UNITED
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.
On April 10, 2024, Orgenesis Inc. (the “Company”), in consultation with the Audit Committee of the Company’s Board of Directors (the “Audit Committee”), reached a determination that the Company’s unaudited condensed consolidated financial statements and related disclosures for the three months ended March 31, 2023, as reported in the Company’s Quarterly Report on Form 10-Q filed on May 10, 2023 (the “Original First Quarter 2023 Form 10-Q”), the three and six months ended June 30, 2023, as reported in the Company’s Quarterly Report on Form 10-Q filed on August 11, 2023 (the “Original Second Quarter 2023 Form 10-Q”), and the three and nine months ended September 30, 2023, as reported in the Company’s Quarterly Report on Form 10-Q filed on November 11, 2023 (the “Original Third Quarter 2023 Form 10-Q”), should be restated and no longer be relied upon due to errors in accounting for (i) revenues, equity investees, goodwill, loss on and selling, general and administration expenses (ii) convertible loan receivable and credit losses expenses related to such convertible loan recorded during such quarters.
The Company has determined that it is appropriate to correct such errors in the Company’s previously issued unaudited condensed consolidated financial statements by amending its Original First Quarter 2023 Form 10-Q (as amended, the “Amended First Quarter 2023 Form 10-Q”), its Second Quarter 2023 Form 10-Q (as amended, the “Amended Second Quarter 2023 Form 10-Q”) and its Original Third Quarter 2023 Form 10-Q (as amended, the “Amended Third Quarter 2023 Form 10-Q”). Any previously furnished or filed reports, related earnings releases, investor presentations or similar communications of the Company describing the unaudited condensed consolidated financial statements and related financial results in the Company’s Original First Quarter 2023 Form 10-Q, the Original Second Quarter 2023 Form 10-Q and Original Third Quarter 2023 Form 10-Q should no longer be relied upon. Such errors did not impact any previously filed audited financial statements. The Audit Committee and management also discussed this conclusion with the Company’s independent registered public accounting firm, Kesselman & Kesselman, Certified Public Accountants (Isr.), a member firm of PricewaterhouseCoopers International Limited.
In the Company’s Original Filings, the Company overstated revenues, equity investees, and goodwill, and understated share in loss of associated companies and selling, general and administration expenses as a result of inappropriate accounting for revenue recognition and estimated credit losses, and overstated a convertible loan as a result of inappropriate accounting for estimated credit losses.
The Company will restate the unaudited condensed consolidated financial statements identified above. The Company expects to file the Amended First Quarter 2023 Form 10-Q, the Amended Second Quarter 2023 Form 10-Q and the Amended Third Quarter 2023 Form 10-Q to include the restated unaudited condensed consolidated financial statements with the U.S. Securities and Exchange Commission as soon as practicable.
Restatement of Financial Statements Included in the Original First Quarter 2023 Form 10-Q
As a result of the items noted above, the tables below set forth the impacts resulting from the restatement and the as restated amounts for the quarterly period ended March 31, 2023 (in thousands, except per share amounts):
| March 31, 2023 | ||||||||||||
| As Originally Reported | Adjustments | As Restated | ||||||||||
| (In thousands) | ||||||||||||
| Accounts receivable, net | $ | 37,739 | $ | (16,391 | ) | $ | 21,348 | |||||
| Convertible loan receivable | 2,725 | (2,725 | ) | - | ||||||||
| Total Current Assets | 49,450 | (19,116 | ) | 30,334 | ||||||||
| Total Assets | 93,267 | (19,116 | ) | 74,151 | ||||||||
| Redeemable non-controlling interest | 30,305 | (102 | ) | 30,203 | ||||||||
| Additional paid-in capital | 154,691 | (3,671 | ) | 151,020 | ||||||||
| Accumulated deficit | (125,450 | ) | (15,281 | ) | (140,731 | ) | ||||||
| Equity attributable to Orgenesis Inc. | 27,667 | (18,952 | ) | 8,715 | ||||||||
| Non-controlling interest | 1,336 | (62 | ) | 1,274 | ||||||||
| Total Equity | 29,003 | (19,014 | ) | 9,989 | ||||||||
| Total Liabilities, redeemable Non-Controlling Interest and Equity | 93,267 | (19,116 | ) | 74,151 | ||||||||
| Three months ended March 31, 2023 | ||||||||||||
| As Originally Reported | Adjustments | As Restated | ||||||||||
| (In thousands) | ||||||||||||
| Revenue | $ | 7,044 | $ | (6,902 | ) | $ | 142 | |||||
| Total revenues | 7,044 | (6,902 | ) | 142 | ||||||||
| Gross (loss) profit | 4,322 | (6,902 | ) | (2,580 | ) | |||||||
| Selling, general and administrative expenses | 4,039 | 9,489 | 13,528 | |||||||||
| Operating loss | 3,205 | 16,391 | 19,596 | |||||||||
| Credit loss on convertible loan receivable | - | 2,688 | 2,688 | |||||||||
| Financial expenses, net | 644 | 37 | 681 | |||||||||
| Loss before income taxes | 4,132 | 19,116 | 23,248 | |||||||||
| Net loss | 4,261 | 19,116 | 23,377 | |||||||||
| Net income (loss) attributable to non-controlling interests (including redeemable) | (72 | ) | (3,835 | ) | (3,907 | ) | ||||||
| Net loss attributable to Orgenesis Inc. | 4,189 | 15,281 | 19,470 | |||||||||
| Loss per share: | ||||||||||||
| Basic and diluted | 0.16 | 0.71 | 0.87 | |||||||||
| Comprehensive loss: | ||||||||||||
| Net loss | 4,261 | 19,116 | 23,377 | |||||||||
| Comprehensive loss | 4,302 | 19,116 | 23,418 | |||||||||
| Comprehensive income (loss) attributed to non-controlling interests | (72 | ) | (3,835 | ) | (3,907 | ) | ||||||
| Comprehensive loss attributed to Orgenesis Inc. | 4,230 | 15,281 | 19,511 | |||||||||
Restatement of Financial Statements Included in the Original Second Quarter 2023 Form 10-Q
As a result of the items noted above, the tables below set forth the impacts resulting from the restatement and the as restated amounts for the quarterly period ended June 30, 2023 (in thousands, except per share amounts):
| June 30, 2023 | ||||||||||||
| As Originally Reported | Adjustments | As Restated | ||||||||||
| (In thousands) | ||||||||||||
| Convertible loan receivable | $ | 2,762 | $ | (2,762 | ) | $ | - | |||||
| Total Current Assets | 9,295 | (2,762 | ) | 6,533 | ||||||||
| Equity investees | 31,484 | (31,443 | ) | 41 | ||||||||
| Goodwill | 3,703 | (2,492 | ) | 1,211 | ||||||||
| Total non-current assets | 45,472 | (33,935 | ) | 11,537 | ||||||||
| Total Assets | 54,767 | (36,697 | ) | 18,070 | ||||||||
| Accumulated deficit | (129,577 | ) | (36,697 | ) | (166,274 | ) | ||||||
| Equity attributable to Orgenesis Inc. | 23,965 | (36,697 | ) | (12,732 | ) | |||||||
| Total Equity | 23,965 | (36,697 | ) | (12,732 | ) | |||||||
| Total Liabilities, redeemable Non-Controlling Interest and Equity | 54,767 | (36,697 | ) | 18,070 | ||||||||
| Six months ended June 30, 2023 | ||||||||||||
| As Originally Reported | Adjustments | As Restated | ||||||||||
| (In thousands) | ||||||||||||
| Revenue | $ | 14,019 | $ | (13,764 | ) | $ | 255 | |||||
| Total revenues | 14,019 | (13,764 | ) | 255 | ||||||||
| Gross (loss) profit | 8,065 | (13,764 | ) | (5,699 | ) | |||||||
| Selling, general and administrative expenses | 7,376 | 24,368 | 31,744 | |||||||||
| Operating loss | 6,534 | 38,132 | 44,666 | |||||||||
| Loss (profit) from deconsolidation of Octomera | (411 | ) | 5,754 | 5,343 | ||||||||
| Credit losses on convertible loan receivable | - | 2,688 | 2,688 | |||||||||
| Financial expenses, net | 1,299 | 74 | 1,373 | |||||||||
| Loss before income taxes | 7,702 | 46,648 | 54,350 | |||||||||
| Net loss | 7,922 | 46,648 | 54,570 | |||||||||
| Net income (loss) attributable to non-controlling interests (including redeemable) | 394 | (9,951 | ) | (9,557 | ) | |||||||
| Net loss attributable to Orgenesis Inc. | 7,984 | 36,697 | 45,013 | |||||||||
| Loss per share: | ||||||||||||
| Basic and diluted | 0.30 | 1.33 | 1.63 | |||||||||
| Comprehensive loss: | ||||||||||||
| Net loss | 7,922 | 46,648 | 54,570 | |||||||||
| Comprehensive loss | 7,590 | 46,648 | 54,238 | |||||||||
| Comprehensive income (loss) attributed to non-controlling interests | 394 | (9,951 | ) | (9,557 | ) | |||||||
| Comprehensive loss attributed to Orgenesis Inc. | 7,984 | 36,697 | 44,681 | |||||||||
Restatement of Financial Statements included in the Original Third Quarter 2023 Form 10-Q
As a result of the items noted above, the tables below set forth the impacts resulting from the restatement and the as restated amounts for the quarterly period ended September 30, 2023 (in thousands, except per share amounts):
| September 30, 2023 | ||||||||||||
| As Originally Reported | Adjustments | As Restated | ||||||||||
| (In thousands) | ||||||||||||
| Convertible loan receivable | $ | 2,799 | $ | (2,799 | ) | $ | - | |||||
| Total Current Assets | 8,776 | (2,799 | ) | 5,977 | ||||||||
| Equity investees | 22,509 | (22,478 | ) | 31 | ||||||||
| Goodwill | 3,703 | (2,492 | ) | 1,211 | ||||||||
| Total non-current assets | 36,523 | (24,970 | ) | 11,553 | ||||||||
| Total Assets | 45,299 | (27,769 | ) | 17,530 | ||||||||
| Accumulated deficit | (142,230 | ) | (27,769 | ) | (169,999 | ) | ||||||
| Equity attributable to Orgenesis Inc. | 12,397 | (27,769 | ) | (15,372 | ) | |||||||
| Total Equity | 12,397 | (27,769 | ) | (15,372 | ) | |||||||
| Total Liabilities, redeemable Non-Controlling Interest and Equity | 45,299 | (27,769 | ) | 17,530 | ||||||||
| Nine months ended September 30, 2023 | ||||||||||||
| As Originally Reported | Adjustments | As Restated | ||||||||||
| (In thousands) | ||||||||||||
| Revenue | $ | 14,129 | $ | (13,764 | ) | $ | 365 | |||||
| Total revenues | 14,129 | (13,764 | ) | 365 | ||||||||
| Gross (loss) profit | 8,036 | (13,764 | ) | (5,728 | ) | |||||||
| Selling, general and administrative expenses | 8,621 | 24,368 | 32,989 | |||||||||
| Share in net loss of associated companies | 9,517 | (8,965 | ) | 552 | ||||||||
| Credit loss on convertible loan receivable | - | 29,167 | 47,453 | |||||||||
| Operating loss | 18,286 | 2,688 | 2,688 | |||||||||
| Loss (profit) from deconsolidation of Octomera | (411 | ) | 5,754 | 5,343 | ||||||||
| Financial expenses, net | 1,807 | 111 | 1,918 | |||||||||
| Loss before income taxes | 19,961 | 37,720 | 57,681 | |||||||||
| Net loss | 20,575 | 37,720 | 58,295 | |||||||||
| Net income (loss) attributable to non-controlling interests (including redeemable) | 394 | (9,951 | ) | (9,557 | ) | |||||||
| Net loss attributable to Orgenesis Inc. | 20,969 | 27,769 | 48,738 | |||||||||
| Loss per share: | ||||||||||||
| Basic and diluted | 0.75 | 0.95 | 1.70 | |||||||||
| Comprehensive loss: | ||||||||||||
| Net loss | 20,575 | 37,720 | 58,295 | |||||||||
| Comprehensive loss | 20,234 | 37,720 | 57,954 | |||||||||
| Comprehensive income (loss) attributed to non-controlling interests | 394 | (9,951 | ) | (9,557 | ) | |||||||
| Comprehensive loss attributed to Orgenesis Inc. | 20,628 | 27,769 | 48,397 | |||||||||
Management has determined that the Company had the following material weakness in its internal control over financial reporting:
We did not perform appropriate credit loss analyses related to our internal control over financial reporting in the accounting for whether we will collect substantially all the consideration as it relates to revenues as well as our estimated credit losses. As a result, we identified a deficiency in the operating effectiveness of our internal control over financial reporting related to our accounting for revenues and credit losses, which resulted in the restatement of the Company’s unaudited condensed consolidated financial statements noted above.
Forward-Looking Statements
This Current Report on Form 8-K includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. The Company’s actual results may differ from their expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. Words such as “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” and similar expressions (or the negative versions of such words or expressions) are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, the Company’s expectations with respect to financial reporting and performance, as well as potential financial impacts of corrections of the Company’s financial reporting and performance.
These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from those discussed in the forward-looking statements. Factors that may cause such differences include, but are not limited to: (1) the inability to maintain the listing of the Company’s shares of common stock on Nasdaq; (2) the Company’s ability to comply with the terms of its indebtedness and other obligations; (3) changes in financing markets or the inability of the Company to obtain financing on attractive terms; and (4) other risks and uncertainties indicated from time to time in the Company’s annual report on Form 10-K, including those under “Risk Factors” therein, and in the Company’s other filings with the Securities and Exchange Commission. The Company cautions that the foregoing list of factors is not exclusive, and readers should not place undue reliance upon any forward-looking statements, which speak only as of the date which they were made. The Company does not undertake any obligation to update or revise any forward-looking statements to reflect any change in its expectations or any change in events, conditions, or circumstances on which any such statement is based.
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 hereunto duly authorized.
| ORGENESIS INC. |
| Date: April 15, 2024 | By: | /s/ Victor Miller |
| Victor Miller | ||
| Chief Financial Officer, Treasurer and | ||
| Secretary |