Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
The
following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly
Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities
and Exchange Commission (the “SEC”) on March 30, 2022. Certain statements made in this discussion are “forward-looking
statements” within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are based upon beliefs of, and information currently available
to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned
not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When
used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,”
“future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,”
“will,” “would,” “could,” “should,” “continue” or the negative of these terms
and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other
factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations
and the effects that the COVID-19 outbreak, any of its variants, or similar pandemics, could have on our business and our POCare Platform.
Other factors that may cause actual results to differ materially from current expectations include, among other things, those listed
under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Should one or more of these risks
or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended, or planned. Given these uncertainties, you should not place undue reliance on these
forward-looking statements.
The
full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition
will depend on future developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and
the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers
and markets. We have made estimates of the impact of COVID-19 within our financial statements, and although there is currently no major
impact, there may be changes to those estimates in future periods. Actual results may differ from these estimates.
Although
the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the
United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments
and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments
and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of
the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial
statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion
should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
Unless
otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,”
“our Company” or “Orgenesis” refer to Orgenesis Inc., a Nevada corporation, and our majority or wholly-owned
subsidiaries, Orgenesis Korea Co. Ltd. (the “Korean Subsidiary”); Orgenesis Belgium SRL. a Belgian-based entity (the “Belgian
Subsidiary”); Orgenesis Ltd., an Israeli corporation (the “Israeli Subsidiary”); Orgenesis Maryland LLC. (formerly
Orgenesis Maryland INC), a Maryland corporation (the “U.S. Subsidiary”); Orgenesis Switzerland Sarl, (the “Swiss Subsidiary”);
Orgenesis Biotech Israel Ltd. (“OBI”); Koligo Therapeutics Inc. (“Koligo”); Orgenesis Germany GmbH, a German
entity; Orgenesis Australia PTY LTD (the “Australian subsidiary”) incorporated in 2022; Tissue Genesis International LLC
(“Tissue Genesis”), formed in Texas in 2022; Orgenesis Italy SRL (the “Italian subsidiary”), incorporated in
2022; Orgenesis Services SRI, a Belgian entity incorporated in 2022); and Morgenesis LLC (“Morgenesis”) incorporated in 2022.
Business
Overview
We
are a global biotech company working to unlock the potential of cell and gene therapies (“CGTs”) in an affordable and accessible
format.
CGTs
can be centered on autologous (using the patient’s own cells) or allogenic (using master banked donor cells) and are part of a
class of medicines referred to as advanced therapy medicinal products (“ATMPs”). We are mostly focused on autologous therapies
that can be manufactured under processes and systems that are developed for each therapy using a closed and automated approach that is
validated for compliant production near the patient for treatment of the patient at the point of care (“POCare”). This approach
has the potential to overcome the limitations of traditional commercial manufacturing methods that do not translate well to commercial
production of advanced therapies due to their cost prohibitive nature and complex logistics to deliver such treatments to patients (ultimately
limiting the number of patients that can have access to, or can afford, these therapies).
To
achieve these goals, we have developed a collaborative worldwide network of research institutes and hospitals who are engaged in the
POCare model (“POCare Network”) and a pipeline of licensed POCare advanced therapies that can be processed and produced under
such closed and automated processes and systems (“POCare Therapies). Furthermore, in order to advance the execution of our goal
of bringing our POCare Therapies through our POCare Network, we have designed and built a scalable infrastructure of technology framework
and services that ensures a central quality system, replicability of infrastructure and equipment, centralized monitoring and data management
and that can be replicated by affiliated entities (“POCare Services”), thereby enabling us focus on our core business of
developing and licensing new therapies.
The
POCare Services that our affiliated entities perform would include:
|
● |
Process
development of therapies that are intended for use of the POCare Network; |
|
|
|
|
● |
Adaptation
of automation and closed systems to our therapies; |
|
|
|
|
● |
Incorporation
of the processing systems and the Good Manufacturing Practices (“GMP”) in the Orgenesis Mobile Processing Units and Labs
(“OMPULs”) that we designed and built; |
|
|
|
|
● |
Tech
transfers and training of local teams; |
|
|
|
|
● |
Processing
and supply of the therapies and required supplies under GMP conditions within our POCare Network, including required quality control
testing; and |
|
|
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|
● |
Contract
Research Organization (“CRO”) services for clinical trials. |
The
POCare Services are performed in decentralized hubs that provide harmonized services to customers and partners (“POCare Centers”).
We are working to support such POCare Centers to provide a more efficient and scalable pathway for our POCare Therapies to reach patients
more rapidly at lowered costs. The workflow of such POCare Services is designed to allow rapid capacities expansion while integrating
new technologies to bring together patients, doctors and industry partners with a goal of achieving harmonized, regulated clinical development
and production of our POCare Therapies.
Our
cell and gene therapies pipeline includes investigational therapies and technologies that have the potential to transform the way cancer
and other unmet clinical needs are treated. Our pipeline is predominantly comprised of personalized autologous cell therapies, implying
that patients receive cells that originate from their own body, virtually eliminating the risk of an immune response and rejection. Our
pipeline focuses on advanced therapy medicinal products originated from internal proprietary, joint ventures and in-licensing agreements
with biotech companies and research institutes. Our main therapeutic fields encompass cell-based immuno-oncology, cell-based drug delivery
platforms, regenerative medicine, anti-viral and autoimmune disease.Our therapies in development include: BioxomeTM:
a novel exosome-like delivery platform; Mesenchymal Stem Cells (MSCs) for urinary incontinence; AutoVac, an autologous, pan-antigenic
vaccine platform; and Induced Pluripotent Stem Cells (iPSCs), a cell source with potential of producing novel ATMPs.
Operations
via Subsidiaries
We
historically have conducted our business operations through ourself and our subsidiaries which were all wholly-owned, except as otherwise
stated (collectively, the “Subsidiaries”). The Subsidiaries were as follows:
|
● |
Orgenesis
Maryland LLC. (Previously Orgenesis Maryland Inc.) (the “U.S. Subsidiary”) is the center of POCare Services activity
in North America and is currently focused on setting up and providing POCare Services and cell-processing services to the POCare
Network. |
|
|
|
|
● |
Orgenesis
Germany GmbH (the “German subsidiary”), is currently focused on providing CRO services to the POCare Network. |
|
|
|
|
● |
Orgenesis
Korea Co. Ltd. (the “Korean Subsidiary”), is a provider of cell-processing and pre-clinical services in Korea. The Company
owns 94.12% of the Korean Subsidiary. |
|
|
|
|
● |
Orgenesis
Biotech Israel Ltd. (“OBI”) is a provider of process development and cell-processing services in Israel. |
|
|
|
|
● |
Tissue
Genesis International LLC (“Tissue Genesis”), formed in Texas in 2022, is currently focussed on development of the Company’s
technologies and therapies. |
|
|
|
|
● |
Orgenesis
Services SRL, incorporated in 2022, is currently focused on expanding our POCare network in Belgium. |
|
|
|
|
● |
Koligo
Therapeutics, Inc. (“Koligo”), a Kentucky corporation, is a leading regenerative medicine company, specializing in developing
personalized cell therapies. It is currently focused on commercialising its metabolic pipeline via the POCare network throughout
the United States and in international markets. |
|
|
|
|
● |
Orgenesis
CA, Inc. (the “California subsidiary”), a Delaware corporation, is currently focussed on development of the Company’s
technologies and therapies in California. |
|
|
|
|
● |
Orgenesis
Belgium SRL (the “Belgian Subsidiary”) is currently focused on process development and the preparation of European clinical
trials. |
|
|
|
|
● |
Orgenesis
Switzerland Sarl (the “Swiss Subsidiary”) is currently focused on providing group management services. |
|
|
|
|
● |
Orgenesis
Ltd. in Israel (the “Israeli Subsidiary”) is a provider of regulatory, clinical and pre-clinical services in Israel. |
|
|
|
|
● |
Mida
Biotech BV (the “Dutch Subsidiary”) purchased in 2022 (see note 7) is currently focused on research and development activities. |
|
|
|
|
● |
Orgenesis
Australia PTY LTD (the “Australian Subsidiary”), incorporated in 2022, is currently focused on the development of the
Company’s technologies and therapies. |
|
|
|
|
● |
Orgenesis
Italy SRL (the “Italian Subsidiary”), incorporated in 2022, is currently focused on expanding process development activities. |
Formation
of Morgenesis LLC
On
August 15, 2022, we formed a wholly-owned subsidiary Morgenesis LLC (“Morgenesis”) to hold substantially all the assets of
our POCare Services business, which includes the ownership of Orgenesis Maryland LLC, Orgenesis Germany GmbH, Orgenesis Korea Co. Ltd.,
Orgenesis Biotech Israel Ltd., Tissue Genesis International LLC and Orgenesis Services SRL. We formed Morgenesis in conjunction with
a strategic growth investment from Metalmark Capital Partners (“Metalmark”), a private equity firm with extensive expertise
in the healthcare sector, to streamline all existing POCare Service business units into one unified entity, bringing together a full-service
range of solutions for our POCare Therapies and other therapeutic developers for point of care treatments. The newly formalized service
offering is expected to provide solutions from initial process development, regulatory strategy and implementation, “OMPULization”
(full cGMP process development, including closing/automating the process for point of care treatments), full cGMP processing and supply
of therapeutic product to patients at the point of care, to clinical trial design and management.
Metalmarket
Investment in Morgenesis LLC
On
November 4, 2022, we, Morgenesis and MM OS Holdings, L.P. (“MM”), an affiliate of Metalmark
Capital Partners (“Metalmark Capital”), entered into a series of definitive agreements intended to finance, strengthen
and expand our POCare Services business.
On
November 4, 2022, we entered into a Unit Purchase Agreement with Morgenesis and MM (the “UPA”), pursuant to which MM agreed
to purchase 3,019,651 Class A Preferred Units of Morgenesis (the “Class A Units”), which shall represent 22.31% of the outstanding
equity interests of Morgenesis following the initial closing, for a purchase price of $30,196,510, comprised of (i) $20,000,000 of cash
consideration and (ii) the conversion of $10,196,510 of MM’s then-outstanding senior secured convertible loans previously entered
into with MM pursuant to that certain Senior Secured Convertible Loan Agreement, dated as of August 15, 2022, between MM, Morgenesis
and us. The investment will be made at a pre-money valuation of $125,000,000, subject to customary adjustments for debt and accounts
receivable and an adjustment related to a certain intercompany loan, and is expected to close on or about November 11, 2022. Following
the initial closing, we will hold 77.69% of the issued and outstanding equity interests of Morgenesis.
If
(a) Morgenesis and its subsidiaries generate Net Revenue (as defined in the UPA) equal to or greater than $30,000,000 during the twelve
month period ending December 31, 2022 (the “First Milestone”) and/or equal to or greater than $50,000,000 during the twelve
month period ending December 31 2023 (the “Second Milestone”), and (b) our shareholders approve the LLC Agreement Terms (as
defined below under “Principal Terms of the LLC Agreement”) on the earlier of (x) the date that is seven (7) months following
the initial closing date and (y) the date of our 2023 annual meeting of its shareholders (such stockholder approval hereafter being the
“Orgenesis Stockholder Approval” and such Orgenesis Stockholder Approval deadline hereafter being the “Stockholder
Approval Deadline”), in accordance with applicable law and in a manner that will ensure that MM is able to exercise its rights
under the LLC Agreement (as defined below) without any further action or approval by MM, then MM will pay up to $10,000,000 in cash in
exchange for 1,000,000 additional Class A Units if the First Milestone is achieved and $10,000,000 in cash in exchange for 1,000,000
Class B Units Preferred Units of Morgenesis (the “Class B Units”) if the Second Milestone is achieved. Notwithstanding the
foregoing, if the First Milestone is not achieved, but Morgenesis and its subsidiaries generate Net Revenue equal or greater to $13,000,000
for the three months ending March 31, 2023, then MM shall make the first $10,000,000 future investment for 1,000,000 Class A Units described
above. In the event that we fail to obtain Orgenesis Stockholder Approval by the Stockholder Approval Deadline, we will not be entitled
to receive (but MM may, in its sole discretion, elect to make) the first $10,000,000 future investment or the second future $10,000,000
investment.
At
any time until the consummation of a Company IPO or Change of Control (in each case, as defined in the LLC Agreement), MM may, in its
sole discretion, elect to invest up to an additional $60,000,000 in Morgenesis (any such investment, an “Optional Investment”)
in exchange for certain Class C Preferred Units of Morgenesis (the “Class C Units” and, together with the Class A Units and
the Class B Units, the “Preferred Units”). $10,000,000 of such Optional Investment shall be to purchase Class C-1 Preferred
Units based on an enterprise value of $125,000,000, with such enterprise value adjusted by any net debt as of such time; $25,000,000
of Optional Investment shall be to purchase Class C-2 Preferred Units based on an enterprise value of $156,250,000, with such enterprise
value adjusted by any net debt as of such time; and $25,000,000 of Optional Investment shall be to purchase Class C-3 Preferred Units
based on an enterprise value of $250,000,000, with such enterprise value adjusted by any net debt as of such time.
The
proceeds of the investment will generally be used to fund the activities of Morgenesis and its consolidated subsidiaries. In addition,
if, during the twelve month period ending on December 31, 2023, Morgenesis and its subsidiaries generate (i) Net Revenue (as defined
in the UPA) equal to or greater than $70,000,000, (ii) Gross Profit (as defined in the UPA) equal to or greater than $35,000,000 and
(iii) EBITDA (as defined in the UPA) equal to or greater than $10,000,000, then MM shall make (or cause to be made) a one-time cash payment
of $10,000,000 to us upon such payment becoming final and binding pursuant to the UPA (the “Earnout Payment”).
In
connection with the entry into the UPA, each of us, Morgenesis and MM entered into the Second Amended and Restated Limited Liability
Company Agreement (the “LLC Agreement”) providing for certain restrictions on the disposition of Morgenesis securities, the
provisions of certain options and rights with respect to the management and operations of Morgenesis, a right for MM to exchange any
units of Morgenesis for shares of our common stock and certain other rights and obligations. In addition, MM has been granted certain
protective rights in Morgenesis, which are generally summarized in our Form 8-K filed on November 7, 2022.
In
connection with the entry into the UPA, each of us and Morgenesis and MM entered into a services agreement (the “Services Agreement”)
under which we will provide certain operational services to Morgenesis for an initial term of three years. Also, in connection with the
entry into the UPA, each of Morgenesis and Metalmark Management II LLC, an affiliate with Metalmark Capital (“MM Management”),
entered into an advisory services and monitoring agreement (the “Monitoring Agreement”) under which MM Management will provide
certain analytical and financial and business monitoring services to Morgenesis. Under the Monitoring Agreement, MM Management will be
paid a quarterly cash fee equal to 0.25% of the total amount invested by MM in Morgenesis as of the date of any payment and will be entitled
to the reimbursement of certain expenses.
Impact
of the COVID-19 Pandemic
The
COVID-19 pandemic continues to present substantial public health and economic challenges around the world, and to date has led to the
implementation of various responses, including government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business
closures and other public health safety measures.
We
continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue
to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and preemptive
actions as may be required by federal, state or local authorities. In addition, we have taken steps to minimize the current environment’s
impact on our business and strategy, including devising contingency plans and securing additional resources from third party service
providers. For the safety of our employees and families, we have introduced enhanced safety measures in our facilities.
Beyond
the impact on our product development efforts, the extent to which COVID-19 ultimately impacts our business, results of operations and
financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as
the duration of the outbreak, the emergence of new variants, new information that may emerge concerning the severity of COVID-19 or the
effectiveness of actions taken to contain COVID-19 or treat its impact, including vaccination campaigns, among others. If we or any of
the third parties with whom we engage, however, were to experience any additional shutdowns or other prolonged business disruptions,
our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected,
which could have a material adverse impact on our business, financial condition and results of operations. Although to date, our business
has not been materially impacted by COVID-19, it is possible that our clinical development timelines could be negatively affected by
COVID-19, which could materially and adversely affect our business, financial condition and results of operations. See “Risk Factors”
section of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022, for additional
discussion of the potential adverse impact of the COVID-19 pandemic on our business, financial condition and results of operations.
Developments
during the nine months ended September 30, 2022
License
and Research Agreement with Yeda Research and Development Company Limited
On
January 25, 2022, we and Yeda Research and Development Company Limited (“Yeda”), an Israeli corporation, entered into a license
and research agreement. Pursuant to the agreement, Yeda granted us an exclusive, worldwide license to its licensed information and the
licensed patents, for the development, manufacture, use, offer for sale, sale and import of products in the Field a field of tumor-infiltrating
lymphocytes (TIL) and Chimeric antigen receptor (CAR) T cell immunotherapy platforms (excluding CAR-Cytokine Induced Killer cell immunotherapy).
Purchase
of Mida Biotech BV
On
February 22, 2022, we, pursuant to the joint venture agreement between ourselves and Mida Biotech BV “Mida”), purchased all
the issued shares in Mida for consideration of $100 thousand. In lieu of cash, the consideration was paid via the issuance of shares
of our Common Stock to Mida’s shareholders.
Securities
Purchase Agreement
On
March 30, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors, pursuant
to which we agreed to issue and sell to the investors, in a private placement, an aggregate of 4,933,333 shares of our Common Stock at
a purchase price of $3.00 per share and warrants to purchase up to an aggregate of 1,000,000 shares of Common Stock at an exercise price
of $4.50 per share. The warrants are not exercisable until after six months and expire three years from the date of issuance. We received
gross proceeds of only $2,175,000 before deducting related offering expenses through the final closing on June 30, 2022. We do not expect
to receive the remaining $12,625,000 from the defaulting investors. We have issued an aggregate of 724,999 shares of Common Stock and
warrants to purchase 146,959 shares of Common Stock pursuant to the Purchase Agreement.
Convertible
Loan Agreements
During
April and May 2022, we entered into three convertible loan agreements (the “Convertible Loan Agreements”) with three non-U.S.
investors (the “Lenders”), pursuant to which the Lenders agreed to loan us an aggregate of $13 million (the “Loan Amount”).
Interest is calculated at 6% per annum (based on a 365-day year) and is payable, along with the principal, during or before the third
quarter of 2023. At any time prior to or on the maturity date, the Lenders may provide us with written notice to convert all or part
of the loans into shares of our Common Stock at a conversion price equal to $4.50 per share (subject to adjustment for certain capital
events, such as stock splits) (the “Conversion Price”).
In
connection with such loans, we agreed to issue the Lenders warrants representing the right to purchase an aggregate of 722,223 shares
of our common stock (which is 25% of the shares of our Common Stock into which the loans are initially convertible at the Conversion
Price), at an exercise price per share of $4.50 per share. Such warrants will be exercisable at any time beginning six months and one
day after the closing date and ending 36 months after such closing date.
We
have not yet received $3.85 million under one of the convertible loan agreements, and do not expect to receive any further loan proceeds
from such defaulting Lender. Accordingly, 313,888 associated warrants will not be issued.
On
October 23, 2022, we entered into a Convertible Loan Extension Agreement with one of the Lenders, which amended a Convertible Loan Agreement
for $5,000,000 principal Loan Amount as follows: (i) the interest rate increased from 6% to 10% per annum as of April 21, 2022 on the
unconverted and then outstanding loan amount; (ii) the maturity date was extended to January 20, 2024; (iii) we agreed to issue a warrant
to the Lender for the right to purchase 1,111,111 shares of Common Stock, at an exercise price per share of $2.50 per share, which is
exercisable at any time beginning April 23, 2023 and ending October 23, 2025; and (iv) the Conversion Price was amended to a price per
share of $2.50 per share instead of $4.50 per share.
In
addition, on October 23, 2022, we entered into a Convertible Loan Extension Agreement with one of the Lenders, which amended a Convertible
Loan Agreement for $3,000,000 principal Loan Amount as follows: (i) the interest rate increased from 6% to 10% per annum as of May 19,
2022 on the unconverted and then outstanding loan amount; (ii) the maturity date was extended to February 19, 2024; (iii) we agreed to
issue a warrant to the Lender for the right to purchase 666,666 shares of Common Stock, at an exercise price per share of $2.50 per share,
which is exercisable at any time beginning April 23, 2023 and ending October 23, 2025; (iv) the prepayment terms were amended to allow
the outstanding Loan Amount to be prepaid by the Company at the Lender’s option following any financings by us, and in the event
that any of our subsidiaries raises financing, we will make reasonable commercial efforts to ensure the funds are received in order to
repay the loan amount; and (v) the Conversion Price was amended to a price per share of $2.50 per share instead of $4.50 per share.
Senior
Secured Convertible Loan Agreement
On
August 15, 2022, Morgenesis entered into a senior secured convertible loan agreement (the “Agreement”) with MM OS Holdings,
L.P., an affiliate with Metalmark Capital Partners (the “Lender”), pursuant to which the Lender agreed to loan Morgenesis
$10,000,000 (the “Loan”) at an interest rate of 8.0% paid-in-kind interest per annum (the “PIK Interest”), which
shall be capitalized, compounded and added to the unpaid outstanding principal balance of the Loan on the applicable quarterly interest
payment date and which, along with the principal (the “Principal Amount,” and, together with the PIK Interest (but excluding
any portion of the Loan that has been converted into equity as described below), the “Outstanding Amount”), is scheduled
to mature on March 29, 2023 (the “Maturity Date”). If not previously converted, the Outstanding Amount shall be repaid in
cash on the Maturity Date. The Loan is secured by a blanket lien on substantially all of the assets of Morgenesis and its domestic subsidiaries,
as well as certain assets of Orgenesis (in each case, subject to customary exceptions), and is guaranteed by Orgenesis and all current
and future domestic subsidiaries of Morgenesis. The Loan was converted into Class A Units of Morgenesis on November [11], 2023 as further
described above under the heading “Metalmarket Investment in Morgenesis LLC.”
Results
of Operations
Comparison
of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021.
The
following table presents our results of operations for the three months ended September 30, 2022 and 2021:
| |
Three-Months
Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
Revenues | |
$ | 7,841 | | |
$ | 7,606 | |
Revenues from related
party | |
| 147 | | |
| 1,070 | |
Total revenues | |
| 7,988 | | |
| 8,676 | |
Cost
of revenues, development services and research and development | |
| 4,666 | | |
| 10,007 | |
Amortization of intangible assets | |
| 225 | | |
| 236 | |
Selling, general and
administrative expenses | |
| 3,104 | | |
| 6,092 | |
Operating loss | |
| 7 | | |
| 7,659 | |
Other income (expense), net | |
| 2 | | |
| (3 | ) |
Loss from extinguishment in connection with
convertible loan | |
| - | | |
| 1,865 | |
Financial expenses, net | |
| 1,100 | | |
| 545 | |
Share in net loss of
associated company | |
| 274 | | |
| 18 | |
Loss before income taxes | |
| 1,383 | | |
| 10,084 | |
Tax expense | |
| 25 | | |
| 67 | |
Net loss | |
$ | 1,408 | | |
$ | 10,151 | |
Revenues
During
the three months ended September 30, 2022, we recognized revenue in the amount of $7,988 thousand, as compared to $8,676 thousand during
the three months ended September 30, 2021, representing a decrease of 8%. The decrease was attributable mainly to a decline in POC development
services as a result of our having completed the majority of performance obligations under the POC development services contracts in
2021. During 2022, we started recognizing revenue from cell processing and recognized $2,432 thousand in the three months ended September
30, 2022.
Expenses
Cost
of revenues, development services and research and development
| |
Three-Months
Ended | |
| |
September 30,
2022 | | |
September 30,
2021
| |
| |
(in
thousands) | |
Salaries and related expenses | |
$ | 2,763 | | |
$ | 2,984 | |
Stock-based compensation | |
| 118 | | |
| 141 | |
Subcontracting, professional and consulting
services | |
| 601 | | |
| 3,321 | |
Lab expenses | |
| 338 | | |
| 599 | |
Depreciation expenses, net | |
| 248 | | |
| 220 | |
Other research and development expenses | |
| 618 | | |
| 2,742 | |
Less – grant | |
| (20 | ) | |
| - | |
Total | |
$ | 4,666 | | |
$ | 10,007 | |
Cost
of revenues, development services and research and development for the three months ended September 30, 2022 were $4,666 thousand, as
compared to $10,007 thousand for the three months ended September 30, 2021, representing a decrease of 53%. The changes contributing
to the decrease during the quarter were mainly attributable to:
●
a decrease of $2,720 thousand in subcontracting, professional and consulting service fees. We invested heavily in subcontracting, professional
and consulting service fees in previous years and we reduced such expenditure this year; and
●
a decrease of $2,124 thousand in other research and development expenses. We invested heavily in other research and development fees
in previous years, and we reduced such expenditure in 2022.
Selling,
General and Administrative Expenses
| |
Three-Months
Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
Salaries and related expenses | |
$ | 764 | | |
$ | 4,056 | |
Stock-based compensation | |
| 76 | | |
| 151 | |
Accounting and legal fees | |
| 1,436 | | |
| 660 | |
Professional fees | |
| 146 | | |
| 319 | |
Rent and related expenses | |
| 60 | | |
| 85 | |
Business development | |
| 114 | | |
| 226 | |
Depreciation expenses, net | |
| 15 | | |
| 10 | |
Other general and administrative
expenses | |
| 493 | | |
| 585 | |
Total | |
$ | 3,104 | | |
$ | 6,092 | |
Selling,
general and administrative expenses for the three months ended September 30, 2022 were $3,104 thousand, as compared to $6,092 thousand
for the three months ended September 30, 2021, representing a decrease of 49%. The decrease in selling, general and administrative expenses
in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 is primarily attributable to a decrease
in salaries and related expenses which was offset by an increase in accounting and legal fees. In the three months ended September 30,
2021 we paid a discretionary bonus to our Chief Executive Officer, and we did not incur such an expense this year. Accounting and legal
fees increased in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 as a result of accounting
and legal expenses incurred as a result of our 2022 financing activities.
Financial
Expenses, net
| |
Three-Months
Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
Interest expense on convertible
loans and loans | |
$ | 589 | | |
$ | 254 | |
Foreign exchange loss, net | |
| 512 | | |
| 291 | |
Other expenses (income) | |
| (1 | ) | |
| - | |
Total | |
$ | 1,100 | | |
$ | 545 | |
Financial
expenses, net for the three months ended September 30, 2022 were $1,100 thousand, as compared to $545 thousand for the three months ended
September 30, 2021, representing an increase of 102%. The increase was mainly attributable to an increase of $335 of interest on convertible
loans as a result of additional loans raised in 2022 and loans extensions.
Comparison
of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021.
The
following table presents our results of operations for the nine months ended September 30, 2022 and 2021:
| |
Nine
Months Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
Revenues | |
$ | 21,117 | | |
$ | 25,656 | |
Revenues from related
party | |
| 1,284 | | |
| 2,954 | |
Total revenue | |
| 22,401 | | |
| 28,610 | |
Cost of revenues, development services and
research and development | |
| 20,932 | | |
| 25,861 | |
Amortization of intangible assets | |
| 686 | | |
| 713 | |
Selling, general and
administrative expenses | |
| 8,758 | | |
| 11,961 | |
Operating loss | |
| 7,975 | | |
| 9,925 | |
Other income, net | |
| (6 | ) | |
| (31 | ) |
Loss from extinguishment in connection with
convertible loan | |
| - | | |
| 1,865 | |
Financial expenses, net | |
| 1,702 | | |
| 1,184 | |
Share in net loss of
associated company | |
| 1,189 | | |
| 33 | |
Loss before income taxes | |
| 10,860 | | |
| 12,976 | |
Tax (income) expense | |
| 37 | | |
| 65 | |
Net loss | |
$ | 10,897 | | |
$ | 13,041 | |
Revenues
Our
revenues for the nine months ended September 30, 2022 were $22,401 thousand, as compared to $28,610 thousand for the nine months ended
September 30, 2021, representing a decrease of 22%. The decrease in revenues for the nine months ended September 30, 2022 was attributable
mainly to a decline in POC development services of $11,997 thousand as a result of our having completed the majority of performance obligations
under the POC development services contracts in 2021. During the nine months ended September 30, 2022 we recognized revenues of $2,848
thousand under POC cell processing services.
Expenses
Cost
of revenues, development services and research and development
| |
Nine
Months Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
Salaries and related expenses | |
$ | 9,003 | | |
$ | 7,751 | |
Stock-based compensation | |
| 441 | | |
| 449 | |
Subcontracting, professional and consulting
services | |
| 4,027 | | |
| 9,354 | |
Lab expenses | |
| 1,657 | | |
| 2,056 | |
Depreciation expenses, net | |
| 741 | | |
| 639 | |
Other research and development expenses | |
| 5,083 | | |
| 5,612 | |
Less – grant | |
| (20 | ) | |
| - | |
Total | |
$ | 20,932 | | |
$ | 25,861 | |
Cost
of revenues, development services and research and development for the nine months ended September 30, 2022 were $20,932 thousand, as
compared to $25,861 thousand for the nine months ended September 30, 2021, representing a decrease of 19%. The decrease was mainly attributable
to:
●
a decrease of $5,327 thousand and $399 in subcontracting, professional and consulting service fees, and Lab expenses respectively. We
invested heavily in these items in previous years, and we reduced such expenditure this year; and
●
a decrease of $529 thousand on other research and development expenses as a result of reduced expenditure this year.
●
an increase of $1,252 thousand in salaries and related expenses mainly attributable to an increase in salaries and related expenses following
the scale-up for increased production;
Selling,
General and Administrative Expenses
| |
Nine
Months Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
Salaries and related expenses | |
$ | 2,589 | | |
$ | 5,479 | |
Stock-based compensation | |
| 251 | | |
| 733 | |
Accounting and legal fees | |
| 3,355 | | |
| 2,361 | |
Professional fees | |
| 650 | | |
| 1,156 | |
Rent and related expenses | |
| 170 | | |
| 168 | |
Business development | |
| 365 | | |
| 532 | |
Depreciation expenses, net | |
| 36 | | |
| 32 | |
Other general and administrative
expenses | |
| 1,342 | | |
| 1,500 | |
Total | |
$ | 8,758 | | |
$ | 11,961 | |
Selling,
general and administrative expenses for the nine months ended September 30, 2022 were $8,758 thousand, as compared to $11,961 thousand
for the nine months ended September 30, 2021, representing a decrease of 27%.
The
decrease in selling, general and administrative expenses in the nine months ended September 30, 2022 compared to the nine months ended
September 30, 2021 is primarily attributable to a decrease in salaries and related expenses and professional fees, which was offset by
an increase in accounting and legal fees. In the nine months ended September 30, 2021 we paid a discretionary bonus to our Chief Executive
Officer, and we did not incur such an expense this year. Accounting and legal fees increased in the nine months ended September 30, 2022
compared to the nine months ended September 30, 2021 as a result of accounting and legal expenses incurred as a result of our 2022 financing
activities.
Financial
Expenses, net
| |
Nine
Months Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
Interest expense on convertible
loans and loans | |
$ | 953 | | |
$ | 778 | |
Foreign exchange loss, net | |
| 743 | | |
| 485 | |
Other expenses (income) | |
| 6 | | |
| (79 | ) |
Total | |
$ | 1,702 | | |
$ | 1,184 | |
Financial
expenses, net for the nine months ended September 30, 2022 were $1,702 thousand, as compared to $1,184 thousand for the nine months
ended September 30, 2021, representing an increase of 44%. The increase was mainly attributable to an increase of $175 thousand of
interest on convertible loans as a result of additional loans raised in 2022 and an increase of $258 thousand related to foreign
exchange losses.
Working
Capital
| |
As
of | |
| |
September 30,
2022 | | |
December
31, 2021 | |
| |
(in
thousands) | |
Current assets | |
$ | 31,856 | | |
$ | 25,758 | |
Current liabilities | |
| 34,168 | | |
| 15,365 | |
Working
capital (deficiency) | |
$ | (2,312 | ) | |
$ | 10,393 | |
Current
assets increased by $6,098 thousand between December 31, 2021 and September 30, 2022 due mainly to an increase in accounts receivable of $8,499
thousand offset by a decline in cash and cash equivalents
and prepaid expenses of $2,458 and $289 thousand respectively.
Current
liabilities increased by $18,803 thousand between December 31, 2021 and September 30, 2022 primarily as a result of an increase in accrued
expenses of $2,820 thousand and new loans taken in 2022 in the amount of $19,150 thousand less payment of loans in the amount of $2,300
thousand.
Liquidity
and Financial Condition
| |
Nine
Months Ended | |
| |
September 30,
2022 | | |
September 30,
2021 | |
| |
(in
thousands) | |
| |
| | |
| |
Net loss | |
$ | (10,897 | ) | |
$ | (13,041 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (14,163 | ) | |
| (24,402 | ) |
Net cash used in investing activities | |
| (7,458 | ) | |
| (6,644 | ) |
Net cash provided by
financing activities | |
| 20,095 | | |
| 989 | |
Decrease in cash and
cash equivalents | |
$ | (1,526 | ) | |
$ | (30,057 | ) |
During
the nine months period ended September 30, 2022, we funded our operations from existing funds, and equity and loan financings.
Net
cash used in operating activities for the nine months ended September 30, 2022 was approximately $14.2 million, as compared to net cash
used in operating activities of approximately $24.4 million for the nine months ended September 30, 2021. The decline was mainly as a
result of a loss of $10.9 million for the nine months ended September 30, 2022 compared to a loss of $13.0 million for the nine months
ended September 30, 2021, offset by an increase in accounts receivable of $8.5 million for the nine months ended September 30, 2022 compared
to an increase of $12.9 million for the nine months ended September 30, 2021, and a decrease in accounts payable of $0.7 million for
the nine months ended September 30, 2022 compared to an decrease of $1.9 million for the nine months ended September 30, 2021.
Net
cash used in investing activities for the nine months ended September 30, 2022 was approximately $7.5 million, as compared to net cash
used in investing activities of approximately $6.6 million for the nine months ended September 30, 2021. The change was mainly due to
loans granted to associated entities and increased investments in OMPULs.
Net
cash provided by financing activities for the nine months ended September 30, 2022 was approximately $20.1 million, as compared to net
cash provided by financing activities of approximately $1.0 million for the nine months ended September 30, 2021. The increase was as
a result of additional equity and debt financing raised, grants received, less debt repayments.
Liquidity
& Capital Resources Outlook
Our
activities have been funded by generating revenue, through offerings of our securities, and through convertible loan agreements. There
is no assurance that our business will generate sustainable positive cash flows to fund our operations and to repay our outstanding convertible
loans when they become due. The proceeds of the Metalmark investment will generally be used to fund the activities of Morgenesis and
its consolidated subsidiaries. We will need to raise additional capital in order to fund our other operations and to repay our outstanding
convertible loans when they become due .
If
there are further increases in operating costs for facilities expansion, research and development, commercial and clinical activity or
decreases in revenues from customers, we will need to use mitigating actions such as to seek additional financing, refinance or amend
the terms of existing convertible loans or postpone expenses that are not based on firm commitments. In addition, in order to fund our
operations until such time that we can generate sustainable positive cash flows, we will need to raise additional funds. Current and
projected cash resources and commitments, as well as other factors mentioned above, raise a substantial doubt about our ability to continue
as a going concern. We are planning to raise additional capital to continue our operations and to repay our outstanding loans when they
become due, as well as to explore additional avenues to increase revenues and reduce expenditures.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
is material to stockholders.