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. These warrants expired on June 15, 2010.

 

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. These warrants expired on August 2, 2010 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 August 24, 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.

 

-43-

---

 

 

Name of Selling Stockholder		Shares Beneficially Owned Before the Offering (excluding shares issuable upon the exercise of warrants or options) (1)				Shares Beneficially Owned Before the Offering that are Issuable Upon the Exercise of Warrants or Options				Maximum Number of Shares to be Offered in the Offering				Number of Shares Beneficially Owned Immediately AfterSale of Maximum Number of 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)			1,500,000				—				1,500,000				—				—
Leonard Sank (3)			774,317				83,334				250,001				607,650				—
Apollo Nominees Incorporated			80,000				—				80,000				—				—
Apollo Nominees Inc.			2,351,667				1,145,834				3,497,501				—				—
Laurie Rubin			440,000				-				440,000				-				-
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				50,000				150,000				—				—
Shikma A M R Ltd			110,000				50,000				160,000				—				—

 

-44-

---

 

Name of Selling Stockholder		Shares Beneficially Owned Before the Offering (excluding shares issuable upon the exercise of warrants or options) (1)				Shares Beneficially Owned Before the Offering that are Issuable Upon the Exercise of Warrants or Options				Maximum Number of Shares to be Offered in the Offering				Number of Shares Beneficially Owned Immediately AfterSale of Maximum Number of Shares in the Offering
														# of Shares (2)				% of Class
Edward Danehy			110,000				55,000				165,000				—				—
Oberdorf Finance SA			80,000				—				80,000				—				—
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				50,000				750,000				—				—
Total			30,513,111				4,382,503				34,247,302				648,312				—

 

-45-

---

  

---

(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 57,565,321 shares of common stock issued and outstanding on August 24, 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;

 

 

-46-

---

 

·

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

 

·

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.

 

-47-

---

 

 

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.

 

-48-

---

 

FINANCIAL STATEMENTS

ORAMED PHARMACEUTICALS INC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

Unaudited Consolidated Financial Statements

May 31, 2010

		Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets		F-4
Statements of Operations		F-5
Statements of Changes in Stockholders’ Equity		F-6
Statements of Cash Flows		F-7
Notes to Financial Statements		F-8

Audited Consolidated Financial Statements

August 31, 2009

		Page
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM - Report of Kesselman & Kesselman		F-14
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM - Report of Malone & Bailey, PC		F-15
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets		F-16
Statements of Operations		F-17
Statements of Changes in Stockholders’ Equity		F-18
Statements of Cash Flows		F-20
Notes to Financial Statements		F-21

 

---

---

---

 

 

F-1

---

 

ORAMED PHARMACEUTICALS INC.

(A development stage company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MAY 31, 2010

 

F-2

---

 

ORAMED PHARMACEUTICALS INC.

 (A development stage company)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF MAY 31, 2010

TABLE OF CONTENTS

		Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets		F-4
Statements of operations		F-5
Statements of changes in stockholders’ equity		F-6
Statements of cash flows		F-7
Notes to financial statements		F-8-F-13

 

---

---

---

  

 

F-3

---

 

ORAMED PHARMACEUTICALS INC.

(A development stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS

U.S. dollars

		May 31,				August 31,
		2010				2009
		Unaudited				Audited
Assets
CURRENT ASSETS:
Cash and cash equivalents		$	1,134,506			$	1,716,866
Short term investments			500,000				1,000,000
Restricted cash			16,008				16,000
Accounts receivable – other			35,620				36,939
Prepaid expenses			100,911				4,119
Grants receivable from the Office of the Chief Scientist			266,215				400,405
Total current assets			2,053,260				3,174,329
LONG TERM DEPOSITS			10,729				12,161
PROPERTY AND EQUIPMENT, net			51,552				75,361
Total assets		$	2,115,541			$	3,261,851
Liabilities and stockholders' equity
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	239,093			$	321,344
Account payable with former shareholder			47,252				47,252
Total current liabilities			286,345				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 May 31, 2010 and August 31, 2009; Issued and outstanding: 57,480,217 at May 31, 2010 and  56,456,710 shares at August 31, 2009, respectively			57,480				56,456
Additional paid-in capital			13,444,554				12,698,414
Deficit accumulated during the development stage			(11,819,901	)			(10,008,678	)
Total stockholders' equity			1,682,133				2,746,192
Total liabilities and stockholders' equity		$	2,115,541			$	3,261,851

 

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 OPERATION

U.S. dollars

																		Period
																		from April
																		12, 2002
																		(inception)
		Nine months ended								Three months ended								through
		May 31,				May 31,				May 31,				May 31,				May 31,
		2010				2009				2010				2009				2010
		Unaudited
RESEARCH AND DEVELOPMENT EXPENSES		$	833,498			$	1,500,809			$	346,716			$	387,663			$	5,978,357
IMPAIRMENT OF INVESTMENT																			434,876
GENERAL AND ADMINISTRATIVE EXPENSES			981,861				879,518				459,242				144,145				5,239,412
OPERATING LOSS			1,815,359				2,380,327				805,958				531,808				11,652,645
FINANCIAL INCOME			(15,897	)			(38,950	)			(4,981	)			(18,518	)			(152,005	)
FINANCIAL EXPENSE			11,761				18,211				5,242								159,694
LOSS BEFORE TAXES ON INCOME			1,811,223				2,359,588				806,219				513,290				11,660,334
TAXES ON INCOME			-				-				-				-				159,567
NET LOSS FOR THE PERIOD		$	1,811,223			$	2,359,588			$	806,219			$	513,290			$	11,819,901
BASIC AND DILUTED LOSS PER COMMON SHARE		$	0.03			$	0.04			$	0.01			$	0.01
WEIGHTED AVERAGE NUMBER OF COMMON STOCK USED IN COMPUTING BASIC AND DILUTED LOSS PER COMMON STOCK			57,349,130				56,546,323				57,466,907				56,802,562

The accompanying notes are an integral part of the consolidated financial statements.

 

F-5

---

 

 

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											2,428,014								2,428,014
STOCK BASED COMPENSATION RELATED TO OPTIONS GRANTED TO CONSULTANTS											381,764								381,764
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 ISSUED FOR  SERVICES RENDERED			453,620				454				211,546								212,000
STOCK BASED COMPENSATION RELATED TO OPTIONS GRANTED TO EMPLOYEES AND DIRECTORS											423,795								423,795
STOCK BASED COMPENSATION RELATED TO OPTIONS GRANTED TO CONSULTANTS											108,533								108,533
IMPUTED INTEREST											2,836								2,836
NET LOSS															(1,811,223	)			(1,811,223	)
BALANCE AS OF MAY 31, 2010 (unaudited)			57,480,217			$	57,480			$	13,444,554			$	(11,819,901	)		$	1,682,133

The accompanying notes are an integral part of the consolidated financial statements

 

F-6

---

 

 

ORAMED PHARMACEUTICALS INC.

(A development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

U.S. dollars

 

										Period from April
										12, 2002
										(inception date)
		Nine months ended								through
		May 31,								May 31,
		2010				2009				2010
		Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,811,223	)		$	(2,359,588	)		$	(11,819,901	)
Adjustments required to reconcile net loss to net cash used in operating activities:
Depreciation			23,809				22,760				69,751
Amortization of debt discount			-				-				108,000
Exchange differences on long term deposits			317				1,110				(684	)
Stock based compensation			744,328				526,138				4,475,093
Shares to be issued for services rendered							109,590				203,699
Impairment of investment			-				-				434,876
Imputed interest			2,836				2,834				18,833
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			38,717				367,526				(402,746	)
Restricted cash			(8	)			-				(16,008	)
Accounts payable and accrued expenses			(82,251	)			(438,926	)			239,093
Provision for uncertain tax position			-				-				147,063
Total net cash used in operating activities			(1,083,475	)			(1,768,556	)			(6,542,931	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			-				(4,110	)			(121,303	)
Acquisition of short-term investments			500,000				-				(3,228,000	)
Proceeds from sale of  Short term investments			-				2,728,000				2,728,000
Lease deposits			1,115				(4,668	)			(10,045	)
Total net cash derived from (used in) investing activities			501,115				2,719,222				(631,348	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock 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			(582,360	)			950,666				1,134,506
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			1,716,866				2,267,320				-
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,134,506			$	3,217,986			$	1,134,506
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

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F-7

---

ORAMED PHARMACEUTICULS, Inc.

(A development stage company)

NOTES TO INTERIM FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:

a.

General:

1.

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 capsule 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 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”.

2.

The accompanying unaudited interim consolidated financial statements as of May 31, 2010 and for the nine 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 nine months ended May 31, 2010, are not necessarily indicative of the results that may be expected for the year ending August 31, 2010.

3.

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 May 31, 2010 of $11,819,901 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 May 31, 2010. 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 on going 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-8

---

 

ORAMED PHARMACEUTICULS, Inc.

 (A development stage company)

NOTES TO INTERIM FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

b.

Newly issued and recently adopted Accounting Pronouncements

In February 2010, the FASB issued Accounting Standards Update No. 2010-09 ("ASU 2010-09"), "Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements," which among other things amended ASC 855 to remove the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between ASC 855 and the SEC's requirements. All of the amendments in this update are effective upon issuance of this update. Management has included the provisions of these amendments in the financial statements.

 

c.

Reclassification:

 

Certain figures in respect of prior periods have been reclassified to conform to the current period presentation.

 

NOTE 2 - COMMITMENTS:

 

a.

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 May 31, 2010, was $359,255.

b.

As to a Clinical Trial Manufacturing Agreement with Swiss Caps AG, see note 3a.

 

F-9

---

 

ORAMED PHARMACEUTICULS, Inc.

(A development stage company)

NOTES TO INTERIM FINANCIAL STATEMENTS

 

NOTE 2 – COMMITMENTS (continued):

c.

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. Investigational New Drug (“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. The Company has completed making the 11 monthly payments in accordance with the agreement, and has made an additional payment of $30,000 for the completion of certain milestones.

d.

On February 10, 2010, the subsidiary entered into agreements with Vetgenerics Research G. Ziv Ltd, a clinical research organization (CRO), to conduct a toxicology trial on its oral insulin capsules. The total cost estimated for the studies is €107,100 ($133,040) of which €12,195 ($16,806) was paid through May 31, 2010.

e.

On May 2, 2010, the subsidiary entered into an agreement with SAFC Pharma, a division of the Sigma-Aldrich Corporation, to develop a process to produce one of its oral capsule ingredients, for a total estimated consideration of $269,600. The work commenced in June 2010, and no liability have accrued through May 31, 2010.

f.

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 Subsidiary 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 Subsidiary 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 May 31, 2010, the Company has not earned any revenues from the sale of products and no royalty payments have accrued.

 

For the nine and three months periods ended May 31, 2010, the research and development expenses are presented net of OCS Grants, in the total of $450,717 and $158,160, respectively.

 

F-10

---

 

ORAMED PHARMACEUTICULS, Inc.

(A development stage company)

NOTES TO INTERIM FINANCIAL STATEMENTS

 

NOTE 3 - STOCK BASED COMPENSATION:

 

The following are stocks issued for services, stock options and warrants transactions made during the nine months ended May 31, 2010:

 

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.

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.

On April 29, 2010, the Company issued 25,510 shares of its common stock to Swiss as remuneration for the services provided, in the amount of $12,500.

 

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 instalments commencing November 23, 2010 and expire on November 23, 2014. The engagement with the consultant has ended during the nine months period ended May 31, 2010. The fair value of these options on the date of grant, was $36,662, using the Black Scholes option-pricing model and was based on the following assumptions: dividend yield of 0% for all years; expected volatility of 123.30%; risk-free interest rates of 2.20%; and the remaining contractual life of 5 years. The Company recorded all expenses in respect of these options during that period.

 

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 (equivalent to the traded market price on the date of grant), the options vest in three equal annual instalments commencing November 23, 2010 and expire on November 23, 2019. The fair value of these options on the date of grant was $14,565, using the Black Scholes option-pricing model and was based on the following assumptions: dividend yield of 0% for all years; expected volatility of 123.55%; risk-free interest rates of 2.55%; and the remaining contractual life of 6 years.

 

d.

On December 29, 2009, the Company issued 100,000 shares of its common stock to a third party as remuneration for services rendered and to be rendered during the six month period commencing December 15, 2009. The fair value of these shares on the date of issuance was $37,000.

 

 

F-11

---

 

ORAMED PHARMACEUTICULS, Inc.

(A development stage company)

NOTES TO INTERIM FINANCIAL STATEMENTS

 

NOTE 3 - STOCK BASED COMPENSATION (continued):

 

e.

On March 16, 2010, 13,200 options were granted to a consultant, at an exercise price of $0.43 per share (equivalent to the traded market price on the date of grant), the options vest in six monthly instalments commencing March 30, 2010 and expire on March 15, 2015. The fair value of these options on the date of grant, was $4,747, using the Black Scholes option-pricing model and was based on the following assumptions: dividend yield of 0% for all years; expected volatility of 121.61%; risk-free interest rates of 2.37%; and the remaining contractual life of 5 years.

 

f.

On March 16, 2010, 100,000 options were granted to a consultant, 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 monthly instalments commencing March 30, 2010 and expire on March 15, 2015. The fair value of these options on the date of grant, was $35,960, using the Black Scholes option-pricing model and was based on the following assumptions: dividend yield of 0% for all years; expected volatility of 121.61%; risk-free interest rates of 2.37%; and the remaining contractual life of 5 years.

 

g.

On March 16, 2010, 50,000 options were granted to a consultant, at an exercise price of $0.50 per share (higher than the traded market price on the date of grant), the options vest in three equal annual instalments commencing March 16, 2011 and expire on March 15, 2015. The fair value of these options on the date of grant, was $17,702, using the Black Scholes option-pricing model and was based on the following assumptions: dividend yield of 0% for all years; expected volatility of 121.61%; risk-free interest rates of 2.37%; and the remaining contractual life of 5 years.

 

h.

On March 25, 2010, 100,000 options were granted to a consultant, at an exercise price of $0.50 per share (higher than the traded market price on the date of grant), the options vest in four equal quarterly instalments commencing May 17, 2010 and expire on March 24, 2015. The fair value of these options on the date of grant, was $39,091, using the Black Scholes option-pricing model and was based on the following assumptions: dividend yield of 0% for all years; expected volatility of 121.21%; risk-free interest rates of 2.65%; and the remaining contractual life of 5 years.

 

i.

On April 21, 2010, 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, at an exercise price of $0.49 per share (equivalent to the traded market price on the date of grant), 216,000 of the options vested immediately on the date of grant and the remainder will vest in twenty one equal monthly installments. These options expire on April 20, 2020. The fair value of these options on the date of grant was $807,392, using the Black Scholes option-pricing model and was based on the following assumptions: dividend yield of 0% for all years; expected volatility of 120.69%; risk-free interest rates of 3.77%; and expected lives of 10 years.

 

The Company recognized $532,328 of stock based compensation expense during the nine months ended May 31, 2010 related to options granted to employees and consultants.

F-12

---

 

ORAMED PHARMACEUTICULS, Inc.

(A development stage company)

NOTES TO INTERIM FINANCIAL STATEMENTS

 

NOTE 4 - FAIR VALUE:

 

The fair value of the Company's financial instruments consisting of short term investments, included in the Company’s financial statements is identical or close to their carrying value due to the short-term maturities of these instruments.

 

NOTE 5 - SUBSEQUENT EVENTS AND RELATED PARTIES TRANSACTION:

 

a.

Related parties transaction

On June 1, 2010, the subsidiary of the Company entered into an agreement with Laser Detect Systems Ltd. ("Laser Detect"), an Israeli company, for the establishment of a new company, Entera Bio Ltd. ("Entera").

According to the agreement, Laser Detect will invest $600,000 in Entera, and Entera will be owned in equal parts by the subsidiary and Laser Detect. As a remuneration, the subsidiary of the Company will enter into a Patent License Agreement with Entera, according to which, the subsidiary of the Company will out-license to Entera a technology for the development of oral delivery drugs for certain indications. The out-licensed technology differs from Oramed’s main delivery technology that is used for oral insulin and is subject to a different patent application. Entera's initial development effort will be an oral formulation for the treatment of osteoporosis.

 

Entera's Chief Executive Officer will be granted options to purchase ordinary shares of Entera, reflecting 9.9% of the Entera's share capital.

 

In the event that Entera has not obtained third-party financing by June 1, 2011, or such other date mutually agreed upon by the parties, each of the subsidiary and Laser Detect will be required to make a capital contribution to Entera in the amount of $150,000. The agreement also contains customary provisions with respect to preemptive rights, rights of first refusal, drag-along rights, veto rights and information rights.

 

Mr. Zeev Bronfeld, who is one of Laser Detect's controlling shareholders, is also an affiliated shareholder of the Company. Accordingly, the closing of the transaction is subject to the approval of Laser Detect's shareholders.

 

On June 27, 2010, Laser Detect changed its name to D.N.A Biomedical Solutions Ltd.

b.

On July 5, 2010, the subsidiary of the Company entered into a Manufacturing Supply Agreement (MSA) with Sanofi-Aventis Deutschland GMBH ("sanofi-aventis"). According to the MSA, sanofi-aventis will supply the subsidiary with specified quantities of recombinant human insulin to be used for clinical trials in the USA.

c.

On July 8, 2010, 300,000 options were granted to a director at an exercise price of $0.48 per share (equivalent to the traded market price on the date of grant). The options vest in three equal annual instalments commencing on July 8, 2011 and will expire on July 7, 2020.

 

F-13

---

 

ORAMED PHARMACEUTICULS, Inc.

(A development stage company)

NOTES TO INTERIM FINANCIAL STATEMENTS

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-14

---

 

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-15

---

 

 

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-16

---

 

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-17

---

 

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

 

F-18

---

 

ORAMED PHARMACEUTICALS INC.

(A development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

U.S. dollars

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-19

---

 

 

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				1,716,866
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-20

---

 

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-21

---

 

 

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-22

---

 

 

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-23

---

 

 

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-24

---

 

 

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-25

---

 

 

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-26

---

 

 

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-27

---

 

 

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-28

---

 

 

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-29

---

 

 

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-30

---

 

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-31

---

 

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-32

---

 

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-33

---

 

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-34

---

 

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-35

---

 

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-36

---

 

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-37

---

 

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-38

---

 

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-39

---

 

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-40

---

 

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			$	159,567

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-41

---

 

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-42

---

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. These warrants expired on June 15, 2010.

 

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.

 

On April 29, 2010, we issued 25,510 shares of common stock, valued at $12,500, to a third party for services rendered.

 

On July 22, 2010, we issued 35,104 shares of common stock, valued at $16,850, to a third party for services rendered.

 

On August 2, 2010, we issued 50,000 shares of common stock, valued at $21,000, to a third party for services that will be rendered in the six months beginning July 14, 2010.

 

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, 1,650,000 have expired, none of the options have been exercised for shares of our common stock and the remaining 1,700,000 are currently outstanding.  We have also issued options to purchase 6,639,200 shares of common stock under the 2008 Plan, with a weighted average exercise price of $0.51.  Of these options, 978,000 have been forfeited, none have been exercised for shares of our common stock and the remaining 2,338,800 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.

 

II-3

---

 

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.

 

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

 

(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.

 

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)	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

 

(B)

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.

 

II-4

---

 

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:

 

(i)	Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;

 

(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

 

(iv)	Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.