6-K
Check-Cap Ltd (MBAI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For August 2021
Commission File No. 001-36848
Check-Cap Ltd.
Check-Cap Building
Abba Hushi Avenue
P.O. Box 1271
Isfiya, 30090
Mount Carmel, Israel
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES.)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____
This Form 6-K (including the text under the headings “Financial Results for the Second Quarter Ended June 31, 2020,” “Financial Results for the Six Months Ended June 30, 2021,” the accompanying financial statements, and “Forward Looking Statements” in Exhibit 99.1 and Exhibit 99.2) being incorporated by reference into the Post-Effective Amendment No. 1 to the Form S-8 Registration Statement File No. 333-203384, Form S-8 Registration Statement File No. 333-226490, and into the Post-Effective Amendment No. 1 to Form F-1 on Form F-3 File No. 333-248200 and Form F-3 Registration Statements File Nos. 333-211065 and 333-225789.
Other Information
On August 5, 2021, Check-Cap Ltd. (the “Company”) issued a press release announcing its financial results for the second quarter of 2021. In addition, the Company released its consolidated financial statements as of June 30, 2021 (Unaudited).
A copy of both the press release and consolidated financial statements as of June 30, 2021 (Unaudited) are attached hereto as Exhibits 99.1 and 99.2 are incorporated herein by reference.
| Exhibit | |
|---|---|
| Exhibit No. | Description |
| 99.1 | Press Release, dated August 5, 2021 |
| 99.2 | Consolidated Financial Statements as of June 30, 2021 (Unaudited) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Check-Cap Ltd. | ||
|---|---|---|
| By: | /s/ Alex Ovadia | |
| Name: Alex Ovadia | ||
| Date: August 5, 2021 | Title: Chief Executive Officer |
Exhibit 99.1
Check-Cap Reports Second Quarter 2021 Financial Results and Corporate Update
ISFIYA, Israel, August 5, 2021 - Check-Cap Ltd. (the "Company" or "Check-Cap") (NASDAQ: CHEK), (NASDAQ: CHEKZ), a clinical stage medical diagnostics company advancing the development of C-Scan®, the first and only patient-friendly, preparation-free screening test to detect polyps before they may transform into colorectal cancer (CRC), today announced financial results and provided a corporate update for the second quarter and six months ended June 30, 2021.
Second Quarter and Recent Highlights:
| • | Strengthened balance sheet through gross proceeds of $35 million in a registered direct offering of ordinary shares and warrants, completed on July 2, 2021. The Company believes that it has sufficient capital to fund its ongoing operations<br> and plans, including the U.S. pivotal study, until well into 2023. |
|---|---|
| • | The Company continues to expand its entire production process to meet its target manufacturing capacity, including expansion of the Company’s manufacturing space. In addition, the remediation of the technical issues associated with a<br> single source supplier has been mostly completed and the Company expects the supplier to return to normal operations in the coming weeks. |
| --- | --- |
“Strengthening our entire production process with the expansion of our production capabilities ahead of the 2022 U.S. pivotal trial is the Company’s highest priority,” said Alex Ovadia, chief executive officer of Check-Cap. "We believe that the technical issues associated with the single source supplier are nearing full resolution and we are continuing to focus our efforts on the initiation of our pivotal trial.”
Mr. Ovadia added, "We recently strengthened our cash position with a $35 million financing completed in July 2021 and through a total of $19.2 million in proceeds from warrant exercises during the first quarter of 2021. We believe that we are well positioned to fund our ongoing clinical development of C-Scan®, including the Company’s U.S. pivotal study, and general corporate purposes, until well into 2023.”
Financial Results for the Second Quarter Ended June 30, 2021
Research and development expenses were $2.8 million for the three months ended June 30, 2021, compared to $2.1 million for the same period in 2020. The increase is primarily due to a $0.3 million increase in material and subcontractors’ expenses and a $0.3 million increase in salary and related expense.
General and administrative expenses were $1.1 million for the three months ended June 30, 2021, compared to $0.9 million for the same period in 2020. The increase is primarily due to a $0.2 million increase in other general expenses.
Operating loss was $3.9 million for the three months ended June 30, 2021, compared to $2.9 million for the same period in 2020.
Finance income was $5,000 for the three months ended June 30, 2021, compared to $61,000 for the same period in 2020.
Net loss was $3.9 million for the three months ended June 30, 2021, compared to $2.9 million for the same period in 2020.
Cash and cash equivalents, restricted cash and short-term bank deposits as of June 30, 2021 were $29.3 million, compared with $34.0 million as of March 31, 2021 and $18.1 million as of December 31, 2020. During the first quarter of 2021, certain warrant holders exercised warrants to purchase an aggregate 24,204,682 ordinary shares, which had been issued in 2020, at exercise prices ranging from $0.75-$0.80, which generated total gross proceeds of approximately $19.2 million to the Company. On June 30, 2021, the Company entered into a definitive agreement for the purchase and sale of 25,925,926 of the Company's ordinary shares and accompanying short-term warrants to purchase up to an aggregate of 25,925,926 of the Company's ordinary shares in a registered direct offering. The registered direct offering, which was consummated on July 2, 2021, resulted in gross proceeds to the Company of $35.0 million or approximately $31.8 million net of offering expenses. The Company believes that it has sufficient capital to fund its ongoing operations and plans until well into 2023.
The number of outstanding ordinary shares as of June 30, 2021 was 70,473,641. On July 2, 2021, the Company completed a registered direct offering and issued 25,925,926 ordinary shares. As of August 5, 2021, the number of the Company’s outstanding ordinary shares was 96,403,624.
Financial Results for the Six Months Ended June 30, 2021
Research and development expenses were $5.2 million for the six months ended June 30, 2021, compared to $4.5 million for the same period in 2020. The increase is primarily due to a $0.6 million increase in material and subcontractors’ expenses and a $0.5 million increase in salary and related expense, offset in part by a $0.3 million grant received from the Israel Innovation Authority, which amount is reduced from research and development expenses, and a $0.1 million decrease in other expenses.
General and administrative expenses were $2.3 million for the six months ended June 30, 2021, compared to $1.9 million for the same period in 2020. The increase is primarily due to a $0.1 million increase in professional services expenses and a $0.2 million increase in other general expenses.
Operating loss was $7.5 million for the six months ended June 30, 2021, compared to $6.4 million for the same period in 2020.
Finance expenses were $4,000 for the six months ended June 30, 2021, compared to finance income of $49,000 for the same period in 2020.
Net loss was $7.5 million for the six months ended June 30, 2021, compared to $6.3 million for the same period in 2020.
Net cash used in operating activities was $7.8 million for the six months ended June 30, 2021, compared to $6.4 million for the same period in 2020.
About Check-Cap
Check-Cap 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 significantly increase screening adherence worldwide and 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. Unlike other capsule technologies, it requires no bowel preparation, allowing the patients to continue their daily routine with no interruption. C-Scan is not intended to replace colonoscopy. A positive C-Scan result should be followed by colonoscopy.
Legal Notice Regarding Forward-Looking Statements
This press release contains "forward-looking statements." Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," and similar expressions, as well as statements in future tense, often signify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information that the Company has when those statements are made or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. For a discussion of these and other risks that could cause such differences and that may affect the realization of forward-looking statements, please refer to the "Forward-looking Statements" and "Risk Factors" in the Company's Annual Report on Form 20-F for the year ended December 31, 2020 and other filings with the Securities and Exchange Commission (SEC). Investors and security holders are urged to read these documents free of charge on the SEC's web site at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.
Investor Contacts
Irina Koffler
LifeSci Advisors, LLC
646.970.4681
ikoffler@lifesciadvisors.com
Meirav Gomeh-Bauer
LifeSci Advisors, LLC
+972(0)-54-476-4979
Meirav@lifesciadvisors.com
CHECK CAP LTD
CONSOLIDATED UNAUDITED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share data)
| June 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Assets | ||||||
| Current assets | ||||||
| Cash and cash equivalents | 10,089 | 7,703 | ||||
| Restricted cash | 350 | 350 | ||||
| Short-term bank deposit | 18,907 | 10,079 | ||||
| Prepaid expenses and other current assets | 809 | 285 | ||||
| Total current assets | 30,155 | 18,417 | ||||
| Non-current assets | ||||||
| Property and equipment, net | 1,014 | 823 | ||||
| Operating lease | 1,147 | 398 | ||||
| Other non-current assets | 291 | - | ||||
| Total non-current assets | 2,452 | 1,221 | ||||
| Total assets | 32,607 | 19,638 | ||||
| Liabilities and shareholders' equity | ||||||
| Current liabilities | ||||||
| Accounts payable and accruals | ||||||
| Trade | 922 | 862 | ||||
| Other | 661 | 345 | ||||
| Employees and payroll accruals | 1,448 | 1,510 | ||||
| Operating lease liabilities | 321 | 264 | ||||
| Total current liabilities | 3,352 | 2,981 | ||||
| Non-current liabilities | ||||||
| Royalties provision | 189 | 154 | ||||
| Operating lease liabilities | 815 | 125 | ||||
| Total non-current liabilities | 1,004 | 279 | ||||
| Shareholders' equity | ||||||
| Share capital, Ordinary shares, 2.4 NIS par value (360,000,000 authorized shares as of June 30, 2021 and December | ||||||
| 31, 2020; 70,473,641 and 46,239,183 shares issued and outstanding as of June 30, 2021 and December 31, 2020, | ||||||
| respectively) | 49,767 | 31,646 | ||||
| Additional paid-in capital | 76,951 | 75,715 | ||||
| Accumulated deficit | (98,467 | ) | (90,983 | ) | ||
| Total shareholders' equity | 28,251 | 16,378 | ||||
| Total liabilities and shareholders' equity | 32,607 | 19,638 |
CHECK CAP LTD
CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. dollars in thousands, except share and per share data)
| Six months ended June 30, | Three months ended June 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | ||||||
| Research and development expenses, net | 5,187 | 4,513 | 2,781 | 2,051 | |||||
| General and administrative expenses | 2,293 | 1,855 | 1,142 | 898 | |||||
| Operating loss | 7,480 | 6,368 | 3,923 | 2,949 | |||||
| Finance Income (loss), net | (4 | ) | 49 | 5 | 61 | ||||
| Loss before income tax | 7,484 | 6,319 | 3,918 | 2,888 | |||||
| Net loss for the period | 7,484 | 6,319 | 3,918 | 2,888 | |||||
| Loss per share: | |||||||||
| Net loss per ordinary share basic and diluted | 0.11 | 0.38 | 0.06 | 0.12 | |||||
| Weighted average number of ordinary shares outstanding - basic and diluted | 69,284,917 | 16,676,469 | 70,485,435 | 23,396,152 |
CHECK CAP LTD.
CONSOLIDATED UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars in thousands, except share and per share data)
| Additional | Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| paid-in | Accumulated | shareholders’ | ||||||||||
| Amount | capital | deficit | equity | |||||||||
| Balance as of January 1, 2021 | 46,239,183 | $ | 31,646 | $ | 75,715 | $ | (90,983 | ) | $ | 16,378 | ||
| Exercise of warrants, net of issuance expenses | ||||||||||||
| an amount of 22 | 24,204,682 | $ | 18,099 | $ | 1,120 | - | $ | 19,219 | ||||
| RSU’s vesting | 24,395 | $ | 18 | $ | (18 | ) | - | |||||
| Share-based compensation | - | - | $ | 73 | - | $ | 73 | |||||
| Net loss | - | - | - | (3,566 | ) | (3,566 | ) | |||||
| Balance as of March 31, 2021 | 70,468,260 | $ | 49,763 | $ | 76,890 | $ | (94,549 | ) | $ | 32,104 | ||
| RSU’s vesting | 5,381 | $ | 4 | (4 | ) | - | ||||||
| Share-based compensation | - | - | $ | 65 | $ | 65 | ||||||
| Net loss | - | - | - | $ | (3,918 | ) | $ | (3,918 | ) | |||
| Balance as of June 30, 2021 | 70,473,641 | $ | 49,767 | $ | 76,951 | $ | (98,467 | ) | $ | 28,251 | ||
| Balance as of January 1, 2020 | 8,272,908 | $ | 5,407 | $ | 77,964 | $ | (77,137 | ) | $ | 6,234 | ||
| Issuance of ordinary shares in private | ||||||||||||
| placement, net of issuance expenses in | ||||||||||||
| an amount of approximately 30 | 2,720,178 | $ | 1,894 | $ | 2,837 | - | $ | 4,731 | ||||
| RSU vesting | 6,633 | $ | 4 | $ | (4 | ) | - | |||||
| Share-based compensation | - | - | $ | 123 | - | $ | 123 | |||||
| Net loss | - | - | - | $ | (3,431 | ) | $ | (3,431 | ) | |||
| Balance as of March 31, 2020 | 10,999,719 | $ | 7,305 | $ | 80,920 | $ | (80,568 | ) | 7,657 | |||
| Issuance of ordinary shares and warrants | ||||||||||||
| in the April – May 2020 Financings, net | ||||||||||||
| of issuance expenses in an amount of | ||||||||||||
| 1,361 | 19,166,670 | $ | 13,039 | $ | (2,900 | ) | $ | 10,139 | ||||
| RSU’s vesting | 6,554 | $ | 4 | $ | (4 | ) | - | - | ||||
| Share-based compensation | - | - | $ | 94 | - | $ | 94 | |||||
| Net loss | - | - | - | $ | (2,888 | ) | (2,888 | ) | ||||
| Balance as of June 30, 2020 | 30,172,943 | $ | 20,348 | $ | 78,110 | $ | (83,456 | ) | $ | 15,002 |
All values are in US Dollars.
CHECK-CAP LTD.
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share and per share data)
| Six months ended | ||||||
|---|---|---|---|---|---|---|
| June 30, | ||||||
| 2021 | 2020 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net loss | (7,484 | ) | (6,319 | ) | ||
| Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||
| Depreciation | 89 | 68 | ||||
| Share-based compensation | 138 | 217 | ||||
| Financial income, net | (36 | ) | (14 | ) | ||
| Changes in assets and liabilities items: | ||||||
| Increase in prepaid and other current assets and non-current assets | (508 | ) | (100 | ) | ||
| Increase (decrease) in trade accounts payable, accruals and other current liabilities | 27 | (591 | ) | |||
| Increase (decrease) in employees and payroll accruals | (62 | ) | 370 | |||
| Increase (decrease) in royalties provision | 35 | (5 | ) | |||
| Net cash used in operating activities | (7,801 | ) | (6,374 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Purchase of property and equipment | (218 | ) | (140 | ) | ||
| Investment in short-term bank and other deposits | (8,814 | ) | (7,651 | ) | ||
| Net cash provided by (used in) investing activities | (9,032 | ) | (7,791 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Exercise of warrants into ordinary shares, net of issuance expenses | 19,219 | - | ||||
| Issuance of ordinary shares in private placement, net of issuance expenses | - | 4,731 | ||||
| Issuance of ordinary shares in the registered direct offerings, net of issuance expenses | - | 10,139 | ||||
| Net cash provided by financing activities | 19,219 | 14,870 | ||||
| Net increase in cash, cash equivalents and restricted cash | 2,386 | 705 | ||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 8,053 | 8,035 | ||||
| Cash, cash equivalents and restricted cash at the end of the period | 10,439 | 8,740 | ||||
| Supplemental disclosure of non-cash flow information: | ||||||
| Purchase of property and equipment included in accounts payable and accrued expenses | 59 | 15 | ||||
| Financing fees included in other account payable and accruals | 291 | - | ||||
| Assets acquired under operating leases | 916 | - | ||||
| Supplemental disclosure of cash flow information |
Check-Cap Ltd - 1610590 - 2021
Exhibit 99.2
CHECK CAP LTD.
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
AS OF JUNE 30, 2021
CHECK CAP LTD.
CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 2021
Table of Contents
| **** | Page |
|---|---|
| Financial Statements: | **** |
| Consolidated Unaudited Balance Sheets | 3 |
| Consolidated Unaudited Statements of Comprehensive Loss | 4 |
| Consolidated Unaudited Statements of Changes in shareholders Equity | 5 |
| Consolidated Unaudited Statements of Cash Flows | 6-7 |
| Notes to Consolidated Unaudited Financial Statements | 8-14 |
2
CHECK CAP LTD
CONSOLIDATED UNAUDITED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share data)
| June 30, | December 31, | |||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| Assets | ||||||
| Current assets | ||||||
| Cash and cash equivalents | 10,089 | 7,703 | ||||
| Restricted cash | 350 | 350 | ||||
| Short-term bank deposit | 18,907 | 10,079 | ||||
| Prepaid expenses and other current assets | 809 | 285 | ||||
| Total current assets | 30,155 | 18,417 | ||||
| Non-current assets | ||||||
| Property and equipment, net | 1,014 | 823 | ||||
| Operating leases | 1,147 | 398 | ||||
| Other non-current assets | 291 | - | ||||
| Total non-current assets | 2,452 | 1,221 | ||||
| Total assets | 32,607 | 19,638 | ||||
| Liabilities and shareholders' equity | ||||||
| Current liabilities | ||||||
| Accounts payable and accruals | ||||||
| Trade | 922 | 862 | ||||
| Other | 661 | 345 | ||||
| Employees and payroll accruals | 1,448 | 1,510 | ||||
| Operating lease liabilities | 321 | 264 | ||||
| Total current liabilities | 3,352 | 2,981 | ||||
| Non-current liabilities | ||||||
| Royalties provision | 189 | 154 | ||||
| Operating lease liabilities | 815 | 125 | ||||
| Total non-current liabilities | 1,004 | 279 | ||||
| Shareholders' equity | ||||||
| Share capital, Ordinary shares, 2.4 NIS par value (360,000,000 authorized shares as of June 30, 2021 and December | ||||||
| 31, 2020, respectively; 70,473,641 and 46,239,183 shares issued and outstanding as of June 30, 2021 and December | ||||||
| 31, 2020, respectively) | 49,767 | 31,646 | ||||
| Additional paid-in capital | 76,951 | 75,715 | ||||
| Accumulated deficit | (98,467 | ) | (90,983 | ) | ||
| Total shareholders' equity | 28,251 | 16,378 | ||||
| Total liabilities and shareholders' equity | 32,607 | 19,638 |
The accompanying notes to the consolidated unaudited financial statements are an integral part of them.
3
CHECK CAP LTD
CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. dollars in thousands, except share and per share data)
| Six months ended June 30, | Three months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||
| Research and development expenses, net | 5,187 | 4,513 | 2,781 | 2,051 | ||||
| General and administrative expenses | 2,293 | 1,855 | 1,142 | 898 | ||||
| Operating loss | 7,480 | 6,368 | 3,923 | 2,949 | ||||
| Finance Income (loss), net | (4) | 49 | 5 | 61 | ||||
| Loss before income tax | 7,484 | 6,319 | 3,918 | 2,888 | ||||
| Net loss for the period | 7,484 | 6,319 | 3,918 | 2,888 | ||||
| Loss per share: | ||||||||
| Net loss per ordinary share basic and diluted | 0.11 | 0.38 | 0.06 | 0.12 | ||||
| Weighted average number of ordinary shares outstanding - basic and diluted | 69,284,917 | 16,676,469 | 70,485,435 | 23,396,152 |
The accompanying notes to the consolidated unaudited financial statements are an integral part of them.
4
CHECK CAP LTD.
CONSOLIDATED UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. dollars in thousands, except share and per share data)
| Additional | Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| paid-in | Accumulated | shareholders' | ||||||||||
| Amount | capital | deficit | equity | |||||||||
| Balance as of January 1, 2021 | 46,239,183 | $ | 31,646 | $ | 75,715 | $ | (90,983 | ) | $ | 16,378 | ||
| Exercise of warrants, net of issuance expenses in | ||||||||||||
| an amount of 22 | 24,204,682 | 18,099 | 1,120 | — | 19,219 | |||||||
| RSU's vesting | 24,395 | 18 | (18 | ) | — | |||||||
| Share-based compensation | — | — | 73 | — | 73 | |||||||
| Net loss | — | — | — | (3,566 | ) | (3,566 | ) | |||||
| Balance as of March 31, 2021 | 70,468,260 | $ | 49,763 | $ | 76,890 | $ | (94,549 | ) | $ | 32,104 | ||
| RSU's vesting | 5,381 | $ | 4 | (4 | ) | — | ||||||
| Share-based compensation | — | — | $ | 65 | $ | 65 | ||||||
| Net loss | — | — | — | $ | (3,918 | ) | $ | (3,918 | ) | |||
| Balance as of June 30, 2021 | 70,473,641 | $ | 49,767 | $ | 76,951 | $ | (98,467 | ) | $ | 28,251 |
All values are in US Dollars.
| Balance as of January 1, 2020 | 8,272,908 | $ | 5,407 | $ | 77,964 | **** | $ | (77,137 | ) | $ | 6,234 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Issuance of ordinary shares in private | ||||||||||||
| placement, net of issuance expenses in | ||||||||||||
| an amount of approximately $30 | 2,720,178 | 1,894 | 2,837 | — | 4,731 | |||||||
| RSU vesting | 6,633 | 4 | (4 | ) | — | |||||||
| Share-based compensation | — | — | 123 | — | 123 | |||||||
| Net loss | — | — | — | (3,431 | ) | (3,431 | ) | |||||
| Balance as of March 31, 2020 | 10,999,719 | $ | 7,305 | $ | 80,920 | $ | (80,568 | ) | 7,657 | |||
| Issuance of ordinary shares and warrants | ||||||||||||
| in the April – May 2020 Financings, net | ||||||||||||
| of issuance expenses in an amount of $1,361 | 19,166,670 | 13,039 | (2,900 | ) | — | 10,139 | ||||||
| RSU's vesting | 6,554 | 4 | (4 | ) | — | — | ||||||
| Share-based compensation | — | — | 94 | — | 94 | |||||||
| Net loss | — | — | — | (2,888 | ) | (2,888 | ) | |||||
| Balance as of June 30, 2020 | 30,172,943 | $ | 20,348 | $ | 78,110 | $ | (83,456 | ) | 15,002 |
5
CHECK-CAP LTD.
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share and per share data)
| Six months ended | ||||||
|---|---|---|---|---|---|---|
| June 30, | ||||||
| 2021 | 2020 | |||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
| Net loss | (7,484 | ) | (6,319 | ) | ||
| Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||
| Depreciation | 89 | 68 | ||||
| Share-based compensation | 138 | 217 | ||||
| Financial income, net | (36 | ) | (14 | ) | ||
| Changes in assets and liabilities items: | ||||||
| Increase in prepaid and other current assets and non-current assets | (508 | ) | (100 | ) | ||
| Increase (decrease) in trade accounts payable, accruals and other current liabilities | 27 | (591 | ) | |||
| Increase (decrease) in employees and payroll accruals | (62 | ) | 370 | |||
| Increase (decrease)in royalties provision | 35 | (5 | ) | |||
| Net cash used in operating activities | (7,801 | ) | (6,374 | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
| Purchase of property and equipment | (218 | ) | (140 | ) | ||
| Investment in short-term bank and other deposits | (8,814 | ) | (7,651 | ) | ||
| Net cash provided by (used in) investing activities | (9,032 | ) | (7,791 | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
| Exercise of warrants into ordinary shares, net of issuance expenses | 19,219 | — | ||||
| Issuance of ordinary shares in private placement, net of issuance expenses | — | 4,731 | ||||
| Issuance of ordinary shares in the registered direct offerings, net of issuance expenses | — | 10,139 | ||||
| Net cash provided by financing activities | 19,219 | 14,870 | ||||
| Net increase in cash, cash equivalents and restricted cash | 2,386 | 705 | ||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 8,053 | 8,035 | ||||
| Cash, cash equivalents and restricted cash at the end of the period | 10,439 | 8,740 |
6
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:
| Six months ended<br><br> <br>June 30, | ||||
|---|---|---|---|---|
| **** | 2021 | 2020 | ||
| Supplemental disclosure of non-cash flow information | ||||
| Purchase of property and equipment included in accounts payable and accrued expenses | 59 | 15 | ||
| Financing fees included in other account payable and accruals | 291 | |||
| Assets acquired under operating lease | 916 | — |
The accompanying notes to the consolidated unaudited financial statements are an integral part of them.
7
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
(1) 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.
(2) 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.
(3) The Company is a clinical-stage medical diagnostics company aiming to redefine colorectal cancer (CRC) screening and prevention through the introduction of C-Scan®, the first and only patient-friendly preparation-free screening test to detect polyps before they may transform into cancer. The Company’s disruptive capsule-based screening technology aims to significantly increase screening adherence worldwide and 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. C-Scan is non-invasive and requires no preparation or sedation, allowing the patients to continue their daily routine with no interruption as the capsule is propelled through the gastrointestinal tract by natural motility.
(4) 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, resulting in gross proceeds of approximately $19,240 for the Company. See Note 5(1).
In July 2021, the Company consummated a registered direct offering of ordinary shares and warrants. See Note 8.
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, 2021 include the financial statements of the Company and its wholly-owned U.S. subsidiary.
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.)
(5) In late 2019, a novel strain of COVID-19, also known as coronavirus, was reported in Wuhan, China. While initially the outbreak was largely concentrated in China, it has now spread globally, including to Israel and the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic and recommended containment and mitigation measures worldwide. Accordingly, many countries around the world, including Israel, have implemented significant governmental measures to control the spread of the virus, including temporary closure of businesses, severe restrictions on travel and the movement of people, and other material limitations on the conduct of business. 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. Infections rates in Israel have recently spiked upwards and 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.
NOTE 2 - CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
The accompanying consolidated unaudited financial statements have been prepared in a condensed format and include the consolidated unaudited financial operations of the Company as of June 30, 2021 and for the six and three month periods then ended, in accordance with U.S. GAAP, relating to the preparation of financial statements for interim periods.
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, 2020 that are included in the Company's Annual Report on Form 20-F, filed with the Securities and Exchange Commission on March 18, 2021 (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, 2021, are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.
9
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
NOTE 3- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies that have been applied in the preparation of the unaudited consolidated financial statements are identical to those that were applied in preparation of the Company’s most recent annual financial statements in connection with its Annual Report on Form 20-F except for the adoption of the following:
a. Income Tax
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This standard is effective for the Company from January 1, 2021 and must be applied on a modified retrospective basis. This standard did not have a material impact on the Company's financial statements and disclosures.
b. Deferred offering costs
The Company capitalizes certain legal and other third-party fees that are directly related to the Company’s in-process equity financing until such financing is consummated. After the consummation of such equity financing, these costs are recorded as a reduction of the respective gross proceeds. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are written off to operating expenses. As of June 30, 2021, there were $291 of deferred offering costs included in other non-current assets on the balance sheet.
NOTE 4 - LEASES
On January 1, 2019, the Company adopted ASU 2016-02, using the modified retrospective approach for all lease arrangements at the beginning period of adoption.
On January 26, 2021, the Company entered into a new lease agreement, as amended, according to which, effective as of April 1, 2021, the Company leases a total of approximately 1,550 square meters at its facility located in Isfiya, Israel. The agreement expires on December 31, 2023, and the Company has an option to extend the lease period for an additional three years. The Company has the right to terminate the new lease agreement at any time, upon at least 60 days prior written notice. Monthly rental expenses under the lease agreement are $15.4.
As a result, according to ASC 842, the lease agreement was accounted for as a lease modification and, therefore, the lease liability was remeasured as of the modification date with an adjustment recorded to the underlying right of use asset.
In addition, the Company leases vehicles under various operating lease agreements.
At June 30, 2021, the Company’s operating lease assets and lease liabilities (both the current and non-current portion) for operating leases totaled $1,147 and $1,136, respectively.
10
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
Supplemental cash flow information related to operating leases was as follows:
| six months ended June 30, 2021 | ||
|---|---|---|
| Cash payments for operating leases | $ | 146 |
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, 2021, the Company’s operating leases had a weighted average remaining lease term of 4.8 years and a weighted average borrowing rate of 3.8%. Future lease payments under operating leases as of June 30, 2021 were as follows:
| Operating | |||
|---|---|---|---|
| Leases | |||
| 2021 | $ | 179 | |
| 2022 | $ | 286 | |
| 2023 and after | $ | 783 | |
| Total future lease payments | $ | 1,248 | |
| Less imputed interest | (112 | ) | |
| Total lease liability balance | $ | 1,136 |
11
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
NOTE 5 - SHAREHOLDERS' EQUITY
The following changes occurred during the six months ended June 30, 2021:
1. During the first quarter of 2021, certain investors from the warrants exercise transaction in July 2020 and the April-May 2020 registered direct offerings exercised warrants at exercise prices ranging from $0.75-$0.80 per share, for total gross proceeds to the Company of approximately $19,240. As a result, the Company issued an aggregate 24,204,682 ordinary shares.
2. On June 30, 2021, the Company entered into a definitive agreement with several institutional and accredited investors for the purchase and sale of 25,925,926 of the Company's ordinary shares and accompanying short-term warrants to purchase up to an aggregate of 25,925,926 of the Company's ordinary shares in a registered direct offering. The registered direct offering was consummated on July 2, 2021, see Note 8.
12
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
NOTE 6 - SHARE-BASED COMPENSATION
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:
| For the six months ended June 30, 2021 | ||||||
|---|---|---|---|---|---|---|
| Weighted | ||||||
| Weighted | average | |||||
| average | remaining | |||||
| exercise price | contractual | |||||
| Number | (in ) | life (in years) | ||||
| Options outstanding at beginning of period | 1,088,737 | 8.74 | ||||
| Options granted | 43,392 | |||||
| Options forfeited | (55,234 | ) | ||||
| Options outstanding at end of period | 1,076,895 | 8.32 | ||||
| Options exercisable at end of period | 364,046 | 6.77 |
All values are in US Dollars.
2. A summary of the Company’s RSU activity is as follows:
| For the six | |||
|---|---|---|---|
| months | |||
| ended June | |||
| 30, 2021 | |||
| Unvested at beginning of period | 72,599 | ||
| Granted | - | ||
| Vested | (29,776 | ) | |
| Forfeited | (399 | ) | |
| Unvested at end of period | 42,424 |
13
CHECK CAP LTD
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In March 2021, the Company entered into an exclusive license agreement with the University of Missouri with respect to certain patents held by the University of Missouri that the University of Missouri claimed included background intellectual property in C-Scan. In consideration for the grant of an exclusive license to those patents in the medical field, the Company agreed to pay royalties ranging from 30 U.S cents to 5 U.S dollars per C-Scan unit depending on the number of units sold up to $15,000 in the aggregate. The royalties pay is contingent upon future sales. As the company has not yet generated any revenue from operations, no provision was recorded as of June 30, 2021.
NOTE 8 - SUBSEQUENT EVENTS
On July 2, 2021, the Company issued to institutional and accredited investors 25,925,926 ordinary shares and warrants to purchase up to 25,925,926 ordinary shares. Each ordinary share was sold together with one warrant to purchase one ordinary share at a combined purchase price of $1.35 per share and accompanying warrant, for aggregate gross proceeds of approximately $35,000, excluding any proceeds that may be received upon exercise of the warrants.
Each warrant is immediately exercisable and will expire on January 2, 2024. The exercise price of each warrant $1.50 per ordinary share, subject to adjustment. The warrants may be exercised on a cashless basis if at the time of exercise thereof, there is no effective registration statement registering the issuance or resale of ordinary shares underlying the warrants.
The Company also issued placement agent warrants to purchase up to an aggregate of 1,296,296, ordinary shares on the same terms as the warrants issued to investors, except they have an exercise price of $1.6875 per share. The Company received gross proceeds from the offering of $35,000, or approximately $31,760 net of issuance expenses in the amount of $3,240.
On August 4, 2021, 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 2,500,000 shares.
On August 4, 2021, the Company's Board of Directors approved the award of options to purchase 700,000 ordinary shares and 300,000 RSUs to the Company’s officers and certain employees. The options have an exercise price equal to $1.23, which is equal to the higher of the price of the Company’s ordinary shares on Nasdaq on the grant date and the average closing price of the Company’s ordinary shares on Nasdaq during the 30 trading days prior to the grant date.
The options and RSUs vest over a period of four years commencing on the date of grant, such that 25% of the options and RSUs shall vest and become exercisable on the first anniversary of the date of grant and thereafter, shall vest monthly in equal portions at the end of each month over the subsequent thirty-six (36) months.
14