CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 2022
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Financial Statements: | |
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8-13 |
CHECK CAP LTD
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June 30,
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December 31,
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2022
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2021
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Unaudited
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Audited
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Assets
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Current assets
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Cash and cash equivalents
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$
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$
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Restricted cash
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Short-term bank deposit
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Prepaid expenses and other current assets
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Total current assets
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Non-current assets
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Property and equipment, net
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Operating leases
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Total non-current assets
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Total assets
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$
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$
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Liabilities and shareholders' equity
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Current liabilities
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Accounts payable and accruals
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Trade
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$
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$
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Other
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Employees and payroll accruals
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Other current liabilities
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Operating lease liabilities
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Total current liabilities
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Non-current liabilities
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Royalties provision
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Operating lease liabilities
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Total non-current liabilities
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Shareholders' equity
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Share capital, Ordinary shares,
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31, 2021, respectively;
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31, 2021, respectively)
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Additional paid-in capital
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Accumulated deficit
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(
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)
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(
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)
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Total shareholders' equity
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Total liabilities and shareholders' equity
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$
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$
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||||
3
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Six months ended June 30,
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Three months ended June 30,
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2022
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2021
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2022
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2021
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Research and development expenses, net
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$
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$
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$
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$
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||||||||
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General and administrative expenses
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Operating loss
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Finance Income (loss), net
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(
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)
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Loss before income tax
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Net loss for the period
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$
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$
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$
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$
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Loss per share:
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Net loss per ordinary share basic and diluted
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$
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$
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$
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$
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||||||||||||||||
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Weighted average number of ordinary shares outstanding - basic and diluted
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4
CHECK CAP LTD.
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Number of
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Additional
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Total
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||||||||||||||||||
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Ordinary
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paid-in
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Accumulated
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shareholders'
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|||||||||||||||||
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Shares
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Amount
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capital
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deficit
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equity
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||||||||||||||||
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Balance as of January 1, 2022
|
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$
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$
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|
$
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(
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)
|
$
|
|
||||||||||
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Issuance of ordinary shares in registered direct offerings, net of issuance |
||||||||||||||||||||
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expenses in an amount of $ |
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(
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) |
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||||||||||||||
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Share-based compensation
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-
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|||||||||||||||
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Net loss
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-
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(
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)
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(
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)
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|||||||||||||
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Balance as of March 31, 2022
|
|
$
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|
$
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$
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(
|
)
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$
|
|
||||||||||
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Share-based compensation
|
-
|
|
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||||||||||||||
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Net loss
|
-
|
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(
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)
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(
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)
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|||||||||||
|
Balance as of June 30, 2022
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||
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Balance as of January 1, 2021
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|||||||||
| Exercise of warrants, net of issuance expenses in | ||||||||||||||||||||
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an amount of $ |
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|||||||||||||||
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RSUs vesting |
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( |
) |
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Share-based compensation |
- |
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|||||||||||||||
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Net loss
|
-
|
|
|
(
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)
|
(
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)
|
|||||||||||||
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Balance as of March 31, 2021
|
|
$
|
|
$
|
|
$
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(
|
)
|
$ |
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||||||||||
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RSUs vesting
|
|
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(
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) |
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||||||||||||
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Share-based compensation
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-
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Net loss
|
-
|
|
|
(
|
)
|
(
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)
|
|||||||||||||
|
Balance as of June 30, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$ |
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5
CHECK-CAP LTD.
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Six months ended
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June 30,
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2022
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2021
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CASH FLOWS FROM OPERATING ACTIVITIES
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||||||||
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Net loss
|
$
|
(
|
)
|
$
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(
|
)
|
||
|
Adjustments required to reconcile net loss to net cash used in operating activities:
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||||||||
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Depreciation
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Share-based compensation
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Financial income, net
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(
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)
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(
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)
|
||||
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Changes in assets and liabilities items:
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||||||||
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Increase in prepaid and other current assets and non-current assets
|
(
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)
|
(
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)
|
||||
|
Increase in trade accounts payable, accruals and other current liabilities
|
|
|
||||||
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Decrease in employees and payroll accruals
|
(
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)
|
(
|
)
|
||||
|
(Decrease) increase in royalties provision
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(
|
)
|
|
|||||
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Net cash used in operating activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
|
||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
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Purchase of property and equipment
|
(
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)
|
(
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)
|
||||
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Investment in short-term bank and other deposits
|
(
|
)
|
(
|
)
|
||||
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Net cash used in investing activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
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||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES
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||||||||
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Exercise of warrants into ordinary shares, net of issuance expenses
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|
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||||||
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Issuance of ordinary shares in the registered direct offerings, net of issuance expenses
|
|
|
||||||
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Net cash provided by financing activities
|
$
|
|
$
|
|
||||
|
|
||||||||
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Net increase in cash, cash equivalents and restricted cash
|
(
|
)
|
|
|||||
|
Cash, cash equivalents and restricted cash at the beginning of the period
|
|
|
||||||
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Cash, cash equivalents and restricted cash at the end of the period
|
$
|
|
$
|
|
||||
The accompanying notes to the consolidated unaudited financial statements are an integral part of them.
CHECK-CAP LTD.
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share and per share data)
Supplemental information for Cash Flow:
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Six months ended
June 30,
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2022
|
2021
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Supplemental disclosure of non-cash flow information
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Purchase of property and equipment included in accounts payable and accrued expenses
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Financing fees included in other account payable and accruals
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Assets acquired under operating lease
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Supplemental disclosure of cash flow information:
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Cash paid for taxes
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Interest received
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A.
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General
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(1)
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Check-Cap Ltd. (the “Company") was incorporated under the laws of the State of Israel. The registered address of its offices is 29 Abba Hushi Avenue, Isfiya 3009000, Israel.
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(2)
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The Company has a wholly-owned subsidiary, Check-Cap US, Inc., that was incorporated under the laws of the State of Delaware on May 15, 2015.
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(3)
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The Company is a clinical stage medical diagnostics company aiming to redefine colorectal cancer (CRC) screening through the introduction of C-Scan®, the first and only patient-friendly preparation-free screening test to detect polyps before they may transform into colorectal cancer and enable early intervention and cancer prevention. The Company’s disruptive capsule-based screening technology aims to help millions of people to stay healthy through preventive CRC screening. C-Scan uses an ultra-low dose X-ray capsule, an integrated positioning, control and recording system, as well as proprietary software to generate a 3D map of the inner lining of the colon as it travels naturally along the gastrointestinal tract. C-Scan is non-invasive and requires no sedation. It requires no bowel preparation, allowing the patients to continue their daily routine with no interruption.
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(4)
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On February 24, 2015, the Company consummated an Initial Public Offering in the United States (U.S.) (the "IPO") concurrently with a private placement.
On August 11, 2016, the Company consummated a registered direct offering of ordinary shares and pre-funded warrants.
On June 2, 2017, the Company consummated a registered direct offering of ordinary shares and a simultaneous private placement of warrants.
On November 22, 2017, the Company consummated a registered direct offering of ordinary shares and a simultaneous private placement of warrants.
On May 8, 2018, the Company consummated an underwritten public offering of ordinary shares, pre-funded warrants and Series C warrants.
On February 6, 2019, the Company consummated a registered direct offering of ordinary shares and warrants.
In February 2020, the Company consummated a private placement of ordinary shares.
During April and May 2020, the Company consummated three registered direct offerings of ordinary shares and simultaneous private placements of warrants.
On July 27, 2020, the Company consummated a warrant exercise transaction to purchase ordinary shares and a simultaneous private placement of warrants.
During the first quarter of 2021, certain investors exercised their warrants previously issued by the Company.
In July 2021, the Company consummated a registered direct offering of ordinary shares and warrants.
On March 3, 2022, the Company consummated a registered direct offering of ordinary shares and warrants. See Note 5(1).
The Company's ordinary shares and Series C Warrants are listed on the NASDAQ Capital Market under the symbols "CHEK" and CHEKZ,” respectively.
The consolidated financial statements of the Company as of and for the six months ended June 30, 2022 include the financial statements of the Company and its wholly-owned U.S. subsidiary.
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8
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
NOTE 1 - GENERAL INFORMATION
|
A.
|
General (cont.)
|
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(5)
|
Since its inception, the Company has devoted substantially all of its efforts to research and development, clinical trials, recruiting management and technical staff, acquiring assets and raising capital. The Company is still in its development and clinical stage and has not yet generated revenues. The Company has incurred losses of $
The Company has funded its operations to date primarily through equity financings, sale of its ordinary shares and warrants, the exercise of warrants and other financing transactions and through grants from the Israel Innovation Authority of the Ministry of Economy and Industry (the "IIA").
Additional funding will be required to complete the Company's research and development and clinical trials, to attain regulatory approvals, to establish manufacturing infrastructure and to begin the commercialization efforts of C-Scan. The Company has not yet commercialized its product. Even if the Company commercializes its product, it may not become profitable in the foreseeable future. The Company’s ability to achieve profitability depends on a number of factors, including its ability to obtain regulatory approval for its product, successfully complete any post-approval regulatory obligations and successfully commercialize its product alone or in partnership.
To meet its capital needs, the Company is considering multiple alternatives, including, but not limited to, additional equity financings and other financing transactions. While the Company has been successful in raising funds in the past, there can be no assurance that it will be able to do so in the future on a timely basis on terms acceptable to the Company, or at all. Uncertain market conditions and approval by regulatory bodies and adverse results from clinical trials may (among other reasons) adversely impact the Company's ability to raise capital in the future.
The Company believes that current cash on hand, will be sufficient to fund its ongoing operations and plans into the second quarter of 2024. Management expects that the Company will continue to generate losses from the development, manufacturing and infrastructure costs, clinical development and regulatory activities of C-Scan, which will result in negative cash flow from operating activity. The actual amount of cash that the Company will need to operate is subject to many factors, including, but not limited to, the initiation, timing, progress and results of clinical trials and other product development efforts regulatory path along with cost to commercialize its product.
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(6)
|
On December 23, 2021, the Company received a notification from the Nasdaq Listing Qualifications (the “Staff”) that the Company is not in compliance with the minimum bid price requirement for continued listing set forth in Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $
Furthermore, upon completion of the Reverse Split, if implemented, the number of ordinary shares issuable pursuant to the Company’s 2006 Unit Option Plan and 2015 Equity Incentive Plan and 2015 US Sub-Plan to the 2015 Equity Incentive Plan, as well as the number of shares and exercise prices subject to outstanding options under the plans and the number of shares subject to outstanding restricted stock units (“RSUs”) under the plans shall be appropriately adjusted.
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(7)
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In early 2020, the World Health Organization declared the rapidly spreading coronavirus disease (COVID-19) outbreak a pandemic. The Company has in the past experienced temporary disruptions to its operations as a result of the COVID-19 pandemic including disruptions to the Company’s clinical studies and implemented several temporary cost reduction measures. The Company has also implemented several measures according to the Israel Ministry of Health’s guidelines, including remote working whenever possible, physical separation between employees and daily employee health monitoring. The extent to which the COVID-19 pandemic shall impact the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the outbreak, the impact on the global economy, the impact of any further waves of COVID-19, the efficacy of the vaccines and the other actions that may be required to contain COVID-19 or treat its impact. In particular, the continued spread of COVID-19 globally could materially adversely impact the Company’s operations and workforce, including its research and clinical trials and its ability to continue raise capital, could affect the operations of key governmental agencies, such as the FDA, which may delay the Company’s development plans, and could result in the inability of the Company’s suppliers to deliver components or raw materials on a timely basis or at all, each of which in turn could have a material adverse impact on the Company’s business, financial condition and results of operation.
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9
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
Accordingly, the accompanying consolidated unaudited financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete set of financial statements. These consolidated unaudited financial statements should be read in conjunction with the audited financial statements and the accompanying notes of the Company for the year ended December 31, 2021 that are included in the Company's Annual Report on Form 20-F, filed with the Securities and Exchange Commission on April 6, 2022 (the "Annual Report"). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the year ended December 31, 2022.
The Company leases vehicles and offices under various operating lease agreements.
At June 30, 2022, the Company’s operating lease assets and lease liabilities (both the current and non-current portion) for operating leases totaled $
10
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
NOTE 4 - LEASES (Cont.)
Supplemental cash flow information related to operating leases was as follows:
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Six months
ended
June 30, 2022
|
|||
|
Cash payments for operating leases
|
$
|
|
||
The Company uses its incremental borrowing rate as the discount rate for its leases, as the implicit rate in the lease is not readily determinable. As of June 30, 2022, the Company’s operating leases had a weighted average remaining lease term of
|
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Operating
|
|||
|
|
Leases
|
|||
|
Second half of 2022
|
$
|
|
||
|
2023
|
$
|
|
||
|
2024 and after
|
$
|
|
||
|
Total future lease payments
|
$
|
|
||
|
Less imputed interest
|
(
|
)
|
||
|
Total lease liability balance
|
$
|
|
||
11
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
The following change occurred during the six months ended June 30, 2022:
On March 1, 2022, the Company entered into a definitive agreement with several institutional and accredited investors for the purchase and sale of
12
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
1.A summary of the Company's option activity related to options granted to employees, service providers and directors, and related information is as follows:
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For the six months ended
June 30, 2022
|
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Weighted
|
|||||||||||
|
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Weighted
|
average
|
||||||||||
|
|
average
|
remaining
|
||||||||||
|
|
exercise
price
|
contractual
life (in
|
||||||||||
|
|
Number
|
(in $)
|
years)
|
|||||||||
|
|
||||||||||||
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Options outstanding at beginning of period
|
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|||||||||
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Options granted
|
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|
||||||||||
|
Options forfeited and expired
|
(
|
)
|
|
|||||||||
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|
||||||||||||
|
Options outstanding at end of period
|
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|||||||||
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Options exercisable at end of period
|
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|
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2.A summary of the Company’s RSU activity is as follows:
|
|
For the six
|
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months
|
|||
|
|
ended June
|
|||
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|
30, 2022
|
|||
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|
||||
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Unvested at beginning of period
|
|
|||
|
Granted
|
|
|||
|
Vested
|
|
|||
|
Forfeited
|
(
|
)
|
||
|
Unvested at end of period
|
|
|||
|
On January 27, 2022, the Company's Board of Directors resolved to increase the number of ordinary shares of the Company reserved for issuance under the Check-Cap Ltd. 2015 Equity Incentive Plan by an additional
On January 27, 2022, the Company's Board of Directors approved the award of options to purchase
On March 21, 2022, the Company's Board of Directors approved the award of options to purchase
On May 31, 2022, the Company's Board of Directors approved the award of options to purchase
The exercise price of the options granted is equal to the higher of the closing price of the Company’s ordinary shares on the Nasdaq Capital Market on the applicable grant date and the average closing price of the Company’s ordinary shares on the Nasdaq Capital Market during the 30 trading days prior to the applicable grant date.
The options and RSUs vest over a period of
|
13
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
On August 29, 2022, the Company's Board of Directors approved the award of options to purchase