UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period EndedAugust 31, 2017 September 30, 2019

or

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

For the Transition Period from ____________________ to ____________________

Commission file number:  000-54329

000-54329ORGENESIS INC.

ORGENESIS INC.
(Exact name of registrant as specified in its charter)

Nevada

98-0583166

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

organization)

20271 Goldenrod Lane

Germantown, MD  20876

(Address of principal executive offices) (zip code)

(480) 659-6404

(Registrant’sRegistrant's telephone number, including area code)

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

Title of each class

Trading symbols(s)

Name of each exchange on which registered

Common Stock

ORGS

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]  No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]  No [  ]

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

Large accelerated filer

[  ]

Accelerated filer

[   ]X]

Non-accelerated filer

[  ]

Smaller reporting company                                       [X]

[X]

(Do not check if a smaller reporting company)

Emerging Growth Company                                      growth company

[  ]


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ]  No [X].

As of October 16, 2017,November 7, 2019, there were 121,779,25216,161,050 shares of registrant’sregistrant's common stock outstanding.


ORGENESIS INC.

FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 2017AND 2016
SEPTEMBER 30, 2019

TABLE OF CONTENTS

Page

PART I.

UNAUDITEDI - FINANCIAL INFORMATION

3

ITEM 1

Financial Statements (unaudited)

3

 4

Condensed Consolidated Balance Sheets as of August 31, 2017September 30, 2019 and November 30, 20162018

3

 4

Condensed Consolidated Statements of OperationsComprehensive Loss for the Three and Nine Months Ended September 30, 2019 and August 31, 2017 and 20162018

5

 6

Condensed Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2019 and August 31, 2017 and 20162018

6

 7

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and August 31, 2017 and 20162018

7

 13

Notes to Condensed Consolidated Financial Statements

8

 15

ITEM 2.

Management’s

Management's Discussion and Analysis of Financial Condition and Results of Operations

19

 39

ITEM 3.

Quantitative and Qualitative Disclosures aboutAbout Market Risk

26

 51

ITEM 4.

Controls and Procedures

26 

 51

PART II.

OTHER INFORMATION

28 

ITEM 1.

PART II - OTHER INFORMATION

Legal Proceedings28 

ITEM 1A.

Risk Factors

28 

ITEM 1.

Legal Proceedings

 52

ITEM 1A.

Risk Factors

 52

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28 

 52

ITEM 3.

Defaults Upon Senior Securities

28 

 52

ITEM 4.

Mine Safety Disclosures

28 

 53

ITEM 5.

Other Information

29 

ITEM 6.5.

Exhibits

Other Information

29 

53

SIGNATURES

30

ITEM 6.

Exhibits

 54

SIGNATURES

 55



PART I – UNAUDITED FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in Thousands)

(Unaudited)

 August 31,  November 30,  As of 
 2017  2016  September 30,
2019
  November 30,
2018
 
Assets       
 
CURRENT ASSETS:       
Cash and cash equivalents$ 762 $ 891 $10,054 $16,064 
Restricted cash 653  392 
Accounts receivable, net 2,106  1,229  5,075  4,151 
Prepaid expenses and other receivables 1,668  779  914  913 
GPP receivable, see Note 5 -  6,600 
Grants receivable 173  906  2,218  441 
Inventory 965  400  1,859  1,736 
Total current assets 5,674  4,205  20,773  30,297 
            
NON CURRENT ASSETS:      
Property and equipment, net 5,025  4,573 
Restricted cash 6  5 
NON-CURRENT ASSETS:      
Deposits 615  85 
Loans to related party, see Note 5 2,093  1,007 
Property, plants and equipment, net 17,742  11,901 
Intangible assets, net 15,480  15,050  14,256  16,700 
Operating lease right-of-use assets 9,595  - 
Goodwill 10,683  9,584  14,489  15,165 
Investments in associate, net 475  - 
Other assets 79  70  36  292 
Total non-current assets 31,748  29,282  58,826  45,150 
TOTAL ASSETS$ 37,422 $ 33,487 $79,599 $75,447 

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


ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Cont'd)

(U.S. Dollars in Thousands)
(Unaudited)

  August 31,  November 30, 
  2017  2016 
       
                                       Liabilities and equity      
CURRENT LIABILITIES:      
       Short-term bank credit$ - $ 21 
       Accounts payable 3,689  4,554 
       Accrued expenses and other payables 1,408  1,205 
       Employees and related payables 2,343  1,680 
       Related parties 44  42 
       Advance payments on account of grant 1,978  243 
       Short-term loans and current maturities of long term loans 376  1,111 
       Deferred income 4,944  1,273 
       Current maturities of convertible loans 2,789  2,541 
       Convertible bonds -  1,818 
       Price protection derivative -  76 
       Investments in associate, net -  12 
TOTAL CURRENT LIABILITIES 17,571  14,576 
       
LONG-TERM LIABILITIES:      
       Loans payable 3,397  3,291 
       Convertible loans 1,444  1,059 
       Warrants 873  1,843 
       Retirement benefits obligation 5  5 
       Put option derivative 273  273 
       Deferred taxes 2,608  1,862 
TOTAL LONG-TERM LIABILITIES 8,600  8,333 
TOTAL LIABILITIES 26,171  22,909 
COMMITMENTS      
EQUITY:      
       Common stock 12  12 
       Additional paid-in capital 50,518  41,605 
       Receipts on account of shares to be allotted 852  - 
       Accumulated other comprehensive loss 1,214  (1,205)
       Accumulated deficit (41,345) (29,834)
TOTAL EQUITY 11,251  10,578 
TOTAL LIABILITIES AND EQUITY$ 37,422 $ 33,487 

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

4(Unaudited)


ORGENESIS INC.
  As of 
  September 30,
2019
  November 30,
2018
 
Liabilities and Equity      
       
CURRENT LIABILITIES:      
Accounts payable$7,693 $3,804 
Accrued expenses and other payables 1,719  2,060 
Employees and related payables 3,618  3,006 
Advance payments on account of grant 2,735  1,724 
Short-term loans and current maturities of long- term loans 642  647 
Contract liabilities 5,708  5,317 
Current maturities of long-term finance  leases 227  209 
Current maturities of operating leases 1,624  - 
Current maturities of convertible loans 397  378 
Total current liabilities 24,363  17,145 
       
LONG-TERM LIABILITIES:      
Non-current operating leases 7,435  - 
Loans payable 1,283  1,662 
Convertible loans 8,465  1,038 
Retirement benefits obligation 26  265 
Deferred taxes 1,964  1,702 
Long-term finance leases 505  638 
Other long-term liabilities 322  195 
Total long-term liabilities 20,000  5,500 
TOTAL LIABILITIES 44,363  22,645 
       
COMMITMENTS      
REDEEMABLE NON-CONTROLLING      
INTEREST 24,139  24,153 
EQUITY:
Common stock of $0.0001 par value, 145,833,334
shares authorized, 16,140,962 , 15,540,333 and
14,951,783 shares issued and outstanding as of
September 30, 2019, December 31, 2018 and
November 30, 2018, respectively
 2  1 
Additional paid-in capital 94,439  88,082 
Receipts on account of shares to be allotted -  2,253 
Accumulated other comprehensive income (loss) (751) 425 
Accumulated deficit (83,224) (62,411)
Equity attributable to Orgenesis Inc. 10,466  28,350 
Non-controlling interest 631  299 
Total equity 11,097  28,649 
TOTAL LIABILITIES AND EQUITY$79,599 $75,447 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. Dollars in thousands, except share and loss per share amounts)
(Unaudited)

  Three Months Ended  Nine Months Ended 
  August 31,  August 31,  August 31,  August 31, 
  2017  2016  2017  2016 
REVENUES$ 2,562 $ 1,849 $ 6,712 $ 4,501 
COST OF REVENUES 1,867  1,829  4,900  5,273 
GROSS PROFIT (LOSS) 695  20  1,812  (772)
             
RESEARCH AND DEVELOPMENT EXPENSES,net 500  775  1,906  1,663 
AMORTIZATION OF INTANGIBLE ASSETS 423  408  1,201  1,217 
SELLING, GENERAL AND ADMINISTRATIVEEXPENSES 3,184  1,279  7,887  4,618 
OPERATING LOSS 3,412  2,442  9,182  8,270 
FINANCIAL EXPENSES (INCOME),net (2,032) 574  1,488  (645)
SHARE IN LOSSES OF ASSOCIATED COMPANY 152  -  348  - 
LOSS BEFORE INCOME TAXES 1,532  3,016  11,018  7,625 
TAX EXPENSES (BENEFIT) 421  (372) 493  (1,313)
NET LOSS$1,953 $ 2,644 $11,511 $ 6,312 
             
EARNINGS (LOSS) PER SHARE:            
       Basic$ (0.02)$ (0.02)$ (0.10)$ (0.06)
       Diluted$ (0.02)$ (0.02)$ (0.10)$ (0.06)
WEIGHTED AVERAGE NUMBER OF SHARESUSED IN COMPUTATION OF BASIC ANDDILUTED EARNINGS (LOSS) PER SHARE:        
       Basic 123,349,597  111,188,616  113,433,712  108,784,862 
       Diluted 124,625,412  111,188,616  113,746,212  108,784,862 
             
OTHER COMPREHENSIVE LOSS:            
       Net Loss$1,953 $ 2,644 $11,511 $ 6,312 
     Translation adjustments (1,430) 36  (2,419) (1,047)
TOTAL COMPREHENSIVE LOSS$523 $ 2,680 $9,092 $ 5,265 

ORGENESIS INC.
CONDENSEDCONSOLIDATEDSTATEMENTS OFCHANGES INEQUITY
(U.S.Dollars inthousands, except shareamounts)
(Unaudited)

  Common Stock                
           Receipts on  Accumulated       
        Additional  Account of  Other       
     Par  Paid-in  Share to be  Comprehensive  Accumulated    
  Number  Value  Capital  Allotted  Loss  Deficit  Total 
                      
Balance at December 1, 2015 55,835,950 $ 6 $ 14,229 $ 1,251 $ (1,286)$ (20,640)$ (6,440)
Changes during the nine months ended August 31, 2016:                     
                      
     Stock-based compensation to employees and directors       990           990 
     Stock-based compensation to service providers       1,148           1,148 
     Warrants and shares to be issued due to
           extinguishment of a convertible loan
     114        114 
     Beneficial conversion feature of convertible loans       245           245 
     Issuances of shares from investments and
          conversion of convertible loans
 12,844,455  1  1,948  (1,251)     698 
Reclassification of redeemable common stock* 42,401,724  4  21,454           21,458 
Receipts on account of shares to be allotted          887        887 
     Comprehensive income (loss) for the period             1,047  (6,312) (5,265)
                      
Balance at August 31, 2016 111,082,129 $ 11 $ 40,128 $ 887 $ (239)$ (26,952)$ 13,835 
                      
Balance at December 1, 2016 114,096,461 $ 12 $ 41,605 $ -,- $ (1,205)$ (29,834)$ 10,578 
Changes during the nine months ended August 31, 2017:                     
                      
     Stock-based compensation to employees and directors       1,156           1,156 
     Stock-based compensation to service providers 950,000  -  1,824           1,824 
     Issuance of warrants and beneficial conversion
         feature of convertible loans
     2,550        2,550 
     Issuance of shares and receipts on account of
         shares and warrants to be allotted and
         cancelation of contingent shares
 2,936,918  -  3,383  852      4,235 
     Comprehensive income (loss) for the period             2,419  (11,511) (9,092)
     Balance at August 31, 2017 117,983,379 $ 12 $ 50,518 $ 852 $ 1,214 $ (41,345)$ 11,251 

*Including outstanding contingent shares.

Theaccompanying notes are anintegral part of these condensedconsolidatedfinancialstatements.

6


ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
COMPREHENSIVE LOSS

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

(Unaudited)

  Nine months ended 
  August 31,  August 31, 
  2017  2016 
CASH FLOWS FROM OPERATING ACTIVITIES:      
     Net loss$ (11,511)$ (6,312)
     Adjustments required to reconcile net loss to net cash used in operating activities:      
       Stock-based compensation 2,817  2,085 
       Loss from extinguishment of a convertible loan -  229 
       Share in losses of associated company 348  - 
       Depreciation and amortization expenses 1,874  1,987 
       Change in fair value of warrants and embedded derivatives (1,276) (1,172)
       Change in fair value of convertible bonds (157) (115)
       Interest expenses accrued on loans and convertible loans (including amortization of
            beneficial conversion feature)
 818  494 
     Changes in operating assets and liabilities:      
         Increase in accounts receivable (682) (603)
         Increase in inventory (484) (73)
         Increase in other assets (1) (17)
         Increase in prepaid expenses and other accounts receivable (818) (220)
         Increase (decrease) in accounts payable (1,230) 637 
         Increase in accrued expenses and other payables 192  242 
         Increase in employee and related payables 554  523 
         Increase in deferred income 3,268  402 
         Increase in advance payments and receivables on account of grant, net 2,358  50 
         Increase (decrease) in deferred taxes 494  (1,314)
       Net cash used in operating activities (3,436) (3,177)
CASH FLOWS FROM INVESTING ACTIVITIES:      
   Purchase of property and equipment (639) (1,049)
   Disposals of property and equipment 31  - 
   Investments in associate (835) - 
       Net cash used in investing activities (1,443) (1,049)
CASH FLOWS FROM FINANCING ACTIVITIES:      
     Short-term line of credit (21) 17 
     Proceeds from issuance of shares and warrants (net of transaction costs) 4,307  1,488 
     Proceeds from issuance of convertible loans (net of transaction costs) 4,932  1,258 
     Repayment of convertible loans and convertible bonds (3,766) - 
     Repayment of short and long-term debt (1,102) (2,446)
             Net cash provided by financing activities 4,350  317 
NET CHANGE IN CASH AND CASH EQUIVALENTS (529) (3,909)
EFFECT OF EXCHANGE RATE CHANGES ON CASH ANDCASH EQUIVALENTS 400  11 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 891  4,168 
CASH AND CASH EQUIVALENTS AT END OF PERIOD$ 762 $ 270 
       
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES      
Conversion of loans and bonds (including accrued interest) to common stock and warrants$ 106 $ 1,028 
Reclassification of redeemable common stock to equity   $ 21,458 
  Three Months Ended  Nine Months Ended 
  September 30,  August 31,  September 30,  August 31, 
  2019  2018  2019  2018 
REVENUES 9,121  6,230  24,179  12,853 
COST OF REVENUES 6,364  3,381  15,643  7,220 
GROSS PROFIT 2,757  2,849  8,536  5,633 
             
RESEARCH AND DEVELOPMENT EXPENSES, net 738  1,902  7,597  3,456 
AMORTIZATION OF INTANGIBLE ASSETS 514  505  1,547  1,386 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,965  4,008  17,448  10,675 
OTHER INCOME, net (35) (2,921) (104) (3,237)
OPERATING LOSS 4,425  645  17,952  6,647 
FINANCIAL EXPENSES, net  395  1,070  588  3,164 
SHARE IN NET LOSS OF ASSOCIATED COMPANIES -  202  -  732 
LOSS BEFORE INCOME TAXES 4,820  1,917  18,540  10,543 
TAX EXPENSES 94  2,353  649  1,680 
NET LOSS 4,914  4,270  19,189  12,223 
NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS (INCLUDING REDEEMABLE) (365) 800  (1,128) 1,072 
NET LOSS ATTRIBUTABLE TO ORGENESIS INC. 4,549  5,070  18,061  13,295 
LOSS PER SHARE:            
Basic 0.44  0.35  1.35  1.04 
Diluted 0.44  0.35  1.35  1.04 
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE:            
Basic 16,028,518  14,355,430  15,858,666  12,774,802 
Diluted 16,028,518  14,355,430  15,858,666  12,774,802 
             
COMPREHENSIVE LOSS:            
  Net loss  4,914  4,270  19,189  12,223 
  Other comprehensive loss - translation adjustments 1,124  416  1,420  765 
Comprehensive loss 6,038  4,686  20,609  12,988 
Comprehensive income (loss) attributed to non-controlling interests (including redeemable) (365) 800  (1,128) 1,072 
COMPREHENSIVE LOSS ATTRIBUTED TO ORGENESIS INC. 5,673  5,486  19,481  14,060 

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


ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(Unaudited)

  Common Stock                   
   Number   Par
Value
  Addi-
tional
paid-incapital
  Receipts
on
Account
of shares
to be
Allotted
   Accumulated
Other
Comprehen-
sive Income
(Loss)
   Accumu-lated
Deficit
  Equity
Attri-
buted to
Orgenesis
Inc.
   Non-
Controll-ing
Interest
     
Total
 
                            
Balance at January 1, 2019 15,540,333 $2 $90,597 $- $669 $(65,163)$26,105 $645 $26,750 
Changes during the nine months ended September 30, 2019:                           
Stock-based compensation to employees and directors -     1,846           1,846  42  1,888 
Stock-based compensation to service providers 75,629  *  538           538     538 
Stock based
Compensation for strategic collaborations (see Note 5)
 525,000  *  2,641           2,641     2,641 
Transaction with non-controlling interest GPP (See Note 1)       2,034           2,034     2,034 



Adjustment to redemption value of redeemable non-controlling interest -     (3,314)          (3,314)    (3,314)
Issuance of warrants and beneficial conversion feature       97           97     97 
Comprehensive loss for the period             (1,420) (18,061) (19,481) (56) (19,537)
Balance at September 30, 2019 16,140,962 $2 $94,439 $- $(751)$(83,224)$10,466 $631 $11,097 
                            
Balance at December 1, 2017 9,872,659 $1 $55,334 $1,483 $1,425 $(44,120)$14,123 $- $14,123 
Changes during the nine months ended August 31, 2018:                           
Stock-based compensation to employees and directors       1,416           1,416     1,416 
Stock-based compensation to service providers 195,000  *  1,568           1,568     1,568 
Issuance of shares and warrant due to conversion of convertible loans 1,341,134  *  7,330           7,330     7,330 



Issuance of shares and receipts on account of shares and warrants to be allotted related to acquisition of Atvio and CureCell 83,965  *  600  1,853        2,453  300  2,753 
Issuance of shares and receipts on account of shares and warrants to be allotted 1,990,858  *  13,466  2,154        15,620     15,620 
Beneficial conversion feature of convertible loans and Warrants issued       323           323     323 
Issuance of Shares due to exercise of warrants 136,646  *  852           852     852 
Comprehensive Income (loss) for the period             (765) (13,295) (14,060) 39  (14,021)
Balance at August 31, 2018 13,620,262  $1 $80,889 $5,490 $660 $(57,415)$29,625 $339 $29,964 
                            
Balance at July 1, 2019 16,115,333 $2 $94,415 $- $373 $(78,675)$16,115 $639 $16,754 
Changes during the three months ended September 30, 2019:                           



Stock-based compensation to employees and directors       380           380  11  391 
Stock-based compensation to service providers 25,629  *  71           71     71 
Transaction with non-controlling interest GPP (See Note 1)       2,034           2,034     2,034 
Adjustment to redemption value of redeemable non-controlling interest       (2,461)          (2,461)    (2,461)
Comprehensive loss for the period             (1,124) (4,549) (5,673) (19) (5,692)
Balance at September 30, 2019 16,140,962 $2 $94,439 $- $(751)$(83,224)$10,466 $631 $11,097 

*represent an amount lower than $ 1 thousand 


Balance at June 1, 2018 13,300,676 $1  $76,831  $238  $1,076 $(52,345) $25,801 $- $25,801 
Changes during the three months ended August 31, 2018:                           
Stock-based compensation to employees and directors       615           615     615 



Stock-based compensation to service providers 195,000  *  542           542     542 
Issuance of
shares and
receipts on
account of
shares to be
allotted related
to acquisition
of Atvio and
CureCell
 83,965  *  600  1,853         2,453  300  2,753 
Issuance of shares and receipts on account of shares and warrants to be allotted 32,052  *  2,248  3,399         5,647     5,647 
Issuance of shares due to exercise of
warrants
 8,569  *  53           53     53 
Beneficial conversion feature of convertible loans and warrants issued                           



Comprehensive income (loss) for the period             (416) (5,070) (5,486) 39  (5,447)
Balance at August 31, 2018 13,620,262  $1  $80,889  $5,490  $660  $(57,415) $29,625  $339  $29,964 

*represents an amount lower than $ 1 thousand



ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. Dollars in Thousands)

(Unaudited)


  Nine Months Ended 
  September 30,  August 31, 
CASH FLOWS FROM OPERATING ACTIVITIES: 2019  2018 
Net loss (19,189) (12,223)
Adjustments required to reconcile net loss to net cash used in operating activities:      
Stock-based compensation 2,426  2,984 
Stock based compensation for strategic collaborations 2,641  - 
Gain from sale of property, plants and equipment (49) - 
Share in losses of associated company -  732 
Depreciation and amortization expenses 2,843  1,833 
Net gain on remeasurement of previously equity interest in Atvio and CureCell to acquisition date fair value -  (4,509)
Change in fair value of embedded derivatives -  11 
Net changes in operating leases (531) - 
Interest expenses accrued on loans and convertible loans (including amortization of beneficial conversion feature) 181  2,856 
Changes in operating assets and liabilities:      
Increase in accounts receivable (2,048) (2,818)
Increase in inventory (291) (848)
Decrease (increase) in other assets (1) 65 
Change in related parties, net -  (379)
Effect of exchange differences on inter-company balances 205  - 
Decrease (increase) in prepaid expenses and other accounts receivable 179  (148)
Increase (decrease) in accounts payable 1,652  (1,723)
Increase (decrease) in accrued expenses and other payables 152  (686)
Increase (decrease) in employee and related payables 424  (820)
Increase in contract liabilities 801  705 
Change in advance payments and receivables on account of grant, net (314) 815 
Increase in deferred taxes liability 405  1,680 
Net cash used in operating activities (10,514) (12,473)
       
CASH FLOWS FROM INVESTING ACTIVITIES:      
Increase in loan to JV with a related party (1,000) - 
Sale of property and equipment 80  - 
Purchase of property, plants and equipment (6,122) (4,430)
Acquisition of CureCell , net of cash acquired -  58 
Acquisition of Atvio, net of cash acquired -  245 
Investment in deposits (227) (92)
Net cash used in investing activities (7,269) (4,219)
       
CASH FLOWS FROM FINANCING ACTIVITIES:      
Contingent payment received from redeemable non-controlling interest related to GPP transaction (See Note 5) 6,600  - 
Proceeds from issuance of shares and warrants (net of transaction costs) -  12,666 
Proceeds from issuance of convertible loans (net of transaction costs) 7,500  720 
Repayment of convertible loans and convertible bonds -  (177)
Proceeds from receipts on account of shares to be allotted -  3,626 
Increase in redeemable non-controlling interests -  14,007 
Proceeds from issuance of loans payable 34  - 
Repayment of short and long-term debt (452) (331)
Net cash provided by financing activities 13,682  30,511 
       
NET CHANGE IN CASH, CASH EQUIVALENTS  AND RESTRICTED CASH (4,101) 13,819 
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH (191) (201)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 14,999  3,519 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD 10,707  17,137 

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


SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of loans and bonds (including accrued interest) to common stock and warrants

$

 

$

7,511

 

 

 

 

 

 

 

 

Classification of loan receivable into services to be received from CureCell

$

 

$

813

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment included in accounts payable

$

1,183

 

$

-

 

 

 

 

 

 

 

 

Leases of property, plant and equipment$

65

 $

-

 
       

Transaction costs of issuance of convertible loans

$

400

 

$

-

 



ORGENESIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended August 31, 2017 and August 31, 2016
September 30, 2019

(Unaudited)

NOTE 1 - GENERAL AND BASISDESCRIPTION OF PRESENTATIONBUSINESS

a.General

Orgenesis Inc., a Nevada corporation (the "Company"), is a biopharmaceuticalbiotechnology company with expertisespecializing in the development, manufacturing and experienceprovision of services in the cell and gene therapy industry.  The Company operates through two independent business platforms: (i) a point-of-care ("POCare") cell therapy ("POC") platform and (ii) a Contract Development and Manufacturing Organization ("CDMO") platform, which provides contract manufacturing and development services for biopharmaceutical companies (the "CDMO Business").  Through the POC platform, the Company's aim is to further the development of Advanced Therapy Medicinal Products ("ATMPs") through collaborations and manufacturing specializingin-licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes to bring such ATMPs to patients.  The Company out-licenses these ATMPs through regional partners to whom the Company also provides regulatory services, pre-clinical studies, intellectual property services, and co-development services (collectively "POC development services") to support their activity in cell therapyorder to reach patients in a point-of-care hospital setting.  Currently, the Company's POC development for advanced medicinal products servingservices constitute the regenerative medicine industry.

            In addition,entirety of the Company's revenue in the POC platform.  Through the CDMO platform, the Company is developingfocused on providing contract manufacturing and development services for biopharmaceutical companies.

Activities in the POC platform include a novelmultitude of cell therapies, including autoimmune, oncologic, neurologic and proprietarymetabolic diseases and other indications.  The Company plans to provide POC development services to its joint venture ("JV") regional partners, pharmaceutical and biotech companies as well as research institutions and hospitals that have cell therapytherapies in clinical development.  The Company believes that each of these customers and collaborations represents a revenue and growth opportunity upon regulatory approval.  Furthermore, the Company's trans-differentiation technologiestechnology demonstrates the capacity to induce a shift in the developmental fate of cells from the liver or other tissues and transdifferentiating them into "pancreatic beta cell-like" Autologous Insulin Producing ("AIP") cells for patients with Type 1 Diabetes, acute pancreatitis and other insulin deficient diseases.  This technology, which has yet to be proven in human clinical trials, has shown in pre-clinical animal models that the treatment of diabetes. The cell therapyhuman derived AIP cells produce insulin in a glucose-sensitive manner.  This trans-differentiation technology is licensed by Orgenesis Ltd. (the "Israeli Subsidiary") and is based on the research work of Prof. Sarah Ferber, the Company's Chief Science Officer and a researcher at Tel Hashomer Medical Research (“THM”Infrastructure and Services Ltd.  in Israel.  The development plan calls for conducting additional pre-clinical safety and efficacy studies with respect to diabetes and other potential indications prior to initiating human clinical trials.

The Company conducts the POC platform through its wholly-owned subsidiaries.  The subsidiaries are as follows:

The CDMO platform operates through (i) majority-owned Masthercell Global (which currently consists of the following two subsidiaries: MaSTherCell S.A. in Belgium ("MaSTherCell"), a leading medical hospital and research centerMasthercell U.S., LLC  in the United States ("Masthercell U.S.") (collectively, the " Masthercell Global Subsidiaries")), (ii) wholly-owned Atvio Biotech Ltd. in Israel who established("Atvio"), and 94.12% owned CureCell Co., Ltd. in South Korea ("CureCell").  Each of these subsidiaries has unique know-how and expertise for manufacturing in a proofmultitude of concept that demonstratescell types.


On August 7, 2019, the capacityCompany, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company ("GPP-II"), (the "Parties") entered into a Transfer Agreement (the "Transfer Agreement").  As a result of the Transfer Agreement, Masthercell Global transferred all of its equity interests  of Atvio and CureCell to induce a shiftOrgenesis Inc in the developmental fate of cells from the liver and transdifferentiating (converting) them into “pancreatic beta cell-like” insulin-producing cells.

exchange for one dollar ($1.00).  The combination of proprietary cell therapy trans-differentiation technologiesTransfer Agreement also contains agreements made with respect to certain intercompany loans. The Company accounted for the treatment of diabetes andTransfer Agreement as a revenue-generating contract development and manufacturing service business providestransaction with non-controlling interest.

In addition, the Parties agreed that (i) the Company and its subsidiaries shall cease all use or engagement of any employees of Masthercell Global or any of its subsidiaries, (ii) Masthercell Global may use the services of Atvio or South Korea Sub for certain subcontracting services on terms and at prices mutually agreed between the Company and Masthercell Global, and (iii) if the Company determines that it needs manufacturing services of the type offered by MaSTherCell and/or Masthercell U.S., Masthercell Global (on behalf of MaSTherCell and Masthercell U.S., as applicable) and the Company shall use good faith efforts to negotiate and execute a contract that contemplates MaSTherCell or Masthercell U.S., as applicable, providing such manufacturing services to the Company; provided, that such contract shall be on terms and at prices (in accordance with unique capabilities.standard fair market rates) that are mutually agreed between the Company and Masthercell Global at the time any such contract is executed, (iv)  the Management Services Agreement between the Company and Masthercell Global, dated June 28, 2018, will terminate on June 28, 2020.

The Company operates its CDMO and POC platforms as two separate business segments.

These condensed consolidated financial statements include the accounts of Orgenesis Inc. and its subsidiaries, including the U.S. Subsidiary, the Belgian Subsidiary, the Israeli Subsidiary, Masthercell Global and its subsidiaries, Atvio and CureCell.

As used in this report and unless otherwise indicated, the term “Company”"Company" refers to Orgenesis Inc. and its subsidiaries (“Subsidiaries”("Subsidiaries").  Unless otherwise specified, all amounts are expressed in United States dollars.Dollars.

b.Change in Fiscal Year End

On October 22, 2018, the Board of Directors of the Company approved a change in the Company's fiscal year end from November 30 to December 31 of each year.  This change to the calendar year reporting cycle became effective on January 1, 2019.

As permitted under SEC rules, prior-period financial statements have not been recast as management believes (i) the nine months ended September 30, 2019 are comparable to the nine months ended August 31, 2018 and (ii) recasting prior-period results is not practicable or cost justified.

c.Liquidity

As of September 30, 2019, the Company has accumulated losses of approximately $83.2 million.  Although the Company is showing positive revenues and gross profit trends on the CDMO platform, the Company expects to incur further losses in the POC platform. In order to increase manufacturing capacity, Masthercell Global has signed contracts to expand its facilities in the United States and Europe (see note 5). As of September 30, 2019, the Company has negative working capital of $3,590 thousand. In October 2019, the Company entered into a Private Placement Subscription Agreement and Convertible Credit Line Agreement granting the Company access to an aggregate $5 million credit line, of which $2 million has already been advanced (see note 9).

To date, the Company has been funding operations primarily from proceeds raised from private placements of the Company's equity securities, issuance of equity-linked convertible debt and from operating cash flows generated from the POC and CDMO platforms.  From January 1, 2019 through September 30, 2019, the Company received $7.5 million from convertible loans and $6.6 million from Great Point Partners, LLC. In addition, from October 1, 2019 through November 7, 2019, the Company received $2 million from convertible loans (see note 9).  In May 2019, the Company agreed to enter into a convertible loan with an investor for an aggregate amount of $5 million.  As of the date of the filing of this Quarterly Report on Form 10-Q, the loan had not yet been received by the Company. (See Note 4).


Based on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development activities and expected level of expenditures for at least 12 months from the date of the issuance of the financial statements, although no assurance can be given that it will not need additional funds prior to such time. Also, if there are further increases in operating costs in general and administrative expenses for facilities expansion, research and development, commercial and clinical activity or decreases in revenues from customers, the Company will need to seek additional financing. In addition, additional funds will be necessary to finance some of the collaborations listed in Note 5. 

d.Basis of Presentation

These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”)SEC for interim financial statements.  Accordingly, they do not contain all information and notes required by U.S. GAAP for annual financial statements.  In the opinion of management, the unaudited condensed consolidated interim financial statements reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of the Company’sCompany's consolidated financial position as of August 31, 2017,September 30, 2019, and the consolidated statements of comprehensive loss and the changes in equity for the three and nine months ended August 31, 2017 and 2016, and the changes in equitySeptember 30, 2019, and cash flows for the nine monthsnine-month period ended August 31, 2017 and 2016.September 30, 2019.  The interim results are not necessarily indicative of the results to be expected for the year ending November 30, 2017.December 31, 2019.  These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’sCompany's Annual Report on Form 10-K for the year ended November 30, 2016.

Going Concern

            The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of August 31, 2017, the Company, had accumulated losses of approximately $41 million and expects to incur further losses in the development of its business. Presently, the Company does not have sufficient cash to meet its requirements in the following twelve months. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. In the event that the remaining subscription proceeds from a private placement with an institutional investor referred to below, in the aggregate amount of $12 million (out of total committed amount $16 million) will not be paid periodically through August 2018, then the Company will need to raise significant funds in order to continue to meet its liquidity needs, realize its business plan and maintain operations. The Company’s current cash balance is not sufficient to support its operations as presently conducted or permit it to take advantage of business opportunities that may arise. Management of the Company is continuing its efforts to generate sustainable profits from its CDMO business and to secure funds through equity and/or debt instruments for its operations and business opportunities investments.

8


            The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of its business plan will actually improve the Company’s operating results. If the Company is unable to raise the necessary capital, the Company may have to cease curtail or reduce operations.

            The Company has been funding its operations primarily from the proceeds from private placements of the Company’s convertible debt and equity securities and from revenues generated by MaSTherCell. From December 2016 through August 2017, the Company received, through MaSTherCell, proceeds of approximately $6.1 million in revenues and accounts receivable from customers and $9 million from the private placement to accredited investors of its equity and equity linked securities and convertible loans, out of which $3.5 are million from the institutional investor definitive agreements in January 2017 for the private placement of units of the Company’s securities for aggregate subscription proceeds to the Company of $16 million. The subscription proceeds are payable on a periodic basis through August 2018. In addition, from September 1, 2017 through October 16, 2017, the Company raised an additional $1.1 million from the proceeds of the private placement to certain accredited investors of its equity and equity linked securities and Company received, through MaSTherCell, proceeds of approximately $1 million in accounts receivable from its customers.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies adopted are generally consistent with those of the previous financial year except for new policies adopted in the current year as described below.

Recently Issued Accounting Pronouncements- adopted by the Company

ASC 606 - Revenue from Contracts with Customers

On December 1, 2018, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and the related amendments ("New Revenue Standard") to all contracts, using the modified retrospective method.  The cumulative effect of initially applying the new revenue standard was immaterial.

Revenue Recognition Prior to the Adoption of the New Revenue Standard

Refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended November 30, 2018, for a summary of our significant accounting policies.

Revenue Recognition Following the Adoption of the New Revenue Standard

The Company's agreements are primarily service contracts that range in duration from a few months to one year.  The Company recognizes revenue when control of these 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.

A contract with a customer exists only when:


For the majority of its contracts, the Company receives non-refundable upfront payments.  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 ninety days.

The Company does not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.

Disaggregation of Revenue

The following table disaggregates the Company's revenues by major revenue streams.

  Three Months Ended
September 30, 2019
  Nine Months Ended
September 30, 2019
 
Revenue stream:      
       
  Cell process development services$2,751 $11,986 
  Tech transfer services 1,864  5,396 
  POC development services 1,012  1,974 
  Cell manufacturing services 3,494  4,823 
Total$9,121 $24,179 

Nature of Revenue Streams

The Company operates through two platforms: (i) a point-of-care ("POCare") cell therapy platform ("POC") and (ii) a Contract Development and Manufacturing Organization ("CDMO") platform.  Through its CDMO platform, the Company is focused on providing contract manufacturing and development services for biopharmaceutical companies.  As of the second quarter of 2019, the Company commenced its POC development services.

The Company has three main revenue streams from its CDMO platform: cell process development services, tech transfer services, and upon success, cell manufacturing services.

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.  Additionally, due to the non-refundable upfront payment the customer pays, together with the payment term and cancellation fine, it has a right to payment (which include a reasonable margin), at all times, for work completed to date, which is enforceable by law.

 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.

Tech Transfer Services

Revenue recognized under contracts for tech transfer services are considered a single performance obligation, as all work packages (including data collection, GMP documentation, validation runs) and milestones are interrelated.  Additionally, the customer is unable to complete services of work performed independently or by using competitors of the Company.  Revenue is recognized over time using a cost-based based input method where progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract.

Cell Manufacturing Services

Revenues from cell manufacturing services represent a single performance obligation which is recognized over time.  The progress towards completion will continue to be measured on an output measure based on direct measurement of the value transferred to the customer (units produced).

POC Development Services

Revenue recognized under contracts for POC 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 independently or by using competitors of the Company.

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 measures the revenue to be recognized over time on a contract by contract basis based on a cost-based input method which best depicts the transfer of control over the life of the performance obligation.

Significant Judgement and Estimates

The cost-based and output methods of revenue recognition require the Company to make estimates of costs to complete its projects and the percentage of completeness on an ongoing basis.  Significant judgment is required to evaluate assumptions related to these estimates.  The effect of revisions to estimates related to the transaction price (including variable consideration relating to reimbursement on a cost-plus basis on certain expenses) or costs to complete a project are recorded in the period in which the estimate is revised.

Practical Expedients

As part of ASC 606, the Company has adopted several practical expedients including the Company's determination that it need 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 when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less.

Reimbursed Expenses

The Company includes reimbursed expenses in revenues and costs of revenue as the Company is primarily responsible for fulfilling the promise to provide the specified service, including the integration of the related services into a combined output to the customer, which are inseparable from the integrated service.  These costs include such items as consumable, reagents, transportation and travel expenses, over which the Company has discretion in establishing prices.

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.

Costs of Revenue

Costs of revenue include (i) compensation and benefits for billable employees and personnel involved in production, data management and delivery, and the costs of acquiring and processing data for the Company's information offerings; (ii) costs of staff directly involved with delivering services offerings and engagements; (iii) consumables used for the services; and (iv) other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses.

Contract Assets and Liabilities

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

The activity for trade receivables is comprised of:

  Nine Months Ended September 30, 2019 
Balance as of beginning of period$3,226 
  Additions 17,571 
  Collections (15,467)
  Exchange rate differences (255)
Balance as of end of period$5,075 

The activity for contract liabilities is comprised of:

  Nine Months Ended September 30, 2019 
Balance as of beginning of period$5,175 
  Additions 6,815 
  Realizations (5,980)
  Exchange rate differences (302)
Balance as of end of period$5,708 

ASU 2018-07 Stock based Compensation

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting."  This guidance simplifies the accounting for non-employee share-based payment transactions.  The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods and services to be used or consumed in a grantor's own operations by issuing share-based payment awards.  The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted, but no earlier than an entity's adoption date of Topic 606, "Revenue from Contracts with Customers."  This standard, adopted as of January 1, 2019, had no material impact on the Company's consolidated financial statements for the nine months ended September 30, 2019.


ASC 842 - Leases

In February 2016, the FASB issued ASU 2016-02, "Leases", on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).  ASC 842 supersedes the previous leases standard, ASC 840, "Leases."  The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.  This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively.  A lessee is also required to record a right-of-use ("ROU") asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

In July 2018, the FASB issued amendments in ASU 2018-11, which provide another transition method in addition to the existing transition method, by allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, and to not apply the new guidance in the comparative periods they present in the financial statements.  The guidance is effective for the interim and annual periods beginning on or after December 15, 2018.  The Company has elected to apply the standard retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment.

The Company adopted the new leases standard as of January 1, 2019 using the transition method that provides for a cumulative-effect adjustment to retained earnings upon adoption.  The consolidated financial statements for the nine months ended September 30, 2019 are presented under the new standard, while the comparative period and transition period presented are not adjusted and continue to be reported in accordance with the historical accounting policy.  For more information, see Note 8.

Recently issued accounting pronouncements, not yet adopted

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

In November 2018, the FASB issued ASU 2018-18 "Collaborative Arrangements (Topic 808)-Clarifying the interaction between Topic 808 and Topic 606." The amendments provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606. It also specifically (i) addresses when the participant should be considered a customer in the context of a unit of account, (ii) adds unit-of-account guidance in ASC 808 to align with guidance in ASC 606 and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer. The guidance will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and should be applied retrospectively. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In January 2017, FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminated the calculation of implied goodwill fair value. Instead, companies will record an impairment charge based on the excess of a reporting unit's carrying amount of goodwill over its fair value. This guidance simplifies the accounting as compared to prior GAAP. The guidance is effective for fiscal years beginning after December 15, 2019. The Company does not expect the implementation of this new pronouncement to have a material impact on its consolidated financial statements

NOTE 3 - SEGMENT INFORMATION

The Chief Executive Officer ("CEO") is the Company’sCompany's chief operating decision-maker ("CODM").

            Based  Management has determined that there are two operating segments, based on the Company's organizational structure, its business activities and information reviewed by the CODM for the purposes of allocating resources and assessing performance, management has determined that there are two operating segments.performance.


POC Platform

Through the POC platform, the Company is focused on (i) the development of proprietary cell and gene therapies, including its autologous trans-differentiation technology, (ii) therapeutic collaborations and licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes and (iii) regulatory services, pre-clinical studies, intellectual property services, and co-development services ("POC development services").  Currently, the Company's POC development services constitute the entirety of the Company's revenue in the POC platform.

CDMO Platform

The CDMO activityplatform is comprised of a specialization in cell therapymanufacturing and development for advanced therapeutic products and is comprised ofincludes two types of services to its customers: (i) processmanufacturing and assay development services and (ii) cGMPcurrent good manufacturing practice ("cGMP") contract manufacturing services.  The CDMO activities include the operationsplatform operates (i) through Masthercell Global, which currently consists of MaSTherCell.

CTB

            The Cellular Therapy Business (“CTB”) activity is based on the technology licensed by the Israeli Subsidiary, that demonstrates the capacity to induce a shiftMaSTherCell in Belgium and Masthercell U.S. in the developmental fateUnited States, and (ii) through subsidiaries Atvio in Israel and CureCell in South Korea, each having unique know-how and expertise for manufacturing in a multitude of cells from the liver and differentiating (converting) them into “pancreatic beta cell-like” insulin producing cells for patients with Type 1 Diabetes.cell types.

The Company assessesdoes not review assets by segment, therefore the performance based on a measure of "Adjusted EBIT" (earnings before financial expenses and tax, and excluding share-based compensation expenses and non-recurring income or expenses). The measure of assets has not been disclosed for each segment.

9Segment data for the nine months ended September 30, 2019 is as follows:

  CDMO
Platform
  POC
Platform
  Corporate and Eliminations  Consolidated 
  (in thousands) 
Revenues from external customers$25,160 $1,974 $(2,955)$24,179 
Cost of revenues (14,026) (2,411) 1,670  (14,767)
Segment gross profit (loss) 11,134  (437)  (1,285) 9,412 
Research and development expenses, net (395) (4,994) 1,310  (4,079)
Operating expenses (10,355) (5,099) (25) (15,479)
Other income 104  -     104 
Segment operating profit (loss)$488 $(10,530)$- $(10,042)
             
             
Depreciation and amortization (2,826) (17)    (2,843)
Segment performance$(2,338)$(10,547)$  $(12,885)

Reconciliation of segment performance to loss for the nine months ended September 30, 2019:

  Nine-Months
Ended
September 30,
2019
(in Thousands)
 
Segment performance$(12,885)
Stock-based compensation (2,426)
Stock based compensation to First    Choice (2,641)
Financial expenses, net (588)
Loss before income tax$(18,540)


Segment data for the nine months ended August 31, 20172018 is as follows:

        Corporate    
        and    
  CDMO  CTB  Eliminations  Consolidated 
  (in thousands) 
Revenues from external customers$ 7,705     (993)$ 6,712 
Cost of revenues (4,358)    403  (3,955)
Research and development expenses, net    (1,932) 590  (1,342)
Operating expenses (916) (6,060)    (6,976)
Depreciation and amortization expenses (2,145) (7)    (2,152)
Segment Performance$ 286  (8,000) -  (7,714)
             
Stock-based compensation       (2,817) (2,817)
Financial expenses, net*       (139) (139)
Share in losses of associated company       (348) (348)
Loss before income taxes          (11,018)
  CDMO
Platform
  POC
Platform
  Corporate and Eliminations  Consolidated 
  (in thousands) 
Revenues from external customers$15,807 $83 $(3,037)$12,853 
Cost of revenues (7,826) -  927  (6,899)
Segment gross profit (loss) 7,981  83  (2,110) 5,954 
Research and development
expenses, net
 (245) (4,764) 2,110  (2,899)
Operating expenses (3,895) (4,448)    (8,343)
Other income 228        228 
Segment operating profit (loss)$4,069 $(9,129) - $(5,060)
  
  
Depreciation and amortization (1,807) (7)    (1,814 )
Segment performance$2,262 $(9,136)   $(6,874)

            * Excluding $1,389 thousand stock based compensation included in financial expenses.

                          Segment dataReconciliation of segment performance to loss for the nine months ended August 31, 20162018:

  Nine-Months
Ended
August 31,
2018
(in Thousands)
 
Segment performance$(6,874)
Stock-based compensation (2,782)
Financial expenses, net (3,164)
Net gain on remeasurement of previously equity interest in Atvio and CureCell to acquisition date fair value 4,509 
Transaction expenses related to GPP agreement (1,500)
Share in losses of associated company (732)
Loss before income tax$(10,543)

Segment data for the three months ended September 30, 2019 is as follows:

        Corporate    
        and    
  CDMO  CTB  Eliminations  Consolidated 
  (in thousands) 
Net revenues from external customers$ 4,826 $  $(325)$ 4,501 
Cost of revenues (4,968)    463  (4,505)
Research and development expenses, net    (1,239) (138) (1,377)
Operating expenses (1,518) (1,299)    (2,817)
Depreciation and amortization expense (1,984) (3)    (1,987)
Segment Performance$ (3,644)$ (2,541) -  (6,185)
             
Share-based compensation       (2,085) (2,085)
Financial income, net       645  645 
Loss before income taxes         $ (7,625)
  CDMO
Platform
  POC
Platform
  Corporate and Eliminations  Consolidated 
  (in thousands) 
Revenues from external customers$8,968 $1,012 $(859)$9,121 
Cost of revenues (5,128) (1,510) 489  (6,149)
Segment gross profit (loss) 3,840  (498)  (370) 2,972 
Research and development expenses, net (101) (703) 378  (426)
Operating expenses (3,874) (1,726) (8) (5,608)
Other income 35  -     35 
Segment operating loss$(100)$(2,927)$- $(3,027)
  
  
Depreciation and amortization (929) (7)    (936)
Segment performance$(1,029)$(2,934)$  $(3,963)


Reconciliation of segment performance to loss for the three months ended September 30, 2019:

  Three-Months
Ended
September 30,
2019
(in Thousands)
 
Segment performance$(3,963)
Stock-based compensation (462)
Financial expenses, net (395)
Loss before income tax$(4,820)

Segment data for the three months ended August 31, 20172018 is as follows:

        Corporate    
        and    
  CDMO  CTB  Eliminations  Consolidated 
  (in thousands) 
Net revenues from external customers$ 2,956     (394) 2,562 
Cost of revenues (1,439)    95  (1,344)
Research and development expenses, net    (688) 299  (389)
Operating expenses (1,641) (1,272)    (2,913)
Depreciation and amortization expense (945) -     (945)
Segment Performance$ (1,069) (1,960) -  (3,029)
             
Share-based compensation       (108) (108)
Financial income, net*       1,757  1,757 
Share in losses of associated company       (152) (152)
Loss before income taxes          1,532 
  CDMO
Platform
  POC
Platform
  Corporate and Eliminations  Consolidated 
  (in thousands) 
Revenues from external customers$8,092 $83 $(1,945)$6,230 
Cost of revenues (3,908) -  539  (3,369)
Segment gross profit (loss) 4,184  83  (1,406) 2,861 
Research and development expenses, net (245) (2,898) 1,406  (1,737)
Operating expenses (1,712) (1,453)    (3,165)
Other income (88) -     (88)
Segment operating profit (loss)$2,139 $(4,268)   $(2,129)
             
             
Depreciation and amortization (567) (3)    (570)
Segment performance$1,572 $(4,271)   $(2,699)

            * Excluding $275 thousand stock based compensation included in financial income.

10


                          Segment dataReconciliation of segment performance to loss for the three months ended August 31, 2016 is as follows:2018:

        Corporate    
        and    
  CDMO  CTB  Eliminations  Consolidated 
  (in thousands) 
Revenues from external customers$ 1,852 $  $(3)$ 1,849 
Cost of revenues (1,748)    164  (1,584)
Research and development expenses, net    (565) (161) (726)
Operating expenses (453) (448)    (901)
             
             
             
Depreciation and amortization expense (651) (1)    (652)
Segment Performance$ (1,000)$ (1,014) -  (2,014)
             
Share-based compensation       (428) (428)
Financial income (expenses), net       (574) (574)
Loss before income taxes         $ (3,016)
  Three-Months
Ended
August 31,
2018
(in Thousands)
 
Segment performance$(2,699)
Stock-based compensation (955)
Financial expenses, net (1,070)
Share in losses of associated companies (202)
Net gain on remeasurement of previously equity interest in Atvio and CureCell to acquisition date fair value 4,509 
Transaction expenses related to GPP agreement (1,500)
Loss before income tax$(1,917)

Geographic, Product and Customer Information

     Substantially allMost of the Company's revenues and long-lived assets are located in Belgium through its controlled subsidiary, MaSTherCell.  Manufacturing activities show a significant increase ofNet revenues in line with the company Business Plan. It reflects market recognition in CDMO business expertise and the adequacy of the Company strategy.

     Revenues from single customers from the CDMO segment that exceed 10% of total net revenues are:

  Three Months Ended  Nine Months Ended 
  August 31,  August 31,  August 31,  August 31, 2016 
  2017  2016  2017    
  (in thousands) 
Customer A$852 $ 1,031 $2,813 $ 2,626 
Customer B -  291  -  1,163 
Customer C 809     1,904    
Customer D$679 $  $ 1,637 $  


  Nine Months Ended  Three Months Ended 
  September 30,  August  31,  September 30,  August  31, 
  2019  2018  2019  2018 
  (in Thousands) 
Customer A -  2,339  -  - 
Customer B 6,404  3,922  2,128  1,651 
Customer C 2,651  3,109  -  956 
Customer D 2,923  -  -  - 
Customer E 2,876  -  990  1,100 
Customer F -  -  -  784 
Customer G 2,534  -  1,518  - 

NOTE 4 - CONVERTIBLE LOANS

On April 10, 2019, the last three quarters.  In January 2017, MaSTherCellCompany entered into a serviceconvertible loan agreement with Les Laboratoires Servier (“Servier”)an offshore investor for an aggregate amount of $500 thousand into the development ofU.S. Subsidiary.  The investor, at its CAR-T cell therapy manufacturing platform and in June 2017, MaSTherCell entered into a service agreement with CRISPR  Therapeutics AG  (“CRISPR”) for the development and manufacturing of allogeneic cell therapies.

NOTE 4 – CONVERTIBLE LOAN AGREEMENTS

(a)        On January 12, 2017, the Company repaidoption, may convert the outstanding principal amount and accrued interest in the amount of $51 thousand on convertible loans that were issued during September 2016. The transaction had no material impact on the comprehensive loss for the period.

11


(b)        During the nine months ended August 31, 2017, the Company entered into several unsecured convertibleunder this note agreements with accredited or offshore investors for an aggregate amount of $3.95 million. The loans bear an annual interest rate of 6% and mature in two years from the date of issuance, unless converted earlier.

            The notes provide that the entire principal amount under the notes and accrued interest automatically convert into units as in the agreement upon the earlier to occur of any of the following: (i) the closing of an offering of equity securities of the Company with gross proceeds to the Company greater than $10 million (ii) the trading of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) on the over-the counter market or an exchange at a weighted average price of at least $0.52 (adjusted for certain capital events such as stock splits) for fifty (50) consecutive trading days, or (iii) the listing of the Company’s Common Stock on a U.S. National Exchange.

            Since the closing price of the Company’s publicly traded stock is greater than the effective conversion price on the closing date, the conversion feature is considered "beneficial" to the holders and equal to $2.24 million. The difference is treated as issued equity and reduces the carrying value of the host debt; the discount is accreted as deemed interest on the debt.

            The transaction costs were approximately $405 thousand, out of which $129 thousand was the fair value of warrants for the purchase of 434,436 shares of Common Stock granted to three holders as a success fee, exercisable at $0.52 per share for three years. The fair value of those warrants as of the date of grant was evaluated using the Black-Scholes valuation model.

(c)        During the nine months ended August 31, 2017, the Company entered into several unsecured convertible note agreements with accredited or offshore investors for an aggregate amount of $0.8 million. The notes have 0% or 6% interest rate and are scheduled to mature between nine months and one year unless converted earlier. At any time, all or a portion of the outstanding principal amount and accrued but unpaid interest thereon may be converted at the Holder’s option into shares of the Company common stock at a price of $0.52 per share. The Company also issued to the investorsand three-year warrants to purchase up to 1,746,063 shares of the Company’s Common StockCompany's common stock at a per share exercise price of $0.52.$7.00; or into shares of the U.S. Subsidiary at a valuation of the U.S. Subsidiary of $50 million.

            SinceOn May 17, 2019, the closingCompany 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.

On June 10, 2019, the Company’s publicly traded stock is greaterCompany entered into private placement subscription agreements with investors for an aggregate amount of $2 million. The lenders shall be entitled, at any time prior to or no later than the effectivematurity 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 May 2019, the Company had agreed to enter into a 6% convertible loan agreement with an investor for an aggregate amount of $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 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.  As of the date of the filing of this Quarterly Report on Form 10-Q, the measurement date,loan had not yet been received by the conversion feature is considered "beneficial"Company.

NOTE 5 - COLLABORATIONS, LICENSE AGREEMENTS AND COMMITMENTS

Consolidation of CDMO Entities and Strategic Funding

As described in Note 10 to the holdersfinancial statements as of November 30, 2018, in June 2018, the Company, Masthercell Global, and equalGreat Point Partners, LLC ("Great Point"), and certain of Great Point's affiliates, entered into a series of definitive strategic agreements intended to $81 thousand. The difference is treated as issued equityfinance, strengthen and reduces the carrying valueexpand Orgenesis' CDMO business.  An initial cash payment of $11.8 million of the host debt;consideration was remitted in June 2018 by GPP-II ($1.5 million of the discount is accretedinitial capital contributed to Masthercell Global was used to reimburse the investors for their fees and expenses incurred in conjunction with this transaction (net payment of $10.3 million)), with a follow up payment of $6.6 million to be made in each of years 2018 and 2019, or for an aggregate of $13.2 million, if certain conditions are met.  Masthercell Global achieved the specified targets in 2018 and as deemed interestsuch, Masthercell Global received the first payment of $6.6 million on January 16, 2019.

HekaBio K.K


As described in Note 10 to the debt.

(d)        On January 23, 2017,financial statements as of November 30, 2018, on July 10, 2018, the Company and HekaBio K.K.  ("HB"), a Non-U.S. institutional investor,corporation organized under the laws of Japan, entered into an agreementa Joint Venture Agreement (the "HB JVA") and established the joint venture entity Orgenesis K.K., pursuant to which the investor advancedparties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic products (hereinafter, the "Products") in Japan (the "Project").

Effective January 1, 2019, the Company entered into a master service agreement with Orgenesis K.K. whereby the Company, subject to mutually agreed timing and definition of the scope of services, will provide, regulatory services, pre-clinical studies and intellectual property services, as well as POC services and co-development services to Orgenesis K.K.

Apart from the above, there was no material activity with respect to the HB JVA during the nine months ended September 30, 2019.

Image Securities Ltd (a Related Party).

As described in Note 10 to the financial statements as of November 30, 2018, on July 11, 2018, the Company $400,000 at per annum rateand Image Securities Ltd., a corporation with its registered office in Grand Cayman, Grand Cayman Islands ("India Partner") entered into a Joint Venture Agreement (the "India JVA") pursuant to which the parties will form a joint venture entity ("Indian JV Entity") to collaborate in the development and commercialization of 6% andcell therapy products in India (the "Cell Therapy Products").  The India Partner will collaborate with a maturity datenetwork of April 23, 2017.healthcare facilities and a healthcare infrastructure as well as financial partners to advance the development and commercialization of the Cell Therapy Products.  During February 2019, the Company transferred a further $1 million to the India Partner.  As of September 30, 2019, the Company had advanced $2 million in total to the India Partner, reflected in the Company's balance sheet as a loan to a related party under non-current assets (held under escrow).

            The transaction costsEffective January 1, 2019, the Company entered into a master service agreement for the provision of certain POC services. Payments of $1.5 million for these POC services were approximately $71 thousand, outreceived during 2019 and were recognized as income received in advance on the Company's balance sheet, of which $35$1,245 thousand was recognized as stock based compensation dueincome during the nine months ended September 30, 2019. Prior to issuance of 76,923 warrants and 32,051 shares. The fair value of those warrants asthe establishment of the date of grant was evaluated by using the Black-Scholes valuation model.

            The principal amount and accrued interest were repaidJV Entity, all activities are being carried out by the Company on March 7, 2017 and, in accordanceIndia Partner.

Apart from the above, there was no material activity with the terms of the agreement, the Company issuedrespect to the investor 650,000 restricted shares ofIndian JV Entity during the Company’s Common Stock. The fair value of the shares as of March 7, 2017, was $494 thousand and was recorded as financial expenses.nine months ended September 30, 2019.

(e)        In January 2017 MaSTherCell repaid all but one of its bondholders (originally issued on September 14, 2014), and the aggregate payment amounted to $1.7 million (€1.5 million). On January 17, 2017, the remaining bondholder agreed to extend the duration of his Convertible bond until March 21, 2017. In consideration for the extension, the Company issued to the bondholder warrants to purchase 102,822 shares of the Company’s Common Stock, exercisable over a three-year period at a per share exercise price of $0.52. The fair value of those warrants as of the date of grant was $20 thousand using the Black-Scholes valuation model.Collaboration Agreement with Tarus Therapeutics, Inc.

12


            On March 20, 2017, the remaining bondholder agreed to convert his convertible bonds into 488,182 shares of the Company’s Common Stock.

            The Company returned to treasury from the escrow arrangement entered into in March 2015 in connection with the MaSTherCell acquisition a total of 3,157,716 consideration, in accordance with the terms of the MaSTherCell acquisition agreement. These shares have been retired and cancelled.

(f) On February 27, 2017,2019, the Company and Admiral VenturesTarus Therapeutics Inc. (“Admiral”, a Delaware corporation, ("Tarus") entered into an agreement resolvinga Collaboration Agreement (the "Tarus Agreement") for the paymentcollaboration in the funding, development and commercialization of amounts owed to Admiral.certain technologies, products and patents of Tarus in the areas of therapeutics for cancer and other diseases in the field of cell therapies and their combination with checkpoint inhibitors comprised of Adenosine Receptor Antagonists.  Under the terms of the settlement agreement, Admiral extendedTarus Agreement and subject to final due diligence and approved financing of the maturityCompany, the Company and/or one or more qualified investors (the "Investors") shall advance to Tarus a convertible loan in an amount of not less than $1,750 thousand and up to $3,000 thousand (the "Loan Agreement").  As of the date of the filing of this Quarterly Report on Form 10-Q, the loan agreements have not been concluded, nor has any financing been made to June 30, 2018.Tarus.  As part of such Loan Agreement, and subject to approval by the board of directors of the Company, the Investors shall have the right, within two years of the date of the Loan Agreement, to convert the outstanding convertible loan into either (i) shares of Tarus at a price per share based on a pre- money valuation of $12,500 thousand or (ii) shares of the Company's common stock at a price per share set in accordance with an approved financing of the Company, with such terms as approved by the Company in its sole discretion.  Further, as part of the Loan Agreement, the Company shall advance to Tarus up to $500 thousand within fourteen days of execution of the Loan Agreement.  Subject to the closing of the Loan Agreement, the Company and/or the Investors shall have an option, exercisable by sending written notice to Tarus at any time through the second anniversary of the closing of the Loan Agreement, to invest additional funds in an amount of up to $1,250 thousand and not less than $500 thousand in Tarus.  The Company agreedwill also have the right to payappoint and/or replace one member of board of directors of Tarus.  Upon and subject to Admiral, on or before March 1, 2017,the execution of a definitive development and manufacturing agreement between $0.3 million and $1.5 million. Further, beginning April 2017, the Company agreedand Tarus ("Manufacturing and Supply Agreement"), the Company, or one or more of its affiliates, shall manufacture and supply to makeTarus licensees, assignees of interest all requirements for all cell therapy elements of any combination therapy incorporating the technology of Tarus.  Following the conclusion of the clinical development stage of each product emanating from the technology of Tarus, the cell therapy component of any such product borne out of the technology of Tarus shall be exclusively supplied by the Company under the Manufacturing and Supply Agreement.  If the Company and Tarus fail to sign such Manufacturing and Supply Agreement for any given Tarus product, Tarus shall pay the Company an amount equal to four percent of gross revenues derived by Tarus from such Tarus products.


Apart from the above, there was no activity in the Tarus collaboration.

Theracell Advanced Biotechnology

On February 14, 2019, the Company and Theracell Advanced Biotechnology ("Theracell"), a monthly paymentcorporation organized under the laws of $125 thousand on accountGreece, entered into a Joint Venture Agreement (the "Greek JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of the Company's products (hereinafter, the "Company Products") in Greece, Turkey, Cyprus and Balkan countries (the "Territory") and the clinical development and commercialization of Theracell's products (hereinafter, the "Theracell Products") worldwide (the "Project").  The parties intend to pursue the Project through a joint venture ("JV") by forming a JV entity (the "Greek JV Entity").  Until the Greek JV Entity is formed, all JV activities are being carried out by Theracell.  The Company by itself, or together with a designee, will hold a 50% participating interest in the Greek JV Entity, with the remaining unpaid balance,50% participating interest being held by Theracell or its affiliate following the parties' contributions to the Greek JV Entity as set forth under the Greek JVA.  The Greek JV Entity will have a steering committee that will act as the board of directors of the Greek JV Entity and shall be composed of a total of five members, with two members appointed by each party and one industry expert.

Under the Greek JVA, each party shall be responsible for providing up to $10 million in funding, of which $5 million shall be provided in the form of in-kind contributions.  Each party shall also agreedhave the right to remit 25%invest up to an additional $10 million, if such financing is determined to be necessary by the steering committee of all amounts received from equitythe Greek JV Entity or if a party wishes to maintain its pro rata participating interest upon a future financing raised above $1 million and 20%round in the Greek JV Entity ("Additional Investment").  The terms of such amounts above $500 thousandAdditional Investment, if any, will be on accountterms mutually agreeable to the parties, provided that the minimum pre-money valuation for any such Additional Investment shall be at least $20 million.  Any Additional Investment by a Party may lead to dilution of amounts owed. Thethe other Party's participating interest unless such other party provides the requisite investment to maintain its participating percentage within two (2) years of such Additional Investment.

Under the Greek JVA, the Company accountedcan require Theracell to sell to the Company its entire participating interest in the Greek JV Entity in consideration for the above changes as a modificationissuance of the old debt.Company's Common Stock based on an agreed upon formula for determining the Greek JV Entity's valuation, which shall be the higher of (i) $20 million, (ii) two times the revenues of the Greek JV Entity, (iii) four times the EBITDA of the Greek JV Entity or (iv) the valuation of the Greek JV Entity in its last Additional Investment round. If the parties decide to sell the Greek JV Entity, they will mutually agree upon the terms of such sale.

Under the Greek JVA, the Company shall, subject to fulfilment of Theracell's obligations under the Greek JVA, grant the Greek JV Entity an exclusive license to certain intellectual property of the Company as may be required for the Greek JV Entity to develop and commercialize the Company Products in the Territory.  In consideration for such license, the Greek JV Entity shall pay the Company, royalties at the rate of 15% of the Greek JV Entity's net sales of Company Products in the Territory.

In addition, under the Greek JVA, Theracell shall, subject to fulfillment of the Company's obligations under the Greek JVA, grant the Greek JV Entity an exclusive license to certain intellectual property of Theracell as may be required for the Greek JV Entity to develop and commercialize the Theracell Products globally.  In consideration of such license, the Greek JV Entity shall pay Theracell, in addition to other payments, royalties at the rate of 15% of the Greek JV Entity's worldwide net sales of Theracell Products.


Any new intellectual property discovered in connection with the development undertaken by the Greek JV Entity shall belong to the Greek JV Entity and such intellectual property will be licensed to the Company on a non-exclusive, worldwide (other than the Territory, as defined in the Greek JVA), royalty free basis.

On February 14, 2019, the Company entered into a master service agreement with Theracell whereby the Company, subject to mutually agreed timing and definition of the scope of services, will provide regulatory services, pre-clinical studies, intellectual property services, GMP process translation services and co-development services to Theracell during 2019.  During the 9-month period ended September 30, 2019, the Company recognized POC development service revenue in the amount of $729 thousand.

During 2019, the Company has transferred $372 thousand to Theracell.  Prior to the establishment of the JV Entity, all activities were being carried out by Theracell.

Apart from the above, there was no material activity under the Greek JVA

First Choice International Company, Inc.

 On March 1 and July 17, 2017,12, 2019, the Company repaid $1.5 million and $125 thousand on accountFirst Choice International Company, Inc., ("First Choice"), a corporation organized under the laws of Delaware, entered into a Joint Venture Agreement (the "Panama JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of the principalCompany's products (hereinafter the "Company Products") in Panama and certain other Latin American countries as agreed by the parties (the "Territory") and the clinical development and commercialization of First Choice's products (hereinafter the "First Choice Products") worldwide (other than in the Territory) (the "Project").  The parties intend to pursue the Project through a joint venture ("Panama JV") by forming a JV entity ("Panama JV Entity").  Until the Panama JV Entity is formed, all Panama JV activities will be carried out by First Choice within the Territory. Upon formation of the Panama JV Entity, the Company by itself, or together with a designee, will hold a 50% participating interest in the Panama JV Entity, with the remaining 50% participating interest being held by First Choice or its affiliate or partner.  The Panama JV Entity will have a steering committee that will act as the board of directors of the Panama JV Entity and shall be composed of five members, with two members appointed by each party and one industry expert.

Under the Panama JVA, each party shall endeavor to provide up to $5 million in funding for development, either through investment instruments or in-kind contributions within the first three (3) years of the Panama JV.  Each party shall also have the right to invest additional funds in the Panama JV Entity (which such investment(s) may also be in the form of a convertible loan), if such financing is determined to be necessary by the steering committee of the Panama JV Entity or to maintain such Party's pro-rata share of the Panama JV Entity ("Additional Investment").

In order to compensate First Choice for the Panama JV activities that First Choice has already completed prior to the Panama JVA, the Company paid First Choice $100,000.  In addition, it has issued to First Choice 375,000 shares of Common Stock and issued another 150,000 shares of Common Stock in September of 2019. These payments and the value of Common Stock issued in the amount of $2.6 million were charged to research and development expenses during the loanperiod ended September 30, 2019 under ASC 730-10-50 and accruedASC 20-50.

Each of the Company and First Choice shall provide strategic guidance to the Panama JV Entity and the Company shall provide hospital (management) services to the Panama JV Entity, among other POC development services as shall be set forth in a master service agreement to be negotiated in good faith and entered into by the parties.

Under the Panama JVA, the Company can require First Choice to sell to the Company its participating interest respectively.in the JV Entity in consideration for the issuance of the Company's Common Stock by dividing an agreed upon Panama JV Entity valuation by the weighted average price of the Company's Common Stock during the three (3) trading day preceding the closing of such sale.  The Panama JV Entity valuation will be the higher of (i) two times the revenues of the Panama JV Entity, (ii) four times the EBITDA of the Panama JV Entity or (iii) the valuation of the Panama JV Entity in its last Additional Investment round.  If the parties decide to sell the Panama JV Entity, they will mutually agree on the terms of such sale.


Under the Panama JVA, the Company shall, subject to fulfilment of First Choice's obligations under the Panama JVA, grant the Panama JV Entity an exclusive license to certain intellectual property of the Company as may be required for the Panama JV Entity to develop and commercialize the Company Products in the Territory, subject to minimum sales obligations. In consideration of such license, the Panama JV Entity shall pay the Company royalties at the rate of 15% of the Panama JV Entity net sales of Company Products sold in the Territory.

In addition, under the Panama JVA, First Choice shall, subject to fulfilment of the Company's obligations under the Panama JVA, grant the Panama JV Entity an exclusive license to certain intellectual property of First Choice as may be required for the Panama JV Entity to develop and commercialize the First Choice Products globally. In consideration of such license, the Panama JV Entity shall pay First Choice, royalties at the rate of 15% of the Panama JV Entity's worldwide net sales of First Choice Products.  Additionally, and for separate consideration to the Company, First Choice shall be granted a limited, non-exclusive license to certain Company owned rights relating to the Human Papilloma Virus.

Any new inventions discovered during the development with respect to the Panama JV shall belong to the Panama JV Entity and will be licensed to the Company on a non-exclusive, worldwide (other than the Territory), royalty free basis.

At the request of either party, the parties shall discuss between them in good faith the terms upon which a party may convert its participating interests in the Panama JV Entity into streaming royalties based on Panama JV Entity's revenues.

Apart from the above, there was no activity in the Panama JVA.

Cure Therapeutics Collaboration Agreement

As described in Note 10 to the financial statements as of November 30, 2018, on May 7, 2018, the Company and Cure Therapeutics entered into a collaboration agreement for the development of therapies based on liver and NK cells.  An amount of $1,101 thousand was charged during the nine months ended September 30, 2019.  As of  August 31, 2017,September 30, 2019, the development project has not been completed.  As part of the agreement, Cure Therapeutics has subcontracted development and contract manufacturing activities to CureCell.  An amount of $571 thousand was recognized during the nine months ended September 30, 2019.

KinerjaPay Corp.

On May 6, 2019 (the "Effective Date"), the Company and KinerjaPay Corp., a Delaware corporation, entered into a Joint Venture Agreement (the "Singapore JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of the Company's products in Singapore and the introduction of KinerjaPay products to be offered for sale by the Company globally outside Singapore.  The parties intend to pursue the joint venture through a newly established company (hereinafter the "Singapore JV Entity"), which the Company by itself, or together with a designee, will hold a 51% participating interest therein, with the remaining 49% participating interest being held by KinerjaPay Corp.

Under the Singapore JVA, each party shall endeavor to provide the Singapore JV Entity up to $5 million within three (3) years of the Singapore JVA.  Funding may be provided in part in the form of convertible loans, in-kind contributions, including intellectual property, and services related to advancement of the Singapore JV Entity.  The Company's in-kind contribution may be in the form of 250,000 shares of the Company's restricted stock, issuable to KinerjaPay or KinerjaPay designated third party (instead of to the Singapore JV Entity) on the Effective Date and to be held in escrow by the Company to be released to KinerjaPay in return for services to be provided by KinerjaPay or KinerjaPay designated third party as will be mutually agreed between the parties.

Under the Singapore JVA, the Company can require KinerjaPay to sell to the Company its participating interest in the Singapore JV Entity in consideration for the issuance of the Company's common stock based on an agreed upon formula for determining Singapore JV Entity valuation.

Apart from the above, there was no activity in arrears in its payment obligations under such agreement. See also Note 10(c).the Singapore JV Entity.


GrantsSponsored Research and Exclusive License Agreement with Columbia University

 InEffective April 2016,2, 2019, the Belgian Subsidiary receivedCompany and The Trustees of Columbia University in the formal approval fromCity of New York, a New York corporation, ("Columbia") entered into a Sponsored Research Agreement (the "SRA") whereby the Walloon Region, Belgium (Service Public of Wallonia, DGO6) (“DGO6”) for a budgeted €1.3 million ($1.5 million) support program for CTB activity. TheCompany will provide financial support is awarded tofor studying the Belgian subsidiary Orgenesis as a recoverable advance payment at 55%utility of budgeted costs,serological tumor marker for tumor dynamics monitoring.  Under the terms of the SRA, the Company shall pay $300 thousand per year for three years, or for a total of €0.7 million$900 thousand, ($0.8 million)with payments of $150 thousand due every six months.

 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 and sell 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 patented product sold and (ii) 2.5% of net sales of other products.

IRB Approval for Liver Cell Collection

On April 29, 2019, the Company received Institutional Review Board ("IRB") approval to collect liver biopsies from patients at Rambam Medical Center located in Haifa, Israel for a planned study to confirm the suitability of liver cells for personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total or partial pancreatectomy.  The liver cells are intended to be bio-banked for potential future clinical use.

The goal of the proposed study, entitled "Collection of Human Liver Biopsy and Whole Blood Samples from Type 1 Diabetes Mellitus (T1DM), Total or Partial Pancreatectomy Patients for Potential use as an Autologous Source for Insulin Producing Cells in Future Clinical Studies," is to confirm the suitability of the liver cells for personalized cell replacement therapy, as well as eligibility of patients to participate in a future clinical study, as defined by successful AIP cell production from their own liver biopsy.  The secondary objective of the study is to evaluate patients' immune response to AIPs based on the patient's blood samples and followed by subcutaneous implantation into the patients' arm which would represent the first human trial. The Company has developed a novel technology based on technology licensed from Tel Hashomer Medical Research Infrastructure and Services Ltd., utilizing liver cells as a source for AIP cells as replacement therapy for islet transplantation.

During the study, liver samples will be collected and then processed and stored in specialized, clinical grade, tissue banks for potential clinical use.  The propagated cells will be maintained in a tissue bank and are intended to be utilized in a future clinical study, in which the cells will be transdifferentiated and administered back to the patients as a potential treatment. This personalized autologous process will be performed under our POCare model in which the patient liver samples are processed, cryopreserved and potentially re-injected, all in the medical center under clinical grade/GMP level conditions.

In June, 2019, the Company received additional Institutional Review Board ("IRB") approval to collect liver biopsies from patients at a leading medical center in USA for a planned study to confirm the suitability of liver cells for personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total pancreatectomy (the granted Orphan Drug Designation indication).  The grant willliver cells are intended to be paid overbio-banked at the project period. New York Blood Center, NYC for potential future clinical use. In October 2019, a liver sample from the first recruited patient was collected and processed and stored at the New York Blood Center, NYC in specialized, clinical grade, tissue banks for potential clinical use.

Joint Venture Agreement with SBH Sciences, Inc.

On December 19, 2016,May 15, 2019, the Belgian Subsidiary receivedCompany entered into a first paymentJoint Venture Agreement with SBH Sciences, Inc., a Massachusetts corporation, ("SBH") for the establishment of €359a joint venture with SBH for the purpose of collaborating 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 (the "SBH JV Agreement").  Under the terms of the SBH JV Agreement, a joint venture entity shall be formed as an LLC in the State of Delaware, with participating interests equally held by the Company and SBH (the "SBH JV Entity").  The SBH JV Agreement requires that SBH and the Company shall each contribute $250,000 to the SBH JV Entity for the purpose of carrying out the initial development activities relating to (i) a development hub for in vitro assays design, development and optimization of standard operating procedures in order to demonstrate product safety, identity, purity, content and potency for cell-based product quality control, as required by regulatory agencies and (ii) novel therapies/assays in the gene and cell therapy field.  Further to the Company's and SBH's cash contributions to the SBH JV Entity, SBH and the Company shall make an in-kind contribution toward the development activities valued at $250 thousand ($374 thousand).for (i) SBH to create and manage a certified facility, know-how related to assay development, contribution of a human cell-line bank, the provision of a fully equipped in vitro cell culture lab, the establishment and training and performance of developed assays and for (ii) the Company to identify potential business development and revenue opportunities, regulation and intellectual property consulting, assay development as required for GMP manufacturing, budget and work planning and control testing.  The board of directors of the SBH JV Entity shall be comprised of three directors with one appointed by SBH and two appointed by the Company.  All intellectual property conceived or developed resulting from the business of the SBH JV Entity, that is not SBH's or the Company's background intellectual property, shall be owned exclusively by the SBH JV Entity, although the Company shall be granted the right to exclusively license any intellectual property arriving from the development activities of the SBH JV Entity, or exclusively distribute products based thereon.


During the third quarter of 2019, the Company transferred $50 thousand to SBH.

FDA Approval for Orphan Drug Designation for AIP Cells

On June 11, 2019, the FDA granted Orphan Drug Designation for the Company's AIP cells as a cell replacement therapy for the treatment of severe hypoglycemia-prone diabetes resulting from total pancreatectomy ("TP") due to chronic pancreatitis.  The incidence of diabetes following TP is 100%, resulting in immediate and lifelong insulin-dependence with the loss of both endogenous insulin secretion and that of the counter-regulatory hormone, glucagon.  Glycemic control after TP is notoriously difficult with conventional insulin therapy due to complete insulin dependence and loss of glucagon-dependent counter-regulation.  Patients with this condition experience both severe hyperglycemic and hypoglycemic episodes.

Construction of development and production facilities in the USA

 On October 8, 2016,In August 2019, Masthercell US entered into a contract for the construction and development of its 32,011 square foot production facility in Houston, Texas. The total value of the contract is $7.8 million. By September 30, 2019, $3.4 million of this contract had been incurred. The facility is expected to be completed in the first half of 2020.

Grants

In December 2018, the Belgian subsidiary received the formal approval of a new grant from the DGO6Walloon Region for an additional budgetfinancial support of €12.3 milliona maximum of Euro 317 thousand ($12.8 million) support350 thousand in USD) in a program for the GMP productiondevelopment of AIP cellsgene-therapy research for two clinical trials that will be performeddiabetes 1 treatment.  The program is planned to start in Germany2019 for a 2-year period until 2021.  In the first quarter of 2019, the Belgian subsidiary received an advance payment of grant in the amount of Euro 80 thousand ($90 thousand in USD).

In February 2019, the Israeli subsidiary and Belgium. The project will be held during a periodCanadian partner received the approval of three years commencing January 1, 2017. Thea new grant from the Canada-Israel Industrial Research and Development Foundation for financial support is awardedin a program for pre-clinical development of insulin producing cells using advanced gene delivery platforms.  In terms of the grant, the Israeli subsidiary can receive support of up to the Belgium subsidiary at 55% of budgeted costs, a total of €6.8 million100 Thousand Canadian Dollars ($7 million)75 Thousand in USD).  The grant will be paid over the project period. On December 19, 2016, the Belgian Subsidiary receivedprogram is planned to start in 2019 for a first payment of €1.7 million ($1.8 million).2-year period until 2021.

NOTE 6 – EQUITYSee Note 8 regarding Lease commitments.

Financings

            1)        During the nine months ended August 31, 2017, the Company entered into definitive agreements with accredited and other qualified investors relating to a private placement (the “Private Placement”) of (i) 1,286,944 shares of the Company’s Common Stock and (ii) three year warrants to purchase up to an additional 1,286,944 shares of the Company’s Common Stock at a per share exercise price of $0.52 and $0.65 respectively. The purchased securities were issued pursuant to subscription agreements between the Company and the purchasers for aggregate proceeds to the Company of $699 thousand.

            The Company allocated the proceeds from the Private Placement based on the fair value of the warrants and the shares. The table below presents the fair value of the instruments issued as of the closing dates and the allocation of the proceeds:

Total Fair
Value
(in thousands)
Warrants component$ 251
Shares component448
Total$ 699

13


            2)        In January 2017, the Company entered into definitive agreements with an institutional investor for the private placement of 30,769,231 units of the Company’s securities for aggregate subscription proceeds to the Company of $16 million at $0.52 price per unit. Each unit is comprised of one share of the Company’s Common Stock and a warrant, exercisable over a three-years period from the date of issuance, to purchase one additional share of Common Stock at a per share exercise price of $0.52. The subscription proceeds are payable on a periodic basis through August 2018. Each periodic payment of subscription proceeds will be evidenced by the Company’s standard securities subscription agreement.

            During the nine months ended August 31, 2017 the investor remitted to the Company $3.5 million, in consideration of which, the investor is entitled to 6,730,767 shares of the Company’s Common Stock and three-year warrants to purchase up to an additional 6,730,767 shares of the Company’s Common Stock at a per share exercise price of $0.52 The Company allocated the proceeds based on the fair value of the warrants and the shares. The table below presents the allocation of the proceeds as of the closing date:

Total Fair
Value
(in thousands)
Warrants component$ 1,207
Shares component2,293
Total$ 3,500

            As of August 31, 2017, 1,923,076 shares have not been issued therefore the Company recorded $624 thousand net of transaction costs in Receipts on Account of Shares to be Allotted.

            In connection therewith, the Company undertook to pay a fee of 5%, resulting in the payment of $175 thousand and the issuance of 336,538 restricted shares of Common Stock. The fair value of the shares as of the date of grant was $145 thousand using the share price on the date of grant.

NOTE 7 –6 - STOCK BASED COMPENSATION

a.Options Granted to Employees and Directorsemployees

            On December 9, 2016,The table below summarizes the terms of options for the purchase of shares in the Company granted to employees during the employees and directors 7,300,000 options and on and Juneperiod from January 1, 2017, the Company granted2019 to the Chief Executive Officer 1,000,000 options, which are summarized on the table below:September 30, 2019:



 

 

No. of

Options

Granted

Exercise Price

Vesting Period

Fair Value at Grant

(in thousands)

Expiration

Period

Employees

89,500

$4.5-$5.07

Quarterly over a period of 2 years

$312

10 years

The fair valuevaluation of each stockthese 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 the last two years. The expected term is the mid-point between the vesting date and the maximum contractual term for each grant equal to the contractual life. The fair value of each option grantgrants is based on the following assumptions:

During the Period from
January 1, 2019 to
September 30, 2019

Value of one common share

$4.5-$5.07

Dividend yield

0%

Expected stock price volatility

86%-88%

Risk free interest rate

1.45%-2.47%

Expected term (years)

5.56

14b.Options Granted to non-employees



 December 9,June 1, 2017
 2016 
Value of one common share$0.39$0.62
Dividend yield0%0%
Expected stock price volatility94%95%
Risk free interest rate1.89%1.76%
Expected term (years)55

b. OptionsThe table below summarizes all the options for the purchase of shares in the Company granted to consultants and service providers during the period from January 1, 2019 to September 30, 2019:

 

No. of Options

Granted


Exercise Price



Vesting Period

Fair Value at Grant

(in thousands)


Expiration
Period

Non-employees

18,335

$4.5-$5.07

Over a period of 5 years

$74

10 years

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

During the Period from
January 1, 2019 to
September 30, 2019

Value of one common share

$4.5-$5.07

Dividend yield

0%

Expected stock price volatility

90%-92%

Risk free interest rate

1.52%-2.62%

Expected term (years)

10

c.Shares and Warrants Grantedfor the purchase of shares in the Company granted to a Consultantsnon-employees

OnDuring December 9, 2016,2018, the Company issued to consultants 2,858 warrants, each exercisable at $7.00 per share for three years.  The fair value of those warrants as of the date of grant using the Black-Scholes valuation model was $8 thousand.

In December 2018, the Company entered into a consulting agreements for the provision of professionalan investor relation services, for a period of one year.marketing and related services agreement.  Under the terms of the agreement, the Company grantedagreed to a consultants 200,000 options exercisable at $0.40 per share. The optionsissue the consultant 10,000 shares of restricted common stock, of which the first 2,500 shares vested on the signing date, and 7,500 shares are to vest quarterlymonthly over a period3 months commencing January 2019.  As of one year.September 30, 2019, 10,000 shares were fully vested.  The fair value of those options as of the date of grantshares was $68$51 thousand using the Black-Scholesfair value of the shares on the vesting dates. $37 thousand was recognized during the nine months ended September 30, 2019.

In December 2018, the Company entered into a separate investor relations services, marketing and related services agreement.  Under the terms of the agreement, the Company agreed to issue the consultant 40,000 shares of restricted common stock, of which the first 6,667 shares vested on the signing date, and 33,333 shares vested monthly over five months commencing January 2019.  As of September 30, 2019, 40,000 shares were fully vested.  The fair value of the shares was $200 thousand using the fair value of the shares at the vesting dates. $163 thousand was recognized during the nine months ended September 30, 2019.


d.Options Granted to employees of Masthercell Global for the purchase of shares in Masthercell Global

The rows below summarize the terms of options granted to employees of Masthercell Global Inc. during the nine months ended September 30, 2019:

 

 

No. of Options
Granted


Exercise Price


Vesting Period

Fair Value at Grant

(in thousands)


Expiration
Period

Employees

16,667

$13.52

Over 5 years.
Approximately 56% of the options are performance based

$134

10 years

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

January 1, 2019 to

September 30, 2019

Value of one common share

$12.28*

Dividend yield

0%

Expected stock price volatility

69%**

Risk free interest rate

2.78%

Expected term (years)

7

* Based on Masthercell Global valuation

** Based on comparable companies

NOTE 8 –7 - LOSS PER SHARE

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

 Three Months Ended  Nine Months Ended 
 August 31,  August 31, 
 2017  2016  2017  2016  Three Months Ended  Nine Months Ended 
 (in thousands, except per share data)  September 30, August  31, September 30, August  31, 
             2019  2018  2019  2018 
Basic:             
Loss for the period$1,953 $ 2,644 $11,511 $ 6,312 
Net loss attributable to Orgenesis Inc. 4,549  5,070  18,061  13,295 
Adjustment of redeemable non-controlling interest to redemption amount 2,461  -  3,314  - 
Net loss attributable to Orgenesis Inc. for loss per share 7,010  5,070  21,375  13,295 
Weighted average number of common shares outstanding 123,349,597  111,188,616  113,725,909  108,784,862  16,028,518  14,355,430  15,858,666  12,774,802 
Loss per common share$ 0.02 $ 0.02 $ 0.10 $ 0.06  0.44  0.35  1.35  1.04 
Diluted:                        
Loss for the period$1,953 $ 2,644 $11,511 $ 6,312 
Changes in fair value of embedded derivative and interest expense on convertible loans 238    137  87 
Loss for the period$ 2,191 $ 2,644 $11,648 $ 6,399 
            
Net loss attributable to Orgenesis Inc. for loss per share 7,010  5,070  21,375  13,295 
Weighted average number of shares used in the computation of basic and diluted loss per share 123,349,597  111,188,616  113,725,909  108,704,862  16,028,518  14,355,430  15,858,666  12,774,802 
Number of dilutive shares related to convertible loans 1,275,815    312,500   
Weighted average number of common shares outstanding 124,625,412  111,188,616  114,038,409  108,704,862 
            
Loss per common share$ 0.02 $ 0.02 $ 0.10 $ 0.06  0.44  0.35  1.35  1.04 



For the nine months ended September 30, 2019, 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 52,510,2738,543,526 shares underlying outstanding options and warrants and 29,551,172729,567 shares upon conversion of convertible notesloans for the three and nine months ended August 31, 2017, because the effect of their inclusion in the computation would be anti-dilutive.

            Diluted loss per share does not include 16,954,564 shares underlying outstanding options, 20,971,190 shares issuable upon exercise of warrants, 800,000 shares due to stock-based compensation to service providers and

15


7,365,719 shares upon conversion of convertible notes for the nine and three months ended August 31, 2016,September 30, 2019, because the effect of their inclusion in the computation would be anti-dilutive.

NOTE 98 - FAIR VALUE PRESENTATIONLEASES

As of January 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)," which requires leases with durations greater than twelve months to be recognized on the balance sheet.  The Company measures fair value and discloses fair value measurements for financialadopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019.  The total impact of the adoption of this standard at January 1, 2019 is an increase of assets and liabilities. Fairliabilities in the amount of $2,919 thousand.  Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.  The Company elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

The Company leases research and development facilities, equipment, offices and cars 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 isof 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 CDMO facilities in Belgium, Israel and the price that would be received to sell an asset or paid to transferUnited States under operating lease agreements.  The leasing contracts are for 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 credit risk in its assessment of fair value.

            As of August 31, 2017, and November 30, 2016, the Company’s liabilities that are measured at fair value and classified as level 3 fair value are as follows (in thousands):

  August 31,  November 30, 
  2017  2016 
  Level 3  Level 3 
Warrants (1)$ 873 $ 1,843 
Price protection derivative (1) -  76 
Embedded derivatives convertible loans*(1) 20  240 
Put option derivatives 273  273 
Convertible bonds (2)$ - $ 1,818 

*

The embedded derivative is presented in the Company's balance sheets on a combined basis with the related host contract (the convertible loans).

            (1)        The fair value of the warrants, price protection derivative and embedded derivatives is determined by using a Monte Carlo Simulation Model. This model, in contrast to a closed form model, such as the Black-Scholes Model, enables the Company to take into consideration the conversion price changes over the conversion period of  1 - 16 years .

Research and Development facilities

The Company leases space for its research and development facilities in South Korea under an operating lease agreement.  The leasing contracts are for a period of  2 years .

Equipment

The Company leases laboratory equipment in Belgium under several finance lease agreements. The equipment is the loan,basic material for our new production center (such as incubator, laminar flow and thereforebio-reactor).  Each leasing contract is more appropriatevalid for a term of  5 years .

Offices

The Company leases space for offices in this case.Belgium and Israel under operating leases.  The leasing contracts are valid for terms of  1 - 5 years . These contracts are considered as operational leasing and under operating lease right-of-use assets.

            (2)        The fair value of the convertible bonds described in Note 7 of the Annual Report is determined by using a binomial model for the valuation of the embedded derivative and the fair value of the bond was calculated based on the effective rate on the valuation date (6%). The binomial model used the forecast of the Company share price during the convertible bond's contractual term. Since the convertible bond is in Euro and the model is in USD, the Company has used the Euro/USD forward rates for each period. In order to solve for the embedded derivative fair value, the calculation was performed as follows:Cars


AsThe Company leases cars.  Each leasing contract is valid for a term of  August 31, 2017, the convertible bonds have been repaid or converted see Note 4(e)2 - 4 years . These contracts are considered as operational leasing and operating lease right-of-use assets.

The following table presents the assumptions that were used for the models as of August 31, 2017:

     Embedded 
  Warrants  Derivative 
Fair value of shares of Common Stock$ 0.32 $ 0.32 
Expected volatility 92%  82% 
Discount on lack of marketability 13%  - 
Risk free interest rate 1.25%-1.31%  0.95%-1.03% 
Expected term (years) 1.2-1.8  0.08-0.33 
Expected dividend yield 0%  0% 
Expected capital raise dates October 31,    
  2017  - 

            The fair value of the convertible bonds is equal to their principal amount and the aggregate accrued interest.Lease Position

The table below sets forth a summary ofpresents the changes inlease-related assets and liabilities recorded on the fair value of the Company’s financial liabilities classified as Level 3 for the nine months ended August 31, 2017:balance sheet.

        Convertible  Price  Put Option 
     Embedded  Bonds  Protection  Derivative 
  Warrants  Derivatives     Derivative    
  (in thousands) 
Balance at beginning of the year$ 1,843 $ 240 $ 1,818 $ 76 $ 273 
Changes in fair value during the period (970) 635  22  (76)   
Repayment and conversion of convertible bonds and convertible loan   (855) (1,827)    
Translation adjustments       (13)      
Balance at end of the period$ 873 $ 20 $ - $ - $ 273 
September  30, 2019
Assets
Operating Leases
Operating lease right-of-use assets9,595
Finance Leases
Property and equipment, gross1,024
Accumulated depreciation(188)
Property and equipment, net836
Liabilities
Current liabilities
Current maturities of operating leases1,624
Current maturities of long-term finance leases227
Long-term liabilities
Non-current operating leases7,435
Long-term finance leases505
Weighted Average Remaining Lease Term
Operating leases10.6 years
Finance leases3.2 years

Weighted Average Discount Rate
Operating leases
Finance leases
5.7%
4.7%

            There were no transfersLease Costs

The table below presents certain information related to Level 3lease costs and finance and operating leases during the nine months ended August 31, 2017.September 30, 2019.

  Nine Months
Ended
September 30,
2019
 
    
Operating lease cost:$1,466 
Finance lease cost:   
Amortization of leased assets 162 
Interest on lease liabilities 15 
Total finance lease cost$177 

The table below sets forth a summarypresents certain information related to lease costs and finance and operating leases during the three months ended September 30, 2019:



  Three Months
Ended
September 30,
2019
 
    
Operating lease cost:$456 
Finance lease cost:   
Amortization of leased assets 52 
Interest on lease liabilities 3 
Total finance lease cost$55 

The table below presents supplemental cash flow information related to leases during the nine months ended September 30, 2019:

Nine Months
Ended
September 30,
2019
(in Thousands)
Cash paid for amounts included in the measurement of leases liabilities:
Operating cash flows from operating leases1,999
Operating cash flows from finance leases194
Right-of-use assets obtained in exchange for lease obligations:
Operating leases, net7,955
Finance leases65

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the changesfirst five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.

  Operating
Leases
  Finance
Leases
 
Year ended December 31,      
Remaining months 2019$898 $61 
2020 1,366  245 
2021 976  185 
2022 907  166 
2023 906  109 
Thereafter 9,082  - 
Total minimum lease payments 14,135  766 
Less:  amount of lease payments representing interest (5,076) (34)
Present value of future minimum lease payments 9,059  732 
Less:  Current leases obligations (1,624) (227)
Long-term leases obligations$7,435 $505 

Future minimum lease payments as of November 30, 2018

Future minimum lease commitments under non-cancelable operating lease agreements are as follows:



2019$783 
2020 626 
2021 and thereafter 3,504 
Total$4,913 

Future minimum lease payments as of December 31, 2018

No material change in the fair valuemonth ended December 31, 2018.

Lease facilities in the United States

 During January 2019, Masthercell U.S. executed a lease agreement for production facilities in the United States.  Under the terms of the Company’s financial liabilities classified as Level 3agreement, Masthercell U.S. leased approximately 32,011 square feet for the year ended November 30, 2016:180 months.  Masthercell U.S. advanced $1.6 million on account of a security deposit, tenant improvement allowance and prepaid base rent.

        Convertible  Price  Put Option 
     Embedded  Bonds  Protection  Derivative 
  Warrants  Derivatives     Derivative    
     (in thousands)          
Balance at beginning of the year$ 1,382 $ 289 $ 1,888 $ 1,533 $  
Additions 802  40     120  273 
Conversion    (10)         
Changes in fair value related to Price               
Protection Derivative expired*          (108)   
Changes in fair value during the period (341) (87) (84) (1,469)   
Changes in fair value due to extinguishment of convertible loan   8       
Translation adjustments       14       
Balance at end of the year$ 1,843 $ 240 $ 1,818 $ 76 $ 273 

            (*) During the twelve months ended November 30, 2016, 11,732,916 Price Protection Derivative have expired.Lease facilities in Belgium

 There were no transfersIn March 2019, Masthercell announced plans to Level 3 duringestablish a new, state-of-the-art production site in the twelve months ended November 30, 2016.Gosselies Biopark in Belgium, designed to manufacture late-stage and commercially approved cell and gene therapy products.  In connection with this announcement, the Company signed a lease agreement for a 61,354 square foot building.

17


NOTE 109 - SUBSEQUENT EVENTS

a.        During September 2017,Entry into a credit line financing transaction with certain individual investors

On October 3, 2019 (the "Effective Date"), the Company entered into unsecured convertible note agreementsa Private Placement Subscription Agreement and Convertible Credit Line Agreement (collectively, the "Credit Line Agreements") with accredited or offshorefour non-U.S. investors for(the "Lenders"), pursuant to which the Lenders furnished to the Company access to an aggregate $5.0 million credit line (which consists of $1.25 million from each Lender) (collectively, the "Credit Line").  Pursuant to the Credit Line Agreements, the Company is entitled to draw down an aggregate of $1 million (consisting of $250,000 from each Lender) of the Credit Line in each of October 2019 and November 2019.  In each of December 2019, January 2020 and February 2020, the Company may draw down an additional aggregate of $1 million (consisting of $250,000 from each Lender), until the total amount drawn down under the Credit Line reaches an aggregate of $0.6 million. The notes bear an annual interest rate$5 million (consisting of 6% and mature in two years$1.25 million from the closing date, unless earlier convertedeach Lender), subject to the approval of the Lenders.  Each draw down shall be evidenced by a form of Unsecured Convertible Note (each, a "Note" and collectively, the "Notes").

Pursuant to the terms definedof the Credit Line Agreements and the Notes, the total loan amount, and all accrued but unpaid interest thereon, shall become 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 agreements. The notes provideCompany and the Lender.  Interest on any amount that the entire principal amounthas been drawn down under the notes and accrued interest automatically convert into units as inCredit Line accrues at a per annum rate of eight percent (8%).  At any time prior to or on the agreement upon the earlier to occur of any of the following: (i) the closing of an offering of equity securities of the Company with gross proceedsMaturity Date, by providing written notice to the Company, greater than $10 million (ii) the tradingeach of the Company’sLenders 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”"Common Stock") on the over-the counter market or an exchange, at a weighted averageconversion price equal to $7.00 per share.

Furthermore, upon the drawdown of at least $0.52 (adjusted for certain capital events such as stock splits) for fifty (50) consecutive trading days, or (iii)$500 thousand from each Lender and, together with the listingother Lenders, a drawdown of an aggregate of $2 million under the Credit Line, the existing warrants of the Company’s Common Stock on a U.S. National Exchange.

b.        In October 2017, the institutional investor referredLenders to in Note 6b, remitted to the Company $0.5 million in subscription proceeds entitling such investor to 961,538purchase shares of Common Stock shall be amended to extend their exercise date to June 30, 2021 and three-year warrants for an additional 961,538 shares. As of October 16, 2017, the Company has received a total of $4 million outwill issue to each of the committed $16 million subscription proceeds.Lenders warrants to purchase 50,000 shares of Common Stock at an exercise price of $7.00 per share.  The new warrants will be exercisable for three (3) years from the Effective Date.

c.        License agreement with Caerus Therapeutics Inc.


On September 29, 2017,October 28, 2019 ("effective date") the company entered into a license with Caerus Therapeutics Inc. ("Caerus") whereby Caerus granted the Company paidan exclusive license to Admiral $125 thousand on accountall Caerus IP relating to advanced chemeric antigen vectors for targeting tumors. As part of the debt owed. consideration for the license, following the determination by the Company that the commercialization of the licensed products is feasible, the Company shall issue Caerus an option to purchase seventy thousand (70,000) shares of Common Stock at an exercise price of seven dollars ($7) per share, to be exercised within 10 years following the effective date.


ITEM 2.  MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

            ThisThe following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly Report on Form 10-Q, and other reportsas well as our Annual Report on Form 10-K for the fiscal year ended November 30, 2018, as filed by the Company from time to time with the U.S. Securities and Exchange Commission (collectively,(the "SEC") on February 13, 2019.  Certain statements made in this discussion are "forward-looking statements" within the “Filings”meaning of 27A of the Securities Act of 1933, as amended (the "Securities Act") contain or may contain forward-looking statements, and information thatSection 21E of the Securities Exchange Act of 1934, as amended.  These statements are based upon beliefs of, and information currently available to, the Company’sCompany's management as well as estimates and assumptions made by Company’sthe Company's management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.  When used in the Filings,herein, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,”"anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "plan," "predict," "project," "target," "potential," "will," "would," "could," "should," "continue" or the negative of these terms and similar expressions as they relate to the Company or the Company’sCompany's management identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’sCompany's business, industry, and the Company’sCompany's operations and results of operations.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

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

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

Corporate Overview

Unless otherwise indicated or the context requires otherwise, the words "we," "us," "our," the "Company" or "our Company" or "Orgenesis" refer to Orgenesis Inc., a Nevada corporation, and its majority-owned subsidiary, Masthercell Global Inc., a Delaware corporation ("Masthercell Global"), Orgenesis Belgium SRL (formerly Orgenesis SPRL), a Belgian-based entity which is among the first ofengaged in development and manufacturing activities, together with clinical development studies in Europe (the "Belgian Subsidiary"), Orgenesis Ltd., an Israeli corporation (the "Israeli Subsidiary"), Orgenesis Maryland Inc., a new breed of regenerative therapy companies with expertiseMaryland corporation (the "Maryland Subsidiary"), Atvio Biotech Ltd., an Israeli-based CDMO ("Atvio"), and unique experienceCureCell Co. Ltd., a Korea-based CDMO ("CureCell").  Masthercell Global's subsidiaries include MaSTherCell S.A., a Belgian-based subsidiary and a Contract Development and Manufacturing Organization ("CDMO") specializing in cell therapy development and manufacturing for advanced medicinal products serving("MaSTherCell"), Masthercell U.S., LLC, a U.S.-based CDMO ("Masthercell U.S."), and Cell Therapy Holdings S.A.

Corporate Overview

We are a biotechnology company specializing in the regenerative medicinedevelopment, manufacturing and provision of technologies and services in the cell and gene therapy industry.  In addition,We operate through two platforms: (i) a point-of-care ("POCare") cell therapy platform ("POC") and (ii) a CDMO platform conducted through our subsidiaries, Masthercell Global, Atvio and CureCell.  Through our POC platform, our aim is to further the development of Advanced Therapy Medicinal Products ("ATMPs") through collaborations and in-licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes to bring such ATMPs to patients.  We out-license these ATMPs through regional partners to whom we also provide regulatory services, pre-clinical studies, intellectual property services, and co-development services (collectively, "POC development services") to support their activity in order to reach patients in a point-of-care hospital setting.  Through our CDMO platform, we are focused on developingproviding contract manufacturing and development services for biopharmaceutical companies.


Activities in our POC platform include a novelmultitude of cell therapies, including autoimmune, oncologic, neurologic and proprietarymetabolic diseases and other indications.  We plan to provide POC Services to our joint venture ("JV") regional partners, pharmaceutical and biotech companies as well as research institutions and hospitals that have cell therapytherapies in clinical development.  We believe that each of these customers and collaborations represents a revenue and growth opportunity upon regulatory approval.  Furthermore, our trans-differentiation technologiestechnology demonstrates the capacity to induce a shift in the developmental fate of cells from the liver or other tissues and transdifferentiating them into "pancreatic beta cell-like" Autologous Insulin Producing ("AIP") cells for patients with Type 1 Diabetes, acute pancreatitis and other insulin deficient diseases.  This technology, which has yet to be proven in human clinical trials, has shown in pre-clinical animal models that the human derived AIP cells produce insulin in a glucose-sensitive manner.  This trans-differentiation technology is licensed by our Israeli Subsidiary and is based on the work of Prof. Sarah Ferber, our Chief Scientific Officer and a researcher at Tel Hashomer Medical Research Infrastructure and Services Ltd. in Israel.  Our development plan calls for conducting additional pre-clinical safety and efficacy studies with respect to diabetes and other potential indications prior to initiating human clinical trials. We own or have exclusive rights to six (6) US and seven (7) foreign issued patents, two (2) US and twenty two (22) foreign patents applications, and five (5) PCT patent applications. These patents and applications relate, among others, to the trans-differentiation of cells (including hepatic cells) to cells having pancreatic β-cell-like phenotype and function and to their use in the treatment of degenerative pancreatic disorders, including diabetes, pancreatic cancer and pancreatitis. These patents and applications are expected to expire between June 1, 2020 and March 6, 2039. Six (6) US and twelve (12) foreign patents, and one (1) US and five (5) foreign patent applications relate, among others, to scaffolds, including alginate and sulfated alginate scaffolds, polysaccharides thereof, and scaffolds for use for cell propagation, trans-differentiation, and transplantation in the treatment of autoimmune diseases, including diabetes. These patents and applications are expected to expire between February 1, 2026 and January 5, 2037. One (1) US and five (5) foreign patent applications relate, among others, to bioactive conjugates for use in treating autoimmune diseases and for induction of immunotolerance responses. These applications are expected to expire on January 5, 2037. One (1) US patent application relates, among others, to a leukocyte-based cancer vaccine. This application is expected to expire on March 3, 2037. In June 2019, the United States Food & Drug Administration ("FDA") granted us the Orphan Drug designation for our Autologous Insulin Producing ("AIP") cells as a cell replacement therapy for the treatment of severe hypoglycemia-prone diabetes with a revenue generating contract developmentresulting from total pancreatectomy ("TP") due to chronic pancreatitis ("CP").

Our CDMO platform operates through (i) our majority-owned subsidiary, Masthercell Global, which currently consists of the following two subsidiaries:  MaSTherCell in Belgium, and manufacturing service business to serveMasthercell U.S. in the regenerative medicine industry. Our vertically integrated manufacturing capabilities are being used to serve to emerging technologies of other cell therapy marketsUnited States, (ii) wholly-owned Atvio in such areas as cell-based cancer immunotherapiesIsrael and neurodegenerative diseases and also to optimize(iii) our abilities to scale-up our technologies for clinical trials and eventual commercialization of our proposed diabetes treatment. The combination of our own proprietary cell therapy trans-differentiation technologies for the treatment of diabetes and a revenue-generating contract development and manufacturing service business provides us with94.12% owned subsidiary CureCell in South Korea, each having unique capabilities and supports our business philosophy of bringing to market significant life-improving medical treatments.

            We seek to differentiate our company from other cell therapy companies by our wholly-owned, Belgian-based CDMO subsidiary, MaSTherCell S.A., and a world-wide network of partners who have built a unique and fundamental base platform of know-how and expertise for manufacturing in a multitude of cell types manufacturing. The goal is to industrialize cell therapy for fast, safe and cost-effective productiontypes.  As part of our U.S. activity, we are setting up a CDMO facility in the United States.  We believe that, in order to provide rapid therapiesoptimal service to our customers, we need to have a global presence.  We target the international market as a key priority through our network of facilities that provide development, manufacturing and logistics services, utilizing our advanced quality management system and experienced staff.  All of these capabilities offered to third-parties are utilized for any market aroundour internal development projects, with the world. All thesegoal of allowing us to be able to bring new products to patients faster and in a more cost-effective way.  Masthercell Global strives to provide services that are alreadyall compliant with Good Manufacturing Practice, or GMP, requirements, ensuring identity, purity, stability, potency and robustness of cell therapy products for clinical phasePhase I, II, III and through commercialization. The

We operate our POC and CDMO platforms as two separate business segments.

POC Platform

Our therapeutic development efforts in our cell therapy business are focused on advancing breakthrough scientific achievements in the field of autologous therapies which have a curative potential.  We base our development on therapeutic collaborations and in-licensing with other pre-clinical and clinical-stage biopharma companies as well as direct collaboration with research and healthcare institutes.  We are engaging in therapeutic collaborations and in-licensing with other academic centers and research centers in order to pursue emerging technologies of other ATMPs in cell and gene therapy in such areas as cell-based immunotherapies, metabolic diseases, neurodegenerative diseases and tissue regeneration.  Each of these customers and collaborations represents a growth opportunity and future revenue potential as we out-license these ATMPs through regional partners to whom we also provide regulatory, pre-clinical and training services to support their activity in order to reach patients in a POC point-of-care hospital setting.


POC Subsidiaries and Collaboration Agreements

We intend to devote significant resources to process development and manufacturing in order to optimize the safety and efficacy of our future product candidates, as well as our cost of goods and time to market.  Our goal is to becomecarefully manage our fixed cost structure, maximize optionality, and drive long-term cost of goods as low as possible.

The subsidiaries related to this business are as follows:

We have embarked on a strategy of collaborative arrangements with strategically situated third parties around the world.  We believe that these parties have the expertise, experience and strategic location to advance our POC therapy business.

POC Revenue Model

Through analysis of the cell therapy landscape, we are introducing a novel POCare therapy business model with our goal of bringing autologous therapies in a cost-effective, high-quality and scalable manner to patients.  We are establishing and positioning our POC platform in order to bring POCare therapies to patients in a scalable way via a network of leading healthcare facilities active in autologous cell therapy product development, including facilities in India, Germany, Austria, Greece, the U.S., Panama, Singapore, Korea and Japan.

Our unique understanding of industry needs allows us to offer our clients a range of technologies and processes that potentially generate revenues. Regulatory assistance and joint ventures with local partners who bring strong regional networks through (1) joint venture partnerships with local hospitals utilizing hospital networks for clinical development of therapies, (2) a global network of supply, (3) harmonized quality systems, (4) the provision of a comprehensive portfolio of ATMPs to hospitals via continuous in-licensing of autologous therapies from academia and research institutes, and (4) out-licensing hospital and academic-based therapies.

This may include:

Our aim is to provide a pathway to bring ATMPs in the regenerativecell and gene therapy industry from research to patients worldwide through our POCare network.  We define POCare cell and gene therapy as a process of collecting, processing and administering cells within the patient care environment, mainly through academic partnerships in a hospital setting.  We believe this approach is an attractive proposition for personalized medicine because POCare therapy facilitates the development of technologies through our strategic partnerships and utilizes closed systems that have the potential of reducing the required grade of clean room facilities, thus substantially reducing manufacturing costs.  Furthermore, cell transportation, which is a high-risk and costly aspect of the supply chain, could be minimized or eliminated.


While our POC business strategy is currently limited to early stage development to overcome certain industry by leveragingchallenges, we intend to continue developing a global POCare network, with the experiencegoal of developing ATMPs, and mainly autologous cell therapies, via joint ventures with partners who bring strong regional networks.  Such networks include partnerships with local hospitals which allows us to engage in continuous in-licensing of, mainly, autologous therapies from academia and research institutes, co-development of hospital and academic-based therapies, and utilization of hospital networks for clinical development of therapies.

 We consider the following to be the four pillars in order to advance our POC business strategy:

CDMO Platform

Companies developing cell therapies need to make a decision early on in their approach to the transition from the lab to the clinic regarding the process development and manufacturing of the cells necessary for their respective therapeutic treatments.  Of the companies active in this market, only a small number have developed their own GMP manufacturing facilities due to the high costs and expertise required to develop these processes.  In addition to the limitations imposed by a limited number of trained personnel and high infrastructure/operational costs, the industry faces a need for custom innovative process development and manufacturing solutions.  Due to the complexity and diversity of the industry, such solutions are often customized to the particular needs of a company and, accordingly, a multidisciplinary team of engineers, cell therapy experts, cGMP and regulatory experts is required.  Such a unique group of experts can exist only in an organization that both specializes in developing characterization assays and solutions and manufactures cell therapies.

The complexity of manufacturing individual cell therapy treatments poses a fundamental challenge for cell therapy-based companies as they enter the field.  This complexity potentially casts a recognized leaderspotlight on improved cGMP, large-scale manufacturing processes, such as the services provided by Masthercell Global, Atvio and CureCell.  Manufacturing and delivery can be more complex in cell therapy products than for a typical drug.  In the U.S., only a few dozen specialized hospitals are currently qualified to provide CAR T treatments, which require retrieving, processing and then returning immune cells to the patient, all done under strict cGMP, as well as monitoring and treating side effects.  These factors provide real incentives for cell therapy companies to seek third-party partners, or contract manufacturers, who possess technical, manufacturing, and regulatory expertise in cell therapy development and manufacturing.manufacturing such as cell therapy CDMOs like MaSTherCell, Atvio and CureCell.  Additionally, establishing a manufacturing facility for cell therapy requires specific expertise and significant capital which can delay the clinical trials by at least two years.  As companies are looking to expedite their market approval, utilization of a CDMO can result in faster time to market and overall lower expenditure.


            MaSTherCell is developing premier technologies for other cell therapy companies such as cell-based cancer immunotherapiesIntegration of development and neoconservative diseases. Our vertical integration responds to the main challenges faced by most biotechnology companies such as cost of goods sold and logistics. Our global manufacturing network is envisioned as offering a global one-stop-shop manufacturing and logistics services through Masthercell Global (and its subsidiaries), Atvio and breakthrough technologies enabling promising therapiesCureCell provide the basis for generating a recurring revenue stream, as well as carefully managing our fixed cost structure to more rapidly reachmaximize optionality and drive down production cost.  We believe that Masthercell Global is also beneficial for our own manufacturing needs and provides us, and our customers, with enhanced control of material supply for both clinical trials and the commercial market.

Our CDMO Growth Strategy

In light of the globalization of the industry in general and the therapeutics industry in particular, adding to that the high cost of reaching the market, at a fraction of the costs.

            MaSTherCell currently operates facilities qualified under cGMPs in Belgium. We acquired MaSTherCell in March 2015. As the industry continues to mature and a growing numberdevelopers of cell therapy companies approach commercialization, we believetherapies see themselves as global organizations and build their models on global markets.  As cell therapies are based on living cells, they are limited in their ability to be centrally manufactured.  An additional challenge for globalization is the fact that MaSTherCellthe regulatory requirements for the therapies is well positioned to serve as an outsourcing manufacturing source for cell therapy companies.not harmonized between jurisdictions, presenting additional operational challenges.

We are leveraginghave leveraged the recognized quality expertise and experience in cell process development and manufacturing of our Belgian subsidiary, MaSTherCell S.A., to first-class entities in Israel and our international global network of CDMO joint ventures,Korea and to build a global and fully integrated bio-pharmaceutical companyCDMO in the cell therapy development and manufacturing area.  We believe that cell therapy companies need to be global in order to truly succeed.  We target the international manufacturing market as a key priority through joint-venture agreements that provide development capabilities, along with manufacturing facilities and experienced staff.

            Our cell therapy technologyThe main revenue drivers of our growth strategy on a global reach are the number of batches and the number of patients per manufacturing batch.  These parameters vary along the development cycle of the new treatments (starting from as few as 20 patients in Phase I to thousands of patients when reaching commercialization).  When a client reaches the commercial stage, their demand for diabetesmanufacturing substantially increases, while barriers preventing the client from switching to another manufacturing organization remain extremely high.  The difficulty in transferring CDMOs is based ona function of the research worktech transfer of Prof. Sarah Ferber,such complex manufacturing processes being extremely lengthy, requiring many months of training highly specialized employees, while also possibly requiring new regulatory approvals.  Therefore, we believe we are well positioned to continue expanding our Chief Science Officerrevenue for the following reasons:

(1) A higher number of companies in later phases of clinical trials and soon potentially in commercial phases;

(2) Therapy companies requiring higher manufacturing abilities concurrent with a researcher at Tel Hashomer Medical Center,global reach; and

(3) An increasing need for the manufacturing scalability provided by a leading medical hospitalCDMO.

Recent Developments During the Three Months Ended September 30, 2019

Transfer Agreement of Atvio and research center in Israel (“THM”CureCell

On August 7, 2019, the Company, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company ("GPP-II"), who established(the "Parties") entered into a proofTransfer Agreement (the "Transfer Agreement").  As a result of concept that demonstrates the capacityTransfer Agreement, Masthercell Global transferred all of its equity interests of Atvio and CureCell to induce a shiftOrgenesis Inc in the developmental fate of cells from the liver and transdifferentiating (converting) them into “pancreatic beta cell-like” insulin-producing cells. Furthermore, those cells were found to be resistant to autoimmune attack and to produce insulin in a glucose-sensitive manner in relevant animal models. Our developmentexchange for our cellular therapy business (CTB), which is conducted through our Israeli subsidiary, calls for conducting additional preclinical safety and efficacy studiesone dollar ($1.00).  The Transfer Agreement also contains agreements made with respect to diabetescertain intercompany loans.

In addition, the Parties agreed that (i) the Company and other potential indications.

Significant Recent Corporate Highlights

            Management continues in its subsidiaries shall cease all use or engagement of any employees of Masthercell Global or any of its subsidiaries, (ii) Masthercell Global may use the services of Atvio or South Korea Sub for certain subcontracting services on terms and at prices mutually agreed between the Company and Masthercell Global, and (iii) if the Company determines that it needs manufacturing services of the type offered by MaSTherCell and/or Masthercell U.S., Masthercell Global (on behalf of MaSTherCell and Masthercell U.S., as applicable) and the Company shall use good faith efforts to raise operating capital. In connection therewith, in January 2017 we entered into definitive agreements with an institutional investor for the private placement of units of our securities for aggregate subscription proceeds to us of $16 million. The subscription proceeds are payable onnegotiate and execute a periodic basis through August 2018. Each periodic payment of subscription proceeds will be evidenced by our standard securities subscription agreement. As of the date of this quarterly report on Form 10-Q, the investor has remitted to us $4 million in subscription proceeds. Each unit is comprised of one share of our common stock and a warrant to purchase an additional share of common stock at a per share exercise price of $0.52. Pursuantcontract that contemplates MaSTherCell or Masthercell U.S., as applicable, providing such manufacturing services to the investment,Company; provided, that such contract shall be on terms and at prices (in accordance with standard fair market rates) that are mutually agreed between the investor designated a director to serveCompany and Masthercell Global at the time any such contract is executed, (iv) the Management Services Agreement between the Company and Masthercell Global, dated June 28, 2018, will terminate on our board of directors for an initial two-year period and thereafter so long as the investor holds at least 10% of the Company’s outstanding Common Stock. The investor’s right to designate the board designee is subject to the payment in full as provided in the definitive agreements of the remaining subscription proceeds.

            In January 2017, Servier appointed MaSTherCell for the development of its CAR-T cell therapy manufacturing platform. Under the master service agreement, MaSTherCell is developing a CAR-T cell therapy manufacturing platform, which will enable industrial and commercial manufacturing of Servier cell therapy products. This is a critical step in development of these products for later stage clinical trial. Servier selected MaSTherCell because of its leading global cell therapy CDMO position as well as its essential broad expertise in immunotherapy products. MaSTherCell has a track record of designing and delivering cost-effective cell therapy manufacturing platforms. MaSTherCell anticipates that it will complete the development of the initial CAR-T platform in 2018.

            In May 2017, we improved the equity-debt ratio of our subsidiary MaSTherCell by converting the loan advanced to it in the amount of $1.1 million (EUR 1 million) into share capital of MaSTherCell.

            In June 2017, CRISPR, a leader in gene-editing based therapeutics, and MaSTherCell signed a service agreement for the development and manufacturing of allogeneic CART-T cell therapies.28, 2020.


            In September 2017, we fulfilled our obligation under the joint venture agreement with Atvio dated May 10, 2016, and remitted the balance of $54 thousand of the convertible loan in the aggregate amount of $1 million.

            As further discussed below, our subsidiary MaSTherCell S.A., had revenues of approximately $6.7 million during the nine months ended August 31, 2017 representing an increase of 49% over the same period last year.

            While we believe, the above developments position us to further our business development efforts and realize our business plan, we can provide no assurance that we will be successful in achieving our business plan.

Results of Operations

Comparison of the Three and NineMonths Ended September 30, 2019 to the Three Months Ended August 31, 2017 to the Three and Nine Months Ended August 31,20162018

Our financial results for the three and nine months ended August 31, 2017September 30, 2019 are summarized as follows in comparison to the three and nine months ended August 31, 2016:2018:

 Three Months Ended August 31,  Nine Months Ended August 31,  Three Months
Ended
September 30,
  Three Months
Ended
August 31,
 
 2017  2016  2017  2016  2019 2018 
 (in thousands)  (in thousands) 
Revenues$ 2,562 $ 1,849 $ 6,712 $ 4,501 $9,121 $6,230 
Cost of revenues 1,867  1,829  4,900  5,273 
Cost of sales 6,364  3,381 
Research and development expenses, net 500  775  1,906  1,663  738  1,902 
Amortization of intangible assets 423  408  1,201  1,217  514  505 
Selling, general and administrative expenses 3,184  1,279  7,887  4,618  5,965  4,008 
Financial expenses (income), net (2,032) 574  1,488  (645)
Share in losses of associated company 152  -  348  -  -  202 
Financial expense, net 395  1,070 
Other income, net (35) (2,921)
Loss before income taxes$1,532 $ 3,016 $ 11,018 $ 7,625 $4,820 $1,917 

Revenues

  Three Months
Ended
September 30,
  Three Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Services$6,666 $4,473 
Goods 2,455  1,757 
Total$9,121 $6,230 

            AllOur revenues were derived from sales by our Belgian Subsidiary, MaSTherCell S.A. Manufacturing activities show a significant increase of revenues in line with the company’s Business Plan. It reflects market recognition in CDMO business expertisesubsidiary Masthercell Global and the adequacy of the Company’s strategy with industry need. Revenues diversification by source in the CDMO segment together with a leading position in CAR-T cell therapyits subsidiaries (mainly MaSTherCell) and from POC development services to our Indian and manufacturing strengthen MaSTherCell resilience.

Greek collaborations.  Our revenues for the three and ninemonths ended September 30, 2019 were $9,121 thousand, as compared to $6,230 thousand for the three months ended August 31, 2017 were $2,562 thousand and $6,712 thousand, respectively, as compared to $1,849 thousand and $4,501 thousand for the corresponding periods in 2016,2018, representing an increase of 39%46%.  The increase was attributable to (i) existing customer service contracts with biotech clients, as well as from revenues generated from existing manufacturing agreements as MaSTherCell was able to accept the additional contracts following its expansion of laboratory capacity and 49% respectively,(ii) revenues of $1,012 thousand generated from POC development services.

Expenses

Cost of Revenues

  Three Months
Ended
September 30,
  Three Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Salaries and related expenses$2,200 $1,568 
Stock-based compensation 45  28 
Professional fees and consulting services 608  98 



Raw materials 3,222  1,504 
Depreciation and amortization expenses, net 170  (36)
Other expenses 119  219 
 $6,364 $3,381 

Cost of revenues for the three months ended September 30, 2019 were $6,364 thousand, as compared to the same period last year.

  Three Months Ended August 31,  Nine Months Ended August 31, 
  2017  2016  2017  2016 
  (in thousands)  (in thousands) 
Services$ 2,015 $ 1,086 $ 5,600 $ 2,430 
Goods 547  763  1,112  2,071 
Total revenues$ 2,562 $ 1,849 $ 6,712 $ 4,501 

            The increase in revenues$3,381 thousand for each of the three and nine months ended August 31,201731, 2018, representing an increase of 88%.  The increase is primarily attributed to the following (i) an increase in salaries and related expenses primarily attributable to an increase in head-count in the production and development departments and (ii) an increase in raw materials used due to the growth in the volume of the services provided by MaSTherCell, resulting from the extension by MaSTherCell of existing customer service contracts and the entry into new customer service contracts with leading biotech companies as well as from revenues generated from existing manufacturing agreements.

21


Research and Development Expenses

Cost of Revenues

  Three Months
Ended
September 30,
  Three Month
Ended
August 31,
 
  2019 2018 
 (in thousands) 
Salaries and related expenses$532 $846 
Stock-based compensation 122  106 
Professional fees and consulting services 44  (167)
Lab expenses (1) 1,063 
Depreciation expenses, net 190  82 
Other research and development expenses 142  138 
Less - grant (291) (166)
Total$738 $1,902 

            Cost of revenuesResearch and development expenses for the three and ninemonths ended September 30, 2019 were $738 thousand, as compared to $1,902 thousand for the three months ended August 31, 2017 were $1,867 thousand and $4,900 thousand, respectively, as compared to $1,829 thousand and $5,237 thousand, respectively, during the same periods in 2016,2018, representing an increase anda decrease of 2% and 7%, respectively.61%.  The decrease in cost of revenues for the nine months period in 2017 as compared to the corresponding period in 2016 is primarily attributable to a decrease (i) in salaries and related expenses associated with an internal transformation program implemented in MaSTherCell in the second quarter to evolve from an organization based on project to a matrix organization supported by transversal departments focusing on value creation. As partreallocation of the program we changed the business positions of certain employees from laboratory managers to general manager positions in order to reflect the current period’s business activity.

Research and Development Expenses

            Research and Development Expenses for the three and nine months ended August 31, 2017 were $500 thousand and $1,906 thousand, respectively, as compared to $775 thousand and $1,663 thousand, respectively, for the same periods in 2016, representing a decrease of 35% and increase of 15%, respectively. The increase inseveral research and development expenses in the nine months period in 2017 is primarily attributable to an increase in laboratory expenses resulting from an increase in our pre-clinical studies in the U.S., Israelemployees and Belgium. The increase in Research and Development expenses is a reflection of management’s determination to move transdifferentiating technology with first indication to Diabetes Type Icontractors to the next the stage towards clinical studies.production and development departments as well as a reduction in lab expenses.

Selling, General and Administrative Expenses

  Three Months
Ended
September 30,
  Three Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Salaries and related expenses$2,042 $1,096 
Stock-based compensation 294  846 
Accounting and legal fees 582  615 
Professional fees 1,071  730 
Rent and related expenses 576  328 
Business development 434  222 
Expenses related to collaboration with Theracell (see note 5) 372  - 
Depreciation expenses, net 62  - 
Other general and administrative expenses 532  171 
Total$5,965 $4,008 

Selling, general and administrative expenses for the three and nine months ended August 31, 2017September 30, 2019 were $3,184$5,965 thousand, and $7,887 thousand, respectively, as compared to $1,279 and $4,618$4,008 thousand respectively, for the same periods in 2016, representing an increase of 149% and 71% respectively. The increase in selling, general and administrative expenses in each of three and nine month 2017 periods is primarily attributable in the following:

1.

Stock based compensation: (i) an increase in non-cash stock based compensation resulting from grants of options to employees during December 2016 offset by decrease in stock based compensation in the 2017 periods attributable to the termination of the vesting period of options and shares awarded to executives and consultants in 2016.

2.

Corporate governance, reflecting our commitment to remediate to material weaknesses, an increase in (i) salaries and related expenses resulting from the retention of new senior management at MaSTherCell and new accounting staff in our financial department in Israel and (ii) professional fees resulting from the appointment of a qualified independent third party to assess our risk management framework to manage enterprise risk and (iii) accounting and legal expenses associated with exploring new strategic collaboration arrangements, new capital raising initiatives, repayment of bonds issued by MaSTherCell and preparation of applications for new patents under our CTB division.

3.

CTB intellectual property: legal expenses associated with the preparation of applications for new patents under our CTB division.

4.

Setting-up a global CDMO network : (i) expenses related to a joint venture which primarily consisted of salary expenses and set up related cost of the new production facility in Korea under our joint venture with CureCell.

5.

Legal expenses associated with exploring new strategic collaboration arrangements, new capital raising initiatives.

            The expenses incurred in Item (2) above [Corporate Governance] reflects our commitment to address material weaknesses in our internal controls. Our expenses under Item 4 above [Setting up a Global CDMO Network] reflects our mission to build a global fully integrated bio-pharmaceutical company in the cell therapy development and manufacturing area. We target the international manufacturing market as a key priority through joint-venture agreements that provide development capabilities, along with manufacturing facilities and experienced staff, offering a unique response to industry challenges;

22


            We apply a strict monitoring of the selling, general and administrative expenses and has implemented a shared services program in corporate functions to benefit from intra-group cost reduction and synergies.

Financial Expenses (Income), net

  Three Months Ended August 31,  Nine Months Ended August 31, 
  2017  2016  2017  2016 
  (in thousands)     (in thousands) 
             
             
Increase (decrease) in fair value of warrants and financial liabilities measured at fair value$ (2,349)$ 555 $ (1,343)$ (1,057)
Stock-based compensation related to warrants granted to bondholder and shares and units granted to creditor (273) -  1,351  - 
Interest expense on loans and convertible loans 300  75  987  339 
Foreign exchange loss, net 289  (111) 481  (75)
Other expenses 1  55  12  148 
Total$ (2,032)$ 574 $1,488 $ (645)

            Financial expenses (income), net for the three months ended August 31, 2017, decreased by 454% or $2,6062018, representing an increase of 49%.  The increase is primarily attributable to salaries and related expenses and rent and related expenses for additional space for new production areas at Masthercell U.S. and MaSTherCell.  This is as a result of expanded commercial activity, facility expansion and additional personnel appointments particularly in Masthercell Global, and additional sales and support staff at MaSTherCell.  In late 2018, Masthercell completed the building of 5 new clean rooms for the manufacturing of late stage and commercially ready products.  The 32,011 square foot facility for Masthercell U.S. is expected to commence operations in early 2020.  Masthercell's 61,354 square foot facility in Gosselies, Belgium for the manufacturing of late stage and commercially approved cell and gene therapy products is expected to commence operations in 2021 (See Note 8).


Financial Expenses, net

  Three Months
Ended
September 30,
  Three Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Changes in fair value financial liabilities and assets measured at fair value $63  $681 
Interest expense on convertible loans and loans 53  127 
Foreign exchange loss, net 191  153 
Other expenses 88  109 
Total$395 $1,070 

Financial expenses, net, for the three months ended September 30, 2019 were $395 thousand, as compared to $1,070 thousand for the same periodthree months ended August 31, 2018, representing a decrease of 63%.  In the three months ended August 31, 2018, finance income was incurred in 2016.the valuation of the fair value of the put option of Atvio.  Such option was exercised in the third quarter of 2018 (see Note 5).

Tax expenses

  Three Months
Ended
September 30,
  Three Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Tax expenses 94  2,353 
Total$94 $2,353 

Tax expenses, net, for the three months ended September 30, 2019 were $94 thousand, as compared to $2,353 thousand for the three months ended August 31, 2018, representing a decrease of 96%.  The charge in the third quarter of 2018 was due to a decrease in deferred taxes related to carryforward losses in MaSTherCell.  This followed a Belgian tax reform bill approved in December 2017, as well as increased taxable income at MaSTherCell.

Comparison of the Nine Months Ended September 30, 2019 to the Nine Months Ended August 31, 2018

Our financial results for the nine months ended September 30, 2019 are summarized as follows in comparison to the nine months ended August 31, 2018:

  Nine Months Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Revenues$24,179 $12,853 
Cost of sales 15,643  7,220 



Research and development expenses, net 7,597  3,456 
Amortization of intangible assets 1,547  1,386 
Selling, general and administrative expenses 17,448  10,675 
Share in losses of associated company -  732 
Financial expense, net 588  3,164 
Other income, net (104) (3,237)
Loss before income taxes$18,540 $10,543 

Revenues

  Nine Months
Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Services$17,829 $9,493 
Goods 6,350  3,360 
Total$24,179 $12,853 

Our revenues for the nine months ended September 30, 2019 were $24,179 thousand, as compared to $12,853 thousand for the nine months ended August 31, 2018, representing an increase of 88%.  The increase in revenues is attributable to (i) increased service fees generated by MaSTherCell, resulting primarily from the extension of existing customer service contracts with biotech clients, as well as from revenues generated from existing manufacturing agreements - MaSTherCell was able to accept the additional contracts following its expansion of laboratory capacity (ii) revenues from contracts of $1,974 thousand generated from POC development services.

Expenses

Cost of Revenues

  Nine Months
Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Salaries and related expenses$5,835  3,309 
Stock-based compensation 151  28 
Professional fees and consulting services 889  98 
Raw materials 7,643  3,147 
Depreciation and amortization expenses, net 725  293 
Other expenses 400  345 
 $15,643  7,220 

Cost of revenues for the nine months ended September 30, 2019 were $15,643 thousand, as compared to $7,220 thousand for the nine months ended August 31, 2018, representing an increase of 117%. The increase is primarily attributed to the following: (i) an increase in salaries and related expenses primarily attributable to an increase in head-count in the production and development departments and (ii) an increase in raw materials used due to the growth in the volume of the services provided by MaSTherCell, as well as from revenues generated from existing manufacturing agreements.

Research and Development Expenses




  Nine Months
Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
 (in thousands) 
Salaries and related expenses$2,055 $1,497 
Stock-based compensation 421  446 
Professional fees and consulting services 590  273 
Lab expenses 1,477  1,373 
JV Collaboration (See Note 5) 2,741  - 
Depreciation expenses, net 456  136 
Other research and development expenses 785  256 
Less - grant (928) (525)
Total$7,597 $3,456 

Research and development expenses for the nine months ended September 30, 2019 were $7,597 thousand, as compared to $3,456 thousand for the nine months ended August 31, 2018, representing an increase of 120%.  The increase is primarily attributable to an increase in salaries and related expenses, professional fees and lab expenses, primarily attributable to an increase in clinical operation activities in the U.S., Israel and Belgium, and new therapeutics projects, as well as joint venture collaborations (see Note 5).  This was partially offset by the reallocation of several research and development employees and contractors to the production and development departments.

Selling, General and Administrative Expenses

  Nine Months
Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Salaries and related expenses$5,909 $2,999 
Stock-based compensation 1,854  2,333 
Accounting and legal fees 1,925  1,540 
Professional fees 2,567  1,704 
Rent and related expenses 1,889  905 
Business development 1,535  887 
Expenses related to collaboration with Theracell (see note 5) 372  - 
Depreciation expenses, net 115  - 
Other general and administrative expenses 1,282  307 
Total$17,448 $10,675 

Selling, general and administrative expenses for the nine months ended September 30, 2019 were $17,448 thousand, as compared to $10,675 thousand for the nine months ended August 31, 2018, representing an increase of 63%.  The increase is primarily attributable to salaries and related expenses and rent and related expenses for additional space for new production areas at Masthercell U.S. and MaSTherCell.  This is as a result of expanded commercial activity, facility expansion and additional personnel appointments particularly in Masthercell Global and additional sales and support staff at MaSTherCell.  In late 2018, Masthercell completed the building of an additional five clean rooms for the manufacturing of late stage and commercially ready products. The 32,011 square foot facility for Masthercell U.S. is expected to commence operations in early 2020.  Masthercell's 61,354 square foot facility in Gosselies, Belgium for the manufacturing of late stage and commercially approved cell and gene therapy products is expected to commence operations in 2021 (See Note 8).

Financial Expenses, net




  Nine Months
Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Changes in fair value financial liabilities and assets measured at fair value$63 $48 
Interest expense on convertible loans and loans 144  2,934 
Foreign exchange loss, net 274  55 
Other expenses 107  127 
Total$588 $3,164 

Financial expenses, net, for the nine months ended September 30, 2019 were $588 thousand, as compared to $3,164 thousand for the nine months ended August 31, 2018, representing a decrease of 81%.  The decrease in financial expenses is mainly attributable to a decrease of $2.9 millioninterest expenses on convertible loans and other loans which were converted to equity during the nine months ended August 31, 2018.  In the nine months ended August 31, 2018, finance charges were incurred in the changevaluation of the fair value of warrants due to the fact that,put option of Atvio.  Such option was exercised in the threethird quarter of 2018 (See Note 5).

Tax expenses

  Nine Months
Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Tax expenses  649   1,680 
Total$649 $1,680 

Tax expenses, net, for the nine months ended August 31, 2017, there was a strong impact of the decrease in the share price, which was $0.32 on August 31, 2017,September 30, 2019 were $649 thousand, as opposedcompared to $0.59 on May 31, 2017.

            Financial expenses (income), net$1,680 thousand for the nine months ended August 31, 2018, representing a decrease of 61%.  During 2018 the Company recognized a tax charge in respect of a decrease in deferred taxes related to carryforward losses in MaSTherCell.  This followed a Belgian tax reform bill approved in December 2017, as well as increased taxable income at MaSTherCell.

Working Capital

  September 30,  November 30, 
  2019    2018 
  (in thousands) 
Current assets$20,773 $30,297 
Current liabilities 24,363  17,145 
Working capital$(3,590)$13,152 

Current assets decreased by $9,524 thousand between November 30, 2018 and September 30, 2019.  Cash and cash equivalents declined mainly as a result of cash used in operations and investments in MaSTherCell Global's new production facility in Houston, Texas which is due to become operational in early 2020.  The GPP receivable was received in January 2019.  Accounts receivable increased as a result of increased sales.

Current liabilities increased by 331% or $2,133$7,218 thousand compared to the same period in 2016.between November 30, 2018 and September 30, 2019.  The increase in financial expenses is mainly attributable to an increase of $1.32 million in the Stock-based compensation related attributable to $20 thousand of stock-based compensation expenses related to 102,822 warrants granted to the remaining bondholder in consideration of the extension of his bonds and $1.3 million of stock-based compensation expenses related to restricted shares and warrants issued in accordance with the terms of the convertible loan agreements.

Working Capital Deficiency

  August 31,  November 30, 
  2017  2016 
  (in thousands)    
Current assets$ 5,674 $ 4,205 
Current liabilities 17,571  14,576 
Working capital deficiency$ (11,897)$ (10,371)

            Current assets increased by $1.5 million, which was primarily attributable to an increase of $1.7 million(i) $3,549 thousand in accounts receivablepayable and $0.9 increaseaccrued expenses, (ii) $1,011 thousand in prepaid expenses and other receivables mainly due to increase in the convertible loan invested in CureCell which was invested in the equipment and construction of the Korean CDMO facility as part of our strategy to build up a global cell therapy development and manufacturing area.

            Current liabilities increased by $3 million, which was primarily attributable to an increase (i) of $1.7 million in advancedadvance payments on account of grant in connection with the new grant approved by the DGO6 to support a clinical study in Germanygrants, and Belgium (ii)(iii) $1,624 thousand of $3.7 million in deferred income due upfront paid by our new and old customers under new agreements signed in the CDMO segment. The increase in deferred income reflects the financial orthodoxy applied in the CDMO area. The increase was partly offset by a decrease (i)current maturities of $2.5 million due to repayments of loans and convertible bonds (ii) of $0.1 million in convertible bonds due to conversion.operating leases.

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Liquidity and Financial Condition




  Nine Months
Ended
September 30,
  Nine Months
Ended
August 31,
 
  2019  2018 
  (in thousands) 
Net loss$(19,189)$(12,223)
       
Net cash used in operating activities (10,514) (12,473)
Net cash used in investing activities (7,269) (4,219)
Net cash provided by financing activities 13,682  30,511 
Net change in cash and cash equivalents and restricted cash$(4,101)$13,819 

Since inception, we have funded our operations primarily through the sale of ourequity securities and convertible notes, and, more recently, through revenue generated from the activities of the MaSTherCell our Belgian Subsidiary. As of August 31, 2017,Global subsidiaries.  At September 30, 2019, we had negativea working capital deficit of $12 million,$3,590 thousand, including cash and cash equivalents of $0.8 million.$ 10,707 thousand.

Net cash used in operating activities for the nine months ended September 30, 2019 was approximately $3.4$11 million, as compared to net cash used in operating activities of approximately $12 million for the nine months ended August 31, 2017, as compared with net cash used in operating activities of approximately $3.1 million for the same period in 2016.2018.  We successfully expanded our global activity of the CDMO division while maintain the same level of cash used in operating activities as a result of the increased revenues at our subsidiary MaSTherCell, thereby significantly increasing gross profit and generating cash to help pay our ongoing operating expenses.

Net cash used in investing activities for the nine months ended August 31, 2017September 30, 2019 was approximately $1.4$7 million, as compared with approximately $ 1 million for the same period in 2016. Netto net cash used in investing activities of approximately $4 million for the nine months ended August 31, 2018.

Net cash provided by financing activities for the nine months ended September 30, 2019 was primarilyapproximately $14 million, as compared to net cash provided by financing activities of approximately $31 million for additionsthe nine months ended August 31, 2018.  During the nine months ended September 30, 2019, our financing activities consisted of receipts of convertible loans of $7.5 million (See Note 4) and proceeds in the amount of $6.6 million received from Great Point Partners, LLC pursuant to fixed assets at our subsidiary MaSTherCellthe strategic agreement between the Company, Masthercell Global, and investments in our joint venture with Atvio.

Great Point Partners, LLC (See Note 5).  During the nine months ended August 31, 2017,2018, our financing activities consisted of net proceeds in the following:amount of $30.5 million.

 •        Closing on $4 million net of transaction costs in private placement equity offerings through the issuance of 7,786,788 million shares of common stock and three-year common stock purchase warrants for an additional 7,786,788 and 230,923 shares of our common stock exercisable at a per share exercise price of $0.52 or $0.65, respectively.

            •        Closing on $4.7 million, in private placement debt offerings through the issuance of 1,746,063 warrants and our convertible promissory notes with maturity dates of between six and twenty-four months, convertible as of August 31, 207 into 10,030,917 shares of our common stock and 7,695,260 three-year warrants to purchase up to an additional 7,695,260 shares of our common stock at a per share exercise price of $0.52.

Liquidity & Capital Resources Outlook

            Management believesEven though the Company had negative working capital of $3.6 million at September 30, 2019, we believe that our business plan will provide sufficient liquidity to fund operating needs for the next 12 months.  Additional funds will be necessary to finance some of the collaborations listed in Note 5.  However, there are factors that can impact our ability to continue to fund our operating needs, including:

  • Our ability to expand sales volume, which is highly dependent on hand, as well as the subscription proceeds of $12 millionimplementing our growth strategy;
  • Restrictions on our ability to continue receiving government funding and grants for our POC platform;
  • Additional CDMO expansion into other regions that we anticipate receiving on a periodic basis from June 2017 through August 2018 (out of a total of $16 million subscription proceeds that we aremay decide to receive through such date), will allowundertake; and
  • The need for us to conduct operations as presently conducted through the end of 2018. We intendcontinue to raise additionalinvest in operating capital in orderactivities to furtherremain competitive or acquire other businesses and technologies and to complement our products, expand the scopebreadth of our operations and realizebusiness, enhance our multi- year business plan of future years and will likelytechnical capabilities or otherwise offer growth opportunities.

If we cannot effectively manage these factors, we may need to raise additional capital to fund our operating capital in fiscal 2019 in order to maintain operations. Without additional sources of cash and/or the deferral, reduction, or elimination of significant planned expenditures and debt repayment, we may not have the cash resources to continue as a going concern thereafter.needs.

            To meet our short and long-term liquidity needs, we expect to use existing cash balances, cash from our revenue generating activities and the subscription proceeds anticipated periodically through the end of fiscal year 2018, as well as a variety of other means, including raising capital through potential issuances of debt or equity securities in public or private financings, partnerships and/or collaborations. In addition, we will continue to seek, as appropriate, grants for expanding our facility in Belgium and scientific and clinical studies from various governmental agencies and foundations. There can be no assurance that additional financing will be available when needed or, if available, that can be obtained on commercially reasonable terms. If we will not be able to obtain the additional financing on a timely basis as required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and will be forced to scale down or perhaps even cease our operations.

24


Going Concern

            The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. As of August 31, 2017, we have accumulated losses of approximately $41 million. Although we are now showing positive revenue and gross profit trends in our CDMO division, we expect to incur further losses in the CTB division. Presently, we don’t not have sufficient cash to meet our requirements in the following twelve months. These factors raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to obtain additional financing as may be required and ultimately to attain profitability. In the event that the remaining subscription proceeds from a private placement with an institutional investor referred to below, in the aggregate amount of $12 million (out of total committed amount $16 million) will not be paid periodically through August 2018, then we will need to raise significant funds in order to continue to meet our liquidity needs, realize our business plan and maintain operations. The Company’s current cash balance is not sufficient to support its operations as presently conducted or permit it to take advantage of business opportunities that may arise. Management of the Company is continuing its efforts to generate quality of earnings from its CDMO business and to secure funds through equity and/or debt instruments for its operations and business opportunities investments.

            The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing a business plan or that the successful implementation of a business plan will actually improve our operating results. If we unable to obtain the necessary capital, we may have to cease operations.

            We have been funding operations primarily from the proceeds from private placements of our convertible debt and equity securities and from revenues generated by MaSTherCell. From December 2016 through August 2017,nine months ended September 30, 2019, we received through MaSTherCell, proceeds of approximately $6.1 million in revenues and accounts receivable from customers and $9$7.5 million from the private placement to accredited investors of our equity and equity linked securities and convertible loans out of which $3.5 million are from the institutional investor with whom we entered into definitive agreements in January 2017 for the private placement of units of our securities for aggregate subscription proceeds to us of $16 million. The subscription proceeds are payable on a periodic basis through August 2018. In addition, from September 1, 2017 through October 16, 2017, we raised an additional $1.1and $6.6 million from the proceeds received from the strategic investor Great Point Partners, LLC.

In October 2019, the Company entered into a Private Placement Subscription Agreement and Convertible Credit Line Agreement granting the Company access to an aggregate $5 million credit line, of a private placementwhich $2 million has been received to certain accredited investorsthe date of our equity and equity linked securities and we received, through MaSTherCell, proceeds of approximately $1 million in accounts receivable from its customers.

Cash Requirements

            Our plan of operation during the next twelve months as of August 31, 2017 is to:

Continue our activities according to the work plan approved by the DGO6;
Explore options for collaboration and additional grants in the U.S.; and
Support our manufacturing activity in Europe.

            We estimate that our operating resources, expenses and debt servicing for the next twelve months as of August 31, 2017 will be as follows:this report.

25


* The amount of cash resources include the subscription proceeds we are to receive on a periodic basis through August 2018 in the aggregate net amount of $11.4 million.

Future Financing

            We will require additional funds to implement our growth strategy for our business. In addition, while we have received various grants that have enabled us to fund our clinical developments, these funds are largely restricted for use for other corporate operational and working capital purposes. We may raise the additional funds required through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available when needed or, if available, that can be obtained on commercially reasonable terms. If we will not be able to obtain the additional financing on a timely basis as required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and will be forced to scale down or perhaps even cease our operations.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’sCompany's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

            The Company maintainsWe maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in the Company’sour reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms, and that such information is accumulated and communicated to the Company’sour management, including the Company’s president and chiefour principal executive officer (who is the Company’s principal executive officer) and the Company’s chief financial officer, treasurer, and secretary (who is the Company’s principal financial officer, and principal accounting officer)as appropriate, to allow for timely decisions regarding required disclosure.disclosures.  In designing and evaluating the Company’s disclosure controls and procedures, the Company’sour management recognizes that controls and procedures are designed on a risk-based approach and, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management isnecessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.  The continuous improvementdesign of the Company’sany disclosure controls and procedures also is based on material weaknesses identification in part upon certain assumptions about the Company’s internallikelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control over financial reporting.objectives.

Management’s Report on Internal Control over Financial Reporting

            Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, ourOur management, with the participation of the Company’sour principal executive officer and principal financial officer, has conducted an assessment, including testing, usingevaluated the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluationeffectiveness of the design effectiveness of controls, testing of the operating

26


effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, the Company’s management concluded its internal control over financial reporting was not effective as of August 31, 2017. The limitation of the Company’s internal control over financial reporting was due to the applied risk-based approach which is indicative of many small companies with limited number of staff in corporate functions implying:

(i)

inadequate consistency of segregation of duties with control objectives; and

(ii)

ineffective controls over period end financial disclosure and reporting processes.

            Our management believes the weaknesses identified above have not had any material effect on our financial results. Management has taken additional steps to address the causes of the above weaknesses and to improve our internal control over financial reporting, including the re-designoperation of our accounting processes and control procedures and the identification of gaps in our skills base and the expertise of our staff as required to meet the financial reporting requirements of a public company. In particular, during the first quarter, we have retained qualified independent third-party personnel, to conduct a comprehensive review of our internal controls and formalization of our review and approval processes in order. The appointed qualified independent third party assessed the Company’s risk management framework to manage enterprise risk. During the third quarter, the appointed qualified independent third party designed a remediation plan which, among other things, prevents fraudulent transactions. The risk based approach identified by the Company reflects the awareness of an acceptable level of risk to manage the Company considering the strategy, resources and regulatory environment. This measure led to an overarching remediation plan and program brief to be followed by a detailed action plan for each major risk selected. Subsequently, it is expected to lead to an improvement in our internal controls which will enable us to expedite our month-end close process, thereby facilitating the timely preparation of financial reports and to strengthen our segregation of duties at the Company. We are also hired a full time Chief Financial Officer at MaSTherCell scheduled to begin September 2017 and a full-time controller in our Israeli subsidiary. Finally, we are exploring implementing a new initiative to ease and automate data gathering from all affiliated companies (data warehousing) and implement quantitative and qualitative controls.

            Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internaldisclosure controls and procedures over financial reporting on an ongoing basisas of the end of the period covered by this report.  Based upon that evaluation and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

            Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the riskforegoing, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the design and operation of our disclosure controls may become inadequate because of changes in conditions, or thatand procedures were effective to accomplish their objectives at the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.level.

Changes in Internal Control Over Financial Reporting

            During the three months ended August 31, 2017, there wereThere have been no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We know of no material pending legal proceedings to which the Company or its Subsidiariessubsidiaries are a party or of which any of its properties, or the properties of its Subsidiaries,subsidiaries, are the subject.  In addition, we do not know of any such proceedings contemplated by any governmental authorities.

We know of no material proceedings in which any of the Company’sCompany's directors, officers or affiliates, or any registered or beneficial stockholder is a party adverse to the Company or its Subsidiaries or has a material interest adverse to the Company or its Subsidiaries.subsidiaries.

ITEM 1A.  RISK FACTORS

An investment in the Company’sCompany's common stock involves a number of very significant risks.  You should carefully consider the risk factors included in the “Risk Factors”"Risk Factors" section of the Annual Report on Form 10-K for the year ended November 30, 2016,2018, as filed with the Securities & Exchange CommissionSEC on February 28, 2017,13, 2019, in addition to other information contained in thoseour reports and in this quarterly report in evaluating the Company and its business before purchasing shares of our common stock.  The Company’sCompany's business, operating results and financial condition could be adversely affected due to any of those risks.

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

            The following paragraph sets forth certain information with respect to all securities sold by usAs of November 30, 2018, during the period from December 1, 2018 to September 30, 2019, the Company entered into a convertible loan agreement with an offshore investor for an aggregate amount of $250 thousand.  The loan bears an annual interest rate of 2% and matures in three months ended August 31, 2017 without registrationyears unless converted earlier.  The investor, at its option, may convert the outstanding principal amount and accrued interest under the Securities Act:

            During thethis note into a total of 35,714 shares and 35,714 three months ended August 31, 2017, we privately placed 1,923,076 shares of our Common Stock and three-yearyears warrants to purchase up to an additional 1,923,07635,714 shares of the Company’s Common StockCompany's common stock at a per share exercise price of $0.52. The purchased securities were sold$7.  During the first two years, the investor also has the right to convert the outstanding principal amount and accrued interest of the convertible notes instead into shares of capital stock of either Hemogenyx-Cell S.A. or Immugenyx, LLC according under the relevant note agreement, subsidiaries of Hemogenyx Pharmaceuticals Plc, at a price per share based on a pre-money valuation of Hemogenyx-Cell S.A. or Immugenyx, LLC of $12 million and $8 million, respectively, pursuant to subscription agreements between usthe collaboration agreement with Hemogenyx Pharmaceuticals Plc and the institutional investor for aggregate proceeds to the Company of $1 million.Immugenyx, LLC.

            During the three months ended August 31, 2017,On June 10, 2019, the Company entered into definitiveprivate placement subscription agreements with accreditedinvestors for an aggregate amount of $2 million.  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) shares of common stock of the Company at a conversion price per share equal to $7.00 and other qualified investors relating(2) warrants to a private placementpurchase an equal number of (i) 665,539additional shares of the Company’s Common StockCompany's common stock at a price of $7.00 per share.  As of September 30, 2019, the Company had received $2 million in total under these subscription agreements.

In May 2019, the Company agreed to a 6% convertible loan agreement with an investor for an aggregate amount of $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 (ii) three-year(2) warrants to purchase up to an equal number of additional 665,539 shares of the Company’s Common StockCompany's common stock at a per share exercise price of $0.52$7.00 per share.  As of the date of the filing of this Quarterly Report on Form 10-Q, the loan had not been received by the Company.

The above issuances of warrants did not involve any underwriters, underwriting discounts or $0.65.any public offering.  The purchased securities were issued pursuant to subscription agreements betweenCompany relied upon the Company andexemption from the purchasers for aggregate proceeds to the Companyregistration requirements of $376 thousand.

            These securities were not registered under the Securities Act of 1933, as amended (the "Securities Act""Act"), but qualified for exemption under by virtue of Section 4(a)(2) of the Securities Act andthereof and/or Regulation SD promulgated thereunder. The securities were exempt from registration under Section 4(a)(2) of the Securities Act and Regulation S because the issuance of such securities by the Company did not involve a "public offering," as defined in Section 4(a)(2) of the Securities Act, the Investor’s representations that it is not a U.S. Person as that term is defined in Rule 902(k) of Regulation S, and that it is acquiring the securities for its own account for investment purposes and not as nominee or agent, and not with a view to the resale or distribution thereof, and that the Investor understands that the securities may not be sold or otherwise disposed of without registrationSEC under the Securities Act and any applicable state securities laws, or an applicable exemption therefrom.Act.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES


None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable.

28


ITEM 5.  OTHER INFORMATION

None.


ITEM 6.  EXHIBITS

Exhibits required by Item 601 of Regulation S-K

Exhibit
Number

No.


Description

(4)

Instruments Defining the Rights of Security Holders

4.1*

Form of Convertible Note convertible into Units,by and between the Company and Investors

4.2*

Form of Warrant included in Units, by and between the Company and Investors

(10)

Material Contracts

10.1*

Convertible Loan Agreement, dated April 10, 2019, by and between the Company and Investor

10.2*

Form of Subscription Agreement, dated May 17, 2019, by and between the Company and Investor

10.3*

Form of Subscription Agreement, dated May 30, 2019, by and between the Company and Investor

10.4*

Form of Subscription Agreement, dated June 6, 2019, by and between the Company and Investor

10.5

Transfer Agreement, dated as of August 7, 2019 by and among Masthercell Global, Orgenesis Inc. and GPP-II Masthercell, LLC (incorporated by reference to the Company's Current Report on Form 8-K, filed on August 13, 2019).

(31)

Rule 13a-14(a)/15d-14(a) Certification

31.1*

Certification Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-OxleySarbanes Oxley Act of 2002

31.2*

Certification Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-OxleySarbanes Oxley Act of 2002

(32)

Section 1350 Certification

32.1*

Certification Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-OxleySarbanes Oxley Act of 2002

32.2*

Certification Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-OxleySarbanes Oxley Act of 2002

(101)*

Interactive Data Files

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document


*

Filed herewith.



SIGNATURES

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

ORGENESIS INC.

By:

/s/ Vered Caplan

Vered Caplan

President & Chief Executive Officer

(Principal Executive Officer)

Date:  October 16, 2017

November 7, 2019

/s/ Neil Reithinger

Neil Reithinger

Chief Financial Officer, Treasurer and Secretary

(Principal Financial Officer and Principal Accounting

Officer)

Officer)

Date:  October 16, 2017

November 7, 2019