ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ORGENESIS INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(U.S. Dollars in thousands)
(Unaudited)
|
|
February 29,
|
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and
cash equivalents
|
$
|
933
|
|
$
|
4,168
|
|
Accounts receivable
|
|
1,694
|
|
|
1,173
|
|
Prepaid
expenses and other receivables
|
|
973
|
|
|
1,118
|
|
Grants receivable
|
|
1,037
|
|
|
1,446
|
|
Inventory
|
|
418
|
|
|
301
|
|
Total current assets
|
|
5,055
|
|
|
8,206
|
|
NON CURRENT ASSETS:
|
|
|
|
|
|
|
Property and equipment,
net
|
|
4,564
|
|
|
4,296
|
|
Restricted cash
|
|
5
|
|
|
5
|
|
Intangible assets, net
|
|
16,707
|
|
|
16,653
|
|
Goodwill
|
|
9,812
|
|
|
9,535
|
|
Other assets
|
|
57
|
|
|
53
|
|
Total non current assets
|
|
31,145
|
|
|
30,542
|
|
TOTAL ASSETS
|
|
36,200
|
|
|
38,748
|
|
Liabilities and equity
(net of capital deficiency)
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Accounts payable
|
|
2,865
|
|
|
3,475
|
|
Accrued expenses
|
|
992
|
|
|
816
|
|
Employee and related payables
|
|
1,643
|
|
|
1,348
|
|
Related parties
|
|
42
|
|
|
42
|
|
Advance payments on account of grant
|
|
247
|
|
|
307
|
|
Short-term loans
and current maturities of long term loans
|
|
1,211
|
|
|
2,829
|
|
Deferred income
|
|
1,415
|
|
|
1,216
|
|
Convertible loans
|
|
2,013
|
|
|
3,022
|
|
Convertible bonds
|
|
1,787
|
|
|
1,888
|
|
Price protection
derivative
|
|
197
|
|
|
1,533
|
|
TOTAL CURRENT
LIABILITIES
|
|
12,412
|
|
|
16,476
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
Loans payable
|
|
2,534
|
|
|
2,540
|
|
Warrants
|
|
1,450
|
|
|
1,382
|
|
Retirement
benefits obligation
|
|
5
|
|
|
5
|
|
Deferred taxes
|
|
3,117
|
|
|
3,327
|
|
TOTAL LONG-TERM LIABILITIES
|
|
7,106
|
|
|
7,254
|
|
TOTAL LIABILITIES
|
|
19,518
|
|
|
23,730
|
|
COMMITMENTS
|
|
|
|
|
|
|
REDEEMABLE COMMON
STOCK
|
|
|
|
|
21,458
|
|
EQUITY (CAPITAL DEFICIENCY):
|
|
|
|
|
|
|
Common stock
|
|
11
|
|
|
6
|
|
Additional paid-in
capital
|
|
37,801
|
|
|
14,229
|
|
Receipts on account of shares to be allotted
|
|
67
|
|
|
1,251
|
|
Accumulated other
comprehensive loss
|
|
(782
|
)
|
|
(1,286
|
)
|
Accumulated deficit
|
|
(20,415
|
)
|
|
(20,640
|
)
|
TOTAL EQUITY (CAPITAL DEFICIENCY)
|
|
16,682
|
|
|
(6,440
|
)
|
TOTAL LIABILITIES AND
EQUITY (NET OF CAPITAL
DEFICIENCY)
|
$
|
36,200
|
|
$
|
38,748
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME (LOSS)
(U.S. Dollars in thousands, except
share and per share amounts)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
REVENUES
|
$
|
1,520
|
|
$
|
|
|
COST OF REVENUES
|
|
1,480
|
|
|
|
|
GROSS PROFIT
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT
EXPENSES,
net
|
|
401
|
|
|
175
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
|
328
|
|
|
|
|
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES
|
|
1,166
|
|
|
659
|
|
OPERATING LOSS
|
|
(1,855)
|
|
|
(834
|
)
|
FINANCIAL INCOME,
net
|
|
1,772
|
|
|
44
|
|
LOSS BEFORE INCOME TAXES
|
|
(83
|
)
|
|
(790
|
)
|
INCOME TAX BENEFIT
|
|
308
|
|
|
|
|
NET INCOME (LOSS)
|
$
|
225
|
|
$
|
(790
|
)
|
|
|
|
|
|
|
|
EARNING (LOSS) PER SHARE:
|
|
|
|
|
|
|
Basic
|
$
|
0.002
|
|
$
|
(0.01
|
)
|
Diluted
|
$
|
0.001
|
|
$
|
(0.02
|
)
|
WEIGHTED AVERAGE NUMBER OF
SHARES USED
IN COMPUTATION OF BASIC AND DILUTED
EARNING (LOSS) PER SHARE:
|
|
|
|
|
|
|
Basic
|
|
103,127,025
|
|
|
55,735,394
|
|
Diluted
|
|
103,127,025
|
|
|
56,288,938
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME
(LOSS):
|
|
|
|
|
|
|
Net income (loss)
|
$
|
225
|
|
$
|
(790
|
)
|
Translation adjustments
|
|
504
|
|
|
(102
|
)
|
TOTAL COMPREHENSIVE INCOME (LOSS)
|
$
|
729
|
|
$
|
(892
|
)
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
ORGENESIS
INC.
CONDENSED
CONSOLIDATED
STATEMENTS
OF
CHANGES
IN
EQUITY
(CAPITAL
DEFICIENCY)
(U.S.
Dollars
in
thousands,
except share
amounts)
(Unaudited)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Additional
|
|
|
Receipts on Account
of
|
|
|
Accumulated Other
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Value
|
|
|
Paid-in Capital
|
|
|
Share to be Allotted
|
|
|
Comprehensive Loss
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 1,
2014
|
|
55,970,565
|
|
$
|
6
|
|
$
|
13,152
|
|
$
|
60
|
|
$
|
(18
|
)
|
$
|
(16,179
|
)
|
$
|
(2,979
|
)
|
Changes during the three months
ended February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation to
employees and directors
|
|
|
|
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
159
|
|
Stock-based
compensation to service providers
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
90
|
|
Comprehensive loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
(790
|
)
|
|
(892
|
)
|
Balance at February 28, 2015
|
|
55,970,565
|
|
$
|
6
|
|
$
|
13,401
|
|
$
|
60
|
|
$
|
(120
|
)
|
$
|
(16,969
|
)
|
$
|
(3,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 1, 2015
|
|
55,835,950
|
|
$
|
6
|
|
$
|
14,229
|
|
$
|
1,251
|
|
$
|
(1,286
|
)
|
$
|
(20,640
|
)
|
$
|
(6,440
|
)
|
Changes during the three
months
ended February 29, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation to employees and directors
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
120
|
|
Stock-based compensation to
service providers
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Issuances of
shares from investments
and
conversion of convertible loans
|
|
10,502,132
|
|
|
1
|
|
|
1,948
|
|
|
(1,251
|
)
|
|
|
|
|
|
|
|
698
|
|
Reclassification
of redeemable common stock
|
|
42,401,724
|
|
|
4
|
|
|
21,454
|
|
|
|
|
|
|
|
|
|
|
|
21,458
|
|
Receipts on
account of shares to be allotted
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
67
|
|
Comprehensive income for the
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504
|
|
|
225
|
|
|
729
|
|
Balance at February 29, 2016
|
|
108,739,806
|
|
$
|
11
|
|
$
|
37,801
|
|
$
|
67
|
|
$
|
(782
|
)
|
$
|
(20,415
|
)
|
$
|
16,682
|
|
The
accompanying
notes are an
integral
part of these
condensed
consolidated
financial
statements.
5
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(U.S. Dollars in thousands)
(Unaudited)
|
|
Three months ended
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
225
|
|
$
|
(790
|
)
|
Adjustments required to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
Stock-based
compensation
|
|
170
|
|
|
249
|
|
Depreciation and amortization expenses
|
|
641
|
|
|
1
|
|
Change in fair
value of warrants and embedded derivatives
|
|
(1,803
|
)
|
|
(183
|
)
|
Change in fair value of convertible bonds
|
|
(157
|
)
|
|
|
|
Interest
expense accrued on loans and convertible loans
|
|
8
|
|
|
116
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
Increase in
accounts receivable
|
|
(489
|
)
|
|
|
|
Increase in inventory
|
|
(109
|
)
|
|
|
|
Increase in
other assets
|
|
(2
|
)
|
|
|
|
Decrease (increase) in prepaid expenses and other accounts
receivable
|
|
164
|
|
|
(610
|
)
|
Decrease in
accounts payable
|
|
(692
|
)
|
|
(515
|
)
|
Increase (decrease) in accrued expenses
|
|
172
|
|
|
(128
|
)
|
Increase
(decrease) in employee and related payables
|
|
286
|
|
|
(77
|
)
|
Increase in deferred income
|
|
165
|
|
|
|
|
Decrease in
advance payments and receivables on account of grant
|
|
388
|
|
|
1,296
|
|
Decrease in deferred taxes
|
|
(308
|
)
|
|
|
|
Net
cash used in operating activities
|
|
(1,341
|
)
|
|
(641
|
)
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
Purchase of property and
equipment
|
|
(354
|
)
|
|
(6
|
)
|
Restricted cash
|
|
|
|
|
(5
|
)
|
Net
cash used in investing activities
|
|
(354
|
)
|
|
(11
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
Short-term line of credit
|
|
|
|
|
(14
|
)
|
Proceeds
from issuance of warrants into shares and warrants
|
|
225
|
|
|
|
|
Repayment of short and
long-term debt
|
|
(1,733
|
)
|
|
|
|
Net
cash used in financing activities
|
|
(1,508
|
)
|
|
(14
|
)
|
NET CHANGE IN CASH AND CASH
EQUIVALENTS
|
|
(3,203
|
)
|
|
(666
|
)
|
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENTS
|
|
(32)
|
|
|
(128
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD
|
|
4,168
|
|
|
1,314
|
|
CASH AND CASH EQUIVALENTS
AT END OF PERIOD
|
$
|
933
|
|
$
|
520
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH
FINANCING ACTIVITY
|
|
|
|
|
|
|
Conversion of loans (including accrued
interest) to common stock and warrants
|
$
|
973
|
|
|
|
|
Reclassification of redeemable common
stock to equity
|
$
|
21,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION ON INTEREST PAID
IN CASH
|
$
|
136
|
|
|
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
ORGENESIS INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
For the Three Months Ended February 29, 2016 and
February 28, 2015
NOTE 1 - GENERAL AND BASIS OF PRESENTATION
Orgenesis Inc. (the Company) was incorporated in the state of
Nevada on June 5, 2008. The Company is developing a technology that demonstrates
the capacity to induce a shift in the developmental fate of cells from the liver
and differentiating (converting) them into pancreatic beta cell-like insulin
producing cells for patients with Type 1 Diabetes.
As discussed in Note 3, on March 2, 2015, the Company completed
the acquisition of MaSTherCell SA and Cell Therapy Holding SA (collectively
MaSTherCell). MaSTherCell is a Contract Development and Manufacturing
Organization (CDMO) specializing in cell therapy development for advanced
medicinal products. Cell therapy is the prevention or treatment of human disease
by the administration of cells that have been selected, multiplied and
pharmacologically treated or altered outside the body (ex vivo). MaSTherCell's
CDMO activity is operated as a separate reporting segment (See Note 4).
As used in this report and unless otherwise indicated, the term
Company refers to Orgenesis Inc. and its wholly-owned subsidiaries
(Subsidiaries). Unless otherwise specified, all amounts are expressed in
United States dollars.
Basis of Presentation
These unaudited condensed consolidated financial statements of
the Company and its subsidiaries have been prepared in accordance with U.S.
GAAP, pursuant to the rules and regulations of the United States Securities and
Exchange Commission (SEC) for interim financial statements. Accordingly, they
do not contain all information and notes required by U.S. GAAP for annual
financial statements. In the opinion of management, the unaudited condensed
consolidated interim financial statements reflect all adjustments, which include
normal recurring adjustments, necessary for a fair statement of the Companys
consolidated financial position as of February 29, 2016, and the consolidated
statements of comprehensive income (loss) for the three months ended February
29, 2016 and February 28, 2015, and the changes in equity (capital deficiency)
and cash flows for the three-months periods ended February 29, 2016 and February
28, 2015. The results for the three months ended February 29, 2016 are not
necessarily indicative of the results to be expected for the year ending
November 30, 2016. These unaudited interim condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended November 30, 2015.
Going Concern
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has net losses for the period from inception (June 5, 2008) through February 29,
2016 of $20.4 million, as well as negative cash flows from operating activities.
Presently, the Company does not have sufficient cash resources to meet its plans
in the twelve months following February 29, 2016. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management is in the process of evaluating various financing alternatives for
operations, as the Company will need to finance future research and development
activities and general and administrative expenses through fund raising in the
public or private equity markets.
The consolidated financial statements do not include any
adjustments that may be necessary should the Company be unable to continue as a
going concern. The Companys continuation as a going concern is dependent on its
ability to obtain additional financing as may be required and ultimately to
attain profitability. If the Company raises additional funds through the
issuance of equity, the percentage ownership of current shareholders could be
reduced, and such securities might have rights, preferences or privileges senior
to its common stock. Additional financing may not be available upon acceptable
terms, or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to take advantage of prospective
business endeavors or opportunities, which could significantly and materially
restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable to
obtain the necessary capital, the Company may have to cease operations.
7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Newly Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "Revenue from
Contracts with Customers." ASU 2014-09 will supersede most current revenue
recognition guidance, including industry-specific guidance. The underlying
principle is that an entity will recognize revenue upon the transfer of goods or
services to customers in an amount that the entity expects to be entitled to in
exchange for those goods or services. The guidance provides a five-step analysis
of transactions to determine when and how revenue is recognized. Other major
provisions include capitalization of certain contract costs, consideration of
the time value of money in the transaction price, and allowing estimates of
variable consideration to be recognized before contingencies are resolved in
certain circumstances. The guidance also requires enhanced disclosures regarding
the nature, amount, timing and uncertainty of revenue and cash flows arising
from an entitys contracts with customers. The guidance is effective for the
interim and annual periods beginning on or after December 15, 2016 (early
adoption is not permitted). The guidance permits the use of either a
retrospective or cumulative effect transition method. On July 9, 2015, the FASB
decided to delay the effective date of the new revenue standard by one year. The
FASB also agreed to allow entities to choose to adopt the standard as of the
original effective date. The Company is currently evaluating the impact of this
standard.
In August 2014, the FASB issued ASU No. 2014-15, Presentation
of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of
Uncertainties about an Entitys Ability to Continue as a Going Concern.
Continuation of a reporting entity as a going concern is presumed as the basis
for preparing financial statements unless and until the entitys liquidation
becomes imminent. Preparation of financial statements under this presumption is
commonly referred to as the going concern basis of accounting. Prior to this,
there was no guidance under U.S. GAAP about managements responsibility to
evaluate whether there is substantial doubt about an entitys ability to
continue as a going concern or to provide related footnote disclosures. The
amendments in this update provide that guidance. In doing so, the amendments
reduce diversity in the timing and content of footnote disclosures. The
amendments require management to assess an entitys ability to continue as a
going concern by incorporating and expanding upon certain principles that are
currently in U.S. auditing standards. Specifically, the amendments (1) provide a
definition of the term substantial doubt, (2) require an evaluation every
reporting period including interim periods, (3) provide principles for
considering the mitigating effect of managements plans, (4) require certain
disclosures when substantial doubt is alleviated as a result of consideration of
managements plans, (5) require an express statement and other disclosures when
substantial doubt is not alleviated, and (6) require an assessment for a period
of one year after the date that the financial statements are issued (or
available to be issued). For the period ended November 30, 2015, management
evaluated the Companys ability to continue as a going concern and concluded
that substantial doubt has not been alleviated about the Companys ability to
continue as a going concern. While the Company continues to explore further
significant sources of financing, managements assessment was based on the
uncertainty related to the availability, amount and nature of such financing
over the next twelve months.
In January 2016, the FASB issued ASU 2016-01,
Financial
Instruments Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities
. The pronouncement requires equity investments (except
those accounted for under the equity method of accounting, or those that result
in consolidation of the investee) to be measured at fair value with changes in
fair value recognized in net income. ASU 2016-01 requires public business
entities to use the exit price notion when measuring the fair value of financial
instruments for disclosure purposes, requires separate presentation of financial
assets and financial liabilities by measurement category and form of financial
asset, and eliminates the requirement for public business entities to disclose
the method(s) and significant assumptions used to estimate the fair value that
is required to be disclosed for financial instruments measured at amortized
cost. These changes become effective for the Company's fiscal year beginning
January 1, 2018. The expected adoption method of ASU 2016-01 is being evaluated
by the Company and the adoption is not expected to have a significant impact on
the Companys consolidated financial position or results of operations.
8
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842), which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance
sheets, and leaves lessor accounting largely unchanged. The amendments in this
ASU are effective for fiscal years beginning after December 15, 2018 and interim
periods within those fiscal years. Early application is permitted for all
entities. ASU 2016-02 requires a modified retrospective approach for all leases
existing at, or entered into after, the date of initial application, with an
option to elect to use certain transition relief. The Company is currently
evaluating the impact of this new standard on its consolidated financial
statements.
In March 2016, the FASB issued ASU 2016-06, Contingent Put and
Call Options in Debt Instruments
(Topic 815), which requires that
embedded derivatives be separated from the host contract and accounted for
separately as derivatives if certain criteria are met. One of those criteria is
that the economic characteristics and risks of the embedded derivatives are not
clearly and closely related to the economic characteristics and risks of the
host contract (the clearly and closely related criterion). The amendments in
this Update clarify what steps are required when assessing whether the economic
characteristics and risks of call (put) options are clearly and closely related
to the economic characteristics and risks of their debt hosts, which is one of
the criteria for bifurcating an embedded derivative. Consequently, when a call
(put) option is contingently exercisable, an entity does not have to assess
whether the event that triggers the ability to exercise a call (put) option is
related to interest rates or credit risks. The amendments are an improvement to
GAAP because they eliminate diversity in practice in assessing embedded
contingent call (put) options in debt instruments. The amendments in this ASU
are effective for fiscal years beginning after December 15, 2016, and interim
periods within those fiscal years. Early adoption is permitted for all entities.
The Company is currently evaluating the impact of this new standard on its
consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to
Employee Share-Based Payment Accounting, as part of its Simplification
Initiative. The areas for simplification in this Update involve several aspects
of the accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. Some of the areas for
simplification apply only to nonpublic entities. The amendments in this ASU are
effective for fiscal years beginning after December 15, 2016, and interim
periods within those fiscal years. Early application is permitted for all
entities. The Company is currently evaluating the impact of this new standard on
its consolidated financial statements.
NOTE 3 ACQUISITION OF MASTHERCELL
Description of the Transaction
The Company entered into a share exchange agreement (the "Share
Exchange Agreement") dated March 2, 2015 with MaSTherCell SA, Cell Therapy
Holding SA (collectively MaSTherCell). According to the Share Exchange
Agreement, in exchange for all of the issued and outstanding shares of
MaSTherCell, the Company issued to the shareholders of MaSTherCell an aggregate
of 42,401,724 shares (the Consideration Shares) of common stock at a price of
$0.58 per share for an aggregate price of $24,593 thousand). Out of the
Consideration Shares, 8,173,483 shares will be allocated to the bondholders of
MaSTherCell in case of conversion.
As part of the agreement the parties agreed on certain post
closing conditions. In the event that the Company did not achieve those
conditions within eight (8) months of the closing date, MaSTherCell had an
option to unwind the transaction. (the Unwind Option) by delivering to the
Company all of the Consideration Shares plus any amount that the Company has
advanced or invested in MaSTherCell.
On November 12, 2015, the Company and MaSTherCell and each of
the shareholders of MaSTherCell (the MaSTherCell Shareholders), entered into
an amendment (Amendment No. 2) to the Share Exchange Agreement. Under
Amendment No. 2, the MaSTherCell Shareholders option to unwind the transaction
was extended to November 30, 2015, furthermore the Company agreed to remit to
MaSTherCell, by way of an equity investment, the sum of EUR 3.8 million by
November 30, 2015 (the Initial Investment), to be followed by a subsequent
equity investment by December 31, 2015 in MaSTherCell of EUR 1.2 million. The
extended right of the MaSTherCell Shareholders to unwind the transaction could
have been exercised by them only if the Company had not achieved the Post
Closing Financing and/or completed the Initial Investment (as defined) by
November 30, 2015.
9
On December 10, 2015, the Company entered into definitive
agreements with accredited investors relating to a private placement for
aggregate proceeds to the Company of $4,278 thousand. From the proceeds of the
Private Placement, on December 10, 2015 the Company remitted to MaSTherCell the
Initial Investment of € 3.8 million or $4,103 thousand (out of the original
obligation for investment of €5 million), in compliance with its obligations as
required under the Share Exchange Agreement. As a result, the Unwind Option was
canceled and all the shares that were issued, have been reclassed from
redeemable common stock into equity.
NOTE 4 - SEGMENT INFORMATION
The Chief Executive Officer ("CEO") is the Companys chief
operating decision-maker ("CODM"). Following the acquisition of MaSTherCell,
management has determined that there are two operating segments, based on the
Company's organizational structure, its business activities and information
reviewed by the CODM for the purposes of allocating resources and assessing
performance.
CDMO
The CDMO activity is operated by MaSTherCell, which specializes in cell therapy
development for advanced medicinal products. MaSTherCell is providing two types
of services to its customers: (i) process and assay development services and
(ii) GMP contract manufacturing services. The CDMO segment includes only the
results of MaSTherCell.
CTB
The Cellular Therapy Business (CTB) activity is based on the
Company's technology that demonstrates the capacity to induce a shift in the
developmental fate of cells from the liver and differentiating (converting) them
into pancreatic beta cell-like insulin producing cells for patients with Type
1 Diabetes. This segment is comprised of all entities aside from MaSTherCell.
The Company assesses the performance based on a measure of
"Adjusted EBIT" (earnings before financial expenses and tax, and excluding
share-based compensation expenses and non-recurring income or expenses). The
measure of assets has not been disclosed for each segment.
Prior to the acquisition of MaSTherCell, the Company operated
as one reporting segment. For this reason, the Company does not disclose
comparative data for the three months ended February 28, 2015.
Segment data for the three months ended February 29, 2016 is as
follows:
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
CTB
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Net revenues from external
customers
|
$
|
1,571
|
|
$
|
|
|
$
|
(51
|
)
|
$
|
1,520
|
|
Cost of revenues
|
|
(1,288
|
)
|
|
|
|
|
119
|
|
|
(1,169
|
)
|
Research and development
expenses, net
|
|
|
|
|
(298
|
)
|
|
(68
|
)
|
|
(366
|
)
|
Operating expenses
|
|
(607
|
)
|
|
(422
|
)
|
|
|
|
|
(1,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
(640
|
)
|
|
(1
|
)
|
|
|
|
|
(641
|
)
|
Segment Performance
|
$
|
(964
|
)
|
$
|
(721
|
)
|
|
|
|
|
(1,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
(170
|
)
|
|
(170
|
)
|
Financial income, net
|
|
|
|
|
|
|
|
1,772
|
|
|
1,772
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
|
(83
|
)
|
10
Geographic, Product and Customer Information
Substantially all of the Company's revenues and long lived
assets are located in Belgium.
Net revenues from single customers from the CDMO segment that
exceed 10% of total net revenues are:
|
|
|
Three months
|
|
|
|
|
ended
|
|
|
|
|
February 29,
|
|
|
|
|
2016
|
|
|
|
|
(in thousands)
|
|
|
Customer A
|
$
|
764
|
|
|
Customer B
|
$
|
562
|
|
NOTE 5 CONVERTIBLE LOAN AGREEMENTS
During the year ended November 30, 2015, the Company entered
into five convertible loan agreements with new investors for a total amount of
$950 thousand (the 2015 Convertible Loans), interest is calculated at 6%
annually and was payable, along with the principal on or before the maturity
date.
On December 23, 2015, the holders of all the 2015 Convertible
Loans and the Company agreed to convert the 2015 Convertible Loans and accrued
interest into units of the Companys common stock, each unit comprising one
share of the Companys common stock and one three-year warrant to purchase an
additional share of the Companys common stock at an exercise price of $0.52.
Upon conversion of the 2015 Convertible Loans, the Company issued an aggregate
of 1,870,638 shares of Common stock and three year warrants to purchase up to an
additional 1,870,638 shares. Furthermore, in the event the Company issues any
common shares or securities convertible into common shares in a private
placement for cash at a price less than $0.52 (the New Issuance Price) before
December 23, 2016, the Company will issue, for no additional consideration,
additional common shares to subscribers, according to the mechanism defined in
the agreements. This provision does not apply to issuance of shares under
options, issuance of shares under existing rights to acquire shares, nor
issuance of shares for non-cash consideration.
The Company allocated the principal amount of the convertible
loans and the accrued interest thereon based on their fair value.
The table below presents the fair value of the instruments
issued as of the conversion date and the allocation of the proceeds (for the
fair value as of February 29, 2016, see Note 9):
|
|
|
Total Fair
|
|
|
|
|
Value
|
|
|
|
|
(in thousands)
|
|
|
Warrants component
|
$
|
323
|
|
|
Price protection derivative component
|
|
34
|
|
|
Shares component
|
|
616
|
|
|
Total
|
$
|
973
|
|
NOTE 6 COMMITMENTS
Collaboration Agreements
On March 14, 2016, the Israel subsidiary, entered into a
collaboration agreement with CureCell Co., Ltd. (CureCell), initially for the
purpose of applying for a grant from the Korea Israel Industrial R&D
Foundation ("Koril-RDF") for pre-clinical and clinical activities related to the
commercialization of Orgenesis Ltd.s AIP cell therapy product in Korea ("Koril
Grant"). Subject to receiving the Koril Grant, the Parties shall carry out at
their own expense their respective commitments under the work plan
approved by Koril-RDF and any additional work plan to be agreed between the
Israeli Subsidiary and CureCell. The Israeli Subsidiary will own sole rights to
any intellectual property developed from the collaboration which is derived
under the Israeli Subsidiarys AIP cell therapy product, information licensed
from THM. Subject to obtaining the requisite approval needed to commence
commercialization in Korea, the Israel subsidiary has agreed to grant to
CureCell, or a fully owned subsidiary thereof, under a separate sub-license
agreement an exclusive sub-license to the intellectual property underlying the
Companys API product solely for commercialization of the Israel subsidiary
products in Korea. As part of any such license CureCell has agreed to pay annual
license fees, ongoing royalties based on net sales generated by CureCell and its
sublicensees, milestone payments and sublicense fees. Under the agreement,
CureCell is entitled to share in the net profits derived by the Israeli
Subsidiary from world
-
wide sales (except for sales in Korea) of any
product developed as a result of the collaboration with CureCell. Additionally,
CureCell was given the first right to obtain exclusive commercialization rights
in Japan of the AIP product, subject to CureCell procuring all of the regulatory
approvals required for commercialization in Japan.
11
On March 14, 2016, the Company and CureCell Co., Ltd.
(CureCell) of Korea entered into a Joint Venture Agreement (the JVA)
pursuant to which the parties will collaborate in the contract development and
manufacturing of cell therapy products in Korea. The parties intend to pursue
the joint venture through a newly established Korean company (the JV Company)
which the Company by itself, or together with a designee, will hold a 50%
participating interest therein, with the remaining 50% participating interest
being held by CureCell.
Under the JVA, CureCell is to procure, at its sole expense, a
GMP facility and appropriate staff in Korea for the manufacture of the cell
therapy products. The Company will share with CureCell the Companys know-how in
the field of cell therapy manufactuing, which know-how will not include the
intellectual property included in the license from the Tel Hashomer Hospital in
Israel to the Israeli subsidiary. In addition, each party shall be required to
perform its respective obligations according to a detailed work plan to be
agreed upon by CureCell and Company within no later than 30 days following the
execution of the JVA. Under the JVA, the Company and CureCell each undertook to
remit, within two years of the execution of the JVA, $2 million to the JV
Company, of which $1 million is to be in cash and the balance in an in-kind
investment, the scope and valuation of which shall be preapproved in writing by
CureCell and the Company. The Companys funding will be made by way of a
convertible loan to the JV Company or the joint venture (if the JV Company is
not established). The JVA provides that, under certain specified conditions, the
Company can require CureCell to sell to the Company its participating (including
equity) interest in the JV Company in consideration for the issuance of the
Companys common stock based on the then valuation of the JV Company.
NOTE 7 EQUITY
The Companys common shares are
traded on the OTC Market Groups OTCQB tier under the symbol ORGS.
During the first quarter of 2016,
the Company entered into definitive agreements with accredited investors
relating to a private placement (the Private Placement) of (i) 432,693 shares
of the Companys common stock and (ii) three year warrants to purchase up to an
additional 432,693 shares of the Companys Common Stock at a per share exercise
price of $0.52. The purchased securities were issued pursuant to subscription
agreements between the Company and the purchasers for aggregate proceeds to the
Company of $225 thousand. Furthermore, in the event the Company issues any
common shares or securities convertible into common shares in a private
placement for cash at a price less than $0.52 (the New Issuance Price) within
a year from the issuance date, the Company will issue, for no additional
consideration, additional common shares to subscribers in the $0.52 per share
which total each subscribers subscription proceeds divided by the New Issuance
Price, minus the number of shares already issued to such subscriber. This
provision does not apply to issuance of shares under options, issuance of shares
under existing rights to acquire shares, nor issuance of shares for non-cash
consideration (See also Note 9).
12
The Company allocated the
proceeds from the private placement based on the fair value of the warrants and
the price protection derivative components. The residual amount was allocated to
the shares.
The table below presents the fair
value of the instruments issued as of the closing dates and the allocation of
the proceeds (for the fair value as of February 29, 2016, see Note 9):
|
|
|
Total Fair
|
|
|
|
|
Value
|
|
|
|
|
(in thousands)
|
|
|
Warrants component
|
$
|
67
|
|
|
Price protection derivative component
|
|
9
|
|
|
Shares component
|
|
149
|
|
|
Total
|
$
|
225
|
|
NOTE 8 EARNING ( LOSS) PER SHARE
The following table sets forth the calculation of basic and
diluted earning (loss) per share for the periods indicated:
|
|
|
Three Months Ended
|
|
|
|
|
February 29,
|
|
|
February 28,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands,
|
|
|
|
|
except per share data)
|
|
|
Basic:
|
|
|
|
|
|
|
|
Income (loss) for the period
|
$
|
225
|
|
$
|
(790
|
)
|
|
Weighted
average number of common shares outstanding
|
|
103,127,025
|
|
|
55,735,394
|
|
|
Earning (loss) per common share
|
$
|
0.002
|
|
$
|
(0.01
|
)
|
|
Diluted
:
|
|
|
|
|
|
|
|
Income (loss) for the period
|
$
|
225
|
|
|
(790
|
)
|
|
Changes in fair value of
embedded
derivative and interest expense on convertible bonds
|
|
(104
|
)
|
|
|
|
|
Change in fair value of warrants
|
|
|
|
|
153
|
|
|
Income (loss) for the period
|
$
|
121
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares
used in the computation of basic loss per share
|
|
103,127,025
|
|
|
55,735,394
|
|
|
Number of dilutive shares related to
warrants
|
|
|
|
|
553,543
|
|
|
Weighted average number of
common shares outstanding
|
|
103,127,025
|
|
|
56,288,937
|
|
|
|
|
|
|
|
|
|
|
Earning (loss) per
common share
|
$
|
0.001
|
|
$
|
(0.02
|
)
|
Diluted earning per share does not include 12,899,314 shares
underlying outstanding options, 17,933,512 shares issuable upon exercise of
warrants and 1,100,000 shares upon conversion of convertible notes for the three
months ended February 29, 2016, because the effect of their inclusion in the
computation would be anti-dilutive.
Diluted loss per share does not include 15,267,559 shares
underlying outstanding options, 350,000 shares due to stock-based compensation
to service providers, 2,682,256 shares issuable upon exercise of warrants and
701,796 shares upon conversion of loans for the three months ended February 28,
2015, because the effect of their inclusion in the computation would be
anti-dilutive.
13
NOTE 9 - FAIR VALUE PRESENTATION
The Company measures fair value and discloses fair value
measurements for financial assets and liabilities. Fair value is based on the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The
accounting standard establishes a fair value hierarchy that prioritizes
observable and unobservable inputs used to measure fair value into three broad
levels, which are described below:
|
Level 1: Quoted prices (unadjusted) in active
markets that are accessible at the measurement date for assets or
liabilities. The fair value hierarchy gives the highest priority to Level
1 inputs.
|
|
Level 2: Observable inputs that are based on
inputs not quoted on active markets, but corroborated by market data.
|
|
Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy gives the
lowest priority to Level 3 inputs.
|
In determining fair value, the Company utilizes valuation
techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs, to the extent possible, and considers credit risk in its
assessment of fair value.
As of February 29, 2016 and November 30, 2015 the Companys
liabilities that are measured at fair value and classified as level 3 fair value
are as follows (in thousands):
|
|
|
February 29,
|
|
|
November 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Level 3
|
|
|
Level 3
|
|
|
Warrants (1)
|
$
|
1,450
|
|
$
|
1,382
|
|
|
Price protection derivative (1)
|
|
197
|
|
|
1,533
|
|
|
Embedded derivatives*(1)
|
|
177
|
|
|
289
|
|
|
Convertible bonds (2)
|
$
|
1,787
|
|
$
|
1,888
|
|
*
|
The embedded derivative is presented in the
Company's balance sheets on a combined basis with the related host
contract (the convertible loans).
|
(1) The
fair value of the warrants, price protection derivatives and embedded
derivatives is determined by using a Monte Carlo Simulation Model. This model,
in contrast to the closed form model, such as the Black-Scholes Model, enables
the Company to take into consideration the conversion price changes over the
conversion period of the loan, and therefore is more appropriate in this
case.
(2) The
fair value of the convertible bonds described in Note 7 of the Annual Report and
is determined by using a binomial model for the valuation of the embedded
derivative and the fair value of the bond was calculated based on the effective
rate on the valuation date (6%). The binomial model used the forecast of the
Company share price during the convertible bond's contractual term. Since the
convertible bond is in Euro and the model is in USD, the Company has used the
Euro/USD forward rates for each period. In order to solve for the embedded
derivative fair value, the calculation was performed as follows:
|
|
Stage A - The model calculates a number of potential
future share prices of the Company based on the volatility and risk-free
interest rate assumptions.
|
|
|
Stage B - the embedded derivative value is calculated
"backwards" in a way that takes into account the maximum value between
holding the bonds until maturity or converting the bonds.
|
The following table presents the assumptions that were used for
the models as of February 29, 2016:
14
|
|
|
Price
Protection
|
|
|
Embedded
|
|
|
|
|
Derivative and
|
|
|
Derivative
|
|
|
|
|
Warrants
|
|
|
|
|
|
Fair value of shares of
common stock
|
$
|
0.33
|
|
$
|
0.33
|
|
|
Expected volatility
|
|
84%-89%
|
|
|
84%
|
|
|
Discount on lack of
marketability
|
|
13%
|
|
|
-
|
|
|
Risk free interest rate
|
|
0.38%-0.9%
|
|
|
0.38%
|
|
|
Expected term (years)
|
|
0.7-2.9
|
|
|
0.33
|
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
|
Expected capital raise dates
|
|
Q2 2016,Q3
|
|
|
|
|
|
|
|
2016, Q1 2018
|
|
|
|
|
*
The fair value of the convertible bonds is equal to
their principal amount and the aggregate accrued interest.
The following table presents the assumptions that were used for
the models as of November 30, 2015:
|
|
|
Price Protection
|
|
|
|
|
|
|
|
|
|
|
Derivative and
|
|
|
Embedded
|
|
|
Convertible
|
|
|
|
|
Warrants
|
|
|
Derivative
|
|
|
Bonds
|
|
|
Fair value of shares of
common stock
|
$
|
0.33
|
|
$
|
0.33
|
|
$
|
0.33
|
|
|
Expected volatility
|
|
87%-98%
|
|
|
87%
|
|
|
88%
|
|
|
Discount on lack of
marketability
|
|
14%
|
|
|
-
|
|
|
18%
|
|
|
Risk free interest rate
|
|
0.44%-1.24%
|
|
|
0.11%-0.49%
|
|
|
0.42%
|
|
|
Expected term (years)
|
|
0.9-3
|
|
|
0.08-0.87
|
|
|
0.8
|
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
Expected capital raise dates
|
|
Q2 2016-Q4
|
|
|
|
|
|
|
|
|
|
|
2016, Q4 2017
|
|
|
|
|
|
|
|
The table below sets forth a summary of the changes in the fair
value of the Companys financial liabilities classified as Level 3 for the three
months ended February 29, 2016:
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
|
|
|
|
Embedded
|
|
|
Convertible
|
|
|
Protection
|
|
|
|
Warrants
|
|
|
Derivatives
|
|
|
Bonds
|
|
|
Derivative
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance at beginning of the
period
|
$
|
1,382
|
|
$
|
289
|
|
$
|
1,888
|
|
$
|
1,533
|
|
Additions
|
|
390
|
|
|
|
|
|
|
|
|
43
|
|
Conversion
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
Changes in fair value during the period
|
|
(322
|
)
|
|
(102
|
)
|
|
(157
|
)
|
|
(1,379
|
)
|
Translation adjustments
|
|
|
|
|
|
|
|
56
|
|
|
|
|
Balance at end of the period
|
$
|
1,450
|
|
$
|
177
|
|
$
|
1,787
|
|
$
|
197
|
|
(*) There were no transfers to Level 3 during the three months
ended February 29, 2016.
The Company has performed a sensitivity analysis of the results
for the warrants fair value to changes in the assumptions for expected
volatility with the following parameters:
|
|
|
Base -10%
|
|
|
Base
|
|
|
Base+10%
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
As of February 29, 2016
|
$
|
1,268
|
|
$
|
1,450
|
|
$
|
1,618
|
|
The Company has performed a sensitivity analysis of the results
for the price protection derivative fair value to changes in the assumptions
expected volatility with the following parameters:
|
|
|
Base -10%
|
|
|
Base
|
|
|
Base+10%
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
As of February 29, 2016
|
$
|
192
|
|
$
|
196
|
|
$
|
199
|
|
15
The Company has performed a sensitivity analysis of the results
for the Embedded Derivative fair value to changes in the assumptions expected
volatility with the following parameters:
|
|
|
Base -10%
|
|
|
Base
|
|
|
Base+10%
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
As of February 29, 2016
|
$
|
168.1
|
|
$
|
177
|
|
$
|
185.8
|
|
The table below sets forth a summary of the changes in the fair
value of the Companys financial liabilities classified as Level 3 for the year
ended November 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
|
|
|
|
Embedded
|
|
|
Convertible
|
|
|
Protection
|
|
|
|
Warrants
|
|
|
Derivatives
|
|
|
Bonds
|
|
|
Derivative
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance at beginning of the
year
|
$
|
560
|
|
$
|
992
|
|
$
|
-
|
|
$
|
-
|
|
Additions
|
|
1,390
|
|
|
112
|
|
|
3,234
|
|
|
1,526
|
|
Changes in fair value related
to warrants expired*
|
|
(525
|
)
|
|
|
|
|
|
|
|
7
|
|
Changes in fair value during the period
|
|
(43
|
)
|
|
(814
|
)
|
|
(1,221
|
)
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
Balance at end of the year
|
$
|
1,382
|
|
$
|
289
|
|
$
|
1,888
|
|
$
|
1,533
|
|
(*) During the twelve months ended November 30, 2015, 1,826,718
warrants have expired. There were no transfers to Level 3 during the twelve
months ended November 30, 2015.
NOTE 10 - SUBSEQUENT EVENTS
a. On March 11, 2016, the Company
entered into definitive agreement with an investor relating to a private
placement of (i) 769,232 shares of the Companys common stock and (ii) three
year warrants to purchase up to an additional 769,232 shares of the Companys
common stock at a per share exercise price of $0.52. The purchased securities
will be issued pursuant to subscription agreements between the Company and the
purchaser for aggregate proceeds to the Company of $400
thousand.
Furthermore, in the event the Company issues any common shares or securities
convertible into common shares in a private placement for cash at a price less
than $0.52 (the New Issuance Price) through the first anniversary of the
issuance date, the Company will issue, for no additional consideration,
additional common shares to subscribers in the $0.52 per share which total each
subscribers subscription proceeds divided by the New Issuance Price, minus the
number of shares already issued to such subscriber. This provision does not
apply to issuance of shares under options, issuance of shares under existing
rights to acquire shares, nor issuance of shares for non-cash consideration.
b. In April 2016, the Belgian
Subsidiary received the formal approval from the Walloon Region, Belgium
(Service Public of Wallonia, DGO6) for a budgeted EUR 1,304 thousand support
program for the development of a potential cure for Type 1 Diabetes. The
financial support is awarded to the Belgium subsidiary as a recoverable advance
payment at 55% of budgeted costs, or for a total of EUR 717 thousand. The grant
will be paid to Orgenesis over a period of 1 year.
16
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains forward-looking statements. The following
discussion should be read in conjunction with the financial statements and
related notes contained in our Annual Report on Form 10-K, as amended and filed
with the Securities & Exchange Commission on March 30, 2016. Certain
statements made in this discussion are "forward-looking statements" within the
meaning of The Private Securities Litigation Reform Act of 1995. Forward-looking
statements are projections in respect of future events or financial performance.
In some cases, you can identify forward-looking statements by terminology such
as may, should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of these terms or other
comparable terminology. Forward-looking statements made in a quarterly report on
Form 10-Q may include statements about our:
|
ability to obtain sufficient capital or strategic
business arrangements to fund our operations and realize our business
plan;
|
|
ability to grow the business of MaSTherCell, which we
recently acquired, our Contract Development and Manufacturing Organization
(CDMO) business;
|
|
belief as to whether a meaningful and profitable global
market can be established for our CDMO business for cell therapy;
|
|
intention to develop to the clinical stage a new
technology to transdifferentiate liver cells into functional
insulin-producing cells, thus enabling normal glucose regulated insulin
secretion, via cell therapy;
|
|
belief that our treatment seems to be safer than other
options;
|
|
belief that one of our principal competitive advantages
is our cell trans-differentiation technology being developed by our
Israeli Subsidiary;
|
|
expectations regarding our Israeli Subsidiarys ability
to obtain and maintain intellectual property protection for our technology
and therapies;
|
|
ability to commercialize products in light of the
intellectual property rights of others;
|
|
ability to obtain funding for operations, including
funding necessary to prepare for clinical trials and to complete such
clinical trials;
|
|
future agreements with third parties in connection with
the commercialization of our technologies;
|
|
size and growth potential of the markets for our product
candidates, and our ability to serve those markets;
|
|
regulatory developments in the United States and foreign
countries;
|
|
ability to contract with third-party suppliers and
manufacturers and their ability to perform adequately;
|
|
plans to integrate and support our manufacturing
facilities in Belgium;
|
|
success as it is compared to competing therapies that are
or may become available;
|
|
ability to attract and retain key scientific or
management personnel and to expand our management team;
|
|
accuracy of estimates regarding expenses, future revenue,
capital requirements, profitability, and needs for additional financing;
|
|
belief that Diabetes Mellitus will be one of the most
challenging health problems in the 21st century and will have staggering
health, societal and economic impact;
|
|
need to raise additional funds on an immediate basis
which may not be available on acceptable terms or at all;
|
|
research facility in Israel and the surrounding Middle
East political situation which may materially adversely affect our Israeli
Subsidiarys operations and personnel;
|
|
relationship with Tel Hashomer - Medical Research,
Infrastructure and Services Ltd. (THM) and the risk that THM may cancel
the License Agreement;
|
|
expenditures not resulting in commercially successful
products; and
|
|
extensive industry regulation, and how that will continue
to have a significant impact on our business, especially our product
development, manufacturing and distribution capabilities.
|
These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including the risks in the
section entitled Risk Factors set forth in our Annual Report on Form 10-K, as
amended and filed with the Securities & Exchange Commission on March 30,
2016, any of which may cause our companys or our industrys actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements. These risks may cause the Companys or its
industrys actual results, levels of activity or performance to be materially
different from any future results, levels of activity or performance expressed
or implied by these forward looking statements.
17
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity or performance. Moreover, neither the company nor any other
person assumes responsibility for the accuracy and completeness of these
forward-looking statements. The company is under no duty to update any
forward-looking statements after the date of this report to conform these
statements to actual results.
As used in this quarterly report and unless otherwise
indicated, the terms we, us, "our", Orgenesis or the Company refer to
Orgenesis Inc. and its wholly-owned Subsidiaries, Orgenesis Ltd. (the Israeli
Subsidiary), Orgenesis SPRL (the Belgian Subsidiary), Orgenesis Maryland,
Inc. (the U.S. Subsidiary) and MaSTherCell SA (MaSTherCell), our
Belgian-based subsidiary. Unless otherwise specified, all dollar amounts are
expressed in United States dollars.
Corporate Overview
We are among the first of a new breed of regenerative therapy
companies with expertise and unique experience in cell therapy development and
manufacturing. We are building a fully-integrated biopharmaceutical company
focused not only on developing our trans-differentiation technologies for
diabetes and vertically integrating manufacturing that can optimize our
abilities to scale-up our technologies for clinical trials and eventual
commercialization, but also do the same for the technologies of other cell
therapy markets in such areas as cell-based cancer immunotherapies and
neurodegenerative diseases. This integrated approach supports our business
philosophy of bringing to market significant life-improving medical
treatments.
Our cell therapy technology derives from published work of
Prof. Sarah Ferber, our Chief Science Officer and a researcher at THM, a leading
medical hospital and research center in Israel, who established a proof of
concept that demonstrates the capacity to induce a shift in the developmental
fate of cells from the liver and transdifferentiating (converting) them into
pancreatic beta cell-like insulin-producing cells. Furthermore, those cells
were found to be resistant to autoimmune attack and to produce insulin in a
glucose-sensitive manner in relevant animal models. Our development activities
with respect to cell-derived and related therapies, which are conducted through
the Israeli Subsidiary, have, to date, been limited to laboratory and
preclinical testing. Our development plan calls for conducting additional
preclinical safety and efficacy studies with respect to diabetes and other
potential indications.
Our Belgian-based subsidiary, MaSTherCell, is a contract
development manufacturing organization, or CDMO, specialized in cell therapy
development for advanced medicinal products. In the last decade, cell therapy
medicinal products have gained significant importance, particularly in the
fields of ex-vivo gene therapy, immunotherapy and regenerative medicine. While
academic and industrial research has led scientific development in the sector,
industrialization and manufacturing expertise remains insufficient. MaSTherCell
plans to fill this need by providing two types of services to its customers: (i)
process and assay development services and (ii) Good Manufacturing Practices
(GMP) contract manufacturing services. These services offer a double advantage
to MaSTherCell's customers. First, customers can continue focusing their
financial and human resources on their product/therapy, while relying on a
trusted source for their process development/production. Second, it allows
customers to profit from MaSTherCell's expertise in cell therapy manufacturing
and all related aspects.
We intend to leverage the expertise and experience of
MaSTherCell, our subsidiary, in cell process development and manufacturing
capability, to build a fully integrated bio-pharmaceutical company in the cell
therapy development and manufacturing area.
We were incorporated in the state of Nevada on June 5, 2008,
under the name Business Outsourcing Services, Inc. Effective August 31, 2011, we
completed a merger with our subsidiary, Orgenesis Inc., a Nevada corporation
which was incorporated solely to effect a change in our name. As a result, we
changed our name from Business Outsourcing Services, Inc. to Orgenesis Inc. Our common
stock is currently listed on the OTC Market, QB tier, under the symbol ORGS.
18
Cell Therapy and Regenerative Medicine Field
Regenerative medicine is generally the process of replacing or
regenerating human cells, tissues or organs to restore normal function. Our
business model is focused on two of these areas. First, through our wholly-owned
CDMO subsidiary, MaSTherCell, we are afforded a unique and fundamental base
platform of experience and expertise with a multitude of cell types in
development. MaSTherCell is strategically positioning us in a way that allows us
to participate in the cell therapy field on multiple levels as the cell therapy
industry evolves. Our goal is to nurture our reputation as a premier service
provider in the regenerative medicine industry by continuing to leverage the
experience and expertise of MaSTherCell as a recognized leader of cell therapy
manufacturing and development. Second, on our clinical development side, through
our Israeli Subsidiary, our goal is to advance a unique product that combines
cell-based therapy and regenerative medicine, Autologous Insulin Producing
(AIP) cells, into clinical development. AIP cells utilize the technology of
cellular trans-differentiation to transform an autologous adult liver cell
into an adult, fully functional and physiologically glucose-responsive
pancreatic-like insulin producing cell. Treatment with AIP cells is expected to
provide Type 1 Diabetes patients with long-term insulin independence. Because
the AIP cells are autologous, this benefit should be achieved and maintained
without the need for concomitant immunosuppressive therapy.
All living complex organisms start as a single cell that
replicates, differentiates (matures) and perpetuates in an adult organism
throughout its lifetime. Cell therapy is the prevention or treatment of human
disease by the administration of cells that have been selected, multiplied and
pharmacologically treated or altered outside the body (ex vivo). To date, the
most common type of cell therapy has been the replacement of mature, functioning
cells through blood and platelet transfusions. Since the 1970s, first bone
marrow and then blood and umbilical cord-derived stem cells have been used to
restore bone marrow, as well as blood and immune system cells damaged by the
chemotherapy and radiation that are used to treat many cancers. These types of
cell therapies are standard practice world-wide and are typically reimbursed by
insurance.
Within the field of cell therapy, research and development
using stem cells to treat a host of diseases and conditions has greatly
expanded. Stem cells (in either embryonic or adult forms) are primitive and
undifferentiated cells that have the unique ability to transform into or
otherwise affect many different cells, such as white blood cells, nerve cells or
heart muscle cells. Our cell therapy development efforts do not use stem cells,
but rather are focused on the use of fully mature, adult cells; for our purposes
in the treatment of diabetes, our cells are derived from the liver or other
adult tissue and are transdifferentiated to become adult AIP cells.
There are two general classes of cell therapies: Patient
Specific Cell Therapies (PSCTs) and Off-the-Shelf Cell Therapies (OSCTs). In
PSCTs, cells collected from a person (donor) are transplanted into, or used to
develop a treatment for a patient (recipient) with or without modification. In
cases where the donor and the recipient are the same individual, these
procedures are referred to as autologous. In cases in which the donor and the
recipient are not the same individual, these procedures are referred to as
allogeneic. A notable form of autologous PSCT involves the use of autologous
cells to create vaccines directed against tumor cells in the body which has been
demonstrated to be effective and safe in clinical trials. Our treatment for
diabetes focuses on PSCTs using autologous cells. Autologous cells offer a low
likelihood of rejection by the patient and we believe the long-term benefits of
these PSCTs can best be achieved with an autologous product.
Various cell therapies are in clinical development for an array
of human diseases, including autoimmune, oncologic, neurologic and orthopedic
diseases, among other indications. Orgenesis, as well as other companies, are
developing cell therapies that are designed to address cancers, ischemic repair
and immune modulation. While no assurances can be given regarding future medical
developments, we believe that the field of cell therapy holds the promise to
better the human experience and minimize or ameliorate the pain and suffering
from many common diseases and/or from the process of aging.
Diabetes Mellitus (DM), or simply diabetes, is a metabolic
disorder usually caused by a combination of hereditary and environmental
factors, and results in abnormally high blood sugar levels (hyperglycemia).
Diabetes occurs as a result of impaired insulin production by the pancreatic
islet cells. The most common types of the disease are Type-1 Diabetes (T1D) and Type-2 Diabetes (T2D). In T1D, the onset of
the disease follows an autoimmune attack of β-cells that severely reduces β-cell
mass. T1D usually has an early onset and is sometimes also called juvenile
diabetes. In T2D, the pathogenesis involves insulin resistance, insulin
deficiency and enhanced gluconeogenesis, while late progression stages
eventually leads to β-cell failure and a significant reduction in β-cell
function and mass. T2D often occurs later in life and is sometimes called adult
onset diabetes. Both T1D and late-stage T2D result in marked hypoinsulinemia,
reduction in β-cell function and mass and lead to severe secondary
complications, such as myocardial infarcts, limb amputations, neuropathies and
nephropathies and even death. In both cases, patients become insulin-dependent,
requiring either multiple insulin injections per day or reliance on an insulin
pump.
19
We believe that diabetes will be one of the most challenging
health problems in the 21st century, and will have a staggering health,
societal, and economic impact. Diabetes is currently the fourth or fifth leading
cause of death in most developed countries. There also is substantial evidence
that it is an epidemic in many developing and newly industrialized nations.
Threats from Pancreas Islet Transplantation and Cell
Therapies
For some patients with severe and difficult to control diabetes
(hypoglycemic unawareness), islet transplants are considered. Pancreatic islets
are the cells in the pancreas that produce insulin. Physicians use enzymes to
isolate the islets from the pancreas of a deceased donor. Because the islets are
fragile, transplantation must occur soon after they are removed. Typically, a
patient receives at least 10,000 islet equivalents per kilogram of body
weight, extracted from pancreases obtained from different donors. Patients often
require two separate transplants to achieve insulin independence.
Transplants are often performed by an interventional
radiologist, who uses x-rays and ultrasound to guide placement of a catheter - a
small plastic tube - through the upper abdomen and into the portal vein of the
liver. The islets are then infused slowly through the catheter into the liver.
The patient receives a local anesthetic and a sedative. In some cases, a surgeon
may perform the transplant through a small incision, using general anesthesia.
Because the islets are obtained from cadavers that are
unrelated to the patient, the patient needs to be treated with drugs that
inhibit the immune response so that the patient doesnt reject the transplant.
In the early days of islet transplantation, the drugs were so powerful that they
actually were toxic to the islets; improvements in the procedure are widely used
and are now referred to as the Edmonton Protocol.
Studies and Reports
Since reporting their findings in the June 2000 issue of the
New England Journal of Medicine, researchers at the University of Alberta in
Edmonton, Canada, have continued to use and refine Edmonton Protocol to
transplant pancreatic islets into selected patients with T1D that is difficult
to control.
In 2005, the researchers published 5-year follow-up results for
65 patients who received transplants at their center and reported that about 10
percent of the patients remained free of the need for insulin injections at
5-year follow-up. Most recipients returned to using insulin because the
transplanted islets lost their ability to function over time, potentially due to
the immune suppression protocol, which prevents the immune rejection of the
implanted cells. The researchers noted, however, that many transplant recipients
were able to reduce their need for insulin, achieve better glucose stability,
and reduce problems with hypoglycemia, also called low blood sugar level.
In its 2006 annual report, the Collaborative Islet Transplant
Registry, which is funded by the National Institute of Diabetes and Digestive
and Kidney Diseases, presented data from 23 islet transplant programs on 225
patients who received islet transplants between 1999 and 2005. According to the
report, nearly two-thirds of recipients achieved insulin independence -
defined as being able to stop insulin injections for at least 14 days - during
the year following transplantation. However, other data from the report showed
that insulin independence is difficult to maintain over time. Six months after
their last infusion of islets, more than half of recipients were free of the
need for insulin injections, but at 2-year follow-up, the proportion dropped to
about one-third of recipients. The report described other benefits of islet
transplantation, including reduced need for insulin among recipients who still
needed insulin, improved blood glucose control, and greatly reduced risk of
episodes of severe hypoglycemia.
20
In a 2006 report of the Immune Tolerance Networks
international islet transplantation study, researchers emphasized the value of
transplantation in reversing a condition known as hypoglycemia unawareness.
People with hypoglycemia unawareness are vulnerable to dangerous episodes of
severe hypoglycemia because they are not able to recognize that their blood
glucose levels are too low. The study showed that even partial islet function
after transplant can eliminate hypoglycemia unawareness.
Pancreatic islet transplantation (cadaver donors) is an
allogeneic transplant, and, as in all allogeneic transplantations, there is a
risk for graft rejection and patients must receive lifelong immune suppressants.
Though this technology has shown good results clinically, there are several
setbacks, such as patients being sensitive to recurrent T1D autoimmune attacks
and a shortage in tissues available for islet cells transplantation.
Our Cell Therapy Business
We are developing and bringing to the clinical stage a
technology that is based on the published work of Prof. Sarah Ferber, our Chief
Science Officer and a researcher at THM, who established a proof of concept that
demonstrates the capacity to induce a shift in the developmental fate of cells
from the liver and differentiating (converting) them into pancreatic beta
cell-like insulin-producing cells. Furthermore, those cells were found to be
resistant to the autoimmune attack and to produce insulin in a glucose-sensitive
manner.
We intend to grow our cell therapy business by furthering this
technology to the clinical stage. We intend to devote significant resources to
process development and manufacturing in order to optimize the safety and
efficacy of our future product candidates, as well as our cost of goods and time
to market. Our goal is to carefully manage our fixed cost structure, maximize
optionality, and drive long-term cost of goods as low as possible. We believe
that operating our own manufacturing facility will provide the Company with
enhanced control of material supply for both clinical trials and the commercial
market, will enable the more rapid implementation of process changes, and will
allow for better long-term margins.
Contract Development and Manufacturing Business
Acquisition of MaSTherCell
We acquired MaSTherCell in November 2014 pursuant to a share
purchase agreement with MaSTherCells shareholders dated as of November 12,
2014, as subsequently amended (the SEA). Under the SEA, as amended in November
2015, we agreed to remit to MaSTherCell, by way of an equity investment, EUR 3.8
million by November 30, 2015 (the Initial Investment), to be followed by a
subsequent equity investment by December 31, 2015 in MaSTherCell of EUR 1.2
million. By agreement with the MaSTherCell shareholders, we remitted in December
2015, the sum of EUR 3.8 million or $4,103,288, in compliance with our
obligations as required under the SEA. The right of the former MaSTherCell
shareholders to unwind the merger with our Company terminated upon the such
investment. Additionally, in connection with the equity investment, on December
10, 2015 we agreed to invest an additional EUR 2.2 million in MaSTherCell equity
in addition to the Initial Investment, which additional amount becomes due upon
the request of the MaSTherCell board of directors, of whom Company
directors/officers currently represent a majority.
In connection with the above agreements, we granted to certain
former MaSTherCell shareholders, who currently hold approximately 12% of the
Companys outstanding common stock, the first right to negotiate the terms of
the sale of MaSTherCell, should the Company decide at a future date to sell its
shares in MaSTherCell or otherwise sell equity interests in MaSTherCell (the
Sale Event), on an exclusive basis, for the first thirty days following our
delivery to such shareholders of notice of such intention. We agreed to accept
the offer of such shareholders resulting from the Sale Event negotiations,
unless our board of directors determines that a materially superior offer may be
available to us if the Sale Event were open to other parties, in which case we
are entitled to negotiate the Sale Event with unrelated third parties.
21
Our Plans for MaSTherCell
We are conducting our CDMO business through MaSTherCell.
Subject to raising additional working capital, we intend to devote significant
resources to process development and manufacturing in order to optimize the
safety and efficacy of our future product candidates for our customers, as well
as our cost of goods and time to market. Our goal is to carefully manage our
fixed cost structure, maximize optionality, and drive long-term cost of goods as
low as possible. We believe that operating our own manufacturing facility
provides us with enhanced control of material supply for both clinical trials
and the commercial market, will enable the more rapid implementation of process
changes, and will allow for better long-term margins.
MaSTherCell's target customers are primarily cell therapy
companies that are in pre- or early-stage clinical trials. This stems from the
finding that these companies' processes have to be set up right from start in
order for them to obtain approved products that have the simplest possible
process and with the lowest possible cost of goods sold (COGS). Therefore,
MaSTherCell's strategy is to build long term relationships with its customers in
order to help them bring highly potent cell therapy products faster to the
market and in cost-effective ways.
To provide these services MaSTherCell relies on a team of
dedicated experts both from academic and industry backgrounds. It operates
through state-of-the-art facilities located just 40 minutes from Brussels, which
have received the final cGMP manufacturing authorization from the Belgian Drug
Agency (AFMPS) in September 2013.
Recent Corporate Developments
Since the commencement of the year through February 29, 2016,
we have experienced the following corporate developments:
Collaboration Agreement with Grand China Energy Group
Limited
On February 18, 2016, the Company, through its Israeli
Subsidiary, entered into a Collaboration Agreement (the "Collaboration
Agreement) with Grand China Energy Group Limited with headquarters in Beijing,
China ("Grand China") to collaborate in carrying out clinical trials and
marketing the Company's autologous insulin producing cell therapy product
("API") in the Peoples Republic of China, Hong Kong and Macau (the "Territory"),
based on achieving certain pre-market development milestones that include Grand
China obtaining the requisite regulatory approvals for commercialization of the
API, including performing all clinical and other testing required for market
authorization in each jurisdiction in the Territory. Upon achieving the
pre-market development milestones by Grand China, the parties will collaborate
on marketing the products in the Territory. Grand China will bear all costs
associated with the pre-marketing development efforts in the Territory, which is
expected to last for approximately four years.
Subject to the completion of the pre-marketing development
milestones, the Israeli Subsidiary has agreed to grant to Grand China, or a
fully owned subsidiary thereof, under a separate sub-license agreement (the
"Sub-License Agreement"), an exclusive sub-license to the intellectual property
underlying the API solely for commercialization of the Company's products in
each such jurisdiction in the Territory where all of the pre-marketing
development required to commercialize the API product have been successfully
completed by Grand China. Grand China has agreed to pay annual license fees,
ongoing royalties based on net sales generated by Grand China and its
sublicensees, milestone payments and sublicense fees. It is anticipated that the
Sub-License Agreement will also contain, among other things, minimum sales
requirements as well as other provisions common in licensing agreements for
international biotech licensing agreements.
The Collaboration Agreement is terminable by our Israeli
Subsidiary upon certain conditions, including, but not limited to, if the
clinical trials necessary to obtain the pre-marketing approval are not commenced
with 12 months of the date of the execution of the agreement or if all approvals
necessary for the commencement of marketing in the Territory are not obtained
within four years. The Collaboration Agreement is also terminable under certain
limited conditions relating to a party's insolvency or bankruptcy related event
or breach of a material term of the agreement and force majeure events.
22
Joint Venture Agreement with CureCell Co., Ltd.
On March 14, 2016, the Company and CureCell Co., Ltd.
("CureCell") of Korea entered into a Joint Venture Agreement (the "JVA")
pursuant to which the parties will collaborate in the contract development and
manufacturing of cell therapy products in Korea. The parties intend to pursue
the joint venture through a newly established Korean company (hereinafter the
"JV Company") which the Company by itself, or together with a designee, will
hold a 50% participating interest therein, with the remaining 50% participating
interest being held by CureCell.
Under the JVA, CureCell is to procure, at its sole expense, a
GMP facility and appropriate staff in Korea for the manufacture of the cell
therapy products. The Company will share with CureCell the Company's know-how in
the field of cell therapy manufacturing, which know-how will not include the
intellectual property included in the license from the Tel Hashomer Hospital in
Israel to our Israeli Subsidiary. In addition, each party shall be required to
exert best commercial efforts to carry out, in a timely and professional manner,
its respective obligations according to a detailed work plan to be agreed upon
by CureCell and Company within no later than 30 days following the execution of
the JVA. Under the JVA, the Company and CureCell each undertook to remit, within
two years of the execution of the JVA, $2 million to the JV Company, of which $1
million is to be in cash and the balance in an in-kind investment, the scope and
valuation of which shall be preapproved in writing by CureCell and the Company.
The Company's funding will be made by way of a convertible loan to the JV
Company or the joint venture (if the JV Company is not established).
Additionally, the parties agreed to establish a steering committee for the
management of the JV Company comprised of five members, two of which are to
designated by each of the Company and CureCell and the fifth to be an
independent third party industry expert acceptable to each of the Company and
CureCell.
The JVA provides that, under certain specified conditions, the
Company can require CureCell to sell to the Company its participating (including
equity) interest in the JV Company in consideration for the issuance of the
Company's common stock based on the then valuation of the JV Company.
On March 14, 2016, the Israel subsidiary, entered into a
collaboration agreement with CureCell Co., Ltd. (CureCell), initially for the
purpose of applying for a grant from the Korea Israel Industrial R&D
Foundation ("Koril-RDF") for pre-clinical and clinical activities related to the
commercialization of Orgenesis Ltd.s AIP cell therapy product in Korea ("Koril
Grant"). Subject to receiving the Koril Grant, the Parties shall carry out at
their own expense their respective commitments under the work plan approved by
Koril-RDF and any additional work plan to be agreed between the Israeli
Subsidiary and CureCell. The Israeli Subsidiary will own sole rights to any
intellectual property developed from the collaboration which is derived under
the Israeli Subsidiarys AIP cell therapy product, information licensed from
THM. Subject to obtaining the requisite approval needed to commence
commercialization in Korea, the Israel subsidiary has agreed to grant to
CureCell, or a fully owned subsidiary thereof, under a separate sub-license
agreement an exclusive sub-license to the intellectual property underlying the
Companys API product solely for commercialization of the Israel subsidiary
products in Korea. As part of any such license CureCell has agreed to pay annual
license fees, ongoing royalties based on net sales generated by CureCell and its
sublicensees, milestone payments and sublicense fees. Under the agreement,
CureCell is entitled to share in the net profits derived by the Israeli
Subsidiary from world
-
wide sales (except for sales in Korea) of any
product developed as a result of the collaboration with CureCell. Additionally,
CureCell was given the first right to obtain exclusive commercialization rights
in Japan of the AIP product, subject to CureCell procuring all of the regulatory
approvals required for commercialization in Japan.
Results of Operations
Comparison of the Three Months Ended February 29, 2016 to
the Three Months Ended February 28, 2015
Revenue and Cost of Sales
For the three months ended February 29, 2016, our total
revenues and cost of sales were approximately $1.52 and $1.48 million,
respectively, as opposed to none for the corresponding period in 2015. The
increase in revenue is attributable to our acquisition of MaSTherCell and the
revenues they recognize from services and sales of consumables.
23
Expenses
The Companys expenses for the three months ended February 29,
2016 are summarized as follows in comparison to its expenses for the three
months ended February 28, 2015:
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
Ended February 29,
|
|
|
Ended February 28,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands)
|
|
|
Revenues
|
$
|
(1,520
|
)
|
$
|
|
|
|
Cost of sales
|
|
1,480
|
|
|
|
|
|
Research and development
expenses, net
|
|
401
|
|
|
175
|
|
|
Amortization of intangible assets
|
|
328
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
1,166
|
|
|
659
|
|
|
Financial income, net
|
|
(1,772
|
)
|
|
(44
|
)
|
|
Loss before income taxes
|
$
|
83
|
|
$
|
790
|
|
Research and Development Expenses, net
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
Ended February 29
,
|
|
|
Ended February 28,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands)
|
|
|
Salaries and related expenses
|
$
|
251
|
|
|
118
|
|
|
Stock-based compensation
|
|
34
|
|
|
41
|
|
|
Professional fees and
consulting services
|
|
91
|
|
|
123
|
|
|
Lab expenses
|
|
91
|
|
|
63
|
|
|
Other research and
development expenses
|
|
45
|
|
|
36
|
|
|
Less grant
|
|
(111
|
)
|
|
(206
|
)
|
|
Total
|
$
|
401
|
|
$
|
175
|
|
The decrease in professional fees and consulting services and
the increase in salaries and related expenses in the three months ended February
29, 2016, compared to the three months ended February 28, 2015, is primarily due
to the merger with MaSTherCell, which was one of our subcontractors for the DGO6
project before the acquisition. In addition, part of the increase in salaries
and related expenses is due to an increase in the volume of work that was done
by MaSTherCell as opposed to the corresponding period in 2015. The decrease in
grant income is due to a $57 thousand decrease on the Tedco project, and $50
thousand decrease on the DGO6 project due to the reduction in the volume of work
that was done by our Israeli subsidiary. This was offset by grant income of $18
thousand due to work performed under the grant approved from BIRD.
Selling, General and Administrative Expenses
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
Ended February 29,
|
|
|
Ended February 28,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands)
|
|
|
Salaries and related expenses
|
$
|
204
|
|
$
|
114
|
|
|
Stock-based compensation
|
|
137
|
|
|
207
|
|
|
Accounting and legal fees
|
|
208
|
|
|
187
|
|
|
Professional fees
|
|
314
|
|
|
82
|
|
|
Rent and related expenses
|
|
151
|
|
|
|
|
|
Business development
|
|
84
|
|
|
14
|
|
|
Other general and
administrative expenses
|
|
68
|
|
|
55
|
|
|
Total
|
$
|
1,166
|
|
$
|
659
|
|
24
Selling, general and administrative expenses for the three
months ended February 29, 2016 increased by 77%, or $508 thousand, compared to
the three months ended February 28, 2015. The main increase in costs related to
selling, general and administrative activities is due to MaSTherCell activities
of $606 thousand and an increase in the amount of $22 thousand due to a new
patent application. This increase was partially offset by a decrease of $70
thousand in stock-based compensation costs and a decrease of $50 thousand in
professional fees due to reduced reliance on outside professionals as compared to
the same period last year.
Financial Income, net
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
|
Ended February
29,
|
|
|
Ended February
28,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands)
|
|
|
Decrease in fair value of
warrants and
|
|
|
|
|
|
|
|
financial liabilities measured at fair value
|
$
|
(1,960
|
)
|
$
|
(183
|
)
|
|
Interest expense on loans and
convertible
|
|
|
|
|
|
|
|
loans
|
|
185
|
|
|
116
|
|
|
Foreign exchange loss, net
|
|
3
|
|
|
19
|
|
|
Other expenses
|
|
|
|
|
4
|
|
|
Total
|
$
|
(1,772
|
)
|
$
|
(44
|
)
|
The increase in financial income for the three months ended
February 29, 2016 compared to the same period of 2015 is mainly attributable to
a decrease of $157 thousand in the convertible bonds and $1.6 million in the
fair value of warrants, price protection derivative and embedded derivative. The
main reason is the Company's updated assumptions related to the probabilities of
activating the anti dilution mechanism.. This increase was partially offset by
an increase of $121 thousand of interest expense of the MaSTherCell loans.
Liquidity and Financial Condition
Working Capital Deficiency
|
|
|
February 29,
|
|
|
November 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands)
|
|
|
Current assets
|
$
|
5,055
|
|
$
|
8,206
|
|
|
Current liabilities
|
|
12,412
|
|
|
16,476
|
|
|
Working capital deficiency
|
$
|
(7,357
|
)
|
$
|
(8,270
|
)
|
The decrease in current assets is mainly due to a decrease of
$3.2 million in cash and cash equivalents, which was partially offset by an
increase in amount of $0.5 million in accounts receivable.
The decrease in current liabilities is mainly due to a decrease
of $1.6 million in Short-term loans and current maturities of long term loans,
$1 million in convertible loans following the conversion to equity and $1.4
million in price protection derivative.
Cash Flows
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
Ended February
29,
|
|
|
Ended February
28,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(in thousands)
|
|
|
Net income (loss)
|
$
|
255
|
|
$
|
(790
|
)
|
|
Net cash used in operating activities
|
|
(1,341
|
)
|
|
(641
|
)
|
|
Net cash used in investing
activities
|
|
(354
|
)
|
|
(11
|
)
|
|
Net cash used in financing activities
|
|
(1,508
|
)
|
|
(14
|
)
|
|
Increase (decrease) in cash
and cash equivalents
|
$
|
(3,203
|
)
|
$
|
(666
|
)
|
25
The increases in net cash used in operating and investing
activities for the three months ended February 29, 2016 compared to the three
months ended February 28, 2015 was mainly due to the CDMO activities that
commenced pursuant to the acquisition of MaSTherCell in March 2015.
The increases in cash used in financing activities for the
three months ended February 29, 2016 compared to the three months ended February
28, 2015 was due to the repayment of short and long-term loans in amount of $1.7
million, which was offset by proceeds from issuance of shares, and warrants in
the amount of $0.2 million.
We need to raise additional operating capital on an immediate
basis. Management believes that our current cash resources will allow us to
conduct operations as presently conducted through August 2016. Without
additional sources of cash and/or the deferral, reduction, or elimination of
significant planned expenditures, we will not have the cash resources to remain
as a going concern thereafter.
The factors that can impact our ability to continue to fund our
operating needs through August 2016 include, but are not limited to:
|
Our ability to expand revenue volume at MaSTherCell,
which is highly dependent on finite manufacturing facilities;
|
|
Our ability to maintain manufacturing costs at
MaSTherCell as expected; and
|
|
Our continued need to reduce our cost structure while
simultaneously expanding the breadth of our business, enhancing our
technical capabilities, and pursing new business opportunities.
|
If we cannot effectively manage these factors, including
closing new revenue opportunities from existing and new customers for our CDMO
business, we will need to raise additional capital to support our business.
Except for the credit facility discussed below, we have no commitments for any
such funding, and there are no assurances that such additional sources of
liquidity can be obtained on terms acceptable to the Company, or at all. If the
Company is unable to obtain adequate financing or financing on terms
satisfactory to the Company, the Company will not have the cash resources to
continue as a going concern.
Going Concern
The unaudited interim condensed consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. The Company has net losses for the period from inception (June 5, 2008)
through February 29, 2016 of $20.4 million, as well as negative cash flows from
operating activities. Company's management estimates that the cash and cash
equivalents balance as of February 29, 2016 of $933 thousand, is not sufficient
to fund the Companys operational and clinical development activities for the
twelve months following February 29, 2016. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management is in the
process of evaluating various financing alternatives for operations, as the
Company will need to finance future research and development activities and
general and administrative expenses through fund raising in the public or
private equity markets.
Management is in ongoing financing discussions with third party
investors and existing shareholders with a view to secure the needed financing.
However, there is no assurance that the Company will be successful with those
initiatives.
The interim condensed consolidated financial statements do not
include any adjustments that may be necessary should the Company be unable to
continue as a going concern. The Companys continuation as a going concern is
dependent on its ability to obtain additional financing as may be required and
ultimately to attain profitability. If the Company raises additional funds
through the issuance of equity, the percentage ownership of current shareholders
could be reduced, and such securities might have rights, preferences or
privileges senior to its common stock.
26
Additional financing may not be available upon acceptable
terms, or at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to take advantage of prospective
business endeavors or opportunities, which could significantly and materially
restrict its future plans for developing its business and achieving commercial
revenues. If the Company is unable to obtain the necessary capital, the Company
may have to cease operations.
We expect that our operating expenses will increase over the
next twelve months to continue our development activities. We expect to raise
money through equity financing via the sale of our common stock. If we cannot
raise the money that we need in order to continue to operate our business, we
will be forced to delay, scale back or eliminate some or all of our proposed
operations. If any of these were to occur, there is a substantial risk that our
business would fail. If we are unsuccessful in raising additional financing, we
may need to curtail, discontinue or cease operations.
On September 9, 2015, the Israeli Subsidiary entered into a
Pharma Cooperation and Project Funding Agreement (CPFA) with BIRD and Pall
Corporation, a U.S. company. BIRD will give a conditional grant of $400 thousand
each (according to terms defined in the agreement), for a joint research and
development project for the use of Autologous Insulin Producing (AIP) Cells for
the Treatment of Diabetes (the Project). The Project started on March 1, 2015.
Upon the conclusion of product development, the grant shall be repaid at the
rate of 5% of gross sales. The grant will be used solely to finance the costs to
conduct the research of the project during a period of 18 months starting on
March 1, 2015. During the three months ended February 29, 2016, the Israeli
Subsidiary received an additional $100 thousand under the grant.
On March 11, 2016, we entered into definitive agreement with an
investor relating to a private placement of (i) 769,232 shares of the Companys
common stock and (ii) three year warrants to purchase up to an additional
769,232 shares of the Companys common stock at a per share exercise price of
$0.52. The purchased securities will be issued pursuant to subscription
agreements between the Company and the purchaser for aggregate proceeds of
$400
thousand. Furthermore, in the event we issues any common shares or
securities convertible into common shares in a private placement for cash at a
price less than $0.52 (the New Issuance Price) through the first anniversary
of the issuance date, we will issue, for no additional consideration, additional
common shares to subscribers in the $0.52 per share which total each
subscribers subscription proceeds divided by the New Issuance Price, minus the
number of shares already issued to such subscriber. This provision does not
apply to issuance of shares under options, issuance of shares under existing
rights to acquire shares, nor issuance of shares for non-cash consideration.
In April 2016, our Belgium subsidiary received the formal
approval from the Walloon Region, Belgium (Service Public of Wallonia, DGO6) for
a budgeted EUR 1,304 thousand support program for the development of a potential
cure for Type 1 Diabetes. The financial support is awarded as a recoverable
advance payment at 55% of budgeted costs, or for a total of EUR 717 thousand.
The grant will be paid to the Company over a period of 1 year.
During 2016 and 2015, we have received certain grant funding
and have relied and expect to continue to rely on such funding to further our
clinical development in the future.
Cash Requirements
The Companys plan of operation over the next 12 months is to:
|
initiate regulatory activities in Europe and the United
States;
|
|
locate suitable facility in the U.S. for tech transfer
and manufacturing scale-up;
|
|
purchase equipment needed for its cell production
process;
|
|
hire key personnel including in GMP implementation and
general and administrative;
|
|
collaborate with clinical centers and regulators to carry
out clinical studies and clinical safety testing;
|
|
identify optional technologies for scale up of the cells
production process; and
|
|
initialize efforts to validate the manufacturing process.
|
The Company estimates its operating capital needs for the next
12 months as of February 29, 2016 to be as follows (in thousands):
27
|
GMP process
development and validation
|
$
|
2,200
|
|
|
Scale-up of Manufacturing
|
|
3,500
|
|
|
General and administrative
|
|
1,300
|
|
|
Working capital
|
|
3,000
|
|
|
Total
|
$
|
10,000
|
|
The above amounts do not include the additional EUR 2.2 million
per Amendment No. 2 under the share exchange agreement with MaSTherCell
shareholders that becomes due upon the request of the MaSTherCell board of
directors, of whom Company directors/officers currently represent a majority.
Future Financing
The Company will require additional funds to implement the
Companys growth strategy for its business. In addition, while the Company has
received various grants that have enabled the company to fund its clinical
developments, these funds are largely restricted for use for other corporate
operational and working capital purposes. Therefore, the Company will need to
raise additional capital to both supplement the Companys clinical developments
that are not covered by any grant funding and to cover the Companys operational
expenses. These funds may be raised through equity financing, debt financing, or
other sources, which may result in further dilution in the equity ownership of
the Companys shares. There can be no assurance that additional financing will
be available to the company when needed or, if available, that it can be
obtained on commercially reasonable terms. If the Company is not able to obtain
the additional financing on a timely basis should it be required, or generate
significant material revenues from operations, the Company will not be able to
meet its other obligations as they become due and will be forced to scale down
or perhaps even cease the Companys operations.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Companys
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to stockholders.
Recent Accounting Pronouncements
See Note 2 for a discussion of Recently Issued Accounting
Pronouncements.