UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(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 ☐No
As of August 8, 2024, there were shares of registrant’s common stock outstanding.
ORGENESIS INC.
FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
TABLE OF CONTENTS
| 2 |
PART I –FINANCIAL INFORMATION
Item 1. Financial Statements
ORGENESIS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands)
(Unaudited)
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of credit losses
of $ | ||||||||
| Prepaid expenses and other receivables | ||||||||
| Receivable from related parties | ||||||||
| Inventory | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Deposits | $ | $ | ||||||
| Investments to associates | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| 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 | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Liabilities net of (Capital Deficiency) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable related Parties | ||||||||
| Advance payments from Germfree (See note 11a) | ||||||||
| Accrued expenses and other payables | ||||||||
| Income tax payable | ||||||||
| Employees and related payables | ||||||||
| Other payable related parties | ||||||||
| Advance payments on account of grant | ||||||||
| Short-term loans | ||||||||
| 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 | $ | $ | ||||||
| Loans payable | ||||||||
| Convertible loans | ||||||||
| Retirement benefits obligation | ||||||||
| Finance leases | ||||||||
| Contingent consideration (see note 4) | ||||||||
| Other long-term liabilities | ||||||||
| TOTAL LONG-TERM LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| CAPITAL DEFICIENCY: | ||||||||
| Common stock of $ par value: Authorized at June 30, 2024 and December 31, 2023: shares; Issued at June 30, 2024 and December 31, 2023: and shares, respectively; Outstanding at June 30, 2024 and December 31, 2023: and shares, respectively | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Treasury stock shares as of June 30, 2024 and December 31, 2023 | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Equity attributable to Orgenesis Inc. | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ||||||
| TOTAL CAPITAL DEFICIENCY | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND CAPITAL DEFICIENCY | $ | $ | ||||||
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 | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cost of development services and research and development expenses | ||||||||||||||||
| Amortization of intangible assets | ||||||||||||||||
| Change in Contingent consideration | ||||||||||||||||
| Selling,
general and administrative expenses including credit losses of $ | ||||||||||||||||
| Operating loss | ||||||||||||||||
| Loss from deconsolidation of OBI and Octomera (see note 4) | ||||||||||||||||
| Other income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Credit loss on convertible loan receivable | ||||||||||||||||
| Loss from extinguishment in connection with convertible loan | ||||||||||||||||
| Financial expenses, net | ||||||||||||||||
| Convertible loans induced conversion expenses | ||||||||||||||||
| Share in net loss profit of associated companies | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ||||||||||||||||
| Tax expenses | ||||||||||||||||
| Net loss | ||||||||||||||||
| Net 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 (income) - translation adjustments | ( | ) | ( | ) | ||||||||||||
| Release of translation adjustment due to deconsolidation of Octomera | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | ||||||||||||||||
| Comprehensive 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)
| Common Stock | ||||||||||||||||||||||||||||||||||||
| Number | Par Value | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Treasury Shares | Accumulated Deficit | Equity Attributed to Orgenesis Inc. | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| Changes during the six months ended June 30, 2024: | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||
| RSUs vested | * | (*) | (*) | (*) | ||||||||||||||||||||||||||||||||
| Exercise of options | * | |||||||||||||||||||||||||||||||||||
| Issuance of shares to service providers | * | |||||||||||||||||||||||||||||||||||
| Exchange of convertible loans for equity | ||||||||||||||||||||||||||||||||||||
| Issuance of warrants with respect to convertible loans | - | |||||||||||||||||||||||||||||||||||
| Issuance of shares and warrants | * | |||||||||||||||||||||||||||||||||||
| NCI arising from Octomera reconsolidation | - | |||||||||||||||||||||||||||||||||||
| Issuance of shares due to exercise of warrants | * | |||||||||||||||||||||||||||||||||||
| Extinguishment in connection with convertible loan restructuring | - | |||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| * |
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)
| Common Stock | ||||||||||||||||||||||||||||||||||||
| Number | Par Value | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Treasury Shares | Accumulated Deficit | Equity Attributed to Orgenesis Inc. | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Changes during the six months ended June 30, 2023: | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||
| Issuance of shares and warrants net of issuance costs | * | |||||||||||||||||||||||||||||||||||
| Issuance of shares due to exercise of warrants | * | |||||||||||||||||||||||||||||||||||
| Issuance of warrants with respect to convertible loans | - | |||||||||||||||||||||||||||||||||||
| Extinguishment in connection with convertible loan restructuring | - | |||||||||||||||||||||||||||||||||||
| Deconsolidation of Octomera | - | ( | ) | |||||||||||||||||||||||||||||||||
| Adjustment to redemption value of redeemable non-controlling interest | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Comprehensive loss for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars in thousands, except share amounts)
(Unaudited)
| Common Stock | ||||||||||||||||||||||||||||||||||||||||
| Number | Par Value | Additional Paid-in Capital | Receipts on Account of Shares to be Allotted | Accumulated Other Comprehensive Income | Treasury Shares | Accumulated Deficit | Equity Attributed to Orgenesis Inc. | Non- Controlling Interest | Total | |||||||||||||||||||||||||||||||
| Balance at April 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Changes during the three months ended June 30, 2024: | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||||||||||
| RSUs vested | * | (*) | (*) | (*) | ||||||||||||||||||||||||||||||||||||
| Exercise of options | * | |||||||||||||||||||||||||||||||||||||||
| Issuance of shares to service providers | * | |||||||||||||||||||||||||||||||||||||||
| Exchange of convertible loans for equity | ||||||||||||||||||||||||||||||||||||||||
| Issuance of warrants with respect to convertible loans | - | |||||||||||||||||||||||||||||||||||||||
| Issuance of shares and receipts on account of shares and warrants to be allotted | * | ( | ) | |||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars in thousands, except share amounts)
(Unaudited)
| Common Stock | ||||||||||||||||||||||||||||||||||||
| Number | Par Value | Additional Paid-in Capital | Accumulated Other Comprehensive Income | Treasury Shares | Accumulated Deficit | Equity Attributed to Orgenesis Inc. | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||
| Changes during the three months ended June 30, 2023: | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation to employees and directors | - | |||||||||||||||||||||||||||||||||||
| Issuance of shares and warrants net of issuance costs | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Issuance of shares due to exercise of warrants | * | |||||||||||||||||||||||||||||||||||
| Deconsolidation of Octomera | - | ( | ) | |||||||||||||||||||||||||||||||||
| Adjustment to redemption value of redeemable non-controlling interest | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Comprehensive income (loss) for the period | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 9 |
ORGENESIS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in thousands)
(Unaudited)
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Convertible loans induced conversion expenses | ||||||||
| Loss from deconsolidation of OBI and Octomera | ||||||||
| Share in income of associated companies, net | ( | ) | ||||||
| Depreciation and amortization expenses | ||||||||
| Credit loss on convertible loan receivable | ||||||||
| Credit loss related to OBI | ||||||||
| Effect of exchange differences on inter-company balances | ( | ) | ||||||
| Net changes in operating leases | ( | ) | ||||||
| Change in Contingent consideration | ||||||||
| Interest expenses accrued on loans and convertible loans | ||||||||
| Loss from extinguishment in connection with convertible loan restructuring | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses and other accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Change in related parties, net | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other payables | ||||||||
| Employee and related payables | ( | ) | ||||||
| Deferred taxes, net | ( | ) | ||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Cash acquired from acquisition of Octomera | ||||||||
| Impact to cash resulting from deconsolidation of OBI | ( | ) | ||||||
| Impact to cash resulting from deconsolidation of Octomera | ( | ) | ||||||
| Investment in long-term deposits | ( | ) | ||||||
| Net cash used in investing activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of shares and warrants | ||||||||
| Proceeds from issuance of convertible loans | ||||||||
| Proceeds from transaction with redeemable non-controlling interest that do not acquire control of a subsidiary | ||||||||
| Repayment of convertible loans | ( | ) | ||||||
| Repayment of short and long-term debt | ( | ) | ( | ) | ||||
| Proceeds from issuance of loans payable | ||||||||
| Receipt from Germfree (see note 11a) | ||||||||
| 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 | ||||||||
| Exchange of convertible loans for equity | ||||||||
| 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 | $ | $ | ||||||
| Extinguishment in connection with convertible loan restructuring | $ | $ | ||||||
| CASH PAID DURING THE PERIOD FOR: | ||||||||
| Interest | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 10 |
ORGENESIS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2024 and 2023
(U.S. Dollars in thousands, except share and loss per share amounts)
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS
| a. | General |
Orgenesis Inc. (the “Company”) 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 (“ATMPs”). The Company is mostly focused on the development of autologous therapies that can be manufactured under processes and systems that are developed for each therapy using a closed and automated approach that is validated for compliant production near the patient for treatment of the patient at the point of care (“POCare”).
As of the date of this report, the Company operates two segments:
| ● | The “Octomera” segment which includes the Company’s POCare Services that are performed in decentralized hubs which provide harmonized and standardized services to customers (“POCare Centers”). The Company’s subsidiary, Octomera LLC, holds all of the Octomera segment activities. |
| ● | The “Therapies” segment which includes therapy related activities. |
On
January 29, 2024, the Company and Metalmark Capital Partners (“Metalmark” or “MM”) entered into a Unit Purchase
Agreement (the “MM UPA”), pursuant to which the Company acquired all of the preferred units of Octomera LLC (“Octomera”)
previously owned by MM (the “MM Acquisition”), and effective that date, reconsolidated Octomera into its accounts. The Company
currently owns
These consolidated financial statements include the accounts of Orgenesis Inc. and its subsidiaries.
The
Company’s common stock, par value $ per share (the “Common Stock”), is listed and traded on the Nasdaq Capital
Market under the symbol “ORGS.” On September 27, 2023, the Company received a notice from the Listing Qualifications Staff
(“Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the bid price of the Common Stock had closed
at less than $
As used in this report and unless otherwise indicated, the term “Company” refers to Orgenesis Inc. and its Subsidiaries. Unless otherwise specified, all amounts are expressed in United States Dollars.
| 11 |
| b. | Liquidity |
Through
June 30, 2024, the Company had an accumulated deficit of $
The
Company will need to use mitigating actions such as seeking additional financing, refinancing, or amending the terms of existing loans,
or postponing expenses that are not based on firm commitments. In order to fund its operations until such time that the Company can generate
sustainable positive cash flows, the Company will need to raise additional funds. For the six months ended June 30, 2024 and as of the
date of this report, the Company has assessed its financial condition and concluded that based on current and projected cash resources
and commitments, as well as other factors mentioned above, there is substantial doubt about its ability to continue as a going concern.
The Company is planning to raise additional capital to continue its operations and to repay its outstanding loans when they become due,
as well as to explore additional avenues to increase revenues and reduce or delay expenditures. In May 2024, the Company entered into
debt exchange agreements with three convertible debt holders pursuant to which a total of $
The Company’s Common Stock is listed for trading on the Nasdaq Capital Market. As mentioned above, the Company must satisfy Nasdaq’s continued listing requirements. Failure to meet continuing listing requirements risks delisting, which may make it more difficult to raise additional capital.
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, 2023, as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2024. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2023, 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.
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 loss on deconsolidation, valuation of investments, purchase price allocations, goodwill impairment, and assessment of credit losses and purchase price allocation including contingent consideration. Actual results could differ from those estimates.
| 12 |
Recently issued accounting pronouncements, not yet adopted
Improvements to Reportable Segments Disclosures
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting–Improvements to Reportable Segments Disclosures (Topic 280)” to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU (1) require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; (2) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition; (3) require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods; (4) clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures; and (5) require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure or measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively to all periods presented. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of these amendments on its consolidated financial statements.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740)–Improvements to Income Tax Disclosures” to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The amendments in this ASU require that public entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This ASU also requires that all entities disclose, on an annual basis, (1) the amount of income taxes paid disaggregated by federal, state, and foreign taxes, (2) the amount of income taxes paid disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid, (3) income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign, and (4) income tax expense or benefit from continuing operations disaggregated by federal, state, and foreign. The amendments in this ASU are effective for annual periods beginning after December 15, 2024, and should be applied on a prospective basis with the option to apply retrospectively. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact of the adoption of these amendments on its consolidated financial statements.
NOTE 3 – SEGMENT INFORMATION
Segment data for the six months ended June 30, 2024 is as follows:
| Octomera | Therapies | Eliminations | Consolidated | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenues | $ | $ | $ | ( | ) | $ | ||||||||||
| Cost of revenues* | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||||||
| Cost of development services and research and development expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses* | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from deconsolidation | ( | ) | ( | ) | ||||||||||||
| Other income | ||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from extinguishment in connection with convertible loan | ( | ) | ( | ) | ||||||||||||
| Financial income (expenses), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Convertible loans induced conversion expenses | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income taxes | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| * |
Segment data for the six months ended June 30, 2023 is as follows:
| Octomera | Therapies | Eliminations | Consolidated | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues* | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross profit | ( | ) | ( | ) | ( | ) | ||||||||||
| Cost of development services and research and development expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from deconsolidation of Octomera | ( | ) | ( | ) | ||||||||||||
| Other income, net | ||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from extinguishment in connection with convertible loan | ( | ) | ( | ) | ||||||||||||
| Credit losses on convertible loan receivable | ( | ) | ( | ) | ||||||||||||
| Financial Expenses, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Share in net income of associated companies | ||||||||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| * |
| 13 |
Segment data for the three months ended June 30, 2024 is as follows:
| Octomera | Therapies | Eliminations | Consolidated | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues* | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||||||
| Cost of development services and research and development expenses* | ( | ) | ( | ) | ||||||||||||
| Operating expenses* | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Financial income (expenses), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Convertible loans induced conversion expenses | ( | ) | ( | ) | ||||||||||||
| Income (loss) before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| * |
Segment data for the three months ended June 30, 2023 is as follows:
| Octomera | Therapies | Eliminations | Consolidated | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues* | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross profit | ( | ) | ( | ) | ( | ) | ||||||||||
| Cost of development services and research and development expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses* | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from deconsolidation of Octomera | ( | ) | ( | ) | ||||||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ||||||||||
| Financial expenses, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Share in net income of associated companies | ||||||||||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| * |
NOTE 4 – RECONSOLIDATION OF OCTOMERA LLC
Pursuant to the MM UPA signed on January 29, 2024, the Company and MM agreed to the following:
| 1. | Consideration: |
| ● | Royalty
Payments: If Octomera and its subsidiaries generate Net Revenue during the three-year period
2025-2027, then the Company will pay |
| ● | Milestone
Payments: If the Company sells Octomera within ten years from the date of the Closing at
a price that is more than $ |
| 2. | MM’s designated members of the Board of Managers of Octomera resigned and the Company amended the Second Amended and Restated Limited Liability Company Agreement of Octomera (the “Octomera LLC Agreement”) to be a single member agreement reflecting the transactions consummated under the UPA, such that MM no longer (i) is a member of Octomera or a party to the Octomera LLC Agreement, or (ii) has a right to appoint members of the board of managers of Octomera. |
| 14 |
| 3. | 10
secured promissory notes between Orgenesis Maryland LLC and MM, reflecting an aggregate outstanding
principal amount of $ |
Fair Value of Consideration Transferred
Accounting guidance provides that the allocation of the purchase price may be adjusted for up to one year from the date of the acquisition to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. The primary area of the purchase price allocation that is not yet finalized is related to intangible assets, property, plant and equipment, and certain other assets and tax matters and the related impact on goodwill.
In evaluating the fair value of the Octomera Equity Investment under the income approach, the Company used a discounted cash flow model of the business, adjusted to the Company’s share in the investment. Key assumptions used to determine the estimated fair value included: (a) internal cash flows forecasts for 5 years following the assessment date, including expected revenue growth, costs to produce, operating profit margins and estimated capital needs; (b) an estimated terminal value using a terminal year long-term future growth determined based on the growth prospects of the reporting units; and (c) a discount rate which reflects the weighted average cost of capital adjusted for the relevant risk associated with the Company’s reporting unit operations and the uncertainty inherent in the Company’s internally developed forecasts. The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of other intangible assets, net, which comprised of technology. The useful life of the technology for amortization purposes was determined by considering the period of expected cash flows generated by the assets used to measure the fair value of the intangible assets, adjusted as appropriate for the entity-specific factors including legal, regulatory, contractual, competitive, economic, or other factors that may limit the useful life of intangible assets.
The following table summarizes the allocation of purchase price to the fair values of the assets acquired and liabilities assumed as of the Transaction date:
| (in thousands) | ||||
| Total Contingent consideration to MM for royalty and milestone payments | $ | |||
| Total assets acquired: | ||||
| Cash and cash equivalents | $ | |||
| Property, plants and equipment, net | ||||
| Other Assets | ||||
| Total assets | $ | |||
| Total liabilities assumed: | ||||
| Total current liabilities | $ | ( | ) | |
| Total long-term liabilities | ( | ) | ||
| Total liabilities | $ | ( | ) | |
| Know how Technology | ||||
| Total Net Assets | $ | |||
| Fair-Value of Non-controlling interests | ( | ) | ||
| Total liability to MM | $ | |||
| 15 |
The
allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of an intangible asset
know-how of $
Key inputs for the fair values valuation are summarized below.
| Key Valuation Inputs | Jan 29, 2024 | |||
| Discount rate | % | |||
| Risk-free interest rate | % | |||
| Average 5 years revenue growth | % | |||
The
Company incurred transaction costs of approximately $
The
revenues and net loss of Octomera from January 1, 2024 until the reconsolidation date were $
Fair value assumptions used in accounting for contingent consideration
On January 29, 2024, in connection with the PPA study of Octomera LLC, the Company recognized a contingent consideration to pay MM based on two components:
1. Royalties based on revenues in 2025, 2026 and 2027, and;
2. An earnout amount, which is dependent on a future triggering event being either an IPO or exit.
The estimated fair value of the contingent consideration is
based on management’s assessment of whether, and at what level, the financial metrics will be achieved, and the present value
factors associated with the timing of the payments. This fair value measurement is based on significant unobservable inputs in the
market and thus represents a Level 3 fair value
measurement and used the Monte Carlo pricing model to calculate the fair value, which was $
Key inputs for the simulation are summarized below.
| Key Valuation Inputs | Jan 29, 2024 | June 30, 2024 | ||||||
| Standard Deviation | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Possible trigger event examination | Year
| Year
| ||||||
| Average 5 years revenue growth | % | % | ||||||
| Trigger events | % | % | ||||||
| Revenues multiple | ||||||||
| * | Based on a Monte Carlo simulation analysis of 30,000 iterations |
Deconsolidation of Orgenesis Biotech Israel Limited (“OBI”)
On
February 14, 2024, following a claim for payment by employees of OBI, a fully owned subsidiary of Octomera of past salaries due, the
district court in Haifa, Israel appointed a trustee to run the affairs of OBI. As a result of this appointment, effective February 14,
2024, the Company no longer controls OBI and has ceased to consolidate the results of OBI into its consolidated results. The Company
recognized a loss as a result of the deconsolidation of $
| 16 |
The
Company recorded $
The following table summarizes the deconsolidated assets and liabilities as of February 14, 2024:
| Total assets acquired: | ||||
| Cash and cash equivalents | $ | |||
| Property, plants and equipment, net | ||||
| Other Assets | ||||
| Total assets | $ | |||
| Total liabilities assumed: | $ | |||
| Total Net Assets deconsolidated | $ | |||
| Loss from deconsolidation of OBI | $ | |||
NOTE 5 – EQUITY
Private Placement Offering
On
March 3, 2024, the Company entered into a Securities Purchase Agreement with certain accredited investors, pursuant to which the Company
agreed to issue and sell, in a private placement, shares of Common Stock at a purchase price of $ per share, Warrants to
purchase up to
On
May 10, 2024, the Company entered into a Securities Purchase Agreement with certain accredited investors, pursuant to which the Company
agreed to issue and sell, in a private placement, shares of the Company’s Common Stock at a purchase price of $ per
share, Warrants to purchase up to
| 17 |
NOTE 6 – CONVERTIBLE LOANS
The table below summarizes the Company’s outstanding convertible loans as of June 30, 2024.
Principal Amount at Issuance | Issuance Date | Current Interest Rate | Current Maturity | Current Conversion Price of loan into equity | ||||||||||||||
| (Year) | % | (Year) | $ | |||||||||||||||
| $ | ||||||||||||||||||
| % | ||||||||||||||||||
| % | ||||||||||||||||||
| % | * | |||||||||||||||||
| % | ||||||||||||||||||
| $ | ||||||||||||||||||
| * |
| 18 |
The table below summarizes the Company’s outstanding convertible loans as of December 31, 2023.
Principal Amount | Issuance Date | Current Interest Rate | Current Maturity | Current Conversion Price of loan into equity | Note | |||||||||||||||||
| (Year) | % | (Year) | $ | |||||||||||||||||||
| Convertible Loans Outstanding as of December 31, 2023 | ||||||||||||||||||||||
| $ | % | |||||||||||||||||||||
| % | ||||||||||||||||||||||
| % | ||||||||||||||||||||||
| % | ||||||||||||||||||||||
| % | ||||||||||||||||||||||
| % | ||||||||||||||||||||||
| % | ** | |||||||||||||||||||||
| % | ||||||||||||||||||||||
| % | 6a | |||||||||||||||||||||
| $ | ||||||||||||||||||||||
| ** |
Debt Exchange Agreements
On
May 21, 2024, the Company entered into debt exchange agreements with three convertible debt holders pursuant to which a total of $
Additional notes related to changes in convertible loans terms that occurred in 2024
In January 2024, the Company and lender agreed to extend the maturity date of the loan amount to
Koligo convertible loan
On
September 29, 2023, Koligo entered into a convertible loan agreement with Sai Traders, pursuant to which the Sai Traders agreed to loan Koligo
up to $
NOTE 7 –LOANS
The table below summarizes the Company’s outstanding long-term loans as of June 30, 2024 and December 31, 2023, respectively:
| Principal Amount | Interest Rate | Year of Maturity | June 30, 2024 | December 31, 2023 | ||||||||||||||
| (in thousands) | % | (in thousands) | ||||||||||||||||
| $ | $ | $ | ||||||||||||||||
See note 4.
| 19 |
The table below summarizes the Company’s outstanding short-term loans as of June 30, 2024 and December 31, 2023, respectively:
| Currency | Interest Rate | June 30, 2024 | December 31, 2023 | |||||||||
| % | (in thousands) | |||||||||||
| USD | $ | $ | ||||||||||
| USD | ||||||||||||
| USD | (*) | (**) | ||||||||||
| USD | ||||||||||||
| Euro | ||||||||||||
| $ | $ | |||||||||||
| (*) |
| (**) |
On
July 3, 2024, Koligo entered into a loan agreement (the “Loan Agreement” for this paragraph only) with a lender, pursuant
to which the lender agreed to loan the Company $
| a. | Options Granted to Employees |
The table below summarizes the terms of options for the purchase of shares in the Company granted to employees during the period from January 1, 2024 to June 30, 2024:
No. of Options Granted | Exercise Price | Vesting Period | Fair Value at Grant (in thousands) | Expiration Period | |||||||||||||||
| Employees | $ | -$ | $ | years | |||||||||||||||
| During the Period from January 1, 2024 to June 30, 2024 | ||||
| Value of one common share | $-$ | |||
| Dividend yield | % | |||
| Expected stock price volatility | %- | % | ||
| Risk free interest rate | %- | % | ||
| Expected term (years) | - | |||
| 20 |
| b. | Restricted Stock Units (“RSUs”) Granted to Employees |
No. of Options Granted | Vesting Period | Fair Value at Grant (in thousands) | ||||||||
| Employees | $ | |||||||||
| c. | Shares and warrants issued to advisors. |
Below is a table summarizing all the shares and warrants grants to advisors during the period from January 1, 2024 to June 30, 2024:
| Date of issue of share or warrant | Reason for issue of share or warrant | Consideration | Exercise price of warrants | Warrant vesting (subject to continued service provided to Company) | Warrant expiry date | ||||||||
| January 25, 2024 | shares of Common Stock | ||||||||||||
| March 7, 2024 | shares of Common Stock
and warrants to purchase | $ | |||||||||||
| April 18, 2024 | Warrants to purchase shares of Common Stock | $ | |||||||||||
| April 23, 2024 | Warrants to purchase shares of Common Stock | $ | |||||||||||
| May 22, 2024 | Warrants to purchase shares of Common Stock | $ | |||||||||||
No. of Warrants Granted | Vesting Period | Fair Value at Grant (in thousands) | ||||||||||||
| Warrants | Over a period of | $ | ||||||||||||
| Shares | N/A | $ | ||||||||||||
The fair valuation of these shares grants is based on the market value of the share at the date of grant.
The fair valuation of these warrants grants is based on the following assumptions:
| During the Period from January 1, 2024 to June 30, 2024 | ||||
| Value of one common share | $-$ | |||
| Dividend yield | % | |||
| Expected stock price volatility | %-% | |||
| Risk free interest rate | %-% | |||
| Expected term (years) | ||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| (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 six months ended June 30, 2024 and June 30, 2023, 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 excludes shares underlying outstanding options and warrants and shares issuable upon conversion of convertible loans for the six months ended June 30, 2024, because the effect of their inclusion in the computation would be antidilutive. Diluted loss per share excludes shares underlying outstanding options and warrants and shares issuable upon conversion of convertible loans for the three months ended June 30, 2024, because the effect of their inclusion in the computation would be antidilutive.
Diluted loss per share excludes shares underlying outstanding options and warrants and shares upon conversion of convertible loans for the six months ended June 30, 2023, because the effect of their inclusion in the computation would be antidilutive. Diluted loss per share excludes shares underlying outstanding options and warrants and shares issuable conversion of convertible loans for the three months ended June 30, 2023, because the effect of their inclusion in the computation would be antidilutive.
| 21 |
NOTE 10 – REVENUES
Disaggregation of Revenue
The following table disaggregates the Company’s revenues by major revenue streams:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue stream: | ||||||||||||||||
| Cell process development services and hospital services | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
A breakdown of the revenues per customer constituted at least 10% of revenues is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Revenue earned: | ||||||||||||||||
| Customer A (United States) | $ | $ | $ | $ | ||||||||||||
| Customer B (United States) | $ | $ | $ | $ | ||||||||||||
| Customer C (United States) | $ | $ | $ | $ | ||||||||||||
| Customer D (United States) | $ | $ | $ | $ | ||||||||||||
Contract Assets and Liabilities
Contract assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently due from customers.
The activity for trade receivables is comprised of:
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Balance as of beginning of period | $ | $ | ||||||
| Reconsolidation (deconsolidation) of Octomera | ( | ) | ||||||
| Additions | ||||||||
| Collections | ( | ) | ( | ) | ||||
| Allowances for credit losses | ( | ) | ||||||
| Exchange rate differences | ( | ) | ||||||
| Balance as of end of period | $ | $ | ||||||
The activity for contract liabilities is comprised of:
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Balance as of beginning of period | $ | $ | ||||||
| Deconsolidation of Octomera | ( | ) | ||||||
| Deconsolidation of OBI | ( | ) | ||||||
| Additions | ||||||||
| Realizations | ( | ) | ||||||
| Balance as of end of period | $ | $ | ||||||
| 22 |
NOTE 11 – OTHER SIGNIFICANT TRANSACTIONS AND AGREEMENTS DURING THE SIX MONTHS ENDED JUNE 30, 2024
| Asset Purchase and Strategic Collaboration Agreement. |
On
April 5, 2024, the Company entered into an Asset Purchase and Strategic Collaboration Agreement (the “Purchase Agreement”)
with Griffin Fund 3 BIDCO, Inc., (“Germfree”), for the sale by the Company of five Orgenesis Mobile Processing Units and
Labs (“OMPULs”) to Germfree, which will be incorporated into Germfree’s lease fleet and leased back to the Company
or to third-party lessees designated by the Company. Pursuant to the Purchase Agreement, and subject to the terms and conditions set
forth therein, in consideration for the purchase of the OMPULs, the Orgenesis Quality Management Systems Framework (“OQMSF”)
and related intellectual property rights, Germfree is to pay an aggregate purchase price of $
NOTE 12 – LEGAL PROCEEDINGS
On
January 18, 2022, a complaint (the “Complaint”) was filed in the Tel Aviv District Court (the “Court”) against
the Company, Orgenesis Ltd (“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”).
On
September 6, 2023, a claim (the “Claim”) was filed in the Tel Aviv District Court (the “Court”) against the Company,
the Israeli Subsidiary, Octomera LLC, Orgenesis Biotech Israel Ltd, Theracell Laboratories Private Company and Vered Caplan (collectively,
the “defendants”) by Ehud Almon (Plaintiff) for certain finders’ fees and / or royalties related to sales made by an
Octomera subsidiary to a Greek entity in the amount of $
| 23 |
On
October 26, 2023, a complaint was filed in the Supreme Court of the State of New York by plaintiffs Southern Israel Bridging Fund Two
LP and Mr. Amir Hasidim, against the Company, seeking the payment of $
On
November 1, 2023, a claim (the “Claim”) was filed in the Tel Aviv District Court (the “Court”) against the Company,
the Israeli Subsidiary, and Vered Caplan (collectively, the “Defendants”) by Fidelity Venture Capital Ltd. and Dror Atzmon
(together – the “Plaintiffs”). The claim is based on two agreements the Company entered into with the Plaintiffs on
November 2, 2016: (a) an unsecured convertible note agreements for an aggregate amount of NIS
On
July 11, 2024 the Israeli subsidiary reached a settlement agreement sanctioned by the Tel Aviv Magistrate’s court pursuant to
which the subsidiary will pay the amount of NIS
| 24 |
Except as described above, the Company is not involved in any pending material legal proceedings.
NOTE 13 – SUBSEQUENT EVENTS
On
July 10, 2024, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Broaden Bioscience and
Technology Corp. (“Broaden”) for the purchase by the Company of the following assets (the “Assets”): The process
and algorithms developed by Broaden for processing CAR-T, RACE CAR-T and all oncology products that will enable the Company to develop
and sell treatments to third parties, which include Broaden’s rights, title and interests in and to all intellectual property,
including, but not limited to, patents, patent applications, know-how, materials, licenses, permits and approvals related thereto. Pursuant
to the Purchase Agreement, in consideration for the purchase of the Assets, the Company will pay Broaden an amount equal to the value
of the Assets established by a third party valuation firm not to exceed $
On July 12, 2024, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Theracell Advanced Biotechnology S.A, Theracell Advanced Biotechnology LTD and IDNA Genomics Public Limited (collectively, “Theracell”) for the purchase by the Company of the following assets (the “Assets”) owned by Theracell:
| ● | ||
| ● | Certain products (the “Products”), which include: (i) the manufacturing processes, algorithms, work instructions, test methods, standard operating procedures and specifications for producing Tumor Infiltrating Lymphocytes (“TILs”) that meet current Good Manufacturing Practice (cGMP) requirements that will enable the Company to potentially use this product as a platform for treating a wide variety of solid tumors; (ii) a 3rd generation GMP lentivirus production process, which is part of a therapy manufacturing process that will enable the Company to potentially treat Beta Thalassemia therapies; (iii) an oncolytic virus cell carrier platform which will enable the Company to potentially develop treatments for an array of cancers; (iv) a process for the potential treatment of mesenchymal stem cells for kidney disorders; (v) a process for controlled isolation of regenerative EVs derived from mesenchymal stem cells for the potential treatment of kidney disorders; and (vi) bioxome encapsulated APIs for improved transdermal delivery and bioavailability for the potential treatment of atopic dermatitis/wound healing; including Theracell’s rights, title and interests in and to all intellectual property, including, but not limited to, patents, patent applications, know-how, materials, licenses, permits and approvals relating to Products as further described in the Purchase Agreement. |
Pursuant
to the Purchase Agreement, in consideration for the purchase of the Assets, the Company will pay Theracell an aggregate purchase price
of $
| 25 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(U.S. Dollars in thousands, except share and loss per share amounts)
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, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2024. 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, a Maryland limited liability company (the “Maryland 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”); 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; and Octomera LLC, a Delaware limited liability company.
| 26 |
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 with the goal of entering into out-licensing agreements for these therapies.
We have two operating segments – our POCare Services and our therapeutic development operations. We conduct our core POCare operations through our wholly-owned subsidiary Octomera LLC which was a consolidated subsidiary of ours until June 30, 2023 and which became a consolidated subsidiary again effective January 29, 2024 when we entered into a unit purchase agreement pursuant to which we acquired all of the equity interests of Octomera LLC.
Octomera 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; |
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 the 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 many new tools (such as new generations of industrial viruses and 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 research at academic institutions or at small spinouts from such institutions. Though such research efforts may manage to progress into a clinical stage, utilizing lab- or hospital-based production solutions, they generally lack the resources to continue the development of such drugs to market approval.
| 27 |
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. Furthermore, 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 institutions hope to out-license their therapeutic products to large biotech companies or to spin out new companies and conduct large fundraising rounds. In many cases, however, 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 partnership with hospitals around the globe allows for joint grants and lower costs of clinical development. The POCare Therapies division reviews many therapies available for out-licensing and selects the ones they believe have the highest market potential and chance of clinical success and can benefit the most from a point of care approach. It assesses such issues by utilizing its global POCare Network and its internal know-how 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 non-core geographical regions. This approach lowers overall development costs by minimizing our pre-clinical development costs and enabling us to receive additional funding from grants and/or payments by regional partners.
Significant developments during the six-months ended June 30, 2024
On January 29, 2024 (“Closing” or “Transaction date” or “Reconsolidation date”), we and Metalmark Capital Partners (“MM”) entered into a Unit Purchase Agreement (the “MM UPA”), pursuant to which we acquired all of the preferred units of Octomera previously owned by MM and reconsolidated Octomera into our accounts with immediate effect (the “MM acquisition”). As consideration for the MM Acquisition, we and MM agreed to the following consideration:
| ● | Royalty Payments: If Octomera and its subsidiaries generate Net Revenue during the three-year period 2025-2027, then we will pay 5% of Net Revenues to MM pursuant to the MM UPA. |
| ● | Milestone Payments: If we sell Octomera within ten years from the date of the Closing at a price that is more than $40 million excluding consideration for certain Excluded Assets as per the UPA, then we will pay MM 5% of the net proceeds of that sale. |
Pursuant to the MM acquisition, MM’s designated members of the Board of Managers of Octomera resigned, and we amended the Second Amended and Restated Limited Liability Company Agreement of Octomera (the “Octomera LLC Agreement”) to be a single member agreement reflecting the MM acquisition, such that MM no longer (i) was a member of Octomera or a party to the Octomera LLC Agreement, or (ii) had the right to appoint members of the board of managers of Octomera.
In addition, 10 secured promissory notes between Orgenesis Maryland LLC and MM, reflecting an aggregate outstanding principal amount of $2,600 (the “Notes”), were amended to, among other things, extend the maturity thereof to January 29, 2034 and to terminate the security interest granted by Orgenesis Maryland LLC in favor of MM that secured the obligations under the Notes.
On February 14, 2024, following a claim for payment by employees of OBI (a fully owned subsidiary of Octomera) of past salaries due, the district court in Haifa, Israel appointed a trustee to run the affairs of OBI. As a result of this appointment, effective February 14, 2024, we no longer controls OBI and have ceased to consolidate the results of OBI into our consolidated results. We recognized a loss as a result of the deconsolidation of $66. We do not currently believe that rehabilitation of OBI is possible, and we purchased certain of OBI’s equipment.
| 28 |
On March 3, 2024, we entered into a Securities Purchase Agreement with certain accredited investors, pursuant to which we agreed to issue and sell, in a private placement, 2,272,719 shares of our Common Stock at a purchase price of $1.03 per share, Warrants to purchase up to 2,272,719 shares of Common Stock at an exercise price of $1.50 per share, and Warrants to purchase up to 2,272,719 shares of Common Stock at an exercise price of $2.00 per share, all such Warrants exercisable immediately and expiring five years from the date of their issuance. We received gross proceeds of approximately $2,300 before deducting related offering expenses. The Offering closed on March 5, 2024.
On April 5, 2024, we entered into an Asset Purchase and Strategic Collaboration Agreement (the “Purchase Agreement”) with Griffin Fund 3 BIDCO, Inc. (“Germfree”), for the sale by us of five OMPULs to Germfree, which are to be incorporated into Germfree’s lease fleet and leased back to us or to third-party lessees designated by us. Pursuant to the Purchase Agreement, and subject to the terms and conditions set forth therein, in consideration for the purchase of the OMPULs, the Orgenesis Quality Management Systems Framework (“OQMSF”) and related intellectual property rights, Germfree is to pay us an aggregate purchase price of $8,340 subject to adjustment through a verification mechanism set forth in the Purchase Agreement. Pursuant to the Purchase Agreement, Germfree has paid us $6,720 as of June 30, 2024.
On May 10, 2024, we entered into a Securities Purchase Agreement with certain accredited investors, pursuant to which we agreed to issue and sell, in a private placement, 150,000 shares of our Common Stock at a purchase price of $1.03 per share, Warrants to purchase up to 150,000 shares of Common Stock at an exercise price of $1.50 per share, and further Warrants to purchase up to 150,000 shares of Common Stock at an exercise price of $2.00 per share, all such Warrants exercisable immediately and expiring five years from their date of issuance. We received gross proceeds of approximately $154 before deducting related offering expenses. The Offering closed on May 10, 2024.
On May 21, 2024 we entered into debt exchange agreements with three convertible debt holders pursuant to which a total of $16,007 of outstanding principal and accrued interest was exchanged for the right to receive an aggregate of 15,776,947 shares of common stock, par value $0.0001 per share, of our Common Stock, of which $14,860 was exchanged for shares at an exchange price of $1.03 per share of Common Stock and $1,147 was exchanged for shares at an exchange price of $0.85 per share of Common Stock.
On September 27, 2023, we received a notice from the Listing Qualifications Staff (“Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the bid price of the Common Stock had closed at less than $1.00 per share over the previous 30 consecutive business days, and, as a result, did not comply with Listing Rule 5550(a)(2) (the “Bid Price Rule”). On April 17, 2024, we received a notice (the “Notice”) from the Staff which stated that it could not accept a plan to regain compliance and the Staff stated that our securities would be delisted from The Nasdaq Capital Market unless we timely requested a hearing before a Nasdaq Hearings Panel (the “Panel”) to address the deficiencies and present a plan to regain compliance. As permitted by the Notice, we timely requested a hearing before the Panel, which request stayed any further delisting action by the Staff pending the ultimate outcome of the hearing and the expiration of any extension that may be granted by the Panel. On June 6, 2024, we met with the Panel regarding our potential delisting from The Nasdaq Stock Market as a result of our violation of the Bid Price Rule and non-compliance with the equity requirement in Listing Rule 5550(b)(1) (the “Equity Rule”) or any of the alternative requirements in Listing Rule 5550(b). On June 8, 2024, we received the Panel’s decision which granted us until October 14, 2024 to regain compliance with the Bid Price and Equity Rules. If we are unable to regain compliance with the listing standards of the Nasdaq Capital Market by October 14, 2024, our securities may be delisted from The Nasdaq Stock Market.
| 29 |
Results of Operations
Comparison of the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023.
The following table presents our results of operations for the three months ended June 30, 2024 and 2023:
| Three-Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Revenues | $ | 246 | $ | 113 | ||||
| Cost of revenues | 538 | 3,232 | ||||||
| Total revenues | (292 | ) | (3,119 | ) | ||||
| Cost of development services and research and development | 1,489 | 3,527 | ||||||
| Amortization of intangible assets | 226 | 208 | ||||||
| Royalties and exit option to MM | 182 | - | ||||||
| Selling, general and administrative expenses | 2,061 | 18,216 | ||||||
| Operating loss | 4,250 | 25,070 | ||||||
| Other income, net | (8 | ) | - | |||||
| Financial expenses, net | 815 | 692 | ||||||
| Convertible loans induced conversion expenses (See note 4) | 4,304 | - | ||||||
| Share in net loss of associated company | - | (3 | ) | |||||
| Loss from deconsolidation of Octomera | - | 5,343 | ||||||
| Loss before income taxes | 9,361 | 31,102 | ||||||
| Tax expense | 5 | 91 | ||||||
| Net loss | $ | 9,366 | $ | 31,193 | ||||
Revenues
Our revenues for the three months ended June 30, 2024 were $246, as compared to $113 for the three months ended June 30, 2023, representing an increase of 118%. The revenues were from hospital services provided by Koligo.
Expenses
Cost of revenue
| Three-Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Salaries and related expenses | $ | 179 | $ | 1,091 | ||||
| Stock-based compensation | 1 | 1 | ||||||
| Professional fees and consulting services | 21 | 1,071 | ||||||
| Raw materials | 40 | 482 | ||||||
| Depreciation expenses, net | 249 | 236 | ||||||
| Other expenses | 48 | 351 | ||||||
| Total | $ | 538 | $ | 3,232 | ||||
Cost of revenues for the three months ended June 30, 2024 were $538, as compared to $3,232 for the three months ended June 30, 2023, representing a decrease of 83%. The decrease was mainly attributable to reduced Octomera segment cost of revenues including the deconsolidation of OBI, cost savings initiatives, and the reduction of activities in the Korean subsidiary. The decrease was mainly manifested in a decline in salaries and related expenses, professional fees and consulting services, and raw materials.
| 30 |
Cost of development services and research and development expenses
| Three Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Salaries and related expenses | $ | 1,558 | $ | 1,856 | ||||
| Stock-based compensation | 49 | 79 | ||||||
| Professional fees and consulting services | (756 | ) | 805 | |||||
| Lab expenses | 30 | 128 | ||||||
| Depreciation expenses, net | 171 | 132 | ||||||
| Other research and development expenses | 536 | 587 | ||||||
| Less – grant | (99 | ) | (60 | ) | ||||
| Total | $ | 1,489 | $ | 3,527 | ||||
Cost of development services and research and development for the three months ended June 30, 2024 were $1,489, as compared to $3,527 for the three months ended June 30, 2023, representing a decrease of 58%.
The decrease is mainly attributable to cost savings in the Octomera segment, including the deconsolidation of OBI, reduction of activities in the German subsidiary, and a reversal in the amount of $1,327 of an accrual of professional services.
Selling, General and Administrative Expenses
| Three-Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Salaries and related expenses | $ | 1,088 | $ | 1,088 | ||||
| Stock-based compensation | 79 | 71 | ||||||
| Accounting and legal fees | 830 | 794 | ||||||
| Professional fees | (862 | ) | 525 | |||||
| Rent and related expenses | 94 | 48 | ||||||
| Business development | 721 | 151 | ||||||
| Depreciation expenses, net | 60 | 21 | ||||||
| Other general and administrative expenses | 551 | 640 | ||||||
| Credit losses | (500 | ) | 14,878 | |||||
| Total | $ | 2,061 | $ | 18,216 | ||||
Selling, general and administrative expenses for the three months ended June 30, 2024 were $2,061, as compared to $18,216 for the three months ended June 30, 2023, representing a decrease of 89%. The decrease was mainly attributable to 1) a decline in Professional fees as a result of invoice cancellations in the amount of $705 no longer required to be paid and a waiver of fees by a director in the amount of $315; 2) credit losses mainly in the Octomera segment reported in the three months ended June 30, 2023 of $14,878 compared to $(500) credit losses in the three months ended June 30, 2024, offset by 3) an increase in business development expenses as a result of warrants granted to advisers.
Financial Expenses, net
| Three-Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Interest expense on convertible loans and loans | $ | 639 | $ | 597 | ||||
| Foreign exchange loss, net | 196 | 94 | ||||||
| Other expenses (income) | (20 | ) | 1 | |||||
| Total | $ | 815 | $ | 692 | ||||
Financial expenses, net for the three months ended June 30, 2024 were $815, as compared to $692 for the three months ended June 30, 2023, representing an increase of 18%. The increase was mainly due to an increase in foreign exchange losses.
| 31 |
Comparison of the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023.
The following table presents our results of operations for the six months ended June 30, 2024 and 2023:
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Revenues | $ | 387 | $ | 255 | ||||
| Cost of revenues | 1,030 | 5,954 | ||||||
| Total revenue | (643 | ) | (5,699 | ) | ||||
| Cost of development services and research and development | 3,859 | 6,808 | ||||||
| Amortization of intangible assets | 379 | 415 | ||||||
| Royalties and exit option to MM | 182 | - | ||||||
| Selling, general and administrative expenses included credit losses of $24,367 for the six months ended June 30, 2023 | 8,117 | 31,744 | ||||||
| Operating loss | 13,180 | 44,666 | ||||||
| Other income, net | (8 | ) | (2 | ) | ||||
| Loss from extinguishment in connection with convertible loan | 141 | 283 | ||||||
| Credit loss on convertible loan receivable | - | 2,688 | ||||||
| Financial expenses, net | 1,667 | 1,373 | ||||||
| Convertible loans induced conversion expenses (See note 4) | 4,304 | - | ||||||
| Share in net loss of associated company | - | (1 | ) | |||||
| Loss from deconsolidation of Octomera | 66 | 5,343 | ||||||
| Loss before income taxes | 19,350 | 54,350 | ||||||
| Tax (income) expense | 21 | 220 | ||||||
| Net loss | $ | 19,371 | $ | 54,570 | ||||
Revenues
Our revenues for the six months ended June 30, 2024 were $387, as compared to $255 for the six months ended June 30, 2023, representing an increase of 52%.The revenues were from hospital services provided by Koligo.
Expenses
Cost of revenues
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Salaries and related expenses | $ | 431 | $ | 2,204 | ||||
| Stock-based compensation | 2 | 3 | ||||||
| Professional fees and consulting services | 40 | 1,878 | ||||||
| Raw materials | 53 | 710 | ||||||
| Depreciation expenses, net | 364 | 472 | ||||||
| Other expenses | 140 | 687 | ||||||
| Total | $ | 1,030 | $ | 5,954 | ||||
| 32 |
Cost of revenues for the six months ended June 30, 2024 were $1,030, as compared to $5,954 for the six months ended June 30, 2023, representing a decrease of 83%. The decrease was mainly attributable to reduced Octomera segment cost of revenues, particularly as a result of the deconsolidation of OBI and reduced activities at the Korean subsidiary, as well as our accounting for Octomera segment cost of revenues from the Reconsolidation date compared to accounting for the full six months of cost of revenues in the six months ended June 30, 2023, where Octomera was a consolidated subsidiary.
Cost of development services and research and development expenses
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Salaries and related expenses | $ | 2,923 | $ | 3,484 | ||||
| Stock-based compensation | 85 | 163 | ||||||
| Professional fees and consulting services | (289 | ) | 1,601 | |||||
| Lab expenses | 97 | 304 | ||||||
| Depreciation expenses, net | 274 | 256 | ||||||
| Other research and development expenses | 941 | 1,141 | ||||||
| Less – grant | (172 | ) | (141 | ) | ||||
| Total | $ | 3,859 | $ | 6,808 | ||||
Cost of development services and research and development for the six months ended June 30, 2024 were $3,859, as compared to $6,808 for the six months ended June 30, 2023, representing a decrease of 43%.
The decrease in salaries and related expenses, lab expenses and other research and development expenses is 1) attributable to our accounting for Octomera segment cost of development services and research and development expenses from the reconsolidation date compared to accounting for the full six months in the six months ended June 30, 2023 where Octomera was a consolidated subsidiary; 2) cost savings in the Octomera segment; 3) the deconsolidation of OBI; as well as a reversal in the amount of $1,327 of an accrual related to professional fees.
Selling, General and Administrative Expenses
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Salaries and related expenses | $ | 1,794 | $ | 2,261 | ||||
| Stock-based compensation | 128 | 144 | ||||||
| Accounting and legal fees | 1,695 | 2,344 | ||||||
| Professional fees | (339 | ) | 886 | |||||
| Rent and related expenses | 150 | 114 | ||||||
| Business development | 885 | 361 | ||||||
| Depreciation expenses, net | 70 | 32 | ||||||
| Other general and administrative expenses | 1,009 | 1,235 | ||||||
| Credit losses | 2,725 | 24,367 | ||||||
| Total | $ | 8,117 | $ | 31,744 | ||||
Selling, general and administrative expenses for the six months ended June 30, 2024 were $8,117, as compared to $31,744 for the six months ended June 30, 2023, representing a decrease of 74%.
The decrease was mainly as a result of a decrease in 1) salaries and related expenses mainly in the Octomera segment as a result of cost savings and where expenses were accounted for in 2024 from the reconsolidation date as compared to the entire six months ended June 30, 2023 where Octomera was a consolidated subsidiary; 2) accounting and legal fees which in the six months ended June 30, 2023 included charges for increased activities undertaken, not undertaken in the six months ended June 30, 2024; 3) professional fees as a result of invoice cancellations in the amount of $705 no longer required to be paid and a waiver of fees by a director in the amount of $315; 4) credit losses of $2,725 incurred in the six months ended June 30, 2024 compared to $24,367 for the six months ended June 30, 2023 mainly in the Octomera segment, offset by 4) an increase in business development expenses as a result of warrants granted to advisers.
| 33 |
Credit Loss
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Credit loss on convertible loans | $ | - | $ | 2,688 | ||||
Credit losses for the six months ended June 30, 2024 were $0 compared to $2,688 for the six months ended June 30, 2023. This was attributable to a provision created for a possible credit loss on a loan in the six months ended June 30, 2023.
Financial Expenses, net
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Interest expense on convertible loans and loans | $ | 1,441 | $ | 1,129 | ||||
| Foreign exchange loss, net | 245 | 242 | ||||||
| Other expenses (income) | (19 | ) | 2 | |||||
| Total | $ | 1,667 | $ | 1,373 | ||||
Financial expenses, net for the six months ended June 30, 2024 were $1,667, as compared to $1,373 for the six months ended June 30, 2023, representing an increase of 21%. The increase was mainly due to interest on new loan agreements entered into.
Working Capital
| As of | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Current assets | $ | 2,348 | $ | 4,076 | ||||
| Current liabilities | 31,700 | 16,407 | ||||||
| Working capital | $ | (29,352 | ) | $ | (12,331 | ) | ||
Current assets decreased by $1,728 between December 31, 2023 and June 30, 2024 The decrease was mainly attributable to a decline in cash and cash equivalents, prepaid expenses, and receivables from related parties.
Current liabilities increased by $15,293 between December 31, 2023 and June 30, 2024 The increase was mainly attributable to:
| ● | the reconsolidation of Octomera which included an increase in accounts payable, accrued expenses and other payables, employees and related payables, and advance payments on account of grants; | |
| ● | the deconsolidation of OBI where we recorded an increase in accounts payable to related parties; | |
| ● | the Germfree receipt which was recorded in current liabilities. |
| 34 |
The above increases were offset by a decline in current maturities of convertible loans, converted to equity.
Liquidity and Financial Condition
| Six Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (in thousands) | ||||||||
| Net loss | $ | (19,371 | ) | $ | (54,570 | ) | ||
| Net cash used in operating activities | (10,348 | ) | (13,154 | ) | ||||
| Net cash used in investing activities | (69 | ) | (2,802 | ) | ||||
| Net cash provided by financing activities | 10,125 | 10,796 | ||||||
| Increase in cash and cash equivalents | $ | (292 | ) | $ | (5,160 | ) | ||
During the six-month ended June 30, 2024, 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 six months ended June 30, 2024 was approximately $10,348, as compared to net cash used in operating activities of approximately $13,154 for the six months ended June 30, 2023.
The decline was mainly as a result of:
● a net loss of $19,371 for the six months ended June 30, 2024 compared to a net loss of $54,570 for the six months ended June 30, 2023;
● non-cash items incurred in the six months ended June 30, 2023 that were not incurred in the six months ended June 30, 2024
Net cash used in investing activities for the six months ended June 30, 2024 was approximately $69, as compared to net cash used in investing activities of approximately $2,802 for the six months ended June 30, 2023. The change was mainly as a result of a decline in purchases of property and equipment and the cash impact from the deconsolidation of Octomera which incurred in the six months ended June 30, 2023 not incurred in the six months ended June 30, 2024.
Net cash provided by financing activities for the six months ended June 30, 2024 was approximately $10,125, as compared to net cash provided by financing activities of approximately $10,796 for the six months ended June 30, 2023. The decrease was mainly attributable to proceeds raised from equity investments in the amount of $2,528 in the six months ended June 30, 2024 as compared to $3,441 in the six months ended June 30, 2023. In addition, in the six months ended June 30, 2024, we raised convertible loans in the amount of $75 compared to $5,485 in the six months ended June 30, 2023. These decreases were offset by the receipt of $6,720 from Germfree received in the six months ended June 30, 2024.
Liquidity & Capital Resources Outlook
Through June 2024, we had an accumulated deficit of and for the six months ended June 30, 2024 incurred negative operating cashflows of $10,348. 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.
| 35 |
The estimation and execution uncertainty regarding our 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.
Due to our financial position, we will need to seek additional financing, refinance or amend the terms of existing convertible loans, and/or postpone expenses that are not based on firm commitments. 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 have 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 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 or delay expenditures. Failure to remain listed on Nasdaq will make it more difficult to raise additional capital. There can be no assurance that we will be able to raise additional capital on acceptable terms, or at all. Despite our ability to secure capital in the past, there can be no assurance that additional equity or debt financing will be available to us or that we may be able to secure funding from any other sources. In the event that we are not able to secure funding, we may be forced to curtail operations, delay or stop ongoing development activities, cease operations altogether, or file for bankruptcy.
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.
Management determined that we had the following material weakness in our internal control over financial reporting as of December 31, 2023:
We did not perform appropriate analyses related to our internal control over financial reporting in the accounting for whether it is probable we will collect substantially all the consideration to which we are entitled for revenue services provided, as well as our estimated credit losses. As of June 30, 2024, such material weakness has not been remediated.
| 36 |
Remediation Activities
Management’s remediation activities, which have already commenced and will continue during 2024, include the design of enhanced controls that include a thorough credit assessment of all new customers, analysis of payment history for existing customers and its impact related to the accounting for revenues, and additional controls designed to calculate the expected credit loss on the balances when there is an indication that a customer may not be pay the full receivable amount. These controls are already designed, however, management will need a number of periods in order to ensure their effectiveness.
Changes in Internal Control Over Financial Reporting
Except as set forth above, there have been no changes in our internal control over financial reporting during the quarter ended June 30, 2024 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings is available in Note 12 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, 2023, as filed with the SEC on April 15, 2024, 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. Except as set forth below, 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, 2023. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.
We may be unsuccessful in raising the capital necessary to address our going concern issues and to comply with the Nasdaq stockholders’ equity requirements, or if we are successful, it may be on terms that are highly dilutive to existing stockholders.
Historically, we funded our operations by raising capital from external sources, including through the sale of common stock and convertible loans. We are currently facing significant challenges to our ability to raise significant amounts of capital through the sale of common stock, including the following factors:
| ● | in general, it is difficult for development stage companies to raise capital under current market conditions, especially those with early stage programs like ours; |
| ● | the perception that we may be unable to continue as a going concern may impede our ability to attract further equity investment; |
| 37 |
| ● | our common stock has been trading below $1.00 per share since August 2023 and we may not regain compliance with the bid price and stockholders’ equity requirements for the Nasdaq Capital Market and could be delisted by the Staff if we do not regain compliance by October 14, 2024. The potential delisting of our common stock from Nasdaq could adversely affect our ability to raise additional capital through the public or private sale of equity securities; and |
| ● | we are currently subject to the “baby shelf” limitations on our potential use of our shelf registration statement, which limits such use to an offering size of no more than one third of our public float. |
Given these factors, there can be no assurances we will be successful at raising sufficient capital to address our going concern issues or the Nasdaq stockholders’ equity requirements. However, if we are successful, it may be on terms that are very dilutive to existing stockholders. Despite our ability to secure capital in the past, there can be no assurance that additional equity or debt financing will be available to us or that we may be able to secure funding from any other sources. In the event that we are not able to secure funding, we may be forced to curtail operations, delay or stop ongoing development activities, cease operations altogether, or file for bankruptcy.
A delisting of our common stock from Nasdaq could adversely affect our ability to raise additional capital through the public or private sale of equity securities and the ability of investors to dispose of, or obtain accurate quotations as to the market value of, our common stock.
If our common stock is ultimately delisted by Nasdaq, our common stock may be eligible to trade on the OTC Pink Market or another over-the-counter market. Any such alternative would likely result in it being more difficult for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, our common stock. In addition, there can be no assurance that our common stock would be eligible for trading on any such alternative exchange or markets.
Unless our common stock is listed on a national securities exchange, such as the Nasdaq Capital Market, our common stock may also be subject to the regulations regarding trading in “penny stocks,” which are those securities trading for less than $5.00 per share, and that are not otherwise exempted from the definition of a penny stock under other exemptions provided for in the applicable regulations. The following is a list of the general restrictions on the sale of penny stocks:
| ● | Before the sale of penny stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable to invest in penny stocks. To make that determination, a broker-dealer must obtain, from a prospective investor, information regarding the purchaser’s financial condition, investment experience, and objectives. Subsequently, the broker-dealer must deliver to the purchaser a written statement setting forth the basis of the suitability finding and obtain the purchaser’s signature on such statement. |
| ● | A broker-dealer must obtain from the purchaser an agreement to purchase the securities. This agreement must be obtained for every purchase until the purchaser becomes an “established customer.” |
| ● | The Exchange Act requires that before effecting any transaction in any penny stock, a broker-dealer must provide the purchaser with a “risk disclosure document” that contains, among other things, a description of the penny stock market and how it functions, and the risks associated with such investment. These disclosure rules are applicable to both purchases and sales by investors. |
| ● | A dealer that sells penny stock must send to the purchaser, within 10 days after the end of each calendar month, a written account statement including prescribed information relating to the security. |
These requirements can severely limit the liquidity of securities in the secondary market because fewer brokers or dealers are likely to be willing to undertake these compliance activities. If our common stock is not listed on a national securities exchange, the rules and restrictions regarding penny stock transactions may limit an investor’s ability to sell to a third party and our trading activity in the secondary market may be reduced.
We will likely seek to effect a reverse stock split in order to address the $1.00 minimum bid price requirement under Nasdaq rules. In the event a reverse stock split is implemented, we cannot predict the effect that such reverse stock split would have on the market price for shares of our common stock, and the history of similar reverse stock splits for companies in like circumstances has varied. Some investors may have a negative view of a reverse stock split. Even if such reverse stock split were to have a positive effect on the market price for shares of our common stock, performance of our business and financial results, general economic conditions and the market perception of our business, and other adverse factors which may not be in our control could lead to a decrease in the price of our common stock following such reverse stock split.
| 38 |
We conduct certain of our operations in Israel. Conditions in Israel, including the recent attack by Hamas and other terrorist organizations from the Gaza Strip and Israel’s war against them, may affect certain of our operations.
Because we conduct certain operations in the State of Israel, some of our business and operations may be affected by economic, political, geopolitical and military conditions in Israel. In October 2023, Hamas terrorists infiltrated Israel’s southern border from the Gaza Strip and conducted a series of attacks on civilian and military targets. Hamas also launched extensive rocket attacks on Israeli population and industrial centers located along Israel’s border with the Gaza Strip and in other areas within the State of Israel. Following the attack, Israel’s security cabinet declared war against Hamas and a military campaign against these terrorist organizations commenced in parallel to their continued rocket and terror attacks. Moreover, the clash between Israel and Hezbollah in Lebanon, may escalate in the future into a greater regional conflict. The intensity and duration of Israel’s current war against Hamas is difficult to predict, as are such war’s economic implications on the Company’s business and operations and on Israel’s economy in general.
Any hostilities involving Israel, or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect certain of our operations and results of operations and could make it more difficult for us to raise capital. The conflict in Israel could also result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to perform their commitments under those agreements pursuant to force majeure provisions in such agreements. There have been travel advisories imposed relating to travel to Israel, and restriction on travel, or delays and disruptions as related to imports and exports may be imposed in the future. Additionally, certain members of our management and employees are located and reside in Israel. Shelter-in-place and work-from-home measures, government-imposed restrictions on movement and travel and other precautions taken to address the ongoing conflict may temporarily disrupt our management and employees’ ability to effectively perform their daily tasks.
The Israel Defense Forces (the “IDF”), the national military of Israel, is a conscripted military service, subject to certain exceptions. Certain of our R&D and finance personnel live in Israel. Certain of our employees are subject to military service in the IDF and have been called to serve, and additional employees may be called to serve in the future. It is possible that there will be further military reserve duty call-ups in the future, which may affect our business due to a shortage of skilled labor and loss of institutional knowledge, and necessary mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, for example, may have unintended negative effects and adversely impact our results of operations, liquidity or cash flows. Additionally, the absence of employees of our Israeli suppliers and service providers due to their military service in the current or future wars or other armed conflicts may disrupt their operations, which in turn may adversely affect our ability to deliver or provide products and services to customers.
The hostilities with Hamas, Hezbollah and other organizations and countries have included and may include terror, missile and drone attacks. In the event that any of our facilities, including back-up information technology systems located in Israel, are damaged as a result of hostile actions, or hostilities otherwise disrupt our ongoing operations, our ability to deliver or provide products and services in a timely manner to meet our contractual obligations towards customers and vendors could be adversely affected. Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages. Any losses or damages incurred by us could have a material adverse effect on our business. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm our results of operations.
As of the date of this Quarterly Report, our operations have not been directly negatively affected by the ongoing hostilities in the region. As a result, as of the date of this Quarterly Report, our ability to deliver or provide products and services to our customers has not been materially affected. We cannot currently assess how the ongoing hostilities will affect our business conditions and harm our results of operations in the future, given the factors and risks discussed above.
| 39 |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 18, 2024 (the “Effective Date”), the Company entered into a strategic advisor agreement with an individual relating to the provision of strategic advice and assistance to the Company for a term of 12 months. In consideration for such services, the Company agreed to issue warrants to purchase up to 500,000 shares of Common Stock at an exercise price of $1.03, which vests one third on April 18, 2024, one third on July 18, 2024, and one third on October 18, 2024. These warrants and the shares of common stock underlying such warrants were issued in reliance upon an exemption from registration afforded by Section 4(a)(2) promulgated under the Securities Act of 1933, as amended.
On April 23, 2024 (the “Effective Date”), the Company entered into a strategic advisor agreement with an individual relating to the provision of strategic advice and assistance to the Company for a term of 12 months. In consideration for such services, the Company agreed to issue warrants to purchase up to 500,000 shares of Common Stock at an exercise price of $1.03, which vests one third on April 16, 2024, one third on July 16, 2024, and one third on October 16, 2024. These warrants and the shares of common stock underlying such warrants were issued in reliance upon an exemption from registration afforded by Section 4(a)(2) promulgated under the Securities Act of 1933, as amended.
On May 22, 2024 (the “Effective Date”), the Company entered into a strategic advisor agreement with an individual relating to the provision of strategic advice and assistance to the Company for a term of 12 months. In consideration for such services, the Company agreed to issue warrants to purchase up to 475,000 shares of Common Stock at an exercise price of $1.03, which vests one third on May 21, 2024, one third on August 21, 2024, and one third on November 21, 2024. These warrants and the shares of common stock underlying such warrants were issued in reliance upon an exemption from registration afforded by Section 4(a)(2) promulgated under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
Item 5. Other Information
None.
| 40 |
Item 6. Exhibits
Exhibits required by Item 601 of Regulation S-K
| 41 |
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: August 8, 2024 | |
| /s/ Victor Miller | |
| Victor Miller | |
| Chief Financial Officer, Treasurer and Secretary | |
| (Principal Financial Officer and Principal Accounting Officer) | |
| Date: August 8, 2024 |
| 42 |