Quarterly report pursuant to Section 13 or 15(d)

EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO

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EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO
9 Months Ended
Aug. 31, 2018
EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO [Text Block]

NOTE 4 – EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO

Description of the Transactions

Contemporaneous with the execution of the SPA and the Masthercell Global Stockholders Agreement (as described above), 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, including the CDMO subsidiaries. In furtherance thereof, Masthercell Global, as Orgenesis’ assignee, acquired all of the issued and outstanding share capital of Atvio, the Company’s Israel based CDMO partner since August 2016, and 94.2% of the share capital of 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, the Company issued to the former Atvio shareholders an aggregate of 83,964 shares of Company Common Stock. In respect of the acquisition of CureCell, the Company will issue according to valuation to the former CureCell shareholders an aggregate of 202,846 shares of Company Common Stock. Together with MaSTherCell S.A., Atvio and CureCell are directly held subsidiaries under Masthercell Global.

CureCell and Atvio are customer-oriented CDMO companies specializing in cell therapy development for advanced medicinal products.

The exercise of the call options of CureCell and Atvio, pursuant to which the Company obtained effective control over such entities, was accounted for as a business combination. The results of operations of CureCell and Atvio have been included in the Company’s condensed consolidated statements of operations starting from June 28, 2018, the date on which the Company obtained effective control of CureCell and Atvio. The revenues from operations of CureCell and Atvio for the period from June 28, 2018, the acquisition date, to August 31, 2018 was approximately $784 thousands and $41 thousands, respectively.

Fair Value of Consideration Transferred

The Company accounted for the exercise of the call options of CureCell and Atvio as a business combination under the acquisition method of accounting.

The following table summarizes the provisional allocation of purchase price to the fair values of the assets acquired and liabilities assumed as of the transaction date:

            CureCell      
           Total assets acquired:      
           Cash and cash equivalents $ 58  
           Property and equipment, net   1,104  
           Inventory   148  
           Other assets   300  
           Other Intangible assets (a)   3,933  
           Goodwill (b)   3,950  
           Total assets   9,493  
       
Total liabilities assumed:      
           Deferred income from the company and others   1,945  
           Deferred tax   80  
           Fair value of convertible loan from the company   892  
           Non-controlling interests   299  
           Other liabilities   1,487  
Total liabilities   4,703  
Total consideration transferred $ 4,790  
       
Fair value according of shares issued   1,853  
Acquisition date fair value of previously held equity interest   2,937  
Total consideration transferred $ 4,790  

(a)       The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of other intangible assets which comprised of: Customer Relationships of $859 and “Know How” of $3,074. These other intangible assets have a useful life of 10 and 12 years, respectively. The useful life of the other intangible assets for amortization purposes was determined considering the period of expected cash flows generated by the assets used to measure the fair value of the intangible assets adjusted as appropriate for the entity-specific factors, including legal, regulatory, contractual, competitive, economic or other factors that may limit the useful life of intangible assets.

The fair value of the Know How was estimated using a relief of royalties’ approach. Under this method, the fair value of the Know How is equal to the royalty fee that the owner of the Know How could profit from if he was to license the Know How out.

Customer Relationships were estimated using a discounted cash flow method with the application of the multi-period excess earnings method. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible asset after deducting contributory asset charges. An income and expenses forecast were built based upon specific intangible asset revenue and expense estimates.

(b)       The primary items that generate goodwill include the value of the synergies between the acquired company and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset.

Atvio

The total consideration of Atvio of $890 thousand was attributed mainly to goodwill.

The Company’s purchase price allocation for both companies are preliminary. The fair values of acquired assets and liabilities may be further adjusted as additional information becomes available during the measurement period. Additional information may become available subsequently and may result in changes in the values allocated to various assets and liabilities includes, but is not limited to, any changes in the values allocated to tangible and identified intangible assets acquired and liabilities assumed during the measurement period and may result in material adjustments to goodwill.