Orgenesis Inc. - Quarter Report: 2022 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022

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: 001-38416

ORGENESIS INC.

(Exact name of registrant as specified in its charter)

20271 Goldenrod Lane

Germantown, MD 20876

(Address of principal executive offices) (Zip Code)

(480) 659-6404

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.

Yes ☒ No ☐

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).

Yes ☒ No ☐

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.

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 15, 2022, there were 25,545,755 shares of registrant’s common stock outstanding

ORGENESIS INC.

FORM 10-Q

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

TABLE OF CONTENTS

PART I –FINANCIAL INFORMATION

Item 1. Financial Statements

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. Dollars in thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Cont’d)

(U.S. Dollars in thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(U.S. Dollars in thousands, except share and loss per share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. Dollars in thousands, except share amounts)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. Dollars in thousands)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ORGENESIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Six Months Ended June 30, 2022 and 2021

(Unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS

Orgenesis Inc., a Nevada corporation, 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 (“ATMP”). The Company mostly focused on autologous therapies, with processes and systems that are developed for each therapy using a closed and automated processing system approach that is validated for compliant production near the patient for treatment of the patient at the point of care (“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, the Company has developed a Point of Care Platform (“POCare Platform”) comprised of three enabling components: (i) a pipeline of licensed POCare advanced therapies that are designed to be processed and produced, (ii) automated closed POCare technology systems, and (iii) a collaborative worldwide network of POCare research institutes and hospitals (“POCare Network”).

The POCare Platform relies in particular on the development of its own production capacity, known as “POCare Services”, whose goal is to ensure that therapies are accessible at the point of treatment (the “POCare Center”). POCare Services, which have been expanding worldwide, are based on a global approach and local adaptation that allows replication and expansion. Global harmonization of the POCare Services is ensured by a central quality system, replicability of infrastructure and equipment and centralized monitoring and data management.

The POCare Services include:

POCare Centers are the decentralized hubs that provide harmonized services to customers and partners. The Company is working to provide a more efficient and scalable pathway for advanced therapies to reach patients more rapidly at lowered costs. The workflow of a POCare Center is designed to allow rapid capacities expansion while integrating new technologies. The Company also draws on extensive medical expertise to identify promising new autologous therapies to leverage within the POCare Platform either via ownership or licensing.

The POCare Network brings together patients, doctors and industry partners with a goal of achieving harmonized, regulated clinical development and production of POCare advanced therapies.

The Company has worked to develop and validate POCare technologies that can be combined within mobile production units for advanced therapies. The Company has made significant investments in the development of several types of Orgenesis Mobile Processing Units and Labs (“OMPULs”) with the expectation of use and/or distribution through the Company’s POCare Network and/or partners, collaborators, and regional distributors. As of the date of this report, the OMPULs have been adapted for processing of CAR-T (chimeric antigen receptor T-cell) therapy, TIL (tumor infiltrating lymphocyte) based products, and are in the qualification stage for clinical use in various locations. Additional OMPULs are still in the development stage.

OMPULs are designed for the purpose of validation, development, performance of clinical trials, manufacturing and/or processing of potential or approved advanced therapy products in a safe, reliable, and cost-effective manner at the point of care, as well as the manufacturing of such CGTs in a consistent and standardized manner in all locations. The OMPUL design delivers a potential industrial solution for us to deliver CGTs to practically any clinical institution at the point of care.

The Company has continued to grow its infrastructure and expand its processing sites into new markets and jurisdictions. In addition, the Company has continued investing manpower and financial resources to focus on developing, processing and rolling out several types of OMPULs to be used and/or distributed through its POCare Network and/or partners, collaborators, and regional distributors. The Company started generating revenues from cell-processing services in the second quarter of 2022.

The Chief Executive Officer is the Company’s chief operating decision-maker who reviews financial information prepared on a consolidated basis. All of our continuing operations are in one segment, being the point-of-care business via our POCare Platform. Therefore, no segment information has been presented.

The Company currently conducts its core CGT business operations through itself and its subsidiaries which are all wholly owned except as otherwise stated (collectively, the “Subsidiaries”). The Subsidiaries are as follows:

These consolidated financial statements include the accounts of Orgenesis Inc. and its subsidiaries.

The Company’s common stock, par value $0.0001 per share (the “Common Stock”) is listed and traded on the Nasdaq Capital Market under the symbol “ORGS.”

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.

As of June 30, 2022, the Company had an accumulated deficit of $116 million and for the six months ended June 30, 2022 had negative operating cashflows of $9.2 million. The Company’s activities have been funded by generating revenue through proceeds from convertible loans and through offerings of the Company’s securities. There is no assurance that the Company’s business will generate sustainable positive cash flows to fund its business.

If there are further increases in operating costs for facilities expansion, research and development, commercial and clinical activity or decreases in revenues from customers, the Company will need to use mitigating actions such as to seek additional financing or postpone expenses that are not based on firm commitments. In addition, in order to fund the Company’s operations until such time that the Company can generate sustainable positive cash flows, the Company may need to raise additional funds.

Current and projected cash resources and commitments, as well as other factors mentioned above, raise a substantial doubt about the Company’s ability to continue as a going concern to meet the Company’s current operations for the next 12 months. Management plans include raising additional capital to fund its operations, as well as exploring additional avenues to increase revenue and reduce capital expenditures. If the Company is unable to raise sufficient additional capital or meet revenue targets, it may have to curtail certain activities. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The estimation and execution uncertainty regarding the Company’s future cash flows and management’s judgments and assumptions in estimating these cash flows to conclude that the Company would have sufficient liquidity to fund its operations for at least the next 12 months 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, 2021, as filed with the Securities and Exchange Commission (“SEC”). The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2021, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included.

b. Significant accounting policies

The accounting policies adopted are consistent with those of the previous financial year except as described below:

Recently adopted accounting pronouncements

In the first quarter of 2022, the Company early adopted Accounting Standards Update (“ASU”) ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). The update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and limiting the number of embedded conversion features separately recognized from the primary contract. The guidance also includes targeted improvements to the disclosures for convertible instruments and earnings per share. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 in the first quarter of 2022 using the modified retrospective method which resulted with no material effect.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). The guidance is effective for the Company on January 1, 2022. The Company adopted ASU 2021-24 in the first quarter of 2022 which resulted with no material effect on the Company’s consolidated financial statements.

Use of Estimates in the Preparation of Financial Statements

The preparation of our 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, we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe 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 and determining whether an acquisition is a business combination or a purchase of asset. Actual results could differ from those estimates.

The full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. We examined the impact of COVID-19 on our financial statements, and although there is currently no major impact, there may be changes in future periods and actual results may differ from these estimates.

Recently issued accounting pronouncements, not yet adopted

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for Smaller Reporting Companies (SRCs, as defined by the SEC) for the fiscal year beginning on January 1, 2023, including interim periods within that year. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08 “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance will result in the acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.

NOTE 3 – EQUITY

On March 30, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement) with certain investors (collectively, the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors, in a private placement (the “Offering”), an aggregate of 4,933,333 shares of the Company’s Common Stock at a purchase price of $3.00 per share and warrants to purchase up to an aggregate of 1,000,000 shares of Common Stock at an exercise price of $4.50 per share. The warrants are not exercisable until after six months and expire three years from the date of issuance. As of June 30, 2022, the Company received gross proceeds of $2.175 million before deducting related offering expenses. The Company does not expect to receive the remaining $12.625 million from the defaulting investors. The Company issued an aggregate of 725,000 shares of Common Stock and warrants to purchase 146,959 shares of Common Stock pursuant to the Purchase Agreement. In connection with the Purchase Agreement, the Company and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company has agreed to register the resale of the Shares and Underlying Shares on a registration statement on Form S-3 (the “Registration Statement”) to be filed with the United States Securities and Exchange Commission (the “SEC”) within sixty (60) days after the closing of the Offering and to cause the Registration Statement to be declared effective within ninety (90) days after the closing of the Offering (or one hundred and twenty (120) days after the closing of the Offering if the SEC reviews the Registration Statement).

NOTE 4 – CONVERTIBLE LOANS

Extension of convertible loan agreements

During the year ended December 31, 2021, the Company and certain convertible loan holders agreed to extend the maturity date on loans due during the fourth quarter of 2021 to June 30, 2023. The principal amount extended was $2.25 million. The loan repayment extension included the loan holders’ right to request that the Company repay them on November 21, 2022 (the “Early Redemption Option”). During March 2022, the loan holders waived the Early Redemption Option. Based on the analysis, the Company concluded that the change in terms should be accounted for as a modification.

In addition, on June 6, 2019, the Company entered into a private placement subscription agreement with J. Ezra Merkin (the “Lender”), pursuant to which the Lender purchased from the Company a 6% Unsecured Convertible Note in the aggregate principal amount of $1,950,000 (the “Convertible Note”), which is convertible, at the discretion of the Lender, into units at a conversion price of $7.00 per unit, each unit consisting of one share of Common Stock and a warrant, exercisable for three (3) years, to purchase one share of Common Stock at a price of $7.00 per share. On July 15, 2022, the Company and the Lender entered into an amendment to such Convertible Note, the Convertible Note Extension Agreement, which amended the Convertible Note as follows:

Convertible loan agreements executed during the three months ended June 30, 2022

During April and May 2022, the Company entered into three convertible loan agreements (the “Convertible Loan Agreements”) with three non-U.S. investors (the “Lenders”), pursuant to which the Lenders agreed to loan the Company an aggregate of $13 million (the “Loan Amount”). Interest is calculated at 6% per annum (based on a 365-day year) and is payable, along with the principal, during or before the third quarter of 2023. At any time prior to or on the maturity date, the Lenders may provide the Company with written notice to convert all or part of the loans into shares of our common stock at a conversion price equal to $4.50 per share (subject to adjustment for certain capital events, such as stock splits) (the “Conversion Price”).

In connection with such loans, the Company agreed to issue the Lenders warrants representing the right to purchase an aggregate of 722,223 shares of the Company’s common stock (which is 25% of the shares of our common stock into which the loans are initially convertible at the Conversion Price), at an exercise price per share of $4.50 per share. Such warrants will be exercisable at any time beginning six months and one day after the closing date and ending 36 months after such closing date.

The Company has not yet received $3.85 million under one of the convertible loan agreements, and does not expect to receive any further loan proceeds from such defaulting Lender. Accordingly 313,888 associated warrants will not be issued.

 SCHEDULE OF CONVERTIBLE LOANS OUTSTANDING

During the three months ended June 30, 2022, the Company redeemed the following convertible loans:

SCHEDULE OF LONG TERM CONVERTIBLE LOANS

Convertible Loans repaid during the period ended June 30, 2022

NOTE 5 – STOCK-BASED COMPENSATION

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, 2022 to June 30, 2022:

SCHEDULE OF EMPLOYEE STOCK OWNERSHIP PLAN DISCLOSURES

The fair valuation of these option grants is based on the following assumptions:

 SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS

The table below summarizes all the options for the purchase of shares in the Company granted to consultants and service providers during the period from January 1, 2022 to June 30, 2022:

 SCHEDULE OF STOCK OPTIONS GRANTED TO CONSULTANTS

The fair valuation of these option grants is based on the following assumptions:

 SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS

NOTE 6 – LOSS PER SHARE

The following table sets forth the calculation of basic and diluted loss per share for the period indicated:

 SCHEDULE OF BASIC AND DILUTED LOSS PER SHARE

For the six months ended June 30, 2022 and June 30, 2021, 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 does not include 6,205,193 shares underlying outstanding options and warrants and 2,152,298 shares upon conversion of convertible loans for the six months ended June 30, 2022, because the effect of their inclusion in the computation would be antidilutive. Diluted loss per share does not include 7,518,936 shares underlying outstanding options and warrants and 1,634,559 shares upon conversion of convertible loans for the six months ended June 30, 2021, because the effect of their inclusion in the computation would be antidilutive.