PR Newswire | Nov 18, 2020 08:01AM EST

11/18 07:00 CST

Check-Cap Reports Third Quarter 2020 Financial Results and Corporate Highlights ISFIYA, Israel, Nov. 18, 2020

Submitted Investigational Device Exemption (IDE) application to the FDA for Pivotal Study of C-Scan(r)

ISFIYA, Israel, Nov. 18, 2020 /PRNewswire/ -- Check-Cap Ltd. (the "Company" or "Check-Cap") (NASDAQ: CHEK), (NASDAQ: CHEKZ), a clinical stage medical diagnostics company advancing the development of C-Scan(r), the first and only patient-friendly preparation-free screening test to detect polyps before they may transform into colorectal cancer, today announced financial results for the third quarter and nine months ended September 30, 2020 and corporate highlights.

Third Quarter and Recent Highlights:

* Investigational Device Exemption (IDE) application submitted to the U.S. Food and Drug Administration (FDA) on November 18, 2020 for pivotal study of C-Scan. * Continuing preparation for the U.S pivotal study including progress in establishing supporting device manufacturing, supply chain and quality controls, while initiating the substantial expansion of the clinical dataset on average risk patients at leading Israeli sites. * Strengthened balance sheet through gross proceeds of $9.6 million in a warrant exercise financing in July 2020.

"The IDE submission constitutes a major milestone towards the initiation of our U.S. pivotal study, " said Alex Ovadia, chief executive officer of Check-Cap. "We plan to provide a further investor update on the timelines for the initiation of the U.S. pivotal study, expected in 2021, following guidance from the FDA."

Mr. Ovadia added "The Check-Cap team remains laser-focused on the Company's goal of advancing C-Scan towards final clinical stages and market acceptance as a patient-friendly colorectal cancer (CRC) screening option for the detection of pre-cancerous polyps before they may transform into cancer."

"Despite the increasing rates of CRC in recent years, especially in the younger population, screening rates remain low mostly due to the invasiveness of the colonoscopy procedure and the required bowel preparation. Non-invasive biomarker tests currently available or in development, such as fecal or liquid biopsy tests, demonstrate low sensitivity in detecting pre-cancerous polyps. There is a great unmet need for a patient-friendly screening option that can help detect polyps before they may turn into cancer and prevent this disease."

COVID-19 Corporate Update

The Company has experienced disruptions to its operations as a result of the COVID-19 pandemic. During the third quarter of 2020, infection rates in Israel began to significantly increase and toward the end of the third quarter, the government mandated a lockdown for the second time this year. The Company has 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.

It is still too early to assess the full impact of the COVID-19 outbreak, but the COVID-19 pandemic has affected the Company's ability to initiate its planned pivotal study and commence pilot sales in Israel and Europe in its original timeframe. The extent to which the COVID-19 pandemic shall impact the Company's operations and planned timelines 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 and the actions that may be required to contain the COVID-19 pandemic 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 raising capital. It could also 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 its 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 its business, financial condition and results of operation.

Financial Results for the Third Quarter Ended September 30, 2020

Research and development expenses were approximately $2.7 million for the three months ended September 30, 2020, unchanged from the same period in 2019. The main fluctuations were primarily a decrease of approximately $0.2 million in clinical expenses associated with the pilot study in the U.S. and post CE study in 2019, and a decrease of approximately $0.2 million in other research and development expenses. The foregoing decrease was offset in part by an increase of approximately $0.1 million for materials and approximately $0.3 million in salaries and related expenses.

General and administrative expenses were approximately $1.0 million for the three months ended September 30, 2020, compared to approximately $0.8 million for the same period in 2019. The increase was primarily due to an increase of approximately $0.1 million in other general expenses and approximately $0.1 million in salaries and related expenses.

Operating loss was approximately $3.6 million for the three months ended September 30, 2020, unchanged from the operating loss in the same period in 2019.

Net loss was approximately $3.6 million for the three months ended September 30, 2020, compared to approximately $3.5 million for the same period in 2019.

Cash and cash equivalents, restricted cash and short-term bank deposits totaled approximately $21.7 million as of September 30, 2020, compared with approximately $16.4 million as ofJune 30, 2020 and approximately $8.0 million as of December 31, 2019. During the third quarter of 2020, the Company completed a warrant exercise financing resulting in gross proceeds of approximately $9.6 million (approximately $8.7 million net of offering expenses). The Company believes that it has sufficient capital to fund its ongoing operations and plans for approximately the next 12 months.

The number of outstanding ordinary shares as of September 30, 2020 was 46,233,296. As of November 17, 2020, the number of the Company's outstanding ordinary shares was 46,237,551.

Financial Results for the Nine Months Ended September 30, 2020

Research and development expenses were approximately $7.2 million for the nine months ended September 30, 2020, compared to approximately $7.7 million for the same period in 2019. The decrease is primarily due to (i) a decrease of approximately $0.7 million in clinical expenses mainly due to higher expenses for the pilot study in the U.S and post CE study in 2019, (ii) a decrease of approximately $0.3 million in other research and development expenses, and (iii) a decrease of approximately $0.2 million in share-based compensation. The foregoing decrease was offset in part by an increase of approximately $0.7 million in salaries and related expenses mainly as a result of an expansion in head count and currency exchange rate fluctuation.

General and administrative expenses were approximately $2.8 million for the nine months ended September 30, 2020, compared to approximately $2.6 million for the same period in 2019. The increase was primarily due to an increase of approximately $0.1 million in salaries and related expenses, approximately $0.1 million in share-based compensation and approximately $0.2 million in other general expenses, offset in part by a decrease of approximately $0.2 million in professional services expenses.

Operating loss was approximately $10.0 million for the nine months ended September 30, 2020, compared to approximately $10.2 million in the same period in 2019.

Finance income, net was approximately $62,000 for the nine months ended September 30, 2020, compared to approximately $215,000 for the same period in 2019. The decrease was mainly due to a decline in interest rates

Net loss was approximately $9.9 million for the nine months ended September 30, 2020, compared to approximately $10.0 million for the same period in 2019.

Net cash used in operating activities was approximately $9.6 million for the nine months ended September 30, 2020, compared to net cash used in operating activities of approximately $9.5 million for the same period in 2019.

[Financial Tables to Follow]

About Check-Cap

Check-Cap is a clinical stage medical diagnostics company aiming to redefine colorectal cancer (CRC) screening and prevention through the introduction of C-Scan(r), the first and only patient-friendly preparation-free screening test to detect polyps before they may transform into colorectal 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.

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, 2019 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 KofflerLifeSci Advisors, LLC 646.970.4681ikoffler@lifesciadvisors.com

Meirav Gomeh-BauerLifeSci Advisors, LLC +972(0)-54-476-4979Meirav@lifesciadvisors.com

CHECK CAP LTD

CONSOLIDATED UNAUDITED BALANCE SHEETS

(U.S. dollars in thousands, except share and per share data)

September December 31, 30,

2020 2019

Assets

Current assets

Cash and cash equivalents 6,354 7,685

Restricted cash 350 350

Short-term bank deposit 15,016 -

Prepaid expenses and other current assets 288 400

Total current assets 22,008 8,435

Non-current assets

Property and equipment, net 753 540

Operating leases 424 454

Total non-current assets 1,177 994

Total assets 23,185 9,429

Liabilities and shareholders' equity

Current liabilities

Accounts payable and accruals

Trade 952 989

Other 253 490

Employees and payroll accruals 1,207 1,101

Operating lease liabilities 247 222

Total current liabilities 2,659 2,802

Non-current liabilities

Royalties provision 188 182

Operating lease liabilities 142 211

Total non-current liabilities 330 393

Shareholders' equity

Share capital, Ordinary shares, 2.4 NIS par value(90,000,000 authorized shares as of September 30,2020 and December

31, 2019, respectively; 46,233,296 and 8,272,908shares issued and outstanding as of September 30,2020 and December

31, 2019, respectively) 31,642 5,407

Additional paid-in capital 75,628 77,964

Accumulated deficit (87,074) (77,137)

Total shareholders' equity 20,196 6,234

Total liabilities and shareholders' equity 23,185 9,429

CHECK CAP LTD

CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE LOSS

(U.S. dollars in thousands, except share and per share data)

Nine months ended Three months ended September 30, September 30,

2020 2019 2020 2019

Research and development 7,177 7,655 2,664 2,746expenses, net

General and administrative 2,822 2,567 967 818expenses

Operating loss 9,999 10,222 3,631 3,564

Finance income, net 62 215 13 62

Net loss 9,937 10,007 3,618 3,502

Other comprehensive loss:

Change in fair value of cash flow - 13 - -hedge

Comprehensive loss 9,937 10,020 3,618 3,502

Net loss per ordinary share - 0.40 1.27 0.09 0.42basic and diluted

Weighted average number ofordinary shares outstanding - 25,017,699 7,862,530 41,518,827 8,254,013basic and diluted

CHECK CAP LTD.

CONSOLIDATED UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(U.S. dollars in thousands, except share and per share data)

Number of Additional Other Total

Ordinary paid-in comprehensive Accumulated shareholders'

Shares Amount capital loss deficit equity

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

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

Issuance of ordinary shares and warrants in a warrant exercise financing, netof

Issuance expenses in an amount of $920 16,054,223 $ 11,290 $ (2,578) $ 8,712

RSU vesting 19,317 $ 12 $ (12) -

Share-based compensation - - $ 317 - - $ 317

Net loss - - - - $ (9,937) $ (9,937)

Balance as of September 30, 2020 46,233,296 $ 31,642 $ 75,628 - $ (87,074) $ 20,196

Number of Additional Other Total

Ordinary paid-in comprehensive Accumulated shareholders'

Shares Amount capital loss deficit equity

Balance as of January 1, 2019 5,330,684 $ 3,456 $ 72,888 $ (13) $ (63,301) $ 13,030

Issuance of ordinary shares and warrants

in the 2019

registered direct offering, net of issuance

expenses in an amount of $987 2,906,376 $ 1,928 $ 4,583 - - $ 6,511

Exercise of warrants into ordinary shares 734 - - - - -

RSU vesting 28,268 $ 18 $ (18) -

Share-based compensation - - $ 406 - - $ 406

Other comprehensive loss - - - $ 13 $ 13

Net loss - - - - $ (10,007) $ (10,007)

Balance as of September 30, 2019 8,266,062 $ 5,402 $ 77,859 - $ (73,308) $ 9,953

CHECK CAP LTD.

CONSOLIDATED UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(U.S. dollars in thousands, except share and per share data)

Number of Additional Other Total

Ordinary paid-in comprehensive Accumulated shareholders'

Shares Amount Capital loss deficit equity

Balance asof June 30, 30,172,943 $ 20,348 $ 78,110 $ - $ (83,456) $ 15,0022020

Issuance ofordinaryshares andwarrants ina warrantexercisefinancing,net of

Issuanceexpenses in 16,054,223 $ 11,290 $ (2,578) $ 8,712an amount of$920

RSU 6,130 $ 4 $ (4) -vesting

Share-based - - $ 100 - - $ 100compensation

Net loss - - - - $ (3,618) $ (3,618)

Balance asof September 46,233,296 $ 31,642 $ 75,628 - $ (87,074) $ 20,19630, 2020

Number of Additional Other Total

Ordinary paid-in comprehensive Accumulated shareholders'

Shares Amount Capital loss deficit equity

Balance asof June 30, 8,238,462 $ 5,384 $ 77,740 $ - $ (69,806) $ 13,3182019

Exercise ofwarrantsinto 734 - - - - -ordinaryshares

RSU 26,866 $ 18 $ (18) -vesting

Share-based - - $ 137 - - $ 137compensation

Net loss - - - - $ (3,502) $ (3,502)

Balance asof September 8,266,062 $ 5,402 $ 77,859 - $ (73,308) $ 9,95330, 2019

CHECK-CAP LTD.

CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands, except share and per share data)

Nine months ended

September 30,

2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss for the period (9,937) (10,007)

Adjustments required to reconcile net loss to net cashused in operating activities:

Depreciation 107 84

Share-based compensation 317 406

Financial (income) expenses, net (27) (45)

Changes in assets and liabilities items:

Decrease (increase) in prepaid and other current assets 106 (37)and non-current assets

Increase (decrease) in trade accounts payable, accruals (295) 104and other current liabilities

Increase (decrease) in employees and payroll accruals 106 (24)

Increase in royalties provision 6 7

Net cash used in operating activities (9,617) (9,512)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment (293) (131)

Proceeds from (investment in) short-term bank and other (15,003) 1,673deposit

Net cash used in investing activities (15,296) 1,542

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of ordinary shares and warrants in the 2019 - 6,511registered direct offering, net of issuance expenses

Issuance of ordinary shares in the private placement, net 4,731 -of issuance expenses

Issuance of ordinary shares and warrants in the 2020 10,139registered direct offerings, net of issuance expenses

Issuance of ordinary shares and warrants in a warrant 8,712exercise financing, net of issuance expenses

Net cash provided by financing activities 23,582 6,511

Net increase (decrease) in cash, cash equivalents and (1,331) (1,459)restricted cash

Cash, cash equivalents and restricted cash at the 8,035 8,922beginning of the period

Cash, cash equivalents and restricted cash at the end of 6,704 7,463the period

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:

Nine months ended

September 30,

2020 2019

Supplemental disclosure of non-cash flow information

Purchase of property and equipment included in accounts 22 -payable and accrued expenses

Recognition of operating leases and operating leaseliabilities from adoption of

ASU 2016-02 490

Assets acquired under operating leases 140 106

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SOURCE Check-Cap Ltd.