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EX-23.2 - ORAMED PHARMACEUTICALS INC. | v175368_ex23-2.htm |
EX-23.1 - ORAMED PHARMACEUTICALS INC. | v175368_ex23-1.htm |
EX-5.1 - ORAMED PHARMACEUTICALS INC. | v175368_ex5-1.htm |
As
filed with the Securities and Exchange Commission on February 24,
2010
Registration
No. 333-164288
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 1
TO
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ORAMED
PHARMACEUTICALS INC.
(Exact
Name of Registrant as Specified in Its Charter)
Nevada
(State
or other jurisdiction
of
incorporation or organization)
|
2834
(Primary
Standard Industrial
Classification
Code Number)
|
98-0376008
(I.R.S.
Employer
Identification
No.)
|
Hi-Tech
Park 2/5
Givat-Ram
PO
Box 39098
Jerusalem
91390, Israel
Telephone:
972-2-566-0001
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s
Principal Executive Offices)
The
Corporation Trust Company of Nevada
6100
Neil Road, Suite 500,
Reno,
Nevada, U.S.A., 89511
Telephone:
(800) 624-0909
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies
to:
Eliezer
M. Helfgott, Esq.
Blank
Rome LLP
405
Lexington Avenue
New
York, NY 10174
Telephone:
(212) 885-5431
Facsimile:
(917) 332-3065
|
Adam
M. Klein, Adv.
Goldfarb,
Levy, Eran, Meiri, Tzafrir & Co.
2
Weizmann Street
Tel-Aviv
64239, Israel
Telephone:
972-3-608-9947
Facsimile:
972-3-608-9855
|
Approximate date of commencement of
proposed sale to the public: From time to time after the
effective date of this registration statement, as determined by market and other
conditions.
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933 check the following
box. x
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer: ¨
|
Accelerated
filer: ¨
|
|
Non-accelerated
filer: ¨
|
Smaller reporting
company: x
|
|
(Do
not check if a smaller reporting company)
|
CALCULATION
OF REGISTRATION FEE
Title of each class of
securities to be registered
|
Amount To Be
Registered (1)
|
Proposed
Maximum Offering
Price Per Unit (2)
|
Proposed
Maximum
Aggregate Offering
Price |
Amount of
Registration Fee
(3)
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||||||||||||
Common Stock, $0.001 par value
(4)
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37,037,302 | $ | 0.45 | $ | 16,666,786 | $ | 1,188.35 |
(1)
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Pursuant
to Rule 416(a) under the Securities Act of 1933, as amended (the “Act”),
this registration statement shall be deemed to cover any additional number
of shares of common stock as may be issued from time to time upon exercise
of the warrants or options to prevent dilution as a result of stock
splits, stock dividends or similar transactions. No additional
consideration will be received for the common stock, and therefore no
registration fee is required pursuant to Rule 457(i) under the
Act.
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(2)
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Estimated
in accordance with Rule 457(c) under the Act, solely for the purpose of
calculating the registration fee, based on the average bid and ask price
of our common stock on February 18, 2010, as reported on the OTC Bulletin
Board.
|
(3)
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A
registration fee of $398.33 has been paid previously based on a previous
estimate of proposed maximum aggregate offering price. An amount of
$790.02 has been paid in correction with the filing of this pre-effective
Amendment No.1 to the registration
statement.
|
(4)
|
Represents
29,864,799 shares of common stock of Oramed Pharmaceuticals Inc. being
registered for resale that have been issued to the selling stockholders
and 7,172,503 shares of common stock of Oramed Pharmaceuticals Inc.
issuable upon exercise of warrants and options that have been issued to
the selling stockholders.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
The
information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell nor
does it seek an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
Subject
to completion. Dated February 24, 2010.
PROSPECTUS
ORAMED
PHARMACEUTICALS INC.
37,037,302
SHARES OF COMMON STOCK
The
selling stockholders identified in this prospectus may offer from time to time
up to 29,864,799 shares of our common
stock and 7,172,503 shares of our common stock issuable upon exercise of
warrants and options.
This
prospectus describes the general manner in which the shares may be offered and
sold by the selling stockholders. If necessary, the specific manner in which the
shares may be offered and sold will be described in a supplement to this
prospectus.
While we
will not receive any proceeds from the sale of the shares by the selling
stockholders, we will receive cash proceeds equal to the total exercise price of
any warrants or options that are exercised for cash.
Our
common stock is quoted on the OTC Bulletin Board, or the OTCBB, under the symbol
“ORMP.OB”. On February 23, 2010, the last reported bid price per
share of our common stock as quoted on the OTCBB was $0.43 per
share.
Investing in the shares involves
risks. You should carefully read the “Risk Factors”
beginning on page 6
of this prospectus before investing.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is _________, 2010.
TABLE OF
CONTENTS
Page
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Prospectus
Summary
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1
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Risk
Factors
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5
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Forward-Looking
Statements
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13
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Use
of Proceeds
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13
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Market
Price and Dividends
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14
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Our
Business
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22
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Description
of Property
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31
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Legal
Proceedings
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31
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Management
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32
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Executive Compensation
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34
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Security
Ownership of Certain Beneficial Owners and Management
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38
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Certain
Relationships and Related Transactions, and Director
Independence
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39
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Description
of Common Stock
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40
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Selling
Stockholders
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41
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Plan
of Distribution
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44
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Disclosure
of Commission Position of Indemnification for Securities Act
Liabilities
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46
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Interests
of Named Experts and Counsel
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46
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Experts
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46
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Where
You Can Find More Information
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46
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Index
to Financial Statements
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F-1
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You
should rely only on the information contained in this prospectus. Neither we nor
the selling stockholders have authorized any dealer, salesperson or other person
to give any information or to make any representations to you other than the
information contained in this prospectus. You must not rely on any information
or representations not contained in this prospectus as if we had authorized it.
The information contained in this prospectus is current only as of the date on
the cover page of this prospectus and may change after that date. We do not
imply that there has been no change in the information contained in this
prospectus or in our affairs since that date by delivering this
prospectus. Neither we nor the selling stockholders are making an
offer of these securities in any state where the offer is not
permitted.
-ii-
As used
in this prospectus, the terms “we”, “us”, “our”, the “Company”, “Oramed” and
“Oramed Pharmaceuticals” mean Oramed Pharmaceuticals Inc., unless otherwise
indicated.
All
dollar amounts refer to U.S. dollars unless otherwise
indicated.
-iii-
This
summary highlights information contained elsewhere in this prospectus. Before
making an investment decision, you should read the entire prospectus carefully,
including the section entitled “Risk Factors”.
THE
COMPANY
General
We are a
pharmaceutical company engaged in the research and development of innovative
pharmaceutical solutions, including an orally ingestible insulin capsule or
tablet to be used for the treatment of individuals with diabetes, rectal
application of insulin, use of orally ingestible capsules, tablets or pills for
delivery of other polypeptides and rectal application of other
polypeptides.
Oral
Insulin: We
are seeking to revolutionize the treatment of diabetes through our proprietary
flagship product, an orally ingestible insulin capsule (ORMD0801) currently in
Phase 2 clinical trials. Our technology allows insulin to travel from the
gastrointestinal tract via the portal vein to the bloodstream, revolutionizing
the manner in which insulin is delivered. It enables its passage in a more
physiological manner than current delivery methods of
insulin.
Through
our research and development efforts, we are developing an oral dosage form that
will withstand the harsh chemical environment of the stomach or intestines and
will be effective in delivering active insulin for the treatment of diabetes.
The proteins and vehicles that are added to the insulin in the formulation
process must not modify chemically or biologically, and the insulin and the
dosage form must be safe to ingest.
Our
research and development team has performed numerous animal studies to optimize
the composition and functionality of their oral insulin (ORMD0801) modality and
to demonstrate its safety and efficacy. Our studies have confirmed the
feasibility of lowering blood glucose levels with an orally administered form of
insulin that is both safe and effective.
Our
technology is a platform that has the potential to deliver medications and
vaccines orally that today can only be delivered via injection.
Diabetes: Diabetes is a disease in
which the body does not produce or properly use insulin. Insulin is a hormone
that causes sugar to be absorbed into cells, where the sugar is converted into
energy needed for daily life. The cause of diabetes is attributed both to
genetics (type 1 diabetes) and, most often, to environmental factors such as
obesity and lack of exercise (type 2 diabetes).
According
to the International Diabetes Federation ("IDF"), an estimated 285 million
people worldwide currently live with diabetes. In the United States there are
approximately 26.8 million people with diabetes, or 8.7% of the United States
population. The IDF predicts that the number of people worldwide with diabetes
will exceed 435 million in 2030 if the current rate of growth continues
unchecked.
Diabetes
now affects seven percent of the world’s adult population and claims four
million lives every year. The disease is a leading cause of blindness, kidney
failure, heart attack, stroke and amputation. Diabetes will cost the world
economy at least $376 billion in 2010, or 11.6% of total world healthcare
expenditure. By 2030, this number is projected to exceed $490 billion. More than
80% of diabetes spending is in the world’s richest countries and not in the
poorer countries, where over 70% of people with diabetes now live.
The
regions with the highest comparative prevalence rates are North America, where
10.2% of the adult population has diabetes, followed by the Middle East and
North Africa region with 9.3%. The regions with the highest number of people
living with diabetes are Western Pacific, where some 77 million people have
diabetes and South East Asia with 59 million.
Each year
seven million people develop diabetes. The most dramatic increases in
type 2 diabetes have occurred in populations where there have been rapid and
major improvements in living standards, demonstrating the important role played
by lifestyle factors and the potential for reversing the global
epidemic.
-1-
Intellectual
Property: We own a portfolio of patents and patent applications covering
our technologies and we are aggressively protecting these technology
developments on a worldwide basis.
Management:
We are led by a highly-experienced management team knowledgeable in the
treatment of diabetes. Our Chief Medical and Technology Officer, Miriam
Kidron, PhD, is a world-recognized pharmacologist and a biochemist and the
innovator primarily responsible for our Oral Insulin technology development and
know-how.
Scientific
Advisory Board: Our management team has access to our internationally
recognized Scientific Advisory Board whose members are thought-leaders in their
respective areas. The Advisory Board comprises of Dr. Nir Barzilai, Professor
Ele Ferrannini, Professor Avram Hershko, Dr. Derek LeRoith and Dr, John
Amatruda.
Strategy
We plan
to continue to conduct clinical trials to show the effectiveness of our
technology. We intend to conduct studies and other tests necessary to
file an Investigational New Drug (“IND”) application with the U.S. Food and Drug
Administration (the “FDA”). Additional clinical trials are planned in other
countries such as Israel, India and South Africa, in order to substantiate our
results as well as for purposes of future filings for drug approval in these
countries. We also plan to conduct further research and development by deploying
our proprietary drug delivery technology for the delivery of other polypeptides
in addition to insulin, and to develop other innovative pharmaceutical products,
flu vaccines, and use of rectal application for delivery of other
polypeptides.
If our
oral insulin capsule or other drug delivery solutions show significant promise
in clinical trials, we plan to ultimately seek a strategic commercial partner,
or partners, with extensive experience in the development, commercialization,
and marketing of insulin applications and/or other orally digestible drugs. We
anticipate such partner or partners would be responsible for, or substantially
support, late stage clinical trials (Phase III) to ensure regulatory approvals
and registrations in the appropriate markets in a timely manner. We further
anticipate that such partner, or partners, would also be responsible for sales
and marketing of our oral insulin capsule in these markets. Such planned
strategic partnership, or partnerships, may provide a marketing and sales
infrastructure for our products as well as financial and operational support for
global clinical trials, post marketing studies, label expansions and other
regulatory requirements concerning future clinical development in the United
States and elsewhere. Any future strategic partner, or partners, may also
provide capital and expertise that would enable the partnership to develop new
oral dosage form for other polypeptides. While our strategy is to partner with
an appropriate party, no assurance can be given that any third party would be
interested in partnering with us. Under certain circumstances, we may determine
to develop one or more of our oral dosage form on our own, either world-wide or
in select territories.
In
addition to developing our own oral dosage form drug portfolio, we are, on an
on-going basis, considering in-licensing and other means of obtaining additional
technologies to complement and/or expand our current product portfolio. Our goal
is to create a well-balanced product portfolio that will enhance and complement
our existing drug portfolio.
Product
Development
Orally Ingestible
Insulin: During fiscal year 2007 we conducted several clinical studies of
our orally ingestible insulin. The studies were intended to assess both the
safety/tolerability and absorption properties of our proprietary oral insulin.
Based on the pharmacokinetic and pharmacologic outcomes of these trials, we
decided to continue the development of our oral insulin product.
On
November 15, 2007, we successfully completed animal studies in preparation for
the Phase 1B clinical trial of our oral insulin capsule (ORMD
0801). On January 22, 2008, we commenced the non-FDA approved Phase
1B clinical trials with our oral insulin capsule, in healthy human volunteers
with the intent of dose optimization. On March 11, 2008, we
successfully completed our Phase 1B clinical trials.
On April
13, 2008, we commenced a non-FDA approved Phase 2A study to evaluate the safety
and efficacy of our oral insulin capsule (ORMD 0801) in type 2 diabetic
volunteers at Hadassah Medical Center in Jerusalem. On August 6, 2008, we
announced the successful results of this trial.
-2-
In July
2008 we were granted approval by the Institutional Review Board Committee of
Hadassah Medical Center in Jerusalem to conduct a non-FDA approved Phase 2A
study to evaluate the safety and efficacy of our oral insulin capsule (ORMD
0801) on type 1 diabetic volunteers. On September 24, 2008, we announced the
beginning of this trial. On July 21, 2009 we reported positive results from this
trial.
On April
21, 2009, we entered into a consulting service agreement with ADRES Advanced
Regulatory Services Ltd. (“ADRES”), pursuant to which ADRES will provide
services for the purpose of filing an IND application with the FDA for a Phase 2
study according to the FDA requirements. The FDA approval process and, if
approved, registration for commercial use as an oral drug can take several
years.
In May
2009, we commenced a non-FDA approved Phase 2B study in South Africa to evaluate
the safety, tolerability and efficacy of our oral insulin capsule (ORMD 0801) on
type 2 diabetic volunteers. We are considering whether and when to conduct an
additional non-FDA approved Phase 2B study in India.
Rectal
Application of Insulin and Other Polypeptides: We filed two additional
provisional patents for a suppository application to our technology portfolio.
The first patent focuses on a rectal application for insulin. The second patent
focuses on the usage of this rectal application to other polypeptides that at
present are only available in injection.
On
January 30, 2008, we entered into a master service agreement with OnQ
Consulting; a clinical research organization located in Johannesburg, South
Africa, to conduct non FDA approved clinical trials for the rectal application
of insulin. On February 4, 2009, we announced that we had concluded a
proof of concept study of the insulin suppositories.
On
October 23, 2008 we commenced a non-FDA approved Phase 1A study to evaluate the
safety and efficacy of our insulin suppository (ORMD 0802) on healthy
volunteers, in South Africa.
As we
believe that the potential commercial market for our oral insulin products are
significantly greater than the potential commercial market for our rectal
application products, we have determined to use our limited resources to
research and develop our oral insulin capsules and tablets and have temporarily
suspended our development of our recital application products.
GLP1
Analog: On September 16, 2008 we announced the launch of pre-clinical
trials of ORMD 0901, a GLP1-analog. The pre-clinical trials include
animal studies which suggest that the GLP-1analog (exenatide -4) when
combined with Oramed’s absorption promoters is absorbed through the
gastrointestinal tract and retains its biological activity.
On
September 9, 2009, we received approval from the Institutional Review Board
(IRB) in Israel to commence human clinical trials of an oral GLP-1 Analog. The
approval was granted after successful pre-clinical results were reported. The
trials will be conducted on healthy volunteers at Hadassah University Medical
Center in Jerusalem.
Glucagon-like
peptide-1 (GLP-1) is an incretin hormone - a type of gastrointestinal hormone
that stimulates the secretion of insulin from the pancreas. The incretin concept
was hypothesized when it was noted surprisingly that glucose ingested by mouth
(oral) stimulated two to three times more insulin release than the same amount
of glucose administered intravenously. In addition to stimulating insulin
release, GLP-1 was found to suppress glucagon release (hormone involved in
regulation of glucose) from the pancreas, slow gastric emptying to reduce the
rate of absorption of nutrients into the blood stream, and increase satiety.
Other important beneficial attributes of GLP-1 are its effects of increasing the
number of beta cells (cells that manufacture and release insulin) in the
pancreas and, possibly, protection of the heart.
Raw
Materials: Our
oral insulin capsule is currently manufactured by Swiss Caps AG, under a
Clinical Trail Manufacturing Agreement. The raw materials required for the
manufacturing of the capsule are purchased from third parties, under separate
agreements. We generally depend upon a limited
number of suppliers for the raw materials. Although alternative
sources of supply for these materials are generally available, we could incur
significant costs and disruptions in changing suppliers. The
termination of our relationships with our suppliers or the failure of these
suppliers to meet our requirements for raw materials on a timely and
cost-effective basis could materially adversely affect our
business, prospects, financial condition and results of
operations.
-3-
THE
OFFERING
Issuer
|
Oramed
Pharmaceuticals Inc.
Hi-Tech
Park 2/5
Givat-Ram,
PO Box 39098
Jerusalem
91390, Israel
Telephone:
972-2-566-0001
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|
Securities
offered by the Selling Stockholders
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29,864,799
shares of common stock and 7,172,503 shares of common stock issuable upon
exercise of warrants and options.
|
|
Trading
Market
|
The
common stock offered in this prospectus is quoted on the OTCBB under the
symbol “ORMP.OB”.
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Common
stock outstanding (as of February 23 2010)
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57,454,707
shares1.
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Use
of Proceeds
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We
will not receive any of the proceeds from the sale of the shares of our
common stock being offered for sale by the selling stockholders. However,
we may receive up to approximately $5.3 million in proceeds upon exercise
of the warrants and options held by the selling stockholders, as the
warrants and options have an average exercise price of $0.74 per share and
are exercisable into 7,172,503 shares of our common
stock. These potential proceeds will be used for the research
and development of our products and for general working capital purposes.
See “Use of
Proceeds.”
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Plan
of Distribution
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The
selling stockholders, and their pledgees, donees, transferees or other
successors in interest, may from time to time offer and sell, separately
or together, some or all of the common stock covered by this prospectus.
Registration of the common stock covered by this prospectus does not mean,
however, that those shares necessarily will be offered or sold. See “Plan of
Distribution.”
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Risk
Factors
|
Please
read “Risk
Factors” and other information included in this prospectus for a
discussion of factors you should carefully consider before deciding to
invest in the securities offered in this
prospectus.
|
1 Does not
include 17,103,697 shares of our common stock issuable upon the exercise of
outstanding options and warrants.
-4-
RISK
FACTORS
An
investment in our securities involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus before making an
investment decision. Our business, prospects, financial condition,
and results of operations may be materially and adversely affected as a result
of any of the following risks. The value of our securities could
decline as a result of any of these risks. You could lose all or part
of your investment in our securities. Some of the statements in
“Risk Factors” are forward looking statements.
Risks
Related to Our Business
There is substantial doubt as to our
ability to continue as a going concern.
Our financial statements were prepared
on the assumption that we will continue as a going concern. We estimate that our
cash reserves will not be sufficient to permit us to continue at our anticipated
level of operations for our fiscal year ended August 31, 2010. During 2010, we
plan to increase research and development, product development, and
administrative expenses relating to our business, including expenses related to
research and development related to our oral delivery platform. We intend to use
our cash reserves, as well as other funds in the event that they shall become
available on commercially reasonable terms, to finance these activities and
other activities described herein, although we can provide no assurance that
these additional funds will be available in the amounts or at the times we may
require. If sufficient capital is not available, we would likely be required to
scale back or terminate our research and development efforts. See
“Risk Factors — We will need
substantial additional capital in order to satisfy our business
objectives.”
We will need substantial additional
capital in order to satisfy our business objectives.
To date, we have financed our
operations principally through offerings of securities exempt from the
registration requirements of the Securities Act. We believe that our available
resources and cash flow will be sufficient to meet our anticipated working
capital needs for a minimum of six months from the date of this prospectus. We
estimate that we will require substantial additional financing at various
intervals in order to continue our research and development programs, including
significant requirements for operating expenses including intellectual property
protection and enforcement, for pursuit of regulatory approvals, and for
commercialization of our products. We can provide no assurance that additional
funding will be available on a timely basis, on terms acceptable to us, or at
all. In the event that we are unable to obtain such financing, we
will not be able to fully develop and commercialize our technology. Our future
capital requirements will depend upon many factors, including:
· continued
scientific progress in our research and development programs;
· costs
and timing of conducting clinical trials and seeking regulatory approvals and
patent prosecutions;
· competing
technological and market developments;
· our
ability to establish additional collaborative relationships; and
· effects
of commercialization activities and facility expansions if and as
required.
If we cannot secure adequate financing
when needed, we may be required to delay, scale back or eliminate one or more of
our research and development programs or to enter into license or other
arrangements with third parties to commercialize products or technologies that
we would otherwise seek to develop ourselves and commercialize ourselves. In
such event, our business, prospects, financial condition, and results of
operations may be adversely affected as we may be required to scale-back,
eliminate, or delay development efforts or product introductions or enter into
royalty, sales or other agreements with third parties in order to commercialize
our products.
-5-
We are a development stage company with
a history of losses and can provide no assurance as to our future operating
results.
We are a development stage company with
no revenues from our research and development activities. Consequently, we have
incurred net losses and negative cash flows since inception. We currently have
no product revenues, and may not succeed in developing or commercializing any
products which could generate product or licensing revenues. We do not expect to
have any products on the market for several years. In addition, development of
our product candidates requires a process of pre-clinical and clinical testing,
during which our products could fail. We may not be able to enter into
agreements with one or more companies experienced in the manufacturing and
marketing of therapeutic drugs and, to the extent that we are unable to do so,
we will not be able to market our product candidates. Eventual
profitability will depend on our success in developing, manufacturing, and
marketing our product candidates. As of August 31, 2009 and 2008, we had working
capital of $2,805,733 and $4,483,940, respectively, and stockholders’ equity of
$2,746,192 and $4,593,060, respectively. We generated no revenues to date. For
the period from our inception on April 12, 2002 through August 31, 2009, the
years ended August 31, 2009 and 2008, we incurred net losses of $(10,008,678),
$(2,760,474), and $(2,769,271), respectively. We may never achieve
profitability and expect to incur net losses in the foreseeable future. See
“Management's Discussion and
Analysis of Financial Condition and Results of Operations.”
We rely upon patents to protect our
technology. We may be unable to protect our intellectual property rights and we
may be liable for infringing the intellectual property rights of
others.
Our ability to compete effectively will
depend on our ability to maintain the proprietary nature of our technologies. We
currently hold several pending patent applications in the United States for our
technologies covering oral administration of insulin and other proteins, rectal
application for insulin, and oral administration of exenatides and proteins, and
corresponding patent applications filed in Israel, South Africa and India.
Further, we intend to rely on a combination of trade secrets and non-disclosure,
and other contractual agreements and technical measures to protect our rights in
our technology. We intend to depend upon confidentiality agreements with our
officers, directors, employees, consultants, and subcontractors, as well as
collaborative partners, to maintain the proprietary nature of our technology.
These measures may not afford us sufficient or complete protection, and others
may independently develop technology similar to ours, otherwise avoid our
confidentiality agreements, or produce patents that would materially and
adversely affect our business, prospects, financial condition, and results of
operations. We believe that our technology is not subject to any infringement
actions based upon the patents of any third parties; however, our technology may
in the future be found to infringe upon the rights of others. Others may assert
infringement claims against us, and if we should be found to infringe upon their
patents, or otherwise impermissibly utilize their intellectual property, our
ability to continue to use our technology could be materially restricted or
prohibited. If this event occurs, we may be required to obtain licenses from the
holders of this intellectual property, enter into royalty agreements, or
redesign our products so as not to utilize this intellectual property, each of
which may prove to be uneconomical or otherwise impossible. Licenses or royalty
agreements required in order for us to use this technology may not be available
on terms acceptable to us, or at all. These claims could result in litigation,
which could materially adversely affect our business, prospects, financial
condition, and results of operations.
The patent position of
biopharmaceutical and biotechnology firms is generally uncertain and involves
complex legal and factual questions. We do not know whether any of our current
or future patent applications will result in the issuance of any patents. Even
issued patents may be challenged, invalidated or circumvented. Patents may not
provide a competitive advantage or afford protection against competitors with
similar technology. Competitors or potential competitors may have filed
applications for, or may have received patents and may obtain additional and
proprietary rights to compounds or processes used by or competitive with ours.
In addition, laws of certain foreign countries do not protect intellectual
property rights to the same extent as do the laws of the United
States.
Patent litigation is becoming
widespread in the biopharmaceutical and biotechnology industry and we cannot
predict how this will affect our efforts to form strategic alliances, conduct
clinical testing or manufacture and market any products under development. If
challenged, our patents may not be held valid. We could also become involved in
interference proceedings in connection with one or more of our patents or patent
applications to determine priority of invention. If we become involved in any
litigation, interference or other administrative proceedings, we will likely
incur substantial expenses and the efforts of our technical and management
personnel will be significantly diverted. In addition, an adverse determination
could subject us to significant liabilities or require us to seek licenses that
may not be available on favorable terms, if at all. We may be restricted or
prevented from manufacturing and selling our products in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses.
Our commercial success will also depend
significantly on our ability to operate without infringing the patents and other
proprietary rights of third parties. Patent applications are, in many cases,
maintained in secrecy until patents are issued. The publication of discoveries
in the scientific or patent literature frequently occurs substantially later
than the date on which the underlying discoveries were made and patent
applications are filed. In the event of infringement or violation of another
party's patent, we may be prevented from pursuing product development or
commercialization. See “Business—Patents and
Licenses.”
-6-
At
present, our success depends primarily on the successful commercialization of
the oral insulin capsule.
The successful commercialization of
oral insulin capsule is crucial for our success. At present, our principal
product is the oral insulin capsule. Our oral insulin capsule is in a
very early stage of clinical development and faces a variety of risks and
uncertainties. Principally, these risks include the following:
· future
clinical trial results may show that the oral insulin capsule is not well
tolerated by recipients at its effective doses or is not efficacious as compared
to placebo;
· future
clinical trial results may be inconsistent with previous preliminary testing
results and data from our earlier studies may be inconsistent with clinical
data;
· even
if our oral insulin capsule is shown to be safe and effective for its intended
purposes, we may face significant or unforeseen difficulties in obtaining or
manufacturing sufficient quantities or at reasonable prices;
· our
ability to complete the development and commercialization of the oral insulin
capsule for our intended use is significantly dependent upon our ability to
obtain and maintain experienced and committed partners to assist us with
obtaining clinical and regulatory approvals for, and the manufacturing,
marketing and distribution of, the oral insulin capsule on a worldwide
basis;
· even
if our oral insulin capsule is successfully developed, commercially produced and
receive all necessary regulatory approvals, there is no guarantee that there
will be market acceptance of the products; and
· our
competitors may develop therapeutics or other treatments which are superior or
less costly than our own with the result that our products, even if they are
successfully developed, manufactured and approved, may not generate significant
revenues.
If we are unsuccessful in dealing with
any of these risks, or if we are unable to successfully commercialize our oral
insulin capsule for some other reason, it would likely seriously harm our
business.
We
have limited experience in conducting clinical trials.
Clinical trials must meet FDA and
foreign regulatory requirements. We have limited experience in designing,
conducting and managing the preclinical studies and clinical trials necessary to
obtain regulatory approval for our product candidates in any
country. We have entered into agreements with Hadasit Medical Center,
ETI Karle Clinical Pvt, Ltd., and OnQ Consulting to assist us in designing,
conducting and managing our various clinical trials in Israel, South Africa, and
India, respectively, as more fully described in “Description Business –
Partnerships and Collaborative Agreements.” Any failure of such
consultants to fulfill their obligations could result in significant additional
costs as well as delays in designing, consulting and completing clinical trials
on our products.
Notwithstanding
the assistance of such consultants, we may encounter problems in clinical trials
that may cause us or the FDA or foreign regulatory agencies to delay, suspend or
terminate our clinical trials at any phase. These problems could
include the possibility that we may not be able to conduct clinical trials at
our preferred sites, enroll a sufficient number of patients for our clinical
trials at one or more sites or begin or successfully complete clinical trials in
a timely fashion, if at all. Furthermore, we, the FDA or foreign regulatory
agencies may suspend clinical trials at any time if we or they believe the
subjects participating in the trials are being exposed to unacceptable health
risks or if we or they find deficiencies in the clinical trial process or
conduct of the investigation. If clinical trials of any of the
product candidates fail, we will not be able to market the product candidate
which is the subject of the failed clinical trials. The FDA and
foreign regulatory agencies could also require additional clinical trials, which
would result in increased costs and significant development
delays. Our failure to adequately demonstrate the safety and
effectiveness of a pharmaceutical product candidate under development could
delay or prevent regulatory approval of the product candidate and could have a
material adverse effect on our business, prospects, financial condition, and
results of operations.
We can provide no assurance that our
products will obtain regulatory approval or that the results of clinical studies
will be favorable.
The testing, marketing and
manufacturing of any of our products will require the approval of the FDA or
regulatory agencies of other countries. We have completed certain non-FDA
clinical trials and pre-clinical trials for our products but have yet to conduct
any FDA approved trials. We have retained Advanced Regulatory Services Ltd. to
assist us in the preparation of an IND Application with the FDA to conduct an
FDA approved Phase 2 study on our oral insulin capsule product but no
application has yet been filed.
-7-
We cannot predict with any certainty
the amount of time necessary to obtain regulatory approvals, including from the
FDA or other foreign regulatory authorities, and whether any such approvals will
ultimately be granted. In any event, review and approval by the regulatory
bodies is anticipated to take a number of years. Preclinical and clinical trials
may reveal that one or more of our products are ineffective or unsafe, in which
event further development of such products could be seriously delayed or
terminated. Moreover, obtaining approval for certain products may
require the testing on human subjects of substances whose effects on humans are
not fully understood or documented. Delays in obtaining necessary
regulatory approvals of any proposed product and failure to receive such
approvals would have an adverse effect on the product’s potential commercial
success and on our business, prospects, financial condition, and results of
operations. In addition, it is possible that a product may be found
to be ineffective or unsafe due to conditions or facts which arise after
development has been completed and regulatory approvals have been
obtained. In this event we may be required to withdraw such product
from the market. See “Business
– Governmental Regulation.”
We
are dependent upon third party suppliers of our raw materials.
We are dependent on outside vendors for
our entire supply of the oral insulin capsule. While we believe that there are
numerous sources of supply available, if the third party suppliers were to cease
production or otherwise fail to supply us with quality raw materials in
sufficient quantities on a timely basis and we were unable to contract on
acceptable terms for these services with alternative suppliers, our ability to
produce our products and to conduct testing and clinical trials would be
materially adversely affected
We
are highly dependent upon our ability to enter into agreements with
collaborative partners to develop, commercialize, and market our
products.
Our long-term strategy is to ultimately
seek a strategic commercial partner, or partners, such as large pharmaceutical
companies, with extensive experience in the development, commercialization, and
marketing of insulin applications and/or other orally digestible drugs. We
anticipate such partner or partners would be responsible for, or substantially
support, late stage clinical trials (Phase III) and sales and marketing of our
oral insulin capsule and other products. Such planned strategic partnership, or
partnerships, may provide a marketing and sales infrastructure for our products
as well as financial and operational support for global clinical trials, post
marketing studies, label expansions and other regulatory requirements concerning
future clinical development in the United States and elsewhere.
While our strategy is to partner with
an appropriate party, no assurance can be given that any third party would
be interested in partnering with us. We currently lack the resources
to manufacture any of our product candidates on a large scale and we have no
sales, marketing or distribution capabilities. In the event we are
not able to enter into a collaborative agreement with a partner or partners, on
commercially reasonable terms, or at all, we may be unable to commercialize our
products, which would have a material adverse effect upon our business,
prospects, financial condition, and results of operations.
The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high
degree of competition. We may be unable to compete with more
substantial enterprises.
The biotechnology and biopharmaceutical
industries are characterized by rapid technological developments and a high
degree of competition. As a result, our
products could become obsolete before we recoup any portion of our related
research and development and commercialization expenses. These industries are
highly competitive, and this competition comes both from biotechnology firms and
from major pharmaceutical and chemical companies. Many of these
companies have substantially greater financial, marketing, and human resources
than we do (including, in some cases, substantially greater experience in
clinical testing, manufacturing, and marketing of pharmaceutical
products). We also experience competition in the development of our
products from universities and other research institutions and compete with
others in acquiring technology from such universities and institutions. In
addition, certain of our products may be subject to competition from products
developed using other technologies. See “Business –
Competition”.
-8-
We
have limited senior management resources and may be required to obtain more
resources to manage our growth.
We expect the expansion of our business
to place a significant strain on our limited managerial, operational, and
financial resources. We will be required to expand our operational and financial
systems significantly and to expand, train, and manage our work force in order
to manage the expansion of our operations. Our failure to fully integrate our
new employees into our operations could have a material adverse effect on our
business, prospects, financial condition, and results of operations. Our ability
to attract and retain highly skilled personnel is critical to our operations and
expansion. We face competition for these types of personnel from other
technology companies and more established organizations, many of which have
significantly larger operations and greater financial, technical, human, and
other resources than we have. We may not be successful in attracting and
retaining qualified personnel on a timely basis, on competitive terms, or at
all. If we are not successful in attracting and retaining these personnel, our
business, prospects, financial condition, and results of operations will be
materially adversely affected. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” “Business – Strategy” and
“Business—Employees.”
We depend upon our senior management
and skilled personnel and their loss or unavailability could put us at a
competitive disadvantage.
We currently depend upon the efforts
and abilities of our senior executives, as well as the services of several key
consultants and other key personnel, including Dr. Miriam Kidron, our Chief
Medical and Technology Officer. The loss or unavailability of the services of
any of these individuals for any significant period of time could have a
material adverse effect on our business, prospects, financial condition, and
results of operations. We do not maintain “keyman” life insurance
policies for any of our senior executives. In addition, recruiting
and retaining qualified scientific personnel to perform future research and
development work will be critical to our success. There is currently a shortage
of employees with expertise in developing, manufacturing and commercialization
of products and related clinical and regulatory affairs, and this shortage is
likely to continue. Competition for skilled personnel is intense and turnover
rates are high. Our ability to attract and retain qualified personnel may be
limited. Our inability to attract and retain qualified skilled
personnel would have a material adverse effect on our business, prospects,
financial condition, and results of operations.
Fulfilling
our obligations incident to being a public company will be expensive and time
consuming.
As a public company, the Sarbanes-Oxley
Act of 2002 and the related rules and regulations of the SEC, requires us to
implement additional corporate governance practices and adhere to a variety of
reporting requirements and complex accounting rules. Compliance with these
public company obligations increases our legal and financial compliance costs
and place significant additional demands on our finance and accounting staff and
on our financial, accounting and information systems.
We became a publicly traded company
through the acquisition of a public shell company, and we could be liable for
unanticipated claims or liabilities as a result thereof.
We were originally incorporated on
April 12, 2002 as an exploration stage company engaged in the acquisition and
exploration of mineral properties. We were unsuccessful in implementing its
business plan as a mineral exploration company and became a public shell
company. On May 27, 2004, we executed a share exchange with the shareholders of
Integrated Security Technologies, Inc., a New Jersey private corporation
(“ISTI”). However, due to disappointing results, on May 31, 2005, effective as
of May 27, 2004 we terminated the share exchange agreement with the shareholders
of ISTI, and we again became a public shell company. We remained a public shell
company until March 8, 2006, when we became a pharmaceutical company engaged in
the development of innovative pharmacological solutions.
We face substantial risks associated
with being a former public shell company, including absence of accurate or
adequate public information concerning the public shell company; undisclosed
liabilities; improper accounting; claims or litigation from former officers,
directors, employees or stockholders; contractual obligations; and regulatory
requirements. Although management performed due diligence on us, there can be no
assurance that such risks do not occur. The occurrence of any such risk could
materially adversely affect our financial condition.
Healthcare
policy changes, including pending proposals to reform the U.S. healthcare
system, may harm our future business.
Healthcare
costs have risen significantly over the past decade. There have been and
continue to be proposals by legislators, regulators and third-party payors to
keep these costs down. Certain proposals, if passed, would impose limitations on
the prices we will be able to charge for the products that we are developing, or
the amounts of reimbursement available for these products from governmental
agencies or third-party payors. These limitations could in turn reduce the
amount of revenues that we will be able to generate in the future from sales of
our products and licenses of our technology.
-9-
Significantly,
the Obama administration and congressional and state leaders have expressed a
strong desire to reform the U.S. health care system. Recently, President Obama
and members of Congress have proposed significant reforms. On November 7, 2009,
the House of Representatives passed and, on December 24, 2009, the Senate passed
health reform legislation that would require most individuals to have health
insurance, establish new regulations on health plans, create insurance pooling
mechanisms and a government health insurance option to compete with private
plans and other expanded public health care measures. This legislation also
would reduce Medicare spending on services provided by hospitals and other
providers.
Various
healthcare reform proposals have also emerged at the state level. We cannot
predict what healthcare initiatives, if any, will be implemented at the federal
or state level, or the effect any future legislation or regulation will have on
us. However, an expansion in government’s role in the U.S. healthcare industry
may lower the future revenues for the products we are developing and adversely
affect our future business, possibly materially.
Risks
Related to our Common Stock
As the market price of our common
stock may fluctuate significantly, this may make it difficult for you to sell
your shares of common stock when you want or at prices you find attractive.
The price
of our common stock is quoted on the OTCBB and constantly changes. In recent
years, the stock market in general has experienced extreme price and volume
fluctuations. We expect that the market price of our common stock will continue
to fluctuate. These fluctuations may result from a variety of factors, many of
which are beyond our control. These factors include:
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·
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Clinical
trial results and the timing of the release of such
results,
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·
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The
amount of cash resources and ability to obtain additional
funding,
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·
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Announcements
of research activities, business developments, technological innovations
or new products by companies or their
competitors,
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·
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Entering
into or terminating strategic
relationships,
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Changes
in government regulation,
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Departure
of key personnel,
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Disputes
concerning patents or proprietary
rights,
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Changes
in expense level,
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·
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Future
sales of our equity or equity-related
securities,
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Public
concern regarding the safety, efficacy or other aspects of the products or
methodologies being developed,
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·
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Activities
of various interest groups or
organizations,
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Media
coverage, and
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Status
of the investment markets.
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Future
sales of common stock or the issuance of securities senior to our common stock
or convertible into, or exchangeable or exercisable for, our common stock could
materially adversely affect the trading price of our common stock, and our
ability to raise funds in new equity offerings.
Future sales of substantial amounts of
our common stock or other equity-related securities in the public market or
privately, or the perception that such sales could occur, could adversely affect
prevailing trading prices of our common stock and could impair our ability to
raise capital through future offerings of equity or other equity-related
securities. We anticipate that we will need to raise capital though offerings of
equity and equity related securities. We can make no prediction as to the
effect, if any, that future sales of shares of our common stock or
equity-related securities, or the availability of shares of common stock for
future sale, will have on the trading price of our common stock. We are also registering for sale by us pursuant to a
separate prospectus 24,000,000 shares of common stock, 12,000,000 warrants and
12,000,000 shares of common stock issuable upon exercise of such
warrants.
-10-
If
our common stock is deemed to be a “penny stock,” it may make it more difficult
for investors to sell their shares due to suitability requirements. Low-priced
stocks are sometimes the subject of fraud and abuse.
The
Securities and Exchange Commission, or the SEC, has adopted regulations that
generally define “penny stock” to be an equity security that has a market price
of less than $5.00 per share, subject to specific exemptions, such as if the
issuer of the security has net tangible assets in excess of $2,000,000. The
market price of our common stock is currently less than $5.00 per share,
although our net tangible assets as of August 31, 2009 exceeded $2,000,000.
Therefore, our common stock is not currently a “penny stock” according to SEC
rules, although it was a "penny stock" in the past. Designation as a "penny
stock" requires any broker or dealer selling these securities to disclose
certain information concerning the transaction, obtain a written agreement from
the purchaser, furnish the customer a document describing the risks of investing
in penny stocks and send monthly account statements showing the market value of
each penny stock held in the customer’s account. These rules may restrict the
ability of brokers or dealers to sell penny stocks.
You
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. These could affect
low-priced stocks, such as ours, even if they do not qualify as "penny stocks"
under the SEC rules. Such patterns include:
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Control
of the market for the security by one or a few
broker-dealers;
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“Boiler
room” practices involving high-pressure sales
tactics;
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Manipulation
of prices through prearranged matching of purchases and
sales;
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The
release of misleading information;
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Excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
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Dumping
of securities by broker-dealers after prices have been manipulated to a
desired level, which hurts the price of the stock and causes investors to
suffer loss.
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We are aware of the abuses that have
occurred in the market for low-priced stocks. Although we do not expect to be in
a position to dictate the behavior of the market or of broker-dealers who
participate in the market, we will strive within the confines of practical
limitations to prevent such abuses with respect to our common
stock.
Future sales of our common stock by our
existing stockholders could adversely affect our stock price.
The market price of our common stock
could decline as a result of sales of a large number of shares of our common
stock in the market, or the perception that these sales could occur. These sales
also might make it more difficult for us to sell equity securities in the future
at a time and at a price that we deem appropriate. As of February 23, 2010, we
have outstanding 57,454,707 shares of common stock. This prospectus relates to
29,864,799 shares of common stock held by the selling stockholders and 7,172,503 shares of
common stock issuable upon exercise of warrants and options held by the selling
stockholders. We are also registering on a separate registration
statement a concurrent primary public offering of 24,000,000 shares of common
stock, 12,000,000 warrants and 12,000,000 shares of common stock issuable upon
exercise of such warrants.
Our issuance of warrants and options to
investors, employees and consultants may have a negative effect on the trading
prices of our common stock as well as a dilutive effect.
We have issued and may continue to
issue warrants, options and convertible notes at, above or below the current
market price. As of February 23, 2010, we had outstanding 17,103,697 warrants
and options (18,017,697 as of August 31, 2009 and 16,611,697 as of August 31,
2008). In addition to the dilutive effect of a large number of shares and a low
exercise price for the warrants and options, there is a potential that a large
number of underlying shares may be sold in the open market at any given time,
which could place downward pressure on the trading of our common
stock.
-11-
Because we will not pay cash dividends,
investors may have to sell shares in order to realize their
investment.
We have not paid any cash dividends on
our common stock and do not intend to pay cash dividends in the foreseeable
future. We intend to retain future earnings, if any, for reinvestment in the
development and expansion of our business. Any credit agreements which we may
enter into with institutional lenders or otherwise may restrict our ability to
pay dividends. Whether we pay cash dividends in the future will be at the
discretion of our board of directors and will be dependent upon our financial
condition, results of operations, capital requirements, and any other factors
that our board of directors decides is relevant. See “Market Price and Dividends”
and “Description of Common
Stock”.
Our
shares of common stock are not listed for trading on a national securities
exchange.
Our common stock currently trades on
the OTCBB and
is not listed for trading on any national securities exchange. Investments in
securities trading on the OTCBB are generally
less liquid than investments in securities trading on a national securities
exchange. The failure of our shares to be approved for trading on a national
securities exchange may have the effect of limiting the trading activity of our
common stock and reducing the liquidity of an investment in our common
stock.
Risks
Related to Conducting Business in Israel
We are affected by the political,
economic, and military risks of locating our principal operations in
Israel.
Our operations are located in the State
of Israel, and we are directly affected by political, economic, and security
conditions in that country. Since the establishment of the State of Israel in
1948, a number of armed conflicts have taken place between Israel and its Arab
neighbors. In addition, since December 1987, the State of Israel has experienced
severe civil unrest primarily in the areas that came under its control in 1967.
No prediction can be made as to whether these problems will be resolved. Our
business, prospects, financial condition, and results of operations could be
materially adversely affected if major hostilities involving Israel should occur
or if trade between Israel and its current trading partners is interrupted or
curtailed.
All adult male permanent residents of
Israel, unless exempt, may be required to perform military reserve duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances. Some of our officers, directors,
and employees currently are obligated to perform annual military reserve duty.
We can provide no assurance that such requirements will not have a material
adverse effect on our business, prospects, financial condition, and results of
operations in the future, particularly if emergency circumstances
occur.
Because all of our officers and
directors are located in non-U.S. jurisdictions, you may have no effective
recourse against our management for misconduct.
All of our directors and officers are
nationals and/or residents of countries other than the United States, and all or
a substantial portion of their assets are located outside the United States. As
a result, it may be difficult for investors to enforce within the United States
any judgments obtained against any of our officers or directors, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any U.S. state. Additionally, it may be difficult to
enforce civil liabilities under U.S. federal securities law in original actions
instituted in Israel. Israeli courts may refuse to hear a claim based on a
violation of U.S. securities laws because Israel is not the most appropriate
forum to bring such a claim. In addition, even if an Israeli court agrees to
hear a claim, it may determine that Israeli law and not U.S. law is applicable
to the claim. If U.S. law is found to be applicable, the content of applicable
U.S. law must be proved as a fact, which can be a time-consuming and costly
process. Certain matters of procedure will also be governed by Israeli
law.
-12-
FORWARD-LOOKING
STATEMENTS
This
prospectus and any prospectus supplement may contain forward-looking statements
within the meaning of the federal securities laws regarding our business,
financial condition, results of operations and prospects. Words such as
“expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”
and similar expressions or variations of such words are intended to identify
forward-looking statements, but are not deemed to represent an all-inclusive
means of identifying forward-looking statements as denoted in this prospectus.
Additionally, statements concerning future matters are forward-looking
statements.
Although
forward-looking statements in this prospectus reflect the good faith judgment of
our management, such statements can only be based on facts and factors currently
known by us. Consequently, forward-looking statements are inherently subject to
risks and uncertainties and actual results and outcomes may differ materially
from the results and outcomes discussed in or anticipated by the forward-looking
statements. Factors that could cause or contribute to such differences in
results and outcomes include, without limitation, those specifically addressed
under the heading “Risks
Related to Our Business” above, as well as those discussed elsewhere in
this prospectus. Readers are urged not to place undue reliance on these
forward-looking statements, which speak only as of the date of this prospectus.
We undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
prospectus. Readers are urged to carefully review and consider the various
disclosures made throughout the entirety of this prospectus which attempt to
advise interested parties of the risks and factors that may affect our business,
financial condition, results of operations and prospects.
USE OF PROCEEDS
We will
not receive any of the proceeds from the sale of the shares of our common stock
being offered for sale by the selling stockholders. However, we may receive up
to approximately $5.3 million in proceeds upon exercise of the warrants and
options held by the selling stockholders, as the warrants and options have an
average exercise price of $0.74 per share and are exercisable into 7,172,503
shares of our common stock. None of the selling stockholders have presently
advised us of their intention to exercise any warrants or options at this time.
All potential proceeds will be used for the research and development of our
products and for general working capital purposes. We will incur all costs
associated with this registration statement and prospectus.
-13-
MARKET
PRICE AND DIVIDENDS
Market
Price for our Common Stock
Our common stock is quoted on the OTCBB
under the symbol “ORMP.OB”. We had 57,454,707 shares of common stock issued and
outstanding and approximately 58 holders of record of the common stock as of
February 23, 2010. We believe that a number of stockholders hold their shares of
our common stock in brokerage accounts and registered in the name of stock
depositories. The quarterly high and low reported bid prices for our common
stock as quoted on the OTCBB for the periods indicated are as
follows:
High
|
Low
|
|||||||
Fiscal
Year Ending August 31, 2010
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||||||||
First
Quarter
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$ | 0.64 | $ | 0.43 | ||||
Second
Quarter (through February 23, 2010)
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$ | 0.48 | $ | 0.37 | ||||
Year
Ended August 31, 2009
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First
Quarter
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$ | 0.76 | $ | 0.36 | ||||
Second
Quarter
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$ | 0.52 | $ | 0.25 | ||||
Third
Quarter
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$ | 0.62 | $ | 0.20 | ||||
Fourth
Quarter
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$ | 0.59 | $ | 0.40 | ||||
Year
Ended August 31, 2008
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First
Quarter
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$ | 0.48 | $ | 0.23 | ||||
Second
Quarter
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$ | 0.67 | $ | 0.21 | ||||
Third
Quarter
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$ | 0.66 | $ | 0.45 | ||||
Fourth
Quarter
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$ | 1.00 | $ | 0.60 |
The
foregoing quotations were provided by Yahoo! Finance and the quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The last reported bid price per share
of common stock as quoted on the OTCBB was $0.43 on February 23,
2010.
Dividend
Policy
We have
never paid any cash dividends on our capital stock and do not anticipate paying
any cash dividends on our common stock in the foreseeable future. We intend to
retain future earnings to fund ongoing operations and future capital
requirements of our business. Any future determination to pay cash dividends
will be at the discretion of our board of directors and will be dependent upon
our financial condition, results of operations, capital requirements and such
other factors as our board deems relevant.
-14-
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and notes thereto that appear elsewhere in
this prospectus. In addition to historical consolidated financial information,
the following discussion contains forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this prospectus,
particularly in the section entitled “Risk Factors.”
Overview
of Operations
We are a
pharmaceutical company engaged in the research and development of innovative
pharmaceutical solutions, including an orally ingestible insulin capsule or
tablet to be used for the treatment of individuals with diabetes, rectal
application of insulin, orally ingestible capsules, tablets or pills for
delivery of other polypeptides and use of rectal application of other
polypeptides.
Short
Term Business Strategy
We plan
to conduct further research and development on the technology covered by the
patent application "Methods and Composition for Oral Administration of
Proteins", which we acquired from Hadasit Medical Services and Development Ltd.,
as well as the other patents we have filed since. Through our
research and development efforts, we are seeking to develop an oral dosage form
that will withstand the harsh chemical environment of the stomach or intestines
and will be effective in delivering active insulin for the treatment of
diabetes. The enzymes and vehicles that are added to the insulin in the
formulation process must not modify chemically or biologically the insulin and
the dosage form must be safe to ingest. We plan to continue to conduct clinical
trials to show the effectiveness of our technology. We intend to
conduct the clinical trials necessary to file an IND application with the FDA.
Additional clinical trials are planned in other countries such as Israel, India
and South Africa, in order to substantiate our results as well as for purposes
of making future filings for drug approval in these countries. We also plan to
conduct further research and development by deploying our proprietary drug
delivery technology for the delivery of other polypeptides in addition to
insulin, and to develop other innovative pharmaceutical products, including an
insulin suppository and use of rectal application for delivery of other
polypeptides.
Long
Term Business Strategy
If our
oral insulin capsule or other drug delivery solutions show significant promise
in clinical trials, we plan to ultimately seek a strategic commercial partner,
or partners, with extensive experience in the development, commercialization,
and marketing of insulin applications and/or other orally digestible
drugs. We anticipate such partner or partners would be responsible for, or
substantially support, late stage clinical trials (Phase III) to ensure
regulatory approvals and registrations in the appropriate markets in a timely
manner. We further anticipate that such partner, or partners, would also be
responsible for sales and marketing of our oral insulin capsule in these
markets. Such planned strategic partnership, or partnerships, may provide a
marketing and sales infrastructure for our products as well as financial and
operational support for global clinical trials, post marketing studies, label
expansions and other regulatory requirements concerning future clinical
development in the United States and elsewhere. Any future strategic partner, or
partners, may also provide capital and expertise that would enable the
partnership to develop new oral dosage form for other polypeptides. While our
strategy is to partner with an appropriate party, no assurance can be given that
any third party would be interested in partnering with us. Under certain
circumstances, we may determine to develop one or more of our oral dosage form
on our own, either world-wide or in select territories.
Other
Planned Strategic Activities
In
addition to developing our own oral dosage form drug portfolio, we are, on an
on-going basis, considering in-licensing and other means of obtaining additional
technologies to complement and/or expand our current product portfolio. Our goal
is to create a well-balanced product portfolio that will enhance and complement
our existing drug portfolio.
-15-
Results
of Operations
Going
concern assumption
The
accompanying financial statements have been prepared assuming that we will
continue as a going concern. We have net losses for the period from inception
(April 12, 2002) through November 30, 2009 of $10,621,471, as well as negative
cash flow from operating activities. Based upon our existing spending plans,
estimated at $5.7 million for the twelve months following December 1, 2009, and
our cash availability, we do not have sufficient cash resources to meet our
liquidity requirements through November 30, 2010. The ongoing global economic
and credit crisis makes it more difficult for us to raise
funds. Accordingly, these factors raise substantial doubt about our
ability to continue as a going concern. Management is in the process of
evaluating various financing alternatives as we will need to finance future
research and development activities and general and administrative expenses
through fund raising in the public or private equity markets. Although there is
no assurance that we will be successful with those initiatives, management
believes that it will be able to secure the necessary financing as a result of
ongoing financing discussions with third party investors and existing
shareholders.
The
financial statements do not include any adjustments that may be necessary should
we be unable to continue as a going concern. Our continuation as a going concern
is dependent on our ability to obtain additional financing as may be required
and ultimately to attain profitability.
Critical
accounting policies
Our
significant accounting policies are more fully described in the notes to our
consolidated financial statements. We believe that the accounting policies below
are critical for one to fully understand and evaluate our financial condition
and results of operations.
The
discussion and analysis of our financial condition and results of operations is
based on our financial statements, which we prepared in accordance with U.S.
generally accepted accounting principles. The preparation of these financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the
reported revenues and expenses during the reporting periods. On an ongoing
basis, we evaluate such estimates and judgments. We base our estimates on
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Valuation of
options and warrants: We granted options to purchase shares of our common
stock to employees and consultants and issued warrants in connection with fund
raising.
We
account for share based payments in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-based Payment” (“SFAS
123R”). SFAS 123R requires awards classified as equity awards be accounted for
using the grant-date fair value method. The fair value of share-based payment
transactions is recognized as an expense over the requisite service period, net
of estimated forfeitures. We estimated forfeitures based on historical
experience and anticipated future conditions.
We
elected to recognize compensation cost for an award with only service conditions
that has a graded vesting schedule using the accelerated method based on the
multiple-option award approach.
When
stock options are granted as consideration for services provided by consultants
and other non-employees, the transaction is accounted for based on the fair
value of the consideration received or the fair value of the stock options
issued, whichever is more reliably measurable, pursuant to the guidance in
Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” (ËITF 96-18”). The fair value of the options granted
is measured on a final basis at the end of the related service period and is
recognized over the related service period using the straight-line
method.
Taxes on
income: Deferred taxes are determined utilizing the asset and liability
method based on the estimated future tax effects of differences between the
financial accounting and tax bases of assets and liabilities under the
applicable tax laws. Deferred tax balances are computed using the tax rates
expected to be in effect when those differences reverse. A valuation allowance
in respect of deferred tax assets is provided if, based upon the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. We have provided a full valuation allowance
with respect to its deferred tax assets.
Regarding
the Subsidiary, paragraph 9(f) of FAS 109, “Accounting for Income Taxes”,
prohibits the recognition of deferred tax liabilities or assets that arise from
differences between the financial reporting and tax bases of assets and
liabilities that are measured from the local currency into dollars using
historical exchange rates, and that result from changes in exchange rates or
indexing for tax purposes. Consequently, the abovementioned differences were not
reflected in the computation of deferred tax assets and
liabilities.
-16-
As of
September 1, 2007, we adopted FASB Interpretation No. 48, ‘‘Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109’’
(‘‘FIN 48’’). FIN 48 specifies how tax benefits for uncertain tax positions are
to be recognized, measured and derecognized in financial statements; requires
certain disclosures of uncertain tax positions; specifies how reserves for
uncertain tax positions should be classified on the balance sheet; and provides
transition and interim-period guidance, among other provisions. On May 2, 2007,
the FASB issued FASB Staff Position No. FIN 48-1, ‘‘Definition of Settlement in
FASB Interpretation No. 48-1’’ (‘‘FSP FIN 48-1’’). FSP FIN 48-1 provides
guidance regarding how an entity should determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax
benefits.
Comparison
of First Quarter 2009 to First Quarter 2008 and Fiscal Year 2009 to Fiscal Year
2008
The
following table summarizes certain statements of operations data for the Company
for the three-month period ended November 30, 2009 and 2008:
Three
months ended
|
||||||||
Operating
Data:
|
November
30, 2009
|
November
30, 2008
|
||||||
Research
and development costs, net
|
$ | 317,545 | $ | 818,680 | ||||
General
and administrative expenses
|
299,956 | 383,361 | ||||||
Financial
income, net
|
(4,708 | ) | (13,995 | ) | ||||
Net
loss for the period
|
$ | 612,793 | $ | 1,188,046 | ||||
Loss
per common share – basic and diluted
|
$ | (0.01 | ) | $ | (0.02 | ) | ||
Weighted
average common shares outstanding
|
57,158,865 | 56,363,714 |
The
following table summarizes certain statements of operations data for us for the
twelve-month period ended August 31, 2009 and 2008:
Year
ended
|
||||||||
Operating
Data:
|
August
31, 2009
|
August
31, 2008
|
||||||
Research
and development expenses
|
$ | 1,522,188 | $ | 1,210,494 | ||||
General
and administrative expenses
|
1,261,930 | 1,469,517 | ||||||
Financial
income, net
|
(21,047 | ) | (72,904 | ) | ||||
Loss
before taxes on income
|
(2,763,071 | ) | (2,607,107 | ) | ||||
Taxes
on income
|
(2,597 | ) | 162,164 | |||||
Net
loss for the period
|
$ | (2,760,474 | ) | $ | (2,769,271 | ) | ||
Loss
per common share – basic and diluted
|
$ | (0.05 | ) | $ | (0.06 | ) | ||
Weighted
average common shares outstanding
|
56,645,820 | 48,604,889 |
Research
and development expenses
Research
and development expenses include costs directly attributable to the conduct of
research and development programs, including the cost of salaries, payroll
taxes, employee benefits, costs of registered patents materials, supplies, the
cost of services provided by outside contractors, including services related to
our clinical trials, clinical trial expenses, the full cost of manufacturing
drug for use in research, preclinical development. All costs associated with
research and development are expensed as incurred.
-17-
Clinical
trial costs are a significant component of research and development expenses and
include costs associated with third-party contractors. We outsource a
substantial portion of our clinical trial activities, utilizing external
entities such as contract research organizations, independent clinical
investigators, and other third-party service providers to assist us with the
execution of our clinical studies. For each clinical trial that we conduct,
certain clinical trial costs are expensed immediately, while others are expensed
over time based on the expected total number of patients in the trial, the rate
at which patients enter the trial, and the period over which clinical
investigators or contract research organizations are expected to provide
services.
Clinical
activities which relate principally to clinical sites and other administrative
functions to manage our clinical trials are performed primarily by contract
research organizations, or CROs. CROs typically perform most of the start-up
activities for our trials, including document preparation, site identification,
screening and preparation, pre-study visits, training, and program
management.
Clinical
trial and pre-clinical trial expenses include regulatory and scientific
consultants’ compensation and fees, research expenses, purchase of materials,
cost of manufacturing of the oral insulin capsules, payments for patient
recruitment and treatment, costs related to the maintenance of our registered
patents, costs related to the filings of patent applications, as well as
salaries and related expenses of research and development staff.
In August
2009, Oramed Ltd., our wholly owned Israeli subsidiary, was awarded a government
grant amounting to a total net amount of NIS 3.1 million (approximately
$813,000), from the Office of the Chief Scientist of the Ministry of Industry,
Trade and Labor of Israel, or the OCS. This grant will be used for
research and development expenses for the period of February 2009 to
January 2010. The grant is subject to repayment according to the terms
determined by the OCS and applicable law. See "—Government Grants"
below. The funds will be designated and used by Oramed Ltd. to support further
R&D and clinical study of its oral insulin capsule and Oral
GLP1-Analog.
During
the three months ended November 30, 2009, research and development expenses
totaled $317,545, compared to $818,680 for the three months ended November 30,
2008. The decrease is mainly attributable to a decrease in materials purchased
and an increase in grants received from the OCS. The research and development
costs include stock based compensation costs, which during the three months
ended November 30, 2009 totaled $31,552, as compared to $35,962 during the three
months ended November 30, 2008.
During
the year ended August 31, 2009, research and development expenses totaled
$1,522,188, compared to $1,210,494 for the year ended August 31, 2008. The
increase is mainly attributable to increased clinical trial activities,
materials and consulting costs. The research and development expenses for the
year ended August 31, 2009 are presented less a participation amount of $400,405
which was incurred from February 1, 2009 to August 31, 2009. The research and
development costs include stock based compensation costs, which during the year
ended August 31, 2009 totaled $264,861 as compared to $285,336 during the year
ended August 31, 2008.
Government
Grants
The
Government of Israel encourages research and development projects through the
OCS, pursuant to the Law for the Encouragement of Industrial Research and
Development, 1984, as amended, commonly referred to as the “R&D
Law”. Under the R&D Law, a research and development plan that
meets specified criteria is eligible for a grant of up to 50% of certain
approved research and development expenditures. Each plan must be approved by
the OCS.
In the
three months ended November 30, 2009, we recognized research and development
grants in an amount of $147,590. As of November 30, 2009, we had no contingent
liabilities to the OCS. In the year ended August 31, 2009, we recognized
research and development grants in an amount of $400,405.
Under the
terms of the grants we received from the OCS, we are obligated to pay royalties
of 3% to 3.5% on all revenues derived from the sale of the products
developed pursuant to the funded plans, including revenues from
licenses. Royalties are payable up to 100% of the amount of such
grants, or up to 300% as detailed below, linked to the U.S. Dollar, plus annual
interest at LIBOR.
-18-
The
R&D Law generally requires that a product developed under a program be
manufactured in Israel. However, upon notification to the OCS, up to 10% of a
company’s approved Israeli manufacturing volume, measured on an aggregate basis,
may be transferred out of Israel. In addition, upon the approval of the Chief
Scientist, a greater portion of the manufacturing volume may be performed
outside of Israel, provided that the grant recipient pays royalties at an
increased rate, which may be substantial, and the aggregate repayment amount is
increased up to 300% of the grant, depending on the portion of the total
manufacturing volume that is performed outside of Israel. The R&D Law
further permits the OCS, among other things, to approve the transfer of
manufacturing rights outside Israel in exchange for an import of different
manufacturing into Israel as a substitute, in lieu of the increased royalties.
The R&D Law also allows for the approval of grants in cases in which the
applicant declares that part of the manufacturing will be performed outside of
Israel or by non-Israeli residents and the research committee is convinced that
doing so is essential for the execution of the program. This
declaration will be a significant factor in the determination of the OCS whether
to approve a program and the amount and other terms of benefits to be
granted. For example, an increased royalty rate and repayment amount
might be required in such cases.
The
R&D Law also provides that know-how developed under an approved research and
development program may not be transferred to third parties in Israel without
the approval of the research committee. Such approval is not required
for the sale or export of any products resulting from such research or
development. The R&D Law further provides that the know-how developed under
an approved research and development program may not be transferred to any third
parties outside Israel, except in certain special circumstances and subject to
the OCS’ prior approval. The OCS may approve the transfer of OCS-funded know-how
outside Israel, generally in the following cases: (a) the grant recipient pays
to the OCS a portion of the sale price paid in consideration for such OCS-funded
know-how (according to certain formulas), or (b) the grant recipient receives
know-how from a third party in exchange for its OCS-funded know-how, or (c) such
transfer of OCS-funded know-how arises in connection with certain types of
cooperation in research and development activities.
The
R&D Law imposes reporting requirements with respect to certain changes in
the ownership of a grant recipient. The law requires the grant
recipient and its controlling shareholders and foreign interested parties to
notify the OCS of any change in control of the recipient or a change in the
holdings of the means of control of the recipient that results in a non-Israeli
becoming an interested party directly in the recipient, and requires the new
interested party to undertake to the OCS to comply with the R&D
Law. In addition, the rules of the OCS may require additional
information or representations in respect of certain such events. For this
purpose, “control” is defined as the ability to direct the activities of a
company other than any ability arising solely from serving as an officer or
director of the company. A person is presumed to have control if such
person holds 50% or more of the means of control of a company. “Means
of control” refers to voting rights or the right to appoint directors or the
chief executive officer. An “interested party” of a company includes
a holder of 5% or more of its outstanding share capital or voting rights, its
chief executive officer and directors, someone who has the right to appoint its
chief executive officer or at least one director, and a company with respect to
which any of the foregoing interested parties owns 25% or more of the
outstanding share capital or voting rights or has the right to appoint 25% or
more of the directors. Accordingly, any non-Israeli who acquires 5%
or more of our ordinary shares will be required to notify the OCS that it has
become an interested party and to sign an undertaking to comply with the R&D
Law.
General
and administrative expenses
General
and administrative expenses include the salaries and related expenses of our
management, consulting costs, legal and professional fees, traveling, business
development costs, insurance expenses and other general costs.
For the
three months ended November 30, 2009, general and administrative expenses
totaled $299,956, compared to $383,361 for the three months ended November 30,
2008. Costs incurred related to general and administrative activities during the
three months ended November 30, 2009 reflect a decrease of payroll and related
expenses and travel expenses, as well as a decrease in general expenses such as
office and maintenance expenses. During the three months ended November 30,
2009, as part of our general and administrative expenses, we incurred $66,425
related to stock options granted to employees and consultants, as compared to
$65,685 during the three months ended November 30, 2008.
For the
year ended August 31, 2009, general and administrative expenses totaled
$1,261,930 compared to $1,469,517 for the year ended August 31, 2008. Costs
incurred related to general and administrative activities during the year ended
August 31, 2009 reflect a decrease of professional, legal and consulting
expenses and a decrease in investor relations and public relations expenses.
During the year ended August 31, 2009, as part of our general and administrative
expenses, we incurred $288,338 related to stock options granted to employees and
consultants, as compared to $378,113 during the year ended August 31,
2008.
Financial
income/expense, net
During
the three months ended November 30, 2009 and 2008, we generated interest income
on available cash and cash equivalents which was offset by bank charges and
imputed interest.
-19-
During
the year ended August 31, 2009 and 2008, we generated interest income on
available cash and cash equivalents, which was offset by bank charges and
imputed interest. The decrease in the interest income for the year ended August
31, 2009 as compared with the year ended August 31, 2008 is attributable to the
decrease in interest rates in both the United States and the state of
Israel.
Liquidity
and Capital Resources
Through
November 30, 2009, we incurred losses in an aggregate amount of $10,621,471. We
have financed our operations through the private placements of equity and debt
financings, raising a total of $8,308,785, net of transaction costs, from
inception through November 30, 2009. We will seek to obtain additional financing
through similar sources. As of November 30, 2009, we had $1,146,128 of available
cash as well as $1,400,000 in short term interest bearing investments. We
anticipate that we will require approximately $5.7 million to finance our
activities during the twelve months following December 1, 2009.
Management
is in the process of evaluating various financing alternatives as we will need
to finance future research and development activities and general and
administrative expenses through fund raising in the public or private equity
markets. Although there is no assurance that we will be successful with those
initiatives, management believes that it will be able to secure the necessary
financing as a result of ongoing financing discussions with third party
investors and existing shareholders as well as receive additional funding from
the OCS.
Our
recent financing activities include the following:
· On
August 3, 2007, we completed a private placement for the sale of 510,000 units
at a purchase price of $0.50 per unit for a total consideration of $255,000.
Each unit consisted of one share of common stock and one share purchase warrant. Each
share purchase warrant entitles the holder to purchase one share of common stock
for a period of 3 years at an exercise price of $0.75.
· On
September 7, 2007, we issued 283,025 shares of common stock, valued at $113,210,
to a third party for services rendered in the prior year.
· On
November 8, 2007, we issued 10,000 shares as a finder’s fee to a placement
agent, valued at $2,900.
· On
July 14, 2008 we completed a private placement to twenty-nine accredited investors pursuant to which we sold to the investors an
aggregate of 8,524,669 shares of common stock at a purchase price of
$0.60 per share. The investors also
received three-year warrants to purchase an
aggregate of 4,262,337 shares of common
stock at an exercise price of $0.90 per share. We paid $85,000 to a director as
a finder’s fee and issued an aggregate of 143,333 shares of
common stock to four other individuals as finder’s fees in connection with the private
placement.
· On
October 17, 2008, we issued 203,904 shares of common stock, valued at $152,928,
to a third party for services rendered in the prior year.
· On
September 11, 2009, we issued 569,887 shares of common stock, valued at
$203,699, to a third party for services rendered in the prior year.
· On December 29, 2009, we issued 328,110 shares of
common stock, valued at $169,500, to a third party for services rendered in the
prior year.
· On December 29, 2009, we issued 100,000 shares of
common stock, valued at $12,500, to a third party for services that will be
rendered in the six months beginning December 15, 2009.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements.
Planned
Expenditures
The
estimated expenses referenced herein are in accordance with our business plan.
Since our technology is still in the development stage, it can be expected that
there will be changes in some budgetary items. Our planned expenditures for the
twelve months beginning December 1, 2009 are as follows:
-20-
Category
|
Amount
|
|||
Research
& development, net of OCS funds
|
$ | 4,194,000 | ||
General
& administrative expenses
|
1,496,000 | |||
Financial
income, net
|
(10,000 | ) | ||
Taxes
on income
|
- | |||
Total
|
$ | 5,680,000 |
As previously indicated we are
planning to conduct further clinical studies as well as file an IND application
with the FDA for our orally ingested insulin. Our ability to proceed with these
activities is dependent on several major factors including the ability to
attract sufficient financing on terms acceptable to us.
-21-
OUR
BUSINESS
General
We are a
pharmaceutical company engaged in the research and development of innovative
pharmaceutical solutions, including an orally ingestible insulin capsule or
tablet to be used for the treatment of individuals with diabetes, rectal
application of insulin, orally ingestible capsules, tablets or pills for
delivery of other polypeptides and rectal application of other
polypeptides.
Oral
Insulin: We
are seeking to revolutionize the treatment of diabetes through our proprietary
flagship product, an orally ingestible insulin capsule (ORMD0801) currently in
Phase 2 clinical trials. Our technology allows insulin to travel from the
gastrointestinal tract via the portal vein to the bloodstream, revolutionizing
the manner in which insulin is delivered. It enables its passage in a more
physiological manner than current delivery methods of insulin.
Through
our research and development efforts, we are developing an oral dosage form that
will withstand the harsh chemical environment of the stomach or intestines and
will be effective in delivering active insulin for the treatment of diabetes.
The proteins and vehicles that are added to the insulin in the formulation
process must not modify chemically or biologically, and the insulin and the
dosage form must be safe to ingest.
Our
research and development team has performed numerous animal studies to optimize
the composition and functionality of their oral insulin (ORMD0801) modality and
to demonstrate its safety and efficacy. Our studies have confirmed the
feasibility of lowering blood glucose levels with an orally administered form of
insulin that is both safe and effective.
Our
technology is a platform that has the potential to deliver medications and
vaccines orally that today can only be delivered via injection.
Diabetes: Diabetes is a disease in
which the body does not produce or properly use insulin. Insulin is a hormone
that causes sugar to be absorbed into cells, where the sugar is converted into
energy needed for daily life. The cause of diabetes is attributed both to
genetics (type 1 diabetes) and, most often, to environmental factors such as
obesity and lack of exercise (type 2 diabetes).
According
to the International Diabetes Federation ("IDF"), an estimated 285 million
people worldwide currently live with diabetes. In the United States there are
approximately 26.8 million people with diabetes, or 8.7% of the United States
population. The IDF predicts that the number of people worldwide with diabetes
will exceed 435 million in 2030 if the current rate of growth continues
unchecked.
Diabetes
now affects seven percent of the world’s adult population and claims four
million lives every year. The disease is a leading cause of blindness, kidney
failure, heart attack, stroke and amputation. Diabetes will cost the world
economy at least $376 billion in 2010, or 11.6% of total world healthcare
expenditure. By 2030, this number is projected to exceed $490 billion. More than
80% of diabetes spending is in the world’s richest countries and not in the
poorer countries, where over 70% of people with diabetes now live.
The
regions with the highest comparative prevalence rates are North America, where
10.2% of the adult population has diabetes, followed by the Middle East and
North Africa region with 9.3%. The regions with the highest number of people
living with diabetes are Western Pacific, where some 77 million people have
diabetes and South East Asia with 59 million.
Each year
seven million people develop diabetes. The most dramatic increases in type 2
diabetes have occurred in populations where there have been rapid and major
improvements in living standards, demonstrating the important role played by
lifestyle factors and the potential for reversing the global
epidemic.
Intellectual
Property: We own a portfolio of patents and patent applications covering
our technologies and we are aggressively protecting these technology
developments on a worldwide basis.
Management: We are led by a
highly-experienced management team knowledgeable in the treatment of diabetes.
Our Chief Medical and Technology Officer, Miriam Kidron, PhD, is a
world-recognized pharmacologist and a biochemist and the innovator primarily
responsible for our Oral Insulin technology development and
know-how.
-22-
Scientific
Advisory Board: Our management team has access to our internationally
recognized Scientific Advisory Board whose members are thought-leaders in their
respective areas. The Advisory Board comprises of Dr. Nir Barzilai, Professor
Ele Ferrannini, Professor Avram Hershko, and Dr. Derek LeRoith.
Strategy
We plan
to continue to conduct clinical trials to show the effectiveness of our
technology. We intend to conduct studies and other tests necessary to
file an Investigational New Drug (“IND”) application with the U.S. Food and Drug
Administration (the “FDA”). Additional clinical trials are planned in other
countries such as Israel, India and South Africa, in order to substantiate our
results as well as for purposes of future filings for drug approval in these
countries. We also plan to conduct further research and development by deploying
our proprietary drug delivery technology for the delivery of other polypeptides
in addition to insulin, and to develop other innovative pharmaceutical products,
flu vaccines, and use of rectal application for delivery of other
polypeptides.
If our
oral insulin capsule or other drug delivery solutions show significant promise
in clinical trials, we plan to ultimately seek a strategic commercial partner,
or partners, with extensive experience in the development, commercialization,
and marketing of insulin applications and/or other orally digestible drugs. We
anticipate such partner or partners would be responsible for, or substantially
support, late stage clinical trials (Phase III) to ensure regulatory approvals
and registrations in the appropriate markets in a timely manner. We further
anticipate that such partner, or partners, would also be responsible for sales
and marketing of our oral insulin capsule in these markets. Such planned
strategic partnership, or partnerships, may provide a marketing and sales
infrastructure for our products as well as financial and operational support for
global clinical trials, post marketing studies, label expansions and other
regulatory requirements concerning future clinical development in the United
States and elsewhere. Any future strategic partner, or partners, may also
provide capital and expertise that would enable the partnership to develop new
oral dosage form for other polypeptides. While our strategy is to partner with
an appropriate party,no assurance can be given that any third party would be
interested in partnering with us. Under certain circumstances, we may determine
to develop one or more of our oral dosage form on our own, either world-wide or
in select territories.
In
addition to developing our own oral dosage form drug portfolio, we are, on an
on-going basis, considering in-licensing and other means of obtaining additional
technologies to complement and/or expand our current product portfolio. Our goal
is to create a well-balanced product portfolio that will enhance and complement
our existing drug portfolio.
Product
Development
Orally Ingestible
Insulin: During fiscal year 2007 we conducted several clinical studies of
our orally ingestible insulin. The studies were intended to assess both the
safety/tolerability and absorption properties of our proprietary oral insulin.
Based on the pharmacokinetic and pharmacologic outcomes of these trials, we
decided to continue the development of our oral insulin product.
On
November 15, 2007, we successfully completed animal studies in preparation for
the Phase 1B clinical trial of our oral insulin capsule (ORMD
0801). On January 22, 2008, we commenced the non-FDA approved Phase
1B clinical trials with our oral insulin capsule, in healthy human volunteers
with the intent of dose optimization. On March 11, 2008, we
successfully completed our Phase 1B clinical trials.
On April
13, 2008, we commenced a non-FDA approved Phase 2A study to evaluate the safety
and efficacy of our oral insulin capsule (ORMD 0801) in type 2 diabetic
volunteers at Hadassah Medical Center in Jerusalem. On August 6, 2008, we
announced the successful results of this trial.
In July
2008 we were granted approval by the Institutional Review Board Committee of
Hadassah Medical Center in Jerusalem to conduct a non-FDA approved Phase 2A
study to evaluate the safety and efficacy of our oral insulin capsule (ORMD
0801) on type 1 diabetic volunteers. On September 24, 2008, we announced the
beginning of this trial. On July 21, 2009 we reported positive results from this
trial.
On April
21, 2009, we entered into a consulting service agreement with ADRES Advanced
Regulatory Services Ltd. (“ADRES”), pursuant to which ADRES will provide
services for the purpose of filing an IND application with the FDA for a Phase 2
study according to the FDA requirements. We anticipate that we will receive
approval or denial to begin our Phase 2 FDA study in the third quarter of 2010.
The FDA approval process and, if approved, registration for commercial use as an
oral drug can take several years.
In May
2009, we commenced a non-FDA approved Phase 2B study in South Africa to evaluate
the safety, tolerability and efficacy of our oral insulin capsule (ORMD 0801) on
type 2 diabetic volunteers. We anticipate that the results of this study will be
released at the end of March 2010.We are considering whether and when to conduct
an additional non-FDA approved Phase 2B study in India.
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Rectal
Application of Insulin and Other Polypeptides: We filed two additional
provisional patents for a suppository application to our technology portfolio.
The first patent focuses on a rectal application for insulin. The second patent
focuses on the usage of this rectal application to other polypeptides that at
present are only available in injection.
On
January 30, 2008, we entered into a master service agreement with OnQ
Consulting; a clinical research organization located in Johannesburg, South
Africa, to conduct non FDA approved clinical trials for the rectal application
of insulin. On February 4, 2009, we announced that we had concluded a
proof of concept study of the insulin suppositories.
On
October 23, 2008 we commenced a non-FDA approved Phase 1A study to evaluate the
safety and efficacy of our insulin suppository (ORMD 0802) on healthy
volunteers, in South Africa.
As we
believe that the potential commercial market for our oral insulin products are
significantly greater than the potential commercial market for our rectal
application products, we have determined to use our limited resources to
research and develop our oral insulin capsules and tablets and have temporarily
suspended our development of our recital application products.
GLP1
Analog: On September 16, 2008 we announced the launch of pre-clinical
trials of ORMD 0901, a GLP1-analog. The pre-clinical trials include
animal studies which suggest that the GLP-1analog (exenatide -4) when
combined with Oramed’s absorption promoters is absorbed through the
gastrointestinal tract and retains its biological activity.
On
September 9, 2009, we received approval from the Institutional Review Board
(IRB) in Israel to commence human clinical trials of an oral GLP-1 Analog. The
approval was granted after successful pre-clinical results were reported. The
trials are being conducted on healthy volunteers at Hadassah University Medical
Center in Jerusalem. We anticipate that the results of this trials will be
released at the end of March 2010
Glucagon-like
peptide-1 (GLP-1) is an incretin hormone - a type of gastrointestinal hormone
that stimulates the secretion of insulin from the pancreas. The incretin concept
was hypothesized when it was noted surprisingly that glucose ingested by mouth
(oral) stimulated two to three times more insulin release than the same amount
of glucose administered intravenously. In addition to stimulating insulin
release, GLP-1 was found to suppress glucagon release (hormone involved in
regulation of glucose) from the pancreas, slow gastric emptying to reduce the
rate of absorption of nutrients into the blood stream, and increase satiety.
Other important beneficial attributes of GLP-1 are its effects of increasing the
number of beta cells (cells that manufacture and release insulin) in the
pancreas and, possibly, protection of the heart.
Raw
Materials: Our
oral insulin capsule is currently manufactured by Swiss Caps AG, under a
Clinical Trail Manufacturing Agreement. The raw materials required for the
manufacturing of the capsule are purchased from third parties, under separate
agreements. We generally depend upon a limited number of suppliers
for the raw materials. Although alternative sources of supply for
these materials are generally available, we could incur significant costs and
disruptions in changing suppliers. The termination of our
relationships with our suppliers or the failure of these suppliers to meet our
requirements for raw materials on a timely and cost-effective basis could
materially adversely affect our business, prospects, financial condition and
results of operations.
Licensing: We have recently engaged in
preliminary discussions with potential partners outside of the United States
regarding their management of clinical trials of our oral insulin capsules. Such
agreements could involve our granting exclusive commercialization rights and
certain profit interests in our products derived from specified geographic areas
outside the United States in exchange for payment of the costs of managing such
clinical trials. These discussions are in a very early stage, however, and may
not result in our entering into any such partnerships.
Patents
and Licenses
The
following patent applications and provisional patent application are pending
with the United States Patent and Trademark Office (PTO):
· PCT/IL2006/001019, “Methods and Compositions for Oral
Administration of Proteins”. The patent application was
filed on August 31, 2006.
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· 11/513,343, “Methods and Compositions for Oral
Administration of Proteins”. The patent application was
filed on August 31, 2006.
· 60/064,779, “Methods and Compositions for Oral
Administration of Proteins”. The patent application was filed on March
26, 2008.
· PCT/IL2008/000546, “Methods and Compositions for Rectal
Application for Insulin”. The patent application was filed on April 27,
2008.
· PCT/IL2008/000547,
“Methods and Compositions for
Rectal Application for Insulin”. The patent application was filed on
April 27, 2008.
· 61/071,538, “Methods and Compositions for Oral
Administration of Exenatide”. The patent
application was filed on May 5, 2008.
· 61/089,812, “Methods and Compositions for Oral
Administration of Proteins”. The patent
application was filed on August 18, 2008.
Consistent
with our strategy to seek protection in key markets worldwide, we have been and
will continue to pursue the patent applications and corresponding foreign
counterparts of such applications. We believe that our success will
depend on our ability to obtain patent protection for our intellectual
property.
Our
patent strategy is as follows:
· Aggressively protect all current and
future technological developments to assure strong and broad protection by
filing patents and/or continuations in part as appropriate;
· Protect technological developments at
various levels, in a complementary manner, including the base
technology, as well as specific applications of the technology; and
· Establish comprehensive coverage in the
U.S. and in all relevant foreign markets in anticipation of future
commercialization opportunities.
The
validity, enforceability, written supports, and breadth of claims in our patent
applications involve complex legal and factual questions and, therefore, may be
highly uncertain. No assurance can be given that any patents based on pending
patent applications or any future patent applications filed by us will be
issued, that the scope of any patent protection will exclude competitors or
provide competitive advantages to us, that any of the patents that have been or
may be issued to us will be held valid or enforceable if subsequently
challenged, or that others will not claim rights in or ownership of the patents
and other proprietary rights held or licensed by us. Furthermore, there can be
no assurance that others have not developed or will not develop similar
products, duplicate any of our technology or design around any patents that have
been or may be issued to us. Since patent applications in the United States are
maintained in secrecy for the initial period of time following filing, we also
cannot be certain that others did not first file applications for inventions
covered by our pending patent applications, nor can we be certain that we will
not infringe any patents that may be issued to others on such
applications.
We also
rely on trade secrets and unpatentable know-how that we seek to protect, in
part, by confidentiality agreements. Our policy is to require our employees,
consultants, contractors, manufacturers, outside scientific collaborators and
sponsored researchers, board of directors, technical review board and other
advisors to execute confidentiality agreements upon the commencement of
employment or consulting relationships with us. These agreements provide that
all confidential information developed or made known to the individual during
the course of the individual's relationship with us is to be kept confidential
and not disclosed to third parties except in specific limited circumstances. We
also require signed confidentiality or material transfer agreements from any
company that is to receive our confidential information. In the case of
employees, consultants and contractors, the agreements provide that all
inventions conceived by the individual while rendering services to us shall be
assigned to us as the exclusive property of our company. There can be no
assurance, however, that all persons who we desire to sign such agreements will
sign, or if they do, that these agreements will not be breached, that we would
have adequate remedies for any breach, or that our trade secrets or unpatentable
know-how will not otherwise become known or be independently developed by
competitors.
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Our
success will also depend in part on our ability to commercialize our technology
without infringing the proprietary rights of others. No assurance can be given
that patents do not exist or could not be filed which would have an adverse
affect on our ability to market our technology or maintain our competitive
position with respect to our technology. If our technology components, products,
processes or other subject matter are claimed under other existing United States
or foreign patents or are otherwise protected by third party proprietary rights,
we may be subject to infringement actions. In such event, we may challenge the
validity of such patents or other proprietary rights or we may be required to
obtain licenses from such companies in order to develop, manufacture or market
our technology. There can be no assurances that we would be able to obtain such
licenses or that such licenses, if available, could be obtained on commercially
reasonable terms. Furthermore, the failure to either develop a commercially
viable alternative or obtain such licenses could result in delays in marketing
our proposed technology or the inability to proceed with the development,
manufacture or sale of products requiring such licenses, which could have a
material adverse affect on our business, financial condition and results of
operations. If we are required to defend ourselves against charges of patent
infringement or to protect our proprietary rights against third parties,
substantial costs will be incurred regardless of whether we are successful. Such
proceedings are typically protracted with no certainty of success. An adverse
outcome could subject us to significant liabilities to third parties and force
us to curtail or cease our development and commercialization of our
technology.
Partnerships
and Collaborative Arrangements
We
believe that working together with strategic partners will expedite product
formulation, production and approval.
On March
8, 2006, we entered into an agreement with Hadasit to provide consulting and
clinical trial services.
On
October 30, 2006, we entered into a Clinical Trial Manufacturing Agreement with
Swiss Caps AG (“Swiss”), pursuant to which Swiss currently manufactures the oral
insulin capsule developed by us.
During
January and April 2008, we entered into agreements with OnQ consulting, a
clinical research organization (“CRO”) located in Johannesburg, South Africa, to
conduct non-FDA Phase 1B and 2B clinical trials on our oral insulin capsules and
suppository in South Africa.
During
April 2008, we entered into a five year master services agreement with SAFC, an operating division of
Sigma-Aldrich, Inc., pursuant to which SAFC is providing services for individual
projects, which may include strategic planning, expert consultation, clinical
trial services, statistical programming and analysis, data processing, data
management, regulatory, clerical, project management, central laboratory
services, pre-clinical services, pharmaceutical sciences services, and other
research and development services.
On
September 8, 2008, we entered into Clinical Research Agreement with ETI Karle
Clinical Pvt. Ltd. (“ETI”), pursuant to which ETI will be conducting non-FDA
Phase 2A and 2B clinical trials of our oral insulin capsule in
India.
On April
21, 2009, we entered into a consulting service agreement with ADRES, pursuant to
which ADRES will provide services for the purpose of filing an IND application
with the FDA for a Phase 2 study in accordance with FDA requirements. The FDA
approval process and, if approved, registration for commercial use as an oral
drug can take several years.
On July
8, 2009 we entered into an additional agreement with Hadasit, to facilitate
additional clinical trials to be performed at Hadassah Medical Center in
Jerusalem.
Government
Regulation
The
Drug Development Process
Regulatory
requirements for the approval of new drugs vary from one country to another. In
order to obtain approval to market our drug portfolio, we need to go through a
different regulatory process in each country in which we apply for such
approval. In some cases information gathered during the approval process in one
country can be used as supporting information for the approval process in
another country. The FDA compliance requirements are considered to be one of the
most stringent worldwide. The following is a summary of the FDA’s
requirements.
The FDA
requires that pharmaceutical and certain other therapeutic products undergo
significant clinical experimentation and clinical testing prior to their
marketing or introduction to the general public. Clinical testing, known as
clinical trials or
clinical studies, is
either conducted internally by life science, pharmaceutical, or biotechnology
companies or is conducted on behalf of these companies by contract research
organizations.
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The
process of conducting clinical studies is highly regulated by the FDA, as well
as by other governmental and professional bodies. Below we describe
the principal framework in which clinical studies are conducted, as well as
describe a number of the parties involved in these studies.
Protocols. Before
commencing human clinical studies, the sponsor of a new drug or therapeutic
product must submit an IND application, to the FDA. The application contains
what is known in the industry as a protocol. A
protocol is the blueprint for each drug study. The protocol sets forth, among
other things, the following:
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who
must be recruited as qualified
participants;
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how
often to administer the drug or
product;
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what
tests to perform on the participants;
and
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what
dosage of the drug or amount of the product to give to the
participants.
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Institutional Review Board.
An institutional review board is an independent committee of professionals and
lay persons which reviews clinical research studies involving human beings and
is required to adhere to guidelines issued by the FDA. The institutional review
board does not report to the FDA, but its records are audited by the FDA. Its
members are not appointed by the FDA. All clinical studies must be approved by
an institutional review board. The institutional review board’s role is to
protect the rights of the participants in the clinical studies. It approves the
protocols to be used, the advertisements which the company or contract research
organization conducting the study proposes to use to recruit participants, and
the form of consent which the participants will be required to sign prior to
their participation in the clinical studies.
Clinical
Trials. Human clinical studies or testing of a potential
product are generally done in three stages known as Phase I through Phase III
testing. The names of the phases are derived from the regulations of
the FDA. Generally, there are multiple studies conducted in each
phase.
· Phase I. Phase I studies
involve testing a drug or product on a limited number of healthy participants,
typically 24 to 100 people at a time. Phase I studies determine a product’s
basic safety and how the product is absorbed by, and eliminated from, the
body. This phase lasts an average of six months to a
year.
· Phase II. Phase II trials
involve testing up to 200 participants at a time who may suffer from the
targeted disease or condition. Phase II testing typically lasts an average of
one to two years. In Phase II, the drug is tested to determine its
safety and effectiveness for treating a specific illness or
condition. Phase II testing also involves determining acceptable
dosage levels of the drug. If Phase II studies show that a new drug
has an acceptable range of safety risks and probable effectiveness, a company
will continue to review the substance in Phase III studies.
· Phase III. Phase III studies
involve testing large numbers of participants, typically several hundred to
several thousand persons. The purpose is to verify effectiveness and long-term
safety on a large scale. These studies generally last two to three years. Phase
III studies are conducted at multiple locations or sites. Like the
other phases, Phase III requires the site to keep detailed records of data
collected and procedures performed.
New Drug Approval. The results of the
clinical trials are submitted to the FDA as part of a new drug application
(“NDA”). Following
the completion of Phase III studies, assuming the sponsor of a potential product
in the United States believes it has sufficient information to support the
safety and effectiveness of its product, it submits an NDA to the FDA requesting
that the product be approved for marketing. The application is a comprehensive,
multi-volume filing that includes the results of all clinical studies,
information about the drug’s composition, and the sponsor’s plans for producing,
packaging and labeling the product. The FDA’s review of an application can take
a few months to many years, with the average review lasting 18
months. Once approved, drugs and other products may be marketed in
the United States, subject to any conditions imposed by the FDA.
Phase IV. The FDA
may require that the sponsor conduct additional clinical trials following new
drug approval. The purpose of these trials, known as Phase IV studies, is to
monitor long-term risks and benefits, study different dosage levels or evaluate
safety and effectiveness. In recent years, the FDA has increased its
reliance on these trials. Phase IV studies usually involve thousands of
participants. Phase IV studies also may be initiated by the company sponsoring
the new drug to gain broader market value for an approved drug. For example,
large-scale trials may also be used to prove effectiveness and safety of new
forms of drug delivery for approved drugs. Examples may be using an inhalation
spray versus taking tablets or a sustained-release form of medication versus
capsules taken multiple times per day.
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The drug
approval process is time-consuming, involves substantial expenditures of
resources, and depends upon a number of factors, including the severity of the
illness in question, the availability of alternative treatments, and the risks
and benefits demonstrated in the clinical trials.
Other
Regulations
Various
Federal and state laws, regulations, and recommendations relating to safe
working conditions, laboratory practices, the experimental use of animals, and
the purchase, storage, movement, import, export, use, and disposal of hazardous
or potentially hazardous substances, including radioactive compounds and
infectious disease agents, used in connection with our research are applicable
to our activities. They include, among others, the United States
Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Occupational
Safety and Health Act, the National Environmental Policy Act, the Toxic
Substances Control Act, and Resources Conservation and Recovery Act, national
restrictions on technology transfer, import, export, and customs regulations,
and other present and possible future local, state, or federal
regulation. The extent of governmental regulation which might result
from future legislation or administrative action cannot be accurately
predicted.
Competition
Competition
in General
Competition in the area of biomedical
and pharmaceutical research and development is intense and significantly depends
on scientific and technological factors. These factors include the availability
of patent and other protection for technology and products, the ability to
commercialize technological developments and the ability to obtain governmental
approval for testing, manufacturing and marketing. Our competitors include major
pharmaceutical, medical products, chemical and specialized biotechnology
companies, many of which have financial, technical and marketing resources
significantly greater than ours. In addition, many biotechnology companies have
formed collaborations with large, established companies to support research,
development and commercialization of products that may be competitive with ours.
Academic institutions, governmental agencies and other public and private
research organizations are also conducting research activities and seeking
patent protection and may commercialize products on their own or through joint
ventures. We are aware of certain other products manufactured or under
development by competitors that are used for the treatment of the diseases and
health conditions that we have targeted for product development. We can provide
no assurance that developments by others will not render our technology obsolete
or noncompetitive, that we will be able to keep pace with new technological
developments or that our technology will be able to supplant established
products and methodologies in the therapeutic areas that are targeted by us. The
foregoing factors could have a material adverse affect on our business,
prospects, financial condition and results of operations. These companies, as
well as academic institutions, governmental agencies and private research
organizations, also compete with us in recruiting and retaining highly qualified
scientific personnel and consultants.
Competition within our sector is
increasing, so we will encounter competition from existing firms that offer
competitive solutions in diabetes treatment solutions. These competitive
companies could develop products that are superior to, or have greater market
acceptance, than the products being developed by us. We will have to compete
against other biotechnology and pharmaceutical companies with greater market
recognition and greater financial, marketing and other resources.
Our competition will be determined in
part by the potential indications for which our technology is developed and
ultimately approved by regulatory authorities. In addition, the first product to
reach the market in a therapeutic or preventive area is often at a significant
competitive advantage relative to later entrants to the market. Accordingly, the
relative speed with which we, or our potential corporate partners, can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are expected to be important
competitive factors. Our competitive position will also depend on our ability to
attract and retain qualified scientific and other personnel, develop effective
proprietary products, develop and implement production and marketing plans,
obtain and maintain patent protection and secure adequate capital resources. We
expect our technology, if approved for sale, to compete primarily on the basis
of product efficacy, safety, patient convenience, reliability, value and patent
position.
Competition for our Oral Insulin
Capsule
We
anticipate the oral insulin capsule to be a competitive diabetes drug because of
its anticipated efficacy and safety profile. The following are treatment options
for type 1 and type 2 diabetic patients:
· Insulin
injections;
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· Insulin
pumps;
· Insulin
inhalers; or
· a
combination of diet, exercise and oral medication which improve the body's
response to insulin or cause the body to produce more insulin.
Several
entities who are developing oral insulin capsules and other alternative oral
insulin as well as the development stage are thought to be: Diabetology (UK, Phase 2),
Emisphere Technologies (US, Phase 2), Biocon (India), Apollo Life Sciences
(Australia, Phase 1), Generex (Canada, Phase 3) – Buccal delivery, Biodel (US,
Phase 3) – Sublingual delivery and MannKind (US) -Inhaled delivery
Scientific
Advisory Board
We
maintain a scientific advisory board consisting of internationally recognized
scientists who advise us on scientific and technical aspects of our business.
The scientific advisory board meets periodically to review specific projects and
to assess the value of new technologies and developments to us. In
addition, individual members of the scientific advisory board meet with us
periodically to provide advice in particular areas of expertise. The scientific
advisory board consists of the following members, information with respect to
whom is set forth below: Professor Avram Hershko, Dr. Nir Barzilai, Professor
Ele Ferrannini, Dr. Derek LeRoith and Dr. John Amatruda.
Professor Avram Hershko, MD
PhD joined the Oramed Scientific Advisory Board in July 2008. He earned
his MD degree (1965) and PhD degree (1969) from the Hebrew University- Hadassah
Medical School of Jerusalem, a period which included service as a physician in
the Israel Defense Forces (1965-67). After a post-doctoral fellowship with
Gordon Tomkins at the University of San Francisco (1969-72), he joined the
faculty of the Haifa Technion becoming professor in 1980. He is now
Distinguished Professor in the Unit of Biochemistry in the B. Rappaport Faculty
of Medicine of the Technion. Professor Hershko’s main research interests concern
the mechanisms by which cellular proteins are degraded, a formerly neglected
field of study. Hershko and his colleagues showed that cellular proteins are
degraded by a highly selective proteolytic system. This system tags proteins for
destruction by linkage a protein called ubiquitin, which had previously been
identified in many tissues, but whose function was previously unknown.
Subsequent work in Hershko's and many other laboratories has shown that the
ubiquitin system has a vital role in controlling a wide range of cellular
processes, such as the regulation of cell division, signal transduction and DNA
repair. Professor Hershko was awarded the Nobel Prize in Chemistry (2004)
jointly with his former PhD student Aaron Ciechanover and their colleague Irwin
Rose. His many honors include the Israel Prize for Biochemistry (1994), the
Gardner Award (1999), the Lasker Prize for Basic Medical Research (2000), the
Wolf Prize for Medicine (2001) and the Louisa Gross Horwitz Award (2001).
Hershko is a member of the Israel Academy of Sciences (2000) and a Foreign
Associate of the US Academy of Sciences (2003).
Derek LeRoith MD PhD joined
the Oramed Scientific Advisory Board in January 2007. He is currently the Chief
of the Division of Endocrinology, Diabetes and Bone Diseases at Mt. Sinai School
of Medicine, NY. Dr. LeRoith has worked at the NIH since 1979 in the field of
Endocrinology and Diabetes and rose to be Diabetes Branch at the National
Institutes of Health in Bethesda MD, a position he held until 2005. His main
interests have focused on the role of insulin and the insulin-like growth
factors in normal physiology and disease states. In these areas he has published
over 500 peer-reviewed articles and reviews in high profile journals. He is also
the senior editor of a textbook on diabetes, now in its third edition and has
edited books on the insulin-like growth factors. Dr. LeRoith has made major
contributions in our understanding of the basic pathophysiology of type 2
diabetes and also the role of the IGFs in various disorders especially in
cancer, and is considered a world expert on these topics. In recognition of his
contributions he has received many lectureships worldwide and has been the
plenary speaker at numerous national and international symposia. He is the
editor of a number of diabetes- and growth factor-related journals, has been on
the advisory boards of a number of companies and co-chairs two national
committees that deal with the education of endocrinologist and primary care
physicians.
Professor Ele Ferrannini
joined the Oramed Scientific Advisory Board in February 2007. He is a
past President to the EASD, European Association for the Study of Diabetes,
which embraces scientists, physicians, laboratory workers, nurses and students
from all over the world who are interested in diabetes and related subjects for
Europe, such that the ADA, American Diabetes Association does in America.
Professor Ferrannini has worked with various institutions including the
Department of Internal Medicine, University of Pisa School of Medicine, and CNR
(National Research Council) Institute of Clinical Physiology, Pisa, Italy;
Diabetes Division, Department of Medicine, University of Texas Health Science
Center at San Antonio, Texas, USA. He has also had extensive training focused on
microbiology, immunology, endocrinology, and specializing in diabetes studies.
Professor Ferrannini has received a Certificate of the Educational Council for
Foreign Medical Graduates from the University of Bologna, and with cum laude
honors completed a subspecialty in Diabetes and Metabolic Diseases from the
University of Torino. He has published over 350 original papers and 50 book
chapters and he is among the "highly cited scientists", according to the
Institute for Scientific Information.
-29-
Dr. Nir Barzilai joined the
Oramed Scientific Advisory Board in January 2007. He is the Director
of the Institute for Aging Research at the Albert Einstein College of Medicine.
He is currently an Associate Professor in the Department of Medicine, Molecular
Genetics and the Diabetes Research Center and is a member of the Divisions of
Endocrinology and Geriatrics. He is also the Director of the Montefiore Hospital
Diabetes Clinic. He has spent over 20 years in assisting patients
internationally and training in vast fields from Medicine, Geriatrics,
Endocrinology and Molecular Genetics. Dr. Barzilai has had a strong career in
diabetes studies between Israel, London and the United States. He has worked for
such esteemed institutions as Hadassah Research Hospital, NIH (National
Institute of Health), and many esteemed US based university hospitals including
Cornell and Yale.
Dr. John Amatruda joined the
Oramed Scientific Advisory Board in February 2010. He graduated from Yale
University, received his MD degree from the Medical College of Wisconsin and did
his internship and residency in Internal Medicine and Fellowship in
Endocrinology and Metabolism at The Johns Hopkins Hospital. He is
board certified in Internal Medicine and Endocrinology and Metabolism and
continues to see patients. Dr. Amatruda was a Professor of Medicine at The
University of Rochester School of Medicine where he was head of the Clinical
Research Center, fully funded as principle investigator on two NIH grants, and
acting Head of the Endocrine Metabolism Unit. From 1992 to 2002, he started and
ran a drug discovery group at Bayer Corp where he served as Vice President and
Therapeutic Area Research Head, as well as a Professor of Medicine Adjunct at
Yale University School of Medicine. He assisted in the approval of Acarbose and
his group put several compounds into clinical development including the first
glucagon receptor antagonist. From 2002 to 2009, Dr. Amatruda held various
positions at Merck, including Vice President and Therapeutic Area Head for
Metabolism and Atherosclerosis and acting Therapeutic Area head for
Cardiovascular. These groups filed NDAs for Vytorin, Januvia and Janumet. Most
recently Dr. Amatruda was Senior Vice President and Franchise Head for Diabetes
and Obesity and a member of the Research Management Committee at Merck. Dr.
Amatruda is an author on over 150 papers, abstracts, reviews and book chapters,
primarily in the areas of insulin action in vitro systems and in clinical
diabetes and obesity.
Employees
We have
been successful in retaining the experienced personnel involved in our research
and development program. In addition, we believe we have successfully recruited
clinical/regulatory, quality assurance and other personnel needed to advance
through clinical studies or have engaged the services of experts in the field
for these requirements. As of August 31, 2009, we contracted eight
individuals through employment or consulting agreements. Of our staff, two are
senior management, four are engaged in research and development work, and the
remaining are involved in administration work.
Corporate
History
Oramed
was incorporated on April 12, 2002, in the State of Nevada under the name Iguana
Ventures Ltd. Following the incorporation, we were an exploration stage company
engaged in the acquisition and exploration of mineral properties. We were
unsuccessful in implementing its business plan as a mineral exploration company.
Accordingly, we decided to change the focus of our business by completing a
share exchange with the shareholders of Integrated Security Technologies, Inc.,
a New Jersey private corporation (“ISTI”). On June 4, 2004, we changed our name
to Integrated Security Technologies by filing a Certificate of Amendment with
the Nevada Secretary of State. Effective June 14, 2004 we effected a
3.3:1 forward stock split, increasing the amount of authorized capital to
200,000,000 shares of common stock with the par value of $.001 per
share. However, due to disappointing results, we terminated the share
exchange agreement with the shareholders of ISTI.
On March
8, 2006, we executed an agreement with Hadasit Medical Services and Development
Ltd. (“Hadasit”) to acquire provisional patent application No. 60/718716 and
related intellectual property. The provisional patent application No.
60/718716 relates to a method of preparing insulin so that it may be taken
orally to be used in the treatment for the treatment of individuals with
diabetes. On April 10, 2006, we changed our name from Integrated
Security Technologies, Inc. to Oramed Pharmaceuticals Inc. On August
31, 2006, based on provisional patent application No. 60/718716, we filed a
patent application under the Patent Cooperation Treaty at the Israel Patent
Office for “Methods and Compositions for Oral Administration of
Proteins.”
-30-
DESCRIPTION
OF PROPERTY
Our
principal executive offices are located in approximately 117 square meters of
office space in Givat-Ram, Jerusalem, Israel. The lease commenced on October 1,
2007 and is for a period of 51 months. The aggregate annual base rental for this
space is $7,548. We believe that our existing facilities are suitable and
adequate to meet our current business requirements. In the event that
we should require additional or alternative facilities, we believe that such
facilities can be obtained on short notice at competitive rates.
LEGAL
PROCEEDINGS
From time
to time we may become subject to litigation incidental to our business. We are
not currently a party to any material legal proceedings.
-31-
MANAGEMENT
Directors and Executive
Officers
Set forth
below is certain information with respect to the individuals who are our
directors, executive officers and significant employees.
Name
|
Age
|
Position
|
||
Nadav
Kidron
|
35
|
President,
Chief Executive Officer and Director
|
||
Miriam
Kidron
|
69
|
Chief
Medical and Technology Officer and Director
|
||
Leonard
Sank
|
44
|
Director
|
||
Harold
Jacob
|
55
|
Director
and member of the Scientific Advisory Board
|
||
Yifat
Zommer
|
36
|
Chief
Financial Officer, Treasurer and
Secretary
|
Dr.
Miriam Kidron is Mr. Nadav Kidron’s mother. There are no other directors or
officers of our company who are related by blood or marriage.
The
following is a brief account of the education and business experience during at
least the past five years of each director, executive officer and significant
employee, indicating the principal occupation during that period, and the name
and principal business of the organization in which such occupation and
employment were carried out.
Mr. Nadav
Kidron was appointed as President, Chief Executive Officer and director
in March 2006. From 2003 to 2006, he was the managing director at the Institute
of Advanced Jewish Studies – Bar Ilan University. From 2001 to 2003, he was a
legal intern at Wine Mishaiker and Erenstof Law Offices in Jerusalem, Israel.
Mr. Kidron obtained his LLB from Bar – Ilan University and is currently enrolled
in the International MBA program at Bar – Ilan University.
Dr. Miriam
Kidron was
appointed as Chief Medical and Technology Officer and director in March 2006.
Dr. Kidron is a pharmacologist and a biochemist with a PhD in biochemistry. From
1990 to 2007, Dr. Kidron has been a senior researcher in the Diabetes Unit at
Hadassah University Hospital in Jerusalem, Israel. During 2003 and 2004, Dr.
Kidron served as a consultant to Emisphere Technologies Inc., a company that
specializes in developing broad-based proprietary drug delivery platforms. Dr
Kidron was formerly a visiting professor at the Medical School at the University
of Toronto (Canada), and is a member of the American, European and Israeli
Diabetes Associations. Dr. Kidron is a recipient of the Bern Schlanger
Award.
Mr. Leonard
Sank was appointed as a director in October 2007. Mr. Sank is a South
African entrepreneur and business man who is devoted to entrepreneurial
endeavors and initiatives. He has over 20 years of experience in playing an
important leadership role in developing businesses. He was a director in
Eastvaal Motor Group, a diversified retail motor business. He was a also
director in Vecto Finance, a credit lending business. He has also served as a
director of Macsteel Service Centres SA Pty Ltd., South Africa’s largest private
company. He also serves on the board of local non-profit charity
organizations in Cape Town, where he resides.
Dr. Harold
Jacob was
appointed as a director in July 2008. Since 1998, Dr. Jacob has
served as the president of Medical Instrument, a company which provides a range
of support and consulting services to start-up and early stage companies as well
as patenting its own proprietary medical devices. Dr. Jacob has advised a
spectrum of companies in the past and he served as a consultant and then as the
Director of Medical Affairs at Given Imaging Ltd., during the years 1997 to
2003, a company that developed the first swallowable wireless pill camera for
inspection of the intestine. He has licensed patents to a number of companies
including Kimberly Clark Ballard. Since 2003, Dr. Jacob has served as the CEO of
NanoVibronix, a medical device company using surface acoustics to prevent
catheter acquired infection as well as other applications. He practiced clinical
gastroenterology in New York and served as Chief of Gastroenterology at St.
Johns Episcopal Hospital and South Nassau Communities Hospital in the years
1986-1995, and was a Clinical Assistant Professor of Medicine at SUNY during the
years 1983-1990. Dr. Jacob founded and served as Editor in Chief of Endoscopy
Review and has authored numerous publications in the field of
gastroenterology.
-32-
Ms. Yifat Zommer
was appointed as Chief Financial Officer, Treasurer and Secretary in
April 2009. From April 2007 to October 2008, Ms. Zommer served as Chief
Financial Officer of Witech Communications Ltd., a subsidiary of IIS
Intelligence Information Systems Ltd, a company operating in the field of video
transmission using wireless communications. From April 2006 to April 2007, Ms.
Zommer acted as Chief Financial Officer for CTWARE Ltd, a telecommunication
company. Prior to that she was an audit manager in PricewaterhouseCoopers (PwC),
where she served for five years. Ms. Zommer holds a Bachelor of Accounting and
Economics degree from the Hebrew University and Business Administration (MBA)
from Tel-Aviv University. Ms. Zommer is a certified public accountant in
Israel.
There
have been no events under any bankruptcy act, no criminal proceedings and no
judgments, injunctions, orders or decrees material to the evaluation of the
ability and integrity of any director, executive officer, or control person of
the Company during the past five years.
-33-
EXECUTIVE COMPENSATION
Summary
Compensation Table
The
following table sets forth the compensation earned during the years ended August
31 2008 and 2009 by our President and Chief Executive Officer, our Chief Medical
and Technology Officer, our Chief Financial Officer and former Chief Financial
Officer (the “Named Executive Officers”):
|
Year
|
Salary
|
Option Awards
|
All Other
Compensation
|
Total
|
|||||||||||||
($)
|
($)
|
($)
|
($)
|
|||||||||||||||
Position
|
(1)
|
(2)
|
(3)
|
|
||||||||||||||
Nadav
Kidron
|
2009
|
155,359 | 153,855 | 15,474 | 324,688 | |||||||||||||
President
and CEO and director (4)
|
2008
|
151,037 | 216,504 | 14,511 | 382,053 | |||||||||||||
|
||||||||||||||||||
Miriam
Kidron
|
2009
|
154,983 | 153,855 | 11,539 | 320,377 | |||||||||||||
Chief
Medical and Technology Officer and director (5)(6)
|
2008
|
145,405 | 216,504 | 10,774 | 372,683 | |||||||||||||
Yifat
Zommer
CFO
and Secretary (7)
|
2009
|
20,468 | 19,946 | 11,245 | 51,659 | |||||||||||||
Chaime
Orlev
|
2009
|
59,300 | — | 25,544 | 84,844 | |||||||||||||
CFO
and Secretary (8)
|
2008
|
23,484 | — | 7,981 | 31,466 |
(1)
|
The
information is provided for each fiscal year which begins on September 1
and ends on August 31.
|
(2)
|
The
amounts reflect the compensation expense in accordance with FAS 123(R) of
these option awards. The assumptions used to determine the fair value of
the option awards for fiscal years ended August 31, 2009 and 2008 are set
forth in the notes to our audited consolidated financial statements
included in our Form 10-K for fiscal year ended August 31, 2009. Our Named
Executive Officers will not realize the value of these awards in cash
unless and until these awards are exercised and the underlying shares
subsequently sold.
|
(3)
|
See
All Other Compensation Table below.
|
(4)
|
Mr.
Kidron was appointed as our President, CEO and Director on March 8, 2006
and received compensation from our subsidiary through KNRY, an Israeli
entity owned by Mr. Kidron. See “Employment and Consulting
Agreements.”
|
(5)
|
Dr.
Kidron was appointed as our Chief Medical and Technology Officer and
Director on March 8, 2006 and received compensation from our subsidiary
through KNRY, an Israeli entity owned by Mr. Kidron. See “Employment and
Consulting Agreements.”
|
(6)
|
See
“Certain Relationships and Related Transactions and Director Independence”
for a description of management fees received by Dr. Kidron from
Hadasit.
|
(7)
|
Ms.
Zommer was appointed as our CFO and Secretary on April 19,
2009.
|
(8)
|
Mr.
Orlev served as our CFO and Secretary from May 1, 2008 through March 31,
2009.
|
-34-
All
Other Compensation Table
All Other Compensation amounts in the
Summary Compensation Table consist of the following:
Name
|
Year
|
Automobile
Related
Expenses
($)
|
Manager’s
Insurance *
($)
|
Education
Fund*
($)
|
Total
($)
|
|||||||||||||
Nadav
Kidron
|
2009
|
15,474 | — | — | 15,474 | |||||||||||||
Miriam
Kidron
|
2009
|
11,539 | — | — | 11,539 | |||||||||||||
Chaime
Orlev
|
2009
|
15,662 | 7,762 | 2,120 | 25,544 | |||||||||||||
Yifat
Zommer
|
2009
|
6,540 | 3,163 | 1,542 | 11,245 |
*Manager’s insurance and education funds are customary benefits provided to employees based in Israel. Manager’s insurance is a combination of severance savings (in accordance with Israeli law), defined contribution tax-qualified pension savings and disability insurance premiums. An Education fund is a savings fund of pre-tax contributions to be used after a specified period of time for educational or other permitted purposes.
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth
information concerning stock options and stock awards held by the Named
Executive Officers as of August 31, 2009.
Option
Awards
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
||||||||||
Nadav
Kidron
|
850,000 | (1) | — | 0.45 |
08/01/12
|
|||||||||
720,000 | (2) | 144,000 | (2) | 0.54 |
05/06/18
|
|||||||||
Miriam
Kidron
|
3,361,360 | (3) | — | 0.001 |
08/13/12
|
|||||||||
850,000 | (1) | — | 0.45 |
08/01/12
|
||||||||||
720,000 | (2) | 144,000 | (2) | 0.54 |
05/06/18
|
|||||||||
Yifat
Zommer
|
— | 400,000 | (4) | 0.47 |
10/19/19
|
(1)
|
On
August 2, 2007, 850,000 options were granted to each of Nadav Kidron and
Miriam Kidron under the 2006 Stock Option Plan at an exercise price of
$0.45 per share; the options vested immediately and have an expiration
date of August 2, 2012.
|
(2)
|
On
May 7, 2008, 864,000 options were granted to each of Nadav Kidron and
Miriam Kidron under the 2008 Stock Option Plan at an exercise price of
$0.54 per share, 144,000 of such options vested immediately on the date of
grant and the remainder will vest in twenty equal monthly installments,
commencing on June 7, 2008. The options have an expiration date of May 7,
2018.
|
(3)
|
On
August 14, 2007 3,361,630 stock options were granted to Miriam Kidron, at
an exercise price of $0.001 per share; the options vested immediately and
have an expiration date of August 14, 2012. These options were not issued
pursuant to any outstanding award
plans.
|
(4)
|
On
June 3, 2009, 400,000 options were granted to Yifat Zommer under the 2008
Stock Option Plan at an exercise price of $0.47 per share. The options
vest in three equal annual installments, commencing October 19, 2010, and
expire on October 19, 2019.
|
-35-
Stock
Option Plans
2006 Stock Option Plan
On October 15, 2006, our board of
directors adopted the 2006 Stock Option Plan (the “2006 Plan”) in order to
attract and retain quality personnel. Under the 2006 Plan, 3,000,000 shares have
been reserved for the grant of options by the board. In addition, under the
terms of the 2006 Plan, options that have expired or been terminated for any
reason prior to being exercised may be reissued. As of August 31,
2009, options with respect to 2,950,000 shares were outstanding under
the 2006 Plan, which amount reflects the aggregate grant of options with
respect to 3,350,000 shares, of which 400,000 have been forfeited through
August 31, 2009.
2008 Stock Incentive Plan
On May 5, 2008, our board of directors
adopted the 2008 Stock Incentive Plan (the “2008 Plan”) in order to attract and
retain quality personnel. The 2008 Plan provides for the grant of stock options,
restricted stock, restricted stock units and stock appreciation rights,
collectively referred to as “awards.” Stock options granted under the Plan may
be either incentive stock options under the provisions of Section 422 of the
Internal Revenue Code, or non-qualified stock options. Incentive stock options
may be granted only to our employees or our parent or subsidiary. Awards other
than incentive stock options may be granted to employees, directors and
consultants. Under the 2008 Plan, 8,000,000 shares have been reserved for the
grant of options, which may be issued at the discretion of our board of
directors from time to time. As of August 31, 2009, options with respect to
4,312,000 shares have been granted under the 2008 Plan, 978,000 of which have
been forfeited.
On
August 14, 2007 we granted to Miriam Kidron options to purchase up to 3,361,360
shares at an exercise price of $0.001; the options vested immediately and have
an expiration date of August 14, 2012. These options are not governed by any of
the plans detailed above.
Stock
Option Grants
We made
the following stock options grants to the Named Executive Officers and directors
during the year ended August 31, 2009:
· On
October 12, 2008 we granted options under the 2008 Plan to purchase up to
828,000 shares of our common stock at an exercise price of $0.47 to Chaime Orlev
our former Chief Financial Officer. The options were forfeited on March 31, 2009
when Mr. Orlev ended his services with us.
· On
January 11, 2009 we granted options under the 2008 Plan to purchase up to
300,000 shares of our common stock at an exercise price of $0.43 to each of our
two independent directors – Mr. Leonard Sank and Dr. Harold Jacob. The option
will expire on January 10, 2019.
· On
June 3, 2009 we granted options under the 2008 Plan to purchase up to 400,000
shares of our common stock at an exercise price of $0.47 to Yifat Zommer our
Chief Financial Officer. The option will expire on October 18,
2019.
Employment
and Consulting Agreements
Effective August 1, 2007 we entered
into employment agreements with KNRY Ltd. (“KRNY”), pursuant to which Nadav
Kidron and Dr. Miriam Kidron provided employment services to our company. Based
on the agreements, Nadav Kidron served as the President and Chief Executive
officer and Miriam Kidron served as our Chief Medical and Technology Officer. As
remuneration for such services, KNRY was paid $20,000 per month, commencing on
August 1, 2007.
On July 1, 2008, Oramed Ltd., our
Israeli subsidiary, entered into a consulting agreement with KNRY, whereby Mr.
Nadav Kidron, through KNRY, provides services as President and Chief Executive
Officer of both the Company and Oramed Ltd. (the “Nadav Kidron Consulting
Agreement”). Additionally, on July 1, 2008, Oramed Ltd. entered into a
consulting agreement with KNRY whereby Dr. Miriam Kidron, through KNRY, provides
services as Chief Medical and Technology Officer of both the Company and Oramed
Ltd. (the “Miriam Kidron Consulting Agreement” and together with the Nadav
Kidron Consulting Agreement, the “Consulting Agreements”). The Consulting
Agreements replace the employment agreements entered into between the Company
and KNRY, dated as of August 1, 2007 referenced above.
-36-
The Consulting Agreements are both
terminable by either party upon 60 days prior written notice. The Consulting
Agreements provide that KNRY (i) will be paid, under each of the Consulting
Agreements, in New Israeli Shekels a gross amount of NIS 50,400 +
Value-Added-Tax per month and (ii) will be reimbursed for reasonable expenses
incurred in connection with performance of the Consulting
Agreements.
Pursuant to the Consulting Agreements,
KNRY, Nadav Kidron and Miriam Kidron each agree that during the term of the
Consulting Agreements and for a 12 month period thereafter, none of them will
compete with Oramed Ltd. nor solicit employees of Oramed Ltd.
On November 2, 2008, we entered into
indemnification agreements with our directors and executive officers pursuant to
which we agreed to indemnify each director and executive officer for any
liability he or she may incur by reason of the fact that he or she serves as our
director or executive officer, to the maximum extent permitted by
law.
We,
through our Israeli subsidiary, Oramed Ltd., have entered into an employment
agreement with Yifat Zommer as of April 19, 2009, pursuant to which Ms. Zommer
was appointed as Chief Financial Officer, Treasurer and Secretary of Oramed. On
August 31, 2009, the agreement was amended, pursuant to which Ms. Zommer's gross
monthly salary will be NIS 22,000 ($5,773). In accordance with the employment
agreement, as amended, as of October 19, 2009, Ms. Zommer’s gross monthly salary
was increased to NIS 24,200 ($6,350). On April 19, 2009, Oramed and
Ms. Zommer also entered into an indemnification agreement, pursuant to which
Oramed agrees to indemnify Ms. Zommer for any liability she may incur by reason
of the fact that she serves as Oramed’s CFO, to the maximum extent permitted by
law.
Director
Compensation
Directors
are entitled to reimbursement for reasonable travel and other out-of-pocket
expenses incurred in connection with attendance at meetings of our board of
directors. Effective September 1, 2008, each independent director is entitled to
receive as remuneration for his or her service as a member of the board a sum
equal to $8,000 per annum, to be paid quarterly and shortly after the close of
each quarter. The board of directors may award special remuneration to any
director undertaking any special services on behalf of us other than services
ordinarily required of a director.
Other than indicated in this
prospectus, no director received and/or accrued any compensation for his or her
services as a director, including committee participation and/or special
assignments.
The
following table sets forth director compensation for the year ended August 31,
2009.
Name of Director
|
Fees Earned or
Paid in Cash
($)
|
Option Awards
(1)
($)
|
Total
($)
|
|||||||||
Nadav
Kidron (2)
|
||||||||||||
Miriam
Kidron (2)
|
||||||||||||
Leonard
Sank
|
8,000 | 45,206 | 53,206 | |||||||||
Harold
Jacob
|
8,000 | 45,206 | 53,206 |
(1)
|
The
amounts reflect the compensation expense in accordance with FAS 123(R) of
these option awards. The assumptions used to determine the fair value of
the option awards are set forth in Note 8 of our audited consolidated
financial statements included in this prospectus. Our directors will not
realize the value of these awards in cash unless and until these awards
are exercised and the underlying shares subsequently
sold.
|
(2)
|
Please
refer to the summary compensation table for executive compensation with
respect to the named individual.
|
-37-
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership of
our common stock as of February 23, 2010 (i) by each person who is known by
us to own beneficially more than 5% of the common stock and (ii) by all of
our current executive officers and directors, as a group (five persons). On such
date, we had 57,454,707 shares of common stock outstanding.
As used
in the table below and elsewhere in this form, the term “beneficial ownership” with
respect to a security consists of sole or shared voting power, including the
power to vote or direct the vote and/or sole or shared investment power,
including the power to dispose or direct the disposition, with respect to the
security through any contract, arrangement, understanding, relationship, or
otherwise, including a right to acquire such power(s) during the next 60 days
following February 23, 2010.
Name and Address of
Beneficial Owner
|
Number of Shares
|
Percentage of Shares
Beneficially Owned
|
||||||
Nadav
Kidron †‡
10
Itamar Ben Avi St.
Jerusalem,
Israel
|
12,085,735 | (1) | 20.43 | % | ||||
Zeev
Bronfeld
6
Uri St.
Tel-Aviv,
Israel
|
6,158,517 | 10. 72 | % | |||||
Miriam
Kidron †‡
2
Elza St.
Jerusalem,
Israel
|
5,075,360 | (2) | 8.12 | % | ||||
Apollo
Nominees Inc
One
Financial Place Suite 100 Lower Collymore Rock
St.
Michael, Barbados
|
4,517,501 | (3) | 7.64 | % | ||||
Hadasit
Medical Research Services & Development Ltd
P.O.
Box 12000
Jerusalem,
Israel
|
4,141,532 | 7.21 | % | |||||
Leonard
Sank †
3
Blair Rd Camps Bay
Cape
Town, South Africa
|
4,082,650 | (4) | 6.90 | % | ||||
Harold
Jacob
Haadmur
Mebuyon 26
Jerusalem,
Israel
|
200,000 | (5) | 0.17 | % | ||||
Yifat
Zommer
P.O.
Box 39098,
Jerusalem,
Israel
|
— | — | ||||||
All
current executive officers and directors, as a group (five
persons)
|
36,261,295 | (6) | 61.36 | % |
*
|
Less
than 1%
|
†
|
Indicates
Director
|
‡
|
Indicates
Officer
|
(1)
|
Includes
1,714,000 shares of common stock issuable upon the exercise of outstanding
stock options.
|
(2)
|
Includes
5,075,360 shares of common stock issuable upon the exercise of outstanding
stock options.
|
(3)
|
Includes
1,645,834 shares of common stock issuable upon the exercise of warrants
beneficially owned by the referenced
entity.
|
(4)
|
Includes
1,725,000 shares of common stock issuable upon the exercise of warrants
beneficially owned by the referenced
entity.
|
(5)
|
Consists
of 200,000 shares of common stock issuable upon the exercise of
outstanding stock options.
|
(6)
|
Includes
11,193,527 shares of common stock issuable upon the exercise of
outstanding stock options.
|
-38-
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except as otherwise indicated below,
during fiscal 2007, 2008 and 2009 we have not been a party to any transaction,
proposed transaction, or series of transactions in which the amount involved
exceeds the lesser
of $120,000 or one percent of the average of our total assets at year-end for
the last two completed fiscal years , and in which, to our knowledge, any
of our directors, officers, five percent beneficial security holder, or any
member of the immediate family of the foregoing persons has had or will have a
direct or indirect material interest.
Our
policy is to enter into transactions with related parties on terms that, on the
whole, are no less favorable than those available from unaffiliated third
parties. Based on our experience in the business sectors in which we operate and
the terms of our transactions with unaffiliated third parties, we believe that
all of the transactions described below met this policy standard at the time
they occurred. All related parties transactions are approved by our board of
directors.
On July 14, 2008 we completed a private
placement to 29 accredited investors pursuant to which we sold to the investors
an aggregate of 8,524,669 shares of common stock at a purchase price of $0.60
per share, in the aggregate, $5,114,801. The investors also received
three-year warrants to purchase an aggregate of 4,262,337 shares of common stock
at an exercise price of $0.90 per share. We paid $85,000 to Leonard Sank, one of
our directors, as a finder’s fee and issued an aggregate of 143,333 shares of
common stock to four other individuals as finder’s fees in connection with the
private placement.
On
February 17, 2006, we entered into an agreement with Hadasit pursuant to which
we agreed to purchase from Hadasit provisional patent application No. 60/718716
and related intellectual property. Pursuant to the agreement, Hadasit
agreed to provide consulting and clinical trial services to us for consideration
of $200,000. Pursuant to a subsequent agreement with Hadasit, dated
July 8, 2006, this amount was increased to $400,000. The clinical
trials to be conducted by Hadasit are managed by Dr. Miriam Kidron, then the
primary researcher at Hadasit and currently our Chief Medical and Technology
Officer and a Director, through its research fund in Hadasit. The fees paid by
us to Hadasit are deposited into a Hadasit research account in the name of Dr.
Kidron. Pursuant to the general policy of Hadasit with respect to its research
funds, Dr. Kidron is entitled to receive a management fee in the rate of 10% of
all the funds deposited into this research fund, including the funds paid by us
under the said agreements. Since March 2006, only the funds paid by us are
deposited in this account.
On March
8, 2006, we completed the purchase of provisional patent application No.
60/718716 and related intellectual property from Hadasit and in connection
therewith Hadasit was issued 4,141,532 shares of our common stock (which then
represented 9.98% of our outstanding voting securities) and Dr. Miriam Kidron
was issued options to purchase 3,361,360 shares of our common
stock. In addition, at about the same time as the acquisition, Mr.
Zeev Bronfeld was issued 6,158,517 shares of our common stock (which then
represented 14.9% of our outstanding voting securities) and Mr. Nadav Kidron,
our President, Chief Executive Officer and a Director, was issued 10,371,735
shares of our common stock (which then represented 25% of our outstanding voting
securities). Dr. Miriam Kidron is Mr. Nadav Kidron’s
mother.
The board of directors has determined
that Leonard Sank and Harold Jacob are independent as defined under the rules
promulgated by the NASDAQ Stock Market.
See “Employment and Consulting
Agreements” above for information as to the agreements with our employees
and consultants.
-39-
DESCRIPTION
OF COMMON STOCK
The
following summary is a description of the material terms of our share capital.
We encourage you to read our Articles of Incorporation and Bylaws which have
been filed with the SEC.
General
Our
authorized capital stock consists of 200,000,000 shares of common stock, par
value $0.001 per share.
Description
of Common Stock
Upon
liquidation, dissolution or winding up of the Company, the holders of common
stock are entitled to share ratably in all net assets available for distribution
to security holders after payment to creditors. The common stock is not
convertible or redeemable and has no preemptive, subscription or conversion
rights. Each outstanding share of common stock is entitled to one vote on all
matters submitted to a vote of security holders. There are no cumulative voting
rights. The holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available therefore at such times and in
such amounts as our board of directors may from time to time determine. Holders
of common stock will share equally on a per share basis in any dividend declared
by the board of directors. We have not paid any dividends on our common stock
and do not anticipate paying any cash dividends on such stock in the foreseeable
future. In the event of a merger or consolidation, all holders of common stock
will be entitled to receive the same per share consideration.
As of
February 23, 2010, we had outstanding 57,454,707 shares of common stock, and
employee and directors stock options to purchase an aggregate of 7,981,360
shares of common stock at a weighted average exercise price of $0.28 with the
latest expiration date of these options being November 23, 2019 (of which
options to purchase an aggregate of 6,945,360 shares of common stock were
exercisable as of February 23, 2010).
The
current transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company, 17 Battery Place New York, NY 10004.
Meetings
of Stockholders
An annual meeting of our
stockholders shall be held on the day and at the time as may be set by
the board of
directors, at which the stockholders shall elect the board of directors and transact
such other business as may properly be brought before the
meeting. All annual meetings of stockholders are to be held at
our registered office or at such other place either within or
without the State of Nevada as may be determined by our board of
directors.
Special meetings of
our stockholders may be called, for any purpose or purposes, by (i) the
president or the secretary, (ii) the resolution of the board of directors, or
(iii) at the request
in writing of stockholders owning a majority of our entire capital stock issued
and outstanding and entitled to vote, and shall be held at such time and
place within or without the State of Nevada as shall be stated in the
notice of the meeting, or in a duly executed waiver of notice
thereof. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice. For the past three years, we have not held an annual meeting of
stockholders. We intend to hold an annual meeting of stockholders during fiscal
year 2010.
-40-
SELLING
STOCKHOLDERS
The
selling stockholders acquired the securities being registered for resale
pursuant to this prospectus in three separate private placement
transactions:
On June
15, 2007, we issued to certain selling stockholders, in a private placement,
3,600,000 units of our securities at a price of $0.50 per unit for aggregate
proceeds of $1,800,000. Each unit consisted of one share of common stock and one
three-year warrant, each warrant exercisable into one share of common stock at
an exercise price of $0.75 per share.
On August
2, 2007, we issued to certain selling stockholders, in a private placement,
510,000 units at a purchase price of $0.50 per unit for aggregate proceeds of
$255,000. Each unit consisted of one share of common stock and one three-year
warrant, each warrant exercisable into one share of common stock at an exercise
price of $0.75 per share. We also issued 10,000 shares of common
stock to Shikma A M R LTD as a finder’s fee.
On July
14, 2008, we entered into a securities purchase agreement with certain selling
stockholders pursuant to which we agreed to sell to such selling stockholders an
aggregate of 8,524,669 shares of common stock at a purchase price of $0.60 per
share. Such selling stockholders also received three-year warrants to purchase
an aggregate of 4,262,337 shares of common stock at an exercise price of $0.90
per share.
We are
also registering for resale pursuant to this prospectus 1,714,000 shares of
common stock issuable upon the exercise of options held by Mr. Nadav Kidron, our
President and Chief Executive Officer and a director. The options
have an average exercise price of $0.495 per share, are fully vested and expire in August 2012 and May
2018.
The
following table sets forth, for each selling stockholder, the name, the number
of shares of common stock beneficially owned as of February 23, 2010 (directly
and indirectly via warrants or options), the maximum number of shares of common
stock that may be offered pursuant to this prospectus and the number of shares
of common stock that would be beneficially owned after the sale of the maximum
number of shares of common stock.
Other
than the relationships described below, none of the selling stockholders are
employees or suppliers of ours or our affiliates. Within the past three years,
other than the relationships described below, none of the selling stockholders
has held a position as an officer or director of ours, nor has any selling
stockholder had any material relationship of any kind with us or any of our
affiliates, except that certain selling stockholders acquired shares of our
common stock and warrants pursuant to the transactions described above. All
information with respect to share ownership has been furnished by the selling
stockholders. The shares being offered are being registered to permit public
secondary trading of such shares and each selling stockholder may offer all or
part of the shares it owns for resale from time to time pursuant to this
prospectus. In addition, other than the relationships described below, none of
the selling stockholders has any family relationships with our officers,
directors or controlling stockholders. Furthermore, based on representations
made to us by the selling stockholders, no selling stockholder is a registered
broker-dealer or an affiliate of a registered broker-dealer, except for
Hargreave Hale Nominees Limited. The selling stockholders have
informed us that they do not have any agreement or understanding, directly or
indirectly, with any person to distribute their common stock, warrants or
options.
Any
selling stockholders who are affiliates of broker-dealers and any participating
broker-dealers are deemed to be “underwriters” within the meaning of the
Securities Act, and any commissions or discounts given to any such selling
stockholder or broker-dealer may be regarded as underwriting commissions or
discounts under the Securities Act.
The term
“selling stockholders” also includes any transferees, pledgees, donees, or other
successors in interest to the selling stockholders named in the table below.
Unless otherwise indicated, to our knowledge, each person named in the table
below has sole voting and investment power (subject to applicable community
property laws) with respect to the shares of common stock set forth opposite
such person’s name. We will file a supplement to this prospectus (or a
post-effective amendment hereto, if necessary) to name successors to any named
selling stockholders who are able to use this prospectus to resell the
securities registered hereby.
-41-
Shares Beneficially
|
Shares Beneficially
|
|||||||||||||||||||
Owned
|
Owned Before the
|
Number of Shares
|
||||||||||||||||||
Before the Offering
|
Offering that are
|
Beneficially
|
||||||||||||||||||
(excluding shares
|
Issuable Upon the
|
Maximum Number
|
Owned Immediately
|
|||||||||||||||||
Name of
|
issuable upon the
|
Exercise of
|
of Shares to be
|
AfterSale of Maximum
|
||||||||||||||||
Selling
|
exercise of warrants
|
Warrants or
|
Offered in the
|
Number of
|
||||||||||||||||
Stockholder
|
or options) (1)
|
Options
|
Offering
|
Shares in the Offering
|
||||||||||||||||
# of Shares (2)
|
%
of
Class
|
|||||||||||||||||||
Hargreave
Hale Nominees Limited A/C 060788 (3)
|
83,333 | 41,666 | 124,999 | — | — | |||||||||||||||
Hargreave
Hale Nominees Limited A/C 063717 (3)
|
1,666,667 | 833,334 | 2,500,001 | — | — | |||||||||||||||
Hargreave
Hale Nominees Limited (3)
|
2,107,650 | 1,500,000 | 3,000,000 | 607,650 | — | |||||||||||||||
Leonard
Sank (3)
|
166,667 | 83,334 | 250,001 | — | — | |||||||||||||||
Apollo
Nominees Incorporated
|
80,000 | — | 80,000 | — | — | |||||||||||||||
Apollo
Nominees Inc.
|
2,791,667 | 1,645,834 | 4,437,501 | — | — | |||||||||||||||
Swiss
Caps AG (4)
|
940,039 | — | 940,039 | — | — | |||||||||||||||
Mirabaud
& CIE
|
166,667 | 83,334 | 250,001 | — | — | |||||||||||||||
Joan
Samson
|
166,667 | 83,334 | 250,001 | — | — | |||||||||||||||
Vered
Schimmel
|
100,000 | 150,000 | 250,000 | — | — | |||||||||||||||
Shikma
A M R Ltd
|
110,000 | 60,000 | 170,000 | — | — |
-42-
Shares Beneficially
|
Shares Beneficially
|
|||||||||||||||||||
Owned
|
Owned Before the
|
Number of Shares
|
||||||||||||||||||
Before the Offering
|
Offering that are
|
Beneficially
|
||||||||||||||||||
(excluding shares
|
Issuable Upon the
|
Maximum Number
|
Owned Immediately
|
|||||||||||||||||
Name of
|
issuable upon the
|
Exercise of
|
of Shares to be
|
AfterSale of Maximum
|
||||||||||||||||
Selling
|
exercise of warrants
|
Warrants or
|
Offered in the
|
Number of
|
||||||||||||||||
Stockholder
|
or options) (1)
|
Options
|
Offering
|
Shares in the Offering
|
||||||||||||||||
# of Shares (2)
|
%
of
Class
|
|||||||||||||||||||
Edward
Danehy
|
110,000 | 55,000 | 165,000 | — | — | |||||||||||||||
Oberdorf
Finance SA
|
80,000 | 80,000 | 160,000 | — | — | |||||||||||||||
Pnini
David Jerusalem
|
83,500 | 41,750 | 125,250 | — | — | |||||||||||||||
Vega
Ventures Limited
|
83,500 | 41,750 | 125,250 | — | — | |||||||||||||||
David
Lifscitz
|
70,000 | 35,000 | 105,000 | — | — | |||||||||||||||
Elhanan
Noam Enterprising Ltd.
|
102,642 | — | 102,642 | — | — | |||||||||||||||
Trevor
Garvin
|
107,329 | 33,334 | 100,001 | 40,662 | — | |||||||||||||||
Lawrence
Leigh
|
41,666 | 20,833 | 62,499 | — | — | |||||||||||||||
Ryan
Lazarus
|
40,000 | 20,000 | 60,000 | — | — | |||||||||||||||
Aviad
Freidman
|
43,333 | - | 43,333 | — | — | |||||||||||||||
Nadav
Kidron (5)
|
10,371,735 | 1,714,000 | 12,085,735 | — | — | |||||||||||||||
Zeev
Bronfeld
|
6,158,517 | — | 6,158,517 | — | — | |||||||||||||||
Hadasit
Medical Services and Development Ltd
|
4,141,532 | — | 4,141,532 | — | — | |||||||||||||||
Russel
Leigh
|
700,000 | 650,000 | 1,350,000 | — | — | |||||||||||||||
Total
|
30,513,111 | 7,172,503 | 37,037,302 | 648,312 | — |
-43-
(1)
Beneficial ownership is determined in accordance with SEC rules and generally
includes voting or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable, or exercisable
within sixty (60) days, are counted as outstanding for computing the percentage
of the person holding such options or warrants but are not counted as
outstanding for computing the percentage of any other person.
(2)
Assumes all of the shares of common stock offered are sold. Based on 57,454,707
shares of common stock issued and outstanding on February 23,
2010.
(3) Mr.
Leonard Sank is a director of the Company. Hargreave Hale Nominees
Limited is a company wholly-owned by Mr. Sank.
(4) Swiss
Caps AG is a supplier of the Company.
(5) Mr.
Nadav Kidron is President, Chief Executive Officer and a director of the
Company. He is the son of Dr. Miriam Kidron, the Chief Medical and
Technology Officer and a director of the Company.
We may
require the selling stockholders to suspend the sales of the securities offered
by this prospectus upon the occurrence of any event that makes any statement in
this prospectus or the related registration statement untrue in any material
respect or that requires the changing of statements in these documents in order
to make statements in those documents not misleading.
Information
concerning additional selling stockholders not identified in this prospectus
will be set forth in post-effective amendments from time to time, if and as
required. Information concerning the selling stockholders may change from time
to time and any changed information will be set forth in post-effective
amendments or prospectus supplements if and when necessary.
PLAN
OF DISTRIBUTION
The
selling stockholders, and their pledgees, donees, transferees or other
successors in interest, may from time to time offer and sell, separately or
together, some or all of the shares of common stock (the “securities”) covered
by this prospectus. Registration of the securities covered by this prospectus
does not mean, however, that those securities necessarily will be offered or
sold.
The
securities covered by this prospectus may be sold from time to time, at market
prices prevailing at the time of sale, at prices related to market prices, at a
fixed price or prices subject to change or at negotiated prices, by a variety of
methods including the following:
· in
the over-the-counter market;
· in
privately negotiated transactions;
· through
broker-dealers, who may act as agents or principals;
· through
one or more underwriters on a firm commitment or best-efforts
basis;
· in
a block trade in which a broker-dealer will attempt to sell a block of
securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
· directly
to one or more purchasers;
· through
agents; or
· in
any combination of the above.
In
effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. Broker-dealer transactions
may include:
|
·
|
purchases
of the securities by a broker-dealer as principal and resales of the
securities by the broker-dealer for its account pursuant to this
prospectus;
|
|
·
|
ordinary
brokerage transactions; or
|
-44-
|
·
|
transactions
in which the broker-dealer solicits purchasers on a best efforts
basis.
|
The
selling stockholders have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of the
securities covered by this prospectus. At any time a particular offer of the
securities covered by this prospectus is made, a revised prospectus or
prospectus supplement, if required, will be distributed which will set forth the
aggregate amount of securities covered by this prospectus being offered and the
terms of the offering, including the name or names of any underwriters, dealers,
brokers or agents. In addition, to the extent required, any discounts,
commissions, concessions and other items constituting underwriters’ or agents’
compensation, as well as any discounts, commissions or concessions allowed or
reallowed or paid to dealers, will be set forth in such revised prospectus
supplement. Any such required prospectus supplement, and, if necessary, a
post-effective amendment to the registration statement of which this prospectus
is a part, will be filed with the SEC to reflect the disclosure of additional
information with respect to the distribution of the securities covered by this
prospectus.
-45-
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company under
Nevada law or otherwise, we have been advised that the opinion of the SEC is
that such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
No expert
or counsel named in this prospectus as having prepared or certified any part of
this prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration
or offering of the securities was employed on a contingency basis or had, or is
to receive, in connection with the offering, a substantial interest, directly or
indirectly, in the registrant. Nor was any such person connected with the
registrant as a promoter, managing or principal underwriter, voting trustee,
director, executive officer or employee.
LEGAL
MATTERS
Snell
& Wilmer L.L.P., our independent legal counsel, has provided an opinion on
the validity of the shares of our common stock that are the subject of this
prospectus. Their address is 3883 Howard Hughes Parkway, Suite 1100, Las Vegas,
Nevada 89169-5958. Their telephone number is (702) 784-5200.
EXPERTS
The
consolidated financial statements as of August 31, 2008 and 2009 and for the
years than ended and, cumulatively, the period September 1, 2007 to August 31,
2009 included in this prospectus have been so included in reliance on the report
of Kesselman & Kesselman, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
The
consolidated financial statements for the cumulative period from April 12, 2002
(the date of becoming a development stage entity) through August 31, 2007
included in this prospectus have been so included in reliance on the report of
Malone & Bailey, PC –Certified Public Accountants, an independent registered
public accounting firm, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE
INFORMATION
We are
subject to the reporting and information requirements of the Securities Exchange
Act of 1934, as amended, and as a result file periodic reports and other
information with the SEC. These periodic reports and other information will be
available for inspection and copying at the SEC’s public reference room and the
website of the SEC referred to above. We also make available on our website
under “Investor Information/SEC Filings,” free of charge, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we
electronically file such materials with or furnish them to the
SEC. Our website address is http://www.oramed.com. This
reference to our website is an inactive textual reference only, and is not a
hyperlink. The contents of our website are not part of this prospectus, and you
should not consider the contents of our website in making an investment decision
with respect to the securities.
We have
filed a Registration Statement on Form S-1 under the Securities Act with the SEC
with respect to the shares of our common stock offered through this prospectus.
This prospectus is filed as a part of that registration statement and does not
contain all of the information contained in the registration statement and
exhibits. We refer you to our registration statement and each exhibit attached
to it for a more complete description of matters involving us, and the
statements we have made in this prospectus are qualified in their entirety by
reference to these additional materials.
You may
read and copy the reports and other information we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. You
may also obtain copies of this information by mail from the public reference
section of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at
prescribed rates. You may obtain information regarding the operation of the
public reference room by calling 1 (800) SEC-0330. The SEC also maintains a
website that contains reports and other information about issuers, like us, who
file electronically with the SEC. The address of that website is
http://www.sec.gov. This reference to the SEC’s website is an inactive textual
reference only, and is not a hyperlink.
-46-
FINANCIAL
STATEMENTS
ORAMED
PHARMACEUTICALS INC.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
Index
to Financial Statements
Unaudited
Consolidated Financial Statements
November
30, 2009
Page
|
|||
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS:
|
|||
Balance
Sheets
|
F-2
|
||
Statements
of Operations
|
F-3
|
||
Statements
of Changes in Stockholders’ Equity
|
F-4
|
||
Statements
of Cash Flows
|
F-5
|
||
Notes
to Financial Statements
|
F-6
|
Audited
Consolidated Financial Statements
August
31, 2009
Page
|
|||
REPORT
OF INDEPENDENT REGISTERED PUBLIC
|
|||
ACCOUNTING
FIRM - Report of Kesselman & Kesselman
|
F-10
|
||
REPORT
OF INDEPENDENT REGISTERED PUBLIC
|
|||
ACCOUNTING
FIRM - Report of Malone & Bailey, PC
|
F-11
|
||
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|||
Balance
Sheets
|
F-12
|
||
Statements
of Operations
|
F-13
|
||
Statements
of Changes in Stockholders’ Equity
|
F-14
|
||
Statements
of Cash Flows
|
F-15
|
||
Notes
to Financial Statements
|
F-16
|
F-1
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
CONDENSED
CONSOLIDATED BALANCE SHEETS
U.S.
dollars
November 30,
|
August 31,
|
|||||||
2009
|
2009
|
|||||||
Unaudited
|
Audited
|
|||||||
Assets
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 1,146,128 | $ | 1,716,866 | ||||
Short
term investments
|
1,400,000 | 1,000,000 | ||||||
Restricted
cash
|
16,000 | 16,000 | ||||||
Accounts
receivable - other
|
34,154 | 36,939 | ||||||
Prepaid
expenses
|
23,610 | 4,119 | ||||||
Grants
receivable from the Office of the Chief Scientist
|
260,982 | 400,405 | ||||||
Total
current assets
|
2,880,874 | 3,174,329 | ||||||
LONG
TERM DEPOSITS
|
12,222 | 12,161 | ||||||
PROPERTY AND EQUIPMENT,
net
|
67,372 | 75,361 | ||||||
Total
assets
|
$ | 2,960,468 | $ | 3,261,851 | ||||
Liabilities
and stockholders' equity
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 364,332 | $ | 321,344 | ||||
Account
payable with former shareholder
|
47,252 | 47,252 | ||||||
Total
current liabilities
|
411,584 | 368,596 | ||||||
PROVISION
FOR UNCERTAIN TAX POSITION
|
147,063 | 147,063 | ||||||
COMMITMENTS
|
||||||||
STOCKHOLDERS'
EQUITY:
|
||||||||
Common
stock of $ 0.001 par value - Authorized: 200,000,000 shares at
November 30, 2009 and August 31, 2009; Issued and outstanding: 57,026,597
at November 30, 2009 and 56,456,710 shares at August 31, 2009,
respectively
|
57,026 | 56,456 | ||||||
Additional
paid-in capital
|
12,966,266 | 12,698,414 | ||||||
Deficit
accumulated during the development stage
|
(10,621,471 | ) | (10,008,678 | ) | ||||
Total
stockholders' equity
|
2,401,821 | 2,746,192 | ||||||
Total
liabilities and stockholders' equity
|
$ | 2,960,468 | $ | 3,261,851 |
The
accompanying notes are an integral part of the consolidated financial
statements.
F-2
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATION
U.S.
dollars
Period
|
||||||||||||
from April
|
||||||||||||
12, 2002
|
||||||||||||
(inception)
|
||||||||||||
Three months ended
|
through
|
|||||||||||
November 30
|
November 30
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Unaudited
|
||||||||||||
RESEARCH
AND DEVELOPMENT EXPENSES, net
|
$ | 317,545 | $ | 818,680 | $ | 5,462,404 | ||||||
IMPAIRMENT
OF INVESTMENT
|
434,876 | |||||||||||
GENERAL
AND ADMINISTRATIVE EXPENSES
|
299,956 | 383,361 | 4,557,507 | |||||||||
OPERATING
LOSS
|
617,501 | 1,202,041 | 10,454,787 | |||||||||
FINANCIAL
INCOME
|
(8,373 | ) | (22,144 | ) | (144,481 | ) | ||||||
FINANCIAL
EXPENSE
|
3,665 | 8,149 | 151,598 | |||||||||
LOSS
BEFORE TAXES ON INCOME
|
612,793 | 1,188,046 | 10,461,904 | |||||||||
TAXES
ON INCOME
|
- | - | 159,567 | |||||||||
NET
LOSS FOR THE PERIOD
|
$ | 612,793 | $ | 1,188,046 | $ | 10,621,471 | ||||||
BASIC
AND DILUTED LOSS PER
|
||||||||||||
COMMON
SHARE
|
$ | (0.01 | ) | $ | (0.02 | ) | ||||||
WEIGHTED
AVERAGE NUMBER OF COMMON
|
||||||||||||
STOCK
USED IN COMPUTING BASIC AND
|
||||||||||||
DILUTED
LOSS PER COMMON STOCK
|
57,158,865 | 56,363,714 |
The
accompanying notes are an integral part of the consolidated financial
statements.
F-3
ORAMED
PHARMACEUTICALS INC.
(A Development Stage
Company)
CONDENSED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
U.S.
dollars
Deficit
|
||||||||||||||||||||
accumulated
|
||||||||||||||||||||
Additional
|
during the
|
Total
|
||||||||||||||||||
Common Stock
|
paid-in
|
development
|
stockholders'
|
|||||||||||||||||
Shares
|
$
|
capital
|
stage
|
equity
|
||||||||||||||||
BALANCE
AS OF APRIL 12, 2002 (inception)
|
34,828,200 | $ | 34,828 | $ | 18,872 | $ | 53,700 | |||||||||||||
CHANGES
DURING THE PERIOD FROM APRIL 12, 2002 THROUGH AUGUST 31, 2008
(audited):
|
||||||||||||||||||||
SHARES
CANCELLED
|
(19,800,000 | ) | (19,800 | ) | 19,800 | - | ||||||||||||||
SHARES
ISSUED FOR INVESTMENT IN ISTI-NJ
|
1,144,410 | 1,144 | 433,732 | 434,876 | ||||||||||||||||
SHARES
ISSUED FOR OFFERING COSTS
|
1,752,941 | 1,753 | (1,753 | ) | - | |||||||||||||||
SHARES
ISSUED FOR CASH– NET OF ISSUANCE EXPENSES
|
37,359,230 | 37,359 | 7,870,422 | 7,907,781 | ||||||||||||||||
SHARES
ISSUED FOR SERVICES
|
418,025 | 418 | 214,442 | 214,860 | ||||||||||||||||
CONTRIBUTIONS
TO PAID IN CAPITAL
|
18,991 | 18,991 | ||||||||||||||||||
RECEIPTS
ON ACCOUNT OF SHARES AND
WARRANTS
|
6,061 | 6,061 | ||||||||||||||||||
SHARES
ISSUED FOR CONVERSION OF CONVERTIBLE NOTE
|
550,000 | 550 | 274,450 | 275,000 | ||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO EMPLOYEES AND
DIRECTORS
|
2,605,796 | 2,605,796 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO
CONSULTANTS
|
203,982 | 203,982 | ||||||||||||||||||
DISCOUNT
ON CONVERTIBLE NOTE RELATED TO BENEFICIAL CONVERSION
FEATURE
|
108,000 | 108,000 | ||||||||||||||||||
COMPREHENSIVE
LOSS
|
(16 | ) | (16 | ) | ||||||||||||||||
IMPUTED
INTEREST
|
12,217 | 12,217 | ||||||||||||||||||
NET
LOSS
|
(7,248,188 | ) | (7,248,188 | ) | ||||||||||||||||
BALANCE
AS OF AUGUST 31, 2008 (audited)
|
56,252,806 | 56,252 | 11,785,012 | (7,248,204 | ) | 4,593,060 | ||||||||||||||
SHARES
ISSUED FOR SERVICES RENDERED
|
203,904 | 204 | 152,724 | 152,928 | ||||||||||||||||
SHARES
TO BE ISSUED FOR SERVICES RENDERED
|
203,699 | 203,699 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO EMPLOYEES AND
DIRECTORS
|
436,025 | 436,025 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO
CONSULTANTS
|
117,174 | 117,174 | ||||||||||||||||||
IMPUTED
INTEREST
|
3,780 | 3,780 | ||||||||||||||||||
NET
LOSS
|
(2,760,474 | ) | (2,760,474 | ) | ||||||||||||||||
BALANCE
AS OF AUGUST 31, 2009 (audited)
|
56,456,710 | 56,456 | 12,698,414 | (10,008,678 | ) | 2,746,192 | ||||||||||||||
SHARES
ISSUED FOR SERVICES RENDERED IN PREVIOUS PERIOD
|
569,887 | 570 | (570 | ) | -,- | |||||||||||||||
SHARES
TO BE ISSUED FOR SERVICES RENDERED
|
169,500 | 169,500 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO EMPLOYEES AND
DIRECTORS
|
81,316 | 81,316 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO
CONSULTANTS
|
16,661 | 16,661 | ||||||||||||||||||
IMPUTED
INTEREST
|
945 | 945 | ||||||||||||||||||
NET
LOSS
|
(612,793 | ) | (612,793 | ) | ||||||||||||||||
BALANCE
AS OF NOVEMBER 30, 2009 (unaudited)
|
57,026,597 | $ | 57,026 | $ | 12,966,266 | $ | (10,621,471 | ) | $ | 2,401,821 |
The
accompanying notes are an integral part of the consolidated financial
statements
F-4
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
U.S.
dollars
Three months ended
|
Period from April
12, 2002 (inception
date) through
|
|||||||||||
November 30
|
November 30,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Unaudited
|
||||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
loss
|
$ | (612,793 | ) | $ | (1,188,046 | ) | $ | (10,621,471 | ) | |||
Adjustments
required to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
7,989 | 7,497 | 53,931 | |||||||||
Amortization
of debt discount
|
- | - | 108,000 | |||||||||
Exchange
differences on long term deposits
|
(61 | ) | 967 | (1,062 | ) | |||||||
Stock
based compensation
|
97,977 | 101,647 | 3,460,954 | |||||||||
Common
stock issued for services
|
- | - | 367,788 | |||||||||
Common
stock to be issued for services
|
169,500 | - | 373,199 | |||||||||
Impairment
of investment
|
- | - | 434,876 | |||||||||
Imputed
interest
|
945 | 945 | 16,942 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Prepaid
expenses and other current assets
|
122,717 | 104,880 | (318,746 | ) | ||||||||
Restricted
cash
|
- | - | (16,000 | ) | ||||||||
Accounts
payable and accrued expenses
|
42,988 | (100,872 | ) | 364,332 | ||||||||
Provision
for uncertain tax position
|
- | - | 147,063 | |||||||||
Total
net cash used in operating activities
|
(170,738 | ) | (1,072,982 | ) | (5,630,194 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchase
of property and equipment
|
- | (1,469 | ) | (121,303 | ) | |||||||
Acquisition
of short-term investments
|
(400,000 | ) | - | (4,128,000 | ) | |||||||
Proceeds
from sale of Short term investments
|
- | 1,000,000 | 2,728,000 | |||||||||
Lease
deposits
|
- | (1,919 | ) | (11,160 | ) | |||||||
Total
net cash used in investing activities
|
(400,000 | ) | 996,612 | (1,532,463 | ) | |||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds
from sales of common stocks and warrants
- net of issuance expenses
|
- | - | 7,961,481 | |||||||||
Receipts
on account of shares issuances
|
6,061 | |||||||||||
Proceeds
from convertible notes
|
- | - | 275,000 | |||||||||
Proceeds
from short term note payable
|
- | - | 120,000 | |||||||||
Payments
of short term note payable
|
- | - | (120,000 | ) | ||||||||
Shareholder
advances
|
- | - | 66,243 | |||||||||
Net
cash provided by financing activities
|
- | - | 8,308,785 | |||||||||
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(570,738 | ) | (76,370 | ) | 1,146,128 | |||||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
1,716,866 | 2,267,320 | - | |||||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 1,146,128 | $ | 2,190,950 | $ | 1,146,128 | ||||||
Non
cash investing and financing activities:
|
||||||||||||
Shares
issued for offering costs
|
$ | 1,753 | ||||||||||
Contribution
to paid in capital
|
$ | $18,991 | ||||||||||
Discount
on convertible note related to beneficial conversion
feature
|
$ | 108,000 | ||||||||||
Shares
issued for services rendered
|
$ | 152,928 |
The
accompanying notes are an integral part of the consolidated financial
statements.
F-5
ORAMED
PHARMACEUTICULS, Inc.
(A
development stage company)
NOTES TO
INTERIM FINANCIAL STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES:
a.
|
General:
|
|
Oramed
Pharmaceuticals, Inc. (the “Company”) was incorporated on April 12, 2002,
under the laws of the State of Nevada. From incorporation until March 3,
2006, the Company was an exploration stage company engaged in the
acquisition and exploration of mineral properties. On February 17, 2006,
the Company entered into an agreement with Hadasit Medical Services and
Development Ltd (the “First Agreement”) to acquire the provisional patent
related to orally ingestible insulin pill to be used for the treatment of
individuals with diabetes. The Company has been in the development stage
since its formation and has not yet realized any revenues from its planned
operations.
|
|
On
May 14, 2007, the Company incorporated a wholly-owned subsidiary in
Israel, Oramed Ltd., which is engaged in research and development. Unless
the context indicates otherwise, the term “Group” refers to Oramed
Pharmaceuticals Inc. and its Israeli subsidiary, Oramed Ltd (the
“Subsidiary”).
|
|
The
group is engaged in research and development in the biotechnology field
and is considered a development stage company in accordance with ASC Topic
915 (formerly FAS 7) “Development Stage
Entities”.
|
|
The
accompanying unaudited interim consolidated financial statements as of
November 30, 2009 and for the three months then ended, have been prepared
in accordance with accounting principles generally accepted in the United
States relating to the preparation of financial statements for interim
periods. Accordingly, they do not include all the information and
footnotes required for annual financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended November 30, 2009, are not necessarily
indicative of the results that may be expected for the year ending August
31, 2010.
|
|
Going
concern considerations
|
The
accompanying unaudited interim consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has net losses for the period from inception (April 12, 2002) through
November 30, 2009 of $10,621,471 as well as negative cash flow from operating
activities. Presently, the Company does not have sufficient cash resources to
meet its requirements in the twelve months following November 30, 2009. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. Management is in the process of evaluating various financing
alternatives as the Company will need to finance future research and development
activities and general and administrative expenses through fund raising in
the public or private equity markets. Although there is no assurance that the
Company will be successful with those initiatives, management believes that it
will be able to secure the necessary financing as a result of ongoing financing
discussions with third party investors and existing shareholders, as well as
ongoing funding from the Office of the Chief
Scientist ("OCS").
These
consolidated financial statements do not include any adjustments that may be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent on its ability to obtain
additional financing as may be required and ultimately to attain
profitability.
F-6
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
b.
|
Newly
issued and recently adopted Accounting
Pronouncements
|
|
1.
|
In
April 2009, the Financial Accounting Standards Board (“FASB”) issued ASC
Topic 825 “Financial Instruments” (formerly FSP No. FAS 107-1
and APB 28-1, “Interim Disclosures about Fair Value of Financial
Instruments.” ASC 825 requires companies to disclose in interim
financial statements the fair value of financial instruments within the
scope of ASC Topic 820 “Fair Value Measurements and Disclosures” (formerly
FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments). However, companies are not required to provide in
interim periods the disclosures about the concentration of credit risk of
all financial instruments that are currently required in annual financial
statements. The fair-value information disclosed in the
footnotes must be presented together with the related carrying amount,
making it clear whether the fair value and carrying amount represent
assets or liabilities and how the carrying amount relates to what is
reported in the balance sheet.
|
|
ASC
825 also requires that companies disclose the method or methods and
significant assumptions used to estimate the fair value of financial
instruments and a discussion of changes, if any, in the method or methods
and significant assumptions during the period. The ASC shall be
applied prospectively and is effective for interim and annual periods
ending after June 15, 2009. To the extent relevant, the
Company adopted the disclosure requirements of this pronouncement for the
quarter ended November 30, 2009, in conjunction with the adoption of ASC
Topic 820 (formerly FSP FAS 157-4), ASC Topic 320 (formerly FSP
FAS 115-2) and ASC Topic 958 (formerly
FAS 124-2). The adoption of the new disclosure
requirements did not have a material impact on the Company’s financial
statements.
|
|
2.
|
In
May 2009, the FASB issued ASC Topic 855 “Subsequent Events”
(formerly SFAS No. 165, Subsequent Events). ASC 855 sets forth
the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial
statements, and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. ASC 855 is
effective for interim or annual periods ending after June 15, 2009 and
will be applied prospectively. The Company adopted the
provisions of ASC 855 for the quarter ended November 30,
2009. The adoption of ASC 855 did not have a material impact on
the Company’s condensed financial condition, results of operations or cash
flows.
|
|
3.
|
In
June 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-1,
“Topic 105 — Generally
Accepted Accounting Principles” which amended ASC 105 “The “FASB
Accounting Standards Codification” and the Hierarchy of Generally Accepted
Accounting Principles (formerly SFAS No. 168 “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles – A Replacement of FASB Statement No. 162”). ASU 2009-1
establishes the FASB Accounting Standards CodificationTM (Codification)
as the single source of authoritative U.S. generally accepted accounting
principles (U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants.
|
|
ASU
2009-1 and the Codification are effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The
Codification supersedes all existing non-SEC accounting and reporting
standards. All other nongrandfathered non-SEC accounting literature not
included in the Codification will become nonauthoritative. Following ASU
2009-1, the FASB will not issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead,
the FASB will issue Accounting Standards Updates, which will serve only
to: (a) update the Codification; (b) provide background information about
the guidance; and (c) provide the bases for conclusions on the change(s)
in the Codification. The adoption of ASU 2009-1did not have a material
impact on the Company’s financial
statements.
|
F-7
NOTE 2 -
COMMITMENTS:
|
c.
|
Under
the terms of the First Agreement with Hadasit (note 1a(1) above), the
Company retained Hadasit to provide consulting and clinical trial
services. As remuneration for the services provided under the agreement,
Hadasit is entitled to $200,000. The primary researcher for Hadasit is Dr.
Miriam Kidron, a director and officer of the Company. The funds paid to
Hadasit under the agreement are deposited by Hadasit into a research fund
managed by Dr. Kidron. Pursuant to the general policy of Hadasit with
respect to its research funds, Dr. Kidron receives from Hadasit a
management fee in the rate of 10% of all the funds deposited into this
research fund.
|
On
January 7, 2009, the Company entered into a second agreement with Hadasit (the
“Second Agreement”) which confirms that Hadasit has conveyed, transferred and
assigned all of its ownership rights in the patents acquired under the First
Agreement to the Company, and certain other patents filed by the Company after
the First Agreement as a result of the collaboration between the Company and
Hadasit.
On July
8, 2009 the Company entered into a third agreement with Hadasit, Prof. Itamar
Raz and Dr. Miriam Kidron ("the Third Agreement"), to provide consulting and
clinical trial services. According to the Third Agreement, Hadasit will be
entitled to additional of $200,000 to be paid by Oramed in accordance with the
actual progress of the study. The total amount that was paid through November
30, 2009 was $279,255 which refers to all three agreements.
|
d.
|
During
January and April 2008 the Company entered into agreements with OnQ
consulting, a clinical research organization (CRO) located in
Johannesburg, South Africa, to conduct Phase 1B and 2B clinical trials on
its oral insulin capsules. The total cost estimated for the studies is
$229,681 of which $107,599 was paid through November 30,
2009.
|
|
e.
|
As
to a Clinical Trial Manufacturing Agreement with Swiss Caps AG, see note
3a and 5a.
|
|
f.
|
On
April 22, 2009, the subsidiary entered into a consulting service agreement
with ADRES
Advanced Regulatory Services Ltd. (“ADRES”) pursuant to which ADRES will
provide consulting services relating to quality assurance and regulatory
processes and procedures in order to assist the subsidiary in submission
of a U.S. IND according to FDA regulations. In consideration for the
services provided under the agreement, ADRES will be entitled to a total
cash compensation of $211,000, of which the amount $110,000 will be paid
as a monthly fixed fee of $10,000 each month for 11 months commencing May
2009, and the remaining $101,000 will be paid based on achievement of
certain milestones. $80,000 of the total amount was paid through November
30, 2009.
|
|
g.
|
Grants
from the Chief Scientist Office
("OCS")
|
The
Subsidiary is obligated to pay royalties to the OCS on proceeds from the sale of
products developed from research and development activities that were funded,
partially, by grants from the OCS. In the case of failure of a project that was
partly financed as described above, the Company is not obligated to pay any such
royalties or repay funding received from the OCS.
Under the
terms of the funding arrangements with the OCS, royalties of 3% to 3.5% are
payable on the sale of products developed from projects funded by the OCS, which
payments shall not exceed, in the aggregate, 100% of the amount of the grant
received (dollar linked), plus interest at annual rate based on LIBOR. In
addition, if the Company receives approval to manufacture the products developed
with government grants outside the State of Israel, it will be required to pay
an increased total amount of royalties (possibly up to 300% of the grant amounts
plus interest), depending on the manufacturing volume that is performed outside
the State of Israel, and, possibly, an increased royalty rate.
At
November 30, 2009, the Company has not earned any revenues from the sale of
products and no royalty payments have accrued.
For the
three months period ended November 30, 2009 the research and development
expenses are presented net of OCS Grants, in the total of $147,590. For the year
ended August 31, 2009 the OCS Grants were $400,405.
F-8
NOTE
3 - STOCK BASED COMPENSATION:
The
following are stocks issued for services, stock options and warrants
transactions made during the three months ended November 30, 2009:
|
a.
|
On
October 30, 2006 the Company entered into a Clinical Trial Manufacturing
Agreement with Swiss Caps AG (“Swiss”), pursuant to
which Swiss would manufacture and deliver the oral insulin capsule
developed by the Company. In consideration for the services being provided
to the Company by Swiss, the Company agreed to pay a certain predetermined
amounts which are to be paid in common stocks of the Company, the number
of stocks to be issued is based on the invoice received from Swiss, and
the stock market price 10 days after the invoice was issued. The Company
accounted the transaction with Swiss according to FASB ASC 480
"Distinguishing Liabilities from Equity" (formerly FAS
150).
|
On
September 11, 2009, the Company issued 569,887 shares of its common stock to
Swiss as remuneration for the services provided, for total of
$203,699.
|
b.
|
On
November 23, 2009, 100,000 options were granted to a consultant, at an
exercise price of $0.76 per share (higher than the traded market price on
the date of grant), the options vest in three equal annual installments
commencing November 23, 2010 and expire on November 23,
2014.
|
|
c.
|
On
November 23, 2009, 36,000 options were granted to an employee of our
Subsidiary, at an exercise price of $0.46 per share (equivalent to the
traded market price on the date of grant), the options vest in three equal
annual installments commencing November 23, 2010 and expire on November
23, 2019.
|
The
Company recognized $97,977 of stock based compensation expense during the three
months ended November 30, 2009 related to options granted to employees and
consultants, of which $97,332 relates to options granted in prior
years.
NOTE
4 - FAIR VALUE:
The fair
value of the financial instruments included in the Company’s working capital is
usually identical or close to their carrying value due to the short-term
maturities of these instruments.
NOTE
5 - SUBSEQUENT EVENTS:
The
Company has performed an evaluation of subsequent events through January 13,
2010, which is the date the financial statements were issued.
a.
|
On
December 29, 2009, the Company issued 328,110 shares of its common stock
to Swiss as remuneration for the services provided, in the amount of
$167,310.
|
b.
|
On
December 29, 2009, the Company issued 100,000 shares of its common stock
to a third party as remuneration for services that will be rendered
commencing December 15, 2009 for a period of six
months.
|
F-9
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Shareholders of
Oramed
Pharmaceuticals Inc.
(A
Development Stage Company)
We have
audited the accompanying consolidated balance sheets of Oramed Pharmaceuticals
Inc. (A Development Stage Company) and its subsidiary (the “Company”) as of August 31,
2009 and 2008, and the related consolidated statements of operations, changes in
stockholders’ equity and cash flows for the years then ended and cumulatively,
for the period from September 1, 2007 to August 31, 2009 (not separately
presented herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the cumulative totals
of the Company for the period from April 12, 2002 (date of incorporation) to
August 31, 2007, which totals reflect a deficit of $4,478,933 accumulated during
the development stage. Those cumulative totals were audited by other independent
auditors, whose report, dated December 10, 2007, expressed an unqualified
opinion on the cumulative amounts but included an emphasis of a matter. Our
opinion, insofar as it relates to amounts included for that period is based on
the report of the other independent auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, based upon our audits and the report of the other independent auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
August 31, 2009 and 2008, and the consolidated results of their operations and
their cash flows for the years then ended and cumulatively, for the period from
September 1, 2007 to August 31, 2009 (not separately presented herein), in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1a to the financial
statements, the Company has recurring losses for the period from inception
(April 12, 2002) through August 31, 2009 and presently the Company does not have
sufficient cash resources to meet its requirements in the following twelve
months. These reasons raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1a. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Kesselman
& Kesselman
|
|
Tel
Aviv, Israel
|
|
November
25, 2009
|
F-10
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
Oramed
Pharmaceuticals Inc.
(a
development stage company)
Jerusalem,
Israel
We have
audited the consolidated statements of expenses, changes in stockholders’
deficit, and cash flows for the period from April 12, 2002 (Inception) through
August 31, 2007. These financial statements are the responsibility of Oramed’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with standards of the Public Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Comapny is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of its consolidated operations and its
cash flows for the periods described in conformity with accounting principles
generally accepted in the United States of America.
MALONE
& BAILEY, PC
www.malone-bailey.com
Houston,
Texas
December
10, 2007
F-11
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
U.S.
dollars
August 31
|
||||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 1,716,866 | $ | 2,267,320 | ||||
Short
term investments (Note 2)
|
1,000,000 | 2,728,000 | ||||||
Restricted
cash (Note 1n)
|
16,000 | |||||||
Accounts
receivable - other
|
36,939 | 38,822 | ||||||
Prepaid
expenses
|
4,119 | 363,752 | ||||||
Grants
receivable from the Chief Scientist
|
400,405 | |||||||
Total
current assets
|
3,174,329 | 5,397,894 | ||||||
LONG TERM DEPOSITS (Note
6b)
|
12,161 | 10,824 | ||||||
PROPERTY AND EQUIPMENT, NET
(Note 4)
|
75,361 | 98,296 | ||||||
Total
assets
|
$ | 3,261,851 | $ | 5,507,014 | ||||
Liabilities
and stockholders' equity
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses (note 9)
|
$ | 321,344 | $ | 736,052 | ||||
Account
payable with former shareholder
|
47,252 | 47,252 | ||||||
Total
current liabilities
|
368,596 | 783,304 | ||||||
PROVISION
FOR UNCERTAIN TAX POSITION (Note 12f)
|
147,063 | 130,650 | ||||||
COMMITMENTS (Note
6)
|
||||||||
STOCKHOLDERS’
EQUITY:
|
||||||||
Common
stock, $ 0.001 par value (200,000,000 authorized shares; 56,456,710 and
56,252,806 shares issued and outstanding as of August 31, 2009 and 2008,
respectively)
|
56,456 | 56,252 | ||||||
Additional
paid-in capital
|
12,698,414 | 11,785,012 | ||||||
Deficit
accumulated during the development stage
|
(10,008,678 | ) | (7,248,204 | ) | ||||
Total
stockholders' equity
|
2,746,192 | 4,593,060 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 3,261,851 | $ | 5,507,014 |
The
accompanying notes are an integral part of the financial
statements.
F-12
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
U.S.
dollars
Period
|
||||||||||||
from April
|
||||||||||||
12, 2002 | ||||||||||||
(inception)
|
||||||||||||
Year ended
|
through
|
|||||||||||
August 31
|
August 31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
RESEARCH AND DEVELOPMENT
EXPENSES, NET (Note 10)
|
$ | 1,522,188 | $ | 1,210,494 | $ | 5,144,859 | ||||||
IMPAIRMENT
OF INVESTMENT
|
434,876 | |||||||||||
GENERAL AND ADMINISTRATIVE
EXPENSES (note 11)
|
1,261,930 | 1,469,517 | 4,257,551 | |||||||||
OPERATING
LOSS
|
2,784,118 | 2,680,011 | 9,837,286 | |||||||||
FINANCIAL
INCOME
|
(38,602 | ) | (83,185 | ) | (136,108 | ) | ||||||
FINANCIAL
EXPENSE
|
17,555 | 10,281 | 147,933 | |||||||||
LOSS
BEFORE TAXES ON INCOME
|
2,763,071 | 2,607,107 | 9,849,111 | |||||||||
TAXES ON INCOME (note
12)
|
(2,597 | ) | 162,164 | 159,567 | ||||||||
NET
LOSS FOR THE PERIOD
|
$ | 2,760,474 | $ | 2,769,271 | $ | 10,008,678 | ||||||
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
$ | (0.05 | ) | $ | (0.06 | ) | ||||||
WEIGHTED
AVERAGE NUMBER OF COMMON STOCK USED IN COMPUTING BASIC AND DILUTED LOSS
PER COMMON STOCK
|
56,645,820 | 48,604,889 |
The
accompanying notes are an integral part of the financial
statements.
F-13
ORAMED
PHARMACEUTICALS INC.
(A
development stage company)
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
U.S.
dollars
Deficit
|
||||||||||||||||||||
accumulated
|
||||||||||||||||||||
Additional
|
during the
|
Total
|
||||||||||||||||||
Common Stock
|
paid-in
|
development
|
stockholders'
|
|||||||||||||||||
Shares
|
$
|
capital
|
stage
|
equity
|
||||||||||||||||
BALANCE AS OF APRIL 12,
2002 (inception)
|
34,828,200 | $ | 34,828 | $ | 18,872 | $ | 53,700 | |||||||||||||
CHANGES DURING THE PERIOD FROM
APRIL 12, 2002 THROUGH AUGUST 31, 2007
(audited):
|
||||||||||||||||||||
SHARES
CANCELLED
|
(19,800,000 | ) | (19,800 | ) | 19,800 | - | ||||||||||||||
SHARES
ISSUED FOR INVESTMENT IN ISTI-NJ
|
1,144,410 | 1,144 | 433,732 | 434,876 | ||||||||||||||||
SHARES
ISSUED FOR OFFERING COSTS
|
1,752,941 | 1,753 | (1,753 | ) | - | |||||||||||||||
SHARES
ISSUED FOR CASH
|
27,181,228 | 27,181 | 2,095,800 | 2,122,981 | ||||||||||||||||
SHARES
ISSUED FOR SERVICES
|
125,000 | 125 | 98,625 | 98,750 | ||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO EMPLOYEES AND
DIRECTORS
|
1,968,547 | 1,968,547 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO
CONSULTANTS
|
177,782 | 177,782 | ||||||||||||||||||
DISCOUNT
ON CONVERTIBLE NOTE RELATED TO BENEFICIAL CONVERSION
FEATURE
|
108,000 | 108,000 | ||||||||||||||||||
CONTRIBUTIONS
TO PAID IN CAPITAL
|
18,991 | 18,991 | ||||||||||||||||||
COMPREHENSIVE
LOSS:
|
||||||||||||||||||||
NET
LOSS
|
(4,478,917 | ) | (4,478,917 | ) | ||||||||||||||||
OTHER
COMPREHENSIVE LOSS
|
(16 | ) | (16 | ) | ||||||||||||||||
IMPUTED
INTEREST
|
8,437 | 8,437 | ||||||||||||||||||
BALANCE
AS OF AUGUST 31, 2007
|
45,231,779 | 45,231 | 4,946,833 | (4,478,933 | ) | 513,131 | ||||||||||||||
RECEIPTS
ON ACCOUNT OF SHARES AND WARRANTS
|
6,061 | 6,061 | ||||||||||||||||||
SHARES
ISSUED FOR CONVERSION OF CONVERTIBLE NOTE
|
550,000 | 550 | 274,450 | 275,000 | ||||||||||||||||
SHARES
AND WARRANTS ISSUED FOR CASH – NET OF ISSUANCE EXPENSES
|
10,178,002 | 10,178 | 5,774,622 | 5,784,800 | ||||||||||||||||
SHARES
ISSUED FOR SERVICES
|
293,025 | 293 | 115,817 | 116,110 | ||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO EMPLOYEES AND
DIRECTORS
|
459,467 | 459,467 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO
CONSULTANTS
|
203,982 | 203,982 | ||||||||||||||||||
IMPUTED
INTEREST
|
3,780 | 3,780 | ||||||||||||||||||
NET
LOSS
|
(2,769,271 | ) | (2,769,271 | ) | ||||||||||||||||
BALANCE
AS OF AUGUST 31, 2008
|
56,252,806 | 56,252 | 11,785,012 | (7,248,204 | ) | 4,593,060 | ||||||||||||||
SHARES
ISSUED FOR SERVICES RENDERED
|
203,904 | 204 | 152,724 | 152,928 | ||||||||||||||||
SHARES
TO BE ISSUED FOR SERVICES RENDERED
|
203,699 | 203,699 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO EMPLOYEES AND
DIRECTORS
|
436,025 | 436,025 | ||||||||||||||||||
STOCK
BASED COMPENSATION RELATED TO OPTIONS GRANTED TO
CONSULTANTS
|
117,174 | 117,174 | ||||||||||||||||||
IMPUTED
INTEREST
|
3,780 | 3,780 | ||||||||||||||||||
NET
LOSS
|
(2,760,474 | ) | (2,760,474 | ) | ||||||||||||||||
BALANCE
AS OF AUGUST 31, 2009
|
56,456,710 | $ | 56,456 | $ | 12,698,414 | $ | (10,008,678 | ) | $ | 2,746,192 |
The
accompanying notes are an integral part of the consolidated financial
statements.
F-14
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Period from April
12, 2002
(inception date)
through
|
||||||||||||
Year ended August 31
|
August 31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
Net
loss
|
$ | (2,760,474 | ) | $ | (2,769,271 | ) | $ | (10,008,678 | ) | |||
Adjustments
required to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
and amortization
|
30,488 | 15,454 | 45,942 | |||||||||
Amortization
of debt discount
|
108,000 | |||||||||||
Exchange
differences on long term deposits
|
641 | (1,642 | ) | (1,001 | ) | |||||||
Stock
based compensation
|
553,199 | 663,449 | 3,362,977 | |||||||||
Common
stock issued for services
|
152,928 | 116,110 | 367,788 | |||||||||
Common
stock to be issued for services
|
203,699 | 203,699 | ||||||||||
Impairment
of investment
|
434,876 | |||||||||||
Imputed
interest
|
3,780 | 3,780 | 15,997 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Prepaid
expenses and other current assets
|
(38,889 | ) | (390,668 | ) | (441,463 | ) | ||||||
Restricted
cash
|
(16,000 | ) | (16,000 | ) | ||||||||
Accounts
payable and accrued expenses
|
(414,708 | ) | 395,180 | 321,344 | ||||||||
Provision
for uncertain tax position
|
16,413 | 130,650 | 147,063 | |||||||||
Total
net cash used in operating activities
|
(2,268,923 | ) | (1,836,958 | ) | (5,459,456 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchase
of property and equipment
|
(7,553 | ) | (112,014 | ) | (121,303 | ) | ||||||
Short
term investments
|
(1,000,000 | ) | (2,728,000 | ) | (3,728,000 | ) | ||||||
Proceeds
from sale of short term investments
|
2,728,000 | 2,728,000 | ||||||||||
Lease
deposits, net
|
(1,978 | ) | (3,738 | ) | (11,160 | ) | ||||||
Total
net cash provided by (used in) investing activities
|
1,718,469 | (2,843,752 | ) | (1,132,463 | ) | |||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds
from sales of common stocks and warrants - net of issuance
expenses
|
5,029,801 | 7,961,481 | ||||||||||
Receipts
on account of shares issuances
|
6,061 | |||||||||||
Proceeds
from convertible notes
|
275,000 | |||||||||||
Proceeds
from short term note payable
|
120,000 | |||||||||||
Payments
of short term note payable
|
(120,000 | ) | ||||||||||
Shareholder
advances
|
66,243 | |||||||||||
Net
cash provided by financing activities
|
5,029,801 | 8,308,785 | ||||||||||
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
(550,454 | ) | 349,091 | (550,454 | ) | |||||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
2,267,320 | 1,918,229 | ||||||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 1,716,866 | $ | 2,267,320 | $ | 1,716,866 | ||||||
Non
cash investing and financing activities:
|
||||||||||||
Receipts
on account of shares issuance - reclassified from liability to
shareholder's equity
|
$ | 6,061 | ||||||||||
Stock
issued for receipts on account of shares issuance and convertible
notes
|
$ | 1,030,000 | ||||||||||
Discount
on convertible note related to beneficial conversion
feature
|
$ | 108,000 | ||||||||||
Shares
issued for offering costs
|
$ | 1,753 | ||||||||||
Contribution
to paid in capital
|
$ | 18,991 |
The
accompanying notes are an integral part of the financial
statements.
F-15
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES:
|
a.
|
General:
|
Oramed
Pharmaceuticals Inc. (the “Company”) was incorporated on April 12, 2002, under
the laws of the State of Nevada. From incorporation until March 3, 2006, the
Company was an exploration stage company engaged in the acquisition and
exploration of mineral properties. On March 8, 2006, the Company entered into an
agreement with Hadasit Medical Services and Development Ltd (“Hadasit”) (the
“First Agreement”) to acquire the provisional patent related to orally
ingestible insulin pill to be used for the treatment of individuals with
diabetes, see also note 6a.
The
Company has been in the development stage since its formation and has not yet
generated any revenues from its planned operations.
On May
14, 2007, the Company incorporated a wholly-owned subsidiary in Israel, Oramed
Ltd., which is engaged in research and development. Unless the context indicates
otherwise, the term “Group” refers to Oramed Pharmaceuticals Inc. and its
Israeli subsidiary, Oramed Ltd (the “Subsidiary”).
The group
is engaged in research and development in the biotechnology field and is
considered a development stage company in accordance with Statement of financial
Accounting Standard (“SFAS”) No. 7 “Accounting and Reporting by
Development Stage Enterprises”.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has net losses for the
period from inception (April 12, 2002) through August 31, 2009 of
$10,008,678, as well as negative cash flow from operating activities. Presently,
the Company does not have sufficient cash resources to meet its requirements in
the twelve months following September 1, 2009. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Management is in the process of evaluating various financing alternatives as the
Company will need to finance future research and development activities and
general and administrative expenses through fund raising in
the public or private equity markets. Although there is no assurance that the
Company will be successful with those initiatives, management believes that it
will be able to secure the necessary financing as a result of ongoing financing
discussions with third party investors, existing shareholders, as well as on
going funding from the Office of the Chief Scientist ("OCS"), (see
note 6h).
These
consolidated financial statements do not include any adjustments that may be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent on its ability to obtain
additional financing as may be required and ultimately to attain
profitability.
F-16
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
b.
|
Accounting
principles
|
|
The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America
(“U.S.
GAAP”).
|
|
c.
|
Use
of estimates in the preparation of financial
statements
|
The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the financial statement date and the reported expenses during
the reporting periods. Actual results could differ from those
estimates.
As
applicable to these consolidated financial statements, the most significant
estimates and assumptions relate to stock based compensation.
|
d.
|
Functional
currency
|
The
currency of the primary economic environment in which the operations of the
Company are conducted is the US dollar (“$” or “dollar”).
Most of
the group’s operating expenses are incurred in dollars. Thus, the functional
currency of the Company is the dollar.
Transactions
and balances originally denominated in dollars are presented at their original
amounts. Balances in foreign currencies are translated into dollars using
historical and current exchange rates for non-monetary and monetary balances,
respectively. For foreign transactions and other items reflected in the
statements of operations, the following exchange rates are used: (1) for
transactions – exchange rates at transaction dates or average rates and (2) for
other items (derived from non-monetary balance sheet items such as depreciation)
– historical exchange rates. The resulting transaction gains or losses are
carried to financial income or expenses, as appropriate.
|
e.
|
Principles
of consolidation
|
The
consolidated financial statements include the accounts of the Company and its
subsidiary. All inter-company transactions and balances have been eliminated in
consolidation.
|
f.
|
Property
and equipment
|
Property
and equipment are recorded at cost and depreciated by the straight-line method
over the estimated useful lives of the assets.
Annual
rates of depreciation are as follows:
%
|
||||
Computers
and peripheral equipment
|
33
|
|||
Office
furniture and equipment
|
15-33
|
Leasehold
improvements are amortized over the term of the lease which is shorter than the
estimated useful life of the improvements.
F-17
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
g.
|
Income
taxes
|
1.
|
Deferred
taxes
|
Deferred
taxes are determined utilizing the asset and liability method based on the
estimated future tax effects of differences between the financial accounting and
tax bases of assets and liabilities under the applicable tax laws. Deferred tax
balances are computed using the tax rates expected to be in effect when those
differences reverse. A valuation allowance in respect of deferred tax assets is
provided if, based upon the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. The
Company has provided a full valuation allowance with respect to its deferred tax
assets.
Regarding
the Subsidiary, paragraph 9(f) of FAS 109, “Accounting for Income Taxes”,
prohibits the recognition of deferred tax liabilities or assets that arise from
differences between the financial reporting and tax bases of assets and
liabilities that are measured from the local currency into dollars using
historical exchange rates, and that result from changes in exchange rates or
indexing for tax purposes. Consequently, the abovementioned differences were not
reflected in the computation of deferred tax assets and
liabilities.
2.
|
Uncertainty
in income tax
|
As of
September 1, 2007, the Company adopted FASB Interpretation No. 48, ‘‘Accounting
for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109’’
(‘‘FIN 48’’). FIN 48 specifies how tax benefits for uncertain tax positions are
to be recognized, measured and derecognized in financial statements; requires
certain disclosures of uncertain tax positions; specifies how reserves for
uncertain tax positions should be classified on the balance sheet; and provides
transition and interim-period guidance, among other provisions. On May 2, 2007,
the FASB issued FASB Staff Position No. FIN 48-1, ‘‘Definition of Settlement in
FASB Interpretation No. 48-1’’ (‘‘FSP FIN 48-1’’). FSP FIN 48-1 provides
guidance regarding how an entity should determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax
benefits.
|
h.
|
Research
and development
|
Research
and development expenses include costs directly attributable to the conduct of
research and development programs, including the cost of salaries, employee
benefits, costs of registered patents materials, supplies, the cost of services
provided by outside contractors, including services related to the Company’s
clinical trials, clinical trial expenses, the full cost of manufacturing drug
for use in research, preclinical development. All costs associated with research
and development are expensed as incurred.
Clinical
trial costs are a significant component of research and development expenses and
include costs associated with third-party contractors. The Company out sources a
substantial portion of its clinical trial activities, utilizing external
entities such as contract research organizations, independent clinical
investigators, and other third-party service providers to assist the Company
with the execution of its clinical studies. For each clinical trial that the
Company conducts, certain clinical trial costs are expensed immediately, while
others are expensed over time based on the expected total number of patients in
the trial, the rate at which patients enter the trial, and the period over which
clinical investigators or contract research organizations are expected to
provide services.
F-18
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (continued):
Clinical
activities which relate principally to clinical sites and other administrative
functions to manage the Company’s clinical trials are performed primarily by
contract research organizations (“CROs”). CROs typically perform most of the
start-up activities for the Company’s trials, including document preparation,
site identification, screening and preparation, pre-study visits, training, and
program management.
Grants
received from the OCS are recognized when the grants become receivable, provided
there is reasonable assurance that the Company will comply with the conditions
attached to the grant and there is reasonable assurance the grant will be
received. The grants are deducted from the related research and development
expenses as the costs are incurred. See also note 6h.
|
i.
|
Cash
equivalents
|
The
Company considers all short term, highly liquid investments, which include
short-term deposits with original maturities of three months or less from the
date of purchase that are not restricted as to withdrawal or use and are readily
convertible to known amounts of cash, to be cash equivalents.
|
j.
|
Comprehensive
loss
|
|
The
Company has no other comprehensive loss components other than net loss for
the fiscal years of 2008 and 2009.
|
|
k.
|
Loss
per share
|
Basic and
diluted net losses per share of common stock are computed by dividing the net
loss for the period by the weighted average number of shares of common stock
outstanding and shares relating to receipts on account of shares in equity
during the period. Outstanding stock options, warrants and
convertible notes have been excluded from the calculation of the diluted loss
per share because all such securities are anti-dilutive for all periods
presented. The total number of common stock options, warrants and convertible
notes excluded from the calculation of diluted net loss was 18,017,697 for the
year ended August 31, 2009 (16,611,697 for the year ended August 31,
2008).
|
l.
|
Impairment
in value of long-lived assets
|
The
Company reviews long-lived assets, to be held and used, for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. In the event the sum of the expected future cash
flows (undiscounted and without interest charges) of the long-lived assets is
less than the carrying amount of such assets, an impairment loss would be
recognized, and the assets are written down to their estimated fair
values.
F-19
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
m.
|
Stock
based compensation
|
The
Company accounts for share based payments in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share-based Payment”
(“SFAS 123R”). SFAS 123R requires awards classified as equity awards be
accounted for using the grant-date fair value method. The fair value of
share-based payment transactions is recognized as an expense over the requisite
service period, net of estimated forfeitures. The Company estimated forfeitures
based on historical experience and anticipated future conditions.
The
Company elected to recognize compensation cost for an award with only service
conditions that has a graded vesting schedule using the accelerated method based
on the multiple-option award approach.
When
stock options are granted as consideration for services provided by consultants
and other non-employees, the transaction is accounted for based on the fair
value of the consideration received or the fair value of the stock options
issued, whichever is more reliably measurable, pursuant to the guidance in
Emerging Issues Task Force (“EITF”) 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” (EITF 96-18). The fair value of the options granted
is measured on a final basis at the end of the related service period and is
recognized over the related service period using the straight-line
method.
F-20
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
n.
|
Fair
value measurement:
|
On
September 1, 2008, the Company adopted the methods of fair value as described in
SFAS No. 157 (“SFAS 157”), which defines fair value, establishes a framework for
measuring fair value in accordance with GAAP and expands disclosure about fair
value measurements to value its financial assets and liabilities. As defined in
SFAS No. 157, fair value is based on the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In order to increase consistency and
comparability in fair value measurements, SFAS No. 157 establishes a fair value
hierarchy that prioritizes observable and unobservable inputs used to measure
fair value into three broad levels, which are described as follows:
|
Level
1:
|
Quoted
prices (unadjusted) in active markets that are accessible at the
measurement date for assets or liabilities. The fair value hierarchy gives
the highest priority to Level 1
inputs.
|
|
Level
2:
|
Observable
prices that are based on inputs not quoted on active markets, but
corroborated by market data.
|
|
Level
3:
|
Unobservable
inputs are used when little or no market data is available. The fair value
hierarchy gives the lowest priority to Level 3
inputs.
|
As of
August 31, 2009 the only assets or liabilities measured at fair value comprise
of derivatives, which have a negligible fair value, measured based on observable
prices (level 2).
In order
to secure the fulfillment of the Company’s obligations under the derivatives
agreements, the Company has placed a deposit with the bank in an amount of
$16,000.
The
adoption of SFAS 157 did not have a material impact on the Company’s results of
operations and financial condition.
o.
|
Concentration
of credit risks
|
Financial
instruments that subject the Company to credit risk consist primarily of cash
and cash equivalents and deposit, which are deposited in major financial
institutions. The company is in the opinion the credit risk in respect of these
balances is remote.
F-21
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING
POLICIES (continued):
|
p.
|
Newly
issued and recently adopted accounting
pronouncements:
|
1.
|
In
May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”).
SFAS 165 sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions
that may occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. SFAS
165 will be effective for interim or annual periods ending after June 15,
2009 and will be applied prospectively. The Company adopted the provisions
of FAS 165. The adoption of SFAS No. 165 did not have a material impact on
the Company’s condensed financial condition, results of operations or cash
flows.
|
2.
|
In
June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
— A Replacement of FASB Statement No. 162” (“SFAS 168”). Statement 168
establishes the FASB Accounting Standards CodificationTM (Codification) as
the single source of authoritative U.S. generally accepted accounting
principles (U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative
U.S. GAAP for SEC registrants. SFAS 168 and the Codification are effective
for financial statements issued for interim and annual periods ending
after September 15, 2009. When effective, the Codification will supersede
all existing non-SEC accounting and reporting standards. All other
nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. Following SFAS 168, the FASB
will not issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will
issue Accounting Standards Updates, which will serve only to: (a) update
the Codification; (b) provide background information about the guidance;
and (c) provide the bases for conclusions on the change(s) in the
Codification. The Company does not expect that the adoption of SFAS 168 to
have a material impact on the Company’s financial
statements.
|
|
q.
|
Reclassifications
|
Certain
figures in respect of prior years have been reclassified to conform to the
current year presentation.
NOTE
2 - SHORT TERM INVESTEMNTS:
Amount
represents bank deposits with an original maturity of more than three months but
less than one year. The bank deposits are in US Dollars and bear interest of
1.4% and 2.56%-2.66% per annum as of August 31, 2009 and 2008,
respectively.
F-22
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 - FAIR VALUE OF FINANCIAL INSTRUMENTS:
The
financial instruments of the Group consist mainly of cash and cash equivalents,
current receivables and accounts payable and accruals.
The fair
value of the financial instruments included in the working capital of the Group
is identical or close to their carrying value.
NOTE
4 - PROPERTY AND EQUIPMENT, Net:
a. Composition of property and
equipment, grouped by major classifications, is as follows:
August 31
|
||||||||
2009
|
2008
|
|||||||
Cost:
|
||||||||
Leasehold
improvements
|
$ | 76,029 | $ | 76,029 | ||||
Office
furniture and equipment
|
19,941 | 17,684 | ||||||
Computers
and peripheral equipment
|
25,333 | 20,037 | ||||||
121,303 | 113,750 | |||||||
Less
- accumulated depreciation and amortization
|
45,942 | 15,454 | ||||||
$ | 75,361 | $ | 98,296 |
b.
|
Depreciation
expense totaled $30,488 and $15,454 in the years ended August
31, 2009 and 2008,
respectively.
|
NOTE
5 - CONVERTIBLE NOTES
In
February 2007, the Company borrowed $125,000 on a convertible note without
interest, due on demand and unsecured. The note is convertible at $0.50 per
share. The Company analyzed the note under EITF 98-5 and EITF 00-27 to determine
if it contained a beneficial conversion feature. It was determined the note did
contain a beneficial conversion feature with an intrinsic value of $60,000.
Because the note is due on demand, the entire amount of the beneficial
conversion feature was amortized immediately to interest expense.
In May
2007, the Company borrowed $150,000 on a convertible note without interest, due
on demand and unsecured. The note is convertible at $0.50 per share. The Company
analyzed the note under EITF 98-5 and EITF 00-27 to determine if it contained a
beneficial conversion feature. It was determined the note did contain a
beneficial conversion feature with an intrinsic value of $48,000. Because the
note is due on demand, the entire amount of the beneficial conversion
feature was amortized immediately to interest expense.
The
Company analyzed the conversion option of both notes and determined it did not
require derivative treatment under FAS 133 and EITF 00–19.
During
the year ended August 31, 2008, the Company received conversion notices
regarding the above mentioned convertible notes. The common stocks underlying
the convertible notes were issued on July 1, 2008.
F-23
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 - COMMITMENTS:
a.
|
Under
the terms of the First Agreement with Hadasit (note 1a above), the Company
retained Hadasit to provide consulting and clinical trial services. As
remuneration for the services provided under the agreement, Hadasit is
entitled to $200,000. The primary researcher for Hadasit is Dr. Miriam
Kidron, a director and officer of the Company. The funds paid to Hadasit
under the agreement are deposited by Hadasit into a research fund managed
by Dr. Kidron. Pursuant to the general policy of Hadasit with respect to
its research funds, Dr. Kidron receives from Hadasit a management fee in
the rate of 10% of all the funds deposited into this research
fund.
|
On
January 7, 2009, the Company entered into a second agreement with Hadasit (the
“Second Agreement”) to provide for the closing referenced in the First
Agreement. In the Second Agreement, Hadasit confirms that it has conveyed,
transferred and assigned all of its ownership rights in the patents acquired
under the First Agreement to the Company, and certain other patents filed by the
Company after the First Agreement as a result of the collaboration between the
Company and Hadasit.
On July
8, 2009 the Company entered into a third agreement with Hadasit, Prof. Itamar
Raz and Dr. Miriam Kidron ("the Third Agreement"), to provide consulting and
clinical trial services. According to the Third Agreement, Hadasit will be
entitled to a total consideration of $400,000 to be paid by Oramed. $200,000 of
this amount was agreed in the terms of the First Agreement, and the remaining of
$200,000 will be paid in accordance with the actual progress of the
study. The total amount that was paid through August 31, 2009 was
$229,255.
b.
|
The
Subsidiary has entered into operating lease agreements for vehicles used
by its employees for a period of 3
years.
|
The lease
expenses for the years ended August 31, 2009 and 2008 were $44,092 and $20,325,
respectively. The future lease payments under the lease agreement are $39,812,
$21,527 and $8,629 for the years ending August 31, 2010, 2011 and 2012
respectively.
As
security for its obligation under the lease agreements the Subsidiary deposited
$12,161, which are classified as long term deposits.
|
c.
|
On
September 19, 2007 the Subsidiary entered into a lease agreement for its
office facilities in Israel. The lease agreement is for a period of 51
months, and will end at December 31, 2011. The monthly lease payment is
2,396 NIS and is linked to the increase in the Israeli consumer price
index, (as of August 31, 2009 the monthly payment in the Company's
functional currency is $629, the future annual lease payment under the
agreement are $7,548).
|
As
security for its obligation under this lease agreement the Company provided a
bank guarantee in an amount equal to three monthly lease
payments.
F-24
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMITMENTS
(continued):
|
d.
|
During
January and April 2008 the Company entered into agreements with OnQ
consulting, a clinical research organization (CRO) located in
Johannesburg, South Africa, to conduct Phase 1B and 2B clinical trials on
its oral insulin capsules. The total cost estimated for the studies is
$229,681 of which $107,599 was paid through August 31,
2009.
|
|
e.
|
As
to a Clinical Trial Manufacturing Agreement with Swiss Caps AG, see note
8a.
|
|
f.
|
On
September 8, 2008, the Company entered into Clinical Research agreement
with ETI Karle Clinical Pvt. Ltd. (“ETI”), pursuant to the agreement ETI
will be conducting clinical trials for the Company in India. In
consideration for the services provided under the agreement, ETI will be
entitled to estimated cash compensation of $227,604, of which $45,038 was
paid though August 31, 2009.
|
|
g.
|
On
April 22, 2009, the subsidiary entered into a consulting service agreement
with ADRES
Advanced Regulatory Services Ltd. (“ADRES”) pursuant to which ADRES will
provide consulting services relating to quality assurance and regulatory
processes and procedures in order to assist the subsidiary in submission
of a U.S. IND according to FDA regulations. In consideration for the
services provided under the agreement, ADRES will be entitled to a total
cash compensation of $211,000, of which the amount $110,000 will be paid
as a monthly fixed fee of $10,000 each month for 11 months commencing May
2009, and the remaining $101,000 will be paid based on achievement of
certain milestones. $50,000 of the total amount was paid though August 31,
2009.
|
|
h.
|
Grants
from the Chief Scientist Office
("OCS")
|
The
subsidiary is committed to pay royalties to the Government of Israel on proceeds
from sales of products in the research and development of which the Government
participates by way of grants.
At the
time the grants were received, successful development of the related projects
was not assured. In case of failure of a project that was partly financed as
above, the company is not obligated to pay any such royalties.
Under the
terms of the company’s funding from the Israeli Government, royalties of 3%-3.5%
are payable on sales of products developed from a project so funded, up to 100%
of the amount of the grant received by the company (dollar linked) with the
addition of annual interest at a rate based on LIBOR.
At August
31, 2009, the subsidiary has not yet realized any revenues from the said project
and did not incur any royalty liability.
F-25
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 - STOCK HOLDERS’ EQUITY:
The
Company’s shares are traded on the Over-The-Counter Bulletin Board.
The
following are capital stock transactions that took place during the years ended
August 31, 2009 and 2008:
|
a.
|
On
July 14, 2008, the Company entered into a Securities Purchase Agreement
with twenty-nine accredited investors for the sale of 8,524,669 units at a
purchase price of $0.60 per unit for total consideration of $5,114,799.
Each unit consisted of one share of the Company's common stock and one
common stock purchase warrant. Each warrant entitles the holder to
purchase half a share of common stock exercisable for three years at an
exercise price of $0.90 per share. No warrants were exercised throughout
August 31, 2009.
|
The
consideration was allocated to the shares and warrants issued based on relative
fair value. The value allocated to the warrants was estimated by using the Black
Scholes option-pricing model at $1,124,564 and was based on the following
assumptions: dividend yield of 0%; expected volatility of 117.9%; risk-free
interest rates of 2.8%; and expected lives of 3 years.
As
finder’s fee, in connection with the securities purchase agreement, the Company
paid $85,000 cash fee to a director (see note 13a), as well as issued 143,333
shares of the Company's common stock for other individuals.
|
b.
|
As
to shares issued as part of stock based compensation plan see Note
8.
|
|
c.
|
As
to a Clinical Trial Manufacturing Agreement with Swiss Caps AG, see note
8a.
|
F-26
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 - STOCK BASED COMPENSATION:
On
October 15, 2006, the Company’s board of directors adopted the 2006 Stock Option
Plan (the “2006 Stock Option Plan”).
On May 5,
2008, the Company’s board of directors adopted the 2008 Stock Option Plan (the
“2008 Stock Option Plan”).
Under
both plans 11,000,000 shares have been reserved for the grant of options, which
may be issued at the discretion of the Company’s Board of Directors from time to
time. Under these plans, each option is exercisable into one share of common
stock of the Company.
The
options may be exercised after vesting and in accordance with vesting schedules
which will be determined by the board of directors for each grant. The maximum
term of the options is 10 years.
The fair
value of each stock option grant is estimated at the date of grant using a Black
Scholes option pricing model. The volatility is based on a historical
volatility, by statistical analysis of the daily share price for past periods.
The expected term is the length of time until the expected dates of exercising
the options, based on estimated data regarding employees’ exercise
behavior.
F-27
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK BASED COMPENSATION
(continued):
The
following are stock options and warrants transactions made during the years
ended August 31, 2008 and 2009:
|
a.
|
On
October 30, 2006 the Company entered into a Clinical Trial Manufacturing
Agreement with Swiss Caps AG (“Swiss”), pursuant to
which Swiss would manufacture and deliver the oral insulin capsule
developed by the Company. In consideration for the services being provided
to the Company by Swiss, the Company agreed to pay a certain predetermined
amounts which are to be paid in common stocks of the Company, the number
of stocks to be issued is based on the invoice received from Swiss, and
the stock market price 10 days after the invoice was issued. The Company
accounted the transaction with Swiss according to FAS 150 "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity".
|
During
the years ended on August 31 2008 and 2009, the Company issued 283,025 and
203,904 shares of its common stock, respectively, to Swiss as remuneration for
the services provided in the amount of $113,210 and $152,928, respectively. As
for shares issued following August 31, 2009 see note 14.
|
b.
|
On
September 4, 2007, 300,000 options were granted to two outside
consultants, at an exercise price of $0.45 per share (equivalent to the
traded market price on the date of grant), the options vest in twelve
equal monthly installments over the first year and those options expired
on September 4, 2009. On September 4, 2009, these options were
expired.
|
|
c.
|
On
October 30, 2007, 100,000 options were granted to an advisory board
member, at an exercise price of $0.76 per share (over the traded market
price on the date of grant), the options vest in eighteen equal monthly
installments from the date of grant and expire on October 30,
2010.
|
|
d.
|
On
May 7, 2008, an aggregate of 1,728,000 options were granted to Nadav
Kidron, the Company’s President, Chief Executive Officer and director, and
Miriam Kidron, the Company’s Chief Medical and Technology Officer and
director, both are related parties through KNRY Ltd. (see note 13c), at an
exercise price of $0.54 per share (equivalent to the traded market price
on the date of grant), 288,000 of the options vested immediately on the
date of grant and the remainder will vest in twenty equal monthly
installments. These options expire on May 7,
2018.
|
|
e.
|
On
July 17, 2008, 100,000 options were granted to an advisory board member,
at an exercise price of $0.62 per share (equivalent to the traded market
price on the date of grant), the options vest in four equal quarterly
installments commencing on September 17, 2008 and expire on July 17,
2011.
|
|
f.
|
On
October 12, 2008, 828,000 options were granted to an employee of the
subsidiary, at an exercise price of $0.47 per share (equivalent to the
traded market price on the date of grant). The options vest in three equal
annual installments commencing on November 1, 2009 and expire on October
11, 2018. On March 31, 2009 the employee ended his services with the
Company and the options were forfeited before they had vested. The Company
recognized an expense of $71,406 during the six months ended February 28,
2009 and reversed that expense in the three months ended May 31, 2009.
|
F-28
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK BASED COMPENSATION
(continued):
|
g.
|
On
October 12, 2008, 56,000 options were granted to an employee of the
subsidiary, at an exercise price of $0.47 per share (equivalent to the
traded market price on the date of grant). The options vest in two equal
annual installments commencing on May 1, 2009 and expire on October 11,
2018.
|
|
h.
|
On
January 11, 2009, an aggregate of 600,000 options were granted to two
Board of Directors members and 150,000 options were granted to an employee
of the subsidiary. All 750,000 options were granted at an
exercise price of $0.43 per share (equivalent to the traded market price
on the date of grant). The options vest in three equal annual installments
commencing on January 1, 2010 and expire on January 10, 2019. On May 31,
2009 such employee left the Company and the options were forfeited before
they had vested. The Company recognized an expense of $4,354 during the
year and reversed that expense.
|
|
i.
|
On
January 11, 2009, an aggregate of 300,000 options were granted to three
Scientific Advisory Board members, at an exercise price of $0.76 per share
(higher than the traded market price on the date of grant) The options
vest in four equal quarterly installments commencing on April 1, 2009 and
expire on January 10, 2019.
|
|
j.
|
On
June 3, 2009, 400,000 options were granted to an employee of the
subsidiary, at an exercise price of $0.47 per share (equivalent to the
traded market price on the date of grant). The options vest in three equal
annual installments, commencing October 19, 2010, and expire on October
19, 2019.
|
|
k.
|
On
August 20, 2009, 100,000 options were granted to an employee of the
subsidiary, at an exercise price of $0.42 per share (equivalent to the
traded market price on the date of grant). The options vest in three equal
annual installments commencing August 20, 2010, and expire on August 20,
2019.
|
F-29
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK BASED COMPENSATION
(continued):
The fair
value of each option grant is estimated on the date of grant using the Black
Scholes option-pricing model with the following assumptions:
For options granted in
|
||||||||
year ended August 31
|
||||||||
2009
|
2008
|
|||||||
Expected option life (years)
|
1.0-9.8
|
1.0-5.4
|
||||||
Expected
stock price volatility (%)
|
113.1-130.5
|
116.3-118.0
|
||||||
Risk
free interest rate (%)
|
0.7-3.6
|
2.2-3.4
|
||||||
Expected
dividend yield (%)
|
0.0
|
0.0
|
A summary
of the status of the stock options granted to employees and directors as of
August 31, 2009 and 2008, and changes during the year ended on those dates, is
presented below:
Year ended August 31,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Number
|
average
|
Number
|
average
|
|||||||||||||
of
|
exercise
|
of
|
exercise
|
|||||||||||||
options
|
price
|
options
|
price
|
|||||||||||||
$
|
$
|
|||||||||||||||
Options
outstanding at beginning of
year
|
7,289,360 | 0.29 | 5,561,360 | 0.21 | ||||||||||||
Changes
during the year:
|
||||||||||||||||
Granted
– at market price
|
2,134,000 | 0.45 | 1,728,000 | 0.54 | ||||||||||||
Forfeited
|
(978,000 | ) | 0.46 | |||||||||||||
Options
outstanding at end of
year
|
8,445,360 | 0.31 | 7,289,360 | 0.29 | ||||||||||||
Options
exercisable at end of
year
|
7,001,360 | 6,137,360 | ||||||||||||||
Weighted
average fair value of options granted during the
year
|
$ | 0.45 | $ | 0.45 |
F-30
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK BASED COMPENSATION
(continued):
Costs
incurred in respect of stock based compensation for employees and directors, for
year ended August 31, 2009 and 2008 were $436,025 and $459,467,
respectively.
The
following table presents summary information concerning the options outstanding
as of August 31, 2009:
Weighted
|
|||||||||||||||||||
Average
|
Weighted
|
||||||||||||||||||
Range of
|
Remaining
|
average
|
|||||||||||||||||
exercise
|
Number
|
Contractual
|
exercise
|
Aggregate
|
|||||||||||||||
prices
|
outstanding
|
Life
|
price
|
intrinsic value
|
|||||||||||||||
$
|
Years
|
$
|
$
|
||||||||||||||||
0.001
|
3,361,360 | 2.95 | 0.001 | 1,542,864 | |||||||||||||||
0.45
to 0.62
|
4,584,000 | 6.80 | 0.43 | 39,000 | |||||||||||||||
0.76
to 0.90
|
500,000 | 0.23 | 0.76 | - | |||||||||||||||
8,445,360 | 5.12 | 0.29 | 1,581,864 |
The
following table presents summary information concerning the options exercisable
as of August 31, 2009:
Weighted
|
|||||||||||||||||||
Average
|
Weighted
|
||||||||||||||||||
Range of
|
Remaining
|
average
|
|||||||||||||||||
exercise
|
Number
|
Contractual
|
exercise
|
Aggregate
|
|||||||||||||||
prices
|
exercisable
|
Life
|
price
|
intrinsic value
|
|||||||||||||||
$
|
Years
|
$
|
$
|
||||||||||||||||
0.001
|
3,361,360 | 2.95 | 0.001 | 1,542,864 | |||||||||||||||
0.45
to 0.62
|
3,140,000 | 5.57 | 0.49 | 17,000 | |||||||||||||||
0.76
to 0.90
|
500,000 | 0.23 | 0.76 | - | |||||||||||||||
7,001,360 | 4.26 | 0.24 | 1,559,864 |
Unrecognized
compensation as determined under FAS 123R as of August 31, 2009 totaled $65,094,
to be recorded over the next 4 months.
F-31
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK BASED COMPENSATION
(continued):
A summary
of the status of the stock options granted to non-employees as of August 31,
2009, and changes during the year ended on this date, is presented
below:
Year ended August 31
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Weighted
|
Weighted
|
|||||||||||||||
Number
|
average
|
Number
|
average
|
|||||||||||||
of
|
exercise
|
of
|
exercise
|
|||||||||||||
options
|
price
|
options
|
price
|
|||||||||||||
$
|
$
|
|||||||||||||||
Options
outstanding at beginning of year
|
900,000 | 0.65 | 750,000 | 0.76 | ||||||||||||
Changes
during the year:
|
||||||||||||||||
Granted
– at market price
|
150,000 | 0.71 | ||||||||||||||
Granted
– at an exercise
|
||||||||||||||||
price
above market
|
||||||||||||||||
Price
|
300,000 | 0.76 | 400,000 | 0.53 | ||||||||||||
Expired
|
(400,000 | ) | 0.76 | |||||||||||||
Options
outstanding at end of year
|
1,200,000 | 0.68 | 900,000 | 0.65 | ||||||||||||
Options
exercisable at end of year
|
900,000 | 733,333 |
The
Company recorded stock compensation of $117,174 and $203,982 during the year
ended August 31, 2009 and 2008 respectively, related to consulting
services.
The
following table presents summary information concerning the options granted to
non-employees outstanding as of August 31, 2009:
Weighted
|
||||||||||||||||
Average
|
Weighted
|
|||||||||||||||
Range of
|
Remaining
|
average
|
||||||||||||||
exercise
|
Number
|
Contractual
|
exercise
|
Aggregate
|
||||||||||||
prices
|
outstanding
|
Life
|
price
|
intrinsic value
|
||||||||||||
$
|
Years
|
$
|
$
|
|||||||||||||
0.45
to 0.62
|
400,000 | 0.48 | 0.49 | 3,000 | ||||||||||||
0.76
to 0.90
|
800,000 | 3.85 | 0.77 | - | ||||||||||||
1,200,000 | 2.73 | 0.68 | 3,000 |
F-32
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - STOCK BASED COMPENSATION
(continued):
The
following table presents summary information concerning the options exercisable
as of August 31, 2008:
Weighted
|
||||||||||||||||
Average
|
Weighted
|
|||||||||||||||
Range of
|
Remaining
|
average
|
||||||||||||||
exercise
|
Number
|
Contractual
|
exercise
|
Aggregate
|
||||||||||||
prices
|
exercisable
|
Life
|
price
|
intrinsic value
|
||||||||||||
$
|
Years
|
$
|
$
|
|||||||||||||
0.45
to 0.62
|
400,000 | 0.48 | 0.49 | 3,000 | ||||||||||||
0.76
to 0.90
|
500,000 | 0.55 | 0.77 | - | ||||||||||||
900,000 | 0.52 | 0.65 | 3,000 |
NOTE
9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Year ended
|
||||||||
August 31,
|
||||||||
2009
|
2008
|
|||||||
Service
providers
|
$ | 274,291 | $ | 635,762 | ||||
Tax
provisions
|
12,504 | 31,514 | ||||||
Related
parties
|
28,062 | |||||||
Payroll
and related expenses
|
34,547 | 40,714 | ||||||
$ | 321,344 | $ | 736,052 |
NOTE
10 - RESEARCH AND DEVELOPMENT EXPENSES:
Period from
April
|
||||||||||||
12, 2002
|
||||||||||||
(inception)
|
||||||||||||
Year ended
|
through
|
|||||||||||
August 31,
|
August 31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Clinical
trials
|
$ | 1,304,779 | $ | 538,056 | $ | 2,368,105 | ||||||
Payroll
and consulting fees
|
272,116 | 240,209 | 695,578 | |||||||||
Costs
for registration of patents
|
17,775 | 89,645 | 118,465 | |||||||||
Compensation
costs in respect of warrants granted
to employees, directors and consultants
|
264,861 | 285,336 | 2,216,663 | |||||||||
Other
|
63,062 | 57,248 | 146,453 | |||||||||
Less
– grants from the OCS
|
(400,405 | ) | (400,405 | ) | ||||||||
$ | 1,522,188 | $ | 1,210,494 | $ | 5,144,859 |
F-33
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 - GENERAL AND ADMINISTRATIVE EXPENSES
Period from
April
|
||||||||||||
12, 2002
|
||||||||||||
(inception)
|
||||||||||||
Year ended
|
through
|
|||||||||||
August 31
|
August 31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Compensation
costs in respect of warrants granted to employees, directors and
consultants
|
$ | 288,338 | $ | 378,113 | $ | 1,146,314 | ||||||
Professional
services
|
240,523 | 391,309 | 1,011,802 | |||||||||
Consulting
fees
|
155,359 | 151,037 | 480,678 | |||||||||
Travel
costs
|
132,531 | 141,862 | 410,704 | |||||||||
Write
off of debt
|
275,000 | |||||||||||
Business
development
|
73,286 | 154,357 | 227,643 | |||||||||
Payroll
and related expenses
|
205,122 | 95,244 | 300,366 | |||||||||
Insurance
|
25,068 | 23,630 | 48,698 | |||||||||
Other
|
141,703 | 133,965 | 356,346 | |||||||||
$ | 1,261,930 | $ | 1,469,517 | $ | 4,257,551 |
NOTE
12 - TAXES ON INCOME:
Taxes on
income included in the consolidated statements of operations represent current
taxes due to taxable income of the US Company and its subsidiary.
a.
|
Corporate
taxation in the U.S.
|
The
applicable corporate tax rate for the Company is 35%.
As of
August 31, 2009, the Company has an accumulated tax loss carryforward of
approximately $3,606,510 (August 31, 2008 approximately - $3,425,168). Under USA
tax laws, carryforward tax losses expire 20 years after the year in which it
incurred, in the case of the Company the net loss carryforward will expire in
the years 2025 through 2028.
b.
|
Corporate
taxation in Israel:
|
The
Subsidiary is taxed in accordance with Israeli tax laws. The regular corporate
tax rate in Israel for 2009 is 26%.
On
July 23, 2009, the Economic Efficiency (Legislation Amendments to the
Implementation of the Economic Plan for the Years 2009 and 2010) Law, 2009
(hereinafter – the 2009 Amendment) was published in the Official
Gazette. Inter alia, the 2009 Amendment provides for a further
gradual reduction of the corporate tax rate in tax years 2011 and thereinafter,
as follows: 2010 -25%, 2011 – 24%, 2012 – 23%, 2013 – 22%,
2014 – 21%, 2015 – 20% and 2016 and thereinafter –
18%.
As of
August 31, 2009, the Subsidiary has an accumulated tax loss carryforward of
approximately $1,115,041.
F-34
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - TAXES ON INCOME
(continued):
c.
|
Deferred
income taxes:
|
August 31
|
||||||||
2009
|
2008
|
|||||||
In
respect of:
|
||||||||
Net
operating loss carryforward
|
$ | 1,507,587 | $ | 1,194,401 | ||||
Less
- Valuation allowance
|
(1,507,587 | ) | (1,194,401 | ) | ||||
Net
deferred tax assets
|
-,- | -,- |
Realization
of deferred tax assets is dependent upon sufficient future taxable income during
the period that deductible temporary differences and carryforwards are expected
to be available to reduce taxable income. As the achievement of required future
taxable income is uncertain, the Company recorded a full valuation
allowance.
d.
|
Income
loss before taxes on income and income taxes included in the income
statements:
|
Period from
April
|
||||||||||||
12, 2002
|
||||||||||||
(inception)
|
||||||||||||
Year ended
|
through
|
|||||||||||
August 31
|
August 31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Loss
before taxes on income:
|
||||||||||||
U.S.
|
$ | 248,890 | $ | 2,315,686 | $ | 7,134,126 | ||||||
Outside
U.S.
|
2,514,181 | 291,421 | 2,877,149 | |||||||||
2,763,071 | 2,607,107 | 10,011,275 | ||||||||||
Taxes
on income:
|
||||||||||||
Current:
|
||||||||||||
U.S.
|
16,664 | 39,799 | 56,463 | |||||||||
Outside
U.S.
|
(19,261 | ) | 122,365 | 103,104 | ||||||||
$ | (2,597 | ) | $ | 162,164 | $ | 159,567 |
F-35
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - TAXES ON INCOME
(continued):
e.
|
Reconciliation
of the theoretical tax expense to actual tax
expense
|
Following
is a reconciliation of the theoretical tax expense, assuming all income is taxed
at the regular tax rates applicable to companies in U.S., and the actual tax
expense:
Period from
April
|
||||||||||||
12, 2002
|
||||||||||||
(inception)
|
||||||||||||
Year ended
|
through
|
|||||||||||
August 31
|
August 31,
|
|||||||||||
2009
|
2008
|
2009
|
||||||||||
Loss
before income taxes as reported in the consolidated statement of
operations
|
$ | (2,763,071 | ) | $ | (2,607,107 | ) | $ | (9,849,111 | ) | |||
Computed
“expected” tax benefit
|
(967,075 | ) | (912,487 | ) | (3,447,189 | ) | ||||||
Increase
(decrease) in income taxes resulting from:
|
||||||||||||
Change
in the balance of the valuation
|
||||||||||||
allowance
for deferred tax losses
|
528,143 | 714,048 | 1,722,544 | |||||||||
Disallowable
deductions
|
149,043 | 200,916 | 1,431,509 | |||||||||
Increase
in taxes resulting from
|
||||||||||||
different
tax rates applicable to non
|
||||||||||||
U.S.
subsidiary
|
270,879 | 29,037 | 305,640 | |||||||||
Uncertain
tax position
|
16,413 | 130,650 | 147,063 | |||||||||
Taxes
on income for the reported year
|
$ | (2,597 | ) | $ | 162,164 | $ | 159,667 |
f.
|
Uncertainty
in Income Taxes
|
The
Company adopted FIN 48 effective September 1, 2007. FIN 48 requires significant
judgment in determining what constitutes an individual tax position as well as
assessing the outcome of each tax position. Changes in judgment as to
recognition or measurement of tax positions can materially affect the estimate
of the effective tax rate and consequently, affect the operating results of the
Company. The Company had no unrecognized tax benefits as of September 1, 2007.
As a result of the implementation of FIN 48 the Company recoded an additional
provision for income taxes in the amount of $130,650 due to uncertainty in its
tax position. The Company recognizes interest and penalties related to its tax
contingencies as income tax expense. As of August 31, 2009 and 2008, the Company
recorded $47,881 and $37,469, respectively, of penalties related to tax
contingencies.
F-36
ORAMED
PHARMACEUTICALS INC.
(A
Development Stage Company)
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - TAXES ON INCOME
(continued):
The
Company do not expect unrecognized tax expenses to change significantly over the
next 12 months.
The
Company is subject to Israeli income tax examinations and to U.S. Federal income
tax examinations for the tax years of 2002 through 2008. As of August 31, 2009,
the Company did not record any change to its unrecognized tax
benefits.
NOTE
13 - RELATED PARTIES - TRANSACTIONS:
a.
|
During
the fiscal years of 2008 and 2009 the Company paid to directors $15,000
and $16,000, respectively, for managerial
services.
|
In
addition, one of the directors received $85,000 as a finder’s fee, in connection
with the Company’s private placement on July 14, 2008.
b.
|
As
to the agreements with Hadasit, see note
6a.
|
c.
|
On
July 1, 2008, the subsidiary entered into a consulting agreement with KNRY
Ltd. (“KNRY”), an Israeli company owned by Nadav Kidron, whereby Mr. Nadav
Kidron, through KNRY, will provide services as President and Chief
Executive Officer of both Oramed and the subsidiary (the “Nadav Kidron
Consulting Agreement”). Additionally, on July 1, 2008, the
subsidiary entered into a consulting agreement with KNRY whereby Dr.
Miriam Kidron, through KNRY, will provide services as Chief Medical and
Technology Officer of both Oramed and the subsidiary (the “Miriam Kidron
Consulting Agreement” and together with the Nadav Kidron Consulting
Agreement, the “Consulting Agreements”). The Consulting
Agreements replaced the employment agreements entered into between the
Company and KNRY, dated as of August 1, 2007, pursuant to which Nadav
Kidron and Miriam Kidron, respectively, provide services to Oramed and the
subsidiary.
|
The
Consulting Agreements are both terminable by either party upon 60 days prior
written notice. The Consulting Agreements provide that KNRY (i) will
be paid, under each of the Consulting Agreements, in New Israeli Shekels (“NIS”)
a gross amount of NIS50,400 + Value-Added-Tax per month (as of August 31, 2009
the monthly payment in the Company's functional currency is $13,224+VAT) and
(ii) will be reimbursed for reasonable expenses incurred in connection with
performance of the Consulting Agreements.
NOTE
14 – SUBSEQUENT EVENTS
The
Company has performed an evaluation of subsequent events through November 24
2009, which is the date the financial statements were issued.
a.
|
On
September 11, 2009, the Company issued 569,887 shares of its common stock
to Swiss as remuneration for the services provided, in the amount of
$203,699.
|
b.
|
On
November 23, 2009, 100,000 options were granted to a consultant of the
subsidiary at an exercise price of $0.76 per share. The options vest in
three equal annual installments commencing on November 23, 2010 and will
expire on November 23, 2014.
|
c.
|
On
November 23, 2009, 36,000 options were granted to an employee of the
subsidiary at an exercise price of $0.46 per share. The options vest in
three equal annual installments commencing on November 23, 2010 and will
expire on November 23,
2019.
|
F-37
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13.
|
OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION
|
The
following is a statement of expenses to be incurred by Oramed Pharmaceuticals
Inc. in connection with the distribution of the securities registered under this
registration statement:
Amount
|
||||
SEC
fee
|
$ | 1,188 | ||
Legal
fees and expenses
|
$ | 33,000 | ||
Accountant’s
fees and expenses
|
$ | 2,500 | ||
Printing
expenses
|
$ | 1,300 | ||
Miscellaneous
|
$ | 512 | ||
Total
|
$ | 38,500 |
ITEM
14.
|
INDEMNIFICATION OF DIRECTORS
AND OFFICERS
|
Nevada
law generally permits us to indemnify our directors, officers, employees and
agents. The Nevada Revised Statutes permit a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys’ fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if such person (i) is not liable for a breach of
fiduciary duties involving intentional misconduct, fraud or a knowing violation
of law, or (ii) acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. No indemnification, however, shall be made in
respect of any claim, issue or matter as to which such person is adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that, despite the adjudication of liability but in view of all of
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Nevada
law requires that a corporation must indemnify a director, officer, employee or
agent of the corporation against expenses, including attorneys’ fees, actually
and reasonably incurred by him in connection with the defense of any action,
suit or proceeding of the type described in the first sentence of the foregoing
paragraph, to the extent such person has been successful on the merits or
otherwise in defense of any such action, suit or proceeding. Any
permissive indemnification permitted under Nevada law may be made only as
authorized in each specific case upon a determination that indemnification is
proper because the indemnitee has met the applicable standard of conduct, with
such determination to be made by either (a) the stockholders, (b) the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding or (c) independent legal counsel in a
written opinion (if either a majority vote of a quorum consisting of directors
who were not parties to the action, suit or proceeding so orders or if such a
quorum cannot be obtained).
II-1
Our
Bylaws provide that we have the power to indemnify, to the fullest extent
legally permissible under the corporations law of the State of Nevada, directors
or officers of the Company for all expenses and loss incurred by each such
person who is a party, is threatened to be made a party to, or is involved in
any action, suit or proceedings (whether civil, criminal, administrative
investigative) by reason of the fact that the person is, or was a director or
officer of the Company or serving at the request of the Company or for the
benefit of the Company as a director or office of another corporation, or as its
representative in a partnership, joint venture, trust or other
enterprise. The Company will pay the expenses incurred by such person
in connection with the defense of a civil or criminal action suit or proceeding
as such expenses are incurred and before the final disposition of the proceeding
in question upon receipt of an undertaking by such person to repay the amount if
it is determined by a court of competent jurisdiction that he or she is not
entitled to be indemnified by the Company. The right to
indemnification does not exclude any other rights to which the person seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court or for the advancement of
expenses, may not be made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company under
Nevada law or otherwise, the Company has been advised that the opinion of the
SEC is that such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
We
entered into indemnification agreements with our directors and officers pursuant
to which we agreed to indemnify each director and officer for any liability he
or she may incur by reason of the fact that he or she serves as our director or
officer, to the maximum extent permitted by law.
We expect
to maintain standard policies of insurance that provide coverage to our
directors and officers against loss rising from claims made by reason of breach
of duty or other wrongful act.
ITEM
15.
|
RECENT SALES OF UNREGISTERED
SECURITIES
|
Over the
past three years, we have issued and sold the following securities without
registration under the Securities Act:
On
February 12, 2007, we issued unsecured convertible debentures, in the amount of
$125,000, to Epsom Investment Services. All of any portion of the
amounts due under the debenture may be converted at any time, at the option of
the holder, into 250,000 shares of our common stock at a conversion price of
$0.50 per share.
On June
15, 2007, we issued to certain selling stockholders, in a private placement,
3,600,000 units of our securities at a price of $0.50 per unit for aggregate
proceeds of $1,800,000. Each unit consists of one share of common stock and one
three-year warrant, each warrant exercisable into one share of common stock at
an exercise price of $0.75 per share. We issued the units to
seven non-U.S. persons (as that term is defined in Regulation S of the
Securities Act) in an offshore transaction relying on Regulation S and/or
Section 4(2) of the Securities Act.
On August
2, 2007, we issued to certain selling stockholders, in a private placement,
510,000 units at a purchase price of $0.50 per unit for aggregate proceeds of
$255,000. Each unit consisted of one share of common stock and one three-year
warrant, each warrant exercisable into one share of common stock at an exercise
price of $0.75 per share. We also issued 10,000 shares of common
stock to one non-US individual as a finder’s fee pursuant to an offshore
transaction relying on Regulation S and/or Section 4(2) of the Securities
Act. We issued the
units to six non-U.S. persons (as that term is defined in Regulation S of the
Securities Act) in an offshore transaction relying on Regulation S and/or
Section 4(2) of the Securities Act.
On
September 7, 2007, we issued 283,025 shares of common stock, valued at $113,210,
to Swiss Cap AG, for services rendered in the prior year.
II-2
On
November 8, 2007, we issued 10,000 shares as a finder’s fee to Shikma A M R LTD,
valued at $2,900.
On July
14, 2008 we completed a private placement to 29 accredited investors pursuant to
which we sold to the investors an aggregate of 8,524,669 shares of common stock
at a purchase price of $0.60 per share. The investors also received
three-year warrants to purchase an aggregate of 4,262,337 shares of common stock
at an exercise price of $0.90 per share. We paid $85,000 to a director as a
finder’s fee and issued an aggregate of 143,333 shares of common stock to four
other individuals as finder’s fees in connection with the private
placement.
On
October 17, 2008, we issued 203,904 shares of common stock valued at $152,928 to
Swiss Cap AG, for services rendered in the prior year.
On
September 11, 2009, we issued 569,887 shares of our common stock to Swiss Cap AG
as remuneration for services rendered during 2009, in the amount of
$203,699.
On
December 29, 2009, we issued 328,110 shares of common stock, valued at $169,500,
to Swiss Cap AG for services rendered in the prior year.
On
December 29, 2009, we issued 100,000 shares of common stock, valued at $12,500,
to a third party for services that will be rendered in the six months beginning
December 15, 2009.
Over the
past three years, we issued options to purchase 3,350,000 shares of common stock
under the 2006 Plan, with a weighted average exercise price of
$0.57. Of these options, 1,450,000 have been expired, none of the
options have been exercised for shares of our common stock and the remaining
1,900,000 are currently outstanding. We have also issued options to
purchase 4,448,000 shares of common stock under the 2008 Plan, with a weighted
average exercise price of $0.52. Of these options, 978,000 have been
forfeited, none have been exercised for shares of our common stock and the
remaining 3,470,000 are currently outstanding. On August 14, 2007 the
Company granted options to purchase up to 3,361,360 shares at an exercise price
of $0.001 for five years to Miriam Kidron. Of these options, none have been
forfeited, none have been exercised for shares of our common stock and options
to purchase 3,361,360 shares remain outstanding.
The
proceeds of all the foregoing sales were used to finance the research and
development of our products and for general corporate purposes. We believe that
all of the foregoing sales qualified for exemption under Section 4(2) of the
Securities Act since the issuance of the securities by us did not involve a
public offering. The offerings were not “public offerings” as defined in Section
4(2) due to the type of investors, the insubstantial number of investors
involved in the offering, the size of the offering, the manner of the offering
and number of securities offered. In addition, these securityholders had agreed
to the necessary investment intent as required by Section 4(2). Some of the
foregoing sales qualified as offshore transactions under Regulations S
promulgated under the Securities Act. We did not employ an
underwriter in connection with the issuance of the securities described above.
For a list of the selling stockholders, please see "Selling Stockholders"
above.
ITEM
16.
|
EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
|
(a)
Exhibits.
The
exhibits filed with this registration statement are set forth on the “Exhibit Index” set forth
elsewhere herein.
(b)
Financial Statement Schedules.
Schedules
filed with this registration statement are set forth on the “Index to Financial
Statements” set forth elsewhere herein.
II-3
ITEM
17.
|
UNDERTAKINGS
|
The
undersigned Registrant hereby undertakes:
To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration
statement:
(i)
|
to
include any prospectus required by Section 10(a)(3) of the Securities
Act;
|
(ii)
|
to
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in
the effective registration statement;
and
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(iii)
|
to
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
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That, for the purpose of determining
any liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide
offering thereof.
To remove from registration by means of
a post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
That, for
the purpose of determining liability under the Securities Act to any
purchaser:
(A)
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Each
prospectus filed by a Registrant pursuant to Rule 424(b)(3) shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement;
and
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(B)
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Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x)
for the purpose of providing the information required by Section 10(a) of
the Securities Act shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of
the issuer and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which the
prospectus relates, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering
thereof. Provided, however, that
no statement made in a registration statement or prospectus that is part
of the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective
date.
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That, for the purpose of determining
liability of the Registrant under the Securities Act to any purchaser in the
initial distribution of the securities, the undersigned Registrant undertakes
that in a primary offering of securities of the undersigned Registrant pursuant
to this registration statement, regardless of the underwriting method used to
sell the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the undersigned
Registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
II-4
(i)
|
Any
preliminary prospectus or prospectus of the undersigned Registrant
relating to the offering required to be filed pursuant to Rule
424;
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(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned Registrant or used or referred to by the undersigned
Registrant;
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned Registrant or its
securities provided by or on behalf of the undersigned Registrant;
and
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(iv)
|
Any
other communication that is an offer in the offering made by the
undersigned Registrant to the
purchaser.
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Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Jerusalem, Israel on the
24th day of February, 2010.
Oramed
Pharmaceuticals Inc.
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||
By:
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|
|
/s/
Nadav Kidron
|
||
Name:
|
Nadav
Kidron
|
|
Title:
|
President,
Chief Executive Officer and
Director
|
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the capacities
indicated:
Signature
|
Title
|
Date
|
||
/s/
Nadav Kidron
|
||||
Nadav
Kidron
|
President,
Chief Executive Officer and
Director
(principal executive officer)
|
February
24, 2010
|
||
/s/
Yifat Zommer
|
||||
Yifat
Zommer
|
Chief
Financial Officer, Treasurer and
Secretary
(principal financial and
accounting
officer)
|
February
24, 2010
|
||
/s/
*
|
||||
Miriam
Kidron
|
Chief
Medical and Technology Officer
and
Director
|
February
24, 2010
|
||
/s/ *
|
||||
Leonard
Sank
|
Director
|
February
24, 2010
|
||
/s/ *
|
||||
Harold
Jacob
|
Director
and Member of the Scientific
Advisory
Board
|
February
24,
2010
|
* By:
|
/s/
Yifat Zommer
|
|
Attorney-in-fact
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EXHIBIT
INDEX
Exhibit
|
||
No.
|
Description
|
|
3.1
|
Articles
of Incorporation (incorporated by reference from our Registration
Statement on Form S-1 no. 333-164286, filed on January 11,
2010).
|
|
3.2
|
Bylaws
(incorporated by reference from our Current Report on Form 8-K filed on
April 10, 2006).
|
|
3.3
|
Articles
of Merger filed with the Nevada Secretary of State on March 29, 2006
(incorporated by reference to our Current Report on Form 8-K filed on
April 10, 2006).
|
|
4.1
|
Specimen
Stock Certificate (incorporated by reference from our Registration
Statement on Form SB-2, filed on November 29, 2002).
|
|
4.2
|
Form
of Warrant Certificate (incorporated by reference from our current report
on Form 8-K filed July 15, 2008).
|
|
5.1*
|
Opinion
of Snell & Wilmer L.L.P.
|
|
10.1
|
Form
of Securities Purchase Agreement for February 6, 2006 private placement
(incorporated by reference from our current report on Form 8-K filed
February 6, 2006).
|
|
10.2
|
Agreement
between our company and Hadasit Medical Services and Development Ltd.
dated February 17, 2006 concerning the acquisition of U.S. patent
application 60/718716 (incorporated by reference from our current report
on Form 8-K filed February 17, 2006).
|
|
10.3
|
Consulting
Agreement between our company and Dr. Miriam Kidron (incorporated by
reference from our current report on Form 8-K filed February 17,
2006).
|
|
10.4
|
Agreement
between our company and Swiss Caps Ag dated October 30, 2006 (incorporated
by reference from our current report on Form 8-K filed October 26,
2006).
|
|
10.5
|
Stock
Option Plan dated October 15, 2006 (incorporated by reference from our
current report on Form 8-K filed on November 28, 2006).
|
|
10.6
|
Stock
Option Agreement dated November 23, 2006 (incorporated by reference from
our current report on Form 8-K filed on November 28,
2006).
|
|
10.7
|
Form
of subscription agreement and warrant certificate (incorporated by
reference from our current report on Form 8-K filed on June 18,
2007).
|
|
10.8
|
Form
of Shares for Services agreement (incorporated by reference from our
current report on Form 8-K filed on August 3, 2007).
|
|
10.9
|
Master
Services Agreement dated January 29, 2008 between Oramed Pharmaceuticals
Inc. and OnQ Consulting (incorporated by reference from our current report
on Form 8-K filed on February 1, 2008).
|
|
10.10
|
Consulting
Agreement by and between Oramed Ltd. and KNRY, Ltd. entered into as of
July 1, 2008 for the services of Nadav Kidron (incorporated by reference
from our current report on Form 8-K filed on July 2,
2008).
|
10.11
|
Consulting
Agreement by and between Oramed Ltd. and KNRY, Ltd. entered into as of
July 1, 2008 for the services of Miriam Kidron (incorporated by reference
from our current report on Form 8-K filed on July 2,
2008).
|
|
10.12
|
Oramed
Pharmaceuticals Inc. 2008 Stock Incentive Plan (incorporated by reference
from our current report on Form 8-K filed on July 2,
2008).
|
|
10.13
|
Form
of Notice of Stock Option Award and Stock Option Award Agreement
(incorporated by reference from our current report on Form 8-K filed on
July 2, 2008).
|
|
10.14
|
Form
of Stock Purchase Agreement (incorporated by reference from our current
report on Form 8-K filed on July 15, 2008).
|
|
10.15
|
Employment
Agreement, dated as of April 19, 2009, by and between Oramed Ltd. and
Yifat Zommer (incorporated by reference from our current report on Form
8-K filed on April 22, 2009).
|
|
10.16
|
Indemnification
Agreement, dated as of April 19, 2009, by and between Oramed Ltd. and
Yifat Zommer (incorporated by reference from our current report on Form
8-K filed on April 22, 2009).
|
|
10.17
|
Agreement
dated April 22, 2009, between Oramed Ltd. and ADRES Advanced Regulatory
Services Ltd. (incorporated by reference from our current report on Form
8-K filed April 22, 2009).
|
|
10.18
|
Agreement
dated July 8, 2009, between our company and Hadasit Medical Services and
Development Ltd. (incorporated by reference from our current report on
Form 8-K filed July 9, 2009).
|
|
10.19
|
Agreement
dated January 7, 2009, between our company and Hadasit Medical Services
and Development Ltd. (incorporated by reference from our current report on
Form 8-K filed January 7, 2009).
|
|
10.20
|
Form
of Indemnification Agreements dated November 2, 2008, between our company
and each of our directors and officers (incorporated by reference from our
current report on Form 8-K filed November 6, 2009).
|
|
23.1*
|
Consent
of Kesselman & Kesselman, certified public accountants in Israel, a
member of PricewaterhouseCoopers International.
|
|
23.2*
|
Consent
of Malone & Bailey, PC –Certified Public
Accountants.
|
|
23.3*
|
Consent
of Snell & Wilmer L.L.P. (contained in Exhibit
5.1).
|
|
24.1**
|
|
Power
of Attorney (included in the signature pages
hereto).
|
*
|
Filed
herewith.
|
**
|
Previously
filed.
|