Annual report pursuant to Section 13 and 15(d)

CORPORATE REORGANIZATION AND EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO

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CORPORATE REORGANIZATION AND EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO
12 Months Ended
Nov. 30, 2018
CORPORATE REORGANIZATION AND EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO [Text Block]

NOTE 4- CORPORATE REORGANIZATION AND EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO

Description of the Transaction

     Contemporaneous with the execution of the SPA and the Stockholders’ Agreement (see Note 3), the Company and Masthercell Global entered into a Contribution, Assignment and Assumption Agreement pursuant to which the Company contributed to Masthercell Global assets relating to the CDMO platform including: (i) all of the Company’s holdings in Masthercell Global Subsidiaries (ii) the debt in the total amount of $2.3 million owed to the Company by Atvio and CureCell (iii) the license agreement between the Company and MaSTherCell dated December 30, 2016; (v) the Joint Venture Agreement with Atvio dated May 10, 2016 (as amended on May 30, 2016); (vi) the SFPI Agreement (vii) the Joint Venture Agreement between Orgenesis and CureCell dated March 14, 2016 (the “Corporate Reorganization”). See Note 12(b).

In furtherance thereof, Masthercell Global, as the Company assignee, acquired all of the issued and outstanding share capital of Atvio and 94.12% of the share capital of CureCell. The Company 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 the Company Common Stock.

     In respect of the acquisition of Atvio, the Company issued to the former Atvio shareholders an aggregate of 83,965 shares of Company’s Common Stock. In respect of the acquisition of CureCell, the Company issued the former CureCell shareholders an aggregate of 202,846 shares of the Company Common Stock. 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. Before the closing date Atvio and CureCell were associated companies, see Note 12. The net gain on remeasurement of the previously held equity interest in Atvio and CureCell to acquisition date fair value was $4.5 million.

CureCell

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

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 taxes   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 of 36.4% of shared issued   1,853  
Acquisition date fair value of previously held equity interest   2,937  
Total consideration transferred $ 4,790  

* Fair value of the consideration is based on the company’s market share price.

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 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. The Goodwill is not deductible for tax purposes.

Atvio

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

Pro forma Impact of Business Combination

     The unaudited pro forma financial results have been prepared using the acquisition method of accounting and are based on the historical financial information of the Company, Atvio and CureCell. The unaudited pro forma condensed financial results have been prepared for illustrative purposes only and do not purport to be indicative of the results of operations that would have resulted had the acquisition of Atvio and CureCell occurred at the beginning of the fiscal year, or of future results of the combined entities. The unaudited pro forma condensed financial information does not reflect any operating efficiencies and expected realization of cost savings or synergies associated with the acquisition.

     The acquired business contributed revenues of $1.1 million and for the period of June 28, 2018 to November 30, 2018. The following unaudited pro forma summary presents consolidation information of the Company as if the business combination had occurred on December 1, 2017:

    Year Ended November 30,  
    2018     2017  
    (in thousands)  
Revenue $ 18,794   $ 10,216  
Net loss $ 20,919   $ 14,520