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):

The amortized cost and estimated fair value of held-to-maturity securities as of November 30, 2017,February 29, 2020, are as follows:

As of November 30, 2017,February 29, 2020, the contractual maturities of debt securities classified as held-to-maturity are as follows: before one year, $1,748, and the average yield to maturity rate is 3.28%; After one year through two years, $250, and the yield to maturity rates is 2.77%.

The amortized cost and estimated fair value of held-to-maturity securities as of August 31, 2019, are as follows:

As of August 31, 2019, the contractual maturities of debt securities classified as held-to-maturity are as follows: after one year through two years, $4,598,$1,295 and the yield to maturity rates vary between 1.40%2.55% to 1.90%.

The amortized cost and estimated fair value of held-to-maturity securities as of August 31, 2017, are as follows:

As of August 31, 2017, the contractual maturities of debt securities classified as held-to-maturity are as follows: after one year through two years, $2,151 and the yield to maturity rates vary between 1.30% to 1.87%3.20%.

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 - LONG-TERM DEPOSITS AND INVESTMENTS:

Composition:

NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Composition:

NOTE 7 - STOCKHOLDERS’ EQUITY:

On April 2, 2015,September 5, 2019, the Company entered into an At The Market Issuance SalesEquity Distribution 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 itsthe Company’s option, issue and sell shares of itsCompany common stock having an aggregate offering price of up to $25,000$15,000, through FBR as itsa 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 and prospectus supplement, each dated February 2, 2017, as supplemented by10, 2020 (which superseded a prior registration statement, prospectus and prospectus supplement dated April 5, 2017.that related to shares sold under the Sales Agreement). The Company will pay FBRthe sales agent a cash commission of 3.0% of the gross proceeds of the sale of any shares sold through FBR.the sales agent under the Sales Agreement. As of November 30, 2017, 456,889February 29, 2020, 440,866 shares were soldissued under the Sales Agreement for aggregate net proceeds of $4,256 and an additional 50,000 shares were subsequently sold during December 2017 for aggregate net proceeds of $441.$2,329.

ORAMED PHARMACEUTICALS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

U.S. Dollars in thousands (except share and per share data)

(UNAUDITED)

NOTE 86 - 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, as amended, 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)37) and NIS 80,45492,522 ($22)27), respectively. In January 2020, pursuant to an amendment to the CSO’s Consulting Agreement, the monthly consulting fee paid to such executive officer was increased.

In addition to the Consulting Agreement,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,York. During the six months ended February 29, 2020, such relocation expenses totaled $298 compared to $278 for the six months ended February 28, 2019.

NOTE7 - SUBSEQUENT EVENT:

On February 27, 2020, the Company entered into an underwriting agreement (“Agreement”) with National Securities Corporation (“Underwriter”), in connection with a public offering (“Offering”) of 5,250,000 shares of the Company’s common stock, at an offering price of $4.00 per share. Under the terms of the Agreement, the Company granted the Underwriter a 45-day option to purchase from the Company up to an additional 787,500 shares of common stock at the public offering price. In connection with the Offering, the Company also agreed to issue to the Underwriter, or its designees, warrants (“Underwriter’s Warrants”), to purchase up to an aggregate yearly amount of $332.

NOTE 9 - SUBSEQUENT EVENT:

7% of the shares of common stock sold in the Offering (including any additional shares sold during the 45-day option period), at an exercise price of $4.80 per share. The Underwriter’s Warrants issued in the Offering will be exercisable at any time and from time to time, in whole or in part, commencing six months from issuance for a period of three years from the date of issuance. The closing of the sale of the Offering occurred on March 2, 2020. The net proceeds to the Company from the Offering, after deducting the Underwriter’s fees and expenses and the Company’s Offering expenses were approximately $19,292.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere herein and in our consolidated financial statements, accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report (as defined below).

Forward-Looking Statements

The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Words such as “expects,” “anticipates,” “intends,” “plans,” “planned expenditures,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements include, among other statements, statements regarding the following:

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Item 1A.1A - Risk Factors” in this Quarterly Report on Form 10-Q and those under the same heading in our Annual Report on Form 10-K for the fiscal year ended August 31, 2017,2019, or our Annual Report, as filed with the Securities and Exchange Commission, or the SEC, on November 29, 2017,27, 2019, as well as those discussed elsewhere in our Annual Report and this QuarterlyReport on Form 10-Q and expressed from time to time in our other filings with the SEC. 

In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this Quarterly Report on Form 10-Q could be interpreted differently in light of additional research, clinical and preclinical trials results. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report on Form 10-Q which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Overview of Operations

We are a pharmaceutical company currently engaged in the research and development of innovative pharmaceutical solutions, including an oral insulin capsule to be used for the treatment of individuals with diabetes, and the use of orally ingestible capsules or pills for delivery of other polypeptides. We utilize clinical research organizations, or CROs, to conduct our clinical studies.

Recent business developments

Product Candidates

Oral insulin: We are seeking to transform the treatment of diabetes through our proprietary flagship product, an orally ingestible insulin capsule, or ORMD-0801. Our technology allows insulin to travel from the gastrointestinal tract via the portal vein to the bloodstream, revolutionizing the manner in which insulin is delivered. It enables the passage in a more physiological manner than current delivery methods of insulin. Our technology is a platform that has the potential to deliver medications and vaccines orally that today can only be delivered via injection.

Product CandidatesFDA Guidance:

Orally Ingestible Insulin

In August 2017, we hadduring a call with the U.S. Food and Drug Administration, or FDA, regarding our proprietary flagship product, an orally ingestible insulin capsule, or ORMD-0801. During the call, the FDAwe were advised that the regulatory pathway for the submission of ORMD-0801 would be a Biologics License Application.Application, or BLA. If approved such athe BLA pathway would grant us 12 years of marketing exclusivity for ORMD-0801, from the approval date, and an additional six months of exclusivity may be granted to us if the product also receives approval for use in pediatric patients. The FDA confirmed that the approach to nonclinical toxicology, chemistry manufacturing controls and qualification of excipients would be driven by their published guidance documents. We plan to initiate in the first quarter of calendar year

Phase IIb Study: In May 2018, we initiated a three-month dose-ranging Phase IIb clinical trial of ORMD-0801 (Cohort A). This placebo controlled, randomized, 90-day treatment clinical trial was conducted on approximately 240269 type 2 diabetic patients in multiple centers throughout the United States pursuant to an Investigational New Drug application, or IND, with the FDA. The primary endpoints of the trial were to assess the safety and evaluate the effect of ORMD-0801 on HbA1c the main FDA registrational endpoint andlevels over a clamp study on six type 1 diabetic patients.

In February 2017, we completed a Phase IIa dose finding clinical trial which was initiated in October 2016. This randomized, double-blind trial was conducted on 32 type 2 adult diabetic patients in order to better define the optimal dosing of ORMD-0801 moving forward. The results90-day treatment period. Secondary endpoints of the trial indicatedincluded measurements of fasting plasma glucose, or FPG, post-prandial glucose, or PPG levels, during a positive safety profilemixed-meal tolerance test, or MMTT, and potentially meaningful efficacyweight. In May 2019, we began an extension of ORMD-0801, as the efficacy data suggest ORMD-0801 improves glucose control.this protocol for approximately 75 type 2 diabetic patients, who were dosed using a lower dosage (Cohort B).

Cohort A:- In March 2017,November 2019, we initiated a six month toxicology study to allow forannounced positive results from the useinitial cohort of our oral insulin capsule for a longer period than previously performed, in preparation for our proposed upcoming three-month clinical trial for type 2 diabetes. We anticipate receiving the final report of this studyPhase IIb trial. Patients randomized in the first quarter of calendar year 2018.

In April 2016, we completed a Phase IIb clinical trial on 180 type 2 adult diabetic patients that was initiated in June 2015 and conducted in 33 sites in the United States. This double-blind, randomized, 28-day dosing clinical trial was conducted under an Investigational New Drug application, or IND, with the FDA. The clinical trial, designed to assess the safety and efficacy of ouronce-daily ORMD-0801 investigated ORMD-0801 over a 28 day treatment period and had statistical power to give us greater insight into the drug’s efficacy. The trial indicatedachieved a statistically significant lowering(p-value 0.036) reduction from baseline in HbA1c of blood glucose levels versus0.60% (0.54% with placebo across several endpoints,adjustment). This 0.54% reduction in HbA1c is clinically meaningful. Treatment with ORMD-0801 demonstrated an excellent safety profile, with no serious or severedrug-related adverse issues relatedevents and with no increased frequency of hypoglycemic episodes when compared to placebo. In addition, during this 90-day trial, no weight gain was observed. In the initial cohort, 269 U.S.-based patients were enrolled and treated with a dose-increasing approach: 16 mg initial dose, titrated to 24 mg per dose, and then titrated to 32 mg per dose. Patients were randomized into three groups to assess dosing frequency: once-daily (32 mg per day), twice-daily (64 mg per day), thrice daily (96 mg per day). There was a corresponding placebo for each treatment arm. Two hundred nine (209) patients completed treatment to the drug.12-week endpoint and were included in the data analysis (24 subjects did not complete the full 12 weeks of treatment). The trial successfully met alltwice-daily arms achieved statistically significant (p-value 0.042) reductions from baseline in A1C of its primary and most0.59% (0.53% with placebo adjustment). The thrice-daily arm did not meet statistical significance (p-value 0.093). In addition, due to evidence of its secondary and exploratory endpointstreatment-by-center interaction, two sites (36 patients (13.4% of enrolled subjects)) were excluded from the statistical analysis as they showed results opposite from the rest of the statistically significant results. As our internal investigation did not find a cause for both safety and efficacy.such discrepancy, we have appointed an independent advisor to investigate this discrepancy.

Should our Phase IIb three-month dose-ranging clinical trial successfully meet its primary endpoints, weWe anticipate initiating two six-month Phase III clinical trials on both type 1 and type 2 diabetic patients following whichin the second half of calendar year 2020. Following these trials we expect to file a New Drug ApplicationBLA with a potential FDA approval by the third quarterend of calendar year 2023.2024.We also expect to have a meeting with the European Medicines Agency, or the EMA, regarding our Phase III study design, as we intend to utilize clinical sites and file for marketing approval in Europe.

Clamp Study: In June 2018, following a request from the FDA, we initiated a glucose clamp study which should quantify insulin absorption in diabetic patients treated with ORMD-0801. The glucose clamp is a method for quantifying insulin absorption in order to measure a patient’s insulin sensitivity and how well a patient metabolizes glucose. This exploratory, randomized, double-blind glucose clamp study is evaluating exposure-response profiles of type 1 diabetic patients treated with ORMD-0801. Six patients with A1C levels of 10% or below, aged 18-50, are enrolled in the study.GLP-1 AnalogWe have received the results from the study which will be used in future documentation for FDA submission.

Food Effect Study:In September 2013,June 2018, we submittedinitiated a pre-IND packagefood effect trial for ORMD-0801. This single-blind, five period, randomized, placebo-controlled crossover trial is evaluating the pharmacokinetics, or PK, and pharmacodynamics, of ORMD-0801 taken at different times in relation to the FDA for ORMD-0901, our oral exenatide capsule, for a Phase II clinical trial onmeals in healthy volunteers and patients with type 1 diabetes. Forty-eight (48) patients were enrolled, including 24 healthy volunteers and 24 patients with type 1 diabetes. We completed this study in April 2019 and received the study results in March 2020. According to the study results, we believe that ORMD-0801 dosed 45-minutes prior to a meal would be a reasonable dosing schedule for the future clinical studies.

NASH Study:In October 2018, we initiated an exploratory clinical study of ORMD-0801 in type 2 diabetic patients.patients with nonalcoholic steatohepatitis, or NASH. The three-month treatment study, which was approved by Israel’s Ministry of Health, will assess the effectiveness of ORMD-0801 in reducing liver fat content, inflammation and fibrosis in 30 patients with NASH. We expect to complete the study during first half of calendar year 2021.

Toxicology Study (6 Months): In August 2015,March 2019, we begancompleted a non-FDA clinical trial outsidesix-month dosing toxicology study of ORMD-0801, which was initiated in September 2018 following the United States on type 2 diabetic patients. The trial was completed duringFDA’s request.We have received a draft report and we expect to receive the final report of this study in the second quarter of calendar year 20162020.

Type 1 Study:In November 2019 we initiated a crossover study of type 1 diabetic patients to compare the effects of ORMD-0801 given once daily versus the effects of ORMD-0801 given three times daily.We have received a draft report and indicated positive results as it showed ORMD-0901we expect to be safe and well tolerated and demonstrated encouraging efficacy data. We completed a three-month pre-clinical toxicology study in March 2017 andreceive the final report will be submitted toof this study in the FDA with our IND. We expect to file an IND during the firstsecond quarter of calendar year 20182020.

Oral Glucagon-Like Peptide-1: Glucagon-like peptide-1, or GLP-1, is an incretin hormone, which stimulates the secretion of insulin from the pancreas. In addition, GLP-1 was found to suppress glucagon release (a hormone involved in the regulation of glucose) from the pancreas, slow gastric emptying to reduce the rate of absorption of nutrients into the blood stream and move directly into increase satiety. Other important beneficial attributes of GLP-1 are its effects of increasing the number of beta cells (cells that produce and release insulin) in the pancreas and, possibly, protection of the heart. In addition to our flagship product, the ORMD-0801 insulin capsule, we are using our technology for an orally ingestible GLP-1 capsule, or ORMD-0901.

In February 2019, we completeda smallPhase I PK trial to evaluate the safety and the pharmacokinetics of ORMD-0901 compared to placebo. We have received a draft report and we expect to receive the final report of this study on healthy volunteersin the second quarter of calendar year 2020. This study was conducted pursuant to an IND, which we expect to be followed by further bioavailability studies (results expected in calendar year 2020) and a large Phase II trial on type 2 diabetic patients which will likely be conducted in the United States under an IND.

Other products

During the first quarter of calendar 2017, we beganWe are developing a new drug candidate, a weight loss treatment in the form of an oral leptin capsule, and in April 2017, Israel’s Ministry of Health approved our commencement ofcapsule. We anticipate initiating a proof of concept single dose study for our oral leptin drug candidate to evaluate its pharmacokinetic and pharmacodynamics (glucagon reduction) in 10 type 1 adult diabetic patients. TheDue to government restrictions enacted as a result of COVID-19, we are facing delays in recruitment for this study is projected to initiate in calendar year 2018 and be completed during calendar year 2019.

In November 2017, Israel’s Ministry of Health approved us to initiate an exploratory clinical study of our oral insulin capsule, ORMD-0801, in patients with nonalcoholic steatohepatitis (NASH). The proposed three-month treatment study will assess the effectiveness of ORMD-0801 in reducing liver fat content, inflammation and fibrosis in patients with NASH. We expect to initiate the study in calendar year 2018 and complete it during calendar year 2019.as soon as these restrictions have been raised.

The table below gives an overview of our primary product pipeline (calendar quarters):pipeline:

		Phase I	Phase II	Phase III		Timeline
ORMD-0801 oral insulin	Type 2 diabetes					Q1 ’14: Phase IIa completed Q2 ’16: Phase IIb multi-center study completed Q1 ’17: Phase IIa - dose finding study completed Q1 ’18: Phase IIb 90-day multi-center study projected initiation (projected completion Q2 ’19) Q4 ’19: Phase III study projected initiation (projected completion Q2 ’21)
	Type 1 diabetes					Q3 ’14: Phase IIa study completed Q1 ’18: Clamp study projected initiation (projected completion Q3 ’18) Q4 ’19: Phase III projected initiation (projected completion Q2 ’21)
ORMD-0901 oral GLP-1	Type 2 diabetes					Q2 ’16: Phase Ib non-US study completed Q1 ’18: Pharmacokinetics clinical study projected initiation (projected completion Q3 ’18) H2 ’18: Phase II projected initiation (projected completion Q4 ’19)

Out-Licensed Technology

On November 30, 2015, we, our Israeli subsidiary and HTIT entered into a Technology License Agreement, and on December 21, 2015 these 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, or the License Agreement. According to the License Agreement, we granted HTIT an exclusive commercialization license in the territory of the People’s Republic of China, Macau and Hong Kong, or the Territory, related to our oral insulin capsule, ORMD-0801, or the Product. Pursuant to the License Agreement, HTIT will conduct, at its own expense, certain pre-commercialization and regulatory activities with respect to our subsidiary’s technology and ORMD-0801 capsule, and will pay (i) royalties of 10% on net sales of the related commercialized products to be sold by HTIT in the Territory, or Royalties, and (ii) an aggregate of $37.5 million, of which $3 million iswas payable immediately, $8 million will be paid subject to our entry into certain agreements with certain third parties, and $26.5 million will be payablepaid upon achievement of certain milestones and conditions. In the event that we will not meet certain conditions, the Royalties rate may be reduced to a minimum of 8%. Following the final expiration of our 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 final expiration of the last-to-expire licensed patentpatents in the TerritoryTerritory; and (ii) 15 years after the first commercial sale of the Product in the Territory, or the Royalty Term. The License Agreement shall remain in effect until the expiration of the Royalty Term. The License Agreement contains customary termination provisions. The initial payment of $3 million wasThrough February 29, 2020, we received in January 2016. Following the achievement of certain milestones, the second and thirdaggregate milestone payments of $6.5$20.5 million and $4 million, respectively, were received in July 2016, andout of the fourth milestone paymentaggregate amount of $4 million was received in October 2016.$37.5 million.

On November 30, 2015, we also entered into a separate Securities Purchase Agreement with HTIT, or the SPA, pursuant to which, in December 2015, we issued to HTIT 1,155,367 shares of our common stock for total consideration of $12 million. In connection with the License Agreement and the SPA, we received a non-refundable payment of $500,000 as a no-shop fee.

Results of Operations

Comparison of six and three month periods ended November 30, 2017February 29, 2020 and 2016February 28, 2019

The following table summarizes certain statements of operations data of the Company for the six and three month periods ended November 30, 2017February 29, 2020 and 2016February 28, 2019 (in thousands of dollars except share and per share data):

Revenues

Revenues consist of proceeds related to the License Agreement that are recognized overon a cumulative basis when it is probable that a significant reversal in the termamount of cumulative revenue recognized will not occur, through the License Agreement throughexpected product submission date of June 2023.2023 using the input method.

Revenues were $1,348,000 and $1,340,000 for the six month periods ended February 29, 2020 and February 28, 2019, respectively.

Revenues for the three month period ended November 30, 2017 totaled $611,000, consistent with $610,000February 29, 2020 were $674,000 and the revenues for the three month period ended November 30, 2016.February 28, 2019 were $666,000.

Cost of revenues

Cost of revenues consists of royalties related to the License Agreement that will be paid over the term of the License Agreement in accordance with revenue recognition accounting and the Law for the Encouragement of Industrial Research, Development and Technological Innovation, 1984, as amended, including any regulations or tracks promulgated thereunder.

NoCost of revenues for the six month period ended February 29, 2020 decreased to none compared to $90,000 for the six month period ended February 28, 2019. The decrease is attributable to a milestone payment which was received during the six month period ended February 28, 2019.

There was no cost of revenues was recognized during the three month period ended November 30, 2017 compared to cost of revenues of $187,000 for the three month period ended November 30, 2016.February 29, 2020 compared to $55,000 for the three month period ended February 29, 2020. The decrease is dueattributable to no additionala milestone payments having beenpayment which was received during the three month period ended November 30, 2017.February 28, 2019.

Research and development expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, employee benefits, costs of materials, supplies, the cost of services provided by outside contractors, including services related to our clinical trials, clinical trial expenses, the full cost of manufacturing drugs for use in research and 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. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as contract research organizations, or CROs, independent clinical investigators and other third-party service providers to assist us with the execution of our clinical studies.

Clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by CROs. CROs typically perform most of the start-up activities for our trials, including document preparation, site identification, screening and preparation, pre-study visits, training, and program management.

Clinical trial and pre-clinical trial expenses include regulatory and scientific consultants’ compensation and fees, research expenses, purchase of materials, cost of capsule manufacturing, of the oral insulin and exenatide capsules, payments for patient recruitment and treatment, as well as salaries and related expenses of research and development staff.

Research and development expenses for the threesix month period ended November 30, 2017February 29, 2020 decreased by 1%30% to $2,327,000,$5,342,000, from $2,353,000$7,641,000 for the threesix month period ended November 30, 2016.February 28, 2019. The decrease is mainlyprimarily due to completion ofa decrease in expenses related to our dose findingPhase IIb three-month treatment clinical trial as well as a decrease in expenses related to our toxicology studies and is partially offset by an increase in expenses related to progress in toxicology studies and preparationsmaterials for our future Phase IIb three-month clinicalIII trial. Stock-based compensation costs for the threesix month period ended November 30, 2017February 29, 2020 totaled $171,000,$218,000, as compared to $136,000$93,000 during the threesix month period ended November 30, 2016.February 28, 2019. The increase is mainly attributable to awards granted to employees and a consultant during the six month period ended February 29, 2020 and during the Company’s 2019 fiscal year 2017.year.

Research and development expenses for the three month period ended February 29, 2020 increased by 7% to $3,320,000, from $3,114,000 for the three month period ended February 28, 2019. The increase is primarily due to an increase in expenses related to the completion of our Phase IIb three-month treatment clinical trial (including regulatory expenses) as well as an increase in expenses related to materials for our future Phase III trial. Stock-based compensation costs for the three month period ended February 29, 2020 totaled $122,000, as compared to $54,000 during the three month period ended February 28, 2019. The increase is mainly attributable to awards granted to employees and a consultant during the three month period ended February 29, 2020 and during the Company’s 2019 fiscal year.

Government grants

In the threesix month periods ended November 30, 2017February 29, 2020 and 2016,February 28, 2019, we did not recognize any research and development grants. As of November 30, 2017, we incurredFebruary 29, 2020, following repayment of a portion of such grants, outstanding liabilities to pay royalties to the Israel Innovation Authority of the Israeli Ministry of Economy & Industry of $533,000.are equal to $315,000.

General and administrative expenses

General and administrative expenses include the salaries and related expenses of our management, consulting costs, legal and professional fees, travel expenses, business development costs, insurance expenses and other general costs.

General and administrative expenses for the threesix month period ended November 30, 2017February 29, 2020 increased by 117%24% to $1,016,000$2,472,000 from $468,000$1,997,000 for the threesix month period ended November 30, 2016.February 28, 2019. The increase in costs related to general and administrative activities during the three month period ended November 30, 2017 is mainlyprimarily attributable to an increase in stock-based compensationlegal expenses and costs consulting and travel expenses related to the relocation of our Chief Executive Officer to New York, where the Company has leased an office since September 2017.directors and officers. Stock-based compensation costs for the threesix month period ended November 30, 2017February 29, 2020 totaled $352,000,$350, as compared to $23,000$329 during the threesix month period ended November 30, 2016.February 28, 2019. The increase is mainly attributable to awards granted to employees and a consultant during the six month period ended February 29, 2020 and the Company’s 2019 fiscal year 2017.year.

General and administrative expenses for the three month period ended February 29, 2020 increased by 30% to $1,391,000 from $1,065,000 for the three month period ended February 28, 2019. The increase in costs related to general and administrative activities is primarily attributable to an increase in legal expenses, costs related to directors and officers and bonuses recorded in the first quarter in 2019 and in the second quarter in 2020. Stock-based compensation costs for the three month period ended February 29, 2020 totaled $166,000, as compared to $130,000 during the three month period ended February 28, 2019. The increase is mainly attributable to awards granted to employees and a consultant during the three month period ended February 29, 2020 and the Company’s 2019 fiscal year.

Financial income, net

Net financial income decreased 53% from net financial income of $505 for the six month period ended February 29, 2020 to net financial income of $235 for the six month period ended February 28, 2019. The decrease is primarily attributable to less interest income as well as the decreases in fair value of the ordinary shares of D.N.A Biomedical Solutions Ltd. and Entera Bio Ltd.

Net financial income increased by 24%208% from net financial income of $162,000$167,000 for the three month period ended November 30, 2016February 28, 2019 to net financial income of $201,000$349,000 for the three month period ended November 30, 2017.February 29, 2020. The increase is mainlyprimarily attributable to an increasethe increases in income from bank depositsfair value of the ordinary shares of D.N.A Biomedical Solutions Ltd. and held to maturity bonds as a result of an increase in interest rates.Entera Bio Ltd.

Taxes on income

No taxes on income were recognized for the six month period ended February 29, 2020 as compared to $300,000 for the six month period ended February 28, 2019. The decrease is due to withholding taxes in connection with the receipt of a milestone payment pursuant to the License Agreement during 2019.

No taxes on income were recognized for the three month period ended November 30, 2017February 29, 2020 as compared to $400,000$300,000 for the three month period ended November 30, 2016.February 28, 2019. The decrease is due to withholding taxes in connection with the receipt of a decrease in withholding tax deducted from milestone payments received relatedpayment pursuant to the License Agreement that resulted from a decrease in such proceeds. The Company estimates that withholding tax will not be utilized in the next five years, and therefore it was deducted.during 2019.

Other comprehensive income

Unrealized gains on available for sale securities for the three month period ended November 30, 2017 of $326,000, compared to losses of $63,000 for the three month period ended November 30, 2016, resulted from the increase in fair value of the ordinary shares of D.N.A Biomedical Solutions Ltd. that we hold.

Liquidity and capital resources

From inception through November 30, 2017,February 29, 2020, we have incurred losses in an aggregate amount of $59,027,000.$87,334,000. During that period and through April 6, 2020, we have financed our operations through several private placements of our common stock, as well as public offerings of our common stock, raising a total of $60,309,000,$99,344,000, net of transaction costs. During that period, we also received cash consideration of $5,810,000$5,901,000 from the exercise of warrants and options. We will seek to obtain additional financing through similar sources in the future, as needed. As of November 30, 2017,February 29, 2020, we had $1,258,000$5,934,000 of available cash, $32,772,000$17,288,000 of short-term and long-term bank deposits and $7,320,000$5,704,000 of marketable securities.

Management continues to evaluate various financing alternatives for funding future research and development activities and general and administrative expenses through fundraising in the public or private equity markets. Although there is no assurance that we will be successful with those initiatives, management believes that it will be able to secure the necessary financing as a result of future third party investments. Based on our current cash resources and commitments, we believe we will be able to maintain our current planned development activities and the corresponding level of expenditures for at least the next 12 months and beyond.months.

As of November 30, 2017, our total current assets were $19,135,000 and our total current liabilities were $5,124,000. On November 30, 2017,September 5, 2019, we had a working capital surplus of $14,011,000 andentered into an accumulated loss of $59,027,000. As of August 31, 2017, our total current assets were $20,297,000 and our total current liabilities were $5,165,000. On August 31, 2017, we had a working capital surplus of $15,132,000 and an accumulated loss of $56,496,000. The decrease in working capital from August 31, 2017 to November 30, 2017 was primarily due to investment in long-term deposits and marketable securities.

During the three month period ended November 30, 2017, cash and cash equivalents decreased to $1,258,000 from the $3,969,000 reported as of August 31, 2017, which is due to the reasons described below.

Operating activities used cash of $2,728,000 in the three month period ended November 30, 2017, as compared to $1,498,000 provided in the three month period ended November 30, 2016. Cash used in operating activities in the three month period ended November 30, 2017 primarily consisted of net loss resulting from research and development and general and administrative expenses, as well as changes in deferred revenues due to the LicenseEquity Distribution Agreement, and is partially offset by changes in stock-based compensation, while cash provided by operating activities in the three month period ended November 30, 2016 primarily consisted of changes in deferred revenues and is partially offset by net loss resulting from research and development and general and administrative expenses.

Investing activities used cash of $5,146,000 in the three month period ended November 30, 2017, as compared to $3,436,000 used in the three month period ended November 30, 2016. Cash used in investing activities in the three month periods ended November 30, 2017 and 2016 consisted primarily of the purchase of short-term and long-term bank deposits and marketable securities.

Financing activities provided cash of $5,160,000 in the three month period ended November 30, 2017, as compared to $320,000 that were provided in the three month period ended November 30, 2016. Financing activities in the three month period ended November 30, 2017 consisted of aggregate net proceeds of $4,230,000 from our issuance of 453,919 common stock under an At The Market Issuance Sales Agreement, dated April 2, 2015, or the Sales Agreement, with B. Riley FBR, Inc., as successorpursuant to FBR Capital Markets & Co., or FBR, as amended, and proceeds from exercise of warrants and options while financing activities in the three month period ended November 30, 2016 consisted of proceeds from the exercise of options. Pursuant to the Sales Agreement,which we may, from time to time and at our option, issue and sell shares of our common stock having an aggregate offering price of up to $25,000,000$15,000,000 through FBR asa 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 and prospectus supplement, each dated February 2, 2017, as supplemented by10, 2020 (which superseded a prior registration statement, prospectus and prospectus supplement dated April 5, 2017.that related to shares sold under the Sales Agreement). We will pay FBRthe sales agent a cash commission of 3.0% of the gross proceeds of the sale of any shares sold through FBR.the sales agent under the Sales Agreement. As of February 29, 2020, 440,866 shares were issued under the Sales Agreement for aggregate net proceeds of $2,329,000. As of February 29, 2020 and April 6, 2020, 440,866 shares of common stock were sold under the Sales Agreement for aggregate net proceeds of $2,328,666.

On February 27, 2020, we entered into an underwriting agreement with National Securities Corporation, or the Underwriter, in connection with a public offering, or the Offering, of 5,250,000 shares of our common stock, at an offering price of $4.00 per share. We also granted the Underwriter a 45-day option to purchase from us up to an additional 787,500 shares of common stock at the public offering price. In connection with the Offering, we also agreed to issue to the Underwriter, or its designees, warrants, to purchase up to an aggregate of 7% of the shares of common stock sold in the Offering (including any additional shares sold during the 45-day option period), at an exercise price of $4.80 per share. The closing of the sale of the Offering occurred on March 2, 2020. The net proceeds to us from the Offering, after deducting the Underwriter’s fees and expenses and the Company’s Offering expenses were approximately $19,292.

As of February 29, 2020, our total current assets were $29,489,000 and our total current liabilities were $5,155,000. On February 29, 2020, we had a working capital surplus of $24,334,000 and an accumulated loss of $87,334,000. As of August 31, 2019, our total current assets were $33,324,000 and our total current liabilities were $5,308,000. On August 31, 2019, we had a working capital surplus of $28,016,000 and an accumulated loss of $81,103,000. The decrease in working capital from August 31, 2019 to February 29, 2020 was primarily due to the cash used in operating activities.

During the six month period ended February 29, 2020, cash and cash equivalents increased to $5,934,000 from the $3,329,000 reported as of August 31, 2019, which is due to the reasons described below.

Operating activities used cash of $6,624,000 in the six month period ended February 29, 2020, as compared to $6,015,000 used in the six month period ended February 28, 2019. Cash used in operating activities primarily consisted of net loss resulting from research and development and general and administrative expenses, as well as changes in contract liabilities due to the License Agreement and is partially offset by changes in accounts payable and accrued expenses.

Investing activities provided cash of $6,900,000 in the six month period ended February 29, 2020, as compared to $4,445,000 provided in the six month period ended February 28, 2019. Cash provided by investing activities consisted primarily of the maturity of short-term deposits and held to maturity securities and is partially offset by the purchase of short-term deposits.

Financing activities provided cash of $2,329,000 in the six month period ended February 29, 2020, as compared to no cash provided in the six month period ended February 28, 2019. Financing activities in the six month period ended February 29, 2020 consisted of aggregate net proceeds of $2,316,000 from our issuance of 440,866 shares of common stock under the Sales Agreement and proceeds from the exercise of warrants and options.

Off-balance sheet arrangements

As of November 30, 2017,February 29, 2020, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Significant Accounting Policies

Critical accounting policies and estimates

Our significant accounting policies are described in the notes to the consolidated financial statements as of August 31, 20172019 included in our Annual Report.Report and in the notes to the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q.

Planned Expenditures

Planned Expenditures

We invest heavily in research and development, and we expect that in the upcoming years our research and development expenses will continue to be our major operating expense.expense.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no significant change in our exposure to market risk during the three month periodquarter ended November 30, 2017.February 29, 2020. For a discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report. In addition, as described in “Item 1A. Risk Factors,” there may be implications on our business with regard to the coronavirus (COVID-19).

ITEM 4 - CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of November 30, 2017.February 29, 2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2017February 29, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1A - RISK FACTORS

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, Risk Factors, of our Annual Report for the fiscal year ended August 31, 2019, except for the risk factors updated below:

A pandemic, epidemic or outbreak of an infectious disease in the United States, Israel or elsewhere may adversely affect our business.

If a pandemic, epidemic or outbreak of an infectious disease occurs in the United States, Israel or elsewhere, our business may be adversely affected. In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and, as of March 2020, has spread to over 100 countries, including the United States and Israel. The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. On March 10, 2020, the Government of Israel announced that effective March 12, 2020 foreign travelers arriving from any country will be required to remain in home quarantine until 14 days have passed since the date of entry into Israel; non-Israeli residents will be required to prove they have the means to self-quarantine before being allowed entry into Israel and, in addition, non-Israeli residents or citizens traveling from certain countries may be denied entry into Israel. In addition, the Ministry of Health in the State of Israel issued guidelines on March 11, 2020 recommending people avoid gatherings in one space and providing that no gathering of more than 100 people should be held under any circumstances. Employers (including us) are also required to prepare and increase as much as possible the capacity and arrangement for employees to work remotely. In addition, on March 11, 2020, the President of the United States issued a proclamation to restrict travel to the United States from foreign nationals who have recently been in certain European countries. We are still assessing the effect on our business, from the spread of COVID-19 and the actions implemented by the governments of the State of Israel, the United States and elsewhere across the globe.

The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver supplies to us on a timely basis. In addition, health professionals may reduce staffing and reduce or postpone meetings with clients in response to the spread of an infectious disease. Such events may result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. Although, as of the date of this Quarterly Report on Form 10-Q, we do not expect any material impact on our long-term activity, the extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

With respect to the COVID-19 outbreak specifically, such outbreak could also potentially affect the business of the FDA, EMA or other health authorities, which could result in delays in meetings related to planned clinical trials and ultimately of reviews and approvals of our product candidates. The spread of COVID-19 may also slow potential enrollment of clinical trials and reduce the number of eligible patients for our clinical trials. The COVID-19 outbreak and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairing our ability to raise capital when needed. The extent to which the COVID-19 outbreak impacts our business and operations will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

The recent outbreak of COVID-19 may materially and adversely affect our clinical trial operations and our financial results.

The recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States, Israel and several European countries where we expected to initiate enrollment for a weight loss treatment in the form of an oral leptin capsule and where we expected to conduct additional clinical trials for oral insulin and Oral Glucagon-Like Peptide-1. The extent to which COVID-19 may impact our clinical trial operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the severity of COVID-19, or the effectiveness of actions to contain and treat for COVID-19. The continued spread of COVID-19 globally could adversely impact our clinical trial operations in the United States, Israel and in Europe, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. In addition, if the FDA elects to delay face-to-face meetings for an extended period of time, we may have to delay the initiation of any additional clinical trials for which we require additional approval from the FDA, or, if we are seeking to commercialize our product candidates, such delay could force us to delay commercialization. Any decision by the FDA to delay meeting with us in light of COVID-19 could have a material adverse effect on our scheduled clinical trials or on our efforts to obtain commercialization approval, which could increase our operating expenses and have a material adverse effect on our financial results.

Moreover, COVID-19 may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out such enrollments and trials. Any negative impact COVID-19 has to patient enrollment or treatment could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses, and have a material adverse effect on our financial results.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On NovemberFebruary 1, 2017,2020, we issued 2,500 shares of our common stock to Corporate Profile, LLC, or Corporate Profile, in payment of a portion of the consulting fee for investor relations services owed to Corporate Profile pursuant to a Stock Purchase Agreement and Letter Agreement, each dated May 3, 2017,April 8, 2018, between us and Corporate Profile.

On October 24, 2017, we issued 8,750 shares of our common stock to an investor resulting from his exercise of warrants purchased in connection with our 2012 private placement for a total exercise price of $52,500.

On November 14, 2017, we issued 6,399 shares of our common stock to an investor resulting from his exercise of warrants purchased in connection with our 2012 private placement for a total exercise price of $38,394.

We issued these shares pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 6 - EXHIBITS

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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