10-K 1 ohrp-10k_093112.htm ANNUAL REPORT ohrp-10k_093112.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
———————
FORM 10-K
———————
(Mark One)
þ    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2012

¨    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to __________.
 
Commission File No: 333-88480
 
———————
OHR PHARMACEUTICAL, INC.
(Exact Name of Registrant as Specified in its Charter)
———————
 
Delaware
90-0577933
(State or Other Jurisdiction of
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 
489 5 th Ave., 28 th Floor
New York, NY 10017
(Address of Principal Executive Offices)
 
212-682-8452
Registrant’s telephone number, including area code
 
 
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under to Section 12(g) of the Exchange Act: None
 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ¨   No  þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  ¨   No  þ
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. Yes  þ   No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ   No  ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes  þ   No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
(Check One): Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated ¨ Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ¨   No  þ
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold at March 31, 2012 was $20,021,629. For purposes of this disclosure, shares of common stock held by persons who hold more than 5% of the outstanding shares of common stock and shares held by executive officers and directors of the registrant have been excluded because such persons may be deemed to be affiliates. The determination of executive officers or affiliate status is not necessarily a conclusive determination for other purposes. At January 9, 2013, the registrant had 47,690,102 shares of Common Stock outstanding.
 
 
 

 
 
TABLE OF CONTENTS
 


Part I
 
1
5
11
11
12
Part II
 
12
13
13
18
18
Part III
 
35
35
36
36
38
39
41
41
Part IV
 
42
   
Certification pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Exhibit 31
Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Exhibit 32

 
 

 
Part I

ITEM 1 BUSINESS

Our discussion and analysis of the business and subsequent discussion of financial conditions may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical in nature, including statements about beliefs and expectations, are forward-looking statements. Words such as “may,” “will,” “should,” “estimates,” “predicts,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying such statements. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties as described in greater detail in our “Risk Factors” on page 5 of this Annual Report. You are cautioned that these forward-looking statements reflect management’s estimates only as of the date hereof, and we assume no obligation to update these statements, even if new information becomes available or other events occur in the future. Actual future results, events and trends may differ materially from those expressed in or implied by such statements depending on a variety of factors, including, but not limited to those set forth in our filings with the Securities and Exchange Commission (“SEC”). Specifically, and not in limitation of these factors, we may alter our plans, strategies, objectives or business.

We are a reporting company and file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, proxy statements or other information that we file at the SEC’s public reference room at 100 F Street N.E., Room 1580, Washington, D.C., 20549. You can also request copies of these documents by writing to the SEC and paying a fee for the copying costs. Please call the SEC at 1-800-SEC-0330 for more information about the operation of the public reference room. Our public filings with the SEC are also available on the web site maintained by the SEC at http://www.sec.gov.

General and Historical

Summary

Ohr Pharmaceutical, Inc. (“we”, “Ohr”, the “Company” or the “Registrant”) is a Delaware corporation that was organized on August 4, 2009, as successor to BBM Holdings, Inc. (formerly Prime Resource, Inc., which was organized March 29, 2002) pursuant to a reincorporation merger.

The Company is a biotechnology company focused on the development of the Company’s previously acquired compounds with a focus on the clinical development of our two later stage lead products, OHR/AVR118 for the treatment of cancer cachexia (multi-symptom wasting disorder), and Squalamine for the treatment of the wet form of age-related macular degeneration (“AMD”) using an eye drop formulation. We acquired OHR/AVR118 in a secured party sale and Squalamine from the Genaera Liquidating Trust as part of the Company’s strategy to acquire undervalued biotechnology companies and assets.
 
 
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On March 19, 2009, the Company acquired in a secured party sale all the patents, related intellectual property, clinical data and other assets related to AVR118 (also known now as OHR/AVR118). OHR/AVR118 is in an ongoing Phase II trial for the treatment of cachexia. The Company acquired OHR/AVR118 and related assets in a secured party sale with $100,000 in cash and $500,000 principal amount of 11% convertible secured non-recourse debenture due June 20, 2011 convertible into common stock at $0.40 per share (the “Convertible Debenture”). The Convertible Debenture was repaid on December 29, 2010 and all security interests were released. The cash portion of the purchase price was financed by short-term loans from an affiliate of Orin Hirschman and another current shareholder, which were repaid June 3, 2009.
 
On August 19, 2009, the Company completed the acquisition of Squalamine, Trodusquemine and related compounds from Genaera Liquidating Trust. The Company paid $200,000 in cash for the compounds.
 
On April 12, 2010, Dr. Irach Taraporewala was hired as the Company’s full-time CEO and Sam Backenroth was hired as the Company’s Vice President of Business Development and CFO.
 
The Company is currently engaged in the clinical testing of OHR/AVR118 and the Squalamine eye drop program for the treatment of wet-AMD.
 
Historical

Prior Business - The Company was originally formed under the name Prime Resource, Inc., a Utah corporation.  After disposing of its prior insurance business, on March 30, 2007, the Company merged with Broadband Maritime Inc., a broadband maritime service supplier.  No goodwill was recognized in the merger since Broadband Maritime was treated as the acquirer for accounting purposes and the Company was a “shell company.”  On June 5, 2007, after cancellations of key contracts, the Company announced that it had ceased broadband maritime operations and reduced employment to a small residual force. Accordingly, the Company ceased broadband maritime operations effective September 30, 2007 and was reclassified as a development stage enterprise, from the date of cessation forward.

On August 4, 2009 the Company merged with and into Ohr Pharmaceutical, Inc., a Delaware corporation (“Ohr”). Under the terms of the merger agreement Ohr became the surviving corporation in the merger. Each outstanding share of pre-merger Company common stock and preferred stock was converted into one share of Ohr common stock.  Additionally, all outstanding pre-merger Company options and warrants were assumed and converted into equivalent Ohr warrants or options and maintained substantially identical terms. Finally, each outstanding share of Ohr stock owned by the Company pre-merger immediately prior to the effective date of the merger ceased to be outstanding and was cancelled and retired.

Acquisition of Pharmaceutical Business

On March 19, 2009, the Company acquired in a secured party sale all the patents, related intellectual property, clinical data and other assets related to AVR118 (renamed OHR/AVR118). OHR/AVR118 is in an ongoing Phase II trial for the treatment of cachexia. The Company acquired the assets in the secured party sale with $100,000 in cash and by issuing a $500,000 principal amount 11% convertible secured non-recourse debenture due June 20, 2011, convertible at $0.40 per share (the “Convertible Debenture”). The Convertible Debenture was secured by the acquired assets. The cash portion of the purchase price was financed by short-term loans from an affiliate of Orin Hirschman, a director of the Company, and another current shareholder. The Convertible Debenture was paid in full on December 29, 2010 and all security interests were released.

On August 19, 2009, the Company completed the acquisition of Squalamine, Trodusquemine and related compounds from Genaera Liquidating Trust. The Company paid $200,000 in cash for the compounds.

On April 12, 2010 the Company hired Dr. Irach Taraporewala as CEO and Sam Backenroth as Vice President of Business Development and Interim CFO. In connection with the new hires, Andrew Limpert resigned as an officer of the Company.
 
In December 2010, the Company opened a new clinical site for its ongoing Phase II clinical trial to investigate the efficacy of OHR/AVR118 for the treatment of cancer cachexia at the Ottawa Hospital Cancer Centre.
 
In June 2011, the Company commenced the Squalamine eye drop program for the treatment of the wet AMD. Animal safety and biodistribution data generated using the eye drop formulation of Squalamine were reported in July 2011, with further data being presented at the Association for Research in Vision and Ophthalmology (ARVO) and Macula Society meetings in May and June 2012, respectively.

On September 24, 2012, the Company announced the initiation of a multi center, randomized, placebo controlled Phase II trial to evaluate the efficacy and safety of Squalamine eye drops for the treatment of the wet form of age-related macular degeneration.
 
 
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Until the Company is able to generate significant revenue from its principal operations, it will remain classified as a development stage company. The Company can give no assurance that it will be successful in such efforts or that its limited operating funds will be adequate to continue the Company as a public company, nor is there any assurance of any additional funding being available to the Company.
 
Product Pipeline

Squalamine

Squalamine is a small molecule anti-angiogenic drug with a novel intracellular mechanism of action. The drug acts against the development of aberrant neovascularization by inhibiting multiple protein growth factors of angiogenesis, including vascular endothelial growth factor (“VEGF”), platelet-derived growth factor (“PDGF”) and basic fibroblast growth factor growth factor (“bFGF”). Recent clinical evidence has shown PDGF to be an additional target for the treatment of Wet Age-related Macular Degeneration (“Wet-AMD”). Using an intravenous formulation in over 250 patients in Phase I and Phase II trials for the treatment of Wet-AMD, the trials demonstrated that the molecule had biological effect and maintained and improved visual acuity outcomes, with both early and advanced lesions responding.

Ohr reformulated Squalamine for ophthalmic indications from an intravenous infusion (“IV”) to a topical eye drop. Preclinical testing has demonstrated that the eye drop formulation is both safe to ocular tissues and achieves in excess of target anti-angiogenic concentrations in the tissues of the back of the eye. The topical formulation is designed for enhanced uptake to the back of the eye and decreased potential for side effects. The Company plans on advancing its clinical wet-AMD program with this topical formulation. In May 2012, the U.S. Food and Drug Administration (“FDA”) awarded Fast Track Designation to the Squalamine eye drop program for the potential treatment of wet-AMD.

Squalamine eye drops are designed for self-administration which may provide several potential advantages over the FDA approved current standards of care (Roche/Genetech’s Lucentis® and Regeneron’s Eylea® Intravitreal Injections).
 
·  
Eye drops versus standard of care which is an intravitreal injection directly into the eye every 4-8 weeks on a chronic basis

·  
Reduction or elimination of intravitreal injections has the potential to provide patients with improved safety by reducing or eliminating side effects associated with the intravitreal injection procedure

·  
Inhibition of multiple growth factors may achieve superior visual acuity outcomes. Clinical evidence has demonstrated that inhibiting VEGF and PDGF together may provide patients with better visual acuity outcomes than anti-VEGF therapy alone

·  
Cost advantage of manufacturing a small molecule when compared to large molecule proteins and antibodies
 
In Phase II clinical trials using the intravenous formulation of Squalamine, stabilization or improvement in visual activity was observed in the vast majority of patients, with both early and advanced lesions responding and few drug-related ocular or systemic effects observed. In a number of patients whose wet-AMD had progressed to an advanced stage, the administration of Squalamine produced beneficial effects and significant improvement in best corrected visual acuity.  As opposed to the approved current standard of care therapy, Squalamine does not require direct injection into the eye.
 
The Company conducted preclinical testing on the novel topical formulation with the following results:
 
·  
Ocular Tolerance and Toxicity: In a dose escalation safety study involving daily eye drop treatment in Dutch belted rabbits over a 28 day period, the formulation proved safe, and exhibited no signs of ocular toxicity or changes in intraocular pressure. Importantly, no macroscopic or histopathological changes to the ocular tissues were noted.

·  
Single Dose Biodistribution study: A single eye drop was administered to the front of the eye in Dutch belted rabbits. At all evaluated timepoints, drug concentrations in the posterior sclera-choroid region behind the retina at the back of the eye exceeded the tissue concentrations of Squalamine that are known to block the choroidal neovascularization process in Wet-AMD.
 
·  
Multi Dose Biodistribution Study: Squalamine eye drops were administered once or twice daily in both eyes for up to 14 days in Dutch belted rabbits. The eyes were examined one full dosing interval (12 hours when given twice daily, 24 hours when given once daily) after the last administration of Squalamine eye drops to determine concentrations of Squalamine in the posterior ocular tissues (“Trough” level). At all time point and dosing regimens, Trough Squalamine concentrations exceeded tissue concentrations of Squalamine that are known to block the choroidal neovascularization process in Wet-AMD.

·  
Long Term Ocular Tolerance and Toxicity: In a 26-week safety and toxicity study in male and female Dutch belted rabbits, Squalamine or placebo eye drops were administered via topical instillation twice a day in both eyes. Ophthalmoscopic examinations were conducted throughout the study period to assess ocular toxicity (irritation, redness, swelling, discharge). Blood and urine samples for clinical pathology evaluations were collected, and blood samples for determination of the plasma concentrations of squalamine eye drops and toxicokinetic evaluations were collected from all animals at designated time points. At study termination, necropsy examinations were performed, and organs and optical tissues were microscopically examined.

 
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No adverse effects of treatment were observed in any of the parameters evaluated including clinical findings, body weights, food consumption, ocular irritation, hematology, coagulation, clinical chemistry, urinalysis and macroscopic pathology examinations. Importantly, ophthalmoscopic examinations indicated no signs of clouding of the lens, no corneal opacities or deposits, and no increase in intraocular pressure. In addition, microscopic histopathology evaluations on ocular tissues were normal. Squalamine also did not build up in plasma over long term administration, indicating reduced potential for systemic side effects.

The Company presented preclinical data at the Association for Research and Vision in Opthalmology conference in May 2012, and at the Macula Society meeting in June 2012.

We commenced a clinical study, named OHR-002, at the end of September 2012. Study OHR-002 is a randomized, double blind, placebo controlled Phase II study to evaluate the efficacy and safety of Squalamine Eye Drops for the treatment of wet-AMD. The study will enroll 120 treatment naïve wet-AMD patients at twenty two clinical sites in the U.S., who will be treated with Squalamine Eye Drops or placebo eye drops twice daily for a nine month period. The primary and secondary endpoints include visual acuity parameters, need for rescue intravitreal injections, and safety. The protocol includes an interim analysis upon the completion of the treatment period in 50% of the patients (approximately 60). We expect to complete enrollment of the study in 2013 and release interim data in the fourth quarter of 2013.

Additionally, Squalamine has shown promise in the treatment of solid tumors such as ovarian cancer using the intravenous formulation in significantly higher doses than the eye drop formulation. In a Phase IIa study, patients with stage III and IV refractory and resistant ovarian cancer received Squalamine in conjunction with carboplatin, with approximately two thirds of the patients achieving a complete response, partial response or stable disease. Squalamine has been awarded Orphan Drug Status by the FDA for the treatment of late stage resistant or refractory ovarian cancer. We expect to publish or present survival data on the completed phase IIa study in 2013 at a scientific conference or appropriate forum. Because of funding constraints, Ohr is seeking a development partner to further advance development of this indication.

OHR/AVR118

OHR/AVR118 is a novel immunomodulator with a singular chemical structure that is terminally sterilized and endotoxin-free.  The compound is composed of two small peptides, Peptide A, which is 31 amino acids long, and Peptide B, that is 21 amino acids long. Peptide B is unique in that the dinucleotide, diadenosine, is covalently attached to serine at position 18 through a phosphodiester bond. OHR/AVR118 is stable at room temperature and has a favorable safety profile both in animal toxicity studies and in human clinical trials.

Ohr is currently conducting a Phase II clinical trial of OHR/AVR 118 for the treatment of cancer cachexia at a leading cancer center in Canada. Cancer cachexia is a severe wasting disorder characterized by weight loss, muscle atrophy, fatigue, weakness, and significant loss of appetite. This disorder is often seen in late stage cancer patients. OHR/AVR118 has also anecdotally shown to have chemoprotective effects, thus potentially allowing patients to better tolerate chemotherapy and radiation as well as more intensive treatment regimens with ordinary toxic chemotherapeutic agents, while maintaining body weight and avoiding other side effects. There is currently no FDA approved drug for the treatment of cancer cachexia. The Company presented interim data on this current trial at the annual conference of the Society of Cachexia and Wasting Disorders in Barcelona, Spain in December 2009.  In December 2010, the Company opened a new clinical site for the ongoing Phase II trial in cancer cachexia at the Ottawa Hospital Cancer Centre and enrolled the first three patients at the new site. Enrollment in the trial has been completed and we expect to report data in the first quarter of 2013.

Ohr also owns various other compounds in earlier stages of development, including the PTP1b inhibitor trodusquemine and related analogs, which it is conducting preclinical research on with an academic laboratory, and will seek to develop further through a strategic partnership, joint venture, or on a sponsored basis.

Material Subsequent Events

On October 5, 2012, the Company received a notice of conversion from two holders of its Series B preferred shares for the conversion of 138,889 preferred shares into common shares. The conversion rate for the preferred shares is one to one into common shares. Accordingly, we issued 138,889 shares of common stock and cancelled 138,889 shares of Preferred B stock.

On October, 24, 2012, the Company received a notice of exercise for 200,000 warrants at an exercise price of $0.50. Accordingly, the Company issued 200,000 shares and received proceeds of $100,000.

On October 30, 2012, the Company agreed to extend the term of the 11,985,367 common stock purchase warrants, expiring October 31, 2012, to April 30, 2013, subject to the warrant agreement, as amended. These amendments include removal of the cashless exercise provision and early termination of the extension period, at the sole discretion of the Company, in the event that Ohr’s common stock trades at or above $1.50 for 5 consecutive days. The warrants are exercisable at $1.19.
 
On November 30, 2012, we received notice from a former director of the Company to exercise 160,871 options to purchase common stock using the net exercise feature in the option. Accordingly, we issued 92,527 shares of common stock and cancelled 160,871 director options.

 
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Competitive Factors

The pharmaceutical industry is characterized by intense competition and confidentiality. We may not be aware of the other biotechnology, pharmaceutical companies or public institutions that are developing pharmaceuticals that compete with our potential products. We also may not be aware of all the other competing products our known competitors are pursuing. In addition, these biotechnology companies and public institutions compete with us in recruiting for research personnel and subjects, which may affect our ability to complete our research studies. Current treatment of cachexia is limited to off-label use of steroid based therapeutics and nutritional supplements but there are various other companies developing investigational drugs in Phase I, II and III trials for the treatment of cachexia. We cannot assure that none of them will get to market before us or that OHR/AVR118 will be a better treatment. Lucentis® (Genentech/Roche) and Eylea® (Regeneron) are currently approved by the FDA and are the market leaders for the treatment of wet-AMD. There is no assurance that we can get FDA approval for Squalamine eye drops for the treatment of wet-AMD, and if we get it, there is no assurance we will be able to displace the market leaders as a treatment in a significant amount of patients. In addition there are various other companies with drugs in Phase I and II trials for the treatment of wet-AMD. We cannot assure that none of them will get to market before us or that Squalamine eye drops will be a better treatment. See “Risk Factors” below.

Wet-AMD Market

Age-related macular degeneration (“AMD”) is a medical condition which usually affects older adults and generally results in a loss of vision. AMD occurs in “dry” (non-exudative) and “wet” (exudative) forms.  Wet-AMD is the advanced form of macular degeneration that involves the formation of abnormal and leaky blood vessels in the back of the eye behind the retina, through a process known as choroidal neovascularization (“CNV”). The wet form accounts for approximately 15 percent of all AMD cases, yet is responsible for 90 percent of severe vision loss associated with AMD.   According to the National Eye Institute (NEI), the prevalence of wet-AMD among adults 40 years or older in the U.S. alone is estimated at 1.75 million people.  In addition, more than 200,000 new cases are diagnosed yearly in the U.S.

Competitive Landscape in Wet-AMD

The current FDA approved market leaders for the treatment of wet AMD are VEGF inhibitors, including Lucentis®, Eylea® and (off-label) Avastin®. In 2011, annual revenue (worldwide) was approximately $3.5 billion for Lucentis, despite significant cannibalization by the off-label use of Avastin (estimated to be 55-60%). Eylea®, was approved for use in wet-AMD in the U.S. in November 2011 and is expected to achieve 2012 revenues in excess of $800 million. Both Lucentis and Eylea are administered via frequent intravitreal injections directly into the eye. Other programs currently in phase II trials include MP0112, a VEGF targeting DARPin molecule being developed by Allergan, iSonep, a sphingosine-1-phosphate targeting agent being developed by LPath inc and Pfizer, Fovista ® a PDGF targeting aptamer being developed by Ophthotech, and Pazopanib, a tyrosine kinase inhibitor being developed by GlaxoSmithKline. All of these products in clinical development, with the exception of pazopanib, use an intravitreal route of administration much like the current standards of care.

Number of Persons Employed

At present, the Company has two full-time employees. On April 12, 2010, the Company hired Dr. Irach Taraporewala, CEO, and Sam Backenroth, Vice President of Business Development and CFO. On March 9, 2012, the Company entered into new employment agreements with Dr, Taraporewala and Mr. Backenroth.
 
Additionally, as discussed above, Dr. S. Z. Hirschman has served as a consultant and Chief Scientific Advisor to the Company since March 20, 2009. He provides scientific and strategic direction to the Company as it explores potential pharmaceutical partnerships and furthers the development of its pipeline of compounds. Dr. Hirschman is the father of Orin Hirschman, a Director of the Company and a beneficial owner through AIGH Investment Partners, LLC of approximately 12.06% of the outstanding Common Stock of the Company. In addition, the Company uses numerous consultants and Contract Research Organizations, on an as needed basis.
 
Environmental Compliance

The Company is not aware of any environmental claims or liabilities.

Governmental Compliance

Until the Company is able to generate significant revenue from its principal operations, it will remain classified as a development stage company. As such, Ohr will continue to be subject to various SEC and state securities rules and regulations. Its OTC Bulletin Board listing will also be subject to various rules and regulations by the OTC Bulletin Board. The foregoing is not meant to be exclusive, and the Company will continue to be subject to various generic governmental regulations, such as tax filing and reporting requirements, OSHA compliance, etc. See “Risk Factors” below.

ITEM 1A. RISK FACTORS.

You should carefully consider the following factors which may affect future results of operations. If any of the adverse events described below actually occur, our business, financial condition and operating results could be materially adversely affected and you may lose part or all of the value of your investment. If you choose to invest in our securities, you should be able to bear a complete loss of your investment.

 
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We may not be able to raise additional capital on favorable terms, if at all, particularly with the current volatile market conditions.

We will need additional financing to further our drug development programs as well as future trials. In our capital-raising efforts, we may seek to sell additional equity or debt securities or obtain a bank credit facility. The sale of additional equity or debt securities, if convertible, could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also result in covenants that would restrict our operations. However, we may not be able to raise additional funds on acceptable terms, or at all. Given the current global economic climate, we may have more difficulty raising funds than we would during a period of economic stability. If we are unable to secure sufficient capital to fund our research and development activities, we may not be able to continue operations, or we may have to enter into collaboration agreements that could require us to share commercial rights to our products to a greater extent or at earlier stages in the drug development process than is currently intended. These collaborations, if consummated prior to proof-of-efficacy or safety of a given product candidate, could impair our ability to realize value from that product candidate. If our business does not generate the cash needed to finance our ongoing operations, we will likely need to continue to raise additional capital.

The market price and volume of our common stock fluctuate significantly and could result in substantial losses for individual investors.

The stock market from time to time experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price and volume of our common stock to decrease. In addition, the market price and volume of our common stock is highly volatile.

Factors that may cause the market price and volume of our common stock to decrease include:

·  
adverse results or delays in our clinical trials;
·  
fluctuations in our results of operations, timing and announcements of our bio-technological innovations or new products or those of our competitors;
·  
developments concerning any strategic alliances or acquisitions we may enter into;
·  
announcements of FDA non-approval of our drug products, or delays in the FDA or other foreign regulatory review process or actions;
·  
adverse actions taken by regulatory agencies with respect to our drug products, clinical trials, manufacturing processes or sales and marketing activities;
·  
any lawsuit involving us or our drug products;
·  
developments with respect to our patents and proprietary rights;
·  
announcements of technological innovations or new products by our competitors;
·  
public concern as to the safety of products developed by us or others;
·  
regulatory developments in the United States and in foreign countries;
·  
changes in stock market analyst recommendations regarding our common stock or lack of analyst coverage;
·  
the pharmaceutical industry conditions generally and general market conditions;
·  
failure of our results of operations to meet the expectations of stock market analysts and investors;
·  
sales of our common stock by our executive officers, directors and five percent stockholders or sales of substantial amounts of our common stock.
·  
changes in accounting principles; and
·  
loss of any of our key scientific or management personnel.

We face heavy government regulation, and FDA regulatory approval of our products is uncertain.

The research, testing, manufacturing and marketing of drug products such as those that we are developing are subject to extensive regulation by federal, state and local government authorities, including the FDA. To obtain regulatory approval of a product, we must demonstrate to the satisfaction of the applicable regulatory agency that, among other things, the product is safe and effective for its intended use. In addition, we must show that the manufacturing facilities used to produce the products are in compliance with current Good Manufacturing Practices regulations or cGMP.

The process of obtaining FDA and other required regulatory approvals and clearances will require us to expend substantial time and capital. Despite the time and expense expended, regulatory approval is never guaranteed. The number of pre-clinical and clinical trials that will be required for FDA approval varies depending on the drug candidate, the disease or condition that the drug candidate is in development for, and the requirements applicable to that particular drug candidate. The FDA can delay, limit or deny approval of a drug candidate for many reasons, including that:

·  
a drug candidate may not be shown to be safe or effective;
·  
the FDA may not approve our manufacturing process;
·  
the FDA may interpret data from pre-clinical and clinical trials in different ways than we do;
·  
the FDA may not meet, or may extend, the Prescription Drug User Fee Act date with respect to a particular New Drug Application (“NDA”);

For example, if certain of our methods for analyzing our trial data are not accepted by the FDA, we may fail to obtain regulatory approval for our product candidates.
 
 
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Moreover, if and when our products do obtain marketing approval, the marketing, distribution and manufacture of such products would remain subject to extensive ongoing regulatory requirements. Failure to comply with applicable regulatory requirements could result in:

·  
warning letters
·  
fines
·  
civil penalties
·  
injunctions
·  
recall or seizure of products
·  
total or partial suspension of production
·  
refusal of the government to grant future approvals
·  
withdrawal of approvals
·  
criminal prosecution

Any delay or failure by us to obtain regulatory approvals for our product candidates could diminish competitive advantages that we may attain and would adversely affect the marketing of our products. We have not received regulatory approval to market any of our product candidates in any jurisdiction.

If we do not raise additional funds, we will not be able to continue operations or complete the necessary clinical trials to complete development of Squalamine and OHR/AVR118 or our other products and will not be able to sell them anywhere.

We will not be able to sell Squalamine and OHR/AVR118 or our other products in the United States unless we submit, and the FDA approves an NDA for each such product. We must conduct clinical trials of each of our products in humans before we submit an NDA. We do not have sufficient capital currently to complete the necessary trials to complete the development of Squalamine and OHR/AVR118 or any of our other therapeutic drug products.
It is possible that the results of clinical trials of Squalamine and OHR/AVR118 or our other products will not prove that they are safe and effective. It is also possible that the FDA will not approve the sale of any of our products in the United States if we submit an NDA for such product. It is not known at this time how later stage clinical trials will be conducted, if at all. Even if the data show that any of our products are safe and effective, obtaining approval of the NDA could take years and require financing of amounts not presently available to us.

Conducting the clinical trials of each of our products will require significant cash expenditures and we do not have the funds necessary to complete all phases of clinical trials for Squalamine and OHR/AVR118 or any other products. Our products may never be approved for commercial distribution by any country. Because our research and development expenses and clinical trial expenses will be charged against earnings for financial reporting purposes, we expect that losses from operations will continue to be incurred for the near future. We currently do not have sufficient funds to complete all phases of clinical trials of any of our products which are required to permit the commercial sale of such products.

If the results of our clinical trials do not support our claims relating to any drug candidate or if serious side effects are identified, the completion of development of such drug candidate may be significantly delayed or we may be forced to abandon development altogether, which will significantly impair our ability to generate product revenues.

The results of our clinical trials with respect to any drug candidate might not support our claims of safety or efficacy, the effects of our drug candidates may not be the desired effects or may include undesirable side effects or the drug candidates may have other unexpected characteristics. Further, success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and the results of later clinical trials may not replicate the results of prior clinical trials and preclinical testing. The clinical trial process may fail to demonstrate that our drug candidates are safe for humans and effective for indicated uses. In addition, our clinical trials may involve a specific and small patient population. Because of the small sample size, the results of these early clinical trials may not be indicative of future results. Adverse or inconclusive results may cause us to abandon a drug candidate and may delay development of other drug candidates. Any delay in, or termination of, our clinical trials will delay the filing of our NDAs with the FDA and, ultimately, significantly impair our ability to commercialize our drug candidates and generate product revenues which would have a material adverse effect on our business and results of operations.

If we find it difficult to enroll patients in our clinical trials, it will cause significant delays in the completion of such trials and may cause us to abandon one or more clinical trials.

For the diseases or disorders that our product candidates are intended to treat, we expect only a subset of the patients with these diseases to be eligible for our clinical trials. Given that each of our product candidates is in the early stages of preclinical or clinical development, we may not be able to initiate or continue clinical trials for each or all of our product candidates if we are unable to locate a sufficient number of eligible subjects to participate in the clinical trials required by the FDA and/or other foreign regulatory authorities. The requirements of our clinical testing mandate that a patient cannot be involved in another clinical trial for the same indication. We are aware that our competitors have ongoing clinical trials for products that are competitive with our product candidates and subjects who would otherwise be eligible for our clinical trials may be involved in such testing, rendering them unavailable for testing of our product candidates. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether, which would have a material adverse effect on our business.

If our contract research organizations do not successfully carry out their duties or if we lose our relationships with contract research organizations, our drug development efforts could be delayed.

We are dependent on contract research organizations, third-party vendors and investigators for pre-clinical testing and clinical trials related to our drug discovery and development efforts and we will likely continue to depend on them to assist in our future discovery and development efforts. These parties are not our employees and we cannot control the amount or timing of resources that they devote to our programs. If they fail to devote sufficient time and resources to our drug development programs or if their performance is substandard, it will delay the development and commercialization of our product candidates. The parties with which we contract for execution of our clinical trials play a significant role in the conduct of the trials and the subsequent collection and analysis of data. Their failure to meet their obligations could adversely affect clinical development of our product candidates.

 
7

 
 
If we lose our relationship with any one or more of these parties, we could experience a significant delay in both identifying another comparable provider and then contracting for its services. We may be unable to retain an alternative provider on reasonable terms, if at all. Even if we locate an alternative provider, it is likely that this provider may need additional time to respond to our needs and may not provide the same type or level of service as the original provider. In addition, any provider that we retain will be subject to current Good Laboratory Practices, and similar foreign standards, and we do not have control over compliance with these regulations by these providers. Consequently, if these practices and standards are not adhered to by these providers, the development and commercialization of our product candidates could be delayed.

If we are ever in a position to commercialize our product candidates, of which there can be no assurance, we have no experience selling, marketing or distributing products and no internal capability to do so.

We currently have no sales, marketing or distribution capabilities and no experience in building a sales force and distribution capabilities. If we are ever in a position to commercialize our product candidates, of which there can be no assurance, we must either develop internal sales, marketing and distribution capabilities, which will be expensive and time consuming, or make arrangements with third parties to perform these services. If we decide to market any of our products directly, we must commit significant financial and managerial resources to develop a marketing and sales force with technical expertise and with supporting distribution capabilities. Building an in-house marketing and sales force with technical expertise and distribution capabilities will require significant expenditures, management resources and time. Factors that may inhibit our efforts to commercialize our products directly and without strategic partners include:

·  
our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
·  
the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
·  
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
·  
unforeseen costs and expenses associated with creating and sustaining an independent sales and marketing organization.

We may not be successful in recruiting the sales and marketing personnel necessary to sell our products and even if we do build a sales force, they may not be successful in marketing our products, which would have a material adverse effect on our business and results of operations.

Developments by competitors may render our products or technologies obsolete or non-competitive which would have a material adverse effect on our business and results of operations.

We compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations. Our drug candidates will have to compete with existing therapies and therapies under development by our competitors. In addition, our commercial opportunities may be reduced or eliminated if our competitors develop and market products that are less expensive, more effective or safer than our drug products. Other companies have drug candidates in various stages of preclinical or clinical development to treat diseases for which we are also seeking to develop drug products. Some of these potential competing drugs are further advanced in development than our drug candidates and may be commercialized earlier. Even if we are successful in developing effective drugs, our products may not compete successfully with products produced by our competitors.


Most of our competitors, either alone or together with their collaborative partners, operate larger research and development programs, staff and facilities and have substantially greater financial resources than we do, as well as significantly greater experience in:

·  
developing drugs;
·  
undertaking preclinical testing and human clinical trials;
·  
obtaining FDA and other regulatory approvals of drugs;
·  
formulating and manufacturing drugs; and
·  
launching, marketing and selling drugs.
These organizations also compete with us to attract qualified personnel, acquisitions and joint ventures candidates and for other collaborations. Activities of our competitors may impose unanticipated costs on our business which would have a material adverse effect on our business and results of operations.

We rely on confidentiality agreements that could be breached and may be difficult to enforce which could have a material adverse effect on our business and competitive position.

Our policy is to enter agreements relating to the non-disclosure of confidential information with third parties, including our contractors, consultants, advisors and research collaborators, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them. However, these agreements can be difficult and costly to enforce. Moreover, to the extent that our contractors, consultants, advisors and research collaborators apply or independently develop intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to this type of information. If a dispute arises, a court may determine that the right belongs to a third party, and enforcement of our rights can be costly and unpredictable. In addition, we rely on trade secrets and proprietary know-how that we will seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that:
 
 
8

 
 
·  
these agreements may be breached;
·  
these agreements may not provide adequate remedies for the applicable type of breach; or
·  
our trade secrets or proprietary know-how will otherwise become known.

Any breach of our confidentiality agreements or our failure to effectively enforce such agreements would have a material adverse effect on our business and competitive position.

If we infringe the rights of third parties we could be prevented from selling products, forced to pay damages and required to defend against litigation which could result in substantial costs and may have a material adverse effect on our business and results of operations.

We have not received to date any claims of infringement by any third parties. However, as our product candidates progress into clinical trials and commercialization, if at all, our public profile and that of our product candidates may be raised and generate such claims. Defending against such claims, and occurrence of a judgment adverse to us, could result in unanticipated costs and may have a material adverse effect on our business and competitive position. If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have to:

·  
obtain licenses, which may not be available on commercially reasonable terms, if at all;
·  
redesign our products or processes to avoid infringement;
·  
stop using the subject matter claimed in the patents held by others, which could cause us to lose the use of one or more of our drug candidates;
·  
defend litigation or administrative proceedings that may be costly whether we win or lose, and which could result in a substantial diversion of management resources; or
·  
pay damages.

Any costs incurred in connection with such events or the inability to sell our products may have a material adverse effect on our business and results of operations.

We depend upon key officers and consultants in a competitive market for skilled personnel. If we are unable to attract and retain key personnel, it could adversely affect our ability to develop and market our products.

We are highly dependent upon the principal members of our management team, especially our Chief Executive Officer, Dr. Irach Taraporewala, our Chief Scientific Advisor, Dr. S. Z. Hirschman, and our Vice President of business development and CFO, Sam Backenroth, as well as our directors, including Ira Greenstein, the Chairman of our Board of Directors. A loss of any of these personnel may have a material adverse effect on aspects of our business and clinical development and regulatory programs. We have employment agreements with Dr. Taraporewala and Mr. Backenroth. Although these agreements include a non-competition covenant, the applicable noncompetition provisions can be difficult and costly to monitor and enforce. The loss of any of these persons’ services would adversely affect our ability to develop and market our products and obtain necessary regulatory approvals.

We also depend in part on obtaining the service of scientific personnel and our ability to identify, hire and retain additional personnel. We experience intense competition for qualified personnel, and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us to suit from their former employers. While we attempt to provide competitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have, making it difficult for us to compete successfully for key personnel.

The Company is a defendant in a class action litigation, and the Company expects such litigation to be time-consuming and costly, which may adversely affect the Company’s financial condition and its ability to operate its business.

The Company was sued for damages in a class action relating to its purchase of assets from the Genaera Liquidating Trust.  Claims against the Company are for aiding and abetting breaches of fiduciary duty and for rescission of the asset purchase agreement.  The Company does not believe the allegations against the Company in the amended complaint have merit and intends to defend the case vigorously.  The Company anticipates that these legal proceedings may continue for the foreseeable future and may require significant expenditures for legal fees and other expenses.

Intellectual property litigation is increasingly common and increasingly expensive and may result in restrictions on our business and substantial costs, even if we prevail.

Patent and other intellectual property litigation is becoming more common in the pharmaceutical industry. Litigation is sometimes necessary to defend against or assert claims of infringement, to enforce our patent rights, including those we have licensed from others, to protect trade secrets or to determine the scope and validity of proprietary rights of third parties. Currently, no third party is asserting that we are infringing upon their patent rights or other intellectual property, nor are we aware or believe that we are infringing upon any third party’s patent rights or other intellectual property. We may, however, be infringing upon a third party’s patent rights or other intellectual property, and litigation asserting such claims might be initiated in which we would not prevail, or we would not be able to obtain the necessary licenses on reasonable terms, if at all. All such litigation, whether meritorious or not, as well as litigation initiated by us against third parties, is time-consuming and very expensive to defend or prosecute and to resolve. In addition, if we infringe the intellectual property rights of others, we could lose our right to develop, manufacture or sell our products or could be required to pay monetary damages or royalties to license proprietary rights from third parties. An adverse determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us from manufacturing or selling our products, which could harm our business, financial condition and prospects.

 
9

 
 
If our competitors prepare and file patent applications in the United States that claim technology we also claim, we may have to participate in interference proceedings required by the US Patent and Trademark Office to determine priority of invention, which could result in substantial costs, even if we ultimately prevail. Results of interference proceedings are highly unpredictable and may result in us having to try to obtain licenses in order to continue to develop or market certain of our drug products.

Any future acquisitions we make of companies or technologies may result in disruption to our business or distraction of our management, due to difficulties in assimilating acquired personnel and operations.

We may acquire or make investments in complementary businesses, technologies, services or products which complement our biotech operations if appropriate opportunities arise. From time to time we engage in discussions and negotiations with companies regarding our acquiring or investing in such companies’ businesses, products, services or technologies, in the ordinary course of our business. We cannot be assured that we will be able to identify future suitable acquisition or investment candidates, or if we do identify suitable candidates, that we will be able to make such acquisitions or investments on commercially acceptable terms or at all. If we acquire or invest in another company, we could have difficulty in assimilating that company’s personnel, operations, technology and software. In addition, the key personnel of the acquired company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities would be dilutive to our existing stockholders. As of January 9, 2013, we had no agreement to enter into any material investment or acquisition transaction.

The market for our common stock is highly illiquid. Our stockholders may not be able to resell their shares at or above the purchase price paid by such stockholders, or at all.

Our common stock is quoted on NASD’s Over-the-Counter Bulletin Board (or the OTC Bulletin Board). Securities quoted for trading on the OTC Bulletin Board are generally highly illiquid. There is a greater chance of market volatility for securities that trade on the OTC Bulletin Board as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors including:

·  
the absence of consistent administrative supervision of “bid” and “ask” quotations;
·  
lower trading volume; and
·  
market conditions.

There is limited trading in our common stock and our security holders may experience wide fluctuations in the market price of our securities. Such price and volume fluctuations have particularly affected the trading prices of equity securities of many biotechnology companies. These price and volume fluctuations often have been unrelated to the operating performance of the affected companies. These fluctuations may have an extremely negative effect on the market price of our securities and may prevent a stockholder from obtaining a market price equal to the purchase price such stockholder paid when the stockholder attempts to sell our securities in the open market. In these situations, the stockholder may be required either to sell our securities at a market price which is lower than the purchase price the stockholder paid, or to hold our securities for a longer period of time than planned. An inactive market may also impair our ability to raise capital by selling shares of capital stock or to recruit and retain managers with equity-based incentive plans.

Our common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.

The exercise of our outstanding convertible securities or issuance of additional shares could have dilutive impact on our stockholders, and a significant negative impact on the market price of our common stock.

The sale or availability for sale of this number of shares of common stock in the public market could depress the market price of the common stock. Additionally, the sale or availability for sale of this number of shares may lessen the likelihood that additional equity financing will be available to us, on favorable or unfavorable terms.

 
10

 
 
Furthermore, the sale or availability for sale of this number of shares could limit the annual amount of net operating loss carryforwards that could be utilized.

We will not pay cash dividends and investors may have to sell their shares in order to realize their investment.

We have not paid any cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. We intend to use our cash for reinvestment in the development and marketing of our products and services. As a result, investors may have to sell their shares of common stock to realize their investment.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results. In addition, current and potential shareholders could lose confidence in our financial reporting, which could have a material adverse effect on the price of our common stock.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our results of operation could be harmed.

Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal controls over financial reporting. We continuously monitor our existing internal controls over financial reporting systems to confirm that they are compliant with Section 404, and we may identify deficiencies that we may not be able to remediate in time to meet the deadlines imposed by the Sarbanes-Oxley Act. This process may divert internal resources and will take a significant amount of time and effort to complete.

If, at any time, it is determined that we are not in compliance with Section 404, we may be required to implement new internal control procedures and reevaluate our financial reporting. We may experience higher than anticipated operating expenses as well as increased independent auditor fees during the implementation of these changes and thereafter. Further, we may need to hire additional qualified personnel. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to maintain an effective internal control environment could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on the price of our common stock.

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses, divert management’s attention from operating our business which could have a material adverse effect on our business.

There have been other changing laws, regulations and standards relating to corporate governance and public disclosure in addition to the Sarbanes-Oxley Act, as well as new regulations promulgated by the Commission and rules promulgated by the national securities exchanges. These new or changed laws, regulations and standards are subject to varying interpretations in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Our board members, Chief Executive Officer, and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified board members and executive officers, which could have a material adverse effect on our business. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, we may incur additional expenses to comply with standards set by regulatory authorities or governing bodies which would have a material adverse effect on our business and results of operations.

ITEM 2 PROPERTIES

We do not currently lease or own any facilities for office space. Our offices are provided to us by an affiliate of Mr. Backenroth. On September 7, 2012, we issued BFK Law LLC, an affiliate of Mr. Backenroth, a warrant to purchase 75,000 shares of common stock as compensation for the use of the office facilities and receptionist. Such Warrants have an exercise price of $1.00 and will be exercisable for a period of five years. We have been using the office space since April 2010 and will continue to do so in the future.

ITEM 3 LEGAL PROCEEDINGS

In July 2012, the Company received notice that it was being named, along with twenty six other parties, as a defendant in a class action lawsuit being brought against the Genaera Liquidating Trust (“Trust”). We purchased biotechnology assets from the Trust in 2009. The Company does not believe the allegations against the Company in the complaint have merit and intends to defend the case vigorously. Recognizing that the outcome of litigation is uncertain, management believes that the litigation is unlikely to have a materially adverse impact to the Company’s financial statements.

 
11

 
 
ITEM 4 RESERVED
 
Part II

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Ohr’s shares of common stock are quoted on the OTC Bulletin Board (OTCBB). Its trading symbol is OHRP. Following is a table of the quotation ranges (high and low trading prices) for its shares for Ohr’s last two years.
FY 2013
 
 
High
 
Low
 
 FY 2012
 
High
 
Low
 
 FY 2011
 
High
 
Low
October 1st – December 31st 2012
 
$
1.90
   
$
1.07
     
October 1st – December 31st 2011
   
$
0.74
   
$
0.55
     
October 1st December 31st 2010
   
$
0.30
   
$
0.17
 
January 1st January 7th 2013
 
$
1.80    
$
1.72      
January 1st – March 31st 2012
   
$
0.90
   
$
0.60
     
January 1st – March 31st 2011
   
$
0.30
   
$
0.22
 
                     
April 1st – June 30th 2012
   
$
1.02
   
$
0.82
     
April 1st – June 30th 2011
   
$
0.60
   
$
0.20
 
                     
July 1st – September 30th 2012
   
$
1.12
   
$
0.85
     
July 1st – September 30th 2011
   
$
0.75
   
$
0.53
 
 
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Between October 29 and December 4, 2009, the Company issued a total of 236,000 warrants for services rendered to the Company. In conjunction with this issuance, the Company recognized $88,562 in consulting expense. The warrants are exercisable for five years at an exercise price of $0.55 per share.

On December 15, 2009, investors exercised 5,583,336 Class G warrants via a cashless exchange for 4,547,238 shares of the Company’s common stock.

On January 15, 2010, the Company completed a $1,005,000 financing in which the Company issued 5,583,336 common shares to holders of the Class F Warrants who exercised their warrants at an exercise price of $0.18. Additionally, as an inducement to the holders to exercise the Warrants, the Company issued 5,583,336 Class H warrants to the Class F warrant holders who exercised their Class F warrants. The Class H Warrants have a 5 year term with a strike price of $0.55.

On April 9, 2010 the Company granted 10,000 warrants as payment for an outstanding accounts payable balance of $3,991.
 
On April 12, 2010 the Company hired Dr. Irach Taraporewala as CEO and Sam Backenroth as Vice President of Business Development and Interim CFO, and Andrew Limpert resigned as an officer of the Company. Pursuant to the employee stock option plan adopted September 2009, Dr. Taraporewala received 800,000 options exercisable at $0.50 vesting over 4 years and Mr. Backenroth received 200,000 options exercisable at $0.50 vesting over 4 years. Further details about Dr. Taraporewala and Mr. Backenroth’s employment can be found in the Company’s Form 8-K filed with the SEC on April 12, 2010.
 
On June 22, 2010 the Company authorized the issuance of 93,000 warrants to be issued for services to be provided to the Company. Of these authorized warrants, 90,000 were issued on June 23, 2010 once the contract for services was finalized. These warrants have a 5 year term with a strike price of $0.50. The remaining 3,000 warrants were issued September 2, 2010. These warrants have a 3 year term with a strike price of $0.50. The combined value of these options is $41,129 and was expensed as research and development expense.
 
On August 5, 2010 the Company issued 50,000 shares of its common stock to a consultant for services to be provided to the Company.

On November 5, 2010 the Company issued 50,000 shares of its common stock to a consultant for services to be provided to the Company.
 
On December 30, 2010 the Company sold 4,200,000 shares of common stock to a group of institutional and accredited investors for gross proceeds of $1,050,000. In addition, the investors received 2,520,000 Class I warrants to purchase common stock at an exercise price of $0.55 per share and exercisable for a five year period.
 
Between May 12 and August 23, 2011, the Company issued a total of 625,000 warrants for services rendered to the Company.  As of September 30, 2011, 230,000 warrants with a fair value of $123,170 had vested. The Company recorded a corresponding expense of $71,687 to professional fees and $51,483 to research and development expense.  As of September 30, 2012, additional 265,000 warrants vested.  During the year ended September 30, 2012, the Company recorded an expense of $54,014 to professional fees and $119,698 to research and development expense related to warrants vested during the period.
 
On December 16, 2011, the Company completed a private placement offering pursuant to which the Company sold 1,833,342 shares of its common stock at a price of $0.60 per share for gross proceeds of $1,100,000. Purchasers of the shares also received an aggregate of 916,678 Class J Warrants to purchase common stock at an exercise price of $0.65 per share and exercisable for a period of 5 years.

 
12

 
 
On December 21, 2011, the Company issued a total of 3,125 warrants for services rendered to the Company. In conjunction with this issuance, the Company recognized $1,967 in consulting expense. The warrants are exercisable for five years at an exercise price of $0.65 per share.
 
On February 15, 2012, the Company issued 166,667 shares of common stock as a deposit on a service contract. The shares were valued at $0.60 per share based on the fair market value of the services to be provided.  The Company recorded the corresponding $100,000 fair market value as research and development expense.

On March 3, 2012, the Company issued a total of 350,000 fully-vested warrants with a fair market value of $220,422 as a retainer for services to be rendered to the Company.  In accordance with ASC 505-50-25, the Company recorded the fair market value of the warrants as professional fees.

On March 9, 2012, the Company agreed to grant 1,700,000 options to board members and executives. The Company calculated a fair value of $0.63 per option. Of the 1,700,000 options issued, 425,000 vested upon issuance and the remaining 1,275,000 vest in 25 percent tranches on each anniversary.  As of September 30, 2012, 425,000 options have vested resulting in compensation expense of $268,078.

On March 18, 2012, the Company issued 130,000 shares of common stock as a deposit on a service contract. The shares were valued at $0.84 per share based on the fair market value of the stock on the date of issuance.  The Company recorded the corresponding $109,200 fair market value professional fees.

On April 10, 2012 the Company converted 43,392 warrants into shares of common stock through a cashless exercise. The cashless calculation amounted to 12,662 shares of common stock which were issued April 11, 2012.

On April 12, 2012, the Company issued a total of 15,000 fully-vested warrants with a fair market value of $12,775 as a retainer for services to be rendered to the Company.  In accordance with ASC 505-50-25, the Company recorded the fair market value of the warrants as professional fees.

Between May 18, 2012 and July 11, 2012, the Company issued a total of 400,000 warrants with a fair market value of $357,394 for services yet to be rendered to the Company.  The 350,000 warrants vest in two equal amounts three and six months from the date of issuance while the remaining 50,000 warrants vest over four quarters effective October 11, 2012.  As of September 30, 2012, the Company has recorded $157,235 in professional fees related to the warrants that have vested to date.

On June 28, 2012, the Company issued 5,299,002 shares of common stock for total proceeds of $2,914,452 to investors who elected to convert their series H warrants at an exercise price of $0.55. As an incentive to exercise the options, the Company agreed to issue 0.6 replacement warrants for each full warrant exercised.  The Company issued 3,179,410 replacement warrants under the incentive provision.  The warrants were valued at $2,663,204.  As the original warrants were issued as part of cash financing, the value of these warrants has been included as an offsetting entry within additional paid-in capital.

On July 9, 2012, the Company received a notice of exercise for 30,000 warrants to purchase common stock through a cashless exercise. The cashless calculation amounted to 13,333 shares of common stock which were issued on July 17, 2012.

On September 7, 2012, the Company issued warrants to a related party to purchase 75,000 shares of common stock as compensation for the use of the office facilities and receptionist. Such warrants have an exercise price of $1.00 and will be exercisable for a period of five years. We have been using the office space since April 2010 and will continue to do so in the future.

On September 12, 2012, the Company issued 100,000 shares of common stock as a deposit on a service contract. The shares were valued at $0.99 per share based on the fair market value of the stock on the date of issuance.  The Company recorded the corresponding $99,000 fair market value as professional fees.

On September 19, 2012, the Company issued 1,100 shares of common stock to a consultant for services. The shares were valued at $1.02 per share based on the market price of the shares on the date of issuance.  The Company recorded the corresponding $1,122 expense to general and administrative expense.

Stock Repurchase

Ohr has not engaged in any stock repurchase transactions, and no stock repurchase plan is currently in place.

ITEM 6 SELECTED FINANCIAL DATA

Not required for a smaller reporting company.

ITEM 7 MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Safe Harbor Statement

 
13

 
 
Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “intends,” and words of similar import, constitute “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases, regarding the Company’s financial and business prospects. These forward-looking statements are qualified in their entirety by these cautionary statements, which are being made pursuant to the provisions of such Act and with the intention of obtaining the benefits of the “safe harbor” provisions of such Act. The Company cautions investors that any forward-looking statements it makes are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements. We assume no obligation to update any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise. Any investment in our common stock involves a high degree of risk. For a general discussion of some of these risks in greater detail, see our “Risk Factors” on page 5 of this Annual Report.
 
General
 
The Company is a biotechnology company focused on the development of the Company’s previously acquired compounds. With the addition of our executive management team in April 2010, we have shifted our strategy to focus on the clinical development of our two later stage lead products, Squalamine eye drops for the treatment of wet-AMD and other neovascular ophthalmic disorders, and  OHR/AVR 118 for the treatment of cancer cachexia. We acquired OHR/AVR118 in a secured party sale and Squalamine from the Genaera Liquidating Trust as part of the Company’s strategy to acquire undervalued biotechnology companies and assets.

We seek to advance our two lead products through later stage clinical trials as well as developing some of our earlier stage products and indications are that we are moving forward with minimal capital outlay. We have also started a new initiative to seek and implement strategic alternatives with respect to our products, including licenses, business collaborations and other business combinations or transactions with other pharmaceutical and biotechnology companies.  From time to time, we may engage in discussions with third parties regarding the licensure, sale or acquisition of our products and technologies or a merger or sale of the Company; however we currently do not have plans to enter into such a transaction and there is no assurance that the Company will complete such a transaction.

The Company has limited core operating expenses as we have only two full-time employees.  In connection with the hiring of our executive management team, we have established an office in New York City.

The Company will continue to incur ongoing operating losses, which are expected to increase substantially as it funds development of the new pharmaceutical compounds. In addition, losses will be incurred in paying ongoing reporting expenses, including legal and accounting expenses, as necessary to maintain the Company as a public entity.  No projected date for potential revenues can be made, and the Company is undercapitalized at present to completely develop, test and market any pharmaceutical product.
 
Until the Company is able to generate significant revenue from its principal operations, it will remain classified as a development stage company. The Company can give no assurance that it will be successful in such efforts or that its limited operating funds will be adequate to support the Company’s operations, nor can there be any assurance of any additional funding being available to the Company.

Liquidity and Capital Resources
 
The Company has limited working capital reserves with which to continue development of its pharmaceutical products and continuing operations. The Company is reliant, at present, upon its capital reserves for ongoing operations and has no revenues.

Not including the non-cash stock warrant derivative liability of $768,696 and $5,893,544,  net working capital reserves increased from the beginning of the 2012 fiscal year to the end by $2,137,456 (from $390,700 to $2,528,156) primarily due to capital raised through the sale of common stock and warrants. At present, the Company has no bank line of credit or other fixed source of capital reserves. Should it need additional capitalization in the future, it will be primarily reliant upon private or public placement of its equities for which there can be no warranty or assurance that the Company may be successful in such efforts. The Company raised $2,914,452 through the exercise of warrants in June 2012, and management believes the Company has sufficient capital to meet its planned operating needs through November 2013.

Results of Operations

For the fiscal year ended September 30, 2012, the Company had zero revenues and operating expenses of approximately $3,286,408. The loss from operations was comprised of $1,625,695 in research and development costs, $875,868 in professional fees, $649,293 in salaries and wages, and $135,552 in general and administrative expenses. During the same period, the Company recorded interest expense of $1,817, a gain on the settlement of debt of $21,005, a gain on derivative liabilities of $1,812,224, and other income items totaling $112. The net loss from continuing operations for the year ended September 30, 2012 was $1,454,884.

For the fiscal year ended September 30, 2011, the Company had zero revenues and operating expenses of approximately $1,243,401.  The loss from operations was comprised of $521,969 in research and development costs, $338,055 in professional fees, $279,029 in salaries and wages, and $104,348 in general and administrative expenses. During the same period, the Company recorded interest expense of $2,433, a gain on the sale of assets of $70,500, a gain on the settlement of debt of $49,179, a loss on derivative liabilities of $3,977,041, and other income items totaling $1,677. The net loss from continuing operations for the year ended September 30, 2011 was $5,101,519.

As noted above, the Company had no revenues for fiscal year 2012, and does not anticipate that it will have revenues in fiscal year 2013. The operating expenses of the Company increased from fiscal year 2011 to 2012 by approximately $2,043,007. The Company had increases in all expense categories as ongoing development costs and testing efforts for its pharmaceutical products continue. The Company anticipates it will have higher expenditures in fiscal year 2013, including clinical development costs and higher legal fees from our litigation, again with no offsetting revenues.

 
14

 
 
Results of continuing operations for the year ended September 30, 2012 reflect the following changes from the prior period:

       
2012
       
2011
   
Change
Revenues
 
$
—  
   
$
—  
   
$
—  
 
Cost of Revenues
   
—  
     
—  
     
—  
 
General and administrative
   
135,552
     
104,348
     
31,204
 
Professional fees
   
875,868
     
338,055
     
537,813
 
Research and development
   
1,625,695
     
521,969
     
1,103,726
 
Salaries and wages
   
649,293
     
279,029
     
370,264
 
Loss from Operations
   
(3,286,408
)
   
(1,243,401
)
   
(2,043,007
)
Gain/(Loss) on derivative liability
   
1,812,224
     
(3,977,041)
     
5,789,265
 
Other income and (expense)
   
19,300
     
118,923
     
(99,623
Income (loss) from discontinued Operations
   
—  
     
—  
     
—  
 
Net Income (loss)
 
$
(1,454,884
)
 
$
(5,101,519)
   
$
(3,646,635
)
 
            Until the Company experiences an increase in operations as it continues to implement its business plan, significant losses are expected to continue as the trend is reflected in the chart above.

Critical Accounting Estimates

Fair Value of Financial Instruments
In accordance with ASC 820, the carrying value of cash and cash equivalents, accounts receivable, accounts payable, and notes payable approximates fair value due to the short-term maturity of these instruments. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

The Company also has stock warrant derivative liabilities that are measured at fair value on a recurring basis using Level 3 inputs.

Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including warrants and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.

Research and Development
The Company follows the policy of expensing its research and development costs in the period in which they are incurred in accordance with ASC 730. The Company incurred net research and development expenses of $1,625,695 and $521,969 during the years ended September 30, 2012 and 2011, respectively.

On July 20, 2010 the Company applied for a grant under the IRS Qualifying Therapeutic Discovery Project (QTDP) program. The application was approved and expenses spent on research and development during the years ended September 30, 2012 and 2011 totaling $- and $179,358 were approved for reimbursement under the grant program, respectively. These amounts have been recorded as grant receivables and as a reduction in research and development expenses.

Share-based Compensation
The Company follows the provisions of ASC 718, “Share-Based Payments” which requires all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation.

In accordance with ASC 505, equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached, whichever is earlier.

Off-Balance Sheet Arrangements

The Company has not entered into any off-balance sheet arrangements.

 
15

 
 
Tabular Description of Principal Contracts

The Company is not engaged in any contract for sale or distribution of its product to date; and, therefore, does not have any specific disclosure under this heading.

Summary of Significant Events

The Company is a biotechnology company focused on the development of the Company’s previously acquired compounds, with focus on the clinical development of our two later stage lead products, OHR/AVR118 for the treatment of cancer cachexia (multi-symptom wasting disorder), and Squalamine for the treatment of the wet form of age-related macular degeneration (“AMD”) using an eye drop formulation. We acquired OHR/AVR118 in a secured party sale and Squalamine from the Genaera Liquidating Trust as part of the Company’s strategy to acquire undervalued biotechnology companies and assets.

On March 20, 2009, the Company acquired in a secured party sale all the patents, related intellectual property, clinical data and other assets related to AVR 118 (renamed OHR/AVR118). OHR/AVR118 is in an ongoing Phase II trial for the treatment of cachexia. The Company acquired the assets in the secured party sale with $100,000 in cash and by issuing a $500,000 principal amount 11% convertible secured non-recourse debenture due June 20, 2011, and convertible at $0.40 per share (the “Convertible Debenture”). The Convertible Debenture is secured by the acquired assets. The cash portion of the purchase price was financed by short-term loans from an affiliate of Orin Hirschman, a director of the Company, and another current shareholder. The Convertible Debenture was paid in full on December 29, 2010.

On August 19, 2009 the Company completed the acquisition of Squalamine, Trodusquemine and related compounds from Genaera Liquidating Trust. The Company paid $200,000 in cash for the compounds.

On April 12, 2010 the Company hired Dr. Irach Taraporewala as CEO and Sam Backenroth as Vice President of Business Development and CFO.
 
On September 24, 2012, the Company announced the initiation of a multi center, randomized, placebo controlled Phase II trial to evaluate the efficacy and safety of Squalamine eye drops for the treatment of wet-AMD.
 
The Company is currently engaged in the clinical testing of OHR/AVR118 and the Squalamine eye drop program for the treatment of wet-AMD.
 
Discontinued Operations and Divestment of Assets

On June 5, 2007, the Company announced that it ceased its broadband maritime operations and reduced employment to a small residual force.

On November 1, 2007, the Company sold substantially all of its assets (primarily intellectual property and technology) relating to broadband services to ships to private investors for 460,000.

The Company has limited core operating expenses as we have only two full-time employees. In connection with the hiring of our executive management team, we established an office in New York City

Products and Markets

The Company is a pharmaceutical company currently focused on development of the Company’s previously acquired compounds. With the addition of our executive management team in April 2010, we have shifted our strategy accordingly to focus on the development of our two later stage lead products, OHR/AVR 118 for the treatment of cancer cachexia, and Squalamine eye drops for the treatment of wet-AMD. We acquired OHR/AVR118 in a secured party sale and Squalamine from the Genaera Liquidating Trust as part of the Company’s strategy to acquire undervalued biotechnology companies and assets.

Product Pipeline

Squalamine

Squalamine is a small molecule anti-angiogenic drug with a novel intracellular mechanism of action. The drug acts against the development of aberrant neovascularization by inhibiting multiple protein growth factors of angiogenesis, including vascular endothelial growth factor (“VEGF”), platelet-derived growth factor (“PDGF”) and basic fibroblast growth factor growth factor (“bFGF”). Recent clinical evidence has shown PDGF to be an additional target for the treatment of Wet Age-related Macular Degeneration (“Wet-AMD”). Using an intravenous formulation in over 250 patients in Phase I and Phase II trials for the treatment of Wet-AMD, the trials demonstrated that the molecule had biological effect and maintained and improved visual acuity outcomes, with both early and advanced lesions responding.

Ohr reformulated Squalamine for ophthalmic indications from an intravenous infusion (“IV”) to a topical eye drop. Preclinical testing has demonstrated that the eye drop formulation is both safe to ocular tissues and achieves in excess of target anti-angiogenic concentrations in the tissues of the back of the eye. The topical formulation is designed for enhanced uptake to the back of the eye and decreased potential for side effects. The Company plans on advancing its clinical wet-AMD program with the novel topical formulation. In May 2012, the U.S. Food and Drug Administration (“FDA”) awarded Fast Track Designation to the Squalamine eye drop program for the potential treatment of wet-AMD.

 
16

 
 
Squalamine eye drops are designed for self-administration which may provide several potential advantages over the FDA approved current standards of care (Roche/Genetech’s Lucentis® and Regeneron’s Eylea® Intravitreal Injections).
·  
Eye drops versus standard of care which is an intravitreal injection directly into the eye every 4-8 weeks on a chronic basis

·  
Reduction or elimination of intravitreal injections has the potential to provide patients with improved safety by reducing or eliminating side effects associated with the intravitreal injection procedure

·  
Inhibition of multiple growth factors may achieve superior visual acuity outcomes. Clinical evidence has demonstrated that inhibiting VEGF and PDGF together may provide patients with better visual acuity outcomes than anti-VEGF therapy alone

·  
Cost advantage of manufacturing a small molecule when compared to large molecule proteins and antibodies
 
     In Phase II clinical trials using the intravenous formulation of Squalamine, stabilization or improvement in visual activity was observed in the vast majority of patients, with both early and advanced lesions responding and few drug-related ocular or systemic effects observed. In a number of patients whose wet-AMD had progressed to an advanced stage, the administration of Squalamine produced beneficial effects and significant improvement in best corrected visual acuity.  As opposed to the approved current standard of care therapy, Squalamine does not require direct injection into the eye.
 
     The Company conducted preclinical testing on the novel topical formulation with the following results:
·  
Ocular Tolerance and Toxicity: In a dose escalation safety study involving daily eye drop treatment in Dutch belted rabbits over a 28 day period, the formulation proved safe, and exhibited no signs of ocular toxicity or changes in intraocular pressure. Importantly, no macroscopic or histopathological changes to the ocular tissues were noted.

·  
Single Dose Biodistribution study: A single eye drop was administered to the front of the eye in Dutch belted rabbits. At all evaluated timepoints, drug concentrations in the posterior sclera-choroid region behind the retina at the back of the eye exceeded the tissue concentrations of Squalamine that are known to block the choroidal neovascularization process in Wet-AMD.

·  
Multi Dose Biodistribution Study: Squalamine eye drops were administered once or twice daily in both eyes for up to 14 days in Dutch belted rabbits. The eyes were examined one full dosing interval (12 hours when given twice daily, 24 hours when given once daily) after the last administration of Squalamine eye drops to determine concentrations of Squalamine in the posterior ocular tissues (“Trough” level). At all time point and dosing regimens, Trough Squalamine concentrations exceeded tissue concentrations of Squalamine that are known to block the choroidal neovascularization process in Wet-AMD.

·  
Long Term Ocular Tolerance and Toxicity: In a 26-week safety and toxicity study in male and female Dutch belted rabbits, Squalamine or placebo eye drops were administered via topical instillation twice a day (“BID”) in both eyes. Ophthalmoscopic examinations were conducted throughout the study period to assess ocular toxicity (irritation, redness, swelling, discharge). Blood and urine samples for clinical pathology evaluations were collected, and blood samples for determination of the plasma concentrations of squalamine eye drops and toxicokinetic evaluations were collected from all animals at designated time points. At study termination, necropsy examinations were performed, and organs and optical tissues were microscopically examined.

No adverse effects of treatment were observed in any of the parameters evaluated including clinical findings, body weights, food consumption, ocular irritation, hematology, coagulation, clinical chemistry, urinalysis and macroscopic pathology examinations. Importantly, ophthalmoscopic examinations indicated no signs of clouding of the lens, no corneal opacities or deposits, and no increase in intraocular pressure. In addition, microscopic histopathology evaluations on ocular tissues were normal. Squalamine also did not build up in plasma over long term administration, indicating reduced potential for systemic side effects.

The Company presented preclinical data at the Association for Research and Vision in Opthalmology conference in May 2012, and at the Macula Society meeting in June 2012.

We commenced a clinical study, named OHR-002, at the end of September 2012. Study OHR-002 is a randomized, double blind, placebo controlled Phase II study to evaluate the efficacy and safety of Squalamine Eye Drops for the treatment of wet-AMD. The study will enroll 120 treatment naïve wet-AMD patients at twenty two clinical sites in the U.S., who will be treated with Squalamine Eye Drops or placebo eye drops twice daily for a nine month period. The primary and secondary endpoints include visual acuity parameters, need for rescue intravitreal injections, and safety. The protocol includes an interim analysis upon the completion of the treatment period in 50% of the patients (approximately 60). We expect to complete enrollment of the study in 2013 and release interim data in the fourth quarter of 2013.

Additionally, Squalamine has shown promise in the treatment of solid tumors such as ovarian cancer using the intravenous formulation in significantly higher doses than the eye drop formulation. In a Phase IIa study, patients with stage III and IV refractory and resistant ovarian cancer received Squalamine in conjunction with carboplatin, with approximately two thirds of the patients achieving a complete response, partial response or stable disease. Squalamine has been awarded Orphan Drug Status by the FDA for the treatment of late stage resistant or refractory ovarian cancer. We expect to publish or present survival data on the completed phase IIa study in 2013 at a scientific conference or appropriate forum. Because of funding constraints, Ohr is seeking a development partner to further advance development of this indication.

 
17

 
 
OHR/AVR118

OHR/AVR118 is a novel immunomodulator with a singular chemical structure that is terminally sterilized and endotoxin-free.  The compound is composed of two small peptides, Peptide A, which is 31 amino acids long, and Peptide B, that is 21 amino acids long. Peptide B is unique in that the dinucleotide, diadenosine, is covalently attached to serine at position 18 through a phosphodiester bond. OHR/AVR118 is stable at room temperature and has a favorable safety profile both in animal toxicity studies and in human clinical trials.

Ohr is currently conducting a Phase II clinical trial of OHR/AVR 118 for the treatment of cancer cachexia at a leading cancer center in Canada. Cancer cachexia is a severe wasting disorder characterized by weight loss, muscle atrophy, fatigue, weakness, and significant loss of appetite. This disorder is often seen in late stage cancer patients. OHR/AVR118 has also anecdotally shown to have chemoprotective effects, thus potentially allowing patients to better tolerate chemotherapy and radiation as well as more intensive treatment regimens with ordinary toxic chemotherapeutic agents, while maintaining body weight and avoiding other side effects. There is currently no FDA approved drug for the treatment of cancer cachexia. The Company presented interim data on this current trial at the annual conference of the Society of Cachexia and Wasting Disorders in Barcelona, Spain in December 2009.  In December 2010, the Company opened a new clinical site for the ongoing Phase II trial in cancer cachexia at the Ottawa Hospital Cancer Centre and enrolled the first three patients at the new site. Enrollment in the trial has been completed and we expect to report data in the first quarter of 2013.

Ohr also owns various other compounds in earlier stages of development, including the PTP1b inhibitor trodusquemine and related analogs, which it is conducting preclinical research on with an academic laboratory, and will seek to develop further through a strategic partnership, joint venture, or on a sponsored basis.

The Company will continue to incur ongoing operating losses, which are expected to increase substantially after it funds development of the new pharmaceutical compounds. In addition, losses will be incurred in paying ongoing reporting expenses, including legal and accounting expenses, as necessary to maintain the Company as a public entity. No projected date for potential revenues can be made and the Company is undercapitalized at present to develop, test and market any pharmaceutical product.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of loss arising from adverse changes in interest rates and foreign exchange rates. Due to its limited operations, the Company does not have any material exposure to interest rate or exchange rate risk.

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Following are the financial statements prepared by Ohr and audited by its independent auditors. These financial statements constitute the formal presentation of financial information by the Company, such that all other financial information contained in this 10-K report should be read and reviewed in light of the following financial statements and notes thereto. Should there exist any conflict between information appearing elsewhere in this Report and the following financial statements, the financial statements should be given primary definition and control. The notes attached to the financial statements constitute an integral part of the financial disclosure and should be read and reviewed in connection with the financial statements.

 
18

 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To The Board of Directors and Stockholders of
OHR Pharmaceutical, Inc.
 
We have audited the accompanying balance sheet of OHR Pharmaceutical, Inc. (the “Company”) as of September 30, 2011, and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the year then ended, and for the period of October 1, 2007 (inception) through September 30, 2011.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OHR Pharmaceutical, Inc. as of September 30, 2011, and the results of its operations, and its cash flows for the year then ended and for the period of October 1, 2007 (inception) through September 30, 2011, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has incurred losses from operations, has a liquidity problem, and requires additional funds for its operational activities. These factors raise substantial doubt that the Company will be able to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/s/ Child, Van Wagoner & Bradshaw, PLLC
Certified Public Accountants
Salt Lake City, Utah
January 6, 2011
 
 
 
 
19

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
OHR Pharmaceutical, Inc.
New York, NY


We have audited the accompanying balance sheet of OHR Pharmaceutical, Inc. (the “Company”) as of September 30, 2012 and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year then ended and for the period from October 1, 2007 (inception) through September 30, 2012.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We did not audit the financial statements of OHR Pharmaceutical, Inc. for the period from October 1, 2007 (inception) through September 30, 2011.  Those financial statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to amounts for the period from October 1, 2007 (inception) through September 30, 2011, included in the cumulative totals, is based solely upon the report of the other auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OHR Pharmaceutical, Inc. as of September 30, 2012, and the results of its operations and its cash flows for the year then ended and for the period from October 1, 2007 (inception) through September 30, 2012, in conformity with accounting principles generally accepted in the United States of America.

 
/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas
January 9, 2013
 
 
 
20

 
 
 
ASSETS
 
 
September 30,
 
September 30,
 
 
2012
 
2011
 
CURRENT ASSETS
       
Cash
  $ 2,632,413     $ 469,786  
Prepaid expenses
    218,242       37,611  
Grant receivable
          179,358  
Other current assets
          5,000  
                 
Total Current Assets
    2,850,655       691,755  
                 
EQUIPMENT, net
    43,111       19,164  
                 
OTHER ASSETS
               
Patent costs, net
    623,654       701,927  
                 
TOTAL ASSETS
  $ 3,517,420     $ 1,412,846  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
                 
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
  $ 300,462     $ 301,055  
Notes payable
    22,037        
Derivative liabilities
    768,696       5,893,544  
                 
Total Current Liabilities
    1,091,195       6,194,599  
                 
TOTAL LIABILITIES
    1,091,195       6,194,599  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Preferred stock, Series B; 6,000,000 shares authorized,
               
  at $0.0001 par value, 5,583,336  and 5,583,336 shares
               
  issued and outstanding, respectively
    558       558  
Common stock; 180,000,000 shares authorized,
               
  at $0.0001 par value, 47,258,686 and 39,702,580
               
  shares issued and outstanding, respectively
    4,726       3,970  
Additional paid-in capital
    30,963,228       22,289,231  
Stock subscription receivable
    (11,891 )      
Accumulated deficit
    (21,628,748 )     (21,628,748 )
Deficit accumulated during the development stage
    (6,901,648 )     (5,446,764 )
                 
Total Stockholders' Equity (Deficit)
    2,426,225       (4,781,753 )
TOTAL LIABILITIES AND
               
  STOCKHOLDERS' EQUITY (DEFICIT)
  $ 3,517,420     $ 1,412,846  
 
 
21

 
 
OHR PHARMACEUTICAL, INC.
(A Development Stage Company)
Statements of Operations

 
               
From Inception of
 
               
the Development
 
               
Stage on
 
               
October 1,
 
   
For the Year Ended
   
2007 Through
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
 
REVENUES
  $     $     $  
COST OF SALES
                 
GROSS PROFIT
                 
                         
OPERATING EXPENSES
                       
General and administrative
    135,552       104,348       1,133,368  
Professional fees
    875,868       338,055       2,341,417  
Research and development
    1,625,695       521,969       2,426,215  
Salaries and wages
    649,293       279,029       1,230,874  
Total Operating Expenses
    3,286,408       1,243,401       7,131,874  
                         
OPERATING LOSS
    (3,286,408 )     (1,243,401 )     (7,131,874 )
                         
OTHER INCOME (EXPENSE)
                       
Interest expense
    (1,817 )     (2,433 )     (51,540 )
Gain(loss) on derivative liabilities
    1,812,224       (3,977,041 )     (684,229 )
Gain on sale of assets
          70,500       70,500  
Gain on settlement of debt
    21,005       49,179       153,557  
Other income and expense
    112       1,677       63,525  
Total Other Income (Expense)
    1,831,524       (3,858,118 )     (448,187 )
                         
LOSS FROM CONTINUING OPERATIONS
                       
BEFORE INCOME TAXES
    (1,454,884 )     (5,101,519 )     (7,580,061 )
                         
PROVISION FOR INCOME TAXES
                 
                         
LOSS BEFORE DISCONTINUED OPERATIONS
    (1,454,884 )     (5,101,519 )     (7,580,061 )
Income from discontinued operations
                       
(including gain on disposal of $606,000)
                678,413  
GAIN ON DISCONTINUED OPERATIONS
                678,413  
                         
NET LOSS
  $ (1,454,884 )   $ (5,101,519 )   $ (6,901,648 )
                         
BASIC AND DILUTED LOSS PER SHARE
                       
Continuing operations
  $ (0.03 )   $ (0.13 )        
Discontinued operations
    0.00       0.00          
    $ (0.03 )   $ (0.13 )        
                         
WEIGHTED AVERAGE  NUMBER
                       
  OF SHARES OUTSTANDING:
                       
BASIC AND DILUTED
    42,728,376       38,666,744          

The accompanying notes are an integral part of these financial statements.
 
22

 
 
OHR PHARMACEUTICAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
 
                                    Deficit
Accumulated
 
   
Series B
Preferred Stock
    Common Stock      
Additional
Paid-in 
   
Stock
Subscription
   
Accumulated
   
During the
Development
   
Total
Stockholders'
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Receivable
   
Deficit
   
Stage
   
(Deficit)
 
                                                       
Balance, October 1, 2007
        $       25,247,006     $ 2,525     $ 21,363,107     $     $ (21,628,748 )   $     $ (263,116 )
                                                                         
Fair value of warrants granted to employees
                            271,484                         271,484  
                                                                         
Net income for the year ended September 30, 2008
                                              24,827       24,827  
Balance, September 30, 2008
                25,247,006       2,525       21,634,591             (21,628,748 )     24,827       33,195  
                                                                         
Fair value of warrants granted to employees
                            411,860                         411,860  
                                                                         
Preferred stock and warrants issued for cash
    5,583,336       558                   1,004,442                         1,005,000  
                                                                         
Fair value of warrants granted
                            27,079                         27,079  
                                                                         
Net loss for the year ended September 30, 2009
                                              (864,449 )     (864,449 )
Balance, September 30, 2009
    5,583,336     $ 558       25,247,006     $ 2,525     $ 23,077,972     $     $ (21,628,748 )   $ (839,622 )   $ 612,685  
                                                                         
Fair value of warrants granted
                            133,682                         133,682  
                                                                         
Fair value of employee stock options
                            219,541                         219,541  
                                                                         
Exercise of warrants for cash
                5,583,336       558       1,004,442                         1,005,000  
                                                                         
Replacement warrants
                            (2,868,242 )                       (2,868,242 )
                                                                         
Exercise of cashless warrants
                4,547,238       455       (455 )                        
                                                                         
Conversion of convertible debenture
                25,000       2       9,998                         10,000  
                                                                         
Common stock issued for services
                50,000       5       10,495                         10,500  
                                                                         
Net income for the year ended September 30, 2010
                                              494,377       494,377  
Balance, September 30, 2010
    5,583,336     $ 558       35,452,580     $ 3,545     $ 21,587,433     $     $ (21,628,748 )   $ (345,245 )   $ (382,457 )
 
The accompanying notes are an integral part of these financial statements.
 
 
23

 
OHR PHARMACEUTICAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
                                                               Deficit
Accumulated
  
 
     
Series B
Preferred Stock
      Common Stock      Additional
Paid-in
     Stock
Subscription
      Accumulated         During the
Development
    Total
Stockholders'
Equity
 
     Shares     Amount     Shares     Amount     Capital      Receivable      Deficit     Stage     (Deficit)   
Balance, September 30, 2010
    5,583,336     $ 558       35,452,580     $ 3,545     $ 21,587,433     $     $ (21,628,748 )   $ (345,245 )   $ (382,457 )
                                                                         
Common stock and warrants issued for cash
                4,200,000       420       520,733                         521,153  
                                                                         
Common stock issued for services
                50,000       5       9,995                         10,000  
                                                                         
Warrants issued for services
                            123,170                         123,170  
                                                                         
Stock option expense
                            47,900                         47,900  
                                                                         
Net loss for the year ended
                                                                       
September 30, 2011
                                              (5,101,519 )     (5,101,519 )
Balance, September 30, 2011
    5,583,336       558       39,702,580       3,970       22,289,231             (21,628,748 )     (5,446,764 )     (4,781,753 )
                                                                         
Common stock and warrants issued for cash
                1,833,342       183       958,347                         958,530  
                                                                         
Common stock and warrants issued for services
                397,767       40       941,371                         941,411  
                                                                         
Common stock issued in exercise of warrants
                5,324,997       533       2,913,918       (11,891 )                 2,902,560  
                                                                         
Stock option expense
                            406,267                         406,267  
                                                                         
Close out of derivative liability
                            3,454,094                         3,454,094  
                                                                         
Net loss for the year ended
                                                                       
September 30, 2012
                                              (1,454,884 )     (1,454,884 )
Balance, September 30, 2012
    5,583,336     $ 558       47,258,686     $ 4,726     $ 30,963,228     $ (11,891 )   $ (21,628,748 )   $ (6,901,648 )   $ 2,426,225  
 
The accompanying notes are an integral part of these financial statements.
 
 
24

 
 
OHR PHARMACEUTICAL, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
           
From Inception of
 
           the Development  
            Stage on  
          October 1,  
   
For the Year Ended
   
2007 Through
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
 
OPERATING ACTIVITIES
                 
Net loss
  $ (1,454,884 )   $ (5,101,519 )   $ (6,901,648 )
Adjustments to reconcile net loss to net cash
                       
  used in operating activities:
                       
Discontinued operations
                (678,413 )
Common stock issued for services
    309,322       10,000       329,822  
Warrants issued for services
    632,089       123,170       1,183,513  
Stock option expense
    406,267       47,900       1,085,568  
(Gain) loss on extinguishment of debt
    (21,005 )     (49,179 )     (89,594 )
Gain on sale of asset
          (70,500 )     (70,500 )
(Gain) loss on derivative liabilities
    (1,812,224 )     3,977,041       684,231  
Depreciation
    9,456       5,004       15,310  
Amortization of patent costs
    78,273       78,480       176,346  
Changes in operating assets and liabilities
                       
Prepaid expenses and deposits
    (105,893 )     82,303       (143,084 )
Other receivables and other current assets
    184,358       (119,236 )     85,025  
Accounts payable and accrued expenses
    20,412       12,009       108,624  
Net Cash Used in Operating Activities
    (1,753,829 )     (1,004,527 )     (4,214,800 )
                         
INVESTING ACTIVITIES
                       
Proceeds from sale of asset
          70,500       70,500  
Purchase of equipment
    (33,403 )           (58,421 )
Purchase of patents and other intellectual property
                (300,000 )
Discontinued operations
                418,000  
Net Cash Provided by (Used in) Investing Activities
    (33,403 )     70,500       130,079  
                         
FINANCING ACTIVITIES
                       
Proceeds from the sale of preferred stock and warrants
                1,005,000  
Proceeds from the sale of common stock and warrants
    1,100,000       1,050,000       2,150,000  
Proceeds from warrants exercised for cash
    2,902,560             3,907,560  
Proceeds from related party payables
                125,453  
Repayments of related party payables
                (125,453 )
Proceeds from short-term notes payable
                64,408  
Repayments of short-term notes payable
    (52,701 )     (17,486 )     (117,109 )
Repayment of convertible debentures
          (51,115 )     (490,000 )
Net Cash Provided by Financing Activities
    3,949,859       981,399       6,519,859  
                         
NET CHANGE IN CASH
    2,162,627       47,372       2,435,138  
CASH AT BEGINNING OF PERIOD
    469,786       422,414       197,275  
CASH AT END OF PERIOD
  $ 2,632,413     $ 469,786     $ 2,632,413  
SUPPLEMENTAL DISCLOSURES OF
                       
CASH FLOW INFORMATION
                       
                         
CASH PAID FOR:
                       
Interest
  $ 1,817     $ 24,003     $ 71,740  
Income taxes
                 
                         
NON CASH FINANCING ACTIVITIES:
                       
Reclassification of derivative liability to permanent equity
    3,454,094             3,454,094  
Financing of insurance premiums through issuance of short term notes
    74,738               74,738  
Transfer of investment for dividends payable
                186,000  
Purchase of patents for debenture
                500,000  
Conversion of debenture
                10,000  
Options issued to settle accounts payable
                3,991  
                         

The accompanying notes are an integral part of these financial statements.
 
25

 
OHR PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 2012

NOTE 1 – DESCRIPTION OF BUSINESS

Prior Business - The Company was originally formed under the name Prime Resource, Inc., a Utah corporation. After disposing of its prior business, on March 30, 2007 the Company merged with Broadband Maritime Inc., a broadband maritime service supplier.  No goodwill was recognized in the merger since Broadband Maritime was treated as the acquirer for accounting purposes, and the Company was a “shell company.” On June 5, 2007, after cancellations of key contracts, the Company announced that it had ceased broadband maritime operations and reduced employment to a small residual force. Accordingly, the Company ceased operations effective September 30, 2007 and was reclassified as a development stage enterprise, from the date of cessation forward. On August 4, 2009 the Company merged with and into Ohr Pharmaceutical, Inc., a Delaware corporation (“Ohr”). Under the terms of the merger agreement Ohr became the surviving corporation in the merger. Each outstanding share of pre-merger Company common stock and preferred stock was converted into one share of Ohr common stock. Additionally, all outstanding pre-merger Company options and warrants were assumed and converted into equivalent Ohr warrants or options and maintained substantially identical terms. Finally, each outstanding share of Ohr stock owned by the Company pre-merger immediately prior to the effective date of the merger ceased to be outstanding and was cancelled and retired.

The Company is a biotechnology company focused on the development of the Company’s previously acquired compounds. With the addition of a new executive management team in April 2010, the Company has shifted its strategy accordingly to focus on the development of two later stage lead products for the treatment of cancer cachexia and wet-AMD.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Estimates subject to change in the near term include impairment (if any) of long-lived assets and fair value of derivative liabilities.

Accounting Basis
The Company’s financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. The Company has elected a September 30 fiscal year end.

Reclassification of Financial Statement Accounts
Certain amounts in the September 30, 2011 financial statements have been reclassified to conform to the presentation in the September 30, 2012 financial statements.
 
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an original maturity date of three months or less to be cash equivalents.

Concentration of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash. Our cash balances are maintained in accounts held by major banks and financial institutions located in the United States. The Company occasionally maintains amounts on deposit with a financial institution that are in excess of the federally insured limit of $250,000. The risk is managed by maintaining all deposits in high quality financial institutions. The Company had approximately $2,382,413 and $219,786 of cash balances in excess of federally insured limits at September 30, 2012 and 2011, respectively.

Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation. Depreciation and amortization is calculated using the straight-line method over the expected useful life of the asset, after the asset is placed in service. The Company generally uses the following depreciable lives for its major classifications of property and equipment:

Description
 
Useful Lives
Equipment
 
5 years

Expenditures associated with upgrades and enhancements that improve, add functionality, or otherwise extend the life of property and equipment are capitalized, while expenditures that do not, such as repairs and maintenance, are expensed as incurred.

 
26

 
OHR PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 2012
 
Valuation of Long-Lived Assets
Long-lived tangible assets and definite-lived intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company uses an estimate of undiscounted future net cash flows of the assets over the remaining useful lives in determining whether the carrying value of the assets is recoverable. If the carrying values of the assets exceed the expected future cash flows of the assets, the Company recognizes an impairment loss equal to the difference between the carrying values of the assets and their estimated fair values. Impairment of long-lived assets is assessed at the lowest levels for which there are identifiable cash flows that are independent from other groups of assets. The evaluation of long-lived assets requires the Company to use estimates of future cash flows. However, actual cash flows may differ from the estimated future cash flows used in these impairment tests. As of September 30, 2012 and 2011, management does not believe any of the Company’s long-lived assets were impaired.

Fair Value of Financial Instruments
In accordance with ASC 820, the carrying value of cash and cash equivalents, accounts receivable, accounts payable and notes payable approximates fair value due to the short-term maturity of these instruments. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

The following table presents assets and liabilities that are measured and recognized at fair value as of September 30, 2012 and 2011, on a recurring basis:

               
Total
Assets and liabilities measured at fair
             
Carrying
value on a recurring basis at September 30, 2012
 
Level 1
 
Level 2
 
Level 3
 
Value
Stock warrant derivative liabilities
 
$
   
$
   
$
(768,696
)
 
$
(768,696
)
   
$
   
$
   
$
(768,696
)
 
$
(768,696
)

               
Total
Assets and liabilities measured at fair
             
Carrying
value on a recurring  basis at September 30, 2011:
 
Level 1
 
Level 2
 
Level 3
 
Value
Stock warrant derivative liabilities
 
$
   
$
   
$
(5,893,544
)
 
$
(5,893,544
)
   
$
   
$
   
$
(5,893,544
)
 
$
(5,893,544
)

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Stock Warrant Derivative Liability: Market prices are not available for the Company's warrants nor are market prices of similar warrants available. The Company assessed that the fair value of this liability approximates its carrying value since carrying value has been adjusted to fair value.

The method described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If a readily determined market value became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.

 
27

 
OHR PHARMACEUTICAL, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 2012
 
The following tables present the fair value of financial instruments as of September 30, 2012, by caption on the balance sheet and by ASC 820 valuation hierarchy described above.

   
Stock Warrant
 
Level 3 Reconciliation:
 
Derivative
 
Level 3 assets and liabilities at September 30, 2011
  $ (5,893,544 )
Purchases, sales, issuances and settlements (net)
    3,312,624  
Mark to market adjustments
    1,812,224  
Total level 3 assets and liabilities at September 30, 2012
  $ (768,696 )

Derivative Financial Instruments
The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including warrants and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.

Research and Development
The Company follows the policy of expensing its research and development costs in the period in which they are incurred in accordance with ASC 730. The Company incurred net research and development expenses of $1,625,695 and $521,969 during the years ended September 30, 2012 and 2011, respectively.

On July 20, 2010 the Company applied for a grant under the IRS Qualifying Therapeutic Discovery Project (QTDP) program. The application was approved and expenses spent on research and development during the years ended September 30, 2012 and 2011 totaling $- and $179,358 were approved for reimbursement under the grant program, respectively. These amounts have been recorded as grant receivables and as a reduction in research and development expenses.

Share-based Compensation
The Company follows the provisions of ASC 718, “Share-Based Payments” which requires all share-based payments to employees, including grants of employee stock options, be recognized in the income statement based on their fair values. The Company uses the Black-Scholes pricing model for determining the fair value of stock based compensation.

In accordance with ASC 505, equity instruments issued to non-employees for goods or services are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached, whichever is earlier.

Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and are measured using the