NOTE 8 - COMMITMENTS AND CONTINGENT LIABILITIES

The Company has a liability to pay royalties for the development of an ASIC component which was used as an amplifier for the capture of signals at low frequencies from X-ray detectors contained in the capsule. The institution that developed the ASIC is entitled to receive royalties from the Company in the amount of 50 € cents (53.3 U.S. cents) for every ASIC component that the Company will sell, capped at €200 (approximately $213). This royalty is considered as a liability. However due to the current expectations of the company and its current status as further described in Note 1A(4) it is no longer expected that there will be future sales that are subjected to payment of royalties and thus the provision was derecognized. Such amount was reflected as a reduction of research and development expenses in the year ended December 31, 2023.

On May 31, 2009, the Company entered into an asset transfer agreement with Check Cap LLC (the “Predecessor Entity”), a company with the same shareholders as the Company at the time of transfer. According to the agreement, the Predecessor Entity transferred all of its business operations and substantially all of its assets to the Company, including development and consulting agreements, cash, property and equipment and intangible ownership rights, free of any debt.

As a part of the reorganization, the Company committed to reimburse the unit holders of the Predecessor Entity for any tax burdens that may be imposed on them due to the reorganization. The reimbursement liability is calculated assuming deemed royalties are paid to the U.S. unit holders of Check-Cap LLC under Section 367(d) of the Code, and is based in part on the Company’s forecasted sales with a cap calculated as the fair value of the share as determined at the date of the financial statements. The reimbursement liability is calculated by multiplying the estimated tax rate by the lowest of: (1) expected cash outflows for a period of 15 years ending December 31, 2023, discounted using a discount factor commensurate with the risk of the Company, and (2) value of the shares held by U.S. unit holders of the Predecessor Entity as of December 31, 2022 multiplied by $2.2, the last reported price per share of the Company’s ordinary shares on the Nasdaq Capital Market on December 31, 2022. Any updates in the contingent liability will be charged to earnings. Since the Company does not expect to be profitable in year 2025, the liability based on the discounted outflows is $0. As a result, as of December 31, 2024, the balance of the reimbursement liability totaled $0 ($0 as of December 31, 2023 and $0 as of December 31, 2022).

The Company’s research and development efforts were financed, in part, through funding from the Israeli Innovation Authority (IIA( and the BIRD Foundation. Since the Company’s inception through December 31, 2023, the Company received funding from the IIA and the BIRD Foundation in the total amount of approximately $5,600 and $114, respectively. In year 2021, the Company received grant approval from the IIA to support the funding of the Company’s transition from research and development to manufacturing. The final grant amounted to $620, of which approximately $349 was received in year 2021, $82 was received in January 2022 and $225 was received in February 2023. No grant received in 2024.

According to the terms of applicable law as currently in effect regarding the grants received before year 2021, the IIA is entitled to royalties equal to 3-4% (or at an increased rate under certain circumstances) of the revenues from sales of products and services based on technology developed using IIA grants, up to the full principal amount (which may be increased under certain circumstances) of the U.S. Dollar-linked value of the grants, plus the applicable interest rate of 12-month . The obligation to pay these royalties is contingent on actual sales of the applicable products and services and in the absence of such sales, no payment is required. As of December 31, 2024, the Company had not paid any royalties to the IIA and had a contingent liability to the IIA in the amount of approximately $6.2 million. Repayment of such grants is contingent upon future product sales. Accordingly, no liability has been recorded in our consolidated balance sheet as of December 31, 2024, since repayment is not currently probable. Royalties associated with the grant plan mentioned are not anticipated to be payable in the foreseeable future and have been accounted for as a reduction in research and development expenses in the corresponding prior years.

On July 13, 2014, the Company entered into a Cooperation and Project Funding Agreement with the BIRD Foundation and Synergy and during 2014-2017, the Company, together with Synergy, had received funding from the BIRD Foundation in the aggregate amount of approximately $127. Based on the aggregate expenses that the Company incurred for such project, it refunded to the BIRD Foundation an amount of approximately $13. The Company will not be receiving additional funding from the BIRD Foundation for the project, which is no longer active. As of December 31, 2023, the Company had not paid any royalties to the BIRD Foundation and had a contingent obligation to the BIRD foundation in the amount of approximately $209. Royalties associated with the grant plan mentioned are not anticipated to be payable in the foreseeable future and have been accounted for as a reduction in research and development expenses in the corresponding years.

On October 7, 2024, the Company received a derivative claim against the directors and Nobul for a total amount above NIS 2,500 ($690). The main claims relate to corporate governance issues and entity level control, including issues relating to the appointment of certain board members, the validity of certain board decisions, and questions related to the legality of the Nobul BCA and certain cash transactions and whether such transactions are in the Company’s best interest. The Company believes all the claims in the derivative action are frivolous and strongly denies all such claims. The Company will vigorously defend itself in this unwarranted action.

During 2024, the Company became a party to additional legal proceedings, including: Former executive compensation claims – Two former executives have filed claims seeking approximately NIS 295 and NIS 325, respectively. The first claim alleges unpaid director fees and managing director salary, and the second claim alleges an unpaid, contractually required notice period following termination. The Company has denied both allegations, the matters are in preliminary stages, and management believes it is probable the Company will be successful in defending against both claims; and Legal fee dispute – A former legal services provider is seeking approximately NIS 175 for alleged unpaid fees. The matter is currently in mediation following a preliminary court hearing, and management believes it is probable the Company will be successful in defending against the claim.

In September 2024, the Company ceased making rent payments related to its leased premises in Isfiya, Israel. The landlord subsequently filed an eviction complaint and commenced legal proceedings for recovery of unpaid rent and damages. As of February 28, 2025, the landlord claims total outstanding amounts of approximately NIS 207. The Company continues to occupy the premises, and the legal proceedings regarding the lease are ongoing. No impairment has been recorded against the related right-of-use asset as of December 31, 2024.

In September 2024, the company ceased rent payments of $8/month (NIS 30) for its Isfiya, Israel, lease, resulting in $24 (NIS 90) unpaid for September, November, and December 2024, included in the current lease liability under ASC 842. On June 12, 2025, the landlord filed an eviction complaint, claiming NIS 207 ($60) for unpaid rent and damages, with proceedings ongoing. No impairment was recorded for the ROU asset as of December 31, 2024.

For all of the above matters, based on the information currently available and after consultation with legal counsel, management does not believe an unfavorable outcome is probable and, accordingly, no provision has been recorded in these consolidated financial statements.