(*) Number of shares has been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in the reverse recapitalization transaction and to reflect adjustment to the share par value (refer to Note 1a).

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

U.S dollars in thousands (except for share and per share data)

(*) Number of shares has been retroactively adjusted based on the equivalent number of shares received by the accounting acquirer in the reverse recapitalization transaction and to reflect adjustment to the share par value (refer to Note 1a).

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

U.S dollars in thousands (except for share and per share data)

The accompanying notes are an integral part of the condensed consolidated interim financial statements.

RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

U.S dollars in thousands (except for share and per share data)

The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since its inception, the Company has devoted substantially all of its efforts to research and development, clinical trials, and raising capital. The Company is still in its development and clinical stage and has not yet generated revenues. The extent of the Company's future operating losses and the timing of becoming profitable are uncertain. As of March 31, 2022, the Company's accumulated deficit was $2,853. The Company has funded its operations to date primarily through equity financing and the issuance of a loan.  Additional funding will be required to complete the Company’s research and development and clinical trials, to attain regulatory approvals, to begin the commercialization efforts of the Company’s product and to achieve a level of sales adequate to support the Company’s cost structure.

RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

U.S dollars in thousands (except for share and per share data)

Management’sManagement's plans include, but are not limited to, raising capital in the United States. There can be no assurance that it will be able to successfully raise additional financing, including in a public offering, or obtain additional financing on a timely basis or on terms acceptable to the Company, or at all.

Management expects that the Company will continue to generate losses from the development, clinical development and regulatory activities of its product, which will result in negative cash flow from operating activity. This has led management to conclude that substantial doubt about the Company’sCompany's ability to continue as a going concern exists in the event that additional funding does not occur. If such sufficient financingIn the event the Company is not received timely,unable to have its loan converted as planned or its repayment date deferred, the Company will not have sufficient cash flows and liquidity to finance its business operations as currently contemplated andcontemplated. If such sufficient financing or payment deferral is not received timely, the Company would then need to pursue a plan to license its assets, seek to be acquired by another entity, cease operations and/or seek bankruptcy protection. The Company’sCompany's financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2021. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2021, are applied consistently in these interim financial statements.

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included (consisting only of normal recurring adjustments except as otherwise discussed). For further information, reference is made to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for the threesix months ended March 31,June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

U.S dollars in thousands (except for share and per share data)

RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)

U.S dollars in thousands (except for share and per share data)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

On May 14, 2021, Raphael Pharmaceutical Ltd., an Israeli company, and Easy Energy, Inc., a Nevada corporation, completed a share exchange agreement, or the Share Exchange, pursuant to which the shareholders of Raphael Pharmaceutical Ltd. became the holders of 90% of the issued and outstanding share capital of Easy Energy, Inc., while Easy Energy, Inc.’s shareholders hold, following the share exchange, 10% of Easy Energy, Inc. On May 19, 2021, as agreed by the parties to the Share Exchange, Easy Energy, Inc. changed its name to Raphael Pharmaceutical Inc. Unless otherwise mentioned or unless the context requires otherwise, when used in this prospectus, the terms “Raphael,” “Company,” “we,” “us,” and “our” refer to Raphael Pharmaceutical Inc. and its subsidiary, Raphael Pharmaceutical Ltd., or Raphael Israel. References to Easy Energy are to Easy Energy, Inc. Unless otherwise mentioned or unless the context requires otherwise, the information provided in this Quarterly Report on Form 10-Q relates to Raphael Israel.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For a discussion of these and other risks that relate to our business and investing in our common stock, you should carefully review the risks and uncertainties described in this Quarterly Report on Form 10-Q, and those described from time to time in our future reports filed with the Securities and Exchange Commission. The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

Overview

We are a pharmaceutical drug research and development company focused on the discovery and clinical development of life-improving drug therapies based on cannabinoids, including cannabidiol, or CBD, oil. Unless indicated otherwise, we plan on using oil derived from cannabidiol, or CBD, strains with low levels of Tetrahydrocannabinol, or THC. All references to the use of CBD in our product candidates refer to CBD strains with less than 0.3% of THC.

We are currently in the pre-clinical development stage for our lead product candidate, our rheumatoid arthritis, or RA, product candidate for the treatment of RA. In addition, we are aiming to develop a pharmaceutical drug product for the treatment of hyperinflammatory syndrome inflammation related to COVID-19, or our COVID-19 product candidate, which may be based on data or studies related to our RA product candidate. Our goal is to become a leader in development of CBD oil-based pharmaceutical drug products for the treatment of indications in which we believe there is a high unmet medical need in a range of disorders, including those related to inflammation in the body, including RA and COVID-19.

The Company was incorporated in the State of Nevada in May 2007 and was formerly known as Easy Energy, Inc. On May 14, 2021, Easy Energy and Raphael Israel completed the Share Exchange, as a result of which, Raphael Israel’s shareholders own 90% of our Company and Easy Energy’s shareholders hold the remaining 10%. Raphael Israel was incorporated in 2019 in the State of Israel and has focused to date on developing its lead product candidate for the treatment of RA. Easy Energy did not have any ongoing business or operations before the Share Exchange and following the Share Exchange we adopted Raphael Israel’s business plan.

Initially, we intend to obtain approvals for our product candidates from the FDA and Medical Cannabis Unit of the Ministry of Health of Israel. Upon obtaining FDA approvals, or in the event that we are not successful in obtaining such approvals, we intend to apply for EMA and other countries’ governmental regulatory agencies approvals for our product candidates. If we are successful in obtaining FDA approvals for our product candidates, we intend to enter into royalty agreements with good manufacturing practice, or GMP, approved medical manufactures and distributors, having them using our medical formulas strains for the purpose of growing, cultivating, manufacturing, and distributing Raphael Pharmaceutical medical indications in their designated territories. 

Critical Accounting Policies

Our financial statements are prepared in accordance with US GAAP. There are no critical accounting estimates for the years ended December 31, 2021 and 2020. Also, please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for the summary of significant accounting policies. 

Results of Operations

Three months ended March 31,June 30, 2022 compared to the three months ended March 31,June 30, 2021

Revenues. We had no revenues during the three months ended March 31,June 30, 2022 and March 31,June 30, 2021.

Research and Development Expenses. Our research and development expenses totaled $86,000$84,000 for the three months ended March 31,June 30, 2022, representing a decrease of $83,000,$138,000, or 49%62%, compared to $169,000$222,000 for the three months ended March 31,June 30, 2021. The decrease was primarily attributable to thea decrease in pre-clinical trial expenses.expenses, mainly due to the conclusion of the pre-clinical study in mice for Company’s RA product candidate in 2021.

General and Administrative Expenses. Our general and administrative expenses totaled $89,000$528,000 for the three months ended March 31,June 30, 2022, representing aan increase of $6,000,$365,000, or 7%223%, compared to $83,000$163,000 for the three months ended March 31,June 30, 2021. The increase was primarily due to retirement fees paid in stock to one of the Company’s directors in the three months ended June 30, 2022, which was partially offset by lower professional services expenses in the corresponding period in 2021.

Operating Loss. Our operating loss totaled $175,000$612,000 for the three months ended March 31,June 30, 2022, representing a decreasean increase of $77,000,$227,000, or 30%58%, compared to $252,000$385,000 for the three months ended March 31,June 30, 2021.

Financial Expense. We recognized financial expense of $10,000$15,000 for the three months ended March 31,June 30, 2022, representing an increase of $7,000,$13,000, or 233%650%, compared to $3,000$2,000 for the three months ended March 31,June 30, 2021. The increase was primarily due to an increase in exchange rate differences.

Net Loss. As a result of the foregoing, our net loss totaled $185,000$627,000 for the three months ended March 31,June 30, 2022, representing an increase of $240,000, or 62%, compared to $387,000 for the three months ended June 30, 2021.

Six months ended June 30, 2022 compared to the six months ended June 30, 2021

Revenues. We had no revenues during the six months ended June 30, 2022 and June 30, 2021.

Research and Development Expenses. Our research and development expenses totaled $170,000 for the six months ended June 30, 2022, representing a decrease of $70,000,$221,000, or 27%56%, compared to $255,000$391,000 for the six months ended June 30, 2021. The decrease was primarily attributable to a decrease in pre-clinical trial expenses, mainly due to the conclusion of the pre-clinical study in mice for Company’s RA product candidate in 2021.

General and Administrative Expenses. Our general and administrative expenses totaled $617,000 for the six months ended June 30, 2022, representing an increase of $371,000, or 150%, compared to $246,000 for the six months ended June 30, 2021. The increase was primarily due to retirement fees paid in stock to one of the Company’s directors in the three months ended March 31,June 30, 2022, which was partially offset by lower professional services expenses in the corresponding period in 2021.

Operating Loss. Our operating loss totaled $787,000 for the six months ended June 30, 2022, representing an increase of $170,000, or 26%, compared to $637,000 for the six months ended June 30, 2021.

Financial Expense. We recognized financial expense of $25,000 for the six months ended June 30, 2022, representing an increase of $20,000, or 400%, compared to $5,000 for the six months ended June 30, 2021. The increase was primarily due to an increase in exchange rate differences.

Net Loss. As a result of the foregoing, our net loss totaled $812,000 for the six months ended June 30, 2022, representing an increase of $170,000, or 26%, compared to $642,000 for the six months ended June 30, 2021.

Liquidity and Capital Resources

Since inception, we have funded our operations primarily through our founder’s capital and capital received from Easy Energy. As of March 31,June 30, 2022, we had $81,000$135,000 in cash and cash equivalents, and have invested most of our available cash funds in ongoing cash accounts.

Net cash used in operating activities was $82,000$330,000 for the threesix months period ended March 31,June 30, 2022, compared with net cash used in operating activities of $129,000$434,000 for the same period in 2021. The $47,000$104,000 decrease in the net cash used in operating activities during 2022, compared to 2021, was primarily the result of $70,000a decrease in net loss.pre-clinical trial expenses.

NetThere was no net cash used in investing activities for the threesix months period ended March 31,June 30, 2022 and for the same period in 2021 was zero.2021.

Net cash provided by financing activities for the threesix months period ended March 31,June 30, 2022 was $10,000$312,000 compared to $44,000$557,000 for the same period in 2021. The decrease in net cash provided by financing activities during 2022 compared to 2021 was mainly due to increasedecrease in proceeds from issuance of Common Stock at the amount of $10,000 which was offset by acommon stock and due to decrease in receipt of a loan in 2021 at the amount of $44,000. funds.

Off Balance Sheet Arrangements

Rambam Research Agreement

Pursuant to the Research Agreement with Rambam MT, the Company agreed to fund a research project, to be performed by Rambam MT, with a research plan aimed at identifying the effects of different cannabis strains on the function of immune cells. On October 28, 2020, the Company and Rambam MT agreed to expand the research plan to study the anti-inflammatory activities of cannabis extracts in an RA mouse model. On February 15, 2021, the Company and Rambam MT agreed to further expand the research plan to study the effect of cannabis extracts on the immunopathology of the COVID-19 disease. The Research Agreement is for an initial term of 48 months.

Pursuant to the Research Agreement, we agreed to pay Rambam $1.4 million in four equal payments, due on the first day of August on each successive year from 2019 through 2022. Furthermore, in accordance with the terms of the Research Agreement, we and Rambam MT will have joint ownership of any IP created as a result of research programs covered by such agreement. In connection with the Research Agreement, Rambam MT agreed not to work, study or develop any technologies with other entities that compete with our work with Rambam MT for our COVID-19 product candidate or RA product candidate for a term of three and seven years, respectively, from the end of the parties’ collaboration with respect to the COVID-19 product candidate and seven years from the end of the term of the Research Agreement with respect to the RA product candidate.

Subject to commercial sales of any product candidate using the IP created as a part of the research covered by such agreement, Raphael Israel is required to pay Rambam MT a royalty in an amount equal to 6% of all net sales, subject to certain deductions, such as taxes paid by any purchaser, transportation and shipping costs, and other customary deductions.

As of March 31,June 30, 2022, the Company has made three of the four equal payments due pursuant to the Research Agreement, for a total amount of $1,050,000.

Way of Life Cannabis Agreement

In October 2020, Raphael Israel entered into an engagement agreement with Wolc, pursuant to which, subject to its completing the Share Exchange with Easy Energy, Raphael Israel will be provided with up to 15 liters of CBD oil, from a strain of cannabis during a term of 18 months, to be provided in two to three deliveries of between one to seven milliliters of CBD oil. In accordance with Raphael Israel’s agreement with Wolc, Raphael Israel has agreed to issue to certain persons affiliated with Wolc 3% of Raphael’s issued and outstanding share capital as of the date of the Share Exchange, to be provided in three equal issuances; provided, however, that such persons may elect to receive a cash payment of $100,000 instead of any one issuance of Raphael’s shares. In addition to the issuance of shares, Raphael Israel has also agreed to pay Wolc a royalty fee equal to 15% of the net royalties generated from sales of Raphael Israel’s pharmaceutical drug products that are developed at Rambam hospital in Israel.

Except for the above, we have not engaged in any off-balance sheet arrangements, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

We do not believe that our off-balance sheet arrangements and commitments have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Current Outlook

We have financed our operations to date primarily through proceeds from our founder’s capital and capital received from Easy Energy. We have incurred losses and generated negative cash flows from operations since inception in 2019. To date we have not generated revenue, and we do not expect to generate significant revenues from the sale of our products in the near future.

We do not believe that our current cash on hand will be sufficient to fund our projected operating requirements. This raises substantial doubt about our ability to continue as a going concern. At this time, there is no guarantee that we will be able to obtain an adequate level of financial resources required for the short and long-term support of our operations or that we will be able to obtain additional financing as needed, or meet the conditions of such financing, or that the costs of such financing may not be prohibitive. These conditions raise substantial doubt about our ability to continue as a going concern for a period within one year from the date of the financial statements included elsewhere in this prospectus.

As of March 31,June 30, 2022, our cash and cash equivalents were $81,000.$135,000. We believe that our existing cash and cash equivalents will not be sufficient to fund our projected cash requirements through September 2022. Therefore, we will require significant additional financing in the near future to fund our operations. We currently anticipate that we will require approximately $0.6$1 million for research and development activities over the course of the next 12 months. We also anticipate that we will require approximately $1.4$2 million for capital expenditures over such 12-month period, which consists primarily of expenditures for clinical trials and general Company operating costs.

In addition, our operating plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than planned. Our future capital requirements will depend on many factors, including: 

In addition to the foregoing, based on our current assessment, we do not expect any material impact on our long-term liquidity due to the COVID-19 pandemic. However, we will continue to assess the effect of the pandemic to our operations. The extent to which the COVID-19 pandemic will impact our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence, such as the duration of the COVID-19 pandemic, any restrictions on the ability of hospitals and trial sites to conduct trials that are not designed to address the COVID-19 pandemic and the perceived effectiveness of actions taken in Israel, the United States and Europe and other countries to contain and treat the disease. While the potential economic impact brought by COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital in the future. In addition, a recession or long-term market correction resulting from the spread of COVID-19 could materially affect our business and the value of our Common Stock.common stock.

Until we can generate significant revenues, if ever, we expect to satisfy our future cash needs through our existing cash, cash equivalents and short-term deposits, loans, or debt or equity financings. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to, one or more applications of our products. This may raise substantial doubts about our ability to continue as a going concern.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures

Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

As of March 31,June 30, 2022, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of March 31,June 30, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31,June 30, 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no material changes to our legal proceedings as described in “Item 3. Legal Proceedings” in our Annual Report on Form 10-K filed with the SEC on March 30, 2022.

Item 1A. Risk Factors

There have been no material changes to our risk factors from those disclosed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 30, 2022.  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Set forth below are the sales of all securities by the Company in the three months ended March 31,June 30, 2022, which were not registered under the Securities Act of 1933, as amended, or the Securities Act. The Company believes that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Regulation S under the Securities Act.

On March 2,April 28, 2022, the Company raised $10,000signed an agreement to raise $50,000 and issued 50,000to issue 300,000 shares of Common Stockcommon stock and 30,000100,000 warrants to purchase shares of Common Stockcommon stock at an exercise price of $1.25$0.7 per share to a certain investor of the Company. The warrants are exercisable until April 30, 2024. The funds for the shares were received in July 2022.

On May 2, 2022, the Company signed several agreements to raise $250,000 and to issue 250,000 shares of common stock and 100,000 warrants to purchase common stock at an exercise price of $1.13 per share to certain investors of the Company. The warrants are exercisable until February 28, 2023.April 30, 2024. The funds for the shares were received in May 2022.

On March 15,June 27, 2022, the Company issued 270,000signed an agreement to raise $50,000 and to issue 35,000 shares of Common Stock and 180,000 warrantscommon stock to purchase Common Stock at an exercise pricea certain investor of $1.13 per share to the Company’s service provider in consideration of past services at the amount of $150,000. The warrants are exercisable until December 31, 2023.Company.

Item 6. Exhibits

EXHIBIT INDEX

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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