NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – DESCRIPTION OF BUSINESS
a.
General
Orgenesis
Inc. is a global biotech company working to unlock the potential of 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, or ATMPs. The Company is mostly focused on 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, or 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 collaborative worldwide network of research institutes and hospitals who are engaged
in the POCare model, or the Company’s POCare Network, and a pipeline of licensed POCare advanced therapies that can be processed
and produced under such closed and automated processes and systems, or POCare Therapies. The Company is developing its pipeline of advanced
therapies and with the goal of entering into out-licensing agreements for them. The Company’s cellular therapies, though defined
as drug products, conceptually differ from other drug modalities in that they are based on reprogramming of cells sourced from the patient
or from a donor. In most cases, they are individually produced per patient in a highly sterile and controlled environment, and their
efficacy is optimized when administered a short time following production as fresh product.
To
advance the execution of the Company’s goal of bringing such therapies to market, the Company has designed and built the Company’s
POCare Platform - a scalable infrastructure of technology and services that ensures a central quality system, replicability and standardization
of infrastructure and equipment, and centralized monitoring and data management. The platform is constructed on POCare Centers that serve
as hubs that implement locally the Company’s POCare quality system, Good Manufacturing Practices, training procedures, quality
control testing, incoming supply of materials and oversee the actual production in the Orgenesis Mobile Processing Units & Labs,
or OMPULs. During the year ended December 31, 2022 the Company streamlined its POCare platform with the incorporation of a new subsidiary,
Morgenesis, which became responsible for certain POC operations. This platform is utilized by other parties, such as biotech companies
and hospitals for the supply of their products. Morgenesis services include adapting the process to the platform and supplying the products,
or POCare Services. These are services for third party companies and for CGT’s that are not necessarily based on the Company’s
POCare Therapies.
POCare
Services
The
POCare Services that the Company and its affiliated entities perform include:
● |
Process
development of therapies, process adaptation, and optimization inside the OMPULs, or “OMPULization”; |
● |
Adaptation
of automation and closed systems to serviced therapies; |
● |
Incorporation
of the serviced therapies compliant with GMP in the OMPULs that the Company designs and built; |
● |
Tech
transfers and training of local teams for the serviced therapies at the POCare Centers; |
● |
Processing
and supply of the therapies and required supplies under GMP conditions within the Company’s POCare Network, including required
quality control testing; and |
● |
Contract
Research Organization services for clinical trials. |
The
POCare Services are performed in decentralized hubs that provide harmonized and standardized services to customers, or POCare Centers.
The Company is working to expand the number and scope of the Company’s POCare Centers with the intention of providing an efficient
and scalable pathway for CGT therapies to reach patients rapidly at lowered costs. Our POCare Services are designed to allow rapid capacity
expansion while integrating new technologies to bring together patients, doctors and industry partners with a goal of achieving standardized,
regulated clinical development and production of therapies.
POCare
Services Operations via Subsidiaries
The
Company currently conducts its core business operations itself and through Morgenesis and its subsidiaries which are all wholly owned
except as otherwise stated below (collectively, the “Subsidiaries”). The following is a description of the Company’s
Subsidiaries:
Morgenesis
LLC
In
August 2022, the Company formed Morgenesis LLC, a subsidiary to hold substantially all the assets of the Company’s POCare Services.
The Company formed Morgenesis to streamline all existing POCare Service business units into one unified entity, bringing together a full-service
range of solutions for therapeutic developers for point of care treatments. The newly formalized service offering provides solutions
from initial process development, regulatory strategy and implementation, “OMPULization” which includes cGMP process development,
closing/automating the process, and with the end goal of optimizing full cGMP processing and supply of therapeutic product to patients
at the point of care. The Company currently owns 76.9% of Morgenesis.
During
November 2022, the Company and MM OS Holdings, L.P. (“MM”), an affiliate of Metalmark Capital Partners (“Metalmark”),
entered into a series of definitive agreements intended to finance, strengthen and expand the Company’s POCare Services business
(the “Metalmark Investment”). Pursuant to a unit purchase agreement (the “UPA”), MM purchased 3,019,651
Class A Preferred Units of Morgenesis (the “Class
A Units”), which represents 22.31%
of the outstanding equity interests of Morgenesis
following the initial closing, for a purchase price of $30.2 million, comprised of (i) $20
million of cash consideration and (ii) the conversion
of $10.2 million of MM’s then-outstanding senior secured convertible loans previously entered into with MM. Under certain conditions
related to Morgenesis’ performance among others, MM has agreed to make future payments of up to $20 million in cash for additional
Class A (or Class B) Units, and/or make a one-time cash payment of $10 million to Orgenesis (the “Earnout Payment”). In connection
with the entry into of the UPA, the Company, Morgenesis and MM entered into the Second Amended and Restated Limited Liability Company
Agreement (the “LLC Agreement”) providing for certain restrictions on the disposition of Morgenesis securities, the provisions
of certain options and rights with respect to the management and operations of Morgenesis, a right for MM to exchange any units of Morgenesis
for shares of Orgenesis common stock and certain other rights and obligations. In addition, MM was provided certain protective rights
in Morgenesis. (See note 3)
The
Company transferred the following subsidiaries to Morgenesis:
● |
Orgenesis
Maryland LLC, which is the center of POCare Services activity in North America and is currently focused on setting up and providing
POCare Services and cell-processing services to the POCare Network. |
● |
Tissue
Genesis International LLC, which was formed in Texas in 2022, is currently focused on development of the Company’s technologies
and therapies. |
● |
Orgenesis
Services SRL, which was incorporated in 2022 and is currently focused on expanding the Company’s POCare Network in Belgium. |
● |
Orgenesis
Germany GmbH, which is currently focused on providing CRO services to the POCare Network. |
● |
Orgenesis
Korea Co. Ltd., which is a provider of cell-processing and pre-clinical services in Korea. The Company owns 94.12% of the Korean
Subsidiary. |
● |
Orgenesis
Biotech Israel Ltd., which is a provider of process development and cell-processing services in Israel. |
POCare
Therapies
The
Company’s POCare Network is an alternative to the traditional pathway of drug development. The Company collaborates with academic
institutions and entities that have been spun out from such institutions. The Company is in close contact with researchers who are experts
in the field of the drug and also partners with leading hospitals and research institutes. Based on such collaborations, the Company
enters into in-licensing agreements with relevant institutions for promising therapies with the aim of adapting them to a point-of-care
setting through regional or strategic biological partnerships. It then is able to out-license its own therapeutic developments, as well
as those therapies developed from in-licensing agreements, to out-licensing partners at preferred geographical regions.
This
approach lowers overall development costs through minimizing pre-clinical development costs incurred by the Company, and through receiving
of the additional funding from grants and/or payments by regional partners.
The
Company’s therapies development subsidiaries are:
● |
Koligo
Therapeutics, Inc., a Kentucky corporation, which is a regenerative medicine company, specializing in developing personalized cell
therapies. It is currently focused on commercializing its metabolic pipeline via the POCare Network throughout the United States
and in international markets. |
|
|
● |
Orgenesis
CA, Inc. a Delaware corporation, which is currently focused on development of technologies and therapies in California. |
|
|
● |
Orgenesis
Belgium SRL which is currently focused on product development. Since its incorporation, the subsidiary been awarded grants in excess
of 18 million Euro from the Walloon region for several projects (DGO6 grants). |
|
|
● |
Orgenesis
Switzerland Sarl, which is currently focused on providing group management services. |
|
|
● |
MIDA
Biotech BV, which was acquired in 2022 and is currently focused on research and development activities, was granted a 4 million Euro
grant under the European Innovation Council Pathfinder Challenge Program which supports cutting-edge science and technology. The
grant is for technologies enabling the production of autologous induced pluripotent stem cells (iPSCs) using microfluidic technologies
and artificial intelligence (AI). |
|
|
● |
Orgenesis
Italy SRL which was incorporated in 2022 and is currently focused on R&D activities. |
|
|
● |
Orgenesis
Ltd., an Israeli subsidiary which is focused on R&D and a provider of R&D management services for out licenced products.
Israel as a hub for biotech research and pioneers in this field |
|
|
● |
Orgenesis
Australia PTY LTD, which was incorporated in 2022 and is currently focused on the development of the Company’s technologies
and therapies. |
b.
Liquidity
Through
December 31, 2022, the Company had an accumulated deficit of $121 million as of December 31, 2022 and negative operating cashflows of
$24.9 million in the year ended December 31, 2022. The Company’s activities have been funded by generating revenue, offerings of
the Company’s securities and raising of loans. There is no assurance that the Company’s business will generate sustainable
positive cash flows to fund its business.
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.
Current
and projected cash resources and commitments, as well as other factors mentioned above, raise a substantial doubt about the Company’s
ability to continue as a going concern to meet the Company’s current operations for the next 12 months. Management plans include
raising additional capital to fund its operations, as well as exploring additional avenues to increase revenue and reduce capital expenditures.
If the Company is unable to raise sufficient additional capital or meet revenue targets, it may have to curtail certain activities.
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 - SIGNIFICANT ACCOUNTING POLICIES
The
consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States
(“U.S. GAAP”).
a.
Use of Estimates in the Preparation of Financial Statements
The
preparation of the Company’s 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, the Company evaluates its estimates, judgments and methodologies. The Company
bases its estimates on historical experience and on various other assumptions that it believes 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 the Company’s 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. The Company examined the impact of COVID-19 on the Company’s 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.
b.
Business Combination
The
Company allocates the fair value of consideration transferred in a business combination to the assets acquired, liabilities assumed,
and non-controlling interests in the acquired business based on their fair values at the acquisition date. All assets and liabilities
are recognized in fair value. The purchase price allocation process requires management to make significant estimates and assumptions,
especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination
are expensed as incurred. The excess of the fair value of the consideration transferred plus the fair value of any non-controlling interest
in the acquiree over the fair value of the assets acquired, liabilities assumed in the acquired business is recorded as goodwill. The
allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values
during the measurement period, which may be up to one year from the acquisition date. The cumulative impact of revisions during the measurement
period is recognized in the reporting period in which the revisions are identified. The Company includes the results of operations of
the business that it has acquired in its consolidated results prospectively from the date of acquisition.
If
the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest
in the acquire is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized
in profit or loss.
c.
Cash Equivalents
The
Company considers cash equivalents to be all short-term, highly liquid investments, which include money market instruments, that are
not restricted as to withdrawal or use, and short-term bank deposits with original maturities of three months or less from the date of
purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.
d.
Cost of revenues, development services and research and development expenses
Cost
of revenues, development services and research and development expenses include costs directly attributable to the conduct of research
and development activities, including the cost of salaries, stock-based compensation expenses, payroll taxes and other employees’
benefits, lab expenses, consumable equipment, courier fees, travel expenses, professional fees and consulting fees. All costs associated
with research and developments are expensed as incurred. Participation from government departments and from research foundations for
development of approved projects is recognized as a reduction of expense as the related costs are incurred. Research and development
in-process acquired as part of an asset purchase, which has not reached technological feasibility and has no alternative future use,
is expensed as incurred.
e.
Principles of Consolidation
The
consolidated financial statements include the accounts of the Company and its Subsidiaries. All intercompany transactions and balances
have been eliminated in consolidation.
f.
Non-Marketable Equity Investments
The
Company’s investments in certain non-marketable equity securities in which it has the ability to exercise significant influence,
but it does not control through variable interests or voting interests. These are accounted for under the equity method of accounting
and presented as Investment in associates, net, in the Company’s consolidated balance sheets. Under the equity method, the Company
recognizes its proportionate share of the comprehensive income or loss of the investee. The Company’s share of income and losses
from equity method investments is included in share in losses of associated company.
The
Company reviews its investments accounted for under the equity method for possible impairment, which generally involves an analysis of
the facts and changes in circumstances influencing the investments.
For
other investments, the Company applies the measurement alternative upon the adoption of ASU 2016-01 and elected to record equity investments
without readily determinable fair values at cost, less impairment, adjusted for subsequent observable price changes. In this measurement
alternative method, changes in the carrying value of the equity investments are reflected in current earnings. Changes in the carrying
value of the equity investment are required to be made whenever there are observable price changes in orderly transactions for the identical
or similar investment of the same issuer.
g.
Fair value measurement
The Company measures fair value
and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting
standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three
broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement
date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable inputs
that are based on inputs not quoted on active markets, but corroborated by market data. Level 3: Unobservable inputs are used when
little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. In determining fair
value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible and considers counterparty credit risk in its assessment of fair value.
h.
Functional Currency
The
currency of the primary economic environment in which the operations of the Company and part of its Subsidiaries are conducted is the
U.S. dollar (“$” or “dollar”). The functional currency of the Belgian Subsidiaries is the Euro (“€”
or “Euro”). The functional currency of Orgenesis Korea is the Won (“KRW”). Most of the Company’s expenses
are incurred in dollars, and the source of the Company’s financing has been provided in dollars. Thus, the functional currency
of the Company and its other subsidiaries is the dollar. Transactions and balances originally denominated in dollars are presented at
their original amounts. Balances in foreign currencies are translated into dollars using historical and current exchange rates for nonmonetary
and monetary balances, respectively. For foreign transactions and other items reflected in the statements of operations, the following
exchange rates are used: (1) for transactions – exchange rates at transaction dates or average rates and (2) for other items (derived
from nonmonetary balance sheet items such as depreciation) – historical exchange rates. The resulting transaction gains or losses
are recorded as financial income or expenses. The financial statements of the Belgian Subsidiaries and Orgenesis Korea are included in
the consolidated financial statements, translated into U.S. dollars. Assets and liabilities are translated at year-end exchange rates,
while revenues and expenses are translated at yearly average exchange rates during the year. Differences resulting from translation of
assets and liabilities are presented as other comprehensive income.
i.
Inventory
The
Company’s inventory consists of raw material for use for the services provided. The Company periodically evaluates the quantities
on hand. Cost of the raw materials is determined using the weighted average cost method. The inventory is recorded at the lower of cost
or net realizable value.
j.
Property, plants and Equipment
Property,
plants and equipment are recorded at cost and depreciated by the straight-line method over the estimated useful lives of the related
assets.
Annual
rates of depreciation are presented in the table below:
SCHEDULE OF ANNUAL DEPRECIATION RATES, PROPERTY AND EQUIPMENT
| |
| Weighted
Average Useful Life (Years) | |
Production facility | |
| 3 – 10 | |
Laboratory equipment | |
| 1 – 10 | |
Office equipment and computers | |
| 3 – 17 | |
k.
Intangible assets
Intangible
assets and their useful lives are as follows:
SCHEDULE OF INTANGIBLE ASSETS AND THEIR USEFUL LIVE
|
|
Useful
Life (Years) |
|
Amortization
Recorded at Comprehensive Loss Line Item |
Customer
Relationships |
|
10 |
|
Amortization
of intangible assets |
Know-How |
|
12 |
|
Amortization
of intangible assets |
Technology |
|
15 |
|
Amortization
of intangible assets |
In-process
research and development |
|
Indefinite |
|
|
Intangible
assets are recorded at acquisition less accumulated amortization and impairment. Definite lived intangible assets are amortized over
their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from
the asset are expected to be generated. The Company capitalizes IPR&D projects acquired as part of a business combination. On successful
completion of each project, IPR&D assets are reclassified to developed technology and amortized over their estimated useful lives.
l.
Goodwill
Goodwill
represents the excess of consideration transferred over the value assigned to the net tangible and identifiable intangible assets of
businesses acquired. Goodwill is allocated to reporting units expected to benefit from the business combination. Goodwill is not amortized
but rather tested for impairment at least annually in the fourth quarter, or more frequently if events or changes in circumstances indicate
that goodwill may be impaired. Following the Metalmark Investment, the Company conducted an analysis of its operations, which led to
changes in the Company’s identified reporting units, operating and reporting segments. As a result of the analysis, two operating
units were identified: Morgenesis and Therapies. As a result, the Company reallocated its goodwill to the adjusted reporting
units using a relative fair value allocation. Goodwill impairment is recognized when the quantitative assessment results in the carrying
value exceeding the fair value, in which case an impairment charge is recorded to the extent the carrying value exceeds the fair value.
There
were no impairment charges to goodwill during the periods presented.
m.
Impairment of Long-lived Assets
The
Company reviews its property, plants and equipment, intangible assets subject to amortization and other long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Indicators of
potential impairment include: an adverse change in legal factors or in the business climate that could affect the value of the asset;
an adverse change in the extent or manner in which the asset is used or is expected to be used, or in its physical condition; and current
or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of the asset. If indicators of
impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated
undiscounted future cash flows expected to be derived from the asset. If the expected cash flows are less than the carrying value of
the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated
discounted cash flows. For indefinite life intangible assets, the Company performs an impairment test annually in the fourth quarter
and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The Company determines
the fair value of the asset based on discounted cash flows and records an impairment loss if its book value exceeds fair value.
Impairment
charges to customer relationships and IPR&D during the year ended December 31, 2022 were $1,061.
n.
Income Taxes
1)
With respect to deferred taxes, income taxes are computed using the asset and liability method. Under the asset and liability method,
deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that
it is more likely than not that the deferred taxes will not be realized in the foreseeable future.
2)
The Company follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position
for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained
on examination. If this threshold is met, the second step is to measure the tax position as the largest amount that is greater than 50%
likely of being realized upon ultimate settlement.
3)
Taxes that would apply in the event of disposal of investment in Subsidiaries and associated companies have not been taken into account
in computing the deferred income taxes, as it is the Company’s intention to hold these investments and not realize them.
o.
Stock-based Compensation
The
Company recognizes stock-based compensation for the estimated fair value of share-based awards. The Company measures compensation
expense for share-based awards based on estimated fair values on the date of grant using the Black-Scholes option-pricing model.
This option pricing model requires estimates as to the option’s expected term and the price volatility of the underlying
stock. The Company amortizes the value of share-based awards to expense over the vesting period on a straight-line basis.
p.
Redeemable Non-controlling Interest
Non-controlling
interests with embedded redemption features, whose settlement is not at the Company’s discretion, are considered redeemable non-controlling
interest. Redeemable non-controlling interests are considered to be temporary equity and are therefore presented as a mezzanine section
between liabilities and equity on the Company’s consolidated balance sheets. Redeemable non-controlling interests are measured
at the greater of the initial carrying amount adjusted for the non-controlling interest’s share of comprehensive income or loss
or its redemption value. Subsequent adjustment of the amount presented in temporary equity is required only if the Company’s management
estimates that it is probable that the instrument will become redeemable. Adjustments of redeemable non-controlling interest to its redemption
value are recorded through additional paid-in capital.
q.
Loss per Share of Common Stock
Basic
net loss (income) per share is computed by dividing the net loss (income) for the period by the weighted average number of shares of
common stock outstanding for each period. Diluted net loss (income) per share is based upon the weighted average number of common shares
and of common shares equivalents outstanding when dilutive. Common share equivalents include: (i) outstanding stock options and warrants
which are included under the treasury share method when dilutive, and (ii) common shares to be issued under the assumed conversion of
the Company’s outstanding convertible loans and debt, which are included under the if-converted method when dilutive (See Note
14).
r.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist of principally cash and cash equivalents, bank
deposits and certain receivables. The Company held these instruments with highly rated financial institutions and the Company
has not experienced any significant credit losses in these accounts and does not believe the Company is exposed to any significant credit
risk on these instruments apart of accounts receivable. The Company performs ongoing credit evaluations of its customers for the purpose
of determining the appropriate allowance for doubtful accounts. As of December 31, 2022, the Company does not
have credit losses with respect to these accounts and does not believe it is exposed to significant credit risk on these instruments.
Bad
debt allowance is created when objective evidence exists of inability to collect all sums owed it under the original terms of the debit
balances. Material customer difficulties, the probability of their going bankrupt or undergoing economic reorganization and insolvency,
material delays in payments and other objective considerations by management that indicate expected risk of payment are all considered
indicative of reduced debtor balance value.
s.
Treasury shares
The
Company repurchases its common stock from time to time on the open market and holds such shares as treasury stock. The Company presents
the cost to repurchase treasury stock as a reduction of shareholders’ equity. The Company did not reissue nor cancel treasury shares
during the year ended December 31, 2022 and December 31, 2021.
t.
Other Comprehensive Loss
Other
comprehensive loss represents adjustments of foreign currency translation.
u.
Revenue from Contracts with Customers
The
Company’s agreements are primarily service and processing contracts, the performance obligations of which range in duration from
a few months to one year. The Company recognizes revenue when control of the services is transferred to the customer for an amount, referred
to as the transaction price, which reflects the consideration to which the Company is expected to be entitled in exchange for those goods
or services.
The
Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects,
at contract inception, that the period between the time of transfer of the promised goods or services to the customer and the time the
customer pays for these goods or services to be generally one year or less. The Company’s credit terms to customers are in average
between thirty and one hundred and fifty days.
Nature
of Revenue Streams
The
Company has three main revenue streams, which are POCare development services, cell process development services, including hospital
supplies, and POCare cell processing.
POCare
Development Services
Revenue
recognized under contracts for POCare development services may, in some contracts, represent multiple performance obligations (where
promises to the customers are distinct) in circumstances in which the work packages are not interrelated
or the customer is able to complete the services performed.
For
arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations
based on their relative standalone selling prices.
The
Company recognizes revenue when, or as, it satisfies a performance obligation. At contract inception, the Company determines whether
the services are transferred over time or at a point in time. Performance obligations that have no alternative use and that the Company
has the right to payment for performance completed to date, at all times during the contract term, are recognized over time. All other
performance obligations are recognized as revenues by the Company at a point of time (upon completion).
Revenues from support services provided to the Company’s customers are recognized as and when the services are provided, because
the customer simultaneously receives and consumes the benefits provided.
Significant
Judgement and Estimates
Significant
judgment is required to identifying the distinct performance
obligations and estimating the standalone selling price of each distinct performance obligation and identifying which performance obligations
create assets with alternative use to the Company, which results in revenue recognized upon completion, and which performance obligations
are transferred to the customer over time.
Cell
Process Development Services
Revenue
recognized under contracts for cell process development services may, in some contracts, represent multiple performance obligations (where
promises to the customers are distinct) in circumstances in which the work packages and milestones
are not interrelated or the customer is able to complete the services performed independently or by using competitors of the Company.
In other contracts when the above circumstances are not met, the promises are not considered distinct, and the contract represents one
performance obligation. All performance obligations are satisfied over time, as there is no alternative use to the services it
performs, since, in nature, those services are unique to the customer, which retain the ownership of the intellectual property created
through the process.
For
arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations
based on their relative standalone selling prices. For these contracts, the standalone selling prices are based on the Company’s
normal pricing practices when sold separately with consideration of market conditions and other factors, including customer demographics
and geographic location.
The
Company measures the revenue to be recognized over time on a contract-by-contract basis, determining the use of either
a cost-based input method or output method, depending on whichever best depicts the transfer of control over the life of the performance
obligation.
Included
in cell process development services is hospital supplies revenue, which is derived principally from the performance of services to hospitals
or other medical providers. Revenue is earned and recognized when product and services are received by the customer.
POCare
Cell Processing
Revenues
from POCare Cell processing represent performance obligations
which are recognized either over, or at a point of time. The progress towards completion is measured on an output measure based on direct
measurement of the value transferred to the customer (units produced).
Change
Orders
Changes
in the scope of work are common and can result in a change in transaction price, equipment used and payment terms. Change orders are
evaluated on a contract-by-contract basis to determine if they should be accounted for as a new contract or as part of the existing contract.
Generally, services from change orders are not distinct from the original performance obligation. As a result, the effect that the contract
modification has on the contract revenue, and measure of progress, is recognized as an adjustment to revenue when they occur.
v.
Leases
The
Company determines if an arrangement is a lease at inception. Lease classification is governed by five criteria in ASC 842-10-25-2. If
any of these five criteria is met, The Company classifies the lease as a finance lease; otherwise, the Company classifies the lease as
an operating lease. When determining lease classification, the Company’s approach in assessing two of the mentioned criteria is:
(i) generally 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that
underlying asset; and (ii) generally 90% or more of the fair value of the underlying asset comprises substantially all of the fair value
of the underlying asset.
Operating
leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance
sheet.
Finance
leases are included in property, plants and equipment, net and finance lease liabilities in the consolidated balance sheet.
ROU
assets represent Orgenesis’ right to use an underlying asset for the lease term and lease liabilities represent its obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based
on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information
available at the commencement date to determine the present value of the lease payments.
The
standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition
exemption for all leases with a term shorter than 12 months. This means that for those leases, the Company does not recognize ROU assets
or lease liabilities but recognizes lease expenses over the lease term on a straight-line basis.
Lease
terms will include options to extend or terminate the lease when it is reasonably certain that Orgenesis will exercise or not exercise
the option to renew or terminate the lease.
w.
Segment reporting
Since
the Metalmark Investment, the Company’s business includes two reporting segments: Morgenesis and Therapies. See note
5.
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 from January 1, 2022. The Company adopted ASU 2021-24 in the first quarter
of 2022 which resulted in no material effect.
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 Company applied the guidance prospectively to
all in-scope transactions beginning fiscal year 2022. The adoption of this guidance did not have a material impact on the Company’s
consolidated financial statements
y.
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 will apply the guidance prospectively to transactions occurring on or
after January 2023.
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 plans to adopt the new accounting standard
effective January 1, 2023 and will apply the guidance prospectively to all business combinations with an acquisition date occurring on
or after January 2023.
NOTE
3 – REDEEMABLE NON-CONTROLLING INTEREST
Metalmarket
Investment in Morgenesis LLC
On
November 4, 2022, the Company and MM OS Holdings, L.P. (“MM”), an affiliate of Metalmark
Capital Partners (“Metalmark”), entered into a series of definitive agreements (“MM agreement”) intended
to finance, strengthen and expand the Company’s POCare Services business (the “Metalmark
Investment”).
Pursuant
to the Unit Purchase Agreement (the “UPA”), MM agreed to purchase 3,019,651 Class A Preferred Units of Morgenesis (the “Class
A Units”), which represents 22.31% of the outstanding equity interests of Morgenesis following the initial closing, for a purchase
price of $30,196 thousand, comprised of (i) $20,000 thousand of cash consideration and (ii) the conversion of $10,200 thousand of MM’s
then-outstanding senior secured convertible loans previously entered into with MM pursuant to that certain Senior Secured Convertible
Loan Agreement, dated as of August 15, 2022, between MM, Morgenesis and the Company. The investment was made at a pre-money valuation
of $125,000,000, subject to customary adjustments for debt and accounts receivable and an adjustment related to a certain intercompany
loan and closed on November 14, 2022. Following the initial closing, the Company held 77.69% of the issued and outstanding equity interests
of Morgenesis.
If
(a) Morgenesis and its subsidiaries generate Net Revenue (as defined in the UPA) equal to or greater than $30,000,000 during the twelve
month period ending December 31, 2022 (the “First Milestone”) and/or equal to or greater than $50,000,000 during the twelve
month period ending December 31 2023 (the “Second Milestone”), and (b) the Company’s shareholders approve the LLC Agreement
Terms (as defined below under “Principal Terms of the LLC Agreement”) on the earlier of (x) the date that is seven (7) months
following the initial closing date and (y) the date of the Company’s 2023 annual meeting of its shareholders (such stockholder
approval hereafter being the “Orgenesis Stockholder Approval” and such Orgenesis Stockholder Approval deadline hereafter
being the “Stockholder Approval Deadline”), in accordance with applicable law and in a manner that will ensure that MM is
able to exercise its rights under the LLC Agreement (as defined below) without any further action or approval by MM, then MM will pay
up to $10,000,000 in cash in exchange for 1,000,000 additional Class A Units if the First Milestone is achieved and $10,000,000 in cash
in exchange for 1,000,000 Class B Units Preferred Units of Morgenesis (the “Class B Units”) if the Second Milestone is achieved.
Notwithstanding the foregoing, if the First Milestone is not achieved, but Morgenesis and its subsidiaries generate Net Revenue equal
or greater to $13,000,000 for the three months ending March 31, 2023, then MM shall make the first $10,000,000 future investment for
1,000,000 Class A Units described above. In the event that the Company fails to obtain Orgenesis Stockholder Approval by the Stockholder
Approval Deadline, the Company will not be entitled to receive (but MM may, in its sole discretion, elect to make) the first $10,000,000
future investment or the second future $10,000,000 investment.
At
any time until the consummation of a Company IPO or Change of Control (in each case, as defined in the LLC Agreement), MM may, in its
sole discretion, elect to invest up to an additional $60,000,000 in Morgenesis (any such investment, an “Optional Investment”)
in exchange for certain Class C Preferred Units of Morgenesis (the “Class C Units” and, together with the Class A Units and
the Class B Units, the “Preferred Units”). $10,000,000 of such Optional Investment shall be to purchase Class C-1 Preferred
Units based on an enterprise value of $125,000,000, with such enterprise value adjusted by any net debt as of such time; $25,000,000
of Optional Investment shall be to purchase Class C-2 Preferred Units based on an enterprise value of $156,250,000, with such enterprise
value adjusted by any net debt as of such time; and $25,000,000 of Optional Investment shall be to purchase Class C-3 Preferred Units
based on an enterprise value of $250,000,000, with such enterprise value adjusted by any net debt as of such time.
The
proceeds of the investment will generally be used to fund the activities of Morgenesis and its consolidated subsidiaries. In addition,
if, during the twelve month period ending on December 31, 2023, Morgenesis and its subsidiaries generate (i) Net Revenue (as defined
in the UPA) equal to or greater than $70,000,000, (ii) Gross Profit (as defined in the UPA) equal to or greater than $35,000,000 and
(iii) EBITDA (as defined in the UPA) equal to or greater than $, then MM shall make (or cause to be made) a one-time cash payment
of $10,000,000 to the Company upon such payment becoming final and binding pursuant to the UPA (the “Earnout Payment”).
In
connection with the entry into the UPA, each of the Company, Morgenesis and MM entered into the Second Amended and Restated Limited Liability
Company Agreement (the “LLC Agreement”) providing for certain restrictions on the disposition of Morgenesis securities, the
provisions of certain options and rights with respect to the management and operations of Morgenesis, a right for MM to exchange any
units of Morgenesis for shares of the Company’s common stock and certain other rights and obligations.
In
connection with the entry into the UPA, each of the Company, Morgenesis and MM entered into a services agreement (the “Services
Agreement”) under which the Company will provide certain operational services to Morgenesis for an initial term of three years.
Also, in connection with the entry into the UPA, each of Morgenesis and Metalmark Management II LLC, an affiliate of Metalmark (“MM
Management”), entered into an advisory services and monitoring agreement (the “Monitoring Agreement”) under which MM
Management will provide certain analytical and financial and business monitoring services to Morgenesis. Under the Monitoring Agreement,
MM Management will be paid a quarterly cash fee equal to 0.25% of the total amount invested by MM in Morgenesis as of the date of any
payment and will be entitled to the reimbursement of certain expenses.
The
Preferred Units have voting rights, may be converted into ordinary shares, and are prioritized over ordinary shares in case of dividend
or redemption. The Company considers the provisions of Accounting Standards Codification Distinguishing Liabilities from Equity (“ASC
480”) in order to determine whether the Preferred Units should be classified as a liability. If the instrument is not within the
scope of ASC 480, the Company further analyzes the instrument’s characteristics in order to determine whether it should be classified
within temporary equity (mezzanine) or within permanent equity in accordance with the provisions of ASC 480-10-S99. The preferred units
are not mandatorily or currently redeemable. However, they include a liquidation or deemed liquidation event that would constitute a
redemption event that is outside of the Company’s control. As such, all redeemable preferred units have been presented outside
of permanent equity as a redeemable non-controlling interest.
The
Company further analyzed and concluded that the future Preferred Units investments are considered embedded in the initial Preferred Units
that were issued and are considered clearly and closely related to the host instrument and therefore should not be bifurcated.
NOTE
4 – ACQUISITIONS
Purchase
of Mida Biotech BV
During
February 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.
Theracell
Laboratories
See
note 13a.
NOTE
5 – SEGMENT INFORMATION
Following
the Metalmark Investment, the Company separated its operations into two operating segments: Morgenesis operations and therapies. Prior
to that, the Company conducted all its operations as one segment. The Morgenesis operations includes mainly POCare Services, while the
therapies segment includes the Company’s therapeutic development operations.
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 Morgenesis. Certain activities of these
subsidiaries have changed after they were transferred to Morgenesis 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, namely Morgenesis and Therapies, 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.
Segment
data for the year ended December 31, 2022 is as follows:
SCHEDULE
OF SEGMENT REPORTING
| |
Morgenesis | | |
Therapies | | |
Eliminations | | |
Consolidated | |
| |
(in thousands) | |
Revenues | |
$ | 33,884 | | |
$ | 6,432 | | |
$ | (5,575 | ) | |
$ | 34,741 | |
Revenues from related party | |
| 1,284 | | |
| - | | |
| - | | |
| 1,284 | |
Total revenues | |
| 35,168 | | |
| 6,432 | | |
| (5,575 | ) | |
| 36,025 | |
Cost of revenues, development services and research and development expenses* | |
| (17,373 | ) | |
| (13,350 | ) | |
| 4,675 | | |
| (26,048 | ) |
Operating expenses* | |
| (7,762 | ) | |
| (8,678 | ) | |
| 900 | | |
| (15,540 | ) |
Other income, net | |
| 168 | | |
| 5 | | |
| - | | |
| 173 | |
Depreciation and amortization | |
| (1,006 | ) | |
| (972 | ) | |
| - | | |
| (1,978 | ) |
Impairment expenses | |
| (420 | ) | |
| (641 | ) | |
| - | | |
| (1,061 | ) |
Loss from extinguishment in connection with convertible loan | |
| - | | |
| (52 | ) | |
| - | | |
| (52 | ) |
Financial Expenses, net | |
| (1,748 | ) | |
| (223 | ) | |
| - | | |
| (1,971 | ) |
Share in net income of associated companies | |
| (1,352 | ) | |
| (156 | ) | |
| - | | |
| (1,508 | ) |
* | Excluding Depreciation, amortization and impairment expenses |
Reconciliation of segment performance to loss for the year ended December 31, 2021:
| |
Morgenesis | | |
Therapies | | |
Eliminations | | |
Consolidated | |
| |
(in thousands) | |
Revenues | |
$ | 31,211 | | |
$ | 11,925 | | |
$ | (11,490 | ) | |
$ | 31,646 | |
Revenues from related party | |
| 3,856 | | |
| - | | |
| - | | |
| 3,856 | |
Total revenues | |
| 35,067 | | |
| 11,925 | | |
| (11,490 | ) | |
| 35,502 | |
Cost of revenues, development services and research and development expenses* | |
| (21,096 | ) | |
| (24,000 | ) | |
| 9,327 | | |
| (35,769 | ) |
Operating expenses* | |
| (3,545 | ) | |
| (13,287 | ) | |
| 2,163 | | |
| (14,669 | ) |
Other income, net | |
| 24 | | |
| 2,254 | | |
| - | | |
| 2,278 | |
Depreciation and amortization | |
| (1,020 | ) | |
| (844 | ) | |
| - | | |
| (1,864 | ) |
Loss from extinguishment in connection with convertible loan | |
| - | | |
| (1,865 | ) | |
| - | | |
| (1,865 | ) |
Financial Expenses, net | |
| (2,508 | ) | |
| 1,216 | | |
| - | | |
| (1,292 | ) |
Share in net income of associated companies | |
| (15 | ) | |
| (257 | ) | |
| - | | |
| (272 | ) |
* | Excluding Depreciation, amortization and impairment expenses |
NOTE
6 – EQUITY
a.
Financings
In
March 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 received proceeds of $2.175 million. The Company does not expect to receive the remaining $12.625 million from the defaulting investors. The Company
issued an aggregate of 724,999 shares of Common Stock and warrants to purchase 146,959 shares of Common Stock pursuant to the Purchase
Agreement. 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”) by April 3, 2023.
b.
Purchase of Mida Biotech BV
In
connection with the acquisition of Mida, the Company issued 29,940 Common Stock to Mida’s shareholders (See Note 4).
c.
Warrants
A
summary of the Company’s warrants granted to investors and as finder’s fees as of December 31, 2022, and December 31, 2021
and changes for the periods then ended is presented below:
SCHEDULE OF WARRANTS ACTIVITY
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
Weighted Average Exercise Price $ | | |
| | |
Weighted Average Exercise Price $ | |
Warrants outstanding at the beginning of the period | |
| 3,042,521 | | |
| 6.09 | | |
| 7,070,241 | | |
| 6.20 | |
Changes during the period: | |
| | | |
| | | |
| | | |
| | |
Issued | |
| 2,978,575 | | |
| 3.16 | | |
| 926,413 | | |
| 6.24 | |
Exercised | |
| - | | |
| - | | |
| (319,811 | ) | |
| 6.19 | |
Expired | |
| (639,636 | ) | |
| 6.58 | | |
| (4,634,323 | ) | |
| 6.29 | |
Warrants outstanding and exercisable at end of the period* | |
| 5,381,460 | | |
| 4.41 | | |
| 3,042,521 | | |
| 6.09 | |
Amendment,
Consent and Waiver Agreement
In
October and November 2022, the Company and certain investors that were parties to the Securities Purchase Agreement of March 2022 (the
“SPA”) and the Registration Rights Agreement of March, 2022 (the “RRA”) (see note 5(a)), entered into an Amendment,
Consent and Waiver Agreement (the “RRA Amendment”). Pursuant to the RRA Amendment, the Company and the investors agreed to
an extension of the date for filing the Registration Statement to register the Registrable Securities (as defined in the RRA) to April
3, 2023 and the effective date of such Registration Statement as provided for in the RRA Amendment; and (to) waive any potential damages
or claims under the RRA with respect to the Company’s obligations under the RRA or SPA and release the Company therefrom. In consideration
for such consent, agreement, waiver and release, the Company agreed to issue additional warrants to purchase an aggregate of 215,502
shares of Common Stock to the investors (the “Additional PIPE Warrants”) and such Additional PIPE Warrants shall have an
exercise price of $2.50 per share of Common Stock, be exercisable beginning six months and one day after the applicable effective date
and ending 36 months after the applicable effective date and be in the same form as the original Warrants issued pursuant to the SPA.
As
of December 31, 2022 and December 31, 2021, there are no warrants that are subject to exercise price adjustments.
d. Treasury shares
During
the year ended December 31, 2021, the Company repurchased its shares under a stock repurchase plan (the “Stock Repurchase Plan”).
The following table summarizes the share repurchase activity pursuant to the Stock Repurchase Plan during the year ended December 31,
2021.
SCHEDULE OF STOCK REPURCHASE PLAN
| |
Total Number of Shares Purchased | | |
Average Price Paid per Share | | |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | |
| |
| | |
| | |
| |
January 2021 | |
| 2,306 | | |
$ | 4.45 | | |
$ | 10,255 | |
April 2021 | |
| 8,850 | | |
| 4.49 | | |
| 39,730 | |
May 2021 | |
| 195,625 | | |
| 4.34 | | |
| 848,234 | |
November 2021 | |
| 24,477 | | |
| 4.32 | | |
| 105,806 | |
| |
| 231,258 | | |
$ | 4.34 | | |
$ | 1,004,025 | |
e. Controlled Equity Offering Sales Agreement
In
December 2018, the Company entered into a Controlled Equity Offering Sales Agreement, or Sales Agreement, with Cantor Fitzgerald &
Co., or Cantor, pursuant to which the Company may offer and sell, from time to time through Cantor, shares of its common stock having
an aggregate offering price of up to $25.0 million. The Company will pay Cantor a commission rate equal to 3.0% of the aggregate gross
proceeds from each sale. Shares sold under the Sales Agreement will be offered and sold pursuant to the Company’s Shelf Registration
Statement on Form S-3 (Registration No. 333-223777) that was declared effective by the Securities and Exchange Commission on March 28,
2018, or the Shelf Registration Statement, and a prospectus supplement and accompanying base prospectus that the Company filed with the
Securities and Exchange Commission on December 20, 2018. The Company has not yet sold any shares of its common stock pursuant to the
Sales Agreement.
NOTE
7 – PROPERTY, PLANTS AND EQUIPMENT
The
following table represents the components of property, plants and equipment:
SCHEDULE OF COMPONENTS OF PROPERTY, PLANT AND
EQUIPMENT
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
Cost: | |
| | | |
| | |
Production facility | |
$ | 3,944 | | |
$ | 4,040 | |
Office furniture and computers | |
| 589 | | |
| 555 | |
Lab equipment | |
| 4,811 | | |
| 2,435 | |
Advance payment | |
| 17,442 | | |
| 6,181 | |
Subtotal | |
| 26,786 | | |
| 13,211 | |
Less – accumulated depreciation | |
| (3,952 | ) | |
| (2,940 | ) |
Total | |
$ | 22,834 | | |
$ | 10,271 | |
Depreciation
expense for the years ended December 31, 2022 and December 31, 2021 were $1,067 thousand and $916 thousand, respectively.
Property,
plants and equipment, net by geographical location were as follows:
SCHEDULE
OF PROPERTY, PLANT AND EQUIPMENT BY GEOGRAPHICAL AXIS
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Belgium | |
$ | 1,095 | | |
$ | 1,149 | |
Greece | |
| 858 | | |
| - | |
Netherlands | |
| 380 | | |
| - | |
Korea | |
| 466 | | |
| 694 | |
Israel | |
| 2,284 | | |
| 2,602 | |
U.S. | |
| 17,751 | | |
| 5,826 | |
Total | |
$ | 22,834 | | |
$ | 10,271 | |
Property, plants and
equipment, net | |
$ | 22,834 | | |
$ | 10,271 | |
NOTE
8 – INTANGIBLE ASSETS AND GOODWILL
Changes
in the carrying amount of the Company’s goodwill for the years ended December 31, 2022 and 2021 are as follows:
SCHEDULE
OF GOODWILL
| |
(in thousands) | |
Goodwill as of December 31, 2020 | |
$ | 8,745 | |
Translation differences | |
| (342 | ) |
Goodwill as of December 31, 2021 | |
$ | 8,403 | |
Translation differences | |
| (216 | ) |
Goodwill as of December 31, 2022 | |
$ | 8,187 | |
Goodwill
impairment assessment for the year ended December 31, 2022
In the fourth
quarter of 2022, following the separation of the Company’s business into two operating segments, the Company reallocated
goodwill to its newly reorganized reporting units (Morgenesis and Therapies) using a relative fair value approach. As a result, the
carrying amount of goodwill assigned to the Morgenesis segment reporting unit was $7
million and $1
million was assigned to the Therapies segment. The Company performed an impairment analysis for these two reporting units. Based on
the Company’s assessment as of date of the change in the reporting units, it was concluded that the fair value of each of the Morgenesis and Therapies reporting units exceeded its carrying
amount and therefore no goodwill impairment was required.
In evaluating
the fair value of reporting units under the income approach, the Company used a discounted cash flow model. 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.
Actual results may differ from
those assumed in the Company’s valuation method. It is reasonably possible that the Company’s assumptions described above could change
in future periods. If any of these were to vary materially from the Company’s plans, it may record impairment of goodwill allocated to
any of these reporting units in the future.
Other
Intangible Assets
Other
intangible assets consisted of the following:
SCHEDULE
OF OTHER INTANGIBLE ASSETS
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
Gross Carrying Amount: | |
| | | |
| | |
Know How | |
$ | 2,735 | | |
$ | 2,904 | |
Customer relationships | |
| 345 | | |
| 811 | |
Kyslecel Technology | |
| 9,340 | | |
| 9,340 | |
IPR&D | |
| - | | |
| 641 | |
Subtotal | |
| 12,420 | | |
| 13,696 | |
Less – Accumulated amortization | |
| (2,726 | ) | |
| (1,875 | ) |
Net carrying amount of other intangible assets | |
$ | 9,694 | | |
$ | 11,821 | |
Intangible
assets amortization expenses were approximately $911
thousand and $948
thousand for the years ended December 31, 2022
and December 31, 2021, respectively.
Following an annual impairment check, the Company determined
that certain IPR&D and customer relationships intangible assets were no longer relevant. Therefore the Company wrote off IPR&D
intangible assets in the amount of $641 thousand and customer relationship intangible assets in the amount of $420 thousand in the year
ended December 31, 2022.
Estimated
aggregate amortization expenses for the five succeeding years ending on December 31st are as follows:
SCHEDULE
OF ESTIMATED AGGREGATE AMORTIZATION EXPENSES
| |
2023 | | |
2024 to 2027 | |
| |
(in thousands) | |
Amortization expenses | |
$ | 840 | | |
$ | 3,362 | |
NOTE
9 – CONVERTIBLE LOANS
SCHEDULE
OF LONG TERM CONVERTIBLE NOTES
a.
Long-Term Convertible Loans
Long-term
convertible loans outstanding as of December 31, 2022 and December 31, 2021 are as follows:
Convertible
Loans Outstanding as of December 31, 2022
Principal
| |
Issuance | | |
Interest | | |
Maturity | | |
Exercise | | |
| | |
| |
Amount | |
Year | | |
Rate | | |
Period | | |
Price | | |
NOTE | | |
BCF | |
(in thousands) | |
| | |
| | |
(Years) | | |
| | |
| | |
| |
$ | 750 | | |
| 2018 | | |
| 2 | % | |
| 5 | | |
| 7.00 | | |
| (1)+(5) | | |
| - | |
| 6,600 | | |
| 2019 | | |
| 6%-8 | % | |
| 3-5 | | |
| 7.00 | | |
| (2)+(5) | | |
| - | |
| 100 | | |
| 2020 | | |
| 8 | % | |
| 3 | | |
| 7.00 | | |
| (3) | | |
| - | |
| 9,150 | | |
| 2022 | | |
| 6%-10 | % | |
| 1-2 | | |
| 2.5-4.5 | | |
| (4,5+6) | | |
| - | |
$ | 16,600 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
During
January 2023 the Company and investors representing $12,250 of the convertible loans outstanding at December 31, 2022 agreed to extend
the maturity of the loans to January 31, 2026, increase the annual interest rate to 10% effective February 1, 2023, increase the expiry
date of related warrants to January 31, 2026, and change the loan conversion price to $2.50.
The
Company concluded that the change in the terms (including for the credit line investors extension) does not constitute a troubled debt
restructuring. The Company therefore applied the guidance in ASC 470-50, Modifications and Extinguishments. The accounting treatment
is determined by whether terms of the new debt and original debt are substantially different. The new debt and the old debt are considered
“substantially different” pursuant to ASC 470-50 when the change in the fair value of the embedded conversion option is at
least 10% of the carrying amount of the original debt instrument immediately before the modification or exchange or the value of the
cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under
the terms of the original instrument (including the incremental fair value resulting from issuing new warrants held by the lender). If
the original and new debt instruments are substantially different, the original debt is derecognized and the new debt should be initially
recorded at fair value, with the difference recognized as an extinguishment gain or loss. Based on the analysis, the Company concluded
that the change in terms should be accounted for as an extinguishment. The extinguishment resulted in a loss of $1,865 thousand recorded
in the 12 months ended December 31, 2021. The Company concluded that, since the warrants cannot be exercised prior to the expiry date
of the Early Redemption Option, the warrants are considered embedded in the convertible loan and not freestanding instruments. It also
concluded that the prepayment option and the embedded warrants should not be bifurcated from the debt host. In accordance with ASC 470-20-25-13,
if a convertible debt instrument is issued at a substantial premium, there is a presumption that such premium represents paid-in capital.
Since the fair value of the new convertible loan instrument issued as part of the change in terms are higher than the par value of the
loan and the premium is substantial, the Company allocated the premium to paid in capital and the reminder to the convertible loan.
The
fair value of the conversion feature was estimated using the binomial model. The total fair value of the new instruments is $4.4M (including
the credit line agreements).
Following
are the main estimates and assumptions that were used for the valuation of the new instruments as of the valuation date:
SCHEDULE
OF ESTIMATES AND ASSUMPTIONS OF NEW INSTRUMENTS OF VALUATION DATE
Parameter | |
8% Note | | |
2% Note | | |
Warrants | |
Notional (USD) | |
| 1,500,000 | | |
| 750,000 | | |
| 926,413 | |
Accrued Coupon (USD) | |
| 224,603 | | |
| 41,945 | | |
| - | |
Coupon Rate | |
| 8.00 | % | |
| 2.00 | % | |
| - | |
Conversion Ratio (USD) | |
| 7.00 | | |
| 7.00 | | |
| - | |
Exercise Price (USD) | |
| - | | |
| - | | |
| 6.24 | |
Stock Price (USD) | |
| 5.02 | | |
| 5.02 | | |
| 5.02 | |
Expected Term (years) | |
| 1.79 | | |
| 1.79 | | |
| 1.79 | |
Risk Free Rate | |
| 0.20 | % | |
| 0.20 | % | |
| 0.20 | % |
Volatility | |
| 72.84 | % | |
| 72.84 | % | |
| 72.84 | % |
Yield | |
| 7.87 | % | |
| 7.84 | % | |
| - | |
(6) | 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”), pursuant to which the Lenders loaned the Company an aggregate of $9.15
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. 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 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, we issued to the Lenders warrants
representing the right to purchase an aggregate of 408,335
shares of Common Stock (which is 25%
of the shares of the Company’s 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 are exercisable at any time beginning six months and one day after the closing date and ending 36 months after such closing
date. |
On
October 23, 2022, the Company entered into a Convertible Loan Extension Agreement with one of the Lenders, which amended the respective
Lender’s Convertible Loan Agreement for the $5,000,000 principal Loan Amount as follows: (i) the interest rate increased from 6%
to 10% per annum as of April 21, 2022 on the unconverted and then outstanding loan amount; (ii) the maturity date was extended to January
20, 2024; (iii) the Company agreed to issue a warrant to the Lender for the right to purchase 1,111,111 shares of Common Stock, at an
exercise price per share of $2.50 per share, which is exercisable at any time beginning April 23, 2023 and ending October 23, 2025; and
(iv) the Conversion Price was amended to a price per share of $2.50 per share instead of $4.50 per share. Based on the analysis, the
Company concluded that the change in terms should be accounted for as a modification.
In
addition, on October 23, 2022, the Company entered into a Convertible Loan Extension Agreement with one of the Lenders, which amended
the respective Lender’s Convertible Loan Agreement for the $3,000,000 principal Loan Amount as follows: (i) the interest rate increased
from 6% to 10% per annum as of May 19, 2022 on the unconverted and then outstanding loan amount; (ii) the maturity date was extended
to February 19, 2024; (iii) the Company agreed to issue a warrant to the Lender for the right to purchase 666,666 shares of Common Stock,
at an exercise price per share of $2.50 per share, which is exercisable at any time beginning April 23, 2023 and ending October 23, 2025;
(iv) the prepayment terms were amended to allow the outstanding Loan Amount to be prepaid by the Company at the Lender’s option
following any financings by the parent Company, and in the event that any of the Company’s subsidiaries raises financing, the Company
will make reasonable commercial efforts to ensure the funds are received in order to repay the loan amount; and (v) the Conversion Price
was amended to a price per share of $2.50 per share instead of $4.50 per share. Based on the analysis, the Company concluded that the
change in terms should be accounted for as an extinguishment. The extinguishment resulted in a loss of $459 thousand. In accordance with
ASC 470-20-25-13, if a convertible debt instrument is issued at a substantial premium, there is a presumption that such premium represents
paid-in capital. Since the fair value of the new convertible loan instrument issued as part of the change in terms are higher than the
par value of the loan and the premium is substantial, the Company allocated the premium to paid in capital and the reminder to the convertible
loan. During January 2023, following the receipt of a loan financing (see note 21), the Company refunded the entire principal and accrued
interest to the Lender).
b.
Private Placements
During
May 2019, the Company entered into a private placement subscription agreement with an investor for $5 million. The lender shall be entitled,
at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of (1) shares of common stock
of the Company at a conversion price per share equal to $7.00 and (2) warrants to purchase an equal number of additional shares of the
Company’s common stock at a price of $7.00 per share.
In
June 2019, the Company entered into private placement subscription agreements with lenders for an aggregate unsecured convertible note
in the aggregate principal amount of $2 million. During the year ended December 31, 2022, the Company repaid the lenders the debt in
full.
During
2019, the Company entered into a Private Placement Subscription Agreement and Convertible Credit Line Agreement (collectively, the “Credit
Line Agreements”) with certain non-U.S. investors (the “Lenders”), pursuant to which the Lenders furnished to the Company
access to an aggregate $5.0 million credit line (collectively, the “Credit Line”). Pursuant to the terms of the Credit Line
Agreements and the Notes, the total loan amount, and all accrued but unpaid interest thereon, became due and payable on the second anniversary
of the Effective Date (the “Maturity Date”). The Maturity Date may be extended by each Lender in its sole discretion and
shall be in writing signed by the Company and the Lender. Interest on any amount that has been drawn down under the Credit Line accrues
at a per annum rate of eight percent (8%). At any time prior to or on the Maturity Date, by providing written notice to the Company,
each of the Lenders is entitled to convert its respective drawdown amounts and all accrued interest, into shares of the Company’s
common stock, par value $0.0001 per share (the “Common Stock”), at a conversion price equal to $7.00 per share.
During
the years ended December 2020, December 2021, and December 2022 the Company repaid principal amounts of $1,400 thousand, $750 thousand
and $150 thousand respectively and a total interest amount of $31 thousand, $124 thousand and $29 thousand respectively to certain of
the credit line investors.
In
2019, the Company entered into private placement subscription agreements with investors for an aggregate amount of $250 thousand. The
lenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of
1 share of common stock of the Company at a conversion price per share equal to $7.00. In addition, the Company granted the investors
183,481 warrants to purchase an equal number of additional shares of Common Stock at a price of $7.00 per share. The fair value of the
warrants was $124 thousand using the fair value of the shares on the grant date. During the year ended December 31, 2021, the Company
and the investors agreed to extend the maturity of the loans to December 2022. During the year ended December 2022, the Company and certain
investors agreed to extend the maturity of the loans to December 2023. Based on the analysis, the Company concluded that the changes
in terms should be accounted for as a modification.
During the year ended December 2022, the Company repaid a principal amount of $150 thousand and a total interest amount of $29 thousand
to a certain investor.
In
2020, the Company entered into private placement subscription agreements with certain investors for an aggregate amount of $250 thousand
of convertible loans. The lenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding
amount, into shares of Common Stock of the Company at a conversion price per share equal to $7.00. In addition, the Company granted the
investors 151,428 warrants to purchase an equal number of additional shares of Common Stock at a price of $7.00 per share. During 2021,
the Company and the investors agreed to extend the maturity of the loans to December 2022. During the year ended December 2022, the Company
repaid a principal amount of $150 thousand and a total interest amount of $29 thousand to a certain investor. During 2022, the Company
and other investors agreed to extend the maturity of the loans to December 2023 and to extend the warrants maturity date to December
2023 and January 2024. Based on the analysis, the Company concluded that the change in terms should be accounted for as a modification.
c.
Unsecured Convertible Notes
On
November 2, 2016, the Company entered into unsecured convertible note agreements with accredited or offshore investors for an aggregate
amount of NIS 1 million ($280 thousand). The loan bears a monthly interest rate of 2% and mature on May 1, 2017, unless converted earlier.
On April 27, 2017 and November 2, 2017, the Company entered into extension agreements through November 2, 2017 and May 2, 2018, respectively.
In
March 2018, the investor submitted a notice of its intention to convert into shares of the Company’s common stock the principal
amount and accrued interest of approximately $383 thousand outstanding. A related party of such investor at the same time, exercised
warrants issued in November 2016 to purchase shares of the Company’s Common Stock. The exercise price of the warrants and conversion
price were fixed at $0.52 per share (pre-reverse stock split implemented by the Company in November 2017). There is a significant disagreement
between the Company and these two entities as to the number of shares of Common Stock issuable to these entities, and they contend that
the number of shares of Common Stock issuable to them should not consider the reverse stock split. The Company rejects these contentions
in their entirety and, based on the advice of specially retained counsel, believes that these claims are without legal merit and not
made in good faith. The Company intends to vigorously defend its interests and pursue other avenues of legal address. Through its counsel,
the Company has advised these entities that unless they withdraw their request within a specified period, the Company will cancel the
above referenced agreements and these parties’ right to receive any shares of the Company’s Common Stock. In April 2018,
the Company withdrew the agreements and deposited the shares in total amount of 107,985 issued under those agreements and the principal
amount and accrued interest of the loan in escrow account. The deposit of the principal amount and accrued interest presented as restricted
cash in the balance sheet as of December 31, 2022.
d.
Senior Secured Convertible Loan Agreement
In
August 2022, Morgenesis entered into a senior secured convertible loan agreement (the “Agreement”) with MM (“Lender”)
pursuant to which the Lender agreed to loan Morgenesis $10 million (the “Loan”) at an interest rate of 8.0% paid-in-kind
interest per annum (the “PIK Interest”), which shall be capitalized, compounded and added to the unpaid outstanding principal
balance of the Loan on the applicable quarterly interest payment date and which, along with the principal, was scheduled to mature on
March 29, 2023 (the “Maturity Date”). During the fourth quarter of 2022 the Loan was fully converted into preferred units
of Morgenesis (see note 3).
NOTE
10 – LEASES
The
Company leases research and development facilities, equipment and offices under finance and operating leases. For leases with terms greater
than 12 months, the Company record the related asset and obligation at the present value of lease payments over the term. Many of the
leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease
payments when appropriate.
The
Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company estimated the incremental borrowing
rate to discount the lease payments based on information available at lease commencement.
Manufacturing
facilities
The
Company leases space for its manufacturing facilities under operating lease agreements. The leasing contracts are for a period of 3 –
10 years.
Research
and Development facilities
The
Company leases space for its research and development facilities under operating lease agreements. The leasing contracts are for a period
of 2 – 5 years.
Offices
The
Company leases space for offices under operating leases. The leasing contracts are valid for terms of 5 years.
Lease
Position
The
table below presents the lease-related assets and liabilities recorded on the balance sheet:
SCHEDULE
OF LEASE-RELATED ASSETS AND LIABILITIES
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
Assets | |
| | |
| |
Operating Leases | |
| | | |
| | |
Operating lease right-of-use assets | |
$ | 2,304 | | |
$ | 1,015 | |
| |
| | | |
| | |
Finance Leases | |
| | | |
| | |
Property, plants and equipment, gross | |
| 222 | | |
| 91 | |
Accumulated depreciation | |
| (68 | ) | |
| (33 | ) |
Property and equipment, net | |
$ | 154 | | |
$ | 58 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Current maturities of operating leases | |
$ | 542 | | |
$ | 481 | |
Current maturities of long-term finance leases | |
$ | 60 | | |
$ | 18 | |
| |
| | | |
| | |
Long-term liabilities | |
| | | |
| | |
Non-current operating leases | |
$ | 1,728 | | |
$ | 561 | |
Long-term finance leases | |
$ | 95 | | |
$ | 41 | |
| |
| | | |
| | |
Weighted Average Remaining Lease Term | |
| | | |
| | |
Operating leases | |
| 4.7 years | | |
| 2.3 years | |
Finance leases | |
| 2.4 years | | |
| 3.2 years | |
| |
| | | |
| | |
Weighted
Average Discount Rate | |
| | | |
| | |
Operating leases | |
| 8.0 | % | |
| 6.9 | % |
Finance leases | |
| 6.4 | % | |
| 2.0 | % |
Lease
Costs
The
table below presents certain information related to lease costs and finance and operating leases:
SCHEDULE
OF LEASE COSTS
| |
2022 | | |
2021 | |
| |
Years ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Operating lease cost: | |
$ | 546 | | |
| 514 | |
| |
| | | |
| | |
Finance lease cost: | |
| | | |
| | |
Amortization of leased assets | |
| 43 | | |
| 20 | |
Interest on lease liabilities | |
| 7 | | |
| 1 | |
Total finance lease cost | |
$ | 50 | | |
| 21 | |
The
table below presents supplemental cash flow information related to lease:
SCHEDULE OF SUPPLEMENTAL CASHFLOW INFORMATION
| |
Years ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in Thousands) | |
Cash paid for amounts included in the measurement of leases liabilities: | |
| | |
| |
Operating leases | |
$ | 559 | | |
$ | 526 | |
Finance leases | |
$ | 43 | | |
$ | 20 | |
| |
| | | |
| | |
Right-of-use assets obtained in exchange for lease obligations: | |
| | | |
| | |
Operating leases | |
$ | 432 | | |
$ | - | |
Finance leases | |
| 136 | | |
| - | |
Undiscounted
Cash Flows
The
table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease
liabilities and operating lease liabilities recorded on the balance sheet.
SCHEDULE
OF FINANCE LEASE LIABILITIES AND OPERATING LEASE LIABILITIES
| |
Operating Leases | | |
Finance Leases | |
Year ended December 31, | |
| | | |
| | |
2023 | |
$ | 681 | | |
$ | 69 | |
2024 | |
| 539 | | |
| 69 | |
2025 | |
| 367 | | |
| 30 | |
2026 | |
| 213 | | |
| - | |
2027 | |
| 213 | | |
| - | |
Thereafter | |
| 960 | | |
| - | |
Total minimum lease payments | |
| 2,973 | | |
| 168 | |
Less: amount of lease payments representing interest | |
| (703 | ) | |
| (13 | ) |
Present value of future minimum lease payments | |
| 2,270 | | |
| 155 | |
Less: Current leases obligations | |
| (542 | ) | |
| (60 | ) |
Long-term leases obligations | |
$ | 1,728 | | |
$ | 95 | |
Operating
lease right-of-use assets by geographical location were as follows:
SCHEDULE
OF RIGHT-OF-USE ASSETS BY GEOGRAPHICAL LOCATION
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Greece | |
$ | 1,368 | | |
$ | - | |
Korea | |
| 218 | | |
| 432 | |
Israel | |
| 580 | | |
| 365 | |
U.S. | |
| 138 | | |
| 218 | |
Total | |
$ | 2,304 | | |
$ | 1,015 | |
NOTE
11 – COMMITMENTS AND LICENSE AGREEMENTS
See
Note 12 for additional commitments related to Collaborations.
a.
Tel Hashomer Medical Research, Infrastructure and Services Ltd (“THM”)
On
February 2, 2012, the Company’s Israeli Subsidiary entered into a licensing agreement with THM. According to the agreement, the
Israeli Subsidiary was granted a worldwide, royalty bearing, exclusive license to trans-differentiation of cells to insulin producing
cells, including the population of insulin producing cells, methods of making this population, and methods of using this population of
cells for cell therapy or diabetes treatment developed by Dr. Sarah Ferber of THM.
As
consideration for the license, the Israeli Subsidiary will pay the following to THM:
|
1) |
A
royalty of 3.5% of net sales; |
|
2) |
16%
of all sublicensing fees received; |
|
3) |
An
annual license fee of $15 thousand, which commenced on January 1, 2012 and shall be paid once every year thereafter. The annual fee
is non-refundable, but it shall be paid each year against the royalty noted above, to the extent that such are payable, during that
year; and |
|
4) |
Milestone
payments as follows: |
|
a. |
$50
thousand on the date of initiation of Phase I clinical trials in human subjects; |
|
b. |
$50
thousand on the date of initiation of Phase II clinical trials in human subjects; |
|
c. |
$150
thousand on the date of initiation of Phase III clinical trials in human subjects; |
|
d. |
$750
thousand on the date of initiation of issuance of an approval for marketing of the first product by the FDA; and |
|
e. |
$2
million when worldwide net sales of Products (as defined in the agreement) have reached the amount of $150 million for the first
time, (the “Sales Milestone”). |
As
of December 31, 2022, the Israeli Subsidiary had not reached any of these milestones.
In
the event of closing of an acquisition of all of the issued and outstanding share capital of the Israeli Subsidiary and/or consolidation
of the Israeli Subsidiary or the Company into or with another corporation (“Exit”), the THM shall be entitled to choose whether
to receive from the Israeli Subsidiary a one-time payment based, as applicable, on the value of either 463,651 shares of common stock
of the Company at the time of the Exit or the value of 1,000 shares of common stock of the Israeli Subsidiary at the time of the Exit.
b.
Department De La Gestion Financiere Direction De L’analyse Financiere (“DGO6”)
(1)
On November 17, 2014, the Belgian Subsidiary received the formal approval from the DGO6 for a Euro 2 million ($2.4 million) support program
for the research and development of a potential cure for Type 1 Diabetes. The financial support was composed of Euro 1.085 million (70%
of budgeted costs) grant for the industrial research part of the research program and a further recoverable advance of Euro 930 thousand
(60% of budgeted costs) of the experimental development part of the research program. In December 2014, the Belgian Subsidiary received
advance payment of Euro 1.209 million under the grant. The grants are subject to certain conditions with respect to the Belgian Subsidiary’s
work in the Walloon Region. In addition, the DGO6 is also entitled to a royalty upon revenue being generated from any commercial application
of the technology. In 2017 the Company received by the DGO6 final approval for Euro 1.8 million costs invested in the project out of
which Euro 1.2 million funded by the DGO6. As of December 31, 2022, the Company repaid to the DGO6 a total amount of approximately $167
thousand and amount of $243 thousand was recorded in other payables.
(2)
In April 2016, the Belgian Subsidiary received the formal approval from DGO6 for a Euro 1.3 million ($1.5 million) support program for
the development of a potential cure for Type 1 Diabetes. The financial support was awarded to the Belgium Subsidiary as a recoverable
advance payment at 55% of budgeted costs, or for a total of Euro 717 thousand ($800 thousand). The grant will be paid over the project
period. The Belgian Subsidiary received advance payment of Euro 438 thousand ($537 thousand). Up through December 31, 2022, an amount
of Euro 438 thousand ($537 thousand) was recorded as deduction of research and development expenses and an amount of Euro 74 thousand
was recorded as advance payments on account of grant.
(3)
On October 8, 2016, the Belgian Subsidiary received the formal approval from the DGO6 for a Euro 12.3 million ($12.8 million) support
program for the GMP production of AIP cells for two clinical trials that will be performed in Germany and Belgium. The project will be
conducted during a period of three years commencing January 1, 2017. The financial support is awarded to the Belgium subsidiary at 55%
of budgeted costs, a total of Euro 6.8 million ($7 million). The grant will be paid over the project period. On December 19, 2016, the
Belgian Subsidiary received a first payment of Euro 1.7 million ($2 million). As of December 31, 2022 the program is pending for extension
approval.
In
December 2020, the Belgian Subsidiary received the formal approval from DGO6 for a Euro 2.9 million ($3.5 million) support program for
research on Dermatitis Treatments and Wound Healing Using Cell Regenerative Technologies. The financial support was awarded to the Belgium
Subsidiary as a recoverable advance payment at 60% of budgeted costs, or for a total of Euro 1.7 million ($2.1 million). The grant will
be paid over the project period. The Belgian Subsidiary received advance payments of Euro 301 thousand ($366 thousand) in 2020 and of
Euro 392 thousand ($445 thousand) in 2021. The research program started in 2021. Up through December 31, 2022, an amount of Euro 247
thousand ($262 thousand) was recorded in research and development expenses.
c.
Israel-U.S. Binational Industrial Research and Development Foundation (“BIRD”)
On
September 9, 2015, the Israeli Subsidiary entered into a pharma Cooperation and Project Funding Agreement (CPFA) with BIRD and Pall Corporation,
a U.S. company. BIRD awarded a conditional grant of up to $400 thousand each (according to terms defined in the agreement), for a joint
research and development project for the use of Autologous Insulin Producing (AIP) Cells for the Treatment of Diabetes (the “Project”).
Company received a total of $299 thousand under the grant. The project was completed in 2019. The grant is to be repaid at the rate of
5% of gross sales generated from the Project. To date no sales have been generated.
d.
Korea-Israel Industrial Research and Development Foundation (“KORIL”)
On
May 26, 2016, the Israeli Subsidiary and the Korean Subsidiary entered into a pharma Cooperation and Project Funding Agreement (CPFA)
with KORIL. KORIL will make a conditional grant of up to $400 thousand to each company (according to terms defined in the agreement),
for a joint research and development project for the use of AIP Cells for the Treatment of Diabetes (the “Project”). The
Project started on June 1, 2016. The project was completed in 2021. The grant is to be repaid at the yearly rate of 2.5% of gross sales.
To date no sales have been generated. As of December 31, 2022, the Israeli Subsidiary and the Korean Subsidiary received $597 thousand
under the grant.
e.
BIRD Secant
On
July 30, 2018, Orgenesis Inc and OBI entered into a collaboration agreement with Secant Group LLC (“Secant”). Under the agreement,
Secant will engineer and prototype 3D scaffolds based on novel biomaterials and technologies involving bioresorbable polymer microparticles,
while OBI will provide expertise in cell coatings, cell production, process development and support services. Under the agreement, Orgenesis
is authorized to utilize the jointly developed technology for its autologous cell therapy platform, including its Autologous Insulin
Producing (“AIP”) cell technology for patients with Type 1 Diabetes, acute pancreatitis and other insulin deficient diseases.
In 2018, OBI entered into a Cooperation and Project Funding Agreement (CPFA) with the BIRD fund, which provided certain grant funding,
and Secant.
As
of December 31, 2022, OBI had received a total amount of $425 thousand under the grant and the project was completed. The grant is to
be repaid at the yearly rate of 5% of gross sales. To date no sales have been generated.
f.
BG Negev Technologies and Applications (“BGN”).
On
August 2, 2018, Company entered into a licensing agreement with BGN. According to the agreement, the Company was granted a worldwide,
royalty bearing, exclusive license to develop and commercialize a novel alginate scaffold technology for cell transplantation focused
on autoimmune diseases.
On
November 25, 2018, the Company entered into a further licensing agreement with BGN. According to the agreement, the U.S. Subsidiary was
granted a worldwide, royalty bearing, exclusive license to develop and commercialize technology directed to RAFT modification of polysaccharides
and use of a bioreactor for supporting cell constructs.
As
of December 31, 2022 no royalty incurring sales were made.
In
January 2022, the Company terminated both of the licensing agreements with BGN effective April 26, 2022.
g.
Sponsored Research and Exclusive License Agreement with Columbia University
Effective
April 2, 2019, the Company and The Trustees of Columbia University in the City of New York, a New York corporation, (“Columbia”)
entered into a Sponsored Research Agreement (the “SRA”) whereby the Company will provide financial support for studying the
utility of serological tumor marker for tumor dynamics monitoring.
Effective
April 2, 2019, the Company and Columbia entered into an Exclusive License Agreement (the “Columbia License Agreement”) whereby
Columbia granted to the Company an exclusive license to discover, develop, manufacture, sell, and otherwise distribute certain product
in the field of cancer therapy. In consideration of the licenses granted under the Columbia License Agreement, the Company shall pay
to Columbia (i) a royalty of 5% of net sales of any product sold which incorporates a licensed Columbia patent and (ii) 2.5% of net sales
of other products. In addition, the Company shall pay a flat $100 thousand fee to Columbia upon the achievement of each regulatory milestone.
As of December 31, 2022, no royalty incurring sales were made.
h.
Regents of the University of California
In
December 2019, the Company and the Regents of the University of California (“University”) entered into a joint research agreement
in the field of therapies and processing technologies according to an agreed upon work plan. According to the agreement, the Company
will pay the University royalties of up to 5% (or up to 20% of sub-licensing sales) in the event of sales that includes certain types
of University owned IP. As of December 31, 2022, no royalty incurring sales were made.
i.
Caerus Therapeutics Inc
In
October 2019, the Company and Caerus Therapeutics (“Caerus”), a Virginia company, concluded a license agreement whereby Caerus
granted the Company an exclusive license to all Caerus IP relating to Advance Chemeric Antigen Vectors for Targeting Tumors for the development
and/or commercialization of certain licensed products. In consideration for the License granted to the Company under this Agreement,
the Company shall pay Caerus annual maintenance fees and royalties of sales of up to 5% and up to 18% of sub-license fees. As of December
31, 2022, no royalty incurring sales were made.
j.
Tissue Genesis LLC
Included
in the Koligo acquisition of 2020 were the assets of Tissue Genesis LLC. The Company is committed to paying the previous owners of Tissue
Genesis LLC or their assignees up to $500 thousand upon the achievement of certain performance milestones and earn-out payments on future
sales provided that in no event will the aggregate of the earn-out payments exceed $4 million. To date, no performance milestones have
been reached.
k.
University of Louisville research foundation (“ULRF”)
Koligo
had exclusively licensed patents and technology from the ULRF related to the revascularization and 3D printing of cell and tissue for
transplant (“ULRF licensed products”). The Company is committed to utilizing commercial reasonable efforts to achieving certain
milestones regarding the ULRF licensed products. Pursuant to the license, Company will pay ULRF royalties of 3.5% of sales and certain
performance milestones. During the year ended December 31, 2021, Company paid $40 thousand under its obligations.
l.
Neuro-Immunotherapy Exclusive License Agreement
During
the year ended 2021, the Company entered into an exclusive license agreement in the field of neuro-immunotherapy. Pursuant to the agreement,
the Company received an exclusive, worldwide, sublicensable, royalty-bearing license of certain technology and patents for the purpose
of developing, manufacturing, using, and commercializing the licenced technology. Royalties of between 0.5% and 5% on royalty-bearing
sales are payable for up to 15 years from the date of first sale in any country in which licensed products are sold, and sublicense fees
are payable at the rate of 12% on sublicense income (but no less than two percent (2.0%) of sublicenses’ net sales). Pursuant to
the agreement, the Company is required to invest within thirty-six (36) months of the effective date an aggregate amount of at least
$2 million in its efforts to develop the licensed technology. In 2023, the Company terminated this license agreement.
m.
Savicell
During
2021, the Company and Savicell Ltd (“Savicell”) entered into a collaboration agreement (the “Savicell Agreement”)
to collaborate in the evaluation, continued development, validation, and use of Savicell’s platform designed for the early detection
and diagnosis of diseases and conditions and for quality control and monitoring purposes, in conjunction with the Company’s systems.
Pursuant to the Savicell Agreement, the Company will provide to Savicell funding for the performance of certain tasks agreed upon by
the parties in a work plan. In consideration for such funding, Savicell will supply the Company with products developed under the Savicell
Agreement at preferential rates and grant to the Company a worldwide exclusive licence to sell such products in the Company’s point-of-care
network of hospitals, clinics and institutions for quality control and monitoring of manufacturing and processing of autologous immune
cells manipulated by cell and gene therapies. The Company will be required to pay a 10% royalty for all gross sales of such products
developed under the Savicell Agreement. As of December 31, 2022, no royalty incurring sales were made.
n.
Stromatis Pharma
During
2021, the Company and Stromatis Pharma Inc. (“Stromatis”) entered into a Collaboration and Sublicense Agreement (the “Stromatis
Agreement”) to collaborate in refining methods for GMP manufacturing of CAR-T/CAR-NK CT109; and the development and validation
of the Stromatis technology as it relates to the CAR-T/CAR-NK CT109 antibody up to and inclusive of filing of Investigational New Drug
Application relating to Stromatis’ CAR-T/CAR-NK CT109 antibody (“Licensed Product”), in accordance with the agreed
project plan (“Project”). The Company will fund the Project by providing Stromatis an amount of $1.2 million such funding
to be provided based on approved projects. Stromatis will grant the Company certain perpetual, irrevocable royalty free and fully paid-up
exclusive rights to manufacture, process and supply the Licensed Product (“Manufacturing Rights”) and perpetual, irrevocable,
royalty bearing exclusive rights to market and sell and offer for sale the Licensed Product within the Company’s point of care
network (“Marketing Rights”). As of December 31, 2022, no royalty incurring sales were made.
Stromatis
has the option to convert the exclusive Manufacturing Rights to non-exclusive rights subject to repayment by Stromatis of an amount equal
to funding provided by the Company and an additional payment by Stromatis of an ongoing revenue share of five percent (5%) of revenues
of any kind received by Stromatis or its affiliates from the sale or transfer of Licensed Products or license of rights under the licensed
technology in relation to the Licensed Products. The Company shall pay Stromatis in consideration for the Marketing Rights and royalties
equal to 12% of net revenues of Licensed Products received by the Company. The Company advanced to Stromatis an initial sum of $500 thousand
under the Stromatis Agreement, which was recorded as Cost of revenues, development services and research and development expenses.
o.
Helmholtz Zentrum München Deutsches Forschungszentrum für Gesundheit und Umwelt (GmbH)) (“HMGU”)-
During
2021, HMGU granted an exclusive licence under HGMU owned patent rights and non-exclusive license under HGMU know how and licensed materials,
to the Company in the field of certain human stem cells. In addition, payments will be due by the Company upon certain milestones. The
agreement also includes payment of royalties of between 3% and 4% on net sales of licensed product (with a minimum annual royalty of
Euro 200,000, creditable against royalties on net sales incurred during such contract year) and 5% in service revenues and payment of
between 10% and 18% on sublicense revenues.
p.
License and research agreement with Yeda Research and Development Company Limited
On
January 25, 2022, the Company and Yeda Research and Development Company Limited (“Yeda”), an Israeli company, entered into
a license and research agreement. Pursuant to the agreement, Yeda granted to the Company an exclusive, worldwide royalty bearing license
to certain licensed information and the licensed patents, for the development, manufacture, use, offer for sale, sale and import of products
in the field of tumor-infiltrating lymphocytes (TIL) and Chimeric antigen receptor (CAR) T cell immunotherapy platforms (excluding CAR-Cytokine
Induced Killer cell immunotherapy). The Company undertook 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 net 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 achievement of the dosing of a first patient in a Phase I Clinical Trial |
|
4. |
Milestone
Events payments: |
|
a. |
$50
thousand upon the dosing of a first patient in a Phase I Clinical Trial; |
|
b. |
$500
thousand upon the receipt of FDA marketing approval in respect of a product; |
|
c. |
$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); |
|
d. |
$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); |
|
5. |
Patent
fees already incurred by Yeda in connection with the Licensed Patents and all future costs and fees relating to the filing, prosecution,
and maintenance of the Licensed Patents; and |
|
6. |
Research
related expenses based on a budget to be agreed upon. |
As
of December 31, 2022, the Company recognized $120 thousand as expenses under this contract.
q.
European Innovation Council and SMEs Executive Agency (“EISMEA”)
During
the year ended December 31, 2022, the Dutch Subsidiary, together with a consortium of other entities (“Consortium”) and
EISMEA entered into a grant funding agreement for the funding of the development of an artificial intelligence guided microfluidic
device that standardizes the GMP production of autologous induced pluripotent stem cells (iSPSCs) at greatly reduced costs
(“iPSC project”). The total grant amount is Euro 3.999
million of which the Dutch subsidiary is eligible to receive up to Euro 1.179
million. The project started on September 1, 2022 and is expected to end on August 31, 2026. The Dutch subsidiary is the consortium
leader for the iPSC project. During the year ended 31 December 2022, the subsidiary received initial working capital in the amount
of Euro 1.1920
million of which Euro 1.338
million was received on behalf of the other members of the Consortium and recorded in restricted cash, and Euro 582
thousand for the use of the subsidiary as per the grant agreement. As at December 31, 2022, the restricted cash related to the iPSC
project was $609
thousand. During the year ended December 31, 2022, the Company recognized grant income of $73
thousand which was offset against research and development expenses.
NOTE
12 – COLLABORATIONS
a.
Adva Biotechnology Ltd.
On
January 28, 2018, the Company and Adva Biotechnology Ltd. (“Adva”), entered into a Master Services Agreement (“MSA”),
pursuant to which the Company and/or its affiliates provided certain services relating to development of products for Adva.
In
consideration for and subject to the fulfillment by the Company of certain funding commitments which were completed in 2019, Adva agreed
that upon completion of the development of the products, the Company and/or its affiliates and Adva shall enter into a supply agreement
pursuant to which for a period of eight (8) years following execution of such supply agreement, the Company and/or its affiliates (as
applicable) is entitled (on a non-exclusive basis) to purchase the products from Adva at a specified discount pricing from their then
standard pricing. The Company and/or its affiliates were also granted a non-exclusive worldwide right to distribute such products, directly
or indirectly. The MSA shall remain in effect for 10 years unless earlier terminated in accordance with its terms.
b.
Johns Hopkins University
During
the year ended December 31, 2021, the Company and Johns Hopkins University entered into a sublease and construction agreement for the
establishment of a clinical therapeutic development and point of care center in Maryland of approximately 6,830 rentable square feet.
Pursuant to the agreement, the Company will pay for certain leasehold improvements in the premises according to plans and specifications
to be agreed upon. The Company advanced $1,976 thousand for this purpose. The costs of the leasehold improvements will be offset by up
to $5 million pursuant to a grant from the Board of Public Works of the State of Maryland to Johns Hopkins University. The annual base
rent is initially $260 thousand per year, increasing to $324 thousand per year over the 10-year initial lease term. The Company has an
option to renew the sublease for two additional periods of five years each under the same terms and conditions. The Company is expected
to gain occupancy of the premises during the fourth quarter of 2024.
c.
Joint Venture Agreements
The
Company has entered into joint venture agreements (“JVAs”) with its joint venture partners (Company and partner are referred
to as “Parties”) to facilitate the collaboration in the field of CGT. During 2022, the Company and / or JV partner continued
the POCare Network expansion in each of the territories as relevant. The provisos and the table below summarize the major joint venture
agreements. CGT and POCare activities covered by the JVAs include the development, marketing, clinical development, and commercialization
of the Company’s and / or partner’s products within defined territories. The extent of the collaboration is set out in each
agreement.
Unless
otherwise stated in the table below the JVAs include the following provisos (“Provisos”):
1. |
The
incorporation of a joint venture entity (“JVE”) in which the Company or an assignee will hold between 49% and 51% of
the equity. |
2. |
The
JV partner will manage the joint venture activities until the JVE is incorporated. |
3. |
The
JVE will be managed by a steering committee consisting of 3 members which will act as the entity’s board of directors. The
Company or assignee is entitled to appoint 1 member, the partner is entitled to appoint 1 member, and Company or assignee and partner
will jointly appoint the third member. |
4. |
The
Company has the right to exercise a call option to acquire the JV partner’s share in the JVE based on the occurrence of certain
events and according to an agreed upon mechanism. |
5. |
The
funding of the parties’ investment in the joint venture share may be made in the form of cash investment and / or in-kind services.
The Company’s or its assignee’s cash investment may be in the form of additional shares, a convertible loan, and/or procured
services. |
6. |
Each
of the Parties may agree to provide additional funding to the JVE to cover the operation costs and such additional funding may be
in the form of in-kind contributions. The Company’s or its assignee’s investments may be made in the form of a cash investment
for additional shares, a convertible loan, and/or procured services. Procured services refer to certain services that the Company
or assignee has engaged the partner or the JVE to provide the Company or assignee with, in support of Company’s or its assignee’s
activity. All results of these procured services shall be owned by Company or its assignee, as relevant. |
7. |
As
appropriate, the parties will grant to the JVE an exclusive or nonexclusive, sublicensable, royalty-bearing, right and license to
the relevant party’s background IP as required solely to manufacture, distribute and market and sell the party’s products
within the defined territory. Each party shall receive royalties in an amount of ten percent (10%) of the net sales generated by
the JVE and/or its sublicensees with respect to the sale of such parties’ products. |
8. |
Once
the JVE is profitable, under certain circumstances, the Company will be entitled (in addition to any of its rights as the holder
of the JVE) to an additional share of fifteen percent (15%) of the JVE’s GAAP profit after tax, over and above all rights granted
pursuant to Company’s participating interest in the JVE. |
9. |
Unless
otherwise stated, the relevant JVE had not been incorporated by December 31, 2022. |
Name
of party (and country of origin) |
|
Territory |
|
Notes |
Theracell
Advanced Biotechnology SA (Greece) and / or its related parties |
|
European
Union, Israel, Australia |
|
(1)
(5) & (11) |
Broaden
Bioscience and Technology Corp (USA) |
|
Certain
projects in China and the Middle East |
|
(5)
& (11) |
Mircod
LLC (US) |
|
Russia
(No POCare activities have taken place to date) |
|
(2) |
Image
Securities FZC (UAE) |
|
India
and European Union |
|
(3)
(5) & (11) |
Cure
Therapeutics (Korea) |
|
South
Korea, Australia and Japan |
|
(5)
& (11) |
Kidney
Cure Ltd (Israel) |
|
N
/ A |
|
(4) |
Educell
D.O.O
(Slovenia) |
|
Croatia,
Serbia and Slovenia |
|
(6) |
Med
Centre for Gene and Cell Therapy FZ-LLC
(UAE) |
|
European
Union and United Arab Emirates |
|
(5)
& (11) |
First
Choice International Company, Inc (USA) |
|
Panama
and certain other Latin American countries |
|
(7) |
SBH
Sciences Inc (USA) |
|
N
/ A |
|
(8) |
Revitas
SA (Belgium) |
|
N
/ A |
|
(9) |
Deep
Med IO Ltd. (UK) |
|
N
/ A |
|
(10) |
(1) |
The
Theracell JVE was incorporated in Greece under the name of Theracell Laboratories Private Company (“Theracell Laboratories”).
(See Note 13). In November 2021, the Company loaned approximately $800 thousand to Theracell which was repaid during 2022. The Company
also loaned approximately $4,132 thousand as part of its obligations under the JVA to Theracell Laboratories. The 3-year loan bears
interest at the annual rate of 8%. |
|
|
(2) |
Under
the Mircod JVA, provisos 7 and 8 do not apply. According to the Mircod JVA, subject to payment by the Company of the contribution
amount, the JVA will grant Company an exclusive, perpetual, irrevocable, royalty free and fully paid up and sublicensable license
to use the Project IP for research and development and for the manufacturing, processing, supplying, and use of products based on
point of care manufacturing and/or processing of treatments for patients and for use in hospitals, medical centers and academic institution
settings solely outside the territory. In order for the Company to fulfil its obligations pursuant to proviso 6, the Parties concluded
a convertible loan agreement pursuant to which Company shall lend to Mircod Biotech Inc up to $5 million. Mircod Biotech Inc., performs
technological development work ordered by Company. The loan bears simple interest in the amount of 6% annually. During 2021 and 2022,
the Company had transferred $1,640 thousand and $435 thousand respectively under the loan agreement. The Company recorded the loan
amounts as research and development expenses under ASC 730. As of December 31, 2022, the technological development work had not been
completed. |
|
|
(3) |
On
August 24, 2021, the Company entered into a convertible loan agreement with Image whereby, pursuant to the terms of the Image joint
venture agreement, the Company agreed to loan Image up to $5
million. The loan bears interest at the rate of 6%.
The Company and Image have agreed to extend the maturity date of the loan to December 31, 2023. As of December 31, 2022, the outstanding balance under the
loan agreement was $2.7
million, and this has been reflected as a short-term asset on the Company’s balance sheet. |
|
|
(4) |
The
Kidney Cure JVE was incorporated in Switzerland under the name of Butterfly Biosciences Sarl (“BB”) (See Note 13). The
Company recorded the expenses paid to BB as research and development expenses under ASC 730. During the year ended December 31, 2022,
development activities continued. |
|
|
(5) |
During
December 2022 the Company and the relevant joint venture partners agreed to replace the relevant JVAs to reflect updated partners’
responsibilities and amend certain terms relating to future licence agreements and conversion mechanisms. In addition, it was agreed
that Proviso 8 will be removed from these JVAs. |
|
|
(6) |
During
2021, the Company and Educell entered into a convertible loan agreement whereby the Company, pursuant to its obligations under the
JVA, agreed to loan up to $1.2 million. As of December 31, 2022, the Company had transferred $970 thousand under the loan agreement.
The Company recorded the loan amounts as research and development expenses under ASC 730. The loan bears interest at the annual rate
of 4.5% and is repayable after 5 years. At Company’s election, the loan is convertible into equity of borrower, or JVE entity
if incorporated, at a valuation to be determined by an independent third party. |
|
|
(7) |
Under
the First Choice JVA, each party shall, subject to fulfilment of the party’s JVA, grant the Panama JV Entity an exclusive license
to certain intellectual property of the part to develop and commercialize such party’s products in the defined territory, subject
to minimum sales obligations. In consideration of such license, the Panama JV shall pay the relevant party royalties at the rate
of 15% of the Panama JVE net sales of such party’s products sold in the defined territory. The First Choice JVE will be managed
by a steering committee consisting of 5 members which will act as the entity’s board of directors. Each of the Parties is entitled
to appoint 2 members, and Company and partner will jointly appoint the fifth member. Under the First Choice JVA, provisos 5,6,7 and
8 do not apply. There was no material activity under the First Choice JVA during 2022. |
(8) |
Pursuant
to the SBH JVA the parties will collaborate in the field of gene and cell therapy development, process and services of bio-exosome
therapy products and services in the areas of diabetes, liver cells and skin applications, including wound healing. According to
the JVA, the board of directors of the SBH JVE shall be comprised of three directors with one appointed by SBH and two appointed
by the Company. Provisos 7 and 8 do not apply to the SBH JVA. There was no material activity under the SBH JVA during 2022. |
|
|
(9) |
The
Revitas JVE was incorporated in Belgium under the name of RevaCel Srl during 2021 (See Note 13). The Company holds 51% of the share
capital of RevaCel and has the right to appoint two members to the RevaCel board of directors. The Company’s partner, Revatis
SA, (a Belgian entity) holds the remaining 49% and has the right to appoint two members to the Revacel board of directors. The fifth
RevaCel board member will be an independent industry expert appointed with the mutual agreement of the Company and Revatis SA. The
Company recorded the expenses paid to Revitas and RevaCel under the JVA as research and development expenses under ASC 730. As part
of the Company’s agreement with Revatis under the Revatis joint venture agreement, the Company agreed to loan Revacel up to
2 million Euro at an annual interest rate of 8%. The loan is repayable in January 2025, and if not repaid, may be converted into
shares of Revacel. As of the date of this Annual Report on Form 10-K, the Company had not made any transfers under the Revacel loan
and there was no material activity under the SBH JVA during 2022. |
|
|
(10) |
In
November 2021, Deep Med IO Ltd (“Deep Med”) and Company entered into a JVA. The Parties agreed to collaborate in the
development and commercialization of an AI-powered system to be used in the manufacturing and/or quality control of CGTs. The Company
has the right to finance its activities under the Deep Med JVA by procuring services, advancing funds under a convertible loan agreement,
or by an equity investment. The Deep Med convertible loan bears interest at the annual rate of 6% and is repayable after 5 years.
The Company has the right to convert its holdings under the loan into shares of Deep Med, or into shares of the Deep Med JV entity
once established. Development work under the Deep Med JVA has continued according to the work plan agreed upon between the Company
and Deep Med. During twelve months ended December 31, 2022, the Company transferred $1.9 million to Deep Med as part of its commitment
under the Deep Med JVA. The Company recorded the amounts paid to Deep Med under the Deep Med JVA as research and development expenses
under ASC 730. |
|
|
(11) |
In
January 2023, the Company assigned certain rights and obligations under the JVAs to Texas Advanced Therapies LLC, a Delaware Limited
Liability company (“Texas AT”) not related to the Company. Texas AT will receive the Company’s option to require
the incorporation of the JV Entity, Company’s share in the JV Entity if and when the latter are incorporated, an option to
invest additional funding in the JV Entity, and board and veto rights on certain critical decisions in the JV Entity. The Company
has retained the call option to acquire the JV partner’s share in the JVE, to receive a royalty and a right to conclude the
Manufacturing and Service Agreement with the JV entity. Proviso 8 has been removed from these JVAs. The Company has no obligation
to provide any additional funding to the JV entities. |
NOTE
13 – INVESTMENTS AND LOANS TO ASSOCIATES, NET
a.
Theracell Laboratories Private Company (“Theracell Laboratories” or “TLABS”)
During
2020, the Company and Theracell, pursuant to the Greek JVA (See Note 12) incorporated the Greek JVA entity known as TLABS. The Theracell
Project activities are run through TLABS. The Company and Theracell each hold a 50% participating interest in TLABS. Until December 31,
2022, due to the Company’s significant influence over the JVE the Company applied the equity method of accounting. On December
31, 2022, the shareholders of Theracell Laboratories agreed to a change in the composition of the board of directors thus giving the
Company effective control of Theracell Laboratories. See note 4.
Business
combination
The
following table summarizes the allocation of purchase price to the fair values of the assets acquired and liabilities assumed as of the
transaction date:
SCHEDULE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED
| |
(in thousands) | |
Total assets: | |
| | |
Cash and cash equivalents | |
$ | 147 | |
Prepaid expenses and other receivables | |
| 133 | |
Orgenesis Accounts Receivable | |
| 241 | |
Other long-term assets | |
| 281 | |
Property, plants and equipment, net | |
| 858 | |
Investments in associates, net | |
| 19 | |
Operating lease right-of-use assets | |
| 1,368 | |
Advanced payment for Accounts payable | |
| 366 | |
Total assets | |
| 3,413 | |
| |
| | |
Total liabilities: | |
| | |
Operating leases | |
| 1,368 | |
Orgenesis loan | |
| 4,567 | |
Other payable | |
| 184 | |
Total liabilities | |
| 6,119 | |
Total Net Liabilities | |
$ | 2,706 | |
Non-controlling interests (50%) | |
| 1,353 | |
Total Net Liabilities (50%) | |
| 1,353 | |
b.
Butterfly Biosciences Sarl
During
2020, the Company and Kidney Cure (“KC”), pursuant to the Kidney Cure JVA (See Note 11) incorporated the KC JV Entity known
as Butterfly Biosciences Sarl (“BB”) in Switzerland. BB will be involved in the (i) implementation of a point-of-care strategy;
(ii) assessment of the options for development and manufacture of various cell-based types (including kidney derived cells, MSC cells,
exosomes, gene therapies) development; and (iii) development of protocols and tests for kidney therapies. The Company holds a 49% participating
interest in BB and Kidney Cure holds the remaining 51%. Due to the Company’s significant influence over the JVE the Company applies
the equity method of accounting.
c.
RevaCel
During
2021, the Company and Revatis S.A (“Revatis”), pursuant to the Revatis JVA (See Note 11) incorporated the Revatis JV Entity
known as RevaCel Srl (“RevaCel”) in Belgium. RevaCel will develop products in the field of muscle-derived mesenchymal stem/progenitor
cells. The Company holds a 51% participating interest in RevaCel and Revatis holds the remaining 49% and is entitled to appoint 2 of
the 5 members of RevaCel’s board. Due to the Company’s significant influence over the JVE, the Company applies the equity
method of accounting and is treated as an associated company. As part of the Revatis JVA, the Company and Revacel, the Company agreed
to loan Revacel up to 2 million Euro at an annual interest rate of 8%. The loan is repayable in January 2025, and if not repaid, may
be converted into shares of Revacel. As of the date of this annual report on Form 10-k, the Company had not made any transfers under
the Revacel loan.
The
table below sets forth a summary of the changes in the investments and loans for the years ended December 31, 2022 and December 31, 2021:
SCHEDULE
OF CHANGES IN INVESTMENTS AND LOAN
| |
| | | |
| | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Opening balance | |
$ | 584 | | |
$ | 175 | |
Investments during the period | |
| - | | |
| 260 | |
Loan to granted associates | |
| 4,131 | | |
| 441 | |
Business Combinations | |
| (3,156 | ) | |
| - | |
Interest from loans to associates | |
| 161 | | |
| 2 | |
Share in net loss of associated companies | |
| (1,508 | ) | |
| (272 | ) |
Exchange rate differences | |
| (77 | ) | |
| (22 | ) |
Total | |
$ | 135 | | |
$ | 584 | |
NOTE
14 – INCOME (LOSS) PER SHARE
The
following table sets forth the calculation of basic and diluted loss per share for the periods indicated:
SCHEDULE OF BASIC AND DILUTED LOSS PER SHARE
| |
| | | |
| | |
| |
Years ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands, except per share data) | |
Basic and diluted: | |
| | | |
| | |
Net loss attributable to Orgenesis Inc. | |
$ | 14,889 | | |
$ | 18,053 | |
Weighted average number of common shares outstanding | |
| 25,096,284 | | |
| 24,273,658 | |
Net loss per share | |
$ | 0.59 | | |
$ | 0.74 | |
For
the year ended December 31, 2022, and December 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 6,753,539
shares underlying outstanding options and warrants and 3,097,691 shares upon conversion of convertible loans for the year ended December
31, 2022, because the effect of their inclusion in the computation would be anti-dilutive. Diluted loss per share does not include 5,919,739
shares underlying outstanding options and warrants and 1,518,397 shares upon conversion of convertible loans for the year ended December
31, 2021, because the effect of their inclusion in the computation would be antidilutive.
NOTE
15 – STOCK-BASED COMPENSATION
a.
Global Share Incentive Plan
The
Company’s stockholders have approved the 2017 Equity Incentive Plan (the “2017 Plan”) under which, the Company had
reserved a pool of 3,000,000 shares of the Company’s common stock, which may be issued at the discretion of the Company’s
board of directors from time to time. Under this Plan, each option is exercisable into one share of common stock of the Company. The
options may be exercised after vesting and in accordance with the vesting schedule that will be determined by the Company’s board
of directors for each grant. The maximum contractual life term of the options is 10 years. As of December 31, 2022, total options granted
under this plan are 3,023,518 and the total options that are available for grants under this plan are 450,164.
On
May 23, 2012, the Company’s board of directors adopted the Global Share Incentive Plan 2012 (the “2012 Plan”) under
which, the Company had reserved a pool of 1,000,000 shares of the Company’s common stock, which may be issued at the discretion
of the Company’s board of directors from time to time. Under this plan, each option is exercisable into one share of common stock
of the Company. The options may be exercised after vesting and in accordance with the vesting schedule that will be determined by the
Company’s board of directors for each grant. The maximum contractual life term of the options is 10 years. As of December 31, 2022,
total options granted under this plan are 1,415,008 and the total options that are available for grants under this plan are 161,974.
b.
Options Granted to Employees and Directors
Below
is a table summarizing all of the options grants to employees and Directors made during the years ended December 31, 2022, and December
31, 2021:
SCHEDULE OF EMPLOYEE STOCK OWNERSHIP PLAN DISCLOSURES
| | |
Year Ended | | |
No. of options granted | | |
Exercise price | | |
Vesting period | | |
Fair value at grant (in thousands) | | |
Expiration period | |
Employees | | |
December 31, 2022 | | |
| 440,250 | | |
| $2-$2.01 | | |
Quarterly over a period of two years | | |
$ | 559 | | |
10 years | |
| | |
| | |
| | | |
| | | |
| | |
| | | |
| |
Directors | | |
December 31, 2022 | | |
| 84,650 | | |
| 1.86 | | |
On the one-year anniversary | | |
$ | 100 | | |
10 years | |
| | |
| | |
| | | |
| | | |
| | |
| | | |
| |
Employees | | |
December 31, 2021 | | |
| 277,000 | | |
| $2.96-$5.12 | | |
Quarterly over a period of two years | | |
$ | 812 | | |
10 years | |
| | |
| | |
| | | |
| | | |
| | |
| | | |
| |
Directors | | |
December 31,2021 | | |
| 84,650 | | |
$ | 2.89 | | |
On the one-year anniversary | | |
$ | 149 | | |
10 years | |
The
fair value of each stock option grant is estimated at the date of grant using a Black Scholes option pricing model. The volatility is
based on historical volatility of the Company, by statistical analysis of the weekly share price for past periods based on expected term.
The expected option term is calculated using the simplified method, as the Company concludes that its historical share option
exercise experience does not provide a reasonable basis to estimate its expected option term. The fair value of each option grant is
based on the following assumptions:
SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
Value of one common share | |
$ | 1.86-$2.01 | | |
$ | 2.89-$5.12 | |
Dividend yield | |
| 0 | % | |
| 0 | % |
Expected stock price volatility | |
| 70%-71 | % | |
| 71%-77 | % |
Risk free interest rate | |
| 3.61%-3.85 | % | |
| 0.96%-1.34 | % |
Expected term (years) | |
| 5.5-5.56 | | |
| 5.5-5.56 | |
A
summary of the Company’s stock options granted to employees and directors as of December 31, 2022 and December 31, 2021 is presented
below:
SCHEDULE OF STOCK OPTIONS ACTIVITY
| |
Years Ended December 31 | |
| |
2022 | | |
2021 | |
| |
Number of Options | | |
Weighted Average Exercise Price $ | | |
Number of Options | | |
Weighted Average Exercise Price $ | |
Options outstanding at the beginning of the period | |
| 3,210,005 | | |
| 4.05 | | |
| 2,917,667 | | |
| 4.05 | |
Changes during the period: | |
| | | |
| | | |
| | | |
| | |
Granted | |
| 524,900 | | |
| 1.98 | | |
| 361,650 | | |
| 4.19 | |
Exercised* | |
| (510,017 | ) | |
| 0.01 | | |
| (13,750 | ) | |
| 4.63 | |
Expired | |
| (125,426 | ) | |
| 8.8 | | |
| (20,813 | ) | |
| 5.67 | |
Forfeited | |
| (63,997 | ) | |
| 4.13 | | |
| (34,749 | ) | |
| 4.67 | |
Cancelled | |
| - | | |
| - | | |
| - | | |
| - | |
Options outstanding at end of the period | |
| 3,035,465 | | |
| 4.17 | | |
| 3,210,005 | | |
| 4.05 | |
Options exercisable at end of the period | |
| 2,565,919 | | |
| 4.51 | | |
| 2,777,563 | | |
| 4.00 | |
* | During the year
ended December 31, 2022, the Company received $6 thousand from the exercise of employee options for the purchase of 510,017 shares of
the Company’s Common Stock at a weighted average price of $0.012. During the year ended December 31, 2021, the Company received
$64 thousand from the exercise of employee options for the purchase of 13,750 shares of the Company’s Common Stock at a weighted
average price of $4.63. |
The
following table presents summary information concerning the options granted and exercisable to employees and directors outstanding as
of December 31, 2022 (in thousands, except per share data):
SCHEDULE OF STOCK OPTIONS EXERCISABLE
Exercise Price $ | | |
Number of Outstanding Options | | |
Weighted Average Remaining Contractual Life | | |
Aggregate Intrinsic Value $ | | |
Number of Exercisable Options | | |
Aggregate Exercisable Options Value $ | |
| | |
| | |
| | |
(in thousands) | | |
| | |
(in thousands) | |
0.0012 | | |
| 230,189 | | |
| 1.64 | | |
| 449 | | |
| 230,189 | | |
| - | |
1.86 | | |
| 84,650 | | |
| 9.99 | | |
| 7 | | |
| - | | |
| - | |
2.89 | | |
| 84,650 | | |
| 8.96 | | |
| - | | |
| 84,650 | | |
| 245 | |
2 | | |
| 357,252 | | |
| 9.42 | | |
| - | | |
| 90,440 | | |
| 181 | |
2.01 | | |
| 72,500 | | |
| 9.96 | | |
| - | | |
| - | | |
| - | |
2.96 | | |
| 53,125 | | |
| 8.62 | | |
| - | | |
| 53,125 | | |
| 157 | |
2.99 | | |
| 429,950 | | |
| 7.17 | | |
| - | | |
| 429,950 | | |
| 1,286 | |
3.14 | | |
| 2,500 | | |
| 6.91 | | |
| - | | |
| 2,500 | | |
| 8 | |
4.42 | | |
| 50,000 | | |
| 4.93 | | |
| - | | |
| 50,000 | | |
| 221 | |
4.5 | | |
| 32,500 | | |
| 6.47 | | |
| - | | |
| 32,500 | | |
| 146 | |
4.6 | | |
| 157,488 | | |
| 7.20 | | |
| - | | |
| 157,488 | | |
| 724 | |
4.7 | | |
| 6,250 | | |
| 7.03 | | |
| - | | |
| 4,167 | | |
| 20 | |
4.8 | | |
| 483,337 | | |
| 3.94 | | |
| - | | |
| 483,337 | | |
| 2,320 | |
5.02 | | |
| 58,563 | | |
| 7.40 | | |
| - | | |
| 40,188 | | |
| 202 | |
5.07 | | |
| 51,000 | | |
| 6.03 | | |
| - | | |
| 51,000 | | |
| 259 | |
5.1 | | |
| 57,375 | | |
| 6.04 | | |
| - | | |
| 57,375 | | |
| 293 | |
5.12 | | |
| 109,250 | | |
| 7.81 | | |
| - | | |
| 84,125 | | |
| 431 | |
5.99 | | |
| 317,050 | | |
| 5.81 | | |
| - | | |
| 317,049 | | |
| 1,898 | |
6 | | |
| 16,667 | | |
| 1.59 | | |
| - | | |
| 16,667 | | |
| 100 | |
6.84 | | |
| 12,000 | | |
| 7.38 | | |
| - | | |
| 12,000 | | |
| 82 | |
7.2 | | |
| 83,334 | | |
| 4.43 | | |
| - | | |
| 83,334 | | |
| 600 | |
8.36 | | |
| 250,001 | | |
| 5.50 | | |
| - | | |
| 250,001 | | |
| 2,090 | |
8.91 | | |
| 15,000 | | |
| 5.46 | | |
| - | | |
| 15,000 | | |
| 134 | |
9 | | |
| 20,834 | | |
| 0.54 | | |
| - | | |
| 20,834 | | |
| 187 | |
| | |
| 3,035,465 | | |
| 6.23 | | |
| 456 | | |
| 2,565,919 | | |
| 11,584 | |
Costs
incurred with respect to stock-based compensation for employees and directors for the years ended December 31, 2022 and December 31,
2021 were $917 thousand and $1,349 thousand, respectively. As of December 31, 2022, there was $670 thousand of unrecognized compensation
costs related to non-vested employees and directors stock options, to be recorded over the next 2 years.
c.
Options Granted to Consultants and service providers
Below
is a table summarizing all the compensation granted to consultants and service providers during the years ended December 31, 2022 and
December 31, 2021:
SCHEDULE OF STOCK OPTIONS GRANTED TO CONSULTANTS
| | |
Year
of grant | | |
No.
of options granted | | |
Exercise
price | | |
Vesting period | |
Fair
value at grant (in
thousands) | | |
Expiration
period | |
Non-employees | | |
2022 | | |
| 28,335 | | |
$ | 2 | | |
Quarterly over a period of two years | |
$ | 48 | | |
10 years | |
Non-employees | | |
2021 | | |
| 7,500 | | |
$ | 2.96 | | |
Quarterly over a period of two years | |
$ | 22 | | |
10 years | |
The
fair value of options granted during 2022 and
2021 to consultants and service providers, was computed using the Black-Scholes model. The
fair value of each stock option grant is estimated at the date of grant using a Black Scholes option pricing model. The volatility is
based on historical volatility of the Company, by statistical analysis of the weekly share price for past periods based on the expected
term period, the expected term is the contractual term of each grant. The underlying data used
for computing the fair value of the options are as follows:
SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
Value of one common share | |
$ | 2 | | |
$ | 2.96 | |
Dividend yield | |
| 0 | % | |
| 0 | % |
Expected stock price volatility | |
| 84 | % | |
| 145 | % |
Risk free interest rate | |
| 3.6%-3.61 | % | |
| 1.47 | % |
Expected term (years) | |
| 10 | | |
| 10 | |
A
summary of the Company’s stock options granted to consultants and service providers as of December 31, 2022, and December 31, 2021
is presented below:
SCHEDULE OF STOCK OPTIONS ACTIVITY
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
Weighted Average Exercise Price $ | | |
| | |
Weighted Average Exercise Price $ | |
Options outstanding at the beginning of the year | |
| 547,691 | | |
| 5.89 | | |
| 549,141 | | |
| 5.89 | |
Changes during the year: | |
| | | |
| | | |
| | | |
| | |
Granted | |
| 28,335 | | |
| 2.00 | | |
| 7,500 | | |
| 2.96 | |
Expired | |
| (58,851 | ) | |
| 12.85 | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| (8,950 | ) | |
| 3.88 | |
Cancelled | |
| - | | |
| - | | |
| - | | |
| - | |
Options outstanding at end of the year | |
| 517,175 | | |
| 4.88 | | |
| 547,691 | | |
| 5.89 | |
Options exercisable at end of the year | |
| 453,005 | | |
| 5.11 | | |
| 467,689 | | |
| 6.20 | |
The
following table presents summary information concerning the options granted and exercisable to consultants and service providers outstanding
as of December 31, 2022 (in thousands, except per share data):
SCHEDULE OF STOCK OPTIONS EXERCISABLE
Exercise Price $ | |
Number of Outstanding Options | | |
Weighted Average Remaining Contractual Life | | |
Aggregate Intrinsic Value $ | | |
Number
of Exercisable Options | | |
Aggregate Exercisable Options Value $ | |
| |
| | |
| | |
(in thousands) | | |
| | |
(in thousands) | |
2 | |
| 28,335 | | |
| 9.46 | | |
| - | | |
| - | | |
| - | |
2.96 | |
| 7,500 | | |
| 8.96 | | |
| - | | |
| - | | |
| - | |
2.99 | |
| 35,000 | | |
| 7.22 | | |
| - | | |
| 35,000 | | |
| 105 | |
3.36 | |
| 136,775 | | |
| 3.32 | | |
| - | | |
| 136,775 | | |
| 459 | |
4.09 | |
| 25,000 | | |
| 6.76 | | |
| - | | |
| 25,000 | | |
| 102 | |
4.42 | |
| 5,125 | | |
| 4.93 | | |
| - | | |
| 5,125 | | |
| 23 | |
4.5 | |
| 13,335 | | |
| 6.53 | | |
| - | | |
| 5,000 | | |
| 23 | |
4.6 | |
| 20,000 | | |
| 7.96 | | |
| - | | |
| 4,000 | | |
| 18 | |
4.8 | |
| 16,668 | | |
| 3.94 | | |
| - | | |
| 16,668 | | |
| 80 | |
5.07 | |
| 5,000 | | |
| 6.19 | | |
| - | | |
| 1,000 | | |
| 5 | |
5.3 | |
| 15,000 | | |
| 5.70 | | |
| - | | |
| 15,000 | | |
| 80 | |
5.99 | |
| 16,670 | | |
| 5.81 | | |
| - | | |
| 16,670 | | |
| 100 | |
6 | |
| 90,000 | | |
| 1.59 | | |
| - | | |
| 90,000 | | |
| 540 | |
6.84 | |
| 7,500 | | |
| 7.38 | | |
| - | | |
| 7,500 | | |
| 51 | |
7 | |
| 70,000 | | |
| 6.83 | | |
| - | | |
| 70,000 | | |
| 490 | |
8.34 | |
| 8,600 | | |
| 5.52 | | |
| - | | |
| 8,600 | | |
| 72 | |
8.43 | |
| 8,333 | | |
| 5.05 | | |
| - | | |
| 8,333 | | |
| 70 | |
11.52 | |
| 8,334 | | |
| 0.26 | | |
| - | | |
| 8,334 | | |
| 96 | |
| |
| 517,175 | | |
| 4.89 | | |
| - | | |
| 453,005 | | |
| 2,314 | |
Costs
incurred with respect to options granted to consultants and service providers for the years ended December 31, 2022 and December 31,
2021 were $64 thousand and $122 thousand, respectively. As of December 31, 2022, there was $115 thousands of unrecognized compensation
costs related to non-vested consultants and service providers, to be recorded over the next 3.03 years.
d.
Warrants and Shares Issued to Non-Employees
The
fair value of Common Stock issued was the share price of the shares issued at the day of grant.
During
the twelve months ended December 31, 2021, the Company issued 25,000 shares of common stock to a service provider.
NOTE
16 – TAXES
a.
Corporate taxation in the U.S.
The
corporate U.S. Federal Income tax rate applicable to the Company and its US subsidiaries is 21%.
As
of December 31, 2022, the Company has an accumulated tax loss carryforward of approximately $22 million (as of December 31, 2021, approximately
$29 million).
For
U.S. federal income tax purposes, net operating losses (“NOLs”) arising in tax years beginning after December 31, 2017, the
Internal Revenue Code of 1986, as amended (the “Code”) limits the ability to utilize NOL carryforwards to 80% of taxable
income in tax years beginning after December 31, 2020. In addition, NOLs arising in tax years ending after December 31, 2017 can be carried
forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018 will not be
subject to the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year
carryback and twenty-year carryforward period. Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect
when the NOL is expected to be utilized. The changes in the carryforward/carryback periods as well as the new limitation on use of NOLs
may significantly impact the Company’s valuation allowance assessments for NOLs generated after December 31, 2017.
In
addition, utilization of the NOLs may be subject to substantial annual limitation under Section 382 of the Code due to an “ownership
change” within the meaning of Section 382(g) of the Code. An ownership change subjects pre-ownership change NOL carryforwards to
an annual limitation, which significantly restricts the ability to use them to offset taxable income in periods following the ownership
change. In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change
multiplied by a specified tax-exempt interest rate.
b.
Corporate taxation in Israel
The
Israeli Subsidiaries are taxed in accordance with Israeli tax laws. The corporate tax rate applicable to 2022 and 2021 are 23%.
As
of December 31, 2022, the Israeli Subsidiaries has an accumulated tax loss carryforward of approximately $10 million (as of December
31, 2021, approximately $11 million). Under the Israeli tax laws, carryforward tax losses have no expiration date.
c.
Corporate taxation in Belgium
The
Belgian Subsidiaries are taxed according to Belgian tax laws. The corporate tax rates applicable to 2022, 2021 are 25%.
As
of December 31, 2022, the Belgian Subsidiary has an accumulated tax loss carryforward of approximately $7 million (€7 million),
(as of December 31, 2021 $8 million). Under the Belgian tax laws there are limitation on accumulated tax loss carryforward deductions
of Euro 1 million per year.
d.
Corporate taxation in Korea
The
basic Korean corporate tax rates are currently: 10% on the first KRW 200 million of the tax base, 20% up to KRW 20 billion, 22% up to
KRW 300 billion and 25% for tax base above KRW 300 billion. In addition, the local income tax rate is 1% on the first KRW 200 million
of taxable income, 2% on taxable income over KRW 200 million up to KRW 20 billion, 2.2% of taxable income over KRW 20 billion up to 300
billion and 2.5% on taxable income over KRW 300 billion.
As
of December 31, 2022, the Korean subsidiary has an accumulated tax loss carryforward of approximately $3 million (KRW 4,404 million),
(as of December 31, 2021, approximately $3 million). Under the Korean tax laws accumulated tax loss can be carry forwarded for 15 years.
e.
Deferred Taxes
The
following table presents summary of information concerning the Company’s deferred taxes as of the years ending December 31, 2021
and December 31, 2021:
SCHEDULE OF DEFERRED TAX ASSETS
| |
2022 | | |
2021 | |
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(U.S. dollars in thousands) | |
Deferred tax assets (liabilities), net: | |
| | | |
| | |
Net operating loss carry forwards | |
$ | 10,387 | | |
$ | 11,451 | |
Research and development expenses | |
| 1,893 | | |
| 1,273 | |
Equity compensation | |
| 1,616 | | |
| 2,631 | |
Employee benefits | |
| 191 | | |
| 197 | |
Property, plants and equipment | |
| (55 | ) | |
| (206 | ) |
Leases asset | |
| 191 | | |
| 186 | |
Lease liability | |
| (132 | ) | |
| (134 | ) |
Loans | |
| 50 | | |
| 26 | |
Partnership Investment | |
| 2,582 | | |
| - | |
Intangible assets | |
| (2,252 | ) | |
| (2,738 | ) |
Other | |
| 385 | | |
| 119 | |
Deferred tax assets gross | |
| 14,856 | | |
| 12,805 | |
| |
| | | |
| | |
Valuation allowance | |
| (14,753 | ) | |
| (12,805 | ) |
Net deferred tax liabilities | |
$ | 103 | | |
$ | - | |
Realization
of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporary differences and
carry forwards losses are expected to be available to reduce taxable income. As the achievement of required future taxable income is
not considered more likely than not achievable, the Company and all its subsidiaries except the OBI Subsidiary have recorded full
valuation allowance.
The
changes in valuation allowance are comprised as follows:
SCHEDULE OF
VALUATION ALLOWANCE ACTIVITY
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(U.S dollars in thousands) | |
Balance at the beginning of year | |
$ | (12,805 | ) | |
$ | (11,932 | ) |
Change during the year | |
| (1,948 | ) | |
| (873 | ) |
Balance at end of year | |
$ | (14,753 | ) | |
$ | (12,805 | ) |
f.
Reconciliation of the Theoretical Tax Expense to Actual Tax Expense
The
main reconciling item between the statutory tax rate of the Company and the effective rate is the provision for valuation allowance with
respect to tax benefits from carry forward tax losses.
g.
Uncertain Tax Provisions
ASC
Topic 740, “Income Taxes” requires significant judgment in determining what constitutes an individual tax position as well
as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect
the estimate of the effective tax rate and consequently, affect the operating results of the Company. As of December 31, 2022, the Company
has not accrued a provision for uncertain tax positions.
NOTE
17 – REVENUES
Disaggregation
of Revenue
The
following table disaggregates the Company’s revenues by major revenue streams.
SCHEDULE OF DISAGGREGATION OF REVENUE
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
Revenue stream: | |
| | | |
| | |
POCare development services | |
$ | 14,894 | | |
$ | 32,192 | |
Cell process development services and hospital services | |
| 11,212 | | |
| 3,310 | |
POCare cell processing | |
| 9,919 | | |
| - | |
Total | |
$ | 36,025 | | |
$ | 35,502 | |
A
breakdown of the revenues per customer what constituted at least 10% of revenues is as follows:
SCHEDULE
OF BREAKDOWN OF REVENUES PER CUSTOMER
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
Revenue earned: | |
| | | |
| | |
Customer A (Greece) | |
| 8,936 | | |
| 4,693 | |
Customer B (United States) | |
| 8,316 | | |
| 6,491 | |
Customer C (United Arab Emirates) | |
| 5,271 | | |
| 6,969 | |
Customer D (Korea) | |
| 3,873 | | |
| 7,703 | |
Contract
Assets and Liabilities
Contract
assets are mainly comprised of accounts receivable net of allowance for doubtful debts, which includes amounts billed and currently due
from customers.
The
activity for accounts receivable is comprised of:
SCHEDULE
OF ACTIVITY FOR TRADE RECEIVABLES
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Balance as of beginning of period | |
$ | 15,245 | | |
$ | 3,085 | |
Business combination TLABS | |
| (1,339 | ) | |
| - | |
Additions | |
| 35,103 | | |
| 34,570 | |
Collections | |
| (12,728 | ) | |
| (22,333 | ) |
Exchange rate differences | |
| (98 | ) | |
| (77 | ) |
Ceased to be a related party | |
| (2,186 | ) | |
| - | |
Balance as of end of period | |
$ | 36,183 | | |
$ | 15,245 | |
The
activity of the related party included in the accounts receivable activity above is comprised of:
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
Balance as of beginning of period | |
$ | 1,972 | | |
$ | 744 | |
Additions | |
| 1,284 | | |
| 3,856 | |
Collections | |
| (1,070 | ) | |
| (2,628 | ) |
Ceased to be a related party | |
| (2,186 | ) | |
| - | |
Balance as of end of period | |
$ | - | | |
$ | 1,972 | |
The
activity for contract liabilities is comprised of:
SCHEDULE
OF ACTIVITY FOR CONTRACT LIABILITIES
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Balance as of beginning of period | |
$ | 59 | | |
$ | 59 | |
Additions | |
| 11 | | |
| - | |
Balance as of end of period | |
$ | 70 | | |
$ | 59 | |
NOTE
18 – COST OF REVENUES, DEVELOPMENT SERVICES AND RESEARCH AND DEVELOPMENT EXPENSES
SCHEDULE OF RESEARCH AND DEVELOPMENT EXPENSES
| |
2022 | | |
2021 | |
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Salaries and related expenses | |
$ | 11,206 | | |
$ | 10,977 | |
Stock-based compensation | |
| 616 | | |
| 729 | |
Subcontracting, professional and consulting services | |
| 5,655 | | |
| 12,796 | |
Lab expenses | |
| 2,685 | | |
| 3,513 | |
Depreciation expenses, net | |
| 1,017 | | |
| 874 | |
Other research and development expenses | |
| 6,010 | | |
| 7,755 | |
Less grant | |
| (123 | ) | |
| - | |
Total | |
$ | 27,066 | | |
$ | 36,644 | |
NOTE
19 – FINANCIAL EXPENSES, NET
SCHEDULE
OF FINANCIAL EXPENSES
| |
2022 | | |
2021 | |
| |
Years Ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Interest expense on convertible loans | |
$ | 1,824 | | |
$ | 943 | |
Foreign exchange loss, net | |
| 145 | | |
| 574 | |
Other expense (income) | |
| 2 | | |
| (225 | ) |
Total | |
$ | 1,971 | | |
$ | 1,292 | |
NOTE
20 – RELATED PARTIES TRANSACTIONS
a.
Related Parties presented in the consolidated statements of comprehensive loss
SCHEDULE OF RELATED PARTY TRANSACTIONS
| |
Years ended December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | | |
| | |
Stock-based compensation expenses to executive officers | |
$ | 111 | | |
$ | 247 | |
Stock-based compensation expenses to Board Members | |
$ | 152 | | |
$ | 265 | |
Compensation of executive officers | |
$ | 669 | | |
$ | 4,422 | |
Management and consulting fees to Board Members | |
$ | 380 | | |
$ | 380 | |
Revenues from customer | |
$ | 1,284 | | |
$ | 3,856 | |
Financial income | |
$ | 126 | | |
$ | 64 | |
b.
Related Parties presented in the consolidated balance sheets
SCHEDULE
OF RELATED PARTIES PRESENTED IN CONSOLIDATED BALANCE SHEETS
| |
December 31, | |
| |
2022 | | |
2021 | |
| |
(in thousands) | |
| |
| | |
| |
Executive officers’ payables | |
$ | 80 | | |
$ | 51 | |
Non-executive directors’ payable | |
$ | 558 | | |
$ | 178 | |
Loan to Related Party | |
$ | - | | |
$ | 3,064 | |
Accounts receivable, net | |
$ | - | | |
$ | 1,972 | |
NOTE
21 – SUBSEQUENT EVENTS
a)
Convertible loan agreements
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 $4,000,000 (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 $1,000,000 (the “Malik Loan Amount”, together with the NewTech Loan
Amount, the “Loan Amount”).
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 the Company’s 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 will use the proceeds from the Loan Amount to (i) redeem the loan amount referred
to in note 9 (a) between the Company and the lender, and (ii) for general corporate purposes. The entire loan amount and accrued
interest was repaid in January 2023.
The
Company also agreed to issue the NewTech Lender warrants representing the right to purchase 405,844 shares of the Company’s 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 the
Company’s 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.
b) Securities Purchase Agreement and Warrants
On
February 23, 2023, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating
to the issuance and sale of 1,947,368 shares of common stock, par value $0.0001 per share and warrants to purchase up to 973,684 shares
of Common Stock at a purchase price of $1.90 per share of Common Stock and accompanying Warrants in a registered direct offering. The
offering closed on February 27, 2023 and the Company received approximately $3.7 million, before deducting the placement agent’s
cash fee equal to 7% of the proceeds. 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.
NOTE 22 – LEGAL PROCEEDINGS
On January 18, 2022, a complaint
(the “Complaint”) was filed in the Tel Aviv District Court (the “Court”) against the Company, the Israeli
Subsidiary, Orgenesis Ltd., Prof. Sarah Ferber, Vered Caplan and Dr. Efrat Assa 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 contains 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 intends to vigorously defend itself against the claims. Since a material loss is not considered probable,
no provision was made in the financial statements.
Except as described above, the Company is not involved
in any pending material legal proceedings.