UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period EndedAugustMay 31, 20172018
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from _________to _________ to _________
Commission file number:000-54329
ORGENESIS INC.
(Exact name of registrant as specified in its charter)
Nevada | 98-0583166 |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
organization) |
20271 Goldenrod Lane
Germantown, MD 20876
(Address of principal executive offices) (zip code)
(480) 659-6404
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer | [ ] | Smaller reporting company | [X] |
(Do not check if a smaller reporting company) | Emerging Growth Company | [ ] |
1
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X].
As of OctoberJuly 16, 2017,2018, there were 121,779,25214,569,359 shares of registrant’s common stock outstanding.
12
ORGENESIS INC.
FORM 10-Q
FOR THE THREE AND NINESIX MONTHS ENDED AUGUSTMAY 31, 2018 AND 2017AND 2016
TABLE OF CONTENTS
23
PART I – UNAUDITED FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ORGENESIS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in Thousands)
(Unaudited)
August 31, | November 30, | |||||
2017 | 2016 | |||||
Assets | ||||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | 762 | $ | 891 | ||
Accounts receivable, net | 2,106 | 1,229 | ||||
Prepaid expenses and other receivables | 1,668 | 779 | ||||
Grants receivable | 173 | 906 | ||||
Inventory | 965 | 400 | ||||
Total current assets | 5,674 | 4,205 | ||||
NON CURRENT ASSETS: | ||||||
Property and equipment, net | 5,025 | 4,573 | ||||
Restricted cash | 6 | 5 | ||||
Intangible assets, net | 15,480 | 15,050 | ||||
Goodwill | 10,683 | 9,584 | ||||
Investments in associate, net | 475 | - | ||||
Other assets | 79 | 70 | ||||
Total non-current assets | 31,748 | 29,282 | ||||
TOTAL ASSETS | $ | 37,422 | $ | 33,487 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ORGENESIS INC.CONDENSED CONSOLIDATED BALANCE SHEETSU.S. Dollars in Thousands)(Unaudited)
August 31, | November 30, | |||||
2017 | 2016 | |||||
Liabilities and equity | ||||||
CURRENT LIABILITIES: | ||||||
Short-term bank credit | $ | - | $ | 21 | ||
Accounts payable | 3,689 | 4,554 | ||||
Accrued expenses and other payables | 1,408 | 1,205 | ||||
Employees and related payables | 2,343 | 1,680 | ||||
Related parties | 44 | 42 | ||||
Advance payments on account of grant | 1,978 | 243 | ||||
Short-term loans and current maturities of long term loans | 376 | 1,111 | ||||
Deferred income | 4,944 | 1,273 | ||||
Current maturities of convertible loans | 2,789 | 2,541 | ||||
Convertible bonds | - | 1,818 | ||||
Price protection derivative | - | 76 | ||||
Investments in associate, net | - | 12 | ||||
TOTAL CURRENT LIABILITIES | 17,571 | 14,576 | ||||
LONG-TERM LIABILITIES: | ||||||
Loans payable | 3,397 | 3,291 | ||||
Convertible loans | 1,444 | 1,059 | ||||
Warrants | 873 | 1,843 | ||||
Retirement benefits obligation | 5 | 5 | ||||
Put option derivative | 273 | 273 | ||||
Deferred taxes | 2,608 | 1,862 | ||||
TOTAL LONG-TERM LIABILITIES | 8,600 | 8,333 | ||||
TOTAL LIABILITIES | 26,171 | 22,909 | ||||
COMMITMENTS | ||||||
EQUITY: | ||||||
Common stock | 12 | 12 | ||||
Additional paid-in capital | 50,518 | 41,605 | ||||
Receipts on account of shares to be allotted | 852 | - | ||||
Accumulated other comprehensive loss | 1,214 | (1,205 | ) | |||
Accumulated deficit | (41,345 | ) | (29,834 | ) | ||
TOTAL EQUITY | 11,251 | 10,578 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 37,422 | $ | 33,487 |
May 31, | November 30, | |||||
2018 | 2017 | |||||
Assets | ||||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | 4,502 | $ | 3,519 | ||
Restricted Cash | 383 | - | ||||
Accounts receivable, net | 1,298 | 1,336 | ||||
Prepaid expenses and other receivables | 3,408 | 841 | ||||
Receivables from related party | 1,377 | 691 | ||||
Call option derivative | 792 | - | ||||
Grants receivable | 749 | 183 | ||||
Inventory | 1,229 | 725 | ||||
Total current assets | 13,738 | 7,295 | ||||
NON-CURRENT ASSETS: | ||||||
Call option derivative | - | 339 | ||||
Investments in associates, net | 1,136 | 1,321 | ||||
Property and equipment, net | 7,517 | 5,104 | ||||
Intangible assets, net | 14,011 | 15,051 | ||||
Goodwill | 10,549 | 10,684 | ||||
Other assets | 82 | 78 | ||||
Total non-current assets | 33,295 | 32,577 | ||||
TOTAL ASSETS | $ | 47,033 | $ | 39,872 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ORGENESIS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Cont’d)
(U.S. Dollars in Thousands)
(Unaudited)
May 31, | November 30, | |||||
2018 | 2017 | |||||
Liabilities and equity | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable | $ | 2,388 | $ | 3,914 | ||
Accrued expenses and other payables | 1,104 | 1,435 | ||||
Employees and related payables | 2,303 | 2,961 | ||||
Related parties | 126 | 116 | ||||
Advance payments on account of grant | 1,415 | 1,719 | ||||
Short-term loans and current maturities of long term loans | 376 | 378 | ||||
Other | 107 | - | ||||
Deferred income | 4,596 | 3,611 | ||||
Current maturities of convertible loans | 557 | 2,780 | ||||
TOTAL CURRENT LIABILITIES | 12,972 | 16,914 | ||||
LONG-TERM LIABILITIES: | ||||||
Loans payable | $ | 1,902 | $ | 2,118 | ||
Convertible loans | - | 2,415 | ||||
Retirement benefits obligation | 5 | 6 | ||||
Deferred taxes | 32 | 690 | ||||
Other | 199 | - | ||||
TOTAL LONG-TERM LIABILITIES | 2,138 | 5,229 | ||||
TOTAL LIABILITIES | 15,110 | 22,143 | ||||
COMMITMENTS | ||||||
REDEEMABLE NON-CONTROLLING INTEREST | 6,122 | 3,606 | ||||
EQUITY: | ||||||
Common stock of $0.0001 par value, 145,833,334 shares authorized, 13,300,676 shares issued and outstanding as of May 31, 2018 | 1 | 1 | ||||
Additional paid-in capital | 76,831 | 55,334 | ||||
Receipts on account of shares to be allotted | 238 | 1,483 | ||||
Accumulated other comprehensive income | 1,076 | 1,425 | ||||
Accumulated deficit | (52,345 | ) | (44,120 | ) | ||
TOTAL EQUITY | 25,801 | 14,123 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 47,033 | $ | 39,872 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. Dollars in thousands, except share and loss per share amounts)
(Unaudited)
Three Months Ended | Nine Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||
August 31, | August 31, | August 31, | August 31, | May 31, | May 31, | May 31, | May 31, | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||
REVENUES | $ | 2,562 | $ | 1,849 | $ | 6,712 | $ | 4,501 | $ | 3,987 | $ | 2,298 | $ | 6,623 | $ | 4,150 | ||||||||
COST OF REVENUES | 1,867 | 1,829 | 4,900 | 5,273 | 2,195 | 1,128 | 3,839 | 3,033 | ||||||||||||||||
GROSS PROFIT (LOSS) | 695 | 20 | 1,812 | (772 | ) | |||||||||||||||||||
GROSS PROFIT | 1,792 | 1,170 | 2,784 | 1,117 | ||||||||||||||||||||
RESEARCH AND DEVELOPMENT EXPENSES,net | 500 | 775 | 1,906 | 1,663 | 788 | 665 | 1,554 | 1,406 | ||||||||||||||||
AMORTIZATION OF INTANGIBLE ASSETS | 423 | 408 | 1,201 | 1,217 | 445 | 397 | 881 | 777 | ||||||||||||||||
SELLING, GENERAL AND ADMINISTRATIVEEXPENSES | 3,184 | 1,279 | 7,887 | 4,618 | 3,323 | 2,432 | 6,667 | 4,703 | ||||||||||||||||
OTHER INCOME | - | - | 316 | - | ||||||||||||||||||||
OPERATING LOSS | 3,412 | 2,442 | 9,182 | 8,270 | 2,764 | 2,324 | 6,002 | 5,770 | ||||||||||||||||
FINANCIAL EXPENSES (INCOME),net | (2,032 | ) | 574 | 1,488 | (645 | ) | ||||||||||||||||||
SHARE IN LOSSES OF ASSOCIATED COMPANY | 152 | - | 348 | - | ||||||||||||||||||||
FINANCIAL (INCOME) EXPENSES,net | (587 | ) | 503 | 2,094 | 2,578 | |||||||||||||||||||
SHARE IN NET LOSSES OF ASSOCIATED COMPANY | 576 | 107 | 530 | 196 | ||||||||||||||||||||
LOSS BEFORE INCOME TAXES | 1,532 | 3,016 | 11,018 | 7,625 | 2,753 | 2,934 | 8,626 | 8,544 | ||||||||||||||||
TAX EXPENSES (BENEFIT) | 421 | (372 | ) | 493 | (1,313 | ) | ||||||||||||||||||
TAX (INCOME) EXPENSES | (277 | ) | (444 | ) | (673 | ) | 71 | |||||||||||||||||
NET LOSS | $ | 1,953 | $ | 2,644 | $ | 11,511 | $ | 6,312 | $ | 2,476 | $ | 2,490 | $ | 7,953 | $ | 8,616 | ||||||||
NET INCOME ATTRIBUTABLE TOREDEEMABLE NON-CONTROLLING INTERESTS | 138 | - | 272 | - | ||||||||||||||||||||
EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | 2,614 | $ | 2,489 | $ | 8,225 | $ | 8,616 | ||||||||||||||||
LOSS PER SHARE: | ||||||||||||||||||||||||
Basic | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.06 | ) | $ | 0.20 | $ | 0.26 | $ | 0.69 | $ | 0.93 | ||||
Diluted | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.06 | ) | $ | 0.20 | $ | 0.26 | $ | 0.69 | $ | 0.93 | ||||
WEIGHTED AVERAGE NUMBER OF SHARESUSED IN COMPUTATION OF BASIC ANDDILUTED EARNINGS (LOSS) PER SHARE: | ||||||||||||||||||||||||
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION OF BASIC AND DILUTED (LOSS) PER SHARE: | ||||||||||||||||||||||||
Basic | 123,349,597 | 111,188,616 | 113,433,712 | 108,784,862 | 13,140,119 | 9,568,413 | 11,971,389 | 9,221,039 | ||||||||||||||||
Diluted | 124,625,412 | 111,188,616 | 113,746,212 | 108,784,862 | 13,140,119 | 9,568,413 | 11,971,389 | 9,221,039 | ||||||||||||||||
OTHER COMPREHENSIVE LOSS: | ||||||||||||||||||||||||
Net Loss | $ | 1,953 | $ | 2,644 | $ | 11,511 | $ | 6,312 | $ | 2,614 | $ | 2,489 | $ | 8,225 | $ | 8,616 | ||||||||
Translation adjustments | (1,430 | ) | 36 | (2,419 | ) | (1,047 | ) | 1,056 | (1,084 | ) | 349 | (988 | ) | |||||||||||
TOTAL COMPREHENSIVE LOSS | $ | 523 | $ | 2,680 | $ | 9,092 | $ | 5,265 | $ | 3,670 | $ | 1,405 | $ | 8,574 | $ | 7,628 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
56
ORGENESIS INC.
CONDENSEDCONSOLIDATEDSTATEMENTS OFCHANGES INEQUITY
(U.S.Dollars inthousands, except shareamounts)
(Unaudited)
Common Stock | |||||||||||||||||||||
Receipts on | Accumulated | ||||||||||||||||||||
Additional | Account of | Other | |||||||||||||||||||
Par | Paid-in | Share to be | Comprehensive | Accumulated | |||||||||||||||||
Number | Value | Capital | Allotted | Loss | Deficit | Total | |||||||||||||||
Balance at December 1, 2015 | 55,835,950 | $ | 6 | $ | 14,229 | $ | 1,251 | $ | (1,286 | ) | $ | (20,640 | ) | $ | (6,440 | ) | |||||
Changes during the nine months ended August 31, 2016: | |||||||||||||||||||||
Stock-based compensation to employees and directors | 990 | 990 | |||||||||||||||||||
Stock-based compensation to service providers | 1,148 | 1,148 | |||||||||||||||||||
Warrants and shares to be issued due to extinguishment of a convertible loan | 114 | 114 | |||||||||||||||||||
Beneficial conversion feature of convertible loans | 245 | 245 | |||||||||||||||||||
Issuances of shares from investments and conversion of convertible loans | 12,844,455 | 1 | 1,948 | (1,251 | ) | 698 | |||||||||||||||
Reclassification of redeemable common stock* | 42,401,724 | 4 | 21,454 | 21,458 | |||||||||||||||||
Receipts on account of shares to be allotted | 887 | 887 | |||||||||||||||||||
Comprehensive income (loss) for the period | 1,047 | (6,312 | ) | (5,265 | ) | ||||||||||||||||
Balance at August 31, 2016 | 111,082,129 | $ | 11 | $ | 40,128 | $ | 887 | $ | (239 | ) | $ | (26,952 | ) | $ | 13,835 | ||||||
Balance at December 1, 2016 | 114,096,461 | $ | 12 | $ | 41,605 | $ | -,- | $ | (1,205 | ) | $ | (29,834 | ) | $ | 10,578 | ||||||
Changes during the nine months ended August 31, 2017: | |||||||||||||||||||||
Stock-based compensation to employees and directors | 1,156 | 1,156 | |||||||||||||||||||
Stock-based compensation to service providers | 950,000 | - | 1,824 | 1,824 | |||||||||||||||||
Issuance of warrants and beneficial conversion feature of convertible loans | 2,550 | 2,550 | |||||||||||||||||||
Issuance of shares and receipts on account of shares and warrants to be allotted and cancelation of contingent shares | 2,936,918 | - | 3,383 | 852 | 4,235 | ||||||||||||||||
Comprehensive income (loss) for the period | 2,419 | (11,511 | ) | (9,092 | ) | ||||||||||||||||
Balance at August 31, 2017 | 117,983,379 | $ | 12 | $ | 50,518 | $ | 852 | $ | 1,214 | $ | (41,345 | ) | $ | 11,251 |
Common Stock | |||||||||||||||||||||
Receipts on | Accumulated | ||||||||||||||||||||
Additional | Account of | Other | |||||||||||||||||||
Par | Paid-in | Share to be | Comprehensive | Accumulated | |||||||||||||||||
Number of Shares | Value | Capital | Allotted | Loss | Deficit | Total | |||||||||||||||
Balance at December 1, 2016 | 9,508,068 | $ | 1 | $ | 45,454 | $ | - | $ | (1,205 | ) | $ | (31,753 | ) | $ | 12,497 | ||||||
Changes during the six months ended May 31, 2017: | |||||||||||||||||||||
Stock-based compensation to employees and directors | 771 | 771 | |||||||||||||||||||
Stock-based compensation to service providers | 79,167 | 2,066 | 2,066 | ||||||||||||||||||
Issuances of shares from investments and conversion of convertible loans | 328,388 | 2,214 | 595 | 2,809 | |||||||||||||||||
Comprehensive loss for the period | 988 | (8,616 | ) | (7,628 | ) | ||||||||||||||||
Beneficial conversion feature of convertible loans and Warrants issued | 2,241 | 2,241 | |||||||||||||||||||
Balance at May 31, 2017 | 9,915,623 | $ | 1 | $ | 52,746 | $ | 595 | $ | (217 | ) | $ | (40,369 | ) | $ | 12,756 | ||||||
Balance at December 1, 2017 | 9,872,659 | 1 | 55,334 | 1,483 | 1,425 | (44,120 | ) | 14,123 | |||||||||||||
Changes during the six months ended May 31, 2018: | |||||||||||||||||||||
Stock-based compensation to employees and directors | 801 | 801 | |||||||||||||||||||
Stock-based compensation to service providers | 1,026 | 1,026 | |||||||||||||||||||
Issuance of shares and warrant due to conversion of convertible loans | 1,341,134 | * | 7,330 | 7,330 | |||||||||||||||||
Issuance of shares and receipts on account of shares and warrants to be allotted | 1,958,806 | * | 11,218 | (1,245 | ) | 9,973 | |||||||||||||||
Beneficial conversion feature of convertible loans and Warrants issued | 323 | 323 | |||||||||||||||||||
Issuance of Shares due to exercise of warrants | 128,077 | * | 799 | 799 | |||||||||||||||||
Comprehensive loss for the period | (349 | ) | (8,225 | ) | (8,574 | ) | |||||||||||||||
Balance at May 31, 2018 | 13,300,676 | $ | 1 | $ | 76,831 | $ | 238 | $ | 1,076 | $ | (52,345 | ) | $ | 25,801 |
*Including outstanding contingent shares.represent an amount lower than $ 1 thousand
Theaccompanying notes are anintegral part of these condensedconsolidatedfinancialstatements.
6
ORGENESIS INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(U.S. Dollars in thousands)(Unaudited)
Nine months ended | ||||||
August 31, | August 31, | |||||
2017 | 2016 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net loss | $ | (11,511 | ) | $ | (6,312 | ) |
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||
Stock-based compensation | 2,817 | 2,085 | ||||
Loss from extinguishment of a convertible loan | - | 229 | ||||
Share in losses of associated company | 348 | - | ||||
Depreciation and amortization expenses | 1,874 | 1,987 | ||||
Change in fair value of warrants and embedded derivatives | (1,276 | ) | (1,172 | ) | ||
Change in fair value of convertible bonds | (157 | ) | (115 | ) | ||
Interest expenses accrued on loans and convertible loans (including amortization of beneficial conversion feature) | 818 | 494 | ||||
Changes in operating assets and liabilities: | ||||||
Increase in accounts receivable | (682 | ) | (603 | ) | ||
Increase in inventory | (484 | ) | (73 | ) | ||
Increase in other assets | (1 | ) | (17 | ) | ||
Increase in prepaid expenses and other accounts receivable | (818 | ) | (220 | ) | ||
Increase (decrease) in accounts payable | (1,230 | ) | 637 | |||
Increase in accrued expenses and other payables | 192 | 242 | ||||
Increase in employee and related payables | 554 | 523 | ||||
Increase in deferred income | 3,268 | 402 | ||||
Increase in advance payments and receivables on account of grant, net | 2,358 | 50 | ||||
Increase (decrease) in deferred taxes | 494 | (1,314 | ) | |||
Net cash used in operating activities | (3,436 | ) | (3,177 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchase of property and equipment | (639 | ) | (1,049 | ) | ||
Disposals of property and equipment | 31 | - | ||||
Investments in associate | (835 | ) | - | |||
Net cash used in investing activities | (1,443 | ) | (1,049 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Short-term line of credit | (21 | ) | 17 | |||
Proceeds from issuance of shares and warrants (net of transaction costs) | 4,307 | 1,488 | ||||
Proceeds from issuance of convertible loans (net of transaction costs) | 4,932 | 1,258 | ||||
Repayment of convertible loans and convertible bonds | (3,766 | ) | - | |||
Repayment of short and long-term debt | (1,102 | ) | (2,446 | ) | ||
Net cash provided by financing activities | 4,350 | 317 | ||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (529 | ) | (3,909 | ) | ||
EFFECT OF EXCHANGE RATE CHANGES ON CASH ANDCASH EQUIVALENTS | 400 | 11 | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 891 | 4,168 | ||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 762 | $ | 270 | ||
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES | ||||||
Conversion of loans and bonds (including accrued interest) to common stock and warrants | $ | 106 | $ | 1,028 | ||
Reclassification of redeemable common stock to equity | $ | 21,458 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in thousands)
(Unaudited)
Six Months Ended | ||||||
May 31, | May 31, | |||||
2018 | 2017 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net loss | $ | (7,953 | ) | $ | (8,616 | ) |
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||
Stock-based compensation | 1,827 | 2,707 | ||||
Share in losses of associated company | 530 | 196 | ||||
Depreciation and amortization expenses | 1,282 | 1,207 | ||||
Change in fair value of embedded derivatives | (490 | ) | 131 | |||
Change in fair value of convertible bonds | - | (110 | ) | |||
Interest expenses accrued on loans and convertible loans (including amortization of beneficial conversion feature) | 2,522 | 589 | ||||
Changes in operating assets and liabilities: | ||||||
Increase in accounts receivable | (19 | ) | (1,606 | ) | ||
Increase in inventory | (533 | ) | (466 | ) | ||
Increase in related parties, net | (680 | ) | - | |||
Increase in Other assets | (9 | ) | (1 | ) | ||
Increase in prepaid expenses and other accounts receivable | (411 | ) | (645 | ) | ||
Decrease in accounts payable | (1,509 | ) | (1,268 | ) | ||
Increase (decrease) in accrued expenses and other payables | (327 | ) | 168 | |||
Increase (decrease) in employee and related payables | (654 | ) | 493 | |||
Increase in deferred income | 1,070 | 2,814 | ||||
Increase (decrease) in advance payments and receivables on account of grant, net | (878 | ) | 2,557 | |||
Increase (decrease) in deferred taxes | (673 | ) | 72 | |||
Net cash used in operating activities | (6,905 | ) | (1,778 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchase of property and equipment | (2,634 | ) | (465 | ) | ||
Disposals of property and equipment | - | 22 | ||||
Investments in associate | (345 | ) | (459 | ) | ||
Net cash used in investing activities | (2,979 | ) | (902 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Short-term line of credit | - | (21 | ) | |||
Proceeds from issuance of shares and warrants (net of transaction costs) | 10,773 | 2,810 | ||||
Proceeds from issuance of convertible loans (net of transaction costs) | 720 | 3,912 | ||||
Repayment of convertible loans and convertible bonds | (177 | ) | (3,641 | ) | ||
Repayment of short and long-term debt | (213 | ) | (706 | ) | ||
Net cash provided by financing activities | 11,103 | 2,354 | ||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 1,219 | (326 | ) | |||
EFFECT OF EXCHANGE RATE CHANGES ON CASH ANDCASH EQUIVALENTS | 147 | 91 | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 3,518 | 891 | ||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT ENDOF PERIOD | $ | 4,884 | $ | 656 | ||
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES | ||||||
Conversion of loans and bonds (including accrued interest) to common stock and warrants | $ | 7,330 | ||||
Redeemable non-controlling interest | $ | 2,258 | ||||
Leasing of Fixed assets | $ | 337 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ORGENESIS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and NineSix Months Ended AugustMay 31, 20172018 and August 31, 20162017
NOTE 1 - GENERAL AND BASIS OF PRESENTATION
a. | General |
Orgenesis Inc., a Nevada corporation, is a biopharmaceuticalservice and research company in the field of regenerative medicine industry with expertise and experience ina focus on cell therapy development and manufacturing specializing in cell therapy development for advanced medicinal products serving the regenerative medicine industry.
products. In addition, the Company is focused on developing a 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 S.A.”), its Belgian-based subsidiary and a contract development and manufacturing organization, or CDMO, specialized in cell therapy technologydevelopment 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 Company’s 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 Company’s trans-differentiation technologies for treating diabetes, which will be referred to as the cellular therapy (“CT”) business, is based on the research work of Prof. Sarah Ferber, the Company's Chief Science Officer and a researcher attechnology licensed by Tel Hashomer Medical Research (“THM”), a leading medical hospital and research center in Israel, who established a proof of concept to the Israeli Subsidiary that demonstrates the capacity to induce a shift in the developmental fate of cells from the liver and transdifferentiatingtrans-differentiating (converting) them into “pancreatic beta cell-like” insulin-producing cells.
The combination of proprietary cell therapy trans-differentiation technologies forOn March 14, 2016, the treatment of diabetesCompany and CureCell Co., Ltd. (“CureCell”) entered into a revenue-generatingJoint Venture Agreement (the “CureCell JVA”) pursuant to which the parties are collaborating in the contract development and manufacturing service business providesof cell therapy products in Korea. As to the Company exercise of the "call option" to which it was entitled under the CureCell JVA agreement see note 10(12).
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. As to the Company exercise of the "call option" to which it was entitled under the Atvio JVA agreement see note 10(12).
On June 28, 2018, the Company and a newly formed Delaware subsidiary of the Company which is engaged in the contract manufacturing for cell therapy companies (CDMO) ("Masthercell Global") entered into a series of definitive strategic agreements intended to finance, strengthen and expand Orgenesis' CDMO business, which included entry into a Stock Purchase Agreement (the "SPA") with unique capabilities.an affiliate of Great Point Partners, LLC, a manager of private equity funds focused on growing small to medium sized heath care companies ("Great Point"), pursuant to which such Great Point affiliate purchased 378,000 shares of newly designated Series A Preferred Stock of Masthercell Global (the "Masthercell Global Preferred Stock"), representing 37.8% of the issued and outstanding share capital of Masthercell Global, for cash consideration to be paid into Masthercell Global of up to $25 million, subject to certain adjustments. See Note 10(12).
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.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 these condensed consolidated financial statements.
On March 13, 2018, the Company's common stock began to be quoted and traded on the Nasdaq Capital Market under the symbol “ORGS.”
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a. | Liquidity |
As of May 31, 2018, the Company accumulated losses of approximately $52.3 million. Although the Company is showing positive revenue and gross profit trends in its CDMO division, the Company expects to incur further losses in the CT division.
To date, the Company has been funding operations primarily from the proceeds from private placements of the Company’s convertible debt and equity securities and from revenues generated by MaSTherCell S.A. From December 1, 2017 through May 31, 2018, the Company received, through MaSTherCell S.A., proceeds of approximately $5.7 million in revenues and accounts receivable from customers, and $11.7 million from the private placement to accredited investors of the Company's equity and equity linked securities and convertible loans, out of which $2.5 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 June 1, 2018 through July 16, 2018, the Company raised $7.8 million from the private placement to assignees of the investor referred to above of unsubscribed units under such investor’s subscription agreement, the exercise of warrants by an investor, and received, through Masthercell Global, $10.3 million as part of Great Point investment and proceeds of approximately $2.1 million in accounts receivable from customers of MaSTherCell S.A. See also note 10, Subsequent Events.
Basis of Presentation
These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements. In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’s consolidated financial position as of AugustMay 31, 2017,2018, and the consolidated statements of comprehensive loss for the three and ninesix months ended AugustMay 31, 20172018 and 2016,2017, and the changes in equity and cash flows for the nine monthssix-month period ended AugustMay 31, 20172018 and 2016.2017. The interim results are not necessarily indicative of the results to be expected for the year ending November 30, 2017.2018. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended November 30, 2016.2017.
Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of August 31, 2017, the Company, had accumulated losses of approximately $41 million and expects to incur further losses in the development of its business. Presently, the Company does not have sufficient cash to meet its requirements in the following twelve months. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. In the event that the remaining subscription proceeds from a private placement with an institutional investor referred to below, in the aggregate amount of $12 million (out of total committed amount $16 million) will not be paid periodically through August 2018, then the Company will need to raise significant funds in order to continue to meet its liquidity needs, realize its business plan and maintain operations. The Company’s current cash balance is not sufficient to support its operations as presently conducted or permit it to take advantage of business opportunities that may arise. Management of the Company is continuing its efforts to generate sustainable profits from its CDMO business and to secure funds through equity and/or debt instruments for its operations and business opportunities investments.
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The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of its business plan will actually improve the Company’s operating results. If the Company is unable to raise the necessary capital, the Company may have to cease curtail or reduce operations.
The Company has been funding its operations primarily from the proceeds from private placements of the Company’s convertible debt and equity securities and from revenues generated by MaSTherCell. From December 2016 through August 2017, the Company received, through MaSTherCell, proceeds of approximately $6.1 million in revenues and accounts receivable from customers and $9 million from the private placement to accredited investors of its equity and equity linked securities and convertible loans, out of which $3.5 are million from the institutional investor definitive agreements in January 2017 for the private placement of units of the Company’s securities for aggregate subscription proceeds to the Company of $16 million. The subscription proceeds are payable on a periodic basis through August 2018. In addition, from September 1, 2017 through October 16, 2017, the Company raised an additional $1.1 million from the proceeds of the private placement to certain accredited investors of its equity and equity linked securities and Company received, through MaSTherCell, proceeds of approximately $1 million in accounts receivable from its customers.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the previous financial year.year, except as noted below regarding the adoption of new accounting pronouncements.
Recently Issued Accounting Pronouncements- adopted by the Company
1) In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a Consensus of the FASB Emerging Issues Task Force) (“ASU 2016-18”), which requires entities to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual reporting periods (including interim periods within those annual reporting periods) beginning after December 15, 2017. The Company adopted this standard in the three months ended May 31, 2018. The Company did not have restricted cash in the previously presented period. Therefore, there is no impact for the new adoption on previously reported periods.
2) In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 Company’s condensed consolidated financial statements previously reported:
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Shareholders’ Equity
May 31, 2017 | |||||||||
Impact | |||||||||
As reported | of | ||||||||
Previously | adoption | As revised | |||||||
In thousands | |||||||||
Additional paid-in capital | $ | 48,898 | $ | 3,838 | $ | 52,736 | |||
Accumulated deficit | $ | (39,392 | ) | $ | (977 | ) | $ | (40,369 | ) |
Total equity | $ | 9,898 | $ | 2,861 | $ | 12,759 |
StatementofComprehensive Loss
Six months ended May 31, 2017 | Three months ended May 31, 2017 | |||||||||||||||||
As | As | |||||||||||||||||
reported | Impact of | As | reported | Impact of | As | |||||||||||||
Previously | adoption | revised | Previously | adoption | revised | |||||||||||||
In thousands | ||||||||||||||||||
Financial expenses, net | $ | 3,520 | $ | (942 | ) | $ | 2,578 | $ | (1,428 | ) | $ | 1,931 | $ | 503 | ||||
Loss before income taxes | $ | 9,486 | $ | (942 | ) | $ | 8,544 | $ | 1,003 | $ | 1,931 | $ | 2,934 | |||||
Net loss | $ | 9,558 | $ | (942 | ) | $ | 8,616 | $ | 559 | $ | 1,931 | $ | 2,490 |
NOTE 3 - SEGMENT INFORMATION
The Chief Executive Officer ("CEO") is the Company’s chief operating decision-maker ("CODM").
Based on the Company's organizational structure, its business activities and information reviewed by the CODM for the purposes of allocating resources and assessing performance, management has determined that there are two operating segments.
CDMO
The CDMO activity is comprised of a specialization in cell therapy development for advanced therapeutic products and is comprised of two types of services to its customers: (i) process and assay development services and (ii) cGMP contract manufacturing services. The CDMO activities include the operations of MaSTherCell.
CTBCT Business
The Cellular TherapyCT Business (“CTB”) activity is based on theour technology licensed by the Israeli Subsidiary, that demonstrates the capacity to induce a shift in the developmental fate of cells from the liver and differentiating (converting) them into “pancreatic beta cell-like” insulin producing cells for patients with Type 1 Diabetes. This segment is comprised of all entities aside from MaSTherCell.
The Company assessesCODM does not review assets by segment, therefore the performance based on a measure of "Adjusted EBIT" (earnings before financial expenses and tax, and excluding share-based compensation expenses and non-recurring income or expenses). The measure of assets has not been disclosed for each segment.
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Reconciliation of segment performance to loss for the three months ended May 31, 2018:
Segment data for the ninesix months ended AugustMay 31, 20172018 is as follows:
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CTB | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Revenues from external customers | $ | 7,705 | (993 | ) | $ | 6,712 | ||||||
Cost of revenues | (4,358 | ) | 403 | (3,955 | ) | |||||||
Research and development expenses, net | (1,932 | ) | 590 | (1,342 | ) | |||||||
Operating expenses | (916 | ) | (6,060 | ) | (6,976 | ) | ||||||
Depreciation and amortization expenses | (2,145 | ) | (7 | ) | (2,152 | ) | ||||||
Segment Performance | $ | 286 | (8,000 | ) | - | (7,714 | ) | |||||
Stock-based compensation | (2,817 | ) | (2,817 | ) | ||||||||
Financial expenses, net* | (139 | ) | (139 | ) | ||||||||
Share in losses of associated company | (348 | ) | (348 | ) | ||||||||
Loss before income taxes | (11,018 | ) |
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CT | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Revenues from external customers | $ | 7,715 | $ | - | $ | (1,092 | ) | $ | 6,623* | |||
Cost of revenues | (3,918 | ) | - | 388 | (3,530 | ) | ||||||
Gross profit (loss) | 3,797 | - | (704 | ) | 3,093 | |||||||
Research and development expenses, net | - | (1,866 | ) | 704 | (1,162 | ) | ||||||
Operating expenses | (2,183 | ) | (2,995 | ) | - | (5,178 | ) | |||||
Other income | 316 | - | 316 | |||||||||
Operating profit (loss) | 1,930 | (4,861 | ) | (2,931 | ) | |||||||
Adjustments to presentation of segment | ||||||||||||
Adjusted EBIT | ||||||||||||
Depreciation and amortization | (1,240 | ) | (4 | ) | ||||||||
Segment performance | 690 | (4,865 | ) |
* Excluding $1,389 thousand stock based compensation included in financial expenses.The Company's revenues consist of: $5,019 from services and $1,604 from goods sold.
Segment dataReconciliation of segment performance to loss for the ninesix months ended AugustMay 31, 2016 is as follows:2018:
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CTB | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Net revenues from external customers | $ | 4,826 | $ | $ | (325 | ) | $ | 4,501 | ||||
Cost of revenues | (4,968 | ) | 463 | (4,505 | ) | |||||||
Research and development expenses, net | (1,239 | ) | (138 | ) | (1,377 | ) | ||||||
Operating expenses | (1,518 | ) | (1,299 | ) | (2,817 | ) | ||||||
Depreciation and amortization expense | (1,984 | ) | (3 | ) | (1,987 | ) | ||||||
Segment Performance | $ | (3,644 | ) | $ | (2,541 | ) | - | (6,185 | ) | |||
Share-based compensation | (2,085 | ) | (2,085 | ) | ||||||||
Financial income, net | 645 | 645 | ||||||||||
Loss before income taxes | $ | (7,625 | ) |
Six months | |||
ended May 31, | |||
2018 | |||
in thousands | |||
Segment performance | (4,175 | ) | |
Stock-based compensation | (1,827 | ) | |
Financial expenses, net | (2,094 | ) | |
Share in losses of associated companies | (530 | ) | |
Loss before income tax | $ | (8,626 | ) |
Segment data for the three months ended AugustMay 31, 2018 is as follows:
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CT | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Revenues from external customers | $ | 4,534 | $ | - | $ | (547 | ) | $ | 3,987* | |||
Cost of revenues | (2,193 | ) | - | 148 | (2,045 | ) | ||||||
Gross profit (loss) | 2,341 | - | (399 | ) | 1,942 | |||||||
Research and development expenses, net | - | (979 | ) | 399 | (580 | ) | ||||||
Operating expenses | (1,101 | ) | (1,639 | ) | (2,740 | ) | ||||||
Other income | - | - | ||||||||||
Operating profit (loss) | 1,240 | (2,618 | ) | (1,378 | ) | |||||||
Adjustments to presentation of segment | ||||||||||||
Adjusted EBIT | ||||||||||||
Depreciation and amortization | (643 | ) | (2 | ) | ||||||||
Segment performance | 597 | (2,620 | ) |
* The Company's revenues consist of: $2,993 from services and $994 from goods sold.
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Three months | |||
ended May | |||
31, 2018 | |||
in thousands | |||
Segment performance | (2,023 | ) | |
Stock-based compensation | (741 | ) | |
Financial expenses, net | 587 | ||
Share in losses of associated companies | (576 | ) | |
Loss before income tax | (2,753 | ) |
Segment data for the six months ended May 31, 2017 is as follows:
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CTB | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Net revenues from external customers | $ | 2,956 | (394 | ) | 2,562 | |||||||
Cost of revenues | (1,439 | ) | 95 | (1,344 | ) | |||||||
Research and development expenses, net | (688 | ) | 299 | (389 | ) | |||||||
Operating expenses | (1,641 | ) | (1,272 | ) | (2,913 | ) | ||||||
Depreciation and amortization expense | (945 | ) | - | (945 | ) | |||||||
Segment Performance | $ | (1,069 | ) | (1,960 | ) | - | (3,029 | ) | ||||
Share-based compensation | (108 | ) | (108 | ) | ||||||||
Financial income, net* | 1,757 | 1,757 | ||||||||||
Share in losses of associated company | (152 | ) | (152 | ) | ||||||||
Loss before income taxes | 1,532 |
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CT | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Revenues from external customers | $ | 4,749 | $ | - | $ | (599 | ) | $ | 4,150* | |||
Cost of revenues | (2,919 | ) | - | 308 | (2,611 | ) | ||||||
Gross profit (loss) | 1,830 | - | (291 | ) | 1,539 | |||||||
Research and development expenses, net | (1,244 | ) | 291 | (953 | ) | |||||||
Operating expenses | 725 | (4,790 | ) | - | (4,065 | ) | ||||||
Operating profit (loss) | 2,555 | (6,034 | ) | - | (3,479 | ) | ||||||
Adjustments to presentation of segment | ||||||||||||
Adjusted EBIT | ||||||||||||
Depreciation and amortization | (1,200 | ) | (7 | ) | ||||||||
Segment performance | 1,355 | (6,041 | ) |
* Excluding $275 thousand stock based compensation included in financial income.The Company's revenues consist of: $3,585 from services and $565 from goods sold.
10Reconciliation of segment performance to loss for the six months ended May 31, 2017:
Six months | |||
ended May | |||
31, 2017 | |||
in thousands | |||
Segment performance | (4,686 | ) | |
Stock-based compensation | (1,084 | ) | |
Financial expenses, net | (2,578 | ) | |
Share in losses of associated companies | (196 | ) | |
Loss before income tax | $ | (8,544 | ) |
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Segment data for the three months ended AugustMay 31, 20162017 is as follows:
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CTB | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Revenues from external customers | $ | 1,852 | $ | $ | (3 | ) | $ | 1,849 | ||||
Cost of revenues | (1,748 | ) | 164 | (1,584 | ) | |||||||
Research and development expenses, net | (565 | ) | (161 | ) | (726 | ) | ||||||
Operating expenses | (453 | ) | (448 | ) | (901 | ) | ||||||
Depreciation and amortization expense | (651 | ) | (1 | ) | (652 | ) | ||||||
Segment Performance | $ | (1,000 | ) | $ | (1,014 | ) | - | (2,014 | ) | |||
Share-based compensation | (428 | ) | (428 | ) | ||||||||
Financial income (expenses), net | (574 | ) | (574 | ) | ||||||||
Loss before income taxes | $ | (3,016 | ) |
Corporate | ||||||||||||
and | ||||||||||||
CDMO | CT | Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Revenues from external customers | $ | 2,605 | $ | - | $ | (307 | ) | $ | 2,298* | |||
Cost of revenues | (1,058 | ) | - | 141 | (917 | ) | ||||||
Gross profit (loss) | 1,547 | - | (166 | ) | 1,381 | |||||||
Research and development expenses, net | - | (643 | ) | 166 | (477 | ) | ||||||
Operating expenses | (987 | ) | (1,200 | ) | - | (2,187 | ) | |||||
Operating profit (loss) | 560 | (1,843 | ) | - | (1,283 | ) | ||||||
Adjustments to presentation of segment | ||||||||||||
Adjusted EBIT | ||||||||||||
Depreciation and amortization | (608 | ) | (7 | ) | ||||||||
Segment performance | (48 | ) | (1,850 | ) |
* The Company's revenues consist of: $2,202 from services and $96 from goods sold.
Reconciliation of segment performance to loss for the three months ended May 31, 2017:
Three months | |||
ended May | |||
31, 2017 | |||
in thousands | |||
Segment performance | (1,898 | ) | |
Stock-based compensation | (426 | ) | |
Financial expenses, net | (503 | ) | |
Share in losses of associated companies | (107 | ) | |
Loss before income tax | $ | (2,934 | ) |
Geographic, Product and Customer Information
Substantially all the Company's revenues and long-lived assets are located in Belgium through its controlled subsidiary, MaSTherCell. Manufacturing activities show a significant increase ofNet revenues in line with the company Business Plan. It reflects market recognition in CDMO business expertise and the adequacy of the Company strategy.
Revenues from single customers from the CDMO segment that exceed 10% of total net revenues are:
Three Months Ended | Nine Months Ended | Six Months Ended | Three Months Ended | |||||||||||||||||||||
August 31, | August 31, | August 31, | August 31, 2016 | May 31, | May 31, | May 31, | May 31, | |||||||||||||||||
2017 | 2016 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Customer A | $ | 852 | $ | 1,031 | $ | 2,813 | $ | 2,626 | $ | 1,791 | $ | 1,961 | $ | 896 | $ | 771 | ||||||||
Customer B | - | 291 | - | 1,163 | 2,257 | - | 1,300 | - | ||||||||||||||||
Customer C | 809 | 1,904 | 2,157 | 1,095 | 1,186 | 803 | ||||||||||||||||||
Customer D | $ | 679 | $ | $ | 1,637 | $ | $ | - | $ | 958 | $ | $ | 703 |
CDMO business has substantially diversified revenues by source signing contracts with leading Biotech companies in their respective cell-based therapy field and strengthened its revenue base over the last three quarters. 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.14
NOTE 4 – CONVERTIBLE LOAN AGREEMENTS
(a) On January 12, 2017, the Company repaid the outstanding principal amount and accrued interest in the amount of $51 thousand on convertible loans that were issued during September 2016. The transaction had no material impact on the comprehensive loss for the period.
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(b) During the ninesix months ended AugustMay 31, 2017,2018, the Company entered into several unsecured convertible noteloan agreements with accredited or offshore investors for an aggregate amount of $3.95 million.$720 thousand. The loans bear an annual interest rate of 6% and mature in six months or two years from the closing date, of issuance, unless earlier converted earlier.subject to the terms defined in the agreements.
The notesloans provide that the entire principal amount under the notes and accrued interest automatically convert into units as in the agreement upon the earlier to occura Unit, consisting of anyone share of the following: (i) the closingCommon Stock and one three-year warrant exercisable into an additional share of an offering of equity securities of the Company with gross proceeds to the Company greater than $10 million (ii) the trading of the Company’s common stock par value $0.0001at a per share (the “Common Stock”) on the over-the counter market or an exchange at a weighted averageexercise price of at least $0.52 (adjusted for$6.24, upon certain capital events such as stock splits) for fifty (50) consecutive trading days, or (iii)conditions, including the listing of the Company’s Common Stockshares on a U.S. National Exchange.exchange. In addition, the Company issued to certain investors 40,064 three-year warrant to purchase up to an additional one share of the Company’s Common Stock at a per share exercise price of $6.24.
Since the closing price of the Company’sCompany'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 $2.24 million. The difference is treated as issued equity and reduces the carrying value of the host debt; the discount is accreted as deemed interest on the debt.
The transaction costs were approximately $405 thousand, out of which $129 thousand was the fair value of warrants for the purchase of 434,436 shares of Common Stock granted to three holders as a success fee, exercisable at $0.52 per share for three years. The fair value of those warrants as of the date of grant was evaluated using the Black-Scholes valuation model.
(c) During the nine months ended August 31, 2017, the Company entered into several unsecured convertible note agreements with accredited or offshore investors for an aggregate amount of $0.8 million. The notes have 0% or 6% interest rate and are scheduled to mature between 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 Holder’s option into shares of the Company common stock at a price of $0.52 per share. The Company also issued to the investors three-year warrants to purchase up to 1,746,063 shares of the Company’s Common Stock at a per share exercise price of $0.52.
Since the closing price of the Company’s 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$193 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.
(d) On January 23, 2017, the Company and a Non-U.S. institutional investor, entered into an agreement pursuant to which the investor advanced to the Company $400,000 at per annum rate of 6% and with a maturity date of April 23, 2017.
The transaction costs for the convertible notes received during the three months ended May 31, 2018 were approximately $71$89 thousand, out of which $35$31 thousand as stock basedare stock-based compensation due to issuance of 76,923 warrants and 32,051 shares. The fair value(See also Note 7(b)). Through May 31, 2018, $650 thousand in principal amount out of those warrants asthese convertible loans were converted into units of the dateCompany's securities. See additional information in Note 4b.
(b) During the six months ended May 31, 2018, holders of grant was evaluated by using the Black-Scholes valuation model.
Theapproximately $8.4 million in principal amount and accrued interest were repaid by the Company on March 7, 2017of convertible loans ("converted amounts") with maturity dates between June 2018 and January 2020 converted these outstanding amounts, in accordance with the terms of the agreement, the Company issued to the investor 650,000 restricted sharesspecified in such loans, into units of the Company’s Common Stock. The fair value of the shares as of March 7, 2017, was $494 thousand and was recorded as financial expenses.
(e) 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 102,822 shares of the Company’s Common Stock, exercisable over a three-year periodsecurities at a deemed per share exercise priceunit conversion rate of $0.52. The fair value of those warrants as of the date of grant was $20 thousand using the Black-Scholes valuation model.
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On March 20, 2017, the remaining bondholder agreed to convert his convertible bonds into 488,182 shares of the Company’s Common Stock.
The Company returned to treasury from the escrow arrangement entered into in March 2015 in connection$6.24, with the MaSTherCell acquisition a total of 3,157,716 consideration, in accordance with the terms of the MaSTherCell acquisition agreement. These shares have been retired and cancelled.
(f) On February 27, 2017, the Company and Admiral Ventures Inc. (“Admiral”) entered into an agreement resolving the payment of amounts owed to Admiral. Under the terms of the settlement agreement, Admiral extended the maturity date to June 30, 2018. The Company agreed to pay to Admiral, on or before March 1, 2017, between $0.3 million and $1.5 million. Further, beginning April 2017, the Company agreed to make a monthly payment of $125 thousand on account of remaining unpaid balance, and also agreed to remit 25% of all amounts received from equity financing raised above $1 million and 20% of such amounts above $500 thousand on account of amounts owed. The Company accounted for the above changes as a modification of the old debt.
On March 1 and July 17, 2017, the Company repaid $1.5 million and $125 thousand on account of the principal amount of the loan and accrued interest, respectively. As of August 31, 2017, the Company was in arrears in its payment obligations under such agreement. See also Note 10(c).
NOTE 5 – COMMITMENTS
Grants
In April 2016, the Belgian Subsidiary received the formal approval from the Walloon Region, Belgium (Service Public of Wallonia, DGO6) (“DGO6”) for a budgeted €1.3 million ($1.5 million) support program for CTB activity. The financial support is awarded to the Belgian subsidiary Orgenesis as a recoverable advance payment at 55% of budgeted costs, or for a total of €0.7 million thousand ($0.8 million). The grant will be paid over the project period. On December 19, 2016, the Belgian Subsidiary received a first payment of €359 thousand ($374 thousand).
On October 8, 2016, the Belgian subsidiary received the formal approval from the DGO6 for an additional budget of €12.3 million ($12.8 million) support program for the GMP production of AIP cells for two clinical trials that will be performed in Germany and Belgium. The project will be held during a period of three years commencing January 1, 2017. The financial support is awarded to the Belgium subsidiary at 55% of budgeted costs, a total of €6.8 million ($7 million). The grant will be paid over the project period. On December 19, 2016, the Belgian Subsidiary received a first payment of €1.7 million ($1.8 million).
NOTE 6 – EQUITY
Financings
1) During the nine months ended August 31, 2017, the Company entered into definitive agreements with accredited and other qualified investors relating to a private placement (the “Private Placement”) ofeach unit comprised of: (i) 1,286,944 sharesone (1) share of the Company’s Common Stock and (ii) one warrant, exercisable for a period of three year warrants to purchase up toyears from the date of issuance, for an additional 1,286,944 sharesshare of the Company’s Common Stock, at a per share exercise price of $0.52$6.24. As a result of these conversions, the holders are entitled to 1,341,134 shares of Common Stock and $0.65 respectively. The purchased securities were issued pursuant to subscription agreements between the Company and the purchasersthree-year warrants for aggregate proceeds to the Companyan additional 1,341,134 shares of $699 thousand.common stock at a per share exercise price of $6.24.
The Company allocated the proceeds from the Private Placementconverted amounts based on the fair value of the warrants and the shares. The table below presents the fair valueconverted amounts of the instruments issuedproceeds as of the closing dates and the allocation of the proceeds:date:
(in thousands) | |||
Warrants component | $ | | |
Shares component | |||
Total | $ | |
13The fair value of these warrants determined using a Black-Scholes Model based on the following assumptions:
Six Months Ended | |||
May 31, 2018 | |||
Value of one common share | $7.61-$13.85 | ||
Dividend yield | 0% | ||
Expected stock price volatility | 90.6%-94.12% | ||
Risk free interest rate | 2.29%-2.43% | ||
Expected term (years) | 3 |
These loans had beneficial conversion features ("BCF"), therefore the Company recognized the unamortized BCF as of the conversion date as interest expenses.
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2)(c) In March 2018, a former Israel-based consultant exercised warrants issued in November 2016 to purchase shares of the Company’s Common Stock. A related party of such consultant submitted at the same time notice of its intention to convert into shares of the Company’s common stock the principal amount and accrued interest of approximately $382 thousand outstanding under a loan originally advanced to the Company in November 2016. The exercise price in the warrants and conversion price were fixed at $0.52 per share (pre-reverse stock split implemented by the Company in November 2017). There is a significant disagreement between the Company and these two entities as to the number of shares of Common Stock issuable to these entities, and they contend that the number of shares of Common Stock issuable to them should not take into account the reverse stock split. The Company rejects these contentions in their entirety and, based on the advice of specially retained counsel, believes that these claims are without legal merit and not made in good faith. The Company intends to vigorously defend its interests and pursue other avenues of legal address. Through its counsel, the Company has advised these entities that unless they withdraw their request within a specified period, the Company will cancel the above referenced agreements and these parties’ right to receive any shares of the Company’s Common Stock. In April 2018, the Company withdrew the aforementioned agreements and deposited the principle amount and accrued interest of the loan in an escrow account presented as restricted shares in the balance sheet as of May 31, 2018.
NOTE 5 – COMMITMENTS
"MSA" with Adva Biotechnology Ltd.
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. The Company entered into agreement with Atvio Biotech Ltd, its Israeli-based joint venture, to fulfill its obligations pursuant this MSA. In March 2018, the Company incurred a total expense of $82 thousand.
In consideration for and subject to the fulfillment 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.
Grants
On December 18, 2017, MaSTherCell, as coordinator of the “Icone” project with a consortium of private and public searchers, received the approval of a new grant from the Walloon Region with a direct financial support of Euro 1 million ($1.2 million) in program for development of iPS-derived Cortical Neurons. The program started in 2017 for a 4-year period until 2021. After 2 years, project partners will make a decision continue the program upon pre-defined scientific milestone achievements. During the six months ended May 31, 2018, MaSTherCell received an advance payment of Euro 0.6 million ($0.7 million).
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NOTE 6 – EQUITY
Financings
1) In January 2017, the Company entered into definitive agreements with an institutional investor for the private placement of 30,769,2312,564,115 units of the Company’s securities for aggregate subscription proceeds to the Company of $16 million at $0.52$6.24 price per unit. Each unit is comprised of one share of the Company’s Common Stock and a warrant, exercisable over a three-years period from the date of issuance, to purchase one additional share of Common Stock at a per share exercise price of $0.52.$6.24. The subscription proceeds are payable on a periodic basis through AugustSeptember 2018. Each periodic payment of subscription proceeds will be evidenced by the Company’s standard securities subscription agreement.
During the ninesix months ended AugustMay 31, 20172018 the investor remitted to the Company $3.5$2.5 million, in consideration of which, the investor is entitled to 6,730,767400,643 shares of the Company’s Common Stock and three-year warrants to purchase up to an additional 6,730,767400,643 shares of the Company’s Common Stock at a per share exercise price of $0.52 $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:
(in thousands) | |||
Warrants component | $ | | |
Shares component | |||
Total | $ | |
AsThe fair value of August 31, 2017, 1,923,076 shares have not been issued thereforethese warrants determined using a Black-Scholes Model based on the Company recorded $624 thousand net of transaction costs in Receipts on Account of Shares to be Allotted.following assumptions:
Six Months Ended | |||
May 31, 2018 | |||
Value of one common share | $ | 6.5-$14.68 | |
Dividend yield | 0% | ||
Expected stock price volatility | 90.6%-93.8% | ||
Risk free interest rate | 1.99%-2.73% | ||
Expected term (years) | 3 |
In connection therewith,with certain installments of the investment, the Company undertook to pay a fee of 5%, resulting in the payment of $175$25 thousand (classified as Additional Paid-in Capital in the statement of equity) and the issuance of 336,5384,006 restricted shares of Common Stock. The fair value of the shares as of the date of grant was $145$29 thousand using the share price on the date of grant.
Through May 31, 2018 the Company has received a total of $8,000 thousand out of the committed $16,000 thousand subscription proceeds. See also note 10(9).
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2) During the six months ended May 31, 2018, the Company entered into definitive agreements with accredited and other qualified investors relating to a private placement of 1,237,649 units. Each unit is comprised of (i) one share of the Company’s common stock and (ii) three-year warrant to purchase up to an additional one share of the Company’s Common Stock at a per share exercise price of $6.24, for aggregate proceeds to the Company of approximately $7.7 million.
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:
Proceeds | |||
Allocation | |||
(in thousands) | |||
Warrants component | $ | 2,956 | |
Shares component | 4,767 | ||
Total | $ | 7,723 |
In connection with $2.8 million out of these private placements, the Company undertook to pay a fee of 8%, resulting in the payment of $224 thousand and the issuance of 21,630 three-year warrants to purchase each up to an additional one share of the Company’s Common Stock exercisable at $6.24 to $12.39 per share. The fair value of the warrants as of the date of grant was $125 thousand using a Black Scholes option pricing model.
NOTE 7 – STOCK BASED COMPENSATION
a. | Options Granted to employees |
a. Options Granted to Employees and Directors
On December 9, 2016,Below is a table summarizing the Companyterms of options granted to an employee during the six months ended May 31, 2018:
No. of options | Exercise | grant | Expiration | ||||||||||||
granted | price | Vesting period | (in thousands) | period | |||||||||||
Employee | 50,000 | $ | 4.42 | Quarterly over a period of 1 year | $ | 163 | 10 years | ||||||||
MaSTherCell's employee | 15,000 | $ | 8.43 | Quarterly over a period of 2 years | $ | 99 | 10 years | ||||||||
MaSTherCell's* employees | 55,300 | $ | 8.43 | Quarterly over a period of 2 years | $ | 391 | 10 years | ||||||||
MaSTherCell's* employees | 134,050 | $ | 8.43 | Quarterly over a period of 4 years | $ | 991 | 10 years |
* In May 2018, the compensation committee of the Company’s Board of Directors (the “Compensation Committee”) approved the option grants for MaSTherCell's employees and directors 7,300,000 options and on and June 1,under the Company’s 2017 the Company granted to the Chief Executive Officer 1,000,000 options, which are summarizedEquity Incentive Plan. The grant date on the table below:option is in June 2018.
No. of options granted | Exercise price | Vesting period | Fair value at grant (in thousands) | Expiration period | |
Directors | 2,000,000 | $0.4 | Quarterly vested over 2 years vest immediately- | $558 | 10 years |
Employees | 5,300,000 | $0.4 | Quarterly vested over 4 years | $1,480 | 10 years |
Chief Executive Officer | 1,000,000 | $0.6 | Semi Annually vested over one year | $435 | 10 years |
The fair value of each stockthese option grant is estimated at the date of grant using a Black Scholes option pricing model. The volatility is based on historical volatility of the Company, by statistical analysis of the weekly share price for the last two years. The expected term is the mid-point between the vesting date and the maximum contractual term for each grant equal to the contractual life. The fair value of each option grantgrants is based on the following assumptions:
Six Months Ended | |||
May 31, 2018 | |||
Value of one common share | $4.42-$9.22 | ||
Dividend yield | 0% | ||
Expected stock price volatility | 90%-97% | ||
Risk free interest rate | 2.11%-3.04% | ||
Expected term (years) | 5-7 |
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December 9, | June 1, 2017 | |
2016 | ||
Value of one common share | $0.39 | $0.62 |
Dividend yield | 0% | 0% |
Expected stock price volatility | 94% | 95% |
Risk free interest rate | 1.89% | 1.76% |
Expected term (years) | 5 | 5 |
b. | Options Granted to non-employees |
b. OptionsBelow is a table summarizing all the options granted to consultants and service providers during the six months ended May 31, 2018:
Fair value at | |||||||||||||||
No. of options | Exercise | grant | Expiration | ||||||||||||
granted | price | Vesting period | (in thousands) | period | |||||||||||
Non-employee | 5,200 | $ | 4.42 | 6-month period | $ | 20 | 10 years | ||||||||
Non-employee | 8,333 | $ | 6.4 | Annual over a period of 5 year | $ | 48 | 10 years |
The fair value of these option grants is based on the following assumptions:
Six Months Ended | |||
May 31, 2018 | |||
Value of one common share | $4.42-$6.4 | ||
Dividend yield | 0% | ||
Expected stock price volatility | 97%-98% | ||
Risk free interest rate | 2.33%-2.54% | ||
Expected term (years) | 5 |
c. | Shares and Warrants Granted to non-employees |
1) During the six months ended May 31, 2018, the Company granted to several consultants 30,174 warrants with each exercisable at $6.24 to $15.41 per share for three years as a Consultantssuccess fee with respect to the issuance of the convertible loans and part of the private placement. The fair value of those warrants as of the date of grant using the Black-Scholes valuation model was $156 thousand.
On2) In December 9, 2016,2017, the Company entered into investors relation services, marketing and related services agreement. Under the terms of the agreement, the Company agreed to grant the consultant 100,000 shares of restricted common stock, of which the first 25,000 shares will vest after 30 days from the signing date, and 75,000 shares are to vest monthly over 15 months commencing February 2018. As of May 31, 2018, 45,000 shares are vested. The fair value of the shares was $862 thousand using the fair value of the shares at May 31, 2018, out of which $367 thousand was recognized during the three months ended May 31, 2018. The unrecognized costs will be utilized on a monthly basis until May 2019.
3) In December 2017, the Company entered into an investor relations services, marketing and related services agreement. Under the terms of the agreement, the Company agreed to grant the consultant 95,000 shares of restricted common stock, of which the first 25,000 shares will vest after 30 days from the signing date, and 70,000 shares are to vest monthly over 14 months commencing February 2018. As of May 31, 2018, 45,000 shares vested. The fair value of the shares was $819 thousand using the fair value of the shares at May 31, 2018, out of which $367 thousand was recognized during the three months ended May 31, 2018. The unrecognized costs will be utilized on a monthly basis until April 2019.
4) In January 2018, the Company entered into consulting agreements for the provision of professional servicesagreement with financial advisor for a period of one year. Under the terms of the agreement,agreements, the consultant was paid $20 thousand per month for three months and 19,000 units of the Company grantedsecurities. Each unit is comprised of (i) one share of the Company’s common stock and (ii) a three-year warrant to purchase up to an additional one share of the Company’s Common Stock at a consultants 200,000 options exercisable at $0.40 per share. The options are to vest quarterly over a periodshare exercise price of one year.$6.24. The fair value of those optionsthe units as of the date of grant was $68$171, out of which $62 thousand reflect the fair value of the warrants using the Black-Scholes valuation model.
5) On July 6, 2018, as part of an amendment to a prior agreement, the Company issued to a consultant additional 6,629 units of share and warrants for the purchase of the Company’s common stock, exercisable at a per share exercise price of $6.24. See also note 10(6).
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6) In April 2018, a U.S.-based accredited investor who held 128,077 warrants issued in November 2015, exercised their warrants into 128,077 shares of the Company’s Common Stock at a per share exercise price of $6.24, for aggregate proceeds to the Company of $799 thousand.
NOTE 8 – LOSS PER SHARE
The following table sets forth the calculation of basic and diluted loss per share for the period indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
August 31, | August 31, | Six Months Ended | Three Months Ended | |||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | May 31, | May 31, | |||||||||||||||||||
(in thousands, except per share data) | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||
Loss for the period | $ | 1,953 | $ | 2,644 | $ | 11,511 | $ | 6,312 | $ | 8,225 | $ | 8,616 | $ | 2,614 | $ | 2,489 | ||||||||
Weighted average number of common shares outstanding | 123,349,597 | 111,188,616 | 113,725,909 | 108,784,862 | 11,971,389 | 9,221,039 | 13,140,119 | 9,568,413 | ||||||||||||||||
Loss per common share | $ | 0.02 | $ | 0.02 | $ | 0.10 | $ | 0.06 | $ | 0.69 | $ | 0.93 | $ | 0.20 | $ | 0.26 | ||||||||
Diluted: | ||||||||||||||||||||||||
Loss for the period | $ | 1,953 | $ | 2,644 | $ | 11,511 | $ | 6,312 | $ | 8,225 | $ | 8,616 | $ | 2,614 | $ | 2,489 | ||||||||
Changes in fair value of embedded derivative and interest expense on convertible loans | 238 | 137 | 87 | |||||||||||||||||||||
Changes in fair value of embedded derivative and interest expense on convertible bonds | - | - | - | - | ||||||||||||||||||||
Loss for the period | $ | 2,191 | $ | 2,644 | $ | 11,648 | $ | 6,399 | $ | 8,225 | $ | 8,816 | $ | 2,614 | $ | 2,489 | ||||||||
Weighted average number of shares used in the computation of basic and diluted loss per share | 123,349,597 | 111,188,616 | 113,725,909 | 108,704,862 | 11,971,389 | 9,221,039 | 13,140,119 | 9,568,413 | ||||||||||||||||
Number of dilutive shares related to convertible loans | 1,275,815 | 312,500 | ||||||||||||||||||||||
Weighted average number of common shares outstanding | 124,625,412 | 111,188,616 | 114,038,409 | 108,704,862 | ||||||||||||||||||||
Loss per common share | $ | 0.02 | $ | 0.02 | $ | 0.10 | $ | 0.06 | $ | 0.69 | $ | 0.93 | $ | 0.20 | $ | 0.26 |
Diluted loss per share does not include 52,510,2736,048,269 shares underlying outstanding options and warrants and 29,551,172201,416 shares upon conversion of convertible notes for the six months ended May 31, 2018, because the effect of their inclusion in the computation would be anti-dilutive.
Diluted loss per share does not include 4,059,824 shares underlying outstanding options and warrants and 1,354,257 shares upon conversion of convertible notes for the three and ninesix months ended AugustMay 31, 2017, because the effect of their inclusion in the computation would be anti-dilutive.
Diluted loss per share does not include 16,954,564 shares underlying outstanding options, 20,971,190 shares issuable upon exercise of warrants, 800,000 shares due to stock-based compensation to service providers and
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7,365,719 shares upon conversion of convertible notes for the nine and three months ended August 31, 2016, because the effect of their inclusion in the computation would be anti-dilutive.
NOTE 9 - FAIR VALUE PRESENTATION
The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
• | Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
• | Level 2: Observable inputs that are based on inputs not quoted on active markets but corroborated by market data. |
• | Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
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.
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As of AugustMay 31, 2017,2018, and November 30, 2016,2017, the Company’s assets and liabilities that are measured at fair value and classified as level 3 fair value are as follows (in thousands):
August 31, | November 30, | |||||
2017 | 2016 | |||||
Level 3 | Level 3 | |||||
Warrants (1) | $ | 873 | $ | 1,843 | ||
Price protection derivative (1) | - | 76 | ||||
Embedded derivatives convertible loans*(1) | 20 | 240 | ||||
Put option derivatives | 273 | 273 | ||||
Convertible bonds (2) | $ | - | $ | 1,818 |
May 31, | November 30, | |||||
2018 | 2017 | |||||
Level 3 | Level 3 | |||||
Embedded derivatives convertible loans*(1) | $ | - | $ | 37 | ||
Call/Put option derivatives | $ | (792 | ) | $ | (339 | ) |
* The embedded derivative is presented in the Company's balance sheets on a combined basis with the related host contract (the convertible loans).
The fair value of the convertible bonds is equal to their principal amount and the aggregate accrued interest. The table below sets forth a summary of the changes in the fair value of the Company’s financial liabilities classified as Level 3 for the
(*) There were no transfers to Level 3 during the The table below sets forth a summary of the changes in the fair value of the Company’s financial assets and liabilities classified as Level 3 for the year ended November 30,
(*) There were no transfers to Level 3 during the twelve months ended November 30,
NOTE 10 - SUBSEQUENT EVENTS
21 2) On June 11, 2018, a holder of $181 thousand in principal 3) On June 15, 2018, the Compensation Committee approved the grant under the Company’s 2017 Equity Incentive Plan of options for an aggregate of 30,500 shares to two employees, at a per share On June 26, 2018, the 4) On June 28, 2018, the Compensation Committee approved the grant under the Company’s 2017 Equity Incentive Pan of options for 250,000 shares to the Company’s Chief Executive Officer in accordance with the terms of the employment agreement dated March 30, 2017, as subsequently amended. The options are exercisable into the Company’s common stock at 5) On July 6, 2018, the Compensation Committee issued to two consultants warrants for 6) On July 6, 2018, as part of an amendment to a prior agreement, the Company issued to a consultant 6,629 warrants for the purchase of the Company’s common stock, exercisable at a per share exercise price of $6.24. In addition, the Company issued the consultant 6,629 shares of the Company’s common stock. See also note 7c4. 7) On June 18, 2018, a holder of 8,569 investor warrants issued on January 17, 2017 exercised such
9) In July 2018, the Company raised $1 million from the institutional investor referred to in Note
22 Subject to completion of the Development Project, Mircod and the Company are to negotiate and enter into a manufacturing and supply agreement under which Mircod is to manufacture and supply products incorporating the Project Results and, at the Company’s request, to provide support and maintenance service for such products. If for whatever reason the parties fail to enter into such manufacturing and supply agreement within 90 days of the completion of the Development Project or if Mircod is unable to perform such services, the Company is entitled to manufacture the products, in which event Mircod will be entitled to a payment of $80,000 and royalties on Net Sales are to increase to 8% of Net Sales. 11) On June 28, 2018, the Company and Masthercell Global Inc., a Delaware company and a newly formed subsidiary of Orgenesis the Company that holds the Company's CDMO business (“Masthercell Global”), Great Point Partners, LLC, a manager of private equity funds focused on growing small to medium sized heath care companies (“Great Point”), and certain of Great Point’s affiliates, entered into a series of definitive strategic agreements intended to finance, strengthen and expand Orgenesis’ CDMO business. In connection therewith, the Company, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company (“GPP-II”) and an affiliate of Great Point entered into Stock Purchase agreement (the “SPA”) pursuant to which GPP-II purchased 378,000 shares of newly designated Series A Preferred Stock of Masthercell Global (the “Masthercell Global Preferred Stock”), representing 37.8% of the issued and outstanding share capital of Masthercell Global, for cash consideration to be paid into Masthercell Global of up to $25 million, subject to certain adjustments (the “Consideration”). Orgenesis holds 622,000 shares of Masthercell Global’s Common Stock, representing 62.2% of the issued and outstanding equity share capital of Masthercell Global. An initial cash payment of $11.8 million of the Consideration was remitted at closing, with a follow up payment of $6,600,000 to be made in each of years 2018 and 2019 (the “Future Payments”), or an aggregate of $13.2 million, if (a) Masthercell Global achieves specified EBITDA and revenues targets during each of these years, and (b) the Orgenesis’ shareholders approve on or before December 31, 2019 certain provisions of the Stockholders’ Agreement entered into by these parties. None of the future Consideration amounts, if any, will result in an increase in GPP-II’s equity holdings in Masthercell Global beyond the 378,000 shares of Series A Preferred Stock issued to GPP-II at closing. Notwithstanding the foregoing, GPP-II may, in its sole discretion, elect to pay all or a portion of the future Consideration amounts even if the financial targets described above have not been achieved and the Orgenesis Stockholder Approval has not been obtained. In connection with the entry into the SPA described above, each of the Company, Masthercell Global and GPP-II entered into the Masthercell Global Inc. Stockholders’ Agreement (the “Masthercell Global Stockholders Agreement”) providing for certain restrictions on the disposition of Masthercell Global securities, the provisions of certain options and rights with respect to the management and operations of Masthercell Global, a right to exchange the Masthercell Global Preferred Stock for shares of Orgenesis common stock and certain other rights and obligations.In addition, after the earlier of the second anniversary of the closing or certain enumerated circumstances, GPP-II is entitled to effectuate a spinoff of Masthercell Global and the Masthercell Global Subsidiaries (the “Spinoff”). The Spinoff is required to reflect a market value determined by one of the top ten independent accounting firms in the U.S. selected by GPP, provided that under certain conditions, such market valuation shall reflect a valuation of Masthercell Global and the Masthercell Global Subsidiaries of at least $50 million. in addition, upon certain enumerated events, GPP-II is entitled, at its option, to put to the Company (or, at Company’s discretion, to Masthercell Global if Masthercell Global shall then have the funds available to consummate the transaction) its shares in Masthercell Global or, alternatively, purchase from the Company its share capital in Masthercell Global at a purchase price equal to the fair market value of such equity holdings as determined by one of the top ten independent accounting firms in the U.S. selected by GPP-II. The Stockholders’ Agreement further provides that GPP-II is entitled, at any time, to convert its share capital in Masthercell Global for the Company’s common stock in an amount equal to the lesser of (a)(i) the fair market value of GPP-II’s shares of Masthercell Global Preferred Stock to be exchanged, as determined by one of the top ten independent accounting firms in the U.S. selected by GPP-II and the Company, divided by (ii) the average closing price per share of Orgenesis Common Stock during the thirty (30) day period ending on the date that GPP-II provides the exchange notice (the “Exchange Price”) and (b)(i) the fair market value of GPP-II’s shares of Masthercell Global Preferred Stock to be exchanged assuming a value of Masthercell Global equal to three and a half (3.5) times the revenue of Masthercell Global during the last twelve (12) complete calendar months immediately prior to the exchange divided by (ii) the Exchange Price; provided, that in no event will (A) the Exchange Price be less than a price per share that would result in Orgenesis having an enterprise value of less than $250,000,000 and (B) the maximum number of shares of Orgenesis Common Stock to be issued shall not exceed 2,704,247 shares of outstanding Orgenesis Common Stock (representing approximately 19.99% of then outstanding Orgenesis Common Stock), unless Orgenesis obtains shareholder approval for the issuance of such greater amount of shares of Orgenesis Common Stock in accordance with the rules and regulations of the Nasdaq Stock Market. 23 Great Point, Masthercell Global and the Company entered into an advisory agreement pursuant to which Great Point is to provide management services to Masthercell Global for which Great Point will be compensated at an annual base compensation equal to the greater of (i) $250,000 per each 12 month period or (ii) 5% of the EBITDA for such 12 month period, payable in quarterly installments; provided, that these payments will (A) begin to accrue immediately, but shall not be paid in cash to Great Point until such time as Masthercell Global generates EBITDA of at least $2,000,000 for any 12 month period or the sale of or change in control of Masthercell Global, and (B) shall not exceed an aggregate annual amount of $500,000. Contemporaneous with the execution of the SPA and the Masthercell Global Stockholders Agreement, the Company and Masthercell Global entered into a Contribution, Assignment and Assumption Agreement pursuant to which Company contributed to Masthercell Global the Orgenesis’ assets relating to the CDMO business (as defined below), including the CDMO subsidiaries. In furtherance thereof, Masthercell Global, as Orgenesis’ assignee, acquired all of the issued and outstanding share capital of Atvio Biotech Ltd. (“Atvio”), the Company’s Israel based CDMO partner since May 2016, and 94.2% of the share capital of Curecell Co. Ltd. (“Curecell”), the Company’s Korea based CDMO partner since March 2016. Orgenesis exercised the ”call option” to which it was entitled under the joint venture agreements with each of these entities to purchase from the former shareholders their equity holding. The consideration for the outstanding share equity in each of Atvio and Curecell consisted solely of Company Common Stock. In respect of the acquisition of Atvio, Orgenesis Inc. will be issuing to the former Atvio shareholders an aggregate of 84,085 shares of Company Common Stock. In respect of the acquisition of Curecell, the Company agreed to issue to the former Curecell shareholders an aggregate of 195,927 shares of Orgenesis Common Stock subject to a third-party valuation. Together with MaSTherCell S.A., Atvio and Curecell are directly held subsidiaries under Masthercell Global. 12) On July 11, 2018, the Company and HekaBio K.K., a corporation organized under the laws of Japan (“HB”) entered into a Joint Venture Agreement (the “JVA”) pursuant to which the parties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic products (hereinafter the “Products”) in Japan. The parties intend to pursue the joint venture through a newly established Japanese company (hereinafter the “JV Company”) which the Company by itself, or together with a designee, will hold a 49% participating interest therein, with the remaining 51% participating interest being held by HB. HB will fund, at its sole expense, all costs associated with obtaining the requisite regulatory approvals for conducting clinical trials, as well as performing all clinical and other testing required for market authorization of the Products in Japan. Under the JVA, each party may invest up to $10 million, which may take the form of a loan, if required, as determined by the steering committee. The terms of such investment, if any, will be on terms mutually agreeable to the parties, provided that the minimum pre-money valuation for any such investment shall not be less than $10 million. Additionally, HB was granted an option to effect an equity investment in the Company in up to $15 million within the next 12 months on mutually agreeable terms. If such investment is in fact consummated, the Company agreed to invest in the JV Company by way of a convertible loan an amount to HB’s pro-rata participating interest in the JV Company, which initially will be at 51%. Such loan may then be converted by the Company into share capital of the JV company at an agreed upon formula for determining JV Company valuation which in no event shall be less than $10 million. Under the JVA, the Company can require HB to sell to the Company its participating (including equity) interest in the JV Company in consideration for the issuance of the Company’s common stock based on an agreed upon formula for determining JV Company valuation which in no event shall be less than $10 million. 24 13) On July 11, 2018, the Company and Image Securities Ltd., a corporation with its registered office in Grand Cayman, Grand Caman Islands (“India Partner”) entered into a Joint Venture Agreement (the “India JVA”) pursuant to which the parties will collaborate in the in the development and/or marketing, clinical development and commercialization of cell therapy products in India (the “Cell Therapy Products”). The India Partner will collaborate with a network of healthcare facilities and a healthcare infrastructure as well as financial partners to advance the development and commercialization of the cell therapy products. The India JVA becomes effective upon the consummation of an equity investment by the India partner in the Company of $5 million within 150 days of the execution of the India JVA through the purchase of units of Orgenesis securities at a per unit purchase price payable into the Company of $6.24, with each unit comprised of one share of Company common stock and three-year common stock purchase warrant for an additional share of common stock at a per share exercise price of $6.24. Subject to the consummation of such equity investment in the Company, the Company is to advance to the JV Company a convertible loan in the amount of $5 million. The loan is convertible into equity capital of the JV Company at an agreed upon formula for determining JV Company valuation. The investment in the Company by the India Partner would be the consummation of the previously disclosed private placement subscription agreement entered into in December 2016 between the Company and an affiliate of the India Partner pursuant to which the closing of such subscription agreement was by the terms thereof delayed until such time as terms comprising the India JV were mutually agreed to. Under the India JVA, the India Partner agreed to invest in the JV $10 million within 12 months of the incorporation of the JV Company. If for whatever reason such investment is not made by the India Partner within such time, then Orgenesis is authorized to convert its above-referenced loan into 50% of the equity capital of the JV Company on a fully diluted basis, provided that if the pre-money valuation of the JV Company is then independently determined to be less than $5 million, then such conversion to be effected in the basis of such valuation. 25 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report. Corporate Overview Orgenesis Inc. is Our vertically integrated manufacturing capabilities are being used to serve to emerging technologies of other cell therapy markets in such areas as cell-based cancer immunotherapies and neurodegenerative diseases and also to optimize our abilities to scale-up our technologies for clinical trials and eventual commercialization of our proposed diabetes treatment. We seek to differentiate our company from other cell therapy companies
Our
• Therapeutic collaborations licensed from academic centers around the world. Because of the
• Developing and
• Additional CDMO expansion through Masthercell Global. We intend expand our existing global CDMO network in order to seek additional partnerships in the global CDMO business that allow us to expand local manufacturing We operate our CDMO and the CT business as two separate business segments. Revenue Model Companies developing cell
Recent Significant Developments Funding from SFPI On November 15, 2017, we, MaSTherCell and the Belgian Sovereign Funds Société Fédérale de Participations et d'Investissement (“SFPI”) entered into a Subscription and Shareholders Agreement (the “Agreement”) pursuant to which SFPI completed an equity investment in MaSTherCell in the aggregate amount of €5million (approximately $5.9 million), for approximately 16.7% of MaSTherCell. Following the SFPI investment in MaSTherCell, in November 2017, MaSTherCell announced the expansion by 600m² of its facility in Belgium with a dedicated, late-stage clinical and commercial cGMP unit, anticipated to be operational by the fourth quarter of 2018. This new expansion enables MaSTherCell to augment its commercial capabilities in Europe with five state-of-the-art advanced manufacturing units and extended GMP-accredited quality control (QC) laboratories. On June 13, 2018, SPFI has paid into MaSTherCell S.A. the balance of Euro 1.9 million (approximately $2.3 million). Collaboration Agreements/ Joint Ventures On June 19, 2018, we and Mircod Limited, a company formed under the laws of Cyprus (“Mircod”) entered into a Collaboration and License Agreement for the research, development and commercialization of potential key technologies related to biological sensing for our clinical development and manufacturing projects (the “Development Project”). Within 45 days of the execution of the Collaboration Agreement, the parties are to approve a written project development plan outlining each party’s responsibilities with respect to the Development Project, and we will be funding the projected development costs as outlined in the development plan. Under the terms of the Collaboration Agreement, we remitted to Mircod an upfront payment of $50,000. On July 11, 2018, we and HekaBio K.K., a corporation organized under the laws of Japan ("HB") entered into a Joint Venture Agreement (the "JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic products (hereinafter the "Products") in Japan. The parties intend to pursue the joint venture through a newly established Japanese company (hereinafter the "JV Company") which the Company by itself, or together with a designee, will hold a 49% participating interest therein, with the remaining 51% participating interest being held by HB. HB will fund, at its sole expense, all costs associated with obtaining the requisite regulatory approvals for conducting clinical trials, as well as performing all clinical and other testing required for market authorization of the Products in Japan. On July 11, 2018, we and Image Securities Ltd., a corporation with its registered office in Grand Cayman, Grand Caman Islands ("India Partner") entered into a Joint Venture Agreement (the "India JVA") pursuant to which the parties will collaborate in the in the development and/or marketing, clinical development and commercialization of cell therapy products in India (the "Cell Therapy Products"). The India Partner will collaborate with a network of healthcare facilities and a healthcare infrastructure as well as financial partners to advance the development and commercialization of the cell therapy products. The India JVA becomes effective upon the consummation of an equity investment by the India partner in the Company of $5 million through the purchase of units of Orgenesis securities at a per unit purchase price payable into the Company of $6.24, with each unit comprised of one share of Company common stock and three-year common stock purchase warrant for an additional share of common stock at a per share exercise price of $6.24. Consolidation of CDMO Entities and Strategic Funding On June 28, 2018, the Company and Masthercell Global Inc., a Delaware company and a newly formed subsidiary of Orgenesis the Company that holds our business relating to the third party contract manufacturing for cell therapy companies (CDMO) (“Masthercell Global”), Great Point Partners, LLC, a manager of private equity funds focused on growing small to medium sized heath care companies (“Great Point”), and certain of Great Point’s affiliates, entered into a series of definitive strategic agreements intended to finance, strengthen and expand Orgenesis’ CDMO business. In connection therewith, the Company, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company (“GPP-II”) and an affiliate of Great Point entered into Stock Purchase agreement (the “SPA”) pursuant to which GPP-II purchased 378,000 shares of newly designated Series A Preferred Stock of Masthercell Global (the “Masthercell Global Preferred Stock”), representing 37.8% of the issued and outstanding share capital of Masthercell Global, for cash consideration to be paid into Masthercell Global of up to $25 million, subject to certain adjustments (the “Consideration”). Orgenesis holds 622,000 shares of Masthercell Global’s Common Stock, representing 62.2% of the issued and outstanding equity share capital of Masthercell Global. An initial cash payment of $11.8 million of the Consideration was remitted at closing, with a follow up payment of $6,600,000 to be made in each of years 2018 and 2019 (the “Future Payments”), or an aggregate of $13.2 million, if (a) Masthercell Global achieves specified EBITDA and revenues targets during each of these years, and (b) the Orgenesis’ shareholders approve certain provisions of the Stockholders’ Agreement referred to below on or before December 31, 2019. None of the future Consideration amounts, if any, will result in an increase in GPP-II’s equity holdings in Masthercell Global beyond the 378,000 shares of Series A Preferred Stock issued to GPP-II at closing. The proceeds of the investment will be used to fund the activities of Masthercell Global and its consolidated subsidiaries. Notwithstanding the foregoing, GPP-II may, in its sole discretion, elect to pay all or a portion of the future Consideration amounts even if the financial targets described above have not been achieved and the Orgenesis Stockholder Approval has not been obtained. 28 Masthercell Global, through the Masthercell Global Subsidiaries, will be engaged in the business of providing manufacturing and development services to third parties related to cell therapy products, and the creation and development of technology, and optimizations in connection with such manufacturing and development services for third parties. Under the terms of these agreements, the Company agreed that so long as it owns equity in Masthercell Global and for two years thereafter it will not engage in the CDMO Business, except through Masthercell Global (but may continue to engage in its other areas of business). In addition, except for certain limited circumstances, each of Orgenesis and GPP-II agreed to not recruit or solicit or hire any officer or employee of Masthercell Global that was or is involved in the CDMO Business. We intend, through our direct subsidiaries, to continue to engage in the manufacturing, researching, marketing, developing, selling and commercializing (either alone or jointly with third parties) products that are not directly related to the CDMO business, including, joint ventures, collaboration, partnership or similar arrangement with a third party. Results of Operations Comparison of the Three Months Ended May 31, 2018 to the Three Months Ended May 31, 2017 Our financial results for the three months ended May 31, 2018 are summarized as follows in comparison to the three months ended May 31, 2017:
29 Revenues
All revenues were derived from our Belgian Subsidiary, MaSTherCell S.A. We believe that revenue diversification by source in the CDMO segment, together with a leading position in immunotherapy and, in particular, CAR T-cell therapy development and manufacturing, strengthen MaSTherCell’s resilience in the industry. Our revenues for the three months ended May 31, 2018 were $3,987 thousand, as compared to $2,298 thousand for the corresponding period in 2017, representing an increase of 73.5% . The increase in revenues for the three months ended May 31, 2018 compared to the corresponding period in 2017 is attributable to an increase of $1.7 million in the volume of the services provided by MaSTherCell, resulting primarily from the extension of existing customer service contracts with biotech clients, as well as from revenues generated from existing manufacturing agreements. In January 2017, MaSTherCell signed a master service agreement with Servier for the development of a manufacturing platform for allogeneic cell therapies. Under the master service agreement, MaSTherCell is developing a CAR T-cell therapy manufacturing platform, which will enable industrial and commercial manufacturing of Servier's cell therapy products. This is a critical step in the development of these products for later stage clinical trials. In June 2017, MaSTherCell signed an agreement with CRISPR Therapeutics to develop and manufacture allogeneic CAR T-cell therapies. MaSTherCell will be responsible for the development and cGMP manufacturing of CTX101 for use in clinical studies. CTX101 is an allogeneic CAR T-cell therapy currently in development by CRISPR Therapeutics for the treatment of CD19 positive malignancies. Expenses Cost of Revenues
Cost of revenues for the three 30 Research and Development Expenses
Research and Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three
Financial Expenses,
Financial expenses, Comparison of the Our financial results for the six months ended May 31, 2018 are summarized as follows in comparison to the six months ended May 31, 2017:
Revenues
Our revenues for the six months ended May 31, 2018 were $6,623 thousand, as compared to $4,150 thousand for the corresponding period in 2017, representing an increase of 60%. The increase in revenues for the six months ended May 31, 2018 compared to the corresponding period in 2017 is attributable to an increase of $2.2 million in the 32 In January 2017, MaSTherCell signed a master service agreement with Servier for the development of a manufacturing platform for allogeneic cell therapies. Under the master service agreement, MaSTherCell is developing a CAR T-cell therapy manufacturing platform, which In June 2017, Expenses Cost of Revenues
Cost of revenues for the six months ended May 31, Research and Development Expenses
33 Research and development expenses for the six months ended May 31, 2018 were $1,554 thousand, as compared to $1,406 thousand for the same period in 2017, representing an increase of 11%. The increase in research and development expenses in the six months ended May 31, 2018 is primarily attributable to professional fees incurred as a result of an increase in our pre-clinical studies in the U.S., Israel and Belgium. The increase in research and development expenses reflects management’s focus on moving our trans-differentiation technology with first indication in Type 1 Diabetes to the next the stage towards clinical trials. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended May 31, 2018 were $6,667 thousand, as compared to $4,703 thousand for the same period in 2017, representing an increase of 42%. The increase in selling, general and administrative expenses in the six-month period in 2018 compared to the same period in 2017 is primarily attributable to the following: (i) An increase of $844 thousand in salaries and related expenses is mainly a result of An increase in salaries as result of additional managerial positions as well as an internal transformation program implemented in MaSTherCell in the second quarter of 2017 to evolve from an organization based on projects to a matrix organization supported by transversal departments focusing on value creation. As part of the program, we altered the business designations of certain employees from laboratory managers to general manager positions in order to reflect the current period’s business activity. Subsequently, these changes in position designation resulted in a shift costs from cost of revenues. (ii) An increase of $857 thousand in non-cash stock-based compensation mainly resulting from grants of options to consultants and key personnel during the first half of 2018. (iii) An increase in professional fees and business development, primarily attributable to costs incurred in the establishment of a global CDMO network and related expenses of implementing a Quality Management System of MaSTherCell to the new production facility in Korea under our joint-venture with CureCell Co. Ltd., our CDMO partner in Korea. (iv) An increase of $405 thousand is mainly results to rental of additional space for new production area and offices in MasTherCell due to increase in CDMO operation. Financial Expenses, net
34 Financial expenses, Working Capital
Current assets increased by Current liabilities
Liquidity and Financial Condition
Since inception, we have funded our operations primarily through 35 Net cash used in operating activities was approximately Net cash used in investing activities for the During the
Liquidity & Capital Resources Outlook
If we cannot effectively manage these factors, we may need to raise additional capital before such date to fund our operating From December 1, 2017 to
For the
The equity investment in November 2017 by SFPI in MaSTherCell of €5 million (approximately $5.9 million), which We believe that the investment consummated in June 2018 by an affiliate of Great Point in our newly formed subsidiary, Masthercell Global, which included an initial gross subscription amount of $11.8 million and, subject to meeting certain specified financial targets over the course of 2018 and 2019, an additional $13.2 million, should cover the costs associated with the current business plan of Masthercell Global. From June 1 through July 15, 2018, we raised $1 million from the institutional investor with whom we entered into definitive agreements in January 2017 for the private placement of units of our securities for aggregate subscription proceeds to us of $16
Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
Our management believes the weaknesses identified above have not had any material effect on our financial results. We are committed to
Changes in Internal Control Over Financial Reporting
Except for the
PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We know of no material pending legal proceedings to which the Company or its We know of no material proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to the Company or its Subsidiaries or has a material interest adverse to the Company or its ITEM 1A. RISK FACTORS An investment in the Company’s common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of the Annual Report on Form 10-K for the year ended November 30, ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following paragraph sets forth certain information with respect to all securities sold by us during the three months ended During the three months ended
These securities were not registered under the Securities Act of 1933, as amended (the "Securities Act"), but qualified for exemption under Section 4(a)(2) of the Securities Act and Regulation S promulgated thereunder. The securities were exempt from registration under Section 4(a)(2) of the Securities Act and Regulation S because the issuance of such securities by the Company did not involve a "public offering," as defined in Section 4(a)(2) of the Securities Act, the Investor’s representations that it is not a U.S. Person as that term is defined in Rule 902(k) of Regulation S, and that it is acquiring the securities for its own account for investment purposes and not as nominee or agent, and not with a view to the resale or distribution thereof, and that the ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 38 ITEM 4. MINE SAFETY DISCLOSURES Not Applicable.
ITEM 5. OTHER INFORMATION
On July 11, 2018, the Company and HekaBio K.K., a corporation organized under the laws of Japan ("HB") entered into a Joint Venture Agreement (the "JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic products (hereinafter the "Products") in Japan. The parties intend to pursue the joint venture through a newly established Japanese company (hereinafter the "JV Company") which the Company by itself, or together with a designee, will hold a 49% participating interest therein, with the remaining 51% participating interest being held by HB. HB will fund, at its sole expense, all costs associated with obtaining the requisite regulatory approvals for conducting clinical trials, as well as performing all clinical and other testing required for market authorization of the Products in Japan. Subject to obtaining the requisite approval needed to commence commercialization in Japan and H's compliance with its undertakings, the Company has agreed to grant to the JV Company, under a separate sub-license agreement (the "License Agreement"), an exclusive sub-license to the intellectual property underlying the Company's Products solely for commercialization of the Company's products in Japan. It is anticipated that the License Agreement will also contain, among other things, minimum sales requirements as well as other provisions common in licensing agreements for international biotech licensing agreements. In consideration thereof, the Company is to receive royalty payments in a minimum amount of 10 percent (10%) of the net sales generated by the JV Company and/or its sublicensees with respect to the Products, as well as and any additional payments provided for in the specific licensing agreements. As part of and as a condition to the License Agreement, the JV Company will grant the Company and its affiliates a license, on a non-exclusive, worldwide (other than Japan), sublicensable royalty free and fully-paid up basis, to make use of the project intellectual property for any and all lawful purposes (outside of Japan), including without limitation, for their respective worldwide operations without further charge to the Company or any of its affiliates. Under the JVA, each party may invest up to $10 million, which may take the form of a loan, if required, as determined by the steering committee. The terms of such investment, if any, will be on terms mutually agreeable to the parties, provided that the minimum pre-money valuation for any such investment shall not be less than $10 million. Additionally, HB was granted an option to effect an equity investment in the Company in up to $15 million within the next 12 months on mutually agreeable terms. If such investment is in fact consummated, the Company agreed to invest in the JV Company by way of a convertible loan an amount to HB's pro-rata participating interest in the JV Company, which initially will be at 51%. Such loan may then be converted by the Company into share capital of the JV company at an agreed upon formula for determining JV Company valuation which in no event shall be less than $10 million. Under the JVA, the Company can require HB to sell to the Company its participating (including equity) interest in the JV Company in consideration for the issuance of the Company's common stock based on an agreed upon formula for determining JV Company valuation which in no event shall be less than $10 million. Joint Venture Agreement with Image Securities Ltd. On July 11, 2018, the Company and Image Securities Ltd., a corporation with its registered office in Grand Cayman, Grand Caman Islands ("India Partner") entered into a Joint Venture Agreement (the "India JVA") pursuant to which the parties will collaborate in the in the development and/or marketing, clinical development and commercialization of cell therapy products in India (the "Cell Therapy Products"). The India Partner will collaborate with a network of healthcare facilities and a healthcare infrastructure as well as financial partners to advance the development and commercialization of the cell therapy products. The India JVA becomes effective upon the consummation of an equity investment by the India partner in the Company of $5 million within 150 days of the execution of the India JVA through the purchase of units of Orgenesis securities at a per unit purchase price payable into the Company of $6.24, with each unit comprised of one share of Company common stock and three-year common stock purchase warrant for an additional share of common stock at a per share exercise price of $6.24. Subject to the consummation of such equity investment in the Company, the Company is to advance to the JV Company a convertible loan in the amount of $5 million. The loan is convertible into equity capital of the JV Company at an agreed upon formula for determining JV Company valuation. The investment in the Company by the India Partner would be the consummation of the previously disclosed private placement subscription agreement entered into in December 2016 between the Company and an affiliate of the India Partner pursuant to which the closing of such subscription agreement was by the terms thereof delayed until such time as terms comprising the India JV were mutually agreed to. Under the India JVA, the India Partner agreed to invest in the JV $10 million within 12 months of the incorporation of the JV Company. If for whatever reason such investment is not made by the India Partner within such time, then Orgenesis is authorized to convert its above-referenced loan into 50% of the equity capital of the JV Company on a fully diluted basis, provided that if the pre money valuation of the JV Company is then independently determined to be less than $5 million, then such conversion to be effected in the basis of such valuation. Issuance of Previously Subsrcribed Units Between July 13, 2018 and July 16, 2018, we accepted subscription agreements from assignees of the institutional investor who committed in February 2017 to purchase an aggregate of $16 million of units of our securities through August 2018, at a per unit purchase price of $6.24, where each unit is comprised of one share of common stock and one common stock purchase warrant exercisable at a per share exercise price of $6.24. These investors purchased in the aggregate, 692,308 shares of common stock and three year warrants for an additional 692,308 shares of our common stock at per share exercise price of $6.24. The issuance of shares of Orgenesis common stock to these investors will be made in reliance on one or more exemptions or exclusions from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), including Section 4(a)(2) of the Securities Act, Regulation D promulgated under the Securities Act, and Regulation S promulgated under the Securities Act, and the exemption from qualification under applicable state securities laws. ITEM 6. EXHIBITS
39 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORGENESIS INC. By:
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