Quarterly Report (10-q)

 

 

 

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 March 31, 2022

 

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)

 

[phone]

(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 May 23, 2022, there were 24,820,756 shares of registrant’s common stock outstanding

 

 

 

 

 

ORGENESIS INC.

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

 

TABLE OF CONTENTS

 

		Page
PART I - FINANCIAL INFORMATION		3
ITEM 1	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Loss and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021	5
	Condensed Consolidated Statements of Changes in Equity as of March 31, 2022 and December 31, 2021	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	8
	Notes to Condensed Consolidated Financial Statements	9
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	23
ITEM 4.	Controls and Procedures	24
PART II - OTHER INFORMATION		24
ITEM 1.	Legal Proceedings	24
ITEM 1A.	Risk Factors	24
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
ITEM 3.	Defaults Upon Senior Securities	25
ITEM 4.	Mine Safety Disclosures	25
ITEM 5.	Other Information	25
ITEM 6.	Exhibits	26
SIGNATURES		27

 

2

 

 

PART I –FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

 

		As of
		March 31, 2022				December 31, 2021
Assets
CURRENT ASSETS:
Cash and cash equivalents		$	1,123			$	5,473
Restricted cash			490				501
Accounts receivable, net *			17,075				15,245
Prepaid expenses and other receivables			1,438				1,188
Convertible Loan receivables-related parties			2,969				3,064
Loans receivable			802				-
Grants receivable			-				169
Inventory			113				118
Total current assets			24,010				25,758
NON-CURRENT ASSETS:
Deposits		$	358			$	363
Investments in and loans to associated entities			1,574				584
Loans receivable			-				821
Property, plant and equipment, net			11,104				10,271
Intangible assets, net			11,539				11,821
Operating lease right-of-use assets			886				1,015
Goodwill			8,329				8,403
Other assets			738				805
Total non-current assets			34,528				34,083
TOTAL ASSETS		$	58,538			$	59,841

 

*	Including related party in the amount of $1,538 thousand and $1,972 thousand as of March 31, 2022 and as of December 31, 2021, respectively.

 

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, except share and per share amounts)

(Unaudited)

 

		As of
		March 31, 2022				December 31, 2021
Liabilities and Equity
CURRENT LIABILITIES:
Accounts payable		$	6,933			$	5,238
Accrued expenses and other payables			1,076				485
Income tax payable			91				54
Employees and related payables			2,041				1,907
Advance payments on account of grant			1,216				1,238
Contract liabilities			70				59
Current maturities of finance leases			18				18
Current maturities of operating leases			451				481
Current maturities of convertible loans			3,357				5,885
Total current liabilities			15,253				15,365
LONG-TERM LIABILITIES:
Non-current operating leases		$	461			$	561
Convertible loans			7,544				4,854
Retirement benefits obligation			105				101
Non-current finance leases			36				41
Other long-term liabilities			282				288
Total long-term liabilities			8,428				5,845
TOTAL LIABILITIES			23,681				21,210
EQUITY:
Common stock of $0.0001 par value: Authorized at March 31, 2022 and December 31, 2021: 145,833,334 shares; Issued at March 31, 2022 and December 31, 2021: 25,107,323 and 24,567,366 shares, respectively; Outstanding at March 31, 2022 and December 31, 2021: 24,820,756 and 24,280,799 shares, respectively.			3				3
Additional paid-in capital			146,290				145,916
Accumulated other comprehensive income			56				207
Treasury stock, 286,567 shares as of March 31, 2022 and December 31, 2021			(1,266	)			(1,266	)
Accumulated deficit			(110,381	)			(106,372	)
Equity attributable to Orgenesis Inc.			34,702				38,488
Non-controlling interest			155				143
Total equity			34,857				38,631
TOTAL LIABILITIES AND EQUITY		$	58,538			$	59,841

 

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

 

4

 

 

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

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

(Unaudited)

 

		Three Months Ended
		March 31, 2022				March 31, 2021
POC development services		$	5,689			$	7,987
POC development services from related party			635				1,157
Cell process development services and hospital services			888				245
Total revenues			7,212				9,389
Cost of revenues cell process development services and hospital services			714				770
Cost of development services and research and development expenses			6,651				5,357
Amortization of intangible assets			232				238
Selling, general and administrative expenses			2,851				2,968
Operating loss (income)			3,236				(56	)
Other income, net			-				(25	)
Financial expenses, net			213				233
Share in net loss of associated companies			547				15
Loss before income taxes			3,996				167
Tax (income) expense			1				(2	)
Net loss			3,997				165
Net loss attributable to non-controlling interests			12				54
Net loss attributable to Orgenesis Inc.			4,009				219
Loss per share:
Basic and diluted		$	0.16			$	0.01
Weighted average number of shares used in computation of Basic and Diluted loss per share:
Basic and diluted			24,600,954				24,192,951
Comprehensive loss:
Net loss		$	3,997			$	165
Other Comprehensive loss – Translation adjustment			151				277
Comprehensive loss			4,148				442
Comprehensive loss attributed to non-controlling interests			12				54
Comprehensive loss attributed to Orgenesis Inc.		$	4,160			$	496

 

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)

 

		Number				Par Value				Additional Paid-in Capital				Accumulated Other Comprehensive Income				Treasury Shares				Accumulated Deficit				Equity Attributable to Orgenesis Inc.				Non- Controlling Interest				Par Value
		Common Stock
		Number				Par Value				Addi- tional Paid-in Capital				Accumulated Other Compre- hensive Income (Loss)				Treasury Shares				Accumu- lated Deficit				Equity Attri- buted to Orgenesis Inc.				Non- Controlling Interest				Total
Balance at January 1, 2022			24,280,799			$	3			$	145,916			$	207			$	(1,266	)		$	(106,372	)		$	38,488			$	143			$	38,631
Changes during the three months ended March 31, 2022:
Stock-based compensation to employees and directors			-				-				243				-				-				-				243				-				243
Stock-based compensation to service providers			-				-				25				-				-				-				25				-				25
Exercise of options			510,017				*				6				-				-				-				6				-				6
Issuance of shares related to acquisition of Mida			29,940				*				100				-				-				-				100				-				100
Comprehensive income (loss) for the period			-				-				-				(151	)			-				(4,009	)			(4,160	)			12				(4,148	)
Balance at March 31, 2022			24,820,756			$	3			$	146,290			$	56			$	(1,266	)		$	(110,381	)		$	34,702			$	155			$	34,857

 

*	Represents an amount lower than $1 thousand

 

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)

 

		Common Stock
		Number				Par Value				Addi- tional Paid-in Capital				Receipts on Account of Shares to be Allotted				Accumulated Other Compre- hensive Income (Loss)				Treasury Shares				Accumu- lated Deficit				Equity Attri- buted to Orgenesis Inc.				Non- Controlling Interest				Total
Balance at January 1, 2021			24,167,784			$	3			$	140,397			$	-			$	748			$	(250	)		$	(88,319	)		$	52,579			$	149			$	52,728
Changes during the three months ended March 31, 2021:
Stock-based compensation to employees and directors			-				-				320				-				-				-				-				320				-				320
Stock-based compensation to service providers			-				*				244				-				-				-				-				244				-				244
Exercise of options			8,750				*				50				-				-				-				-				50				-				50
Issuance of Shares due to exercise of warrants			237,563				*				1,438				424				-				-				-				1,862				-				1,862
Repurchase of treasury stock			(2,306	)			-				-				-				-				(10	)			-				(10	)			-				(10	)
Comprehensive income (loss) for the period			-				-				-				-				(277	)			-				(219	)			(496	)			54				(442	)
Balance at March 31, 2021			24,411,791			$	3			$	142,449			$	424			$	471			$	(260	)		$	(88,538	)		$	54,549			$	203			$	54,752

 

*	Represents 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 CASH FLOWS

(U.S. Dollars in thousands)

(Unaudited)

 

		Three Months Ended
		March 31, 2022				March 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(3,997	)		$	(165	)
Adjustments required to reconcile net loss to net cash used in operating activities:
Stock-based compensation			268				564
Capital loss, net			-				19
Share in loss of associated entities, net			547				15
Depreciation and amortization expenses			474				453
Effect of exchange differences on inter-company balances			2				45
Net changes in operating leases			(1	)			(3	)
Interest expenses accrued on loans and convertible loans			147				234
Changes in operating assets and liabilities:
Increase in accounts receivable			(1,917	)			(8,275	)
Decrease (increase) in inventory			4				(20	)
Decrease (increase) in other assets			2				(5	)
Decrease in prepaid expenses and other accounts receivable			340				351
Increase in accounts payable			554				1,510
Increase in accrued expenses and other payables			468				202
Increase in employee and related payables			138				201
Increase in contract liabilities			10				-
Change in advance payments and receivables on account of grant, net			169				327
Net cash used in operating activities		$	(2,792	)		$	(4,547	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of convertible loan to related party partners			138				-
Increase in loans to associated entities			(1,549	)			-
Purchase of property and equipment			(902	)			(530	)
Cash acquired from acquisition of Mida			702				-
Investment in long-term deposits			(2	)			(9	)
Net cash used in investing activities		$	(1,613	)		$	(539	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of treasury stock			-				(10	)
Proceeds from issuance of shares due to exercise of options and warrants (net of transaction costs)			6				1,488
Proceeds from receipts on account of shares to be allotted			-				424
Repayment of short and long-term debt			(5	)			(4	)
Net cash provided by financing activities		$	1			$	1,898
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		$	(4,404	)		$	(3,188	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH			43				(68	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD			5,974				45,568
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD		$	1,613			$	42,312
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES
Increase (decrease) in accounts payable related to purchase of property, plant and equipment		$	(141	)		$	155
Issuance of common stocks for the acquisition of Mida (see note 7)		$	100			$	-

 

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

 

8

 

 

ORGENESIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

a.

General

 

Orgenesis Inc., a Nevada corporation, is a global biotech company working to unlock the potential of cell and gene therapies (“CGTs”) in an affordable and accessible format.

 

CGTs can be centered on autologous (using the patient’s own cells) or allogenic (using master banked donor cells) and are part of a class of medicines referred to as advanced therapy medicinal products (“ATMP”). The Company mostly focused on autologous therapies, with processes and systems that are developed for each therapy using a closed and automated processing system approach that is validated for compliant production near the patient for treatment of the patient at the point of care (“POCare”). This approach has the potential to overcome the limitations of traditional commercial manufacturing methods that do not translate well to commercial production of advanced therapies due to their cost prohibitive nature and complex logistics to deliver such treatments to patients (ultimately limiting the number of patients that can have access to, or can afford, these therapies).

 

To achieve these goals, the Company has developed a Point of Care Platform (“POCare Platform”) comprised of three enabling components: (i) a pipeline of licensed POCare advanced therapies that are designed to be processed and produced, (ii) automated closed POCare technology systems, and (iii) a collaborative worldwide network of POCare research institutes and hospitals (“POCare Network”).

 

The POCare Platform relies in particular on the development of its own production capacity, known as “POCare Services”, whose goal is to ensure that therapies are accessible at the point of treatment (the “POCare Center”). POCare Services, which have been expanding worldwide, are based on a global approach and local adaptation that allows replication and expansion. Global harmonization of the POCare Services is ensured by a central quality system, replicability of infrastructure and equipment and centralized monitoring and data management.

 

The POCare Services include:

 

●	Process development of therapies that are intended for use of the POCare Network,
●	Adaptation of automation and closed systems to such therapies,
●	Incorporation of the processing systems and the Good Manufacturing Processes (“GMP”) in the OMPULs,
●	Tech transfers to required POCare Centers and training of local teams,
●	Processing and supply and of the therapies and required supplies under GMP conditions by the various POCare centers, including required quality control testing, and
●	CRO services for clinical trials.

 

POCare Centers are the decentralized hubs that provide harmonized services to customers and partners. The Company is working to provide a more efficient and scalable pathway for advanced therapies to reach patients more rapidly at lowered costs. The workflow of a POCare Center is designed to allow rapid capacities expansion while integrating new technologies. The Company also draws on extensive medical expertise to identify promising new autologous therapies to leverage within the POCare Platform either via ownership or licensing.

 

The POCare Network brings together patients, doctors and industry partners with a goal of achieving harmonized, regulated clinical development and production of POCare advanced therapies.

 

The Company has worked to develop and validate POCare technologies that can be combined within mobile production units for advanced therapies. The Company has made significant investments in the development of several types of Orgenesis Mobile Processing Units and Labs (“OMPULs”) with the expectation of use and/or distribution through the Company’s POCare Network and/or partners, collaborators, and regional distributors. As of the date of this report, the OMPULs have been adapted for processing of CAR-T (chimeric antigen receptor T-cell) therapy, TIL (tumor infiltrating lymphocyte) based products, and are in the qualification stage for clinical use in various locations. Additional OMPULs are still in the development stage.

 

9

 

 

OMPULs are designed for the purpose of validation, development, performance of clinical trials, manufacturing and/or processing of potential or approved advanced therapy products in a safe, reliable, and cost-effective manner at the point of care, as well as the manufacturing of such CGTs in a consistent and standardized manner in all locations. The OMPUL design delivers a potential industrial solution for us to deliver CGTs to practically any clinical institution at the point of care.

 

The Company has continued to grow its infrastructure and expand its processing sites into new markets and jurisdictions. In addition, the Company has continued investing manpower and financial resources to focus on developing, processing and rolling out several types of OMPULs to be used and/or distributed through its POCare Network and/or partners, collaborators, and regional distributors.

 

The Chief Executive Officer is the Company’s chief operating decision-maker who reviews financial information prepared on a consolidated basis. All of our continuing operations are in one segment, being the point-of-care business via our POCare Platform. Therefore, no segment information 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:

 

●	Orgenesis Maryland Inc. (the “U.S. Subsidiary”) is the center of activity in North America and is currently focused on setting up and providing POCare Services to the POCare Network.
●	Koligo Therapeutics, Inc. (“Koligo”), a Kentucky corporation, is a leading regenerative medicine company, specializing in developing personalized cell therapies. It is currently focused on commercialising its metabolic pipeline via the POCare network throughout the United States and in international markets.
●	Orgenesis CA, Inc. (the “California subsidiary”), a Delaware corporation, is currently focussed on development of the Company’s technologies and therapies in California.
●	Orgenesis Belgium SRL (the “Belgian Subsidiary”) is currently focused on expanding our POCare network in Europe, process development and the preparation of European clinical trials.
●	Orgenesis Switzerland Sarl (the “Swiss Subsidiary”), is currently focused on providing management services to us.
●	Orgenesis Germany GmbH (the “German subsidiary”), is currently focused on providing CRO services to the POCare Network.
●	Orgenesis Korea Co. Ltd. (the “Korean Subsidiary”), is a provider of processing and pre-clinical services in Korea. The Company owns 94.12% of the Korean Subsidiary.
●	Orgenesis Ltd. in Israel (the “Israeli Subsidiary”) is a provider of regulatory, clinical and pre-clinical services in Israel.
●	Orgenesis Biotech Israel Ltd. (“OBI”) is a provider of process development and cell-processing services in Israel.
●	Mida Biotech BV (the “Dutch Subsidiary”) purchased in 2022 (see note 7) is currently focused on expanding our POCare network in Europe and process development.
●	Orgenesis Australia PTY LTD (the “Australian Subsidiary”), incorporated in 2022, is currently focused on expanding our POCare network in Australia and development of the Company’s technologies and therapies.
●	Tissue Genesis International LLC (“Tissue Genesis”), formed in Texas in 2022 is currently focussed on development of the Company’s technologies and therapies.
●	Orgenesis Italy SRL (the “Italian Subsidiary”), incorporated in 2022, is currently focused on expanding our POCare network in Italy and process development.

 

10

 

 

These consolidated financial statements include the accounts of Orgenesis Inc. and its subsidiaries.

 

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 March 31, 2022, the Company had an accumulated deficit of $110 million, and for the three months ended March 31, 2022 had negative operating cashflows of $3 million. The Company’s activities have been funded by generating revenue, proceeds from convertible loans, and through offerings of the Company’s securities. There is no assurance that the Company’s business will generate sustainable positive cash flows to fund its business.

 

Based on its current cash resources, including funds raised in April and May of 2022, (see note 9), 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, although no assurance can be given that it will not need additional funds prior to such time. 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 will need to use mitigating actions such as to seek additional financing or postpone expenses that are not based on firm commitments. In addition, in order to fund the Company’s operations until such time that the Company can generate sustainable positive cash flows, the Company may need to raise additional funds.

 

The estimation and execution uncertainty regarding the Company’s future cash flows and management’s judgments and assumptions in estimating these cash flows to conclude that the Company would have sufficient liquidity to fund its operations for at least the next 12 months is a significant estimate. Those assumptions include reasonableness of the forecasted revenue, operating expenses, and uses and sources of cash.

 

NOTE 2 – BASIS OF PRESENTATION

 

a.	Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all normal and recurring adjustments necessary to fairly state the financial position and results of operations of the Company. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”). The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2021, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included.

 

11

 

 

b.	Significant accounting policies

 

The accounting policies adopted are consistent with those of the previous financial year except as described below:

 

Beneficial Conversion Feature (“BCF”)

 

In the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 in the first quarter of 2022 using the modified retrospective method which resulted with no material effect.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). The guidance is effective for the Company on January 1, 2022. The Company adopted ASU 2021-24 in the first quarter of 2022 which resulted with no material effect on the Company’s consolidated financial statements.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of our consolidated financial statements in conformity with U.S. GAAP 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, the amount of revenues and expenses and determining whether an acquisition is a business combination or a purchase of asset. Actual results could differ from those estimates.

 

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 examined the impact of COVID-19 on 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

 

Recently issued accounting pronouncements, not yet adopted

 

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for Smaller Reporting Companies (SRCs, as defined by the SEC) for the fiscal year beginning on January 1, 2023, including interim periods within that year. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

 

In October 2021, the FASB issued ASU 2021-08 “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

 

In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

 

Reclassifications

 

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

 

12

 

 

NOTE 3 – EQUITY

 

On March 30, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement) with certain investors (collectively, the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors, in a private placement (the “Offering”), an aggregate of 4,933,333 shares of the Company’s Common Stock at a purchase price of $3.00 per share and warrants to purchase up to an aggregate of 1,000,000 shares of Common Stock at an exercise price of $4.50 per share. The warrants are not exercisable until after six months and expire three years from the date of issuance. The Company expected to receive gross proceeds of approximately $14.8 million before deducting related offering expenses by the closing date of April 30, 2022. As of the date of the filing of this Form 10-Q, the Company has received approximately $1.8 million, and the Company and certain investors agreed to extend the closing to June 30, 2022, by which time the Company expects to receive the remaining $13 million. In connection with the Purchase Agreement, the Company and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company has agreed to register the resale of the Shares and Underlying Shares on a registration statement on Form S-3 (the “Registration Statement”) to be filed with the United States Securities and Exchange Commission (the “SEC”) within sixty (60) days after the closing of the Offering and to cause the Registration Statement to be declared effective within ninety (90) days after the closing of the Offering (or one hundred and twenty (120) days after the closing of the Offering if the SEC reviews the Registration Statement).

 

NOTE 4 – CONVERTIBLE LOANS

 

During the year ended December 31, 2021, the Company and certain convertible loan holders agreed to extend the maturity date on loans due during the fourth quarter of 2021 to June 30, 2023. The principal amount extended was $2.25 million. The loan repayment extension included the loan holders’ right to request that the Company repay them on November 21, 2022 (the “Early Redemption Option”). During March 2022, the loan holders waived the early redemption option. Based on the analysis, the Company concluded that the change in terms should be accounted for as a modification.

 

NOTE 5 – LOSS PER SHARE

 

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

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands, except per share data)
Basic and diluted:
Net loss attributable to Orgenesis Inc.			4,009				219
Weighted average number of common shares outstanding			24,600,954				24,192,951
Net loss per share		$	0.16			$	0.01

 

For the three months ended March 31, 2022 and March 31, 2021, all outstanding convertible notes, options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive. Diluted loss per share does not include 6,382,782 shares underlying outstanding options and warrants and 1,539,356 shares upon conversion of convertible loans for the three months ended March 31, 2022, because the effect of their inclusion in the computation would be antidilutive. Diluted loss per share does not include 8,475,084 shares underlying outstanding options and warrants and 1,654,379 shares upon conversion of convertible loans for the three months ended March 31, 2021, because the effect of their inclusion in the computation would be antidilutive.

 

13

 

 

NOTE 6 – REVENUES

 

Disaggregation of Revenue

 

A breakdown of the revenues per customer constituted at least 10% of revenues is as follows:

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Revenue earned:
Customer A (Korea)		$	2,683			$	956
Customer B (China)		$	1,226			$	1,157
Customer C (United Arab Emirates)		$	1,067			$	2,391
Customer D (Greece)		$	661			$	-
Customer E (India) – related party		$	635			$	1,157
Customer F (Netherlands)		$	586			$	1,646

 

Contract Assets and Liabilities

 

Contract assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently due from customers.

 

The activity for trade receivables is comprised of:

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Balance as of beginning of period		$	15,245			$	3,085
Elimination of acquisition receivables			(1,337	)			-
Additions			7,249				9,478
Collections			(4,042	)			(1,204	)
Exchange rate differences			(40	)			(5	)
Balance as of end of period		$	17,075			$	11,354

 

* The activity of the related party included in the trade receivables activity above is comprised of:

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Balance as of beginning of period		$	1,972			$	744
Additions			635				1,157
Collections			(1,069	)			-
Balance as of end of period		$	1,538			$	1,901

 

14

 

 

The activity for contract liabilities is comprised of:

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Balance as of beginning of period		$	59			$	59
Additions			11				-
Balance as of end of period		$	70			$	59

 

NOTE 7 – OTHER SIGNIFICANT TRANSACTIONS DURING THE PERIOD

 

a)

License and research agreement Yeda Research and Development Company Limited

 

On January 25, 2022, the Company and Yeda Research and Development Company Limited (“Yeda”), an Israeli corporation, entered into a license and research agreement. Pursuant to the agreement, Yeda granted to the Company an exclusive, worldwide license to its licensed information and the licensed patents, for the development, manufacture, use, offer for sale, sale and import of products in the Field a field of tumor-infiltrating lymphocytes (TIL) and Chimeric antigen receptor (CAR) T cell immunotherapy platforms (excluding CAR-Cytokine Induced Killer cell immunotherapy). The Company undertakes to make commercially reasonable efforts to develop and commercialize products in the field and to achieve certain milestones. In consideration for the grant of the License, the Company shall pay Yeda:

 

	1.	A non-refundable annual license fee of $10 thousand;
	2.	Royalties of up to 2% on sales of licensed products;
	3.	25% of all Other Receipts received in respect of a Sublicense first granted or an assignment of rights made prior to the achievement of the dosing of a first patient in a Phase I Clinical Trial; and (ii) 12.5% of all Other Receipts received in respect of a Sublicense first granted or an assignment of rights made on or after the date described in subclause (i)
	4.	Milestone Events payments:
	5.	$50 thousand upon the dosing of a first patient in a Phase I Clinical Trial;
	6.	$500 thousand upon the receipt of FDA marketing approval in respect of a product;
	7.	$350 thousand upon receipt of marketing approval from a non-FDA regulatory agency in a major market territory (namely, a regulatory agency in Europe, Japan, China or Canada);
	8.	$250 thousand upon receipt of marketing approval from an additional non-FDA major regulatory agency (namely, a regulatory agency in Europe, Japan, China or Canada);
	9.	Patent fees already incurred by Yeda in connection with the Licensed Patents in the amount of $27 thousand, and all future costs and fees relating to the filing, prosecution, and maintenance of the Licensed Patents; and
	10.	Research related expenses based on an agreed research budget.

 

As of March 31, 2022, the Company recognized $52 thousand as expenses under this contract.

 

b)

Joint venture agreement with Proterna Inc.

 

On January 26, 2022, the Company and Proterna, Inc., a Delaware corporation, (“Proterna”) (together, the “Parties”), entered into a joint venture agreement (“JVA”). Pursuant to the JVA, the Parties agreed to collaborate with each other and expand their activities in the development and commercialization of mRNA based vaccines and cellular immunotherapies for respiratory diseases, including, without limitation, COVID-19. The JVA provides that Proterna will grant to the JV Entity (“JVE”), under a separate license agreement, an exclusive, sublicensable right and license to its background IP as required to carry out the terms of the JVA including to develop, manufacture, distribute and market and sell mRNA vaccines and cellular immunotherapies for respiratory diseases, including COVID-19. In consideration for such license, the JVE will pay Proterna a 5% royalty on sales. The Company will provide funding for the joint venture of up to $5 million, based on a work plan to be approved, of which $2.5 million will be in the form of services to be procured from Proterna. Until the JVE is formed, the activities of the collaboration will be performed by Proterna. The Parties will each hold 50% of the JVE. In addition, once JVE is profitable, Company shall have the rights to additional profit share. The Board of the JVE will be comprised of three directors, one to be appointed by the Company, one to be appointed by Proterna, and a third board member to be appointed upon mutual agreement of the Parties. Company shall have the right to purchase all of Proterna’s then issued and outstanding equity interests in the JVE in return for, at Company’s option: payment of cash and/or issuance of shares of common stock of Company. In the event that Company seeks to exercise this right, JVE’s valuation shall be determined by an independent third-party expert to be mutually selected by the Parties, provided that in no event may such valuation be lower than US $2,000,000. As at the date of this report, the JVE has not been incorporated.

 

15

 

 

As of March 31, 2022, no material activities had occurred in the Proterna JVE.

 

c)

Mida Biotech BV

 

On February 22, 2022, pursuant to the joint venture agreement between the Company and Mida Biotech BV, the Company purchased all the issued shares of Mida for a consideration of $100 thousand. In lieu of cash, the consideration was paid via 29,940 Company shares of Common Stock issued to Mida Biotech BV’s shareholders.

 

NOTE 8 – LEGAL PROCEEDINGS

 

On January 18, 2022, a complaint (the “Complaint”) was filed in the Tel Aviv District Court (the “Court”) against us and the Israeli subsidiary, Prof. Sarah Ferber, Vered Caplan and Dr. Efrat Asa Kunik (collectively, the “defendants”) by plaintiffs the State of Israel, as the owner of Chaim Sheba Medical Center at Tel HaShomer (“Sheba”), and Tel Hashomer Medical Research, Infrastructure and Services Ltd. (collectively, the “plaintiffs”). In the Complaint, the plaintiffs are seeking that the Court issue a declaratory remedy whereby the defendants are required to pay royalties to the plaintiffs at the rate of 7% of the sales and 24% of any and all revenues in consideration for sublicenses related to any product, service or process that contain know-how and technology of Sheba and any and all know-how and technology either developed or supervised by Prof. Ferber in the field of cell therapy, including in the category of the point-of-care platform and any and all services and products in relation to the defendants’ CDMO activity. In addition, the plaintiffs seek that the defendants provide financial statements and pay NIS 10 million to the plaintiffs due to the royalty provisions of the license agreement, dated February 2, 2012, between the Israeli subsidiary and Tel Hashomer Medical Research, Infrastructure and Services Ltd. (the “License Agreement”). The Complaint alleges that the Company and the Israeli subsidiary used know-how and technology of Sheba and know-how and technology either developed or supervised by Prof. Ferber while employed by Sheba in the field of cell therapy, including in the category of the point-of-care platform and the services and products in relation to the defendants’ CDMO activity and are entitled to the payment of certain royalties pursuant to the terms of the License Agreement. The defendants have filed their statements of defense responding to this Complaint. The Company believes that the allegations in this Complaint are without merit and intend to vigorously defend itself against the claims. Since a material loss is not considered probable, no provision was made in the financial statements.

 

NOTE 9 – SUBSEQUENT EVENTS

 

Convertible loan agreements with offshore investors

 

During April and May, 2022, the Company entered into three convertible loan agreements (the “Convertible Loan Agreements”) with three non-U.S. investors (the “Lenders,” and together with the Company, the “Parties”), pursuant to which the Lenders loaned the Company an aggregate of $13 million (the “Loan Amount”). Interest is calculated at 6% per annum (based on a 365-day year) and is payable, along with the principal, during or before the third quarter of 2023 (the “Maturity Date”). At any time prior to or on the Maturity Date, the Lenders may provide the Company with written notice to convert all or part of the loans into shares of our common stock at a conversion price equal to $4.50 per share (subject to adjustment for certain capital events, such as stock splits) (the “Conversion Price”).

 

In connection with such loans, the Company agreed to issue the Lenders warrants (the “Warrant”) representing the right to purchase an aggregate of 722,223 shares of our common stock (which is 25% of the shares of our common stock into which the loans are initially convertible at the Conversion Price), at an exercise price per share of $4.50 per share. Such Warrants will be exercisable at any time beginning six months and one day after the closing date and ending 36 months after such closing date.

 

As of the date of filing of this Form 10-Q, the Company had received $9 million on account of the Loan Amount. 

 

16

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2022. Certain statements made in this discussion are “forward-looking statements” within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations and the effects that the COVID-19 outbreak, any of its variants, or similar pandemics, could have on our business and CGT Biotech Platform. Other factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

 

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.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

 

Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,” “our Company” or “Orgenesis” refer to Orgenesis Inc., a Nevada corporation, and our majority or wholly-owned subsidiaries, Orgenesis Korea Co. Ltd. (the “Korean Subsidiary”); Orgenesis Belgium SRL, a Belgian-based entity (the “Belgian Subsidiary”); Orgenesis Ltd., an Israeli corporation (the “Israeli Subsidiary”); Orgenesis Maryland Inc., a Maryland corporation (the “U.S. Subsidiary”); Orgenesis Switzerland Sarl, (the “Swiss Subsidiary”); Orgenesis Biotech Israel Ltd. (“OBI”); Koligo Therapeutics Inc. (“Koligo”); Orgenesis Germany GmbH, a German entity which was incorporated in the second quarter of 2021; Orgenesis Australia PTY LTD (the “Australian subsidiary”), incorporated in 2022; Tissue Genesis International LLC (“Tissue Genesis”), formed in Texas in 2022; and Orgenesis Italy SRL (the “Italian subsidiary”), incorporated in 2022.

 

17

 

 

Corporate Overview

 

Orgenesis Inc., a Nevada corporation, is a global biotech company working to unlock the potential of cell and gene therapies (“CGTs”) in an affordable and accessible format.

 

CGTs can be centered on autologous (using the patient’s own cells) or allogenic (using master banked donor cells) and are part of a class of medicines referred to as advanced therapy medicinal products (“ATMP”). We are mostly focused on autologous therapies, with processes and systems that are developed for each therapy using a closed and automated processing system approach that is validated for compliant production near the patient for treatment of the patient at the point of care (“POCare”). This approach has the potential to overcome the limitations of traditional commercial manufacturing methods that do not translate well to commercial production of advanced therapies due to their cost prohibitive nature and complex logistics to deliver such treatments to patients (ultimately limiting the number of patients that can have access to, or can afford, these therapies).

 

To achieve these goals, we have developed a Point of Care Platform (“POCare Platform”) comprised of three enabling components: (i) a pipeline of licensed POCare advanced therapies that are designed to be processed and produced, (ii) automated closed POCare technology systems, and (iii) a collaborative worldwide network of POCare research institutes and hospitals (“POCare Network”).

 

The POCare Platform relies in particular on the development of its own production capacity, known as “POCare Services”, whose goal is to ensure that therapies are accessible at the point of treatment (the “POCare Center”). POCare Services, which have been expanding worldwide, are based on a global approach and local adaptation that allows replication and expansion. Global harmonization of the POCare Services is ensured by a central quality system, replicability of infrastructure and equipment and centralized monitoring and data management.

 

POCare Centers are the decentralised hubs that provide harmonized services to customers and partners. We are working to provide a more efficient and scalable pathway for advanced therapies to reach patients more rapidly at lowered costs. The workflow of a POCare Center is designed to allow rapid capacities expansion while integrating new technologies. We also draw on extensive medical expertise to identify promising new autologous therapies to leverage within the POCare Platform either via ownership or licensing.

 

The POCare Network brings together patients, doctors and industry partners with a goal of achieving harmonized, regulated clinical development and production of POCare advanced therapies.

 

We have worked to develop and validate POCare technologies that can be combined within mobile production units for advanced therapies. We have made significant investments in the development of several types of Orgenesis Mobile Processing Units and Labs (“OMPULs”) with the expectation of use and/or distribution through our POCare Network and/or partners, collaborators, and regional distributors. As of the date of this report, the OMPULs have been adapted for processing of CAR-T, TILS based products and are in the qualification stage for clinical use in various locations. Additional OMPULs are still in the development stage.

 

OMPULs are designed for the purpose of validation, development, performance of clinical trials, manufacturing and/or processing of potential or approved advanced therapy products in a safe, reliable, and cost-effective manner at the point of care, as well as the manufacturing of such CGTs in a consistent and standardized manner in all locations. The OMPUL design delivers a potential industrial solution for us to deliver CGTs to practically any clinical institution at the point of care.

 

The Chief Executive Officer is our chief operating decision-maker who reviews financial information prepared on a consolidated basis. All of our operations are in one segment, being the point-of-care business via our POCare Platform. Therefore, no segment information has been presented.

 

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POCare Platform Operations via Subsidiaries

 

We currently conduct our core business operations ourselves and through our subsidiaries (collectively, the “Subsidiaries”). The Subsidiaries are listed in note 1 of the condensed consolidated financial statements.

 

Impact of the COVID-19 Pandemic

 

The COVID-19 pandemic continues to present substantial public health and economic challenges around the world, and to date has led to the implementation of various responses, including government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business closures and other public health safety measures.

 

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and preemptive actions as may be required by federal, state or local authorities. In addition, we have taken steps to minimize the current environment’s impact on our business and strategy, including devising contingency plans and securing additional resources from third party service providers. For the safety of our employees and families, we have introduced enhanced safety measures in our facilities.

 

Beyond the impact on our product development efforts, the extent to which COVID-19 ultimately impacts our business, results of operations and financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the emergence of new variants, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain COVID-19 or treat its impact, including vaccination campaigns, among others. If we or any of the third parties with whom we engage, however, were to experience any additional shutdowns or other prolonged business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on our business, financial condition and results of operations. Although to date, our business has not been materially impacted by COVID-19, it is possible that our clinical development timelines could be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. See “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022, for additional discussion of the potential adverse impact of the COVID-19 pandemic on our business, financial condition and results of operations.

 

Developments during the quarter ended March 31, 2022

 

License, Collaboration and Joint Venture Agreements

 

During the three months ended March 31, 2022, we executed license, collaboration and joint venture agreements, the most significant of which are summarized below. For a more complete description, see note 7 to our consolidated financial statements included quarterly report on Form 10-Q.

 

a)

License and research agreement Yeda Research and Development Company Limited

 

On January 25, 2022, we and Yeda Research and Development Company Limited (“Yeda”), an Israeli corporation, entered into a license and research agreement. Pursuant to the agreement, Yeda granted us an exclusive, worldwide license to its licensed information and the licensed patents, for the development, manufacture, use, offer for sale, sale and import of products in the Field a field of tumor-infiltrating lymphocytes (TIL) and Chimeric antigen receptor (CAR) T cell immunotherapy platforms (excluding CAR-Cytokine Induced Killer cell immunotherapy).

 

b)

Joint venture agreement with Proterna Inc

 

On January 26, 2022, we and Proterna, Inc. a Delaware corporation, (“Proterna”) (together, the “Parties”), entered into a joint venture agreement (“JVA”). Pursuant to the JVA, the Parties agreed to collaborate with each other and expand their activities in the development and commercialization of mRNA based vaccines and cellular immunotherapies for respiratory diseases, including, without limitation, COVID-19. The JVA provides that Proterna will grant to the JV Entity (“JVE”), under a separate license agreement, an exclusive, sublicensable right and license to its background IP as required to carry out the terms of the JVA including to develop, manufacture, distribute and market and sell mRNA vaccines and cellular immunotherapies for respiratory diseases, including COVID-19.

 

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Purchase of Mida Biotech BV

 

On February 22, 2022, we, pursuant to the joint venture agreement between ourselves and Mida Biotech BV “Mida”), purchased all the issued shares in Mida for consideration of $100 thousand. In lieu of cash, the consideration was paid via the issuance of shares of our common stock to Mida’s shareholders.

 

Securities Purchase Agreement

 

On March 30, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors (collectively, the “Investors”), pursuant to which the we agreed to issue and sell to the Investors, in a private placement (the “Offering”), an aggregate of 4,933,333 shares of the our Common Stock at a purchase price of $3.00 per share and warrants to purchase up to an aggregate of 1,000,000 shares of Common Stock at an exercise price of $4.50 per share. The warrants are not exercisable until after six months and expire three years from the date of issuance. As of the date of this filing of this Form 10Q, we received gross proceeds of approximately $1.8 million before deducting related offering expenses. We agreed with certain investors to extend the closing date of the Offering to June 30, 2022, by which time we expect to receive the remaining $13 million.

 

Tel Hashomer

 

On January 18, 2022, a complaint (the “Complaint”) was filed in the Tel Aviv District Court (the “Court”) against us and the Israeli subsidiary, Prof. Sarah Ferber, Vered Caplan and Dr. Efrat Asa Kunik (collectively, the “defendants”) by plaintiffs the State of Israel, as the owner of Chaim Sheba Medical Center at Tel HaShomer (“Sheba”), and Tel Hashomer Medical Research, Infrastructure and Services Ltd. (collectively, the “plaintiffs”). We believe that the allegations in this Complaint are without merit and intend to vigorously defend itself ourselves against the claims. Since a material loss is not considered probable, no provision was made in the financial statements.

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021.

 

The following table presents our results of operations for the three months ended March 31, 2022 and 2021:

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
POC development services		$	5,689			$	7,987
POC development services from related party			635				1,157
Cell process development services and hospital services			888				245
Total revenues			7,212				9,389
Cost of revenues cell process development services and hospital services			714				770
Cost of development services and research and development expenses			6,651				5,357
Amortization of intangible assets			232				238
Selling, general and administrative expenses			2,851				2,968
Operating loss			3,236				(56	)
Other income, net			-				(25	)
Financial expenses, net			213				233
Share in net loss of associated entities			547				15
Loss before income taxes			3,996				167
Tax (income) expense			1				(2	)
Net loss		$	3,997			$	165

 

20

 

 

Revenues

 

During the three months ended March 31, 2022, we recognized revenue from our point-of-care development service in the amount of $6,324 thousand, as compared to $9,144 during the three months ended March 31, 2021, representing a decrease of 31%. The decrease is related to the fact that the majority of the performance obligations under the Company’s POC services contracts were completed in 2021 and which primarily related services performed to support the Company’s customers to set-up their respective territories. This does not include revenue for processing contracts which are expected to commence in the second quarter of 2022.

 

Expenses

 

Cost of revenues cell process development services and hospital services

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Salaries and related expenses		$	329			$	222
Stock-based compensation			13				10
Professional fees and consulting services			22				6
Raw materials			30				204
Depreciation expenses, net			75				97
Other expenses			245				231
Total		$	714			$	770

 

Cost of revenues cell process development services and hospital services for the three months ended March 31, 2022 were $714 thousand, as compared to $770 thousand for the three months ended March 31, 2021, representing a decrease of 7%. The decrease was mainly attributable to a reduction in the purchase of raw materials.

 

Cost of development services and research and development expenses

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Salaries and related expenses		$	2,849			$	2,014
Stock-based compensation			159				148
Professional fees and consulting services			1,726				2,119
Lab expenses			582				423
Depreciation expenses, net			158				66
Other research and development expenses			1,177				587
Total		$	6,651			$	5,357

 

Cost of development services and research and development expenses for the three months ended March 31, 2022 were $6,651 thousand, as compared to $5,357 thousand for the three months ended March 31, 2021, representing an increase of 24%.

 

The increase is mainly attributable to additional employees that were hired as we expand our research and development to the evaluation and development of new POCare activities, cell therapies and related technologies.

 

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Selling, General and Administrative Expenses

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Salaries and related expenses		$	900			$	679
Stock-based compensation			94				407
Accounting and legal fees			910				872
Professional fees			260				412
Rent and related expenses			54				30
Business development			121				148
Depreciation expenses, net			9				52
Other general and administrative expenses			503				368
Total		$	2,851			$	2,968

 

Selling, general and administrative expenses for the three months ended March 31, 2022 were $2,851 thousand, as compared to $2,968 thousand for the three months ended March 31, 2021, representing a decrease of 4%. The reduction was mainly attributable to a reduction on stock-based compensation.

 

Financial Expenses, net

 

		Three Months Ended
		March 31, 2022				March 31, 2021
		(in thousands)
Interest expense on convertible loans and loans		$	125			$	253
Foreign exchange loss, net			82				56
Other expense (income)			6				(76	)
Total		$	213			$	233

 

Financial expenses, net for the three months ended March 31, 2022 were $213 thousand, as compared to $233 thousand for the three months ended March 31, 2021, representing a decrease of 9%. The reduction was mainly attributable to a reduction of interest paid on convertible loans, as a result of the repayment of such loans.

 

Working Capital

 

		As of
		March 31, 2022				December 31, 2021
		(in thousands)
Current assets		$	24,010			$	25,758
Current liabilities			15,253				15,365
Working capital		$	8,757			$	10,393

 

Current assets at March 31, 2022 were $24,010 thousand compared to $25,758 at December 31, 2021, representing a decrease of 7%. The decrease was mainly attributable to a decline in cash and cash equivalent of $4,350 thousand which was offset by an increase in accounts receivable of $1,830 thousand.

 

Liquidity and Financial Condition

 

		Three Months Ended
		March 31,  2022				March 31,  2021
		(in thousands)
Net loss		$	(3,997	)		$	(165	)
Net cash used in operating activities			(2,792	)			(4,547	)
Net cash used in investing activities			(1,613	)			(539	)
Net cash provided by financing activities			1				1,898
Decrease in cash and cash equivalents		$	(4,404	)		$	(3,188	)

 

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During the quarter ended March 31, 2022, we funded our operations from existing funds.

 

Net cash used in operating activities for the three months ended March 31, 2022 was approximately $2.8 million, as compared to net cash used in operating activities of approximately $4.5 million for the three months ended March 31, 2021. This was mainly attributable to a difference in the increase in accounts receivable of $1.9 million in the three months ended March 31, 2022 compared to $ 8.3 million for the three months ended March 31, 2021, and the net loss of $4 million for the three months ended March 31, 2022 compared to $ 165 thousand for the three months ended March 31, 2021.

 

Net cash used in investing activities for the three months ended March 31, 2022 was approximately $1.6 million, as compared to net cash used in investing activities of approximately $0.5 million for the three months ended March 31, 2021. This was mainly attributable to a loan granted to one of our associated entities pursuant to a joint venture agreement in the amount of $1.5 million.

 

Net cash provided by financing activities for the three months ended March 31, 2022 were zero, as compared to net cash provided by financing activities of approximately $1.9 million for the three months ended March 31, 2021. This was mainly attributable to the proceeds received from the issue of shares and warrants in the three months ended March 31, 2021.

 

Liquidity & Capital Resources Outlook

 

Our activities have been funded by generating revenue, proceeds from convertible loan agreements, and through offerings of our securities. We entered into convertible loan agreements for convertible loans in the aggregate principal amount of $13 million during April and May 2022, of which $9 million has been received to date. There is no assurance that our business will generate sustainable positive cash flows to fund our operations.

 

Based on our current cash resources and commitments, we believe that we will be able to maintain our current planned development activities and expected level of expenditures for at least 12 months from the date of the issuance of these financial statements, although no assurance can be given that we will not need additional funds prior to such time. If there are further increases in operating costs for facilities expansion, research and development, commercial and clinical activity or decreases in revenues from customers, we will need to use mitigating actions such as to seek additional financing or postpone expenses that are not based on firm commitments. In addition, in order to fund our operations until such time that we can generate sustainable positive cash flows, we may need to raise additional funds.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

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Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.

 

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On January 18, 2022, a complaint (the “Complaint”) was filed in the Tel Aviv District Court (the “Court”) against us and our subsidiary Orgenesis Ltd., Prof. Sarah Ferber, Vered Caplan and Dr. Efrat Asa Kunik (collectively, the “defendants”) by plaintiffs the State of Israel, as the owner of Chaim Sheba Medical Center at Tel HaShomer (“Sheba”), and Tel Hashomer Medical Research, Infrastructure and Services Ltd. (collectively, the “plaintiffs”). In the Complaint, the plaintiffs are seeking that the Court issue a declaratory remedy whereby the defendants are required to pay royalties to the plaintiffs at the rate of 7% of the sales and 24% of any and all revenues in consideration for sublicenses related to any product, service or process that contain know-how and technology of Sheba and any and all know-how and technology either developed or supervised by Prof. Ferber in the field of cell therapy, including in the category of the point-of-care platform and any and all services and products in relation to the defendants’ CDMO activity. In addition, the plaintiffs seek that the defendants provide financial statements and pay NIS 10 million to the plaintiffs due to the royalty provisions of the license agreement, dated February 2, 2012, between Orgenesis Ltd. and Tel Hashomer Medical Research, Infrastructure and Services Ltd. (the “License Agreement”). The Complaint alleges that Orgenesis Inc. and Orgenesis Ltd. used know-how and technology of Sheba and know-how and technology either developed or supervised by Prof. Ferber while employed by Sheba in the field of cell therapy, including in the category of the point-of-care platform and the services and products in relation to the defendants’ CDMO activity and are entitled to the payment of certain royalties pursuant to the terms of the License Agreement. The defendants have filed their statements of defense responding to this Complaint. We believe that the allegations in this Complaint are without merit and intend to vigorously defend against the claims.

 

Except as described above, we are not involved in any pending material legal proceedings.

 

ITEM 1A. RISK FACTORS

 

An investment in the Company’s Common Stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022, in addition to other information contained in our reports and in this quarterly report in evaluating the Company and its business before purchasing shares of our Common Stock. There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Sales of Unregistered Equity Securities

 

On February 22, 2022, pursuant to our joint venture agreement between with Mida Biotech BV (“Mida”), we purchased all the issued shares of Mida for consideration of $100 thousand. The consideration was paid via a share issue to Mida’s shareholders of 29,940 shares of Common Stock. The Company relied upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”) by virtue of Section 4(a)(2) thereof and/or Regulation S promulgated by the SEC under the Act with respect to the issuance of the shares of Common Stock to the shareholders of Mida.

 

Issuer Purchases of Equity Securities

 

On May 14, 2020, our Board of Directors approved the stock repurchase plan (the “Stock Repurchase Plan”) pursuant to which we may, from time to time, purchase up to $10 million of our outstanding shares of common stock. The shares may be repurchased from time to time in privately negotiated transactions or the open market, including pursuant to Rule 10b5-1 trading plans, and in accordance with applicable regulations of the SEC. The timing and exact amount of any repurchases will depend on various factors including, general and business market conditions, corporate and regulatory requirements, share price, alternative investment opportunities and other factors. The Repurchase Plan commenced on May 29, 2020 and does not obligate us to acquire any specific number of shares in any period, and may be expanded, extended, modified, suspended or discontinued by the Board of Directors at any time.

 

There were no repurchase activity pursuant to the Stock Repurchase Plan during the quarter ended March 31, 2022.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits

 

Exhibits required by Item 601 of Regulation S-K

 

No.		Description
(31)		Rule 13a-14(a)/15d-14(a) Certification
31.1*		Certification Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2*		Certification Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
(32)		Section 1350 Certification
32.1*		Certification Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2*		Certification Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
(101)*		Interactive Data Files
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*		Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

ORGENESIS INC.
By:
/s/ Vered Caplan
Vered Caplan
President & Chief Executive Officer
(Principal Executive Officer)
Date: May 23, 2022
/s/ Neil Reithinger
Neil Reithinger
Chief Financial Officer, Treasurer and Secretary
(Principal Financial Officer and Principal Accounting Officer)
Date: May 23, 2022

 

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