20-F: Check-Cap Reports $25.1M Loss, Impairs Nobul Loans

Check-Cap Ltd. reported a $25.1 million net loss for 2024, fully impaired $16.5 million in loans to Nobul AI Corp., and faces Nasdaq delisting threats while pursuing a business combination.

Summary

• Check-Cap Ltd. is a clinical-stage medical diagnostics company that has discontinued the development of its C-Scan colorectal cancer (CRC) screening technology and currently has no active studies or manufacturing capabilities.
• The company reported a net loss of $25.1 million for the fiscal year ended December 31, 2024, an increase from $17.6 million in 2023 and $19.1 million in 2022.
• As of December 31, 2024, the accumulated deficit reached $170.0 million, and total shareholders' deficit was $1.5 million.
• Cash and cash equivalents were $0, and short-term bank deposits were $265,000 as of December 31, 2024.
• Management has fully impaired approximately $16.5 million in loans and accrued interest receivable provided to Nobul AI Corp. due to significant uncertainty regarding recoverability, despite the loans being in good standing.
• The company is pursuing a business combination with Nobul AI Corp., where Check-Cap shareholders are expected to own approximately 15% of Nobul, and Nobul security holders approximately 85% of Check-Cap, subject to net cash targets.
• Check-Cap faces Nasdaq non-compliance for its minimum bid price and failure to timely file its Form 20-F, with a compliance deadline of October 6, 2025, for the bid price and an extended deadline of August 31, 2025, for the filing.
• A significant workforce reduction was implemented in June 2023 to reduce cash burn and concentrate resources on essential research activities and strategic options.

Sentiment

Score: 1

Explanation: The company is in severe financial distress, has ceased core operations (R&D, manufacturing), faces Nasdaq delisting, and has impaired significant loans to its potential merger partner. The going concern warning is explicit, and the future is highly uncertain with no clear path to profitability or product commercialization.

Positives

• The company received FDA Breakthrough Device designation for C-Scan in February 2021, indicating its potential for more effective treatment or diagnosis of life-threatening conditions.
• The pursuit of a business combination with Nobul AI Corp. represents a strategic effort to find a path forward for the company, potentially providing a new direction and access to resources.
• The company has a history of receiving grants from the Israeli Innovation Authority (IIA) and BIRD Foundation for R&D, totaling approximately $5.6 million and $0.11 million respectively, which supported its historical development efforts.

Negatives

• Reported a net loss of $25.1 million for 2024, an increase from previous years, and an accumulated deficit of $170.0 million as of December 31, 2024.
• The company has $0 in cash and cash equivalents as of December 31, 2024, indicating severe liquidity issues.
• Management fully impaired $16.5 million in loans and accrued interest to Nobul AI Corp. due to significant uncertainty regarding recoverability, impacting financial position.
• Discontinued development of its C-Scan technology and calibration studies after efficacy results did not meet goals for the U.S. pivotal study.
• Implemented a significant workforce reduction (approximately 90%) in June 2023 to reduce cash burn.
• Received a Nasdaq non-compliance letter for failing to maintain a minimum bid price of $1.00 per share and a delinquency letter for failing to file its Annual Report on Form 20-F for 2024 on time, risking delisting.
• Faces multiple legal proceedings, including a derivative claim against directors and Nobul, claims from former executives, and a lease dispute with its landlord for unpaid rent.

Risks

• Consummation of the business combination with Nobul is subject to conditions that may not be satisfied, potentially leading to its termination.
• Shareholders will have a reduced ownership and voting interest (approximately 15%) in the combined company post-Nobul merger.
• Restrictions in the Nobul Business Combination Agreement may prevent the company from entering into alternative business combinations or issuing equity securities during its pendency.
• The cross-border nature of the Nobul business combination introduces additional risks, including higher compliance costs, tax issues, currency fluctuations, and employment regulations.
• Substantial dependence on remaining key employees to complete the strategic transaction, with a risk of losing personnel on short notice.
• If the Nobul business combination is not completed, significant additional funding will be required to complete product development, manufacturing, and commercialization, which may not be available on acceptable terms, or at all, potentially leading to cessation of operations or liquidation.
• The company has a history of losses and may incur future losses, with substantial doubt about its ability to continue as a going concern.
• Inability to recover amounts loaned to Nobul, which are unsecured and fully impaired by management.
• Ongoing legal dispute with the landlord of the Isfiya facility regarding unpaid rent, potentially resulting in loss of access to premises.
• Clinical failure can occur at any stage of development, and there is no assurance that the C-Scan study can be redesigned or technology redeployed into viable products.
• Limited manufacturing experience and capabilities, and reliance on sole or single-source suppliers, could harm ability to scale up or conduct future clinical trials.
• Potential product liability claims from the use of C-Scan or new products, for which the company does not currently maintain product liability insurance.
• Reliance on third parties for clinical studies, data analysis, and patient enrollment, which may lead to costs and delays beyond control.
• Challenges in managing international operations if products are commercialized in the United States, Europe, Israel, and Japan.
• Difficulty in establishing and maintaining strategic partnerships, which could adversely affect product development and commercialization.
• Security breaches or disruptions in computer/communications systems could adversely affect operations, data, and reputation.
• Adverse effects from natural disasters, health epidemics, or pandemics on operations and workforce.
• Shareholder activism could cause operational disruption and divert management's attention.
• Failure to obtain and maintain necessary regulatory clearances or approvals (e.g., FDA, CE Mark, AMAR) for C-Scan or future products.
• Risk that the iodinated oral contrast medium used with C-Scan may be considered off-label by regulatory authorities, requiring additional approvals.
• Modifications to C-Scan or future products may require new regulatory clearances or approvals, leading to delays or recalls.
• Non-compliance with radiation safety or radio frequency regulations could impair clinical trials or commercial distribution.
• Products may be subject to recalls, harming reputation and financial results.
• Failure to comply with medical device reporting regulations for adverse events or malfunctions could lead to corrective or enforcement actions.
• Subject to complex environmental and health legislation, including for radioactive materials, which may increase costs and risks of noncompliance.
• Federal and state privacy laws (e.g., HIPAA, GDPR) may increase operational costs and expose the company to sanctions.
• Failure to comply with anti-kickback statutes and similar laws could result in criminal/civil penalties and exclusion from healthcare programs.
• Inability to protect intellectual property rights could harm competitive position, and susceptibility to intellectual property suits.
• Operations in Israel are subject to political, economic, and military instability, which could adversely affect business.
• Obligation to pay royalties to the Israeli government for R&D grants and restrictions on transferring manufacturing or know-how outside Israel.
• Rights and responsibilities as a shareholder are governed by Israeli law, which differs from U.S. company shareholder rights.
• Difficulty in enforcing U.S. court judgments against the company or its Israeli officers/directors in Israel.
• Provisions of Israeli law and articles of association may delay or prevent mergers or acquisitions.
• Potential claims for compensation for assigned service inventions by current or former employees.
• Significant costs and management time incurred as a U.S. public company, with risks if effective internal control over financial reporting is not maintained.
• Fluctuations in exchange rates (U.S. dollar, NIS, Euro) and inflation may negatively affect earnings.
• No intention to pay cash dividends in the foreseeable future, limiting return on investment to share value appreciation.
• Stock price volatility and potential for substantial losses for purchasers of securities.
• Inactive, illiquid, and disorderly trading market for ordinary shares.
• Broad discretion in using financing proceeds, which may not be effective.
• Adverse effects from current or future unfavorable economic and market conditions, including liquidity risk from financial institutions.
• Risk of being treated as a domestic (U.S.) corporation for U.S. federal income tax purposes due to past reorganization.
• Risk of classification as a Passive Foreign Investment Company (PFIC), resulting in adverse U.S. federal income tax consequences for U.S. investors.

Future Outlook

The company's future is highly uncertain, with a substantial doubt about its ability to continue as a going concern. It is actively pursuing a business combination with Nobul AI Corp., which, if consummated, would result in Check-Cap becoming a wholly-owned subsidiary of Nobul and its delisting from Nasdaq. The company anticipates needing substantial additional financing through equity offerings, debt financings, collaborations, or asset sales to fund operations if the merger is not completed or if it decides to resume product development. Profitability is not expected in the foreseeable future.

Management Comments

• Management has determined that the appropriate and conservative course of action is to fully impair the Nobul loan receivable and related accrued interest as of December 31, 2024, due to significant uncertainty surrounding recoverability.
• Our management and board of directors have concluded that a substantial doubt is deemed to exist concerning our ability to continue as a going concern.

Industry Context

The colorectal cancer (CRC) screening market is highly competitive, with established methods like colonoscopy and emerging non-invasive technologies. Check-Cap's C-Scan, an ultra-low-dose X-ray capsule, aimed to address low screening adherence due to invasiveness and bowel preparation requirements of traditional methods. However, the company faces intense competition from new non-invasive tests, such as Guardant Health's blood test (83% sensitivity for CRC, 90% specificity) and Geneoscopy Inc.'s stool-based test (94% sensitivity for CRC, 45% for advanced adenoma, 88% specificity), both of which have recently received or are strongly recommended for FDA approval. These advancements, coupled with ongoing efforts to develop less onerous bowel cleansing procedures, intensify the market challenge for any potential re-entry of C-Scan.

Comparison to Industry Standards

• C-Scan's post-CE approval study showed a sensitivity of 76% for polyps ≥10 mm and 66% for all polyps, compared to FIT's 29% and 23% respectively, indicating C-Scan's superior detection for larger polyps over FIT.
• C-Scan's average total X-ray dose of 0.05 mSv is significantly lower than CT colonography's effective dose of ~6.0 mSv, positioning it as a lower-radiation alternative.
• Guardant Health's blood test demonstrated 83% sensitivity in detecting CRC and 13% sensitivity in detecting advanced adenomas, with 90% specificity, which is a strong competitive offering in the non-invasive space.
• Geneoscopy Inc.'s stool-based test showed 94% sensitivity for detecting CRC and 45% sensitivity for advanced adenomas, with 88% specificity, presenting another highly effective non-invasive option that has received FDA approval.

Management Changes

Corporate Governance

Legal Proceedings

• A derivative claim was received on October 7, 2024, against the directors and Nobul for over NIS 2.5 million (~$690,000), alleging corporate governance issues, entity level control, validity of board decisions, and legality of the Nobul BCA and cash transactions. The company denies these claims.
• Two former executives filed claims in 2024 seeking approximately NIS 295,000 and NIS 325,000, respectively, for alleged unpaid director fees/salary and an unpaid notice period. The company denies these allegations.
• A former legal services provider is seeking approximately NIS 175,000 for alleged unpaid fees, currently in mediation.
• The company ceased rent payments for its Isfiya facility in September 2024, leading to an eviction complaint filed by the landlord on June 12, 2025, claiming NIS 207,610 (~$60,000) for unpaid rent and damages.

Related Party Transactions

• The company provided approximately $16.3 million in total loan funding to Nobul AI Corp. as of December 31, 2024, through a series of loan agreements (September 2024, December 2024, July 2025 First, July 2025 Second), which has been fully impaired.
• An amending letter to the Nobul BCA obligated Check-Cap to deposit $11.0 million into a segregated bank account for Nobul's acquisition targets or growth initiatives.
• Certain shareholders of Check-Cap are also shareholders of Nobul AI Corp.
• In 2009, as part of the Reorganization, the company committed to reimburse former unit holders of Check-Cap LLC for tax burdens, with a current liability of $0 as of December 31, 2024, due to no expected profitability in 2025.
• Sigalit Kimchy, wife of the company's former Chief Technology Officer Yoav Kimchy, is employed as marcom and user interface lead in a part-time role.

Stakeholder Impact

• Shareholders face significant dilution and reduced ownership/voting interest in the combined entity if the Nobul merger is consummated.
• Shareholders are exposed to substantial financial losses due to recurring net losses, accumulated deficit, and the full impairment of $16.5 million in loans to Nobul.
• Employees have experienced significant workforce reductions, impacting job security and morale.
• Creditors, particularly the landlord of the Isfiya facility, are impacted by unpaid rent and ongoing legal disputes.
• Regulatory bodies (SEC, Nasdaq) are actively monitoring the company's compliance with listing and reporting requirements, with potential delisting impacting investors and market access.

Next Steps

• Consummation of the business combination with Nobul AI Corp., subject to shareholder and regulatory approvals.
• Regaining compliance with Nasdaq's minimum bid price requirement by October 6, 2025.
• Filing the Annual Report on Form 20-F for the year ended December 31, 2024, by August 31, 2025, to regain Nasdaq compliance.
• Resolving ongoing legal proceedings, including a derivative claim, former executive compensation claims, a legal fee dispute, and a lease dispute.
• Potentially seeking additional equity or debt financing, entering into strategic alliances, or selling assets if the Nobul merger is not completed or if product development is resumed.

Key Dates

Recommendation

Check-Cap Ltd. is in a critical state, marked by recurring and increasing net losses, a substantial accumulated deficit, and zero cash and cash equivalents. The full impairment of $16.5 million in loans to its proposed merger partner, Nobul AI Corp., signals severe financial distress and questionable asset recoverability. The company has ceased development of its core product, C-Scan, and faces imminent threats of delisting from Nasdaq due to both minimum bid price non-compliance and failure to file its annual report on time. Multiple legal proceedings further compound its precarious position. While a business combination with Nobul is being pursued, the terms indicate significant dilution for existing shareholders, and the overall viability remains highly uncertain. Given the cessation of operations, severe liquidity issues, significant financial write-offs, and regulatory non-compliance, the stock presents an extremely high risk with little to no discernible upside in the near to medium term.

Keywords

Colorectal Cancer Screening, Medical Diagnostics, C-Scan, X-ray Capsule, Nobul AI Corp, Business Combination, Nasdaq Delisting, Financial Losses, Going Concern, SEC Filing, Clinical Stage, Workforce Reduction, Loan Impairment, Israel Innovation Authority, Corporate Governance