NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES:
|
1)
|
Incorporation
and operations
|
Oramed
Pharmaceuticals Inc. (collectively with its subsidiary, the “Company”, unless the context indicates otherwise) 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. to acquire the provisional patent related to an orally
ingestible insulin capsule to be used for the treatment of individuals with diabetes.
On
May 14, 2007, the Company incorporated a wholly-owned subsidiary in Israel, Oramed Ltd. (the “Subsidiary”), which
is engaged in research and development.
On
March 11, 2011, the Company was reincorporated from the State of Nevada to the State of Delaware.
On
November 30, 2015, the Company entered into a Technology License Agreement with Hefei Tianhui Incubator of Technologies Co. Ltd.
(“HTIT”) and on December 21, 2015, the parties entered into an Amended and Restated Technology License Agreement that
was further amended by the parties on June 3, 2016 and July 24, 2016 (the “License Agreement”). According to the License
Agreement, the Company granted HTIT an exclusive commercialization license in the territory of the People’s Republic of China,
Macau and Hong Kong (the “Territory”), related to the Company’s oral insulin capsule, ORMD-0801 (the “Product”).
Pursuant to the License Agreement, HTIT will conduct, at its own expense, certain pre-commercialization and regulatory activities
with respect to the Subsidiary’s technology and ORMD-0801 capsule, and will pay to the Subsidiary (i) royalties of 10% on
net sales of the related commercialized products to be sold by HTIT in the Territory (“Royalties”), and (ii) an aggregate
of $37,500, of which $3,000 was payable immediately, $8,000 was paid subject to the Company entering into certain agreements with
certain third parties, and $26,500 is payable upon achievement of certain milestones and conditions. In the event that the Company
does not meet certain conditions, the Royalties rate may be reduced to a minimum of 8%. Following the final expiration of the
Company’s patents covering the technology in the Territory in 2033, the Royalties rate may be reduced, under certain circumstances,
to 5%.
The
royalty payment obligation shall apply during the period of time beginning upon the first commercial sale of the Product in the
Territory, and ending upon the later of (i) the expiration of the last-to-expire licensed patents in the Territory; and (ii) 15
years after the first commercial sale of the Product in the Territory (the “Royalty Term”).
The
License Agreement shall remain in effect until the expiration of the Royalty Term. The License Agreement contains customary termination
provisions.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
Among
others, the Company’s involvement through the product submission date will include consultancy for the pre-commercialization activities
in the Territory, as well as advisory services to HTIT on an ongoing basis.
The
initial payment of $3,000 was received in January 2016. Following the achievement of certain milestones, the second and third
payments of $6,500 and $4,000, respectively, were received in July 2016, the fourth milestone payment of $4,000 was received in
October 2016 and the fifth milestone payment of $3,000 was received in January 2019. Milestone payments received as of February
28, 2019 totaled $20,500.
In
addition, on November 30, 2015, the Company entered into a Stock Purchase Agreement with HTIT (the “SPA”). According
to the SPA, the Company issued 1,155,367 shares of common stock to HTIT for $12,000. The transaction closed on December 28, 2015.
In
July 2015, according to the letter of intent signed between the parties or their affiliates, HTIT’s affiliate paid the Subsidiary
a non-refundable amount of $500 as a no-shop fee. The no-shop fee was deferred and the related revenue is recognized over the
estimated term of the License Agreement.
For
revenue recognition policy see note 1c.
|
2)
|
Development
and liquidity risks
|
The
Company is engaged in research and development in the biotechnology field for innovative pharmaceutical solutions, including an
orally ingestible insulin capsule to be used for the treatment of individuals with diabetes, and the use of orally ingestible
capsules for delivery of other polypeptides, and has not generated significant revenues from its operations. Based on the Company’s
current cash resources and commitments, the Company believes it will be able to maintain its current planned development activities
and the corresponding level of expenditures for at least the next 12 months and beyond, although no assurance can be given that
the Company will not need additional funds prior to such time. If there are unexpected increases in the Company’s operating
expenses, it may need to seek additional financing during the next 12 months. Successful completion of the Company’s development
programs and its transition to normal operations is dependent upon obtaining necessary regulatory approvals from the U.S. Food
and Drug Administration prior to selling its products within the United States, obtaining foreign regulatory approvals to sell
its products internationally, or entering into licensing agreements with third parties. There can be no assurance that the Company
will receive regulatory approval of any of its product candidates, and a substantial amount of time may pass before the Company
achieves a level of revenues adequate to support its operations, if at all. The Company also expects to incur substantial expenditures
in connection with the regulatory approval process for each of its product candidates during their respective developmental periods.
Obtaining marketing approval will be directly dependent on the Company’s ability to implement the necessary regulatory steps
required to obtain marketing approval in the United States and in other countries. The Company cannot predict the outcome of these
activities.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
Basic
and diluted net loss per common share are computed by dividing the net loss for the period by the weighted average number of shares
of common stock outstanding for each period. Outstanding stock options, warrants and restricted stock units (“RSUs”)
have been excluded from the calculation of the diluted loss per share because all such securities are anti-dilutive for all periods
presented. The weighted average number of common stock options, warrants and RSUs excluded from the calculation of diluted net
loss was 4,293,395 and 1,406,175 for the six-month periods ended February 28, 2019 and 2018, respectively, and 4,234,081 and 1,388,122
for the three-month periods ended February 28, 2019 and 2018, respectively.
The
License Agreement and the SPA were considered a single arrangement with multiple deliverables. The Company allocated the total
consideration of $49,500 between the License Agreement and the SPA according to their fair value, as follows: $10,617 was allocated
to the issuance of common stock (less issuance expenses of $23), based on the quoted price of the Company’s shares on the closing
date of the SPA on December 28, 2015, and $38,883 was allocated to the License Agreement.
Under
Accounting Standards Codification (“ASC”) 605 (which was the authoritative revenue recognition guidance applied for
all periods prior to September 1, 2018) given the Company’s continuing involvement through the expected product submission in
June 2023, amounts received relating to the License Agreement were recognized over the period from which the Company was entitled
to the respective payment, and the expected product submission date using a time-based model approach over the periods that the
fees were earned.
On
September 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with
Customers (Topic 606)” (“ASC 606”), using the modified retrospective method of adoption. Under this method,
the Company applied ASC 606 to the License Agreement at the adoption date and was required to make an adjustment to the September
1, 2018 opening accumulated deficit balance. All prior periods continue to be presented under ASC 605. The most significant impact
from adopting ASC 606 was the impact of the timing of recognition of revenue associated with the milestone payment. Under ASC
605, which was the authoritative revenue recognition guidance applied for all periods prior to September 1, 2018, given the Company’s
continuing involvement through the expected product submission in June 2023, amounts received relating to the License Agreement
were recognized over the period from which the Company was entitled to the respective payment and the expected product submission
date using a time-based model approach over the periods that the fees were earned. However, under ASC 606, the Company is required
to recognize the total transaction price (which includes consideration related to milestones once the criteria for recognition
have been satisfied) using the input method over the period the performance obligation is fulfilled. Accordingly, once the consideration
associated with a milestone is included in the transaction price, incremental revenue is recognized immediately based on the period
of time that has elapsed towards complete satisfaction of the performance obligation. This method results in the recognition of
revenue earlier than under ASC 605, and the resulting impact was recorded as a reduction of the opening balance of accumulated
deficit at September 1, 2018, as further described below.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
Under
ASC 606, the Company identified a single performance obligation in the agreement and determined that the license and services
are not distinct as the license and services are highly dependent on each other. In other words, HTIT cannot benefit from the
license without the related services, and vice versa.
Since
the customer benefits from the services as the entity performs, revenue is recognized over time through the expected product submission
date in June 2023, using the input method. The Company used the input method to measure the process for the purpose of recognizing
revenue, which approximates the straight line attribution. The Company used significant judgment when it determined the product
submission date.
Under
ASC 606, the consideration that the Company would be entitled to upon the achievement of contractual milestones, which are contingent
upon the occurrence of future events, are a form of variable consideration. When assessing the portion, if any, of such milestones-related
consideration to be included in the transaction price, the Company first assesses the most likely outcome for each milestone and
excludes the consideration related to milestones of which the occurrence is not considered the most likely outcome.
The
Company then evaluates if any of the variable consideration determined in the first step is constrained by including in the transaction
price variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company
used significant judgment when it determined the first step of variable consideration.
The
potential future royalty consideration is also considered a form of variable consideration under ASC 606 as it is based on a percentage
of potential future sales of the Company’s products. However, the Company applies the sales-based royalty exception and accordingly
will recognize the sales-based royalty amounts at the earlier of the time (a) when the related sale has occurred and (b) the Company
has fulfilled the related performance obligation. To date, the Company has not recognized any royalty-related revenue.
As
of the adoption date, the Company adjusted its accumulated deficit by $1,773 against contract liabilities due to the effect of
variable consideration.
Amounts
that were allocated to the License Agreement as of February 28, 2019 aggregated $22,382, all of which was received through the
balance sheet date. Through February 28, 2019, the Company recognized revenue associated with this agreement in the aggregate
amount of $8,659 (of which $1,340 was recognized in the six-month period ended February 28, 2019 and $1,773 was recognized as
an increase to the September 1, 2018 opening balance of stockholders’ equity associated with the impact of the adoption
of ASC 606 under the modified retrospective method of adoption), and deferred the remaining amount of $13,723, which is presented
as a contract liability on the condensed consolidated balance sheet. During the six-month and three-month periods ended February
28, 2019, the Company recognized revenue in the amount of $1,143 and $568, respectively, that was included in the contract liabilities
balance at the beginning of the period.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
In
accordance with ASC 606, the disclosure of the impact of adoption to the Company’s consolidated balance sheet as of August 31,
2018 was as follows:
|
|
As
reported
August 31,
2018
|
|
|
Updated September 1, 2018
|
|
|
Effect of Change
|
|
|
|
|
|
|
|
|
|
|
|
Contract liabilities (short term)
|
|
$
|
2,449
|
|
|
$
|
1,230
|
|
|
$
|
(1,219
|
)
|
Contract liabilities (long term)
|
|
|
11,388
|
|
|
|
10,834
|
|
|
|
(554
|
)
|
Accumulated deficit
|
|
|
69,223
|
|
|
|
67,450
|
|
|
|
(1,773
|
)
|
The
impact of adoption of ASC 606 on the condensed consolidated balance sheet as of February 28, 2019 and on the condensed consolidated
statement of operations for the six months ended February 28, 2019 was as follows:
|
|
As
reported
February 28,
2019
|
|
|
Balances without Adoption of ASC 606
|
|
|
Effect of Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,340
|
|
|
$
|
1,342
|
|
|
$
|
(2
|
)
|
Cost of revenues
|
|
|
90
|
|
|
|
90
|
|
|
|
-
|
|
Contract liabilities (short term)
|
|
|
2,703
|
|
|
|
3,110
|
|
|
|
(407
|
)
|
Contract liabilities (long term)
|
|
|
11,020
|
|
|
|
12,384
|
|
|
|
(1,364
|
)
|
Accumulated deficit
|
|
|
74,751
|
|
|
|
76,522
|
|
|
|
(1,771
|
)
|
The
impact of adoption of ASC 606 on the condensed consolidated statement of operations for the three months ended February 28, 2019
was as follows:
|
|
As
reported
February 28,
2019
|
|
|
Balances without Adoption of ASC 606
|
|
|
Effect of Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
666
|
|
|
$
|
731
|
|
|
$
|
(65
|
)
|
Cost of revenues
|
|
|
55
|
|
|
|
90
|
|
|
|
(35
|
)
|
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
In
January 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which updates certain aspects of recognition,
measurement, presentation and disclosure of financial assets and financial liabilities (“ASU 2016-01”). The guidance
requires entities to recognize changes in fair value in net income rather than in accumulated other comprehensive income. The
Company adopted the provisions of this update in the first quarter of fiscal year 2019. Following the adoption, as of September
1, 2018, the Company classified the available for sale securities (investments in equity securities of D.N.A Biomedical Solutions
Ltd. (“D.N.A”) and Entera Bio Ltd. (“Entera”)) to financial assets measured in fair value through profit
or loss. The Company adopted the standard using the modified retrospective method and, accordingly, reclassified the cumulative
unrealized gain from accumulated other comprehensive income to a reduction of its accumulated deficit in an amount of $702.
|
e.
|
Condensed
Consolidated Financial Statements Preparation
|
The
condensed consolidated financial statements included herein have been prepared in accordance with United States generally accepted
accounting principles (“U.S. GAAP”) and, except as described in note 1f, on the same basis as the audited consolidated
financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2018
(the “2018 Form 10-K”). These condensed consolidated financial statements reflect all adjustments that are of a normal
recurring nature and that are considered necessary for a fair statement of the results of the periods presented. Certain information
and disclosures normally included in annual consolidated financial statements have been omitted in this interim period report
pursuant to the rules and regulations of the Securities and Exchange Commission. Because the condensed consolidated interim financial
statements do not include all of the information and disclosures required by U.S. GAAP for annual financial statements, they should
be read in conjunction with the audited consolidated financial statements and notes included in the 2018 Form 10-K. The results
for interim periods are not necessarily indicative of a full fiscal year’s results.
|
f.
|
Newly
issued and recently adopted Accounting Pronouncements
|
In
May 2014, the FASB issued ASC 606 which supersedes existing revenue recognition guidance, including industry-specific guidance.
Under the new standard, a good or service is transferred to the customer when (or as) the customer obtains control of the good
or service, which differs from the risk and rewards approach under current guidance. The guidance provides a five-step analysis
of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract
costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration to
be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding
the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.
The guidance is effective in annual reporting periods beginning after December 15, 2017, including interim reporting periods within
that reporting period. The Company implemented the guidance for its annual period ending on August 31, 2019 and interim periods
within such annual period. The Company adopted the standard using the modified retrospective method. See additional information
regarding the adoption in note 1c.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
(continued):
In
January 2016, the FASB issued guidance on recognition and measurement of financial assets and financial liabilities (ASU 2016-01)
that supersedes most current guidance. Changes to the U.S. GAAP model primarily affect the accounting for equity investments,
financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments.
In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting
from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments
in debt securities, and financial liabilities, is largely unchanged. The classification and measurement guidance under ASU 2016-01
became effective as of September 1, 2018. See additional information regarding the adoption in note 1d.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which supersedes the
existing guidance for lease accounting, “Leases (Topic 840)”. ASU 2016-02 requires lessees to recognize leases on
their balance sheets, and leaves lessor accounting largely unchanged. The amendments in ASU 2016-02 are effective for fiscal years
beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities.
ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial
application, with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this
standard on its consolidated financial statements.
NOTE
2 - COMMITMENTS:
|
a.
|
In
March 2011, the Subsidiary sold shares of its investee company, Entera, to D.N.A, retaining 117,000 ordinary shares (after
giving effect to a stock split by Entera in July 2018). In consideration for the shares sold to D.N.A, the Company received,
among other payments, ordinary shares of D.N.A (see also note 4).
|
As
part of this agreement, the Subsidiary entered into a patent transfer agreement (the “Patent Transfer Agreement”)
according to which the Subsidiary assigned to Entera all of its right, title and interest in and to a certain patent application
related to the oral administration of proteins that it has licensed to Entera since August 2010. Under this agreement, the Subsidiary
is entitled to receive from Entera royalties of 3% of Entera’s net revenues (as defined in the agreement) and a license
back of that patent application for use in respect of diabetes and influenza. On December 11, 2018, Entera announced that it had
entered into a research collaboration and license agreement (the “Amgen License”) with Amgen related to research of
inflammatory disease and other serious illnesses. As reported by Entera, under the terms of the Amgen License, Entera will receive
a modest initial technology access fee from Amgen and will be responsible for preclinical development at Amgen’s expense.
Entera will be eligible to receive up to $270,000 in aggregate payments, as well as tiered royalties up to mid-single digits,
upon achievement of various clinical and commercial milestones if Amgen decides to move all of these programs forward. Amgen is
responsible for clinical development, manufacturing and commercialization of any of the resulting programs. To the extent the
Amgen License results in net revenues as defined in the Patent Transfer Agreement, the Subsidiary will be entitled to the aforementioned
royalties.
In
addition, as part of a consulting agreement with a third party, dated February 15, 2011, the Subsidiary is obliged to pay this
third party royalties of 8% of the net royalties received in respect of the patent that was sold to Entera in March 2011.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
2 - COMMITMENTS
(continued):
|
b.
|
On
January 3, 2017, the Subsidiary entered into a lease agreement for its office facilities in Israel. The lease agreement is
for a period of 60 months commencing October 1, 2016.
|
The
annual lease payment was New Israeli Shekel (“NIS”) 119,000 ($33) from October 2016 through September 2018 and NIS
132,000 ($37) from October 2018 through September 2021, and is linked to the increase in the Israeli consumer price index (“CPI”)
(as of February 28, 2019, the future lease payments will be $95 until the expiration of the lease agreement, based on the exchange
rate as of February 28, 2019).
As
security for its obligation under this lease agreement, the Company provided a bank guarantee in an amount equal to three monthly
lease payments.
|
c.
|
On
March 3, 2016, the Subsidiary entered into an agreement with a vendor for process development and production of its capsules
and on November 24, 2016, April 3, 2017 and July 10, 2017 the Subsidiary entered into amendments to such agreement in an amount
of up to Swiss Franc (“CHF”) 1,000,000 ($1,003), CHF 665,000 ($675) of which was recognized in research and development
expenses through February 28, 2019.
|
|
d.
|
On
May 11, 2016, the Subsidiary entered into a Master Service Agreement with a vendor to retain its services for a pre-clinical
toxicology trial for an oral GLP-1 analog capsule for type 2 diabetes patients. As consideration for its services, the Subsidiary
will pay the vendor a total amount of $1,283 during the term of the engagement and based on achievement of certain milestones,
of which $1,275 was recognized in research and development expenses through February 28, 2019.
|
|
e.
|
On
June 13, 2016, the Subsidiary entered into a four-year service agreement with a third party and on December 19, 2016, this
agreement and all of the third party rights and obligations thereunder were assigned to another third party. This agreement
is required by the License Agreement as described in note 1 and will support the Company’s research and development. The Subsidiary
is obligated to pay the third party a total amount of up to €2,360,000 ($2,694), of which €1,878,215 ($2,144) was
recognized in research and development expenses through February 28, 2019.
|
|
f.
|
On
February 21, 2017, the Subsidiary entered into an agreement with a vendor to retain its services for a pre-clinical toxicology
trial for an oral insulin capsule. As consideration for its services, the Subsidiary will pay the vendor a total of up to
$952 during the term of the engagement and based on achievement of certain milestones, of which $857 was recognized in research
and development expenses through February 28, 2019.
|
|
g.
|
On
April 8, 2018, the Company entered into a consulting agreement with a third party advisor for a period of one year, pursuant
to which such advisor provides investor relations services and is entitled to receive a monthly cash fee and 10,000 shares
of the Company’s common stock issued in four equal quarterly installments commencing August 1, 2018. As of February
28, 2019, the Company had issued to such advisor 7,500 shares. The fair value of the shares at the grant date was $33, which
was recognized in general and administrative expenses.
|
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
2 - COMMITMENTS
(continued):
|
h.
|
On
June 5, 2017, the Subsidiary entered into a clinical research agreement with a vendor, for the conduct of its clamp clinical
trial for an oral insulin capsule for type 1 diabetes patients. As consideration for its services, the Subsidiary will pay
the vendor a total amount of $958 during the term of the engagement and based on achievement of certain milestones, $578 of
which was recognized in research and development expenses through February 28, 2019.
|
|
i.
|
On
December 18, 2017, the Subsidiary entered into an agreement with a vendor for the process development and production of one
of its oral capsule ingredients in the amount of $2,905 that will be paid over the term of the engagement and based on the
achievement of certain development milestones, $1,361 of which was recognized in research and development expenses through
February 28, 2019.
|
|
j.
|
On
February 14, 2018, the Subsidiary entered into a Clinical Research Organization Services Agreement with a third party, effective
as of November 1, 2017, to retain it as a clinical research organization (“CRO”) for the Subsidiary’s three-month
dose-ranging clinical trial for its oral insulin capsule for type 2 diabetes patients. As consideration for its services,
the Subsidiary will pay the CRO a total amount of $7,030 during the term of the engagement and based on achievement of certain
milestones, $5,219 of which was recognized in research and development expenses through February 28, 2019.
|
|
k.
|
On
May 21, 2018, the Subsidiary entered into a CRO Services Agreement with a third party to retain it as a CRO for the Subsidiary’s
food effect clinical trial for its oral insulin capsule. As consideration for its services, the Subsidiary will pay the CRO
a total amount of $1,166 during the term of the engagement and based on achievement of certain milestones, $758 of which was
recognized in research and development expenses through February 28, 2019.
|
|
l.
|
On
July 4, 2018, the Subsidiary entered into an agreement with a vendor to retain its services for a pre-clinical six months
toxicology trial for its oral insulin capsule. As consideration for its services, the Subsidiary will pay the vendor a total
of up to $971 during the term of the engagement and based on achievement of certain milestones, of which $551 was recognized
in research and development expenses through February 28, 2019.
|
|
m.
|
On
July 15, 2018, the Company entered into a consulting agreement with a third party advisor for a period of one year, pursuant
to which such advisor provides investor relations services and is entitled to receive a monthly cash fee and shares of the
Company’s common stock issued in four quarterly installments in an amount equal to $25 per quarter, pursuant to and
in accordance with the terms of the agreement, commencing July 15, 2018. The Company terminated this consulting agreement
in December 2018. As of the date of termination, the Company had issued to such advisor 9,874 shares and the related expense
was recognized in general and administrative expenses.
|
|
n.
|
In
December 2018, the Company entered into an agreement with HTIT and its affiliate, under which if HTIT does not have an agreement
with the relevant subcontractors, Oramed agreed that specific activities under the work plan may be conducted under the existing
agreements of Oramed and the subcontractors and HTIT will pay the required payment directly to the subcontractor. In addition,
under certain terms and conditions, and upon the Company’s decision, the Company will assist HTIT to coordinate payments and
may pay certain contractors on behalf of HTIT. Amounts due to the subcontractors and the corresponding amounts from HTIT,
are recorded as current assets and current liabilities in the balance sheet.
|
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
2 - COMMITMENTS
(continued):
|
o.
|
Grants
from the Israel Innovation Authority (“IIA”)
|
Under
the terms of the Company’s funding from the IIA, royalties of 3% are payable on sales of products developed from a project
so funded, up to a maximum amount equaling 100%-150% of the grants received (dollar linked) with the addition of interest at an
annual rate based on LIBOR.
At
the time the grants were received, successful development of the related projects was not assured. The total amount that was received
through February 28, 2019 was $2,194.
The
royalty expenses which are related to the funded project were recognized in cost of revenues in the quarter ended February 28,
2019 and in prior periods.
NOTE
3 - FAIR VALUE:
The
Company measures fair value and discloses fair value measurements for financial assets. Fair value is based on the price that
would be received to sell an asset in an orderly transaction between market participants at the measurement date. In order to
increase consistency and comparability in fair value measurements, the guidance 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 other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly.
|
|
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 February 28, 2019, the assets measured at fair value are comprised of equity securities (Level 1). The fair value of held to
maturity bonds as presented in note 4 was based on a Level 1 measurement.
As
of February 28, 2019, the carrying amounts of cash equivalents, short-term deposits and accounts payable approximate their fair
values due to the short-term maturities of these instruments.
As
of February 28, 2019, the carrying amounts of long-term deposits approximate their fair values due to the stated interest rates
which approximate market rates.
The
amounts funded in respect of employee rights are stated at cash surrender value which approximates its fair value.
There
were no Level 3 items for the six-month periods ended February 28, 2019 and 2018.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
4 - MARKETABLE SECURITIES:
The
Company’s marketable securities include investments in equity securities of D.N.A and Entera, and in held to maturity bonds.
|
|
February 28,
2019
|
|
|
August 31,
2018
|
|
Short-term:
|
|
|
|
|
|
|
D.N.A (see b below)
|
|
$
|
762
|
|
|
$
|
666
|
|
Entera (see c below)
|
|
|
509
|
|
|
|
632
|
|
Held to maturity bonds (see d below)
|
|
|
4,203
|
|
|
|
3,294
|
|
|
|
$
|
5,474
|
|
|
$
|
4,592
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Held to maturity bonds (see d below)
|
|
$
|
1,051
|
|
|
$
|
2,785
|
|
The
D.N.A ordinary shares are traded on the Tel Aviv Stock Exchange. The fair value of those securities is measured at the quoted
prices of the securities on the measurement date.
As
of February 28, 2019, the Company owns approximately 6.9% of D.N.A’s outstanding ordinary shares.
The
cost of the securities as of February 28, 2019 and August 31, 2018 was $595.
Entera
ordinary shares have been traded on The Nasdaq Capital Market since June 28, 2018. The Company measures the investment at fair
value from such date, since it has a readily determinable fair value (prior to such date the investment was accounted for as a
cost method investment (amounting to $1)).
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
4 - MARKETABLE SECURITIES
(continued):
|
d.
|
Held
to maturity securities
|
The
amortized cost and estimated fair value of held-to-maturity securities as of February 28, 2019, are as follows:
|
|
February 28, 2019
|
|
|
|
Amortized cost
|
|
|
Gross unrealized losses
|
|
|
Estimated fair value
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
Commercial bonds
|
|
$
|
4,169
|
|
|
$
|
(13
|
)
|
|
$
|
4,156
|
|
Accrued interest
|
|
|
34
|
|
|
|
-
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
1,051
|
|
|
|
(1
|
)
|
|
|
1,050
|
|
|
|
$
|
5,254
|
|
|
$
|
(14
|
)
|
|
$
|
5,240
|
|
As
of February 28, 2019, the contractual maturities of debt securities classified as held-to-maturity are as follows: after one year
through two years, $1,051, and the yield to maturity rates vary between 1.65% to 3.20%.
The
amortized cost and estimated fair value of held-to-maturity securities as of August 31, 2018, are as follows:
|
|
August 31, 2018
|
|
|
|
Amortized cost
|
|
|
Gross unrealized losses
|
|
|
Estimated fair value
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
Commercial bonds
|
|
$
|
3,259
|
|
|
$
|
(17
|
)
|
|
$
|
3,242
|
|
Accrued interest
|
|
|
35
|
|
|
|
-
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
|
|
|
2,785
|
|
|
|
(17
|
)
|
|
|
2,768
|
|
|
|
$
|
6,079
|
|
|
$
|
(34
|
)
|
|
$
|
6,045
|
|
As
of August 31, 2018, the contractual maturities of debt securities classified as held-to-maturity are as follows: after one year
through two years, $2,785 and the yield to maturity rates vary between 1.45% to 3.13%.
Held
to maturity securities which will mature during the 12 months from the balance sheet date are included in short-term marketable
securities. Held to maturity securities with maturity dates of more than one year are considered long-term marketable securities.
ORAMED
PHARMACEUTICALS INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S.
Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE
5 - STOCKHOLDERS’ EQUITY:
On
April 2, 2015, the Company entered into an At The Market Issuance Sales Agreement (the “Sales Agreement”) with B.
Riley FBR, Inc., as successor to FBR Capital Markets & Co. (“FBR”), as amended, pursuant to which the Company
may, from time to time and at its option, issue and sell shares of its common stock having an aggregate offering price of up to
$25,000 through FBR as its sales agent, subject to certain terms and conditions. Any shares sold will be sold pursuant to the
Company’s effective shelf registration statement on Form S-3 including a prospectus dated February 2, 2017, as supplemented
by a prospectus supplement dated April 5, 2017. The Company will pay FBR a commission of 3.0% of the gross proceeds of the sale
of any shares sold through FBR. Through February 28, 2019, 576,834 shares were sold under the Sales Agreement for aggregate net
proceeds of $5,198. During the six months ended February 28, 2019, the Company did not issue shares under the Sales Agreement.
NOTE
6 - STOCK-BASED COMPENSATION:
On
February 26, 2019, the Company granted options to purchase an aggregate of 360,000 shares of common stock of the Company at an
exercise price of $3.16 per share (equivalent to the closing price of the Company’s common stock on the date of grant) as follows:
196,500 to the CEO; 104,000 to the CSO; and 59,500 to employees of the Subsidiary. The options will vest in four equal annual
installments, on each of December 31, 2019, 2020, 2021 and 2022. These options expire on February 26, 2029. The fair value of
all these options on the date of grant was $731, using the Black Scholes option-pricing model and was based on the following assumptions:
stock price of $3.16; dividend yield of 0% for all years; expected volatility of 69.05%; risk-free interest rates of 2.54%; and
expected term of 6.25 years.
NOTE
7 - RELATED PARTIES - TRANSACTIONS:
On
July 1, 2008, the Subsidiary entered into two consulting agreements with KNRY Ltd. (“KNRY”), an Israeli company owned
by the Chief Scientific Officer (the “CSO”), whereby the Chief Executive Officer (the “CEO”) and the CSO,
through KNRY, provide services to the Company (the “Consulting Agreements”). The Consulting Agreements are both terminable
by either party upon 140 days prior written notice. The Consulting Agreements, as amended, provide that KNRY will be reimbursed
for reasonable expenses incurred in connection with performance of the Consulting Agreements and that the monthly consulting fee
paid to the CEO and the CSO is NIS 127,570 ($35) and NIS 80,454 ($22), respectively.
In
addition to the Consulting Agreements, based on a relocation cost analysis prepared by consulting company ORI - Organizational
Resources International Ltd., the Company pays for certain direct costs, related taxes and expenses incurred in connection with
the relocation of the CEO to New York. During the six months ended February 28, 2019, such relocation expenses totaled $278 compared
to $214 for the six months ended February 28, 2018.