OTC: RAPH

In addition, we are aiming
to develop a novel treatment for asthma. At Rambam Health Care Campus, Rambam Med-Tech Ltd., or Rambam, we have successfully conducted
studies using human-derived immune cells and mouse models to advance our understanding both COVID-19 and RA products. Due to the similarity
of COVID-19 and asthma symptoms, such studies also advance our understanding of asthma and its treatment. Since the volume of COVID-19
testing has been decreasing, we decided to leverage our knowledge and understanding of COVID-19 to study asthma as well.

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 for a clinical trial in COVID-19 patients.

In November 2022, we submitted
a proposal to the Ministry of Health of Israel, or MOH for a clinical trial of a cannabis-based drug intended to alleviate the deterioration
of COVID-19 patients.

On March 27, 2023, the MOH
accepted our proposal for a clinical trial of a cannabis-based drug intended to alleviate the deterioration of COVID-19 patients.

In April 2024 we began the
Study in the U.S., leveraging insights from the pre-clinical experiments we have conducted at the Rambam. This Study aimed to evaluate
the Company’s Cannabinoid based formula, or Raphael’s Formula, in patients with active RA. The single-group Study was managed
by MindMate, Inc. dba Citruslabs, or Citruslabs, and conducted in Santa Monica, California, U.S., under Institutional Review Board, or
IRB, approval, in compliance with applicable FDA regulations and in accordance with applicable industry standards and regulations. An
IRB is an appropriately constituted group that has been formally designated to review and monitor biomedical research involving human
subjects.

On December 23, 2024, upon
a successful completion of the Study, we received the Study results with overall findings that emphasize the clinical potential of Raphael’s
Formula and suggest that it may have beneficial effects on symptom management and overall well-being for individuals with RA. For more
information about the Study results, see “Item 1. Business - Research and Clinical Development Strategy”.

1

In August 2025, we announced
the completion of product development and the launch of our proprietary natural formula under the “RaphaWell” brand for RA
support in the U.S. This follows the successful completion of a clinical trial conducted under IRB approval and is in full compliance
with FDA regulations, including participants with severe RA. The finalized “RaphaWell” product is intended be sold as a standalone
clinically tested dietary supplement targeting the growing wellness market. The “RaphaWell” formula is 100% natural, plant-based,
and was associated with no reported side effects during the Study, addressing a significant unmet need in RA symptom management. Raphael’s
“RaphaWell” formula has undergone clinical testing, which to our belief, proved its credibility and efficacy.

In November 2025, we, jointly
with the Medical Cannabis Research and Innovation Center and Rambam, filed a provisional patent application with the USPTO titled “Raphael
Pharmaceutical, Inc. / Rambam MedTech Formula for Treating Neutrophil-Dominant Autoimmune Diseases (including RA)” (Application
No. 63/911,729). The application covers the use of our highly purified cannabinoid-based technology platform in the treatment of neutrophil-dominant
autoimmune diseases, including our lead product candidate for RA, as well as psoriatic arthritis, inflammatory bowel disease, systemic
lupus erythematosus with neutrophil involvement, and gout.

As we move forward, our focus
will be on further investigating mechanisms and refining Raphael’s Formula through continued pre-clinical research. Our 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 autoimmune diseases, asthma, 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 MOH. Upon obtaining FDA approvals, or in the event
that we are not successful in obtaining such approvals, we intend to apply for European Medicines Agency, or 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 use our medical formulas for the purpose of growing, cultivating, manufacturing, and distributing Raphael Pharmaceutical medical
indications in their designated territories.

For this purpose, in October
2022, we entered into an agreement with the Medical Cannabis Research and Innovation Center at Rambam for the development of a new, patentable
formulation that combines purified cannabinoids to treat rheumatoid diseases.

The overall objective of this
study is to identify a novel cannabinoid based patentable formulation to treat Rheumatoid diseases. Specifically, to investigate combination
of purified cannabinoids to downregulate inflammation related to Rheumatoid diseases. We propose to base our study on data derived from
Dr. Igal Louria-Hayon’s studies (Helsinki # 0442-20-RMB) on the evaluation of the immune regulation properties of cannabinoids on
the immune system and the data derived from the cannabinoids receptors study (Helsinki # 0331-20-RMB). We will analyze the activation
of cannabinoid receptors on mouse models and will study the role of purified cannabinoid as a potential to develop a novel patentable
formulation to treat RA.

2

Our discovery platform currently
focuses the use of CBD oil, one of the cannabinoids in cannabis plants, as the active pharmaceutical ingredient, or API, for our RA product
candidate and COVID-19 product candidate. Research results published in 2018 (“Translational Investigation of the Therapeutic Potential
of Cannabidiol (CBD): Toward a New Age”) has shown that there may be benefits to treading medical conditions, or their effects,
with cannabinoids, and more specifically, with CBD, which may help reduce chronic pain by impacting endocannabinoid receptor activity,
reducing inflammation and interacting with neurotransmitters. This research has also shown that CBD may have neuroprotective properties,
and could have the ability to (i) reduce anxiety and depression, (ii) alleviate cancer-related symptoms, (iii) reduce acne and (iv) benefit
heart health.

Over the last few years, pharmaceutical
drug products that include parts of the cannabis plant have begun to receive regulatory approvals for use in patients suffering from certain
disorders, as highlighted below.

● Nabiximols, better known under
the tradename Sativex, is a botanical mouth spray consisting of natural THC and CBD extracts, that received approval in the United Kingdom
in 2010 for the alleviation of multiple sclerosis, or MS, symptoms like spasticity, pain and overactive bladder.

●
Dronabinol, better known under the name Marinol, contains mainly THC and is a partial agonist of the cannabinoid receptor type 1, or CB1, in the nervous system and a partial agonist of the cannabinoid receptor type 2, or CB2, in the periphery that activates appetite, mood, cognition, memory and perception. Dronabinol received FDA-approval for use in the U.S. in 1985 for treatment of anorexia in acquired immunodeficiency syndrome, or AIDS, patients and for the prevention of chemotherapy-induced nausea and vomiting, or CINV. A Lack of randomized controlled trials, or RCTs, makes a recommendation for usage of dronabinol as a third-line treatment for CINV difficult. Dronabinol in the form of an oral tablet is known under the trade name Namisol. It has high bioavailability and a long shelf life and is indicated for MS, chronic pain and behavioral disturbances in dementia patients.

●
Nabilone, better known under the tradename Cesamet, contains primarily THC, is approved for use as an anti-emetic and adjunctive analgesic for neuropathic pain, CINV and treatment for anorexia in AIDS patients in Canada, Mexico, the UK and the U.S. Its main usage today is as adjunct medicine for chronic pain management.

In light of the past regulatory
approvals for other pharmaceutical drug products and, more specifically, the potential beneficial effects of CBD and other parts of the
cannabis plant, we believe that a drug discovery platform based on CBD may offer new and differentiated treatment options for patients.
Prior regulatory approvals of other companies’ pharmaceutical drug products do not serve as an indication as to the ability or likelihood
that we receive regulatory approval to commercialize any of our product candidates.

After four successful years
of pre-clinical research at the laboratories of Rambam, which paved the way for the Study in RA patients, we are now advancing our efforts
to further develop our product candidates.

Following the completion of
the Study, we intend to submit an Investigational New Drug, or IND, application to the FDA and MOH. See “Item 1. Business - Research
and Clinical Development Strategy - Clinical Development Plan” for additional information on the ongoing pre-clinical trial and
our planned clinical trial for our RA product candidate.

In addition, with respect
to our COVID-19 product candidate, our clinical research partners have been focused on the effect of cannabinoids and cannabis extracts
on immune cells which induce acute inflammation. This study will begin in the pre-clinical level in immune cell models and, subject to
positive results that exhibit downregulation of pro-inflammatory cytokines by cannabis extract, the study was completed successfully.
Following the completion of the pre-clinical study, a mice model was conducted to analyze for acute inflammation, which resembles the
immunopathology of COVID-19. The mice model was successfully completed and we have registered for a clinical trial in patients with the
MOH.

3

As a pharmaceutical research
and clinical development company we do not own or operate, and currently do not intend on creating an in-house team to manufacture and
commercialize our pharmaceutical drug products, if any, that receive regulatory approval allowing for commercialization. We currently
rely, and expect to continue to rely, on third parties for the manufacturing of our product candidates for preclinical and clinical testing,
as well as for commercial manufacturing of any pharmaceutical drug products for which we may receive regulatory approval. Subject to the
receipt of such regulatory approvals, we intend on cooperating with manufacturers and other third parties to manufacture and commercialize
approved pharmaceutical drug products.

Product Pipeline

In December 2024, we completed
the Study for our lead product candidate for the treatment of RA, and are currently developing novel asthma product candidates, which
are in the pre-clinical stage.

Assuming that we successfully
complete the clinical development of our RA and asthma product candidates, we intend to then turn our attention to the clinical development
of cannabinoid-based drug products for the treatment of certain oncology indications. Unlike our RA and asthma product candidate, the
use of our cannabinoid-based drug products for the treatment of certain oncology indications will require specific dosing and potentially,
a different regulatory pathway than our existing product candidates.

We intend to apply for MOH
approval, as well as the FDA and EMA approvals right afterwards, subject to the completion of the applicable clinical trials, for our
RA product candidate as well as our asthma product candidate using the FDA’s regulatory pathway for drug products.

Indications and Market

Rheumatoid Arthritis

RA is an autoimmune disease
of unknown cause characterized by inflammation in multiple joints, including synovial inflammation with hyperplasia. Inflammation is also
associated with reduced hemoglobin (anemia) and reduced albumin and changes in levels of cholesterol and triglycerides. In addition to
the inflammation associated with RA, studies, including a 2018 publication entitled, “Cartilage and bone damage in rheumatoid arthritis,”
patients suffering from RA generally also suffer from chronic pain, fatigue, progressive joint damage, disability, hyperplasia, production
of autoantibodies such as rheumatoid factor and anti-citrullinated protein antibody, cartilage damage and bone erosions.

Research has shown that in
about 30% of RA patients, current conventional synthetic and biologic disease modifying anti-rheumatic drugs and targeting molecules may
fail or induce only partial responses, both of which we believe are insufficient for patients suffering from RA. Using disease modified
anti-rheumatic drugs, or DMARD, based treatments, as shown in a 2017 study from Sohita Dhillon, patients tend to report at follow-up meetings
that pain relief is unsatisfactory and although there is an initial improvement in the average pain score, a plateau may be reached beyond
which DMARDs are not able to resolve RA pain. As a result, we believe that RA patients need ongoing therapy as RA relapses are frequent.
During RA flareups, patients experience acute and chronic pain, fatigue, sleep disturbances, and morning stiffness which significantly
reduces their quality of life. Furthermore, damage is accumulated by long-term disease which also interferes with pain, fatigue and quality
of life.

All types of pain (acute or
chronic, widespread or local and nociceptive) have been reported in RA. Patients with RA may develop fibromyalgia, or FM, especially with
long-term disease. Concomitant FM is a key factor for discordance between PRO and clinical outcomes in assessment of RA patients including
in RCTs. Peripheral sensitization, induced by local inflammation or damage, and pain augmentation by the central nervous system, or CNS,
both drives the pain problems in RA patients. Anxiety or depression, impaired sleep and fatigue all contribute to pain sensitization in
RA patients. As noted in the study, “Tackling Pain Associated with Rheumatoid Arthritis: Proton-Sensing Receptors,” some RA
patients have allodynia and peripheral neuropathies that contribute to refractory chronic pain.

4

We believe that clinical studies
on the use of cannabinoids in rheumatic conditions, and particularly RA, are logically advocated as possible positive effectors of the
inflammatory pathway of RA, as well as symptomatic pain relievers that may have the potential to also improve fatigue, sleep disorder
and tolerability of DMARDs. Through our sponsored Research Agreement (as further detailed and defined below), we believe that we have
arrived at an understanding as to how cannabinoids influence inflammation. Applying immune cells models in our pre-clinical research,
we identified specific strains of cannabis which reduce the capacity of the immune cells to communicate during inflammation, thus decreasing
their capacity to participate in chronic inflammation. For a deeper understanding of the mechanism in which cannabinoids effect inflammation,
we developed a unique, real time-Polymerase chain reaction, or RT-PCR, method to identify 10 different receptors to cannabinoids, both
in human and mice models. We believe that this technology will allow us to identify which cannabinoids receptors are participating in
the downregulation of inflammation, which we believe will help us develop our RA product candidate.

In 2015 alone, research conducted
by the NIH National Library of Medicine showed that RA affected about 24.5 million people as of 2015, which reflected between 0.5% and
1% of adults in the developed world, with an additional 5 to 50 per 100,000 people developing the condition each year. It is believed
that onset is most frequent during middle age and women are affected 2.5 times as frequently as men. Further research indicates that RA
resulted in 38,000 deaths in 2013, up from 28,000 deaths in 1990.

Hyperinflammatory Syndrome Related to COVID-19

Since the first emergence
of COVID-19 in December 2019 in Wuhan, China, COVID-19 has spread across more than 200 countries across the world and over 112 million
cases of the virus have been reported. Most patients develop only mild symptoms of COVID-19; however, some develop severe symptoms including
dyspnea, hypoxia and lung involvement which requires hospitalization. Based on research, we believe that most of the severe COVID-19 symptoms
are related to hyperinflammation caused by failure of resolution of the immunological response to the infection similar as observed in
cytokine release syndrome. Despite the advancements in COVID-19 vaccines and the use of anti-inflammatory or anti-viral medications worldwide
according to The World Health Organization, or WHO, there was a 4% global increase in reported new cases during the 28-day period from
December 11, 2023, to January 7, 2024, compared to the previous 28-day period, totaling over 1.1 million new cases. However, there was
a 26% decrease in new deaths, with 8,700 reported fatalities during the same period. Globally, as of January 7, 2025, there have been
over 777 million confirmed cases and over seven million deaths since the emergence of COVID-19, according to the WHO. Consequently, there
is an urgent need to explore new anti-inflammatory therapies that could potentially prevent symptom deterioration.

Asthma

Asthma is a chronic inflammatory
disease of the airways, marked by symptoms such as coughing, wheezing, shortness of breath, and chest tightness. According to eClinicalMedicine
article (February 2025), it affects between 1% to 29% of the global population. The underlying mechanisms of asthma include persistent
airway inflammation, excessive mucus production, structural changes in the airway wall, and bronchial hyper-responsiveness, or BHR, where
airway smooth muscle cells overreact to various triggers like allergens and cold air. Inhaled corticosteroids, or ICS, are the primary
treatment for persistent asthma, often combined with short-acting bronchodilators for immediate relief and long-acting bronchodilators
for sustained symptom control. However, many patients struggle with inadequate asthma management due to refractory disease, suboptimal
treatment regimens, poor adherence, and coexisting conditions, emphasizing the urgent need for more effective therapeutic options.

Together with the Cannabis
Research Institute at Rambam, we explore the therapeutic potential of our specific non-psychoactive cannabis strain, or CBD-X, extract
by examining its effects on cells involved in the asthmatic process. We utilized two ex vivo cell models-primary human T-cells and neutrophils,
to evaluate the anti-inflammatory properties of CBD-X. We believe that CBD-X extract inhibits the differentiation of T-cells, leading
to a reduction in the secretion of pro-asthmatic cytokines. Additionally, CBD-X extract decreases the levels of pro-inflammatory cytokines
in primary human neutrophils and impairs their migration towards the lungs. This reduction impairs the communication between immune cells,
which we believe to be crucial in the development and exacerbation of asthma.

5

The global asthma therapeutics
market has been experiencing steady growth, driven by the increasing prevalence of asthma and the continuous development of novel treatments.
According to Global Market Insights report (March 2024), in 2023, the asthma therapeutics market size was valued at approximately $25.7
billion and is projected to grow at a compound annual growth rate, or CAGR, of 4.4% from 2024 to 2030.

Research and Clinical Development Strategy

Research and clinical development
of our pharmaceutical drug product candidates is our core business. We are currently focused on developing innovative cannabinoid-based
medical indications that we aim to push through Phase 2A and Phase 2B approval from both the FDA and EMA.

The research efforts that
have been conducted to date by the team at Rambam are aimed at revealing the mechanism which structures the activity of cannabinoids in
human cells and organs, while applying a variety of disease models. By employing our PCR method, we are able to discern various cannabinoid
receptors and determine their involvement in inflammation downregulation. This approach empowers us to identify which cannabinoid receptors
play a role in mitigating inflammation. Consequently, we can accurately identify the cannabinoid components within a chosen strain, enabling
precise administration tailored to patient treatment. This pivotal discovery forms the scientific cornerstone for our pioneering anti-inflammatory
formulas.

Research Agreement with Rambam

On July 17, 2019, we entered
into a sponsored research agreement, or the Research Agreement, with Rambam, pursuant to which the Company agreed to fund a research project,
to be performed by Rambam, 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 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 agreed to further expand the research plan to study the effect
of cannabis extracts on the immunopathology of the COVID-19 disease. The sponsored Researched Agreement was for an initial term of 48
months. On October 23, 2022, the Company and Rambam 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.

Pursuant to the Research Agreement,
we agreed to pay Rambam $1.4 million in four equal payments, due on the first day of August on each successive year from 2019 through
2022. Pursuant to the Supplement Agreement, we agreed to pay Rambam $960,000 exclusive of value-added tax (“VAT”). in four biannual payments
from May 2023 through December 2024. Such amount was later amended to $470,000 plus VAT, out of which we paid $120,000. Furthermore, in
accordance with the terms of the Research Agreement, we and Rambam will have joint ownership of any intellectual property, or IP, created
as a result of research programs covered by such agreement. In connection with the Research Agreement, Rambam agreed not to work, study
or develop any technologies with other entities that compete with our work with Rambam for our COVID-19 product candidate or RA product
candidate for a term of three and seven years, respectively, from the end of the parties’ collaboration with respect to the COVID-19
product candidate and seven years from the end of the term of the Research Agreement with respect to the RA product candidate.

Subject to commercial sales
of any product candidate using the IP created as a part of the research covered by such agreement, Raphael Israel is required to pay Rambam
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.

On December 25, 2023, the
Company received an extension to pay the remaining $350,000 pursuant to the Research Agreement until the end of June 2024, however, since
the 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
received an extension to pay the remaining balance until the end of April 2026. As of the date of this Annual Report, the Company has
made 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
Supplement Agreement (out of the remaining $577,000). As of the date of this Annual Report, the outstanding balance is approximately $298,000
(based on the NIS-USD exchange rate on December 31, 2025.

We and Rambam are currently
focused on characterizing the activity of cannabinoids in RA and in asthma. RA is a long-term autoimmune disorder, and as such, the research
conducted by Rambam has focused on identifying the effect of cannabinoids on inflammatory processes related to RA. Moreover, building
on the promising findings of a mouse model study demonstrating the potential of the Company’s cannabis treatment for lung inflammation,
as published in Frontiers in Immunology in May 2022, Rambam’s research team is currently studying the effects of cannabinoids
on models of chronic lung inflammation, including asthma. In October 2024, their findings were published in the scientific journal- Pharmaceuticals:
“CBD-X extracts in asthma management: Reducing Th2-driven cytokine secretion and Neutrophil/Eosonophils activity”.

6

Pre-Clinical Studies for RA Product Candidate

In Vitro Study

Pursuant to the Research Agreement,
the team at Rambam established a study in order to determine which cannabis strains extracts may affect inflammation. The lab applied
an in vitro system, allowing them to screen a variety of cannabis derived oil extracts and their influence on cytokine secretion,
which is a type of response to injury and infection in the body.

The researchers employed human
donors neutrophils cells, which can be induced to secrete cytokines (which is aimed as serving as a bridge for cross-communication with
other innate immune cells). Using this system, our partners from Rambam have established a variety of cannabinoids and studied their influence
on pro-inflammatory and anti-inflammatory cytokines. Most interestingly the study has identified a CBD-X and showed that CBD-X reduced
IL-6 secretion while also reducing the secretion of the pro-inflammatory chemokine IL-8, as highlighted in Figure 1 below. Based on the
results from this pre-clinical study, we believe that CBD-X strain, may be a potential anti-inflammatory agent with the ability to influence
both activation and migration of cells during inflammation.

Figure
1. CBD-X strain downregulates the secretion of pro-inflammatory cytokines from human neutrophils.

7

Neutrophils were isolated
from the blood of healthy donors by negative magnetic selection with the EasySep Direct Human Neutrophil Isolation Kit. Isolated neutrophils
were treated with 2µg/ml CBD-X or DMSO (vehicle) as a control for two hours. Treated cells were activated by 100 ng/ml LPS overnight.
Levels of IL-8 and IL-6 (A-B) were detected by ELISA. Each colored dot represents one donor. The means were calculated from healthy donors
(black big dots) and each dot represents one case. Data were analyzed by one-way ANOVA (Fisher’s LSD test with values p < 0.05
considered statistically significant, (***p < 0.001)

Pre-Clinical Study in Mice

In January 2021, we commenced
a pre-clinical study in mice. Mice in our pre-clinical study are being treated with cannabis strain (CBD-X) that we previously identified
in our in vitro study and other prior research as potential candidates in the cell models. Following the treatment, we expect to examine
the ability of the treatment to modulate the immune function, specifically in the case of chronic inflammation, in order to optimize treatment
for RA and asthma.

This pre-clinical study is
expected to be focused on the following results.

● Aim 1: Evaluating the immune
modulatory properties of different cannabis strains related to the immunopathology (i.e., the immune responses) in RA and asthma;

● Aim 2: Demonstrating the immunomodulatory
properties of specific cannabis extracts on a mouse model for RA and asthma;

● Aim 3: Elucidating the mechanisms
of action, or MOA, of cannabinoids that are involved in the regulation of inflammation in RA and asthma.

● Aim 4: Establishing a phase
1 and 2 clinical trial experiment in compliance with FDA and EMA rules and regulations to study the effect of cannabis-based medical
indication on RA.

In addition, this pre-clinical
study is expected to enable us to examine how we manufacture the API, the dosage design, analytical and bioanalytical method development
and validation, metabolism and pharmacokinetics, toxicology, both safety and genetic toxicology and possibly safety pharmacology; and
good manufacturing practice, or GMP, manufacture and documentation of drug product for use in clinical trials.

Aim 1. Evaluating the immune modulation
properties of different cannabis strains

RA is an autoimmune disease
that causes chronic inflammation and damage to the joints, leading to pain, stiffness, and loss of mobility. It occurs when the body’s
immune system mistakenly attacks the synovium, which is the lining of the joints. This can cause swelling and thickening of the synovium,
which can eventually lead to erosion of the cartilage and bone within the joint. RA can also affect other parts of the body, such as the
skin, eyes, lungs, and blood vessels. RA is a chronic condition that requires ongoing management to control symptoms and prevent joint
damage.

8

Current treatments for RA
have potential difficulties and side effects that need to be carefully weighed against their benefits. Some medications may lose effectiveness
over time, requiring patients to switch treatments. Additionally, some medications have side effects such as gastrointestinal problems,
liver damage, and increased risk of infections and cancer. There are also individual differences in patient response to treatments, highlighting
the need for more personalized approaches.

It is our belief, based on
the research conducted by our partners, and that or our industry peers, that cannabinoids have immunomodulatory properties, although the
exact effects are not fully comprehended.

Together with the team at
the Medical Cannabis Research and Innovation Center at Rambam our experiments in cells derived from human healthy donors (Helsinki Num.
044220-RNB) have revealed a specific high-CBD strain-CBD-X, that effectively reduces the capacity of immune cells: T cells and neuthrophils
to be activated in response to inflammatory stimulation. The strain was found to reduce the expression levels of IL6, TNF alpha. This
suggests that the strain has the potential to slow the progression of RA.

Thus, we have successfully
completed the proof-of-concept phase in human derived immune cells.

Aim 2. Demonstrating the immune modulatory
properties of specific cannabis extract on mouse models for RA.

Cannabis is not an isolated
substance; it contains a plethora of biologically active substances. The most common substances are THC and CBD. Today more than 140 cannabinoids
are known to be expressed in the plant. In addition to cannabinoids, the plants contain flavonoids and terpenes. This greatly complicates
our ability to understand the effects of cannabis on the physiology because the different substances may have different (and even contradictory)
effects. Therefore, the use of different cannabis varieties with diverse ingredients may produce distinct and unexpected results.

Our preclinical experiments
have revealed a specific high-CBD strain - CBD-X, that effectively reduces inflammation in a mouse model of RA. The strain was found to
reduce the expression levels of IL6, TNF alpha, and IL1b in the joints and peripheral blood of the mice. This suggests that the strain
has the potential to slow the progression of RA.

We have successfully completed
the proof-of-concept phase in mice and are now preparing to move towards clinical trials.

Aim 3. Elucidating the MOA of cannabinoids
that are involved in the regulation of inflammation in RA.

Upon activation, it is the
cannabinoid receptors, or CBrs, in the endocannabinoid system, or ECS, which initiate numerous regulatory functions in a mammal. CBrs
have been found in a variety of species including human, monkey, pig, dog, rat and mouse. The discovery of membrane receptors found in
the brain, central nervous system as well as peripheral tissues and organs that bind cannabimimetic compounds was a critical turning point
that paved the way towards the pharmacological understanding of cannabis-derived compounds.

9

The most studied CBrs are
CB1 and CB2; both belong to the G protein-coupled receptors (these cell surface receptors act like an inbox for messages in the form of
light energy, peptides, lipids, sugars, and proteins), or GPCR, family. GPCRs constitute a large protein family of receptors that detect
molecules outside the cell and activate internal signal transduction pathways and cellular responses. GPCRs, are called seven-transmembrane
receptors because they pass through the cell membrane seven times. Heterotrimeric G proteins are activated by GPCRs and are made up of
three subunits, α, β and γ. G proteins are divided into four main classes: Gαs, Gαi, Gαq and Gα12.
These proteins are activated depending on the ability of the G protein α-subunit, or Gα, to cycle between an inactive guanosine
diphosphate, or GDP, bound conformation and an active guanosine triphosphate, or GTP, bound conformation that can modulate the activity
of downstream effector-proteins. Additional receptors have been shown to bind cannabinoids: G protein-coupled receptor 55, or GPR55, several
transient receptor potential, or TRP, channels (TRPV1, TRPV2, TRPA1, TRPM8), and glycine receptors.

Figure 2. CB1 downstream signaling network.
Adapted from Chakravarti et al., 2014.

Since most of the biological
properties related to phytocannabinoids, a type of natural cannabinoid, rely on their interactions with receptors of the endocannabinoid
system, it is crucial to define which receptors are expressed and activated in the target cells. As a result, we have developed a system
with the capacity to identify ten cannabinoid receptors simultaneously and measure their expression levels using quantitative real-time
PCR. We have applied this method in examining cells of the immune system, and more specifically, in monocytes, before and after differentiation
to macrophages, or after stimulation to secrete cytokines. Using this methodology, we were able to identify a differential expression
pattern of the receptors under different conditions.

To obtain a deep understanding
on the mechanism of action of the cannabis strains, we applied our research system and established a unique study to research the response
of 10 different receptors to Cannabis in RA patients, which aims to identify the specific cannabinoids receptors on the immune cells.
The data from this study is expected to subsequently be used to set up a system for analyzing and matching the specific cannabis treatment
to the specific cannabinoids receptors that are expressed in the patient’s cells. We believe that if cannabinoid treatments correspond
to the receptors in the patient’s cells, the treatment may be more accurate for treating that specific patient’s RA symptoms.
We have identified cannabinoid receptors that are expressed on activated T cells from human donors (Helsinki # 033120-RNB). Our next objective
is to determine the cannabinoid receptors expressed on neutrophils.

10

Aim 4. Establish a Phase 1 & 2B clinical
trial according to FDA rules and regulations to study the effect of cannabis-based medical indications on RA.

Our goal for the treatment
of RA is to achieve disease remission or low disease activity, or LDA. LDA is measured with several assessment metrics that are intended
to measure the effect of the treatment on a number of physical phenomena that are connected to RA. These metrics include, but are not
limited to: (i) Disease Activity Score based on assessment of 28 joints, or DAS28, patient’s assessment, (ii) erythrocyte sedimentation
rate (a common hematology test, and is a non-specific measure of inflammation) or C-reactive protein, or CRP, test, which is a blood test
that measures the CRP in a person’s blood, (iii) SDAI and CDAI (Simple and Complex Disease Activity Indices) as compared to DAS28,
(iv) patient’s and physician’s assessment, including global assessment scores, or PtGA and PhGA, respectively (v) pain visual
analogue scale and (vi) health assessment questionnaire disability index, or HAQ-DI.

Clinical Development Plan for RA Product Candidate

On December 23, 2024, we received
clinical study results after a successful completion of the Study, evaluating the efficacy of the Raphael’s Formula in patients
with active RA. Citruslabs, a leading contract research organization, successfully completed this Study in the U.S. under IRB approval
and in compliance with the FDA regulations and in accordance with applicable industry standards and regulations

The Study evaluated the impact
of Raphael’s Formula on RA related health outcomes in 12 adult participants, each of whom used 0.5 mL Raphael’s Formula product
daily over an 8-week period, completed questionnaires and attended their local diagnostics testing center for blood biomarker assessment
at designated intervals. According to the Study results, the questionnaires results demonstrated significant improvement in certain health
parameters, including pain levels, sleep quality and overall well-being, with certain parameters remaining significantly improved through
the end of the Study.

The key findings from the
Study results included a reduction in the Disease Activity Score (a comprehensive metric assessing RA disease activity), or DAS28, by
19.2%, reflecting a total decrease from high to moderate disease activity. A low DAS28 score indicates reduced disease activity and is
a key goal in RA management. Additionally, the percentage of participants classified according to disease activity was evaluated and the
findings included an increase in the percentage of participants classified as in remission from 0% at baseline to 16.67% at week 8, an
increase in the percentage of participants classified as having low disease activity from 8.33% to 16.67% and a decreased in the percentage
of participants classified as having high disease activity from 66.67% at baseline to 41.67% at week 8.

Additionally, participant
perceptions were highly positive, with approximately 83.3% of participants willing to continue using the product and approximately 91.7%
of participants indicating they would recommend Raphael’s Formula to others with RA. Overall findings of the Study emphasize the
clinical potential of Raphael’s cannabinoid-based formula and suggest that it may have beneficial effects on symptom management
and overall well-being for individuals with RA.

Following the completion of
the Study, in August 2025 we announced the completion of product development and the launch of our proprietary natural formula under the
“RaphaWell” brand for RA support in the U.S. The finalized “RaphaWell” product, is intended to be sold as a standalone
clinically tested dietary supplement targeting the growing wellness market. The “RaphaWell” formula is 100% natural, plant-based,
and was associated with no reported side effects during the Study, addressing a significant unmet need in RA symptom management.

This Study reinforces
our extensive preclinical research, which suggests that Raphael Pharmaceutical’s formula effectively reduces key parameters of RA,
thereby demonstrating potential to slow the progression of RA by acting as an anti-inflammatory agent.

We utilize a highly purified
cannabinoid formulation derived from select non-psychoactive strains of cannabis with an anti-inflammatory potential. The formulation
is designed to interact and communicate with the endocannabinoid system in the human body, activating cannabinoid receptors expressed
by immune cells.

11

Pre-Clinical Studies for Treatment of Asthma

We are studying the potential
of cannabis extracts to downregulate the hyperinflammation and the immunopathology in asthma patients. Our partners at Rambam have been
conducting research on the use of cannabis to treat disorders with widespread inflammatory responses, such as RA and asthma. We hope that
by decoding the cannabinoid mechanism of action during inflammatory storms, we can treat inflammation associated with asthma where conventional
drugs and other therapies have failed.

In order to properly understand
cannabis’ effects on asthma, the Rambam team compiled its Biobank database. In generating the Biobank database, the Rambam team
found what they believed to be a safe way to separate the white blood cells, including the immune cells, from verified patients. We believe
that this is crucial as blood samples are the most accessible resource for continuous sampling (allowing for the understanding of biological
processes during the disease) and to develop vaccines and drugs for treatment of the condition.

This study with our partners
at Rambam, began in the pre-clinical level in immune cell models and, and was subject to positive results that exhibit downregulation
of pro-inflammatory cytokines by cannabis extract. This study is expected to continue to a mouse model to analyze for lung inflammation,
which resembles the immunopathology of asthma. We believe that our strategy to investigate the response of ex-vivo immune cells to cannabis
extract together with the analysis of the in-vivo model for lung inflammations, will allow us to identify the medical cannabis
extracts, if any, that have the potential to treat patients with asthma.

Our experiments have revealed
a specific high-CBD strain-CBD-X that presents enhanced anti-inflammatory effects. Using cells derived from human donors (Helsinki Num.
044220-RNB) and a mouse model for asthma, we have found that this strain is effective in preventing cytokine storms. It reduces the secretion
of IL6 and TNF alpha, as well as the inflammation in the mice’s lungs, while also inhibiting the migration of immune cells to the
lungs.

In October 2024, these findings
were published by Rambam’s research team in the scientific journal “Pharmaceuticals”: “CBD-X extracts in asthma
management: Reducing Th2-driven cytokine secretion and Neutrophil/Eosonophils activity”.

Aim 5. Development of a new, patentable
formulation that combines purified cannabinoids to treat rheumatoid diseases.

In October 2022, we entered
into an agreement with Rambam for the development of a new, patentable formulation that combines purified cannabinoids to treat rheumatoid
diseases.

The overall objective of this
study is to identify a novel cannabinoid based patentable formulation to treat Rheumatoid diseases. Specifically, to investigate combination
of purified cannabinoids to downregulate inflammation related to Rheumatoid diseases. We propose to base our study on data derived from
Dr. Igal Louria-Hayon’s studies (Helsinki # 0442-20-RMB) on the evaluation of the immune regulation properties of cannabinoids on
the immune system and the data derived from the cannabinoids receptors study (Helsinki # 0331-20-RMB). We will analyze the activation
of cannabinoid receptors on mouse models and will study the role of purified cannabinoid as a potential to develop a novel patentable
formulation to treat RA.

In November 2025, we, jointly
with the Medical Cannabis Research and Innovation Center and Rambam, filed a provisional patent application with the USPTO titled “Raphael
Pharmaceutical, Inc. / Rambam MedTech Formula for Treating Neutrophil-Dominant Autoimmune Diseases (including RA)” (Application
No. 63/911,729). The application covers the use of our highly purified cannabinoid-based technology platform in the treatment of neutrophil-dominant
autoimmune diseases, including our lead product candidate for RA, as well as psoriatic arthritis, inflammatory bowel disease, systemic
lupus erythematosus with neutrophil involvement, and gout.

12

Competition and Competitive Position

The pharmaceutical industry
is characterized by rapidly advancing technologies and intense competition. While we believe that our knowledge, experience and scientific
resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical,
specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research
institutions. Any product candidates for which we complete clinical development successfully and for which we receive marketing approval
may compete with existing therapies and new therapies that may become available in the future.

Many of our competitors have
far greater marketing and research capabilities than us. We also face potential competition from academic institutions, government agencies
and private and public research institutions, among others, which may in the future develop products to treat those diseases that we currently
or, in the future, seek to treat. All of these companies and institutions may have product candidates in development that are or may become
superior to our RA product candidate or any other product candidate that we may seek to develop. Our commercial opportunity would be reduced
significantly if our competitors develop and commercialize products that are safer, more effective, and more convenient, have fewer side
effects or are less expensive than our product candidates.

In addition, although our
product candidates may, if approved, be considered advantageous to existing therapies, such as the use of corticosteroids and DMARDs for
the treatment of RA, our target market may continue to use existing therapies.

However, we do believe, specifically
with respect to our competitors not using cannabis in their pharmaceutical drug products that our use of, and experience with, cannabinoids
provides us with a potential competitive advance. Our research has shown that the use of cannabinoids for the treatment of RA is justified
based on its positive effect on pain, fatigue, sleep problems and its potential safety profile. Growing evidence on the anti-inflammatory
effect of cannabinoids provide more strong ground for their use in the treatment of RA.

Although the use of any part
of the cannabis plant in pharmaceutical drug products was once non-existent or minimal, in addition to approved pharmaceutical drug products
that use parts of the cannabis plant (see “Item 1. Business - Overview” for additional information), we are aware that there
is at least one plan for a multicenter randomized control trial on the use of medical cannabidiol in Danish patients with RA and Ankylosing
Spondylitis (inflammatory joint and spine disease), as previously published in an issue of BMJ Open in 2019. As the medical benefits
of cannabis become more well-known, we believe that we may face more competition from both new startup pharmaceutical and biotechnology
companies and from well-funded and experienced organizations and it is therefore imperative that we face as few delays as possible in
our pre and clinical development plan or we may otherwise face more competition.

13

The following table highlights
the estimated cost that RA patients incur on an annual basis based on a 2017 report from the Canadian Agency for Drugs and Technologies
in Health.

Drug Product
Strength
Dose Form
Price ($)
Recommended Dose
Annual Drug Cost ($)

Sarilumab (Kevzara)
150 mg/1.14 mL

200 mg/1.14 mL
Pre-filled syringe
700.0000
200 mg SC every two weeks
18,200

Abatacept SC (Orencia)
125 mg/mL
Pre-filled syringe
366.1000
125 mg weekly
19,037

Abatacept IV (Orencia)
250 mg/15 mL
Vial
490.0500
Patients < 60 kg: 500 mg

Patients 60 to 100 kg: 750 mg

Patients > 100 kg: 1,000 mg

500 to 1,000 mg at weeks 0, 2, and 4 then every 4 weeks
Year 1: 20,582

Thereafter: 19,112

Adalimumab SC (Humira)
40 mg/0.8 mL
Pre-filled syringe or pen
769.9700
40 mg every other week
20,019

Anakinra (Kineret)
100 mg
Pre-filled syringe
48.0571
100 mg daily
17,493

Certolizumab pegol (Cimzia)
200 mg/mL
Pre-filled syringe
664.5100
400 mg at weeks 0, 2 and 4 then 200 mg every 2 weeks
Year 1: 19,271

Thereafter: 17,277

Etanercept (Enbrel)
25 mg

50mg/mL
Vial

Pre-filled syringe or auto-injector
202.9300

405.9850
50 mg weekly or two

25 mg doses on same day every week or every 3 or 4 days
21,105

21,111

Entanercept (Brenzys)
50 mg/mL
Pre-filled syringe
305.0000 d
50 mg weekly
15,860

Golimumab SC (Simponi)
50 mg/0.5 mL
Pre-filled syringe or auto-injector
1,555.17
50 mg monthly
18,662

Golimumab IV (Simponi)
50 mg/4 mL
Vial
849.5000 b
2 mg/kg at weeks 0 and 4, then every 8 weeks thereafter
Year 1:17,829

Thereafter: 16,565

Infliximab (Remicade)
100 mg
Vial
987.5600
3 mg/kg at weeks 0, 2, and 6, then every 8 weeks thereafter
Year 1: 23,701

Thereafter: 19,257

10 mg/kg every 4 weeks: $102,706 annually

Infliximab (Inflectra)
100 mg
Vial
525.0000
Depending on clinical response, dose can be increased to 10 mg/kg and/or up to every four weeks
Year 1: 12,600b

Thereafter: 10,238b

10 mg/kg every 4 weeks: $54,600 annually15

Rituximab (Rituxan)
100 mg/10 mL

500 mg/50 mL
Vial
466.3200

2,331.61
A course consists of 1,000 mg infusions at weeks 0 and 2.

Reassess for retreatment at week 26, no sooner than 16 weeks after previous
18,653

assumes 2 courses

Per course: 9,326

Tocilizumab SC (Actemra)
162 mg/0.9 mL
Pre-filled syringe
355.0000
Patients < 100 kg: 162 mg SC every two weeks, increasing to weekly based on clinical response.

Patients ≥ 100 kg: 162 mg SC weekly
Every two weeks: 9,230

Weekly: 18,460

Tocilizumab IV (Actemra)
80 mg/4 mL

200 mg/10mL

400 mg/20 mL
Vial
180.8100

452.0300

904.0600
4 mg/kg every 4 weeks followed by an increase to 8 mg/kg based on clinical response
4 mg/kg: 10,577

8 mg/kg: 17,629

Tofacitinib (Xeljanz)
5 mg
Tablet
23.5585
5 mg p.o. twice daily
17,151

IV = intravenous; p.o. = orally;
SC = subcutaneous.

14

Although there can be no guarantee,
we believe that our RA product candidate, if approved for commercialization by regulators, will be available to patients at a lower price
than that of other available treatments.

With respect to our development
of a product candidate to treat inflammation associated with COVID-19, we will face competition from major pharmaceutical companies that
have developed or that will develop vaccines, along with other companies and organizations that have or will develop therapies or pharmaceutical
drug products aimed at treating the underlying symptoms of COVID-19.

Cultivation of our API

In October 2020, we entered
into an engagement agreement with Way of Life Cannabis Ltd., or Wolc, pursuant to which, subject to its completing the Share Exchange,
Raphael Israel is scheduled to be provided with up to 15 liters of CBD oil, from a strain of cannabis of our selection, 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 the agreement with
Wolc, we have agreed to issue to certain persons affiliated with Wolc 3% of our 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 our shares. In addition to the issuance of shares, we have also agreed to pay Wolc a royalty
fee equal to 15% of net income royalties generated from sales of our pharmaceutical drug products that are developed at Rambam in Israel.

At this time, we only require
a limited amount of our API for our studies and trials and, to date, we have received oil extracted from high CBD strains, from Wolc in
the amounts that we require in order to conduct our pre-clinical trials. Pursuant to our agreement with Wolc, pending FDA approval of
any of our product candidates, Wolc is expected to transfer seeds used for the FDA-approved product candidate to growers in California,
Colorado and Oklahoma. Wolc is a fully licensed Israeli cannabis company focused on growing, cultivating and manufacturing cannabis medical
oil, located in Aviel, Israel. As an owner and operator of green houses for growing organic cannabis plants and a GMP manufacturing facility
located in Netanya, Israel, we intend to utilize, pursuant to an agreement between the parties, Wolc for the growing and cultivation of
the CBD oil needed for our product candidates.

We believe that our current
agreement with Wolc will provide us with sufficient amounts of CBD oil in order to complete our clinical development and for initial sales
of our pharmaceutical drug products. In the future, as our demand for pharmaceutical products grows, if ever, we may need to find additional
partners that may provide us with sufficient amounts of CBD oil and/or amend or terminate our engagement with Wolc.

Pursuant to the agreement
with Wolc, on July 27, 2022, the Company issued 100,500 shares of common stock to Wolc. The value of such issued shares was based on the
value of the service provided by Wolc, which amounted to $100,000. In June 2023, the Company issued 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 $200,000.

15

Manufacturing

We do not own or operate,
and currently have no plans to establish, any manufacturing facilities for final manufacture. We currently rely, and expect to continue
to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial
manufacturing of any pharmaceutical drug products for which we receive regulatory approval.

Commercialization Plan

Subject to the receipt of
regulatory approval to commercialize our pharmaceutical product candidates, our goal is to distribute our approved formulas to good manufacturing
practice, or GMP, approved medical cannabis manufacturers and global medical cannabis distributors. Depending on the expertise of the
distributors, we expect the licensing agreements to provide us with royalty-based payments for the sale of each of our approved pharmaceutical
drug products. In Israel, pursuant to our agreement with Wolc, the parties are expected to negotiate an exclusive distribution agreement
in Israel, pursuant to which Wolc will be the exclusive supplier of any approved pharmaceutical drug products of the Company in Israel.

Although we expect government
regulation of pharmaceutical products derived from cannabis to develop over the next few years, we may be limited in the manner in which
we commercialize our product candidates. We fully intend on being fully complaint with local and state-wide government regulations and
therefore we expect to enter into licensing agreements with vendors only if such vendor may legally distribute our product candidate within
the region for which they have obtained a license from us to sell our pharmaceutical product.

Intellectual Property

We do not currently have any
issued patents and we currently rely on our know-how and trade secrets. However, in connection with the development of our RA product
candidate and other technologies that we may develop, we intend to seek patent protection in the U.S. and/or internationally for such
product candidate and, potentially, for other product candidates that we may seek to develop.

In November 2025, we, jointly
with the Medical Cannabis Research and Innovation Center and Rambam, filed a provisional patent application with the USPTO titled “Raphael
Pharmaceutical, Inc. / Rambam MedTech Formula for Treating Neutrophil-Dominant Autoimmune Diseases (including RA)” (Application
No. 63/911,729). The application covers the use of our highly purified cannabinoid-based technology platform in the treatment of neutrophil-dominant
autoimmune diseases, including our lead product candidate for RA, as well as psoriatic arthritis, inflammatory bowel disease, systemic
lupus erythematosus with neutrophil involvement, and gout.

Our policy is to pursue, maintain
and defend patent rights developed internally and to protect the technology, inventions and improvements that are commercially important
to the development of our business.

Governmental Regulation

Government authorities in
the U.S., at the federal, state and local levels, and in other countries and jurisdictions, including the EU, extensively regulate, among
other things, the research, development, testing, manufacture, sales, pricing, reimbursement, quality control, approval, packaging, storage,
recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export
of biopharmaceutical products. The processes for obtaining marketing approvals in the U.S. and in foreign countries and jurisdictions,
along with compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial
time and financial resources.

16

We are a research and development
company collaborating with our partners at Rambam to research and develop our COVID-19, asthma and RA product candidates. We do not grow
or cultivate cannabis and we have no physical connection to the raw cannabis materials, which is shipped directly to Rambam. Pre-clinical
research, animal models and clinical trials are sponsored by us through our agreement with Rambam. Such research and trials are being
done by Rambam’s medical team, researchers, doctors and professors, as well as by Citrus Labs, which is a CRO Company and a leader
in clinical trials for biotech companies, located in Las Vegas, Nevada, U.S., and conducting clinical trials under the supervision of
IRB and in accordance with FDA regulations. An IRB is an appropriately constituted group that has been formally designated to review and
monitor biomedical research involving human subjects.

We do not own or operate,
and currently have no plans to establish, any manufacturing facilities for final manufacturing of our products. We do not distribute,
and we have no plans to distribute, our products. Once we receive regulatory approval for our products, we intend to license to our future
candidate partners the rights to commercialize our medical formulas. Our future candidate partners will be responsible for the manufacturing,
distributing, promoting, and marketing of medical indications. We intend to engage with candidate partners that are GMP approved professionals,
well established and experienced medical manufacturers and distributors in the U.S. and other countries.

Our future candidate partners
will be entirely responsible and liable for regulatory compliance, including but not limited to cannabis growing and cultivation, GMP
manufacturing, distribution, advertising and promotional regulations, marketing, labeling, post-market approval reporting and record keeping.

We intend to hire and train
quality assurance professional that will inspect periodically the facilities of our future candidate partners as well as the methods of
production, marketing and distribution under applicable governmental regulatory guidelines.

U.S. Cannabis Market

The emergence of the legal
cannabis sector in the U.S., both for medical and adult use, has been rapid as more states adopt regulations for its production and sale.
A majority of Americans now live in a state where cannabis is legal in some form and almost a quarter of the population lives in states
in which both medical and recreational use is permitted as a matter of, and in accordance with, applicable state and local laws. According
to Fortune Business Insights, the global legal marijuana market is anticipated to reach a value of $444.34 billion by the end of 2030,
from $10.60 billion in 2018. The market is predicted to rise at a compounded annual growth rate of 34.03% during the period 2022 to 2030.

The use of cannabis and cannabis
derivatives to treat or alleviate the symptoms of a wide variety of chronic conditions, while not recognized by the FDA, has been accepted
by a majority of citizens with a growing acceptance by the medical community. A review of the research, published in 2015 in the Journal
of the American Medical Association, found solid evidence that cannabis can treat pain and muscle spasms. The pain component is particularly
important, because other studies have suggested that cannabis can replace pain patients’ use of highly addictive, potentially deadly
opiates. Although hemp, defined as cannabis and derivatives of cannabis with not more than 0.3% THC, has been descheduled from the Controlled
Substances Act, the FDA has regulatory oversight over foods, drugs, cosmetics containing cannabis under the Food, Drug and Cosmetics Act
of 1938. All references to the use of CBD in our product candidates refer to CBD strains with less than 0.3% of THC. It is possible that
as the federal and state agencies legalize certain products, the FDA may issue rules and regulations, including good manufacturing practices
related to the growth, cultivation, harvesting and processing of such products, even if they are not marketed as drugs. It is possible
that the FDA would require that facilities where medical-use cannabis is grown to register with the FDA and comply with certain federally
prescribed regulations, certifications, testing, or other requirements. The potential impact on the cannabis industry is uncertain and
could include the imposition of new costs, requirements, and prohibitions.

Although we are not currently
engaged and do not expect to be engaged in the production or distribution of medical marijuana products, the FDA has jurisdiction over
our flower, oil, vape and edible products, among others. The FDA is currently taking action in the form of Warning Letters, but may also
take more extreme enforcement such as recalls, disgorgement or penalties.

17

Polls conducted throughout
the U.S. consistently show overwhelming support for the legalization of medical cannabis, together with strong majority support for the
full legalization of recreational adult-use cannabis. According to a Pew Research Center survey, as of November 11, 2019, “Around
nine-in-ten Americans favor legalization for recreational or medical purposes” and “Only 8% say it should not be legal.”
These are large increases in public support over the past 40 years in favor of legal cannabis use.

As of the date of this Annual
Report, in the U.S., cannabis is legal in 40 of 50 states for medical use and 24 states for recreational use. At the federal level, cannabis
is classified as a Schedule I drug under the Controlled Substances Act, or the CSA, determined to have a high potential for abuse and
no accepted medical use, prohibiting its use for any purpose, according to Marijuana Policy Project. Despite this prohibition, federal
law is generally not enforced against the possession, cultivation, or intrastate distribution of cannabis in states where such activity
has been legalized, according to “Attorney General Merrick Garland on DOJ’s New Marijuana Policy”, published on March
16, 2023 in the National Law Review. The medical use of cannabis is legal with a medical recommendation in 40 states, 4 out of 5 permanently
inhabited U.S. territories, and the federal District of Columbia cannabis-based products in treating or addressing therapeutic needs,
and assuming that research findings demonstrate that such products are effective in doing so, management believes that the size of the
U.S. medical cannabis market will also continue to grow as more states expand their medical marijuana programs and new states legalize
medical marijuana.

Notwithstanding that 40 states
and the District of Columbia have now legalized adult-use and/or medical cannabis, cannabis remains illegal under U.S. federal law with
cannabis listed as a Schedule I drug under the CSA.

On December 18, 2025, President Donald Trump signed
an executive order titled “Increasing Medical Marijuana and Cannabidiol Research” (the “Rescheduling Order”),
which, among other things, directs the U.S. Attorney General to consider and take steps to expedite the rulemaking process relating to
the potential rescheduling of marijuana under the Controlled Substances Act, including potential reclassification from Schedule I to Schedule
III. The Rescheduling Order also contemplates coordination with Congress regarding potential modifications to the federal definition of
“hemp.” The timing, scope and outcome of any such rulemaking or legislative action remain uncertain.

Government Regulation and Product Approval

We are a preclinical to early
clinical stage pharmaceutical company that intends to engage third parties to test, register and license the rights to commercialize our
products in the U.S. and other jurisdictions. Such third parties may be subject to extensive regulation by various regulatory authorities.
The primary regulatory agency in the U.S. is the FDA and in Europe it is the EMA. Along with these two, there are other federal, state,
and local regulatory agencies. In the U.S., the Federal Food, Drug, and Cosmetic Act of 1938, or the FDCA, and its implementing regulations
set forth, among other things, requirements for the research, testing, development, manufacture, quality control, safety, effectiveness,
approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our products. Although
the discussion below focuses on regulation in the U.S., we anticipate seeking approval for, and marketing of, our products in other countries.

Generally, our activities
outside the U.S. will be subject to regulation that is similar in nature and scope as that imposed in the U.S., although there can be
important differences. Approval in the U.S., Canada, or Europe does not assure approval by other regulatory agencies, although often test
results from one country may be used in applications for regulatory approval in another country. Additionally, some significant aspects
of regulation in Europe are addressed in a centralized way through the EMA but country specific regulation remains essential in many respects.
A major difference in Europe, when compared to Canada and the U.S., is with the approval process. In Europe, there are different procedures
that can be used to gain marketing authorization in the European Union. The first procedure is referred to as the centralized procedure
and requires that a single application be submitted to the EMA and, if approved, allows marketing in all countries of the European Union.
The centralized procedure is mandatory for certain types of medicines and optional for others. The second procedure is referred to as
national authorization and has two options; the first is referred to as the mutual recognition procedure and requires that approval is
gained from one member state, after which a request is made to the other member states to mutually recognize the approval, whilst the
second is referred to as the decentralized procedure which requires a member state to act as the reference member state through a simultaneous
application made to other member states.

18

The process of obtaining regulatory
marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require
the expenditure of substantial time and financial resources and may not be successful. See “