UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___________ to ___________

Commission file number: 001-38416

ORGENESIS INC.

(Exact name of registrant as specified in its charter)

20271 Goldenrod Lane

Germantown, MD 20876

(Address of principal executive offices) (Zip Code)

(480) 659-6404

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 ☒

As of November 5, 2020, there were 24,156,183 shares of registrant’s common stock outstanding.

ORGENESIS INC.

FORM 10-Q

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

TABLE OF CONTENTS

PART I –FINANCIAL INFORMATION

Item 1. Financial Statements

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in Thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Cont’d)

(U.S. Dollars in Thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(U.S. Dollars in Thousands, Except Share and Loss Per Share Amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (*)

(U.S. Dollars in Thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Period Ended September 30, 2020 and 2019

(Unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS

a. General

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”).

The Company is committed to the validation, adoption and development of systems, technologies and processes for mobile processing unit and labs (“OMPUL”). OMPULs are intended to be used and/or distributed through Company’s point of care network of partners, collaborators and joint ventures for the purpose of validation, development, performance of clinical trials, manufacturing and/or processing of potential or approved cell or gene therapy products in a safe, reliable and cost-effective manner. This provides an industrial solution for any clinical institution in the world to provide more therapies at the point of care.

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, thus enabling wide-scale access to these life-changing treatments.

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 the vast majority 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).

Since the Masthercell Sale, the Company has entered into restated and updated joint venture agreements with some of its joint venture partners and new joint venture agreements with new partners in various jurisdictions. This has allowed the Company to grow its infrastructure and expand its processing sites into new markets and jurisdictions. In addition, the Company has engaged some of these joint venture partners to perform research and development services to improve the Orgenesis Background IP. It also has allowed the Company the manpower and financial resources to focus on manufacturing and rolling out OMPULs to be used and/or distributed through Company’s point of care network of partners, collaborators and joint ventures.

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:

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, Atvio and the Korean subsidiary, 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 $2.5 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. (See Note 6).

See Note 10 regarding the material definitive agreement with Koligo Therapeutics Inc.

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.

b. Liquidity

As of September 30, 2020, the Company has accumulated losses of approximately $37 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 these 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).

Reclassifications

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These reclassifications had no net effect on previously reported results of operations.

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 $18.7 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.

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.

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 OPERATIONS

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

The following table is a summary of the assets and liabilities of discontinued operations (in thousands):

The following table represents the components of the cash flows from discontinued operations (in thousands):

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 

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 in the amount of $0.8 million.

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 nine months ended September 30, 2020, the Company issued 270,174 shares of common stock to service providers. As of September 30, 2020, 82,500 shares have additional restrictions on transfer until such services have been provided.

During the nine months ended September 30, 2020, one option holder exercised options to purchase 83,334 shares of common stock at an exercise price of $3.60, 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 nine months ended September 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 September 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.

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 in India. 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. $1,051 Thousand for these services was recognized during the nine months ended September 30, 2020 as revenue.

Apart from the above, there was no activity in the India joint venture during the nine months ended September 30, 2020 (See Note 10).

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 U.S. subsidiary of Hemo (“Hemo-LLC”), entered into a loan agreement. During the nine months ended September 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 and research and development services net.

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 nine months ended September 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 and research and development services net.

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”). During the third quarter of 2020, the Company and Theracell entered into an amended and restated joint venture agreement that supersedes the Greek JVA (the “new Greek JVA”). Pursuant to the new Greek JVA, the parties will collaborate in the clinical development and commercialization of the Company’s products (hereinafter, the “Company Products”) in Greece, Turkey, Cyprus, the Balkan countries and Israel (the “Territory”) and the clinical development and commercialization of Theracell’s products (hereinafter, the “Theracell Products”) worldwide (the “Theracell Project”). Under the new Greek JVA, Theracell will be responsible to obtain required marketing approvals for the Theracell Products and the Company Products in the Territory based on Clinical Trials (as defined in the Greek JVA) and regulatory requirements, and be responsible for procuring and funding the clinic elements of the Clinical Trials and regulatory approvals for the Theracell Products and the Company Products in the Territory. The Company will be responsible to fund the production costs of the Theracell Products and the Company Products required for the Clinical Trials within the Territory and either supply the Theracell Products and/or the Company Products for the Clinical Trials or cover the relevant production/processing costs.

In addition, each of the parties will be responsible to provide the Greek JV Entity (as defined below) with funding in an amount of at least five million US Dollars ($5,000,000), to cover the operation costs of the Greek JV Entity. Such additional investments may be made in the form of an equity investment for additional shares in the Greek JV Entity, a convertible loan, and/or procured services (the “Additional Investment”), if required (as determined by the board of directors) in order to maintain the activity of the Greek JV Entity or to maintain such party’s pro-rata holding percentage in the share capital of the Greek JV Entity, in any future financing round.

The Company may choose to provide the funding required as part of its obligations under the new Greek JVA as well as the Additional Investment by engaging Theracell or the Greek JV Entity to perform activities, and research and development services to create, optimize, improve the Orgenesis Background IP, technology, processes, system, and validation, (“ORGS Procured Services”) in an amount of up to fifteen million US Dollars ($15,000,000). The ORGS Procured Services will be subject to and will be carried out by Theracell or the Greek JV Entity (as applicable) in accordance with a separate Master Services Agreement (“MSA”). The Company and Theracell executed such MSA in the third quarter of 2020, pursuant to which Theracell will provide the Company with services in the amount of $11.5 million according to an approved work program. All results of the ORGS Procured Services shall be owned by the Company. During the third quarter of 2020, Theracell provided such services in the amount of $1,500 thousand, which are reflected in R&D and R&D services.

Theracell also agreed to grant to the Greek JV Entity, during the term, an exclusive, sublicensable right and license to the Theracell Background IP as required solely to manufacture, distribute and market and sell Theracell Products within the Territory, subject and in accordance with the terms of a separate license agreement to be signed between Theracell and the Greek JV Entity (“Theracell License Agreement”). In consideration of the rights and the Theracell licenses to be granted to the Greek JV Entity during the Term under the Theracell License Agreement, Theracell shall receive royalty in an amount of up to ten percent (10%) of the net sales generated by the Greek JV Entity and/or its sublicensees (as applicable) with respect to the Theracell Products, as to be more fully stipulated and set forth under the Theracell License Agreement; and grant the Company an exclusive, sublicensable right and license to the Theracell Background IP as required solely to manufacture, distribute and market and sell the Theracell Products outside of the Territory under the terms of separate license agreement to be entered into between Theracell and the Company , in consideration for payment of a royalty in an amount of up to ten percent (10%) of the net sales generated by the Company and/or its sublicensees (as applicable) with respect to the Theracell Products outside of the Territory.

The Company agreed to grant to the Greek JV Entity, during the term, an exclusive, sublicensable, royalty bearing, right and license to the Orgenesis Background IP as required solely to manufacture, distribute and market and sell the Company Products within the Territory, subject and in accordance with the terms of a separate license agreement to be signed between the Company and the Greek JV Entity (“Orgenesis License Agreement”). In consideration of the rights and the Orgenesis license to be granted to the Greek JV Entity during the Term under the Orgenesis License Agreement, the Company shall receive royalty in an amount of ten percent (10%) of the net sales generated by the Greek JV Entity and/or its sublicensees (as applicable) with respect to the Company Products.

Once the Greek JV Entity is profitable, the Company shall be entitled to an additional share of fifteen percent (15%) of the Greek JV Entity’s contribution margin over and above all rights granted pursuant to the Company’s participating interest in the Greek JV.

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 new Greek JVA. 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 three members, with one member appointed by each party and independent member to be mutually appointed. 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 Greek JV Entity for a consideration to be calculated in accordance with a valuation of the JV Entity to be determined by an independent third party expert to be mutually selected by the parties.

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 nine months ended September 30, 2020, the Company recognized point of care service revenue in the amount of $1,068 thousand.

During the nine months ended September 30, 2020, the Company recorded expenses related to activities in the Territory in the amount of $896 thousand (See Note 10).

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 nine months ended September 30, 2020, the Company recognized point of care services revenue in the amount of $1,143 thousand.

During January 2020, the U.S. Subsidiary and Broaden entered into a convertible loan agreement pursuant to which the Company agreed to lend Broaden 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 nine months ended September 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 September 30, 2020, the Broaden JV Entity had not been incorporated (See Note 10).

Cure Therapeutics

During 2019, the Company entered into a master service agreement with Cure Therapeutics (“CT”) whereby the Company, subject to mutually agreed timing and definition of the scope of services, will provide point-of-care services to CT during 2020 and 2021. During the nine months ended September 30, 2020, the Company recognized point of care services revenue in the amount of $1,029 thousand.

As described in Note 12 to the financial statements as of December 31, 2019, on May 7, 2018, the Company and CT entered into a collaboration agreement for the development of therapies based on liver and NK cells. An amount of $1,827 thousand was charged during the nine months ended September 30, 2020. As of September 30, 2020, the development project had not been completed. As part of the agreement, Cure Therapeutics subcontracted development and contract manufacturing activities to the Korean subsidiary. An amount of $1,035 thousand was recognized as revenues by the Korean subsidiary during the nine months ended September 30, 2020.

In addition, during the third quarter of 2020, the Company and CT entered into a joint venture agreement (“CT JVA”), pursuant to which the parties will collaborate in point of care (“POC”), processing, regulatory and governmental affairs and therapy development and commercialization of Company’s and CT’s products (excluding HEPA and NK cells products) within the territories of South Korea and Japan (the “CT Territory”).

The parties intend to pursue the CT JVA through a joint venture by forming a JV entity (the “CT JV Entity”). Until the CT JV Entity is formed, all JV activities are being carried out by CT. The Company by itself, or together with a designee, will hold a 50% participating interest in the CT JV Entity, with the remaining 50% participating interest being held by CT or its affiliate following the parties’ contributions to the CT JV Entity. The CT JV Entity will have a steering committee that will act as the board of directors of the CT JV Entity and shall be composed of a total of three members, with one member appointed by each party and an independent industry expert member to be mutually appointed. 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 CT to transfer to the Company the entirety of CT’s equity interest in the CT JV Entity for a consideration to be calculated in accordance with a valuation of the CT JV Entity to be determined by an independent third party expert to be mutually selected by the parties.

As of September 30, 2020, the CT JV entity had not yet been incorporated.

Under the CT JVA, CT will be responsible to obtain required marketing approvals for the CT and Company Products in the CT Territory based on clinical trials and regulatory requirements.

In addition, each of the Parties will be responsible to provide the CT JV with funding in an amount of at least ten million US Dollars ($10,000,000), to cover the operation costs of the CT JV, half of which may be in the form of in kind contributions. Company’s such additional investments may be made in the form of an equity investment for additional shares in the CT JV, a convertible loan, and/or procured services (the “Additional Investment”), if required (as determined by the board of directors) in order to maintain the activity of the CT JV or to maintain such Party’s pro-rata holding percentage in the share capital of the CT JV, in any future financing round.

The Company may choose to provide the funding required as part of its obligations under the CT JVA by engaging CT or the CT JV to perform services, and research and development services to create, optimize, improve the Orgenesis Background IP, technology, processes, system, and validation, (“CT-ORGS Procured Services”). The CT-ORGS Procured Services will be subject to, and will be carried out by CT or the CT JV (as applicable) in accordance with a separate Master Services Agreement (the “CT MSA”). All results of the ORGS Procured Services shall be owned by Company. The Company and CT executed such CT MSA in the third quarter of 2020, pursuant to which CT agreed to provide the Company with services in the amount of $4.5 million according to an approved work program. The Company did not recognize any such procured services in the third quarter of 2020 (See Note 10).

CT also agreed to grant to the CT JV, during the term, an exclusive, sublicensable right and license to the CT Background IP (as defined in the CT MSA) as required solely to manufacture, distribute and market and sell CT Products (as defined in the CT MSA) within the CT Territory, subject and in accordance with the terms of a separate license agreement to be signed between CT and the CT JV (“CT License Agreement”). In consideration of the rights and the CT licenses to be granted to the CT JV during the Term under the CT License Agreement, CT shall receive royalty in an amount of up to ten percent (10%) of the net sales generated by the CT JV and/or its sublicensees (as applicable) with respect to the CT Products, as to be more fully stipulated and set forth under the CT License Agreement; and grant Company an exclusive, sublicensable right and license to the CT Background IP as required solely to manufacture, distribute and market and sell CT Products outside of the CT Territory under the terms of a separate license agreement to be entered into between CT and the Company, in consideration for payment of a royalty in an amount of up to ten percent (10%) of the net sales generated by the Company and/or its sublicensees (as applicable) with respect to the CT Products outside of the CT Territory.

The Company agreed to grant to the CT JV, during the term, an exclusive, sublicensable, royalty bearing, right and license to the Orgenesis Background IP as required solely to manufacture, distribute and market and sell Orgenesis Products within the CT Territory, subject and in accordance with the terms of a separate license agreement to be signed between Orgenesis and the CT JV (“CT-Orgenesis License Agreement”). In consideration of the rights and the Orgenesis license to be granted to the CT JV during the Term under the CT-Orgenesis License Agreement, Orgenesis shall receive royalty in an amount of ten percent (10%) of the net sales generated by the CT JV and/or its sublicensees (as applicable) with respect to the Orgenesis Products.

Once the CT JV is profitable, the Company shall be entitled to an additional share of fifteen percent (15%) of the CT JV’s Audited GAAP profit after tax, over and above all rights granted pursuant to the Company’s participating interest in the CT JV.

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 of 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 nine months ended September 30, 2020, the Company recorded research and development expenses related to the development plan in the amount of $800 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 (“Mircod 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 Mircod 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 Mircod 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 September 30, 2020, the loan agreement was not executed.

HekaBio K.K

As described in Note 12 to the financial statements as of December 31, 2019, on July 10, 2018, the Company and HekaBio K.K. (“HB”), a corporation organized under the laws of Japan entered into a joint venture agreement (the “HB JVA”) pursuant to which the parties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic products in Japan, and on October 3, 2018, the Company entered into a license agreement with the joint venture company pursuant to the HB JVA.

During the third quarter of 2020, the Company and HV agreed to terminate such license agreement.

Apart from the above, as of September 30, 2020, no material activity had begun in the HB JVA.

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 September 30, 2020, the Company had advanced $450 thousand to Kidney Cure on account of its obligations under the Kidney Cure JVA.

Apart from the above, as of September 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 (See Note 10).

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 September 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.

As aggregate consideration for the acquisition, the Company paid $2.5 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 based on the Company’s share price at the closing date. $59 thousand and 340,000 Shares are being 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 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. Because substantially all (more than 90%) of the fair value of the gross assets acquired are concentrated in a single asset being the right to Tamir’s intellectual property and related assets (“IPR&D”), the Company determined that the acquisition is not considered a business in accordance with ASC 805-10-55-5A. Therefore, the Company accounted the transaction as an asset acquisition. The fair value associated with Tamir’s IPR&D in the amount of $19.5 million was charged to research and development expenses under ASC 730. The remaining amount was attributed to the above-mentioned share in a private company, which is presented in the balance sheet as long term “other assets.

Extracellular Vesicle (“EV”) Technology License

During the third quarter of 2020, the Company purchased the IP and related EV technology from a service provider (the “Service Provider”) pursuant to an EV agreement (the “EV agreement”). According to the EV agreement, the Service Provider sold to the Company all of its rights in the EV technology that it had produced, in the amount of $500 thousand, to be paid in equal installments over the next 12 months from September 2020. During September 2020, the Company paid $50 thousand to the Service Provider. The $500 thousand were recorded in R&D expenses. In addition, the Service Provider granted the Company an exclusive worldwide license to use the EV IP technology for any purpose.

NOTE 7 – STOCK-BASED COMPENSATION

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 September 30, 2020:

SCHEDULE OF STOCK OPTIONS GRANTED

The fair valuation of these option grants is based on the following assumptions:

SCHEDULE OF VALUATION ASSUMPTIONS OF STOCK OPTIONS

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 September 30, 2020:

SCHEDULE OF STOCK OPTIONS GRANTED

The fair valuation of these option grants is based on the following assumptions:

SCHEDULE OF VALUATION ASSUMPTIONS OF STOCK OPTIONS

The fair value of Common Stock issued was the share price of the shares issued at the day of grant.

During the nine months ended September 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