Quarterly report pursuant to Section 13 or 15(d)

CONVERTIBLE LOAN AGREEMENTS

v3.10.0.1
CONVERTIBLE LOAN AGREEMENTS
9 Months Ended
Aug. 31, 2018
CONVERTIBLE LOAN AGREEMENTS [Text Block]

NOTE 5 – CONVERTIBLE LOAN AGREEMENTS

(a)       During the nine months ended August 31, 2018, the Company entered into several unsecured convertible loan agreements with accredited or offshore investors for an aggregate amount of $720 thousand. The loans bear an annual interest rate of 6% and mature in six months or two years from the closing date, unless earlier converted subject to the terms defined in the agreements.

The loans provide that the entire principal amount and accrued interest convert into a Unit, consisting of one share of Common Stock and one three-year warrant exercisable into an additional share of common stock at a per share exercise price of $6.24. In addition, the Company issued to certain investors 40,064 three-year warrants 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'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 $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. The transaction costs for were approximately $89 thousand, out of which $31 thousand are stock-based compensation due to issuance of warrants (See also Note 8(c)). Through August 31, 2018, all convertible loans were converted. See additional information in Note 5b.

(b)       During the nine months ended August 31, 2018, holders of approximately $7.7 million in principal and accrued interest of convertible loans converted these outstanding amounts, into units of the Company’s securities at a deemed per unit conversion price of $6.24, with each unit comprised of: (i) one share of the Company’s Common Stock and (ii) one warrant, exercisable for a period of three years from the date of conversion, for an additional share of Common Stock, at a per share exercise price of $6.24. As a result of these conversions, the holders are entitled to 1,240,972 shares of Common Stock and three-year warrants for an additional 1,240,972 shares of common stock at a per share exercise price of $6.24.

The Company allocated the converted amounts based on the fair value of the warrants and the shares. The table below presents the converted amounts of the proceeds as of the closing date:

    Proceeds  
    allocation  
    (in thousands)  
Warrants component $ 3,037  
Shares component   4,706  
Total $ 7,743  

The fair value of these warrants determined using a Black-Scholes model based on the following assumptions:

  Nine Months Ended
  August 31, 2018
Value of one common share $7.61 - $13.85
Dividend yield 0%
Expected stock price volatility 94.12%- 90.6%
Risk free interest rate 2.43%- 2.29%
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.

(c)       During the nine months ended August 31, 2018, holders of approximately $805 thousand in principal and accrued interest of a convertible loans outstanding from November 2014 and December 2016 converted their outstanding amounts, into shares of the Company’s common stock at a deemed conversion price of $4.80 and $6.24 per share. As a result of this conversion, the Company issued 137,765 shares of common stock.

These loans had beneficial conversion features ("BCF"). Therefore, the Company recognized the unamortized BCF as of the conversion date as interest expenses.

(d)       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 $396 thousand outstanding under a loan originally advanced to the Company in November 2016. The exercise price of 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 consider 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 agreements and deposited the principal amount and accrued interest of the loan in an escrow account presented as restricted cash in the balance sheet as of August 31, 2018.