Check-Cap(CHEK) - 2024 Q2 - Quarterly Report

Financial Statements This section presents the company's unaudited financial statements, including balance sheets, statements of operations, changes in equity, and cash flows, for recent periods Consolidated Unaudited Balance Sheets The company's balance sheet as of June 30, 2024, shows a decrease in total assets and shareholders' equity compared to December 31, 2023, primarily driven by a significant reduction in short-term bank deposits and an increased accumulated deficit Consolidated Unaudited Balance Sheets (Amounts in thousands of US dollars) | Item | June 30, 2024 (Unaudited, in thousands of US dollars) | December 31, 2023 (Audited, in thousands of US dollars) | Change (in thousands of US dollars) | Percentage Change | | :-------------------------------- | :-------------------------- | :------------------------ | :----- | :---------------- | | Assets | | | | | | Cash and cash equivalents | $17,824 | $8,844 | +$8,980 | +101.5% | | Short-term bank deposit | $- | $15,912 | -$15,912 | -100.0% | | Total current assets | $17,954 | $24,856 | -$6,902 | -27.8% | | Total assets | $18,090 | $25,017 | -$6,927 | -27.7% | | Liabilities and Shareholders' Equity | | | | | | Total current liabilities | $913 | $1,330 | -$417 | -31.4% | | Total shareholders' equity | $17,177 | $23,687 | -$6,510 | -27.5% | | Accumulated deficit | $(151,173) | $(144,861) | -$6,312 | +4.4% | - Total assets decreased by 27.7% from $25,017 thousand at December 31, 2023, to $18,090 thousand at June 30, 2024, largely due to a 100% decrease in short-term bank deposits, offset by a 101.5% increase in cash and cash equivalents[2] - Total shareholders' equity decreased by 27.5% from $23,687 thousand to $17,177 thousand, primarily driven by an increase in the accumulated deficit from $(144,861) thousand to $(151,173) thousand[2] Consolidated Unaudited Statements of Operations For the six months ended June 30, 2024, the company significantly reduced its net loss and operating loss compared to the same period in 2023, largely due to a substantial decrease in research and development expenses Consolidated Unaudited Statements of Operations (Amounts in thousands of US dollars) | Item | Six months ended June 30, 2024 (in thousands of US dollars) | Six months ended June 30, 2023 (in thousands of US dollars) | Change (in thousands of US dollars) | Percentage Change | | :---------------------------------- | :----------------------------- | :----------------------------- | :----- | :---------------- | | Research and development expenses, net | $(335) | $(8,151) | +$7,816 | -95.9% | | General and administrative expenses | $(6,484) | $(2,762) | -$3,722 | +134.8% | | Operating loss | $(6,819) | $(12,277) | +$5,458 | -44.5% | | Finance Income, net | $507 | $957 | -$450 | -47.0% | | Net loss for the period | $(6,312) | $(11,320) | +$5,008 | -44.2% | | Net loss per ordinary share basic and diluted | $(1.08) | $1.94 | -$3.02 | -155.7% | - Net loss for the period decreased by 44.2% from $(11,320) thousand in 2023 to $(6,312) thousand in 2024[5] - Research and development expenses, net, decreased significantly by 95.9% from $(8,151) thousand in 2023 to $(335) thousand in 2024[5] - General and administrative expenses increased by 134.8% from $(2,762) thousand in 2023 to $(6,484) thousand in 2024[5] Consolidated Unaudited Statements of Changes in Shareholders' Equity The statements of changes in shareholders' equity reflect a decrease in total equity from January 1, 2024, to June 30, 2024, primarily due to the net loss incurred during the period, which increased the accumulated deficit Consolidated Unaudited Statements of Changes in Shareholders' Equity (Amounts in thousands of US dollars) | Item | Balance as of January 1, 2024 (in thousands of US dollars) | Balance as of June 30, 2024 (in thousands of US dollars) | Change (in thousands of US dollars) | | :-------------------------- | :---------------------------- | :-------------------------- | :----- | | Number of Ordinary Shares | 5,850,555 | 5,851,042 | +487 | | Share capital, Amount | $83,746 | $83,753 | +$7 | | Additional paid-in capital | $84,802 | $84,597 | -$205 | | Accumulated deficit | $(144,861) | $(151,173) | -$6,312 | | Total shareholders' equity | $23,687 | $17,177 | -$6,510 | - Total shareholders' equity decreased by $6,510 thousand from January 1, 2024, to June 30, 2024, primarily due to a net loss of $6,312 thousand[8] - The accumulated deficit increased by $6,312 thousand during the six months ended June 30, 2024[8] Consolidated Unaudited Statements of Cash Flows For the six months ended June 30, 2024, the company experienced a net increase in cash and cash equivalents, driven by a significant inflow from investing activities, primarily changes in short-term deposits, despite continued cash usage in operating activities Consolidated Unaudited Statements of Cash Flows (Amounts in thousands of US dollars) | Cash Flow Activity | Six months ended June 30, 2024 (in thousands of US dollars) | Six months ended June 30, 2023 (in thousands of US dollars) | Change (in thousands of US dollars) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Net cash used in operating activities | $(6,932) | $(9,824) | +$2,892 | | Net cash provided by (used in) investing activities | $15,912 | $7,986 | +$7,926 | | Net cash provided by financing activities | $- | $- | $0 | | Net increase(decrease) in cash, cash equivalents and restricted cash | $8,980 | $(1,838) | +$10,818 | | Cash, cash equivalents and restricted cash at the end of the period | $17,824 | $2,604 | +$15,220 | - Net cash used in operating activities decreased by 29.4% from $(9,824) thousand in 2023 to $(6,932) thousand in 2024[11] - Net cash provided by investing activities increased significantly by 99.2% from $7,986 thousand in 2023 to $15,912 thousand in 2024, primarily due to changes in short-term deposits[11] - The company reported a net increase in cash, cash equivalents and restricted cash of $8,980 thousand for the six months ended June 30, 2024, compared to a decrease of $(1,838) thousand in the prior year period[11] Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited consolidated financial statements, covering general information, business developments, and significant events NOTE 1 - General Information This section provides general information about Check Cap Ltd., detailing its corporate structure, the strategic shift from its original medical diagnostics business due to clinical trial setbacks, and its ongoing efforts to pursue strategic alternatives, including multiple business combination agreements and related financial transactions. It also addresses the impact of the Israel-Hamas conflict and recent litigation General Business Overview and Strategic Shift Check Cap Ltd., an Israeli clinical-stage medical diagnostics company, discontinued its C-Scan® colorectal cancer screening program due to insufficient efficacy results, leading to a significant workforce reduction and a strategic pivot towards exploring alternative business options. The company has not generated revenue and has a substantial accumulated deficit - Check Cap Ltd. was engaged in clinical-stage medical diagnostics, aiming to redefine colorectal cancer (CRC) screening with C-Scan®[15] - On March 21, 2023, the Company announced that efficacy results from its calibration studies did not meet the goal to proceed to the U.S. pivotal study, leading to a postponement and cost reduction plan[16][17] - On June 6, 2023, the Board of Directors decided to pursue strategic options, significantly reduced its workforce to two employees, discontinued calibration studies, and does not plan to commence the U.S. pivotal study[18][19] - The Company has not yet generated revenues and, as of June 30, 2024, had an accumulated deficit of approximately $151,173 thousand[20][2] Entry into a business combination agreement with Keystone The company entered into a business combination agreement with Keystone Dental Holdings, Inc. in August 2023, but it was terminated in December 2023 due to the lack of requisite shareholder approval. This termination led to transaction-related expenses and a change in the Company's Board of Directors - On August 16, 2023, the Company announced entry into a business combination agreement (BCA) with Keystone Dental Holdings, Inc.[21] - The BCA was terminated on December 24, 2023, by Keystone, as it did not receive the requisite majority for approval by Check-Cap's shareholders at the Annual General Meeting on December 18, 2023[24][25] - As a result of the failed business combination, the Company incurred transaction-related expenses recorded in General and Administrative expenses, and the Board of Directors was replaced by new members[26] Israel-Hamas Conflict The ongoing Israel-Hamas conflict, which began on October 7, 2023, has not adversely affected the Company's operations to date, primarily due to its robust backup IT systems and remote work capabilities - The Israel-Hamas conflict began on October 7, 2023, with attacks on civilian and military targets[27] - To date, the Company's operations have not been adversely affected by the war[27] - The Company has back-up IT systems and remote work ability to ensure operational continuity in emergencies[27] Entry into a business combination agreement with Nobul On March 25, 2024, the company entered into a new business combination agreement with Nobul AI Corp. If consummated, Check-Cap's ordinary shares will be delisted from Nasdaq, and its security holders are expected to own approximately 15% of Nobul. The transaction is contingent on shareholder and exchange approvals, and the Board approved an immediate payment of approximately $3,810 to Nobul for transaction costs - On March 25, 2024, the Company entered into a business combination agreement (Nobul BCA) with Nobul AI Corp[28] - If the Nobul Business Combination is consummated, Check-Cap's ordinary shares will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934[28] - Check-Cap security holders are expected to own approximately 15% of Nobul on a fully diluted basis, subject to adjustments based on Check-Cap's net cash at closing[33] - The transactions are subject to approval by the Company's and Nobul's shareholders, Nasdaq listing approval for Nobul Common Shares, and TSX listing approval[34] - On April 21, 2024, the Board approved an immediate payment of approximately $3,810 thousand to Nobul for reimbursement of Transaction Costs[35] Transfer of Company Funds to Canadian Subsidiary On June 20, 2024, the Board approved transferring approximately $17,250 of the Company's funds from Israeli banks to its Canadian subsidiary's bank account, retaining $750 in Israel - On June 20, 2024, the Board approved transferring approximately $17,250 thousand of the Company's funds from Israeli banks (Bank Leumi and Discount Bank) to its Canadian subsidiary's account at Royal Bank of Canada[36] - Approximately $750 thousand of the Company's funds will remain in its accounts at Bank Leumi in Israel[36] Approval to Enter into a Loan Agreement with Nobul On July 28, 2024, the Board approved a $6,000 loan to Nobul, subsequently ratified on September 8, 2024. This loan bears an annual interest rate of 5% and is due 30 days after the Nobul Business Combination Agreement is either terminated or completed, with provisions for set-off against termination fees - On July 28, 2024, the Board approved a loan to Nobul in the principal amount of $6,000 thousand, which was ratified on September 8, 2024[37][38] - The loan bears interest at 5% per annum, payable annually in arrears[39] - The aggregate amount of the loan is due 30 days following the termination or completion of the Nobul Business Combination Agreement, with a provision for set-off against termination fees[38][40] Creation of Segregated Account An amending letter to the Nobul BCA, approved on September 8, 2024, obligates the Company to deposit $11,000 into a segregated, interest-bearing bank account. These funds are designated for Nobul's acquisition targets or growth initiatives, reducing the Net Cash Target, and would revert to Check-Cap if the BCA terminates. The $11,000 was transferred in August 2024 - On September 8, 2024, the Board approved an amending letter to the Nobul BCA, obligating the Company to deposit $11,000 thousand into a designated, segregated, and interest-bearing bank account[41] - Funds in this account are for Nobul's accretive acquisition targets or other growth initiatives and reduce the Net Cash Target on a dollar-for-dollar basis[41] - If the BCA is terminated, remaining funds in the segregated account, plus interest, will accrue to the Company[41] - In August 2024, the Company transferred $11,000 thousand into an account held at Royal Bank of Canada in Toronto, Canada, under the name of Nobul AI Corp[42] Entry into a Second Loan Agreement with Nobul On December 23, 2024, the Board approved a second $6,000 loan to Nobul, funded from the previously established segregated account. This loan, bearing 5% annual interest, is intended for identified acquisition targets and growth initiatives, with approximately $2,100 already used for these purposes and $700 for Company expenses from the segregated account - On December 23, 2024, the Board approved a Second Loan Agreement with Nobul for a principal amount of $6,000 thousand[45] - The Second Loan will be funded from the previously created designated, segregated, and interest-bearing bank account[46] - The loan bears interest at 5% per annum and is for identified acquisition targets and growth initiatives of Nobul[45][46] - As of the filing date, approximately $2,100 thousand from the Segregated Account has been used for acquisition targets and growth initiatives, and approximately $700 thousand for certain Company expenses[46] Litigation On October 7, 2024, the Company received a derivative claim exceeding NIS 2.5 Million ($690k) against its directors and Nobul AI, alleging corporate governance issues, validity of board decisions, and legality of the Nobul BCA and cash transactions. The Company considers these claims frivolous and intends to vigorously defend itself - On October 7, 2024, the Company received a derivative claim against its directors and Nobul AI for a total amount above NIS 2.5 Million (approximately $690 thousand)[47] - The main claims relate to corporate governance issues, entity level control, validity of board decisions, and legality of the Nobul BCA and certain cash transactions[47] - The Company believes all claims in the derivative action are frivolous and strongly denies them, intending to vigorously defend itself[48][49]