Orgenesis(ORGS) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (unaudited) This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2023 Condensed Consolidated Balance Sheets The company's total assets and equity decreased significantly as of June 30, 2023, due to a subsidiary deconsolidation Condensed Consolidated Balance Sheets (in thousands USD) | Metric | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $54,767 | $90,928 | | Total Liabilities | $30,802 | $31,654 | | Equity Attributable to Orgenesis Inc. | $23,965 | $27,561 | - Current assets decreased by $37,023 thousand and current liabilities decreased by $3,199 thousand between December 31, 2022, and June 30, 2023, primarily due to the deconsolidation of the Octomera subsidiary[138] Condensed Consolidated Statements of Loss and Comprehensive Loss Revenues slightly decreased while cost of revenues surged, leading to lower gross profit but a reduced net loss Three Months Ended June 30 (in thousands USD, except per share) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $6,975 | $7,201 | -3% | | Cost of Revenues | $3,232 | $1,063 | +204% | | Gross Profit | $3,743 | $6,138 | -39% | | Operating Loss | $3,329 | $4,732 | -30% | | Net Loss Attributable to Orgenesis Inc. | $4,127 | $5,427 | -24% | | Basic and Diluted Loss per Share | $0.15 | $0.22 | -32% | Six Months Ended June 30 (in thousands USD, except per share) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $14,019 | $14,413 | -3% | | Cost of Revenues | $5,954 | $1,777 | +235% | | Gross Profit | $8,065 | $12,636 | -36% | | Operating Loss | $6,534 | $7,968 | -18% | | Net Loss Attributable to Orgenesis Inc. | $8,316 | $9,436 | -12% | | Basic and Diluted Loss per Share | $0.30 | $0.38 | -21% | Condensed Consolidated Statements of Changes in Equity Total equity decreased due to comprehensive loss, partially offset by share and warrant issuances Changes in Equity Attributable to Orgenesis Inc. (in thousands USD) | Item | January 1, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Equity Attributable to Orgenesis Inc. | $27,561 | $23,965 | Key Changes (Six Months Ended June 30, 2023) * Stock-based compensation: $311k * Issuance of shares and warrants (net): $3,341k * Deconsolidation of Non-controlling Interests: $(1,421)k * Comprehensive loss for the period: $(8,073)k Condensed Consolidated Statements of Cash Flows Net cash used in operations increased while financing activities remained a key source of cash inflow Cash Flow Summary (Six Months Ended June 30, in thousands USD) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(13,154) | $(9,206) | | Net cash used in investing activities | $(2,802) | $(4,863) | | Net cash provided by financing activities | $10,796 | $10,906 | | Net change in cash, cash equivalents and restricted cash | $(5,160) | $(3,163) | Notes to Condensed Consolidated Financial Statements These notes provide detailed context on business operations, accounting policies, and significant financial events NOTE 1 – DESCRIPTION OF BUSINESS The company focuses on POCare CGTs, recently segmented its business, and faces going concern uncertainty - Orgenesis Inc is a global biotech company focused on developing affordable and accessible autologous Cell and Gene Therapies (CGTs) for point-of-care (POCare) manufacturing[30] - The company separated its operations into two segments: Morgenesis (now Octomera) and Therapies, following an investment by Metalmark Capital Partners in November 2022[31] - Effective June 30, 2023, Orgenesis deconsolidated Octomera LLC from its financial statements due to changes in board composition, retaining approximately 75% equity interest[32] - The company faces substantial doubt about its ability to continue as a going concern, with an accumulated deficit of $130 million and negative operating cash flows of $13.2 million for the six months ended June 30, 2023[34][36] NOTE 2 - BASIS OF PRESENTATION Financials are prepared under U.S. GAAP, with recent accounting standard adoptions having no material impact - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and are consistent with the annual consolidated financial statements[38] - The adoption of new accounting pronouncements, ASU 2016-13 (Credit Losses) and ASU 2021-08 (Business Combinations), did not have a material impact on the company's consolidated financial statements[40][41] NOTE 3 – REDEEMABLE NON-CONTROLLING INTEREST AND DECONSOLIDATION The company deconsolidated its Octomera subsidiary, now accounting for its interest via the equity method - Metalmark Capital Partners made additional investments of $5 million and $1 million in Octomera LLC in May and June 2023, respectively[43][44] - As a result of board composition changes, Orgenesis deconsolidated Octomera LLC on June 30, 2023, recording a net profit of $411 thousand from the transaction[45] - The company now accounts for its approximately 75% interest in Octomera as an equity method investment, valued at $31.4 million[46] Deconsolidated Amounts from Balance Sheet (in thousands USD) | Item | Amount | | :--- | :--- | | Total Assets | $77,633 | | Total Liabilities | $8,879 | | Redeemable Non-Controlling Interest | $36,203 | | Net Assets Deconsolidated | $32,551 | NOTE 4 – SEGMENT INFORMATION The company reports results for its Octomera (POCare Services) and Therapies (development) segments - The company operates in two reportable segments: Octomera (POCare Services) and Therapies (therapeutic development)[50] Segment Data (Six Months Ended June 30, in thousands USD) | Metric | Octomera (2023) | Therapies (2023) | Consolidated (2023) | Octomera (2022) | Therapies (2022) | Consolidated (2022) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $13,779 | $240 | $14,019 | $14,086 | $3,862 | $14,413 | | Gross profit | $8,695 | $(158) | $8,537 | $12,762 | $3,222 | $12,805 | | Income (loss) before income taxes | $(700) | $(7,414) | $(7,702) | $2,908 | $(12,385) | $(9,477) | NOTE 5 – EQUITY The company raised capital through a registered direct offering of common shares and warrants in February 2023 - In February 2023, Orgenesis completed a registered direct offering, issuing 1,947,368 common shares and warrants for 973,684 shares, raising $3.7 million in gross proceeds[57][58] - All warrants, with an exercise price of $1.90 per share, were exercised using an alternate cashless exercise option by June 30, 2023[58][59] NOTE 6 – CONVERTIBLE LOANS The company increased its convertible loan balance through new agreements and extended existing loan maturities Convertible Loans Outstanding (in thousands USD) | Date | Amount | | :--- | :--- | | June 30, 2023 | $19,085 | | December 31, 2022 | $16,600 | - In January 2023, the company entered into new convertible loan agreements totaling $5 million, bearing 8% annual interest and convertible at $2.464 per share, maturing in three years[64][65][66] - Koligo Therapeutics Inc, a subsidiary, secured a convertible loan of up to $5 million in March 2023, with $485 thousand drawn by June 30, 2023, at an 8% annual interest rate, repayable by January 1, 2024[70][73] - In January 2023, $12 million in existing convertible loans were extended to January 31, 2026, with interest rates increasing to 10% (for most) and conversion prices reduced to $2.50 (for most)[75] NOTE 7 – STOCK-BASED COMPENSATION The company granted stock options to employees and non-employees during the first half of 2023 Options Granted (January 1, 2023 to June 30, 2023) | Recipient | No. of Options Granted | Exercise Price | Fair Value at Grant (in thousands) | Vesting Period | Expiration Period | | :--- | :--- | :--- | :--- | :--- | :--- | | Employees | 53,500 | $1.36 | $46 | Quarterly over 2 years | 10 years | | Non-employees | 8,335 | $1.36 | $9 | Annually over 5 years | 10 years | NOTE 8 – LOSS PER SHARE Basic and diluted loss per share decreased, with potential dilutive securities excluded as anti-dilutive Basic and Diluted Loss per Share (in USD) | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three Months Ended June 30 | $0.15 | $0.22 | | Six Months Ended June 30 | $0.30 | $0.38 | - All outstanding convertible notes, options, and warrants were excluded from the calculation of diluted net loss per share for both periods as their effect was anti-dilutive[81][82] NOTE 9 – REVENUES Total revenues saw a slight decline, with a significant shift in composition among revenue streams Total Revenues (in thousands USD) | Period | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $6,975 | $7,201 | -3% | | Six Months Ended June 30 | $14,019 | $14,413 | -3% | Revenue Stream Changes (Six Months Ended June 30, in thousands USD) | Revenue Stream | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | POC development services | $0 | $12,598 | -100% | | Cell development process services and hospital services | $8,488 | $1,399 | +507% | | POC cell processing | $5,531 | $416 | +1229% | - Trade receivables decreased significantly from $36,183 thousand at the beginning of the period to $6 thousand at the end of the period for H1 2023, primarily due to the deconsolidation of Octomera ($44,116 thousand)[85] NOTE 10 – OTHER SIGNIFICANT TRANSACTIONS DURING THE SIX MONTHS ENDED JUNE 30, 2023 The company updated its joint venture agreements, assigning certain rights and obligations to a third party - In January 2023, Orgenesis updated joint venture agreements (JVAs), assigning certain rights and obligations to Texas Advanced Therapies LLC[87] - Orgenesis retained call options to acquire JV partner shares, royalty rights, and manufacturing/service agreement rights, but is no longer entitled to additional GAAP profit share or obligated for further funding[87] NOTE 11 – LEGAL PROCEEDINGS The company is a defendant in a lawsuit seeking royalties and damages, but no provision has been made - Orgenesis Inc and its Israeli subsidiary are defendants in a lawsuit filed in January 2022, seeking 7% royalties on sales and 24% on sublicense revenues related to Sheba Medical Center's know-how and technology, plus NIS 10 million[88] - No provision has been made in the financial statements as a material loss is not considered probable[88] NOTE 12 – SUBSEQUENT EVENTS Key events after the reporting period include a CFO change, a new loan, a JV settlement, and licensing deals - Neil Reithinger resigned as CFO, Treasurer, and Secretary, effective September 1, 2023, and Elliot Maltz was appointed as his successor[89][90] - The Israeli Subsidiary received a $175 thousand loan, and the company settled a joint venture with Mircod LLC for $1 million consideration (half cash, half shares)[90][91] - Orgenesis sub-licensed certain therapies for royalties and milestone payments, and granted/received call/put options related to a sub-licensee's equity interest, valued at not less than $8 million[92] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, strategic shifts, and liquidity challenges, including a going concern warning - Orgenesis is a global biotech company focused on developing affordable and accessible autologous Cell and Gene Therapies (CGTs) through its POCare Platform and Network[98][99][100] - Operations were separated into Octomera (POCare Services) and Therapies (therapeutic development) segments, with Octomera deconsolidated on June 30, 2023, while Orgenesis retained approximately 75% equity[101][102][103] - The Therapies segment focuses on in-licensing promising therapies, adapting them to POCare, and out-licensing for market approval, aiming to lower development costs and leverage regional partnerships and grants[107][108][109] - The Octomera segment provides POCare Services, including process development, automation adaptation, GMP-compliant production in OMPULs, tech transfers, training, and CRO services, through decentralized hubs[111][112][113] - Key developments in H1 2023 include receiving $5 million in new convertible loans, raising $3.7 million gross from an equity offering, Koligo Therapeutics securing a convertible loan of up to $5 million, and updating joint venture agreements[115][116][117][120] Financial Performance Highlights (Three Months Ended June 30, in thousands USD) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $6,975 | $7,201 | -3% | | Cost of Revenues | $3,232 | $1,063 | +204% | | R&D Expenses | $3,527 | $7,838 | -55% | | SG&A Expenses | $3,337 | $2,803 | +19% | | Financial Expenses, net | $655 | $389 | +68% | Financial Performance Highlights (Six Months Ended June 30, in thousands USD) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $14,019 | $14,413 | -3% | | Cost of Revenues | $5,954 | $1,777 | +235% | | R&D Expenses | $6,808 | $14,489 | -53% | | SG&A Expenses | $7,376 | $5,654 | +30% | | Financial Expenses, net | $1,299 | $602 | +116% | - Working capital decreased significantly from $30,408 thousand at December 31, 2022, to $(3,416) thousand at June 30, 2023, primarily due to the deconsolidation of Octomera[137][138] - The company's current and projected cash resources raise substantial doubt about its ability to continue as a going concern, necessitating additional capital raises and revenue growth initiatives[145] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section states that disclosures about market risk are not applicable for this quarterly report - This item is not applicable[147] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the end of the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2023, at a reasonable assurance level[149] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2023[150] PART II - OTHER INFORMATION ITEM 1. Legal Proceedings This section refers to Note 11 for details on legal proceedings, confirming no other material cases exist - Information regarding legal proceedings is available in Note 11 to the condensed consolidated financial statements[153] - There are no other material pending legal proceedings[154] ITEM 1A. Risk Factors This section confirms no material changes to the risk factors disclosed in the latest Annual Report on Form 10-K - Readers should refer to the "Risk Factors" section of the Annual Report on Form 10-K for the year ended December 31, 2022[155] - There have been no material changes to the risk factors contained in the Annual Report on Form 10-K[155] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the reporting period - None[156] ITEM 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities during the reporting period - None[157] ITEM 4. Mine Safety Disclosures The company states that this item is not applicable to its operations - Not Applicable[158] ITEM 5. Other Information The company reports no other information required to be disclosed under this item - None[159] ITEM 6. Exhibits This section lists the exhibits filed with the report, including material contracts and required certifications - Exhibits include Amendment No 1 and No 2 to the Unit Purchase Agreement and Amendment No 1 to the Second Amended and Restated Limited Liability Company Agreement of Morgenesis LLC (now Octomera LLC)[161] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes Oxley Act of 2002 are filed[161] - Interactive Data Files (XBRL Instance Document and Taxonomy Extensions) are included[161] SIGNATURES - The report is signed by Vered Caplan, President & Chief Executive Officer, and Neil Reithinger, Chief Financial Officer, Treasurer and Secretary, on August 10, 2023[165]