UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period Ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbols(s) | Name of each exchange on which registered | ||
The
|
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of May 10, 2023, there were shares of registrant’s common stock outstanding.
EXPLANATORY NOTE
As previously reported in the Company’s Current Report on Form 8-K filed on April 15, 2024, in connection with its completion of its year-end reporting processes for its 2023 fiscal year, the Company identified errors in accounting for (i) revenues, accounts receivable, and selling, general and administration expenses (ii) convertible loan receivable and credit losses related to such convertible loan.
On April 10, 2024, the Audit Committee of the Board of Directors of the Company, in consultation with management of the Company and the Company’s independent registered public accounting firm, Kesselman & Kesselman, Certified Public Accountants (Isr.), a member firm of PricewaterhouseCoopers International Limited, concluded that certain items of the Company’s previously issued unaudited condensed consolidated interim financial statements as of and for the fiscal periods ended March 31, 2023, June 30, 2023 and September 30, 2023 included in the Company’s Quarterly Reports on Form 10-Q for such periods should no longer be relied upon and that the Company needed to restate those previously issued financial statements.
See Note 2, under the caption “Restatement of Previously Issued Financial Statements”, to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q/A for additional information and a reconciliation of the previously reported amounts to the restated amounts.
Contemporaneously with the filing of this Form 10-Q/A, the Company is filing an amendment to its Quarterly Reports on Form 10-Q as of and for each of the periods ended June 30, 2023 and September 30, 2023.
Internal Control Considerations
In connection with the restatement, the Company’s management reassessed the effectiveness of its disclosure controls and procedures and internal control over financial reporting as of March 31, 2023. As a result of that reassessment, the Company’s management determined that its disclosure controls and procedures and internal control over financial reporting as of March 31, 2023 were not effective as a result of the inappropriate measurement of expected credit losses and revenues. For additional information about the nature of the Company’s material weaknesses which contributed to the financial statement restatement described herein, see Part I, Item 4 “Controls and Procedures”, in this Form 10-Q/A.
Items Amended in this Filing
This Form 10-Q/A sets forth the Original Filing, as amended, in its entirety; however, this Form 10-Q/A amends and restates the following Items of the Original Filing to the extent necessary to reflect the adjustments set forth in Note 1, under the caption “Restatement of Previously Issued Financial Statements” and to make corresponding revisions to the Company’s financial data cited elsewhere in this Form 10-Q/A.
● Part I, Item 1 - Financial Statements
● Part I, Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
● Part I, Item 4 - Controls and Procedures
In addition, Part II, Item 6 “Exhibits” of this Form 10-Q/A is amended, as the Company’s Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this filing (Exhibits 31.1, 31.2, 32.1 and 32.2), and the Company has provided its restated condensed consolidated financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibit 101.
Except as described above, no other changes have been made to the Original Filing. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing or modify or update any disclosures that may have been affected by subsequent events. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to the Company after the date of the Original Filing, and such forward-looking statements should be read in conjunction with the Company’s filings with the SEC, including those subsequent to the filing of the Original Filing.
ORGENESIS INC.
FORM 10-Q/A
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
TABLE OF CONTENTS
2 |
PART I –FINANCIAL INFORMATION
Item 1. Financial Statements
ORGENESIS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, in thousands, except share and per share amounts)
(Unaudited)
As of | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
(As Restated. See note 2) | ||||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Accounts receivable, net of credit losses of $ | ||||||||
Prepaid expenses and other receivables | ||||||||
Convertible loan receivable | ||||||||
Inventory | ||||||||
TOTAL CURRENT ASSETS |
| |||||||
NON-CURRENT ASSETS: | ||||||||
Deposits | $ | $ | ||||||
Investments and loans to associates | ||||||||
Property, plant and equipment, net | ||||||||
Intangible assets, net | ||||||||
Operating lease right-of-use assets | ||||||||
Goodwill | ||||||||
Deferred tax | ||||||||
Other assets | ||||||||
TOTAL NON-CURRENT ASSETS | ||||||||
TOTAL ASSETS | $ |
| $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
ORGENESIS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(U.S. Dollars, in thousands, except share and per share amounts)
(Unaudited)
As of | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
(As Restated) | ||||||||
Liabilities and Equity | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses and other payables | ||||||||
Income tax payable | ||||||||
Employees and related payables | ||||||||
Advance payments on account of grant | ||||||||
Contract liabilities | ||||||||
Current maturities of finance leases | ||||||||
Current maturities of operating leases | ||||||||
Short-term and current maturities of convertible loans | ||||||||
TOTAL CURRENT LIABILITIES | ||||||||
LONG-TERM LIABILITIES: | ||||||||
Non-current operating leases | $ | $ | ||||||
Convertible loans | ||||||||
Retirement benefits obligation | ||||||||
Long-term debt and finance leases | ||||||||
Advance payments on account of grant | ||||||||
Other long-term liabilities | ||||||||
TOTAL LONG-TERM LIABILITIES | ||||||||
TOTAL LIABILITIES | ||||||||
REDEEMABLE NON-CONTROLLING INTEREST | ||||||||
EQUITY: | ||||||||
Common stock of $ Authorized at March 31, 2023 and December 31, 2022: shares; Issued at March 31, 2023 and December 31, 2022: and shares, respectively; Outstanding at March 31, 2023 and December 31, 2022: and shares, respectively. par value: | ||||||||
Additional paid-in capital |
| |||||||
Accumulated other comprehensive income | ( | ) | ( | ) | ||||
Treasury stock, shares as of March 31, 2023 and December 31, 2022 | ( | ) | ( | ) | ||||
Accumulated deficit | ( | ) | ( | ) | ||||
Equity attributable to Orgenesis Inc. |
| |||||||
Non-controlling interest | ||||||||
TOTAL EQUITY | ||||||||
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY | $ |
| $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(U.S. Dollars in Thousands, Except Share and Loss Per Share Amounts)
(Unaudited)
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(As Restated) | ||||||||
Revenue | $ | $ | ||||||
Revenue from related party | ||||||||
Total revenues | ||||||||
Cost of revenues | ||||||||
Gross (loss) profit | ( | ) | ||||||
Cost of development services and research and development expenses | ||||||||
Amortization of intangible assets | ||||||||
Selling, general and
administrative expenses including credit losses of $ |
| |||||||
Operating loss |
| |||||||
Other income, net | ( | ) | ||||||
Loss from extinguishment in connection with convertible loan | ||||||||
Credit loss on convertible loan receivable | ||||||||
Financial expenses, net |
| |||||||
Share in net loss of associated companies | ||||||||
Loss before income taxes |
| |||||||
Tax expense | ||||||||
Net loss |
| |||||||
Net income (loss) attributable to non-controlling interests (including redeemable) | ( | ) | ||||||
Net loss attributable to Orgenesis Inc. |
| |||||||
Loss per share: | ||||||||
Basic and diluted | $ | $ | ||||||
Weighted average number of shares used in computation of Basic and Diluted loss per share: | ||||||||
Basic and diluted | ||||||||
Comprehensive loss: | ||||||||
Net loss | $ |
| $ | |||||
Other Comprehensive loss – Translation adjustment | ||||||||
Comprehensive loss |
| |||||||
Comprehensive income (loss) attributed to non-controlling interests | ( | ) | ||||||
Comprehensive loss attributed to Orgenesis Inc. | $ |
| $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars in thousands, except share amounts)
(Unaudited)
(As Restated)
Common Stock | ||||||||||||||||||||||||||||||||||||
Number | Par Value | Addi- tional Paid-in Capital | Accumulated Other Compre- hensive Income (Loss) | Treasury Shares | Accumu- lated Deficit | Equity Attri- buted to Orgenesis Inc. | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||
Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
Changes during the three months ended March 31, 2023: | ||||||||||||||||||||||||||||||||||||
Stock-based compensation to employees and directors | - | |||||||||||||||||||||||||||||||||||
Stock-based compensation to service providers | - | |||||||||||||||||||||||||||||||||||
Issuance of shares and warrants | * | |||||||||||||||||||||||||||||||||||
Issuance of Shares due to exercise of warrants | * | * | * | |||||||||||||||||||||||||||||||||
Issuance of warrants with respect to convertible loans | - | |||||||||||||||||||||||||||||||||||
Extinguishment in connection with convertible loan restructuring | - | |||||||||||||||||||||||||||||||||||
Adjustment to redemption value of redeemable non-controlling interest | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Comprehensive loss for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ |
* |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 |
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars in thousands, except share amounts)
(Unaudited)
(As Restated)
Common Stock | ||||||||||||||||||||||||||||||||||||
Number | Par Value | Addi- tional Paid-in Capital | Accumulated Other Compre- hensive Income (Loss) | Treasury Shares | Accumu- lated Deficit | Equity Attri- buted to Orgenesis Inc. | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||
Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||
Changes during the three months ended March 31, 2022: | ||||||||||||||||||||||||||||||||||||
Stock-based compensation to employees and directors | - | |||||||||||||||||||||||||||||||||||
Stock-based compensation to service providers | - | |||||||||||||||||||||||||||||||||||
Exercise of options | * | |||||||||||||||||||||||||||||||||||
Issuance of shares related to acquisition of Mida | * | |||||||||||||||||||||||||||||||||||
Comprehensive income (loss) for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ |
* |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7 |
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in thousands)
(Unaudited)
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(As Restated) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | ||||||||
Share in loss of associated entities, net | ||||||||
Depreciation and amortization expenses | ||||||||
Credit loss on Convertible Loan receivable | ||||||||
Effect of exchange differences on inter-company balances | ||||||||
Net changes in operating leases | ( | ) | ( | ) | ||||
Change in interest expenses accrued on loans and convertible loans | ( | ) | ||||||
Loss from extinguishment in connection with convertible loan restructuring | ||||||||
Changes in operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | ( | ) | ||||||
Decrease (increase) in inventory | ( | ) | ||||||
Decrease in other assets | ||||||||
Decrease (increase) in prepaid expenses and other accounts receivable | ( | ) | ||||||
Increase (decrease) in accounts payable | ( | ) | ||||||
Increase in accrued expenses and other payables | ||||||||
Increase in employee and related payables | ||||||||
Increase in contract liabilities | ||||||||
Change in advance payments and receivables on account of grant, net | ( | ) | ||||||
Increase in deferred taxes liability | ||||||||
Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Repayment of convertible loan to related party partners | ||||||||
Increase in loans to associated entities | ( | ) | ||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
Cash acquired from acquisition of Mida | ||||||||
Investment in long-term deposits | ( | ) | ( | ) | ||||
Net cash used in investing activities | $ | ( | ) | $ | ( | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of shares and warrants (in 2022 due to exercise of options) net of transaction costs | ||||||||
Proceeds from issuance of convertible loans | ||||||||
Repayment of convertible loans and convertible bonds | ( | ) | ||||||
Repayment of short and long-term debt | ( | ) | ( | ) | ||||
Net cash provided by financing activities | $ | $ | ||||||
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $ | ( | ) | $ | ( | ) | ||
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | ||||||||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | $ | ||||||
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES | ||||||||
Right-of-use assets obtained in exchange for new operation lease liabilities | ||||||||
Increase (decrease) in accounts payable
related to purchase of property, plant and equipment | $ | $ | ( | ) | ||||
Issuance of common stock for the acquisition of Mida | $ | $ | ||||||
Extinguishment in connection with convertible loan restructuring | $ | $ | ||||||
CASH PAID DURING THE YEAR FOR: | ||||||||
Interest | $ | $ |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8 |
ORGENESIS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2023 and 2022
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS
a. General
Orgenesis Inc. is a global biotech company working to unlock the potential of Cell and Gene Therapies (“CGTs”) in an affordable and accessible format. CGTs can be centered on autologous (using the patient’s own cells) or allogenic (using master banked donor cells) and are part of a class of medicines referred to as advanced therapy medicinal products, or ATMPs. The Company is mostly focused on autologous therapies that can be manufactured under processes and systems that are developed for each therapy using a closed and automated approach that is validated for compliant production near the patient for treatment of the patient at the point of care, or POCare. This approach has the potential to overcome the limitations of traditional commercial manufacturing methods that do not translate well to commercial production of advanced therapies due to their cost prohibitive nature and complex logistics to deliver such treatments to patients (ultimately limiting the number of patients that can have access to, or can afford, these therapies).
To achieve these goals, the Company has developed a collaborative worldwide network of research institutes and hospitals who are engaged in the POCare model, or the Company’s POCare Network, and a pipeline of licensed POCare advanced therapies that can be processed and produced under such closed and automated processes and systems, or POCare Therapies. The Company is developing its pipeline of advanced therapies and with the goal of entering into out-licensing agreements for them. The Company’s cellular therapies, though defined as drug products, conceptually differ from other drug modalities in that they are based on reprogramming of cells sourced from the patient or from a donor. In most cases, they are individually produced per patient in a highly sterile and controlled environment, and their efficacy is optimized when administered a short time following production as fresh product.
To advance the execution of the Company’s goal of bringing such therapies to market, the Company has designed and built the Company’s POCare Platform - a scalable infrastructure of technology and services that ensures a central quality system, replicability and standardization of infrastructure and equipment, and centralized monitoring and data management. The platform is constructed on POCare Centers that serve as hubs that implement locally the Company’s POCare quality system, Good Manufacturing Practices, training procedures, quality control testing, incoming supply of materials and oversee the actual production in the Orgenesis Mobile Processing Units & Labs, or OMPULs.
POCare Services
The Company’s subsidiary Morgenesis LLC (“Morgenesis”) is responsible for most of the Company’s POCare services platform. The POCare Services platform is utilized by parties such as biotech companies and hospitals for the supply of their products. Morgenesis services include adapting the process to the platform and supplying the products, or POCare Services. These are services for third party companies and for CGT’s that are not necessarily based on the Company’s POCare Therapies. POCare services that the Company and its affiliated entities perform include:
● | Process development of therapies, process adaptation, and optimization inside the OMPULs, or “OMPULization”; |
● | Adaptation of automation and closed systems to serviced therapies; |
● | Incorporation of the serviced therapies compliant with GMP in the OMPULs that the Company designs and built; |
● | Tech transfers and training of local teams for the serviced therapies at the POCare Centers; |
● | Processing and supply of the therapies and required supplies under GMP conditions within the Company’s POCare Network, including required quality control testing; and |
● | Contract Research Organization services for clinical trials. |
9 |
The POCare Services are performed in decentralized hubs that provide harmonized and standardized services to customers, or POCare Centers. The Company is working to expand the number and scope of the Company’s POCare Centers with the intention of providing an efficient and scalable pathway for CGT therapies to reach patients rapidly at lowered costs. Our POCare Services are designed to allow rapid capacity expansion while integrating new technologies to bring together patients, doctors and industry partners with a goal of achieving standardized, regulated clinical development and production of therapies.
POCare Services Operations via Subsidiaries
The
Company currently conducts its core business operations itself and through its subsidiary Morgenesis (of which the Company currently
owns
● | Orgenesis Maryland LLC, which is the center of POCare Services activity in North America and is currently focused on setting up and providing POCare Services and cell-processing services to the POCare Network. |
● | Tissue Genesis International LLC, a Texas company currently focused on development of the Company’s technologies and therapies. |
● | Orgenesis Services SRL, which is currently focused on expanding the Company’s POCare Network in Belgium. |
● | Orgenesis Germany GmbH, which is currently focused on providing CRO services to the POCare Network. |
● | Orgenesis
Korea Co. Ltd., which is a provider of cell-processing and pre-clinical services in Korea.
The Company owns |
● | Orgenesis Biotech Israel Ltd., which is a provider of process development and cell-processing services in Israel. |
● | Orgenesis Australia PTY LTD, which was transferred to Morgenesis in January 2023 and is currently focused on the development of the Company’s POC Network in Australia. |
● | Theracell Laboratories private company, a Greek company currently focused on expanding the Company’s POCare Network. |
● | ORGS POC CA Inc, incorporated in 2023, which is currently focussed on expanding the Company’s POCare Network in California. |
POCare Therapies
The Company’s POCare Network is an alternative to the traditional pathway of drug development. The Company collaborates with academic institutions and entities that have been spun out from such institutions. The Company is in close contact with researchers who are experts in the field of the drug and also partners with leading hospitals and research institutes. Based on such collaborations, the Company enters into in-licensing agreements with relevant institutions for promising therapies with the aim of adapting them to a point-of-care setting through regional or strategic biological partnerships. It then is able to out-license its own therapeutic developments, as well as those therapies developed from in-licensing agreements, to out-licensing partners at preferred geographical regions.
This approach lowers overall development costs through minimizing pre-clinical development costs incurred by the Company, and through receiving of the additional funding from grants and/or payments by regional partners.
The Company’s therapies development subsidiaries are:
● | Koligo Therapeutics, Inc., a Kentucky corporation, which is a regenerative medicine company, specializing in developing personalized cell therapies. It is currently focused on commercializing its metabolic pipeline via the POCare Network throughout the United States and in international markets. |
● | Orgenesis CA, Inc. a Delaware corporation, which is currently focused on development of technologies and therapies in California. |
10 |
● | Orgenesis Belgium SRL which is currently focused on product development. Since its incorporation, the subsidiary been awarded grants in excess of 18 million Euro from the Walloon region for several projects (DGO6 grants). |
● | Orgenesis Switzerland Sarl, which is currently focused on providing group management services. |
● | MIDA Biotech BV, which is currently focused on research and development activities, was granted a 4 million Euro grant under the European Innovation Council Pathfinder Challenge Program which supports cutting-edge science and technology. The grant is for technologies enabling the production of autologous induced pluripotent stem cells (iPSCs) using microfluidic technologies and artificial intelligence (AI). |
● | Orgenesis Italy SRL which is currently focused on R&D activities. |
● | Orgenesis Ltd., an Israeli subsidiary which is focused on R&D and a provider of R&D management services for out licenced products. Israel as a hub for biotech research and pioneers in this field. |
● | Orgenesis Austria GmbH which is focused on R&D. |
b. | Liquidity |
Through
March 31, 2023, the Company had an accumulated deficit of $
If there are further increases in operating costs for facilities expansion, research and development, commercial and clinical activity or decreases in revenues from customers, the Company will need to use mitigating actions such as to seek additional financing or postpone expenses that are not based on firm commitments. In addition, in order to fund the Company’s operations until such time that the Company can generate sustainable positive cash flows, the Company may need to raise additional funds.
Current and projected cash resources and commitments, as well as the other factors mentioned above, raise a substantial doubt about the Company’s ability to continue as a going concern to meet the Company’s current operations for the next 12 months. Management plans include raising additional capital to fund the Company’s operations and to repay the Company’s outstanding loans when they become due, as well as exploring additional avenues to increase revenue and reduce capital expenditures. If the Company is unable to raise sufficient additional capital or meet revenue targets, it may have to curtail certain activities.
The estimation and execution uncertainty regarding the Company’s future cash flows and management’s judgments and assumptions in estimating these cash flows is a significant estimate. Those assumptions include reasonableness of the forecasted revenue, operating expenses, and uses and sources of cash.
NOTE 2 – BASIS OF PRESENTATION
a. | Basis of presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements. In the opinion of management, the financial statements reflect all normal and recurring adjustments necessary to fairly state the financial position and results of operations of the Company. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 22, 2023. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2022, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included in this Quarterly Report on Form 10-Q.
11 |
Restatement of Previously Issued Financial Statements
Subsequent to the issuance of the condensed consolidated financial statements as of and for the quarter ended March 31, 2023 included in the Form 10-Q originally filed with the Securities and Exchange Commission (the “SEC”) on May 10, 2023 (the “Original Filing”), the Company identified a correction required to be made in its historical condensed consolidated financial statements and related disclosures as of and for the three months ended March 31, 2023. The correction relates to the accounting treatment of (i) revenues, accounts receivable, and selling, general and administration expenses (ii) convertible loan receivable and credit losses related to such convertible loan recorded during the three months ended March 31, 2023. In the Company’s Original Filing, the Company overstated revenues as a result of inappropriate accounting for revenue recognition where, due to insufficient evidence of the collectability, it was not probable that the Company will collect substantially all of the consideration to which it is entitled in exchange for the services that it transferred to the customer. Accounts receivable and convertible loan were also restated due to inappropriate accounting for estimated credit losses.
The tables below set forth the condensed consolidated financial statements, including as reported, 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 | $ | $ | ( | ) | $ | |||||||
Convertible loan receivable | ( | ) | ||||||||||
Total Current Assets | ( | ) | ||||||||||
Total Assets | ( | ) | ||||||||||
Redeemable non-controlling interest | ( | ) | ||||||||||
Additional paid-in capital | ( | ) | ||||||||||
Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
Equity attributable to Orgenesis Inc. | ( | ) | ||||||||||
Non-controlling interest | ( | ) | ||||||||||
Total Equity | ( | ) | ||||||||||
Total Liabilities, redeemable Non-Controlling Interest and Equity | ( | ) |
Three months ended March 31, 2023 | ||||||||||||
As Originally Reported | Adjustments | As Restated | ||||||||||
(In thousands) | ||||||||||||
Revenue | $ | $ | ( | ) | $ | |||||||
Total revenues | ( | ) | ||||||||||
Gross (loss) profit | ( | ) | ( | ) | ||||||||
Selling, general and administrative expenses | ||||||||||||
Operating loss | ||||||||||||
Credit loss on convertible loan receivable | ||||||||||||
Financial expenses, net | ||||||||||||
Loss before income taxes | ||||||||||||
Net loss | ||||||||||||
Net income (loss) attributable to non-controlling interests (including redeemable) | ( | ) | ( | ) | ( | ) | ||||||
Net loss attributable to Orgenesis Inc. | ||||||||||||
Loss per share: | ||||||||||||
Basic and diluted | ||||||||||||
Comprehensive loss: | ||||||||||||
Net loss | ||||||||||||
Comprehensive loss | ||||||||||||
Comprehensive income (loss) attributed to non-controlling interests | ( | ) | ( | ) | ( | ) | ||||||
Comprehensive loss attributed to Orgenesis Inc. |
Three months ended March 31, 2023 | ||||||||||||
As Originally Reported | Adjustments | As Restated | ||||||||||
(In thousands) | ||||||||||||
Cash Flow from Operating Activities: | ||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Credit loss on convertible loan receivable | ||||||||||||
Change in interest expenses accrued on loans and convertible loans | ( | ) | ( | ) | ||||||||
Decrease (increase) in accounts receivable | ( | ) |
12 |
b. | Significant accounting policies |
The accounting policies adopted are consistent with those of the previous financial year except as described below:
Use of Estimates in the Preparation of Financial Statements
The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, judgments and methodologies. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity, the amount of revenues and expenses, determination of goodwill impairment, and assessment of credit losses. Actual results could differ from those estimates.
Recently adopted accounting pronouncements
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance 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 adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08 “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior year’s financial statements to conform to the current year presentation. These reclassifications had no net effect on previously reported results of operations.
NOTE 3 – SEGMENT INFORMATION
In
connection with the investment by an affiliate of Metalmark Capital Partners (“Metalmark”) in the Company in November
2022 (“the Metalmark Investment”), the Company separated its operations into
Because the Company conducted all its operations as one segment prior to the Metalmark Investment, the above changes were reflected through retroactive revision of prior period segment information based on the subsidiaries that were transferred to Morgenesis. Certain activities of these subsidiaries have changed after they were transferred to Morgenesis operations segment.
13 |
The Company’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the two identified reportable segments to make decisions about resources to be allocated to the segments and assess their performance.
The Company does not review assets by segment. Therefore, the measure of assets has not been disclosed for each segment.
Segment data for the three months ended March 31, 2023 (As Restated) is as follows:
Morgenesis | Therapies | Eliminations | Consolidated | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues | $ | $ | $ | $ | ||||||||||||
Cost of revenues* | ( | ) | ( | ) | ( | ) | ||||||||||
Gross profit | ( | ) | ( | ) | ( | ) | ||||||||||
Cost of development services and research and development expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
Operating expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
Other income, net | ||||||||||||||||
Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||||||
Credit loss on convertible loan receivable | ( | ) | ( | ) | ||||||||||||
Loss from extinguishment in connection with convertible loan | ( | ) | ( | ) | ||||||||||||
Financial Expenses, net | ( | ) | ( | ) | ( | ) | ||||||||||
Share in net income of associated companies | ( | ) | ( | ) | ||||||||||||
Income (loss) before income taxes | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) |
* |
Segment data for the three months ended March 31, 2022 is as follows:
Morgenesis | Therapies | Eliminations | Consolidated | |||||||||||||
(in thousands) | ||||||||||||||||
Revenues | $ | $ | ( | ) | $ | |||||||||||
Revenues from related party | ||||||||||||||||
Total revenues | ( | ) | ||||||||||||||
Cost of revenues* | ( | ) | ( | ) | ( | ) | ||||||||||
Gross profit | ( | ) | ||||||||||||||
Cost of development services and research and development expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
Operating expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||||||
Financial Expenses, net | ( | ) | ( | ) | ||||||||||||
Share in net income of associated companies | ( | ) | ( | ) | ||||||||||||
Income (loss) before income taxes | $ | $ | ( | ) | $ | $ | ( | ) |
* |
NOTE 4 – EQUITY
On
February 23, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional
and accredited investors (the “Purchaser”) relating to the issuance and sale of
14 |
As
of May 10, 2023,
NOTE 5 – CONVERTIBLE LOANS
New convertible loans
On
January 10, 2023 (the “Effective Date”), the Company entered into the following agreements: (i) a convertible loan agreement
(the “NewTech Convertible Loan Agreement”) with NewTech Investment Holdings, LLC (the “NewTech Lender”), pursuant
to which the NewTech Lender loaned the Company $
The
terms of the NewTech Convertible Loan Agreement and the Malik Loan Agreement are identical. Interest is calculated at
At
any time prior to or on the Maturity Date, any Lender may provide the Company with written notice to convert all or part of the Outstanding
Amount into shares of our Common Stock equal to the quotient obtained by dividing (x) the Outstanding Amount by (y) a price equal to
$
The Convertible Loan Agreements contain customary affirmative and negative covenants, including a minimum share reserve, transactions with affiliates, and restrictions on the incurrence of additional debt. Each Lender’s obligation to fund its respective Loan Amount is subject to customary closing conditions and deliverables.
Under
the terms of the Convertible Loan Agreements, the Company will use the proceeds from the Loan Amount to (i) redeem the loan amount from
the previously disclosed Convertible Loan Agreement, dated as of May 19, 2022 between Orgenesis and Ricky Steven Neumann, as amended
by the previously disclosed certain Convertible Loan Extension Agreement, dated as of October 23, 2022, by and between Orgenesis and
Ricky Steven Neumann, and (ii) for general corporate purposes. Pursuant to the terms, the Company repaid said loan upon receipt of the
Loan Amount. The use of proceeds from any Additional Loan Amount (as defined in the Convertible Loan Agreements) will be to redeem existing
indebtedness; provided, that $
15 |
In
connection with such loan, the Company agreed to issue the NewTech Lender warrants representing the right to purchase
Koligo convertible loan
On
March 27, 2023, the Company’s subsidiary Koligo Therapeutics Inc. (“Borrower”), entered into a convertible loan agreement
(the “Convertible Loan Agreement”) with Yehuda Nir (the “Lender,” and together with the Borrower, the “Parties”),
pursuant to which the Lender agreed to loan the Borrower up to $
The
Parties agreed that the Lender shall have the option to assign $
Under
the terms of the Convertible Loan Agreement, the Borrower agreed to use the Loan Amount to fund working capital and ongoing operations
and for no other purposes unless the Lender agrees in writing. As of March 31, 2023, Koligo received $
Extension of existing loan agreements
On
January 12, 2023, the Company entered into (i) a Convertible Credit Line and Unsecured Convertible Note Extension #2 Agreement with Yosef
Dotan (the “Dotan Extension Agreement”), (ii) a Convertible Credit Line Extension Agreement with Aharon Lukach (the “Lukach
Extension Agreement”) and (iii) a Convertible Loans and Unsecured Convertible Notes Extension #2 Agreement with Yehuda Nir (the
“Nir Extension Agreement”), each which extended the maturity date of the convertible loans under their respective loan agreements
(as described below) to January 31, 2026. The aggregate principal amount of loans extended was $
The
Dotan Extension Agreement related to a Convertible Credit Line Agreement dated as of October 3, 2019, as amended, of which $
16 |
The
Lukach Extension Agreement related to a Convertible Credit Line Agreement dated as of October 3, 2019, as amended, of which $
The
Nir Extension Agreement related to
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands, except per share data) | ||||||||
Basic and diluted: | ||||||||
Net loss attributable to Orgenesis Inc. | $ | $ | ||||||
Adjustment of redeemable non-controlling interest to redemption amount | ||||||||
Net loss attributable to Orgenesis Inc. for loss per share | $ | $ | ||||||
Weighted average number of common shares outstanding | ||||||||
Net loss per share | $ | $ |
For the three months ended March 31, 2023 and March 31, 2022, all outstanding convertible notes, options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive. Diluted loss per share does not include shares underlying outstanding options and warrants and shares upon conversion of convertible loans for the three months ended March 31, 2023, because the effect of their inclusion in the computation would be antidilutive. Diluted loss per share does not include shares underlying outstanding options and warrants and shares upon conversion of convertible loans for the three months ended March 31, 2022, because the effect of their inclusion in the computation would be antidilutive.
NOTE 7 – REVENUES
Disaggregation of Revenue
The following table disaggregates the Company’s revenues by major revenue streams.
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Revenue stream: | ||||||||
POCare development services | $ | $ | ||||||
Cell process development services and hospital services | ||||||||
POCare cell processing | ||||||||
Total | $ | $ |
17 |
A breakdown of the revenues per customer constituted at least 10% of revenues is as follows:
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Revenue earned: | ||||||||
Customer A (United States) | $ | $ | ||||||
Customer B (United States) | $ | |||||||
Customer C (United States) | $ | |||||||
Customer D (Greece) | $ | $ | ||||||
Customer E (Korea) | $ | $ | ||||||
Customer F (United Arab Emirates) | $ | $ |
Contract Assets and Liabilities
Contract assets are mainly comprised of trade receivables net of allowance for credit losses, which includes amounts billed and currently due from customers.
The activity for trade receivables is comprised of:
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Balance as of beginning of period | $ | $ | ||||||
Elimination of acquisition receivables | ( | ) | ||||||
Additions | ||||||||
Collections | ( | ) | ( | ) | ||||
Allowances for credit losses | ( | ) | ||||||
Exchange rate differences | ( | ) | ( | ) | ||||
Balance as of end of period | $ | $ |
* The activity of the related party included in the trade receivables activity above is comprised of:
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Balance as of beginning of period | $ | $ | ||||||
Additions | ||||||||
Collections | ( | ) | ||||||
Balance as of end of period | $ | $ |
The activity for contract liabilities is comprised of:
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Balance as of beginning of period | $ | $ | ||||||
Additions | ||||||||
Balance as of end of period | $ | $ |
18 |
NOTE 8 – OTHER SIGNIFICANT TRANSACTIONS DURING THE PERIOD
During the three months ended March 31, 2023, the Company entered into updated joint venture (JV) agreements (JVAs) with Theracell Advanced Biotechnology SA, Broaden Bioscience and Technology Corp, Image Securities FZC, Cure Therapeutics, and Med Centre for Gene and Cell Therapy FZ-LLC and assigned certain rights and obligations under its JVAs to Texas Advanced Therapies LLC, a Delaware Limited Liability company (“Texas AT”) not related to the Company. Texas AT will receive the Company’s option to require the incorporation of the JV Entity, Company’s share in the JV Entity if and when the latter are incorporated, an option to invest additional funding in the JV Entity, and board and veto rights on certain critical decisions in the JV Entity. The Company has retained the call option to acquire the JV partner’s share in the JVE, to receive a royalty and a right to conclude the Manufacturing and Service Agreement with the JV entity. Pursuant to the JVAs, the Company will no longer be entitled to the additional share of fifteen percent of the JVE’s GAAP profit after tax granted as per the previous version of the JVAs. The Company also has no further obligation to provide any additional funding to the JV entities. As of March 31, 2023, no JV entities were incorporated as per the JVAs.
NOTE 9 – LEGAL PROCEEDINGS
On
January 18, 2022, a complaint (the “Complaint”) was filed in the Tel Aviv District Court (the “Court”) against
us and the Israeli subsidiary, Prof. Sarah Ferber, Vered Caplan and Dr. Efrat Asa Kunik (collectively, the “defendants”)
by plaintiffs the State of Israel, as the owner of Chaim Sheba Medical Center at Tel HaShomer (“Sheba”), and Tel Hashomer
Medical Research, Infrastructure and Services Ltd. (collectively, the “plaintiffs”). In the Complaint,
NOTE 10 – SUBSEQUENT EVENTS
On
May 5, 2023, the Company, Morgenesis and MM OS Holdings, L.P. (“MM”), an affiliate of Metalmark, entered into Amendment No.
1 (the “Amendment”) to the Unit Purchase Agreement dated November 4, 2022 (the “UPA”). Pursuant to the Amendment,
MM agreed to pay $
19 |
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, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023. 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. 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. 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.
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 Services SRL, a Belgian-based entity (“Orgenesis Services SRL”); Orgenesis Ltd., an Israeli corporation (the “Israeli Subsidiary”); Orgenesis Maryland LLC (formerly Orgenesis Maryland Inc.), a Maryland limited liability company (the “U.S. Subsidiary”); Orgenesis Switzerland Sarl, (the “Swiss Subsidiary”); Orgenesis Biotech Israel Ltd. (“OBI”); Koligo Therapeutics Inc., a Kentucky corporation (“Koligo”); Tissue Genesis International LLC (“Tissue Genesis”) a Texas limited liability company; Orgenesis Germany GmbH (the “German Subsidiary”); Orgenesis CA, Inc. (the “California Subsidiary”); Mida Biotech BV (the “Dutch Subsidiary”) which was purchased in 2022; Orgenesis Australia PTY LTD (the “Australian Subsidiary”); Orgenesis Italy SRL (the “Italian Subsidiary”), Theracell Laboratories Private Company (“Theracell Laboratories”), a Greek company, Orgenesis Austria GmbH, an Austrian company; ORGS POC CA Inc, a Delaware company incorporated in 2023; and Morgenesis LLC, a Delaware limited liability company (“Morgenesis”).
This Item has been revised for the effects of the restatement, as discussed in Note 2, Basis of Presentation, of the financial statements included elsewhere in this Quarterly Report on Form 10-Q/A.
20 |
Business Overview
We are a global biotech company working to unlock the potential of CGTs in an affordable and accessible format. CGTs can be centered on autologous (using the patient’s own cells) or allogenic (using master banked donor cells) and are part of a class of medicines referred to as advanced therapy medicinal products, or ATMPs. 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, or POCare. This approach has the potential to overcome the limitations of traditional commercial manufacturing methods that do not translate well to commercial production of advanced therapies due to their cost prohibitive nature and complex logistics to deliver such treatments to patients (ultimately limiting the number of patients that can have access to, or can afford, these therapies).
To achieve these goals, we have developed a collaborative worldwide network of research institutes and hospitals who are engaged in the POCare model, or our POCare Network, and a pipeline of licensed POCare advanced therapies that can be processed and produced under such closed and automated processes and systems, or POCare Therapies. We are developing our pipeline of advanced therapies and with the goal of entering into out-licensing agreements for these therapies.
In connection with the investment by an affiliate of Metalmark Capital Partners (“Metalmark”) in November 2022, we separated our operations into two operating segments namely 1) Morgenesis and 2) Therapies. Prior to that, we conducted all of our operations as one single segment. The Morgenesis operations includes mainly POCare Services and include the results of the subsidiaries transferred to Morgenesis. The Therapies segment includes our therapeutic development operations. The segment information presented in note 3 to the condensed consolidated financial statements included in this Quarterly Report reflects the results of the subsidiaries that were transferred to Morgenesis.
Morgenesis segment (mainly POCare Services)
The POCare Services that we and our affiliated entities perform include:
● | Process development of therapies, process adaptation, and optimization inside the OMPULs, or “OMPULization”; |
● | Adaptation of automation and closed systems to serviced therapies; |
● | Incorporation of the serviced therapies compliant with GMP in the OMPULs that we designed and built; |
● | Tech transfers and training of local teams for the serviced therapies at the POCare Centers; |
● | Processing and supply of the therapies and required supplies under GMP conditions within our POCare Network, including required quality control testing; and |
● | Contract Research Organization services for clinical trials. |
The POCare Services are performed in decentralized hubs that provide harmonized and standardized services to customers, or POCare Centers. We are working to expand the number and scope of our POCare Centers. We believe that this provides an efficient and scalable pathway for CGT therapies to reach patients rapidly at lowered costs. Our POCare Services are designed to allow rapid capacity expansion while integrating new technologies to bring together patients, doctors and industry partners with a goal of achieving standardized, regulated clinical development and production of therapies.
Therapies segment (POCare Therapies)
While the biotech industry struggles to determine the best way to lower cost of goods and enable CGTs to scale, the scientific community continues to advance and push the development of such therapies to new heights. Clinicians and researchers are excited by all the new tools (new generations of industrial viruses, big data analysis for genetic and molecular data) and technologies (CRISPR, mRNA, etc.) available (often at a low cost) to perform advanced research in small labs. Most new therapies arise from academic institutes or small spinouts from such institutes. Though such research efforts may manage to progress into a clinical stage, utilizing lab based or hospital-based production solutions they lack the resources to continue the development of such drugs to market approval.
21 |
Historically, drug/therapeutic development has required investments of hundreds of millions of dollars to be successful. One significant cause for the high cost is that each therapy often requires unique production facilities and technologies that must be subcontracted or built. Further the cost of production during the clinical stage is extremely expensive, and the cost of the clinical trial itself is very high. Given these financial restraints, researchers and institutes hope to out- license their therapeutic products to large biotech companies or spin-out new companies and raise large fundraising rounds. However, in many cases they lack the resources and the capability to de-risk their therapeutic candidates enough to be attractive for such fundings or partnership.
Our POCare Network is an alternative to the traditional pathway of drug development. Orgenesis works closely with many such institutes and is in close contact with researchers in the field. The partnerships with leading hospitals and research institutes gives us a deep insight as to the developments in the field, as well as the market potential, the regulatory landscape and optimal clinical pathway to get these products to market.
The ability to produce these products at low cost, allows for an expedited development process and the partnership with hospitals around the globe enables joint grants and lower cost of clinical development. The POCare Therapies division reviews many therapies available for out licensing and select the ones which they believe have the highest market potential, can benefit the most from a point of care approach and have the highest chance of clinical success. It assesses such issues by utilizing its global POCare Network and its internal knowhow accumulated over a decade of involvement in the field.
The goal of this in-licensing is to quickly adapt such therapies to a point-of- care approach through regional partnerships, and to out-license the products for market approval in preferred geographical regions. This approach lowers overall development cost, through minimizing pre-clinical development costs incurred by us, and through receiving of the additional funding from grants and/or payments by regional partners.
Significant developments during the quarter ended March 31, 2023
On January 10, 2023 (“Effective date”), we entered into convertible loan agreements (the “CLAs”) with lenders pursuant to which we received convertible loans totaling $5 million. Interest on the CLAs is calculated at 8% per annum (based on a 365-day year); provided, that if an Event of Default (as defined in the Convertible Loan Agreements) has occurred and is continuing, the Outstanding Amount (as defined herein) will be calculated at 15.0% per annum. The Loan Amount and all accrued but unpaid interest thereon (collectively, the “Outstanding Amount”) shall either (i) be repaid in cash or (ii) convert to shares of our common stock, par value $0.0001 per share (“Common Stock”), on the third anniversary of the Effective Date (the “Maturity Date”). At any time prior to or on the Maturity Date, Lender may provide us with written notice to convert all or part of the Outstanding Amount into shares of our Common Stock equal to the quotient obtained by dividing (x) the Outstanding Amount by (y) a price equal to $2.464 per share (subject to adjustment for certain capital events, such as stock splits) (the “Conversion Price”).
Under the terms of the CLAs, we may use the proceeds from the Loan Amount to (i) redeem the loan amount from the previously disclosed Convertible Loan Agreement, dated as of May 19, 2022 between Orgenesis and Ricky Steven Neumann, as amended by the previously disclosed certain Convertible Loan Extension Agreement, dated as of October 23, 2022, by and between Orgenesis and Ricky Steven Neumann, and (ii) for general corporate purposes. Pursuant to the terms, we repaid said loan upon receipt of the Loan Amount. In connection with the CLAs, we agreed to issue Lender warrants representing the right to purchase 507,305 shares of our Common Stock, at an exercise price of $2.50 per share.
On February 23, 2023, we entered into a securities purchase agreement with certain institutional and accredited investors relating to the issuance and sale of 1,947,368 shares of common stock, par value $0.0001 per share and warrants to purchase up to 973,684 shares of Common Stock at a purchase price of $1.90 per share of Common Stock and accompanying Warrants in a registered direct offering. The offering closed on February 27, 2023 and the Company received approximately $3.7 million, before deducting the placement agent’s cash fee equal to 7% of the proceeds. The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes, including the Company’s therapy related activities. The offering was made pursuant to an effective registration statement on Form S-3 (Registration Statement No. 333-254806), as previously filed with and declared effective by the Securities and Exchange Commission (the “SEC”) on April 7, 2021, a base prospectus included as part of the registration statement, and a final prospectus supplement filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended.
22 |
On March 27, 2023, our subsidiary Koligo Therapeutics Inc. (“Borrower”), entered into a convertible loan agreement (the “Convertible Loan Agreement”) with Yehuda Nir (the “Lender,”), pursuant to which the Lender agreed to loan the Borrower up to $5,000,000 (the “Loan Amount”). Interest is calculated at 8% per annum (based on a 365-day year) and is payable, along with the principal, on or before January 1, 2024.
If prior to December 31, 2023, the Borrower issues equity securities (“Equity Securities”) in a transaction or series of related transactions resulting in aggregate gross proceeds to the Borrower of at least $5,000,000 (excluding conversion of the Loan Amount) (a “Qualified Financing”), then the outstanding principal amount of the Loan Amount, and any and all accrued but unpaid interest thereon, will automatically convert into such Equity Securities issued pursuant to the Qualified Financing at a price per share equal to fifty percent (50%) of the price per share paid for each share of the Equity Securities purchased for cash by the investors in the Qualified Financing.
As of March 31, 2023, we borrowed $485 thousand of the Convertible Loan Agreement.
During the three months ended March 31, 2023, we entered into updated joint venture (JV) agreements (the “JVAs”) with Theracell Advanced Biotechnology SA, Broaden Bioscience and Technology Corp, Image Securities FZC, Cure Therapeutics, and Med Centre for Gene and Cell Therapy FZ-LLC and assigned certain rights and obligations under its JVAs to Texas Advanced Therapies LLC, a Delaware Limited Liability company (“Texas AT”) not related to us. Texas AT will receive our option to require the incorporation of the JV Entity, our share in the JV Entity if and when the latter are incorporated, an option to invest additional funding in the JV Entity, and board and veto rights on certain critical decisions in the JV Entity. We have retained the call option to acquire the JV partner’s share in the JVE, to receive a royalty and a right to conclude the Manufacturing and Service Agreement with the JV entity. We have no further obligation to provide any additional funding to the JV entities. As of March 31, 2023, no JV entities were incorporated as per the JVAs.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 to the Three Months Ended March 31, 2022
The following table presents our results of operations for the three months ended March 31, 2023 and 2022:
Three Months Ended | ||||||||
March 31, (As Restated) | March 31, 2022 | |||||||
(in thousands) | ||||||||
Revenues | $ | 142 | $ | 6,577 | ||||
Revenues from related party | - | 635 | ||||||
Total revenues | 142 | 7,212 | ||||||
Cost of revenues | 2,722 | 714 | ||||||
Gross profit | (2,580 | ) | 6,498 | |||||
Cost of development services and research and development expenses | 3,281 | 6,651 | ||||||
Amortization of intangible assets | 207 | 232 | ||||||
Selling, general and administrative expenses included credit losses of $9,489 for the three months ended March 31, 2023 | 13,528 | 2,851 | ||||||
Operating loss | 19,596 | 3,236 | ||||||
Other income, net | (2 | ) | - | |||||
Loss from extinguishment in connection with convertible loan | 283 | - | ||||||
Credit loss on Convertible loan receivable | 2,688 | - | ||||||
Financial expenses, net | 681 | 213 | ||||||
Share in net loss of associated entities | 2 | 547 | ||||||
Loss before income taxes | 23,248 | 3,996 | ||||||
Tax expense | 129 | 1 | ||||||
Net loss | $ | 23,377 | $ | 3,997 |
23 |
Revenues
Revenues for the three months ended March 31, 2023 were $142 thousand, as compared to $7,212 thousand for the three months ended March 31, 2022, representing a decrease of 98%.
During the 3 months ended March 31, 2023 we entered into new agreements with certain customers. We completed certain performance obligations under the agreements but did not recognize any revenue because revenue recognition conditions under ASC606 were not all met.
Expenses
Cost of revenues
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Salaries and related expenses | $ | 1,113 | $ | 329 | ||||
Stock-based compensation | 2 | 13 | ||||||
Professional fees and consulting services | 807 | 22 | ||||||
Raw materials | 228 | 30 | ||||||
Depreciation expenses, net | 236 | 75 | ||||||
Other expenses | 336 | 245 | ||||||
Total | $ | 2,722 | $ | 714 |
Cost of revenues for the three months ended March 31, 2023 were $2,722 thousand, as compared to $714 thousand for the three months ended March 31, 2022, representing an increase of 281%. The increase was due to increased costs including additional salaries, professional fees, raw materials and depreciation expenses incurred as a result of increased process development and cell processing revenues.
Cost of development services and research and development expenses
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Salaries and related expenses | $ | 1,628 | $ | 2,849 | ||||
Stock-based compensation | 84 | 159 | ||||||
Professional fees and consulting services | 796 | 1,726 | ||||||
Lab expenses | 176 | 582 | ||||||
Depreciation expenses, net | 124 | 158 | ||||||
Other research and development expenses | 554 | 1,177 | ||||||
Less – grant | (81 | ) | - | |||||
Total | $ | 3,281 | $ | 6,651 |
Cost of development services and research and development for the three months ended March 31, 2023 were $3,281 thousand, as compared to $6,651 thousand for the three months ended March 31, 2022, representing a decrease of 51%.
24 |
The decrease is mainly attributable to a reduction in salaries and related expenses, professional fees and lab expenses in the Morgenesis segment as a result of a reduction in research and development spending, and to a reduction of professional fees and Other research and development expenses in the Therapies segment.
Selling, General and Administrative Expenses
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Salaries and related expenses | $ | 1,173 | $ | 900 | ||||
Stock-based compensation | 73 | 94 | ||||||
Accounting and legal fees | 1,550 | 910 | ||||||
Professional fees | 361 | 260 | ||||||
Rent and related expenses | 66 | 54 | ||||||
Business development | 210 | 121 | ||||||
Depreciation expenses, net | 11 | 9 | ||||||
Other general and administrative expenses including credit losses of $9,489 as of March 31, 2023 ($0 as of March 31, 2022) | 10,084 | 503 | ||||||
Total | $ | 13,528 | $ | 2,851 |
Selling, general and administrative expenses for the three months ended March 31, 2023 were $13,528 thousand, as compared to $2,851 thousand for the three months ended March 31, 2022, representing an increase of 375%. The increase was mainly attributable to increased salaries and related expenses and professional fees in the Morgenesis segment as this segment expands its operations, a provision for credit loss in the Morgenesis segment of $9,489, and an increase in accounting and legal fees incurred as a result of the fundraising activities that occurred in the three months ended March 31, 2023.
Credit Loss on Convertible loan receivable
Three Months Ended | ||||||||
March 31, 2023 (As Restated) | March 31, 2022 | |||||||
(in thousands) | ||||||||
Credit loss on convertible loan receivable | $ | 2,688 | $ | - |
The credit loss for the three months ended March 31, 2023 was $2,688 compared to $0 for the three months ended March 31, 2022. This was attributable to a provision created for a credit loss on a loan.
Financial Expenses, net
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Interest expense on convertible loans and loans | $ | 532 | $ | 125 | ||||
Foreign exchange loss, net | 148 | 82 | ||||||
Other expense | 1 | 6 | ||||||
Total | $ | 681 | $ | 213 |
Financial expenses, net for the three months ended March 31, 2023 were $681 thousand, as compared to $213 thousand for the three months ended March 31, 2022, representing an increase of 220%. The increase was mainly attributable to increased interest rates incurred on convertible loans, and more convertible loan financing raised.
Working Capital
As of | ||||||||
March 31, 2023 | December 31, 2022 | |||||||
(in thousands) | ||||||||
Current assets | $ | 30,334 | $ | 46,318 | ||||
Current liabilities | 13,938 | 15,910 | ||||||
Working capital | $ | 16,396 | $ | 30,408 |
25 |
Current assets decreased by $15,984 thousand between December 31, 2022 and March 31, 2023. The decrease was mainly attributable to a decrease in accounts receivable of $14,835 thousand as a result of reduced revenues and credit losses, a decrease in convertible loan receivables of $2,688 as a result of a credit loss on a convertible loan, an increase of $4,169 in prepaid expenses mainly as a result of prepayments on development contracts, and a decline in cash and cash equivalents of $2,637 thousand.
Current liabilities decreased by $1,972 thousand between December 31, 2022 and March 31, 2023. The decrease was mainly attributable to a decrease in short term and current maturities of convertible loans in the amount of $2,190. We repaid a convertible loan in the three months ended March 31, 2023 and also agreed with certain loan holders to extend the maturity period to January 2026 (see Note 5).
Liquidity and Financial Condition
Three Months Ended | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
(in thousands) | ||||||||
Net loss | $ | (23,377 | ) | $ | (3,997 | ) | ||
Net cash used in operating activities | (7,240 | ) | (2,792 | ) | ||||
Net cash used in investing activities | (1,307 | ) | (1,613 | ) | ||||
Net cash provided by financing activities | 5,910 | 1 | ||||||
Decrease in cash and cash equivalents | $ | (2,637 | ) | $ | (4,404 | ) |
During the quarter ended March 31, 2023, we funded our operations from operations as well as from proceeds raised from equity and debt offerings.
Net cash used in operating activities for the three months ended March 31, 2023 was approximately $7,240 thousand, as compared to net cash used in operating activities of approximately $2,792 thousand for the three months ended March 31, 2022. The decline was mainly as a result of:
● | a loss of $23,377 thousand for the three months ended March 31, 2023 compared to a loss of $3,997 thousand for the three months ended March 31, 2022; |
● | an increase of $421 thousand in interest expenses accrued on convertible loans as a result of increased interest rates and new loan agreements entered into; |
● | an increase in prepaid expenses of $2,523 thousand as explained above; and |
● | a reduction in our share of losses in associated entities in the amount of $545 thousand. In December 2022 we gained control of Theracell Laboratories which was previously accounted for as an associated company. |
Net cash used in investing activities for the three months ended March 31, 2023 was approximately $1,307 thousand, as compared to net cash used in investing activities of approximately $1,613 thousand for the three months ended March 31, 2022. The change was mainly as a result of a decline in loans granted to associated companies in the amount of $1,549 thousand and additional purchases of property, plants and equipment of $383 thousand used in our POCare facilities.
Net cash provided by financing activities for the three months ended March 31, 2023 was approximately $5,910 thousand, as compared to net cash provided by financing activities of approximately $1 thousand for the three months ended March 31, 2022. The increase was mainly attributable to:
● | proceeds raised from equity investments in the amount of $3,441 thousand (see Note 4). | |
● | proceeds raised from loans in the amount of $5,485 thousand (see Note 5). | |
● | Repayment of convertible loan in the amount of $3,000 thousand (see Note 5). |
26 |
Liquidity & Capital Resources Outlook
Our activities have been funded by generating revenue, proceeds from convertible loan agreements, and through offerings of our securities. There is no assurance that our business will generate sustainable positive cash flows to fund our operations.
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. As of the date of this report, we assessed our financial condition and concluded that based on our current and projected cash resources and commitments, as well as other factors mentioned above, there is 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. There can be no assurance that we will be able to raise additional capital on acceptable terms, or at all.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We 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 our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood 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 objectives.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based upon that evaluation and subject to the foregoing, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Quarterly Report, the design and operation of our disclosure controls and procedures were not effective due to the material weakness in our internal control over financial reporting described below. Such material weakness contributed to the restatement of our financial statements as described in this Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the three months ended March 31, 2023, Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the three and six months ended June 30, 2023 and in Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the three and nine months ended September 30, 2023. As restated, our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q/A were prepared in accordance with U.S. GAAP, and our management has concluded that such restated consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S. GAAP.
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 in the three months ended March 31, 2023. 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 in the three months ended March 31, 2023, which resulted in the restatement of the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2023 which was effected through the Company’s filing of this Amendment.
This material weakness contributed to material misstatements in our consolidated financial statements for the period presented, which have been corrected and restated herein. Accordingly, management has concluded that this control deficiency constitutes a material weakness.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
27 |
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is available in Note 9 to the condensed consolidated financial statements in this Report.
Except as described above, we are not involved in any pending material legal proceedings.
ITEM 1A. RISK FACTORS
An investment in the Company’s Common Stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 22, 2023, in addition to other information contained in our reports and in this quarterly report in evaluating the Company and its business before purchasing shares of our Common Stock. There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2022. The Company’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
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
Item 5. Other Information
None.
28 |
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K
29 |
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: | April 15, 2024 | |
/s/ Victor Miller | ||
Victor Miller |
||
Chief Financial Officer, Treasurer and Secretary | ||
(Principal Financial Officer and Principal Accounting Officer) | ||
Date: | April 15, 2024 |
30 |