10-Q: Raphael Pharma Faces Going Concern Doubt Amid Cash Crunch

Raphael Pharmaceutical Inc. reports significant liquidity challenges and a going concern warning despite positive clinical study results and a new product launch.

Summary

• Raphael Pharmaceutical Inc. is a clinical-stage company focused on cannabinoid-based drug therapies for autoimmune diseases, asthma, and COVID-19.
• The company successfully completed a proof-of-concept clinical study for its lead rheumatoid arthritis (RA) product candidate in the United States, with results suggesting beneficial effects on symptom management and overall well-being.
• In August 2025, the company launched its proprietary natural formula, RaphaWell, as a clinically tested dietary supplement for RA support in the United States.
• A net loss of $255,000 was reported for the three months ended September 30, 2025, a 22% decrease from $326,000 in the prior year period.
• For the nine months ended September 30, 2025, the net loss was $1,006,000, a 10% decrease from $1,124,000 in the same period of 2024.
• Research and development expenses decreased by 55% to $73,000 in Q3 2025 and by 49% to $286,000 for the nine months, primarily due to reduced expenses from the Rambam research agreement.
• General and administrative expenses increased by 13% to $178,000 in Q3 2025 and by 28% to $705,000 for the nine months, mainly due to increased professional services paid to related parties.
• Cash and cash equivalents stood at a critically low $3,000 as of September 30, 2025, down from $19,000 at December 31, 2024.
• The accumulated deficit reached $9,895,000 as of September 30, 2025.
• Management has concluded that substantial doubt about the company's ability to continue as a going concern exists due to insufficient cash and the need for significant additional financing.
• The company raised $240,000 through the issuance of common stock and warrants during the nine months ended September 30, 2025.
• Several loans totaling $38,384 were obtained from the CEO during June and Q3 2025, which are interest-free and repayable once the company has sufficient funds.
• An outstanding balance of $282,000 is owed to Rambam Health Care Campus for research, with an extension granted until April 2026.
• The company anticipates requiring approximately $500,000 for R&D and $300,000 for capital expenditures over the next 12 months.

Sentiment

Score: 2

Explanation: While there are positive clinical study results and a product launch, the severe liquidity issues, explicit going concern warning, and heavy reliance on related-party financing overshadow these developments, indicating a very high-risk financial position and significant uncertainty about the company's future viability.

Positives

• Successfully completed a proof-of-concept clinical study for the rheumatoid arthritis (RA) product candidate, with promising results.
• Launched the RaphaWell brand as a clinically tested dietary supplement for RA support in the United States in August 2025.
• Reported a decreased net loss for both the three-month ($255,000) and nine-month ($1,006,000) periods ended September 30, 2025, compared to the prior year.
• Research and development expenses significantly decreased by 55% in Q3 2025 and 49% for the nine months, indicating more efficient use of R&D funds or completion of certain research phases.
• Positive results from pre-clinical studies for COVID-19 and asthma were achieved, advancing understanding in these areas.

Negatives

• Cash and cash equivalents are critically low at $3,000 as of September 30, 2025, a significant drop from $19,000 at December 31, 2024.
• The company has an accumulated deficit of $9,895,000 as of September 30, 2025, indicating a history of substantial losses.
• Management has explicitly stated "substantial doubt about the Company's ability to continue as a going concern" due to insufficient cash and the need for significant additional financing.
• Total current liabilities increased substantially to $1,271,000 as of September 30, 2025, from $769,000 at December 31, 2024.
• Payables to related parties (officers) increased significantly to $755,000 as of September 30, 2025, from $228,000 at December 31, 2024.
• The company continues to generate no revenue and does not expect to generate significant revenues in the near future.
• Net cash provided by financing activities decreased to $240,000 for the nine months ended September 30, 2025, from $280,000 in the same period of 2024.

Risks

• The company's ability to continue as a going concern is in substantial doubt without securing additional financing.
• There is no assurance that the company will be able to successfully raise additional financing on a timely basis or on acceptable terms, or at all.
• Future operating losses and the timing of becoming profitable are uncertain, as the company is still in its development and clinical stage.
• Failure to complete research and development and clinical trials, or to attain regulatory approvals (FDA, EMA, MOH), would prevent product commercialization.
• The company relies on third parties for manufacturing and commercialization of its product candidates, introducing dependency risks.
• Regulatory pathways and the associated costs for obtaining approvals are complex and uncertain.
• The supply of active pharmaceutical ingredients for product candidates is a critical factor.
• Third-party payor reimbursement for product candidates, if approved, is not guaranteed.
• Economic weakness, including inflation, or political instability in particular foreign economies and markets could adversely impact operations.
• Government regulation in the pharmaceutical industry, and specifically for cannabis-based products, poses ongoing challenges and costs.
• The costs of, and timing for, strengthening manufacturing agreements for production of wave energy systems (an apparent legacy business reference) could impact financial resources.

Future Outlook

Management expects the company to continue generating losses and negative cash flow from operating activities as it remains in the development and clinical stage. Significant additional financing is required in the near future to fund operations, complete research and development, conduct clinical trials, attain regulatory approvals, and begin commercialization efforts. The company anticipates needing approximately $500,000 for R&D activities and $300,000 for capital expenditures over the next 12 months. There is no assurance that additional funding will be available on acceptable terms, if at all, which raises substantial doubt about the company's ability to continue as a going concern.

Management Comments

• "Managements plans include, but are not limited to, raising capital in the United States."
• "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 Companys 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."
• "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."

Industry Context

Raphael Pharmaceutical Inc. operates in the highly specialized and regulated sector of cannabinoid-based pharmaceutical drug research and development. This industry is characterized by long development cycles, high R&D costs, and significant regulatory hurdles for drug approval. While some cannabis-derived products have achieved regulatory success, the path for new drug candidates, particularly for conditions like rheumatoid arthritis, asthma, and COVID-19, remains challenging and competitive. The company's strategy to launch RaphaWell as a dietary supplement allows for earlier market entry and potential revenue generation, but it operates under different regulatory frameworks and market dynamics compared to prescription pharmaceutical drugs. The explicit 'going concern' warning highlights the inherent financial risks faced by many early-stage biotech companies that are pre-revenue and heavily reliant on external funding.

Comparison to Industry Standards

• As a development-stage pharmaceutical company, Raphael Pharmaceutical Inc.'s operational losses and lack of revenue are typical for the industry, as significant capital is required for research and clinical trials before commercialization.
• The successful completion of a proof-of-concept study for its RA product candidate is a positive early-stage milestone, comparable to initial preclinical or Phase 1 results seen in other biotech firms, but it is still far from late-stage clinical trials or market approval.
• The launch of RaphaWell as a dietary supplement is a common strategy for companies with early-stage drug candidates to establish a market presence or generate some cash flow, similar to how some nutraceutical companies operate alongside pharmaceutical divisions.
• The explicit 'substantial doubt about the company's ability to continue as a going concern' is a severe financial indicator, placing Raphael Pharmaceutical Inc. at a higher risk level compared to more established or better-funded industry peers like GW Pharmaceuticals (now part of Jazz Pharmaceuticals) which successfully brought Epidiolex to market, or other mid-to-large cap biotech firms with diversified pipelines and revenue streams.
• The extremely low cash balance of $3,000 is significantly below industry norms for companies actively engaged in R&D and clinical trials, indicating a critical liquidity crisis that is worse than many struggling small-cap biotechs.
• Reliance on related-party loans and equity raises is common for early-stage companies, but the increasing proportion of related-party payables suggests difficulty in securing non-related party financing, which can be a red flag for investors compared to companies attracting institutional funding.

Management Changes

Legal Proceedings

• No material changes to legal proceedings from those disclosed in the Annual Report on Form 10-K filed March 31, 2025.

Related Party Transactions

• Short-term credit from a related party (Shanti Gems International Investments Ltd., owned by director Ajay Kumar Dhadha) of $41,000, bearing 12% interest, due December 2025.
• Loans totaling $38,384 obtained from the CEO during June and Q3 2025, which are interest-free and repayable when sufficient funds are available.
• Payables to related party Officers (CEO, CFO, and Chief Technology Officer services and payments on behalf of the company) increased to $755,000 as of September 30, 2025, from $228,000 at December 31, 2024.
• Issuance of 200,000 shares of common stock and 100,000 warrants to the CEO for $100,000 on March 2, 2025.
• Grant of 350,000 restricted shares of common stock and 250,000 warrants (total value $22,000) to Ajay Kumar Dhadha upon his appointment as Board member and Chairman on March 5, 2025.
• Grant of 200,000 warrants (total value $8,000) to a director on March 10, 2025, as compensation for extended service until December 31, 2025.
• Grant of 300,000 warrants (total value $39,000) to Zvi Laufer upon his appointment as Board member on July 31, 2025.
• Consulting services from related parties amounted to $396,000 for the nine months ended September 30, 2025, compared to $180,000 in the same period of 2024.
• Stock-based compensation to related parties amounted to $244,000 for the nine months ended September 30, 2025, compared to $0 in the same period of 2024.
• CFO fee remained at $108,000 for the nine months ended September 30, 2025, consistent with the prior year.

Stakeholder Impact

• **Shareholders:** Face significant dilution risk from potential future capital raises, high risk of investment loss due to the explicit going concern warning, and uncertainty regarding the long-term value of their holdings.
• **Employees:** Job security may be at risk if the company fails to secure necessary funding, potentially impacting morale and retention.
• **Creditors:** Face increased risk of delayed or non-payment, particularly for related-party loans which are contingent on the company having sufficient funds.
• **Customers (of RaphaWell):** May experience uncertainty regarding the long-term availability and support for the RaphaWell product if the company faces severe financial distress.
• **Suppliers/Research Partners (e.g., Rambam):** Risk of delayed payments, as evidenced by the extension granted to Rambam for an outstanding balance.

Next Steps

• Further investigate mechanisms and refine Raphaels Formula through continued pre-clinical research.
• Ensure the formula meets all necessary FDA standards and regulations to progress towards clinical treatments.
• Submit an Investigational New Drug (IND) application to the FDA and Ministry of Health (MOH) for the RA product candidate.
• Continue to build an experienced team of senior executives and scientists.
• Obtain approvals for product candidates from the FDA and MOH.
• Apply for European Medicines Agency (EMA) and other governmental regulatory agencies' approvals for product candidates.
• Enter into royalty agreements with Good Manufacturing Practice (GMP)-approved medical manufacturers and distributors upon FDA approval.
• Secure significant additional financing to fund projected operating requirements and capital expenditures.

Key Dates

Recommendation

The company faces severe liquidity issues with only $3,000 in cash and an explicit 'substantial doubt about its ability to continue as a going concern.' While there are positive clinical developments and a product launch, these are overshadowed by the immediate financial distress, significant accumulated deficit, and heavy reliance on dilutive capital raises and related-party loans. The risk of bankruptcy or significant value erosion is extremely high without immediate and substantial external funding, which is not guaranteed. Investors should consider exiting their positions due to the critical financial instability.

Keywords

Pharmaceutical, Cannabinoid, CBD oil, Rheumatoid Arthritis, RA, Asthma, COVID-19, Clinical Trials, Drug Development, Biotech, Going Concern, Capital Raise, RaphaWell, SEC Filing, 10-Q