ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS
(U.S. Dollars in thousands, except share and
loss per share amounts)
(Unaudited)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
REVENUES
|
$
|
1,132
|
|
$
|
820
|
|
$
|
2,652
|
|
$
|
820
|
|
COST OF REVENUES
|
|
1,964
|
|
|
973
|
|
|
3,444
|
|
|
973
|
|
GROSS PROFIT (LOSS)
|
|
(832
|
)
|
|
(153
|
)
|
|
(792
|
)
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT EXPENSES,
net
|
|
486
|
|
|
290
|
|
|
887
|
|
|
465
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
|
482
|
|
|
393
|
|
|
810
|
|
|
393
|
|
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
|
|
2,173
|
|
|
1,200
|
|
|
3,339
|
|
|
1,858
|
|
OPERATING LOSS
|
|
3,973
|
|
|
2,036
|
|
|
5,828
|
|
|
2,869
|
|
FINANCIAL EXPENSES (INCOME),
net
|
|
553
|
|
|
(924
|
)
|
|
(1,219
|
)
|
|
(967
|
)
|
LOSS BEFORE INCOME TAXES
|
|
4,526
|
|
|
1,112
|
|
|
4,609
|
|
|
1,902
|
|
INCOME TAX BENEFIT
|
|
(634
|
)
|
|
(15
|
)
|
|
(942
|
)
|
|
(15
|
)
|
NET LOSS
|
$
|
3,892
|
|
$
|
1,097
|
|
$
|
3,667
|
|
|
1,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.04
|
|
$
|
0.02
|
|
$
|
0.03
|
|
$
|
0.03
|
|
Diluted
|
$
|
0.04
|
|
$
|
0.03
|
|
$
|
0.04
|
|
$
|
0.05
|
|
WEIGHTED AVERAGE NUMBER OF SHARES
USED
IN COMPUTATION OF BASIC AND DILUTED
LOSS PER
SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
107,583,871
|
|
|
55,785,407
|
|
|
106,693,858
|
|
|
55,760,675
|
|
Diluted
|
|
107,583,871
|
|
|
62,795,145
|
|
|
106,693,858
|
|
|
60,159,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
3,892
|
|
$
|
1,097
|
|
$
|
3,667
|
|
|
1,887
|
|
Translation adjustments
|
|
(580
|
)
|
|
458
|
|
|
(1,084
|
)
|
|
560
|
|
TOTAL COMPREHENSIVE LOSS
|
$
|
3,312
|
|
$
|
1,555
|
|
|
2,583
|
|
|
2,447
|
|
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
|
|
|
|
|
|
Receipts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on Account
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
of
Share
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
to be
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Value
|
|
|
Capital
|
|
|
Allotted
|
|
|
Loss
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 1, 2014
|
|
55,970,565
|
|
$
|
6
|
|
$
|
13,152
|
|
$
|
60
|
|
$
|
(18
|
)
|
$
|
(16,179
|
)
|
$
|
(2,979
|
)
|
Changes during the six months ended May 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation to employees and
directors
|
|
|
|
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
321
|
|
Stock-based compensation to service
providers
|
|
|
|
|
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
Comprehensive loss for
the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(560
|
)
|
|
(1,887
|
)
|
|
(2,447
|
)
|
Balance at May 31, 2015
|
|
55,970,565
|
|
$
|
6
|
|
$
|
13,530
|
|
$
|
60
|
|
$
|
(578
|
)
|
$
|
(18,066
|
)
|
$
|
(5,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 1, 2015
|
|
55,835,950
|
|
$
|
6
|
|
$
|
14,229
|
|
$
|
1,251
|
|
$
|
(1,286
|
)
|
$
|
(20,640
|
)
|
$
|
(6,440
|
)
|
Changes during the six months ended May
31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation to
employees
and
directors
|
|
|
|
|
|
|
|
865
|
|
|
|
|
|
|
|
|
|
|
|
865
|
|
Stock-based
compensation to service providers
|
|
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
792
|
|
Warrants and shares to be
issued due
to
extinguishment of a convertible loan
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
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
|
|
|
|
|
|
|
|
|
|
|
623
|
|
|
|
|
|
|
|
|
623
|
|
Comprehensive loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,084
|
|
|
(3,667
|
)
|
|
(2,583
|
)
|
Balance at May 31,
2016
|
|
108,739,806
|
|
$
|
11
|
|
$
|
39,402
|
|
$
|
623
|
|
$
|
(202
|
)
|
$
|
(24,307
|
)
|
$
|
15,527
|
|
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)
|
|
Six Months Ended
|
|
|
|
May 31,
|
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
$
|
(3,667
|
)
|
$
|
(1,887
|
)
|
Adjustments required to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
Stock-based
compensation
|
|
1,657
|
|
|
378
|
|
Loss from extinguishment of a convertible loan
|
|
229
|
|
|
-
|
|
Depreciation and
amortization expenses
|
|
1,335
|
|
|
625
|
|
Change in fair value of warrants and embedded derivatives
|
|
(1,721
|
)
|
|
(951
|
)
|
Change in fair
value of convertible bonds
|
|
(132
|
)
|
|
(379
|
)
|
Interest expense accrued on loans and convertible loans
|
|
56
|
|
|
224
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
(471
|
)
|
|
210
|
|
Inccrease
in inventory
|
|
(94
|
)
|
|
(33
|
)
|
Increase in other assets
|
|
(9
|
)
|
|
-
|
|
Decrease
(increase) in prepaid expenses and other accounts receivable
|
|
34
|
|
|
(789
|
)
|
Increase in accounts payable
|
|
587
|
|
|
311
|
|
Increase in
accrued expenses
|
|
150
|
|
|
101
|
|
Increase in employee and related payables
|
|
579
|
|
|
91
|
|
Increase in
deferred income
|
|
332
|
|
|
601
|
|
Increase (decrease) in advance payments and receivables on account
of grant
|
|
(87
|
)
|
|
496
|
|
Decrease in
deferred taxes
|
|
(944
|
)
|
|
(15
|
)
|
Net cash used in operating
activities
|
|
(2,166
|
)
|
|
(1,017
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchase of
property and equipment
|
|
(708
|
)
|
|
(244
|
)
|
Restricted cash
|
|
-
|
|
|
(5
|
)
|
Acquisition of
MaSTherCell, net of cash acquired
|
|
-
|
|
|
305
|
|
Net cash provided by (used in) investing
activities
|
|
(708
|
)
|
|
56
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
Short-term line of credit
|
|
-
|
|
|
(14
|
)
|
Proceeds
from issuance of warrants into shares and warrants
|
|
975
|
|
|
-
|
|
Proceeds from issuance of
loans payable
|
|
-
|
|
|
317
|
|
Repayment
of short and long-term debt
|
|
(1,828
|
)
|
|
(67
|
)
|
Net cash provided by (used in) financing
activities
|
|
(853
|
)
|
|
236
|
|
NET CHANGE IN CASH AND
CASH EQUIVALENTS
|
|
(3,727
|
)
|
|
(725
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND
CASH EQUIVALENTS
|
|
33
|
|
|
(404
|
)
|
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD
|
|
4,168
|
|
|
1,314
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
$
|
474
|
|
$
|
185
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH FINANCING
ACTIVITIES
|
|
|
|
|
|
|
Conversion of loans
(including accrued interest) to common stock and warrants
|
$
|
1,028
|
|
|
|
|
Reclassification of redeemable common stock
to equity
|
$
|
21,458
|
|
|
|
|
SUPPLEMENTAL INFORMATION
ON INTEREST PAID IN CASH
|
$
|
143
|
|
|
|
|
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 and Six Months Ended May 31, 2016
and 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 May 31, 2016, and the consolidated
statements of comprehensive loss for the three and six months ended May 31 2016
and 2015, and the changes in equity (capital deficiency) and cash flows for the
six months period ended May 31, 2016 and 2015. The results for the six months
ended May 31, 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. As of May
31, 2016, the Company had not achieved profitable operations, had accumulated
losses of $24.3 million (since inception), had a negative cash flows from
operating activities, had a working deficiency of $9.3 million and expects to
incur further losses in the development of its business. These factors raise
substantial doubt about the Company's ability 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. The Company needs to raise significant funds on an immediate
basis in order to continue to meet its liquidity needs, realize its business
plan and maintain operations. The Companys current cash resources are not
sufficient to support its operations as presently conducted or permit it to take
advantage of business opportunities that may arise. Management of the Company is
continuing its efforts to secure funds through equity and/or debt instruments
for its operations.
The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. There can be
no assurance that management will be successful in implementing a business plan
or that the successful implementation of a business plan will actually improve
the Companys operating results. Presently, the Company does not have any
financing commitment from any person, and there can be no assurance that
additional capital will be available to the Company on commercially acceptable
terms or at all. If the Company is unable to obtain the necessary capital, the
Company may have to cease operations.
The Company has been funding its operations primarily from the
proceeds from the private placements of its convertible and equity securities.
From December 2015 through May 2016, the Company received proceeds of
approximately $975 thousand from the proceeds of the private placement to
certain accredited investors of its unsecured equity stock. In addition, between June 1 and July
14, 2016, the Company raised an additional $1.4 million from the proceeds of
private placement of its securities.
7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of
the previous financial year except as described below.
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 dated
November 3, 2014, as subsequently amended (the "Share Exchange Agreement" or
"SEA"), with MaSTherCell SA, Cell Therapy Holding SA (collectively
MaSTherCell). Pursuant to the Share Exchange Agreement, which closed on March
2, 2015 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 $24.6 million. Out of the Consideration Shares,
8,173,483 shares will be allocated to the bondholders of MaSTherCell in case of
conversion.
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
as contained in the original Share Exchange Agreement (the Unwind Option) was
extended to November 30, 2015. In addition 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
In connection with the equity investment, on December 10, 2015
the Company agreed to invest 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. The Companys agreement represents an increase
of EUR 1 million over the amount which the Company was previously obligated to
invest in MaSTherCell under the Share Exchange Agreement as additional equity
and replaces any funding obligation that the Company had under the SEA, as
amended.
On December 10, 2015 the Company remitted to MaSTherCell the
Initial Investment of € 3.8 million or $4.1 million (out of the original
obligation for investment of €6 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.
During the three months ended May 31, 2016, the Company
remitted to MaSTherCell an additional $328 thousand (€ 286 thousand), in
compliance with its obligations. On June and July 2016, an additional $1 million
(€ 896 thousand was remitted to MaSTherCell (See also Note 11).
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
technology licensed by the Israeli Subsidiary, 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.
Adjusted EBIT is a non-GAAP financial measure that the Company
believes that provides useful information to investors and others in
understanding and evaluating the Company's operating results in the same manner
as the Company's management and board of directors.
Segment data for the six months ended May 31, 2016 is as
follows:
10
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
CTB
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Net revenues from external customers
|
$
|
2,974
|
|
$
|
|
|
$
|
(322
|
)
|
$
|
2,652
|
|
Cost of revenues
|
|
(3,220
|
)
|
|
|
|
|
299
|
|
|
(2,921
|
)
|
Research and development expenses, net
|
|
|
|
|
(674
|
)
|
|
23
|
|
|
(651
|
)
|
Operating expenses
|
|
(1,065
|
)
|
|
(851
|
)
|
|
|
|
|
(1,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expenses
|
|
(1,333
|
)
|
|
(2
|
)
|
|
|
|
|
(1,335
|
)
|
Segment Performance
|
$
|
(2,644
|
)
|
$
|
(1,527
|
)
|
|
|
|
|
(4,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
(1,657
|
)
|
|
(1,657
|
)
|
Financial income (expenses), net
|
|
|
|
|
|
|
|
1,219
|
|
|
1,219
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(4,609
|
)
|
Segment data for the six months ended May 31, 2015 is as
follows:
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
CTB
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Net revenues from external customers
|
$
|
951
|
|
$
|
|
|
$
|
(131
|
)
|
$
|
820
|
|
Cost of revenues
|
|
(743
|
)
|
|
|
|
|
|
|
|
(743
|
)
|
Research and development expenses, net
|
|
|
|
|
(517
|
)
|
|
131
|
|
|
(386
|
)
|
Operating expenses
|
|
(664
|
)
|
|
(893
|
)
|
|
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
(622
|
)
|
|
(3
|
)
|
|
|
|
|
(625
|
)
|
Segment Performance
|
$
|
(1,078
|
)
|
$
|
(1,413
|
)
|
|
|
|
|
(2,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
(378
|
)
|
|
(378
|
)
|
Financial income (expenses), net
|
|
|
|
|
|
|
|
967
|
|
|
967
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(1,902
|
)
|
Segment data for the three months ended May 31, 2016 is as
follows:
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
CTB
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Net revenues from external customers
|
$
|
1,403
|
|
$
|
|
|
$
|
(271
|
)
|
$
|
1,132
|
|
Cost of revenues
|
|
(1,932
|
)
|
|
|
|
|
180
|
|
|
(1,752
|
)
|
Research and development expenses, net
|
|
|
|
|
(376
|
)
|
|
91
|
|
|
(285
|
)
|
Operating expenses
|
|
(458
|
)
|
|
(429
|
)
|
|
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
(693
|
)
|
|
(1
|
)
|
|
|
|
|
(694
|
)
|
Segment Performance
|
$
|
(1,680
|
)
|
$
|
(806
|
)
|
|
|
|
|
(2,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
(1,487
|
)
|
|
(1,487
|
)
|
Financial income (expenses), net
|
|
|
|
|
|
|
|
(553
|
)
|
|
(553
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(4,526
|
)
|
11
Segment data for the three months ended May 31, 2015 is as
follows:
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
CTB
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Net revenues from external customers
|
$
|
951
|
|
$
|
|
|
$
|
(131
|
)
|
$
|
820
|
|
Cost of revenues
|
|
(743
|
)
|
|
|
|
|
|
|
|
(743
|
)
|
Research and development expenses, net
|
|
|
|
|
(290
|
)
|
|
131
|
|
|
(159
|
)
|
Operating expenses
|
|
(664
|
)
|
|
(534
|
)
|
|
|
|
|
(1,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
(622
|
)
|
|
(3
|
)
|
|
|
|
|
(625
|
)
|
Segment Performance
|
$
|
(1,078
|
)
|
$
|
(827
|
)
|
|
|
|
|
(1,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
(131
|
)
|
|
(131
|
)
|
Financial income (expenses), net
|
|
|
|
|
|
|
|
924
|
|
|
924
|
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(1,112
|
)
|
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
|
|
|
Six Months
|
|
|
|
Ended May 31,
|
|
|
Ended May 31,
|
|
|
|
2016
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Customer A
|
$
|
830
|
|
$
|
1,594
|
|
Customer B
|
$
|
420
|
|
$
|
981
|
|
The Company has included adjusted EBIT in this Quarterly Report
on Form 10-Q because it is a key measure used to evaluate the Companys
financial and operating performance, generate future operating plans and make
strategic decisions for the allocation of capital. Accordingly, the Company
believes that adjusted EBIT provides useful information to investors and others
in understanding and evaluating the operating results in the same manner as our
management and board of directors. While the Company believes that this non-GAAP
financial measure is useful in evaluating its business, this information should
be considered as supplemental in nature and is not meant as a substitute for the
related financial information prepared in accordance with US GAAP.
NOTE 5 CONVERTIBLE LOAN AGREEMENTS
1) During the year ended November 30, 2015 and 2014, the
Company entered into six convertible loan agreements (out of which five during
2015) with new investors for a total amount of $1 million (the Convertible
Loans), interest is calculated at 6% annually and was payable, along with the
principal on or before the maturity date.
On April 27, 2016 and December 23, 2015, the holders of all the
Convertible Loans and the Company agreed to convert the 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 Convertible Loans, the Company issued an aggregate of
1,976,330 shares of Common stock and three year warrants to purchase up to an
additional 1,976,330 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) on or
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.
12
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 dates and the allocation of the proceeds (for the
fair value as of May 31, 2016, see Note 10):
|
|
Total Fair Value
|
|
|
|
(in
thousands)
|
|
|
|
December 23,
|
|
|
April 27,
|
|
|
|
2015
|
|
|
2016
|
|
Warrants component
|
$
|
323
|
|
$
|
13
|
|
Price protection derivative component
|
|
34
|
|
|
2
|
|
Shares component
|
|
614
|
|
|
32
|
|
Total
|
$
|
971
|
|
$
|
47
|
|
2) On April 27, 2016, the Company entered into an assignment
and assumption of debt agreement with Nine Investments Ltd. (Nine Investments)
and Admiral Ventures Inc. (Admiral). Pursuant to the terms of a Convertible
Loan Agreement dated May 29, 2014, as amended on December 2014 (collectively,
the "Loan Agreement"), Nine Investments agreed to assign and transfer to Admiral
all of the Companys obligations for the outstanding amount of the Loan
Agreement. Additional amendments to the provisions of the Loan Agreement were
executed as follows:
a) Extend the due date of the loan of $1.5 million through
September 30, 2016;
b) The Company paid to Admiral an extension fee in the form
of 288,461 units, each unit was comprised of one common share and one,
three-year warrant for one common share at an exercise price of $0.52 per common
share. The fair value of the warrants as of the grant date was $34 thousand.
Using the Black-Scholes model, the shares were valued at the fair value of the
Companys common stock as of April 27, 2016, or $0.28; and
c) The Company shall
accrue additional interest totalling $55 thousand for the period from January
31, 2015 to December 31, 2015. In addition the interest rate shall be 12% per
annum commencing from January 1, 2016.
The Company accounted for the above changes as an
extinguishment of the old debt and issuance of a new debt. As a result, a loss
of $229 thousand was recorded within financial expenses.
NOTE 6 COMMITMENTS
Collaboration Agreements
1)
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 agreed to 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.
13
2) 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 manufacturing, 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.
3)
On May 10, 2016 (the Effective Date), the Company and Atvio Biotech Ltd., a
newly formed Israeli company (Atvio) entered into a Joint Venture Agreement
(the JVA) pursuant to which the parties agreed to collaborate in the contract
development and manufacturing of cell and virus therapy products in the field of
regenerative medicine in the State of Israel. The parties intend to pursue the
joint venture through Atvio, in which the Company will have a 50% participating
interest therein. Under the JVA, Atvio is to procure, at its sole expense, a GMP
facility and appropriate staff in Israel. The Company will share with Atvio the
Companys 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 the Israeli Subsidiary. The parties are to create
a mutually agreeable work plan within 60 days following the execution of the
JVA, detailing each partys respective obligations. Subject to the adoption of a
work plan acceptable to the Company, the Company shall remit to Atvio $1 million
to defray the costs associated with the setting up and the maintenance of the
GMP facility, all or part of which may be contributed by way of in kind services
as agreed to in the work plan. The Companys funding will be made by way of a
convertible loan to Atvio, which shall be convertible at the Companys option at
any time into 50% of the then outstanding equity capital immediately following
such conversion. In addition, within a year from the Effective Date the Company
has the option to require the Atvio shareholders to transfer the Company the
entirety of their interest in Atvio for the consideration specified in the
agreement. Within three years from the Effective Date, the Atvio shareholders
shall have the option to require the Company to purchase from Atvios'
shareholders their entire interest in Atvio for the consideration specified in
the agreement. As of May 31, 2016, no activities have begun in Atvio.
Grants
1) On
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 ($800 thousand). The grant will be paid to Orgenesis over the project
period.
2)
On May 26, 2016, the Israeli Subsidiary entered into a pharma Cooperation and
Project Funding Agreement (CPFA) with KORIL and CureCell. KORIL will give a
conditional grant of up to $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 June 1, 2016. Upon the conclusion of product
development, the grant shall be repaid at the yearly rate of 2.5% 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 June 1, 2016.
On June 2016, the Israeli Subsidiary received $160 thousand under the grant.
NOTE 7 EQUITY
a.
Share
Capital
The
Companys common shares are traded on the OTC Market Groups OTCQB tier under
the symbol ORGS.
b.
Financings
14
During
the six months ended May 31, 2016, the Company entered into definitive
agreements with accredited and other qualified investors relating to a private
placement (the Private Placement) of (i) 1,875,002 shares of the Companys
common stock and (ii) three year warrants to purchase up to an additional
1,875,002 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
$975 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
10).
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 May 31, 2016, see Note 10):
|
|
Total Fair
|
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Warrants component
|
$
|
265
|
|
Price protection derivative component
|
|
37
|
|
Shares component
|
|
673
|
|
Total
|
$
|
975
|
|
NOTE 8 STOCK BASED COMPENSATION
a.
Options
Granted to Employees and Directors
On
April 27, 2016, the Company approved an aggregate of 1,104,950 stock options to
the Companys Chief Executive Officer that are exercisable at $0.0001 per share
and an aggregate of 1,641,300 stock options to the Chief Executive Officer of
the U.S. Subsidiary that are exercisable at $.0.28 per share. The options vested
immediately with a fair value as of the date of grant of $622 thousand using the
Black-Scholes valuation model.
b.
Options
Granted to Consultant
On
March 1, 2016 the Company entered into a consulting agreement for professional
services for a period of one year. Under the terms of the agreement, the Company
granted to a consultant 1 million options exercisable at $0.30 per share. The
options shall vest quarterly over a period of one year, but shall immediately
vest prior to such one-year period if there is an acquisition of 40% or more of
the Company or upon funding of $5 million or more in financing. The fair value
of those options as of the date of grant was $187 thousand using the
Black-Scholes valuation model.
c.
Shares Issued to Consultants
1) On
March 1, 2016, the Company entered into a consulting agreement for professional
services for a period of one year. Under the terms of the agreement, the Company
agreed to grant the consultant 250 thousand shares of restricted common stock.
The fair value of the Companys common stock as of the date of grant was $0.30.
In addition, the Company will pay a retainer fee of $10,000 per month,
consisting $5,000 cash per month and $5,000 shall be payable in shares of the
Companys common stock at a value equal to the price paid for the equity capital
raise of at least $3 million (the financing). The cash fee per month and
shares shall be issued upon completion of the financing. As of May 31, 2016, the
financing was not completed and, therefore, no expenses were recorded in
connection with the shares.
2)
On April 27, 2016, the Company entered into a consulting agreement for
professional services for a period of one year with two consultants. Under the
terms of the agreements, the Company agreed to grant the consultants an
aggregage of 1.2 million shares of restricted common stock that vested on grant
date. The fair value of the Companys common stock as of the date of grant was
$0.28.
15
3) On
May 1, 2016, the Company entered into a consulting agreement for professional
services for a period of one year. Under the terms of the agreement, the Company
agreed to grant a consultant 1 million shares of restricted common stock, of
which the first 350,000 shares will vest immediately, 350,000 shares are to vest
90 days following the agreement date and 300,000 shares are schedule to vest 180
following the agreement date. The fair value of the Companys common stock as of
the date of grant of the first tranche was $0.28. With respect to each
subsequent tranche, the fair value of the Companys common stock as of May 31,
2016, was $0.35.
NOTE 9 LOSS PER SHARE
The following table sets forth the calculation of basic and
diluted earnings (loss) per share for the periods indicated:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
May 31,
|
|
|
|
|
|
May 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
$
|
3,892
|
|
$
|
1,097
|
|
$
|
3,667
|
|
$
|
1,887
|
|
Weighted average number of common
shares
outstanding
|
|
107,583,871
|
|
|
55,785,407
|
|
|
106,693,858
|
|
|
55,760,675
|
|
Loss per common share
|
$
|
0.04
|
|
$
|
0.02
|
|
$
|
0.03
|
|
$
|
0.03
|
|
Diluted
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
$
|
3,892
|
|
$
|
1,097
|
|
$
|
3,667
|
|
$
|
1,887
|
|
Changes in fair value of embedded
derivative and interest
expense on
convertible bonds
|
|
|
|
|
592
|
|
|
92
|
|
|
560
|
|
Change in fair value of warrants
|
|
|
|
|
380
|
|
|
|
|
|
526
|
|
Loss for the period
|
|
3,892
|
|
|
2,069
|
|
$
|
3,759
|
|
|
2,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
used in the computation
of basic loss
per share
|
|
107,583,871
|
|
|
55,785,407
|
|
|
106,693,858
|
|
|
55,760,675
|
|
Number of dilutive shares related to
convertible
bonds
|
|
|
|
|
6,554,728
|
|
|
|
|
|
3,894,438
|
|
Number of dilutive shares related to warrants
|
|
|
|
|
455,010
|
|
|
|
|
|
504,436
|
|
Weighted average number of common shares
outstanding
|
|
107,583,871
|
|
|
62,795,145
|
|
|
106,693,858
|
|
|
60,159,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share
|
$
|
0.04
|
|
$
|
0.03
|
|
$
|
0.04
|
|
$
|
0.05
|
|
Diluted loss per share does not include 16,954,564 shares
underlying outstanding options, 19,769,959 shares issuable upon exercise of
warrants, 1,150,000 shares due to stock-based compensation to service providers
and 4,793,603 shares upon conversion of convertible notes for the six and three
months ended May 31, 2016, because the effect of their inclusion in the
computation would be anti-dilutive.
Diluted loss per share does not include 42,401,724 redeemable
common stock, 15,367,559 shares underlying outstanding options, 350,000 shares
due to stock-based compensation to service providers, 2,682,256 shares issuable
upon exercise of warrants for the six and three months ended May 31, 2015,
because the effect of their inclusion in the computation would be anti-dilutive.
NOTE 10 - 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:
16
|
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 May 31, 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):
|
|
May 31,
|
|
|
November 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Level 3
|
|
|
Level 3
|
|
Warrants (1)
|
$
|
1,730
|
|
$
|
1,382
|
|
Price protection derivative (1)
|
|
175
|
|
|
1,533
|
|
Embedded derivatives*(1)
|
|
260
|
|
|
289
|
|
Convertible bonds (2)
|
$
|
1,859
|
|
$
|
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 a 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
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 May 31, 2016:
|
Price Protection
|
|
|
|
Derivative and
|
|
Embedded
|
|
Warrants
|
|
Derivative
|
Fair value of shares of common stock
|
$ 0.35
|
|
$ 0.35
|
Expected volatility
|
88%-91%
|
|
91%
|
Discount on lack of marketability
|
14%
|
|
-
|
Risk free interest rate
|
0.27%-1.03%
|
|
0.39%
|
Expected term (years)
|
2.4-3
|
|
0.33
|
Expected dividend yield
|
0%
|
|
0%
|
Expected capital raise dates
|
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:
17
|
|
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 six
months ended May 31, 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
|
|
601
|
|
|
|
|
|
|
|
|
73
|
|
Conversion
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
Changes in fair value during the period
|
|
(253
|
)
|
|
(11
|
)
|
|
(132
|
)
|
|
(1,431
|
)
|
Changes in fair value due to extinguishment
of convertible loan
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
103
|
|
|
|
|
Balance at end of the period
|
$
|
1,730
|
|
$
|
260
|
|
$
|
1,859
|
|
$
|
175
|
|
There were no transfers to Level 3 during the three months
ended May 31, 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 May 31, 2016
|
$
|
1,499
|
|
$
|
1,730
|
|
$
|
1,949
|
|
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 May 31, 2016
|
$
|
174
|
|
$
|
175
|
|
$
|
177
|
|
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 May 31, 2016
|
$
|
222
|
|
$
|
260
|
|
$
|
298
|
|
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:
18
|
|
|
|
|
|
|
|
|
|
|
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 had expired. There were no transfers to Level 3 during the twelve
months ended November 30, 2015.
NOTE 11 - SUBSEQUENT EVENTS
In June and July 2016, the Company entered into several
unsecured convertible note agreements with accredited or offshore investors for
an aggregate amount of $877.5 thousand. The term of the notes is for two years
with an interest rate of 6% per annum. The entire principal amount under the
notes and accrued interest shall automatically convert into Units (as defined
below) upon the earlier to occur of any of the following: (i) the closing of an
offering of equity securities of the Company with gross proceeds to the Company
greater than $10 million (Qualified Offering) (ii) the trading of the
Companys common stock on the over-the counter market or an exchange at a
weighted average price of at least $0.52 for fifty (50) consecutive trading
days, or (iii) the listing of the Companys Common Stock on a U.S. National
Exchange (each a Conversion Event). Each $0.52 of principal amount and accrued
interest due shall convert into (a Unit), consisting of one share of Common
Stock and one three-year warrant exercisable into an additional share of common
stock at a per share exercise price of $0.52, provided that, if more favorable
to the holder, any principal amount and accrued interest due shall convert into
securities on the same basis as such securities are sold in the Qualified
Offering. At any time, the holder may convert the principal amount and accrued
interest outstanding into Units as provided above. In addition, if a Conversion
Event does not occur within 12 months of the issuance date hereof, then the
holder, at its option, may convert the outstanding principal amount and accrued
interest under this note into either (i) Units as provided above, or (ii) shares
of the Companys common stock at a per share conversion price of $0.40.
In June and July 2016, the Company entered into definitive
agreements with accredited investors relating to a private placement (the
Private Placement) of (i) 1,004,807 shares of the Companys common stock and
(ii) three year warrants to purchase up to an additional 1,004,807 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 $522.5 thousand.
Furthermore, in certain events (according to terms defined in the agreements)
the Company will issue, for no additional consideration, additional common
shares to subscribers which total each Subscribers subscription proceeds
divided by the New Issuance Price, minus the number of shares already issued to
such subscriber.
From the above investments, the Company remitted to MaSTherCell
$1 million (€ 896 thousand, in compliance with its obligations.
19