Orgenesis(ORGS) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (unaudited) Orgenesis Inc.'s unaudited condensed consolidated financial statements are presented, reflecting the Masthercell business as a discontinued operation Condensed Consolidated Balance Sheets Total assets increased to $119.2 million from $92.5 million, driven by cash from the Masthercell sale, significantly boosting equity to $88.4 million Balance Sheet Highlights (in thousands) | Balance Sheet Highlights (in thousands) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $97,487 | $107 | | Total current assets | $104,312 | $78,348 | | TOTAL ASSETS | $119,196 | $92,495 | | Liabilities & Equity | | | | Total current liabilities | $19,758 | $42,434 | | TOTAL LIABILITIES | $30,807 | $55,462 | | Total equity | $88,389 | $6,078 | - The balance sheet no longer includes assets and liabilities of discontinued operations as of June 30, 2020, which amounted to $75.2 million and $31.6 million respectively at December 31, 2019[10][13] Condensed Consolidated Statements of Comprehensive Loss (Income) Net loss from continuing operations increased to $34.1 million, but a $54.6 million gain from discontinued operations resulted in overall net income Income Statement Highlights (in thousands) | Income Statement Highlights (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total revenues | $3,627 | $1,550 | | Operating loss | $33,505 | $13,123 | | Net loss from continuing operation | $34,136 | $13,203 | | Net (income) from discontinued operations | ($88,760) | $1,072 | | Net (income) loss | ($54,624) | $14,275 | - For the second quarter of 2020, total revenues increased to $1.75 million from $1.13 million year-over-year, with a net loss from continuing operations of $27.1 million, offset by $6.7 million income from discontinued operations, resulting in a total net loss of $20.4 million[14] Condensed Consolidated Statements of Changes in Equity Total equity surged from $6.1 million to $88.4 million, driven by $54.9 million comprehensive income and increased paid-in capital - For the six months ended June 30, 2020, comprehensive income attributable to Orgenesis Inc. was $54.9 million, which reversed the accumulated deficit from ($89.4 million) to ($34.3 million)[16] - Additional paid-in capital increased by approximately $27.8 million during the first half of 2020, mainly due to stock-based compensation for the Tamir purchase agreement ($17.7 million) and the issuance of shares and warrants ($8.4 million)[16] Condensed Consolidated Statements of Cash Flows Net cash provided by investing activities was $102.8 million, primarily from the $104.2 million Masthercell sale, leading to an $86.1 million increase in cash Cash Flow Summary (in thousands) | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($22,834) | ($8,168) | | Net cash provided by (used in) investing activities | $102,772 | ($3,947) | | Net cash provided by financing activities | $6,159 | $13,796 | | Net change in cash | $86,097 | $1,681 | - The primary source of cash was the $104.2 million received from the sale of subsidiaries (Masthercell)[29] Notes to Condensed Consolidated Financial Statements Notes detail the strategic shift to a CGT Biotech Platform, the $315 million Masthercell sale, and the Tamir Biotechnology asset acquisition - On February 10, 2020, the company sold its Masthercell Business for a nominal purchase price of $315 million, receiving net proceeds of approximately $126.7 million, and this business is now classified as a Discontinued Operation[36][57] - The gain on disposal of the Masthercell business was $102.6 million before taxes, resulting in a net profit from discontinued operations of $88.8 million for the six months ended June 30, 2020[60] - On April 23, 2020, the company acquired assets from Tamir Biotechnology for a total consideration of $20.2 million, consisting of $2.462 million in cash and 3.4 million shares of common stock, expensing $19.5 million as research and development related to this asset acquisition[41][97][99] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to a CGT Biotech Platform after the CDMO business sale, detailing improved liquidity and increased R&D expenses - The company sold its CDMO Business (Masthercell) on February 10, 2020, for a nominal price of $315 million, receiving net proceeds of approximately $126.7 million, shifting its focus entirely to its point-of-care CGT Biotech Platform[115] - The company's business strategy is now centered on its CGT Biotech Platform, which consists of three components: POCare Therapeutics, POCare Technologies, and a POCare Network of collaborative partners[116] Results of Operations Revenues from continuing operations increased 134% to $3.6 million, while R&D expenses surged 299% to $29.4 million due to the Tamir acquisition Metric (in thousands) | Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Total Revenues | $3,627 | $1,550 | | R&D Expenses | $29,423 | $7,373 | | SG&A Expenses | $7,129 | $5,775 | - The primary driver for the 1092% increase in R&D expenses for Q2 2020 was the recognition of $19.5 million in expenses related to the Tamir Purchase Agreement[128][130] - The 23% increase in SG&A expenses for the first six months of 2020 was mainly due to a $2.2 million increase in accounting and legal fees related to recent business and collaboration agreements[137][138] Liquidity and Financial Condition The Masthercell sale provided $126.7 million in net proceeds, significantly strengthening liquidity with working capital at $84.6 million, sufficient for the next 12 months - The company received approximately $126.7 million from the Masthercell Sale and an additional $9.24 million from a private placement in January 2020[140][144] Working Capital (in thousands) | Working Capital (in thousands) | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Current assets | $104,312 | $78,348 | | Current liabilities | $19,758 | $42,434 | | Working capital | $84,554 | $35,914 | - Management believes that proceeds from the Masthercell Sale and its business plan provide sufficient liquidity for at least the next 12 months[143] Quantitative and Qualitative Disclosures About Market Risk The company states that this section is not applicable - The company states that there are no applicable quantitative and qualitative disclosures about market risk[147] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[149] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[150] PART II - OTHER INFORMATION Legal Proceedings The company reports no material pending legal proceedings involving itself or its subsidiaries - The company is not aware of any material pending legal proceedings involving the company, its subsidiaries, directors, or officers[153][154] Risk Factors This section references prior risk factors and highlights new risks related to potential business disruptions from the COVID-19 outbreak - A new risk factor has been identified related to the COVID-19 outbreak, which has the potential to cause disruptions in the company's business, including its preclinical studies and clinical trials[156] - The extent of the impact from COVID-19 is highly uncertain and will depend on future developments, but could materially affect business, financial condition, and results of operations[158] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[159] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[160] Mine Safety Disclosures This section is not applicable to the company - Not Applicable[161] Other Information The company reported no other information - None reported[162] Exhibits This section lists exhibits filed with the Form 10-Q, including the Tamir Biotechnology Asset Purchase Agreement and officer certifications - Key exhibits filed include the Asset Purchase Agreement with Tamir Biotechnology, Inc. dated April 12, 2020, and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act[163]