10-Q/A: Orgenesis Inc. Restates Q1 2023 Financials Due to Accounting Errors

Orgenesis Inc. has amended its Q1 2023 quarterly report to restate financial statements due to errors in revenue recognition and credit loss accounting.

Summary

• Orgenesis Inc. has restated its financial statements for the quarter ended March 31, 2023, due to errors in accounting for revenues, accounts receivable, selling, general and administration expenses, and convertible loan receivables.
• The restatement resulted in a decrease in previously reported revenue from $7.044 million to $0.142 million.
• The company also reported a net loss of $23.377 million for the quarter, compared to a previously reported loss of $4.261 million.
• The company's management has determined that its disclosure controls and procedures and internal control over financial reporting were not effective as of March 31, 2023, due to the inappropriate measurement of expected credit losses and revenues.
• The company's activities have been funded primarily by generating revenue, offerings of the company's securities and convertible loans.
• There is no assurance that the company's business will generate sustainable positive cash flows to fund its business operations.
• The company may need to raise additional funds to continue operations.

Sentiment

Score: 2

Explanation: The document reveals significant financial and operational issues, including a major restatement, substantial losses, and doubts about the company's ability to continue as a going concern. This indicates a very negative outlook from an investment perspective.

Positives

• The company raised $3.7 million through a securities offering and $5 million through convertible loans during the quarter.
• The company is working to expand the number and scope of its POCare Centers.

Negatives

• The company restated its Q1 2023 financials due to significant accounting errors.
• The company's revenue decreased by 98% compared to the same period last year.
• The company's net loss increased significantly to $23.377 million.
• The company identified material weaknesses in its internal control over financial reporting.
• The company's management has expressed substantial doubt about the company's ability to continue as a going concern.
• The company incurred negative cashflows from operating activities of $7.2 million.

Risks

• The company's ability to generate sustainable positive cash flows is uncertain.
• The company may need to raise additional funds to continue operations.
• There is a substantial doubt about the company's ability to continue as a going concern.
• The company's internal controls over financial reporting are not effective.
• The company's business, operating results and financial condition could be adversely affected due to any of those risks.

Future Outlook

The company plans to raise additional capital to fund operations and repay outstanding loans, as well as explore avenues to increase revenue and reduce expenditures. However, there is no assurance that the company will be able to raise additional capital on acceptable terms, or at all.

Management Comments

• Management has determined that the company had a material weakness in its internal control over financial reporting.
• Management has expressed substantial doubt about the company's ability to continue as a going concern.
• Management plans include raising additional capital to fund the company's operations and to repay the company's outstanding loans when they become due, as well as exploring additional avenues to increase revenue and reduce capital expenditures.

Industry Context

The company operates in the cell and gene therapy sector, which is characterized by high development costs and complex logistics. The company's POCare model aims to address these challenges by providing a decentralized and scalable approach to manufacturing advanced therapies. The restatement and going concern issues highlight the financial challenges faced by many companies in this sector.

Comparison to Industry Standards

• The restatement of financials is a significant issue, as it indicates a lack of robust internal controls, which is not in line with industry best practices for public companies.
• The substantial doubt about the company's ability to continue as a going concern is a major concern, as it suggests that the company's financial position is weaker than many of its peers.
• The company's revenue decline of 98% is significantly worse than the performance of many other companies in the biotech sector, which are typically in a growth phase.
• The company's net loss of $23.377 million is also significantly higher than many of its peers, indicating a lack of financial stability.
• Companies like Kite Pharma (acquired by Gilead), Novartis, and bluebird bio, which are also involved in cell and gene therapy, have more established revenue streams and stronger financial positions.

Legal Proceedings

• A complaint was filed against the company and its Israeli subsidiary in the Tel Aviv District Court, seeking royalties and financial statements related to a license agreement. The company believes the allegations are without merit and intends to defend itself vigorously.

Stakeholder Impact

• Shareholders are negatively impacted by the restatement, increased losses, and going concern issues.
• Employees may be concerned about the company's financial stability and future prospects.
• Customers may be concerned about the company's ability to deliver on its contracts.
• Creditors may be concerned about the company's ability to repay its debts.

Next Steps

• The company plans to raise additional capital to fund operations and repay outstanding loans.
• The company will explore additional avenues to increase revenues and reduce expenditures.
• The company needs to address the material weaknesses in its internal control over financial reporting.

Key Dates

Keywords

restatement, financial statements, revenue recognition, credit losses, convertible loans, internal control, going concern, POCare, cell and gene therapy, biotech