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 September 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, Israel
(Address of principal executive offices)
972-4-959-0515
(Issuer's telephone number)
Yoqneam Industrial Area, Yoqneam, Israel
P.O. Box 700, Yoqneam 20692, 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 September 30, 2003, this issuer had 17,348,000 shares of its common stock
outstanding, including 2,750,000 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 September 30, 2003
(Unaudited)
Table of Contents
Page
Condensed Consolidated Interim Balance Sheets 3-4
Condensed Consolidated Interim Statements of operations 5
Condensed Consolidated Interim Statements of Cash Flows 6-7
Notes to Condensed Consolidated Interim Financial Statements 8-19
2
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Balance Sheets
September 30, September 30, December 31,
2003 2002 2002
------------- ------------- ------------
Unaudited Unaudited Audited
------------- ------------- ------------
U.S. $ U.S. $ U.S. $
------------- ------------- ------------
ASSETS
Current assets:
Cash and cash equivalents 13,485 166,689 58,422
Bank deposit 12,452 -- --
Other accounts receivable 149,824 88,046 213,569
Prepaid expenses 3,877 3,000 8,655
Raw material inventory 87,389 23,334 23,334
------- ------- -------
267,027 281,069 303,980
------- ------- -------
Other assets -- 16,880 --
------- ------- -------
Investment in A.T.A Jordan Valley
Ltd. 7,927 -- 7,927
------- ------- -------
Funds in respect of employee
rights upon retirement 37,456 37,811 43,587
------- ------- -------
Fixed assets, net 162,919 130,162 142,221
------- ------- -------
475,329 465,922 497,715
======= ======= =======
The accompanying notes are an integral part of the consolidated interim
financial statements.
Date of approval of the consolidated interim financial statements: November 18,
2003
- ------------------------------- --------------------------------------- -------------------------------------
Lior Hessel Lior Hessel Doron Shachar
Chairman of the Board of President and Chief Executive Secretary and Acting Chief
Directors Officer Executive Officer
3
Organitech USA, Inc.
(A Development Stage Company)
Condensed Consolidated Interim Balance Sheets
LIABILITES AND SHAREHOLDERS' EQUTIY (CAPITAL DEFICIENCY)
September 30, September 30, December 31,
2003 2002 2002
------------- ------------- ------------
Unaudited Unaudited Audited
------------- ------------- ------------
U.S. $ U.S. $ U.S. $
------------- ------------- ------------
Current liabilities:
Banks credit and Current maturity of
long-term loan 61,203 -- 19,022
Trade accounts payable 261,565 26,290 113,069
Other accounts payable and accrued
liabilities 225,912 219,381 142,071
Deferred revenue 135,000 135,000 135,000
---------- ---------- ----------
683,680 380,671 409,162
---------- ---------- ----------
Long-term loan 19,561 -- 37,451
---------- ---------- ----------
Liability in respect of employee
rights upon retirement 93,162 56,056 94,263
---------- ---------- ----------
Contingency and Commitments (Note 5)
Shareholders' equity (capital deficiency)
Preferred shares U.S.$ 0.10 par
value, authorized -10,000,000 shares
as of September 30, 2003 and 2002
and December 31, 2002 -- -- --
Common shares of U.S.$ 0.001 par
value, authorized - 80,000,000
shares, issued and outstanding -
14,398,000 as of September 30,
2003, 11,000,000 as of September
30, 2002 and 11,275,000 as of
December 31, 2002 14,498 11,100 11,375
Additional paid in capital 5,121,621 3,498,017 4,116,227
Deferred stock-based compensation -- 464,907 (7,208)
Accumulated deficit during the
development stage (5,457,193) (3,944,829) (4,163,555)
---------- ---------- ----------
Total shareholders' equity (capital
deficiency) (321,074) 29,195 (43,161)
---------- ---------- ----------
475,329 465,922 497,715
========== ========== ==========
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
Nine months ended Three months ended Year ended accumulated
September 30, September 30, December during the
----------------------------- ----------------------------- 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 -- -- -- -- -- 12,053
Research and
development
expenses, net 271,948 331,085 89,622 132,574 368,303 2,766,418
Selling and
marketing expenses 624,843 35,875 10,446 18,019 99,997 870,256
General and
administrative
expenses 387,550 382,695 113,347 77,375 457,122 1,797,548
---------- ----------- ---------- ----------- ---------- ---------
Operating loss 1,284,341 749,655 213,415 227,968 925,422 5,422,169
Financing
expenses
(income), net 9,297 (476) 2,345 (5,759) 30,483 3,024
Other expenses,
net -- -- -- -- 12,000 32,000
---------- ----------- ---------- ----------- ---------- ---------
Loss before
income tax 1,293,638 749,179 215,760 222,209 967,905 5,457,193
Income tax -- -- -- -- -- --
---------- ----------- ---------- ----------- ---------- ---------
Net loss 1,293,638 749,179 215,760 222,209 967,905 5,457,193
========== =========== ========== =========== ========== =========
Basic and diluted
net loss
Per common share
(Note 3) 0.104 0.068 0.015 0.020 0.09
========== =========== ========== =========== ==========
Weighted average
number of common
shares outstanding
used in basic and
diluted loss per
share calculation 12,320,730 11,000,000 13,567,146 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
accumulated
Nine months ended Year ended during the
September 30, 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 (1,293,638) (749,179) (967,905) (5,457,193)
---------- -------- -------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of deferred stock-based
compensation 7,208 38,578 47,948 481,485
Depreciation 23,721 18,317 26,711 82,426
Liability for employee rights upon
retirement (1,101) (6,535) 30,031 93,162
Amounts assigned to issuance of warrants
to service providers 82,554 -- 2,116 84,670
Issuance of shares in non-cash
transactions - Annex A 652,000 -- -- 652,000
Changes in assets and liabilities:
Decrease (Increase) in other accounts
receivable 63,745 (16,881) (142,404) (149,824)
Decrease (Increase) in prepaid expenses 4,778 33,852 28,197 (3,877)
Increase in raw material inventory (64,055) (11,526) (11,526) (87,389)
Increase (Decrease) in trade accounts
payable 148,496 (109,495) (22,716) 261,565
Increase in other accounts payable 84,224 96,058 16,759 225,792
Increase in deferred income -- -- -- 135,000
---------- -------- -------- ----------
Total adjustments 1,001,570 42,368 (24,884) 1,775,010
---------- -------- -------- ----------
Net cash used in operating activities (292,068) (706,811) (992,789) (3,682,183)
---------- -------- -------- ----------
Cash flows from investing activities :
Decrease (Increase) in funds in respect
of employee rights upon retirement 6,131 -- (4,135) (37,456)
(Increase) decrease in short-term bank
deposit (12,452) 196,551 196,551 (12,452)
Investment in fixed assets (44,419) (43,380) (63,833) (245,345)
Realization of other assets -- -- 16,880 --
Investment in A.T.A Jordan Valley Ltd. -- -- (7,927) (7,927)
---------- -------- -------- ----------
Net cash (used in) provided by investing
activities (50,740) 153,171 137,536 (303,180)
---------- -------- -------- ----------
Cash flows from financing activities :
Increase in Banks credit 39,231 -- -- 39,231
Long-term loan (14,940) -- 56,473 41,533
Proceeds for future share issuance, net 50,700 -- 134,884 50,700
Proceeds from issuance of shares,
net of issuance expenses 223,263 100,000 100,000 3,867,264
---------- -------- -------- ----------
Net cash provided by financing activities 298,254 100,000 291,357 3,998,728
---------- -------- -------- ----------
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
Amounts
accumulated
Nine months ended Year ended during the
September 30, December 31, development
2003 2002 2002 stage
------------------------- ------------ ------------
Unaudited Audited Unaudited
------------------------- ------------ ------------
U.S. $ U.S. $ U.S. $ U.S. $
-------- -------- ------------ ------------
Net cash used in operating activities (292,068) (706,811) (992,789) (3,682,183)
Net cash (used in) provided by
investing activities (50,740) 153,171 137,536 (303,180)
Net cash provided by financing
activities 298,254 100,000 291,357 3,998,728
Effect of exchange rate changes on cash (383) -- 1,989 120
-------- -------- -------- ----------
Net (decrease) increase in cash and
cash equivalents (44,937) (453,640) (561,907) 13,485
Cash and cash equivalents at
beginning of period 58,422 620,329 620,329 --
-------- -------- -------- ----------
Cash and cash equivalents at end of
period 13,485 166,689 58,422 13,485
======== ======== ======== ==========
Annex A - Supplementary disclosure of
non-cash transactions
During the reporting period, the
Company issued shares in exchange for
liabilities to shareholders and services
rendered by third party as follows:
Management fees - see Note 4 A 52,000 52,000
Marketing and distribution expenses -
see Note 5B(2) 600,000 600,000
-------- ----------
652,000 652,000
======== ==========
Supplementary disclosure of cash flow
information:
Interest received, net 720 1,632 1,822
======== ======== ========
Income tax paid, net -- (1,357) (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.
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$ 1,293,638, U.S.$ 749,179, U.S.$ 967,905 and U.S.$
5,457,193 for the nine -month periods ended September 30, 2003 and
2002, for the year ended December 31, 2002 and for the period from
July 4, 1999 (inception) to September 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 operations 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 and GrowTECH
2500 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 September 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 nine-month period ended September 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 for each
of the periods presented.
Note 4 - Private placement and equity agreements
A. 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.$.
0.363 per share, and granting to the investor option to purchase
188,179 shares of common stock at an exercise price of U.S.$ 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.
On June 16, 2002, the Company and the investor, signed on amended
schedule to the private placement agreement, whereby:
9
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 4 - Private placement and equity agreements (continued)
(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 to be transfered 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", whereby:
(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.$. 0.18 per share.
(3) The investor agreed to exercise the option to purchase 188,179
shares of common stock at an exercise price of U.S.$ 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 option to purchase 46,242 shares of common stock at an
exercise price of U.S.$ 1 per share will remain outstanding.
(5) The investor reserve the right to invest in the Company, based
on agreed upon price per share of common stock as follows:
(a) U.S.$ 0.18 for investments that will be made prior to
November 30, 2003.
(b) U.S.$ 0.40 for investments that will be made on December
31, 2003 through September 30, 2004.
(6) The Company shall have the right to terminate the agreement
with the investor for any reason whit prior written notice of
10 days.
(7) The investor will be entitled to management fees equivalent to
a cost of U.S.$. 4,000 per month.
(8) All previous agreements and understanding between the Company
and investor are terminated.
As of September 30, 2003, pursuant to the End of Commitment
Agreement, the Company instructed the escrow agent to transfer a
total of 2,750,000 shares of common stock to the investor.
10
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 4 - Private placement and equity agreements (continued)
On October 10, 2003, subsequent to the balance sheet date the
investor and the Company signed an amendment to the End of
Commitments Agreement that extended the dates abovementioned as
follows:
The investor reserve the right to purchase additional 2,938,179
shares based on agreed upon price per share of common stock as
follows:
(a) U.S.$. 0.18 per share for purchases made prior to November 30,
2003.
(b) U.S.$. 0.40 per share for purchases that will be made on
December 1, 2003 Through September 30, 2004.
On November 4, 2003 subsequent to the balance sheet date pursuant to
the amended End of Commitment Agreement, to the Company instructed
the escrow agent to transfer 1,100,000 shares of common stock to the
investor.
B. On July 17, 2003, the Company and its fully owned subsidiary company
Organitech Ltd. ("OTI") Signed a memorandum of understanding ("MOU")
with Netafim (A.C.S) Ltd. cooperative society incorporated under the
laws of the State of Israel ("Netafim") which approved by the
Company and OTI Board of Directors, whereby:
At the first period - from execution of the MOU and not later than
December 31, 2003.
(1) Netafim will finance the operations of OTI until December 31,
2003 in the amount of U.S.$100,000, according to an agreed
upon business plan, detailed working plan and budget (the
"Netafim's Capital"). Netafim's Capital will be used only for
OTI's operations and will not serve to pay any debts or
liabilities of the Company.
(2) Upon execution of the MOU and through December 31, 2003,
Netafim will also provide services as described in the MOU to
OTI at an agreed upon cost based on fair market value to be
determined in accordance with Netafim's prices to other
Netafim's affiliates.
(3) In consideration for Netafim's Capital, as well as, the cost
of the services to be provided by Netafim, OTI shall issue, no
later then December 31, 2003, shares to Netafim ("First Period
Shares"), at a price per share based on OTI post-money
valuation of U.S.$ 1,176,471 ("Share Price"). Netafim will
have full-ratchet and anti-dilution protection if OTI issues
any shares or convertible securities at a price lower than the
share price.
(4) 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, the cost of services invested
in OTI up to such termination event, shall be considered to
constitute a loan linked to the U.S.$ exchange rate and bear
interest at an annual rate of 5%, to be repay by OTI to
Netafim on 6 monthly equal installments, the first of which
shall be paid within 30 days from the date of the MOU
termination.
11
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 4 - Private placement and equity agreements (continued)
B. Continued
At the second period - from end of First Period and until Netafim
holds 51% of issued and outstanding share capital of OTI.
(1) At the election of Netafim, OTI shall issue shares to Netafim
that following to such issuance, together with the shares
issued in the First Period, Netafim shall hold 51% of the
issued and outstanding share capital of OTI, on a fully
diluted basis, ("Second Period Shares"). Netafim's said right
may be exercised at any time prior to December 31, 2003 at a
price per Second Period Shares equal to OTI Share Price, which
will be subject to anti-dilution adjustment, so that the price
to be paid equivalent to the cost of the services rendered by
Netafim will not exceed OTI Share Price of the most recent
investment in OTI.
(2) The Second Period Shares will be held in escrow to be released
on a monthly pro-rata basis to an aggregate amount of U.S.$
500,000 cost of services, including the cost of the services
to be provided by Netafim during the First Period, through 31
December 2006. 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.
Special provisions
(1) Following the exercise of Netafim's right with respect to the
Second Period Shares, Netafim shall have the right to appoint
a majority of the directors for OTI Board of Directors,
management and its legal counsel.
(2) 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 on a pro-rata
basis of their share holdings, and such contribution shall
constitute a shareholders' loan. A party that fails to provide
its pro-rata additional contribution within 6 months from the
call date shall have its share holding diluted.
(3) 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.
(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.
As of the balance sheet date Netafim has not finance any of OTI
activities.
12
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 4 - Private placement and equity agreements (continued)
C. On July 15, 2003, the Company and Dutchess Capital Management, LLC
("Dutchess") signed on a term sheet for equity line of credit
("Equity Line") which was approve on July 31, 2003 by the Company's
Board of Directors, whereby:
(1) Dutchess shall be commited 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").
(2) The amount that the Company shall be entitled to withdraw from
the Equity Line is equal to 200% of the averaged daily volume
of the Company's share trading ("ADV") multiplied by the
average of the 3 daily closing ("Best Bid") prices immediately
preceding the Put Date. The ADV shall be computed of using the
10 trading days prior to the Put Date.
(3) If the market price with respect to the Put Notice does not
meet 75% of the closing Best Bid price of the Company common
stock for the 10 trading days prior to the Put Date, the
Company shall automatically withdraw the portion the Put
Notice amount.
(4) The Company will issue shares in respect of the exercised
Equity Line base upon 94% of the lowest Company Best Bid price
of the Company's share at the 5 consecutive trading days
immediately after the Put Date.
Management is of the opinion that there is no assurance that the
terms and conditions of the term sheet will not be changed or that
such offering will be completed.
As of the balance sheet date the Company has not yet executed the
Equity Line.
Note 5 - Contingencies and commitments
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 ("OCS"), royalty payments are
computed on the portion of sales from such products at a rate
3% to 5%. The commitment to the OCS is limited to the amount
of the received participation.
The terms of the OCS grants restrict Organitech Ltd's ability
to manufacture products or transfer the technologies developed
using these grants outside of Israel.
As of September 30, 2003, the balance of royalty bearing
grants due by the Company to the OCS is U.S. $ 472,735.
13
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies and commitments (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 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 September 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 a
Singaporean Company -"Agronaut", see Note 5B(2), 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 September 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.
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 are negotiating certain claims of
Net Alim concerning the GrowTECH platforms delivered and the
exclusive marketing rights. 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 - see
also Note 6.
14
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies and commitments (continued)
B. Distribution agreement (continued)
(2) In Asia pacific
(a) On August 27, 2002, the Company and a Singaporean
company ("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 its 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 - see (c) below.
(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 basis during the
first year of the co-operation agreement.
As of the balance sheet date the parties have not yet
signed the security purchase agreement.
On May 14, 2003, the Board of Directors of the Company
authorized the Company to issue 800,000 shares of common
stock to Agronaut out of which 600,000 shares of common
stock were transferred to Agronaut in consideration for
its investment of U.S.$ 600,000 in marketing and
distribution expenses pursuant to the co-operation
agreement.
(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.
15
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies and commitments (continued)
C. In July 2000, the Company signed a memorandum of understanding
("MOU") with 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 - shareholder and CEO 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.
16
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statement
Note 5 - Contingencies and commitments (continued)
F. On July 1, 2003 the Company and Mr. Simon Zenaty ("Simon") signed a
managing agreement, whereby:
(1) Simon will dedicate all the necessary efforts needed and
requested by the Company, up to a limit of an average of 100
hours per month.
(2) the Company will compensate Simon for his efforts, as
described above, by committing to pay Simon the mounts of U.S
$ 4,000 per month, starting form July 2003.
(3) Simon will have the right to ask for its remuneration in the
following conditiions:
(a) A monthly cash payments, only when the Company cash flow
allow it.
(b) Until the Company cash flow will allow the monthly cash
payments, the amounts will be accumulated, and the
Company will pay a quarterly interest amount based on an
annual rate of 5%.
(c) Simon will have the right to request, at any time, the
exchange of the accumulated management fees, including
accumulated interest ("Call Option") for the Company's'
shares of common stock at a price computed as 75% of the
average closing market price of the Company's shares
during the three months prior to the date of the
exchange.
(4) Simon and the Company agree that each of the parties will be
allowed to terminate this agreement with a 60 days written
notice to the other party.
(5) In case of termination of this management agreement the
parties will act as follows:
(a) Simon will be allowed to execute its call option for the
total accumulated amount (including interests) until the
termination date;
(b) or the Company will pay Simon by the termination date
the total accumulated amount (including interests) in
cash.
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 May 31, 2002. On June 1, 2003, Organitech Ltd. Moved
its base of operation and signed a 3 year rental agreement in
Yokneam minimum future payments due during 2003, under this rental
agreement are U.S.$ 4,350.
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 September
2004, with annual cost of premium to the Company of approximately
U.S.$ 31,000.
17
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 5 - Contingencies and commitments (continued)
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. On April 9, 2003 the Company's Board of Directors authorized the
Company to issue in respect of the Company's commitment 57,280
shares of common stock under certain agreements to pay brokerage
fees and commission for services provided to the Company by third
parties and a related party, out of which 9,280 shares to a related
party. Those shares were not issued yet.
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 September 30, 2003, Organitech Ltd. has
invested U.S.$ 7,927 as an equity investment in ATA.
Note 7 - Subsequent events
A. On October 19, 2003, the Company entered into partnership agreement
with third party for the incorporation of Organitech Finland, a
company to be registered under Finland law, to be held at 51% by the
Company.
Organitech Finland will be engaged with the setting of a farm in
Finland, for the growing and marking Hydrophonic fresh vegetable.
The parties committed to invest in Organitech Finland 70,000 EURO,
each, in cash or in cash equivalents, and to appoint one
representative each for the management of Organitech Finland, so all
decisions will be taken by the management of Organitech Finland
unanimously.
18
Organitech USA, Inc.
(A Development Stage Company)
Notes to Condensed Unaudited Consolidated Interim Financial Statements
Note 7 - Subsequent events (continued)
B. On October 13, 2003, subsequent to the balance sheet date the
Company and MC Services AG ("MC") entered into advising and public
relation service agreement which was approved by the Company's Board
of Directors on October 17, 2003, for a period of ten mounts
commencing November 1, 2003 at the cost of U.S.$. 147,500.
The Company may choose to pay in cash or provide full tradable
shares under Form SB-2 - see Note 4C of the Company at price
computed as the 20 days average closing share price of the months
prior to the related service period limited to U.S.$ 0.30 per share.
C. On October 1, 2003, subsequent to the balance sheet date the Company
entered into 24 month consulting agreement with third party (The -
"Consultant"). Pursuant to the consulting agreement the consultant
will provide the Company business consulting services for a
consideration of 550,000 shares of common stock to be issued by the
Company to the consultant at a price of U.S.$ 0.20 per share Under
Form S-8 registration statement.
19
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 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 2 U.S. patents 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 commenced the commercial launch and initial sales of a different 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. 2 GT-2500 machines were already sold and are curretly operating
successfully.
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-3000 and GT-4000, both 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.
On June 1, OrganiTech had moved it's offices and production facilities to
Yoqneam. 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, and therefore the change of location was crucial. 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. A significant part of our attention will be
given to OrganiTech Finland, in order to establish the hydrophonics farm in
Finland. 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 Establish significant commercial relationship in North America and Europe.
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 2000 and GrowTech
2500 and the PhytoChamber;
o Research new potential markets and opportunities.
We plan to complete our project in Singapore, commonly with out Singaporean
partner, Agronaut PTE. Ltd. In order to fund this activity in Singapore,
OrganiTech and a Agronaut have received approval for financing from the
Singapore-Israel Industrial Research and Development Foundation ("SIIRDF").
SIIRDF is funding 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 $10,000.
OrganiTech is also planning to increase its involvement with its business
activities in Europe and North America. OrganiTech is currently negotiating with
third parties to establish beta site farms in Europe and North America.
Recently, The Company signed a founders Agreement with a finish partner, in
order to establish OrganiTECH Finland, a sub-company that will purchase and
operate a GrowTech 2000 Farm in Finkand during the first Half of 2004.
Liquidity and Capital Resources
On June 16, 2002, the Company entered into a private placement agreement with
third party ("investor"), with respect to the issuance of 5,500,000 shares of
common stock, at a price of U.S.$. 0.363 per share, and granting to the investor
option 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. On June 16,
2002, 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 to be transfered
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", whereby:
(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.$. 0.18 per share.
(3) The investor agreed to exercise the option to purchase 188,179 shares of
common stock at an exercise price of U.S.$ 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 option to purchase 46,242 shares of common stock at an exercise price
of U.S.$ 1 per share will remain outstanding.
(5) The investor reserve the right to invest in the Company, based on agreed
upon price per share of common stock as follows:
(a) U.S.$ 0.18 for investments that will be made prior to November 30,
2003.
(b) U.S.$ 0.40 for investments that will be made on December 31, 2003
through September 30, 2004.
(6) The Company shall have the right to terminate the agreement with the
investor for any reason whit prior written notice of 10 days.
(7) The investor will be entitled to management fees equivalent to a cost of
U.S.$. 4,000 per month.
(8) All previous agreements and understanding between the Company and investor
are terminated.
As of September 30, 2003, pursuant to the End of Commitment Agreement, the
Company instructed the escrow agent to transfer a total of 2,750,000 shares of
common stock to the investor.
On October 10, 2003, subsequent to the balance sheet date the investor and the
Company signed an amendment to the End of Commitments Agreement that extended
the dates abovementioned as follows:
The investor reserve the right to purchase additional 2,938,179 shares based on
agreed upon price per share of common stock as follows:
(a) U.S.$. 0.18 per share for purchases made prior to November 30, 2003.
(b) U.S.$. 0.40 per share for purchases that will be made on December 1, 2003
Through September 30, 2004.
On November 4, 2003 subsequent to the balance sheet date pursuant to the amended
End of Commitment Agreement, to the Company instructed the escrow agent to
transfer 1,100,000 shares of common stock to the investor.
Dutchess LLC
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, which has been 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.
Subsequent events
B.L.M N.V. - Release of shares from escrow
For investments made by B.L.M. N.V. after the last issuance of shares, The
Compay had ordered the Escrow agent to release further 1,100,000 shares on
November 4, 2003.
MC-Services
On October 1, 2003, The company signed a PR/IR Agreement with a German Company
MC-Services Ltd. Under the terms set in this Agreement, MC-Services wil provide
the Company and Organitech with PR and IR services over a period of 10 months,
commencing on November 1, 2003. The Company will pay MC-Services the total
amount of 147,500 US$, having the choice to substitute money payments with
shares, valued at the higher between:
o 0.30$ per share; or:
o The average closing price of the last 20 days before any payment.
S-8 filing - Haggai Ravid
On October 1 2003, The Company signed a consulting agreement with Mr. Haggai
Ravid for business consulting, business development, Business strategy and
performance evaluation. The term of the agreement is 24 months from the signing
of the Agreement and in return the Company will issue Mr. Ravid 550,000 shares
of common stock, under the S-8 filing.
The S-8 filing was executed on November 3 2003, and the shares were issued on
November 15th 2003.
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 September 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 September 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
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 third 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: November 18, 2003 /s/ Lior Hessel
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Lior Hessel
President and Chief Executive Officer
Dated: November 18, 2003 /s/ Doron Shachar
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Doron Shachar
Secretary and
Acting Chief Executive Officer