{"url_path":"/sec/raph/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 Management’s Discussion and Analysis","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-14","source_url":"https://www.sec.gov/Archives/edgar/data/1415397/0001213900-26-056181-index.html","accession_number":"0001213900-26-056181","cik":"0001415397","ticker":"RAPH","issuer_name":"Raphael Pharmaceutical Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1415397/0001213900-26-056181-index.html","primary_entity_key":"0001415397","primary_entity_name":"Raphael Pharmaceutical Inc."},"word_count":5042,"has_tables":true,"body_markdown":"** **\n\n**Item 2. Management’s Discussion and Analysis\nof Financial Condition and Results of Operations**\n\n \n\n*The following discussion\nand analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated\nfinancial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, or the Quarterly Report.*\n\n \n\n*On May 14, 2021, Raphael\nPharmaceutical Ltd., an Israeli company, and Easy Energy, Inc., a Nevada corporation, completed a share exchange agreement, or the Share\nExchange, pursuant to which the shareholders of Raphael Pharmaceutical Ltd. became the holders of 90% of the issued and outstanding share\ncapital of Easy Energy, Inc., while Easy Energy, Inc.’s shareholders hold, following the share exchange, 10% of Easy Energy, Inc.\nOn May 19, 2021, as agreed by the parties to the Share Exchange, Easy Energy, Inc. changed its name to Raphael Pharmaceutical Inc. Unless\notherwise mentioned or unless the context requires otherwise, when used in this Quarterly Report, the terms “Raphael,” “Company,”\n“we,” “us,” and “our” refer to Raphael Pharmaceutical Inc. and its subsidiary, Raphael Pharmaceutical\nLtd., or Raphael Israel. References to Easy Energy are to Easy Energy, Inc. Unless otherwise mentioned or unless the context requires\notherwise, the information provided in this Quarterly Report relates to Raphael Israel.*\n\n \n\n**Forward-Looking Statements**\n\n \n\nThis Quarterly Report contains\n“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal\nsecurities laws, which includes information relating to future events, future financial performance, strategies, expectations, competitive\nenvironment and regulation. Words such as “may,” “will,” “should,” “could,” “would,”\n“predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,”\n“intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements\nin future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance\nor results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based\non information we have when those statements are made or our management’s good faith belief as of that time with respect to future\nevents and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from\nthose expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are\nnot limited to:\n\n \n\n●the regulatory pathways that we may elect to utilize in seeking U.S. Food and Drug Administration, or\nFDA, European Medicines Agency, or EMA, and other regulatory approvals, if any;\n\n \n\n●obtaining (and the cost thereof) FDA and EMA approval of, or other regulatory action in Europe or the\nUnited States and elsewhere with respect to our product candidates;\n\n \n\n●the commercial launch and future sales of our product candidates and our advancement of product candidates\nfor other indications in our pipeline;\n\n \n\n●the potential cost of our rheumatoid arthritis product candidate, or RA, and RA product candidate, respectively,\nfor patients;\n\n \n\n●our expectations regarding the timing of commencing clinical trials;\n\n \n\n●our expectations regarding the supply of the active pharmaceutical ingredient for our product candidates;\n\n \n\n●third-party payor reimbursement for our product candidates;\n\n \n\n●our estimates regarding anticipated expenses, capital requirements and our needs for additional financing;\n\n \n\n●completion and receival of favorable results of clinical trials for our product candidates; and\n\n \n\n●the filing by us, and the subsequent issuance of patents to us, by the U.S. Patent and Trademark Office,\nor USPTO, and other governmental patent agencies.\n\n \n\n2\n\n \n\nThe foregoing does not represent\nan exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced\nwith that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Item 1A.\nRisk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 for additional risks that\ncould adversely impact our business and financial performance.\n\n \n\nMoreover, new risks regularly\nemerge and it is not possible for our management to predict or articulate all the risks we face, nor can we assess the impact of all risks\non our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any\nforward-looking statements. All forward-looking statements included in this Quarterly Report are based on information available to us\non the date of this Quarterly Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly\nupdate or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written\nand oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the\ncautionary statements contained above and throughout this Quarterly Report.\n\n \n\nIn this Quarterly Report,\nunless otherwise specified, all dollar amounts are expressed in United States dollars. Except as otherwise indicated by the context, references\nin this Quarterly Report to “Raphael,” “Company”, “we,” “us” and “our” are\nreferences to Raphael Pharmaceutical Inc., a Nevada corporation, together with its consolidated subsidiaries.\n\n \n\n**Overview**\n\n \n\nWe are a pharmaceutical drug\nresearch and development company focused on the discovery and clinical development of life-improving drug therapies based on cannabinoids,\nincluding cannabidiol, or CBD, oil. Unless indicated otherwise, we plan on using oil derived from CBD strains with low levels of Tetrahydrocannabinol,\nor THC. All references to the use of CBD in our product candidates refer to CBD strains with less than 0.3% of THC.\n\n \n\nIn December 2024 we completed\na proof-of-concept clinical study, or Study, for our lead product candidate for the treatment of RA in the United States. Encouraged by\nthe promising results of the Study, we will continue to investigate our product for the treatment of autoimmune diseases.\n\n \n\nIn addition, we are aiming\nto develop a novel treatment for asthma. At Rambam Health Care Campus, Rambam Med-Tech Ltd., or Rambam, we have successfully conducted\nstudies using human-derived immune cells and mouse models to advance our understanding both COVID-19 and RA products. Due to the similarity\nof COVID-19 and asthma symptoms, such studies also advance our understanding of asthma and its treatment. Since the volume of COVID-19\ntesting has been decreasing, we decided to leverage our knowledge and understanding of COVID-19 to study asthma as well.\n\n \n\nOn February 9, 2022, we filed\nan application for a clinical trial with the Medical Cannabis Unit of the Ministry of Health of Israel, or MOH. On February 16, 2022 we\nsubmitted an application with the Helsinki Committee at Rambam for a clinical trial in COVID-19 patients.\n\n \n\nIn November 2022, we submitted\na proposal to the Ministry of Health of Israel, or MOH for a clinical trial of a cannabis-based drug intended to alleviate the deterioration\nof COVID-19 patients.\n\n \n\nOn March 27, 2023, the MOH\naccepted our proposal for a clinical trial of a cannabis-based drug intended to alleviate the deterioration of COVID-19 patients.\n\n \n\n3\n\n \n\nIn April 2024 we began the\nStudy in the U.S., leveraging insights from the pre-clinical experiments we have conducted at the Rambam. This Study aimed to evaluate\nthe Company’s Cannabinoid based formula, or Raphael’s Formula, in patients with active RA. The single-group Study was managed\nby MindMate, Inc. dba Citruslabs, or Citruslabs, and conducted in Santa Monica, California, U.S., under Institutional Review Board, or\nIRB, approval, in compliance with applicable FDA regulations and in accordance with applicable industry standards and regulations. An\nIRB is an appropriately constituted group that has been formally designated to review and monitor biomedical research involving human\nsubjects.\n\n \n\nOn December 23, 2024, upon\na successful completion of the Study, we received the Study results with overall findings that emphasize the clinical potential of Raphael’s\nFormula and suggest that it may have beneficial effects on symptom management and overall well-being for individuals with RA. For more\ninformation about the Study results, see “Item 1. Business - Research and Clinical Development Strategy”.\n\n \n\nIn August 2025, we announced\nthe completion of product development and the launch of our proprietary natural formula under the “RaphaWell” brand for RA\nsupport in the U.S. This follows the successful completion of a clinical trial conducted under IRB approval and is in full compliance\nwith FDA regulations, including participants with severe RA. The finalized “RaphaWell” product is intended be sold as a standalone\nclinically tested dietary supplement targeting the growing wellness market. The “RaphaWell” formula is 100% natural, plant-based,\nand was associated with no reported side effects during the Study, addressing a significant unmet need in RA symptom management. Raphael’s\n“RaphaWell” formula has undergone clinical testing, which to our belief, proved its credibility and efficacy.\n\n \n\nIn November 2025, we, jointly\nwith the Medical Cannabis Research and Innovation Center and Rambam, filed a provisional patent application with the USPTO titled “Raphael\nPharmaceutical, Inc. / Rambam MedTech Formula for Treating Neutrophil-Dominant Autoimmune Diseases (including RA)” (Application\nNo. 63/911,729). The application covers the use of our highly purified cannabinoid-based technology platform in the treatment of neutrophil-dominant\nautoimmune diseases, including our lead product candidate for RA, as well as psoriatic arthritis, inflammatory bowel disease, systemic\nlupus erythematosus with neutrophil involvement, and gout.\n\n \n\nAs we move forward, our focus\nwill be on further investigating mechanisms and refining Raphael’s Formula through continued pre-clinical research. Our goal is\nto ensure that the formula meets all the necessary standards and regulations set forth by the FDA, allowing us to progress towards clinical\ntreatments.\n\n \n\nOur vision is to emerge as\na pioneering company at the forefront of formulating pharmaceutical drugs that harness the potential of purified cannabinoids and full-spectrum\nCBD oil. Our primary mission is to cater to the unmet medical requirements of patients grappling with various disorders, with a particular\nfocus on conditions linked to inflammation, such as autoimmune diseases, asthma, RA and COVID-19.\n\n \n\nBy leveraging our expertise\nin this field, we are committed to providing innovative solutions to improve the lives of those afflicted with these challenging medical\nconditions. Through our dedication to research, development, and compassionate care, we aim to contribute significantly to the well-being\nof patients worldwide, offering them much-needed relief and hope for a better future.\n\n \n\nIn order to achieve our goal,\nwe have and will continue to build an experienced team of senior executives and scientists, with experience in all facets of pharmaceutical\nresearch and development, drug formulation, clinical trial execution and regulatory submissions. We intend to leverage the knowledge of\nour team in order to complete the clinical trials needed to receive approvals of our product candidates from applicable regulatory authorities.\n\n \n\nInitially, we intend to obtain\napprovals for our product candidates from the FDA, and the Medical Cannabis Unit of the MOH. Upon obtaining FDA approvals, or in the event\nthat we are not successful in obtaining such approvals, we intend to apply for European Medicines Agency, or EMA, and other countries’\ngovernmental regulatory agencies approvals for our product candidates. If we are successful in obtaining FDA approvals for our product\ncandidates, we intend to enter into royalty agreements with good manufacturing practice, or GMP, approved medical manufactures and distributors,\nhaving them use our medical formulas for the purpose of growing, cultivating, manufacturing, and distributing Raphael Pharmaceutical medical\nindications in their designated territories.\n\n \n\n4\n\n \n\nFor this purpose, in October\n2022, we entered into an agreement with the Medical Cannabis Research and Innovation Center at Rambam for the development of a new, patentable\nformulation that combines purified cannabinoids to treat rheumatoid diseases.\n\n \n\nThe overall objective of this\nstudy is to identify a novel cannabinoid based patentable formulation to treat Rheumatoid diseases. Specifically, to investigate combination\nof purified cannabinoids to downregulate inflammation related to Rheumatoid diseases. We propose to base our study on data derived from\nDr. Igal Louria-Hayon’s studies (Helsinki # 0442-20-RMB) on the evaluation of the immune regulation properties of cannabinoids on\nthe immune system and the data derived from the cannabinoids receptors study (Helsinki # 0331-20-RMB). We will analyze the activation\nof cannabinoid receptors on mouse models and will study the role of purified cannabinoid as a potential to develop a novel patentable\nformulation to treat RA.\n\n \n\nOur discovery platform currently\nfocuses the use of CBD oil, one of the cannabinoids in cannabis plants, as the active pharmaceutical ingredient, or API, for our RA product\ncandidate and COVID-19 product candidate. Research results published in 2018 (“Translational Investigation of the Therapeutic Potential\nof Cannabidiol (CBD): Toward a New Age”) has shown that there may be benefits to treading medical conditions, or their effects,\nwith cannabinoids, and more specifically, with CBD, which may help reduce chronic pain by impacting endocannabinoid receptor activity,\nreducing inflammation and interacting with neurotransmitters. This research has also shown that CBD may have neuroprotective properties,\nand could have the ability to (i) reduce anxiety and depression, (ii) alleviate cancer-related symptoms, (iii) reduce acne and (iv) benefit\nheart health.\n\n \n\nOver the last few years, pharmaceutical\ndrug products that include parts of the cannabis plant have begun to receive regulatory approvals for use in patients suffering from certain\ndisorders, as highlighted below.\n\n \n\n●Nabiximols, better known under the tradename Sativex, is a botanical mouth spray consisting of natural\nTHC and CBD extracts, that received approval in the United Kingdom in 2010 for the alleviation of multiple sclerosis, or MS, symptoms\nlike spasticity, pain and overactive bladder.\n\n \n\n●Dronabinol, better known under the name Marinol, contains mainly THC and is a partial agonist of the cannabinoid\nreceptor type 1, or CB1, in the nervous system and a partial agonist of the cannabinoid receptor type 2, or CB2, in the periphery that\nactivates appetite, mood, cognition, memory and perception. Dronabinol received FDA-approval for use in the U.S. in 1985 for treatment\nof anorexia in acquired immunodeficiency syndrome, or AIDS, patients and for the prevention of chemotherapy-induced nausea and vomiting,\nor CINV. A Lack of randomized controlled trials, or RCTs, makes a recommendation for usage of dronabinol as a third-line treatment for\nCINV difficult. Dronabinol in the form of an oral tablet is known under the trade name Namisol. It has high bioavailability and a long\nshelf life and is indicated for MS, chronic pain and behavioral disturbances in dementia patients.\n\n \n\n●Nabilone, better known under the tradename Cesamet, contains primarily THC, is approved for use as an\nanti-emetic and adjunctive analgesic for neuropathic pain, CINV and treatment for anorexia in AIDS patients in Canada, Mexico, the UK\nand the U.S. Its main usage today is as adjunct medicine for chronic pain management.\n\n \n\nIn light of the past regulatory\napprovals for other pharmaceutical drug products and, more specifically, the potential beneficial effects of CBD and other parts of the\ncannabis plant, we believe that a drug discovery platform based on CBD may offer new and differentiated treatment options for patients.\nPrior regulatory approvals of other companies’ pharmaceutical drug products do not serve as an indication as to the ability or likelihood\nthat we receive regulatory approval to commercialize any of our product candidates.\n\n \n\nAfter four successful years\nof pre-clinical research at the laboratories of Rambam, which paved the way for the Study in RA patients, we are now advancing our efforts\nto further develop our product candidates.\n\n \n\n5\n\n \n\nFollowing the completion of\nthe Study, we intend to submit an Investigational New Drug, or IND, application to the FDA and MOH. See “Item 1. Business - Research\nand Clinical Development Strategy - Clinical Development Plan” for additional information on the ongoing pre-clinical trial and\nour planned clinical trial for our RA product candidate.\n\n \n\nIn addition, with respect\nto our COVID-19 product candidate, our clinical research partners have been focused on the effect of cannabinoids and cannabis extracts\non immune cells which induce acute inflammation. This study will begin in the pre-clinical level in immune cell models and, subject to\npositive results that exhibit downregulation of pro-inflammatory cytokines by cannabis extract, the study was completed successfully.\nFollowing the completion of the pre-clinical study, a mice model was conducted to analyze for acute inflammation, which resembles the\nimmunopathology of COVID-19. The mice model was successfully completed and we have registered for a clinical trial in patients with the\nMOH.As a pharmaceutical research and clinical development company we do not own or operate, and currently do not intend on creating an\nin-house team to manufacture and commercialize our pharmaceutical drug products, if any, that receive regulatory approval allowing for\ncommercialization. We currently rely, and expect to continue to rely, on third parties for the manufacturing of our product candidates\nfor preclinical and clinical testing, as well as for commercial manufacturing of any pharmaceutical drug products for which we may receive\nregulatory approval. Subject to the receipt of such regulatory approvals, we intend on cooperating with manufacturers and other third\nparties to manufacture and commercialize approved pharmaceutical drug products.\n\n \n\n**Critical Accounting Estimates**\n\n \n\nOur financial statements are\nprepared in accordance with U.S. GAAP. There are no critical accounting estimates for the years ended December 31, 2025, and 2024. Also,\nplease see Note 2 of Part I, Item 1 of this Quarterly Report for the summary of significant accounting policies.\n\n \n\n**Results of Operations**\n\n \n\n**Three months ended March 31, 2026, compared\nto the three months ended March 31, 2025**\n\n \n\n*Revenues*. We had no\nrevenue during the three months ended March 31, 2026, and March 31, 2025.\n\n \n\n*Research and Development\nExpenses*. Our research and development expenses totaled $37,000 for the three months ended March 31, 2026, representing a decrease\nof $35,000, or 49%, compared to $72,000 for the three months ended March 31, 2025. The decrease was primarily attributable to a decrease\nin our chief Technology Officer's compensation.\n\n \n\n*General and Administrative\nExpenses*. Our general and administrative expenses totaled $186,000 for the three months ended March 31, 2026, representing a decrease\nof $167,000, or 47%, compared to $353,000 for the three months ended March 31, 2025. The decrease was primarily due to a decrease in share\nbased compensation paid to a director.\n\n \n\n*Operating Loss*. Our\noperating loss totaled $223,000 for the three months ended March 31, 2026, representing a decrease of $202,000, or 48%, compared to $425,000\nfor the three months ended March 31, 2025. The decrease was primarily due to a decrease in our research and development expenses, and\na decrease in our general and administrative costs.\n\n \n\n*Financial expense, net.*We recognized financial expense, net, of $6,000 for the three months ended March 31, 2026, representing an increase of $2,000, or\n50%, compared to financial expense, net of $4,000 for the three months ended March 31, 2025. The Company considers the increase to be\nimmaterial.\n\n \n\n*Net Loss*. As a result\nof the foregoing, our net loss totaled $229,000 for the three months ended March 31, 2026, representing a decrease of $200,000, or 47%,\ncompared to $429,000 for the three months ended March 31, 2025. The decrease was primarily due to a decrease in our research and development\nexpenses and a decrease in our general and administrative costs.\n\n \n\n6\n\n \n\n**Liquidity and Capital Resources**\n\n \n\nSince inception, we have funded\nour operations primarily through our founder’s capital and capital received from Easy Energy, Inc. As of March 31, 2026, we had\n$1,000 in cash and cash equivalents, and have invested most of our available cash funds in ongoing cash accounts.\n\n \n\nNet cash used in operating\nactivities was $44,000 for the three-months period ended March 31, 2026, compared with net cash used in operating activities of $209,000\nfor the corresponding period in 2025. The decrease in the net cash used in operating activities during the three-months period ended March\n31, 2026, compared to the same period in 2025, was primarily due to a decrease in our net loss, offset by eliminating share based compensation\nand an increase in account payables.\n\n \n\nThere was no net cash used\nin investing activities for the three months period ended March 31, 2026 and for the same period in 2025.\n\n \n\nThere was no net cash used\nin financing activities for the three months period ended March 31, 2026 compared to $240,000 for the same period in 2025. The decrease\nin net cash provided by financing activities during the three months period ended March 31, 2026 compared to the corresponding period\nin 2025 was due to a decrease in issuance of common stock and warrants.\n\n \n\nOn December 24, 2024, we\nreceived a short-term loan from certain lender in a total of NIS 150 thousand ($41 thousand, based on the NIS-USD exchange rate on December\n24, 2024, the date the agreement was signed). The loan was originally repayable within four months and included a risk premium of NIS\n12 thousand, exclusive of value-added tax (VAT). Since we did not repay the loan within the original timeframe, the total interest and\npenalties incurred amounted to NIS 54 thousand.\n\n \n\nDuring the year ended December\n31, 2025, we repaid an aggregate amount of NIS 96.9 thousand. As of December 31, 2025, the remaining balance of the loan, including accrued\ninterest, is NIS 107.1 thousand ($34 thousand, based on the NIS-USD exchange rate on December 31, 2025), and is included within short-term\ncredit from a related party in the consolidated balance sheets.\n\n \n\nOur Chief Executive Officer\nand Chief Financial Officer are guarantors for the repayment of the loan.\n\n \n\nOur Chief Executive Officer occasionally makes repayments of the loan\non behalf of the company.\n\n \n\nDuring the Period ended\nMarch 31, 2025, we accrued an aggregate amount of NIS 9.6 thousand. As of March 31, 2026, the remaining balance is NIS 116.7 thousand\n($37 thousand, based on the NIS-USD exchange rate on March 31, 2026).\n\n \n\n**Off Balance Sheet Arrangements**\n\n \n\n*Rambam Research Agreement*\n\n \n\nOn July 17, 2019, we entered\ninto a sponsored Research Agreement with Rambam, pursuant to which the Company agreed to fund a research project, to be performed by Rambam,\nwith a research plan aimed at identifying the effects of different cannabis strains on the function of immune cells. On October 28, 2020,\nthe Company and Rambam agreed to expand the research plan to study the anti-inflammatory activities of cannabis extracts in an RA mouse\nmodel. On February 15, 2021, the Company and Rambam agreed to further expand the research plan to study the effect of cannabis extracts\non the immunopathology of the COVID-19 disease. The sponsored Researched Agreement is for an initial term of 48 months. On October 23,\n2022, the Company and Rambam entered into a supplement to the Research Agreement, or the Supplement Agreement, pursuant to which the Company\nexercised an option to extend the Research Agreement by additional two years until December 31, 2024.Pursuant to the Research Agreement,\nwe 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\n2022. Pursuant to the Supplement Agreement, we agreed to pay Rambam $960,000 plus VAT in four biannual payments from May 2023 through\nDecember 2024. Such amount was later amended to $470,000 plus VAT out of which we paid $120,000. Furthermore, in accordance with the terms\nof the Research Agreement, we and Rambam will have joint ownership of any IP created as a result of research programs covered by such\nagreement. In connection with the Research Agreement, Rambam agreed not to work, study or develop any technologies with other entities\nthat compete with our work with Rambam for our COVID-19 product candidate or RA product candidate for a term of three and seven years,\nrespectively, from the end of the parties’ collaboration with respect to the COVID-19 product candidate and seven years from the\nend of the term of the Research Agreement with respect to the RA product candidate. Subject to commercial sales of any product candidate\nusing the IP created as a part of the research covered by such agreement, Raphael Israel is required to pay Rambam a royalty in an amount\nequal to 6% of all net sales, subject to certain deductions, such as taxes paid by any purchaser, transportation and shipping costs, and\nother customary deductions.\n\n \n\n7\n\n \n\nOn December 25, 2023, the\nCompany received an extension to pay the remaining $350,000 pursuant to the Research Agreement until the end of June 2024, however, since\nthe remaining amount was not paid on time, an additional amount of $57,000 was added to the remaining balance. On July 28, 2025, the Company\nreceived an extension to pay the remaining balance until the end of April 2026. As of the date of this Quarterly Report, the Company has\nmade all four of the four equal payments due pursuant to the Research Agreement, for a total amount of $1.4 million and $295,000 for the\nSupplement Agreement (out of the remaining $577,000). As of the date of this Quarterly Report, the outstanding balance is approximately\n$300,000 and VAT (based on the NIS-USD exchange rate on March 31, 2026).\n\n \n\n**Service Agreement with\nour Chief Technology Officer**\n\n \n\nOur Chief Technology Officer,\nDr. Igal Louria Hayon, provides services to our Company pursuant to a service agreement, by and between the Company and Dr. Igal Louria\nHayon. Pursuant to the terms thereof Dr. Hayon provides consulting services the Company to engage with an array of science consultants\nand to coordinate collaborations with hospitals on medical cannabis research. Pursuant to such agreement, we agreed to pay our Chief Technology\nOfficer 15% of the Company’s net royalty’s income from worldwide sales of any of the Company’s cannabis-based medical\nindications treating COVID-19. Pursuant to Dr. Hayon’s service agreement, in the event we will apply for any clinical trial of cannabis-based\ntreatment or will begin any other new cannabis related research, the Corporation will grant Dr. Hayon warrants to purchase up to 350,000\nshares of Common Stock at an exercise price of $0.01. On May 1, 2024, the milestone was met and the Company granted to Dr. Igal Louria\nHayon warrants to purchase up to 350,000 shares of Common Stock of the Company at an exercise price of $0.01. The warrants were exercised\nin November 2025.\n\n \n\nOn March 3, 2025, we entered\ninto a new service agreement with our Chief Technology Officer, substantially on the same terms as the agreement described above, effective\nas of January 1, 2025 Pursuant to such service agreement, we agreed to pay our Chief Technology Officer a monthly fee of $24,000 and to\nreimburse him with certain expenses related to his scientific work.\n\n \n\nOn December 27, 2025 we extended\nsuch service agreement with our Chief Technology Officer, effective as of January 1, 2026 and until December 31, 2027. Pursuant to the\nextension to such service agreement, we agreed to pay our Chief Technology Officer a monthly fee of $12,000 and to reimburse him with\ncertain expenses related to his scientific work.\n\n \n\nThe Company may terminate\nthe service agreement prior to the expiration of its term upon 120 days advance notice and the payment to Dr. Hayon of a termination fee\nequal to the monthly fees payable through the expiration of its term.\n\n \n\nExcept for the above, we have\nnot engaged in any off-balance sheet arrangements, such as the use of unconsolidated subsidiaries, structured finance, special purpose\nentities or variable interest entities.\n\n \n\nWe do not believe that our\noff-balance sheet arrangements and commitments have or are reasonably likely to have a current or future effect on our financial condition,\nchanges in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that\nis material to investors.\n\n** **\n\n**Current Outlook**\n\n \n\nWe have financed our operations\nto date primarily through proceeds from our founder’s capital and issuance of shares and warrants. We have incurred losses and generated\nnegative cash flows from operations since inception. To date we have not generated revenue, and we do not expect to generate significant\nrevenues from the sale of our products in the near future.\n\n \n\n8\n\n \n\nWe do not believe that our\ncurrent cash on hand will be sufficient to fund our projected operating requirements. This raises substantial doubt about our ability\nto 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\nrequired for the short and long-term support of our operations or that we will be able to obtain additional financing as needed, or meet\nthe conditions of such financing, or that the costs of such financing may not be prohibitive. These conditions raise substantial doubt\nabout our ability to continue as a going concern for a period within one year from the date of the financial statements included elsewhere\nin this Quarterly Report.\n\n \n\nAs of March 31, 2026, our\ncash and cash equivalents were $1,000. We believe that our existing cash and cash equivalents will be sufficient to fund our projected\ncash requirements through the third quarter of 2026. Therefore, we will require significant additional financing in the near future to\nfund our operations. We currently anticipate that we will require approximately $1 million for research and development activities over\nthe course of the next 12 months. We also anticipate that we will require approximately $1 million for capital expenditures over such\n12-month period, which consists primarily of expenditures for clinical trials and general Company operating costs.\n\n \n\nIn addition, our operating\nplans 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\nplanned. Our future capital requirements will depend on many factors, including:\n\n \n\n●our research and development efforts, including our ability to finish research and development projects\nor product development within the allotted or expected timeline;\n\n \n\n●the cost, timing and outcomes of seeking to commercialize our products in a timely manner;\n\n \n\n●our ability to generate cash flows;\n\n \n\n●economic weakness, including inflation, or political instability in particular foreign economies and markets;\n\n \n\n●government regulation in our industry, and more specifically, the costs and timing of obtaining regulatory\napproval or permits to launch our technology in various geographical markets; and\n\n \n\n●the costs of, and timing for, strengthening our manufacturing agreements for production of our wave energy\nsystems.\n\n \n\nUntil we can generate significant\nrevenues, if ever, we expect to satisfy our future cash needs through our existing cash, cash equivalents and short-term deposits, loans,\nor debt or equity financings. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If\nfunds are not available, we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization\nefforts with respect to, one or more applications of our products. This may raise substantial doubts about our ability to continue as\na going concern."}