The accompanying notes are an integral part of these
consolidated financial statements.
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(U.S. Dollars, in thousands)
|
|
Year ended November 30,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
$
|
(12,367
|
)
|
$
|
(11,113
|
)
|
Adjustments required to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
Stock-based compensation
|
|
3,364
|
|
|
2,869
|
|
Share in losses of associated
company
|
|
1,214
|
|
|
123
|
|
Loss from
extinguishment of a convertible loan
|
|
-
|
|
|
229
|
|
Depreciation and amortization
expenses
|
|
2,598
|
|
|
2,923
|
|
Change in fair
value of warrants and embedded derivatives
|
|
(826
|
)
|
|
187
|
|
Change in fair value of
convertible bonds
|
|
(192
|
)
|
|
(84
|
)
|
Interest expense accrued on loans and convertible loans (including
amortization
of beneficial conversion feature)
|
|
1,110
|
|
|
283
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable, net
|
|
33
|
|
|
(54
|
)
|
Increase in inventory
|
|
(265
|
)
|
|
(101
|
)
|
Increase
in other assets
|
|
(3
|
)
|
|
(17
|
)
|
Decrease (increase) in
prepaid expenses and other accounts receivable
|
|
(107
|
)
|
|
136
|
|
Increase
in related parties, net
|
|
(583
|
)
|
|
|
|
Increase (decrease) in
accounts payable
|
|
(933
|
)
|
|
1,079
|
|
Increase
in accrued expenses
|
|
92
|
|
|
399
|
|
Increase in employee and
related payables
|
|
1,142
|
|
|
352
|
|
Increase
in deferred income
|
|
1,044
|
|
|
53
|
|
Increase in advance payments and
receivables on account of grant
|
|
2,156
|
|
|
499
|
|
Decrease in
deferred taxes
|
|
(1,310
|
)
|
|
(1,546
|
)
|
Net cash used in operating activities
|
|
(3,833
|
)
|
|
(3,783
|
)
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
(975
|
)
|
|
(1,425
|
)
|
Investments in associates
|
|
(2,429
|
)
|
|
(111
|
)
|
Net cash used in
investing activities
|
|
(3,404
|
)
|
|
(1,536
|
)
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
Short-term line of credit
|
|
(21
|
)
|
|
21
|
|
Proceeds from issuance
of shares and warrants
|
|
5,297
|
|
|
1,488
|
|
Loans received
|
|
-
|
|
|
1,121
|
|
Redeemable
non-controlling interest
|
|
2,349
|
|
|
-
|
|
Repayment of short and long-term debt
|
|
(1,108
|
)
|
|
(2,106
|
)
|
Repayment of
convertible loans
|
|
(4,051
|
)
|
|
|
|
Proceeds from issuance of convertible
loans (net of transaction costs)
|
|
5,899
|
|
|
1,599
|
|
Net cash provided by financing activities
|
|
8,365
|
|
|
2,123
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
1,128
|
|
|
(3,196
|
)
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND
CASH EQUIVALENTS
|
|
1,497
|
|
|
(81
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
891
|
|
|
4,168
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
3,519
|
|
$
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH FINANCING
ACTIVITY
|
|
|
|
|
|
|
Conversion of loans (including accrued interest) to common
stock and warrants
of
MaSTherCell
|
$
|
1,277
|
|
$
|
1,028
|
|
Reclassification of redeemable
non-controlling interest to equity
|
$
|
-
|
|
$
|
21,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION ON INTEREST
PAID IN CASH
|
$
|
903
|
|
$
|
106
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
ORGENESIS INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 2017 AND 2016
NOTE 1 DESCRIPTION OF BUSINESS
a.
General
Orgenesis
Inc., a Nevada corporation, is a service and research company in the field of
regenerative medicine industry with a focus on cell therapy development and
manufacturing for advanced medicinal products. In addition, the Company is
focused on developing novel and proprietary cell therapy trans-differentiation
technologies for the treatment of diabetes. The consolidated financial
statements include the accounts of Orgenesis Inc., its subsidiaries MaSTherCell
S.A (MaSTherCell), its Belgian-based subsidiary and a contract development and
manufacturing organization, or CDMO, specialized in cell therapy development and
manufacturing 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,
Orgenesis Maryland Inc. (the U.S. Subsidiary), a Maryland corporation, and
Orgenesis Ltd., an Israeli corporation, (the Israeli Subsidiary).
The
Companys goal is to industrialize cell therapy for fast, safe and
cost-effective production in order to provide rapid therapies for any market
around the world through a world-wide network of CDMOs joint venture partners.
The Companys trans-differentiation technologies for treating diabetes, which
will be referred to as the cellular therapy (CT) business, is based on a
technology licensed by Tel Hashomer Medical Research (THM) to the Israeli
Subsidiary that demonstrates the capacity to induce a shift in the developmental
fate of cells from the liver and trans-differentiating (converting) them into
pancreatic beta cell-like insulin-producing cells.
On
March 14, 2016, the Company and CureCell Co., Ltd. (CureCell) entered into a
Joint Venture Agreement (the CureCell JVA) pursuant to which the parties are
collaborating in the contract development and manufacturing of cell therapy
products in Korea. See also Note 5.
On
May 10, 2016, the Company and Atvio Biotech Ltd., (Atvio) entered into a Joint
Venture Agreement (the Atvio 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. See also Note
5.
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.
On
November 16, 2017, the Company implemented a reverse stock split of its
outstanding shares of common stock at a ratio of 1-for-12 shares. The reverse
stock split has been reflected in this Annual Report on Form 10-K. See Note
11(a).
b.
Liquidity
As
of November 30, 2017, we have accumulated losses of approximately $44.1 million.
Although we are now showing positive revenue and gross profit trends in our CDMO
division, we expect to incur further losses in the CT division.
The
Company has been funding operations primarily from the proceeds from private
placements of the Companys convertible debt and equity securities and from
revenues generated by MaSTherCell. From December 1, 2016 through November 30,
2017, the Company received, through MaSTherCell, proceeds of approximately $8.9
million in revenues and accounts receivable from customers and $11.4 million
from the private placement to accredited investors of the Company's equity and
equity linked securities and convertible loans, out of which $4.5 million are
from the institutional investor with whom the Company entered into definitive
agreements in January 2017 for the private placement of units of the Company's
securities for aggregate subscription proceeds of $16 million. The subscription
proceeds are payable on a periodic basis through August 2018. In addition, from
December 1, 2017 through February 28, 2018, the Company raised $3.8 million from
the proceeds of a private placement to certain accredited investors of equity and
equity-linked securities and received, through MaSTherCell, proceeds of
approximately $2.6 million in accounts receivable from its customers.
F-9
Based
on its current cash resources and commitments, the Company believes it will be
able to maintain its current planned development activity and corresponding
level of expenditures for at least 12 months from the date of the issuance of
the financial statements, although no assurance can be given that it will not
need additional funds prior to such time. If there are unexpected increases in
general and administrative expenses or research and development expenses, or
decreases in MaSTherCell's income, the Company will need to seek additional
financing.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accounting policies adopted are generally consistent with those of the previous
financial year.
a.
Use
of Estimates in the Preparation of Financial Statements
The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the financial statement date and the reported expenses during
the reporting periods. Actual results could differ from those estimates. As
applicable to these consolidated financial statements, the most significant
estimates and assumptions relate to the valuation of stock-based compensation,
valuation of financial instruments measured at fair value and valuation of
impairment of goodwill and intangible assets.
b.
Business Combination
The
Company allocates the purchase price of an acquired business to the tangible and
intangible assets acquired and liabilities assumed based upon their estimated
fair values on the acquisition date. Any excess of the purchase price over the
fair value of the net assets acquired is recorded as goodwill. Acquired
in-process backlog, customer relations, brand name and know how are recognized
at fair value. The purchase price allocation process requires management to make
significant estimates and assumptions, especially at the acquisition date with
respect to intangible assets. Direct transaction costs associated with the
business combination are expensed as incurred. The allocation of the
consideration transferred in certain cases may be subject to revision based on
the final determination of fair values during the measurement period, which may
be up to one year from the acquisition date. The Company includes the results of
operations of the business that it has acquired in its consolidated results
prospectively from the date of acquisition.
c.
Cash
Equivalents
The
Company considers all short term, highly liquid investments, which include short
term bank deposits with original maturities of three months or less from the
date of purchase, that are not restricted as to withdrawal or use and are
readily convertible to known amounts of cash, to be cash equivalents.
d.
Research and Development, net
Research
and development expenses include costs directly attributable to the conduct of
research and development programs, including the cost of salaries, stock-based
compensation expenses, payroll taxes and other employees' benefits, lab
expenses, consumable equipment and consulting fees. All costs associated with
research and developments are expensed as incurred. Participation from
government departments and from research foundations for development of approved
projects is recognized as a reduction of expense as the related costs are
incurred.
e.
Principles of Consolidation
The
consolidated financial statements include the accounts of the Company and its
Subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation.
F-10
f.
Non
Marketable Equity Investments
The
Companys investments in certain non-marketable equity securities in which it
has the ability to exercise significant influence, but does not control through
variable interests or voting interests, are accounted for under the equity
method of accounting and presented as Investment in associates, net, in the
Companys consolidated balance sheets. Under the equity method, the Company
recognizes its proportionate share of the comprehensive income or loss of the
investee. The Companys share of income and losses from equity method
investments is included in share in losses of associated company.
The
Company reviews its investments accounted for under the equity method for
possible impairment, which generally involves an analysis of the facts and
changes in circumstances influencing the investments.
g.
Functional Currency
The
currency of the primary economic environment in which the operations of the
Company and part of its Subsidiaries are conducted is the U.S. dollar ($ or
dollar). The functional currency of the Belgian Subsidiaries is the Euro (€
or Euro). The functional currency of CureCell is the Won (KRW). Most of the
Companys expenses are incurred in dollars, and the source of the Companys
financing has been provided in dollars. Thus, the functional currency of the
Company and its other subsidiaries is the dollar. Transactions and balances
originally denominated in dollars are presented at their original amounts.
Balances in foreign currencies are translated into dollars using historical and
current exchange rates for nonmonetary and monetary balances, respectively. For
foreign transactions and other items reflected in the statements of operations,
the following exchange rates are used: (1) for transactions exchange rates at
transaction dates or average rates and (2) for other items (derived from
nonmonetary balance sheet items such as depreciation) historical exchange
rates. The resulting transaction gains or losses are recorded as financial
income or expenses. The financial statements of the Belgian Subsidiaries and the
investment in CureCell are included in the consolidated financial statements,
translated into U.S. dollars. Assets and liabilities are translated at year-end
exchange rates, while revenues and expenses are translated at yearly average
exchange rates during the year. Differences resulting from translation of assets
and liabilities are presented as other comprehensive income.
h.
Inventory
Inventory
is stated at the lower of cost or net realizable value with cost determined
under the first-in-first-out (FIFO) cost method. The entire balance of inventory
at November 30, 2017 and 2016, consists of raw material.
i.
Property and Equipment
Property
and equipment are recorded at cost and depreciated by the straight-line method
over the estimated useful lives of the related assets.
Annual
rates of depreciation are presented in the table below:
|
Weighted Average
|
|
Useful Life (Years)
|
Production facility
|
20
|
Laboratory equipment
|
5
|
Office equipment and computers
|
3-5
|
Intangible
assets and their useful lives are as follows:
|
|
Weighted Average
|
Amortization Recorded at
|
|
|
Useful Life (Years)
|
Comprehensive Loss Line Item
|
|
Customer Relationships
|
7.75
|
Amortization of intangible
assets
|
|
Brand
|
9.75
|
Amortization of intangible assets
|
|
Know-How
|
11.75
|
Amortization of intangible
assets
|
F-11
Intangible
assets are recorded at acquisition cost less accumulated amortization and
impairment. Definite lived intangible assets are amortized over their estimated
useful life using the straight-line method, which is determined by identifying
the period over which the cash flows from the asset are expected to be
generated.
j.
Goodwill
Goodwill
represents the excess of the purchase price of acquired business over the
estimated fair value of the identifiable net assets acquired. Goodwill is not
amortized but is tested for impairment at least annually (at November 30), at
the reporting unit level or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The goodwill impairment
test is applied by performing a qualitative assessment before calculating the
fair value of the reporting unit. If, on the basis of qualitative factors, it is
considered not more likely than not that the fair value of the reporting unit is
less than the carrying amount, further testing of goodwill for impairment would
not be required. Otherwise, goodwill impairment is tested using a two-step
approach.
The
first step involves comparing the fair value of the reporting unit to its
carrying amount. If the fair value of the reporting unit is determined to be
greater than its carrying amount, there is no impairment. If the reporting
units carrying amount is determined to be greater than the fair value, the
second step must be completed to measure the amount of impairment, if any. The
second step involves calculating the implied fair value of goodwill by deducting
the fair value of all tangible and intangible assets, excluding goodwill, of the
reporting unit from the fair value of the reporting unit as determined in step
one. The implied fair value of the goodwill in this step is compared to the
carrying value of goodwill. If the implied fair value of the goodwill is less
than the carrying value of the goodwill, an impairment loss equivalent to the
difference is recorded. There were no impairment charges in 2017 and 2016.
k.
Impairment of Long-lived Assets
The
Company reviews its property and equipment, intangible assets subject to
amortization and other long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset class may
not be recoverable. Indicators of potential impairment include: an adverse
change in legal factors or in the business climate that could affect the value
of the asset; an adverse change in the extent or manner in which the asset is
used or is expected to be used, or in its physical condition; and current or
forecasted operating or cash flow losses that demonstrate continuing losses
associated with the use of the asset. If indicators of impairment are present,
the asset is tested for recoverability by comparing the carrying value of the
asset to the related estimated undiscounted future cash flows expected to be
derived from the asset. If the expected cash flows are less than the carrying
value of the asset, then the asset is considered to be impaired and its carrying
value is written down to fair value, based on the related estimated discounted
cash flows. There were no impairment charges in 2017 and 2016.
l.
Revenue Recognition
The
Company recognizes revenue for services linked to cell process development and
cell manufacturing services based on individual contracts in accordance with
Accounting Standards Codification (ASC) 605,
Revenue Recognition,
when
the following criteria have been met: persuasive evidence of an arrangement
exists; delivery of the processed cells has occurred or the services that are
milestones based have been provided; the price is fixed or determinable and
collectability is reasonably assured. The Company determines that persuasive
evidence of an arrangement exists based on written contracts that define the
terms of the arrangements. In addition, the Company determines that services
have been delivered in accordance with the arrangement. The Company assesses
whether the fee is fixed or determinable based on the payment terms associated
with the transaction and whether the sales price is subject to refund or
adjustment. Service revenues are recognized as the services are provided.
The Company also incurs revenue from selling of some consumables which are
incidental to the services provided as foreseen in the clinical services
contracts. Such revenue is recognized upon delivery of the processed cells in
which they were consumed.
m.
Financial Liabilities Measured at Fair Value
1)
Fair Value
Option
F-12
Topic
815 provides entities with an option to report certain financial assets and
liabilities at fair value with subsequent changes in fair value reported in
earnings. The election can be applied on an instrument by instrument basis. The
Company elected the fair value option to its convertible bonds. The liability is
measured both initially and in subsequent periods at fair value, with changes in
fair value charged to finance expenses, net (See also Note 15).
2)
Derivatives
Embedded
derivatives are separated from the host contract and carried at fair value when
(1) the embedded derivative possesses economic characteristics that are not
clearly and closely related to the economic characteristics of the host contract
and (2) a separate, standalone instrument with the same terms would qualify as a
derivative instrument. The derivative is measured both initially and in
subsequent periods at fair value, with changes in fair value charged to finance
expenses, net. As to embedded derivatives arising from the issuance of
convertible debentures (See Note 15).
n.
Income Taxes
1) With respect to
deferred taxes, income taxes are computed using the asset and liability method.
Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted tax
rates and laws. A valuation allowance is recognized to the extent that it is
more likely than not that the deferred taxes will not be realized in the
foreseeable future.
2) The Company follows a
two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the
available evidence indicates that it is more likely than not that the position
will be sustained on examination. If this threshold is met, the second step is
to measure the tax position as the largest amount that is greater than 50%
likely of being realized upon ultimate settlement.
3) Taxes that would
apply in the event of disposal of investment in Subsidiaries have not been taken
into account in computing the deferred income taxes, as it is the Companys
intention to hold these investments and not realize them.
o.
Stock-based Compensation
The Company accounts for employee stock-based compensation in accordance with
the guidance of ASC Topic 718,
Compensation - Stock Compensation
, which
requires all share based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based on their grant
date fair values. The fair value of the equity instrument is charged to
compensation expense and credited to additional paid in capital over the period
during which services are rendered. The Company recorded stock based
compensation expenses using the straight line method.
The
Company follows ASC Topic 505-50,
Equity-Based Payments to Non-Employees
,
for stock options issued to consultants and other non-employees. In accordance
with ASC Topic 505-50, these stock options issued as compensation for services
provided to the Company are accounted for based upon the fair value of the
options. The fair value of the options granted is measured on a final basis at
the end of the related service period and is recognized over the related service
period using the straight line method.
p.
Redeemable
Non-controlling Interest
Non-controlling interests with embedded redemption
features, such as an unwind option, whose settlement is not at the Company's
discretion, are considered redeemable non-controlling interest. Redeemable
non-controlling interests are considered to
be temporary equity and are therefore presented as a mezzanine section between
liabilities and equity on the Company's consolidated balance sheets. Subsequent
adjustment of the amount presented in temporary equity is required only if the
Company's management estimates that it is probable that the instrument will become redeemable. Adjustments of redeemable non-controlling
interest to its redemption value are recorded through additional paid-in
capital.
F-13
q.
Loss
per Share of Common Stock
Net
loss per share, basic and diluted, is computed on the basis of the net loss for
the period divided by the weighted average number of common shares outstanding
during the period. Diluted net loss per share is based upon the weighted average
number of common shares and of common shares equivalents outstanding when
dilutive. Common share equivalents include: (i) outstanding stock options under
the Companys Global Share Incentive Plan (2012) and warrants which are included
under the treasury share method when dilutive, and (ii) common shares to be
issued under the assumed conversion of the Companys outstanding convertible
loans, which are included under the if-converted method when dilutive (See Note
12).
r.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk
consist of principally cash and cash equivalents and certain receivables. The
Company held these instruments with highly rated financial institutions and the
Company has not experienced any significant credit losses in these accounts and
does not believe the Company is exposed to any significant credit risk on these
instruments apart of accounts receivable. The Company performs ongoing credit
evaluations of its customers for the purpose of determining the appropriate
allowance for doubtful accounts. An appropriate allowance for doubtful accounts
is included in the accounts and netted against accounts receivable. In the year
ended November 30, 2017, the Company has recorded an allowance of $897 thousand
($336 in the year ended November 30, 2016).
Bad
debt allowance is created when objective evidence exists of inability to collect
all sums owed it under the original terms of the debit balances. Material
customer difficulties, the probability of their going bankrupt or undergoing
economic reorganization and insolvency or material delays in payments are all
considered indicative of reduced debtor balance value.
s.
Beneficial Conversion Feature (BCF)
When
the Company issues convertible debt, if the stock price is greater than the
effective conversion price (after allocation of the total proceeds) on the
measurement date, the conversion feature is considered "beneficial" to the
holder. If there is no contingency, this 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 (See Note 7).
t.
Other
Comprehensive Loss
Other
comprehensive loss represents adjustments of foreign currency translation.
u.
Recently Issued Accounting Pronouncements
a.
Recently Issued Accounting Pronouncements- adopted by the Company
In
July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260);
Distinguishing Liabilities from Equity (Topic 480; Derivatives and Hedging
(Topic 815)", ("ASU 2017-11"). This update was issued to address complexities in
accounting for certain equity-linked financial instruments containing down round
features. The amendment changes the classification analysis of these financial
instruments (or embedded features) so that equity classification is no longer
precluded. The amendments in ASU 2017-11 are effective for annual reporting
periods beginning after December 15, 2018, including interim reporting periods
within those annual reporting periods. Early adoption is permitted. The Company
elected to early adopt the standard effective September 1, 2017,
retrospectively. Following is the results of the adoption on the Companys
consolidated financial statements previously reported:
F-14
Balance
sheet and Shareholders equity
|
|
|
|
|
November 30, 2016
|
|
|
|
|
|
|
|
|
|
Impact
|
|
|
|
|
|
|
As reported
|
|
|
of
|
|
|
|
|
|
|
Previously
|
|
|
adoption
|
|
|
As revised
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price protection derivative
|
$
|
76
|
|
$
|
(76
|
)
|
$
|
-
|
|
Total current liabilities
|
|
14,576
|
|
|
(76
|
)
|
|
14,500
|
|
Warrants
|
|
1,843
|
|
|
(1,843
|
)
|
|
-
|
|
Total long-term liabilities
|
|
8,333
|
|
|
(1,843
|
)
|
|
6,490
|
|
Total liabilities
|
|
22,909
|
|
|
(1,919
|
)
|
|
20,990
|
|
Additional paid-in capital
|
|
41,605
|
|
|
3,838
|
|
|
45,443
|
|
Accumulated deficit
|
|
(29,834
|
)
|
|
(1,919
|
)
|
|
(31,753
|
)
|
Total equity
|
$
|
10,578
|
|
$
|
1,919
|
|
$
|
12,497
|
|
Statement
of Comprehensive loss
|
|
Year ended November 30, 2016
|
|
|
|
|
|
|
Impact
|
|
|
|
|
|
|
As reported
|
|
|
of
|
|
|
|
|
|
|
Previously
|
|
|
adoption
|
|
|
As revised
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses, net
|
$
|
(659
|
)
|
$
|
1,919
|
|
$
|
1,260
|
|
Loss before income taxes
|
$
|
10,741
|
|
$
|
1,919
|
|
$
|
12,660
|
|
Net loss
|
$
|
9,194
|
|
$
|
1,919
|
|
$
|
11,113
|
|
b.
Recently Issued Accounting Pronouncements- not yet adopted by the
Company
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 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. On July 9, 2015, the FASB deferred the effective date
of the standard by one year, which results in the new standard being effective
for the Company at the beginning of its first quarter of fiscal year 2018. In
addition, during March, April and May 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers : Principal versus Agent Considerations
(Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with
Customers: Identifying Performance Obligations and Licensing and ASU 2016-12,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical
Expedients, respectively, which clarified the guidance on certain items such as
reporting revenue as a principal versus agent, identifying performance
obligations, accounting for intellectual property licenses, assessing
collectability and presentation of sales taxes. The FASB also agreed to allow
entities to choose to adopt the standard as of the original effective date. As
applicable for the Company, the effective date for adopting the ASU is for the
year ending November 30, 2019. The Company is currently evaluating the impact of
adopting ASU 2014-09 on its financial position, results of operations and
related disclosures and has not
yet determined whether the effect of the
revenue portion will be material.
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 November 30, 2019. The Company is
currently evaluating the impact of this new standard on its consolidated
financial statements.
F-15
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. As applicable for
the Company, the effective date for adopting the ASU is for the year ending
November 30, 2019. 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
June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13)
"Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments" which requires the measurement and recognition of
expected credit losses for financial assets held at amortized cost. ASU 2016-13
replaces the existing incurred loss impairment model with an expected loss
methodology, which will result in more timely recognition of credit losses. As
applicable for the Company, the effective date for adopting the ASU is for the
year ending November 30, 2020. The Company is currently in the process of
evaluating the impact of the adoption of ASU 2016-13 on its consolidated
financial statements.
In
January 2017, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update No. 2017-01, "Business Combinations (Topic 805)
Clarifying the Definition of a Business" ("ASU 2017-01") which amended the
existing FASB Accounting Standards Codification. The standard provides
additional guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting, including
acquisitions, disposals, goodwill, and consolidation. As applicable for the
Company, the effective date for adopting the ASU is for the year ending November
30, 2019. The Company is currently assessing the impact that this updated
standard will have on the consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the
goodwill impairment test by eliminating the need to determine the fair value of
individual assets and liabilities of a reporting unit to measure goodwill
impairment. The same impairment assessment applies to all reporting units
including those with zero or negative carrying amounts. A goodwill impairment
will represent the excess of a reporting unit's carrying amount over its fair
value. An entity still has the option to perform the qualitative assessment for
a reporting unit to determine if the quantitative impairment test is necessary.
The amendments in ASU No. 2017-04 should be applied on a prospective basis.
Disclosure of the nature and reason for the change in accounting principle upon
transition is required. For public business entities, the amendments in this ASU
are effective for annual or interim goodwill impairments tests in fiscal years
beginning after December 15, 2019. As applicable for the Company, the effective
date for adopting the ASU is for the year ending November 30, 2019. Early
adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. The Company is currently evaluating the
impact of this new standard on its consolidated financial statements.
F-16
NOTE 3 - 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.
CT Business
The
CT Business activity is based on our technology that demonstrates the capacity
to induce a shift in the developmental fate of cells from the liver and
differentiating (converting) them into pancreatic beta cell-like insulin
producing cells for patients with Type 1 Diabetes. This segment is comprised of
all entities aside from MaSTherCell.
The
CODM does not reviews assets by segment, therefore the measure of assets has not
been disclosed for each segment.
Segment
data for the year ended November 30, 2017 is as follows:
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
CT
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
Business
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues from external customers
|
$
|
11,484
|
|
$
|
-
|
|
$
|
(1,395
|
)
|
$
|
10,089
|
|
Cost of revenues
|
|
(6,356
|
)
|
|
|
|
|
638
|
|
|
(5,718
|
)
|
Gross profit
|
|
5,128
|
|
|
-
|
|
|
(757
|
)
|
|
4,371
|
|
Research and development expenses, net
|
|
|
|
|
(2,517
|
)
|
|
757
|
|
|
(1,760
|
)
|
Operating expenses
|
|
(4,699
|
)
|
|
(3,335
|
)
|
|
|
|
|
(8,034
|
)
|
Operating profit
|
|
429
|
|
|
(5,852
|
)
|
|
-
|
|
|
(5,423
|
)
|
Adjustments to presentation of segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
(2,720
|
)
|
|
(6
|
)
|
|
|
|
|
|
|
Segment performance
|
|
(2,291
|
)
|
|
(5,858
|
)
|
|
|
|
|
|
|
F-17
Reconciliation
of segment performance to loss for the year:
|
|
Year ended
|
|
|
|
November 30,
|
|
|
|
2017
|
|
|
|
in
thousands
|
|
Segment subtotal performance
|
|
(8,149
|
)
|
Stock-based compensation
|
|
(3,364
|
)
|
Financial income (expenses), net
|
|
(950
|
)
|
Share in losses of associated companies
|
|
(1,214
|
)
|
Loss before income tax
|
$
|
(13,677
|
)
|
Segment
data for the year ended November 30, 2016 is as follows:
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
CDMO
|
|
|
CTB
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues from external customers
|
$
|
6,853
|
|
$
|
-
|
|
$
|
(456
|
)
|
$
|
6,397
|
|
Cost of revenues
|
|
(6,915
|
)
|
|
|
|
|
557
|
|
|
(6,358
|
)
|
Gross profit
|
|
(62
|
)
|
|
-
|
|
|
101
|
|
|
39
|
|
Research and development expenses, net
|
|
|
|
|
(1,725
|
)
|
|
(101
|
)
|
|
(1,826
|
)
|
Operating expenses
|
|
(2,239
|
)
|
|
(1,667
|
)
|
|
|
|
|
(3,906
|
)
|
Operating profit
|
|
(2,301
|
)
|
|
(3,392
|
)
|
|
-
|
|
|
(5,693
|
)
|
Adjustments to presentation of segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
(2,918
|
)
|
|
(5
|
)
|
|
|
|
|
|
|
Segment performance
|
|
(5,219
|
)
|
|
(3,397
|
)
|
|
-
|
|
|
|
|
Reconciliation of segment performance to loss for the year:
|
|
Year ended
|
|
|
|
November 30,
|
|
|
|
2016
|
|
|
|
in thousands
|
|
Segment performance
|
|
(8,616
|
)
|
Stock-based compensation
|
|
(2,661
|
)
|
Financial income (expenses), net
|
|
(1,260
|
)
|
Share in losses of associated company
|
|
(123
|
)
|
Loss before income tax
|
$
|
(12,660
|
)
|
Geographic, Product and Customer Information
Substantially
all the Company's revenues and long-lived assets are located in Belgium through
its subsidiary, MaSTherCell. Net revenues from single customers from the CDMO
segment that exceed 10% of total net revenues are:
F-18
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Customer A
|
$
|
4,115
|
|
$
|
3,754
|
|
Customer B
|
$
|
47
|
|
$
|
1,742
|
|
Customer C
|
$
|
2,837
|
|
|
|
|
Customer D
|
$
|
2,055
|
|
|
|
|
The
CDMO business has substantially diversified revenues by source
signing contracts with biotech companies in their respective cell-based therapy
field. In January 2017, MaSTherCell entered into a service agreement with Les
Laboratoires Servier (Servier) for the development of its CAR T-cell therapy
manufacturing platform and in June 2017, MaSTherCell entered into a service
agreement with CRISPR Therapeutics AG (CRISPR) for the development and
manufacturing of allogeneic cell therapies.
NOTE 4 PROPERTY AND EQUIPMENT
The
following table represents the components of property and equipment:
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(in thousands)
|
|
Cost:
|
|
|
|
|
|
|
Production facility
|
$
|
6,246
|
|
$
|
4,403
|
|
Office furniture and
computers
|
|
353
|
|
|
211
|
|
Lab equipment
|
|
2,039
|
|
|
1,491
|
|
|
|
8,638
|
|
|
6,105
|
|
Less accumulated depreciation
|
|
(3,534
|
)
|
|
(1,532
|
)
|
Total
|
$
|
5,104
|
|
$
|
4,573
|
|
Depreciation
expense for the years ended November 30, 2017 and 2016 was $1,096 thousand and
$1,160 thousand, respectively.
NOTE 5 INVESTMENTS IN ASSOCIATES, NET
(a) On May 10, 2016,
the Company and Atvio entered into the Atvio 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. The
parties pursue the joint venture through Atvio, in which the Company has a 50%
participating interest therein in any and all rights and obligations and in any
and all profits and losses.
Under
the Atvio JVA, Atvio has procured, at its sole expense, a GMP facility and
appropriate staff in Israel. The Company shares 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. Atvio's operations commenced in
September 2016.
Through
November 30, 2017, the Company remitted to Atvio $1 million under the terms of
the Atvio JVA to defray the costs associated with the setting up and the
maintenance of the GMP facility. The Companys funding was 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 immediately following such
conversion. The Company concluded that, based on the terms of the agreement, it
has the ability to exercise significant influence in Atvio, but does not have
control. Therefore, the investment is accounted for under the equity method.
In
addition, at any time following the first anniversary year of the Effective Date
the Company has the option to require the Atvio shareholders to transfer to 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 have the option to require the Company to purchase from Atvios
shareholders their entire interest in Atvio for the consideration based on
Atvio's valuation mechanism as specified in the agreement. The above-mentioned
options are accounted as derivatives and measured at fair value and presented in
the balance sheet in "put/call option derivative" line item (See Note 15).
F-19
(b) On March 14,
2016, Orgenesis Inc. and CureCell entered into the CureCell JVA, pursuant to
which the parties are collaborating in the contract development and
manufacturing of cell therapy products in Korea.
Under
the CureCell JVA, CureCell has procured, 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 does not include the intellectual property
included in the license from the THM to the Israeli subsidiary. As of November
30, 2017, all obligations were fulfilled by the parties and the JV Company was
established under the CureCell JVA agreement and each party has 50% from the
participating interest and in any and all profits and losses of the JV Company subject to the fulfillment by each
Party of his obligations under the CureCell JVA.
Under
the CureCell JVA, the Company and CureCell each undertook to remit, within two
years of the execution of the CureCell JVA, minimum amount of $2 million to the
JV Company, of which $1 million is to be in cash and the balance may be in an
in-kind investment, the scope and valuation of which shall be preapproved in
writing by CureCell and the Company. The Companys funding was made by way of a
convertible loan. The CureCell 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. Through November 30, 2017, the Company remitted to CureCell $2.1
million.
(c) The table below
sets forth a summary of the changes in the investments for the years ended
November 30, 2017 and 2016:
|
|
|
November 30,
|
|
|
November 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
$
|
(12
|
)
|
$
|
-
|
|
|
Reclass from short-term receivables *
|
|
118
|
|
|
|
|
|
Investments during the period
|
|
2,429
|
|
|
111
|
|
|
Share in losses
|
|
(1,214
|
)
|
|
(123
|
)
|
|
|
$
|
1,321
|
|
$
|
(12
|
)
|
*As
of November 30, 2016, prior to the formal incorporation of the CureCell JV
company, the actual joint operations already began. The amounts transferred to
CureCell by the Company on account of the investment and the share in loss were
recorded as short-term receivables, and Company's share in the expenses incurred
through balance sheet date was recorded by the Company as part of its selling,
general and administrative expenses.
NOTE 6 INTANGIBLE ASSETS AND GOODWILL
Changes
in the carrying amount of the Companys goodwill for the years ended November
30, 2017 and 2016 are as follows:
|
|
(in thousands)
|
|
Goodwill as of November 30, 2015
|
$
|
9,535
|
|
Translation differences
|
|
49
|
|
Goodwill as of November 30, 2016
|
|
9,584
|
|
Translation differences
|
|
1,100
|
|
Goodwill as of November 30, 2017
|
$
|
10,684
|
|
F-20
Goodwill Impairment
The
Company reviews goodwill for impairment annually and whenever events or changes
in circumstances indicate the carrying amount of goodwill may not be
recoverable. The Company performed a quantitative two-step assessment for
goodwill impairment for the CDMO unit.
As
part of the first step of the two-step impairment test, the Company compared the
fair value of the reporting units to their carrying values and determined that
the carrying amount of the units do not exceed their fair values. The Company
estimated the fair value of the unit by using an income approach based on
discounted cash flows. The assumptions used to estimate the fair value of the
Companys reporting units were based on expected future cash flows and an
estimated terminal value using a terminal year growth rate based on the growth
prospects for each reporting unit. The Company used an applicable discount rate
which reflected the associated specific risks for the CDMO unit future cash
flows.
Key
assumptions used to determine the estimated fair value include: (a) expected
cash flow for the five-year period following the testing date (including market
share, sales volumes and prices, costs to produce and estimated capital needs);
(b) an estimated terminal value using a terminal year growth rate of 2%
determined based on the growth prospects; and (c) a discount rate of 16.6% and
15.3% . Based on the Companys assessment as of November 30, 2017 and 2016,
respectively, the carrying amount of its reporting unit does not exceeds its
fair value.
A
decrease in the terminal year growth rate of 1% or an increase of 1% to the
discount rate would reduce the fair value of the reporting unit by approximately
$1.1 million and $2.3 million, respectively. These changes would not result in
an impairment. A decrease in the terminal year growth rate and an increase in
the discount rate of 1% would reduce the fair value of the reporting unit by
approximately $3.3 million. These changes would not result in an impairment.
Other Intangible Assets
Other
intangible assets consisted of the following:
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(In thousands)
|
|
Gross Carrying Amount:
|
|
|
|
|
|
|
Know How
|
$
|
17,998
|
|
|
16,158
|
|
Customer
relationships
|
|
369
|
|
|
331
|
|
Brand name
|
|
1,418
|
|
|
1,272
|
|
|
|
19,785
|
|
|
17,998
|
|
Accumulated amortization
|
|
4,734
|
|
|
2,948
|
|
Net carrying amount of other
intangible assets
|
$
|
15,051
|
|
|
15,050
|
|
Intangible
asset amortization expenses were approximately $1.8 million for each of the
years ended November 30, 2017 and 2016.
Estimated
aggregate amortization expenses for the five succeeding years ending November
30
th
are as follows:
|
|
|
2018
|
|
|
2019 to 2022
|
|
|
|
|
(in thousands)
|
|
|
Amortization expenses
|
$
|
1,947
|
|
$
|
7,790
|
|
F-21
NOTE 7 CONVERTIBLE LOAN AGREEMENTS
(a) During the year
ended November 30, 2015 and 2014, the Company entered into six convertible loan
agreements with new investors for a total amount of $1 million (the Convertible
Loans). The loans bear an annual interest rate of 6%.
On
April 27, 2016 and December 23, 2015, the holders of all the Convertible Loans
converted the principal amount and the accrued interest in amount of $1,018
thousand into units, with 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 $6.24. Upon conversion of the
Convertible Loans, the Company issued an aggregate of 163,904 shares of Common
stock and three year warrants to purchase up to an additional 163,904 shares.
Furthermore, in the event that the Company will issue any common shares or
securities convertible into common shares in a private placement for cash at a
price less than $6.24 on or before December 23, 2016, the Company will issue to
the subscribers, for no additional consideration, additional common stock. As
of the date of the approval of these financial statements, the shares
anti-dilution protection mechanism described above, has expired and no shares
were issued under this provision.
(b) 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 assigned and transferred 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 included the following:
(1) Extending the due
date of the loan of $1.5 million through September 30, 2016;
(2) 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 converted into one common share at an
exercise price of $6.24 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
$3.36; and
(3) 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.
On
February 27, 2017, the Company and Admiral entered into an agreement resolving
the payment of amounts owed to Admiral. Under the terms of the 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.
Further, beginning April 2017, the Company will make a monthly payment of $125
thousand on account of the remaining unpaid balance, and also 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. Upon an occurrence of a
default, the loan bears interest at an annual rate of 15%.
During
the year ended November 30, 2017, the Company repaid $1,875 thousand on account
of the principal amount and accrued interest. In January 2018, the Company
repaid the remaining of accrued interest in total amount of $177 thousand.
(c) On November 2,
2016 the Company entered into unsecured convertible note agreements with
accredited or offshore investors for an aggregate amount of NIS 1 million ($262
thousand). The loan bears a monthly interest rate of 2% and mature on May 1,
2017, unless converted earlier. The holder, at its option, may convert the
outstanding principal amount and accrued interest under this note into shares of
the Companys common stock at a per share conversion price of $6.24.
F-22
The
Company allocated the principal amount of the convertible loan and the accrued
interest thereon based on their fair value. The table below presents the fair
value of the instrument issued as of November 2, 2016 and the allocation of the
proceed (for the fair value as of November 30, 2017 and 2016, see Note 15):
|
|
Total Fair Value
|
|
|
|
(in thousands)
|
|
|
|
November 2,
|
|
|
|
2016
|
|
Embedded derivative component
|
$
|
40
|
|
Loan component
|
|
222
|
|
Total
|
$
|
262
|
|
The
transaction costs were approximately $29 thousand, out of which $8 thousand as
stock based compensation due to issuance of warrants (See also Note 13(d)).
On
April 27, 2017 and November 2, 2017, the Company entered into extension
agreements through November 2, 2017 and May 2, 2018, respectively.
(d) During the years
ended November 30, 2017 and 2016 the Company entered into several unsecured
convertible note agreements with accredited or offshore investors for an
aggregate amount of $5 and $1.4 million, respectively. The loans bear an annual
interest rate of 6% and mature in two years, unless converted earlier. Under
certain conditions as defined in the agreements, the entire principal amount and
accrued interest automatically convert into Units (as defined below).
Each
$6.24 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 $6.24.
In addition, in certain loans within 12 months of the issuance date hereof, the
holder, at its option, may convert the outstanding principal amount and accrued
interest either (i) Units as provided above, or (ii) shares of the Companys
common stock at a per share conversion price of $6.
Since
the closing price of the Company's publicly traded stock is greater than the
effective conversion price on the closing date, the conversion feature is
considered "beneficial" to the holders and equal to $2.3 million and $257
thousand for the convertible notes received during the years ended November 30,
2017 and 2016, respectively. 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 for the convertible notes received during the year ended
November 30, 2017 and 2016 were approximately $527 and $126 thousand,
respectively, out of which $163 and $55 thousand are stock-based compensation
due to issuance of warrants (See also Note 13(d)).
(e) During the year
ended November 30, 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 mainly 6% interest rate and are scheduled to mature
between six to nine 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 $6.24 per share. The Company also issued to
the investors three-year warrants to purchase up to 145,509 shares of the
Companys Common Stock at a per share exercise price of $6.24.
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.
(f) On January 23,
2017, the Company entered into unsecured convertible note agreement with a
Non-U.S. institutional investor, on amount of $400,000 at per annum rate of 6%
and with a maturity date of April 23, 2017.
F-23
The
transaction costs were approximately $71 thousand, out of which $35 thousand as
stock based compensation due to issuance of 6,410 warrants and 2,671 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 54,167 restricted shares of the Companys Common Stock. The fair
value of the shares as of March 7, 2017, was $494 thousand and was recorded as
financial expenses.
(g) In January 2017,
MaSTherCell repaid all but one of its bondholders (originally issued on
September 14, 2014), and the aggregate payment amounted to $1.7 million (€1.5
million). On January 17, 2017, the remaining bondholder agreed to extend the
duration of his Convertible bond until March 21, 2017. In consideration for the
extension, the Company issued to the bondholder warrants to purchase 8,569
shares of the Companys Common Stock, exercisable over a three-year period at a
per share exercise price of $6.24. The fair value of those warrants as of the
date of grant was $20 thousand using the Black-Scholes valuation model.
On
March 20, 2017, the remaining bondholder converted his convertible bonds into
40,682 shares of the Companys Common Stock (See also note 11(c)).
NOTE 8 LOANS
a.
Terms of Long-term Loans
|
Principal
|
|
|
|
|
|
|
|
Year of
|
|
|
November 30,
|
|
|
Amount
|
|
Grant Year
|
|
|
Interest Rate
|
|
|
Maturity
|
|
|
2017
|
|
|
2016
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Long-term loan (*)
|
€ 1,400
|
|
2012
|
|
|
4.05%
|
|
|
2022
|
|
$
|
899
|
|
$
|
952
|
|
Long-term loan
|
€ 1,000
|
|
2013
|
|
|
6%-7.5%
|
|
|
2023
|
|
|
977
|
|
|
1,000
|
|
Long-term loan
|
€ 790
|
|
2012-2016
|
|
|
5.5%-6%
|
|
|
2020-2024
|
|
|
620
|
|
|
739
|
|
Long-term loan (**)
|
€ 1,000
|
|
2016
|
|
|
7%
|
|
|
2019
|
|
|
-
|
|
|
1,063
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,496
|
|
$
|
3,754
|
|
Current portion of loans payable
|
|
|
|
|
|
|
|
|
|
|
|
(378
|
)
|
|
(463
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,118
|
|
$
|
3,291
|
|
(*) The loan has a business pledge on
the Companys assets at the same value.
(**) On November 15, 2017 the
outstanding loan and the accrued interest in a total amount of $1.1 million were
converted into MaSTherCell common shares. See also Note 10.
b.
Terms of Short-term Loans and Current Portion of Long Term
Loans
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
Currency
|
|
|
Interest Rate
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Current portion of loans payable
|
|
Euro
|
|
|
4.05%
|
|
$
|
169
|
|
$
|
145
|
|
Current portion of loans payable
|
|
Euro
|
|
|
6%-7.5%
|
|
|
70
|
|
|
135
|
|
Current portion of loans payable
|
|
Euro
|
|
|
5.5%-6%
|
|
|
139
|
|
|
183
|
|
|
|
|
|
|
|
|
$
|
378
|
|
$
|
463
|
|
Short term-loans*
|
|
Euro
|
|
|
7%
|
|
|
-
|
|
|
648
|
|
|
|
|
|
|
|
|
$
|
378
|
|
|
1,111
|
|
(*) On various dates from September 14,
2015 through the year 2015, MaSTherCell received short term loans from
management and shareholders for a total amount of €1,247 thousand, which bear an
annual interest rate of 7%. No maturity dates
were defined. As of November 30, 2017, MaSTherCell repaid the remaining amount
of these loans.
F-24
NOTE 9 - COMMITMENTS
a.
Tel Hashomer Medical Research, Infrastructure and Services
Ltd
(THM).
On February 2, 2012, the Companys Israeli Subsidiary entered into a licensing
agreement with THM. According to the agreement, the Israeli Subsidiary was
granted a worldwide, royalty bearing, exclusive license to trans-differentiation
of cells to insulin producing cells, including the population of insulin
producing cells, methods of making this population, and methods of using this
population of cells for cell therapy or diabetes treatment developed by Dr.
Sarah Ferber of THM.
As
consideration for the license, the Israeli Subsidiary will pay the following to
THM:
1)
|
A royalty of 3.5% of net sales;
|
2)
|
16% of all sublicensing fees received;
|
3)
|
An annual license fee of $15 thousand, which commenced on
January 1, 2012 and shall be paid once every year thereafter. The annual
fee is non-refundable, but it shall be paid each year against the royalty
noted above, to the extent that such are payable, during that year;
and
|
4)
|
Milestone payments as follows:
|
|
a)
|
$50 thousand on the date of initiation of phase I
clinical trials in human subjects;
|
|
b)
|
$50 thousand on the date of initiation of phase II
clinical trials in human subjects;
|
|
c)
|
$150 thousand on the date of initiation of phase III
clinical trials in human subjects;
|
|
d)
|
$750 thousand on the date of initiation of issuance of an
approval for marketing of the first product by the FDA; and
|
|
e)
|
$2 million when worldwide net sales of Products (as
defined in the agreement) have reached the amount of $150 million for the
first time, (the Sales Milestone).
|
As
of November 30, 2017, the Israeli Subsidiary has not reached any of these
milestones.
In
the event of closing of an acquisition of all of the issued and outstanding
share capital of the Israeli Subsidiary and/or consolidation of the Israeli
Subsidiary or the Company into or with another corporation (Exit), the THM
shall be entitled to choose whether to receive from the Israeli Subsidiary a
one-time payment based, as applicable, on the value of either 463,651 shares of
common stock of the Company at the time of the Exit or the value of 1,000 shares
of common stock of the Israeli Subsidiary at the time of the Exit.
In
2016 and 2017, the Israeli Subsidiary entered into a research service agreement
with the THM. According to the agreements, the Israeli Subsidiary will perform a
study at the facilities and use the equipment and personnel of the Sheba Medical
Center, with annual consideration of approximately $88 and $131 thousand,
respectively.
b.
Maryland Technology Development Corporation
On
June 30, 2014, the Companys U.S. Subsidiary entered into a grant agreement with
Maryland Technology Development Corporation (TEDCO). TEDCO was created by the
Maryland State Legislature in 1998 to facilitate the transfer and
commercialization of technology from Marylands research universities and
federal labs into the marketplace and to assist in the creation and growth of
technology based businesses in all regions of the State. TEDCO is an independent
organization that strives to be Marylands lead source for entrepreneurial
business assistance and seed funding for the development of startup companies in
Marylands innovation economy. TEDCO administers the Maryland Stem Cell Research
Fund to promote State funded stem cell research and cures through financial
assistance to public and private entities within the State. Under the agreement,
TEDCO has agreed to give the U.S Subsidiary an amount not to exceed
approximately $406 thousand (the Grant). The Grant will be used solely to
finance the costs to conduct the research project entitled Autologous Insulin
Producing (AIP) Cells for Diabetes during a period of two years. On June 21,
2016 TEDCO has approved an extension until June 30, 2017.
F-25
On
July 22, 2014 and September 21, 2015, the U.S Subsidiary received an advance
payment of $406 thousand on account of the Grant. Through November 30, 2017, the
Company utilized $356 thousand. The amount of Grant that was utilized through
November 30, 2017, was recorded as a deduction of research and development
expenses in the statement of comprehensive loss.
c.
Department De La Gestion Financiere Direction De Lanalyse Financiere
(DGO6)
i.
On March 20, 2012, MaSTherCell was awarded an investment grant from the DGO6 of
Euro1,421 thousand. This grant is related to the investment in the production
facility with a coverage of 32% of the investment planned. A first payment of
Euro 568 thousand has been received in August 2013. In December 2016, the DGO6
paid to MaSTherCell Euro 669 thousand on account of the grant and the remaining
grant amount has been declined.
ii.
On November 17, 2014, the Belgian Subsidiary, received the formal approval from
the DGO6 for a Euro 2.015 thousand ($2.4 million) support program for the
research and development of a potential cure for Type 1 Diabetes. The financial
support was composed of Euro 1,085 thousand (70% of budgeted costs) grant for
the industrial research part of the research program and a further recoverable
advance of Euro 930 thousand (60% of budgeted costs) of the experimental
development part of the research program. In December 2014, the Belgian
Subsidiary received advance payment of Euro 1,209 thousand under the grant. The
grants are subject to certain conditions with respect to the Belgian
Subsidiarys work in the Walloon Region. In addition, the DGO6 is also entitled
to a royalty upon revenue being generated from any commercial application of
the technology. In 2017 the Company received by the DGO6 approval for Euro
1.8 million costs invested in the project out of which Euro 1.192 founded by the
DGO6. During 2017 the Company repaid to the DGO6 the down payments of Euro 17
thousand. As of November 30, 2017, an amount of $160 thousand was recorded as
advance payments on account of grant.
iii.
In April 2016, the Belgian Subsidiary received the formal approval from DGO6 for
a budgeted Euro 1,304 thousand ($1,455 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 Euro 717 thousand ($800 thousand). The grant
will be paid over the project period. On December 19, 2016, the Belgian
Subsidiary received a first payment of Euro 359 thousand ($374 thousand). Up
through November 30, 2017, an amount of Euro 303 thousand was recorded as
deduction of research and development expenses and an amount of $66 thousand was
recorded as advance payments on account of grant.
iv.
On October 8, 2016, the Belgian Subsidiary received the formal approval from the
DGO6 for a budgeted Euro 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 Euro 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 Euro 1.7 million ($1.8 million).
Up through November 30, 2017, an amount of $558 was recorded as deduction of
research and development expenses and an amount of $1,442 thousand was recorded
as advance payments on account of grant.
d.
Israel-U.S Binational Industrial Research and Development Foundation
(BIRD)
On
September 9, 2015, the Israeli Subsidiary entered into a pharma Cooperation and
Project Funding Agreement (CPFA) with BIRD and Pall Corporation, a U.S. company.
BIRD will give a conditional grant of $400 thousand each (according to terms
defined in the agreement), for a joint research and development project for the
use Autologous Insulin Producing (AIP) Cells for the Treatment of Diabetes (the
Project). The Project started on March 1, 2015. Upon the conclusion of product
development, the grant shall be repaid at the rate of 5% of gross sales. The
grant will be used solely to finance the costs to conduct the research of the
project during a period of 18 months starting on March 1, 2015. Up to
date the Israeli Subsidiary received $200 thousand under the grant. On July 28,
2016 BIRD approved an extension till May 31, 2017 and final report was submitted
to BIRD.
Up
through November 30, 2017, an amount of $359 thousand was recorded as deduction
of research and development expenses and $159 thousand as a receivable on
account of grant.
F-26
e.
Korea-Israel Industrial Research and Development Foundation (KORIL)
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.
Up
through November 30, 2017, an amount of $184 thousand was recorded as deduction
of research and development expenses and $24 thousand as a receivable on account
of grant.
f.
Lease Agreement
MaSTherCell
has an operational lease agreement for the rent of offices for a period of 12
years expiring on November 30, 2027. The costs per year are €329 thousand
(approximately $390 thousand).
The Israeli subsidiary has an operational lease agreement for
the rent of development lab. The costs per year are NIS 120 thousand
(approximately $35 thousand).
g.
Quality Manufacturing System (QMS) License Agreement
In
December 2016, MaSTherCell and the Company entered into a license agreement
pursuant to which MaSTherCell granted to the Company a worldwide (excluding
Europe), perpetual, exclusive, royalty-free and sub-licensable right to
MaSTherCells quality manufacturing system for the Company and its affiliates
own internal quality assurance program and for the Companys CDMO activity. In
consideration of the license, the Company has a financial obligation to pay to
MaSTherCell Euro 2.5 million, payable by an initial and second payment of Euro
250,000, with the balance to be made by an in-kind contribution by the Company
by no later than December 2018.
h.
Collaboration Agreement
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 KORIL 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 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. As of November 30, 2017, none of the requisite regulatory approvals for
conducting clinical trials had been obtained (See also Note 5(b)).
i.
On
November 18, 2016, Mr. Scott Carmer, the Chief Executive Officer of the U.S
Subsidiary, resigned from his position in order to pursue other interests. The
Companys Chief Executive Officer assumed his position. In connection with his
resignation the Company entered into a Release Agreement pursuant to which the
Company agreed that Mr. Carmer will be able to exercise options to purchase up
to 136,775 shares of the Companys common stock previously issued to him through their original exercise
period and Mr. Carmer waived, released and forever discharge Company from any
claims, demands, obligations, liabilities, rights, causes of action and damages.
In furtherance thereof, on November 18, 2016, Mr. Carmer and the Company entered
into a Strategic Advisory Agreement whereas he will continue to serve the
Company as a non-employee advisor on its activities in the U.S. and
internationally. The Company accounted for the above changes as a waiver of Mr.
Carmers accrued salary and modification of his options. As a result, a non-cash
net income of $458 thousand was recorded within financial expenses in the year
ended November 30, 2016.
F-27
NOTE 10 REDEEMABLE NON CONTROLING INTEREST
On
November 15, 2017 the Company, MaSTherCell and the Belgian Sovereign Funds
Société Fédérale de Participations et d'Investissement (SFPI) entered into a
Subscription and Shareholders Agreement (SFPI Agreement ) pursuant to which
SFPI is making an equity investment in MaSTherCell in the aggregate amount of
Euro 5 million (approximately $5.9 million), for approximately 16.7% of
MaSTherCell. The equity investment commitment included the conversion of the
outstanding loan of Euro 1 million (approximately $1.1 million) plus accrued
interest in the approximate amount of Euro 70 thousand (approximately $77
thousand), previously made by SFPI to MaSTherCell (the Loan Amount).
Under
the Agreement, an initial subscription amount of Euro 2 million ($2.3 million)
has been paid and the outstanding Loan Amount been converted. The balance of
approximately Euro 1.9 million ($2.2 million) is payable as needed by
MaSTherCell and called in by the board of directors of MaSTherCell. The proceeds
of the investment will be used to expand MaSTherCells facilities in Belgium by
the addition of five new cGMP manufacturing cleanrooms. This expansion will
position MaSTherCell as the European hub for the Companys continental
activities and strengthen its position in cell and gene manufacturing. The
design enables MaSTherCell to offer full flexibility for production and process
development. Under the Agreement, SFPI will be represented by one board member
of the five board members of MaSTherCell. In addition, SFPI is entitled to
designate one independent board member to the MaSTherCell board who is
acceptable to the Company. The Agreement provides that, under certain specified
circumstances where MaSTherCell breaches the terms of the Agreement, SFPI is
entitled to put its equity interest in MaSTherCell to the Company at a price
equal to the subscription price paid by SFPI, plus a specified annual premium
ranging from 10% to 25%, depending on the year following the subscription in
which the put is exercised. However, the agreement specifies that SFPI has a
right to such put provision if the Company is not listed on NASDAQ within six
months from the date the SFPI Agreement. If the Company elects to terminate SFPI
Agreement before its scheduled term of seven years (or to not renew the
agreement upon its scheduled termination), SFPI is entitled to put its
MaSTherCell equity interest to the Company at fair market value (as determined
by SFPI and the Company). Additionally, at any time during the first three years
following the investment, SFPI is entitled to exchange its equity interest in
MaSTherCell into shares of the Companys Common Stock, at a rate equal to the
subscription price paid by SFPI divided by $6.24 (subject to adjustment for
certain capital events, such as stock splits).
The
Agreement contains customary representations, warranties and covenants by
MaSTherCell, in respect of which the Company has undertaken to indemnify SFPI
for the consequences of any breach thereof by MaSTherCell.
The
SFPI investment was presented as redeemable non-controlling interest in the
balance sheet in the amount of $3,606 thousand.
NOTE 11 EQUITY
a.
Share Capital
The
Companys common shares are traded on the OTCQB Venture Market under OTC Market
Groups OTCQB tier under the symbol ORGS.
On
November 16, 2017, the Company implemented a 1:12 reverse stock split (the
Reverse Split) of its authorized and outstanding shares of Common Stock. All
share and per share amounts in these financial statements have been
retroactively adjusted to reflect the reverse split as if it had been effected prior to the earliest financial
statement period included herein. Following the Reverse Split, the number of
authorized shares of common stock that the Company is authorized to issue from
time to time is 145,833,334 shares.
F-28
b.
Financings
1) During the year ended
November 30, 2017 and 2016, the Company entered into definitive agreements with
accredited and other qualified investors relating to a private placement (the
Private Placement) of (i) 107,249 and 2,860,578 units, respectively. Each unit
is comprised of (i) one share of the Companys common stock and (ii) three-year
warrant to purchase up to an additional one share of the Companys Common Stock
at a per share exercise price of $6.24 or $7.68. The purchased securities were
issued pursuant to subscription agreements between the Company and the
purchasers for aggregate proceeds to the Company of $699 thousand and $1,488
thousand, respectively. Furthermore, in certain events the subscribers received
anti-dilution protection for issuance at less than their purchase price.
2) In January 2017, the
Company entered into definitive agreements with an institutional investor for
the private placement of 2,564,115 units of the Companys securities for
aggregate subscription proceeds to the Company of $16 million at $6.24 price per
unit. Each unit 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
$6.24. 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.
During
the year ended November 30, 2017 the investor remitted to the Company $4.5
million, in consideration of which, the investor is entitled to 721,160 shares
of the Companys Common Stock and three-year warrants to purchase up to an
additional 721,160 shares of the Companys Common Stock at a per share exercise
price of $6.24. 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:
|
|
Total Fair
|
|
|
|
Value
|
|
|
|
(in thousands)
|
|
Warrants component
|
$
|
1,516
|
|
Shares component
|
|
2,984
|
|
Total
|
$
|
4,500
|
|
As of November 30, 2017, 320,516 shares have not been
issued and therefore the Company has recorded $1,483 thousand in receipts on
account of shares to be allotted in the statement of equity. In connection
therewith, the Company undertook to pay a fee of 5% resulting in the payment of
$225 thousand (classified as Additional Paid-in Capital in the statement of
equity) and the issuance of 36,063 restricted shares of Common Stock. The fair
value of the shares as of the date of grant was $253 thousand using the share
price on the date of grant. See also note 20(b).
c.
Contingent Shares
According
to the share exchange agreement signed during 2015, the former shareholders of
MaSTherCell received a consideration of shares of Orgenesis in exchange of
their shares in MaSTherCell. At the time of MaSTherCell acquisition by
Orgenesis, there was outstanding convertible bonds issued by MaSTherCell in an
amount of $1.8 million (Euro 1.6 million).
In
case MaSTherCell is repaying the principal amount and the accrued interest of
the convertible bonds, the consideration shares received by the former
shareholders will be reduced by the amount that was due to those bondholders who
did not exchange their convertible bond. The consideration of shares will be
released back to the Company proportionally to the holding of former
shareholders. To that effect, the number of consideration shares to be released
back to the Company, shall be determined by dividing the subscription amount of
the outstanding convertible bonds plus interest owed thereunder (converted into
USD according to the currency exchange rate applicable on the day of conversion)
by the consideration and by applying the resulting quotient to actual total
number of consideration shares received by former shareholder of MaSTherCell. In
case of such release for cancellation of consideration shares, each former
shareholder of MaSTherCell will give up for cancellation a part of its
consideration shares that will be proportionate to such former shareholders
share in the total number of consideration share issued at acquisition closing.
F-29
During
January 2017 MaSTherCell repaid all but one of its bondholders and the aggregate
payment amounted to $1.7 million (Euro1.5 million). According to the terms of
the release back pursuant the share exchange agreement, the Company returned to
treasury a total of 263,148 shares. These shares have been retired and
cancelled. (See also Note 7(g)).
d.
Warrants
(1)
Warrants which are subject to exercise price adjustments
|
|
Exercise Price /
|
|
|
Number of
|
Adjusted
|
|
Issuance
|
Warrants Issued
|
Exercise
|
Expiration
|
Date
|
and
Outstanding
|
Price
|
Date
|
October 2015
|
16,026
|
$6.24
|
March 2018
|
November 2015
|
657,597
|
$6.24
|
November 2018
|
December 2015
|
175,924
|
$6.24
|
December 2018
|
February 2016
|
16,026
|
$6.24
|
February 2019
|
March 2016
|
64,103
|
$6.24
|
March 2019
|
April 2016
|
40,859
|
$6.24
|
April 2019
|
May 2016
|
24,039
|
$6.24
|
May 2019
|
June 2016
|
72,117
|
$6.24
|
June 2019
|
|
1,066,691
|
|
|
(2)
Warrants which are not subject to exercise price adjustments
|
|
Exercise Price /
|
|
|
Number of
|
Adjusted
|
|
Grant
|
Warrants Issued
|
Exercise
|
Expiration
|
Month
|
and Outstanding
|
Price
|
Month
|
November 2013
|
16,668
|
$6
|
November 2018
|
October 2015
|
196,543
|
$6.24
|
October 2018
|
December 2015
|
2,552
|
$6.24
|
December 2018
|
April 2016
|
24,039
|
$6.24
|
April 2019
|
July 2016
|
10,016
|
$6.24
|
July 2019
|
August 2016
|
17,973
|
$6.24
|
August 2019
|
September 2016
|
641
|
$6.24
|
September 2019
|
October 2016
|
642
|
$6.24
|
October 2019
|
November 2016
|
70,033
|
$6.24
|
November 2019
|
December 2016
|
95,887
|
$6.24
|
December 2019
|
January 2017
|
76,655
|
$6.24
|
January 2020
|
February 2017
|
220,863
|
$6.24,$10.2
|
February 2020
|
March 2017
|
37,003
|
$6.24
|
March 2020
|
April 2017
|
123,896
|
$6.24,$7.8
|
April 2020
|
May 2017
|
100,162
|
$6.24
|
May 2020
|
June 2017
|
100,162
|
$6.24
|
June 2020
|
July 2017
|
80,129
|
$6.24
|
July 2020
|
August 2017
|
115,492
|
$6.24
|
August 2020
|
September 2017
|
7,697
|
$6.24
|
September 2020
|
October 2017
|
100,162
|
$6.24
|
October 2020
|
November 2017
|
86,539
|
$6.24
|
November 2020
|
|
1,483,754
|
|
|
F-30
NOTE 12 LOSS PER SHARE
The
following table sets forth the calculation of basic and diluted loss per share
for the periods indicated:
|
|
|
Year Ended
|
|
|
|
|
November 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in thousands,
|
|
|
|
|
except per share data)
|
|
|
Basic:
|
|
|
|
|
|
|
|
Loss for the year
|
$
|
12,367
|
|
$
|
11,113
|
|
|
Weighted average number
of common shares outstanding
|
|
9,679,964
|
|
|
8,521,583
|
|
|
Basic loss per common share
|
$
|
1.28
|
|
$
|
1.30
|
|
|
Diluted
:
|
|
|
|
|
|
|
|
Loss for the year
|
$
|
12,367
|
|
|
11,113
|
|
|
Changes in fair value
of embedded derivative and interest expenses on convertible bonds
|
|
392
|
|
|
|
|
|
Loss for the year
|
$
|
12,759
|
|
$
|
11,113
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used
in the computation of basic loss per share
|
|
9,679,964
|
|
|
8,521,583
|
|
|
Number of dilutive
shares related to convertible bonds
|
|
|
|
|
|
|
|
Number of dilutive shares related to
warrants
|
|
34,289
|
|
|
|
|
|
Weighted average number
of common shares outstanding
|
|
9,714,252
|
|
|
8,521,583
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
$
|
1.31
|
|
$
|
1.30
|
|
Diluted
loss per share does not include 2,004,435 shares underlying outstanding options,
2,088,239 shares issuable upon exercise of warrants and 1,057,785 shares upon
conversion of convertible notes for the year ended November 30, 2017, because
the effect of their inclusion in the computation would be anti-dilutive.
Basic
loss per share for the year ended November 30, 2016, does not include 681,124
contingent shares.
Diluted loss per share does not include 1,420,446 shares underlying outstanding
options, 1,620,965 shares issuable upon exercise of warrants, 32,212 shares due
to stock-based compensation to service providers and 655,269 shares upon
conversion of convertible notes for the year ended November 30, 2016, because
the effect of their inclusion in the computation would be anti-dilutive.
NOTE 13 STOCK-BASED COMPENSATION
a.
Global Share Incentive Plan
On
May 11, 2017, the annual meeting of the Companys stockholders approved the 2017
Equity Incentive Plan (the 2017 Plan) under which, the Company had reserved a
pool of 1,750,000 shares of the Companys common stock, which may be issued at
the discretion of the Company's board of directors from time to time. Under this
Plan, each option is exercisable into one share of common stock of the Company.
The options may be exercised after vesting and in accordance with the vesting
schedule that will be determined by the Company's board of directors for each
grant. The maximum contractual life term of the options is 10 years.
In
addition, the Company has one stock option plan, the Global share incentive plan
(2012) (the Plan), under which, the Company had reserved a pool of 12,000,000
shares of the Companys common stock, which may be issued at the discretion of
the Company's board of directors from time to time. Under this Plan, each option
is exercisable into one share of common stock of the Company. The options may be
exercised after vesting and in accordance with the vesting schedule that will be
determined by the Company's board of directors for each grant. The maximum
contractual life term of the options is 10 years.
F-31
b.
Options Granted to Employees and Directors
Below
is a table summarizing all of the options grants to employees and made during
the years ended November 30, 2017, and 2016:
|
Year of
|
No. of options
|
Exercise price
|
Vesting period
|
Fair value at grant
|
Expiration
|
|
grant
|
granted
|
|
|
(in thousands)
|
period
|
Employees
|
2016
|
255,855
|
$0.0012-$4.32
|
vest
immediately-2 years
|
$697
|
10 years
|
Directors
|
2017
|
166,668
|
$4.80
|
2 years
|
$ 558
|
10 years
|
Employees
|
2017
|
525,005
|
$4.8,$7.2
|
vest
immediately-4 years
|
$1,915
|
10 years
|
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
past periods based on expected term. The expected option term is calculated using
the simplified method
,
as the Company concludes that its historical share
option exercise experience does not provide a reasonable basis to estimate its
expected option term. The fair value of each option grant is based on the
following assumptions:
|
Year Ended November 30,
|
|
2017
|
|
2016
|
Value of one common share
|
$4.68,$7.2
|
|
$0.28-$0.36
|
Dividend yield
|
0%
|
|
0%
|
Expected stock price
volatility
|
93.8%-95.4%
|
|
87.4%-89%
|
Risk free interest rate
|
1.89%-1.76%
|
|
1.32%-1.33%
|
Expected term (years)
|
5
|
|
5
|
A
summary of the Company's stock options granted to employees and directors as of
November 30, 2017 and 2016 and changes for the years then ended is presented
below:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
Number of
|
|
|
Price
|
|
|
Number of
|
|
|
Price
|
|
|
|
|
Options
|
|
|
$
|
|
|
Options
|
|
|
$
|
|
|
Options outstanding at the beginning of the
year
|
|
978,853
|
|
|
1.92
|
|
|
861,773
|
|
|
1.92
|
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
691,673
|
|
|
5.28
|
|
|
253,855
|
|
|
2.24
|
|
|
Expired
|
|
(38,106
|
)
|
|
7.58
|
|
|
|
|
|
|
|
|
Forfeited
|
|
(27,365
|
)
|
|
4.8
|
|
|
|
|
|
|
|
|
Re-designation to non- employee (see
Note 9i)
|
|
|
|
|
|
|
|
(136,775
|
)
|
|
3.36
|
|
|
Options outstanding at end of the year
|
|
1,605,055
|
|
|
3.11
|
|
|
978,853
|
|
|
1.92
|
|
|
Options exercisable at end of the year
|
|
1,135,107
|
|
|
2.57
|
|
|
879,759
|
|
|
1.71
|
|
F-32
The
following table presents summary information concerning the options granted and
exercisable to employees and directors outstanding as of November 30, 2017:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Aggregate
|
|
Exercise
|
|
Number of
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
Number of
|
|
|
Exercisable
|
|
Price
|
|
Outstanding
|
|
|
Contractual
|
|
|
Value
|
|
|
Exercisable
|
|
|
Options
|
|
$
|
|
Options
|
|
|
Life
|
|
|
$
|
|
|
Options
|
|
|
Value $
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
0.0012
|
|
462,015
|
|
|
5.78
|
|
|
2,079
|
|
|
442,593
|
|
|
1
|
|
0.012
|
|
278,191
|
|
|
4.18
|
|
|
1,249
|
|
|
278,191
|
|
|
3
|
|
4.32
|
|
25,000
|
|
|
8.43
|
|
|
113
|
|
|
9,375
|
|
|
41
|
|
4.8
|
|
583,338
|
|
|
9.03
|
|
|
|
|
|
235,938
|
|
|
1,133
|
|
6
|
|
33,334
|
|
|
6.67
|
|
|
|
|
|
33,334
|
|
|
200
|
|
6.36
|
|
20,834
|
|
|
2.55
|
|
|
|
|
|
20,834
|
|
|
133
|
|
7.2
|
|
83,334
|
|
|
9.51
|
|
|
|
|
|
-
|
|
|
-
|
|
9
|
|
20,834
|
|
|
5.63
|
|
|
|
|
|
16,667
|
|
|
150
|
|
9.48
|
|
58,908
|
|
|
4.61
|
|
|
|
|
|
58,908
|
|
|
558
|
|
10.2
|
|
39,267
|
|
|
4.51
|
|
|
|
|
|
39,267
|
|
|
401
|
|
|
|
1,605,055
|
|
|
6.82
|
|
|
3,444
|
|
|
1,135,107
|
|
|
2,620
|
|
Costs
incurred with respect to stock-based compensation for employees and directors
for the years ended November 30, 2017 and 2016 were $1,536 thousand and $1,103
thousand, respectively. As of November 30, 2017, there was $1,273 thousand of
unrecognized compensation costs related to non-vested employees and directors
stock options, to be recorded over the next 1.1 years.
c.
Options Granted to Non- Employees
Below
is a table summarizing all the compensation granted to consultants and service
providers during the years ended November 30, 2017 and 2016:
|
|
|
|
|
Fair value at
|
|
|
Year of
|
No. of options
|
Exercise
|
|
grant
|
Expiration
|
|
grant
|
granted
|
price
|
Vesting period
|
(
in thousands
)
|
period
|
Non-employees
|
2016
|
83,333*
|
$3.6
|
Quarterly over a period of
one year
|
$187
|
4 years
|
Non-employees
|
2017
|
16,668
|
$4.8
|
Quarterly over a period of one year
|
$68
|
10 years
|
*
The options had been immediately vested prior to such one-year period if there
was an acquisition of 40% or more of the Company or upon funding of $5 million,
the criteria have not been completed in the first year.
F-33
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
past periods based on expected term. 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:
|
June 1,
|
December 9,
|
March 1,
|
|
2017
|
2016
|
2016
|
Value of one common share
|
$7.44
|
$4.8
|
$3.6
|
Dividend yield
|
0%
|
0%
|
0%
|
Expected stock price
volatility
|
95%
|
94%
|
87%
|
Risk free interest rate
|
1.76%
|
1.89%
|
1.19%
|
Expected term (years)
|
5
|
5
|
4
|
A
summary of the status of the stock options granted to consultants and service
providers as of November 30, 2017, and 2016 and changes for the years then ended
is presented below:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Number of
|
|
|
Price
|
|
|
Number of
|
|
|
Price
|
|
|
|
Options
|
|
|
$
|
|
|
Options
|
|
|
$
|
|
Options outstanding at the beginning of the
year
|
|
441,621
|
|
|
6.24
|
|
|
221,512
|
|
|
9.00
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
16,668
|
|
|
4.80
|
|
|
83,334
|
|
|
3.60
|
|
Expired
|
|
58,909
|
|
|
8.28
|
|
|
|
|
|
|
|
Re-designation to non-employee
(see Note 9i)
|
|
|
|
|
|
|
|
136,775
|
|
|
3.36
|
|
Options outstanding at end of the year
|
|
399,380
|
|
|
7.47
|
|
|
441,621
|
|
|
6.24
|
|
Options exercisable at end of the year
|
|
379,712
|
|
|
5.76
|
|
|
387,284
|
|
|
5.70
|
|
The
following table presents summary information concerning the options granted and
exercisable to consultants and service providers outstanding as of November 30,
2017 (in thousands, except per share data):
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
Number of
|
|
|
Aggregate
|
|
Exercise
|
|
Number of
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
Exercisable
|
|
|
Exercisable
|
|
Price
|
|
Outstanding
|
|
|
Contractual
|
|
|
Value*
|
|
|
Options
|
|
|
Options
|
|
$
|
|
Options
|
|
|
Life
|
|
|
$
|
|
|
|
|
|
Value $
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
4.8
|
|
16,668
|
|
|
9.1
|
|
|
|
|
|
16,667
|
|
|
151
|
|
3.36
|
|
136,775
|
|
|
8.4
|
|
|
156
|
|
|
136,775
|
|
|
1,153
|
|
3.60
|
|
83,334
|
|
|
8.3
|
|
|
75
|
|
|
83,334
|
|
|
689
|
|
6.00
|
|
90,000
|
|
|
6.7
|
|
|
|
|
|
72,000
|
|
|
481
|
|
6.24
|
|
8,334
|
|
|
7.5
|
|
|
|
|
|
8,334
|
|
|
25
|
|
7.32
|
|
16,668
|
|
|
7.3
|
|
|
|
|
|
16,668
|
|
|
85
|
|
11.52
|
|
8,334
|
|
|
5.4
|
|
|
|
|
|
6,667
|
|
|
36
|
|
16.80
|
|
39,267
|
|
|
4.4
|
|
|
|
|
|
39,267
|
|
|
172
|
|
|
|
399,380
|
|
|
7.47
|
|
$
|
231
|
|
|
379,712
|
|
$
|
2,792
|
|
F-34
Costs
incurred with respect to options granted to consultants and service providers
for the year ended November 30, 2017 and 2016 was $322 thousand and $2,543
thousand, respectively. As of November 30, 2017, there was $22 thousand of
unrecognized compensation costs related to non-vested consultants and service
providers, to be recorded over the next 2.55 years.
d.
Warrants Issued to Non-Employees
1)
During the year ended November 30, 2016, the Company granted to several
consultants 89,288 warrants each exercisable at $6.24 per share for three years.
The fair value of those options as of the date of grant using the Black-Scholes
valuation model was $219 thousand, out of which $64 thousand is related to
22,621 warrants granted as a success fee with respect to the issuance of the
convertible notes.
2)
During the year ended November 30, 2017, the Company granted to several
consultants 53,148 warrants each exercisable at $6.24 or $10.2 per share for
three years. The fair value of those options as of the date of grant using the
Black-Scholes valuation model was $211 thousand, out of which $169 thousand is
related to 38,001 warrants granted as a success fee with respect to the issuance
of the convertible notes
.
e.
Shares Issued to Non-Employees
1)
On March 1, 2016, the Company entered into a consulting agreement for a period
of one year. Under the terms of the agreement, the Company granted the
consultant 20,834 shares of restricted common stock. The fair value of the
shares as of the date of grant was $75 thousand. In addition, the Company had to
pay a retainer fee of $10,000 per month, consisting of $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 an 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. The fair value of the shares as of November 30, 2016, was $34
thousand. The consultant has not met the financing criteria therefore the
Company has not issued additional shares under this agreement.
2)
On April 27, 2016, the Company entered into consulting agreements for a period
of one year with two consultants. Under the terms of the agreements, the Company
agreed to grant the consultants an aggregate of 100,001 shares of restricted
common stock that vested on the grant date. The fair value of the shares as of
the date of grant was $336 thousand.
3)
On May 1, 2016, the Company entered into a consulting agreement for a period of
one year. Under the terms of the agreement, the Company agreed to grant a
consultant 83,334 shares of restricted common stock, of which the first 29,167
shares vested immediately, 29,167 shares are to vest 90 days following the
agreement date and 25,000 shares are schedule to vested 180 days following the
agreement date. The fair value of the shares as of the date of grants of these
three tranches was $383 thousand.
NOTE 14 TAXES
a.
The Company and the US Subsidiary
The
Company and the US Subsidiary are taxed according to tax laws of the United
States. The income of the Company is taxed in the United States at a federal tax
rate of up to 35% and state tax rate of 8.25% .
On
December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act
(the TCJA), which among other changes reduces the federal corporate tax rate
to 21%. The Company is currently evaluating the impact of the TCJA on its
consolidated financial statements and does not expect any material impact.
F-35
b.
The Israeli Subsidiary
The
Israeli Subsidiary is taxed according to Israeli tax
laws.
In
January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216)
was published, enacting a reduction of corporate tax rate in 2016 and
thereafter, from 26.5% to 25%.
In
December 2016, the Economic Efficiency Law (Legislative Amendments for
Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was
published, introducing a gradual reduction in corporate tax rate from 25% to
23%. However, the law also included a temporary provision setting the corporate
tax rate in 2017 at 24%. As a result, the corporate tax rate in 2017 was 24% and
in 2018 and thereafter reduced to 23%.
c
.
The
Belgian Subsidiaries
The Belgian Subsidiaries are taxed according to Belgian tax laws. The regular
corporate tax rate in Belgium for 2016 and 2017 is 34%.
On 22 December 2017, the Belgian Parliament has approved the Belgian reform
bill. The main impacts of this tax reform are:
-
A decrease of the nominal tax rate from 34% to 30% in 2018 and 25% in 2020
-
Limitation of deductions on the taxable basis (i.e. carried forward
losses, notional interests
) meaning that there will be a minimum taxable
basis (if profit above Euro 1 million)
-
Tax supplements resulting from a tax audit will constitute a minimum tax
base
d.
Tax Loss Carryforwards
1) As of November 30, 2017, the Company had net operating loss (NOL) carry forwards equal to $12.8 million that is available to reduce future taxable income. Out of the Company’s NOL carry forward, an amount of $138 thousand may be restricted under Section 382 of the Internal Revenue Code (“IRC”). IRC Section 382 applies whenever a corporation with an NOL experiences an ownership change. As a result of Section 382, the taxable income for any post change year that may be offset by a pre-change NOL may not exceed the general Section 382 limitation, which is the fair market value of the pre-change entity multiplied by the long-term tax exempt rate.
2) U.S. Subsidiary - As
of November 30, 2017, the U.S. Subsidiary had approximately $276 thousand of NOL
carry forwards that are available to reduce future taxable income with no
limited period of use.
3) Israeli Subsidiary -
As of November 30, 2017, the Israeli Subsidiary had approximately $5.8 million
of NOL carry forwards that are available to reduce future taxable income with no
limited period of use.
4) Belgian Subsidiaries
- As of November 30, 2017, the Belgian Subsidiaries had approximately $15.8
million (€13.3 million) of NOL carry forwards that are available to reduce
future taxable income, with no limited period of use.
F-36
e.
Deferred Taxes
The
following table presents summary of information concerning the Companys
deferred taxes as of the periods ending November 30, 2017 and 2016 (in
thousands):
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(U.S
dollars in thousands)
|
|
Net operating loss carry
forwards
|
$
|
11,819
|
|
$
|
8,278
|
|
Research and development expenses
|
|
1,065
|
|
|
655
|
|
Employee benefits
|
|
180
|
|
|
152
|
|
Property and equipment
|
|
(61
|
)
|
|
(355
|
)
|
Convertible bonds
|
|
|
|
|
1
|
|
Deferred income
|
|
(292
|
)
|
|
(325
|
)
|
Intangible assets
|
|
(5,117
|
)
|
|
(5,117
|
)
|
Less: Valuation allowance
|
|
(8,284
|
)
|
|
(5,151
|
)
|
Net deferred tax liabilities
|
$
|
(690
|
)
|
$
|
(1,862
|
)
|
Realization
of deferred tax assets is contingent upon sufficient future taxable income
during the period that deductible temporary differences and carry forwards
losses are expected to be available to reduce taxable income. As the achievement
of required future taxable income is not considered more likely than not
achievable, the Company and all of its subsidiaries except MaSTherCell have
recorded full valuation allowance.
The
changes in valuation allowance are comprised as follows:
|
|
Year Ended November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(U.S
dollars in thousands)
|
|
Balance at the beginning of
year .
|
$
|
(5,151
|
)
|
$
|
(2,982
|
)
|
Additions during the year
|
|
(3,207
|
)
|
|
(2,169
|
)
|
Balance at end of year
|
$
|
(8,358
|
)
|
$
|
(5,151
|
)
|
f.
Reconciliation of the Theoretical Tax Expense to Actual Tax Expense
The
main reconciling item between the statutory tax rate of the Company and the
effective rate is the provision for full valuation allowance with respect to tax
benefits from carry forward tax losses.
g.
Tax Assessments
1) The Company - As of
November 30, 2017, the Company has received a final tax assessment up to the
year 2010.
2) U.S. Subsidiary and
the Israeli Subsidiary - As of November 30, 2017, the U.S. Subsidiary and the
Israeli Subsidiary have not received any final tax assessment.
3) Belgian Subsidiary -
As of November 30, 2017, the Belgian Subsidiary has received a final tax
assessment for the year 2014.
4) MaSTherCell - As of
November 30, 2017, MaSTherCell has received a final tax assessment for the year
2013.
h.
Uncertain Tax Provisions
As
of November 30, 2017, the Company has not accrued a provision for uncertain tax
positions.
F-37
NOTE 15 - FAIR VALUE PRESENTATION
The
Company measures fair value and discloses fair value measurements for financial
assets and liabilities. Fair value is based on the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The accounting standard
establishes a fair value hierarchy that prioritizes observable and unobservable
inputs used to measure fair value into three broad levels, which are described
below:
|
Level 1: Quoted prices (unadjusted) in active markets
that are accessible at the measurement date for assets or liabilities. The
fair value hierarchy gives the highest priority to Level 1 inputs.
|
|
Level 2: Observable inputs that are based on inputs not
quoted on active markets but corroborated by market data.
|
|
Level 3: Unobservable inputs are used when little or no
market data is available. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
|
In
determining fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs, to the
extent possible, and considers credit risk in its assessment of fair value.
As
of November 30, 2017, and 2016, the Companys liabilities that are measured at
fair value and classified as level 3 fair value are as follows (in thousands):
|
|
November 30,
|
|
|
November 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
Level 3
|
|
|
Level 3
|
|
Embedded derivatives convertible loans *
(1)
|
|
(37
|
)
|
|
240
|
|
CALL/PUT option derivative
(1)
|
|
(339
|
)
|
|
273
|
|
Convertible bonds
(2)
|
$
|
-
|
|
$
|
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 is
determined by using a Black-Scholes
Model.
(2)
The fair value of the
convertible bonds described in Note 3 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.
F-38
The following table presents the assumptions that were used for
the models as of November 30, 2017:
|
Embedded
|
Put Option
|
|
Derivative
|
Derivative
|
Fair value of shares of
common stock
|
$ 4.38
|
|
Expected volatility
|
77%
|
54%
|
Discount on lack of
marketability
|
-
|
12%
|
Risk free interest rate
|
1.21%-1.39%
|
1.44%
|
Expected term (years)
|
0.17-0.42
|
0.5
|
Expected dividend yield
|
0%
|
|
The following table presents the assumptions that were used for the models as of
November 30, 2016:
|
Embedded
|
Put Option
|
|
Derivative
|
Derivative
|
Fair value of shares of
common stock
|
$
4.68
|
|
Expected volatility
|
103%
|
63%
|
Discount on lack of
marketability
|
-
|
-
|
Risk free interest rate
|
0.38%-0.62%
|
0.9%
|
Expected term (years)
|
0.08-0.42
|
|
Expected dividend yield
|
0%
|
|
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 year ended
November 30, 2017:
|
|
|
Embedded
|
|
|
Convertible
|
|
|
Put Option
|
|
|
|
|
Derivatives
|
|
|
Bonds
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
$
|
240
|
|
$
|
1,818
|
|
$
|
273
|
|
|
Repayment
|
|
(876
|
)
|
|
(1,827
|
)
|
|
|
|
|
Changes in fair value during the period
|
|
662
|
|
|
22
|
|
|
(612
|
)
|
|
Translation adjustments
|
|
11
|
|
|
(13
|
)
|
|
|
|
|
Balance at end of the year
|
$
|
37
|
|
$
|
-
|
|
$
|
(339
|
)
|
(*) There were no transfers to Level 3 during the twelve months
ended November 30, 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 year
ended November 30, 2016:
|
|
|
Embedded
|
|
|
Convertible
|
|
|
Put Option
|
|
|
|
|
Derivatives
|
|
|
Bonds
|
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year
|
$
|
289
|
|
$
|
1,888
|
|
$
|
-
|
|
|
Additions
|
|
40
|
|
|
|
|
|
273
|
|
|
Conversion
|
|
(10
|
)
|
|
|
|
|
|
|
|
Changes in fair value during the period
|
|
(87
|
)
|
|
(84
|
)
|
|
|
|
|
Changes in fair value due to extinguishment
of convertible loan
|
|
8
|
|
|
|
|
|
|
|
|
Translation adjustments
|
|
11
|
|
|
14
|
|
|
|
|
|
Balance at end of the year
|
$
|
240
|
|
$
|
1,818
|
|
$
|
273
|
|
(*) There were no transfers to Level 3 during the twelve months
ended November 30, 2016.
F-39
The
Company has performed a sensitivity analysis of the results for the Put Option
Derivative fair value as of November 30, 2017 with the following parameters:
|
|
|
Base -50%
|
|
|
Base
|
|
|
Base+50%
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
Sensitivity analysis due to changes in the
assumptions expected volatility
|
$
|
335
|
|
$
|
339
|
|
$
|
379
|
|
|
Sensitivity analysis due to changes in Atvio's FV
|
|
252
|
|
|
339
|
|
|
440
|
|
NOTE 16 REVENUES
|
|
|
Year Ended November 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in thousands)
|
|
|
Services
|
$
|
8,024
|
|
$
|
4,683
|
|
|
Goods
|
|
2,065
|
|
|
1,714
|
|
|
Total
|
$
|
10,089
|
|
$
|
6,397
|
|
NOTE 17 RESEARCH AND DEVELOPMENT EXPENSES, NET
|
|
|
Year Ended November 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in thousands)
|
|
|
Total expenses
|
$
|
3,326
|
|
$
|
2,637
|
|
|
Less grants
|
|
(848
|
)
|
|
(480
|
)
|
|
Total
|
$
|
2, 478
|
|
$
|
2,157
|
|
NOTE 18 FINANCIAL EXPENSES (INCOME), NET
|
|
|
Year ended November 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in thousands)
|
|
|
Decrease in fair value of warrants and
financial liabilities measured at fair value
|
$
|
(902
|
)
|
$
|
(1,587
|
)
|
|
Stock-based compensation related to warrants granted due to
issuance of credit facility
|
|
1,497
|
|
|
208
|
|
|
Interest expense on convertible loans
|
|
1,233
|
|
|
694
|
|
|
Foreign exchange loss, net
|
|
562
|
|
|
31
|
|
|
Other income
|
|
57
|
|
|
(5
|
)
|
|
Total
|
$
|
2,447
|
|
$
|
(659
|
)
|
F-40
NOTE 19- RELATED PARTIES TRANSACTIONS
1)
Related Parties presented in the consolidated statements of comprehensive
loss
|
|
|
For the year ended November 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in thousands)
|
|
|
Management and consulting fees to Board
Members
|
$
|
25
|
|
$
|
85
|
|
|
Stock Based Compensation expenses to Board Members
|
|
393
|
|
|
242
|
|
|
Compensation of executive officers
|
|
419
|
|
|
318
|
|
|
Stock Based Compensation expenses to executive officers
|
|
821
|
|
|
501
|
|
|
Interest Expenses on convertible loan from
director
|
$
|
55
|
|
$
|
2
|
|
2)
Related Parties presented in the consolidated balance sheets
|
|
|
Year ended November 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Convertible Loan from director
|
$
|
167
|
|
$
|
112
|
|
|
|
|
|
|
|
|
|
|
Executive officers payables
|
|
358
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
Non-executive directors payable
|
$
|
316
|
|
$
|
280
|
|
3)
The balances with Related Parties in the balance sheet are mainly related
to on-going transactions between the Company and the associates companies. See
also Note 5.
NOTE 20- SUBSEQUENT EVENTS
a. On December 6,
2017 the Board of Directors approved grant of 70,700 shares to several
consultants and service providers.
b. On December 18,
2017, MaSTherCell received the approval of a new grant from Intitule ICONE with
a financial support of Euro 1 million ($1.2 million) in program for development
of iPS-derived Cortical Neurons. In December 2017, MaSTherCell received an
advance payment of Euro 0.6 million ($0.7 million).
c. In December 2017
and February 2018, the institutional investor referred to in Note 11b(2),
remitted to the Company $500 thousand in subscription proceeds entitling such
investor to 80,128 shares of Common Stock and three-year warrants for an
additional 80,128 shares. The Company has received as of February 28, 2018 a
total of $5,000thousand out of the committed $16 million subscription proceeds.
d. In January 2018,
the Company entered into investors relation services, marketing and related
services agreement. Under the terms of the agreement, the Company agreed to
grant the consultants 100,000 shares of restricted common stock, of which the
first 25,000 shares will vest immediately, and 75,000 shares are to vest monthly
over 15 months commencing February 2018.
e. On January 28,
2018 the Company and Adva Biotechnology Ltd. ("Adva"), entered into a Master
Services Agreement ("MSA"), under which the Company and/or its affiliates are to
provide certain services relating to development of products to Adva, as may be
agreed between the parties from time to time. Under the MSA, the Company
undertook to provide Adva with in kind funding in the form of materials and
services having an aggregate value of $749,900 at the Company's own cost in
accordance with a project schedule and related mutually acceptable project
budget. In consideration for and subject to the fulfilment by the Company of
such in-kind funding commitment, Adva agreed that upon completion of the
development of the products, the Company and/or its affiliates and Adva shall
enter into a supply agreement pursuant to which for a period of eight (8) years
following execution of such supply agreement, the Company and/or its affiliates
(as applicable) is entitled (on a non-exclusive basis) to purchase the products
from Adva at a specified discount pricing from their then standard pricing .
The Company and/or its affiliates were also granted a non-exclusive worldwide
right to distribute such products, directly or through any of their respective
contract development and manufacturing organization (CDMO) service centers
during such term. The MSA shall remain in effect for 10 years unless earlier
terminated in accordance with its terms.
F-41
f. During December
2017 thorough February 2018, the Company entered into definitive agreements with
accredited and other qualified investors relating to a private placement of (i)
408,454 units, Each unit is comprised of (i) one share of the Companys common
stock and (ii) three-year warrant to purchase up to an additional one share of
the Companys Common Stock at a per share exercise price of $6.24, for aggregate
proceeds to the Company of $2.5 million
g. During December
2017 and January 2018, the Company entered into unsecured convertible note
agreements with accredited or offshore investors for an aggregate amount of $720
thousand. The notes bear an annual interest rate of 6% and mature in six months
or two years from the closing date, unless earlier converted subject to the
terms defined in the agreements. The notes provide that the entire principal
amount and accrued interest automatically convert into units as in the agreement
under certain condition described in the agreement. In addition, the Company
issued to certain investors 40,064 three-year warrant to purchase up to an
additional one share of the Companys Common Stock at a per share exercise price
of $6.24.
Through February 27, 2018, $650 thousand in principal amount
out of these convertible notes were converted into units of the Company's
securities. See additional information in Note 20h.
h. During January and
February 2018, holders of $6.8 million in principal and accrued interest of
convertible notes with maturity dates between June 2018 and January 2020
converted these outstanding amounts, in accordance with the terms specified in
such notes, into units of the Companys securities at a deemed per unit
conversion rate of $6.24, with each unit comprised of: (i) one (1) share of the
Companys Common Stock and (ii) one warrant, exercisable for a period of three
years from the date of issuance, for an additional share of Common Stock, at a
per share exercise price of $6.24. As a result of these conversions, the Company
will issue 1,087,960 shares of Common Stock and three-year warrants for an
additional 1,087,960 shares of common stock at a per share exercise price of
$6.24.
F-42
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