YIGAL ARNON & CO.
ADVOCATES AND NOTARY
TEL AVIV September 7, 2006
Ref.
Ms. Tangela Richter
Division of Corporate Finance
Securities and Exchange Commission
100 F Street N.E.
Washington, D.C. 20549
RE: ORGANITECH USA, INC.
AMENDMENT NO. 1 REGISTRATION STATEMENT ON FORM SB-2
FILE NO. 333-134027
FORM 10-KSB/A1 FOR THE FISCAL YEAR ENDED DECEMBER 31,
2005, FILED JULY 26, 2006
FILE NO. 0-22151
Dear Ms. Richter:
On behalf of Organitech USA, Inc., a Delaware corporation (the "COMPANY"),
enclosed is a copy of Amendment No. 2 to the above-referenced Registration
Statement (the "REGISTRATION STATEMENT"), as filed with the Securities and
Exchange Commission (the "COMMISSION") on the date hereof, marked to show
changes from the Registration Statement filed with the Commission on July 26,
2006; and Amendment No. 2 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2005 (the "ANNUAL REPORT"), as filed with the
Commission on the date hereof, marked to show changes from the Annual Report
filed with the Commission on July 26, 2006.
The changes reflected in the Registration Statement and the Annual Report
include those made in response to the comments (the "COMMENTS") of the staff of
the Division of Corporation Finance (the "STAFF") of the Commission regarding
the Registration Statement on Form SB-2 (File No. 333-134027) and the Annual
Report (File No. 0-22151) set forth in the Staff's letter of August 15, 2006
(the "COMMENT LETTER"). The Registration Statement and Annual Report also
include other changes that are intended to update, clarify and render more
complete the information contained therein.
YIGAL ARNON & CO.
FORM SB-2/A1 FILED ON JULY 26, 2006
FINANCIAL STATEMENTS, PAGE 50
1. PLEASE UPDATE THE FINANCIAL STATEMENTS INCLUDED IN THE DOCUMENT AS REQUIRED
BY ITEM 310(G) OF REGULATIONS S-B.
RESPONSE: THE COMPANY ADVISES THE STAFF THAT IT HAS UPDATED THE FINANCIAL
STATEMENTS INCLUDED IN THE REGISTRATION STATEMENT AS REQUIRED UNDER ITEM
310(G).
FORM 10-KSB/A1 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
CONTROLS AND PROCEDURES, PAGE 27
2. WE HAVE READ YOUR RESPONSE TO PRIOR COMMENT SEVEN AND NOTE THAT YOU HAVE
REVISED YOUR DISCLOSURE TO INDICATE THAT YOUR DISCLOSURE CONTROLS AND
PROCEDURES ARE GENERALLY EFFECTIVE AS OF THE END OF THE PERIOD COVERED BY
YOUR REPORT. PLEASE DISCLOSE DEFINITIVELY WHETHER YOUR DISCLOSURE CONTROLS
WERE EFFECTIVE OR WERE NOT EFFECTIVE AS OF DECEMBER 31, 2005. IF YOU
CONCLUDED THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES WERE NOT EFFECTIVE
DUE TO THE PRESENCE OF MATERIAL WEAKNESSES, PLEASE DISCLOSE EACH MATERIAL
WEAKNESS IDENTIFIED, THE IMPACT THESE WEAKNESSES HAS ON YOUR FINANCIAL
REPORTING AND CONTROL ENVIRONMENT AND THE STEPS YOU ARE TAKING TO REMEDIATE
THE WEAKNESSES. THIS COMMENT ALSO APPLIES TO YOUR DISCLOSURE OF CONTROLS
AND PROCEDURES INCLUDED IN YOUR FORM 10-QSB FOR THE INTERIM PERIODS ENDED
MARCH 31, 2006 AND JUNE 30, 2006. IF THERE WERE NO CHANGES IN YOUR INTERNAL
CONTROLS OVER FINANCIAL REPORTING DURING THE FOURTH FISCAL QUARTER, THEN
PROVIDE DISCLOSURE TO THAT EFFECT.
RESPONSE: The Company supplementally advises the Staff that its disclosure
controls and procedures were effective as of December 31, 2005, and that
the use of the word "generally" in describing the effectiveness of the
disclosure controls and procedures, was inadvertent. Consequently, the
Company advises the Staff that it has noted the Staff's comment and revised
the required disclosures to the Controls and Procedures section of the
Annual Report, and the Company's Forms 10-QSB for the interim periods ended
March 31, 2006 and June 30, 2006.
FINANCIAL STATEMENTS
NOTE 12 - CONVERTIBLE LOANS, PAGE F-25
3. WE NOTE THAT YOU ISSUED AN ADDITIONAL 200,000 SHARES OF COMMON STOCK TO
GALI IN MAY 2005 AS PAYMENT FOR ADDITIONAL FINANCING EXPENSES. IN ADDITION,
WE NOTE THAT YOU REDUCED ADDITIONAL PAID IN CAPITAL FOR THE PAR VALUE OF
THE SHARES ISSUED. IT DOES NOT APPEAR THAT YOU HAVE REFLECTED THIS
ADDITIONAL EXPENSE ON YOUR CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 2005. PLEASE EXPLAIN TO US HOW YOU HAVE REFLECTED
THE PAYMENT OF THESE FINANCING EXPENSES IN YOUR FINANCIAL STATEMENTS.
WITHIN YOUR RESPONSE PLEASE CITE THE AUTHORITATIVE ACCOUNTING LITERATURE,
YOU BELIEVE SUPPORTS YOUR TREATMENT FOR THESE EXPENSES.
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YIGAL ARNON & CO.
RESPONSE: The Company supplementally advises the Staff that on June 14,
2004, the Company signed a convertible loan agreement with Sh.A.Gali Ltd.
("Gali"), whereby Gali provided the Company with a convertible loan in the
amount of $100,000 (the "Loan"), convertible into 454,545 shares of the
Company's common stock. In addition, Gali was also entitled to 200,000
shares of the Company's common stock under the Loan in consideration for
the provision of the Loan.
In its annual report for the year 2004, the Company accounted for the Loan
according to APB Opinion No. 14 "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants", EITF 98-5 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios" and EITF 00-27 "Application of Issue No. 98-5 to certain
Convertible Instruments".
According to APB Opinion No. 14 and EITF 00-27 (Issue 1 - Effective
Conversion Price) the Company allocated the proceeds received under the
Loan and for the 200,000 detachable shares. The amount allocated to the
detachable shares was recorded only as additional paid in capital (receipt
on account of shares) since at that time the shares were not issued.
Following such allocation, the Company applied EITF 98-5 to the amount
allocated to the Loan, using the effective conversion price and measured
the intrinsic value of the embedded conversion option.
The Company recorded as paid-in capital, a beneficial conversion feature in
the amount of $88,000 related to the Loan and to the fair value of the
200,000 shares of the Company's common stock issued in connection with the
Loan. The Company has disclosed the accounting of the Loan also in Note 11A
to its 2004 financial statements and Note 12A to its 2005 financial
statements. The Company recorded in its statement of operations for 2004
and 2005, financing expenses in the aggregate of $88,000, recorded as
$47,667 in 2004 and $40,333 for 2005.
In May 2005, following the issuance to Gali of said 200,000 shares of
common stock, the Company reduced the paid-in capital initially recorded in
2004 for the par-value of the shares issued, in the amount of $200. Such a
reduction was reflected in the Company's statement of shareholders'
deficiency for 2005.
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YIGAL ARNON & CO.
NOTE 14 SHARE CAPITAL, PAGE 32
N. PRIVATE PLACEMENT IN PUBLIC ENTITY ("PIPE"), PAGE 35
4. WE NOTE YOUR DISCLOSURE AT NOTE 12B IN WHICH YOU STATE THE PROMISSORY NOTE
DUE TO CLAL WAS CONVERTED ON MARCH 2, 2005. IN ADDITION, WE NOTE THAT IN
2005 AND 2006 YOU ISSUED COMMON STOCK AND WARRANTS TO CLAL AND RECEIVED
GROSS PROCEEDS TOTALING $1,000,000. PLEASE EXPLAIN TO US HOW YOU REFLECTED
THESE TRANSACTIONS IN YOUR FINANCIAL STATEMENT. IN THIS REGARD, IT DOES NOT
APPEAR THAT YOU REFLECTED THE ISSUANCE OF ANY COMMON SHARES TO CLAL IN YOUR
STATEMENTS OF STOCKHOLDERS EQUITY.
RESPONSE: The Company supplementally advises the Staff that as described in
Note 12B of the Company's financial statements for 2005, on December 21,
2004, the Company issued a convertible promissory note to Clal with the
principal amount of $100,000. Clal had the option to convert the principle
amount of the promissory note into 400,000 shares of common stock of the
Company. The conversion price per share of $0.25 was determined to be the
fair market value of a share of common stock of the Company on the issuance
date.
Accordingly, the balance sheet in the Company's financial statements for
2004 included a convertible loan received from Clal in the amount of
$100,000.
As described in Note 15N of the Company's financial statements for 2005, on
February 20, 2005 (the "Closing Date"), the Company and several investors,
including Clal, entered into an investment agreement (the "Investment
Agreement") whereby, the investors and Clal were entitled to purchase up to
4,000,000 shares of the Company's common stock (the "Investment Shares")
for an aggregate purchase price of $1,000,000 and options to purchase
shares of common stock of the Company. Such aggregate price included the
conversion by Clal of the convertible promissory note into equity.
Pursuant to the Investment Agreement, during March and May 2005, the
Company issued the following to Clal and the investors: 2,200,000 shares of
the Company's common stock (including the conversion of Clal's promissory
note into 400,000 shares), A-1 Warrants to purchase 1,100,000 shares of the
Company's common stock and A-2 Warrants to purchase 1,100,000 shares of the
Company's common stock. The issuance was in consideration for $450,000
received in 2005 and the conversion of the convertible loan of $100,000
received from Clal in 2004.
On July 1, 2005, the investors invested an additional $50,000 in
consideration for 200,000 shares of common stock of the Company, which were
issued on November 2005, A-1 Warrants to purchase a further 100,000 shares
of the Company's common stock and A-2 Warrants to purchase a further
100,000 shares of the Company's common stock.
Accordingly, the issuance of the total of 2,400,000 shares of common stock
for a total consideration of $600,000 (before deducting issuance expenses)
as mentioned above, were recorded in the statements of shareholders'
deficiency in the Company's financial statements for 2005.
On January 31, 2006, the investors invested the remaining $400,000 for
which in April 2006, the Company issued them the following: 1,600,000
shares of the Company's common stock, A-1 Warrants to purchase 800,000
shares of the Company's common stock and A-2 Warrants to purchase 800,000
shares of the Company's common stock. The issuance of the shares was
recorded in the Company's statements of shareholders' deficiency for the
six-month period ended June 30, 2006.
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YIGAL ARNON & CO.
If you have any questions or comments regarding the foregoing, please
contact the undersigned at +972 3 608 7864.
Sincerely yours,
/s/ Adrian Daniels
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Adrian Daniels, Adv.
cc: T. Towner
J. Gallagher
C. Moncada-Terry
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