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 March 31, 2023

☐	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)

Nevada		98-0583166
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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:

Title of each class		Trading symbols(s)		Name of each exchange on which registered
Common Stock		ORGS		The Nasdaq Capital Market

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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 May 10, 2023, there were 28,338,501 shares of registrant’s common stock outstanding

ORGENESIS INC.

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

TABLE OF CONTENTS

		Page

PART I - FINANCIAL INFORMATION		3

ITEM 1	Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3

	Condensed Consolidated Statements of Loss and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022	5

	Condensed Consolidated Statements of Changes in Equity as of March 31, 2023 and 2022	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	8

	Notes to Condensed Consolidated Financial Statements	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26

ITEM 4.	Controls and Procedures	26

PART II - OTHER INFORMATION		27

ITEM 1.	Legal Proceedings	27

ITEM 1A.	Risk Factors	27

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

ITEM 3.	Defaults Upon Senior Securities	27

ITEM 4.	Mine Safety Disclosures	27

ITEM 5.	Other Information	27

ITEM 6.	Exhibits	28

SIGNATURES		29

PART I –FINANCIAL INFORMATION

Item 1. Financial Statements

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

	March 31, 2023		December 31, 2022
	As of
	March 31, 2023		December 31, 2022
Assets

CURRENT ASSETS:
Cash and cash equivalents	$	2,674	$	5,311
Restricted cash		1,057		1,058
Accounts receivable, net		37,739		36,183
Prepaid expenses and other receivables		5,127		958
Convertible Loan receivables-related parties		2,725		2,688
Inventory		128		120
TOTAL CURRENT ASSETS		49,450		46,318

NON-CURRENT ASSETS:
Deposits	$	326	$	331
Investments and loans to associates		136		135
Property, plant and equipment, net		21,808		22,834
Intangible assets, net		9,430		9,694
Operating lease right-of-use assets		2,904		2,304
Goodwill		8,069		8,187
Deferred tax		100		103
Other assets		1,044		1,022
TOTAL NON-CURRENT ASSETS		43,817		44,610
TOTAL ASSETS	$	93,267	$	90,928

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

ORGENESIS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

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

(Unaudited)

	As of
	March 31, 2023			December 31, 2022
Liabilities and Equity

CURRENT LIABILITIES:
Accounts payable	$	4,387		$	4,429
Accrued expenses and other payables		2,510			2,578
Income tax payable		438			289
Employees and related payables		1,856			1,860
Advance payments on account of grant		1,590			1,578
Contract liabilities		106			70
Current maturities of finance leases		62			60
Current maturities of operating leases		675			542
Short-term and current maturities of convertible loans		2,314			4,504
TOTAL CURRENT LIABILITIES		13,938			15,910

LONG-TERM LIABILITIES:
Non-current operating leases	$	2,148		$	1,728
Convertible loans		17,290			13,343
Retirement benefits obligation		168			163
Long-term debt and finance leases		79			95
Advance payments on account of grant		70			144
Other long-term liabilities		266			271
TOTAL LONG-TERM LIABILITIES		20,021			15,744
TOTAL LIABILITIES		33,959			31,654

REDEEMABLE NON-CONTROLLING INTEREST		30,305			30,203
EQUITY:
Common stock of $0.0001 par value: Authorized at March 31, 2023 and December 31, 2022: 145,833,334 shares; Issued at March 31, 2023 and December 31, 2022: 28,148,110 and 25,832,322 shares, respectively; Outstanding at March 31, 2023 and December 31, 2022: 27,861,543 and 25,545,755 shares, respectively.		3			3
Additional paid-in capital		154,691			150,355
Accumulated other comprehensive income		(311	)		(270	)
Treasury stock, 286,567 shares as of March 31, 2023 and December 31, 2022		(1,266	)		(1,266	)
Accumulated deficit		(125,450	)		(121,261	)
Equity attributable to Orgenesis Inc.		27,667			27,561
Non-controlling interest		1,336			1,510
TOTAL EQUITY		29,003			29,071
TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY	$	93,267		$	90,928

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)

	March 31, 2023			March 31, 2022
	Three Months Ended
	March 31, 2023			March 31, 2022

Revenue	$	7,044		$	6,577
Revenue from related party		-			635
Total revenues		7,044			7,212
Cost of revenues		2,722			714
Gross profit		4,322			6,498
Cost of development services and research and development expenses		3,281			6,651
Amortization of intangible assets		207			232
Selling, general and administrative expenses		4,039			2,851
Operating loss		3,205			3,236
Other income, net		(2	)		-
Loss from extinguishment in connection with convertible loan		283			-
Financial expenses, net		644			213
Share in net loss of associated companies		2			547
Loss before income taxes		4,132			3,996
Tax expense		129			1
Net loss		4,261			3,997
Net income (loss) attributable to non-controlling interests (including redeemable)		(72	)		12
Net loss attributable to Orgenesis Inc.		4,189			4,009

Loss per share:
Basic and diluted	$	0.16		$	0.16

Weighted average number of shares used in computation of Basic and Diluted loss per share:
Basic and diluted		26,246,924			24,600,954

Comprehensive loss:
Net loss	$	4,261		$	3,997
Other Comprehensive loss – Translation adjustment		41			151
Comprehensive loss		4,302			4,148
Comprehensive income (loss) attributed to non-controlling interests		(72	)		12
Comprehensive loss attributed to Orgenesis Inc.	$	4,230		$	4,160

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)

	Number		Par Value		Addi- tional Paid-in Capital		Accumulated Other Compre- hensive Income (Loss)			Treasury Shares			Accumu- lated Deficit			Equity Attri- buted to Orgenesis Inc.			Non- Controlling Interest			Total
	Common Stock
	Number		Par Value		Addi- tional Paid-in Capital		Accumulated Other Compre- hensive Income (Loss)			Treasury Shares			Accumu- lated Deficit			Equity Attri- buted to Orgenesis Inc.			Non- Controlling Interest			Total
Balance at January 1, 2023		25,545,755	$	3	$	150,355	$	(270	)	$	(1,266	)	$	(121,261	)	$	27,561		$	1,510		$	29,071
Changes during the three months ended March 31, 2023:
Stock-based compensation to employees and directors		-		-		143		-			-			-			143			-			143
Stock-based compensation to service providers		-		-		16		-			-			-			16			-			16
Issuance of shares and warrants		1,947,368		-*		3,441		-			-			-			3,441			-			3,441
Issuance of Shares due to exercise of warrants		368,420		-*		-		-			-			-			-*			-			-*
Issuance of warrants with respect to convertible loans		-		-		449		-			-			-			449			-			449
Extinguishment in connection with convertible loan restructuring		-		-		287		-			-			-			287			-			287
Comprehensive loss for the period		-		-		-		(41	)		-			(4,189	)		(4,230	)		(174	)		(4,404	)
Balance at March 31, 2023		27,861,543	$	3	$	154,691	$	(311	)	$	(1,266	)	$	(125,450	)	$	27,667		$	1,336		$	29,003

Represents an amount lower than $1 thousand

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)

	Common Stock
	Number		Par Value		Addi- tional Paid-in Capital		Accumulated Other Compre- hensive Income (Loss)			Treasury Shares			Accumu- lated Deficit			Equity Attri- buted to Orgenesis Inc.			Non- Controlling Interest		Total
Balance at January 1, 2022		24,280,799	$	3	$	145,916	$	207		$	(1,266	)	$	(106,372	)	$	38,488		$	143	$	38,631
Changes during the three months ended March 31, 2022:
Stock-based compensation to employees and directors		-		-		243		-			-			-			243			-		243
Stock-based compensation to service providers		-		-		25		-			-			-			25			-		25
Exercise of options		510,017		-*		6		-			-			-			6			-		6
Issuance of shares related to acquisition of Mida		29,940		-*		100		-			-			-			100			-		100
Comprehensive income (loss) for the period		-		-		-		(151	)		-			(4,009	)		(4,160	)		12		(4,148	)
Balance at March 31, 2022		24,820,756	$	3	$	146,290	$	56		$	(1,266	)	$	(110,381	)	$	34,702		$	155	$	34,857

Represents an amount lower than $1 thousand

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)

	March 31, 2023			March 31, 2022
	Three Months Ended
	March 31, 2023			March 31, 2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(4,261	)	$	(3,997	)
Adjustments required to reconcile net loss to net cash used in operating activities:
Stock-based compensation		159			268
Share in loss of associated entities, net		2			547
Depreciation and amortization expenses		578			474
Effect of exchange differences on inter-company balances		191			2
Net changes in operating leases		(47	)		(1	)
Change in interest expenses accrued on loans and convertible loans		(311	)		147
Loss from extinguishment in connection with convertible loan restructuring		283			-
Changes in operating assets and liabilities:
Increase in accounts receivable		(1,613	)		(1,917	)
Decrease (increase) in inventory		(10	)		4
Decrease in other assets		2			2
Decrease (increase) in prepaid expenses and other accounts receivable		(2,183	)		340
Increase (decrease) in accounts payable		(59	)		554
Increase in accrued expenses and other payables		69			468
Increase in employee and related payables		2			138
Increase in contract liabilities		36			10
Change in advance payments and receivables on account of grant, net		(81	)		169
Increase in deferred taxes liability		3			-
Net cash used in operating activities	$	(7,240	)	$	(2,792	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of convertible loan to related party partners		-			138
Increase in loans to associated entities		-			(1,549	)
Purchase of property and equipment		(1,285	)		(902	)
Cash acquired from acquisition of Mida		-			702
Investment in long-term deposits		(22	)		(2	)
Net cash used in investing activities	$	(1,307	)	$	(1,613	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares and warrants (in 2022 due to exercise of options) net of transaction costs		3,441			6
Proceeds from issuance of convertible loans		5,485			-
Repayment of convertible loans and convertible bonds		(3,000	)		-
Repayment of short and long-term debt		(16	)		(5	)
Net cash provided by financing activities	$	5,910		$	1

NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	(2,637	)	$	(4,404	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH		(1	)		43

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		6,369			5,974

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	3,731		$	1,613

SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES
Right-of-use assets obtained in exchange for new operation lease liabilities		753			-
Increase (decrease) in accounts payable related to purchase of property, plant and equipment	$	14		$	(141	)
Issuance of common stock for the acquisition of Mida	$	-		$	100
Extinguishment in connection with convertible loan restructuring	$	287		$	-

CASH PAID DURING THE YEAR FOR:
Interest	$	785		$	-

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

ORGENESIS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2023 and 2022

(Unaudited)

NOTE 1 – DESCRIPTION OF BUSINESS

a. General

Orgenesis Inc. 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, or ATMPs. The Company is mostly focused on autologous therapies that can be manufactured under processes and systems that are developed for each therapy using a closed and automated approach that is validated for compliant production near the patient for treatment of the patient at the point of care, or 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 collaborative worldwide network of research institutes and hospitals who are engaged in the POCare model, or the Company’s POCare Network, and a pipeline of licensed POCare advanced therapies that can be processed and produced under such closed and automated processes and systems, or POCare Therapies. The Company is developing its pipeline of advanced therapies and with the goal of entering into out-licensing agreements for them. The Company’s cellular therapies, though defined as drug products, conceptually differ from other drug modalities in that they are based on reprogramming of cells sourced from the patient or from a donor. In most cases, they are individually produced per patient in a highly sterile and controlled environment, and their efficacy is optimized when administered a short time following production as fresh product.

To advance the execution of the Company’s goal of bringing such therapies to market, the Company has designed and built the Company’s POCare Platform - a scalable infrastructure of technology and services that ensures a central quality system, replicability and standardization of infrastructure and equipment, and centralized monitoring and data management. The platform is constructed on POCare Centers that serve as hubs that implement locally the Company’s POCare quality system, Good Manufacturing Practices, training procedures, quality control testing, incoming supply of materials and oversee the actual production in the Orgenesis Mobile Processing Units & Labs, or OMPULs.

POCare Services

The Company’s subsidiary Morgenesis LLC (“Morgenesis”) is responsible for most of the Company’s POCare services platform. The POCare Services platform is utilized by parties such as biotech companies and hospitals for the supply of their products. Morgenesis services include adapting the process to the platform and supplying the products, or POCare Services. These are services for third party companies and for CGT’s that are not necessarily based on the Company’s POCare Therapies. POCare services that the Company and its affiliated entities perform include:

●	Process development of therapies, process adaptation, and optimization inside the OMPULs, or “OMPULization”;
●	Adaptation of automation and closed systems to serviced therapies;
●	Incorporation of the serviced therapies compliant with GMP in the OMPULs that the Company designs and built;
●	Tech transfers and training of local teams for the serviced therapies at the POCare Centers;
●	Processing and supply of the therapies and required supplies under GMP conditions within the Company’s POCare Network, including required quality control testing; and
●	Contract Research Organization services for clinical trials.

The POCare Services are performed in decentralized hubs that provide harmonized and standardized services to customers, or POCare Centers. The Company is working to expand the number and scope of the Company’s POCare Centers with the intention of providing an efficient and scalable pathway for CGT therapies to reach patients rapidly at lowered costs. Our POCare Services are designed to allow rapid capacity expansion while integrating new technologies to bring together patients, doctors and industry partners with a goal of achieving standardized, regulated clinical development and production of therapies.

POCare Services Operations via Subsidiaries

The Company currently conducts its core business operations itself and through its subsidiary Morgenesis (of which the Company currently owns 76.9%) and the following Morgenesis’ subsidiaries which are all wholly owned except as otherwise stated below (collectively, the “Subsidiaries”).

●	Orgenesis Maryland LLC, which is the center of POCare Services activity in North America and is currently focused on setting up and providing POCare Services and cell-processing services to the POCare Network.
●	Tissue Genesis International LLC, a Texas company currently focused on development of the Company’s technologies and therapies.
●	Orgenesis Services SRL, which is currently focused on expanding the Company’s POCare Network in Belgium.
●	Orgenesis Germany GmbH, which is currently focused on providing CRO services to the POCare Network.
●	Orgenesis Korea Co. Ltd., which is a provider of cell-processing and pre-clinical services in Korea. The Company owns 94.12% of the Korean Subsidiary.
●	Orgenesis Biotech Israel Ltd., which is a provider of process development and cell-processing services in Israel.
●	Orgenesis Australia PTY LTD, which was transferred to Morgenesis in January 2023 and is currently focused on the development of the Company’s POC Network in Australia.
●	Theracell Laboratories private company, a Greek company currently focused on expanding the Company’s POCare Network.
●	ORGS POC CA Inc, incorporated in 2023, which is currently focussed on expanding the Company’s POCare Network in California.

POCare Therapies

The Company’s POCare Network is an alternative to the traditional pathway of drug development. The Company collaborates with academic institutions and entities that have been spun out from such institutions. The Company is in close contact with researchers who are experts in the field of the drug and also partners with leading hospitals and research institutes. Based on such collaborations, the Company enters into in-licensing agreements with relevant institutions for promising therapies with the aim of adapting them to a point-of-care setting through regional or strategic biological partnerships. It then is able to out-license its own therapeutic developments, as well as those therapies developed from in-licensing agreements, to out-licensing partners at preferred geographical regions.

This approach lowers overall development costs through minimizing pre-clinical development costs incurred by the Company, and through receiving of the additional funding from grants and/or payments by regional partners.

The Company’s therapies development subsidiaries are:

●	Koligo Therapeutics, Inc., a Kentucky corporation, which is a regenerative medicine company, specializing in developing personalized cell therapies. It is currently focused on commercializing its metabolic pipeline via the POCare Network throughout the United States and in international markets.

●	Orgenesis CA, Inc. a Delaware corporation, which is currently focused on development of technologies and therapies in California.

●	Orgenesis Belgium SRL which is currently focused on product development. Since its incorporation, the subsidiary been awarded grants in excess of 18 million Euro from the Walloon region for several projects (DGO6 grants).

●	Orgenesis Switzerland Sarl, which is currently focused on providing group management services.

●	MIDA Biotech BV, which is currently focused on research and development activities, was granted a 4 million Euro grant under the European Innovation Council Pathfinder Challenge Program which supports cutting-edge science and technology. The grant is for technologies enabling the production of autologous induced pluripotent stem cells (iPSCs) using microfluidic technologies and artificial intelligence (AI).

●	Orgenesis Italy SRL which is currently focused on R&D activities.

●	Orgenesis Ltd., an Israeli subsidiary which is focused on R&D and a provider of R&D management services for out licenced products. Israel as a hub for biotech research and pioneers in this field.

●	Orgenesis Austria GmbH which is focused on R&D.

b.	Liquidity

Through March 31, 2023, the Company had an accumulated deficit of $125 million. For the three months ended March 31, 2023 the Company incurred negative cashflows from operating activities of $7.2 million. 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.

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 the 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 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. If the Company is unable to raise sufficient additional capital or meet revenue targets, it may have to curtail certain activities.

The estimation and execution uncertainty regarding the Company’s future cash flows and management’s judgments and assumptions in estimating these cash flows 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, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 22, 2023. The year-end balance sheet data was derived from the audited consolidated financial statements as of December 31, 2022, but not all disclosures required by generally accepted accounting principles in the United States (“U.S. GAAP”) are included in this Quarterly Report on Form 10-Q.

b.	Significant accounting policies

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

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.

Recently adopted accounting pronouncements

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 adoption of this guidance did not have a material impact on the Company’s 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 adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the prior year’s financial statements to conform to the current year presentation. These reclassifications had no net effect on previously reported results of operations.

NOTE 3 – SEGMENT INFORMATION

In connection with the investment by an affiliate of Metalmark Capital Partners (“Metalmark”) in the Company in November 2022 (“the Metalmark Investment”), the Company separated its operations into two operating segments: operations of Morgenesis (the “Morgenesis” segment) and therapies related activities (the “Therapies” segment). Prior to that, the Company conducted all its operations as one segment. The Morgenesis operations segment includes mainly POCare Services, while the therapies related segment includes the Company’s therapeutic development operations.

Because the Company conducted all its operations as one segment prior to the Metalmark Investment, the above changes were reflected through retroactive revision of prior period segment information based on the subsidiaries that were transferred to Morgenesis. Certain activities of these subsidiaries have changed after they were transferred to Morgenesis operations segment.

The Company’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), reviews financial information prepared on a consolidated basis, accompanied by disaggregated information about revenues and contributed profit by the two identified reportable segments to make decisions about resources to be allocated to the segments and assess their performance.

The Company does not review assets by segment. Therefore, the measure of assets has not been disclosed for each segment.

Segment data for the three months ended March 31, 2023 is as follows:

SCHEDULE OF SEGMENT REPORTING

	Morgenesis			Therapies			Eliminations		Consolidated
	(in thousands)
Revenues	$	6,914		$	130		$	-	$	7,044
Revenues from related party		-			-			-		-
Total revenues
Cost of revenues*		(2,308	)		(178	)		-		(2,486	)
Gross profit		4,606			(48	)		-		4,558
Cost of development services and research and development expenses^*		(2,081	)		(1,076	)		-		(3,157	)
Operating expenses^*		(1,714	)		(2,314	)		-		(4,028	)
Other income, net		2			-			-		2
Depreciation and amortization		(385	)		(193	)		-		(578	)
Loss from extinguishment in connection with convertible loan		-			(283	)		-		(283	)
Financial Expenses, net		(266	)		(378	)		-		(644	)
Share in net income of associated companies		-			(2	)		-		(2	)
Income (loss) before income taxes	$	162		$	(4,294	)	$	-	$	(4,132	)

Excluding Depreciation, amortization expenses

Segment data for the three months ended March 31, 2022 is as follows:

	Morgenesis			Therapies			Eliminations			Consolidated
	(in thousands)
Revenues	$	6,343			1,942		$	(1,708	)	$	6,577
Revenues from related party		635			-			-			635
Total revenues		6,978			1,942			(1,708	)		7,212
Cost of revenues*		(350	)		(289	)		-			(639	)
Gross profit		6,628			1,653			(1,708	)		6,573
Cost of development services and research and development expenses^*		(3,476	)		(4,445	)		1,428			(6,493	)
Operating expenses^*		(709	)		(2,413	)		280			(2,842	)
Depreciation and amortization		(190	)		(284	)		-			(474	)
Financial Expenses, net		(551	)		338			-			(213	)
Share in net income of associated companies		1			(548	)		-			(547	)
Income (loss) before income taxes	$	1,703		$	(5,699	)	$	-		$	(3,996	)

SEC Form 10-Q filed by Orgenesis Inc.