Orgenesis(ORGS) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for Orgenesis Inc. as of June 30, 2022, show a decrease in total equity driven by a significant increase in net loss compared to the prior year. Total assets grew slightly, while total liabilities increased substantially, primarily due to new convertible loans. The company also reported a significant decrease in revenue for the six-month period Condensed Consolidated Balance Sheets As of June 30, 2022, total assets were $62.8 million, a slight increase from $59.8 million at year-end 2021. Total liabilities increased significantly to $31.0 million from $21.2 million, primarily due to an increase in convertible loans. Consequently, total equity decreased from $38.6 million to $31.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (USD) | December 31, 2021 (USD) | | :--- | :--- | :--- | | Total Current Assets | $25,458 | $25,758 | | Total Assets | $62,799 | $59,841 | | Total Current Liabilities | $16,245 | $15,365 | | Total Liabilities | $30,956 | $21,210 | | Total Equity | $31,843 | $38,631 | Condensed Consolidated Statements of Loss and Comprehensive Loss The company's net loss widened significantly for both the three and six-month periods ended June 30, 2022. For the six-month period, total revenues decreased to $14.4 million from $19.9 million in the prior year, while net loss attributable to Orgenesis Inc. increased to $9.4 million from $2.9 million. This resulted in a basic and diluted loss per share of $0.38 for the six-month period, up from $0.12 in 2021 Statement of Loss Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 (USD) | Three Months Ended June 30, 2021 (USD) | Six Months Ended June 30, 2022 (USD) | Six Months Ended June 30, 2021 (USD) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $7,201 | $10,545 | $14,413 | $19,934 | | Operating Loss | $4,732 | $2,322 | $7,968 | $2,266 | | Net Loss Attributable to Orgenesis Inc. | $5,427 | $2,659 | $9,436 | $2,878 | | Basic and Diluted Loss Per Share | $0.22 | $0.11 | $0.38 | $0.12 | Condensed Consolidated Statements of Changes in Equity Total equity decreased from $38.6 million on January 1, 2022, to $31.8 million on June 30, 2022. The decline was primarily driven by a comprehensive loss of $9.9 million for the period, which was partially offset by proceeds from share and warrant allotments and stock-based compensation - Equity attributable to Orgenesis Inc. decreased by $6.7 million in the first six months of 2022, from $38.5 million to $31.8 million, mainly due to a net loss of $9.4 million[18] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities was $9.2 million, an improvement from $16.0 million in the same period of 2021. Net cash used in investing activities increased to $4.9 million. These activities were funded by $10.9 million in net cash provided by financing activities, primarily from the issuance of convertible loans Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 (USD) | Six Months Ended June 30, 2021 (USD) | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,206) | $(16,047) | | Net cash used in investing activities | $(4,863) | $(1,562) | | Net cash provided by financing activities | $10,906 | $993 | | Net Change in Cash | $(3,163) | $(16,616) | Notes to Condensed Consolidated Financial Statements The notes detail the company's business as a global biotech firm focused on cell and gene therapies via its POCare Platform. A significant disclosure is the management's conclusion that there is substantial doubt about the company's ability to continue as a going concern due to accumulated deficits and negative cash flows. The notes also cover revenue disaggregation, recent financing activities including convertible loans and a private placement with defaulting investors, a new legal proceeding, and a significant subsequent financing event - The company's business model is centered on its Point of Care (POCare) Platform, which includes a pipeline of therapies, automated processing systems (OMPULs), and a global network of hospitals and research institutes[37][41] - Management has identified a substantial doubt about the Company's ability to continue as a going concern due to an accumulated deficit of $116 million and negative operating cash flows of $9.2 million for the six months ended June 30, 2022[47][49] - In a March 2022 private placement, the company received only $2.175 million of a planned $14.8 million due to defaulting investors[61] - The company is a defendant in a lawsuit filed by Chaim Sheba Medical Center, which seeks royalties and NIS 10 million in damages. The company believes the claims are without merit and has not made a provision for loss[78] - Subsequent to the quarter's end, on August 15, 2022, a subsidiary entered into a $10 million senior secured convertible loan agreement with an affiliate of Metalmark Capital Partners[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 28% decrease in revenue for the first six months of 2022 compared to 2021, primarily due to the completion of performance obligations under POC development service contracts. Despite lower revenues, the cost of revenues and R&D increased slightly. The company's liquidity position is strained, with working capital decreasing and a reiterated warning of substantial doubt about its ability to continue as a going concern. Operations were funded through convertible loan agreements, though some investors defaulted on their commitments Results of Operations For the three months ended June 30, 2022, revenues decreased 32% to $7.2 million from $10.5 million in Q2 2021. For the six-month period, revenues decreased 28% to $14.4 million. The decline was mainly from POC development services. Cost of revenues, development services, and R&D decreased 8% for the quarter but increased 3% for the six-month period, driven by higher salaries and other R&D expenses, offset by lower subcontracting fees. Selling, general, and administrative expenses saw a slight decrease - Revenue for Q2 2022 decreased by 32% year-over-year, mainly due to a decline in POC development services as major contracts from 2021 were largely completed. The company recognized its first revenue from point-of-care cell processing services ($416 thousand)[113] - For the six months ended June 30, 2022, revenues decreased by 28% year-over-year, also due to a decline in POC development services[120] Cost of Revenues, Development Services and R&D (Six Months Ended, in thousands) | Expense Category | June 30, 2022 (USD) | June 30, 2021 (USD) | | :--- | :--- | :--- | | Salaries and related expenses | $6,240 | $4,767 | | Subcontracting, professional and consulting services | $3,426 | $6,033 | | Other research and development expenses | $4,465 | $2,870 | | Total | $16,266 | $15,854 | Liquidity and Financial Condition The company's working capital decreased from $10.4 million at year-end 2021 to $9.2 million as of June 30, 2022. Net cash used in operating activities for the first six months of 2022 was $9.2 million. The company reiterates that current resources and commitments raise substantial doubt about its ability to continue as a going concern and that it plans to raise additional capital Working Capital (in thousands) | | June 30, 2022 (USD) | December 31, 2021 (USD) | | :--- | :--- | :--- | | Current Assets | $25,458 | $25,758 | | Current Liabilities | $16,245 | $15,365 | | Working Capital | $9,213 | $10,393 | - Management states that current and projected cash resources raise substantial doubt about the company's ability to continue as a going concern[134] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the company - The company has indicated that this disclosure is not applicable[136] Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022. There were 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 the end of the period covered by the report[138] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[139] PART II - OTHER INFORMATION Legal Proceedings The company refers to the notes in the financial statements regarding a legal proceeding. The relevant note details a complaint filed against the company by the State of Israel and Tel Hashomer Medical Research, seeking royalties and damages - Refers to Note 10 (Note 9 in the document) of the financial statements for details on a legal proceeding involving a claim for royalties from Chaim Sheba Medical Center[142][78] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes to the risk factors disclosed in the company's 2021 Form 10-K[144] Unregistered Sales of Equity Securities and Use of Proceeds The company has a stock repurchase plan approved in May 2020 for up to $10 million of its common stock. However, no shares were repurchased under this plan during the three months ended June 30, 2022 - No stock repurchases were made under the company's existing $10 million stock repurchase plan during the second quarter of 2022[145][146] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[147] Mine Safety Disclosures This section is not applicable to the company - Not Applicable[148] Other Information The company reported no other information - None[149] Exhibits This section lists all exhibits filed with the Form 10-Q, including material contracts such as the Securities Purchase Agreement and various Convertible Loan Agreements, as well as required CEO and CFO certifications - Exhibits filed include the Securities Purchase Agreement from March 2022, various convertible loan agreements from April and May 2022, and Sarbanes-Oxley Act certification statements[151]