RAPH 10-Q
Raphael Pharmaceutical Inc. (RAPH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
OR
For the transition period from to
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number
of shares of the registrant’s common stock, $0.01 par value, outstanding as of November 14, 2023:
TABLE OF CONTENTS
| Page | ||
| PART I | ||
| Item 1. | Financial Statements | F-1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 6 |
| Item 4. | Controls and Procedures | 6 |
| PART II | ||
| Item 1. | Legal Proceedings | 7 |
| Item 1A. | Risk Factors | 7 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
| Item 6. | Exhibits | 7 |
i
Item 1. Financial Statements
RAPHAEL PHARMACEUTICAL INC. AND ITS SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2023
UNAUDITED
U.S. DOLLARS IN THOUSANDS
INDEX
- - - - - - - - - - -
-F-1-
RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
U.S dollars in thousands (except for share and per share data)
| As of September 30, | As of December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Other account payables and accrued expenses | ||||||||
| Payable to related party | ||||||||
| Total current liabilities | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Common stock, $ | ||||||||
| Authorized: | ||||||||
| Issued and outstanding: | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
-F-2-
RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
U.S dollars in thousands (except for share and per share data)
| Nine months ended September 30, | Three months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| Research and development expenses | $ | $ | $ | $ | ||||||||||||
| General and administrative expenses | ||||||||||||||||
| Operating loss | ||||||||||||||||
| Total financial expense (income), net | ) | ( | ) | |||||||||||||
| Net loss | ||||||||||||||||
| (*) |
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
-F-3-
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)
| Common stock | Additional paid-in | Accumulated | Total | |||||||||||||||||
| Number | Amount | capital | deficit | equity | ||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock and warrants | ||||||||||||||||||||
| Issuance of common stock in exchange for services | ||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2023 | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| Issuance of common stock and warrants | ||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance as of September 30, 2023 | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
| Common stock | Additional paid-in | Accumulated | Total | |||||||||||||||||
| Number | Amount | capital | deficit | equity | ||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock and warrants | - | |||||||||||||||||||
| Issuance of common stock in exchange for services | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2022 | $ | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock and warrants | - | |||||||||||||||||||
| Issuance of common stock in exchange for services | - | |||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance as of September 30, 2022 | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
-F-4-
RAPHAEL PHARMACEUTICAL INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
U.S dollars in thousands (except for share and per share data)
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based payment in exchange for services | ||||||||
| Depreciation | ||||||||
| Changes in: | ||||||||
| Other current assets | ||||||||
| Account payables and related party | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | ||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Issuance of common stock and warrants | ||||||||
| Net cash provided by financing activities | ||||||||
| Change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of the period | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| Non cash supplement | ||||||||
| Receivables on account of stock | $ | |||||||
| (*) | less than 1 thousand. |
The accompanying notes are an integral part of the condensed consolidated interim financial statements.
-F-5-
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)
| NOTE 1:- | GENERAL |
| a. | Raphael Pharmaceutical Inc. (formerly Easy Energy, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on May 17, 2007. The Company is headquartered in Tel Aviv-Jaffa, Israel. From April 1, 2011 until December 31, 2019, the Company was not active.
On October 8, 2020, the Company and its stockholders entered into a Share Exchange Agreement (the “Share Exchange”) with an Israeli pharmaceutical company (“Raphael”), according to which, among other matters, all shareholders of Raphael will sell and convey the entire holdings in Raphael to the Company such that following the Share Exchange, the shareholders of Raphael will hold
On May 14, 2021, the Company’s board of directors and stockholders approved a 1-for-100 reverse split of the Company’s common stock, which was implemented and became effective as of May 14, 2021. The reverse split combined each one hundred (
On May 14, 2021, Raphael and the Company completed the Share Exchange pursuant to which
The Share Exchange was accounted for as a reverse recapitalization which is outside the scope ASC 805, “Business Combinations” (“ASC 805”), as the Company, the legal acquirer, is considered a non-operating public shell, and is therefore not a business as defined in ASC 805. As the shareholders of Raphael received the largest ownership interest in the Company, Raphael was determined to be the “accounting acquirer” in the Share Exchange. As a result, the historical financial statements of the Company were replaced with the financial statement of Raphael for all periods presented.
Company’s common stock began public trading on the over-the-counter market in the U.S. in January 2023 under the symbol “RAPH”. | |
| b. | Going concern and management plans |
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 September 30, 2023, the Company’s
accumulated deficit was $
-F-6-
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)
| NOTE 1:- | GENERAL (Cont.) |
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.
| NOTE 2:- | SIGNIFICANT ACCOUNTING POLICIES |
These unaudited interim financial statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December 31, 2022. The significant accounting policies applied in the annual financial statements of the Company as of December 31, 2022, are applied consistently in these interim financial statements.
| NOTE 3:- | UNAUDITED 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, 2022. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
-F-7-
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)
| NOTE 4:- | SHAREHOLDERS’ EQUITY |
| a. | In
January 2023, the Company issued |
| b. | On
December 30, 2022, the Company signed an agreement to raise $ |
| c. | On
January 8, 2023, certain investor of the Company and the Company signed an agreement to raise $ |
| d. | From
March through June, 2023, certain investors of the Company and the Company signed an agreement to raise $ |
| e. | In
May 2023, an investor of the Company and the Company signed an agreement to exercise such investor’s warrants into Company’s
common stock. In May 2023, the investor transferred $ |
| f. | In
June 2023, the Company issued |
| g. | From
July through September, 2023, certain investors of the Company exercised their warrants into shares and as such, the Company received
$ |
| h. | In
September 2023, an investor of the Company and the Company signed an agreement to raise $ |
| i. | In
September 2023, an investor of the Company and the Company signed an agreement to exercise such investor’s warrants into Company’s
common stock for an amount of $ |
-F-8-
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” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws, 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 regulatory pathways that we may elect to utilize in seeking U.S. Food and Drug Administration, or FDA, European Medicines Agency, or EMA, and other regulatory approvals, if any; | |
| ● | obtaining (and the cost thereof) FDA and EMA approval of, or other regulatory action in Europe or the United States and elsewhere with respect to our product candidates; | |
| ● | the commercial launch and future sales of our product candidates and our advancement of product candidates for other indications in our pipeline; |
| ● | the potential cost of our rheumatoid arthritis product candidate, or RA and RA product candidate, respectively, for patients; | |
| ● | our expectations regarding the timing of commencing clinical trials; |
| ● | our expectations regarding the supply of the active pharmaceutical ingredient for our product candidates; | |
| ● | third-party payor reimbursement for our product candidates; | |
| ● | our estimates regarding anticipated expenses, capital requirements and our needs for additional financing; | |
| ● | completion and receiving favorable results of clinical trials for our product candidates; and | |
| ● | the filing by us, and the subsequent issuance of patents to us, by the U.S. Patent and Trademark Office and other governmental patent agencies. |
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.
1
Overview
We are a pharmaceutical drug research and development company focused on the discovery and clinical development of life-improving drug therapies based on full spectrum cannabis oil or purified cannabinoids, or CBD. Unless indicated otherwise, we plan on using oil derived from 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 (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 and lung inflammation related to COVID-19. At Rambam Health Care Campus, or Rambam Hospital, we have successfully completed preclinical studies on human-derived immune cells and mouse models for both the COVID-19 and RA products.
On February 9, 2022, we filed an application for a clinical trial with the Medical Cannabis Unit of the Ministry of Health of Israel, or MOH. On February 16, 2022 we submitted an application with the Helsinki Committee at Rambam Hospital for a clinical trial in COVID-19 patients. On March 27, 2023, the Israel Ministry of Health, or MOH, accepted our proposal for a clinical trial aimed at preventing the deterioration of hospitalized COVID-19 patients. We will commence the clinical trial during 2023. We plan to submit a human trial application in 2023 to conduct a proof-of-concept experiment for our RA product.
Based on the data obtained from our pre-clinical studies at Rambam Hospital, we are currently in the process of developing a revolutionary and patentable formula designed to treat inflammation. These studies have provided promising results, revealing a remarkable synergistic anti-inflammatory effect of the formula on immune cells sourced from donors, as well as in mice models for lung inflammation and rheumatoid arthritis (RA).
As we move forward, our focus will be on further investigating and refining the formula through continued pre-clinical research. Our ultimate goal is to ensure that the formula meets all the necessary standards and regulations set forth by the FDA, allowing us to progress towards clinical treatments.
Our vision is to emerge as a pioneering company at the forefront of formulating pharmaceutical drugs that harness the potential of purified cannabinoids and full-spectrum CBD oil. Our primary mission is to cater to the unmet medical requirements of patients grappling with various disorders, with a particular focus on conditions linked to inflammation, such as chronic lung inflammation, RA and COVID-19.
By leveraging our expertise in this field, we are committed to providing innovative solutions to improve the lives of those afflicted with these challenging medical conditions. Through our dedication to research, development, and compassionate care, we aim to contribute significantly to the well-being of patients worldwide, offering them much-needed relief and hope for a better future.
In order to achieve our goal, we have and will continue to build an experienced team of senior executives and scientists, with experience in all facets of pharmaceutical research and development, drug formulation, clinical trial execution and regulatory submissions. We intend to leverage the knowledge of our team in order to complete the clinical trials needed to receive approvals of our product candidates from applicable regulatory authorities.
Initially, we intend to obtain approvals for our product candidates from the FDA and the Medical Cannabis Unit of the Israeli Ministry of Health, or MOH. 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 for the purpose of growing, cultivating, manufacturing, and distributing Raphael Pharmaceutical medical indications in their designated territories.
2
Critical Accounting Policies
Our financial statements are prepared in accordance with U.S. GAAP. There are no critical accounting estimates for the years ended December 31, 2022 and 2021. 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 September 30, 2023 compared to the three months ended September 30, 2022
Revenues. We had no revenues during the three months ended September 30, 2023 and September 30, 2022.
Research and Development Expenses. Our research and development expenses totaled $510,000 for the three months ended September 30, 2023, representing an increase of $178,000, or 53%, compared to $332,000 for the three months ended September 30, 2022. The increase was primarily attributable to the additional research and development supplement agreement signed between the Company and Rambam Hospital in October 2022 for an additional two years.
General and Administrative Expenses. Our general and administrative expenses totaled $219,000 for the three months ended September 30, 2023, representing a decrease of $875,000, or 80%, compared to $1,094,000 for the three months ended September 30, 2022. The decrease was primarily due to the value of shares and warrants issued to our officers in July 2022.
Operating Loss. Our operating loss totaled $729,000 for the three months ended September 30, 2023, representing a decrease of $697,000, or 49%, compared to $1,426,000 for the three months ended September 30, 2022. The decrease was primarily due to the decrease in our general and administrative expenses offset by an increase in our research and development expenses.
Financial Expense (Income), net. We recognized financial income, net, of $4,000 for the three months ended September 30, 2023, representing a decrease of $21,000, or 123,000%, compared to financial expense of $17,000 for the three months ended September 30, 2022. The decrease was primarily due to exchange rate differences between the U.S. dollar and New Israeli Shekel.
Net Loss. As a result of the foregoing, our net loss totaled $725,000 for the three months ended September 30, 2023, representing a decrease of 718,000, or 49%, compared to $1,443,000 for the three months ended September 30, 2022. The decrease was primarily due to decrease in Company’s general and administrative expenses offset by an increase in Company’s research and development expenses.
Nine months ended September 30, 2023 compared to the nine months ended September 30, 2022
Revenues. We had no revenues during the nine months ended September 30, 2023 and September 30, 2022.
Research and Development Expenses. Our research and development expenses totaled $917,000 for the nine months ended September 30, 2023, representing an increase of $415,000, or 82%, compared to $502,000 for the nine months ended September 30, 2022. The increase was primarily attributable to the additional research and development supplement agreement signed between the Company and Rambam Hospital in October 2022 for an additional two years.
General and Administrative Expenses. Our general and administrative expenses totaled $489,000 for the nine months ended September 30, 2023, representing a decrease of $1,222,000, or 71%, compared to $1,711,000 for the nine months ended September 30, 2022. The decrease was primarily due to the value of shares and warrants issued to our officers and former director in 2022.
3
Operating Loss. Our operating loss totaled $1,406,000 for the nine months ended September 30, 2023, representing a decrease of $807,000, or 36%, compared to $2,213,000 for the nine months ended September 30, 2022. The decrease was primarily due to the decrease in our general and administrative expenses offset by an increase in our research and development expenses.
Financial Expense. We recognized financial expense of $0 for the nine months ended September 30, 2023, representing a decrease of $42,000, or 100%, compared to $42,000 for the nine months ended September 30, 2022. The decrease was primarily due to exchange rate differences between the U.S. dollar and New Israeli Shekel.
Net Loss. As a result of the foregoing, our net loss totaled $1,406,000 for the nine months ended September 30, 2023, representing a decrease of $849,000, or 37%, compared to $2,255,000 for the nine months ended September 30, 2022. The decrease was primarily due to the decrease in our general and administrative expenses offset by an increase in our research and development expenses.
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 September 30, 2023, we had $299,000 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 $1,115,000 for the nine months period ended September 30, 2023, compared with net cash used in operating activities of $480,000 for the corresponding period in 2022. The $635,000 increase in the net cash used in operating activities during the nine months period ended September 30, 2023, compared to the same period in 2022, was primarily the result of payments made to our service providers following the receipt of funds from the issuance of shares and warrants.
There was no net cash used in investing activities for the nine months period ended September 30, 2023 compared with net cash used in investing activities of $2,000 for the corresponding period in 2022. The decrease is considered immaterial.
Net cash provided by financing activities for the nine months period ended September 30, 2023 was $1,126,000 compared to $424,000 for the same period in 2022. The increase in net cash provided by financing activities during the nine months period ended September 30, 20223 compared to the corresponding period in 2022 was mainly due to higher investments and due to the advance payment on account of shares to be received in 2023.
Off Balance Sheet Arrangements
Rambam Research Agreement
Pursuant to a research agreement with Rambam Med-Tech Ltd, or Rambam MT, entered into by the parties in July 2019, or the Research Agreement, 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 initial term of the Research Agreement was 48 months. On October 24, 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.
Pursuant to the Research Agreement, we agreed to pay Rambam MT $1.4 million in four equal payments, due on the first day of August on each successive year from 2019 through 2022. Pursuant to the Supplement Agreement, we agreed to pay Rambam MT $960,000 plus VAT in four biannual payments from May 2023 through December 2024. 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.
4
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 September 30, 2023, the Company has made four of the four equal payments due pursuant to the Research Agreement, for a total amount of $1.4 million and $120,000 for the Supplement Agreement.
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.
On July 27, 2022, we 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 $100,000. In June 2023, we issued the remining 201,000 shares of common stock to Wolc in connection with the services agreement dated October 2020.
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 September 30, 2023, our cash and cash equivalents were $299,000. We believe that our existing cash and cash equivalents will not be sufficient to fund our projected cash requirements through 2023. Therefore, we will require significant additional financing in the near future to fund our operations. We currently anticipate that we will require approximately $0.8 million for research and development activities over the course of the next 12 months. We also anticipate that we will require approximately $0.5 million for capital expenditures over such 12-month period, which consists primarily of expenditures for clinical trials and general Company operating costs.
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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:
| ● | our research and development efforts, including our ability to finish research and development projects or product development within the allotted or expected timeline; |
| ● | the cost, timing and outcomes of seeking to commercialize our products in a timely manner; | |
| ● | our ability to generate cash flows; | |
| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets; | |
| ● | government regulation in our industry, and more specifically, the costs and timing of obtaining regulatory approval or permits to launch our technology in various geographical markets; and | |
| ● | the costs of, and timing for, strengthening our manufacturing agreements for production of our wave energy systems. |
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 September 30, 2023, 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 September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, as amended, filed with the SEC on March 24, 2023.
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, as amended, filed with the SEC on March 24, 2023.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
On September 26, 2023, certain investors of the Company exercised warrants to purchase 1,454,250 shares of common stock of the Company for aggregate consideration of $480,000 (including $123,000 which was received by the Company in May 2023).
On September 11, 2023, an investor of the Company and the Company signed an agreement under the terms of which the Company issued 100,000 shares of common stock for aggregate consideration of $50,000.
These securities were offered and sold in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) set forth under Section 4(a)(2) of the Securities Act.
Item 6. Exhibits
EXHIBIT INDEX
| Exhibit No. | Description | |
| 31.1* | Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a). | |
| 31.2* | Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a). | |
| 32.1* | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350. | |
| 32.2* | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. |
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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.
| RAPHAEL PHARMACEUTICAL INC. | ||
| Date: November 14, 2023 | By: | /s/ Shlomo Pilo |
| Name: | Shlomo Pilo | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| Date: November 14, 2023 | By: | /s/ Guy Ofir |
| Name: | Guy Ofir | |
| Title: | Chief Financial Officer (Principal Financial Officer) | |
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