ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM STATEMENTS OF SHAREHOLDERS' DEFICIENCY
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
PREFERRED SHARES COMMON SHARES
----------------------------- -----------------------------
NUMBER OF PREFERRED NUMBER OF COMMON
PREFERRED SHARES OUTSTANDING SHARES
SHARES CAPITAL COMMON SHARES CAPITAL
----------- ----------- ----------- -----------
IN THOUSANDS IN THOUSANDS
----------- -----------
Balance as of July 1, 1999: - $ - - $ -
Common shares ($0.00004) issued in July - - 4,790 4,790
Common shares ($0.03) issued in October - - 684 684
Common shares ($0.19) issued in October - - 489 489
Deferred stock-based compensation related to
employee option grants - - - -
Amortization of deferred stock-based compensation - - - -
Net loss - - - -
----------- ----------- ----------- -----------
Balance as of December 31, 1999 - - 5,963 5,963
Common shares ($0.08) issued in April - - 684 684
Preferred shares ($1.14) issued in June 853 2,088 - -
Amortization of deferred stock-based compensation - - - -
Net loss - - - -
----------- ----------- ----------- -----------
Balance as of December 31, 2000 853 2,088 6,647 6,647
Common shares ($0.51) issued in January (853) (2,088) 4,453 4,453
Amortization of deferred stock-based compensation - - - -
Treasury stock - - (100) -
Net loss - - - -
----------- ----------- ----------- -----------
Balance as of December 31, 2001 - - 11,000 11,100
Common shares ($0.363) issued in October - - 275 275
Proceeds for future share issuance (1) - - - -
Amounts assigned to issuance of warrants to service
providers - - - -
Amortization of deferred stock-based compensation - - - -
Net loss - - - -
----------- ----------- ----------- -----------
Balance as of December 31, 2002 - $ - 11,275 $ 11,375
----------- ----------- ----------- -----------
DEFICIT TOTAL
ADDITIONAL ACCUMULATED SHARE HOLDERS'
PAID IN DEFERRED DURING THE EQUITY
CAPITAL (1) COMPENSATION DEVELOPMENT STAGE (DEFICIENCY)
----------- ----------- ----------- -----------
Balance as of July 1, 1999: $ - $ - $ - $ -
Common shares ($0.00004) issued in July (4,621) - - 169
Common shares ($0.03) issued in October 20,316 - - 21,000
Common shares ($0.19) issued in October 92,951 - - 93,440
Deferred stock-based compensation related to
employee option grants 481,485 (481,485) - -
Amortization of deferred stock-based compensation - 15,715 - 15,715
Net loss - - (80,680) (80,680)
----------- ----------- ----------- -----------
Balance as of December 31, 1999 590,131 (465,770) (80,680) 49,644
Common shares ($0.08) issued in April 54,860 - - 55,544
Preferred shares ($1.14) issued in June 971,362 - - 973,450
Amortization of deferred stock-based compensation - 299,598 - 299,598
Net loss - - (1,406,644) (1,406,644)
----------- ----------- ----------- -----------
Balance as of December 31, 2000 1,616,353 (166,172) (1,487,324) (28,408)
Common shares ($0.51) issued in January 2,263,149 - - 2,265,514
Amortization of deferred stock-based compensation - 111,016 - 111,016
Treasury stock - - - -
Net loss - - (1,708,326) (1,708,326)
----------- ----------- ----------- -----------
Balance as of December 31, 2001 3,879,502 (55,156) (3,195,650) 639,796
Common shares ($0.363) issued in October 99,725 - - 100,000
Proceeds for future share issuance (1) 134,884 - - 134,884
Amounts assigned to issuance of warrants to service
providers 2,116 - - 2,116
Amortization of deferred stock-based compensation - 47,948 - 47,948
Net loss - - (967,905) (967,905)
----------- ----------- ----------- -----------
Balance as of December 31, 2002 $ 4,116,227 $ (7,208) $(4,163,555) $ (43,161)
----------- ----------- ----------- -----------
(1) Net of issuance expenses.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
F - 6
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM STATEMENTS OF SHAREHOLDERS' DEFICIENCY (CONT.)
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
COMMON SHARES
---------------------------
NUMBER OF COMMON ADDITIONAL RECEIPT ON
OUTSTANDING SHARES PAID IN ACCOUNT OF
COMMON SHARES CAPITAL CAPITAL (1) SHARES
----------- ----------- ----------- -----------
IN THOUSANDS
-----------
Balance as of December 31, 2002 11,275 $ 11,375 $ 4,116,227 -
Common shares ($0.363) issued in May 344 344 (344) -
Common shares ($0.18) issued in May ,June ,September
and November 3,043 3,043 544,697 -
Common shares to service provider ($0.2) issued
in November 550 550 13,200 -
Common shares to service provider ($0.3) issued
in November 200 200 30,975 -
Options exercised in June 188 188 - -
Options exercised in November 463 463 (463) -
Common shares to service provider ($1) issued in May 600 600 599,400 -
Common shares to service providers ($0.25) issued in April 48 48 (48) -
Proceeds for future share issuance (January 2004) - - - 187,528
Amortization of deferred stock-based compensation - - - -
Treasury stock - (100) 100 -
Previous years issuance of common stock 37 37 (37) -
Net loss - - - -
----------- ----------- ----------- -----------
Balance as of December 31, 2003 16,748 16,748 5,303,707 187,528
Common shares ($0.18) issued in January 1,100 1,100 196,902 (187,528)
Common shares to service provider ($0.3) 320 320 124,380 -
Compensation related to amortization of deferred marketing
and distribution costs - - 55,000 -
Common shares to service provider ($0.18) issued in April 100 100 17,900 -
Proceeds for future share issuance (May 2005) - - - 25,000
Fair value of shares issued and beneficial conversion
feature related to convertible loan - - 88,000 -
Stock-based compensation related to warrants granted to
Consultant - - 3,000 -
Net loss - - -
----------- ----------- ----------- -----------
Balance as of December 31, 2004 18,268 $ 18,268 $ 5,788,889 $ 25,000
----------- ----------- ----------- -----------
DEFICIT
ACCUMULATED TOTAL
DEFERRED DURING THE SHAREHOLDERS'
COMPENSATION DEVELOPMENT STAGE DEFICIENCY
----------- ----------- -----------
Balance as of December 31, 2002 $ (7,208) $(4,163,555) $ (43,161)
Common shares ($0.363) issued in May - - -
Common shares ($0.18) issued in May ,June ,September
and November - - 547,740
Common shares to service provider ($0.2) issued
in November - - 13,750
Common shares to service provider ($0.3) issued
in November - - 31,175
Options exercised in June - - 188
Options exercised in November - - -
Common shares to service provider ($1) issued in May - - 600,000
Common shares to service providers ($0.25) issued in April - - -
Proceeds for future share issuance (January 2004) - - 187,528
Amortization of deferred stock-based compensation 7,208 - 7,208
Treasury stock - - -
Previous years issuance of common stock - - -
Net loss - (1,612,516) (1,612,516)
----------- ----------- -----------
Balance as of December 31, 2003 - (5,776,071) (268,088)
Common shares ($0.18) issued in January - - 10,474
Common shares to service provider ($0.3) - - 124,700
Compensation related to amortization of deferred marketing
and distribution costs - - 55,000
Common shares to service provider ($0.18) issued in April - 18,000
Proceeds for future share issuance (May 2005) - - 25,000
Fair value of shares issued and beneficial conversion
feature related to convertible loan - - 88,000
Stock-based compensation related to warrants granted to
Consultant - 3,000
Net loss - (1,304,659) (1,304,659)
----------- ----------- -----------
Balance as of December 31, 2004 $ - $(7,080,730) $(1,248,573)
----------- ----------- -----------
(1) Net of issuance expenses.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
F - 7
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED INTERIM STATEMENTS OF SHAREHOLDERS' DEFICIENCY (CONT.)
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
COMMON SHARES
-------------------------------------------
NUMBER OF COMMON ADDITIONAL
OUTSTANDING SHARES PAID IN
COMMON SHARES CAPITAL CAPITAL (1)
----------- ----------- -----------
IN THOUSANDS
-----------
Balance as of December 31, 2004 18,268 $ 18,268 $ 5,788,889
Common shares to service provider ($0.15) issued in May 452 452 71,016
Common shares to service provider ($0.15) issued in May 653 653 98,309
Common shares ($0.25) issued in March, May and November 2,400 2,400 521,899
Common shares to consultant ($0.18) issued in May 33 33 2,967
Compensation related to amortization of deferred marketing
and distribution costs - - 41,250
Common shares to supplier issued in May 18 18 4,456
Common shares ($0.25) issued in May 100 100 24,900
Common shares to SH.A Gali issued in March in connection
with a grant of convertible loan 200 200 (200)
Common shares to SH.A Gali ($0.22) issued in November for a
convertible loan 455 455 99,545
Penalty paid to SH.A Gali in connection with convertible
loan ($0.22) 454 454 99,546
Amortization of stock-based compensation - - 575
Net loss - - -
----------- ----------- -----------
Balance as of December 31, 2005 23,033 23,033 6,753,152
Proceeds for future share issuance (April 2006) - - -
Amortization of stock-based compensation - - 210,804
Net loss for the period - - -
----------- ----------- -----------
Balance as of March 31, 2006 (unaudited) 23,033 $ 23,033 $ 6,963,956
=========== =========== ===========
DEFICIT
ACCUMULATED TOTAL
RECEIPT ON DURING THE SHAREHOLDERS'
ACCOUNT OF SHARES DEVELOPMENT STAGE DEFICIENCY
----------- ----------- -----------
Balance as of December 31, 2004 $ 25,000 $(7,080,730) $(1,248,573)
Common shares to service provider ($0.15) issued in May - - 71,468
Common shares to service provider ($0.15) issued in May - - 98,962
Common shares ($0.25) issued in March, May and November - - 524,299
Common shares to consultant ($0.18) issued in May - - 3,000
Compensation related to amortization of deferred marketing
and distribution costs - - 41,250
Common shares to supplier issued in May - - 4,474
Common shares ($0.25) issued in May (25,000) - -
Common shares to SH.A Gali issued in March in connection
with a grant of convertible loan - - -
Common shares to SH.A Gali ($0.22) issued in November for a
convertible loan - - 100,000
Penalty paid to SH.A Gali in connection with convertible
loan ($0.22) 100,000
Amortization of stock-based compensation - - 575
Net loss - (998,498) (998,498)
----------- ----------- -----------
Balance as of December 31, 2005 - (8,079,228) (1,303,043)
Proceeds for future share issuance (April 2006) 834,500 - 834,500
Amortization of stock-based compensation - - 210,804
Net loss for the period - (545,777) (545,777)
----------- ----------- -----------
Balance as of March 31, 2006 (unaudited) $ 834,500 $(8,625,005) $ (803,516)
=========== =========== ===========
(1) Net of issuance expenses.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
F - 8
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
Period from
Three months inception
Ended March 31, (July 1, 1999)
------------------------------ through
2006 2005 March 31, 2006
----------- ----------- -----------
Unaudited Unaudited
------------------------------ -----------
Cash flows used in operating activities:
Net loss for the period $ (545,777) $ (213,225) $(8,625,005)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash used in operating
activities :
Amortization of deferred stock-based compensation 210,804 - 692,864
Depreciation 8,088 5,451 149,834
Impairment of inventories and base stock - 11,906 55,275
Changes in accrued severance pay, net 1,478 (20,666) 49,254
Loss from disposal of property and equipment - 179 3,388
Warrants granted to consultant - 3,000 8,116
Interest in respect of convertible loan - 1,574 -
Amortization of beneficial conversion feature related to
convertible loan - 11,000 44,000
Amortization of finance costs related to shares issued in
connection with a convertible loan - 11,000 44,000
Adjustment of exchange rate changes - - 3,617
Penalty paid in connection with a convertible loan - - 100,000
Non-cash expenses paid in shares - Annex A - 13,750 1,118,971
Changes in assets and liabilities :
Decrease (increase) in trade receivables 65,014 - (3,876)
Decrease (increase) in other receivables 129,721 (38,393) (141,048)
Decrease (increase) in inventories 107,970 (253,611) (730,776)
Increase (decrease) in trade payables (378,530) (30,887) 299,728
Increase (decrease) in other payables and accrued expenses (31,454) 38,449 549,456
Increase (decrease) in customers advances (157,148) 40,786 1,563,391
----------- ----------- -----------
(44,057) (206,462) 3,806,194
----------- ----------- -----------
Net cash used in operating activities (589,834) (419,687) (4,818,811)
----------- ----------- -----------
Cash flows from investing activities :
Proceeds from disposal of property and equipment - 6,513 15,824
Purchase of property and equipment (9,630) (3,170) (344,799)
----------- ----------- -----------
Net cash (used in) provided by investing activities (9,630) 3,343 (328,975)
----------- ----------- -----------
Cash flows from financing activities :
Increase (decrease) in short-term credit, net (166) 44,815 -
Repayment of long-term loan from financial institution - (4,478) -
Proceeds from issuance of convertible loans - - 200,000
Proceeds from issuance of shares, net of issuance expenses and
receipts on account of shares 834,500 374,299 5,631,730
----------- ----------- -----------
Net cash provided by financing activities $ 834,334 $ 414,636 $ 5,831,730
----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
F - 9
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (CONT.)
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
Period from
Three months inception
Ended March 31, (July 1,
------------------------------ 1999)through
2006 2005 March 31, 2006
----------- ----------- -----------
Unaudited Unaudited
------------------------------ -----------
Net cash used in operating activities $ (589,834) $ (419,687) $(4,818,811)
Net cash (used in) provided by investing activities (9,630) 3,343 (328,975)
Net cash provided by financing activities 834,334 414,636 5,831,730
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 234,870 (1,708) 683,944
Cash and cash equivalents at the beginning of the period 449,074 112,798 -
----------- ----------- -----------
Cash and cash equivalents at the end of the period $ 683,944 $ 111,090 $ 683,944
=========== =========== ===========
ANNEX A - SUPPLEMENTARY DISCLOSURE OF NON-CASH EXPENSES
During the reporting period, the Company issued shares and
warrants in exchange for liabilities to shareholders, supplier and
services rendered by third party as follows:
Management fees - see Note 5(B) $ - $ - $ 230,430
Marketing and distribution expenses - see Note 6(M)(2) - 13,750 110,000
Marketing and distribution expenses - see Note 6(M)(3) - - 155,875
Marketing and distribution expenses - see Note 6(M)(4) - - 600,000
Marketing and distribution expenses - - 22,666
----------- ----------- -----------
$ - $ 13,750 $ 1,118,971
=========== =========== ===========
SUPPLEMENTARY DISCLOSURE OF NON-CASH
TRANSACTIONS
Management fees - see Note 5(B) $ - $ - $ 170,430
Issuance of shares in consideration for loan converted - see Note
4(B) - 100,000 100,000
Convertible loan Sh.A.Gali l - see Note 4(A) - - 100,000
Issuance of shares in consideration for materials - see Note
6(M)(7) - - 4,474
----------- ----------- -----------
$ - $ 100,000 $ 374,904
=========== =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION :
Interest paid $ 2,570 $ (421) $ 2,085
=========== =========== ===========
Income tax paid $ 664 $ 565 $ 14,484
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS.
F - 10
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 1 - GENERAL
A. OrganiTech USA Inc. ("the Company" or "OrganiTECH"), a Delaware
corporation, incorporated in 1981, and its subsidiaries (collectively
"the Group") design, develop, manufacture, market and support
Hydroponics solutions and platforms for the Agriculture and
Life-Science industries.
The Company's core business is conducted primarily through its
wholly-owned subsidiary, OrganiTECH Ltd., a company organized under
the laws of Israel. OrganiTECH Ltd. operates mainly in the Agriculture
Industrialization arena. Since its formation in 1999, it has been
developing, producing and marketing its leading proprietary technology
- a Self-contained, portable, robotic, sustainable agricultural
platforms designed to automatically seed, transplant and harvest
commercial quantities of hydroponics, pesticide free, green leaf
vegetables.
B. The Company is devoting substantial efforts towards activities such as
research and development of its products, financial planning and
capital raising. In the course of such activities, the Company and its
subsidiary have sustained operating losses. The Company and its
subsidiary have not generated sufficient revenues and have not
achieved gross profit, profitable operations or positive cash flows
from operations. The Company's deficit accumulated during the
development stage aggregated to $8,625,005 through March 31, 2006.
There is no assurance that profitable operations, if ever achieved,
could be sustained on a continuing basis.
The Company plans to continue to finance its operations with a
combination of stock issuance and private placements and in the longer
term, revenues from product sales. There are no assurances, however,
that the Company will be successful in obtaining an adequate level of
financing needed for the long term development and commercialization
of its planned products.
These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements
do not include any adjustments relating to the recoverability and
classification of recorded assets amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
C. The accompanying unaudited interim consolidated financial statements
have been prepared as of March 31, 2006, in accordance with United
States generally accepted accounting principles relating to the
preparation of financial statements for interim periods. Accordingly,
they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three-month
period ended March 31, 2006 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2006.
F - 11
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of these
statements are identical to those applied in preparation of the latest
annual financial statements, except for the adoption of FASB Statement No.
123 (revised 2004), "Share-Based Payments" ("Statement 123(R)") as follows:
The Company has elected until December 31, 2001 to follow Accounting
Principles Board Statement No. 25 "Accounting for Stock Option Issued to
Employees" ("APB No. 25") and Financial Accounting Standards Board
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN No. 44") in accounting for its employee stock option
plan. Under APB 25, when the exercise price of an employee stock option is
equivalent to or is above the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company adopted the disclosure provisions of Statement of Financial
Accounting Standard No. 148, "Accounting for Stock-Based Compensation -
transition and disclosure" ("SFAS No. 148"), which amended certain
provisions of Statement of Financial Accounting Standard No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123").
Effective January 1, 2006, the Company adopted the provisions of Statement
123(R), using the modified prospective method. The adoption of Statement
123(R) had an immaterial effect on the Company's financial position and
results of operations.
Compensation expense for stock options granted to employees since 2002
until and including 2006 under the Company's stock option plans has been
determined based on the fair value at the date of grant, consistent with
the method of SFAS No. 123, with the following weighted average
assumptions:
Three months ended March 31* 2006
-------------
Divided yield 0%
Expected volatility 123%
Risk-free interest rate 4.6%
Expected life 6 years
* No stock options were granted in the three months ended March 31, 2005.
The Company's pro forma net loss for the period from inception through
March 31, 2006 approximates the reported net loss for the related period.
F - 12
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 3 - COST INCURRED ON CONTRACTS IN PROGRESS
MARCH 31,
-----------------------
2006 2005
-------- --------
Unaudited
-----------------------
Cost incurred on long-term contracts in progress $564,361 $378,768
Raw materials 116,100 -
-------- --------
680,461 378,768
-------- --------
Less -
Cost incurred on contracts in progress deducted
from customer advances 564,361 96,588
-------- --------
116,100 282,180
-------- --------
Less -
Advances received from customers - 219,209
-------- --------
$116,100 $ 62,971
======== ========
NOTE 4 - CONVERTIBLE LOANS
A. Convertible loan issued to SH.A.Gali Ltd.
On June 14, 2004, the Company signed a convertible loan agreement with
SH.A.Gali Ltd. ("Gali"), a company under the control of a director,
whereby Gali granted to the Company $100,000 in return to a
convertible loan. It was agreed that in the event Gali chooses to
convert the loan into an equity investment, the Company will issue
Gali 454,545 common shares of the Company based on the loan amount and
the conversion price of $0.22 per share which is the fair market value
of the Company's common stock at the date of the agreement. If not
converted, the loan should have been repaid in one installment
following of 12 months from the granting date. The loan bears interest
at Libor +3 %, to be paid at maturity or upon conversion. According to
the loan agreement the Company paid the incurred interest in the
amount of $6,128 and issued to Gali 200,000 common shares of the
Company in May 2005 as additional financing expenses. As the Company
did not repay the loan on its due date, Gali was entitled to a penalty
in the form of issuance of additional common stock of the Company
equivalent to $100,000, computed based upon the fair market value of
the Company's common stock at the date of the agreement, determined at
$0.22 per share. On November, 2005, following the Company's failure to
repay the loan on time, Gali was issued with 909,090 common shares.
The Company accounted for this convertible loan according to EITF
00-27 "Application of Issue No. 98-5 to certain Convertible
Instruments". Accordingly, the Company recorded a beneficial
conversion feature and finance costs related to the fair value of the
shares on the convertible loan in the amount of $88,000 to be
amortized over a period of one year.
F - 13
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 4 - CONVERTIBLE LOANS (CONTINUED)
B. Convertible loan issued to Clal Finance Underwriters Ltd. ("Clal")
On December 21, 2004, the Company issued a convertible promissory Note
to Clal with the principal amount of $100,000 bearing an annual
interest at a rate equal to the prime rate of Bank of America, N.A as
of the repayment date plus 5%. Clal had the option to convert the
promissory Note into 400,000 common shares of the Company for which,
fair market value approximates the amount of the Note on the issuance
date. On March 2, 2005, Clal converted the promissory Note (See note
6N).
The Company accounted for this convertible loan according to EITF
00-27 "Application of Issue No. 98-5 to certain Convertible
Instruments". No beneficial conversion feature was recorded as the
effective conversion price of the convertible loan was equal to the
fair market value of the common stock on the date of issuance, which
was also the commitment date.
NOTE 5 - CONTINGENCIES
A. Legal claim
In February 2000, OrganiTech Ltd. signed a distribution agreement with
Leami ("Leami"), whereby it granted Leami the exclusive right to
market OrganiTech Ltd's GrowTECH platforms in Israel. Under the terms
of the agreement, Leami agreed to purchase two GrowTECH platforms in
consideration for $100,000. In March 2000, OrganiTech Ltd. received an
advance payment from Leami in an amount of $60,000. In July 2000,
OrganiTech Ltd. delivered the two GrowTECH platforms to Leami.
OrganiTech Ltd. and Leami negotiated certain claims of Leami
concerning the GrowTECH platforms delivered and the distribution
agreement. On February 2, 2005, Leami filed a lawsuit against
OrganiTech Ltd. in the amount of $295,500. On April 20, 2005 the
Company filed a counter lawsuit against Leami at the amount of
$148,800 claiming that Leami had not fulfilled its obligations and
commitments under the sale agreement signed and by not doing so and
taking other actions, it caused OrganiTech Ltd. to suffer damages and
expenses.
It is the opinion of management based on its legal advisor, that due
to the early stage of the lawsuit it is unable to predict the outcome
of these claims.
B. Management Fees
(1) On July 1, 2003 the Company and Mr. Shimon Zenaty ("Simon")
signed a management agreement, whereby Simon will invest up to
100 hours per month in working with the Company, in consideration
for management fee at the amount of $4,000 per month till
February 2005.
F - 14
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 5 - CONTINGENCIES (CONTINUED)
B. Management Fees (Continued)
a. Pursuant to the management agreement, under certain cash
flow conditions, the payment of the monthly management fees
will be deferred and bear interest computed at a rate of 5%
per annum payable by the Company during the deferral period
on a quarterly basis.
b. Pursuant to the management agreement, Simon has the right to
request the Company to exchange the deferred management
fees, including accumulated interest thereon, for the
Company's common shares at a price computed as 75% of the
average closing market price of the Company's shares during
the three months prior to the date of the exchange.
c. The management agreement can be terminated with a 60 days
written notice at the parties' mutual agreement.
The Company paid the management fees for the last two months of
the agreement in cash. The management fees accumulated till
December 31, 2004 were paid on May 2, 2005 by the issuance of
652,059 common shares of the Company.
(2) On June 16, 2002 the Company and a third party investor ("the
investor") signed a management agreement, whereby the investor
will invest up to 100 hours per month in working with the
Company, in consideration for management fees at the amount of
$4,000 per month till February 2005.
a. Pursuant to the management agreement, under certain cash
flow conditions, the payment of the monthly management fees
will be deferred and bear interest computed at a rate of 5%
per annum payable by the Company during the deferral period
on a quarterly basis.
b. Pursuant to the management agreement, the investor has the
right to request the Company to exchange the deferred
management, including accumulated interest thereon, for the
Company's common shares at a price computed as 75% of the
average closing market price of the Company's shares during
the three months prior to the date of the exchange.
c. The management agreement can be terminated with a 60 days
written notice at the parties' mutual agreement.
The Company paid the management fees for the last two months of
the agreement in cash. The management fees accumulated till
December 31, 2004 were paid on May 2, 2005 by the issuance of
452,174 common shares of the Company.
F - 15
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 5 - CONTINGENCIES (CONTINUED)
B. Management Fees (Continued)
Following the approval of the Company's institutions, as of
December 31, 2005, the Company accrued an amount of $57,500 for
the investor's services provided by him to the Company during the
period from March 1, 2005 until December 31, 2005. As of March
31, 2006, the Company has yet to pay this amount.
NOTE 6 - SHARE CAPITAL
A. In July 1999, OrganiTech Ltd. issued 4,790,000 of its common shares at
a price of approximately $0.00004 per share, for a consideration of
$169.
B. In October 1999, OrganiTech Ltd. issued 684,000 of its common shares
at a price of approximately $0.03 per share, for a consideration of
$21,000.
C. In October 1999, OrganiTech Ltd. issued 489,000 of its common shares
at a price of approximately $0.19 per share, for a consideration of
$93,440.
D. In April 2000, OrganiTech Ltd. issued 684,000 of its common shares at
a price of approximately $0.08 per share, for a consideration of
$55,544.
F - 16
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 6 - SHARE CAPITAL (CONTINUED)
E. In June 2000, OrganiTech Ltd. issued 853,000 of its preferred shares
at a price of approximately $1.14 per preferred share, for a
consideration of $973,000. After giving effect to the reverse
acquisition, discussed in Note 15F, these preferred shares were
cancelled ("the cancelled shares").
F. In January 2001, the Company consummated an agreement with OrganiTech
Ltd., whereby the Company issued 7.5 million of common shares to the
shareholders of OrganiTech Ltd. in exchange for all of the outstanding
ordinary shares of OrganiTech Ltd. not already owned by the Company.
The 7.5 million common shares issued by the Company to the selling
shareholders represented 67.57% of the voting common stock of the
Company. Accordingly, this business combination was considered to be a
reverse acquisition. As such, for accounting purposes OrganiTech Ltd.
is considered to be the acquirer while the Company is considered to be
the acquiree.
G. In January 2001, The Company issued 4,453,000 common shares at the
price of approximately $0.51 per share, for a consideration of
$2,266,000. This share issuance net of the cancelled shares mentioned
in E above, reflects the issuance by the Company to its shareholders
prior to the reverse acquisition
H. On August 1, 2004, the Company and an investor agreed that the
investor will invest $25,000 in the Company in consideration for
100,000 common shares, at a price of $0.25 per share. On May 2, 2005
the Company issued the shares.
I. As of March 31, 2006, the Company had 23,032,642 common shares
outstanding, not including 550,000 common shares that are being held
in escrow pending the completion of a private placement transaction
and 200,000 common shares that are being held by the Company. All
these common shares are to be cancelled.
J. Treasury stock
In October 2000, the Company issued 100,000 common shares to a
consultant according to a consulting agreement. In September 2001, the
Company accepted the 100,000 common shares of the Company from the
consultant, the shares were cancelled and the consulting agreement was
terminated at the parties' mutual agreement.
K. Private placement
Pursuant to an investment agreement entered into with a third party
("Investor"), in June 2002 and a series of amendments to that
agreement, including management fee agreement, the Investor has
invested an aggregate of $1,042,229 in the Company and received an
aggregate of 5,402,174 shares of the Company's common stock,
constituting 23.45% of the Company's issued and outstanding share
capital as of December 31, 2005. Additionally, the Investor also has
an option to purchase 46,242 shares of the Company's common stock for
an exercise price of $1.00 per share.
F - 17
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 6 - SHARE CAPITAL (CONTINUED)
L. Equity Agreement
On July 20, 2003, the Company and Dutchess Capital Management, LLC
("Dutchess") signed on a term sheet for equity line of credit ("Equity
Line") which was approved on July 31, 2003 by the Company's Board of
Directors, whereby:
(1) Dutchess shall be committed to purchase the Company's common
share ("Stock") in consideration for up to $5,000,000 over a
period of 36 months ("Line Period"), starting the date either
free trading shares are deposited into an escrow account or a
registration statement of the Stock has been declared effective
("Effective Date") by the U.S. Securities and Exchange Commission
("SEC").
(2) The amount that the Company shall be entitled to withdraw from
the Equity Line is equal to 200% of the averaged daily volume of
the Company's share trading ("ADV") multiplied by the average of
the 3 daily closing ("Best Bid") prices immediately preceding the
day on which the Company will give the notice.
(3) If the market price with respect to the notice date does not meet
75% of the closing Best Bid price of the Company common shares
for the 10 trading days prior to the notice date, the Company
shall automatically withdraw the notice amount.
(4) The Company will issue shares in respect of the exercised Equity
Line base upon 94% of the lowest Company Best Bid price of the
Company's share at the 5 consecutive trading days immediately
after the notice date.
Management is of the opinion that there is no assurance that the terms
and conditions of the term sheet will not be changed or that such
offering will be completed.
As of March 31, 2006, the Company has not yet executed the Equity
Line.
M. Service and consulting agreements for share issuance
(1) On April 9, 2003 the Company's Board of Directors authorized the
Company to issue 57,280 common shares under certain agreements to
pay brokerage fees and commission for services provided to the
Company by third parties and a related party, out of which 9,280
common shares were issued to a related party. On May 14, 2003,
the Company issued the balance of the 48,000 common shares.
F - 18
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 6 - SHARE CAPITAL (CONTINUED)
M. Service and consulting agreements for share issuance (Continued)
(2) On October 1, 2003, the Company entered into 24 month consulting
agreement with third party (the "consultant"). Pursuant to the
consulting agreement the consultant will provide the Company
business consulting services in consideration for 550,000 common
shares. In November 2003 the Company issued the shares. The fair
market value of the shares at grant date was $0.20 per share. The
consulting expenses which amount to $110,000 are recorded
proportionally over the period of the agreement.
(3) On October 13, 2003 the Company and MC Services AG ("MC") entered
into advising and public relation service agreement which was
approved by the Company's Board of Directors on October 27, 2003,
for a period of ten months commencing November 1, 2003 at the
cost of $155,875 (include additional costs of $8,375).
As of December 31, 2004, the Company issued 519,583 common shares
to MC pursuant to this agreement. The service expenses were
recorded proportionally over the period of the agreement.
(4) On May, 2003 the Company issued 600,000 common shares to Agronaut
in consideration for its marketing and distribution expenses of
$600,000 of the Company's systems.
(5) On April 29, 2004, the Company issued 100,000 common shares to a
service provider, in consideration for legal services rendered of
$18,000.
(6) On October 21, 2004, the Company entered into a 4 month
consulting agreement with a third party. Pursuant to the
consulting agreement the consultant will provide the Company
financial consulting services for a consideration of $2,500 per
month and $1,500 in warrants to purchase common shares. The
number of the warrants will be determined upon the average price
of the share for each month. The consulting agreement was
terminated at the end of February 2005.
On May 2, 2005 the consultant exercised the warrants to 33,000
common shares.
(7) On May 2, 2005, the Company issued 17,950 common shares to a
supplier in consideration for materials that were supplied in the
amount of $4,474.
F - 19
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 6 - SHARE CAPITAL (CONTINUED)
N. Private Investment in Public Entity ("PIPE")
(1) On February 20, 2005 (the "closing date"), the Company and
several investors including and represented by Clal Investments
Ltd., ("Clal") entered into an 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 aggregated price included the conversion by Clal of the
convertible promissory note into an equity investment in the
Company (see note 4 B). Pursuant to the agreement, the Company
agreed to issue to the investors and Clal, two types of options,
proportionally to their effective investment: (i) Options type A
("A-1 Warrants") were for up to 2,000,000 shares of common stock
exercisable for the longer of 360 days from the closing date or 3
months from the registration of the Investment Shares for an
exercise price of $0.75; and (ii) Options type B ("A-2 Warrants")
were for up to 2,000,000 shares of common stock exercisable for
the longer of 540 days from the closing date or 3 months from the
registration of the Investment Shares for an exercise price of
$1.00 or, in the last 30 days of the life of the options, at a
10% discount from the average share price within the 30 days
period prior to the date of the delivery notice.
(2) Pursuant to the agreement, during February 2005, the Company
received a total consideration of $550,000, for which, during
March and May 2005, the Company issued Clal and the investors the
following: 2,200,000 shares of the Company's common stock, 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. On July 1, 2005 the Investors and Clal
invested additional $50,000 in consideration for 200,000 common
shares of the Company, 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.
Under the agreement, the Company shall use its best efforts, as
soon as practicable, but not later than 75 business days
following the closing date (the "Registration Period"), to file a
registration statement with the Securities and Exchange
Commission, on Form SB-2 or such other applicable registration
form available. Should the Company fail to file the registration
statement within the Registration Period the Company will bear a
fine equal to 1% of the consideration received under the PIPE
agreement per month.
(3) On January 31, 2006, Clal and the investors invested the
remaining $400,000 for which they received on April 2006 an
additional 1,600,000 shares of the Company's common stock, A-1
Warrants to purchase 800,000 shares of the Company's common stock
and A-2 Warrants to purchase 800,000 shares of the Company's
common stock.
F - 20
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 6 - SHARE CAPITAL (CONTINUED)
N. Private Investment in Public Entity ("PIPE") (Continued)
(4) On January 2, 2006, the Company's Board of Directors approved the
increase of the financing under the PIPE agreement to 1.3M$ -
1.5M$ until February 1, 2006. Pursuant to the above approval and
to an amendment to the investment agreement signed on January 31,
2006, Clal and the investors invested an additional $500,000 for
which they received on April 2006 2,000,000 common shares at
$0.25 per share, and additional options as follows: (i) A-1
Warrants for up to 1,000,000 shares of common stock for an
exercise price of $0.75 and (ii) A-2 Warrants for up to 1,000,000
shares for common stock for an exercise price of $1.00 or, in the
last 30 days of the options, at a 10% discount from the average
share price within the 30 days period prior to the date of the
delivery notice. As of March 31, 2006 the Company received
$450,000 and the remaining of $50,000 were received on April
2006.
The final exercise date for all A-1 Warrants under the original
investment agreement was extended until the later of April 30,
2007 or 3 months from the registration of the Investment Shares
and the final exercise date for all type A-2 Warrants under the
original investment agreement was extended until the later of
July 31, 2007 or 3 months from the registration of the Investment
Shares.
Under the amendment, the investors waived any claims that any of
them, had, has or may have had at any time in the past until and
including the date of the amendment, to receive compensation
pursuant to the Company's failure to file the registration
statement within the Registration Period.
In addition, the amendment to the investment agreement stated
that the Company shall use its best efforts, as soon as
practicable, but not later than 75 business days following
January 31, 2006 (the "Amended Registration Period"), to file a
registration statement with the Securities and Exchange
Commission, on Form SB-2 or such other applicable registration
form available.
Should the Company fails to (i) file a registration statement
covering the Investment Shares and Warrants, or (ii) respond to
comments from the Security and Exchange Commission within the
time periods set forth in the Investment Agreement, or (iii)
maintain the registration statement covering the Investment
Shares and Warrants, the Company will bear a fine equal to 1% of
the total amount under the PIPE agreement ($1.5M) per month. The
Company filed the requested Form SB-2 on May 12, 2006; therefore
as of March 31, 2006 and has not recorded any provision in
consideration concerning the fine.
F - 21
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 6 - SHARE CAPITAL (CONTINUED)
O. Options to Purchase Company Shares
(1) On March 14, 2006 the Company and Clal entered into an agreement
for the provision of past services provided by Clal to the
Company in securing part of the PIPE agreement. Under the
agreement, Clal is entitled to A-1 Warrants for the purchase of
additional 180,000 shares of the Company's common shares (of
which 82,500 warrants have previously been issued to Clal) and
A-2 Warrants for the purchase of additional 180,000 shares of the
Company's common shares (of which 82,500 warrants have previously
been issued to Clal).
(2) On November 16, 2004 the Company entered into a service agreement
with a consultant where by the consultant will present the
Company to potential investors and as part of the success-based
consideration, the consultant will be entitled to purchase
options for Company's common shares at certain conditions.
Following the PIPE agreement the consultant is entitled to A-1
Warrants for the purchase of additional 27,500 shares of the
Company's common shares and A-2 Warrants for the purchase of
additional 27,500 shares of the Company's common shares under the
same terms and conditions detailed in the PIPE agreement.
NOTE 7 - STOCK BASED COMPENSATION
A. On December 23, 1999, OrganiTech Ltd. Board of Directors approved a
stock compensation program with regard to one employee. The stock
options granted under the program permits the employee to purchase
6,000 common shares at an exercise price of New Israeli Shekel 0.01
per share. The options vest ratably over a four-year period ending in
March 2003, and will expire in January 2006. The Company and the
employee agreed to convert the option to purchase 6,000 OrganiTech
Ltd. common shares under this program, into options to purchase
463,236 common shares of the Company at an exercise price of $0.0001
per share. All options granted under this program were exercised in
full into common shares of the Company at their vesting dates.
B. On May 29, 2000 the Company granted a key employee options to purchase
96,508 common shares at an exercise price of $1 per share. The options
can be exercised upon the occurrence of a public issuance of shares by
the Company, a merger or an acquisition of the Company.
C. On May 31, 2005, the Board of Directors approved a Stock Option Plan
("SOP") for Company's executives, directors, key employees and service
providers comprising options to purchase up to 1,622,000 common shares
of the Company.
The SOP provides that no option may be granted at an exercise price
less than the fair market value of the common shares on the date of
grant and no option can have a term in excess of ten years. Options
which are canceled or forfeited before expiration become available for
future grants.
F - 22
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
IN U.S. DOLLARS
NOTE 7 - STOCK BASED COMPENSATION (CONTINUED)
On December 29, 2005, the Company granted 1,230,000 options pursuant
to the SOP and as of December 31, 2005, 392,000 options of the Company
were still available for future grants. The fair value of options
granted on that date was $0.22.
On February 19, 2006, the Board of Directors approved the increasing
of the SOP in additional options to purchase up to additional
3,000,000 common shares of the Company ("Extension").
On January 2, 2006 and February 19, 2006 the Company granted to the
new CEO and CFO of the Company 1,500,000 and 250,000 options,
respectively, pursuant to the SOP and in accordance with its
Extension. The weighted average fair value of options granted on that
date was $0.21. As of March 31, 2006, 1,642,000 options of the Company
were still available for future grants.
Options vest over a period of zero to four years from the date of
grant and expire no longer than ten years of grant.
D. A summary of the status of the Company's employee stock option plans:
PERIOD FROM INCEPTION
THREE MONTHS ENDED THREE MONTHS ENDED (JULY 1, 1999)
MARCH 31, 2006 MARCH 31, 2005 THROUGH MARCH 31, 2006
--------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
Outstanding - beginning
of the year 1,326,508 $0.246 96,508 $ 1 - -
Granted 1,750,000 $0.207 - - 3,539,744 $ 0.195
Exercised - - - - (463,236) $0.0001
Outstanding - ending of
the period 3,076,508 $0.224 96,508 $ 1 3,076,508 $ 0.224
========== ====== ========== ========== ========== =======
Exercisable - ending of
the period 899,008 $0.284 96,508 $ 1 899,008 $ 0.284
========== ====== ========== ========== ========== =======
Compensation expense amounting to $210,804, $(0) and $692,864 was
recognized during the three months ended March 31, 2006 and 2005 and
for the period from inception through March 31, 2006, respectively.
All the compensation expenses were recorded based on SFAS No. 123 and
SFAS No. 148 according to the modified prospective method.
F - 23
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following management's discussion and analysis or plan of operation should
be read in conjunction with our condensed interim unaudited consolidated
financial statements for the period ended March 31, 2006 thereto contained
elsewhere in this report and with our audited consolidated financial statements
and notes for the year ended December 31, 2005.
This filing contains forward-looking statements. The words "anticipate,"
"believe," "expect, "plan," "intend," "seek," "estimate," "project," "will,"
"could," "may," and similar expressions are intended to identify forward-looking
statements. These statements include, among others, information regarding future
operations, future capital expenditures, and future net cash flow. Such
statements reflect our management's current views with respect to future events
and financial performance and involve risks and uncertainties, including,
without limitation: (a) the timing of our sales could fluctuate and lead to
performance delays; (b) without additional equity or debt financing we cannot
carry out our business plan; (c) we operate internationally and are subject to
currency fluctuations, which could cause us to incur losses even if our
operations are profitable; (d) our research and development facilities are
located in Israel and we have important facilities and resources located in
Israel which could be negatively affected due to military or political tensions;
(e) certain of our officers and employees are required to serve in the Israel
defense forces and this could force them to be absent from our business for
extended periods; (f) the rate of inflation in Israel may negatively impact our
costs if we exceeds the rate of devaluation of the NIS against the Dollar.
Should one or more of these risks or uncertainties occur, or should underlying
assumptions prove to be incorrect, actual results may vary materially and
adversely from those anticipated, believed, estimated or otherwise indicated.
These forward-looking statements speak only as of the date of this Report.
Subject at all times to relevant federal and state securities law disclosure
requirements, we expressly disclaim any obligation or undertaking to disseminate
any update or revisions to any forward-looking statement contained herein to
reflect any change in our expectations with regard thereto or any changes in
events, conditions or circumstances on which any such statement is based.
Consequently, all of the forward-looking statements made in this Report are
qualified by these cautionary statements and there can be no assurance of the
actual results or developments.
DESCRIPTION OF BUSINESS
We are a Delaware corporation, incorporated in 1981 (organized as a Colorado
corporation on December 8, 1981, see further on in 'Corporate History') and
leading in offerings a "Hydroponics Growing Factory". We design, develop,
manufacture, market and support Hydroponics solutions and platforms for the
Agriculture and Life-Science industries, enabling the growth of leafy vegetables
in a highly economic, clean and automated surrounding, making optimal use of
resources such as water, energy, labor and land.
Our core business is conducted primarily through our wholly-owned subsidiary,
OrganiTECH Ltd. ("OrganiTECH Ltd."), a company organized under the laws of
Israel. OrganiTECH Ltd. operates mainly in the Agriculture Industrialization
arena. Since our formation in 1999, we have been developing, producing and
marketing our proprietary technology. Our leading products are:
a) GT2500 - the Company's leading product - a fully automated , computerized
controlled Hydroponics sustainable greenhouse designed to grow and harvest
commercial quantities of hydroponics, pesticide free, green leaf vegetables
while making optimal use of resources such as water, energy, labor and
land.
b) GT2000 - a self-contained, portable, robotic, sustainable agricultural
platform designed to automatically seed, transplant, grow and harvest
commercial quantities of hydroponics, pesticide free, green leaf
vegetables. It has yet to be matured and additional development work is
still required before its full commercialization.
3
INDUSTRY OVERVIEW
There are several key factors that influence on the overall demand for
hydroponics systems, as follows:
WORLDWIDE DEMAND FOR GREEN LEAF PRODUCTS IS RAPIDLY INCREASING
By the year 2030, the world's population is projected to reach an estimated 8
billion people - approximately 2 billion more than today. Additionally, during
the next 50 years, worldwide demand for green leaf vegetables is expected to
triple as the amount of arable land decreases by one half. Advances in
technology are expected to continue to assist producers in increasing their
overall productivity.
MOVING TO VEGETABLE-BASED NUTRITION
Lately, an additional new trend can be identified, especially in the Western
world - the growing demand for vegetable based nutrition over other nutrition
components such as proteins. Demand for vegetables in general and for green leaf
vegetables in particular, is rapidly increasing and becoming a principal part of
every Western meal.
RAPIDLY GROWING DEMAND FOR CLEAN VEGETABLES WITH EXTENDED SHELF-LIFE
Lately we have identified a new trend of rapidly growing demand for 'high-end',
ready to eat vegetables where customers are willing to pay more for cleaner,
unnecessary to wash, longer shelf-life vegetables. By using our hydroponics
technology, the cultivated vegetables do not require a wash process before
packaging and are ready to eat; hence their shelf-life is dramatically
increased. Moreover, given a longer shelf-life, distribution to remote areas is
possible and new markets are available.
LOCALIZATION OF AGRICULTURAL PRODUCTION
The distribution costs for producers of leafy vegetables are relatively large as
a result of the high space/weight ratio when transporting these products. As a
result producers typically seek locations near to the point of sale, which will
often be close to large conurbations where overhead costs, especially energy and
labor, are very high. Consequently, significant reductions in the costs of
energy and labor enable either local growers of leafy vegetables produce or
importers of leafy vegetables produce to such locations, to situate in locations
of their choice while simultaneously enabling them to compete with cheap
imported products.
THE NEED FOR SUSTAINABLE AGRICULTURE
The practice of reducing inputs while raising output is a growing trend referred
to as "sustainable agriculture". An estimated 30-80 percent of applied nitrogen
and pesticides used in the agriculture industry are already lost to the
environment. According to many industry experts, one of the most critical
elements for agricultural equipment innovations is that they should be guided by
ecological considerations that not only increase world food production, but also
preserve our non-renewable resources and reduce chemical usage, water scarcity,
global warming and ecological implications from fertilizers and increased
reliance on pesticides compound. There is a need for innovations that balance
the needs of the "natural world" with the insatiable demands of the "human
world". Sustainable agricultural technologies, those that reduce input costs,
increase yield, and are more "earth friendly", are expected to drive the
frontline of growth in the agriculture equipment industry.
ALTERNATIVE SOLUTION WHERE TRADITIONAL GREENHOUSES FAIL
Growers of soil-grown crops are faced with numerous, potentially insurmountable,
problems associated with soil-borne pathogens, pests and weeds and the
concomitant application of pesticides or plant protection products ("PPP's")
which lead, on occasions, to unacceptable residues at harvest. This has recently
been made worse due to the revocation of Methyl Bromide as an effective soil
sterilant which has exacerbated the need for additional PPPs.
It is now understood that a move out from the soil-grown crops into a
hydroponics production system could potentially solve many of the current
residue problems, increase throughput and ultimately improve the longer-term
economic outlook for the crop. This is where our growing system enters the
equation offering growers novel, environmentally friendly growing units and
methods.
4
OUR POTENTIAL CUSTOMERS
Based on the above, the Company's potential customers are principally farmers
who wish to expand their operations or increase productivity, food industry
companies seeking to expand their value chain by controlling the growth of leafy
vegetables and new entrepreneurs seeking for new business.
OUR PRODUCTS
THE GROWTECH 2000TM
Our first product was the GrowTECH(TM)2000, a unique and patented, state of the
art, hydroponics system. It is a low input/ high output, robotic,
self-contained, portable, sustainable and controlled agricultural platform,
utilizing advanced growth lighting systems, environmental control systems,
revolutionary robotics, and management systems, all designed to fully automate
the entire cultivation process (Seeding - Germination - Growing - Harvesting) of
hydroponics, pesticide free, green leaf vegetables in a closed environment of a
standard size container.
Designed for closed spaces where sunlight is not available and full artificial
lightning is required for the cultivation process, the cost-efficiency of the
GrowTECH(TM)2000 is generally determined by the cost of energy and can therefore
vary significantly.
GrowTECH(TM)2000 has yet to be matured and additional development work is still
required before our full commercialization. However, we believes that such a
patented platform will provide a strong advantage over our competitors and
enable us to increase research and development efforts for the integration of
GrowTECH(TM)2000 technologies into new platforms and products.
THE GROWTECH 2500
Our leading product to date is the GrowTECH(TM)2500, an automated platform using
GrowTECH(TM)2000 proprietary technology and know-how, and combining it within a
greenhouse controlled environment. The GrowTECH(TM)2500 enables the growth of
leafy vegetables in a highly economical clean and automated surrounding, making
optimal use of resources such as water, energy, labor and land. By integrating
OrganiTECH Ltd.'s hydroponics Rotating Field-System (RFS) technology in
GrowTECH(TM)2500, vegetables (i.e. lettuce) float in Styrofoam trays on water
tables, which serve as a nutritious solution and a means of transport through
the growth process. By automating the seedling and harvesting process, the
GrowTECH(TM)2500 enables utilizing the land to the maximum, and increasing
produce about 5-6 times more than conventional greenhouse yields.
GrowTECH(TM)2500 enables year round, high yield production of pesticide free
plants with extended shelf-life, while significantly reducing heating and labor
costs per plant, the most serious cost-drivers in the greenhouse industry.
Although already successfully commercially deployed, we intend to continuously
invest in the advanced development of GrowTECH(TM)2500, adding and enhancing
functionalities while adjusting it to new types of growing and usages. The
GrowTECH(TM) 2500 system was first presented at the leading European exhibition
for state of the art agriculture and horticulture "Hortifair" in Amsterdam, held
in November 2003 and to date few GrowTECH(TM)2500 systems have been installed
and are operating successfully in Europe and Israel.
BIO-TECH PLATFORMS
We are also developing our PhytoChamber(TM) product, a state of the art,
two-chambered, cost-effective hydroponics growth platform designed to maximize
and provide optimal growth conditions for certain plants to be used and utilized
by the biotechnology industry and researchers.
The PhytoChamber(TM) is designed for the production of proteins and other
bio-molecules intended for research and commercial manufacturing of
NUTRACEUTICALS and pharmaceuticals, by creating a contained, cost effective,
production environment, isolating the plants from detrimental external elements
and utilizing an advanced hydroponics growing system. This combination of
technologies creates an alternative and superior method in the bio-manufacturing
multi-billion Euro market due to its non-soil, clean, environmentally safe and
proliferating conditions.
PhytoChamber(TM) is based on our proprietary hydroponics know-how and GrowTECH
technology. One PhytoChamber(TM) unit was sold to a German customer for research
and development purposes, during year 2005. The product is in its early stage of
development and an extensive additional development work is required before
achieving commercial maturity.
5
COMPETITION
The agricultural equipment industry is highly competitive. Our technologies are
subject to competition from either other agricultural equipment and/or
technology providers or from other providers of hydroponics solutions, both
which are very few in number worldwide. We face competition in the agricultural
equipment industry from 4 types of technologies:
1. Classic soil-less systems which involve inert solid growing media and
specialized irrigation systems, where water can be drained to waste (open
systems) or re-circulated (closed system);
2. Hydroponics water bed systems - involve deep water beds and a growing
system where water can be re-circulated.
3. Hydroponics Nutrient Film Technique ("NFT") systems - systems involving a
shallow nutrient film running in narrow channels where the plant roots are
located. The NFT systems are the most common hydroponics systems in the
world. The technology was developed during the late 60's in England and was
installed by private growers all over the modern world, mainly in the US,
Western Europe and Australia - New Zealand.
4. Other conventional growing methods, either regular greenhouse based growing
or soil based field growing.
Many of our potential competitors have substantially longer operating histories,
larger installed client bases, greater name recognition, more experience and
significantly greater financial, technical, marketing and other resources than
we have.
We believe that a wide range of factors, such as productivity, reliability,
price, as well as other unique performance characteristics of our technologies,
succeed in differentiating it from its competitors and will be the principal
competitive factor expected to affect future sales of our systems. Additionally,
we believe that our intellectual property will provide us with a strong
advantage over our competitors around the world in general and in the United
States specifically, and will enable us to increase both sales and research and
development efforts for the integration of the GrowTECH(TM) technologies into
new platforms.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of the condensed interim consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions in certain circumstances
that affect amounts reported in the accompanying consolidated financial
statements and related footnotes. Actual results may differ from these
estimates. To facilitate the understanding of the business activities, described
below are certain of our accounting policies that are relatively more important
to the portrayal of the financial condition and results of operations and that
require management's subjective judgments. We base our judgments on our
experience and various other assumptions that the management believes to be
reasonable under the circumstances.
The following listing is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. There
are also areas in which management's judgment in selecting any available
alternative would not produce a materially different result.
DEVELOPMENT STAGE COMPANY
Since our inception, we have devoted substantially most of our efforts to
business planning, research and development, marketing, recruiting management
and technical staff, acquiring assets and raising capital. In addition, we have
not generated significant revenues. Accordingly, we are considered to be in the
development stage, as defined in Statement of Financial Accounting Standards No.
7, "Accounting and reporting by development Stage Enterprises" ("SFAS No. 7")
6
REVENUE RECOGNITION
We believe our most critical accounting policy relates to revenue recognition as
described below.
Revenues from long-term contracts are recognized based on Statement of Position
81-1 "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" ("SOP 81-1") according to which revenues are
recognized based on either the completed contract basis or the percentage of
completion basis.
For projects signed during the year 2004 (and performed till and during the year
2005), which were our first projects, management used the completed-contract
method as we could not expect to perform all of our contractual obligations and
had not gained sufficient experience for estimating contract costs. For
contracts signed in 2005 and thereafter, and after performing several projects
and obtaining adequate experience, we started to adopt the
percentage-of-completion method based on a zero profit margin, therefore equal
amounts of revenues and cost, measured on the basis of performance during the
period, are presented in the income statement.
Based on the completed-contract method, sale of products is recognized when
delivery of the product has occurred, title passed to the customer and
collectability is reasonably assured. As installation is considered to be
significant, revenues under the completed-contract method are recognized only
when installation is completed.
Based on the percentage-of-completion method, sales and profits under long-term
fixed-price contracts which provide for a substantial level of development and
design efforts in relation to total contract efforts are recorded based on the
ratio of hours incurred by key personnel to estimated total hours required from
such key personnel at completion.
The percentage-of-completion method of accounting requires management to
estimate the cost and gross profit margin for each individual contract.
Estimated gross profit or loss from long-term contracts may change due to
changes in estimates resulting from differences between actual performance and
original estimated forecasts. Such changes in estimated gross profit are
recorded in results of operations when they are reasonably determinable by
management, on a cumulative catch-up basis. Anticipated losses on contracts are
charged to earnings when determined to be probable.
We do not provide, in the normal course of business, a right of return to our
customers. If uncertainties exist, such as the granting to the customer of right
of cancellation if the product is not technically acceptable, revenue is
recognized when the uncertainties are resolved.
In some cases, we grant customers with an evaluation period, usually several
months, to evaluate the product prior to purchase. We do not recognize revenue
from sales of products shipped to customers for evaluation until such products
are actually purchased. Until purchased, these products are recorded as
consignment inventory at the lower of cost or market.
For projects signed during year 2005 and thereafter, given the experience
gathered during projects undertaken in 2004, management believes we possess
sufficient technical, business and commercial experience to ensure and estimate,
for a specific project, the percentage-of-completion.
Penalties applicable to performance of contracts are considered in estimating
sales and profit rates and are recorded when there is sufficient information to
assess anticipated contract performance.
We believe that the use of the percentage-of-completion method is appropriate
since we have the ability to make reasonably dependable estimates of the extent
of progress towards completion, contract revenues and contract costs. In
addition, contracts executed include provisions that clearly specify the
enforceable rights regarding services to be provided and received by the parties
to the contracts, the consideration to be exchanged and the manner and terms of
settlement. In all cases we expect to perform our contractual obligations, and
our customers are expected to satisfy their obligations under the contract.
STOCK-BASED COMPENSATION
We apply SFAS No. 123 and Emerging Issues Task Force No. 96-18 "Accounting for
Equity Instruments that are Issued to other than Employees for Acquiring, or in
conjunction with selling, goods or services" ("EIFT 96-18"), with respect to
options and warrants issued to non-employees. SFAS No. 123 requires the use of
option valuation models to measure the fair value of the options and warrants at
the date of grant.
7
CONTINGENCIES
We are, from time to time, subject to claims arising in the ordinary course of
our business, including patent, product liability and other litigation. In
determining whether liabilities should be recorded for pending litigation
claims, we assess the allegations made and the likelihood that we will
successfully defend the suit. When management believes that it is probable that
we will not prevail in a particular matter, management then estimates the amount
of the liability based in part on advice of outside legal counsel.
COMPARISON OF THE QUARTER ENDED MARCH 31, 2006 TO THE QUARTER ENDED MARCH 31,
2005
SUMMARY
Period ended March 31,
2006 2005
---- ----
Revenue $ 434,407 $ 0
Net Loss $(545,777) $(213,225)
Net Loss per Common Share $ (0.02) $ (0.01)
Dividends per Common Share $ 0 $ 0
RESULTS OF OPERATIONS
REVENUE
In the three months ended March 31, 2006 our revenues were $434,407 compared to
no revenues in the three months ended March 31, 2005. The revenues in 2006
derived from the new GrowTECH2500 large scale project in Russia which was signed
in mid 2005 and was recognized based on the percentage-of-completion method.
We believe that in 2006 our revenues will derive from a limited number of
customers and that a significant amount will be attributed to our project in
Russia mentioned above.
COST OF REVENUE
Cost of revenue increased to $461,621 in the three months ended March 31, 2006
from $16,354 in the three months ended March 31, 2005. Cost of revenue for the
three months ended March 31, 2006 consisted mainly of materials, labor and
sub-contractors expenses that were related to the recognized revenues adopting
the percentage-of-completion, based on a zero profit margin, therefore equal
amounts of revenues and cost, measured on the basis of performance during the
period, were presented in the income statement. Cost of revenue for the three
months ended March 31, 2005 consisted mainly inventories write-off.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 852% to $92,505 in the three months
ended March 31, 2006 from $9,708 in the three months ended March 31, 2005. The
increase was primarily due to increased payroll and related costs during the
first three months ended March 31, 2006 and due to increased sub-contractors
costs. As a percentage of revenue, our R&D expenses were 21% in the three months
ended March 31, 2006. We expect to continue to incur research and development
costs (which will be limited to our available financial resources), related to
our continued GrowTECH2500 development and to a lesser extent, our continued
development of GrowTECH2000 and other Bio-Tech product lines.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 244% to $272,019 in the three months
ended March 31, 2006 from $79,118 in the three months ended March 31, 2005. The
increase in sales and marketing expenses is primarily attributable to increased
payroll costs, amortization of deferred stock based compensation and to expenses
related to demo-systems deployed in Europe and the USA. As a percentage of
revenue, our sales and marketing expenses were 63% in the three months ended
March 31, 2006. As of the date of the report, we maintain three demo sites for
which the majority of the expense was already incurred, however, we expect to
continue to incur increased other sales and marketing expenses (limited to our
available financial resources), as we believe that the need for our products is
worldwide and our sales volume is directly influenced by the sales and marketing
efforts invested.
8
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 134% to $200,731 in the three
months ended March 31, 2006 from $85,465 in the three months ended March 31,
2005. The increase in general and administrative expenses was primarily in
payroll costs and amortization of deferred stock based compensation, the
majority for which was related to the recruiting of new CEO and CFO, and in
professional services. As a percentage of revenue, our general and
administrative expenses were 46% in the three months ended March 31, 2006. We
expect to maintain this level of general and administrative expenses, limited to
our available financial resources.
FINANCIAL INCOME/EXPENSES
Financial income was $46,692 in the three months ended March 31, 2006 compare to
an expense of $22,401 in the three months ended March 31, 2005.. During the
first three months ended March 31, 2006 financial income consisted primarily of
writing off of a provision recorded in year 2005 for a possible penalty related
to an equity investment in our company (See note 6N. of the condensed interim
unaudited consolidated financial statements for the period ended March 31,
2006). During the first three months ended March 31, 2005 financial expenses
consisted primarily of expenses related to interest on convertible loan received
from a related party
OPERATING LOSS AND NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
As we started to adopt the percentage-of-completion method based on a zero
profit margin, therefore equal amounts of revenues and cost, measured on the
basis of performance during the period, are presented in the income statement,
and for the reasons described above, our operating loss increased 136% to
$592,469 in the three months ended March 31, 2006 from $190,645 in the three
months ended March 31, 2005 and our net loss increased 126% to $545,777 in the
three months ended March 31, 2006 from $213,225 in the three months ended March
31, 2005.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2006, we had cash and cash equivalents totaling $683,944
compared to compared to $449,074 as of December 31, 2005 and $111,090 as of
March 31, 2005.
We entered into an equity line with Dutchesss Capital Management LLC signed on
July 20, 2003, that we do not anticipate using. For more information on the
equity line, see Note 14L of our year 2005 financial statements. We have no
restricted cash or material capital commitments.
Since our inception in 1999, we have financed our operations through private
sales of common shares and convertible loans, which have totaled $6.8 million
(net of transaction expenses). We have used the proceeds of the sale of all
securities for working capital and other general corporate purposes.
Until we are able to generate sufficient cash from operations, we intend to use
our existing cash resources to finance our operations. Based on our monthly
expenses, we do not have sufficient cash to satisfy our operational and
development requirements over the next 12 months. Our consolidated financial
statements for the fiscal year ended December 31, 2005 and for the three months
ended March 31, 2006 include an explanatory paragraph which states that we have
suffered recurring losses from operations and a negative cash flow from
operating activities that raise substantial doubt about our ability to continue
as a going concern.
For the three months ended March 31, 2006, we had $589,834 in cash used in
operating activities compared with $419,687 for the three months ended March 31,
2005. The operating cash outflow for the three months ended March 31 2006 was
primarily a result of our net loss of $545,777 and a decrease in trade payable,
customer advances and other payable and accrued expenses of $378,530, $157,148
and $31,454, respectively. The cash outflow was partially offset by a decrease
in other receivable, inventories and trade receivable of $129,721, $107,970 and
$65,014. The operating cash outflow for the three months ended March 31 2005 was
primarily a result of our net loss of $213,225 and an increase in inventories
and other receivables of $253,611 and $38,393, respectively. The cash outflow
was partially offset by an increase in customer advances of $40,786 and in other
payables and accrued expenses of $38,449.
9
The net cash used in investment activities for the three months ended March 31,
2006 was $9,630 compared with $3,343 provided by investment activities for the
three months ended March 31, 2005. The cash used in investment activities for
the three months ended March 31, 2006 was a result of the purchase of capital
equipment. The cash provided by investment activities for the three months ended
March 31, 2005 was a result of $6,513 in proceeds from the disposal of property
and equipment, off-set by $3,170 from the purchase of capital equipment.
Our net cash inflow from financing activities for the three months ended March
31, 2006 was $834,334 generated from the proceeds of the issuance of shares, net
of fair value of warrants granted, with respect to the issuance of shares and
net of issuance expenses. Our net cash inflow from financing activities for the
three months ended March 31, 2005 was $414,636. During the three months ended
March 31, 2005, we generated $374,299 from proceeds of the issuance of shares,
net of fair value of warrants granted, with respect to the issuance of shares
and net of issuance expenses and $44,815 from the increase in short term credit
that was offset by $4,478 in repayment of a long term loan to a financial
institution.
There were no long term loans, commitments or off-balance sheet guarantees as of
March 31, 2006.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
future condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
ITEM 3 CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of our disclosure controls and
procedures as of March 31, 2006. Disclosure controls and procedures are
procedures that are designed with the objective of ensuring that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934, such as this Form 10-QSB, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective for gathering, analyzing and disclosing the information
that we are required to disclose in the reports filed under the Securities
Exchange Act of 1934. Such evaluation did not identify any change in the period
ended March 31, 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
As of March 31, 2006, we did not have any material weaknesses in the
effectiveness of our internal controls.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
Based on the material weakness in internal control over financial reporting
during the year ended December 31, 2004 and for the purpose of improving our
controls over the financial reporting process as was mentioned in our 10-KSB
form for the year ended on December 31, 2004, we hired an Israeli Certified
Public Accountant on June 1, 2005, who is currently assisting us with our
financial reporting responsibilities. Additionally, we recruited a new Chief
Financial Officer on February 1, 2006 and are in the process of enhancing our
internal control processes in order to be able to comprehensively review the
accounting and disclosure implications of our operations.
10
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDING
We are, from time to time, subject to claims arising in the ordinary course of
our business, including patent, product liability and other litigation. In
determining whether liabilities should be recorded for pending litigation
claims, we assesses the allegations made and the likelihood that we will
successfully defend the suit. When management believes that it is probable that
we will not prevail in a particular matter, management then estimates the amount
of the liability based in part on advice of outside legal counsel.
To the knowledge of our company and OrganiTECH Ltd., at March 31, 2006, there
was no material litigation pending or threatened against our company or
OrganiTECH Ltd., or our respective officers and directors in their capacities as
such, nor are there any material legal or administrative proceedings to which
we, OrganiTECH Ltd. or our respective officers and directors, as such, are a
party.
In February 2005, a legal suit was filed with the Haifa Regional Tribunal,
Israel, against OrganiTECH Ltd. by Leami 2000 (96) Ltd. ("Leami") in the amount
of approximately $295,500, arising out of the sale of one of OrganiTECH Ltd.'s
products for which Leami had paid $60,000 out of the total purchase price of
$100,000. Leami claimed that the product had not operated in the manner that it
had anticipated and that as a result Leami had suffered damages. OrganiTECH Ltd.
disputes the claim of Leami, and has stated in its defense that the product sold
was a product at a development stage and that this fact was clearly stated in
the sales contract. On April 20, 2005 OrganiTECH Ltd. filed a counter lawsuit
against Leami in the amount of $148,800 claiming that Leami had not fulfilled
its obligations and commitments under the sale agreement signed with OgraniTECH,
and by not doing so and taking other actions, it caused OrganiTECH Ltd. to
suffer damages and expenses.
ITEM 2 UNRESGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period covered by this Form 10-QSB, we or OrganiTECH Ltd. sold the
following securities without registration under the Securities Act of 1933, as
amended (the "Securities Act." (
- - Pursuant to a PIPE investment agreement with Clal Finance Underwriters Ltd.
("Clal") dated February 20, 2005 and amended on January 31, 2006, we issued
(i) 3,600,000 shares of our common stock to a group of investors in
consideration for $900,000, together with (ii) 1,800,000 A-1 Warrants, and
(iii) 1,800,000 A-2 Warrants.. The A-1 Warrants are exercisable until the
later of April 30, 2007, or 3 months from the declaration of effectiveness
of this registration statement for an exercise price of either (i) $0.75
per share of common stock, or (ii) in the last 30 days of the term of the
warrants, at a 10% discount from the average share price within the 30 day
period prior to the date on which the warrant holder notified us of its
intention to exercise the A-1 Warrant. The A-2 Warrants are exercisable
until the later of July 31, 2007, or 3 months from the declaration of
effectiveness of this registration statement, for an exercise price of
either (i) $1.00 per share of common stock, or, (ii) in the last 30 days of
the term of the warrants, at a 10% discount from the average share price
within the 30 day period prior to the date on which the warrant holder
notified us of its intention to exercise the A-1 Warrant. We are currently
in the process of registering all of the securities issued in connection
with this transaction for re-sale.
We believe that the transactions described above were exempt from registration
under Section 4(2) of the Securities Act because none of the investors was a
"U.S. Person" as that term is defined in Rule 902(k) of Regulation S promulgated
under the Securities Act, and each investor represented that it was not
acquiring the securities for the account or benefit of any U.S. person.
Additionally, the subject securities were sold to a limited group of persons,
each of whom was believed to have been a sophisticated investor or to have had a
preexisting business or personal relationship with us or OrganiTECH Ltd. or
their respective management and to have been purchasing for investment with a
view to further distribution.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
11
ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
CHANGES IN MANAGEMENT
On January 2, 2006, we appointed Ms. Rachel Ben-Nun to serve as our chief
executive officer and on February 23, 2006, we appointed Mr. Yaron Shalem to
serve as our chief financial officer. Mr. Lior Hessel, who was until that time
the CEO and acting CFO, was appointed to serve as the Chairman of our board of
Directors.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8K
(a) EXHIBITS
EXHIBIT No. Description
- ----------- -----------
2.3 OrganiTECH Ltd. Investment Agreement dated June 20, 2000. (2)
2.4 Stock Exchange Agreement between the Company and OrganiTECH Ltd.,
dated October 19, 2000. (5)
2.5 Amendments to Stock Exchange Agreement between the Company and
OrganiTECH Ltd., dated January 26, 2001. (5)
2.6 Plan and Agreement of Merger between Incubate This!, Inc., a
Colorado corporation, and Incubate This!, Inc., a Delaware
corporation, dated as of January 5, 2001. (4)
2.7 Certificate of Ownership and Merger of the Company into Incubate
This!.(6)
3.1 Certificate of Incorporation of the Company. (4)
3.2 Bylaws of the Company (4)
3.3 Certificate of Incorporation of OrganiTECH Ltd. (English
Translation). (9)
3.4 Bylaws of OrganiTECH Ltd. (English Translation). (9)
10.1 1997 Stock Award Plan. (1)*
10.2 Incentive Stock Option Plan. (1)*
10.4 Beta Site Cooperation Agreement between the Company and Agronaut,
dated November 30, 2001. (7)
10.5 Cooperation and Project Funding Agreement between OrganiTECH
Ltd., Agronaut and SIIRDF, dated November 19, 2001. (7)
10.6 Agreement between OrganiTECH Ltd. and OCS, dated January 30, 2002
(English Translation). (7)
10.7 Joint Venture Agreement between OrganiTECH Ltd. and Weitzman
Institute, dated September 23, 2001 (English Translation). (7)
10.8 Agreement between OrganiTECH Ltd. and the Fund for Export
Encouragement, dated December 31, 2001 (English Translation). (7)
12
10.9 Option Allotment Agreement between OrganiTECH Ltd. and David
Baron, dated May 29, 2000 (English Translation). (7)
10.10 Option Agreement between OrganiTECH Ltd. and David Baron, dated
January 9, 2001. (7)
10.11 Securities Purchase Agreement between the Company and B.L.M. N.V.
dated June 16, 2002, including amendment (8)
10.12 Distribution Agreement dated August 27, 2002 between the Company
and Agronaut PTE. (9)
10.13 Exclusive Agency Agreement between the Company and A.T.A. Jordan
Valley Ltd., dated December 3, 2002. (9)
10.14 Sale agreement with ZAO - Sad-Gigant Kholod ("ZAO") dated June
26, 2005. (10)
21.1 Subsidiaries of the Registrant. (9)
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 +
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 +
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 +
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 +
(1) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-8, filed February 21, 1997, registration number
333-22203.
(2) Incorporated by reference to exhibits filed with the Company's Form 10-QSB
for the quarter ended June 30, 2000.
(3) Incorporated by reference to exhibits filed with the Company's Form 10-QSB
for the quarter ended September 30, 2000.
(4) Incorporated by reference to exhibits filed with the Company's Form 8-K,
filed with the Commission on February 22, 2001.
(5) Incorporated by reference to exhibits filed with the Company's Form 8-K,
filed with the Commission on February 9, 2001.
(6) Incorporated by reference to exhibits filed with the Company's Form 8-K,
filed with the Commission on March 28, 2001.
(7) Incorporated by reference to exhibits filed with the Company's Form 10-KSB,
filed with the Commission on April 15, 2002.
(8) Incorporated by reference to exhibits filed with the Company's Form 10-QSB,
filed with the Commission on August 18, 2002.
(9) Incorporated by reference to exhibits filed with the Company's Form
10-KSB/A, filed with the Commission on August 23, 2005.
(10) Incorporated by reference to exhibits filed with the Company's Form 10-KSB,
filed with the Commission on March 30, 2006.
+ Filed herewith.
13
(b) REPORTS ON FORM 8-K.
Our current reports on Form 8-K filed since January 1, 2006 are as follows:
MONTH FILING DATES
----- ------------
January 2006 January 1, 2006
February 2006 February 27, 2006 (three reports)
April 2006 April 3, 2006
July 2006 July 3, 2006
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on September 7, 2006.
ORGANITECH USA, INC.
By: /s/ Lior Hessel
- -------------------
Lior Hessel, Chairman of the Board of Directors
By: /s/Rachel Ben-Nun
- ---------------------
Rachel Ben-Nun, Chief Executive Officer
By: /s/ Yaron Shalem
- --------------------
Yaron Shalem, Chief Financial Officer and Chief Accounting Officer
14
ORGANITECH USA, INC.
