{"url_path":"/sec/mbai/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 Operating and Financial","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":1973,"has_tables":true,"body_markdown":"**Item 5. Operating and Financial\nReview and Prospects**\n\n* *\n\n*You should read the following\ndiscussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements\nand related notes included in this Annual Report beginning on page F-1. The following discussion and analysis contain forward-looking\nstatements about our expectations, beliefs or intentions regarding, among other things, our evaluation and pursuit of strategic options,\nincluding the pending Merger with MBody AI, the Parea APA and the ARC ELOC Facility; our ability to consummate the Merger; the operations\nof the combined company following the closing of the Merger; our financing activities and ability to raise capital; our ability to maintain\ncompliance with Nasdaq listing requirements; our results of operations; cash needs; financial condition, liquidity, prospects, growth\nand strategies; the industry in which we operate; our ongoing and planned product development and clinical trials and lack thereof; the\ntiming of, and our ability to make, regulatory filings and obtain and maintain regulatory approvals for our product candidates; our intellectual\nproperty position; the degree of clinical utility of our products, particularly in specific patient populations; our ability to develop\ncommercial functions; and expectations regarding product launch and revenue. In addition, from time to time, we or our representatives\nhave made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking\nwords such as “believe,” “expect,” “intend,” “plan,” “may,” “should”\nor “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these\nstatements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited\nto, various filings made by us with the U.S. Securities and Exchange Commission, or the SEC, press releases or oral statements made by\nor with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events,\nactivities, trends or results as of the date they are made. Our actual results and the timing of selected events could differ materially\nfrom those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 3D “Key\nInformation - Risk factors,” the section titled “Forward-Looking Statement” and elsewhere in this Annual Report.*\n\n** **\n\n**Overview**\n\n \n\nThe Company is a clinical stage medical diagnostics company that develops\nC-Scan®, a capsule-based screening technology for the detection of precancerous colorectal polyps. In June 2023, the Company announced\nit was reducing its workforce significantly to reduce cash burn, concentrating its resources on essential research activities, discontinuing\nits calibration studies, and evaluating and pursuing strategic options. For a more detailed description of the Company’s business\nand strategic alternatives, see Item 4B “Information on Our Company — Business Overview.”\n\n \n\nAs a result of the Company’s evaluation and pursuit of strategic\noptions, the Company entered into the Keystone BCA in August 2023, which was terminated in December 2023 after the transaction did not\nreceive the requisite shareholder approval. In March 2024, the Company entered into the Apollo BCA. During the term of the Apollo BCA,\nthe Company provided loans to Apollo and deposited funds into a segregated account, as described elsewhere in this Annual Report on Form\n20-F. In September 2025, the Company entered into the Parea APA, pursuant to which the Company acquired exclusive Ghost Kitchen area representative\nrights in New Jersey in exchange for the issuance of 1,169,596 ordinary shares. On September 12, 2025, the Company entered into the Merger\nAgreement, pursuant to which MBody AI will become a wholly-owned subsidiary of the Company. The Merger was approved by the Company’s\nshareholders on November 14, 2025, and closing is anticipated in the first half of 2026. In December 2025, the Company entered into the\nPurchase Agreement, pursuant to which ARC committed to purchase up to $30.0 million of the Company’s ordinary shares, subject to\ncertain limitations and conditions.\n\n \n\nSince our formation, we have not generated any significant revenue.\nWe incurred net income of $4.1 million in 2025, and net losses of $25.1 million in 2024, and $17.6 million in 2023, respectively. As of\nDecember 31, 2025, we had an accumulated deficit of approximately $165.9 million and total shareholders’ equity of $3.4 million.\nWe expect that we will continue to incur losses from our operations for the foreseeable future.\n\n \n\nWe have funded our operations to date primarily through equity financings,\nsales of our ordinary shares and warrants, the exercise of warrants and other funding transactions and through grants from the IIA. In\nDecember 2025, we entered into the Purchase Agreement with ARC, which provides for the purchase of up to $30.0 million of the Company’s\nordinary shares over a three-year period, subject to certain limitations and conditions. Our financing activities are described below\nunder “Liquidity and Capital Resources.”\n\n \n\nOur ability to continue as a going concern is dependent upon our ability\nto consummate the Merger, raise additional capital, including through the ARC ELOC Facility, and generate positive cash flows from operations.\nAs further discussed in Note 2 to our consolidated financial statements in this Annual Report, substantial doubt is deemed to exist about\nour ability to continue as a going concern for the one-year period from the date of issuance of these financial statements. In the event\nwe are unable to consummate the Merger or raise additional capital, we may need to pursue a plan to license or sell our assets, seek to\nbe acquired by another entity, cease operations, and/or seek bankruptcy protection.\n\n \n\n76\n\n \n\n \n\nDuring the year ended December 31, 2024, management\nfully impaired the Apollo Loans (as defined below) due to uncertainty surrounding their recoverability, recording a full allowance for\ncredit losses in accordance with ASC 326. During the six months ended June 30, 2025, based on new information regarding Apollo’s financial\ncondition, including a management valuation analysis in September 2025 estimating Apollo’s equity value at approximately $87 million as\nof June 30, 2025, management determined that the original impairment indicators no longer existed and reversed the previously recorded\nimpairment, reinstating the loan receivable at $6,525,000 — being 7.5% of the management-assessed equity value of Apollo at that\ndate — in accordance with ASC 310-10-35-23.\n\n \n\nOn November 14, 2025, following the 98.01% vote\nof Check-Cap shareholders in favour of the Merger at the 2025 Annual General Meeting, the Company recognized a noncash debt-for-equity\nexchange under which the loan receivable of $6,525,000 was derecognized and an equity investment in Apollo was recognized at cost of $6,525,000,\nwith no gain or loss recorded on exchange. A payable to Apollo of approximately $1,400,000 is presented as a standalone liability as of\nDecember 31, 2025, representing amounts paid by Apollo on behalf of the Company, net of settlements during the second half of 2025. For\nfurther discussion of the Apollo loan receivable, the impairment history, and the debt-for-equity exchange, see Note 14 to the consolidated\nfinancial statements and “Results of Operations” below.\n\n \n\nFor a more detailed description of our business\nand plans, see Item 4B “Information on Our Company — Business Overview.”\n\n** **\n\n**A. Operating Results**\n\n** **\n\n**Financial Operations Overview**\n\n** **\n\n**Revenue**\n\n \n\nWe have not generated any\nsignificant revenue since our inception. To date, we have funded our operations primarily through equity financings, as well as from grants\nthat we received from the IIA. If our product development efforts result in clinical success, regulatory approval and the successful commercialization,\nwe expect to generate revenue from sales of C-Scan.\n\n \n\n**Operating Cost and Expenses**\n\n \n\nOur operating costs and expenses\nare classified into two categories: research and development expenses and general and administrative expenses. For each category, the\nlargest component is personnel costs, which consists of salaries, employee benefits and share-based compensation. Operating costs and\nexpenses also include allocated overhead costs for depreciation of equipment. Operating costs and expenses are generally recognized as\nincurred. On March 21, 2023, we announced that following our internal assessment of the clinical data collected from the calibration\nstudies until such date, we had determined that the most recent efficacy results from our calibration studies did not meet the goal to\nproceed to the powered portion of the U.S. pivotal study and, as such, the initiation of the second part of the U.S. pivotal study that\nwas expected in mid-2023 was also temporarily postponed. On June 6, 2023, we announced that after further review of additional data\nand interaction with the FDA on a revised pivotal study protocol together with the anticipated time and investment necessary to further\ndevelop the technology, we were reducing our workforce significantly to reduce cash burn, concentrating our resources on essential research\nactivities, discontinuing our calibration studies, and evaluating and pursuing strategic options. Despite these measures, we expect personnel\ncosts and operating costs to continue to constitute a significant portion of our expenses.\n\n** **\n\n**Research and Development Expenses, Net**\n\n \n\nResearch and development\nactivities have been central to our business model. Our total research and development expenses, net of participations in the years ended\nDecember 31, 2025, 2024, and 2023 were approximately $0, $0, and $8.3 million, respectively. All research and development expenses\nare expensed as incurred. In anticipation of the initiation of the strategic development plan, management terminated the majority of our\nresearch and development activities. For additional information, see “*Information on Our Company - Business - Research and Development.*”\n\n \n\nResearch and development\nexpenses consist primarily of costs incurred for our development activities, including:\n\n \n\n \n●\nemployee-related expenses for research and development staff (including research and development, clinical, operations, production and Q&A staff), including salaries, benefits and related expenses, share-based compensation and travel expenses;\n\n \n\n \n●\npayments associated with clinical activities including payments made to third-party CROs, investigative sites, patients, materials and consultants;\n\n \n\n \n●\npayments associated with the development activities of our advanced C-Scan system and non-clinical activities, including payments made to third-party subcontractors, providers and consultants;\n\n \n\n \n●\nmanufacturing development costs and manufacturing scale up costs;\n\n \n\n \n●\ncosts associated with regulatory operations;\n\n \n\n77\n\n \n\n \n\n \n●\nfacilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities; and\n\n \n\n \n●\ncosts associated with obtaining and maintaining patents.\n\n \n\nOur research and development\nexpenses, net, are net of grants for the research and development for C-Scan and for the transition from research and development to manufacturing\nthat we have received from the Government of Israel through the IIA. Under the terms of the Innovation Law as currently in effect, in\nexchange for the research and development grants we received, we are required to pay the IIA royalties from our revenues up to an aggregate\nof 100% (which may be increased under certain circumstances) of the U.S. dollar-linked value of the grant, plus interest at the rate of\n12-month LIBOR. Pursuant to regulations under the Innovation Law, the rate of royalty repayment is 3% or 4% of revenues (which may be\nincreased under certain circumstances) from sales of products and services based on know-how funded by the IIA research and development\ngrants we have received. As of December 31, 2025, we had received funding from the IIA for the research and development of C-Scan\nin the aggregate amount of approximately $5.6 million. As of December 31, 2025, we had not paid any royalties to the IIA and had\na contingent obligation to the IIA in respect of such research and development grants in the amount of approximately $6.2 million. In\naddition, in January 2021, we received an IIA grant approval to support the funding of our transition from research and development\nto manufacturing. The final IIA grant amounted to $620,000 (NIS 2.25 million) (along with a co-investment by us of the same amount), which\nwe are not required to repay to the IIA, subject to the terms and conditions set forth in the grant approval, of which we received approximately\n$0 (NIS 0) in 2025 and 2024, and $225,000 (NIS 816,075) in February 2023. For additional information regarding the IIA grants, see"}