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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 June 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)

 

Nevada   98-0583166

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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:

 

Title of each class   Trading symbols(s)   Name of each exchange on which registered
Common Stock   ORGS   The Nasdaq Capital Market

 

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.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

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 August 6, 2020, there were 22,094,470 shares of registrant’s common stock outstanding

 

 

 

   

 

 

ORGENESIS INC.

FORM 10-Q

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

 

TABLE OF CONTENTS

 

  Page
   
PART I - FINANCIAL INFORMATION 3
   
ITEM 1. Financial Statements (unaudited) 3
   
  Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 3
   
  Condensed Consolidated Statements of Comprehensive Loss (Income) for the Three and Six Months Ended June 30, 2020 and 2019 5
     
  Condensed Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2020 and 2019 6
     
  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 10
   
  Notes to Condensed Consolidated Financial Statements 11
   
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 33
   
ITEM 4. Controls and Procedures 33
   
PART II - OTHER INFORMATION 34
   
ITEM 1. Legal Proceedings 34
   
ITEM 1A. Risk Factors 34
   
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
   
ITEM 3. Defaults Upon Senior Securities 34
   
ITEM 4. Mine Safety Disclosures 34
   
ITEM 5. Other Information 34
   
ITEM 6. Exhibits 35
   
SIGNATURES 36

 

 2 
 

 

PART I –FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in Thousands)

(Unaudited)

 

           
   As of 
   June 30,
2020
  

December 31,

2019

 
Assets          
           
CURRENT ASSETS:          
Cash and cash equivalents  $97,487   $107 
Restricted cash   608    467 
Accounts receivable, net   3,950    1,831 
Prepaid expenses and other receivables   1,885    382 
Grants receivable   206    204 
Inventory   176    136 
Current assets of discontinued operations, see Note 3   -    75,221 
Total current assets   104,312    78,348 
           
NON-CURRENT ASSETS:          
Deposits  $269   $299 
Loans to related party, see Note 6   3,211    2,623 
Property, plant and equipment, net   2,295    2,305 
Intangible assets, net   3,044    3,348 
Operating lease right-of-use assets   605    725 
Goodwill   4,658    4,812 
Other assets   802    35 
Total non-current assets   14,884    14,147 
TOTAL ASSETS  $119,196   $92,495 

 

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

 

 3 
 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Cont’d)

(U.S. Dollars in Thousands)

(Unaudited)

 

           
   As of 
   June 30,
2020
  

December 31,
2019

 
Liabilities and Equity          
           
CURRENT LIABILITIES:          
Accounts payable  $1,625   $5,549 
Accrued expenses and other payables   2,701    1,615 
Income tax payable   12,580    - 
Employees and related payables   1,664    1,672 
Advance payments on account of grant   376    523 
Short-term loans and current maturities of long- term loans   -    391 
Contract liabilities, mainly related party   162    325 
Current maturities of long-term finance leases   9    - 
Current maturities of operating leases   248    357 
Current maturities of convertible loans   393    416 
Current liabilities of discontinued operations, see Note 3   -    31,586 
Total current liabilities   19,758    42,434 
           
LONG-TERM LIABILITIES:          
Non-current operating leases  $363   $455 
Convertible loans   10,262    12,143 
Retirement benefits obligation   44    41 
Deferred taxes   20    58 
Long-term finance leases   76    - 
Other long-term liabilities   284    331 
Total long-term liabilities   11,049    13,028 
TOTAL LIABILITIES   30,807    55,462 
           
COMMITMENTS        
REDEEMABLE NON-CONTROLLING          
REDEEMABLE NON-CONTROLLING INTEREST OF DISCONTINUED OPERATIONS   -    30,955 
EQUITY:          

Common stock, par value $0.0001 per share, 145,833,334 shares authorized, 22,094,470 and 16,140,962 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

   2    2 
Additional paid-in capital   122,502    94,691 
Accumulated other comprehensive income   10    213 
Accumulated deficit   (34,280)   (89,429)
Equity attributable to Orgenesis Inc.   88,234    5,477 
Non-controlling interest   155    601 
Total equity   88,389    6,078 
TOTAL LIABILITIES AND EQUITY  $119,196   $92,495 

 

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

 

 4 
 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

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

(Unaudited)

 

                     
   Three Months Ended   Six Months Ended 
   June 30,
2020
  

June 30,

2019

   June 30,
2020
  

June 30,

2019

 
Revenues  $1,470   $575   $2,855   $994 
Revenues from related party   279    556    772    556 
Total revenues   1,749    1,131    3,627    1,550 
Cost of revenues   243    1,007    413    1,312 
Cost of research and development and research and development services, net   24,720    2,073    29,423    7,373 
Amortization of intangible assets   (52)   108    171    217 
Selling, general and administrative expenses   3,611    2,789    7,129    5,775 
Other income, net   (1)   (1)   (4)   (4)
Operating loss   26,772    4,845    33,505    13,123 
Financial expenses, net   337    47    666    148 
Loss from continuing operation before income taxes   27,109    4,892    34,171    13,271 
Tax expenses (income)   12    (19)   (35)   (68)
Net loss from continuing operation   27,121    4,873    34,136    13,203 
Net loss (income) from discontinued operations, net of tax, see Note 3   (6,721)   952    (88,760)   1,072 
Net loss (income)   20,400    5,825    (54,624)   14,275 

Net loss (income) attributable to non-controlling interests (including redeemable) from continuing operation

   6    (13)   (33)   (34)
Net income attributable to non-controlling interests (including redeemable) from discontinued operations   -    (611)   (492)   (729)
Net loss (income) attributable to Orgenesis Inc.   20,406    5,201    (55,149)   13,512 
                     
Loss (earnings) per share:                    
Basic from continuing operations  $1.26   $0.30   $1.73   $0.83 
Basic from discontinued operations  $(0.31)  $0.06   $(4.52)  $0.08 
Net loss (earnings) loss per share  $0.95   $0.36   $(2.79)  $0.91 
                     
Diluted from continuing operations  $1.26   $0.30   $1.73   $0.83 
Diluted from discontinued operations  $(0.31)  $0.06   $(4.52)  $0.08 
Net loss (earnings) per share  $0.95   $0.36   $(2.79)  $0.91 
                     
Weighted average number of shares used in computation of Basic and Diluted loss (earnings) per share:                    
Basic   21,515,254    16,001,439    19,648,042    15,772,333 
Diluted   21,515,254    16,001,439    19,648,042    15,772,333 
                     
Comprehensive loss (income):                    
Net loss from continuing operations  $27,121   $4,873   $34,136   $13,203 
Net loss (income) from discontinued operations, net of tax   (6,721)   952    (88,760)   1,072 
Other comprehensive loss (income)- translation adjustments   (247)   (188)   397    296 
Release of translation adjustment due to sale of subsidiary   -    -    (194)   - 
Comprehensive loss (income)   20,153    5,637    (54,421)   14,571 
Comprehensive income attributed to non-controlling interests (including redeemable) from continuing operations   6    (13)   (33)   (34)
Comprehensive income attributed to non-controlling interests (including redeemable) from discontinued operations   -    (611)   (492)   (729)
Comprehensive loss (income) attributed to Orgenesis Inc.  $20,159   $5,013   $(54,946)  $13,808 

 

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

 

 5 
 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Unaudited)

 

    1    2    3    4    5    6    7    8 
   Common Stock                     
   Number  

Par

Value

  

Additional

Paid-in

Capital

  

Accumulated

Other

Comprehensive

Income

(Loss)

  

Accumulated

Deficit

  

Equity

Attributed

to

Orgenesis

Inc.

  

Non-

Controlling

Interest

   Total 
Balance at January 1, 2020   16,140,962   $2   $94,691   $213   $(89,429)  $5,477   $601   $6,078 
Changes during the six months ended June 30, 2020:                                        
Stock-based compensation to employees and directors   -    -    910    -    -    910    -    910 
Stock-based compensation to service providers   **270,174   *-   787    -    -    787    -    787 
Stock-based compensation for Tamir purchase agreement, (see Note 6)   3,400,000    *-   17,748              17,748    -    17,748 
Exercise of options   83,334    *-   300    -    -    300    -    300 
Beneficial conversion feature of convertible loans   -    -    42    -    -    42    -    42 
Issuance of shares and warrants   2,200,000    

*- 

   8,438    -    -    8,438    -    8,438 
Sale of subsidiaries   -    -    -    -    -    -    (413)   (413)
Adjustment to redemption value of redeemable non-controlling interest   -    -    (414)   -    -    (414)   -    (414)
Comprehensive income (loss) for the period   -    -    -    (203)   55,149    54,946    (33)   54,913 
Balance at June 30, 2020   22,094,470   $2   $122,502   $10   $(34,280)  $88,234    155    88,389 

 

(*) represent an amount lower than $ 1 thousand
(**) out of which 135,000 shares have additional restrictions on transfer until services have been provided.

 

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

 

 6 
 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Unaudited)

 

    1    2    3    4    5    6    7    8 
   Common Stock                     
   Number  

Par

Value

  

Additional

Paid-in

Capital

  

Accumulated

Other

Comprehensive

Income (Loss)

  

Accumulated

Deficit

  

Equity

Attributed

to

Orgenesis

Inc.

  

Non-

Controlling

Interest

   Total 
Balance at January 1, 2019   15,540,333   $2   $90,597   $669   $(65,163)  $26,105   $645   $26,750 
Changes during the six months ended June 30, 2019:                                        
Stock-based compensation to employees and directors   -    -    1,466    -    -    1,466    31    1,497 
Stock-based compensation to service providers   50,000    *-   467    -    -    467    -    467 
Stock based Compensation for JV collaborations   525,000    *-    2,641    -    -    2,641    -    2,641 
Adjustment to redemption value of redeemable non-controlling interest   -    -    (853)   -    -    (853)   -    (853)
Issuance of warrants with respect to convertible loans   -    -    97    -    -    97    -    97 
Comprehensive loss for the period   -    -    -    (296)   (13,512)   (13,808)   (37)   (13,845)
Balance at June 30, 2019   16,115,333   $2   $94,415   $373   $(78,675)  $16,115   $639   $16,754 

 

(*) represent an amount lower than $ 1 thousand

 

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

 

 7 
 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Unaudited)

 

    1    2    3    4    5    6    7    8 
   Common Stock                     
   Number   Par Value   Additional Paid-in Capital  

Accumulated Other Comprehensive Income

(Loss)

   Accumulated Deficit   Equity Attributed to Orgenesis Inc.   Non- Controlling Interest   Total 
Balance at April 1, 2020   18,361,050   $2   $103,623   $(237)  $(13,874)  $(89,514)  $149   $89,663 
Changes during the three months ended June 30, 2020:                                        
Stock-based compensation to employees and directors   -    -    284    -    -    284    -    284 
Stock-based compensation to service providers   **250,086   *-   547    -    -    547    -    547 
Stock-based compensation for Tamir Purchase Agreement, (see Note 6)   3,400,000    *-   17,748    -    -    17,748    -    17,748 
Exercise of options   83,334    *-   300    -    -    300    -    300 
Comprehensive income (loss) for the period   -    -    -    247    (20,406)   (20,159)   6    (20,153)
Balance at June 30, 2020

22,094,470   $2   $122,502   $10   $(34,280)  $88,234   $155   $88,389 

 

((*)) represent an amount lower than $ 1 thousand
((**)) out of which 135,000 shares have additional restrictions on transfer until services have been provided.

 

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

 

 8 
 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Unaudited)

 

    1    2    3    4    5    6    7    8 
   Common Stock                     
   Number  

Par

Value

  

Additional

Paid-in

Capital

  

Accumulated

Other

Comprehensive

Income

  

Accumulated

Deficit

  

Equity

Attributed

to

Orgenesis

Inc.

  

Non-

Controlling

Interest

   Total 
Balance at April 1, 2019   16,102,000   $2   $94,049   $185   $(73,474)  $20,762   $639   $21,401 
Changes during the three months ended June 30, 2019:                                        
Stock-based compensation to employees and directors   -    -    728    -    -    728    11    739 
Stock-based compensation to service providers   13,333    *   152    -    -    152    -    152 
Adjustment to redemption value of redeemable non-controlling interest   -    -    (611)   -    -    (611)   -    (611)
Issuance of warrants with respect to convertible loans   -    -    97    -    -    97    -    97 
Comprehensive income (loss) for the period   -    -    -    188    (5,201)   (5,013)   (11)   (5,024)
Balance at June 30, 2019   16,115,333   $2   $94,415   $373   $(78,675)  $16,115   $639   $16,754 

 

(*) represent an amount lower than $ 1 thousand

 

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

 

 9 
 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (*)

(U.S. Dollars in Thousands)

(Unaudited)

 

(*)   (*)    (*) 
   Six Months Ended 
   June 30,
2020
   June 30,
2019
 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income (loss)  $54,624   $(14,275)
Adjustments required to reconcile net loss to net cash used in operating activities:          
Stock-based compensation   1,697    1,964 
Stock-based compensation to for strategic collaborations   -    2,641 
Stock-based compensation for Tamir Purchase Agreement, see Note 4 and Note 6   17,048    - 
Capital loss (gain), net   14    (5)
Gain on disposal of subsidiaries   (102,594)   - 
Depreciation and amortization expenses   739    1,907 
Effect of exchange differences on inter-company balances   124    103 
Net changes in operating leases   (9)   (700)
Interest expenses accrued on loans and convertible loans (including amortization of beneficial conversion feature)   201    58 
Changes in operating assets and liabilities:          
Increase in accounts receivable   (2,453)   (3,678)
Increase in inventory   (123)   (571)
Increase in other assets   (20)   - 
Decrease (increase) in prepaid expenses and other accounts
receivable
   (512)   47 
Increase (decrease) in accounts payable   (4,748)   1,803 
Increase (decrease) in accrued expenses and other payables   13,451    (111)
Increase in employee and related payables   12    62 
Increase (decrease) in contract liabilities   (64)   2,198 
Change in advance payments and receivables on account of
grant, net
   (156)   (49)
Increase (decrease) in deferred taxes liability   (65)   438 
Net cash used in operating activities  $(22,834)  $(8,168)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Increase in loan to JV with a related party   (500)   (1,000)
Sale of property and equipment   4    80 
Purchase of property and equipment   (974)   (2,802)
Proceed from sale of subsidiaries   104,222    - 
Repayment (investment) in short term deposits   20   (225)
Net cash provided by (used in) investing activities  $102,772   $(3,947)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Increase in redeemable non-controlling interests received from GPP   -    6,600 
Proceeds from issuance of shares and warrants (net of transaction costs)   8,738    - 
Proceeds from issuance of convertible loans (net of transaction costs)   250    7,500 
Repayment of convertible loans and convertible bonds   (2,400)   - 
Repayment of short and long-term debt   (430)   (304)
Other financing activities   1    - 
Net cash provided by financing activities  $6,159   $13,796 
           
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  $86,097   $1,681 
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH   (43)   (25)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD   12,041    14,999 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD (*)  $98,095   $16,655 
           
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES          
Finance leases of property, plant and equipment  $363   $- 
Acquisition of other asset  $

700

   $- 
Right-of-use assets obtained in exchange for new operating lease liabilities, net  $231   $- 
Purchase of property, plant and equipment included in accounts payable  $200   $- 

 

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

  

(*) See Note 3 for information regarding the discontinued operation.

 

 

 10 
 

 

ORGENESIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Period Ended June 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”). 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.

 

 11 
 

 

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.

 

b. Liquidity

 

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.

 

 12 
 

 

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.

 

 13 
 

 

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.

 

 14 
 

 

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 

 

 15 
 

 

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.

 

 16 
 

 

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.

 

 17 
 

 

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.

 

 18 
 

 

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.

 

 19 
 

 

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.

 

 20 
 

 

 

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:

 

 

 

   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:

 

  

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:

 

   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.

 

 21 
 

 

NOTE 8 – LOSS PER SHARE

 

The following table sets forth the calculation of basic and diluted loss per share for the period indicated:

 

 

   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   $(