{"url_path":"/sec/mbai/10-k/2026/item-10e","section_key":"item-10e","section_title":"Item 10E “Additional Information - Taxation - Israeli Tax Considerations and Government Programs - The Encouragement of Research,","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-04-27","source_url":"https://www.sec.gov/Archives/edgar/data/1610590/0001213900-26-048090-index.html","accession_number":"0001213900-26-048090","cik":"0001610590","ticker":"MBAI","issuer_name":"Check-Cap Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1610590/0001213900-26-048090-index.html","primary_entity_key":"0001610590","primary_entity_name":"Check-Cap Ltd"},"word_count":3952,"has_tables":true,"body_markdown":"Item 10E “Additional Information - Taxation - Israeli Tax Considerations and Government Programs - The Encouragement of Research,\nDevelopment and Technological Innovation in the Industry Law 5744-1984 (formerly the Encouragement of Industrial Research and Development\nLaw, 5744-1984).” There can be no assurance that we will continue to receive grants from the IIA in amounts sufficient for our operations,\nif at all. See also Item 3D “Key Information - Risk Factors- Risks Related to Our Operations in Israel-Pursuant to the terms of\nthe Israeli government grants we received for research and development expenditures, we are obligated to pay certain royalties on our\nrevenues to the Israeli government. In addition, the terms of the Israeli government grants we received require us to satisfy specified\nconditions and to make additional payments in addition to repayment of the grants upon certain events.”\n\n** **\n\n**General and Administrative Expenses**\n\n \n\nOur general and administrative\nexpenses consist primarily of salaries and other related costs, including share-based compensation expense, for persons serving as our\ndirectors and executives, finance, legal, human resources and administrative personnel, professional service fees, directors’ and\nofficers’ liability insurance and other general corporate expenses, such as communication, office and travel expenses.\n\n** **\n\n**Finance Income, net**\n\n \n\nOur finance income, net in\nfiscal year 2025, 2024, and 2023consists primarily of interest earned on our cash equivalents and short-term bank deposits and changes\nin provision for royalties.\n\n \n\nForeign currency transactions\nare translated into U.S. dollars using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured.\nForeign exchange gains and losses resulting from the settlement of such transactions and from the translation of year-end exchange rates\nof monetary assets and liabilities denominated in foreign currencies are recognized to “finance income, net” in the consolidated\nstatement of operations.\n\n** **\n\n**Taxes on Income**\n\n \n\nThe standard corporate tax\nrate in Israel is 23% for the 2018 tax year and thereafter.\n\n \n\nWe do not generate taxable\nincome in Israel, as we have historically incurred operating losses resulting in net operating loss carryforwards totaling approximately\n129.6 million as of December 31, 2025. We anticipate that we will be able to carry forward these tax losses indefinitely to future\ntax years. However, a tax loss that can be utilized in a certain tax year cannot be carried forward to future tax years. Accordingly,\nwe do not expect to pay taxes in Israel until we have taxable income after the full utilization of our carry forward tax losses.\n\n \n\nUnder the Law for the Encouragement\nof Capital Investments, 5719-1959 and other Israeli legislation, we may be entitled to certain additional tax benefits, including reduced\ntax rates, accelerated depreciation and amortization rates for tax purposes on certain assets, deduction of public offering expenses in\nthree equal annual installments and amortization of other intangible property rights for tax purposes. See Item 10E “Additional\nInformation - Taxation- Israeli Tax Considerations and Government Programs” for additional information concerning these tax benefits.\n\n** **\n\n**Results of Operations**\n\n \n\nFor convenience purposes,\nthe numbers set forth in the management’s discussion and analysis below are, where applicable, rounded up and presented in millions,\nwhereas the numbers in the tables below are presented in thousands. As result, the percentages set forth in the year-over-year comparisons\nbelow are based on numbers that have (where applicable) been rounded up to millions, which may slightly differ than the percentages that\nwould result from the corresponding numbers set forth in the table that are presented in thousands.\n\n \n\n78\n\n \n\n \n\n*Apollo Loan Receivable\n— Impairment, Reversal, and Debt-for-Equity Exchange*\n\n* *\n\nDuring 2024, the Company\nentered into a series of loan agreements with Apollo Technology Capital Corporation (“Apollo”, formerly known as Nobul AI Corp.)\nin connection with the Apollo BCA (the “Apollo Loans”), including the September 2024 Loan Agreement, the December 2024 Loan\nAgreement, the Third Apollo Loan, and the Fourth Apollo Loan. The aggregate principal of the Apollo Loans totaled approximately $16.3\nmillion. The principal outstanding under each loan bore interest at 5% per annum.\n\n* *\n\n*Initial Impairment (Year\nEnded December 31, 2024)*\n\n* *\n\nDuring the year ended December\n31, 2024, management determined that, due to uncertainty surrounding the recoverability of the Apollo Loans, the appropriate course was\nto fully impair the outstanding loan balances. At that time, Apollo exhibited severe financial distress, recurring operating losses, and\nnegative working capital. In accordance with ASC 326, Financial Instruments — Credit Losses, management recorded a full allowance\nfor credit losses of $16.5 million, reducing the net carrying value of the Apollo Loans to zero. The impairment was recognized within\n“Impairment of loans receivable” in the consolidated statement of operations for the year ended December 31, 2024.\n\n* *\n\n*Reversal of Impairment\n(Six Months Ended June 30, 2025)*\n\n* *\n\nDuring the six months ended\nJune 30, 2025, new information regarding Apollo’s financial condition became available, including a management valuation analysis in September\n2025 which estimated Apollo’s equity value at approximately $87 million as of June 30, 2025. This represented a significant improvement\ncompared to the conditions that existed as of December 31, 2024. Management determined that the original impairment indicators no longer\nexisted and that the previously impaired receivable should be re-recognized in accordance with ASC 310-10-35-23. Accordingly, the Company\nreversed the previously recorded impairment and reinstated the recoverable portion of the loan receivable at $6.5 million, representing\n7.5% of the management-assessed equity value of Apollo at June 30, 2025. The reversal of impairment of $6.5 million was recognized as\na credit loss recovery in the consolidated statement of operations. The reinstated loan receivable was presented net of a payable owed\nby the Company to Apollo of $2.2 million, giving a net carrying value of $4.3 million as reported in the Form 6-K filed December 30, 2025.\n\n* *\n\n*Debt-for-Equity Exchange\n(November 14, 2025)*\n\n* *\n\nOn June 30, 2025, the Company\nentered into an Exchange Agreement (the “Exchange Agreement”) with Apollo under which the exchange indebtedness — comprising\nthe Apollo Loans and certain third-party notes held for the benefit of the Company, totaling approximately $16.3 million in aggregate\nprincipal — would be exchanged for common shares of Apollo representing a 7.5% shareholding at the date of issuance. The Exchange\nAgreement was conditional on the completion of the Merger .\n\n* *\n\nOn November 14, 2025, Check-Cap\nshareholders voted 98.01% in favor of the Merger at the 2025 Annual General Meeting, at which point the closing condition in the Exchange\nAgreement ceased to be substantive. Accordingly, the Company recognized the debt-for-equity exchange for accounting purposes on November\n14, 2025. The loan receivable of $6.5 million was derecognized and an equity investment in Apollo was recognized at cost of $6.5 million\n— being the carrying value of the consideration surrendered — with no gain or loss recorded on exchange.\n\n \n\nThe equity investment in\nApollo is carried at cost of $6.5 million under the ASC 321 measurement alternative. A payable to Apollo of approximately $1.4 million\nis presented as a standalone liability as of December 31, 2025, representing amounts paid by Apollo on behalf of the Company, net of settlements\nduring the second half of 2025. The closing of the Merger remains subject to Nasdaq listing approval for the combined entity; no further\naccounting impact is anticipated from the closing. For further information, see Note 14 to the consolidated financial statements.\n\n \n\n79\n\n \n\n \n\n**Year Ended December 31, 2025 Compared\nto Year Ended December 31, 2024**\n\n** **\n\n  \nYear Ended December 31, \n\n  \n2025  \n2024 \n\n  \n(US$ in thousands,\nexcept per share data) \n\nResearch and development expenses, net \n$-  \n$- \n\nGeneral and administrative expenses \n 2,373  \n 9,462 \n\nOperating income (loss) \n (2,373) \n (9,462)\n\nImpairment of loans receivable \n -  \n (16,487)\n\nIncome on Debt Extinguishment and Conversion \n 6,525  \n - \n\nFinance income, net \n (12) \n 800 \n\nNet income (loss) \n$4,140  \n$(25,149)\n\n \n\n*Operating Income (Loss)*.\nOur operating loss for the year ended December 31, 2025 was approximately $2.4 million, as compared with approximately $9.5 million\nfor the year ended December 31, 2024, a decrease of approximately $7.1 million. The decrease was primarily attributable to lower\ngeneral and administrative expenses in 2025.\n\n* *\n\n*Finance Income, net*.\nOur finance income, net for the year ended December 31, 2025 was approximately $0.01 million, as compared to approximately $0.8 million\nfor the year ended December 31, 2024, a decrease of approximately $0.8 million. The decrease was primarily attributable to higher\nbank charges exceeding interest income in 2025, as well as lower interest income on short-term deposits.\n\n* *\n\n*Net Income (Loss)*.\nOur net income for the year ended December 31, 2025 was approximately $4.1 million, as compared to a net loss of approximately $25.1\nmillion for the year ended December 31, 2024, an increase of approximately $29.3 million.\n\n \n\n80\n\n \n\n \n\n*Research and\nDevelopment Expenses, net.* Research and development expenses, net for the years ended December 31, 2025 and 2024 were $0.\n\n \n\n  \n2025  \n2024  \nChange \n\n  \n(US$ in thousands) \n\nSalaries and related expenses \n$200  \n$799  \n$(599)\n\nShare-based compensation \n (12) \n 12  \n (24)\n\nProfessional services \n -  \n -  \n - \n\nOffice rent and maintenance \n 105  \n 81  \n 24 \n\nDepreciation \n -  \n 161  \n (161)\n\nAmortization \n 34  \n -  \n 34 \n\nOther general and administrative expenses \n 2,046  \n 8,409  \n (6,363)\n\nTotal general and administrative expenses \n$2,373  \n$9,462  \n$(7,089)\n\n \n\n*General and Administrative\nExpenses*. Our general and administrative expenses for the year ended December 31, 2025 were approximately $2.4 million, as compared\nto approximately $9.5 million for the year ended December 31, 2024, a decrease of approximately $7.1 million. The decrease was primarily\nattributable to lower other general and administrative expenses, as well as decreases in salaries and related expenses and depreciation.\n\n \n\n**Year Ended December 31, 2024 Compared to Year Ended December 31,\n2023**\n\n** **\n\n  \nYear Ended December 31, \n\n  \n2024  \n2023 \n\n  \n(US$ in thousands,\nexcept per share data) \n\nResearch and development expenses, net \n$-  \n$8,311 \n\nGeneral and administrative expenses \n 9,462  \n 9,550 \n\nImpairment of fixed assets \n -  \n 1,426 \n\nOperating loss \n 9,462  \n 19,287 \n\nImpairment of loans receivable \n (16,487) \n - \n\nFinance income, net \n 800  \n 1,719 \n\nNet loss \n$25,149  \n$17,568 \n\n \n\n*Operating Loss*. Our\noperating loss for the year ended December 31, 2024 was approximately $9.5 million, as compared with approximately $19.3 million\nfor the year ended December 31, 2023, a decrease of approximately $9.8 million. The decrease was primarily attributable to the absence\nof research and development expenses in 2024.\n\n* *\n\n*Finance Income, net*.\nOur finance income, net for the year ended December 31, 2024 was approximately $0.8 million, as compared to approximately $1.7 million\nfor the year ended December 31, 2023, a decrease of approximately $0.9 million. The decrease was primarily attributable to lower\ninterest income on short-term bank deposits.\n\n \n\n81\n\n \n\n* *\n\n*Net loss*. Our net\nloss for the year ended December 31, 2024 was approximately $25.1 million, as compared to approximately $17.6 million for the year\nended December 31, 2023, an increase of approximately $7.6 million.\n\n \n\n  \n2024  \n2023  \nChange \n\n  \n(US$ in thousands) \n\nSalaries and related expenses \n$-  \n$4,926  \n$(4,926)\n\nShare-based compensation \n -  \n (144) \n 144 \n\nMaterials \n -  \n 1,530  \n (1,530)\n\nSubcontractors and consultants \n -  \n 800  \n (800)\n\nDepreciation \n -  \n 121  \n (121)\n\nCost for registration of patents \n -  \n 78  \n (78)\n\nOther research and development expenses \n -  \n 983  \n (983)\n\nTotal research and development expenses \n -  \n 8,294  \n (8,294)\n\nLess participation of the IIA (formerly the OCS) \n -  \n 17  \n (17)\n\nTotal research and development expenses, net \n$-  \n$8,311  \n$(8,311)\n\n \n\n*Research and Development\nExpenses, net*. Research and development expenses, net for the year ended December 31, 2024 were approximately $0, as compared\nwith approximately $8.3 million for the year ended December 31, 2023, a decrease of $8.3 million or 100%. The decrease in research\nand development expenses, net between 2024 and 2023 was primarily due to absence of research and development activities during the year.\n\n \n\n  \n2024  \n2023  \nChange \n\n  \n(US$ in thousands) \n\nSalaries and related expenses \n$799  \n$2,055  \n$(1,256)\n\nShare-based compensation \n 12  \n 87  \n (75)\n\nProfessional services \n -  \n 4,383  \n (4,383)\n\nOffice rent and maintenance \n 81  \n 235  \n (154)\n\nDepreciation \n 161  \n 88  \n 73 \n\nOther general and administrative expenses \n 8,409  \n 2,702  \n 5,707 \n\nTotal general and administrative expenses \n$9,462  \n$9,550  \n$(88)\n\n \n\n*General and Administrative\nExpenses*. Our general and administrative expenses for the year ended December 31, 2024 were approximately $9.5 million, as compared\nto approximately $9.6 million for the year ended December 31, 2023. While other general and administrative expenses increased by\n$5.7 million, this was largely offset by lower professional services, office rent, and salaries and related expenses.\n\n** **\n\n**B. Liquidity and Capital Resources**\n\n** **\n\n**Sources of Liquidity**\n\n \n\nTo date, we have funded our\noperations primarily through equity financings consummated prior to our initial public offering, our initial public offering, private\nplacements, registered direct and underwritten public offerings, our warrant exercise transaction and grants that we received from the\nIIA (formerly the OCS) and the BIRD Foundation. In addition, in December 2025 we entered into the Purchase Agreement to establish the\nARC ELOC Facility. As of December 31, 2025, we had approximately $1,600 of cash and cash equivalents, including restricted cash,\nand had invested most of our available cash in short term bank deposits.\n\n \n\nDuring the first quarter of 2021, certain warrant holders exercised\nwarrants to purchase 1,210,235 ordinary shares at exercise prices ranging from $15 to $16 per share, for total gross proceeds of approximately\n$19.2 million. On July 2, 2021, we consummated a registered direct offering of 1,296,297 ordinary shares and warrants to purchase up to\n1,296,297 ordinary shares at a combined purchase price of $27 per share and accompanying warrant, for aggregate gross proceeds of approximately\n$35.0 million, or the July 2021 Offering. On March 3, 2022, we consummated a registered direct offering of 1,000,000 ordinary shares and\nwarrants to purchase up to 750,000 ordinary shares at a combined purchase price of $10 per share and accompanying warrant, for aggregate\ngross proceeds of $10.0 million, or the March 2022 Offering. In connection with the March 2022 Offering, certain warrants to purchase\nup to 926,297 ordinary shares issued in the July 2021 Offering were amended to have a reduced exercise price of $13 per share and an extended\nexercise period to January 2, 2025. As of December 31, 2025, warrants to purchase 84,996 ordinary shares remained outstanding.\n\n \n\n82\n\n \n\n \n\nSince our inception through\nDecember 31, 2025, we had received funding from the IIA for research and development of C-Scan in the aggregate amount of approximately\n$5.6 million, of which $31,000 was received in the year ended December 31, 2020. We did not receive IIA funding for research and\ndevelopment for the years ended December 31, 2025 and 2024. As of December 31, 2025, we had not paid any royalties to the IIA\nand had a contingent obligation to the IIA with respect to such funding in the amount of approximately $6.2 million. In addition, in January 2021,\nwe received an IIA grant approval to support the funding of our transition from research and development to manufacturing. The final IIA\ngrant amounted to $620,000 (NIS 2.25 million) (along with a co-investment by us of the same amount), which we are not required to repay\nto the IIA, subject to the terms and conditions set forth in the grant approval, of which we received approximately $0 (NIS 0) in 2025\nand 2024, and $225,000 (NIS 816,075) in February 2023. Royalties associated with the grant plan mentioned are not anticipated to\nbe payable in the foreseeable future and have been accounted for as a reduction in research and development expenses in the corresponding\nyears.\n\n \n\nOn July 13, 2014, we\nentered into a cooperation and project funding agreement with the BIRD Foundation and Synergy and during 2014-2017, we, together with\nSynergy, had received funding from the BIRD Foundation in the aggregate amount of approximately $127,000. We do not anticipate to receive\nadditional funding from the BIRD Foundation for the project, which is no longer active. As of December 31, 2025, the Company had\nnot paid any royalties to the BIRD Foundation and had a contingent obligation to the BIRD foundation in the amount of approximately $209,000.\nRoyalties associated with the grant plan mentioned are not anticipated to be payable in the foreseeable future and have been accounted\nfor as a reduction in research and development expenses in the corresponding years.\n\n \n\nWe are a clinical and development-stage\nmedical diagnostics company and have not yet generated revenues. We have historically incurred net losses since we commenced operations\nin 2009. We incurred net income of $4.1 million in 2025, and net losses of $25.1 million and $17.6 million in 2024 and 2023, respectively.\nAs of December 31, 2025, our accumulated deficit was $165.9 million. The extent of our future operating losses and the timing of\nbecoming profitable are uncertain.\n\n \n\nAs further discussed in Note\n2 to our consolidated financial statements in this Annual Report, substantial doubt is deemed to exist about our ability to continue as\na going concern for the one-year period from the date of issuance of these financial statements. Our ability to continue as a going concern\nis dependent upon our ability to consummate the Merger, raise additional capital, including through the ARC ELOC Facility, and generate\npositive cash flows from operations.\n\n \n\nFurthermore, Management has\ndetermined that, due to uncertainty surrounding the recoverability of the loans related to the September 2023 Loan Agreement, the December\n2024 Loan Agreement, the First July 2025 Loan Agreement and the Second July 2025 Loan Agreement (collectively the “Apollo Loans”),\nthe appropriate and conservative course is to fully impair the Apollo Loans as of December 31, 2024. This assessment was made in accordance\nwith Accounting Standards Codification (“ASC”) 326 Financial Instruments — Credit Losses. During the six months ended\nJune 30, 2025, new information regarding Apollo’s financial condition became available, including a management valuation analysis in September\n2025 which estimated Apollo’s equity value at approximately $87 million as of June 30, 2025. This represented a significant improvement\ncompared to the conditions that existed as of December 31, 2024. Management determined that the original impairment indicators no longer\nexisted and that the previously impaired receivable should be re-recognized in accordance with ASC 310-10-35-23. Accordingly, the Company\nreversed the previously recorded impairment and reinstated the recoverable portion of the loan receivable at $6.5 million, representing\n7.5% of the management-assessed equity value of Apollo at June 30, 2025. The reversal of impairment of $6.5 million was recognized as\na credit loss recovery in the consolidated statement of operations. The reinstated loan receivable was presented net of a payable owed\nby the Company to Apollo of $2.2 million, giving a net carrying value of $4.3 million as reported in the Form 6-K filed December 30, 2025.\nSee “Results of Operations” for additional information on the Apollo Loans.\n\n \n\nAs we continue to conserve\ncash and evaluate strategic alternatives, including the Merger, we anticipate that we will need to raise substantial additional financing\nin the future to fund our operations. In order to meet these additional cash requirements, we may incur debt, license certain intellectual\nproperty, and seek to sell additional equity or convertible securities that may result in dilution to our shareholders. If we raise additional\nfunds through the issuance of equity or convertible securities, these securities could have rights or preferences senior to those of our\nordinary shares and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional\nequity or debt financing on terms acceptable to us, if at all. Our future capital requirements will depend on many factors, including:\n\n \n\n \n●\nour ability to obtain funding from third parties, including any future collaborative partners;  \n\n \n\n \n●\nour ability to consummate the Merger and integrate the operations of MBody AI;\n\n \n\n \n●\ncosts associated with the Merger and related transactions;\n\n \n\n \n●\nour ability to raise capital through the ARC ELOC Facility or other financing transactions;\n\n \n\n \n●\nthe costs of operating the Ghost Kitchen area representative business;\n\n \n\n83\n\n \n\n \n\n \n●\nthe costs of filing, prosecuting, defending and enforcing patents, patent applications, patent claims, trademarks and other intellectual property rights;\n\n \n\n \n●\nany product liability or other lawsuits related to our product;\n\n   \n\n \n●\nthe expenses needed to attract and retain skilled personnel;\n\n \n\n \n●\nthe costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution;\n\n \n\n \n●\nthe revenue, if any, received from commercial sales of our product;\n\n \n\n \n●\nthe general and administrative expenses related to being a public company;\n\n \n\n \n●\nthe effect of competition and market developments\n\n \n\n \n●\nfuture clinical trial results, if any; and\n\n \n\n \n●\nthe political and security situation in Israel.\n\n** **\n\n**Historical Cash Flows**\n\n \n\nThe following table summarizes\nour statement of cash flows for the years ended December 31, 2025, 2024, and 2023.\n\n \n\n  \nYear Ended December 31, \n\n  \n2025  \n2024  \n2023 \n\n  \n**US$ (in thousands)** \n\nNet cash used in operating activities \n$(46) \n$(8,004) \n$(16,954)\n\nNet cash used in investing activities \n$48  \n$(840) \n$21,356 \n\nNet cash provided by financing activities \n$-  \n$-  \n$- \n\n \n\n*Operating Activities*\n\n \n\nNet cash used in operating\nactivities for the year ended December 31, 2025 was $0.05 million, as compared to $8.0 million for the year ended December 31,\n2024. The decrease was primarily attributable to lower operating costs.\n\n* *\n\n*Investing Activities*\n\n \n\nNet cash flows from investing\nactivities for the year ended December 31, 2025 were approximately $0.05 million, as compared to net cash used in investing activities\nof approximately $0.8 million for the year ended December 31, 2024. The increase was primarily attributable to lower investment in short-term\nbank deposits in 2025.* *\n\n* *\n\n*Financing Activities*\n\n \n\nThere was no net cash provided\nby financing activities for the years ended December 31, 2025 and 2024.\n\n \n\nWe expect that our sources\nof cash for the year ended December 31, 2025 will include cash held in our bank accounts and may include proceeds from the exercise\nof warrants. \n\n \n\n84\n\n \n\n** **\n\n**Capital and Operating Expenditures**\n\n \n\nWe expect to incur losses\nfrom operations for the foreseeable future.\n\n \n\nOur expected future expenditures\nrelated to product, clinical and regulatory clearances include the following:\n\n \n\n \n●\ncompletion of the clinical development of C-Scan;\n\n \n\n \n●\nconducting clinical trials in the United States and other territories for purposes of regulatory approval and post-marketing validation;\n\n \n\n \n●\ndevelopment of advanced version and future generations of C-Scan and future products;\n\n \n\n \n●\nFDA and additional regulatory filing activities in countries we intend to commercialize our system;\n\n \n\n \n●\nManufacturing scale up costs; and\n\n \n\n \n●\nCapital expenditures.\n\n \n\nFor additional information\non the capital expenditures related to our strategics transactions, see Item 3D “Key Information - Risk Factors-Risks Related to\nOur Financial Position.”\n\n \n\nWe have operating lease obligations\nconsisting of payments pursuant to a lease agreement for office facilities in effect as of December 31, 2025. See Note 5 to our audited\nconsolidated financial statements presented elsewhere in this Annual Report.\n\n** **\n\n**Royalties provision**\n\n* *\n\n*Provision for royalties to an ASIC designer*\n\n \n\nIn December 2007, we\nentered into an agreement for the development of an ASIC component to be used as an amplifier for the capture of signals at low frequencies\nfrom X-ray detectors contained in our product. The ASIC developer is entitled to receive royalties from us in the amount of €0.5\n(approximately $0.53) for every ASIC component that we will sell, up to €200,000 (approximately $213,299). The net present value\nof the royalty liability to the ASIC designer is dependent upon our management estimates and assumption as to future product shipments\nand interest rates used to calculate the present value of the cash payments required to repay the royalties to the ASIC designer. In calculating\nthe present value of future royalty payments to the ASIC designer, we used a discount factor of 17.6%, commensurate with our risk at the\ndate of initial recognition of the liability. Any updates in the expected product shipments and the liability will be recorded to profit\nand loss each period.\n\n \n\nAs more information is gathered\nto assist our management in making forecasts, the liability will be updated.\n\n \n\n**C. Research and development, patents and licenses,\netc.**\n\n \n\nFor a description of our\nresearch and development programs and the amounts that we have incurred over the last three years pursuant to those programs, see Item\n4B “Information on Our Company-Business Overview-Research and Development.”\n\n** **\n\n**D. Trend Information**\n\n \n\nOur results of operations\nand financial condition may be affected by various trends and factors discussed in Item 3D “Key Information-Risk factors,”"}