ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ORGENESIS INC.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(U.S. Dollars in Thousands)
|
(Unaudited)
|
|
|
February 28,
|
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
Assets
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
3,872
|
|
$
|
891
|
|
Accounts
receivable, net
|
|
1,533
|
|
|
1,229
|
|
Prepaid expenses and
other receivables
|
|
1,317
|
|
|
779
|
|
Grants
receivable
|
|
13
|
|
|
906
|
|
Inventory
|
|
614
|
|
|
400
|
|
Investments in associate, net
|
|
79
|
|
|
|
|
Total current assets
|
|
7,428
|
|
|
4,205
|
|
NON CURRENT ASSETS:
|
|
|
|
|
|
|
Property and equipment,
net
|
|
4,584
|
|
|
4,573
|
|
Restricted cash
|
|
5
|
|
|
5
|
|
Intangible assets, net
|
|
14,626
|
|
|
15,050
|
|
Goodwill
|
|
9,557
|
|
|
9,584
|
|
Other assets
|
|
72
|
|
|
70
|
|
Total non-current assets
|
|
28,844
|
|
|
29,282
|
|
TOTAL ASSETS
|
$
|
36,272
|
|
$
|
33,487
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
ORGENESIS INC.
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(U.S. Dollars in Thousands)
|
(Unaudited)
|
|
|
February 28,
|
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Liabilities and equity (net of
capital deficiency)
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
Short-term bank credit
|
$
|
-
|
|
$
|
21
|
|
Accounts payable
|
|
4,056
|
|
|
4,554
|
|
Accrued expenses and other payables
|
|
2,041
|
|
|
1,205
|
|
Employees and
related payables
|
|
1,589
|
|
|
1,680
|
|
Related parties
|
|
42
|
|
|
42
|
|
Advance payments
on account of grant
|
|
2,205
|
|
|
243
|
|
Short-term loans and current maturities of long term loans
|
|
734
|
|
|
1,111
|
|
Deferred income
|
|
2,721
|
|
|
1,273
|
|
Current maturities of convertible loans
|
|
4,625
|
|
|
2,541
|
|
Convertible bonds
|
|
108
|
|
|
1,818
|
|
Price protection derivative
|
|
2
|
|
|
76
|
|
Investments in
associate, net
|
|
-
|
|
|
12
|
|
TOTAL CURRENT
LIABILITIES
|
|
18,123
|
|
|
14,576
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
Loans payable
|
|
3,314
|
|
|
3,291
|
|
Convertible loans
|
|
1,679
|
|
|
1,059
|
|
Warrants
|
|
4,790
|
|
|
1,843
|
|
Retirement benefits obligation
|
|
5
|
|
|
5
|
|
Put option
derivative
|
|
273
|
|
|
273
|
|
Deferred taxes
|
|
2,373
|
|
|
1,862
|
|
TOTAL LONG-TERM LIABILITIES
|
|
12,434
|
|
|
8,333
|
|
TOTAL LIABILITIES
|
|
30,557
|
|
|
22,909
|
|
COMMITMENTS
|
|
|
|
|
|
|
EQUITY:
|
|
|
|
|
|
|
Common stock
|
|
12
|
|
|
12
|
|
Additional paid-in capital
|
|
45,062
|
|
|
41,605
|
|
Receipts on
account of shares to be allotted
|
|
774
|
|
|
|
|
Accumulated other comprehensive loss
|
|
(1,300
|
)
|
|
(1,205
|
)
|
Accumulated
deficit
|
|
(38,833
|
)
|
|
( 29,834
|
)
|
TOTAL EQUITY
|
|
5,715
|
|
|
10,578
|
|
TOTAL LIABILITIES AND EQUITY
|
$
|
36,272
|
|
$
|
33,487
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
ORGENESIS INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
|
(U.S. Dollars in thousands, except share and loss per
share amounts)
|
(Unaudited)
|
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
REVENUES
|
$
|
1,852
|
|
$
|
1,520
|
|
COST OF REVENUES
|
|
1,905
|
|
|
1,480
|
|
GROSS PROFIT (LOSS)
|
|
(53
|
)
|
|
40
|
|
|
|
|
|
|
|
|
RESEARCH AND DEVELOPMENT
EXPENSES,
net
|
|
741
|
|
|
401
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
|
381
|
|
|
328
|
|
SELLING, GENERAL AND
ADMINISTRATIVE
|
|
|
|
|
|
|
EXPENSES
|
|
2,271
|
|
|
1,166
|
|
OPERATING LOSS
|
|
(3,466
|
)
|
|
(1,855
|
)
|
FINANCIAL INCOME
(EXPENSES),
net
|
|
(4,948
|
)
|
|
1,772
|
|
SHARE IN LOSSES OF
ASSOCIATED COMPANY
|
|
(89
|
)
|
|
|
|
LOSS BEFORE INCOME TAXES
|
|
(8,483
|
)
|
|
(83
|
)
|
INCOME TAX BENEFIT
(EXPENSES)
|
|
(516
|
)
|
|
308
|
|
NET INCOME (LOSS)
|
$
|
(8,999
|
)
|
$
|
225
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER SHARE:
|
|
|
|
|
|
|
Basic
|
$
|
(0.08
|
)
|
$
|
0.002
|
|
Diluted
|
$
|
(0.08
|
)
|
$
|
0.001
|
|
WEIGHTED AVERAGE NUMBER OF
SHARES USED
|
|
|
|
|
|
|
IN COMPUTATION OF BASIC AND
DILUTED
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER SHARE:
|
|
|
|
|
|
|
Basic
|
|
111,425,081
|
|
|
103,127,025
|
|
Diluted
|
|
111,425,081
|
|
|
103,127,025
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE
LOSS:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(8,999
|
)
|
$
|
225
|
|
Translation adjustments
|
|
(95
|
)
|
|
504
|
|
TOTAL COMPREHENSIVE INCOME (LOSS)
|
$
|
(9,094
|
)
|
$
|
729
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
ORGENESIS INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
|
(U.S. Dollars in thousands, except share amounts)
|
(Unaudited)
|
*Including outstanding contingent share.
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipts on
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Account of
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Share to be
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Value
|
|
|
Capital
|
|
|
Allotted
|
|
|
Loss
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 1, 2016
|
|
114,096,461
|
|
$
|
12
|
|
$
|
41,605
|
|
$
|
-,-
|
|
$
|
(1,205
|
)
|
$
|
(29,834
|
)
|
$
|
10,578
|
|
Changes during the three
months ended February 28, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation to employees and directors
|
|
|
|
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
386
|
|
Stock-based
compensation to service providers
|
|
|
|
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
Issuance of warrants and beneficial
conversion feature of convertible loans
|
|
|
|
|
|
|
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
2,154
|
|
Receipts on
account of shares and warrants to be allotted
|
|
|
|
|
|
|
|
499
|
|
|
774
|
|
|
|
|
|
|
|
|
1,273
|
|
Comprehensive loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95
|
)
|
|
(8,999
|
)
|
|
(9,094
|
)
|
Balance
at February 28, 2017
|
|
114,096,461
|
|
$
|
12
|
|
$
|
45,062
|
|
$
|
774
|
|
$
|
(1,300
|
)
|
$
|
(38,833
|
)
|
$
|
5,715
|
|
The
accompanying
notes are an
integral
part of these
condensed
consolidated
financial
statements.
6
ORGENESIS INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(U.S. Dollars in thousands)
|
(Unaudited)
|
|
|
Three months ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
Net
income (loss)
|
$
|
(8,999
|
)
|
$
|
225
|
|
Adjustments required to reconcile net loss to net cash used in
operating activities:
|
|
|
|
|
|
|
Stock-based compensation
|
|
679
|
|
|
170
|
|
Share in losses of associated company
|
|
89
|
|
|
|
|
Depreciation and amortization expenses
|
|
592
|
|
|
641
|
|
Change in fair value of warrants and embedded derivatives
|
|
3,938
|
|
|
(1,803
|
)
|
Change in fair value of convertible bonds
|
|
14
|
|
|
(157
|
)
|
Interest expenses accrued
on loans and convertible loans (including amortization of beneficial
conversion feature)
|
|
323
|
|
|
8
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
(308
|
)
|
|
(489
|
)
|
Increase in inventory
|
|
(215
|
)
|
|
(109
|
)
|
Increase in other assets
|
|
|
|
|
(2
|
)
|
Decrease (increase) in prepaid expenses and other accounts
receivable
|
|
(541
|
)
|
|
164
|
|
Decrease in accounts payable
|
|
(662
|
)
|
|
(692
|
)
|
Increase in accrued expenses and other payables
|
|
754
|
|
|
172
|
|
Increase (decrease) in employee and related payables
|
|
(89
|
)
|
|
286
|
|
Increase in deferred income
|
|
1,452
|
|
|
165
|
|
Increase in advance payments and receivables on account of grant,
net
|
|
2,855
|
|
|
388
|
|
Increase (decrease) in deferred taxes
|
|
517
|
|
|
(308
|
)
|
Net cash provided by (used
in) operating activities
|
|
399
|
|
|
(1,341
|
)
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
Purchase of
property and equipment
|
|
(253
|
)
|
|
(354
|
)
|
Disposals of
property and equipment
|
|
19
|
|
|
|
|
Investments in
Associates
|
|
(180
|
)
|
|
|
|
Net cash used in investing
activities
|
|
(414
|
)
|
|
(354
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
Short-term line of credit
|
|
(21
|
)
|
|
|
|
Proceeds
from issuance of shares and warrants
|
|
1,323
|
|
|
225
|
|
Proceeds
from issuance of convertible loans (net of transaction costs)
|
|
3,812
|
|
|
|
|
Repayment
of convertible loans and convertible bonds
|
|
(1,736
|
)
|
|
|
|
Repayment
of short and long-term debt
|
|
(342
|
)
|
|
(1,733
|
)
|
Net cash provided by (used
in) financing activities
|
|
3,036
|
|
|
(1,508
|
)
|
NET CHANGE IN CASH AND
CASH EQUIVALENTS
|
|
3,021
|
|
|
(3,203
|
)
|
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENTS
|
|
(40
|
)
|
|
(32
|
)
|
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD
|
|
891
|
|
|
4,168
|
|
CASH AND CASH EQUIVALENTS
AT END OF PERIOD
|
|
3,872
|
|
$
|
933
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH
FINANCING ACTIVITIES
|
|
|
|
|
|
|
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
|
$
|
155
|
|
$
|
136
|
|
The accompanying notes are an integral part of these
condensed consolidated financial statements.
ORGENESIS INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
For the Three Months Ended February 28, 2017 and
February 29, 2016
|
NOTE 1 - GENERAL AND BASIS OF PRESENTATION
Orgenesis Inc. (the Company)
was incorporated in the state of Nevada on June 5, 2008, under the name Business
Outsourcing Services, Inc. Effective August 31, 2011, the Company completed a
merger with its subsidiary, Orgenesis Inc., a Nevada corporation which was
incorporated solely to effect a change in its name. As a result, the Company
changed its name from Business Outsourcing Services, Inc. to Orgenesis Inc.
The consolidated financial statements include the accounts of Orgenesis Inc.,
MaSTherCell S.A ( MaSTherCell), its Belgian based subsidiary and a contract
development manufacturing organization, or CDMO (see also note 3), specialized
in cell therapy development for advanced medicinal products; Orgenesis SPRL (the
Belgian Subsidiary), a Belgian based subsidiary which is engaged in
development and manufacturing activities together with clinical development
studies in Europe, and later on to be the Companys center for activities in
Europe; Orgenesis Maryland Inc. (the U.S. Subsidiary) a Maryland corporation,
and Orgenesis Ltd. (the "Israeli Subsidiary") an Israeli corporation.
The Company is a regenerative
therapy company with expertise and experience in cell therapy development and
manufacturing.
The Companys cell therapy
technology derives from published work of Prof. Sarah Ferber, the Company's
Chief Science Officer and a researcher at Tel Hashomer Medical Research (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. Its 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.
On May 10, 2016, the Company and
Atvio Biotech Ltd., (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 Israel.
On March 14, 2016, the Company
and CureCell Co., Ltd. (CureCell) 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 Korea. As of February 28, 2017, the Joint Venture
company, as stipulated in the JVA, has not incorporated.
As used in this report and unless
otherwise indicated, the term Company refers to Orgenesis Inc. and its
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 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 28, 2017, and the consolidated statements of comprehensive loss for the
three months ended February 28, 2017 and February 29, 2016, and the changes in
equity and cash flows for the three months period ended February 28, 2017 and
February 29, 2016. The results for the three months ended February 28, 2017, are
not necessarily indicative of the results to be expected for the year ending
November 30, 2017. 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, 2016.
8
Going Concern
The accompanying condensed
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As of February 28, 2017, the Company had not
achieved profitable operations, has accumulated losses of approximately $38.8
million (since inception), has a working capital deficiency of $10.7 million and expects
to incur further losses in the development of its business. Presently, the
Company does not have sufficient cash and other resources to meet its
requirements in the following twelve months. 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 condensed 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. 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 private placements of the Companys
convertible debt and equity securities and from revenues generated by MaSTherCell.
From December 2016 through February 2017, the Company received, through
MaSTherCell, proceeds of approximately $2.8 million in revenues and accounts receivable from customers,
$4.1 million from the private placement to accredited investors of its equity
and equity linked securities and convertible loans. In addition, in January 2017
the Company entered into definitive agreements with an institutional investor
for the private placement of units of the Companys securities for aggregate
subscription proceeds to the Company of $16 million. The subscription proceeds
are payable on a periodic basis through August 2018. During the three months
ended February 28, 2017, $1 million was remitted by such investor and in April
2017 an additional $0.5 million was remitted. From March 1, 2017 through April
18, 2017, the Company raised an additional $0.3 million from the proceeds of the
private placement to certain accredited investors of its equity and equity
linked securities and $0.6 million in revenues and accounts receivable from customers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of
the previous financial year.
NOTE 3 - SEGMENT INFORMATION
The Chief Executive Officer ("CEO") is the Companys chief
operating decision-maker ("CODM").
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,
management has determined that there are two operating segments,
CDMO
The CDMO activity is comprised of
a specialization in cell therapy development for advanced therapeutic products
and providing two types of services to its customers: (i) process and assay
development services and (ii) cGMP contract manufacturing services. The CDMO
activities include the operations of MaSTherCell and Atvio.
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.
9
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.
Segment data for the three months
ended February 28, 2017 is as follows:
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
CTB
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues from external
customers
|
$
|
2,144
|
|
$
|
$
|
|
|
(292
|
)
|
$
|
1,852
|
|
Cost of revenues
|
|
(1,861
|
)
|
|
|
|
|
167
|
|
|
(1,694
|
)
|
Research and development
expenses, net
|
|
|
|
|
(601
|
)
|
|
125
|
|
|
(476
|
)
|
Operating expenses
|
|
1,712
|
|
|
(3,590
|
)
|
|
|
|
|
(1,878
|
)
|
Depreciation and amortization
expenses
|
|
(592
|
)
|
|
|
|
|
|
|
|
(592
|
)
|
Segment Performance
|
$
|
1,314
|
|
$
|
(4,191
|
)
|
|
|
|
|
(2,788
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
(679
|
)
|
|
(679
|
)
|
Financial income (expenses),
net
|
|
|
|
|
|
|
|
(4,927
|
)
|
|
(4,927
|
)
|
Share in losses of associated company
|
|
(89
|
)
|
|
|
|
|
|
|
|
(89
|
)
|
Loss before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
(8,483
|
)
|
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
|
)
|
Geographic, Product and Customer Information
Substantially all the Company's revenues and long lived assets
are located in Belgium.
10
Revenues from single customers from the CDMO segment that
exceed 10% of total net revenues are:
|
|
Three
Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Customer A
|
$
|
1,189
|
|
$
|
764
|
|
Customer B
|
|
-
|
|
|
562
|
|
Customer C
|
|
292
|
|
|
-
|
|
Customer D
|
$
|
255
|
|
$
|
-
|
|
NOTE 4 CONVERTIBLE LOAN AGREEMENTS
(a) On January 12, 2017, the Company
repaid the outstanding principal amount and accrued interest in total amount of
$51 thousand of convertible loans that were issued during September 2016. The
transaction had no material impact on the comprehensive loss for the period.
(b) During the three months ended
February 28, 2017 the Company entered into several unsecured convertible notes
agreements with accredited or offshore investors for an aggregate amount of
$2.65 million. The loans bear an annual interest rate of 6% and mature in two
years, unless converted earlier.
The notes provide that the entire
principal amount under the notes and accrued interest automatically convert into
Units (as defined below) upon the earlier to occur of any of the following
(each a Conversion Event): (i) the closing of an offering of equity securities
of the Company with gross proceeds to the Company greater than $10 million (ii)
the trading of the Companys common stock, par value $0.0001 per share (the
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). At any time, the holder may convert the principal
amount and accrued interest outstanding into Units above. In addition, if a
Conversion Event does not occur within 12 months of the issuance date of the
note, 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) solely into shares of the Companys Common Stock at a per share
conversion price of $0.40.
Since the closing price of the
Companys publicly traded stock is greater than the effective conversion price
on the measurement date, the conversion feature is considered "beneficial" to
the holders and equal to $1.85 million. The difference is treated as issued
equity and reduces the carrying value of the host debt; the discount is accreted
as deemed interest on the debt.
The transaction costs were
approximately $261 thousand, out of which $90 thousand was the fair value of
241,299 warrants granted to three holders as a success fee, exercisable at $0.52
per share for three years. The fair value of those warrants as of the date of
grant was evaluated by using the Black-Scholes valuation model.
(c) During the three months ended
February 28, 2017, the Company entered into several unsecured convertible note
agreements with accredited or offshore investors for an aggregate amount of $0.8
million. The notes have 0% or 6% interest rate and are scheduled to mature
between six months and one year unless converted earlier. At any time, all or a
portion of the outstanding principal amount and accrued but unpaid interest
thereon may be converted at the Holders option into shares of the Company
common stock at a price of $0.52 per share. The Company also issued to the
investors three-year warrants to purchase up to 1,746,063 shares of the
Companys Common Stock at a per share exercise price of $0.52
Since the closing price of the
Companys publicly traded stock is greater than the effective conversion price
on the measurement date, the conversion feature is considered "beneficial" to
the holders and equal to $81 thousand. The difference is treated as issued
equity and reduces the carrying value of the host debt; the discount is accreted
as deemed interest on the debt.
11
(d) On January 23, 2017, the Company
and a Non-U.S. institutional investor, entered into an agreement pursuant to
which the investor advanced to the Company $400,000 at per annum rate of 6% and
with a maturity date of April 23, 2017.
The transaction costs were
approximately $71 thousand, out of which $35 thousand as stock based
compensation due to issuance of 76,923 warrants and 32,051 shares. The fair
value of those warrants as of the date of grant was evaluated by using the
Black-Scholes valuation model.
The principal amount and accrued
interest were repaid by the Company on March 7, 2017 and, in accordance with the
terms of the agreement, the Company issued to the investor 650,000 restricted
shares of the Companys Common Stock. The fair value of the shares as of
February 28, 2017, was $520 thousand and was recorded as financial expenses.
(e) In January 2017 MaSTherCell repaid
all but one of its bondholders and the aggregate payment amounted to $1.7
million (€1.5 million). On January 17, 2017, the remain bondholder agreed to
extend the duration of his Convertible bond with a principal amount of $106
thousand (€ 100 thousand) until March 21, 2017, (the New Maturity Date) and
the convertible bonds continued to accrue interest as provided in the original
agreement. In consideration of the extension, the Company agreed to issue to the
bondholder warrants to purchase
102,822 shares of Company Common Stock,
exercisable over a three-year period at a per share exercise price of $0.52.
Under the agreement, on the New Maturity Date, the bondholder can elect to sell
his bonds to the Company at a price equal to their face value, or convert the
entire outstanding principal amount into common stock of the Company at the rate
provided for in the original agreement for the acquisition of MaSTherCell. The
fair value of those warrants as of the date of grant was $20 thousand using the
Black-Scholes valuation model.
The Company returned from the
escrow arrangement entered into in March 2015 in connection with the MaSTherCell
acquisition a total of 3,157,716 consideration shares to treasury, in accordance
with the terms of the MaSTherCell acquisition agreement. These shares will be
retired and cancelled.
On March 20, 2017, the remain
bondholder agreed to convert his convertible bonds into 488,182 shares of the
Companys Common Stock.
(f) On February 27, 2017, the Company
and Admiral Ventures Inc. (Admiral) entered into an agreement resolving the
payment of amounts owed to Admiral. Under the terms of the settlement agreement,
Admiral extended the maturity date to June 30, 2018. The Company agreed to pay
to Admiral, on or before March 1, 2017, between $0.3 million and $1.5 million on
account of the $1.9 million owed and outstanding to Admiral. Further, beginning
April 2017, the Company agreed to make a monthly payment of $125 thousand on
account of remaining unpaid balance and also agreed to remit 25% of all amounts
received from equity financing raised above $1 million and 20% of such amounts
above $500 thousand on account of amounts owed. The Company accounted for the
above changes as a modification of the old debt.
As of the date of the approval of
these financial statements, the Company repaid $1.5 million on account of the
original principal amount of the loan.
NOTE 5 COMMITMENTS
Grants
In April 2016, the Belgian
Subsidiary received the formal approval from the Walloon Region, Belgium
(Service Public of Wallonia, DGO6) (DGO6) for a budgeted €1.3 million ($1.5
million) support program for CTB activity. The financial support is awarded to
the Belgian subsidiary Orgenesis as a recoverable advance payment at 55% of
budgeted costs, or for a total of €0.7 million thousand ($0.8 million). The
grant will be paid over the project period. On December 19, 2016, the Belgian
Subsidiary received a first payment of €359 thousand ($374 thousand).
On October 8, 2016, the Belgian
subsidiary received the formal approval from the DGO6 for an additional budget
of €12.3 million ($12.8 million) support program for the GMP production of AIP
cells for two clinical trials that will be performed in Germany and Belgium. The
project will be held during a period of three years commencing January 1, 2017. The financial support is awarded to
the Belgium subsidiary at 55% of budgeted costs, a total of €6.8 million ($7
million). The grant will be paid over the project period. On December 19, 2016,
the Belgian Subsidiary received a first payment of €1.7 million ($1.8
million).
12
NOTE 6 EQUITY
a.
|
Share Capital
|
|
|
|
The Companys common shares are traded on the OTCQB
Venture Market under the symbol ORGS.
|
|
|
b.
|
Financings
|
1) During the
three months ended February 28, 2017, the Company entered into definitive
agreements with accredited and other qualified investors relating to a private
placement (the Private Placement) of (i) 621,404 shares of the Companys
Common Stock and (ii) three year warrants to purchase up to an additional
621,404 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
$323 thousand.
The
Company allocated the proceeds from the Private Placement based on the fair
value of the warrants and the shares. The table below presents the fair value of
the instruments issued as of the closing dates and the allocation of the
proceeds:
|
|
Total Fair
|
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Warrants component
|
$
|
116
|
|
Shares component
|
|
207
|
|
Total
|
$
|
323
|
|
As of the
February 28, 2017 the shares have not been issued and therefore the Company has
recorded $207 thousand in Receipts on Account of Shares to be Allotted, in the
statement of equity.
2) In January 2017, the Company entered
into definitive agreements with an institutional investor for the private
placement of 30,769,231 units of the Companys securities for aggregate
subscription proceeds to the Company of $16 million at $0.52 price per unit.
Each unit of securities placed is comprised of one share of the Companys Common
Stock and a warrant, exercisable over a three-years period from the date of
issuance, to purchase one additional share of Common Stock at a per share
exercise price of $0.52. The subscription proceeds are payable on a periodic
basis through August 2018. Each periodic payment of subscription proceeds will
be evidenced by the Companys standard securities subscription agreement.
On February 16, 2017, the investor and the Company closed on
the initial payment of $1 million of the subscription proceeds and, in
connection therewith, the Company issued to the investor 1,923,077 shares of the
Companys Common Stock and three year warrants to purchase up to an additional
1,923,077 shares of the Companys Common Stock at a per share exercise price of
$0.52 The Company allocated the proceeds based on the fair value of the warrants
and the shares. The table below presents the allocation of the proceeds as of
the closing date:
13
|
|
Total Fair
|
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Warrants component
|
$
|
357
|
|
Shares component
|
|
643
|
|
Total
|
$
|
1,000
|
|
As of February 28, 2017, the
shares have not been issued therefore the Company recorded $567 thousand net of
transaction costs in Receipts on Account of Shares to be Allotted.
In connection therewith, the
Company undertook to pay a fee of 5%, resulting in the payment of $50 and the
issuance of 96,154 restricted shares of Common Stock. The fair value of the
shares as of the date of grant was $67 thousand using share price at the grant
day.
NOTE 7 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 exercisable at $0.0001 per share and an aggregate of 1,641,300
stock options to the then Chief Executive Officer of the U.S. Subsidiary
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.
On December 9, 2016, the Company
granted to the employees and directors 7,300,000 options, which are summarized
on the table below:
|
|
No. of options
|
|
|
Exercise price
|
|
|
Vesting period
|
|
|
Fair value at
grant
|
|
|
Expiration
|
|
|
|
granted
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
period
|
|
Directors
|
|
2,000,000
|
|
$
|
0.4
|
|
|
Quarterly
vested over 2 years
|
|
$
|
558
|
|
|
10
|
|
Employees
|
|
5,300,000
|
|
$
|
0.4
|
|
|
vest immediately- Quarterly
vested over 4 years
|
|
$
|
1,480
|
|
|
10
|
|
The fair value of each stock
option grant is estimated at the date of grant using a Black Scholes option
pricing model. The volatility is based on historical volatility of the Company,
by statistical analysis of the weekly share price for the last two years. The
expected term is the mid-point between the vesting date and the maximum
contractual term for each grant equal to the contractual life. The fair value of
each option grant is based on the following assumptions:
Value of one common share
|
$
|
0.39
|
|
Dividend yield
|
|
0%
|
|
Expected stock price
volatility
|
|
94%
|
|
Risk free interest rate
|
|
1.89%
|
|
Expected term (years)
|
|
5
|
|
b.
|
Options and Warrants Granted to
Consultants
|
On December 9, 2016, the Company
entered into a consulting agreements for professional services for a period of
one year. Under the terms of the agreement, the Company granted to a consultants
200,000 options exercisable at $0.4 per share. The options shall vest quarterly
over a period of one year. The fair value of those options as of the date of
grant was $68 thousand using the Black-Scholes valuation model.
14
NOTE 8 LOSS PER SHARE
The following table sets forth the calculation of basic and
diluted loss per share for the period indicated:
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
Earnings (loss for the period)
|
$
|
(8,999
|
)
|
$
|
225
|
|
Weighted average number of common shares
outstanding
|
|
111,425,081
|
|
|
103,127,025
|
|
Earnings (loss) per common share
|
$
|
(0.08
|
)
|
$
|
0.002
|
|
Diluted
:
|
|
|
|
|
|
|
Earnings (loss) for the period
|
$
|
(8,999
|
)
|
$
|
225
|
|
Changes in fair value of embedded
derivative and interest expense on convertible bonds
|
|
|
|
|
(104
|
)
|
Earnings (loss) for the period
|
|
(8,999
|
)
|
|
121
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in the
computation of basic and diluted loss per share
|
|
111,425,081
|
|
|
103,127,025
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share
|
$
|
(0.08
|
)
|
$
|
0.001
|
|
Diluted loss per share does not include 48,717,893 shares
underlying outstanding options and warrants and 16,251,087 shares upon
conversion of convertible notes for the three months ended February 28, 2017,
because the effect of their inclusion in the computation would be anti-dilutive.
Diluted earnings per share does not include 30,832,826 shares
underlying outstanding options and 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.
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.
|
15
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 28, 2017, and November 30, 2016, the Companys
liabilities that are measured at fair value and classified as level 3 fair value
are as follows (in thousands):
|
|
February 28,
|
|
|
November 30,
|
|
|
|
2017
|
|
|
201
6
|
|
|
|
Level 3
|
|
|
Level 3
|
|
Warrants (1)
|
$
|
4,790
|
|
$
|
1,843
|
|
Price protection derivative (1)
|
|
2
|
|
|
76
|
|
Embedded derivatives
convertible
|
|
1,312
|
|
|
240
|
|
loans*(1)
|
|
|
|
|
|
|
Put option derivatives
|
|
273
|
|
|
273
|
|
Convertible bonds (2)
|
$
|
108
|
|
$
|
1,818
|
|
* 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 derivative 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 several
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 considers 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 28, 2017:
|
|
Price Protection
|
|
|
|
|
|
|
Derivative and
|
|
|
Embedded
|
|
|
|
Warrants
|
|
|
Derivative
|
|
Fair value of shares of
Common Stock
|
$
|
0.8
|
|
$
|
0.8
|
|
Expected volatility
|
|
96%-106%
|
|
|
106%
|
|
Discount on lack of
marketability
|
|
16%
|
|
|
-
|
|
Risk free interest rate
|
|
0.47%-1.31%
|
|
|
0.47%-0.58%
|
|
Expected term (years)
|
|
1.7
-
2.3
|
|
|
0.17-0.33
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
Discount on lack of
marketability
|
|
|
|
|
9.9%-25.6%
|
|
Expected capital raise dates
|
|
April 30, 2017
|
|
|
-
|
|
The fair value of the convertible bonds is equal to their
principal amount and the aggregate accrued interest.
16
The following table presents the assumptions that were used for
the models as of November 30, 2016:
|
|
Price Protection
|
|
|
|
|
|
|
|
|
|
Derivative and
|
|
|
Embedded
|
|
|
Put option
|
|
|
|
Warrants
|
|
|
Derivative
|
|
|
Derivative
|
|
Fair value of shares of
common stock
|
$
|
0.39
|
|
$
|
0.39
|
|
$
|
|
|
Expected volatility
|
|
94%-103%
|
|
|
103%
|
|
|
63%
|
|
Discount on lack of
marketability
|
|
16%
|
|
|
-
|
|
|
|
|
Risk free interest rate
|
|
0.57%-1.28%
|
|
|
0.38%-0.62%
|
|
|
0.9%
|
|
Expected term (years)
|
|
1.9-2.6
|
|
|
0.08-0.42
|
|
|
|
|
Expected dividend yield
|
|
0%
|
|
|
0%
|
|
|
|
|
Expected capital raise dates
|
|
Q1 2017
|
|
|
-
|
|
|
-
|
|
Probability of external Investment in Atvio
|
|
|
|
|
|
|
|
20%
|
|
Orgenesis cost of debt
|
|
|
|
|
|
|
|
26%
|
|
Revenues Multiplier
distribution
|
|
|
|
|
|
|
|
3.34
|
|
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 28, 2017:
|
|
|
|
|
|
|
|
Convertible
|
|
|
Price
|
|
|
Put Option
|
|
|
|
|
|
|
Embedded
|
|
|
Bonds
|
|
|
Protection
|
|
|
Derivative
|
|
|
|
Warrants
|
|
|
Derivatives
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at beginning of the
year
|
$
|
1,843
|
|
$
|
240
|
|
$
|
1,818
|
|
$
|
76
|
|
$
|
273
|
|
Changes in fair value during the period
|
|
2,947
|
|
|
1,065
|
|
|
14
|
|
|
(74
|
)
|
|
|
|
Repayment of convertible
bonds
|
|
|
|
|
|
|
|
(1,719
|
)
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
7
|
|
|
(4
|
)
|
|
|
|
|
|
|
Balance at end of the year
|
$
|
4,790
|
|
$
|
1,312
|
|
$
|
109
|
|
$
|
2
|
|
$
|
273
|
|
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 28, 2017
|
$
|
4,575
|
|
$
|
4,790
|
|
$
|
4,995
|
|
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 28, 2017
|
$
|
1,368
|
|
$
|
1,312
|
|
$
|
1,265
|
|
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, 2016:
17
|
|
|
|
|
|
|
|
Convertible
|
|
|
Price
|
|
|
Put
Option
|
|
|
|
|
|
|
Embedded
|
|
|
Bonds
|
|
|
Protection
|
|
|
Derivative
|
|
|
|
Warrants
|
|
|
Derivatives
|
|
|
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Balance at beginning of the
year
|
$
|
1,382
|
|
$
|
289
|
|
$
|
1,888
|
|
$
|
1,533
|
|
$
|
|
|
Additions
|
|
802
|
|
|
40
|
|
|
|
|
|
120
|
|
|
273
|
|
Conversion
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
Changes in fair value related
to Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protection Derivative
expired*
|
|
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
Changes in fair value during
the period
|
|
(341
|
)
|
|
(87
|
)
|
|
(84
|
)
|
|
(1,469
|
)
|
|
|
|
Changes in fair value due to
extinguishment of convertible loan
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
Balance at end of the year
|
$
|
1,843
|
|
$
|
240
|
|
$
|
1,818
|
|
$
|
76
|
|
$
|
273
|
|
(*) During the twelve months ended November 30, 2016,
11,732,916 Price Protection Derivative have expired. There were no transfers to
Level 3 during the twelve months ended November 30, 2016.
NOTE 10 - SUBSEQUENT EVENTS
a. On March 1, 2017, the Company
entered into unsecured convertible note agreements with accredited or offshore
investors for an aggregate amount of $100 thousand. The notes bear an annual
interest rate of 6% and mature in two years from the closing date, unless
earlier converted subject to the terms defined in the agreements.
b. In March 2017, the Company entered
into definitive agreements with accredited investors relating to a private
placement of (i) 384,615 shares of the Companys Common Stock and (ii) three
year warrants to purchase up to an additional 384,615 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 $200 thousand.
c. In April 2017, the institutional
investor referred to in Note 6b, remitted to the Company $500,000 in
subscription proceeds in respect of which the Company will issue to the investor
961,538 shares of Common Stock and three year warrants for an additional 961,
538.
d. d. On March 1, 2017, the Company paid to Admiral $1.5 million on account of the debt owed.
18
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 filed with the Securities & Exchange
Commission on February 28, 2017. 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 continue as a going concern;
|
|
ability to obtain sufficient capital or strategic
business arrangements to maintain our operations and realize our business
plan, including our financial obligations under various strategic
collaboration arrangements;
|
|
ability to develop through our Israeli subsidiary 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 one of our principal competitive advantages
is our cell transdifferentiation technology being developed by our Israeli
subsidiary and being able to compete favorably and profitably as a CDMO in
the regenerative medicine sector;
|
|
belief that our diabetes-related treatment seems to be
safer than other options;
|
|
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 necessary to start and complete
such clinical trials;
|
|
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;
|
|
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;
|
|
ability to grow the business of MaSTherCell, which we acquired in our fiscal year 2015, as our principal CDMO business;
|
|
ability to fund the operational and capital requirements
of our CDMO business and its global expansion;
|
|
successful integration of our clinical and CDMO strategy;
|
|
ability to contract with third-party suppliers and
manufacturers and their ability to perform adequately;
|
|
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;
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 for the year ended November 30, 2016, as filed
with the Securities & Exchange Commission on February 28, 2017, 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.
19
Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity or performance. Moreover,
neither we 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 S.A.
(MaSTherCell), our Belgian-based subsidiary. Unless otherwise specified, all
dollar amounts are expressed in United States dollars. Our common stock is
currently listed on the OTC Market, QB tier, under the symbol ORGS.
Corporate Overview
Orgenesis Inc. is among the first
of a new breed of regenerative therapy companies with expertise and unique
experience in cell therapy development and manufacturing. We are 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 to apply our
disciplined execution to emerging 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 for
diabetes is derived from the published work of Prof. Sarah Ferber, our Chief
Science Officer and a researcher at Tel Hashomer Medical Center, a leading
medical hospital and research center in Israel (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 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
our 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 Subsidiary is a
contract development manufacturing organization, or CDMO, specialized in cell
therapy development for advanced medicinal products. In the last decade, cell
therapy and regenerative medicine products have gained significant importance,
particularly in the fields of ex-vivo gene therapy and immunotherapy. While
academic and industrial research has led scientific development in the sector,
industrialization and manufacturing expertise remains insufficient. MaSTherCell
plans to fill this gap by providing two types of services to its customers: (i)
process and assay development and optimization services and (ii) current Good
Manufacturing Practices (cGMP) contract manufacturing services. These services
offer a double advantage to MaSTherCell s customers. First, customers can
continue allocating their financial and human resources on their
product/therapy, while relying on a trusted partner for their process
development/production. Second, it allows customers to leverage MaSTherCell s
expertise in cell therapy manufacturing and all related aspects. As the industry
continues to mature and a growing number of cell therapy companies approach
commercialization, we believe that MaSTherCell is well positioned to serve as an
external manufacturing source for cell therapy companies.
In furtherance of our business
strategy, we are leveraging the recognized expertise and experience in cell
process development and manufacturing of MaSTherCell, and our international
joint ventures, to build a global and fully integrated bio-pharmaceutical
company in the cell therapy development and manufacturing area. We target the
international manufacturing market as a key priority through joint-venture
agreements that provide development capabilities, along with manufacturing
facilities and experienced staff. All of these capabilities offered to
third-parties are mobilized for our internal development projects,
allowing the Company to be in a position to bring new products to the patients
faster and at a fraction of the costs.
20
Significant Recent Corporate Highlights
Our business success in the
immediate future will largely depend on our ability to raise significant amounts
of working capital in order to achieve our business plan and maintain operations
as presently conducted and to expand the revenue generating capacity of our
subsidiary MaSTherCell S.A.
Management continues in its efforts to raise operating capital. In connection therewith, in January 2017we entered into definitive agreements with an institutional investor for the private placement of units of our securities for aggregate subscription proceeds to the Company of $16 million. The subscription proceeds are payable on a periodic basis through August 2018. Each periodic payment of subscription proceeds will be evidenced by our standard securities subscription agreement. As of the date of this quarterly report on Form 10-Q, the investor has remitted to us $1.5 million in subscription proceeds. Each unit is comprised of one share of our common stock and a warrant to purchase an additional share of common stock at a per share exercise price of $0.52. Pursuant to the investment, the investor designated director to serve on our board of directors for an initial two-year period and thereafter so long as the investor holds at least 10% of the Companys outstanding Common Stock. The investors right to designate the board designee is subject to the payment in full as provided in the definitive agreements of the remaining subscription proceeds.
On February 13, 2017, we
announced that our Belgian-based subsidiary, Orgenesis SPRL, received the formal
approval from the Walloon Region, Belgium (Service Public of Wallonia, DG06) for
a €12.3 million (approximately $12.8 million) support program for the research
and development of a potential cure for Type 1 Diabetes. The financial support
was awarded to our Belgian subsidiary at 55% of budgeted costs, or a total of
€6.8 million (approximately $7 million).
We have improved our balance
sheet by reducing our companys debt by the repayment of $1.5 million in
principal amount owed to an institutional investor. In accordance with the
agreement with such investor, we undertook to pay down the balance owed to such
investor in the approximate amount of $0.5 million periodically on a monthly
basis and from amounts raised.
As further discussed below, our
subsidiary MaSTherCell S.A., had revenues of approximately $1.85 million during
the quarter representing an increase of 22% over the same period last year.
While we believe, the above
developments position us to further our business development efforts and realize
our business plan, we can provide no assurance that we will be successful in
achieving our business plan. As discussed below, we still need to raise
significant working capital to maintain operations and achieve our business
plans.
Results of Operations
Comparison of the Three Months Ended February 28, 2017 to
the Three months Ended February 29, 2016
Our financial results for the
three months ended February 28, 2017 are summarized as follows in comparison to
the three months ended February 29, 2016:
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Revenues
|
$
|
(1,852
|
)
|
$
|
(1,520
|
)
|
Cost of sales
|
|
1,905
|
|
|
1,480
|
|
Research and development
expenses, net
|
|
741
|
|
|
401
|
|
Amortization of intangible assets
|
|
381
|
|
|
328
|
|
Selling, general and
administrative expenses
|
|
2,271
|
|
|
1,166
|
|
Share in losses of associated company
|
|
89
|
|
|
|
|
Financial expenses (income),
net
|
|
4,948
|
|
|
(1,772
|
)
|
Loss before income taxes
|
$
|
8,483
|
|
$
|
83
|
|
21
Revenues
All revenues were derived from the Companys Belgian
Subsidiary, MaSTherCell S.A.
Our revenues for the three months
ended February 28, 2017 are summarized as follows in comparison to our revenues
for the three months ended February 29, 2016:
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Services
|
$
|
1,384
|
|
$
|
1,231
|
|
Goods
|
|
468
|
|
|
289
|
|
Total
|
$
|
1,852
|
|
$
|
1,520
|
|
Revenues for the three months ended February 28, 2017, increased by 22% or $332 thousand compared to the same period in 2016. The increase in revenues is attributable to an increase in the volume of the services provided by MaSTherCell resulting from the extension by MaSTherCell of existing customer service contracts and the entry into new customer service contracts with leading biotech companies and also from revenues generated from existing manufacturing agreements
Expenses
Cost of Sales
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Salaries and related expenses
|
$
|
1,034
|
|
$
|
666
|
|
Professional fees and consulting services
|
|
87
|
|
|
71
|
|
Raw Material
|
|
518
|
|
|
276
|
|
Depreciation and amortization expenses, net
|
|
210
|
|
|
312
|
|
Other expenses
|
|
56
|
|
|
155
|
|
|
$
|
1,905
|
|
|
1,480
|
|
Cost of sales for the three
months ended February 28, 2017 increased by 29%, or $425 thousand, compared to
the same period in 2016.
Salaries and related expenses for
the three months ended February 28, 2017 increased by 55%, or $368 thousand
compared to the same period in 2016. The increase in salaries and related
expenses was due to recruitment by MaSTherCell of new employees to support the
increase in the volume of services provided.
Raw materials for the three
months ended February 28, 2017, increased by 88%, or $242 thousand, compared to
the same period in 2016 and are primarily attributable to an increase of $179
thousand in revenues from selling goods to our customers.
Depreciation and amortization
expenses (net) for the three months ended February 28, 2017 decreased by 33%, or
$102 thousand, compared to the same period in 2016, mainly due to fully
amortized assets as of November 30, 2016 that are not amortized in the period.
22
Research and Development Expenses
|
|
Three
Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Salaries and related expenses
|
$
|
293
|
|
|
251
|
|
Stock-based compensation
|
|
267
|
|
|
34
|
|
Professional fees and
consulting services
|
|
44
|
|
|
91
|
|
Lab expenses
|
|
174
|
|
|
91
|
|
Other research and
development expenses
|
|
41
|
|
|
45
|
|
Less grant
|
|
(78
|
)
|
|
(111
|
)
|
Total
|
$
|
741
|
|
$
|
401
|
|
Salaries and related expenses for
the three months ended February 28, 2017 increased by 17%, or $42 thousand
compared to the same period in 2016. The increase in salaries and related
expenses is primarily attributable to hiring additional two experienced
employees to work as part of our research and development team instead of
getting services from external consultant, accordingly the professional fees and
consulting services for the three months ended February 28, 2017 decreased by
$47 thousand.
Stock-based compensation for the
three months ended February 28, 2017 increased by $233 thousand compared to the
same period in 2016 and are primarily due to new grant of options to employees
in December 2016.
Selling, General and Administrative Expenses
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Salaries and related expenses
|
$
|
224
|
|
$
|
204
|
|
Stock-based compensation
|
|
393
|
|
|
137
|
|
Accounting and legal fees
|
|
401
|
|
|
208
|
|
Professional fees
|
|
394
|
|
|
314
|
|
Rent and related expenses
|
|
244
|
|
|
151
|
|
Business development
|
|
124
|
|
|
84
|
|
Expenses related to a joint venture
|
|
258
|
|
|
|
|
Other general and administrative expenses
|
|
233
|
|
|
68
|
|
Total
|
$
|
2,271
|
|
$
|
1,166
|
|
Selling, general and
administrative expenses for the three months ended February 28, 2017 increased
by 95%, or $1,105 thousand, compared to the same period in 2016.
Stock-based compensation expenses
during the three months ended February 28, 2017 increased by 186%, or $256
thousand, compared to the same period in 2016 and was primarily attributable to
new option grants to executives, directors and employees made on December 9,
2016 and due to new option grant made to consultant in May 2016 for which we
recorded a charge in the amount of $297 thousand.
Accounting and legal fees expenses for the three months ended February 28, 2017 increased by 93%, or $193 thousand compared to the same period in 2016. The increase is attributable to legal fees due to the services provided in connection with exploring a new strategic collaboration, new fundraising and, repayment of the bonds.
Rent and related expenses
increased by 62%, or $93 thousand, during three months ended February 28, 2017
compared to the same period in 2016 and is primarily attributable to leasing of
additional offices premises for our subsidiary MaSTherCell.
23
Expenses related to a JV are
comprised of our 50% participating interest in the expenses accrued during the
three months ended February 28, 2017, which primarily consisted salary expenses
and construction costs of the new production area in Korea under our joint
venture with CureCell.
Financial Expenses (Income), net
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Increase (decrease) in fair
value of warrants and financial liabilities measured at fair value
|
$
|
3,952
|
|
$
|
(1,960
|
)
|
Stock-based compensation
related to warrants granted to bondholder
|
|
20
|
|
|
|
|
Stock-based compensation
related to shares to be issued to creditor
|
|
520
|
|
|
|
|
Interest expense on
convertible loans and loans
|
|
389
|
|
|
185
|
|
Foreign exchange loss, net
|
|
63
|
|
|
3
|
|
Other expenses
|
|
4
|
|
|
|
|
Total
|
$
|
4,948
|
|
$
|
(1,772
|
)
|
Financial expenses (income), net
for the three months ended February 28, 2017, increased by $6,720 thousand,
compared to the same period in 2016. The change in financial expenses is mainly
attributable to an increase of $4,052 thousand in fair value of warrants and
financial liabilities measured at fair value due to the fact that in the three
months ended February 28, 2017 there was a strong impact of the increase in the
share price, which was $0.80 on February 28, 2017 as opposed to $0.39 on
November 30, 2016. On the other hand, the decrease in fair value of warrants and
financial liabilities measured at fair value for the three months ended February
29, 2016 was mainly due to updated in our assumptions related to the
probabilities of activating the anti-dilution mechanism.
In addition, part of the increase
is attributable to $20 thousand of stock-based compensation expenses related to
102,822 warrants granted to the remain bondholder in consideration of the
extension of his bonds, and $520 thousand of stock-based compensation expenses
related to restricted shares issued on March 7, 2017, in accordance with the
terms of the convertible loan agreement dated January 23, 2017.
Working Capital Deficiency
|
|
February 28,
|
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Current assets
|
$
|
7,428
|
|
$
|
5,055
|
|
Current liabilities
|
|
18,123
|
|
|
12,412
|
|
Working capital deficiency
|
$
|
(10,695
|
)
|
$
|
(7,357
|
)
|
Current assets increased by $2.4
million, which was primarily attributable to an increase of $3 million in cash
and cash equivalents due to offering of private placement of our equity and
equity-linked securities in February 2017.
Furthermore, the account
receivables increased by $0.3 million and the grants receivable decreased by
$0.9 million mainly due to payment from the DGO6.
Current liabilities increased by
$5.2 million, which was primarily attributable to an increase of $2 million in
advanced payments on account of grant in connection with the new grant approved
by the DGO6 to support a clinical study in Germany and Belgium.
24
In addition, an increase of $2.1
million in current maturities of convertible loans, $1.3 million increase was
related to new convertible loans and the remain amount was due to changes in
fair value of the old convertible loans. On March 2017, we reimbursed $1.9
million from the outstanding amount of the current maturities of convertible
loans.
Cash Flows
|
|
Three Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Net income (loss)
|
$
|
(8,999
|
)
|
$
|
255
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
399
|
|
|
(1,341
|
)
|
Net cash used in investing activities
|
|
(414
|
)
|
|
(354
|
)
|
Net cash provided by (used in) financing activities
|
|
3,036
|
|
|
(1,508
|
)
|
Increase (decrease)in cash and cash equivalents
|
$
|
3,021
|
|
$
|
(3,203
|
)
|
The increase in net cash used in
operating activities for three months ended February 28, 2017, compared to the
same period in 2016, is primarily attributable to our CDMO activities in
Belgium.
The increase in amount of $60
thousand in net cash used in investing activities for the three months ended
February 28, 2017, compared to the same period in 2016, was due to $180 thousand
due to investment in associates, which was offset by decrease in amount of $120
in purchase and selling of property and equipment.
The increase in amount of $4.5 million in net cash provided by financing activities for the three months ended February 28, 2017 as compared to the same period in 2016, was attributable to the increase of $1.1 million in the proceeds from issuance of shares and warrants, $3.8 million in the net proceeds from issuance of convertible loans, which was offset by increase in amount of $0.3 million due to repayment of convertible loans, convertible bonds and short and long-term debt.
Liquidity & Capital Resources
We need to raise additional operating capital in order to maintain our operations and realize our business plan. Management believes that funds on hand, as well as the subscription proceeds of $9 million that we anticipate receiving through the end of February 2018 (out of a total of $14.5 million subscription proceeds that we are to receive on a periodic basis through August 2018), will allow us to conduct operations as presently conducted through the end of fiscal year 2017, without the planned CDMO facility expansion. We will likely need to raise additional operating capital in fiscal 2018 in order to maintain operations and to realize our business plan. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures and debt repayment, we may not have the cash resources to continue as a going concern thereafter.
Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. As of February 28, 2017, we have not achieved profitable operations, has accumulated losses of approximately $38.8 million (since inception), has a working capital deficiency of $10.7 million and expects to incur further losses in the development of its business. These factors raise substantial doubt about our ability to continue as a going concern. Management is in the process of evaluating various financing alternatives for operations, as we 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 condensed 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. If the
Company is unable to obtain the necessary capital, the Company may have to cease
operations.
25
We have been funding operations primarily from the proceeds from private placements of the our convertible and equity securities and from revenues and accounts receivable generated by MaSTherCell. From December 2016 through February 2017, we received, through MaSTherCell, proceeds of approximately $2.8 million and $4.1 million from the private placement to accredited investors of its equity and equity linked securities and convertible loans. In addition, in January 2017 we entered into definitive agreements with an institutional investor for the private placement of units of our securities for aggregate subscription proceeds of $16 million. The subscription proceeds are payable on a periodic basis through August 2018. During the three months ended February 28, 2017, $1 million was remitted by such investor and in April 2017 an additional $0.5 million was remitted. In addition, between March 1 and April 18, 2017, we raised an additional $0.3 million from the proceeds of a private placement to certain accredited investors of its equity and equity linked securities and $0.6 million in revenues and accounts receivable from customers.
Cash Requirements
Our plan of operation during fiscal year 2017 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, but not limited to, a chief medical officer, US based chief science officer and chief operating officer;
|
|
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 (in certified labs).
|
We estimate that our operating
resources and expenses for the next 12 months as of February 28, 2017 will be as
follows:
Revenues
|
$
|
12,632
|
|
Grant income
|
|
6,982
|
|
Industrial loans
|
|
2,087
|
|
Manufacturing wages
|
|
(4,736
|
)
|
Other Manufacturing expenses
|
|
(6,512
|
)
|
R&D wages
|
|
(1,211
|
)
|
R&D subcontractors
|
|
(6,212
|
)
|
Other R&D expenses
|
|
(1,816
|
)
|
G&A expenses
|
|
(3,987
|
)
|
Expansion of CDMO facilities
|
|
(2,621
|
)
|
Manufacturing costs
|
|
(2,500
|
)
|
Property and equipment investments
|
|
(2,623
|
)
|
Total
|
$
|
(10,517
|
)
|
Future Financing
We will require additional funds
to implement our growth strategy for our business. In addition, while we have
received various grants that have enabled us to fund our clinical developments,
these funds are largely restricted for use for other corporate operational and
working capital purposes. As mentioned above, we raised additional capital to
both supplement our clinical developments that are not covered by any grant
funding and to cover our operational expenses. In the first quarter of fiscal
2017, we entered into a definitive agreement with an institutional investor for
the private placement of units of our securities for aggregate subscription
proceeds of $16 million. The subscription proceeds are payable on a periodic
basis through August 2018, of which, through the date of this report on Form
10-Q, we have received $1.5 million in subscription proceeds. We may raise the
additional funds required through equity financing, debt financing, or
other sources, which may result in further dilution in the equity ownership of
our shares. There can be no assurance that additional financing will be
available when needed or, if available, that can be obtained on commercially
reasonable terms. If we will not be able to obtain the additional financing on a
timely basis as required, or generate significant material revenues from
operations, we will not be able to meet our other obligations as they become due
and will be forced to scale down or perhaps even cease our operations.
26
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.