Check-Cap(CHEK) - 2023 Q3 - Quarterly Report

Corporate Update & Business Combination Check-Cap is pursuing a business combination with Keystone Dental, leading to operational changes and impacting its liquidity position Proposed Business Combination Agreement with Keystone Dental Check-Cap shareholders are scheduled to vote on a definitive Business Combination Agreement with Keystone Dental on December 18, 2023. If completed, Keystone stockholders will become the majority holders of the combined company, which will be headquartered in Irvine, CA, focus on Keystone Dental's comprehensive portfolio of dental solutions, and trade on NASDAQ under the symbol "KSD" - Check-Cap shareholders to vote on the proposed Business Combination Agreement with Keystone Dental at the Annual General Meeting on Monday, December 18, 2023[2][17] - If completed, Keystone Dental stockholders will become the majority holders of the combined company, which will be headquartered in Irvine, CA[3] - The combined company will focus on advancing commercial execution and market development of Keystone Dental's comprehensive portfolio of implants, full arch restorations, and other tooth replacement solutions, in addition to biomaterial and digital dentistry capabilities[3] - Upon closing, the combined company will trade on NASDAQ under the symbol "KSD" and be led by Melker Nilsson, Keystone's Chief Executive Officer[3] Keystone Dental Recent Business Developments Keystone Dental has recently expanded its product offerings and intellectual property, launching a new software solution for implant scans, securing a patent for its innovative IOS solution, and commercially launching a new implant system - Keystone Dental launched Nexus Connect, a unique software solution utilizing proprietary technology and a machine-learning model to analyze implant scans performed with an intraoral scanner[4] - Osteon Medical, a Keystone Dental subsidiary, was granted a patent for the Nexus IOS solution, which allows implant dentists to perform direct full-arch implant scans using an Intraoral Scanner (IOS)[18] - Keystone Dental announced the commercial launch of the GENESIS ACTIVE™ Implant System, a state-of-the-art surgical and prosthetic solution designed to transform implant placement and restoration[40] Check-Cap Operational Changes In anticipation of the strategic development plan, Check-Cap terminated the majority of its research and development activities and clinical trials, leading to a significant reduction in R&D expenses and an impairment of fixed assets - Management terminated the majority of the Company's research and development activities and clinical trials in anticipation of the strategic development plan[5][22] Research and Development Expenses (YoY Change) | Period | 2023 (Thousands USD) | 2022 (Thousands USD) | Change (YoY) | | :----------------------------------- | :------------------- | :------------------- | :----------- | | Three months ended Sep 30 | $30 | $3,641 | -99.18% | | Nine months ended Sep 30 | $8,181 | $11,315 | -27.69% | Impairment of Fixed Assets | Period | 2023 (Thousands USD) | 2022 (Thousands USD) | | :----------------------------------- | :------------------- | :------------------- | | Three months ended Sep 30 | $60 | $0 | | Nine months ended Sep 30 | $1,426 | $0 | Liquidity and Cash Position Check-Cap's cash and cash equivalents, restricted cash, and short-term bank deposits decreased by approximately 33% from December 31, 2022, to September 30, 2023 Cash and Cash Equivalents, Restricted Cash and Short-Term Bank Deposits | Date | Amount (Millions USD) | | :--------------- | :-------------------- | | Sep 30, 2023 | $28.2 | | Jun 30, 2023 | $32.4 | | Dec 31, 2022 | $42.1 | Financial Results Overview This section summarizes Check-Cap's financial performance for the third quarter and nine months ended September 30, 2023 Third Quarter Ended September 30, 2023 For the third quarter of 2023, Check-Cap reported a significant reduction in operating loss and net loss compared to the prior year, primarily driven by a drastic decrease in R&D expenses, despite an increase in general and administrative expenses due to transaction-related professional services Key Financial Metrics (Q3 2023 vs. Q3 2022) | Metric | Q3 2023 (Thousands USD) | Q3 2022 (Thousands USD) | Change (YoY) | | :-------------------------- | :---------------------- | :---------------------- | :----------- | | Research & Development, net | $30 | $3,641 | -99.18% | | General & Administrative | $2,833 | $1,404 | +101.78% | | Impairment of fixed assets | $62 | $0 | N/A | | Operating loss | $(2,925) | $(5,045) | -42.02% | | Finance Income, net | $335 | $291 | +15.12% | | Net loss | $(2,590) | $(4,754) | -45.51% | | Net loss per ordinary share | $0.44 | $0.81 | -45.68% | Nine Months Ended September 30, 2023 For the first nine months of 2023, Check-Cap experienced a decrease in both operating loss and net loss, largely due to reduced R&D activities. General and administrative expenses increased due to professional services related to the pending business combination, while net finance income saw a substantial increase Key Financial Metrics (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (Thousands USD) | 9M 2022 (Thousands USD) | Change (YoY) | | :-------------------------- | :---------------------- | :---------------------- | :----------- | | Research & Development, net | $8,181 | $11,315 | -27.69% | | General & Administrative | $5,595 | $4,504 | +24.22% | | Impairment of fixed assets | $1,426 | $0 | N/A | | Operating loss | $(15,202) | $(15,819) | -3.89% | | Finance Income, net | $1,292 | $424 | +204.72% | | Net loss | $(13,910) | $(15,395) | -9.64% | | Net loss per ordinary share | $2.38 | $2.74 | -13.14% | Cash Flow Highlights (9M 2023 vs. 9M 2022) | Metric | 9M 2023 (Thousands USD) | 9M 2022 (Thousands USD) | Change (YoY) | | :----------------------------------------------- | :---------------------- | :---------------------- | :----------- | | Net cash used in operating activities | $(13,415) | $(14,560) | -7.86% | | Net cash used in investing activities | $12,486 | $(11,395) | N/A (swing) | | Net cash provided by financing activities | $0 | $8,850 | -100% | | Net decrease in cash, cash equivalents and restricted cash | $(929) | $(17,105) | -94.57% | Company Information & Legal Disclosures This section provides company overviews for Keystone Dental and Check-Cap, alongside legal disclosures and investor contact details About Keystone Dental Group Keystone Dental Group is a global commercial-stage medical technology company focused on providing comprehensive tooth replacement solutions, including innovative implant systems, biomaterials, and digital workflow capabilities, with operations in California, Israel, and Australia - Keystone Dental is a global commercial-stage medical technology company focused on providing end-to-end tooth replacement solutions for dental practitioners[25] - The company's product portfolio includes proprietary offerings such as Genesis Active, Molaris™, and Prima Plus™ implant systems, the Paltop value brand, and DYNA biomaterials[25] - Keystone Dental acquired Implant Solutions Pty Ltd ("Osteon") in 2021, adding prosthetic solutions on implants and digital workflow capabilities, including the Nexus iOS digital workflow solution[25] About Check-Cap Check-Cap is a clinical-stage medical diagnostics company dedicated to redefining colorectal cancer (CRC) screening through its investigational C-Scan® test, designed for early polyp detection - Check-Cap is a clinical stage medical diagnostics company aiming to redefine colorectal cancer (CRC) screening[32] - The company's primary product is C-Scan®, a screening test designed to detect polyps before they may transform into colorectal cancer and enable early intervention[32] - C-Scan is an investigational device and is not available for sale in the United States[32] Legal Disclosures & Investor Information This section includes standard legal disclaimers regarding forward-looking statements, clarifies that the communication does not constitute an offer to sell securities, and identifies potential participants in the proxy solicitation for the business combination - The press release contains "forward-looking statements" subject to risks and uncertainties, and investors are urged to read the "Forward-looking Statements" and "Risk Factors" in the Company's Annual Report on Form 20-F[33] - This communication is not an offer to buy or sell securities, or a solicitation of any vote or approval[13][34] - Check-Cap, Keystone Parent, and their respective directors and executive officers may be deemed participants in the solicitation of proxies from Check-Cap shareholders in connection with the business combination[12][26] Investor & Media Contacts Contact information for investor relations and media inquiries is provided through LifeSci Advisors and LifeSci Communications - Investor contacts include Irina Koffler and Meirav Gomeh-Bauer from LifeSci Advisors, LLC[14][34] - Media contact is Mónica Rouco Molina, Ph.D., Account Supervisor - Europe, LifeSci Communications[27] Consolidated Financial Statements This section presents Check-Cap's consolidated unaudited balance sheets, statements of comprehensive loss, shareholders' equity, and cash flows Balance Sheets Check-Cap's consolidated unaudited balance sheets show a significant decrease in total assets and shareholders' equity from December 31, 2022, to September 30, 2023, primarily due to reductions in short-term bank deposits and property and equipment, alongside a decrease in total liabilities Consolidated Unaudited Balance Sheet Highlights (Thousands USD) | Metric | Sep 30, 2023 | Dec 31, 2022 | Change (YoY) | | :-------------------------- | :----------- | :----------- | :----------- | | Cash and cash equivalents | $3,383 | $4,090 | -17.30% | | Restricted cash | $130 | $352 | -63.07% | | Short-term bank deposit | $24,684 | $37,609 | -34.38% | | Total current assets | $28,774 | $42,630 | -32.52% | | Property and equipment, net | $183 | $1,751 | -89.50% | | Total non-current assets | $256 | $2,811 | -90.86% | | Total assets | $29,030 | $45,441 | -36.12% | | Total current liabilities | $1,635 | $3,408 | -52.03% | | Total non-current liabilities | $0 | $721 | -100% | | Total shareholders' equity | $27,395 | $41,312 | -33.69% | Statements of Comprehensive Loss The consolidated unaudited statements of comprehensive loss provide a detailed breakdown of revenues and expenses, leading to the net loss for the three and nine months ended September 30, 2023 and 2022. Key metrics and changes are summarized in the 'Financial Results Overview' section - The statements detail the components of net loss, including research and development expenses, general and administrative expenses, impairment of fixed assets, operating loss, and finance income, net[35][45] - Net loss for the three months ended September 30, 2023, was $2,590 thousand, and for the nine months ended September 30, 2023, was $13,910 thousand[45] Statements of Changes in Shareholders' Equity The consolidated unaudited statements of changes in shareholders' equity illustrate the movements in share capital, additional paid-in capital, and accumulated deficit, reflecting the impact of RSU vesting, share-based compensation, and net loss on total equity for the periods presented Shareholders' Equity Changes (Thousands USD) | Metric | As of Jan 1, 2023 | As of Sep 30, 2023 | | :----------------------------------- | :---------------- | :----------------- | | Total shareholders' equity | $41,312 | $27,395 | | Net loss (9 months ended Sep 30, 2023) | N/A | $(13,910) | | Share-based compensation (9 months ended Sep 30, 2023) | N/A | $(7) | Shareholders' Equity Changes (Q3 2023, Thousands USD) | Metric | As of Jun 30, 2023 | As of Sep 30, 2023 | | :----------------------------------- | :----------------- | :----------------- | | Total shareholders' equity | $30,190 | $27,395 | | Net loss (3 months ended Sep 30, 2023) | N/A | $(2,590) | | Share-based compensation (3 months ended Sep 30, 2023) | N/A | $(205) | Statements of Cash Flows The consolidated unaudited statements of cash flows indicate that for the nine months ended September 30, 2023, Check-Cap primarily used cash in operating activities, which was largely offset by cash provided by investing activities, resulting in a net decrease in cash, cash equivalents, and restricted cash Consolidated Unaudited Cash Flow Highlights (9M 2023 vs. 9M 2022, Thousands USD) | Cash Flow Activity | 9M 2023 | 9M 2022 | | :--------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(13,415) | $(14,560) | | Net cash used in investing activities | $12,486 | $(11,395) | | Net cash provided by financing activities | $0 | $8,850 | | Net decrease in cash, cash equivalents and restricted cash | $(929) | $(17,105) | | Cash, cash equivalents and restricted cash at end of period | $3,513 | $9,702 | - The significant swing in investing activities from cash used in 2022 to cash provided in 2023 was primarily due to investment in short-term bank and other deposits[30]