Raphael Pharmaceutical Inc.

The accompanying consolidated 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 pre-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 December 31, 2024, the Company’s accumulated deficit was $8,889, the net loss for the year then ended was $1,519 and the net cash used in operating activities was $532.

The Company has funded its operations to date primarily through equity financing.

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.

Management’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’s ability to continue as a going concern exists in the event that additional funding does not occur. If such sufficient financing is not received timely, the Company will not have sufficient cash flows and liquidity to finance its business operations as currently contemplated and 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’s financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

The consolidated financial statements include the accounts of the Company and its subsidiary. Intercompany accounts and transactions have been eliminated upon consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates.

The Company’s functional currency is the U.S. dollar (“dollar” or “$”) since the dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in currencies other than dollars have been re-measured to dollars. All transaction gains and losses from re-measurement of monetary balance sheet items denominated in currencies other than dollars are reflected in the statements of comprehensive loss as financial expenses, net.

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less as of the date acquired and that are exposed to insignificant risk of change in value.

The carrying values of Company’s financial assets and liabilities, including cash and cash equivalents, other current assets, related parties, accounts payable and accrued expenses approximate their fair value due to the short-term maturity of these instruments.

Research and development expenses are charged to the statements of comprehensive loss as incurred.

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”. ASC 740 prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances in respect of deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized. As of December 31, 2024, and 2023, the Company had a full valuation allowance on its deferred tax assets.

Earnings or loss per share (“EPS”) is the amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share. EPS is computed pursuant to ASC 260-10-45. Pursuant to ASC 260-10-45-10 through 260-10-45-16 Basic EPS is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Loss available to common stockholders shall be computed by deducting both the dividends declared in the period on preferred stock (whether or not paid) from loss from operating loss (if that amount appears in the statements of comprehensive loss) and also from net loss.

The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common stock had been issued during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

The net loss per share and the weighted average number of shares used in computing basic and diluted net loss per share is as follows:

In February 2016, the Financial Accounting Standards Borad (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize their leases contracts as assets and liabilities in the consolidated financial statements. Furthermore, the ASU requires the Company to continue recognizing expenses but recognize expenses on their statements of comprehensive loss in a manner similar to current lease accounting. The amendments in this ASU are effective January 1, 2019. In July 2018, the FASB issued ASU 2018-11, Leases - Targeted Improvements, to allow a company to elect an optional modified retrospective transition method that applies the new lease requirements through a cumulative-effect adjustment in the period of adoption.

Effective January 2019, the Company adopted the new lease accounting standard. The Company elected to apply the practical expedients permitted under the transition guidance within the new standard. As such, there was no impact on the Company’s consolidated financial statements as a result of adopting ASU 2016-02. See note 6a for more details.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items. The guidance is in effect for the Company for annual periods beginning January 1, 2024 and will be in effect for the interim periods beginning January 1, 2025. Early adoption is permitted. The Company has adopted this standard for the fiscal year 2024 annual financial statements and interim financial statements thereafter and has applied this standard retrospectively for all prior periods presented in the financial statements. See Note 10 – Segment Reporting for further information.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, which requires disaggregated information about the effective tax rate reconciliation as well as information on income taxes paid. The guidance will be in effect for the Company for annual periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the impact on its financial statement disclosures.

In November 2024, the FASB issued ASU 2024-03 “Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures” (“ASU 2024-03”), which requires more detailed information about specified categories of expenses presented on the face of the income statement, in addition to disclosures about selling expenses. ASU 2024-03 will be in effect for fiscal years beginning after December 15, 2026, with early adoption permitted. The amendment may be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating ASU 2024-03 to determine the impact it may have on its consolidated financial statements and related disclosures.

On December 24, 2024, the Company received a short term loan from certain lender in a total of NIS 150 thousand ($41). The loan will be repaid in 4 months including a risk premium of NIS 12 thousand + VAT. The Company’s chief executive officer (“CEO”) and chief financial officer (“CFO”) are guarantees for the repayment of the loan.

Starting February 1, 2022, the Company began renting its offices from a third party for a rental monthly fee of approximately $1 per month. The rent period is for a period of one month which renews on a monthly basis.

The Company elected to apply the practical expedients permitted under the transition guidance within the new standard, and the Company also elected not to apply the recognition requirements in the lease standard to short-term leases (less than 12 months) as of the adoption date. As such, there was no impact on the Company’s consolidated financial statements as a result of adopting ASU 2016-02.

On July 17, 2019, we entered into a sponsored research agreement, (the “Research Agreement”), with Rambam Med-Tech Ltd. (“Rambam MT”), pursuant to which 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. On October 23, 2022, the Company and Rambam MT entered into a supplement to the Research Agreement, or the Supplement Agreement, pursuant to which the Company exercised an option to extend the Research Agreement by additional two years until December 31, 2024.

As of December 31, 2024 the Company paid $1,400.

In October 2022, the Company and Rambam signed a supplement to the Research Agreement, according to which the objective of the new study will be to identify a novel cannabinoid based patentable formulation to treat RA diseases. The total cost of the new study will be $800 + $160 (overhead) + VAT (which consist of $700 + VAT pre-clinical lab research cost, $120 + VAT Mouse model for systemic inflammation and $140 + VAT Mouse model for Rheumatoid Arthritis). The Company’s payments will be according to the payment schedule stipulated in the supplement and will begin in May 2023.

As of December 31, 2024 the Company paid $120.

In October 2020, Raphael entered into an engagement agreement with Way of Life Cannabis Ltd. (“WOLC”), pursuant to which, subject to its completing the Share Exchange with Easy Energy, Raphael 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 liters of CBD oil.

In accordance with Raphael’s agreement with WOLC, Raphael 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 instead of any one issuance of Raphael’s shares. In addition to the issuance of shares, Raphael has also agreed to pay WOLC a royalty fee equal to 15% of the net royalties generated from sales of Raphael’s pharmaceutical drug products that are developed at Rambam hospital in Israel. In February 2023, the Company and WOLC signed an appendix to the research agreement, according to which the parties agreed that WOLC provided to the Company 12 out of 15 liters of CBD oil, from a strain of cannabis and the Company will transfer to WOLC the remaining stock per research agreement. In addition, WOLC will transfer the remaining 3 liters of CBD oil to the Company upon Company’s request.

On July 27, 2022, the Company issued 100,500 shares of common stock to WOLC in connection with the engagement agreement. The value of such issued shares was based on the value of the service provided, which amounted to $100. In June 2023, the Company issued the remaining 201,000 shares of common stock to WOLC in connection with the services agreement dated October 2020. The value of the shares issued was based on the value of the service provided, which amounted to $200.

During fiscal year 2024, we had the following written agreements with our executive officers, including our CEO, CFO and Chief Technology Officer, who are also members of our Board.

The Company may terminate the management and operations agreement prior to the expiration of its term upon 120 days advance notice and the payment of a termination fee equal to the lesser of (i) $360,000, or (ii) the monthly fees payable through the expiration of its term. Furthermore, as disclosed in the agreement, We have undertaken to indemnify Sheffa Enterprises, Inc. against and in respect of any and losses arising out of or due to the operation of the business by Raphael Israel, its affiliates, agents, servants and/or employees

The following table summarizes information regarding outstanding warrants to purchase the Company’s ordinary shares as of December 31, 2024:

The following related party payables are included in accounts payable and accrued expenses.

The Company’s CEO and CFO are guarantees for the repayment of the loan (see note 5).

Income tax rates applicable to the Company in 2024 and 2023 was 21%.

Presented hereunder are the income tax rates relevant to the Company’s Israeli subsidiary

2023 - 23%

2024 - 23%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets are as follows:

The main reconciling item between the statutory tax rate of the Company and the effective tax rate is the recognition of valuation allowance in respect of deferred taxes relating to accumulated net operating losses carried forward due to the uncertainty of the realization of such deferred taxes.

ASC 280, “Segment Reporting,” establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s business is comprised ofone operating segment.

The Company’s CODM is its Chief Executive Officer, who reviews financial information presented on a consolidated basis.

The CODM uses consolidated net loss to assess financial performance and allocate resources. These financial metrics are used by the CODM to make key operating decisions, such as the allocation of budget between Research and development and General and Administrative expenses. Segment assets that are reviewed by the CODM are reported within the Consolidated Balance Sheet as consolidated total assets.

The table below summarizes the significant expense categories regularly reviewed by the CODM for the years ended December 31, 2024 and 2023:

NOTE 12:- EXPLANATION OF RECLASSIFICATION FOR DECEMBER 31, 2023

NOTE 13:- SUBSEQUENT EVENTS

On January 16, 2025, the Company signed an agreement to raise $90 and to issue 115,000 shares of common stock and 55,000 warrants to purchase common stock at an exercise price of $1 per share to certain investor of the Company. The warrants will expire on July 15, 2026.

On January 30, 2025, the Company signed an agreement to raise $50 and to issue 200,000 shares of common stock.

On March 2, 2025, the Company signed an agreement to raise $100 and to issue 200,000 shares of common stock and 100,000 warrants to purchase common stock at an exercise price of $1 per share to Company's chief executive officer. The warrants will expire on July 15, 2026.

On March 21, 2025, the Company signed an agreement to raise $25 and to issue 50,000 shares of common stock and 10,000 warrants to purchase common stock at an exercise price of $1 per share to certain investor of the Company. The warrants will expire on March 15, 2026.

In February 2025, the Company issued 40,000 shares in connection with a service agreement with a certain service provider.

On March 5, 2025, the Company entered into a service agreement with Ajay Kumar Dhadha, pursuant to which Mr. Dhadha will serve as a member of our Board and as chairman of the Board. Pursuant to the service agreement, on March 5, 2025, the Company granted Mr. Dhadha 350,000 restricted shares of the Company’s Common Stock and warrants to purchase up to 250,000 shares of Common Stock at an exercise price of $1.00 per share. The warrants will expire on December 31, 2026.

On March 10, 2025, the Company updated a service agreement with one of Company's directors and extended the service term until December 31, 2025. As compensation for the services, the director will be granted with warrants to purchase up to 200,000 of the Company's common stock at an exercise price of $1 per share. The warrants will expire on December 31, 2025. The warrants weren't granted yet.

On March 21, 2025, the Company signed an agreement to raise $10 and to issue 10,000 shares of common stock and warrants to purchase up to 5,000 of the Company’s common stock at an exercise price of $2.5 per share to a certain investor of the Company. The warrants will expire on March 15, 2026.