NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Period Ended June 30, 2020 and 2019
(Unaudited)
NOTE
1 – DESCRIPTION OF BUSINESS
Orgenesis
Inc., a Nevada corporation (the “Company”), is a pioneering global biotech company in the Cell & Gene Therapy
(“CGT”) industry focused on unlocking the full potential of its therapeutics products and personalized therapies and
closed processing systems with the ultimate aim of providing life-changing treatments to large numbers of patients at reduced
costs in a point-of-care setting. It pursues this strategy through a point-of-care platform (“CGT Biotech Platform”)
that combines therapeutics, technologies, processes, and systems via a network of collaborative partners, and research institutes
and hospitals around the world.
The
Company’s CGT Biotech Platform consists of: (a) POCare Therapeutics, a pipeline of licensed CGTs, anti-viral and proprietary
scientific know-how; (b) POCare Technologies, a suite of proprietary and in-licensed technologies which are engineered to create
customized processing systems for affordable point-of-care therapies; and (c) a POCare Network, a collaborative, international
ecosystem of leading research institutions and hospitals committed to clinical development and supply of CGTs at the point-of-care
(“POCare Network”). By combining science, technology, including its mobile processing units that it is developing,
and a collaborative network, the Company believes that it is able to identify the most promising new autologous therapies and
provide a pathway for them to reach patients more quickly, more efficiently and in a scalable way, thereby unlocking the power
of cell and gene therapy for all patients.
The
Company had historically also operated a Contract Development and Manufacturing Organization (“CDMO”) platform, which
provided contract manufacturing and development services for biopharmaceutical companies (the “CDMO Business”). On
February 2, 2020, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with GPP-II Masthercell
LLC (“GPP” and together with the Company, the “Sellers”), Masthercell Global Inc. (“Masthercell”)
and Catalent Pharma Solutions, Inc. (the “Buyer”). Pursuant to the terms and conditions of the Purchase Agreement,
on February 10, 2020, the Sellers sold 100%
of the outstanding equity interests of Masthercell (the “Masthercell Business”), which comprised the majority of the
CDMO Business, to the Buyer (the “Masthercell Sale”) for an aggregate nominal purchase price of $315
million, subject to customary adjustments.
After accounting for GPP’s liquidation preference and equity stake in Masthercell as well as other investor interests in
its Belgian subsidiary MaSTherCell, S.A. (“MaSTherCell”), distributions to Masthercell option holders and transaction
costs, the Company received approximately $126.7
million. The Company incurred an additional
approximately $5.6
million in transaction costs.
The
Company has determined that the Masthercell Business (“Discontinued Operation”) meets the criteria to be classified
as a discontinued operation as of the first quarter of 2020. The Discontinued Operation includes most of the previous CDMO Business,
including majority-owned Masthercell, including its subsidiaries Cell Therapy Holdings, MaSTherCell and Masthercell U.S. (collectively,
the “Masthercell Global Subsidiaries”) (See Note 3).
The
Chief Executive Officer (“CEO”) is the Company’s chief operating decision-maker. Management has determined that
effective from the first quarter of 2020, all of the Company’s continuing operations are in the point-of-care business via
the Company’s CGT Biotech Platform. Therefore, no segment report has been presented.
The
Company currently conducts its core CGT business operations through itself and its subsidiaries which are all wholly-owned except
as otherwise stated (collectively, the “Subsidiaries”). The Subsidiaries are as follows:
●
|
United
States: Orgenesis Maryland Inc. (the “U.S. Subsidiary”) is the center of activity in North America currently focused
on setting up of the POCare Network (as defined below).
|
|
|
●
|
European
Union: Orgenesis Belgium SRL (the “Belgian Subsidiary”) is the center of activity in Europe currently focused
on process development and preparation of European clinical trials.
|
●
|
Israel:
Orgenesis Ltd. (the “Israeli Subsidiary”) is the center for research and technology, as well as a provider of
regulatory, clinical and pre-clinical services, and Atvio Biotech Ltd. (“Atvio”) is a provider of cell-processing
services in Israel.
|
|
|
●
|
Korea:
Orgenesis Korea Co. Ltd. (the “Korean Subsidiary”), previously known as CureCell Co. Ltd., is a provider of processing
and pre-clinical services in Korea. The Company owns 94.12% of the Korean Subsidiary.
|
These
condensed consolidated financial statements include the accounts of Orgenesis Inc. and its subsidiaries, including the U.S. Subsidiary,
the Belgian Subsidiary, the Israeli Subsidiary, the Korean subsidiary, Atvio and the Discontinued Operation.
On
April 7, 2020, the Company entered into an Asset Purchase Agreement (the “Tamir Purchase Agreement”) with Tamir Biotechnology,
Inc. (“Tamir” or “Seller”), pursuant to which the Company agreed to acquire certain assets and liabilities
of Tamir related to the discovery, development and testing of therapeutic products for the treatment of diseases and conditions
in humans, including all rights to Ranpirnase and use for antiviral therapy (collectively, the “Purchased Assets and Assumed
Liabilities” and such acquisition, the “Tamir Transaction”). The Tamir Transaction closed on April 23, 2020.
As aggregate consideration for the acquisition, the Company paid $2.462
million in cash and issued an aggregate of 3,400,000
shares (the “Shares”) of Common
Stock to Tamir resulting in a total consideration of $20.2
million. $4.5
million of the consideration was attributable
to research and development related inventory and most of the remaining amount reflected the cost of intangible assets (See Note
6).
The
Company’s common stock, par value $0.0001
per share (the “Common Stock”)
is listed and traded on the Nasdaq Capital Market under the symbol “ORGS.”
As
used in this report and unless otherwise indicated, the term “Company” refers to Orgenesis Inc. and its Subsidiaries.
Unless otherwise specified, all amounts are expressed in United States Dollars.
As
of June 30, 2020, the Company has accumulated losses of approximately $34
million.
On
February 10, 2020, the Company received approximately $126.7
million, of which $7.2
million was used for the repayment of
intercompany loans and payables, from the Masthercell Sale. In addition, on January 20, 2020, the Company entered into a Securities
Purchase Agreement with certain investors pursuant to which the Company received gross proceeds of approximately $9.24
million before deducting related offering
expenses (See Note 4).
Based
on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development
activities and expected level of expenditures for at least 12 months from the date of the issuance of the financial statements.
If there are further increases in operating costs for facilities expansion, research and development, commercial and clinical
activity or decreases in revenues from customers, the Company may decide to seek additional financing.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
The
accounting policies adopted are consistent with those of the previous financial year except as described below.
Cash
and cash equivalents
The
Company considers cash equivalents to be all short-term, highly liquid investments, which include money market instruments, that
are not restricted as to withdrawal or use, and short-term bank deposits with original maturities of three months or less from
the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.
Discontinued
operations
Upon
divesture of a business, the Company classifies such business as a discontinued operation, if the divested business represents
a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. For disposals
other than by sale such as abandonment, the results of operations of a business would not be recorded as a discontinued operation
until the period in which the business is actually abandoned.
The
Masthercell Business divesture qualifies as a discontinued operation and therefore have been presented as such.
The
results of businesses that have qualified as discontinued operations have been presented as such for all reporting periods. Results
of discontinued operations include all revenues and expenses directly derived from such businesses; general corporate overhead
is not allocated to discontinued operations. Any loss or gain that arose from the divesture of a business that qualifies as discontinued
operations has been included within the results of the discontinued operations. The Company included information regarding cash
flows from discontinued operations (See Note 3).
Newly
issued and recently adopted accounting pronouncements
The
Company early adopted ASU 2019-12 on January 1, 2020 which did not have a material impact on the Consolidated Financial Statements
except for the removal of the exception related to intra-period tax allocations. Commencing from January 1, 2020, the Company
followed the general intra-period allocation of tax expenses. The Company had incurred a loss from continuing operations and subsequent
to the adoption of ASU 2019-12, the Company determined the amount attributable to continuing operations without regard to the
tax effect of other items. The ASU 2019-12 amendment related to the intra-period tax allocation was applied prospectively.
Had
the Company not adopted ASU 2019-12, an approximately $11.5
million tax benefit would have been recognized
along with corresponding decreases to net loss from continuing operations with a corresponding increase in tax expenses and decrease
in net income resulting from discontinued operations. The Company had no intra-period tax allocation items in prior years.
Use
of Estimates
The
preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that may affect
the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and
on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the
carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19
pandemic may directly or indirectly impact our business, results of operations and financial condition, will depend on future
developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions
taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers
and markets. We have made estimates of the impact of COVID-19 within our financial statements, and although there is currently
no major impact, there may be changes to those estimates in future periods. Actual results may differ from these estimates.
NOTE
3 – DISCONTINUED OPERATION
On
February 2, 2020, the Company entered into a Purchase Agreement with GPP, Masthercell and the Buyer. Pursuant to the terms and
conditions of the Purchase Agreement, Sellers agreed to sell 100%
of the outstanding equity interests of Masthercell to Buyer for an aggregate nominal purchase price of $315
million, subject to customary adjustments.
The Company has determined that the Masthercell Business meets the criteria to be classified as a discontinued operation.
On
February 10, 2020, the Masthercell Sale was consummated in accordance with the terms of the Purchase Agreement. After accounting
for GPP’s liquidation preference and equity stake in Masthercell, as well as SFPI – FPIM’s interest in MaSTherCell,
distributions to Masthercell option holders and transaction costs, the Company received approximately $126.7
million at the closing of the Masthercell
Sale, of which $7.2
million was used for the repayment of
intercompany loans and payables, including $4.6
million of payables to MaSTherCell. Included
in this amount is $1.5
million which was deposited into an escrow
account in connection with potential adjustments based on working capital and indebtedness at closing. The escrow amount was transferred
to the Company at the end of July 2020.
Due
to the sale of the controlling interest in Masthercell, the Company retrospectively reclassified the assets and liabilities of
these entities as assets and liabilities of discontinued operations and included the financial results of these entities (as of
the February 10, 2020) in discontinued operations in the Company’s consolidated financial statements.
Discontinued
operations relate to the Masthercell Business. The comprehensive loss and balance sheet for this operation are separately reported
as discontinued operations for all periods presented.
The
financial results of the Masthercell Business are presented as income (loss) from discontinued operations, net of income taxes
on the Company’s consolidated statement of comprehensive loss. The following table presents the financial results associated
with the Masthercell Business operation as reflected in the Company’s Consolidated Comprehensive loss (in thousands):
SCHEDULE
OF DISCONTINUED OPERATION
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
2020
|
|
|
June
30,
2019
|
|
|
June
30,
2019
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,556
|
|
|
$
|
6,626
|
|
|
$
|
13,508
|
|
Cost of revenues
|
|
|
1,482
|
|
|
|
3,928
|
|
|
|
7,967
|
|
Cost of research and development and
research and development services, net
|
|
|
7
|
|
|
|
(364
|
)
|
|
|
(514
|
)
|
Amortization of intangible assets
|
|
|
137
|
|
|
|
408
|
|
|
|
816
|
|
Selling, general and administrative
expenses
|
|
|
1,896
|
|
|
|
3,094
|
|
|
|
5,708
|
|
Other (income)
expenses, net
|
|
|
305
|
|
|
|
(31
|
)
|
|
|
(65
|
)
|
Operating loss
|
|
|
1,271
|
|
|
|
409
|
|
|
|
404
|
|
Financial (income)
expenses, net
|
|
|
(29
|
)
|
|
|
6
|
|
|
|
45
|
|
Loss before income taxes
|
|
|
1,242
|
|
|
|
415
|
|
|
|
449
|
|
Tax expenses
(income)
|
|
|
(30
|
)
|
|
|
537
|
|
|
|
623
|
|
Net loss from discontinuing operation,
net of tax
|
|
$
|
1,212
|
|
|
$
|
952
|
|
|
$
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISPOSAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal before income taxes
|
|
$
|
102,594
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Provision
for income taxes (*)
|
|
|
(12,622
|
)
|
|
|
-
|
|
|
|
-
|
|
Gain on disposal
|
|
$
|
89,972
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
from discontinuing operation, net of tax
|
|
$
|
88,760
|
|
|
$
|
(952
|
)
|
|
$
|
(1,072
|
)
|
*
|
Provision for income
taxes was updated in the three months period ended June 30, 2020 in the amount of $6.7 million due to tax benefit recognized
from net loss from continuing operation according to ASU 2019-12, see also Note 2.
|
The
following table is a summary of the assets and liabilities of discontinued operations (in thousands):
|
|
As
of
|
|
|
|
December
31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,281
|
|
Restricted cash
|
|
|
186
|
|
Accounts receivable,
net
|
|
|
6,654
|
|
Prepaid expenses
and other receivables
|
|
|
845
|
|
Grants receivable
|
|
|
1,979
|
|
Inventory
|
|
|
1,907
|
|
Deposits
|
|
|
326
|
|
Property and equipment,
net
|
|
|
22,149
|
|
Intangible assets,
net
|
|
|
10,858
|
|
Operating lease
right-of-use assets
|
|
|
8,860
|
|
Goodwill
|
|
|
10,129
|
|
Other
assets
|
|
|
47
|
|
TOTAL
ASSETS OF DISCONTINUED OPERATIONS
|
|
$
|
75,221
|
|
|
|
As
of
|
|
|
|
December
31,
2019
|
|
LIABILITIES:
|
|
|
|
|
Accounts
payable
|
|
$
|
5,756
|
|
Accrued expenses
and other payables
|
|
|
372
|
|
Employees and related
payables
|
|
|
2,047
|
|
Advance payments
on account of grant
|
|
|
2,227
|
|
Short-term loans
and current maturities of long- term loans
|
|
|
372
|
|
Contract liabilities
|
|
|
8,301
|
|
Current maturities
of long-term finance leases
|
|
|
291
|
|
Current maturities
of operating leases
|
|
|
1,365
|
|
Non-current operating
leases
|
|
|
7,069
|
|
Loans payable
|
|
|
1,230
|
|
Deferred taxes
|
|
|
1,868
|
|
Long-term
finance leases
|
|
|
688
|
|
TOTAL
LIABILITIES OF DISCONTINUED OPERATIONS
|
|
$
|
31,586
|
|
The
following table represents the components of the cash flows from discontinued operations (in thousands):
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
2020
|
|
|
June
30,
2019
|
|
|
June
30,
2019
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided
by (used in) operating activities
|
|
$
|
(2,409
|
)
|
|
$
|
2,271
|
|
|
$
|
(2,416
|
)
|
Net cash flows used in investing activities
|
|
$
|
(579
|
)
|
|
$
|
(1,356
|
)
|
|
$
|
(2,300
|
)
|
Net cash flows (used in) provided by
financing activities
|
|
$
|
(51
|
)
|
|
$
|
(216
|
)
|
|
$
|
6,296
|
|
Disaggregation
of Revenue
The
following table disaggregates the Company’s revenues by major revenue streams related to discontinued operations (in thousands):
SCHEDULE
OF DISAGGREGATION OF REVENUE RELATED TO DISCONTINUED OPERATIONS
|
|
Six
Months Ended
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
2020
|
|
|
June
30,
2019
|
|
|
June
30,
2019
|
|
Revenue stream:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cell
process development services
|
|
$
|
2,556
|
|
|
$
|
3,891
|
|
|
$
|
8,647
|
|
Tech transfer
services
|
|
|
-
|
|
|
|
1,702
|
|
|
|
3,532
|
|
Cell
manufacturing services
|
|
|
-
|
|
|
|
1,033
|
|
|
|
1,329
|
|
Total
|
|
$
|
2,556
|
|
|
$
|
6,626
|
|
|
$
|
13,508
|
|
NOTE
4 – EQUITY
On
January 20, 2020, the Company entered into a Securities Purchase Agreement (the “January Purchase Agreement”) with
certain investors pursuant to which the Company issued and sold, in a private placement (the “Offering”), 2,200,000
shares of Common Stock at a purchase price
of $4.20
per share (the “Shares”) and
warrants to purchase up to 1,000,000
shares of Common Stock at an exercise
price of $5.50
per share (the “Warrants”)
which are exercisable
between June 2021 and January 2023. The
Company received gross proceeds of approximately $9.24
million before deducting related offering
expenses.
During
April 2020, the Company and Tamir Biotechnology, Inc. (“Tamir”) entered into an Asset Purchase Agreement pursuant
to which 3,400,000
shares of Common Stock were issued to
Tamir (See Note 6).
During
the six months ended June 30, 2020, the Company issued 270,174
ordinary shares to service providers.
As of June 30, 2020, 135,000
shares have additional restrictions on
transfer until such services have been provided.
During
the three months ended June 30, 2020, one option holder exercised 83,334
options at an exercise price of $3.60
for 83,334
ordinary shares, and the Company received
$300
thousand.
NOTE
5 – CONVERTIBLE LOANS
On
January 2, 2020, the Company entered into private placement subscription agreements with investors for an aggregate amount of
$250
thousand of convertible loans. The lenders
shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into shares of
Common Stock of the Company at a conversion price per share equal to $7.00.
In addition, the Company granted the investors 151,428
warrants to purchase an equal number of
additional shares of Common Stock at a price of $7.00
per share.
During
the six months ended June 30, 2020, the Company repaid $2,746
thousand on account of the principal amount
and accrued interest of convertible loans.
NOTE
6 – COLLABORATIONS, LICENSE AGREEMENTS AND COMMITMENTS
Image
Securities Ltd. (a related party)
As
described in Note 12 to the financial statements of December 31, 2019, on July 11, 2018, the Company and Image Securities Ltd.,
a corporation with its registered office in Grand Cayman, Grand Cayman Islands (“India Partner”), entered into a Joint
Venture Agreement (the “India JVA”) pursuant to which the parties will collaborate in the development, marketing,
clinical development and/or 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 in India. As of June 30, 2020, the Company had advanced
$3
million, of which $500
thousand was transferred in the first
quarter of 2020, as part of its financing obligations under the India JVA to the India Partner, who is holding the loan in escrow
on behalf of the Company. The loan is reflected on the balance sheet as a loan to a related party.
As
part of the agreement, the India joint venture will procure consulting services from the Company. During January 2020, the Company
entered into a new statement of work pursuant to the master services agreement signed in 2019 for the provision of certain services
during 2020 and 2021. The Company, subject to mutually agreed timing and definition of the scope of services, will provide regulatory
services, pre-clinical studies, intellectual property services, point-of-care services and co-development services to the India
Partner. The Company received $500
thousand as payments for such services
during the six months ended June 30, 2020. $772
thousand for these services was recognized during the six months ended June 30, 2020 as income under ASC 606.
Apart
from the above, there was no activity in the India joint venture during the six months ended June 30, 2020.
Hemogenyx
Pharmaceuticals PLC.
As
described in Note 12 to the financial statements of December 31, 2019, on October 18, 2018, the Company and Hemogenyx Pharmaceuticals
PLC., a corporation with its registered office in the United Kingdom, and Hemogenyx-Cell, a corporation with its registered office
in Belgium, and which is engaged in the development of cell replacement bone marrow therapy technology (“H-Cell” and,
collectively with the Company, “Hemo”), entered into a Collaboration Agreement (the “Hemo Agreement”)
pursuant to which the parties will collaborate in the funding of the continued development of and commercialization of, the Hemo
technology via the Hemo group companies. Pursuant to the Hemo Agreement, the Company and Hemogenyx LLC, a wholly owned USA subsidiary
of Hemo (“Hemo-LLC”), entered into a loan agreement. During the six months ended June 30, 2020, the Company advanced
$250
thousand under the loan agreement, which
was charged to expenses under ASC 730-10-50 and 20-50 and presented as research and development costs.
Immugenyx
LLC
As
described in Note 12 to the financial statements as of December 31, 2019, on October 16, 2018, the Company and Immugenyx LLC,
(“Immu”), which is engaged in the development of technology related to the production and use of humanized mice, entered
into a Collaboration Agreement (the “Immu Agreement”) pursuant to which the parties will collaborate in the funding
of the continued development of, and commercialization of, the Immu technology. The Company received the worldwide rights to market
the products under the Immu Agreement in consideration for the payment of a 12%
royalty, subject to the terms of the agreement. Pursuant to the Immu Agreement, the Company and Immu also entered into a loan
agreement. During the six months ended June 30, 2020, the Company advanced $250
thousand under the loan agreement, which
was charged to expenses under ASC 730-10-50 and ASC 20-50 and presented as research and development costs.
Theracell
Advanced Biotechnology
As
described in Note 12 to the financial statements as of December 31, 2019, on February 14, 2019, the Company and Theracell Advanced
Biotechnology, a corporation organized under the laws of Greece (“Theracell”), entered into a Joint Venture Agreement
(the “Greek JVA”) pursuant to which the parties will collaborate in the clinical development and commercialization
of the Company’s products (hereinafter, the “Company Products”) in Greece, Turkey, Cyprus and Balkan countries
(the “Territory”) and the clinical development and commercialization of Theracell’s products (hereinafter, the
“Theracell Products”) worldwide (the “Theracell Project”). The parties intend to pursue the Theracell
Project through a joint venture (“JV”) by forming a JV entity (the “Greek JV Entity”). Until the Greek
JV Entity is formed, all JV activities are being carried out by Theracell. The Company by itself, or together with a designee,
will hold a 50%
participating interest in the Greek JV Entity, with the remaining 50%
participating interest being held by Theracell or its affiliate following the parties’ contributions to the Greek JV Entity
as set forth under the Greek JVA. Each of the parties committed to contribute $10
million to the JV Entity, of which $5
million will be provided as in-kind contributions.
The Greek JV Entity will have a steering committee that will act as the board of directors of the Greek JV Entity and shall be
composed of a total of five members, with two members appointed by each party and one industry expert to be appointed by both
parties. The Company shall have the option, at its sole discretion and subject to all rules and regulations to which it is then
subject, to require Theracell to transfer to the Company the entirety of Theracell’s equity interest in the JV Entity for
a consideration of shares of Common Stock according to an agreed-upon formula.
During
January 2020, the Company entered into a new statement of work pursuant to the master services agreement signed in 2019 with
Theracell for the provision of certain services by the Company during 2020 and 2021. During the six months ended June 30,
2020, the Company recognized point of care service revenue in the amount of $733 thousand.
During
the six months ended June 30, 2020, the Company recorded expenses related to activities in the territory in the amount of $896
thousand.
As
of June 30, 2020, the Greek JV had not yet been incorporated.
Broaden
Bioscience and Technology Corp
As
described in Note 12 to the financial statements as of December 31, 2019, on November 10, 2019, the U.S. Subsidiary and Broaden
Bioscience and Technology Corp, a Delaware corporation (“Broaden”), entered into a Joint Venture Agreement (the “Broaden
JVA”) pursuant to which the parties will collaborate in the development and/or marketing, clinical development and commercialization
of cell therapy products and the setting up of point-of-care processing facilities in China and the Middle East (the “Broaden
Project”). The parties intend to pursue the Broaden Project through a joint venture by forming a joint venture entity (the
“Broaden JV Entity”).
During
January 2020, the Company entered into a master service agreement with Broaden whereby the Company, subject to mutually agreed
timing and definition of the scope of services, will provide regulatory services, pre-clinical studies, intellectual property
services, GMP process translation services and co-development services to Broaden during 2020 and 2021. During the six months
ended June 30, 2020, the Company recognized point of care services revenue in the amount of $806
thousand.
During
January 2020, the U.S. Subsidiary and Broaden Bioscience and Technology Corp entered into a convertible loan agreement pursuant
to which the Company agreed to lend Broaden Bioscience and Technology Corp an amount of up to $5
million as a convertible loan as part
of Company’s investment in the Broaden JV. As of the date of this report, the Company has not lent Broaden Bioscience and
Technology Corp any funds as part of this loan.
During
the six months ended June 30, 2020, the Company recorded research and development expenses related to activities in the Broaden
JVA in the amount of $830
thousand.
Apart
from the above, as of June 30, 2020, the Broaden JV Entity had not been incorporated.
Cure
Therapeutics
During
2019, the Company entered into a master service agreement with Cure Therapeutics whereby the Company, subject to mutually agreed
timing and definition of the scope of services, will provide point-of-care services to Cure Therapeutics during 2020 and 2021.
During the six months ended June 30, 2020, the Company recognized point of care services revenue in the amount of $714
thousand.
As
described in Note 12 to the financial statements as of December 31, 2019, on May 7, 2018, the Company and Cure Therapeutics entered
into a collaboration agreement for the development of therapies based on liver and NK cells. An amount of $976
thousand was charged during the six months
ended June 30, 2020. As of June 30, 2020, the development project had not been completed. As part of the agreement,
Cure Therapeutics subcontracted development and contract manufacturing activities to Orgenesis Korea. An amount of $567
thousand was recognized as revenues by
Orgenesis Korea during the six months ended June 30, 2020.
Mircod
Limited
As
described in Note 12 to the financial statements as of December 31, 2019, on June 19, 2018, the Company and Mircod Limited, a
company formed under the laws of Cyprus (“Mircod”), entered into a Collaboration and License Agreement (the “Mircod
Collaboration Agreement”) for the adaptation of Mircod’s background technologies related to biological sensing for
use for the Company’s clinical development and manufacturing projects (the “Development Project”). The Development
Project is to be carried out in accordance with an agreed development plan. During the six months ended June 30, 2020, the Company
recorded research and development expenses related to the development plan in the amount of $500
thousand.
In
addition, during the first quarter of 2020, as per the Mircod Collaboration agreement, Mircod formed a wholly-owned US subsidiary
named Mircod Biotech (the “Mircod Subsidiary”). The Mircod Subsidiary shall perform the duties of Mircod under the
Collaboration Agreement, provided that Mircod shall remain responsible for the performance of the Mircod Subsidiary. At any time,
the Company shall have the option, at its sole discretion, to transfer and require Mircod or the Mircod Subsidiary to transfer
the Development Project and/or the rights and licenses granted by Mircod to a joint venture company (“JV Entity”)
which shall be established by the parties for the purposes of carrying out and commercializing the Development Project, and in
which the Company and Mircod will each hold 50%.
The Company shall also have the option to, at its sole discretion and subject to all rules and regulations to which it is then
subject, require Mircod to transfer to the Company the entirety of Mircod’s equity interest in the JV Entity for a consideration
of shares of Common Stock according to an agreed formula. The parties agreed to amend the development plan to reflect the fact
that the parties shall collaborate with each other on: (i) point-of-care processing, regulatory and therapy development; (ii)
setting up one or more point–of-care processing facilities in institutions or hospitals the territory of Russia; (iii) the
supply of the Company’s products and services within Russia, and (iv) clinical, regulatory, development and commercialization
in Russia. The Company may, at its sole discretion, agree to provide Mircod with a convertible loan (which may be converted into
shares of Mircod then outstanding or into the JV Entity, upon a valuation to be agreed between the parties and validated by a
third party subject to terms to be agreed upon by the parties in a separate convertible loan agreement). The convertible loan
will be used to finance the modification of the processing facility or facilities including, planning, designing, testing, training
or supervising, as required for obtaining cGMP status approval(s) and/or relevant certification for any processing facility and
other activities. As at June 30, 2020, the loan agreement was not executed.
Kidney
Cure Ltd
During
April 2020, the Company entered into a joint venture agreement with Kidney Cure Ltd. (“Kidney Cure” and the “Kidney
Cure JVA,” respectively), pursuant to which the parties will collaborate in the (i) implementation of a point-of-care strategy;
(ii) assessment of the options for development and manufacture of various cell-based types (including kidney derived cells, MSC
cells, exosomes, gene therapies) development; and (iii) development of protocols and tests for kidney therapies (the “Project”).
The parties intend to pursue the joint venture through a newly established company (hereinafter, the “KC JV Entity”),
which the Company, directly or indirectly by itself, will hold a 49%
participating interest therein, with the remaining 51%
participating interest being held by Kidney Cure. The board of directors of the KC JV Entity will act as a steering committee
KC JV Entity and shall be composed of a total of three members, with one member appointed by each party and the third member appointed
by both parties.
The
Company will procure services from the Kidney Cure JVA in the amount of $5
million, subject to and in accordance
with a development and manufacturing plan to be mutually agreed upon by the parties. Under the Kidney Cure JVA, the Company can
require Kidney Cure to sell to the Company its participating (including equity) interest in the KC JV Entity in consideration
for the issuance of Common Stock based on an agreed-upon formula for determining the KC JV Entity’s valuation, provided
that Company has contributed at least $5
million. As of June 30, 2020, the
Company had advanced $200
thousand to Kidney Cure on account
of its obligations under the Kidney Cure JVA and a further $250
thousand was advanced during July
2020.
Apart
from the above, as of June 30, 2020, no activity has begun in the said KC JV Entity, no contributions were made therein and the
KC JV Entity had not been incorporated.
Sescom
Ltd
During
April 2020, the Company entered into a joint venture agreement with Sescom Ltd (“Sescom”), pursuant to which the parties
will collaborate in (i) the assessment of relevant tools and technologies to be used in the Company’s information security
system (the “ISS”); (ii) the implementation of the ISS within the Company and in the Company’s point-of-care
network; and (iii) the operation and maintenance of the ISS. The parties intend to pursue the joint venture through a company
to be established (the “Sescom JV Entity”), which shall be 50%
owned by the Company and 50%
owned by Sescom. The Sescom JV Entity will have a steering committee that will act as the board of directors of the Sescom JV
Entity and shall be composed of a total of three members, with one member appointed by each party and one industry expert.
Sescom
has agreed to provide Sescom JV Entity with: (a) a non-exclusive, transferable and sublicensable worldwide royalty-free license
to use its background IP, to the extent required for carrying out the development activities by the Sescom JV Entity; and (b)
to make available to the Sescom JV Entity all relevant know-how and royalty-free licenses to any proprietary technologies to be
implemented as part of the ISS.
The
Company has agreed to procure services from Sescom or the Sescom JV Entity in an amount of up to $1
million, of which
$500
thousand was paid
to Sescom during April 2020. In addition, the Company has agreed to provide the Sescom JV Entity with: (a) a non-exclusive, not
transferable and non-sublicensable worldwide royalty-free license to use its background IP, to the extent required for carrying
out certain activities by the Sescom JV Entity; and (b) access to its point-of-care network and relevant data to be used for the
certain activities.
The
parties agreed that at any time after the Company has contributed $1
million in Sescom or the Sescom JV Entity,
the Company shall have the right, in its sole discretion, to purchase from Sescom all of Sescom’s then-issued and outstanding
shares in the Sescom JV Entity based on a valuation of the Sescom JV Entity to be determined by an agreed-upon formula.
Apart
from the above, as of June 30, 2020, no other activity had taken place in the Sescom JV Entity and the Sescom JV Entity had not
been incorporated.
Tamir
Biotechnology, Inc.
On
April 7, 2020, the Company entered into the Tamir Purchase Agreement with Tamir, pursuant to which the Company agreed to acquire
certain assets and liabilities of Tamir related to the discovery, development and testing of therapeutic products for the treatment
of diseases and conditions in humans, including all rights to Ranpirnase and use for antiviral therapy. The Tamir Transaction
closed on April 23, 2020.
The
Tamir Transaction closed upon the occurrence of the closing conditions contained in the Tamir Purchase Agreement. As aggregate
consideration for the acquisition, the Company paid $2.462
million in cash and issued an aggregate of 3,400,000
shares (the “Shares”) of Common
Stock to Tamir resulting in a total consideration of $20.2
million. $59
thousand and 340,000
Shares will be held in an escrow account
for a period of 18 months from closing to secure indemnification obligations of Tamir pursuant to the terms of the Tamir Purchase
Agreement. $4.5
million of the consideration was attributable
to research and development related inventory and most of the remaining amount reflected the cost of intangible assets.
Included
in the purchased assets and assumed liabilities was the assumption by the Company of a worldwide license to a private company
of certain Tamir technologies in the field of treatment, amelioration, mitigation or prevention of diseases or conditions of the
eye and its adnexa in return for certain development and sales milestone payments to be paid to Tamir. This license fee and the
right to receive future milestone payments (of up to $11 million assuming that certain milestones are reached) and royalties
(of up to $35
million based on net sales milestones),
were assumed by the Company in connection with the Tamir Purchase
Agreement together with a less than 10%
share interest. To date, no milestones
have been reached.
The
Company’s acquired right to Tamir’s intellectual property represents a single identifiable asset sourced from the
agreement. Therefore, all the fair value associated with the agreement is concentrated in one identifiable asset and is not considered
a business in accordance with ASC 805-10-55-5A. The Company therefore accounted for the right to Tamir’s intellectual property
and other assets acquired under the agreement as an acquisition of an asset and recognized $19.5
million as research and development expenses under ASC
730.
NOTE
7 – STOCK-BASED COMPENSATION
a.
|
Options Granted
to employees
|
The
table below summarizes the terms of options for the purchase of shares in the Company granted to employees and directors during
the period from January 1, 2020 to June 30, 2020:
SCHEDULE
OF STOCK OPTIONS GRANTED
|
|
No.
of
Options
Granted
|
|
|
Exercise
Price
|
|
|
Vesting
Period
|
|
Fair
Value at Grant
(in thousands)
|
|
|
Expiration
Period
|
Employees
|
|
|
359,450
|
|
|
$
|
2.99-$6.84
|
|
|
Quarterly over a period of two years
|
|
|
768
|
|
|
10
years
|
Directors
|
|
|
68,750
|
|
|
$
|
2.99-$4.70
|
|
|
91% on the one-year anniversary and the remaining 9% in three equal installments on the first, second and third year anniversaries
|
|
$
|
147
|
|
|
10
years
|
The
fair valuation of these option grants is based on the following assumptions:
SCHEDULE
OF VALUATION ASSUMPTIONS OF STOCK OPTIONS
|
|
During
the Period from
January 1, 2020 to
June 30, 2020
|
|
Value of one common share
|
|
$
|
2.99-$6.84
|
|
Dividend yield
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
82%-86
|
%
|
Risk free interest rate
|
|
|
0.48%-1.71
|
%
|
Expected term (years)
|
|
|
5.5.6
|
|
b.
|
Options Granted
to Non-Employees
|
The
table below summarizes all the options for the purchase of shares in the Company granted to consultants and service providers
during the period from January 1, 2020 to June 30, 2020:
SCHEDULE
OF STOCK OPTIONS GRANTED TO NON-EMPLOYEE
|
|
No.
of Options
Granted
|
|
|
Exercise
Price
|
|
|
Vesting
Period
|
|
Fair
Value at Grant
(in thousands)
|
|
|
Expiration
Period
|
Non-employees
|
|
|
42,500
|
|
|
$
|
2.99-$6.84
|
|
|
Quarterly
over a period of two
years
|
|
$
|
132
|
|
|
10
years
|
The
fair valuation of these option grants is based on the following assumptions:
SCHEDULE
OF VALUATION ASSUMPTIONS OF STOCK OPTIONS
|
|
During
the Period from
January 1, 2020
to June 30, 2020
|
|
Value of one common share
|
|
$
|
2.99-$6.84
|
|
Dividend yield
|
|
|
0
|
%
|
Expected stock price volatility
|
|
|
89
|
%
|
Risk free interest rate
|
|
|
0.73%-1.12
|
%
|
Expected term (years)
|
|
|
10
|
|
c.
|
Warrants and
Shares Issued to Non-Employees
|
The
fair value of Common Stock issued was the share price of the shares issued at the day of grant.
During
the six months ended June 30, 2020, the Company granted 193,178
warrants to several
consultants at an exercise price of between $3.14
and $5.34
per share and exercisable
for up to for three
years. The fair
value of those warrants as of the date of grant using the Black-Scholes valuation model was $377
thousand.
See
also Notes 4 and 5.
NOTE
8 – LOSS PER SHARE
The
following table sets forth the calculation of basic and diluted loss per share for the period indicated:
SCHEDULE
OF BASIC AND DILUTED LOSS PER SHARE
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
(in
thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing
operations attributable to Orgenesis Inc.
|
|
$
|
27,127
|
|
|
$
|
4,860
|
|
|
$
|
34,103
|
|
|
$
|
13,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss from discontinued
operations attributable to Orgenesis Inc. for loss per share
|
|
|
(6,721
|
)
|
|
|
341
|
|
|
|
(89,252
|
)
|
|
|
343
|
|
Adjustment of
redeemable non-controlling interest to redemption amount
|
|
|
-
|
|
|
|
611
|
|
|
|
414
|
|
|
|
853
|
|
Basic: Net income (loss) available
to common stockholders
|
|
|
(6,721
|
)
|
|
|
952
|
|
|
|
(88,838
|
)
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to Orgenesis
Inc. for loss per share
|
|
|
20,406
|
|
|
|
5,812
|
|
|
|
(54,735
|
)
|
|
|
14,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding
|
|
|
21,515,254
|
|
|
|
16,001,439
|
|
|
|
19,648,042
|
|
|
|
15,772,333
|
|
Loss per common
share from continuing operations
|
|
$
|
1.26
|
|
|
$
|
0.30
|
|
|
$
|
1.73
|
|
|
$
|
0.83
|
|
Net
(earnings) loss common share from discontinued operations
|
|
$
|
(0.31
|
)
|
|
$
|
0.06
|
|
|
$
|
(4.52
|
)
|
|
$
|
0.08
|
|
Net
(earnings) loss per share
|
|
$
|
0.95
|
|
|
$
|
0.36
|
|
|
$
|
(2.79
|
)
|
|
$
|
0.91
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
attributable to Orgenesis Inc. for loss per share
|
|
|
27,127
|
|
|
|
4,860
|
|
|
|
34,103
|
|
|
|
13,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income)
loss from discontinued operations attributable to Orgenesis Inc. for loss per share
|
|
|
(6,721
|
)
|
|
|
952
|
|
|
|
(88,838
|
)
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to Orgenesis
Inc. for loss per share
|
|
|
20,406
|
|
|
|
5,812
|
|
|
|
(54,735
|
)
|
|
|
14,365
|
|
Weighted average
number of shares used in the computation of basic and diluted loss per share
|
|
|
21,515,254
|
|
|
|
16,001,439
|
|
|
|
19,648,042
|
|
|
|
15,772,333
|
|
Net loss per
common share from continuing operations
|
|
$
|
1.26
|
|
|
$
|
0.30
|
|
|
$
|
1.73
|
|
|
$
|
0.83
|
|
Net (earnings)
loss per common share from discontinued operations
|
|
$
|
(0.31
|
)
|
|
$
|
0.06
|
|
|
$
|
(4.52
|
)
|
|
$
|
0.08
|
|
Net (earnings) loss per share
|
|
$
|
0.95
|
|
|
$
|
0.36
|
|
|
$
|
(2.79
|
)
|
|
$
|
0.91
|
|
NOTE
9 – REVENUES
Disaggregation
of Revenue
The
following table disaggregates the Company’s revenues by major revenue streams.
SCHEDULE
OF DISAGGREGATION OF REVENUE
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
(in
thousands)
|
|
Revenue stream:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cell
process development services
|
|
$
|
575
|
|
|
$
|
169
|
|
|
$
|
602
|
|
|
$
|
588
|
|
Point-of-care
services
|
|
|
1,174
|
|
|
|
962
|
|
|
|
3,025
|
|
|
|
962
|
|
Total
|
|
$
|
1,749
|
|
|
$
|
1,131
|
|
|
$
|
3,627
|
|
|
$
|
1,550
|
|
Contract
Assets and Liabilities
Contract
assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently
due from customers.
The
activity for trade receivables is comprised of:
SCHEDULE
OF ACTIVITY FOR TRADE RECEIVABLES
|
|
Six
Months Ended
|
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
(in
thousands)
|
|
Balance as of beginning of period
|
|
$
|
1,831
|
|
|
$
|
129
|
|
Additions
|
|
|
2,944
|
|
|
|
654
|
|
Collections
|
|
|
(828
|
)
|
|
|
(157
|
)
|
Exchange
rate differences
|
|
|
3
|
|
|
|
(8
|
)
|
Balance as of end of period
|
|
$
|
3,950
|
|
|
$
|
618
|
|
The
activity for contract liabilities is comprised of:
SCHEDULE
OF ACTIVITY FOR CONTRACT LIABILITIES
|
|
Six
Months Ended
|
|
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
|
|
(in
thousands)
|
|
Balance
as of beginning of period
|
|
$
|
325
|
|
|
$
|
56
|
|
Additions
|
|
|
597
|
|
|
|
518
|
|
Realizations
|
|
|
(760
|
)
|
|
|
(116
|
)
|
Balance
as of end of period
|
|
$
|
162
|
|
|
$
|
458
|
|