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 June 30, 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)
P.O. Box 700, Yoqneam 20692, Israel
(Address of principal executive offices)
972-4-959-0515
(Issuer's telephone number)
Yoqneam Industrial Area, Yoqneam, Israel
P.O. Box 133, Nesher 36601, Israel
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE 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 June 30, 2003, this issuer had 17,348,000 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 June 30, 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 7-17
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Balance Sheets
June 30, June 30, December 31,
2003 2002 2002
---------- ---------- ------------
Unaudited Unaudited Audited
---------- ---------- ------------
U.S. $ U.S. $ U.S. $
---------- ---------- ------------
ASSETS
Current assets :
Cash and cash equivalents 8,068 174,362 58,422
Investments 7,706 -- --
Other accounts receivable 103,269 188,701 213,569
Prepaid expenses 3,877 3,000 8,655
Raw material inventory 87,389 19,557 23,334
---------- ---------- ----------
210,309 385,620 303,980
---------- ---------- ----------
Other assets -- 16,880 --
---------- ---------- ----------
Investment in A.T.A Jordan Valley Ltd. 7,927 -- 7,927
---------- ---------- ----------
Funds in respect of employee rights upon retirement 36,315 -- 43,587
---------- ---------- ----------
Fixed assets, net 171,836 95,200 142,221
---------- ---------- ----------
426,387 497,700 497,715
========== ========== ==========
The accompanying notes are an integral part of the consolidated interim
financial statements.
Date of approval of the financial statements:
/s/ L. Hessel /s/ L. Hessel
- ------------------------------------- -------------------------------
Chairman of the Board of Directors President
2
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Balance Sheets
LIABILITES AND SHAREHOLDERS' EQUTIY (CAPITAL DEFICIENCY)
June 30, June 30, 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 47,244 -- 19,022
Trade accounts payable 339,567 10,363 113,069
Other accounts payable and accrued liabilities 132,563 190,773 142,071
Deferred revenue 135,000 135,000 135,000
---------- ---------- ----------
654,374 336,136 409,162
---------- ---------- ----------
Long-term loan 25,036 -- 37,451
---------- ---------- ----------
Liability in respect of employee rights upon retirement 92,843 19,529 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 - 13,321,400 as of
June 30, 2003, 11,000,000 as of June 30, 2002 and
11,275,000 as of December 31, 2002 13,422 11,100 11,375
Additional paid in capital 4,870,145 3,879,502 4,116,227
Deferred stock-based compensation -- (25,947) (7,208)
Accumulated deficit during the development stage (5,229,433) (3,722,620) (4,163,555)
---------- ---------- ----------
Total shareholders' equity (capital deficiency) (345,866) 142,035 (43,161)
---------- ---------- ----------
426,387 497,700 497,715
========== ========== ==========
The accompanying notes are an integral part of the consolidated interim
financial statements.
3
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Statements of Operations
Amounts
Six months ended Three months ended accumulated
June 30, June 30, Year ended during the
---------------------------- ---------------------------- December 31, development
2003 2002 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) loss -- -- -- -- -- 12,053
Research and development
expenses, net 182,326 198,511 73,105 82,257 368,303 2,676,796
Selling and marketing
expenses 614,397 17,856 603,383 2,742 99,997 859,810
General and administrative
expenses 262,203 305,320 212,424 153,075 457,122 1,672,201
---------- ---------- ---------- ----------- ----------- ----------
Operating loss 1,058,926 521,687 888,912 238,074 925,422 5,196,754
Financing expenses
(income), net 6,952 5,283 4,573 (4,884) 30,483 (6,416)
Other expenses, net -- -- -- -- 12,000 39,095
---------- ---------- ---------- ----------- ----------- ----------
Loss before income tax 1,065,878 526,970 893,485 233,190 967,905 5,229,433
Income tax -- -- -- -- -- --
---------- ---------- ---------- ----------- ----------- ----------
Net loss 1,065,878 526,970 893,485 233,190 967,905 5,229,433
========== ========== ========== =========== =========== ==========
Basic and diluted net loss
per common share 0.09 0.048 0.07 0.02 0.09
========== ========== ========== =========== ==========
Weighted average number of
common shares outstanding
used in basic and diluted
loss per share calculation 11,708,342 11,000,000 12,122,843 11,000,000 11,034,375
========== ========== ========== =========== ==========
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 Cash Flows
Amounts
Six months accumulated
Ended June 30, Year ended during the
------------------------- December 31, development
2003 2002 2002 Stage
---------- -------- -------- ----------
Unaudited Audited Unaudited
------------------------- -------- ----------
U.S. $ U.S. $ U.S. $ U.S. $
---------- -------- -------- ----------
Cash flows used in operating activities:
Net loss for the period (1,065,878) (526,970) (967,905) (5,229,433)
---------- -------- -------- ----------
Adjustments to reconcile net loss to net cash used in operating
activities :
Amortization of deferred stock-based compensation 7,208 29,209 47,948 481,485
Depreciation 14,804 12,000 26,711 73,510
Liability for employee rights upon retirement (1,420) (5,251) 30,031 92,843
Amounts assigned to issuance of warrants to service providers 82,555 -- 2,116 84,671
Non-cash transactions - Annex A 640,000 640,000
Changes in assets and liabilities :
(Increase) decrease in other accounts receivable 110,300 (117,536) (142,404) (103,269)
Decrease (Increase) in prepaid expenses 4,778 33,852 28,197 (3,877)
Increase in raw material inventory (64,055) (7,749) (11,526) (87,389)
(Decrease) Increase in trade accounts payable 226,498 (125,422) (22,716) 339,567
Increase in other accounts payable (8,940) 67,450 16,759 132,627
(Decrease) Increase in deferred income -- -- -- 135,000
---------- -------- -------- ----------
Total adjustments 1,011,728 (113,447) (24,884) 1,785,168
---------- -------- -------- ----------
Net cash used in operating activities (54,150) (640,417) (992,789) (3,444,265)
---------- -------- -------- ----------
Cash flows from investing activities :
Funds in respect of employee rights upon retirement 7,272 -- (4,135) (36,315)
Decrease (Increase) in short-term investments (7,706) 196,551 196,551 (7,706)
Investment in fixed assets (44,419) (2,101) (63,833) (245,345)
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 (44,853) 194,450 137,536 (297,293)
---------- -------- -------- ----------
Cash flows from financing activities :
Increase in Banks credit 25,246 -- -- 25,246
Long-term loan (9,439) -- 56,473 47,034
Proceeds for future share issuance, net -- -- 134,884 --
Proceeds from issuance of shares, net of issuance expenses 33,410 -- 100,000 3,677,411
---------- -------- -------- ----------
Net cash provided by financing activities 49,217 -- 291,357 3,749,691
---------- -------- -------- ----------
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 - Continued
Amounts
Six months Year ended accumulated
Ended June 30, December 31, during the
-------------------------- ------------ development
2003 2002 2002 stage
--------- -------- -------- ----------
Unaudited Audited Unaudited
-------------------------- -------- ----------
U.S. $ U.S. $ U.S. $ U.S. $
--------- -------- -------- ----------
Net cash used in operating activities (54,150) (640,417) (992,789) (3,444,265)
Net cash (used in) provided by investing activities (44,853) 194,450 137,536 (297,293)
Net cash provided by financing activities 49,217 -- 291,357 3,749,691
Effect of exchange rate changes on cash (568) -- 1,989 (65)
--------- -------- -------- ----------
Net (Decrease) increase in cash and cash equivalents (50,354) (445,967) (561,907) 8,068
Cash and cash equivalents at beginning of period 58,422 620,329 620,329 --
--------- -------- -------- ----------
Cash and cash equivalents at end of period 8,068 174,362 58,422 8,068
========= ======== ======== ==========
Annex A - Supplementary disclosure of non-cash transactions
Management fees - see Note 4 40,000 40,000
Marketing and distribution expenses - see Note 5B(2) 600,000 600,000
--------- ----------
640,000 640,000
========= ==========
Supplementary disclosure of cash flow information :
Interest received (paid), net 3,791 2,783 1,822
========= ======== ========
Income tax paid, net -- (329) (2,491)
========= ======== ========
The accompanying notes are an integral part of the consolidated interim
financial statements.
6
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$ 1,065,878, U.S.$ 526,970, U.S.$ 967,905 and U.S.$
5,229,433 for the six-month periods ended June 30, 2003 and 2002,
for the year ended December 31, 2002 and for the period from July 4,
1999 (inception) to June 30, 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.
7
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 June 30, 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 six-month period ended June 30, 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.
8
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 June 30, 2003, the investor transfer to the Company aggregated
amount of U.S.$ 225,000 represents an applicable purchase price for
618,812 shares of common stock to be transferred to the investor by the
escrow agent. The investor was entitled for 275,000 shares of common stock
as of December 31, 2002.
On May 27, 2003, The company and the investor had signed an "End of
Commitments" documents consisting on the following principles:
(1) For the amount of U.S.$ 225,000 that was transfer by the investor,
the Company will instruct the Escrow agent to transfer to the
investor a total of 618,812 shares of common stock, part of the
5,500,000 shares held by the Escrow agent, represent an applicable
purchase price of U.S.$. 0.3636 per share.
(2) For managing services and other payments made by the investor on
behalf of the Company at the amount of U.S.$ 143,000, the Company
will instruct the Escrow agent to transfer to the investor a total
of 794,444 shares of common stock, part of the 5,500,000 shares held
by the Escrow agent, represent an applicable purchase price of
U.S.$. 0.18 per share.
(3) The investor will exercise the options to purchase 188,179 shares of
common stock at an exercise price of U.S.$ 0.0001 per share, The
Company will instruct the Escrow agent to transfer to the investor a
total of 188,179 shares of common stock, part of the 5,500,000
shares held by the Escrow agent.
(4) The investor will have options to purchase 46,242 shares of common
stock at an exercise price of U.S.$ 1 per share.
(5) The investor will continue to invest in the Company until the end of
2003, based on a price per share that will be:
A. U.S.$ 0.18 for investment that will be executed until October
10, 2003.
B. U.S.$ 0.40 for investments that will be executed from October
11, 2003 till December 31 , 2003.
C. The Company shall have the right to terminate the agreement
with the investor for any reason, providing it will grant the
investor a 10 days notification.
D. All previous agreements between the Company and investor seize
to exist and are not valid anymore.
On June 20, 2003 The Company had instructed the escrow agent to transfer
1,601,373 shares of common stock to the investor according to the "End of
Commitment" document.
9
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
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 June 30, 2003, the balance of royalty bearing grants due by
the Company to the Office of the Chief Scientist is U.S. $ 472,735.
(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.$ 85,000.
As of June 30, 2003, Organitech Ltd. received from the OCS a payment
of U.S.$ 82,044. 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
June 30, 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.
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)
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.
(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. On May 14, 2003, The
Company had issued 800,000 shares of common stock to
Agronaut, out of which 600,000 shares of common stock
were handed to Agronaut and the Company holds the
remaining 200,000 shares of common stock.
(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.
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)
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.
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)
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 June 1.2003,
Organitech Ltd. signed a 3 year rental agreement in Yokneam minimum
future payments due during 2003, under this rental agreement are
U.S.$ 4,350 .
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)
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.
J. The Company is committed under certain agreements to pay brokerage
fees and commission with respect to certain services provided to the
Company by third parties and a related party. As of December 31,
2002 the total aggregated commitment of the Company under such
agreements is to issue 57,280 shares of common stock, out of which
9,280 shares to a related party. On April , 2003 the Company's Board
of Directors approved the issuance of 57,280 shares of common stock
under such agreements. On May 14, 2003 The Company had issued 48,000
shares of common stock under such agreements.
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.
14
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 7 - Subsequent events
The Company and Netafim MOU
On July 17, 2003, subsequent to the balance sheet date the Company and
Organitech Ltd ("OTI"). signed a memorandum of understanding ("MOU") with
Netafim (A.C.S) Ltd. a cooperative society incorporated under the laws of
the State of Israel ("Netafim "), whereby:
First Period - from execution of the MOU and not later than 31 December
2003.
A. Netafim will finance the activities of OTI until December 31, 2003
in the amount of U.S.$100,000, according to an agreed business plan,
detailed working plan and budget (the "Netafim's Capital").
Netafim's Capital will be used only for OTI's operations and will
not serve to pay any debts or liabilities of The Company.
B. Upon execution of the MOU and until 31 December 2003, Netafim will
also provide services as described in the MOU to OTI at an agreed
upon cost based on Fair Market Value to be determined in accordance
with Netafim's prices to other Netafim's affiliates.
C. In consideration for Netafim's Capital as well as the cost of the
Services provided by Netafim, OTI , OTI shall issue shares to
Netafim, at a price per share based on the post-money valuation of
U.S.$ 1,176,471 ("Share Price") by not later than December 31, 2003
("First Period Shares"). Netafim will have full-ratchet
anti-dilution protection if OTI issues any shares or convertible
securities at a price lower than the Share Price.
D. In the event that Netafim chooses to terminate the MOU pursuant to
the provisions set forth in the MOU, any and all Netafim's Capital
as well as services invested in OTI up to such termination event
shall be considered to constitute lone (the "loan") to be returned
by OTI to Netafim, as follows:
(1) The loan shall be repaid to Netafim in 6 monthly equal
installments, the first of which shall be paid within 30 days
from the date of the MOU termination.
(2) The loan shall be linked to the U.S.$ and bear interest at an
annual rate of 5%.
Second Period - from end of First Period and until holding by Netafim of
51% of issued and outstanding shares of OTI.
A. At the election of Netafim, OTI shall issue shares to Netafim such
that after such transfer or issue respectively, together with the
shares received or issued in the First Period as specified in
paragraph C above, Netafim shall hold 51% of the issued and
outstanding shares of OTI, on a fully diluted basis, all subject to
the provisions set forth in the MOU ("Second Period Shares").
Netafim's said right may be exercised at any time prior to December
31, 2003 at a price per Second Period Share(s) equal to the Share
Price. The Share Price will be subject to anti-dilution adjustment
so that the price to be paid (cost of the Services) by Netafim will
not exceed the share price of the most recent investment in OTI.
B. The Second Period Shares will be held in escrow by Netafim
independent lawyer(s) ("Escrow Agent") to secure full payment of the
price, which will not bear interest. The price will not be paid in
cash but rather Netafim will provide Services to OTI in an aggregate
amount of U.S.$ 500,000 (including the cost of the Services provided
by Netafim during the First Period) by no later than 31 December
2006, as described in the MOU. Each month, the Escrow Agent will
release a corresponding proportion of the Second Period Shares to
Netafim. Notwithstanding the foregoing, Netafim will have full
voting control of the Second Period Shares, as long as Netafim dose
not default on the supply of the Services.
15
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 7 - Subsequent events (continued)
Special provisions
A. After exercise of Netafim's right with respect to the Second Period
Shares, Netafim shall have the right to appoint a majority of the
directors of OTI as well as the management of OTI and its legal
counsel.
B. In the event that the operations of OTI will require funding
additional to Netafim's Capital ("Working Capital"), the Parties
will contribute the Working Capital pro-rata to their holdings, and
any such contribution shall constitute a shareholders loan. A Party
that fails to provide its pro-rata additional contribution within 6
monthss and from the call date, shall have its holding of OTI shears
diluted.
C. From the date of the conclusive Agreement until December 31, 2003,
OTI will allow Netafim to conduct an extensive due diligence of all
aspects of OTI and will allow Netafim and its representatives full
access to its premises, employees, suppliers and customers for this
purpose. Furthermore, during this period Netafim will have the right
to receive all documents and information provided to directors of
OTI and the Company.
The MOU is subject to termination of all of the distribution agreements
and MOU'S signed by OTI and the Company and subject to termination of the
Private placement as describe in Note 4.
Throughout the duration of the MOU, the Company and OTI undertake to
refrain from signing any agreement and/or committing in any way with
regards to any investment in OTI with any third party, without the prior
consent of Netafim.
The Company and Dutchess term sheet
On July 15, 2003, subsequent to the balance sheet date the Company and
Dutchess Capital Management, LLC ("Dutchess") signed a term sheet for
Equity line of Credit ("Line"), whereby:
Dutchess shall commit to purchase up to U.S.$ 5,000,000 of the Company's
shares of common stock ("Stock") over the course of 36 months ("Line
Period"), after 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").
The amount that the Company shall be entitled to request from each of the
purchase "Puts", shall be equal to 200% of the averaged daily volume (U.S
market only) ("ADV") multiplied by the average of the 3 daily closing
"best bid" prices immediately preceding the Put Date. The ADV shall be
computed using the 10 trading days prior to the Put Date.
The Purchase Price shall be set at 94% of the Market Price as defined in
the term sheet. .
The Company shall automatically withdraw that portion of the put notice
amount, if the Market Price with respect to that Put does not meet the
Minimum Acceptable Price. The Minimum Acceptable Price is defined as 75%
of the closing "best bid" price of the common stock for the ten 10 trading
days prior to the Put Date as defined in the term sheet.
16
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 our 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.
Description of Business
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 - 2500
The Company's principal product is the GROWTECH 2500, an automated machine using
the technology developed by the company and combining it with a greenhouse
structure that enables the growth of leafy vegetables in a highly economically,
clean surrounding, making optimal use of resources such as water, labor and
land. The vegetables are, naturally, pesticides free and enjoy extended
shelf-life.
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 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.
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:
o the progress of our and OrganiTech's research activities;
o the number and scope of our and OrganiTech's research programs;
o the establishment of additional beta site farms in other key markets apart
from Singapore, such as in Europe and North America;
o the progress of our and OrganiTech's development activities;
o our and OrganiTech's ability to maintain current research and development
programs;
o the costs involved in prosecuting and enforcing patent claims and other
intellectual property rights; and
o 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.
Plan of Operations
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 thereto. The primary research and development goals of
OrganiTech over the next 12 months are to:
o Develop a commercially viable cultivation platform for green leaf plants;
o Continue research on the development of new platforms by migration of its
existing technologies to new applications;
o Improve the operational characteristics of the GrowTech and the
PhytoChamber;
o 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.
Liquidity and Capital Resources
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.$0.0001 per share and 46,242 common
shares at an exercise price of U.S.$1 per share, represent 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 transfer to BLM based
upon actual payment of their purchase price.
In May 2003, at the request of BLM, the Company entered into a further
addendum (the "End of Commitment Addendum") to the Securities Purchase
Agreement, which had the following principal terms:
o The Company agreed to cause the escrow agent to release to BLM
618,812 shares on account of the $225,000 in payments made by BLM to
date;
o BLM agreed to pay approximately $143,000 in fees on behalf of the
Company (including BLM's management fee of $40,000 and GMH NV's fee
of $36,000) in exchange for the issuance to BLM of 794,444 shares at
a purchase price of $0.18 per share;
o The Company agreed to issue to BLM immediately, 188,179 shares upon
exercise of options at $0.0001 per share, previously granted to BLM.
according to the Securities Purchase Agreement;
o BLM will have the right but not the obligation to purchase up to an
additional 3,716,162 shares from the Company at the following
prices:
a. U.S.$0.18 per share for purchases made on or before October
10, 2003,
b. U.S.$0.40 per share for purchases made between October 11,
2003 and December 31, 2003.
o The Company has the right to terminate BLM's remaining share
purchase rights on 10 days prior written notice after June 1, 2003.
o The $1.00 options previously granted to BLM will remain outstanding
according to their original terms.
o All previous agreements between the Company and BLM are terminated.
On June 20, 2003, the Company instructed the escrow agent to transfer 1,601,373
shares of common stock to BLM according to the End of Commitment Addendum.
Further shares will be released from the escrow to BLM following its investment
of U.S.$115,000 that was completed subsequent to June 30, 2003.
On July 15, 2003, the Company and Dutchess Capital Management, LLC ("Dutchess")
signed a term sheet for an equity line of credit whereby Dutchess proposes to
purchase up to U.S.$5,000,000 of the Company's shares of common stock over the
course of 36 months, after the date either free trading shares are deposited
into an escrow account or a registration statement has been declared effective
by the U.S. Securities and Exchange Commission.
The amount that the Company shall be entitled to request from each of the
purchase "puts", shall be equal to 200% of the averaged daily volume (computed
using the 10 trading days prior to the put date) multiplied by the average of
the 3 daily closing "best bid" prices immediately preceding the put date.
The purchase price shall be set at 94% of the market price.
The Company shall automatically withdraw that portion of the put notice amount,
if the market price with respect to that put does not meet the minimum
acceptable price, which is equal to 75% of the closing "best bid" price of the
common stock for the ten 10 trading days prior to the put date.
However, no assurance can be given that the terms and conditions of the term
sheet will not be changed or that such offering will be completed.
Distribution and Marketing Agreements
In September 2002, the Company entered into a cooporation with a major grower
and exporter of herbs to Europe.
OrganiTech has signed an agency agreement with A.T.A. Nehar Hayarden LTD., 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.
A.T.A. 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. 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 May 14, 2003, following the board of directors decision from April 9, 2003,
the Company issued shares to the following companies:
1. 800,000 shares of common stock, valued at U.S.$1 per share were
issued to Agronaut PTE Ltd, accordind to the Marketing Agreement
dated August 27, 2002. Of these shares, 600,000 shares were
delivered to Agronaut for their marketing expenses, and 200,000
shares are still held by the Company.
2. 30,000 shares of common stock, valued at U.S.$1 per share were
issued to MC Services for public relations and investor relations
services provided to OrganiTech in 2001 and 2002.
3. 18,000 shares of common stock, valued at U.S.$1 per share were
issued MBI Internationl LLB, for finance and business consulting
services that were provided to the Company in 2002.
On December 31, 2002, OrganiTech and Ocean Culture Ltd., a company controlled by
Lior Hessel (President and 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% of the outstanding 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 Ltd.
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.
On July 17, 2003, the Company and OrganiTech Ltd signed a memorandum of
understanding ("MOU") with Netafim (A.C.S) Ltd. a cooperative society
incorporated under the laws of the State of Israel ("Netafim"). Netafim is a
worldwide agricultural company, being among the market leaders in marketing and
setting of agricultural projects, as well as greenhouse technology and water
sollutions. Thus, Netafim is the ideal partner for the Company in terms of
marketing its products and providing after-sale services. The MOU sets forth the
following principles:
In the First Period - (from execution of the MOU to not later than December 31,
2003.)
o Netafim will finance the activities of OrganiTech until December 31, 2003
in the amount of U.S.$100,000, according to an agreed-upon business plan,
detailed working plan and budget (the "Netafim's Capital"). Netafim's
Capital will be used only for OrganiTech's operations and will not serve
to pay any debts or liabilities of the Company.
o Upon execution of the MOU and until December 31, 2003, Netafim will also
provide services as described in the MOU to OrganiTech at an agreed upon
cost based on fair market value to be determined in accordance with
Netafim's prices to other Netafim's affiliates.
o In consideration for Netafim's Capital as well as the cost of the services
provided by Netafim, OrganiTech shall issue shares to Netafim, at a price
per share based on the post-money valuation of U.S.$1,176,471 ("Share
Price") by not later than December 31, 2003 ("First Period Shares").
Netafim will have full-ratchet anti-dilution protection if OrganiTech
issues any shares or convertible securities at a price lower than the
Share Price.
o In the event that Netafim chooses to terminate the MOU pursuant to the
provisions set forth in the MOU, any and all Netafim's Capital as well as
services invested in OrganiTech up to such termination event shall be
considered to constitute a loan to be returned by OrganiTech to Netafim.
Such the loan shall be repaid to Netafim in 6 monthly equal installments,
the first of which shall be paid within 30 days from the date of the MOU
termination, and shall be linked to the U.S. dollar and bear interest at
an annual rate of 5%.
In the Second Period - (from end of First Period and until holding by Netafim of
51% of issued and outstanding shares of OrganiTech).
o At the election of Netafim, OrganiTech shall issue shares to Netafim such
that after such transfer or issue respectively, together with the shares
received or issued in the First Period, Netafim shall hold 51% of the
issued and outstanding shares of OrganiTech, on a fully diluted basis, all
subject to the provisions set forth in the MOU ("Second Period Shares").
Netafim's right may be exercised at any time prior to December 31, 2003 at
a price per share equal to the Share Price per share. The Share Price per
share will be subject to anti-dilution adjustment so that the price to be
paid (cost of the services) by Netafim will not exceed the share price of
the most recent investment in OrganiTech.
o The Second Period Shares will be held in escrow by Netafim's independent
lawyer ("Escrow Agent") to secure full payment of the price, which will
not bear interest. The price will not be paid in cash but rather Netafim
will provide services to OrganiTech in an aggregate amount of U.S.$500,000
(including the cost of the services provided by Netafim during the First
Period) by no later than December 31, 2006, as described in the MOU. Each
month, the Escrow Agent will release a corresponding proportion of the
Second Period Shares to Netafim. Notwithstanding the foregoing, Netafim
will have full voting control of the Second Period Shares, as long as
Netafim does not default on the supply of the services.
After exercise of Netafim's right with respect to the Second Period Shares,
Netafim shall have the right to appoint a majority of the directors of
OrganiTech. Netafim also committed to maintain the management and the senior
personnel of OrganiTech for at least 12 months.
In the event that the operations of OrganiTech will require funding in addition
to Netafim's Capital ("Working Capital"), the Company and Netafim will
contribute the Working Capital pro-rata to their holdings in OrganiTech, and any
such contribution shall constitute a shareholder's loan. A party that fails to
provide its pro-rata additional contribution within 6 months and from the call
date, shall have its holding of OrganiTech shares diluted.
The MOU is subject to termination by the Company and Organitech of their
distribution agreements with Agronaut and Bio-Bee and the Securities Purchase
Agreement with BLM.
Throughout the duration of the MOU, the Company and OrganiTech undertake to
refrain from signing any agreement and/or committing in any way with regards to
any investment in OrganiTech with any third party, without the prior consent of
Netafim.
Item 3. Controls and Procedures
In connection with 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-15(e)).
Based upon that evaluation, such officers concluded that, as of June 30, 2003,
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.
During the fiscal quarter ended June 30, 2003, there were no significant changes
in OrganiTech's internal control over financial reporting or, to the knowledge
of OrganiTech, in other factors that has materially affected, or is reasonably
likely to materially affect, such control.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Memorandum of Understanding, dated July 17, 2003, among Netafim
(A.C.S.) Ltd., OrganiTech USA, Inc. and OrganiTech Ltd.
31.1 Section 302 Certification of the Company's Chief Executive Officer
31.2 Section 302 Certification of the Company's Chief Financial Officer
32.1 Section 906 Certification of the Company's Chief Executive Officer
32.2 Section 906 Certification of the Company's Chief Financial Officer
(b) Reports on Form 8-K.
None filed during the second 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: August 14, 2003 /s/ Lior Hessel
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Lior Hessel
President and Chief Executive Officer
Dated: August 14, 2003 /s/ Doron Shachar
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Doron Shachar
Secretary and
Acting Chief Executive Officer
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.
On May 27, 2003, the company and the investor signed an "End of
Commitments" agreement which had the following terms:
(1) For the amount of U.S.$ 225,000 that was paid by the investor, the
Company agreed to instruct the escrow agent to transfer to the
investor a total of 618,812 shares of common stock, out of the
5,500,000 shares held by the escrow agent, representing an
applicable purchase price of U.S.$0.3636 per share.
(2) For management services and other payments made by the investor on
behalf of the Company equal to U.S.$ 143,000, the Company agreed to
instruct the escrow agent to transfer to the investor a total of
794,444 shares of common stock, out of the 5,500,000 shares held by
the escrow agent, representing an applicable purchase price of
U.S.$. 0.18 per share.
(3) The investor agreed to exercise the options to purchase 188,179
shares of common stock at an exercise price of U.S.$ 0.0001 per
share, and the Company agreed to instruct the escrow agent to
transfer to the investor a total of 188,179 shares of common stock,
out of the 5,500,000 shares held by the escrow agent.
(4) The investor will continue to have options to purchase 46,242 shares
of common stock at an exercise price of U.S.$ 1 per share.
(5) The investor will continue to have the right to invest in the
Company until the end of 2003, based on a price per share that will
be:
A. U.S.$ 0.18 for investments made prior to October 10, 2003.
B. U.S.$ 0.40 for investments made from October 11, 2003 till
December 31 , 2003.
C. The Company shall have the right to terminate the agreement
with the investor for any reason on 10 days prior written
notice.
D. All previous agreements between the Company and investor are
terminated.
On June 20, 2003, the Company instructed the escrow agent to transfer
1,601,373 shares of common stock to the investor according to the "End of
Commitment" agreement.
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