Orgenesis(ORGS) - 2022 Q3 - Quarterly Report

PART I Financial Statements (unaudited) Unaudited financial statements for the nine months ended September 30, 2022, show decreased revenues, a reduced net loss, increased assets and liabilities, and significant financing cash inflows, including a key investment in Morgenesis LLC Condensed Consolidated Balance Sheets As of September 30, 2022, total assets increased to $70.7 million, liabilities rose sharply to $40.4 million due to convertible loans, and total equity decreased to $30.3 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $31,856 | $25,758 | +$6,098 | | Cash and cash equivalents | $3,015 | $5,473 | -$2,458 | | Accounts receivable, net | $23,744 | $15,245 | +$8,499 | | Total Assets | $70,690 | $59,841 | +$10,849 | | Total Current Liabilities | $34,168 | $15,365 | +$18,803 | | Short-term convertible loans | $22,488 | $5,885 | +$16,603 | | Total Liabilities | $40,440 | $21,210 | +$19,230 | | Total Equity | $30,250 | $38,631 | -$8,381 | Condensed Consolidated Statements of Loss and Comprehensive Loss For the nine months ended September 30, 2022, total revenues decreased by 21.7% to $22.4 million, while reduced operating expenses led to an improved net loss of $10.8 million Statement of Loss Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $22,401 | $28,610 | -21.7% | | Operating Loss | $7,975 | $9,925 | -19.6% | | Net Loss Attributable to Orgenesis Inc. | $10,792 | $13,037 | -17.2% | | Basic and Diluted Loss Per Share | $0.43 | $0.54 | Improved | Condensed Consolidated Statements of Changes in Equity Total equity decreased from $38.6 million to $30.3 million as of September 30, 2022, primarily due to a $10.8 million net loss, partially offset by capital contributions - Equity decreased by $8.3 million during the first nine months of 2022, mainly due to the net loss for the period[16] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash used in operating activities improved to $14.2 million, while financing activities provided $20.1 million, primarily from new convertible loans Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(14,163) | $(24,402) | | Net cash used in investing activities | $(7,458) | $(6,644) | | Net cash provided by financing activities | $20,095 | $989 | | Net Change in Cash | $(1,526) | $(30,057) | Notes to Condensed Consolidated Financial Statements Notes detail the company's POCare platform, the formation of Morgenesis LLC with a significant Metalmark Capital investment, and disclose substantial doubt about going concern status and a legal proceeding - The company's financial condition raises substantial doubt about its ability to continue as a going concern. Management's plans include raising additional capital and exploring ways to increase revenue and reduce expenditures[43] - In August 2022, the company formed Morgenesis LLC to hold substantially all assets of its POCare Services business, streamlining service units into one entity[39] - Subsequent to the quarter end, on November 4, 2022, Metalmark Capital agreed to invest $30.2 million in Morgenesis, with potential future payments up to $20 million and an optional investment of up to $60 million. This investment is intended to finance and expand the POCare Services business[86][87][88] - The company is involved in a legal proceeding with the State of Israel, which is seeking declaratory remedy and payment of royalties related to certain technology. The company believes the claims are without merit and has not made a provision for loss[82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on POCare therapies, the formation of Morgenesis LLC with Metalmark Capital investment, and the need for additional capital despite reduced net loss and expenses - The company formed Morgenesis LLC to hold its POCare Services business and secured a strategic investment from Metalmark Capital, expected to provide $30.2 million initially, with potential for up to $80 million in additional funding[103][105][107] - Management acknowledges that current and projected cash resources raise substantial doubt about the company's ability to continue as a going concern, and plans to raise additional capital to fund operations[144] Results of Operations For the nine months ended September 30, 2022, total revenues decreased by 22% to $22.4 million, offset by significant reductions in cost of revenues, R&D, and SG&A expenses Revenue Comparison (in thousands) | Period | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $22,401 | $28,610 | -22% | Expense Comparison (in thousands) | Expense Category | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Cost of revenues, dev. services & R&D | $20,932 | $25,861 | -19% | | Selling, general and administrative | $8,758 | $11,961 | -27% | - The decrease in SG&A expenses is primarily due to a reduction in salaries and related expenses; a discretionary bonus was paid to the CEO in Q3 2021 which was not repeated in 2022. This was partially offset by higher legal and accounting fees related to 2022 financing activities[128][135] Liquidity and Financial Condition As of September 30, 2022, the company faced a working capital deficiency of $2.3 million due to an $18.8 million increase in current liabilities from new convertible loans, offset by $20.1 million in financing activities Working Capital (in thousands) | | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Current Assets | $31,856 | $25,758 | | Current Liabilities | $34,168 | $15,365 | | Working Capital (Deficiency) | $(2,312) | $10,393 | - Net cash provided by financing activities was $20.1 million for the nine months ended Sep 30, 2022, compared to only $1.0 million in the prior-year period, due to additional equity and debt financing[142] - The company states it will need to raise additional capital to fund its operations (separate from the Morgenesis subsidiary) and to repay outstanding convertible loans as they become due[143] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company's current operations - Not applicable[146] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the reporting period[148] - No material changes to the internal control over financial reporting were identified during the quarter ended September 30, 2022[149] PART II Legal Proceedings The company is defending against a legal proceeding in Israel seeking royalties related to technology, believing the claims are without merit - A complaint was filed against the company in Israel by the State of Israel and Tel Hashomer Medical Research, seeking royalties and NIS 10 million related to a 2012 license agreement. The company considers the claims to be without merit[82][151] Risk Factors Substantial doubt exists regarding the company's ability to continue as a going concern without significant changes or additional capital - A key risk factor is the substantial doubt about the company's ability to continue as a going concern, which is dependent on raising additional capital or making significant changes to its operating plan[154] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the company's stock repurchase plan during the three months ended September 30, 2022 - No shares were repurchased under the company's existing stock repurchase plan during the third quarter of 2022[156] Defaults Upon Senior Securities No defaults upon senior securities were reported - None[157] Mine Safety Disclosures This section is not applicable - Not Applicable[158] Other Information No other material information was reported - None[159] Exhibits The report includes key exhibits such as convertible loan agreements and CEO/CFO certifications - Key exhibits filed include a Convertible Note Extension Agreement and the Senior Secured Convertible Loan Agreement with an affiliate of Metalmark Capital Partners[161]