Executive Summary / Key Takeaways

• Check-Cap Ltd. (NASDAQ:CHEK) is undergoing a critical strategic transformation, shifting from a clinical-stage medical diagnostics company focused on its C-Scan colorectal cancer (CRC) screening technology to becoming a wholly-owned subsidiary of Apollo Technology Capital Corporation (Nobul) via a pending business combination.
• The company's pivot was necessitated by significant clinical trial setbacks for its C-Scan system, leading to the discontinuation of its development, a substantial workforce reduction, and severe financial distress, including recurring net losses and a negative cash position.
• The proposed merger with Nobul, expected to result in Check-Cap security holders owning approximately 15% of the combined entity, represents a speculative investment in a new, diversified business direction, moving away from its legacy medical device focus.
• Significant risks persist, including the uncertainty of the Nobul merger's consummation, potential Nasdaq delisting due to non-compliance, ongoing legal disputes, and the complete impairment of $16.30 million in loans provided to Nobul.
• Investors face a highly speculative outlook, with the company's future value tied almost entirely to the success of the Nobul combination and its ability to secure future financing, rather than the commercialization of its original C-Scan technology.

A New Chapter: Check-Cap's Strategic Reorientation

Check-Cap Ltd. was founded with an ambitious vision: to revolutionize colorectal cancer (CRC) screening through its innovative C-Scan System. This clinical-stage medical diagnostics company aimed to offer a patient-friendly, non-invasive, and preparation-free capsule-based solution, leveraging ultra-low-dose X-rays to detect precancerous polyps. The C-Scan System, comprising the ingestible C-Scan Cap, the wearable C-Scan Track, and the proprietary C-Scan View software, promised a significant departure from traditional, often invasive, screening methods like colonoscopy, which many patients avoid due to discomfort and bowel preparation requirements.

The company's journey saw initial promise, securing a CE Mark for marketing in the European Union in January 2018 and approval from the Israeli Ministry of Health (AMAR) in September 2018. The U.S. Food and Drug Administration (FDA) granted C-Scan a Breakthrough Device designation in February 2021, recognizing its potential for more effective diagnosis of life-threatening conditions. Early clinical studies highlighted C-Scan's unique benefits: a low radiation exposure of approximately 0.03-0.05 mSv, comparable to a single chest X-ray and significantly lower than CT colonography's 6 mSv. Studies also demonstrated sensitivities ranging from 44% to 76% for polyps, with specificity around 82-89%, and improved colon imaging coverage with advanced versions of the capsule. The strategic intent was clear: to increase screening adherence and enable earlier detection of polyps, thereby preventing CRC.

However, this promising trajectory encountered a critical hurdle. On March 21, 2023, Check-Cap announced that the efficacy results from its calibration studies for the U.S. pivotal trial did not meet the necessary goals to proceed to the powered portion of the study. This setback, coupled with the anticipated time and investment required for further development, forced a dramatic strategic re-evaluation. The company significantly reduced its workforce, discontinued C-Scan calibration studies, and ceased further development of its C-Scan technology, effectively halting its core business operations. Its focus shifted entirely to evaluating and pursuing strategic alternatives, marking a profound pivot in its corporate identity.

Financial Distress and the Quest for a New Path

Check-Cap's financial performance reflects the challenges inherent in clinical-stage medical device development and the impact of its strategic pivot. The company has consistently reported net losses since its inception, accumulating a deficit of approximately $170 million as of December 31, 2024. In fiscal year 2024, the net loss widened to $25.10 million, compared to $17.60 million in 2023 and $19.10 million in 2022.

This increase in 2024's operating loss to $25.90 million was primarily driven by a substantial $16.50 million impairment of loans receivable, partially offset by the complete absence of research and development expenses, which dropped from $8.30 million in 2023 to $0 in 2024 following the discontinuation of C-Scan development. General and administrative expenses remained relatively stable at $9.50 million in 2024.

The company's liquidity position is precarious. As of December 31, 2024, Check-Cap reported approximately $0 in cash and cash equivalents and only $0.27 million in short-term bank deposits. This stark reality has led management to conclude that "substantial doubt is deemed to exist concerning our ability to continue as a going concern" for at least one year from the financial statements' issuance date. The company's ability to survive hinges on generating positive cash flow from operations, securing additional financing, forging strategic alliances, or selling assets.

A significant financial development in 2024 involved Check-Cap providing approximately $16.30 million in loan funding to Nobul, the counterparty in its new business combination agreement. Despite these loans being in good standing, management fully impaired the entire receivable amount and accrued interest as of December 31, 2024, citing "significant uncertainty surrounding the recoverability of these amounts." This impairment underscores the high-risk nature of the company's current financial maneuvers and its reliance on the successful consummation of the Nobul merger.

Competitive Landscape and Technological Moats

In its original mission, Check-Cap faced a diverse and formidable competitive landscape in CRC screening. Traditional, well-entrenched players like Olympus (OCPNY), Pentax, Hoya (HOCPY), and Fuji Film (FUJIY) dominate the optical colonoscopy and sigmoidoscopy markets, while General Electric (GE), Siemens (SIEGY), Philips (PHG), and Toshiba (TOSYY) are key in CT colonography. Medtronic plc (MDT) is a principal manufacturer in optical capsule endoscopy. These companies possess significantly greater financial resources, established reputations, and global distribution channels.

Check-Cap's C-Scan technology offered a distinct competitive advantage through its non-invasive, preparation-free approach and ultra-low-dose X-ray imaging. This differentiation aimed to address the critical issue of low patient adherence to CRC screening. Unlike fecal or liquid biopsy tests, which primarily detect existing cancer and often have lower sensitivity for pre-cancerous polyps, C-Scan was designed to provide structural information, enabling early detection of polyps before they become cancerous. The FDA's Breakthrough Device designation further validated this technological edge, specifically for identifying high-risk polyps in average-risk patients who are poor candidates for colonoscopy. The improved collimator design, targeting 1.5 times more photon detection, aimed to enhance visibility of smaller polyps (6-9mm).

However, the competitive landscape is also evolving rapidly with emerging non-invasive technologies. Companies like Exact Sciences (EXAS) (Cologuard), Guardant Health (GH) (blood test), and Geneoscopy Inc. (stool-based test) are developing highly sensitive diagnostics. Guardant Health's blood test, for instance, demonstrated 83% sensitivity for CRC and 13% for advanced adenomas with 90% specificity, receiving a strong FDA advisory committee recommendation in May 2024. Geneoscopy's stool test, approved by the FDA in May 2024, showed 94% sensitivity for CRC and 45% for advanced adenomas with 88% specificity. These advancements, coupled with ongoing efforts to develop less onerous bowel cleansing procedures, posed a significant challenge to C-Scan's market entry, even before its development was halted. Check-Cap's current lack of manufacturing capabilities and discontinued development means its technological moat, while innovative, is currently dormant.

The Nobul Merger: A New Strategic Direction

The company's current strategic initiative is centered on a business combination agreement with Apollo Technology Capital Corporation (Nobul), entered into on March 25, 2024. This transaction, if consummated, will see Check-Cap merge into a wholly-owned subsidiary of Nobul, with Check-Cap's ordinary shares delisted from Nasdaq and the company no longer required to file periodic reports with the U.S. Securities and Exchange Commission. Existing Check-Cap security holders are expected to own approximately 15% of Nobul on a fully diluted basis, assuming certain net cash targets are met.

This merger represents a complete pivot from Check-Cap's legacy medical diagnostics business. The future value for current shareholders will be derived from their ownership in the combined Nobul entity, which is expected to pursue accretive acquisition targets and growth initiatives. The loans provided to Nobul by Check-Cap, though impaired on Check-Cap's books, were intended to fund these very initiatives. The success of this new strategic direction is entirely dependent on Nobul's ability to execute its growth strategy and create value in a different industry context.

Risks and Uncertainties

The investment thesis for Check-Cap is fraught with significant risks. The most immediate is the uncertainty surrounding the consummation of the Nobul business combination, which requires various approvals, including from shareholders and Nasdaq. A previous merger attempt with Keystone Dental Holdings, Inc. failed due to a lack of shareholder approval, highlighting the potential for similar outcomes. If the Nobul merger does not close, Check-Cap faces the prospect of needing substantial additional funding to continue operations or potentially ceasing operations entirely.

Furthermore, Check-Cap is currently non-compliant with Nasdaq's continued listing requirements, having received a letter on April 9, 2025, for failing to maintain the $1 minimum bid price and another on May 21, 2025, for failing to file its 2024 Annual Report on Form 20-F. While a plan to regain compliance has been submitted, delisting remains a material risk, which could severely impact shareholder liquidity and share price.

Operational risks include the substantial dependence on retaining key employees to facilitate the merger, as a significant workforce reduction has already occurred. The cross-border nature of the Nobul transaction introduces additional complexities, including differing legal and commercial requirements, tax issues, and currency fluctuations. The company is also entangled in several legal disputes, including a derivative claim against its directors and Nobul, and claims from former executives and a legal services provider, which could divert resources and management attention. The impairment of the $16.30 million in loans to Nobul, despite their good standing, signals a high level of financial risk associated with the merger.

Conclusion

Check-Cap Ltd. stands at a critical juncture, having abandoned its pioneering C-Scan technology development in favor of a transformative merger with Nobul. The investment narrative has shifted dramatically from a speculative bet on a disruptive medical diagnostic to a speculative bet on the success of a new, combined entity operating in a different sphere. The company's severe financial distress, marked by recurring losses, minimal cash, and the impairment of significant loans to its merger partner, underscores the high-risk nature of this transition.

For investors, the core thesis now revolves around the successful consummation of the Nobul merger and the subsequent value creation within that new framework. The potential for Nasdaq delisting and ongoing legal challenges add layers of uncertainty. While Check-Cap's legacy C-Scan technology demonstrated innovative potential in CRC screening, its future is no longer tied to this medical device. The outlook is entirely dependent on the strategic execution of the Nobul combination and its ability to navigate a complex financial and regulatory landscape to deliver shareholder value in its new form.