Business context and reporting period
Filing identity: The supplied filing is Check-Cap Ltd.’s Form 20-F, not a filing for Mbody AI Ltd. It is an annual report for the fiscal year ended December 31, 2023, with comparisons to 2022 and 2021; it does not report a standalone 2023 fourth quarter.
Check-Cap is an Israeli clinical-stage diagnostics company developing C-Scan, an ingestible capsule-based colorectal cancer screening system. It has not generated revenue. After calibration-study results failed to meet the goal for proceeding to the powered portion of its U.S. pivotal study, the company halted calibration studies, significantly reduced its workforce, and pursued strategic alternatives.
Financial performance and liquidity
| Metric (US$ millions, except per-share data) | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | 0 | 0 | No product revenue |
| Research and development expense, net | 8.311 | 14.271 | Down 42.0% |
| General and administrative expense | 9.550 | 5.763 | Up 65.7% |
| Fixed-asset impairment | 1.426 | — | Non-cash charge in 2023 |
| Operating loss | 19.287 | 20.034 | Improved by 0.747 |
| Finance income, net | 1.719 | 0.926 | Higher interest income, partly offset by FX |
| Net loss | 17.568 | 19.108 | Improved by 1.540 |
| Basic and diluted loss per share | $3.00 | $3.37 | Improved |
| Net cash used in operating activities | 16.954 | 18.707 | Use decreased |
At year-end 2023, cash and cash equivalents were $8.844 million and short-term bank deposits were $15.912 million, totaling $24.756 million in cash and deposits. Total assets were $25.017 million; current liabilities were $1.330 million; shareholders’ equity was $23.687 million. The company reported no outstanding borrowings. The filing reports an accumulated deficit of $144.861 million on the balance sheet.
Investing cash flow was a net inflow of $21.356 million, primarily reflecting changes in short-term bank deposits; financing cash flow was zero in 2023, compared with $8.850 million provided in 2022. No revenue means gross margin and operating margin are not meaningful. The filing does not provide a clear standalone Q4 financial result.
Material changes versus the prior year
- Net R&D expense declined by $5.963 million, mainly due to reduced staffing and lower materials, contractor and other development costs following the clinical-program retrenchment.
- G&A rose by $3.787 million, principally from professional fees associated with strategic alternatives and the Keystone transaction, as well as higher insurance and other corporate costs.
- The company recorded a $1.426 million impairment of fixed assets following the change in development plans.
- Net loss narrowed despite the impairment and higher G&A, reflecting lower R&D spending and higher finance income.
Outlook, risks and unusual items
- Management said year-end cash was expected to fund ongoing operations and plans for the next 12 months and into fiscal 2025, while also stating that substantial additional financing may be needed. If financing or a strategic transaction is unavailable, the company may need to sell or license assets, cease operations or seek bankruptcy protection.
- On March 25, 2024, Check-Cap entered into a business combination agreement with Nobul AI Corp. The transaction requires shareholder, regulatory and listing approvals and other conditions. Under the stated exchange terms, Check-Cap security holders were expected to own approximately 15% of the combined company, subject to net-cash adjustments. If completed, Check-Cap expects to be delisted from Nasdaq and deregistered under the Exchange Act.
- Check-Cap paid or reimbursed Nobul approximately $3.809 million for transaction costs in 2024, as disclosed in the filing’s subsequent-event and MD&A sections.
- The earlier Keystone business combination was not approved by Check-Cap shareholders and was terminated in December 2023.
- C-Scan’s U.S. powered pivotal study has not commenced; the company discontinued calibration studies after efficacy results did not meet the progression goal. The filing says product revenue is not expected for the foreseeable future.
- Regulatory and commercialization risks remain significant: the company lacks U.S. marketing authorization, has limited manufacturing capacity and depends on some sole-source suppliers. Its CE certification was stated to be valid through December 1, 2026, and Israeli marketing approval through December 31, 2024.
- Other material risks include continuing losses and financing needs; Israeli political and military instability; IIA grant repayment, royalty and technology-transfer restrictions; and the possibility that U.S. investors face PFIC tax treatment. The company believed it was a PFIC in 2023 and may be one in 2024.
- The 2023 audit opinion was unqualified. However, the former auditor resigned in February 2024 citing concerns about entity-level controls arising in 2024; a successor auditor was appointed. Management reported effective internal controls as of year-end 2023, while the audit firm did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Confirm the issuer and period: this is Check-Cap Ltd.’s FY2023 annual report, not an Mbody AI filing or a quarterly report.
- Review the Nobul transaction’s current status, final exchange ratio, net-cash conditions, required approvals, termination provisions and the treatment of options, RSUs and warrants.
- Verify current cash, deposits, burn rate and liquidity after the approximately $3.809 million Nobul cost reimbursement, and reconcile management’s runway statement with the need for additional financing.
- Assess the auditor-change disclosures and any remediation or subsequent developments concerning entity-level controls.
- Check the clinical-data basis for discontinuing calibration studies and whether any viable path to further development or regulatory approval has been established.
- Review the IIA contingent obligation, grant conditions and potential effect on any sale or transfer of funded technology; confirm the company’s PFIC status with a tax adviser.