10-Q 1 form10-q.htm
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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 September 30, 2023

 

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 November 13, 2023, there were 31,877,063 shares of registrant’s common stock outstanding.

 

 

 

   
 

 

ORGENESIS INC.

FORM 10-Q

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

 

TABLE OF CONTENTS

 

  Page
   
PART I - FINANCIAL INFORMATION  
     
ITEM 1 Financial Statements (unaudited) 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 3
     
  Condensed Consolidated Statements of Loss and Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022 5
     
  Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2023 and 2022 6
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 10
     
  Notes to Condensed Consolidated Financial Statements 11
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 38
     
ITEM 4. Controls and Procedures 38
     
PART II - OTHER INFORMATION 39
     
ITEM 1. Legal Proceedings 39
     
ITEM 1A. Risk Factors 39
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
     
ITEM 3. Defaults Upon Senior Securities 40
     
ITEM 4. Mine Safety Disclosures 40
     
ITEM 5. Other Information 40
     
ITEM 6. Exhibits 41
 

 

 
SIGNATURES 42

 

2

 

 

PART I –FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in thousands)

(Unaudited)

 

   September 30, 2023   December 31, 2022 
   As of 
   September 30, 2023   December 31, 2022 
Assets          
           
CURRENT ASSETS:          
Cash and cash equivalents  $55   $5,311 
Restricted cash   734    1,058 
Accounts receivable, net   71    36,183 
Prepaid expenses and other receivables   4,031    958 
Receivables from related parties   1,052    - 
Convertible loan to related party   2,799    2,688 
Inventory   34    120 
Total current assets   8,776    46,318 
           
NON-CURRENT ASSETS:          
Deposits  $40   $331 
Equity investees   22,509    39 
Loans to associates   93    96 
Property, plant and equipment, net   1,503    22,834 
Intangible assets, net   7,528    9,694 
Operating lease right-of-use assets   431    2,304 
Goodwill   3,703    8,187 
Deferred tax   -    103 
Other assets   716    1,022 
Total non-current assets   36,523    44,610 
TOTAL ASSETS  $45,299   $90,928 

 

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 
   September 30, 2023   December 31, 2022 
Liabilities and Equity          
           
CURRENT LIABILITIES:          
Accounts payable  $4,851   $4,429 
Accounts payable related parties   132    - 
Accrued expenses and other payables   2,015    2,648 
Income tax payable   915    289 
Employees and related payables   807    1,860 
Other payables related parties   999    - 
Advance payments on account of grant   1,376    1,578 
Short-term loans   430    - 
Current maturities of finance leases   17    60 
Current maturities of operating leases   220    542 
Current maturities of convertible loans   2,540    4,504 
Total current liabilities   14,302    15,910 
           
LONG-TERM LIABILITIES:          
Non-current operating leases  $140   $1,728 
Convertible loans   18,394    13,343 
Retirement benefits obligation   -    163 
Finance leases   8    95 
Other long-term liabilities   58    415 
Total long-term liabilities   18,600    15,744 
TOTAL LIABILITIES   32,902    31,654 
           
REDEEMABLE NON-CONTROLLING INTEREST  $-   $30,203 
           
EQUITY:          

Common stock of $0.0001 par value: Authorized at September 30, 2023 and December 31, 2022: 145,833,334 shares; Issued at September 30, 2023 and December 31, 2022: 30,753,374 and 25,832,322 shares, respectively; Outstanding at September 30, 2023 and December 31, 2022: 30,466,807 and 25,545,755 shares, respectively

   3    3 
Additional paid-in capital   155,819    150,355 
Accumulated other comprehensive income (loss)   71    (270)
Treasury stock 286,567 shares as of September 30, 2023 and December 31, 2022   (1,266)   (1,266)
Accumulated deficit   (142,230)   (121,261)
Equity attributable to Orgenesis Inc.   12,397    27,561 
Non-controlling interest   -    1,510 
Total equity   12,397    29,071 
TOTAL LIABILITIES REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY  $45,299   $90,928 

 

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)

 

   September 30,
2023
   September 30,
2022
   September 30,
2023
   September 30,
2022
 
   Three Months Ended   Nine Months Ended 
   September 30,
2023
   September 30,
2022
   September 30,
2023
   September 30,
2022
 
                 
Revenues  $110   $7,841   $14,129   $21,117 
Revenues from related party   -    147    -    1,284 
Total revenues   110    7,988    14,129    22,401 
Cost of revenues   139    983    6,093    2,760 
Gross (loss) profit   (29)   7,005    8,036    19,641 
Cost of development services and research and development expenses   808    3,683    7,616    18,172 
Amortization of intangible assets   153    225    568    686 
Selling, general and administrative expenses   1,245    3,104    8,621    8,758 
Share in net loss of associated companies   9,518    274    9,517    1,189 
Operating loss   11,753    281    18,286    9,164 
Other (income), loss net   (2)   2    (4)   (6)
Loss from extinguishment in connection with convertible loan   -    -    283    - 
Financial expenses, net   508    1,100    1,807    1,702 
Profit from deconsolidation of Octomera (see note 3)   -    -    (411)   - 
Loss before income taxes   12,259    1,383    19,961    10,860 
Tax expenses   394    25    614    37 
Net loss   12,653    1,408    20,575    10,897 
Net (loss) income attributable to non-controlling interests (including redeemable)   -    (52)   394    (105)
Net loss attributable to Orgenesis Inc.  $12,653   $1,356   $20,969   $10,792 
                     
Loss per share:                    
Basic and diluted  $0.43   $0.05   $0.75   $0.43 
                     
Weighted average number of shares used in computation of Basic and Diluted loss per share:                    
Basic and diluted   29,162,459    25,403,907    27,933,067    24,944,814 
                     
Comprehensive loss:                    
Net loss  $12,653   $1,408   $20,575   $10,897 
Other comprehensive (income) loss - translation adjustments   (9)   556    43    1,033 
Release of translation adjustment due to deconsolidation of Octomera   -    -    (384)   - 
Comprehensive loss   12,644    1,964    20,234    11,930 
Comprehensive (loss) income attributed to non-controlling interests   -    (52)   394    (105)
Comprehensive loss attributed to Orgenesis Inc.  $12,644   $1,912   $20,628   $11,825 

 

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)

 

                                              
   Common Stock  
                    
   Number   Par
Value
   Additional
Paid-in
Capital
  

Accumulated

Other
Comprehensive
Income (Loss)

   Treasury
Shares
   Accumulated
Deficit
  

 Equity
Attributed

to
Orgenesis
Inc.
   Non-Controlling
Interest
   Total 
Balance at January 1, 2023   25,545,755   $3   $150,355- $(270)  $(1,266)  $(121,261)  $27,561   $1,510   $29,071 
Changes during the nine months ended September 30, 2023:                                             
Stock-based compensation to employees and directors   -    -    347 -  -    -    -    347    -    347 
Stock-based compensation to service providers   -    -    40    -    -    -    40    -    40 
Issuance of shares and warrants net of issuance costs   3,947,368     - *    4,341    -    -    -    4,341    -    4,341 
Issuance of Shares due to exercise of warrants   973,684     -*    -    -    -    -    -    -    - 
Issuance of warrants with respect to convertible loans   -    -    449    -    -    -    449    -    449 
Extinguishment in connection with convertible loan restructuring   -    -    287    -    -    -    287    -    287 
Deconsolidation of Non-controlling Interests   -    -    - -  -    -    -    -    (1,421)   (1,421)
Comprehensive income (loss) for the period   -    -    - -  341    -    (20,969)   (20,628)   (89)   (20,717)
Balance at September 30, 2023   30,466,807   $3   $155,819 - $         71   $(1,266)  $(142,230)  $12,397   $-   $12,397 

 

* Represents an amount lower than $1.

 

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
   Additional
Paid-in
Capital
  

Accumulated

Other
Comprehensive
Income (Loss)

   Treasury
Shares
   Accumulated
Deficit
  

 Equity
Attributed

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 nine months ended September 30, 2022:                                             
Stock-based compensation to employees and directors   -    -    646    -    -    -    646    -    646 
Stock-based compensation to service providers   -    -    48    -    -    -    48    -    48 
Exercise of options   510,017    -*    6    -    -    -    6    -    6 
Issuance of warrants with respect to convertible loans   -    -    574    -    -    -    574    -    574 
Issuance of shares   724,999    *    2,175    -    -    -    2,175    -    2,175 
Issuance of shares related to acquisition of Mida   29,940    -*    100    -    -    -    100    -    100 
Comprehensive loss for the period   -    -    --  (1,033)   -    (10,792)   (11,825)   (105)   (11,930)
Balance at September 30, 2022   25,545,755   $3   $149,465- $(826)  $(1,266)  $(117,164)  $30,212   $38   $30,250 

 

* Represents an amount lower than $1.

 

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)

 

                                              
   Common Stock  
                    
   Number   Par
Value
   Additional
Paid-in
Capital
  

Accumulated

Other
Comprehensive
Income (Loss)
   Treasury
Shares
   Accumulated
Deficit
  

 Equity
Attributed

to
Orgenesis
Inc.
   Non-Controlling
Interest
   Total 
Balance at July 1, 2023   28,466,807   $3   $154,743 - $62   $(1,266)  $(129,577)  $23,965   $-   $23,965 
Changes during the three months ended September 30, 2023:                                             
Stock-based compensation to employees and directors   -    -    68    -    -    -    68    -    68 
Stock-based compensation to service providers   -    -    8    -    -    -    8    -    8 
Issuance of shares   2,000,000     -*    1,000    -    -    -    1,000    -    1,000 
Comprehensive income (loss) for the period   -    -    - -  9    -    (12,653)   (12,644)   -    (12,644)
Balance at September 30, 2023   30,466,807   $3   $155,819 - $        71   $(1,266)  $(142,230)  $12,397   $         -   $12,397 

 

* Represents an amount lower than $1.

 

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)

 

                                                   
   Common Stock   Receipts on    Accumulated           Equity
Attributed
         
   Number   Par
Value
   Additional
Paid-in
Capital
   Account of
Shares to
be Allotted
   Other
Comprehensive
Loss
   Treasury
Shares
   Accumulated
Deficit
   to
Orgenesis
Inc.
   Non-
Controlling
Interest
   Total 
Balance at July 1, 2022   24,820,756   $3   $146,919   $2,175   $(270)  $(1,266)  $(115,808)  $31,753   $90   $31,843 
Changes during the three months ended September 30, 2022:                                                  
Stock-based compensation to employees and directors   -    -    183    -    -    -    -    183    -    183 
Stock-based compensation to service providers   -    -    11    -    -    -    -    11    -    11 
Issuance of warrants with respect to convertible loans   -    -    177    -    -    -    -    177    -    177 
Issuance of shares   724,999    -*    2,175    (2,175)   -    -    -    -    -    - 
Comprehensive loss for the period   -    -    -    -    (556)   -    (1,356)   (1,912)   (52)   (1,964)
Balance at September 30, 2022   25,545,755   $3   $149,465   $-   $(826)  $(1,266)  $(117,164)  $30,212   $38   $30,250 

 

* Represents an amount lower than $1.

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)

 

   September 30, 2023   September 30, 2022 
   Nine Months Ended 
   September 30, 2023   September 30, 2022 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(20,575)  $(10,897)
Adjustments required to reconcile net loss to net cash used in operating activities:          
Stock-based compensation   387    694 
Capital gain, net   -    (5)
Profit from deconsolidation of Octomera   (411)   - 
Share in losses of associated companies, net   9,517    1,189 
Depreciation and amortization expenses   1,366    1,463 
Effect of exchange differences on inter-company balances   129    353 
Net changes in operating leases   (82)   (58)
Interest expenses accrued on loans and convertible loans   769    764 
Loss from extinguishment in connection with convertible loan restructuring   283    - 
Changes in operating assets and liabilities:          
Accounts receivable   (8,076)   (8,838)
Prepaid expenses and other accounts receivable   (1,598)   308 
Inventory   (389)   10 
Other assets   10    17 
Accounts payable   3,925    (1,574)
Accrued expenses and other payables   266    2,379 
Employee and related payables   135    32 
Deferred taxes liability   9    - 
Net cash used in operating activities  $(14,335)  $(14,163)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Repayment of convertible loan to related party partners   -    538 
Increase in loan to associates entities   -    (2,578)
Repayment of loan granted   -    782 
Sale of property and equipment   -    71 
Purchase of property, plant and equipment   (2,096)   (6,971)
Cash acquired from acquisition of Mida   -    702 
Impact to cash resulting from deconsolidation (see note 3)   (973)   - 
Investment in Octomera (see note 3)   (543)   - 
Investment in long-term deposits   (33)   (2)
Net cash used in investing activities  $(3,645)  $(7,458)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from issuance of shares due to exercise of options and warrants (net of transaction costs)   4,341    2,181 
Proceeds from issuance of convertible loans   5,660    19,150 
Proceeds from transaction with redeemable non-controlling interest that do not acquire control of a subsidiary, see note 3   5,000    - 
Repayment of convertible loans and convertible bonds   (3,000)   (2,300)
Repayment of short and long-term debt   (33)   (20)
Proceeds from issuance of loans payable   425      
Grant received in respect of third party   -    1,413 
Transfer of the grant received to third party   -    (329)
Net cash provided by financing activities  $12,393   $20,095 
           
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  $(5,587)  $(1,526)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH   7    19 
           
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD   6,369    5,974 
           
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD  $789   $4,467 
           
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES          
Right-of-use assets obtained in exchange for new operation lease liabilities  $752   $432 
Increase (decrease) in accounts payable related to purchase of property, plant and equipment  $14   $(368)
Issuance of common stocks for the acquisition of Mida  $-   $100 
Extinguishment in connection with convertible loan restructuring  $287   $- 
           
CASH PAID DURING THE YEAR FOR:          
Interest  $785   $458 

 

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

 

10

 

 

ORGENESIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Nine Months Ended September 30, 2023 and 2022

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

(Unaudited)

 

NOTE 1 – DESCRIPTION OF BUSINESS

 

a. General

 

Orgenesis Inc. (the “Company”) 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 (“ATMPs”). The Company is mostly focused on the development of autologous therapies that can be manufactured under processes and systems that are developed for each therapy using a closed and automated approach that is validated for compliant production near the patient for treatment of the patient at the point of care (“POCare”).

 

In connection with the investment by an affiliate of Metalmark Capital Partners (“Metalmark” or “MM”) in the Company’s subsidiary Octomera LLC (formerly Morgenesis LLC) (“Octomera” or “Morgenesis”) in November 2022 (“the Metalmark Investment”), the Company separated its operations into two operating segments: the operations of Octomera (the “Morgenesis” or “Octomera” segment) and therapies related activities (the “Therapies” segment).

 

On June 30, 2023, in connection with an additional $1,000 investment in Octomera, the Company and MM entered into Amendment No. 1 to the Second Amended and Restated Limited Liability Company Agreement (the “LLC Agreement Amendment”) to change the name of Morgenesis to “Octomera LLC” and to amend Morgenesis’ board composition. Pursuant to the LLC Agreement Amendment, the board of managers of Octomera (the “Octomera Board”) will be comprised of five managers, two of which will be appointed by the Company, one of which will be an industry expert appointed by MM, and two of which will be appointed by MM. The change was effective immediately. As a result of the amendment to the composition of the Octomera Board pursuant to the LLC Agreement Amendment described above, the Company deconsolidated Octomera from its consolidated financial statements as of June 30, 2023 (“date of deconsolidation”) and recorded its equity interest in Octomera as an equity method investment, see note 3.

 

The Company currently owns approximately 75% of Octomera LLC.

 

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.” The Company must satisfy Nasdaq’s continued listing requirements, including, among other things, a minimum closing bid price requirement of $1.00 per share for 30 consecutive business days. Because the Company’s share has traded for 30 consecutive business days below the $1.00 minimum closing bid price requirement, Nasdaq has sent a deficiency notice to the Company, which was received on September 27, 2023, advising that it has been afforded a “compliance period” of 180 calendar days to regain compliance with the applicable requirements.

 

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.

 

11

 

 

b. Liquidity

 

Through September 30, 2023, the Company had an accumulated deficit of $142,230. For the nine months ended September 30, 2023, the Company incurred negative cash flows from operating activities of $14,335. The Company’s activities have recently been funded primarily by offerings of its equity securities, loans, and convertible loans. There is no assurance that the Company’s business will generate sustainable positive cash flows to fund its business operations.

 

If there are further reductions in revenues or 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 will need to raise additional funds.

 

The Company expects its current and projected cash resources and commitments will not be sufficient to meet the Company’s obligations for the next 12 months, raising a substantial doubt about the Company’s ability to continue as a going concern. Management plans include raising additional capital to fund the Company’s operations and to repay the Company’s outstanding loans when they become due, as well as exploring additional avenues to increase revenue and reduce capital expenditures. See note 1 a. The Company’s ability to fund the completion of its ongoing and planned activities may be substantially dependent upon whether the Company can obtain sufficient funding at acceptable terms. If the Company is unable to raise sufficient additional capital or meet revenue targets, it may have to reduce or eliminate certain activities and reduce its headcount.

 

The estimation and execution uncertainty regarding the Company’s future cash flows and management’s judgments and assumptions in estimating these cash flows 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, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 22, 2023. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2022, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included in this Quarterly Report on Form 10-Q.

 

b. Significant accounting policies

 

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

 

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 the determination of the fair value of the retained interest of equity investment as of the deconsolidation. Actual results could differ from those estimates.

 

12

 

 

Recently Adopted Accounting Pronouncements

 

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 is 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 adoption of this guidance did not have a material impact on the Company’s 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 results in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance is to be applied prospectively to acquisitions that occur on or after the effective date. The guidance is currently effective for fiscal years that began 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 adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

Recently issued accounting pronouncements, not yet adopted

 

On August 23, the FASB issued guidance requiring a joint venture to initially measure all contributions received upon its formation at fair value. This accounting will largely be consistent with ASC 805, Business Combinations, although there are some specific exceptions. Before the ASU, there was no authoritative guidance in US GAAP that addressed how a joint venture should recognize contributions received. As a result, there has been diversity in practice, with some joint ventures accounting for contributions received at carry over basis and others at fair value. This new guidance is intended to reduce diversity in practice and provide users of the joint venture’s financial statements with more decision-useful information. It may also reduce the amount of basis differences that an investor in a joint venture needs to track. The new guidance should be applied prospectively and is effective for all newly-formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted. The adoption of this guidance will not have a material impact on the Company’s 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.

 

NOTE 3 – REDEEMABLE NON-CONTROLLING INTEREST AND DECONSOLIDATION

 

Additional Investments in Octomera LLC

 

During 2023, the Company and MM entered into various amendments to the Unit Purchase Agreement, dated November 4, 2022 (the “UPA”). Pursuant to such amendments, MM or the Company as the case may be, agreed to pay certain amounts in exchange for Class A Preferred Units of Octomera to support the continued expansion of Orgenesis’ POCare Services (the “Subsequent Investment”), all as detailed in the table below. In the case of MM investments, the investment amount of the First Future Investment (as defined in the UPA) was reduced by the amount of the Subsequent Investment.

 

Date  Investing party  Amendment #   Amount   Class A Preferred
units obtained
 
May 5, 2023  MM  1   $5,000    500,000 
June 30, 2023  MM  2   $1,000    100,000 
August 22, 2023  MM  3   $100    10,000 
August 29, 2023  Company  4   $543    54,310 
September 6, 2023  MM  5   $100    10,000 
September 13, 2023  MM  6   $150    15,000 
September 28, 2023  MM  7   $150    15,000 
October 12, 2023  Company  8   $117    11,700 
November 9, 2023  Company  9   $176    17,600 

 

During October 2023, MM loaned an Octomera subsidiary $700. The loan bears annual interest of 10% and is due for repayment during April 2024.

 

13

 

 

As a result of the deconsolidation (see note 1a), the Company recorded a net profit of $411, representing the difference between the fair value of the retained interest in Octomera and the net assets deconsolidated in the transaction as follows:

  

     
Fair value of the retained interest in Octomera  $31,442 
Net assets deconsolidated   32,551 
Other related items deconsolidated, net   (1,520)
Net profit  $411 

 

The change in board composition does not constitute a strategic shift from the Company’s perspective and therefore the Company did not treat the deconsolidation as a discontinued operation.

 

Following the Amendment No. 2, the Company accounted for its investment in Octomera according to the equity method in accordance with ASC Topic 323, as it has retained the ability to exercise significant influence but does not control the entity. The Company thus recognized an equity method investment in a total amount of $31,400 comprised of the assumed fair value of the Octomera shares held by the Company. Following the deconsolidation, the Company recognized related party balances that are disclosed on the face of the Company’s balance sheet.

 

The preliminary allocation of the purchase price (“PPA”) to net assets acquired and liability assumed resulted in the recognition of intangible asset of $6,200 and other net assets of $25,200. The value assigned to intangible assets is amortized over a period of 10 years and the related amortization will be included under share in net losses (profits) from associated companies. The estimated fair value is preliminary and based on the information that was available as of June 30, 2023.

 

In evaluating the fair value of the Octomera Equity Investment under the income approach, the Company used a discounted cash flow model of the business, adjusted to the Company’s share in the investment. Key assumptions used to determine the estimated fair value included: (a) internal cash flows forecasts for 5 years following the assessment date, including expected revenue growth, costs to produce, operating profit margins and estimated capital needs; (b) an estimated terminal value using a terminal year long-term future growth determined based on the growth prospects of the reporting units; and (c) a discount rate which reflects the weighted average cost of capital adjusted for the relevant risk associated with the Company’s reporting unit operations and the uncertainty inherent in the Company’s internally developed forecasts. The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of other intangible assets, net, which comprised of technology. The useful life of the technology for amortization purposes was determined by considering the period of expected cash flows generated by the assets used to measure the fair value of the intangible assets, adjusted as appropriate for the entity-specific factors including legal, regulatory, contractual, competitive, economic, or other factors that may limit the useful life of intangible assets.

 

The following table represents the deconsolidated amounts from the Company’s Balance Sheet at the date of deconsolidation:

  

      
ASSETS:     
Cash and cash equivalents   973 
Other current assets   47,217 
Non-current assets   29,443 
TOTAL ASSETS   77,633 
      
LIABILITIES:     
Current liabilities   6,566 
Long-term liabilities   2,313 
TOTAL LIABILITIES   8,879 
      
REDEEMABLE NON-CONTROLLING INTEREST   36,203 
      
NET ASSETS DECONSOLIDATED   32,551 

 

14

 

 

NOTE 4 – EQUITY-METHOD INVESTMENTS

 

As of September 30, 2023, and December 31, 2022, the balances of our equity-method investments were 22,509 and $39, respectively, and are as follows:

 

Octomera LLC

 

The Company currently owns approximately 75% of Octomera LLC.

 

As of September 30, 2023, the balance of our equity-method investment related to Octomera was approximately $22,479. Through September 30, 2023, the Company’s share in Octomera’s net loss was $9,507.

 

Our equity-method investment in Octomera is considered a significant investee as our proportionate share of its income is greater than 20% of our total net loss. The following table presents summarized results of operations for the three months since the date of deconsolidation:

 

   Three-Months Ended 
   September 30,
2023
 
Total revenue  $2,704 
Gross loss  $ 478 
Net loss  $ 11,820 

 

NOTE 5 – SEGMENT INFORMATION

 

The Octomera operations segment includes mainly POCare Services, while the Therapies segment includes the Company’s therapeutic development operations. The segment information includes all the results of the Octomera segment up to the effective date of deconsolidation.

 

Because the Company conducted all its operations as one segment prior to the Metalmark Investment, the above changes were reflected through retroactive revision of prior period segment information based on the subsidiaries that were transferred to Octomera. Certain activities of these subsidiaries have changed after they were transferred to the Octomera operations segment.

 

The Company’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the two identified reportable segments to make decisions about resources to be allocated to the segments and assess their performance.

 

The Company does not review assets by segment. Therefore, the measure of assets has not been disclosed for each segment.

 

15

 

 

Segment data for the nine months ended September 30, 2023 is as follows:

  

   Octomera   Therapies   Eliminations   Consolidated 
Revenues  $16,483    350   $(2,704)  $14,129 
Cost of revenues*   (6,959)   (531)   1,874    (5,616)
Gross profit   9,524    (181)   (830)   8,513 
Cost of development services and research and development expenses*   (6,828)   (2,830)   2,327    (7,331)
Operating expenses*   (13,329)   (4,962)   9,706    (8,585)
Share in net income of associated companies   -    (10)   (9,507)   (9,517)
Other income, net   2    2    -    4 
Depreciation and amortization   (1,294)   (589)   517    (1,366)
Loss from extinguishment in connection with convertible loan   -    (283)   -    (283)
Financial Expenses, net   (587)   (1,314)   94    (1,807)
Profit from deconsolidation of Octomera   -    -    411    411 
Income (loss) before income taxes  $(12,512)   (10,167)  $2,718   $(19,961)

 

* Excluding Depreciation and amortization expenses

 

Segment data for the nine months ended September 30, 2022 is as follows:

 

   Octomera   Therapies   Eliminations   Consolidated 
Revenues  $20,705    5,908   $(5,496)  $21,117 
Revenues from related party   1,284    -    -    1,284 
Total revenues   21,989    5,908    (5,496)   22,401 
Cost of revenues*   (1,988)   (857)   356    (2,489)
Gross profit   20,001    5,051    (5,140)   19,912 
Cost of development services and research and development expenses*   (10,791)   (11,209)   4,297    (17,703)
Operating expenses*   (2,822)   (6,742)   843    (8,721)
Share in net income of associated companies   (222)   (967)   -    (1,189)
Other income, net   2    4    -    6 
Depreciation and amortization   (685)   (778)   -    (1,463)
Financial Expenses, net   (2,087)   385    -    (1,702)
Income (loss) before income taxes  $3,396   $(14,256)  $-   $(10,860)

 

* Excluding Depreciation and amortization expenses

 

Segment data for the three months ended September 30, 2023 is as follows:

 

   Octomera   Therapies   Eliminations   Consolidated 
Revenues  $2,704    110   $(2,704)  $110 
Cost of revenues*   (1,875)   (133)   1,874    (134)
Gross profit   829    (23)   (830)   (24)
Cost of development services and research and development expenses*   (2,327)   (779)   2,327    (779)
Operating expenses*   (9,706)   (1,241)   9,706    (1,241)
Share in net income of associated companies   -    (11)   (9,507)   (9,518)
Other income   -    2    -    2 
Depreciation and amortization   (515)   (193)   517    (191)
Financial Expenses, net   (93)   (508)   93    (508)
Income (loss) before income taxes  $(11,812)   (2,753)  $2,306   $(12,259)

 

* Excluding Depreciation, amortization expenses

 

16

 

 

Segment data for the three months ended September 30, 2022 is as follows:

 

   Octomera   Therapies   Eliminations   Consolidated 
Revenues  $7,756    2,046   $(1,961)  $7,841 
Revenues from related party   147    -    -    147 
Total revenues   7,903    2,046    (1,961)   7,988 
Cost of revenues*   (664)   (217)   -    (881)
Gross profit   7,239    1,829    (1,961)   7,107 
Cost of development services and research and development expenses*   (4,019)   (1,181)   1,662    (3,538)
Operating expenses*   (1,385)   (2,002)   299    (3,088)
Share in net income of associated companies   (222)   (52)   -    (274)
Other income (loss), net   (1)   (1)   -    (2)
Depreciation and amortization   (288)   (200)   -    (488)
Financial Expenses, net   (836)   (264)   -    (1,100)
Income (loss) before income taxes  $488   $(1,871)  $-   $(1,383)

 

* Excluding Depreciation, amortization expenses

 

NOTE 6 – EQUITY

 

On February 23, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional and accredited investors (the “Purchaser”) relating to the issuance and sale of 1,947,368 shares (the “Shares”) of common stock, par value $0.0001 per share (the “Common Stock”), and warrants to purchase up to 973,684 shares of Common Stock (the “Warrants”) at a purchase price of $1.90 per share of Common Stock and accompanying Warrants in a registered direct offering (the “Offering”). The Offering closed on February 27, 2023 (the “Closing Date”).

 

The Warrants have an exercise price of $1.90 per share, are exercisable immediately and will expire five years following the date of issuance. The Warrants have an alternate cashless exercise option (beginning on or after the earlier of (a) the thirty-day anniversary of the date of the Purchase Agreement and (b) the date on which the aggregate composite trading volume of Common Stock following the public announcement of the pricing terms exceeds 13,600,000 shares), to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of Common Stock that would be issuable upon a cash exercise and (y) 1.0. The aggregate gross proceeds to the Company from the Offering were $3,700, before deducting placement agent cash fees equal to 7.0% of the gross proceeds received and other expenses from the Offering payable by the Company. The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes, including the Company’s therapy related activities.

 

As of September 30, 2023, all of the warrants were exercised using the alternate cashless exercise option described above.

 

On August 31, 2023, the Company entered into a Securities Purchase Agreement with a certain accredited investor, pursuant to which the Company agreed to issue and sell, in a private placement (the “Offering”), 2,000,000 shares of the Company’s common stock, par value $0.0001 per share, at a purchase price of $0.50 per share. The Company received proceeds of $1,000. The Offering closed on August 31, 2023.

 

17

 

 

NOTE 7 –LOANS

 

On July 25, 2023, one of the Company’s subsidiaries received a loan from an offshore investor in the amount of $175. The loan bears 8% annual interest and is repayable on January 1, 2024.

 

On August 15, 2023, the Company received a loan from an investor in the amount of $250. The loan bears 8% annual interest and is repayable on January 1, 2024.

 

During October 2023, the Company’s subsidiaries received loans in the amount of $140. The loans bear interest at annual interest rates ranging from 0% to 10%, and are repayable between November 30, 2023 and January 1, 2024.

 

 

NOTE 8 – CONVERTIBLE LOANS

 

Convertible loans outstanding as of September 30, 2023 and December 31, 2022 are as follows:

  

Principal
Amount
   Issuance
Date
(Year)
   Current
Interest
Rate %
   Current
Maturity
(Year)
   Current
Conversion
Price $
 
                  
Convertible Loans Outstanding as of September 30, 2023 
$750    2018    10%   2026    2.50 
 1,500    2019    10%   2026    7.00 
 100    2019    8%   2023    2.50 
 5,000    2019    10%   2026    2.50 
 100    2020    8%   2023    7.00 
 5,000    2022    10%   2026    2.50 
 1,150**   2022    6%   2023    4.50 
 5,000    2023    8%   2026    2.46 
 660    2023    8%   2024    * 
$19,260                     

 

  * See Koligo convertible loan agreement below.
  ** Seenote 13.

 

Convertible Loans Outstanding as of December 31, 2022 
  
$750    2018    2%   2023    7.00 
 1,600    2019    8%   2024    7.00 
 5,000    2019    6%   2023    7.00 
 100    2020    8%   2023    7.00 
 8,000    2022    10%   2024    2.50 
 1,150    2022    6%   2023    4.50 
$16,600                     

 

Convertible Loans Entered into in 2023

 

On January 10, 2023 (the “Effective Date”), the Company entered into the following agreements: (i) a convertible loan agreement (the “NewTech Convertible Loan Agreement”) with NewTech Investment Holdings, LLC (the “NewTech Lender”), pursuant to which the NewTech Lender loaned the Company $4,000 (the “NewTech Loan Amount”), and (ii) a convertible loan agreement (the “Malik Convertible Loan Agreement”, together with the NewTech Convertible Loan Agreement, the “Convertible Loan Agreements”) with Ariel Malik (the “Malik Lender”, together with the NewTech Lender, the “Lenders”), pursuant to which the Malik Lender loaned the Company $1,000 (the “Malik Loan Amount”, together with the NewTech Loan Amount, the “Loan Amount”).

 

18

 

 

The terms of the NewTech Convertible Loan Agreement and the Malik Loan Agreement are identical. Interest is calculated at 8% per annum (based on a 365-day year); provided, that if an Event of Default (as defined in the Convertible Loan Agreements) has occurred and is continuing, the Outstanding Amount (as defined herein) will be calculated at 15.0% per annum. The Loan Amount and all accrued but unpaid interest thereon (collectively, the “Outstanding Amount”) shall either (i) be repaid in cash or (ii) convert to shares of common stock, par value $0.0001 per share (“Common Stock”), of the Company on the third anniversary of the Effective Date (the “Maturity Date”). The Maturity Date may be extended by the Lender upon the written consent of the Lender. The Outstanding Amount may be prepaid by the Company in whole or in part at any time with the prior approval of the Lender.

 

At any time prior to or on the Maturity Date, any Lender may provide the Company with written notice to convert all or part of the Outstanding Amount into shares of our Common Stock equal to the quotient obtained by dividing (x) the Outstanding Amount by (y) a price equal to $2.464 per share (subject to adjustment for certain capital events, such as stock splits) (the “Conversion Price”).

 

Under the terms of the Convertible Loan Agreements, the Company used the proceeds from the Loan Amount to (i) redeem the loan amount from the previously disclosed Convertible Loan Agreement, dated as of May 19, 2022 between Orgenesis and Ricky Steven Neumann, as amended by the previously disclosed certain Convertible Loan Extension Agreement, dated as of October 23, 2022, by and between Orgenesis and Ricky Steven Neumann, and (ii) for general corporate purposes. Pursuant to the terms, the Company repaid said loan upon receipt of the Loan Amount.

 

In connection with such loan, the Company agreed to issue the NewTech Lender warrants representing the right to purchase 405,844 shares of Common Stock, at an exercise price of $2.50 per share and the Malik Lender warrants representing the right to purchase 101,461 shares of Common Stock, at an exercise price of $2.50 per share. Such Warrants will be exercisable at any time beginning six months and one day after closing and ending 36 months after the closing date.

 

Koligo Convertible Loan

 

On March 27, 2023, the Company’s subsidiary Koligo Therapeutics Inc. (“Borrower”), entered into a convertible loan agreement (the “Convertible Loan Agreement”) with Yehuda Nir (the “Lender,” and together with the Borrower, the “Parties”), pursuant to which the Lender agreed to loan the Borrower up to $5,000 (the “Loan Amount”). Interest is calculated at 8% per annum (based on a 365-day year) and is payable, along with the principal, on or before January 1, 2024 (the “Maturity Date”). The Maturity Date may be extended by the Lender in the Lender’s sole and absolute discretion and any such extension(s) shall be in writing signed by the Parties. The Loan Amount may be prepaid by the Borrower in whole or in part at any time with the prior written approval of the Lender.

 

If prior to December 31, 2023, the Borrower issues equity securities (“Equity Securities”) in a transaction or series of related transactions resulting in aggregate gross proceeds to the Borrower of at least $5,000 (excluding conversion of the Loan Amount) (a “Qualified Financing”), then the outstanding principal amount of the Loan Amount, and any and all accrued but unpaid interest thereon (collectively, the “Outstanding Amount”), will automatically convert into such Equity Securities issued pursuant to the Qualified Financing at a price per share equal to fifty percent (50%) of the price per share paid for each share of the Equity Securities purchased for cash by the investors in the Qualified Financing (the “Mandatory Conversion”). The per share price for the Mandatory Conversion shall be calculated on a fully diluted basis (including equity underlying all outstanding options, warrants, and other convertible securities, but excluding the Equity Securities issuable upon the Mandatory Conversion).

 

The Parties agreed that the Lender shall have the option to assign $1,500 of the Loan Amount due to the Lender under that certain convertible loan agreement between the Lender and the Company dated April 21, 2022, as amended, (collectively the “Original Loan”), to the Borrower (the “Loan Assignment”). The terms of the Loan Assignment will be the same as under the Original Loan, including a maturity date of January 31, 2026 and an annual interest rate of 10%. The Loan Assignment will be subject to the Mandatory Conversion as described above. As of the date of the issue of these financial statements, said assignment has not occurred.

 

19

 

 

Under the terms of the Koligo Convertible Loan Agreement, the Borrower agreed to use the Loan Amount to fund working capital and ongoing operations and for no other purposes unless the Lender agrees in writing. As of September 30, 2023, Koligo received $660 under the Koligo Convertible Loan Agreement.

 

On September 29, 2023, Borrower entered into another convertible loan agreement (the “Sai Convertible Loan Agreement”) with Sai Traders (the “Lender,” and together with the Borrower, the “Parties”), pursuant to which the Lender agreed to loan the Borrower up to $25,000 (the “Sai Convertible Loan”). The Sai Convertible Loan shall consist of an Initial Installment of $1,500 (“Initial Installment”), and at the election of the Borrower thereafter while the Sai Convertible Loan remains outstanding, Borrower may issue up to an additional $23,500 (“Subsequent Installments”). The Sai Convertible loan bears transaction costs of 8%. Interest is calculated at 10% per annum (based on a 365-day year) of all outstanding principal borrowings and is payable, along with the principal (collectively the “Outstanding Amount”), on or before December 1, 2027 (the “Maturity Date”). The Loan Amount may be prepaid by the Borrower in whole or in part at any time without penalty.

 

Under the terms of the Sai Convertible Loan Agreement, at the option of the Lender at the Maturity Date or any time prior, the Outstanding Amount may be convertible, in whole or in part, into the number of shares of Common Stock of the Company equal to the quotient obtained by dividing (x) the Outstanding Amount by (y) the Conversion Price. The “Initial Installment Conversion Price” for the Outstanding Amount relating to the Initial Installment shall be a price per share of Common Stock equal to $2.50. The “Subsequent Installment Conversion Price” for the Outstanding Amount relating to the Subsequent Installment(s) shall be a price per share of Common Stock equal to $3.50. Lender agrees that it shall not deliver a notice of conversion that upon effect results in the holder to beneficially own more than 19.99% of the then outstanding shares of Company’s Common Stock. Lender may elect to, instead of the conversion of the Outstanding Amount into Common shares of Company, convert the entire Outstanding Amount into the securities of Borrower pursuant to a the first issuance of equity of the Borrower under which the Borrower raises at least $5,000 in gross proceeds (“Qualified Financing”) at a price per share equal to 75% of the price per share paid for each share of the equity securities purchased for cash by the investors in such a Qualified Financing. In the event of the Borrower being listed on a public securities exchange, Lender shall have the option to convert the Outstanding Amount at a 25% premium to the volume weighted average price of the Borrower’s equity over the preceding five (5) days as reported by Bloomberg (“5-Day VWAP”), provided that any such conversion shall not result in the Lender to beneficially own more than 19.99% of the then beneficial shares of the Borrower. In the event of an acquisition of the Borrower (“Acquisition”), prior to the closing of such acquisition, Lender shall have the option to convert the Outstanding Amount into equity securities of the Borrower at a price equivalent to seventy five percent (75%) of the price paid by such buyer to acquire the Borrower.

 

As of September 30, 2023, and as of the date of this report, the Initial Installment was not received, and was therefore not reflected in the Consolidated Balance sheet of September 30, 2023.

 

Extension of Existing Loan Agreements

 

On January 12, 2023, the Company entered into (i) a Convertible Credit Line and Unsecured Convertible Note Extension #2 Agreement with Yosef Dotan (the “Dotan Extension Agreement”), (ii) a Convertible Credit Line Extension Agreement with Aharon Lukach (the “Lukach Extension Agreement”) and (iii) a Convertible Loans and Unsecured Convertible Notes Extension #2 Agreement with Yehuda Nir (the “Nir Extension Agreement”), each which extended the maturity date of the convertible loans under their respective loan agreements (as described below) to January 31, 2026. The aggregate principal amount of loans extended was $12,000 and the interest rate on the extended loans varied between 2% and 10%. In consideration for the extensions, (i) the interest rate on such principal amount of such loans was increased to 10% per annum commencing on February 1, 2023 (except for the Nir Convertible Loan Agreement dated as of April 12, 2022, which already had a 10% per annum interest rate), (ii) the conversion price of the loans was reduced from $7.00 to $2.50 (except for the Nir Convertible Loan Agreement dated as of April 12, 2022, which already had a $2.50 conversion price), (iii) the exercise price of the warrants issuable upon conversion of the 2% Notes and the Nir Convertible Loan Agreement dated as of May 17, 2019 was reduced to $2.50 per share and the term of such warrants was extended to January 31, 2026.

 

20

 

 

The Dotan Extension Agreement related to a Convertible Credit Line Agreement dated as of October 3, 2019, as amended, of which $750 principal amount plus interest is outstanding as of September 30, 2023, and 2% Notes purchased from the Company on November 3, 2018, of which $250 principal amount plus interest is outstanding. Based on its analysis, the Company concluded that the change in terms referred to Convertible Credit Line Agreement and the 2% Notes should be accounted for as a modification and an extinguishment respectively.

 

The Lukach Extension Agreement related to a Convertible Credit Line Agreement dated as of October 3, 2019, as amended, of which $750 principal amount plus interest is outstanding as of September 30, 2023. Based on its analysis, the Company concluded that the change in terms referred to above should be accounted for as a modification.

 

The Nir Extension Agreement related to 2% Notes purchased from the Company on November 3, 2018, as amended, of which $500 principal amount plus interest is outstanding as of September 30, 2023, a Convertible Loan Agreement dated as of May 17, 2019, of which $5,000 principal amount plus interest is outstanding, and a Convertible Loan Agreement dated as of April 12, 2022, as amended, of which $5,000 principal amount plus interest is outstanding. Based on its analysis, the Company concluded that the change in terms referred to the 2% Notes and Convertible Loan Agreement should be accounted for as an extinguishment and a modification respectively.

 

NOTE 9 – 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 during the period from January 1, 2023 to September 30, 2023:

 

   No. of Options Granted   Exercise Price   Vesting Period  Fair Value at Grant   Expiration Period
Employees   253,500   $0.74   Quarterly over a period of two years  $128   10 years

 

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

 

   During the Period from
January 1, 2023 to
September 30, 2023
 
Value of one common share   $0.58-$1.36 
Dividend yield   0%
Expected stock price volatility   70%-78%
Risk free interest rate   3.91%-4.28%
Expected term (years)   5.56-6.06 

 

  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, 2023 to September 30, 2023:

 

  

No. of Options

Granted

  
Exercise Price
   Vesting Period 

Fair Value at Grant

  
Expiration
Period
Non-employees   8,335   $1.36   Annually over a period of five years  $9   10 years

 

21

 

 

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

 

   During the Period from
January 1, 2023 to
September 30, 2023
 
Value of one common share  $1.36 
Dividend yield   0%
Expected stock price volatility   80%
Risk free interest rate   4.07%
Expected term (years)   10 

 

NOTE 10 – LOSS PER SHARE

 

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

 

   September 30, 2023   September 30,
2022
   September 30, 2023   September 30,
2022
 
   Three Months Ended   Nine Months Ended 
   September 30, 2023   September 30,
2022
   September 30, 2023   September 30,
2022
 
Basic and diluted:                    
Net loss attributable to Orgenesis Inc.  $12,653   $1,356   $20,969   $10,792 
Weighted average number of common shares outstanding   29,162,459    25,403,907    27,933,067    24,944,814 
Net loss per share  $0.43   $0.05   $0.75   $0.43 

 

For the nine months ended September 30, 2023 and September 30, 2022, 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 7,929,275 shares underlying outstanding options and warrants and 7,139,018 shares upon conversion of convertible loans for the nine months ended September 30, 2023, because the effect of their inclusion in the computation would be antidilutive. Diluted loss per share does not include 7,963,476 shares underlying outstanding options and warrants and 7,213,348 shares upon conversion of convertible loans for the three months ended September 30, 2023, because the effect of their inclusion in the computation would be antidilutive.

 

Diluted loss per share does not include 6,481,221 shares underlying outstanding options and warrants and 2,327,590 shares upon conversion of convertible loans for the nine months ended September 30, 2022, because the effect of their inclusion in the computation would be antidilutive. Diluted loss per share does not include 7,040,592 shares underlying outstanding options and warrants and 3,118,868 shares upon conversion of convertible loans for the three months ended September 30, 2022, because the effect of their inclusion in the computation would be antidilutive.

 

NOTE 11 – REVENUES

 

Disaggregation of Revenue

 

The following table disaggregates the Company’s revenues by major revenue streams:

 

                     
   Three Months Ended   Nine Months Ended 
   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
Revenue stream:                    
                     
POC development services  $-   $1,118   $-   $13,716 
Cell process development services and hospital services   110    4,438    8,598    5,837 
POC cell processing   -    2,432    5,531    2,848 
Total  $110   $7,988   $14,129   $22,401 

 

22

 

 

 

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

 

   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
   Three Months Ended   Nine Months Ended 
   September 30, 2023   September 30, 2022   September 30, 2023   September 30, 2022 
Revenue earned:                    
                     
Customer A (United States)  $-   $-   $3,415   $- 
Customer B (United States)  $-   $-   $2,572   $-