ORAMED PHARMACEUTICALS INC. 10-Q

ITEM 1 - FINANCIAL STATEMENTS ORAMED PHARMACEUTICALS INC. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF NOVEMBER 30, 2021 TABLE OF CONTENTS Page CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Balance sheets 2 Statements of comprehensive loss 3 Statements of changes in stockholders’ equity 4 Statements of cash flows 5 Notes to financial statements 6 -15 1 ORAMED PHARMACEUTICALS INC. CONDENSED CONSOLIDATED BALANCE SHEETS U.S. Dollars in thousands (except share and per share data) (UNAUDITED) November 30, August 31, 2021 2021 Assets CURRENT ASSETS: Cash and cash equivalents $ 31,880 $ 77,245 Short-term deposits 111,082 11,044 Marketable securities 7,573 5,851 Prepaid expenses and other current assets 1,797 1,197 Total current assets 152,332 95,337 LONG-TERM ASSETS: Long-term deposits 25,074 25,016 Marketable securities 4,131 6,692 Amounts funded in respect of employee rights upon retirement 24 24 Property and equipment, net 385 397 Operating lease right-of-use assets 504 533 Total long-term assets 30,118 32,662 Total assets $ 182,450 $ 127,999 Liabilities and stockholders’ equity CURRENT LIABILITIES: Accounts payable and accrued expenses $ 4,761 $ 3,792 Deferred revenues 2,703 2,703 Payable to related parties 66 54 Operating lease liabilities 130 130 Total current liabilities 7,660 6,679 LONG-TERM LIABILITIES: Long-term deferred revenues 3,570 4,244 Employee rights upon retirement 22 21 Provision for uncertain tax position 11 11 Operating lease liabilities 374 403 Other liabilities 122 124 Total long-term liabilities 4,099 4,803 COMMITMENTS (note 2) EQUITY EQUITY ATTRIBUTABLE TO COMPANY’S STOCKHOLDERS: Common stock, $ 0.012 par value ( 60,000,000 authorized shares; 38,086,020 and 35,293,889 shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively) 458 424 Additional paid-in capital 292,439 230,201 Accumulated deficit ( 122,742 ) ( 114,852 ) Total stockholders’ equity 170,155 115,773 Non-controlling interests 536 744 Total equity 170,691 116,517 Total liabilities and equity $ 182,450 $ 127,999 The accompanying notes are an integral part of the condensed consolidated financial statements. 2 ORAMED PHARMACEUTICALS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS U.S. Dollars in thousands (except share and per share data) (UNAUDITED) Three months ended November 30, November 30, 2021 2020 REVENUES $ 674 674 RESEARCH AND DEVELOPMENT EXPENSES 6,410 5,774 SALES AND MARKETING EXPENSES 585 - GENERAL AND ADMINISTRATIVE EXPENSES 1,739 727 OPERATING LOSS 8,060 5,827 FINANCIAL INCOME ( 137 ) ( 269 ) FINANCIAL EXPENSES 175 12 NET LOSS FOR THE PERIOD $ 8,098 5,570 NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS 208 - NET LOSS ATTRIBUTABLE TO STOCKHOLDERS 7,890 5,570 LOSS PER SHARE OF COMMON STOCK ATTRIBUTABLE TO COMMON STOCKHOLDERS: BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK $ 0.22 $ 0.23 WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK 36,672,551 23,754,980 The accompanying notes are an integral part of the condensed consolidated financial statements. 3 ORAMED PHARMACEUTICALS INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY U.S. Dollars in thousands (UNAUDITED) Common Stock Additional paid-in Accumulated Total stockholders’ Non- controlling Total Shares $ capital deficit equity interests equity In thousands BALANCE AS OF AUGUST 31, 2021 35,293 $ 424 $ 230,201 $ ( 114,852 ) $ 115,773 744 $ 116,517 CHANGES DURING THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2021: ISSUANCE OF COMMON STOCK, NET 2,631 32 59,908 - 59,940 - 59,940 EXERCISE OF WARRANTS AND OPTIONS 88 1 621 - 622 - 622 STOCK-BASED COMPENSATION 74 1 1,709 - 1,710 - 1,710 NET LOSS - - - ( 7,890 ) ( 7,890 ) ( 208 ) ( 8,098 ) BALANCE AS OF NOVEMBER 30, 2021 38,086 $ 458 $ 292,439 $ ( 122,742 ) $ 170,155 536 $ 170,691 Additional Total Common Stock paid-in Accumulated stockholders’ Shares $ capital deficit equity In thousands BALANCE AS OF AUGUST 31, 2020 23,675 $ 284 $ 125,209 $ ( 92,614 ) $ 32,879 CHANGES DURING THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2020: ISSUANCE OF COMMON STOCK, NET 135 2 584 - 586 STOCK-BASED COMPENSATION - * 317 - 317 NET LOSS - - - ( 5,570 ) ( 5,570 ) BALANCE AS OF NOVEMBER 30, 2020 23,810 $ 286 $ 126,110 $ ( 98,184 ) $ 28,212 * Represents an amount of less than $1. The accompanying notes are an integral part of the condensed consolidated financial statements. 4 ORAMED PHARMACEUTICALS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. dollars in thousands (UNAUDITED) Three months ended November 30, 2021 November 30, 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 8,098 ) $ ( 5,570 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 12 2 Exchange differences and interest on deposits and held to maturity bonds ( 383 ) ( 114 ) Changes in fair value of investments 151 ( 162 ) Stock-based compensation 1,710 317 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 600 ) ( 1,104 ) Accounts payable, accrued expenses and related parties 981 1,153 Deferred revenues ( 674 ) ( 675 ) Liability for employee rights upon retirement 1 1 Other liabilities ( 3 ) - Total net cash used in operating activities ( 6,903 ) ( 6,152 ) CASH FLOWS FROM INVESTING ACTIVITIES: Investment in short-term deposits ( 100,000 ) ( 7,460 ) Purchase of held to maturity securities - ( 658 ) Purchase of corporate bonds designated as fair value - ( 1,004 ) Proceeds from sale of short-term deposits - 7,960 Proceeds from maturity of held to maturity securities 953 1,900 Proceeds from sale of mutual funds - 775 Funds in respect of employee rights upon retirement ( 1 ) ( 1 ) Purchase of property and equipment - ( 313 ) Total net cash provided by (used in) investing activities ( 99,048 ) 1,199 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of issuance costs 59,940 586 Proceeds from exercise of options 623 - Total net cash provided by financing activities 60,563 586 EFFECT OF EXCHANGE RATE CHANGES ON CASH 23 2 DECREASE IN CASH AND CASH EQUIVALENTS ( 45,365 ) ( 4,365 ) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 77,245 19,296 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,880 $ 14,931 (A) SUPPLEMENTARY DISCLOSURE ON CASH FLOWS - Interest received $ 112 $ 92 (B) SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: Recognition of operating lease right of use assets and liabilities $ - $ 582 The accompanying notes are an integral part of the condensed consolidated financial statements. 5 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: a. General: 1) Incorporation and operations Oramed Pharmaceuticals Inc. (collectively with its subsidiaries, 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 July 30, 2019, the Subsidiary incorporated a wholly-owned subsidiary in Hong Kong, Oramed HK Limited (the “Hong Kong Subsidiary”). As of November 30, 2021, the Hong Kong Subsidiary has no operations. On November 30, 2015, the Company entered into a Technology License Agreement (the “TLA”), 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 “HTIT License Agreement”). See note 2b. On March 18, 2021, the Company entered into a license agreement (the “Oravax License Agreement”) and into the Stockholders Agreement (as defined below) with Oravax Medical Inc. (“Oravax”). According to the Stockholders Agreement, Oravax issued 1,890,000 shares of its capital stock to the Company, representing 63 % of the issued and outstanding share capital of Oravax, on a fully diluted basis, as of the date of issuance. Consequently, Oramed is consolidating Oravax in its consolidated financial statements as of May 31, 2021. 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, although no assurance can be given that the Company will not need additional funds prior to such time. If there are unexpected increases in its operating expenses, the Company 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. In addition to the foregoing, based on the Company’s current assessment, the Company does not expect any material impact on its development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is continuing to assess the effect on its operation by monitoring the spread of COVID-19 and the actions implemented by the governments to combat the virus throughout the world. 6 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): b. Loss per common share 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 3,138,733 and 5,278,347 for the three month periods ended November 30, 2021 and November 30, 2020, respectively. c. Revenue recognition The HTIT License Agreement and a stock purchase agreement, dated November 30, 2015, between the Company and HTIT (the “SPA”) were considered a single arrangement with multiple deliverables. The Company allocated the total consideration of $ 49,500 between the HTIT 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 HTIT License Agreement. Under Accounting Standard Codification, (“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 when the related sale has occurred. To date, the Company has not recognized any royalty-related revenue. Amounts that were allocated to the HTIT License Agreement as of November 30, 2021 aggregated $ 22,382 , all of which were received through the balance sheet date. Through November 30, 2021, the Company has recognized revenue associated with this agreement in the aggregate amount of $ 16,109 , of which $ 674 was recognized in the quarter ended November 30, 2021, and deferred the remaining amount of $ 6,273 which is presented as deferred revenues on the condensed consolidated balance sheet. 7 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): d. 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, 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, 2021 (the “2021 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 2021 Form 10-K. The results for interim periods are not necessarily indicative of a full fiscal year’s results. e. Recently issued accounting pronouncements, not yet adopted In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for the fiscal year beginning after December 15, 2022, including interim periods within that year. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial statements. NOTE 2 - COMMITMENTS: a. In March 2011, the Subsidiary sold shares of its investee company, Entera Bio Ltd. (“Entera”) to D.N.A Biomedical Solutions Ltd. (“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. As of November 30, 2021, Entera had not paid any royalties to the Subsidiary. On December 11, 2018, Entera announced that it had entered into a research collaboration and license agreement (the “Amgen License”) with Amgen related to the 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. 8 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. According to the HTIT 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 HTIT 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 will be paid subject to the Company entering into certain agreements with certain third parties, and $26,500 will be paid 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 HTIT License Agreement shall remain in effect until the expiration of the Royalty Term. The HTIT License Agreement contains customary termination provisions. 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. As of November 30, 2021, the Company has received milestone payments in an aggregate amount of $ 20,500 as follows: 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. On August 21, 2020, the Company received a letter from HTIT, disputing certain pending payment obligations of HTIT under the TLA. The payment obligation being disputed is $ 6,000 , out of which only an amount of $ 2,000 has been received and has been included in Deferred revenue in each of the consolidated balance sheets as of November 30, 2021 and for the fiscal years ended August 31, 2021, and 2020. The Company wholly disputes the claims made by HTIT and has been engaged in discussions and exchanges with HTIT in an attempt to clarify and resolve disagreements between the parties regarding milestone payments and work plan implementation. In addition, on November 30, 2015, the Company entered into 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. The HTIT License Agreement and the SPA were considered a single arrangement with multiple deliverables. The Company allocated the total consideration of $ 49,500 between the HTIT 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 HTIT License Agreement. The Company determined that revenues are recognized over time through the expected product submission date in June 2023. 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 HTIT License Agreement. For the Company’s revenue recognition policy see note 1c. 9 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): c. 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, of which $ 1,592 was recognized in research and development expenses through November 30, 2021. d. On September 2, 2020 (effective as of January 15, 2020), the Subsidiary entered into a CRO Services Agreement with a third party to retain it as a clinical research organization (“CRO”) for the Subsidiary’s phase 3 clinical trial for its oral insulin. As consideration for its services, the Subsidiary will pay the CRO a total amount of $ 21,589 during the term of the engagement and based on achievement of certain milestones, of which $ 10,048 was recognized in research and development expenses through November 30, 2021. e. On September 16, 2020 (effective as of January 15, 2020), the Subsidiary entered into a CRO Services Agreement with a third party to retain it as a CRO for the Subsidiary’s phase 3 clinical trial for its oral insulin. As consideration for its services, the Subsidiary will pay the CRO a total amount of $ 12,343 during the term of the engagement and based on achievement of certain milestones, of which $ 3,991 was recognized in research and development expenses through November 30, 2021. f. 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 November 30, 2021 was $ 2,207 ($ 2,510 including interest). As of November 30, 2021, the liability to the IIA was $ 207 . The royalty expenses which are related to the funded project were recognized in cost of revenues in the relevant 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 November 30, 2021, 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 2 measurement. As of November 30, 2021, 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 November 30, 2021, 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 three month periods ended November 30, 2021 and November 30, 2020. 10 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. a. Composition: November 30, 2021 August 31, 2021 Short-term: D.N.A (see b below) $ 724 $ 701 Entera (see c below) 397 571 Held to maturity bonds (see d below) 6,452 4,579 $ 7,573 $ 5,851 Long-term: Held to maturity bonds (see d below) $ 4,131 $ 6,692 $ 11,704 $ 12,543 b. D.N.A 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 November 30, 2021, the Company owns approximately 1.7 % of D.N.A’s outstanding ordinary shares. The cost of the securities as of November 30, 2021 and August 31, 2021 is $ 595 . c. Entera 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 )). 11 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 November 30, 2021, are as follows: November 30, 2021 Amortized cost Gross unrealized gains (losses) Estimated fair value Average yield to maturity rate Short-term: Commercial bonds $ 6,348 $ ( 109 ) $ 6,239 1.42 % Accrued interest 104 - 104 Long-term 4,131 ( 20 ) 4,111 1.24 % $ 10,583 $ ( 129 ) $ 10,454 The amortized cost and estimated fair value of held-to-maturity securities as of August 31, 2021, are as follows: August 31, 2021 Amortized cost Gross unrealized gains (losses) Estimated fair value Average yield to maturity rate Short-term: Commercial bonds $ 4,463 $ ( 98 ) $ 4,365 1.73 % Accrued interest 116 - 116 Long-term 6,692 610 7,302 1.08 % $ 11,271 $ 512 $ 11,783 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. 12 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: 1. On September 1, 2021, the Company entered into a controlled equity offering agreement (the “Cantor Equity Distribution Agreement”) with Cantor Fitzgerald & Co., as agent, pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $ 100,000 , through a sales agent, subject to certain terms and conditions. Any shares sold will be sold pursuant to our effective shelf registration statement on Form S-3 including a prospectus dated July 26, 2021 and prospectus supplement dated September 1, 2021. The Company paid the sales agent a cash commission of 3.0 % of the gross proceeds of the sale of any shares sold through the sales agent under the Cantor Equity Distribution Agreement. As of November 30, 2021 and through January 11, 2022, 565,120 shares were issued under the Cantor Equity Distribution Agreement for aggregate net proceeds of $ 12,298 . 2. On November 3, 2021, the Company entered into a securities purchase agreement with several institutional and accredited investors (the “Purchasers”), pursuant to which the Company agreed to sell, in a registered direct offering (the “Offering”), an aggregate of 2,000,000 shares of the Company’s common stock to the Purchasers for an offering price of $25.00 per share. The closing of the sale of the shares occurred on November 5, 2021. The net proceeds to the Company from the Offering, after deducting the placement agent’s fees and expenses and the Company’s Offering expenses, were approximately $46,375. 3. The following are the significant stock options transactions with employees and board members made during the three months ended November 30, 2021: a. On September 1, 2021, the Company granted options to purchase an aggregate of 50,000 shares of common stock of the Company at an exercise price of $ 20.19 per share (equivalent to the closing price of the Company’s common stock on the date of grant) to the Chief Financial Officer. The options shall vest in four equal installments of 12,500 options on each of June 27, 2022, June 27, 2023, June 27, 2024 and June 27, 2025. These options expire on September 1, 2031. The fair value of all these options on the date of grant was $ 574 , using the Black Scholes option-pricing model and was based on the following assumptions: stock price of $ 20.19 ; dividend yield of 0 % for all years; expected volatility of 61.62 %; risk-free interest rates of 0.93 %; and expected term of 6.16 years. b. On September 1, 2021, the Company granted 50,000 RSUs to the Chief Financial Officer that shall vest as follows: 33,333 if the closing price per share of the Company’s common stock will be at least $ 25.00 for at least 20 days out of any 30-trading day period; and 1. If the first condition is met any time before June 27, 2022, then the RSUs will vest in three equal installments (on June 27, 2022, June 27, 2023 and June 27, 2024). 2. If the first condition is met any time between June 27, 2022 and June 27, 2023, then 1/3 of the RSUs will vest immediately, and the remainder will vest in two equal installments (on June 27, 2023 and June 27, 2024). 3. If the first condition is met anytime between June 27, 2023 and June 27, 2024, then 2/3 of the RSUs will vest immediately, and the remaining 1/3 will vest on June 27, 2024). 4. If the first condition is met any time after June 27, 2024, then the RSUs will vest immediately. 16,667 upon achievement of a certain licensing agreement as specified by the Board of Directors; and 1. If the first condition is met any time before June 27, 2022, then the RSUs will vest in three equal installments (on June 27, 2022, June 27, 2023 and June 27, 2024). 2. If the first condition is met any time between June 27, 2022 and June 27, 2023, then 1/3 of the RSUs will vest immediately, and the remainder will vest in two equal installments (on June 27, 2023 and June 27, 2024). 3. If the first condition is met any time between June 27, 2023 and June 27, 2024, then 2/3 of the RSUs will vest immediately, and the remaining 1/3 will vest on June 27, 2024). 4. If the first condition is met any time after June 27, 2024, then the RSUs will vest immediately. These RSUs expire on September 1, 2031. The total value of the RSUs is $ 662 , using the Monte-Carlo model for RSUs with market conditions. 13 ORAMED PHARMACEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share data) (UNAUDITED) NOTE 6 - LEASES The right-of-use asset and lease liability are initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate based on the information available at the date of adoption in determining the present value of the lease payments. The Company’s incremental borrowing rate is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located. The Company has various operating leases for office space and vehicles that expire through 2025. Below is a summary of our operating right-of-use assets and operating lease liabilities as of November 30, 2021 and August 31. 2021: November 30, 2021 August 31, 2021 Operating right-of-use assets $ 504 $ 533 Operating lease liabilities, current 130 130 Operating lease liabilities long-term 374 403 Total operating lease liabilities $ 504 $ 533 For more information about our office lease terms, please see note 2(c). Minimum lease payments for the Company’s right-of-use assets over the remaining lease periods as of November 30, 2021 and August 31. 2021 are as follows: November 30, 2021 August 31, 2021 2022 $ 118 $ 156 2023 140 138 2024 138 136 2025 138 136 Total undiscounted lease payments 534 565 Less: Interest* ( 30 ) ( 32 ) Present value of lease liabilities $ 504 $ 533 * Future lease payments were discounted by 3 % interest rate. 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 CSO, whereby 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 the performance of the Consulting Agreements and that the monthly consulting fee paid to the CEO and the CSO is NIS 146,705 ($ 46 ) and NIS 106,400 ($ 34 ), respectively. In addition to the Consulting Agreements, based on a relocation cost analysis, the Company pays for certain direct costs, related taxes and expenses incurred in connection with the relocation of the CEO to U.S. During the three months ended November 30, 2021, such relocation expenses totaled $ 67 , compared to $ 74 for the three months ended November 30, 2020. 14 ORAMED PHARMACEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS U.S. Dollars in thousands (except share and per share data) (UNAUDITED) NOTE 8 – SUBSEQUENT EVENTS: a. On December 2, 2021, the Subsidiary entered into an addendum (the “Addendum”) to the current lease agreement for its facilities in Israel. The Addendum refers to the lease of an additional space of 264 sqm for a period of 60 months commencing February 1, 2022. The Subsidiary has the option to extend the period for another 60 months. The annual lease payment, including management fees, is approximately NIS 435,000 ($ 138 ). As security for its obligation under this lease agreement, the Company will provide a bank guarantee in an amount equal to three monthly lease payments. b. On January 3, 2022, the Company granted an aggregate of 150,000 shares of the Company’s common stock to the Company’s Chief Executive Officer. The total fair value of these shares on the date of grant was $ 2,084 , using the quoted closing market share price of $ 13.89 on the Nasdaq Capital Market on the date of grant. c. On January 3, 2022, the Company granted an aggregate of 207,500 RSUs representing a right to receive shares of the Company’s common stock to the Company's employees and board members as follows: 63,000 to the President and Chief Executive Officer; 42,000 to the Chief Scientific Officer; 21,000 to the Chief Operating Officer, 19,000 to the Chief Financial Officer and Treasurer, 19,000 to the Chief Commercial Officer, 18,000 to the Chief Legal Officer and Secretary (effective as of the time his employment with the Company commenced on January 9, 2022), an aggregate of 24,000 to four board members and 1,500 to an employee. The RSUs will vest in four equal annual instalments on each of January 1, 2023, 2024, 2025 and 2026. These RSUs expire on January 3, 2032. The total fair value of these RSUs on the date of grant was $ 2,882 , using the quoted closing market share price of $ 13.89 on the Nasdaq Capital Market on the date of grant. d. On January 3, 2022, the Company granted options to purchase an aggregate of 321,500 shares of common stock of the Company to the Company's employees and board members at an exercise price of $13.89 per share (equivalent to the closing price of the Company’s common stock on the date of grant) as follows: 107,000 to the President and Chief Executive Officer; 72,000 to the Chief Scientific Officer; 36,000 to the Chief Operating Officer, 32,000 to the Chief Financial Officer and Treasurer and 32,000 to the Chief Commercial Officer, an aggregate of 40,000 to four board members and 2,500 to an employee. The options will vest in four equal annual instalments on each of January 1, 2023, 2024, 2025 and 2026. These options expire on January 3, 2032. The fair value of all these options on the date of grant was $2,627, using the Black Scholes option-pricing model and was based on the following assumptions: stock price of $13.89; dividend yield of 0% for all years; expected volatility of 62.94%; risk-free interest rates of 1.46%; and expected term of 6.25 years. e. On January 3, 2022, the Company granted options to purchase an aggregate of 30,000 shares of common stock of the Company to the Company's Chief Legal Officer and Secretary (effective as of the time his employment with the Company commenced on January 9, 2022), at an exercise price of $12.03 per share (equivalent to the closing price of the Company’s common stock on January 10, 2022 which represents the first trading date after his employment with the Company commenced). The options will vest in four equal annual instalments on each of January 1, 2023, 2024, 2025 and 2026. These options expire on January 3, 2032. The fair value of all these options on the date of grant was $214, using the Black Scholes option-pricing model and was based on the following assumptions: stock price of $12.03; dividend yield of 0% for all years; expected volatility of 63.19%; risk-free interest rates of 1.62%; and expected term of 6.25 years. 15