UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|x| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2003
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from ________________ to ______________
Commission File Number 000-22151
ORGANITECH USA, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 93-0969365
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Industry Park Shaar Yokneam, Yokneam 20692, Israel
(Address of principal executive offices)
972-4-9590515
(Issuer's telephone number)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING 5 YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 31, 2003, this issuer had
16,500,000 shares of its common stock outstanding, including 5,500,000 shares of
common stock that are being held in escrow pending the completion of a private
placment transaction.
Transitional Small Business Disclosure Format (Check one): Yes |_| No |x|
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ORGANITECH USA, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
AS OF MARCH 31, 2003
(UNAUDITED)
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Financial Statements
as of March 31, 2003
(Unaudited)
Table of Contents
Page
----
Condensed Consolidated Interim Balance Sheets 3
Condensed Consolidated Interim Statements of operations 4
Condensed Consolidated Interim Statements of Cash Flows 5-6
Notes to Condensed Consolidated Interim Financial Statements 7-15
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Balance Sheets
March 31, March 31, December 31,
2003 2002 2002
---------- --------- ------------
Unaudited Unaudited Audited
---------- --------- ------------
U.S. $ U.S. $ U.S. $
---------- --------- ------------
ASSETS
Current assets :
Cash and cash equivalents 54,339 392,996 58,422
Investments 3,718 43,267 --
Other accounts receivable 169,651 117,222 213,569
Prepaid expenses 6,463 13,042 8,655
Raw material inventory 64,968 19,557 23,334
------- ------- -------
299,139 586,084 303,980
------- ------- -------
Other assets -- 16,880 --
------- ------- -------
Investment in A.T.A Jordan Valley Ltd. 7,927 -- 7,927
------- ------- -------
Funds in respect of employee rights upon retirement 47,425 -- 43,587
------- ------- -------
Fixed assets, net 133,847 100,494 142,221
------- ------- -------
488,338 703,458 497,715
======= ======= =======
The accompanying notes are an integral part of the consolidated interim
financial statements.
Date of approval of the financial statements: May 26, 2003
/s/ Lior Hessel /s/ Lior Hessel
- ------------------------------------------- --------------------
Chairman of the Board of Directors President
3
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Balance Sheets
LIABILITES AND SHAREHOLDERS' EQUTIY (CAPITAL DEFICIENCY)
March 31, March 31, December 31,
2003 2002 2002
---------- ---------- ------------
Unaudited Unaudited Audited
---------- ---------- ----------
Current liabilities : U.S. $ U.S. $ U.S. $
---------- ---------- ----------
Banks credit and Current maturity of long-term loan 64,847 -- 19,022
Trade accounts payable 178,299 51,274 113,069
Other accounts payable and accrued liabilities 165,589 128,098 142,071
Deferred revenue 135,000 135,000 135,000
---------- ---------- ----------
543,735 314,372 409,162
---------- ---------- ----------
Long-term loan 32,610 -- 37,451
---------- ---------- ----------
Liability in respect of employee rights upon retirement 102,521 23,233 94,263
---------- ---------- ----------
Contingencies, Commitments and liens on assets
Shareholders' equity (capital deficiency)
Preferred shares U.S.$ 0.10 par value, authorized - 10,000,000
shares as of December 31, 2002 and 2001 -- -- --
Common shares of U.S.$ 0.001 par value, authorized - 80,000,000
shares, issued and outstanding - 11,275,000 and 11,000,000 as of
December 31, 2002 and 2001, respectively 11,375 11,100 11,375
Additional paid in capital 4,116,227 3,398,017 4,116,227
Deferred stock-based compensation -- 446,166 (7,208)
Accumulated deficit during the development stage (4,318,130) (3,489,430) (4,163,555)
---------- ---------- ----------
Total shareholders' equity (capital deficiency) (190,528) 365,853 (43,161)
---------- ---------- ----------
488,338 703,458 497,715
========== ========== ==========
The accompanying notes are an integral part of the consolidated interim
financial statements.
4
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Statements of Operations
Amounts
Three months Three months accumulated
ended ended Year ended during the
March 31, March 31, December 31, development
2003 2002 2002 stage
---------- ---------- ---------- ----------
Unaudited Unaudited Audited Unaudited
---------- ---------- ---------- ----------
U.S. $ U.S. $ U.S. $ U.S. $
---------- ---------- ---------- ----------
Revenue from sales of PhytoChamber -- -- -- 32,620
Cost of sales -- -- -- 20,567
---------- ---------- ---------- ----------
Gross profit -- -- -- 12,053
Research and development expenses, net 91,431 116,254 368,303 2,585,901
Selling and marketing expenses 11,014 15,114 99,997 256,427
General and administrative expenses 49,779 152,245 457,122 1,459,777
---------- ---------- ---------- ----------
Operating loss 152,224 283,613 925,422 4,290,052
Financing expenses (income), net 2,352 10,167 30,483 (11,017)
Other expenses, net -- -- 12,000 39,096
---------- ---------- ---------- ----------
Loss before income tax 154,576 293,780 967,905 4,318,131
Income tax -- -- -- --
---------- ---------- ---------- ----------
Net loss 154,576 293,780 967,905 4,318,131
========== ========== ========== ==========
Basic and diluted net loss
per common share 0.01 0.03 0.09
========== ========== ==========
Weighted average number of common shares
outstanding used in basic and diluted loss per
share calculation 11,275,000 11,000,000 11,034,375
========== ========== ==========
The accompanying notes are an integral part of the consolidated interim
financial statements.
5
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Statements of Cash Flows
Amounts
Three months Three months accumulated
ended ended Year ended during the
March 31, March 31, December 31, development
2003 2002 2002 stage
------------ ------------ ------------ ----------
Unaudited Unaudited Audited Unaudited
-------- -------- -------- ----------
U.S. $ U.S. $ U.S. $ U.S. $
-------- -------- -------- ----------
Cash flows used in operating activities:
Net loss for the period (154,576) (293,780) (967,905) (4,318,131)
-------- -------- -------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities :
Amortization of deferred stock-based compensation 7,208 19,837 47,948 481,485
Depreciation 8,375 6,000 26,711 67,080
Liability for employee rights upon retirement 8,258 (1,547) 30,031 102,521
Amounts assigned to issuance of warrants to service providers -- -- 2,116 2,116
Changes in assets and liabilities :
(Increase) decrease in other accounts receivable 43,918 (46,057) (142,404) (169,651)
Decrease (Increase) in prepaid expenses 2,192 23,810 28,197 (6,463)
Increase in raw material inventory (41,634) (7,749) (11,526) (64,968)
(Decrease) Increase in trade accounts payable 65,230 (84,511) (22,716) 178,299
Increase in other accounts payable 23,579 4,775 16,759 165,147
(Decrease) Increase in deferred income -- -- -- 135,000
-------- -------- -------- ----------
Total adjustments 117,126 (85,442) (24,884) 890,566
-------- -------- -------- ----------
Net cash used in operating activities (37,450) (379,222) (992,789) (3,427,565)
-------- -------- -------- ----------
Cash flows from investing activities :
Funds in respect of employee rights upon retirement (3,838) -- (4,135) (47,425)
Decrease (Increase) in short-term investments (3,718) 153,284 196,551 (3,718)
Investment in fixed assets -- (1,395) (63,833) (200,926)
Investment in other assets -- -- 16,880 --
Investment in A.T.A Jordan Valley Ltd. -- -- (7,927) (7,927)
-------- -------- -------- ----------
Net cash provided by (used in) investing activities (7,556) 151,889 137,536 (259,996)
-------- -------- -------- ----------
Cash flows from financing activities :
Increase in Banks credit 45,116 -- -- 45,116
Long-term loan (4,132) -- 56,473 52,341
Proceeds for future share issuance, net -- -- 134,884 134,884
Proceeds from issuance of shares,
net of issuance expenses -- -- 100,000 3,509,117
-------- -------- -------- ----------
Net cash provided by financing activities 40,984 -- 291,357 3,741,458
-------- -------- -------- ----------
The accompanying notes are an integral part of the consolidated interim
financial statements.
6
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Statements of Cash Flows - Continued
Amounts
Three months Three months accumulated
ended ended Year ended during the
March 31, March 31, December 31, development
2003 2002 2002 stage
--------- --------- ------- ---------
Unaudited Unaudited Audited Unaudited
U.S. $ U.S. $ U.S. $ U.S. $
------- -------- -------- ----------
Net cash used in operating activities (37,450) (379,222) (992,789) (3,427,565)
Net cash (used in) provided by investing activities (7,556) 151,889 137,536 (259,996)
Net cash provided by financing activities 40,984 -- 291,357 3,741,458
Effect of exchange rate changes on cash (61) -- 1,989 442
------- -------- -------- ----------
Net (decrease) increase in cash and cash equivalents (4,083) (227,333) (561,907) 54,339
Cash and cash equivalents at beginning of period 58,422 620,329 620,329 --
------- -------- -------- ----------
Cash and cash equivalents at end of
period 54,339 392,996 58,422 54,339
======= ======== ======== ==========
Supplementary disclosure of cash flow information :
Interest received, net 1,589 1,428 1,822
======= ======== ========
Income tax paid, net -- (142) (2,491)
======= ======== ========
The accompanying notes are an integral part of the consolidated interim
financial statements.
7
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 1 - Description of Business
A. Organitech USA, Inc. (the "Company") (formerly "Incubate This!
Inc."), organized under the laws of the state of Delaware, is
presently and primarily engaged through its wholly owned subsidiary
company Organitech Ltd. ("Organitech Ltd."), a company organized
under the laws of Israel, in the development of technologies,
platforms, and applied engineering solutions that cost effectively
and completely automate the method by which many foods, plants, and
extracts are cultivated. Since its formation, Organitech Ltd. has
been developing its first proprietary solution, the GrowTECH 2000
(TM), which is a low input-high output, self-contained, portable,
robotic, sustainable agricultural platform designed to automatically
seed, transplant and harvest commercial quantities of hydroponics,
pesticide free, green leaf vegetables. Another engineering solution
developed by Organitech Ltd. is a commercial, new, highly portable,
reliable, cost-effective, and versatile turnkey growth chamber
solution known as PhytoChamber.
B. In January 2001, the Company consummated an agreement with
Organitech Ltd., whereby the Company issued 7.5 million shares of
common stock 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 shares of common stock
issued by the Company to the selling shareholders represented 67.57%
of the voting common stock of the Company. Accordingly, this
business combination is 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. The
comparative figures for 2000 are those of Organitech Ltd.
C. The Company has not generated material revenues from sales of the
GrowTECH 2000 platform, and has incurred losses from operations at
the amount of U.S$ 152,406, U.S.$ 293,780, U.S.$ 967,905 and U.S.$
4,315,961 for the three-month periods ended March 31, 2003 and 2002,
for the year ended December 31, 2002 and for the period from July 4,
1999 (inception) to March 31, 2003, respectively.
The Company does not have sufficient cash to satisfy its operational
and developmental requirements over the next 12 months which raise
substantial doubt about its ability to continue as a going concern.
The continuation of the Company's operation as a "going concern" is
dependant upon its ability to invest the required resources in
completion of the research and development, the quality of its
technologies, future market, selling the GrowTECH 2000 platform and
the continued financial support of its shareholders or on obtaining
additional external sources of financing, in order to secure the
continuity its operations.
8
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 2 - Basis of Presentation
A. The accompanying unaudited interim consolidated financial statements
as of March 31, 2003 and for the three month period then ended ("the
Interim Financial Statements") were prepared in a condensed form in
accordance with the instructions for Form 10-Q and, therefore, do
not include all disclosures necessary for a complete presentation of
financial condition, results of operations, cash flows and all the
data and notes which are required when preparing annual financial
statements, in conformity with generally accepted accounting
principles
B. The accounting principles used in the presentation of Interim
Financial Statements are consistent with those principles used in
the presentation of the latest annual financial statements. All
significant accounting policies have been applied consistently with
year ended December 31, 2002.
C. The preparation of Interim Financial Statements requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation of
the Interim Financial Statements have been included. The results of
operations for the three-month period ended March 31, 2003, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2003. The Interim Financial Statements
should be read in conjunction with the Company's annual financial
statements as of December 31, 2002 and for the year then ended and
the accompanying notes thereto.
Note 3 - Loss Per Share
Basic and diluted loss per ordinary share is presented in conformity
with SFAS No.128, "Earnings Per Share" for all periods presented.
Basic loss per share is computed by dividing net loss available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted loss per share reflects the
effect of common shares issued upon exercise of stock options.
However, all outstanding stock options have been excluded from the
calculation of the diluted loss per ordinary share because all such
securities are anti-dilutive or each of the periods presented.
9
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 4 - Private placement
On June 16, 2002, the Company entered into a private placement agreement
with third party ("investor"), with respect to the issuance of 5,500,000
shares of common stock, at a price of U.S.$. 0.363 per share, and granting
to the investor options to purchase 188,179 shares of common stock at an
exercise price of U.S.$ 0.0001 per share; and 46,242 shares of common
stock at an exercise price of U.S.$ 1 per share; represent after giving
effect to their issuance 33.1/3 % of the Company's outstanding share
capital on a fully diluted basis. The Company and the investor, signed on
amended schedule to the private placement agreement, whereby:
(1) The aggregate proceed of U.S.$ 2 million shall be paid to the
Company by the investor over a period of 25 months, commencing
August 2002.
(2) The Company shall issue to the investor shares of common stock on a
pro-rata basis upon actual payments of the proceeds.
(3) "Vote together" agreement was signed between the investor and the
Company's president and shareholder of approximately 35% of the
Company's share capital.
(4) The investor will be entitled to be represented by a director in the
Company's Board of Directors.
(5) The investor will be entitled to management fees equivalent to the
salary cost of the Company's CEO - approximately U.S$ 8,000 per
month.
On October 8, 2002 the Company delivered to an escrow agent 5,500,000
shares of the common stock to be registered on the name of the investor
and transfer to the investor based upon actual payment of their purchase
price. As of March 31, 2003, the investor transfer to the Company
aggregated amount of U.S.$ 225,000 represents an applicable purchase price
for 618,750 shares of common stock to be transferred to the investor by
the escrow agent, out of which, as of the balance sheet date, the investor
is entitled for 275,000 shares of common stock. The payments for January -
April 2003 were not yet made by the investor.
Note 5 - Contingencies, commitments and liens on assets
A. Royalty commitments under research and development programs
(1) Organitech Ltd. is committed to pay royalties to the Israeli
government on proceeds from the sales of products, which the
Israeli government participated in their research and
development by the way of grants. Under the terms of the
Company's approved funding programs by the Israeli government
- Office of the Chief Scientist, royalty payments are computed
on the portion of sales from such products at a rate 3% to 5%.
The commitment to the Office of the Chief Scientist is limited
to the amount of the received participation.
The terms of the Chief Scientist grants restrict Organitech
LTD's ability to manufacture products or transfer the
technologies developed using these grants outside of Israel.
As of March 31, 2003, the balance of royalty bearing grants
due by the Company to the Office of the Chief Scientist is
U.S. $ 381,665.
10
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies, commitments and liens on assets (continued)
A. Royalty commitments under research and development programs
(continued)
(2) In September 2001, Organitech Ltd. received an approval for
Magnaton Research and Development program through the Office
of the Israeli Chief Scientist ("OCS"). Magnaton program
reflects a joint venture between Organitech Ltd. and the
Weitzman Institute in order to develop new varieties of
miniature tomatoes that can be adapted to the GrowTECH 2000
system. The OCS participates in 66% of the research and
development expenses incurred subject to a maximum amount of
approximately U.S.$ 78,000. As of March 31, 2003, Organitech
Ltd. received from the OCS a payment of U.S.$ 71,153.
Organitech Ltd. is committed to pay royalties to the Weitzman
Institute up to 5% on sales of products developed with the
grants participation of the Magnaton program.
(3) In November 2001, Organitech Ltd. and third party -"Agronaut"
received approval from the Singapore-Israel Industrial
Research and Development ("SIIRD") for funding the development
of an updated commercial version of the GrowTECH. SIIRD will
participate in 40% of the research and development expenses
incurred by Organitech Ltd. and Agronaut, limited to a maximum
amount of U.S.$ 421,359. As of March 31, 2003 Organitech Ltd.
has received U.S.$ 291,376 from SIIRD. Organitech Ltd., and
Agronaut are committed to pay royalties to SIIRD ranging from
1.5% to 2.5% on sales of products developed with the grants
participation of SIIRD. The commitment for royalty payments to
SIIRD is limited to the amount of received participation.
B. Distribution agreement
(1) In Israel
In February 2000, Organitech Ltd. Signed a distribution
agreement, whereby it granted Net Alim the exclusive right to
market Organitech LTD's GrowTECH platforms in Israel. Under
the terms of the agreement, Net Alim agreed to purchase two
GrowTECH platforms in consideration for U.S. $100,000. In
March 2000, Organitech Ltd. Received an advance payment from
Net Alim in an amount of U.S.$ 60,000. In July 2000,
Organitech Ltd. Delivered the two GrowTECH platforms to Net
Alim.
Organitech Ltd. and Net Alim negotiated certain claims of Net
Alim concerning the GrowTECH platforms delivered and the
distribution agreement. Management is of the opinion, based
upon its legal advisor opinion that the Company's exposure in
respect of these claims would not have material adverse
effect, on the Company's financial statements.
11
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies, commitments and liens on assets (continued)
B. Distribution agreement
(2) In Asia pacific
(a) On August 27, 2002, the Company and Agronaut singed a
co-operation agreement, whereby the Company granted
Agronaut exclusive rights to sell and distribute the
Company's systems during 10 years within Singapore; and
during 6 years within Korea, Taiwan and other countries
within South East Asia, as well as, non exclusive
distribution rights in the rest of Asia region. Pursuant
to the co-operation agreement Agronaut is committed, in
order to retain it's exclusive rights, to sale at least
6% out of the total worldwide sales of the Company.
(b) Pursuant to the co-operation agreement, the Company
granted Agronaut with the option to purchase during
eight months upon signing the co-operation agreement, 20
systems produced by the Company at cost price, provided
that the Company complete full upgrading of 2 beta
systems installed in Singapore within 2 month following
signing the co-operation agreement.
(c) Pursuant to the co-operation agreement, Agronaut will be
entitled for its investment in marketing and
distribution efforts during the first year of the
co-operation agreement, evaluated by the parties to
U.S.$ 800,000, subject to security purchase agreement to
be signed by the parties, to a consideration of 800,000
shares of common stock to be issued by the Company and
placed with escrow agent who will transfer such shares
to Agronaut on a pro-rata quarterly bases during the
first year of the corporation agreement. As of the
balance sheet date the parties have not yet signed the
security purchase agreement and co-operation agreement
has not yet been in affect. Therefore, the financial
statements do not include the effect, if any, that may
result from such security transaction.
(d) Pursuant to the co-operation agreement Agronaut was
granted with option that was in effect two weeks
following the date of the co-operation agreement, to
purchase 3 systems of the Company for a consideration of
U.S.$ 300,000, and to increase the consideration
mentioned in (c) above by additional 300,000 shares of
common stock of the Company. As of the balance sheet
date Agronaut did not execute this option and the
financial statements do not include the effect, if any,
which may result from the execution of such option.
12
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies, commitments and liens on assets (continued)
C. In July 2000, the Company signed a memorandum of understanding
("MOU") with a Singaporean company ("Agronaut"), whereby the Company
committed to sell two beta version GrowTECH platforms ("GrowTECH
platforms") in consideration for U.S.$ 50,000 each. The Company
received an advance of U.S.$100,000 for two GrowTECH platforms,
which were delivered during June 2001. The parties agreed upon the
followings:
(1) Experimental stage of the two GrowTECH platforms for six
months commencing upon delivery.
(2) Agronaut will be released from its obligations under MOU,
should the GrowTECH platforms show unsatisfactory production
capabilities, as agreed upon between the parties.
(3) In the event that Agronaut is released from its obligation,
the Company will return U.S.$ 75,000 to Agronaut upon respect
of the two GrowTECH platforms.
As of the balance sheet date the Company has not received the
acceptance approval by Agronaut in respect of such two GrowTECH
platforms.
D. On December 1, 2001, the Company and Agronaut signed an agreement to
incorporate, subject to obtaining sufficient government and/or
private funding, a 50-50 joint venture in Singapore with authorized
share capital of 100,000 Singapore dollars to, be engaged in the
Agro-Technologies field under the name of "Organitech Asia".
E. On December 31, 2002, Organitech Ltd. and Ocean Culture Ltd. a
Company controlled by lior Hessel - stock holder of the Company,
entered into an agreement whereby, Organitech Ltd. will develop a
prototype of the GrowTECH platform for Ocean Culture at a
consideration of U.S.$ 15,000 in cash and U.S.$ 35,000 to be paid by
the issuance of 15,272 shares of Ocean Culture, consisting,
following the issuance of such shares, 18% out of the outstanding
issued share capital of Ocean Culture. As of the balance sheet date
the Company have received U.S.$ 5,000 down payment by Ocean Culture
Ltd.
13
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies, commitments and liens on assets (continued)
F. On December 3, 2002, the Company entered into a three years
collaboration agreement with Bio-Bee Biological Systems Ltd.
("Bio-Bee"), whereby Bio-Bee committed to provide agronomic service,
technical and research and development assistance to the Company
and/or Organitech Ltd. worth U.S. $ 100,000 per a year. In
consideration to the services rendered under the collaboration
agreement, Bio-Bee will be entitled to the following proceeds:
(1) 100,000 shares of common stock of the Company at a price of
U.S $1 per share of common stock, to be issued to Bio-Bee at
three equal installments over three years, each at 60 days
following the end of each year of service.
(2) Royalty payments computed as 3% out of the revenues that will
be generated by the Company from the miniature tomatoes
project, for a period of 5 years commencing the date of the
agreement, limited to amount accumulated to U.S. $ 300,000.
Pursuant to the agreement Bio-Bee can choose to convert its
right for royalty payments for additional issuance of 395,000
shares of common stock of the Company; and the Company can
choose to convert its liability for royalties to Bio-Bee for
an issuance of its shares of common stock to Bio-Bee at 80%
for the average market price of the Company's share of common
stock at 90 days prior to date of conversion; for a value
computed as 3% of royalties that will be received by
Organitech Ltd. for the miniature tomatoes project.
(3) Pursuant to the agreement the Company committed to grant
Bio-Bee at the end of each year of service with the option to
purchase 500,000 shares of common stock of the Company to be
exercised at a period of 12 months following the date of
grant. The exercise price under the option will be at 20%
discount from the average market price of the Company's share
of common stock during the 90 days preceding the exercise date
of the option.
(4) Pursuant to the agreement, Organitech Ltd. committed to
purchase from Bio-Bee during the three years of the agreement,
laboratories and other facilities services at annual value
aggregated to U.S. $ 25,000.
In May 8, 2003 the agreement was terminated upon the consent of both
parties, and Bio-Bee waved for any demand for proceed on services
rendered to the Company.
G. On 2002, Organitech Ltd. executed its option for extension of its
rental agreement of premises signed on 2000, for a period of one
year commencing March 1, 2002. Minimum future payments due during
2003, under this rental agreement are U.S.$ 4,500. On 2003,
Organitech Ltd. signed an rental agreement in Yokneam minimum future
payments due during 2003, under this rental agreement are U.S.$
4,350 .
14
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies, commitments and liens on assets (continued)
H. The Company maintains a worldwide directors and officers insurance
policy that cover, subject to the Israeli law and Jurisdiction, in
management's opinion, all reasonable risks up to U.S.$ 2 million.
This insurance policy is for a period of one year ended May 2003,
with annual cost of premium to the Company of approximately U.S.$
131,000, see note 1C.
I. On November 4, 2002, Organitech Ltd. and other third party have
completed the foundation of 50% each Israeli joint venture in the
name Hydrophonic greens Ltd. Hydrophonic greens Ltd. will purchase,
exclusively from Organitech Ltd., equipment for Hydrophonic system
growth, worth of approximately U.S.$ 50,000, and agronomic services,
technical support and administrative services. Pursuant to the
parties understanding Hydrophonic greens Ltd. will examine
commercial options to market spices and founding at regional
marketing centers.
Note 6 - Investment in affiliated company
On December 2002, Organitech Ltd. and 2 other third parties have completed
the foundation of 33.1/3% each Israeli joint venture in the name A.T.A
Jordan Valley Ltd. ("ATA"). ATA will be engaged in the Agro-Technologies
field within Israel, including distribution, sale and service of the
Company's systems.
Organitech Ltd. granted ATA, under certain conditions, exclusive agency
rights within Israel for Company's systems. ATA plan to commence its
operation during 2003.
As of March 31, 2003, Organitech Ltd. has invested U.S.$ 7,927 as an
equity investment in ATA.
15
Item 2. Management's Discussions and Analysis
Forward Looking Statements
This report contains forward-looking statements about our plans, objectives,
expectations and intentions. You can identify these statements by words such as
"estimate," "expect," "project," "plan," "intend," "believe," "may," "will,"
"anticipate" or other similar words. You should read statements that contain
these words carefully. They discuss our future expectations, contain projections
concerning our future results of operations or our financial conditions or state
other forward-looking information, and may involve known and unknown risks over
which we have no control. We cannot guarantee any future results, level of
activity, performance or achievements or the Company's ability to continue as a
going concern. Moreover, we assume no obligation to update forward-looking
statements or update the reasons why actual results could differ materially from
those anticipated in forward-looking statements.
Our core business is conducted primarily through our wholly-owned subsidiary
OrganiTech Ltd., a company organized under the laws of Israel (hereinafter,
"OrganiTech"). OrganiTech develops technologies, platforms, and applied
engineering solutions that cost effectively and completely automate the method
by which many foods, plants, and extracts are cultivated. Since OrganiTech's
formation, it has been developing its first proprietary solution, the GrowTECH
2000(TM) ("GrowTech"), which is a low input-high output, self-contained,
portable, robotic, sustainable agricultural platform designed to automatically
seed, transplant and harvest commercial quantities of hydroponic, pesticide
free, green leaf vegetables. OrganiTech has received a U.S. patent for the
GrowTech, which we believe will provide OrganiTech with a strong advantage over
its competitors and enable OrganiTech to increase its research and development
efforts of integrating the technologies of the GrowTech into new platforms.
OrganiTech recently commenced the commercial launch and initial sales of a new
line of its products, PhytoChamber(TM). PhytoChamber is a two-chambered,
cost-effective platform that maximizes growth conditions for certain plants used
by biotechnology researchers.
GROWTECH-3000
The Company is researching new application for the GrowTech platforms both in
the agro field and in the Ag-Bio. A most interesting application, still to be
commercially proven, is tissue culture propagation or more specifically the
acclimatization of tissue culture matter. The propagation of tissue culture is
the method used in many plants such as strawberries, bananas, tobacco and many
other houseplants and other plants. The machine used for this application is
called the GROWTECH-3000.
GROWTECH-4000
The Company has also developed a machine to answer market demand in the field of
growth platforms for potted products, including the significant market of home
plants. The machine that has the ability to provide a cheap and quality solution
is called the GROWTECH-4000.
The GT-2000, GT-3000 and GT-4000, all have a horizontal version GT-X500 that is
more suitable for geographical areas that can use a significant supply of
sunlight throughout the year. This will enable the Company to market its
products in these countries as well and not be limited to difficult climate
countries only
We intend to focus the majority of our financial resources over the next 12
months on OrganiTech, which is endeavoring, among other things, to complete
development of the different versions of GrowTech machines and increase the
marketing efforts related thereof. The primary research and development goals of
OrganiTech over the next 12 months are to:
|_| Develop a commercially viable cultivation platform for green leaf plants;
|_| Continue research on the development of new platforms by migration of its
existing technologies to new applications;
|_| Improve the operational characteristics of the GrowTech and the
PhytoChamber;
|_| Research new potential markets and opportunities.
Additionally, we plan to increase OrganiTech's involvement with its business
activities in Singapore through the development of an updated commercial version
of the GrowTech which is adaptable to the needs of the Southeast Asian market.
In order to fund this activity in Singapore, OrganiTech and a Singaporean
company have received approval for financing from the Singapore-Israel
Industrial Research and Development Foundation ("SIIRDF"). SIIRDF will fund 40%
of the research and development expenses incurred in connection with the
development of a commercial version of the GrowTech, up to a maximum amount of
U.S.$421,359. OrganiTech has received final approval from the SIIRDF for the
funding project.
OrganiTech, together with the Singaporean company, will be obligated to pay
royalties to SIIRDF ranging from 1.5% to 2.5% on sales of products developed
with the funding from the SIIRDF. The amount of royalties payable to the SIIRDF
shall not exceed the amount of funding from the SIIRDF. In March 2003,
OrganiTech received U.S.$39,200 from SIIRDF. During 2003, the Company expects to
receive an additional $60,000.
OrganiTech is also planning on increasing its involvement with its business
activities in Europe and North America. OrganiTech is currently negotiating with
third parties to establish beta site farms in Europe and North America.
On June 16, 2002, the Company entered into a Securities Purchase Agreement with
B.L.M N.V. ("BLM"), with respect to the issuance of 5,500,000 common shares, at
a price of U.S.$ 0.363 each and granting to BLM options to purchase 188,179
common shares at an exercise price of U.S.$.0001 per share and 46,242 common
shares at an exercise price of U.S.$1 per share, representing 33.1/3% of the
Company's issued share capital on a fully diluted basis.
The Company and BLM signed an amended schedule to the Securities Purchase
Agreement whereby:
1. The total proceed U.S.$ 2 million shall be paid to the Company over
a period of 25 months, commencing August 2002.
2. The Company shall issue to BLM common shares on a pro-rata basis
upon actual payments of the procedure.
3. "Vote together" agreement was signed between BLM and the Company's
president and shareholder of approximately 35% of the Company's
share capital.
4. BLM will be entitled to be represented by a director in the
Company's Board of Directors.
5. BLM will be entitled to management fees equivalent to the salary
cost of the Company's Chief Financial Officer - approximately U.S$
8,000 per month.
On October 8, 2002 the Company delivered to an escrow agent 5,500,000 shares of
the common stock to be registered on the name of BLM and transfered to BLM based
upon actual payment of their purchase price.
As of March 31, 2003, BLM transfered to the Company the aggregated amount of
U.S.$ 225,000 representing an applicable purchase price for 618,750 shares of
common stock to be transferred to BLM by the escrow agent, out of which, as of
the balance sheet date, BLM is entitled for 275,000 shares of common stock.
The payments for January 2003 to April 2003 have not yet been made by BLM.
Currently, BLM is trying to renegotiate the purchase price of the remaining
shares agreed to be purchased by BLM under the Securities Purchase Agreement.
The Company is currently evaluating funding alternatives. Although in April 2002
the management decided on reduction of the Company's burn rate by the dismissal
of 60% of the employees and by reducing other expenses, due to the Securities
Purchase Agreement with BLM, the Company is planning to hire new employees in
the R& D and marketing areas.
On September 2002, the Company entered into a cooporation with a major grower
and exporter of herbs to Europe (hereinafter - "the partner").
OrganiTech has signed an agency agreement with A.T.A. Nehar Hayarden LTD.
("Nehar Hayarden"), a company that is 33.3% owned by OrganiTech. The agency
agreement grants Nehar Hayarden with the exclusive rights to sell OrganiTech's
machines in Israel.
Nehar Hayarden had signed an agreement for the supplying of one Growtech 2500
machine in Eilat, Israel, to be fully produced and installed by OrganiTech
during the third quarter of 2003.
On December 3, 2002, the Company entered into a three-year collaboration
agreement with Bio-Bee Biological Systems Ltd. ("Bio-Bee"), whereby Bio-Bee
committed to provide agronomic service, technical and research and development
assistance to the Company and/or OrganiTech worth U.S.$ 100,000 per a year.
In consideration to the services rendered under the collaboration agreement,
Bio-Bee will be entitled to the following proceeds:
(1) 100,000 shares of common stock of the Company at a price of U.S.$1
per share of common stock, to be issued to Bio-Bee at three equal
installments over three years, each at 60 days following the end of
each year of service.
(2) Royalty payments computed as 3% out of the revenues that will be
generated by the Company from the miniature tomatoes project, for a
period of 5 years commencing the date of the agreement, limited to
amount accumulated to U.S.$ 300,000. Pursuant to the agreement
Bio-Bee can choose to convert its right for royalty payments for
additional issuance of 395,000 shares of common stock of the
Company; and the Company can choose to convert its obligations for
royalties to Bio-Bee for an issuance of its shares of common stock
to Bio-Bee at 80% for the average market price of the Company's
share of common stock at 90 days prior to date of conversion; for a
value computed at 3% of royalties that will be received by
OrganiTech for the miniature tomatoes project.
(3) Pursuant to the agreement, the Company committed to grant Bio-Bee,
at the end of each year of service, options to purchase 500,000
shares of common stock of the Company exercisable for a period of 12
months following the date of grant. The exercise price under the
option will be at a 20% discount from the average market price of
the Company's share of common stock during the 90 days preceding the
exercise date of the option.
(4) Pursuant to the agreement, OrganiTech committed to purchase from
Bio-Bee, during the three years of the agreement, laboratories and
other facilities services at annual value aggregated to U.S.$
25,000.
On May 8, 2003, OrganiTech and Bio-Bee decided to terminate the collaboration
agreement between them. It is concluded that no shares will be issued to Bio-Bee
upon termination of the agreement, and the parties will part in good will.
On December 31, 2002, OrganiTech and Ocean Culture Ltd. ("Ocean Culture"), a
company controlled by Lior Hessel (a controlling shareholder of the Company),
entered into an agreement whereby OrganiTech will develop a prototype of the
GrowTECH platform for Ocean Culture at a consideration of U.S.$ 15,000 in cash
and U.S.$ 35,000 to be paid by the issuance of 15,272 shares of Ocean Culture,
consisting, following the issuance of such shares, 18% out of the outstanding
issued share capital of Ocean Culture.
As of the date of this report, the Company has received U.S.$ 5,000 down payment
by Ocean Culture. A first batch of propagated tissue cultures was supplied to a
major plant grower and distributor in Israel. OrganiTech hopes to use this
milestone as a jumping board to our GROWTECH 3000 machines.
As a part of an on-going process, OrganiTech has been making an effort to make
its products both easier and cheaper to manufacture and use. Technical
improvements have been made so the reliability of the machines is now higher
than ever. OrganiTech's and our success, as well as our future operational and
developmental requirements, will depend upon numerous factors, including:
|_| the progress of our and OrganiTech's research activities;
|_| the number and scope of our and OrganiTech's research programs;
|_| the establishment of additional beta site farms in other key markets apart
from Singapore, such as in Europe and North America;
|_| the progress of our and OrganiTech's development activities;
|_| our and OrganiTech's ability to maintain current research and development
programs;
|_| the costs involved in prosecuting and enforcing patent claims and other
intellectual property rights; and
|_| the costs and timing of regulatory approvals.
OrganiTech is currently in negotiations with a third party to lease and operate
a production facility. OrganiTech has received approval from the Investment
Center of the Israel Ministry of Commerce and Trade to operate a production
facility under certain tax exempt conditions. The receipt of such tax benefits
is conditional upon OrganiTech's fulfilling certain obligations stipulated by
Israeli law, regulations published thereunder and instruments of approval, such
as moving our operations into a certain geographic area as determined by the
Investment Center. If OrganiTech fails to comply with such conditions, the tax
benefits may be canceled and OrganiTech may be required to refund, in whole or
in part, any benefits previously received. In connection with the production
facility, we and/or OrganiTech may purchase plant equipment or other significant
equipment.
Item 3. Controls and Procedures
Within 90 days prior to the date of the filing of this report, OrganiTech's
Chief Executive Officer and Chief Financial Officer conducted an evaluation of
the effectiveness of OrganiTech's disclosure controls and procedures (as defined
in Securities Exchange Act Rule 13a-14(c)).
Based upon that evaluation, such officers concluded that, as of the date of such
evaluation, OrganiTech's disclosure controls and procedures are adequate and
designed to ensure that material information relating to OrganiTech and its
consolidated subsidiaries would be made known to them by others within those
entities.
There were no significant changes in OrganiTech's internal controls or, to the
knowledge of OrganiTech, in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
99.1 Section 906 Certification of the Company's Chief Executive Officer
99.2 Section 906 Certification of the Company's Chief Financial Officer
(b) Reports on Form 8-K.
None filed during the first fiscal quarter of 2003.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ORGANITECH USA, INC.
Date: May 26, 2003 /s/ Lior Hessel
--------------------------------------
Lior Hessel
President and Chief Executive Officer
Dated: May 26, 2003 /s/ Doron Shachar
--------------------------------------
Doron Shachar
Secretary and
Acting Chief Executive Officer
CERTIFICATIONS
I, Lior Hessel, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of OrganiTech USA,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
A. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
B. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
C. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
A. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
B. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 26, 2003
/s/ Lior Hessel
-------------------------------------
Lior Hessel
President and Chief Executive Officer
CERTIFICATIONS
I, Doron Shachar, Acting Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-KSB of OrganiTech USA,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
A. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
B. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
C. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
A. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
B. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 26, 2003
/s/ Doron Shachar
------------------------------
Doron Shachar, Adv.
Acting Chief Financial Officer