited history of trading as a public company, our expected stock volatility is based on a weighting of its historical volatility along with a group of a publicly traded set of peer companies. We utilize the simplified method to estimate the expected term. 53 Table of Contents 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 we have not paid dividends since our inception and we do not anticipate paying dividends in the foreseeable future. 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. We assess 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. We recognize 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 year ended December 31, 2023 there was one impairment indicator which required an impairment loss measurement (see Note 10). During the year ended December 31, 2022, there were no impairment indicators which required an impairment loss measurement. Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item 7A. Item 8. Financial Statements and Supplementary Data The information required by this Item is set forth in the consolidated financial statements and notes thereto in Item 15 of Part IV of this Annual Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.