1 Does not include 17,103,697 shares of our common stock issuable upon the exercise of outstanding options and warrants.

 

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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.

 

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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.”

 

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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.

 

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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”.

 

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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.

 

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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:

 

·

Clinical trial results and the timing of the release of such results,

 

·

The amount of cash resources and ability to obtain additional funding,

 

·

Announcements of research activities, business developments, technological innovations or new products by companies or their competitors,

 

·

Entering into or terminating strategic relationships,

 

·

Changes in government regulation,

 

·

Departure of key personnel,

 

·

Disputes concerning patents or proprietary rights,

 

·

Changes in expense level,

 

·

Future sales of our equity or equity-related securities,

 

·

Public concern regarding the safety, efficacy or other aspects of the products or methodologies being developed,

 

·

Activities of various interest groups or organizations,

 

·

Media coverage, and

 

·

Status of the investment markets.

 

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.

 

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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:

 

·

Control of the market for the security by one or a few broker-dealers;

 

·

“Boiler room” practices involving high-pressure sales tactics;

 

·

Manipulation of prices through prearranged matching of purchases and sales;

 

·

The release of misleading information;

 

·

Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

 

·

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.

 

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.

 

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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.

 

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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.

 

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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
First Quarter		$	0.64			$	0.43
Second Quarter (through February 23, 2010)		$	0.48			$	0.37
Year Ended August 31, 2009
First Quarter		$	0.76			$	0.36
Second Quarter		$	0.52			$	0.25
Third Quarter		$	0.62			$	0.20
Fourth Quarter		$	0.59			$	0.40
Year Ended August 31, 2008
First Quarter		$	0.48			$	0.23
Second Quarter		$	0.67			$	0.21
Third Quarter		$	0.66			$	0.45
Fourth Quarter		$	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-

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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-

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		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-

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		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-

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(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-

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·

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-

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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-

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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

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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

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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

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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

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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

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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

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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

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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

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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